INTERNATIONALINVESTMENT LAW

F O R T H E 2 1 S T

CENTURYEssays in Honour ofChristoph Schreuer

Edited by

CHRISTINA BINDER

URSULA KRIEBAUM

AUGUST REINISCH

STEPHAN WITTICH

OXFORDUNIVERSITY PRESS

CONTENTS

List of Contributors xxviii

Table of Cases xxxvii

Table of Treaties lvii

PART I I N T R O D U C T I O N

1. Christoph Schreuer: An Appreciation 3

SirElihu Lauterpacht

2. A Tribute to Christoph Schreuer 4

Hanspeter Neuhold

PART II JURISDICTION

3. Most Favoured Nation Clauses and Jurisdictional Clausesin Investment Treaty Arbitration

Guido Santiago Tawil

A. Introduction 9

B. A Brief Reference to the Concept, Origin, and Purpose of MFN Clauses 10

C. Application of MFN Clauses to Dispute Settlement 12

The MFN clause as a way to avoid BITs' procedural requirementsprior to resorting to arbitration: the Maffezini path 13Application of the MFN clause to expand subject-matter jurisdictionor allow the investor to appear before a different forum to thatprovided in the BIT 21Consent to arbitration as one of the key issues at stake 27

4. MFN Clauses and Dispute Resolution in Investment Treaties:Have We Reached the End of the Road?Kaj Hober

A. Introduction 31

B. Background 33General 33The Most Favoured Nation standard 34Interpretation of MFN clauses 35

C. The Award 38The starting point 38The MFN clause 38Exceptions 40Previous awards 41

D. Concluding Remarks 41

Contents

5. Investments 'in the Territory' of the Host State

Christina Knahr

A. Introduction

B. Territoriality Requirement in Investment Protection Treaties 42

C. Bayvietov Mexico 43

D. The Canadian Cattlemen Claim 45

E. Other Cases Addressing the Issue 4oTransfer of funds 4oActivities of the investor 4^

F. Relevance of the Territoriality Requirement in Investment Arbitration 51

6. Consent and Due Process in Multiparty Investor-State ArbitrationsCarolyn B. Lamm, Hansel T. Pham, and Alexandra K. Meise Bay

A. Introduction 54

B. The Need for Party Consent in Multiparty Arbitrations 55Pre-dispute consent 55Post-dispute consent 64De facto consolidation 66

C. Due Process Considerations in Multiparty Arbitration Proceedings 68Efficient administration of justice 68Coordinating related arbitrations to avoid inconsistent or contradictory results 70Arbitrator selection 71Protecting sensitive and confidential business information 72

D. Conclusion 74

7. Jurisdiction, Competence, and Admissibility of Claims inICSID Arbitration ProceedingsGerold Zeiler

A. The Venture 76

B. Jurisdiction and Competence 77The wording of the law 77The ordinary meaning 78The special meaning 79

C. Admissibility 81

D. The Requirement of a Prima Facie Case 85

E. Finally: When is an Objection of Inadmissibility Admissible? 89

8. Bridging the Contract/Treaty DivideAnthony Sinclair

A. Generic Treaty Dispute Settlement Clauses 93

B. Competence to Determine Contractual Claims 94

C. Arbitral Practice Concerning the Generic Treaty Dispute Settlement Clause 95

xn

Contents

Decisions against contractual jurisdiction for treaty-based tribunalsDecisions in favour of contractual jurisdiction for treaty-based tribunals

D. Conclusions

9. Monitoring of Domestic Courts in BIT Arbitrations: A BriefInventory of Some IssuesChristoph Liebscher

A. IntroductionAre courts different?What may courts do wrong?

B. Where to Go?IntroductionFork in the roadImplied waiver

C. When to Go to Arbitration?Exhaustion of local remediesConsiderations

D. What is the Measuring Stick?IntroductionContent

E. When to Object?BITHuman rights

F. Conclusions

PART III PROCEDURE

10. Arbitrator Independence in ICSID Arbitration

Audley Sheppard

A. ICSID Requirement of 'Independent Judgment' Compared withother Arbitral Rules and National LawsThe ICSID requirementsUNCITRAL RulesSCC RulesICC RulesPCA RulesStatute of the ICJIBA GuidelinesNational lawEuropean Convention on Human RightsSummary

