Should MFNT Exclude Dispute Resolution? an Evaluation of the Australian Approach

By Sharmin, Tanjina | Australian International Law Journal, Annual 2017 | Go to article overview

Should MFNT Exclude Dispute Resolution? an Evaluation of the Australian Approach


Sharmin, Tanjina, Australian International Law Journal


I Introduction

Most-Favoured-Nation Treatment (MFNT) is frequently included in Internationa! Investment Agreements (IIAs). (1) In an investment relationship, it is a promise by the granting State to the beneficiary State to accord a treatment which is not less favourable than that granted to any third State. (2) Most treaties within the IIA network are bilateral. Therefore, in this area, the main function of MFNT is to multilateralise the treatment standards agreed within IIAs.

The traditional jurisprudence supported the application of MFNT only to the Substantive Treatment Standards (STS)s. However, the Arbitral Decision in Maffezini v Spain established the principle that the clauses can apply to the Dispute Settlement Provisions (DSPs) as well, unless explicitly excluded in the text of the treaty. (3) The International Law Commission (ILC) also undertook research on this topic and came out with its final report in 2015. The report also confirmed the possibility of the extension of MFNT to DSPs in light of the Post-Maffezini jurisprudence. (4) While the application of MFNT to DSPs may benefit the investors, it may limit the regulatory power of the host State to a significant extent. Such a consequence may arise in various ways. Arbitral Tribunals may extend their jurisdiction by using MFNT to bypass various procedural prerequisites to arbitration. One of the prerequisites which is bypassed by MFNT in many cases is the requirement to litigate in the domestic forum of the host State for a specific length of time before availing arbitration. The use of MFNT to bypass the prerequisite may curtail the power of the domestic courts of host States over foreign investments. Taking the issue into account, some States have recently changed their IIA drafting styles to exclude DSPs from MFNT explicitly in the treaty text. Globally, most IIAs signed during 2014-2016 followed the trend. In the context mentioned above, this Article examines the current approach of Australia on the issue, compares it with the global trends, and evaluates whether the approach is most suitable for the country.

The Article has five sections. Section I introduces the topic. Section II will examine the implications of the use of MFNT to DSPs, and the recent global reactions. Section III will map the MFNT clauses within Australian IIAs to identify the current approach, and will compare it with the global trends. Section IV will identify the factors which have possibly shaped the current approach of Australia. The section will discuss the experience of the country on the issue in the White Industries case. (5) It will further discuss Australian foreign investment policy which supports a case-by-case approach, and the concern of the country of the Investor-State Arbitration (ISA). Finally, section V will conclude the Article by answering, whether the current Australian approach is most suitable for the country or not.

II The Extension of MFNT to DSPS and Global Reaction

A. The traditional and emerging jurisprudence on the application of MFNT

MFNT multilateralises IIAs. (6) The existence of a relationship of at least three States, a granting State, a beneficiary State and a third State is a precondition of the application of MFNT within IIAs. (7) The following illustration may clarify the implication of an MFNT provision in an IIA. (8) If State A has an IIA with State B containing an MFN provision, State B (or investors from State B) may claim all the more favourable treatments (if any) accorded by State A to State C or other States. It does not matter whether State A extended those privileges to State C by a different IIA to which State B is not a party. Nor is it relevant if those privileges are extended to State C by any unique State practice between State A and State C. In both situations, based on the MFN clause in the IIA between State A and State B, the latter State may claim the favourable treatments accorded to State C. …

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