Academic journal article American University Business Law Review

Are Bilateral Investment Treaties and Free Trade Agreements Drafted with Sufficient Clarity to Give Guidance to Tribunals?

Academic journal article American University Business Law Review

Are Bilateral Investment Treaties and Free Trade Agreements Drafted with Sufficient Clarity to Give Guidance to Tribunals?

Article excerpt

Introduction

The issue that I have chosen to address is whether Bilateral Investment Treaties ("BITs") and Free Trade Agreements ("FTAs") are drafted with sufficient clarity to give guidance to arbitral tribunals. I will say at the very outset that, in my view, the answer to this question is a resounding no.

This problem has become more and more apparent with the large increase in the number of disputes submitted to the International Centre for Settlement of Investment Disputes ("ICSID") and the United Nations Commission on International Trade Law ("UNCITRAL") tribunals based on BITs in particular.1 This increase in the number of disputes submitted and the corresponding publication of resulting awards have demonstrated that arbitral panels often interpret BITs inconsistently with the consequence that there is a lack of clarity and transparency as to the nature and extent of the commitments made by the States vis-å-vis foreign investors.

Why is there such inconsistency between arbitral tribunals? The main reason is that many of the BITs, particularly the older ones, are not drafted with sufficient clarity. The provisions are generally vague.2 They are comparable to general clauses in civil codes such as "good faith" or "bonos mores" that allow the decision maker to ascertain the normative content and the precise standards applicable to certain situations. In this respect, Article 31 of the Vienna Convention on the law of treaties provides that "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."3 But what if the actual terms of the treaty are unclear or are ambiguous? In these circumstances, the arbitrator will have difficulty determining the meaning to be given to the terms or to the intent of the negotiators. Furthermore, BITs are written in multiple languages and this tends to accentuate the interpretive problems even further. Specifically, the lack of precise linguistic equivalence and differences in legal systems throughout the globe make it "virtually certain that multiple language versions will include terminological differences that lead to conflicting interpretations of the text."4

Lack of clarity leads to inconsistent decisions and inconsistency creates uncertainty and damages the legitimate expectations of investors and States.5 Investors that have structured their investments in a manner designed to take advantage of the protection afforded by investment treaties suddenly discover that they will not receive those benefits.6 Likewise, States find themselves in an untenable position of having to try to explain to tax payers why they are subject to damages of hundreds of millions of U.S. dollars in one case but not in another.7

There have been numerous examples of inconsistent decisions over what essentially amounted to the same dispute.8 For example, in the Lauder arbitration, a Stockholm tribunal held that the Czech Republic breached a variety of its obligations to the Dutch corporate arm of a U.S. investor under the Netherlands-Czech Republic BIT.9 Only ten days previously, on exactly the same set of facts, a London tribunal held that the Czech Republic only discriminated against a United States investor in violation of the United States-Czech Republic BIT.10 The relevant provisions in the two treaties were identical. This inconsistency has presented challenges. After the Lauder awards, there was speculation that the Czech Republic might consider pulling out of its BITs.11

Another example of inconsistent cases is the SGS cases.12 Both the Switzerland-Pakistan BIT and the Switzerland-Philippines BIT contained an umbrella clause.13 The issue confronting the arbitrators in both cases was whether an umbrella clause in a treaty transforms a breach of contract into a breach of treaty.14 The Pakistan tribunal definitely said no, and the Philippines tribunal said yes. …

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