B. Relationship between an Arbitrator and a Party

C. Relationship between an Arbitrator and a Counsel

D. Issue and Subject Matter Conflict

E. Conclusion

9597

102

105105106

108108108115

117117120122122125

127127128128

131131133134134135135136136138138138

144

149

155

X l l l

Contents

11. Provisional Measures in Recent ICSID Proceedings: What PartiesRequest and What Tribunals OrderLoretta Malintoppi

A. Introduction 157

B. The Power of an Arbitral Tribunal to Recommend or OrderProvisional Measures under Article 47 of the ICSID Conventionand ICSID Arbitration Rule 39 158

C. The Pre-requisites of Provisional Measures in ICSID Proceedings:Necessity, Urgency, and Irreparable Harm 161

D. The Rights to be Preserved 164Non-aggravation of the dispute 168Non-frustration of the Award 168The procedural integrity of the arbitration process 170

E. The Practice of ICSID Tribunals: Parties' Requests andMeasures Granted 172Obtaining evidence: discovery and production of documents 172Financial guarantees: bonds and pre-judgment securities 174Parallel domestic proceedings: injunctions against actions before localcourts and arbitrations 175

F. Implementation of Provisional Measures and Failure to Comply 179

G. Conclusions 181

12. Inherent Powers of National and International Courts:The Practice of the Iran-US Claims TribunalFriedl Weiss

A. Introduction 185

B. Concept and Doctrinal Views of Inherent Powers 186General considerations 186Common law origin in domestic courts 186Some doctrinal views 187

C. Lessons from the Practice of International Adjudicatory BodiesIdentifying Inherent Powers: Intent of Parties v Necessity 189

I nstances of other practice 192

D. Some Concluding Remarks 198

13. ICSID Annulment Decisions: Three Generations Revisited

Irmgard Marboe

A. Introduction 200

B. The Three Generations 201C. Classification of Annulment Decisions after Vivendi 203

CDC Group v Seychelles 204Mitchell v Congo 205

xiv

Contents

Repsol v Empresa Estatal Petroleos del Ecuador (Petroecuador) 209MTD Equity v Chile 210Soufraki v United Arab Emirates 212Industria Nacional de Alimentos, SA (Lucchetti) et al v Peru 214CMS v Argentina 215

D. Conclusion 218

14. The Scope of ICSID Review: Remarks on Selected ProblematicIssues of ICSID Decisionsleva Kalnina andDomenico Di Pietro

A. Introduction: Four Generations of Annulment Proceedings

B. Review of ICSID Arbitral Awards in a Comparative PerspectiveAnnulment under the ICSID Convention: key conceptsRevision of non-ICSID investment arbitration awards: comparative remarksInvocation of the annulment grounds in practiceThe issue of partial annulment

C. The Use of Precedent in ICSID Arbitration

D. ICSID Control over Quality and Consistency of Arbitral Awards

Annulment and quality of awardsAnnulment and consistency of awards

E. Remedies for Consistency and Legitimacy Lacunae Inherentin Article 52ICSID Appeals BodyPreliminary rulingsScrutiny of draft awards

F. Concluding Remarks

15. On the Denunciation of the ICSID Convention, Consent toICSID Jurisdiction, and the Limits of the Contract AnalogyOscar M. Garibaldi

A. Introduction

B. Consent

C. Denunciation and ConsentDenunciationThe function of Article 72The content of Article 72

D. The Limits of the Contract Analogy

E. Conclusions

16. Denouncing ICSIDKeyvan Rastegar

A. Introduction

221

224224226228233234

237

239242

244245248248249

252

257

259259259260272

276

278

XV

Contents

B. Foundation 278

C. Rules 279Text 279Tension 280Permutations *-°J

D. History 287Foundation 2o /Vienna Convention on the Law of Treaties 288History of the ICSID Convention 291

E. Purposive Theories 291Foundation 291Textual ideals 293Tested ideals 297

F. Projection 300

17. State Immunity and the Enforcement of Investor-StateArbitral AwardsAndrea K. Bjorklund

A. Execution of Awards under the ICSID Convention 305

B. Enforcement of Awards under the New York Convention 307

C. Municipal State Immunity Laws and Recalcitrant Respondents 309

Argentina's response to ICSID claims arising from the financial crisis 310The Sedelmayer saga 314The Foreign Sovereign Immunities Act, the New York Convention,and the US Constitution 316

D. Conclusion 321

18 Enforcement of ICSID Awards: Articles 53 and 54 of theICSID Convention

StanimirA. Alexandrov

A. Introduction 322

B. Text of the Convention 324

C. Negotiating History and Commentary 326

D. Practice 329

E. Consequences of an Alternative Interpretation 335

F. Conclusion 337

PART IV INVESTMENT ARBITRATION AND OTHERFORMS OF INVESTMENT PROTECTION

19. The Diplomatic Protection of Foreign Investors: A Tale of Judicial CautionPeter Muchlinski

xvi

Contents

A. The Need for Diplomatic Protection 342

B. The Exhaustion of Local Remedies 343

C. The Link of Nationality 347The nationality of corporations in international law 348The Barcelona Traction case 352The Diallo case 357

D. Substantive Standards in Customary Law 359

E. Concluding Remarks 362

20. Claims of Shareholders in International Investment LawAbby Cohen Smutny

A. Protections under Customary International Law 364Barcelona Traction 364ILC draft Articles on diplomatic protection 366Diallo 367

B. Protections under Treaties 369ELSIase 369Decisions under other investment treaties 372

C. Conclusion 376

21. Chancellor Wirth and the Mologales Concession 1923-1927:The German-Speaking Origins of the 1965 ICSID ConventionV.V. Veeder

A. Introduction 377

B. The 1918 Brest-Litovsk Treaties 378The Financial Agreement 37 vThe Civil Law Agreement 3/y

C. The 1921 Provisional Treaty 380

D. The 1922 Rapallo Treaties 382

E. The 1922 Genoa Conference 383

F. Early German-Soviet Concessions 384

G. Bersol 385

H. The Junkers Concession 386

I. The Mologales Concession 388

J. 1923 Arbitration Agreement 390

K. 1923-1927 3 9 °

L. 1927 Arbitration Agreement 396

M. Post-Mortem *''

N. Conclusion 3 9 8

Appendix 4 0 0

xvn

Contents

PARTV SUBSTANTIVE INVESTMENT LAW

22. Identify or Define? Reflections on the Evolution of the Conceptof Investment in ICSID PracticeEmmanuel Gaillard

A. The Competing Methodologies for the Assessment of the Existenceof an Investment 407The intuitive method 407The deductive method 410

B. The Factors to be Taken into Account in the Assessment of theExistence of an Investment 412A fourth factor: the concept of contribution to the economicdevelopment of the host State? 413A fifth factor: the concept of positive and significant contributionto the economic development of the host State? 415

23. Local Remedies and the Standards for the Protection of Foreign InvestmentUrsula Kriebaum

A. Introduction 417

B. The Local Remedies Rule: Function, Character, and Waiver 420The functions of the local remedies rule 420Is the local remedies rule a 'substantive' or a 'procedural' requirement? 421Denial of justice and the requirement to exhaust local remedies 424The waiver of the local remedies rule in Article 26 of the ICSID Convention 425

C. Recent Case Law dealing with 'Resort to Local Remedies' in Connectionwith Substantive Standards 427Tribunals mentioning the requirement to resort to local remedies inthe context of jurisdiction 427Tribunals addressing the requirement to resort to local remedies inthe context of the merits 430

D. Evaluation 443Contracts—fair and equitable treatment and resort to local remedies 445Contracts—expropriation and resort to local remedies 448Forks in the road and resort to local remedies 451Resort to local remedies for finalizing an expropriation 453ICSID as an alternative dispute settlement mechanism endangered 457

E. Summary and Conclusions 460

24. Premature Treaty ClaimsOle Spiermann

A. Vivendi v Argentina 466

B. Expropriation 468Lauder v Czech Republic and CME v Czech Republic 468Generation Ukraine v Ukraine 469

xvill

Contents

SGS v Philippines 472Waste Management v Mexico (No. 2) 473En Cana v Ecuador 474Parkerings- Compagniet v Lithuania 476Helnan v Egypt 411Conclusions 479

C. Fair and Equitable Treatment 481SGS v Philippines 481Waste Management v Mexico (No. 2) 481Garni v Mexico 482Salukav Poland 482Parkerings- Companiet v Lithuania 483Conclusions 485

D. Umbrella Clauses 486

25. Do Umbrella Clauses Apply to Unilateral Undertakings?

Maria Cristina Griton Salias

A. Umbrella Clauses 490

B. Unilateral Undertakings 491

C. The Practice of Tribunals 492

D. Conclusion 495

26. BIT by BIT: The Silent Liberalization of the Capital AccountMichael Waibel

A. Introduction 498

B. Exchange Restrictions 500

C. A Short History of Capital Account Convertibility 502

D. Transfer of Funds Provisions in Early Bilateral Treaties 505

E. Balance of Payment Safeguards in Multilateral Treaties 506

F. Transfer of Funds Clauses in BITs 511

G. Conclusion: The Silent Liberalization of the Capital Account 516

27. The United States 2004 Model Bilateral Investment Treaty andDenial of Justice in International Law 519Stephen M. Schwebel

PART VI REGIONAL ASPECTS OFINVESTMENT PROTECTION

28. The Canadian Approach to Investment Protection: How Far We Have Come!

L. Yves Fortier

A. IntroductionCanada's signature of the Convention

xix

Contents

B. An Overview of Canada's Investment Treaty Model 528The early years 5z7Experience under the NAFTA 530Going forward: The 'NAFTA-Plus' Model 531

C. The Sine Qua NonsoiC-anndian Investment Protection 532Transparency and access 534Conditions precedent to dispute settlement: 'gate-keeping' provisions 540

D. Conclusion 543

29. Conflict of Norms Stemming from Intra-EU BITs andEU Legal Obligations: Some Remarks on Possible SolutionsMarek Wierzbowski andAleksander Gubrynowicz

A. Introduction 544

B. Is there any Conflict between EU Law and Intra-EU BITs? 546National treatment clause 546Right of establishment 547Free movement of capital 547Umbrella clause 548Fair and equitable treatment 549Expropriation 550

C. The Conflict of Obligations Stemming from the EU Legal Order andBITs in the Light of the Eastern Sugar BVv Czech Republic Award 552

D. The Solutions 555A European clause? 556A European investment court? 557

E. Conclusions 560

30. Investment Rules in Regional Integration Agreements in Latin America:The Case of the Andean Pact/Andean CommunityWaldemar Hummer

A. Introduction 561

B. Bilateral Investment Treaties (BITs) versus Regional Trade Agreements(RTAs) with Investment Provisions 564

C. From the Andean Pact (1969) to the Andean Community (1997) 566Establishment of the Andean Pact (1969) 566Withdrawal of Chile (1976) 566Further evolution of the Andean Pact 567Establishment of the Andean Community (1997) 568Withdrawal of Venezuela (2006) 569Chile as an associate member (2006) 569Compatibility of the Sub-regional Andean Pact/AndeanCommunity with the Latin American Free Trade Association(LAFTA) and its conformity with GATT 570

xx

Contents

D. Investment Regimes within the Andean Pact (1969)/Andean

Community (1997) 571

The Latin American Free Trade Association (LAFTA) (1960)—a RegionalFramework Agreement for the Sub-regional Andean Pact (1969) 571Strategy change in the Andean Pact with regard to the treatment offoreign investments 572Primary law provisions of the Cartagena Agreement 572Secondary law provisions 573

E. Related Regimes: Dual Taxation and Deregulation of Services 586Dual taxation 586The deregulation of services 586

F. Possible Reforms of the Current Regimes Governing ForeignInvestments in the Andean Community 587

G. Final Considerations 589

PART VII INVESTMENT LAW AND OTHER FIELDS

31. The 'Provisional Application' of the Energy Charter TreatyGerhard Hafner

A. Introduction 593

B. The Meaning of Provisional Application 593C. The Nebulous Use of the Term'Provisional Application' 594

The restricted application of the treaty 595The creation by unilateral acts 596Domestic law and provisional application 597

D. The Reasons for Provisional Application 598

E. The Provisional Application of the Energy Charter Treaty 599

The relation between Articles 45(1) and (2) of The Energy Charter Treaty 600The ipsojure effect of the domestic law exception and the effect of adeclaration made under Article 45(1) ECT 603

F. Conclusion 606

32. Changed Circumstances in Investment Law: Interfaces between theLaw of Treaties and the Law of State Responsibility with a SpecialFocus on the Argentine CrisisChristina Binder

A. Introduction 608

B. Necessity in the Argentine Crisis before Investment Tribunals 610Facts 610Relevant international standards "11The relationship between the treaty-based emergency exception and thenecessity defence under customary international law in thejurisprudence of investment tribunals tu 3

XXI

Contents

C Findings of the Different Tribunals in the Light of GeneralInternational Law "*'Rules of treaty interpretation 617Norm conflict resolution techniques (the lex specialis principle) 620The relationship between the law of treaties and the law of State responsibility 624

D. Conclusion 62)

33. The Economic Emergency Defence in Bilateral Investment Treaties:A Development PerspectiveAsifH. Qureshi

A. Introduction 631

B. The Objective Review of the Economic Emergency SecurityDefence in BITs 631

C. Approaches to Interpreting the Economic EmergencyProvision in BITs 633

D. The Processes Involved in the Interpretation of the EconomicEmergency Security Defence in BITs 635

E. Conclusion 635

34. The European Court of Human Rights and Investment ProtectionChristian Tomuschat

A. Introduction 636

B. Alternative Dispute Settlement Mechanisms 637Bilateral investment treaties (BITs) 637Human rights mechanisms 638

C. The European Convention on Human Rights 640General considerations—The ECHR and ICSID compared 640Protection of property under the ECHR 642Compensation 652Enforcement/execution 655

D. Concluding Observations 655

35. Recent Case Law on the Protection of Property in the EuropeanConvention on Human RightsLuzius Wildhaber and Lsabelle Wildhaber

A. Introduction 657

B. General Aspects of the Notion of Protection of Property 658Interpretation of Article 1 of Protocol No. 1 658Enumeration of possessions which were found to be protected 659

C. Case Law Illustrating Protected Elements of the Right to Property 661Legitimate expectations 661Social security claims 662Other cases 664

xxii

Contents

D. Four Categories of Recent Case Law 666De facto expropriations 666Restitution of property confiscated by communist regimeswithout compensation 668Insufficient or delayed indemnities for expropriations 672Excessively high fines or fees 673

E. On the Way towards a European Supreme Administrative Courtin Charge of Fighting Arbitrariness 674

F. Conclusion 676

36. Harmonizing Investment Protection and InternationalHuman Rights: First Steps towards a MethodologyBruno Simma and Theodore Kill

A. Introduction 678

B. The Practice of the International Court of Justice 682External rules and discrete treaty terms 683Presumption of compliance with international law 686

C. Vienna Convention Article 31(3)(c) 691Interpretation or modification of treaties? 692The elements of Vienna Convention Article 31(3)(c) 695

D. Linking International Human Rights Law and InternationalInvestment Law through External Rules 703

E. Conclusion 706

37. Joint Tortfeasors in Investment Law

Stephan Wittich

A. Investment Law and International Responsibility 708

B. CMEv Czech Republic 709

C. Outline 711

D. Joint and Several Liability and Causation 712

E. Aid or Assistance 714

F. Plurality of Responsible States 716

G. Conclusions: Joint Tortfeasors and Investment Law 721

38. Interpreting Investment Treaties: Experiences and ExamplesThomas W. Wdlde

A. Introduction: Between International Arbitration, Classic InternationalLaw, and under the Increasing Shadow of the Vienna Rules 724

B. Pro-State and Pro-investor Approaches, the Dictionary versusPolicy Approach, and the Fiction of the Competent but MysteriousTreaty Drafter 731

xxni

Contents

C. The Vienna Rules of Treaty Interpretation: A Single Orderbut with Different Styles 745

D. Special Interpretative Challenges Rooted in the Nature ofInvestment Treaties 748

E. Investment Treaty Interpretation under the Vienna Convention 751Article 31 general rule of interpretation 751Article 31(1): 'ordinary meaning' IJ^Article 31(1) and (2): 'context' 754Article 31(1): 'object and purpose' 758Article 31(3)(a) and (b): subsequent interpretative agreements and practice 765Article 31(3)(c): Regressive restraint or progressive evolution throughinternational law?Article 32: supplementary means 777

F. Conclusion 780

39. Commercial Arbitration and Investment Arbitration:Fertile Soil for False Friends?Giuditta Cordero Moss

A. Introduction 782The linguistic dimension: different languages and Esperanto 783The legal dimension: national laws and uniform law 783Investment arbitration and commercial arbitration 783

B. General Principles Expressed in Investment Awards and theirTransplant into Commercial Disputes 784General principles as sources of the lex mercatoria 786Public international law as source of the lex mercatoria? 181Does national law violate public international law? 788False friends 789Towards an acceptance of the supposed interchangeability? 789

C. Arbitration Rules for Commercial Arbitration and theirTransplant into Investment Disputes 791Commercial arbitration 792Investment arbitration 793Use of commercial rules for investment disputes 793

D. Conclusion 796

PART VII I T H E F U T U R E

40. Continuity and Discontinuity in International Dispute Settlement

James Crawford

A. Introduction 801

B. The Acquis of 1899: International Dispute Settlement at the Timeof the Hague Peace Conferences 806

C. Discontinuity in the Institutions of International Dispute Settlement 809

xxiv

Contents

D. Continuity in the Institutions of International Dispute Settlement 811

E. Conclusions 816

41. Contemporary Law of Foreign Investment: Revisiting the Statusof International LawRudolfDoker

A. A Pioneer of International Investment Law 818

B. The Past Decades: Winds of Change in Shifting Directions 819

C. International Law and the Genesis of ICSID: Searching for aGlobal Consensus at a Time of Global Policy Disarray 820

D. International Law Predominant in Negotiations on the ICSIDConvention 821

E. Recent Investment Disputes outside ICSID: From Private

Law to Public Law 822

F. ICSID Jurisprudence: International Law as the Framework 824

G. The Applicability of International Law Independent of ICSID 825

H. Recalling the Foundations: The Protection of a Foreign Investorby International Law 826

I. Contemporary Developments: The New Global Concern forthe Protection of Foreign Investment 827

J. Conclusion 828

42. Precedent in Investment Treaty Arbitration

Andres Rigo Sureda

A. Introduction 830

B. The Weight of Precedents 833

C. Precedent and Values 839

D. Doctrine and Precedent 841

E. Conclusion 842

43. The Saga of CMS: Resjudicata, Precedent, and the Legitimacyof ICSID ArbitrationCharles N. Brower, Michael Ottolenghi, and Peter Prows

A. The Resjudicata of an Arbitral Award: Recognition and Enforcement

of'The Thing Adjudicated' in an Individual Case 846

B. Precedent in the ICSID System 851

C. The CMS CaseBackground: Argentina's economic reforms and 'emergenciesThe CMS Award and progeny: a split in the arbisprudence 857The CMS annulment proceedings and decision °"0

D. Conclusion 8 6 3

Contents

44. Compliance with Investment Treaties: When are States more Likelyto Breach or Comply with Investment Treaties?Moshe Hirsch

A. Introduction

B. Compliance with International Law 866

C. The Realist Approach and Compliance with Investment Treaties 866Repeated (or 'one-shot') games 86Retaliatory measuresInformationDiscount factor ooj

D. The Liberal Approach and Compliance with InvestmentTreaties °70

E. The Constructivist Approach and Compliance withInvestment Treaties 872

F. Conclusions 875

45. Human Rights, Constitutionalism, and 'Public Reason' inInvestor-State ArbitrationErnst- Ulrich Petersmann

A. Human Rights Require Multilevel Constitutional Protectionof International Division of Labour 877

B. Rule of International Law Must be Protected in Conformitywith Multilevel Human Rights 879

C. Multilevel Economic Constitutionalism can ComplementMultilevel Human Rights Law 882

D. Investor-State Arbitration Should Respect National andInternational Human Rights: Justice in Robes? 885

E. Need for a Constitutional Theory of Adjudication inInternational Economic Law 888

F. Constitutional Justice Requires more Inclusive 'Public Reason' 891

46 The Future of Investment ArbitrationAugust Reinisch

A. Introduction 894

B. The Appeal of Investment Arbitration 895The availability of investment arbitration 895The enforceability of investment arbitration awards 897The indirect advantages of investment arbitration for host States 899

C. Problems with Investment Arbitration 903The danger of poorly reasoned awards and decisions 904The danger of inconsistent awards and decisions 905

xxvi

Contents

D. Proposals for Improvement 908Quality assurance 908Options to avoid inconsistencies 909

E. Conclusion 916

Bibliography 917Index 955

XXVll