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State-to-State Dispute Settlement Pursuant to Bilateral Investment Treaties: Is There Potential?

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International Courts and the Development of International Law

Abstract

This article discusses recent developments in EU and domestic courts, which shed light on the mechanism of the application of internationally mandatory rules. Following early insight by Professor Treves, such Court precedents show that internationally mandatory rules do not operate, as is traditionally advocated, before the choice-of-law rules by imposing their application. On the contrary, such rules are given effect after the assessment of the applicable law and of its contents, and on the basis of a fungibility or proportionality test, i.e., when the results they aim to obtain are not provided by the foreign applicable law.

The text of this chapter has been updated as of 15 October 2011.

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Notes

  1. 1.

    The first BIT to provide for the contracting States’ unconditional offer to resolve disputes with the foreign investor through investor-State arbitration appears to be the Italy-Chad BIT of 1969, http://itra.esteri.it, accessed 15 October 2011. See Newcombe and Paradell 2009, p. 45. Interestingly, the Italy-Chad BIT eliminated the State-to-State adjudication provision and simply provided that disputes between the two State Parties were to be resolved diplomatically (Article 7, final sentence).

  2. 2.

    The majority of investor-State cases are conducted pursuant to the Rules of the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL), with other venues (such as the Stockholm Chamber of Commerce or the International Chamber of Commerce) being used only marginally. See Latest Developments in Investor-State Dispute Settlement, IIA Monitor No. 1, UNCTAD doc. UNCTAD/WEB/DIAE/PCB/2011/3 (30 June 2011), p. 2 available at www.unctad.org, accessed 15 May 2012.

  3. 3.

    See, e.g., Article 11 of the Germany-Pakistan BIT of 1959, www.investmentclaims.com, accessed 15 October 2011.

  4. 4.

    In 2003, Peru initiated State-to-State arbitration against Chile pursuant to the Chile-Peru BIT in response to the investment claim brought against it by the Chilean investor Lucchetti. Peru requested the suspension of the investor-State proceedings as a consequence of the inter-State arbitration. The request was denied by the investor-State Arbitral Tribunal. See ICSID: Empresas Lucchetti SA and Lucchetti Peru SA v. Peru, ARB/03/4, Award on Jurisdiction (7 February 2005), paras 7, 9.

  5. 5.

    Schreuer 2007, pp. 350–351.

  6. 6.

    See Arbitral Tribunal: Italy v. Cuba, Interim Award (“Sentence Preliminaire”) (15 March 2005), and Final Award (“Sentence Finale”) (15 January 2008), with Dissenting Opinion, http://italaw.com, accessed 15 October 2011. The Arbitral Tribunal was composed of Yves Derains (President), Attila Tanzi and Olga Miranda Bravo (later replaced by Narciso A. Cobo Roura). For a comment on the case, see Tonini 2008.

  7. 7.

    See Article 9 of the Italy-Cuba BIT, providing for investor-State arbitration.

  8. 8.

    Beyond the issues which are discussed in the present paper, the Arbitral Tribunal’s Interim Award and Final Award in the Italy-Cuba dispute raise several further issues which would warrant separate examination, such as the definition of “investment” pursuant to the BIT, questions of corporate nationality for the purpose of diplomatic protection in relation to the BIT’s definition of “investor”, and issues of attribution of State responsibility. On the latter two issues see in particular the Dissenting Opinion of Arbitrator Tanzi, appended to the Final Award.

  9. 9.

    Article 37.1 of the 2004 U.S. Model BIT, www.ustr.gov/assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf, accessed 15 October 2011.

  10. 10.

    For an analysis of State-to-State dispute settlement clauses contained in BITs, see Sacerdoti 1997, pp. 428–436; Peters 1991, pp. 102–117.

  11. 11.

    Paparinskis 2008, pp. 314–315.

  12. 12.

    See Schreuer 2008, pp. 970–972.

  13. 13.

    One could also think of a third situation: a State may bring State-to-State proceedings if the host State which has been a respondent in a previous investor-State claim fails to abide by or to comply with the arbitral award (a scenario which is expressly addressed by Article 27 of the ICSID Convention and by many BITs, on which see infra). While a dispute of this kind would involve the interpretation of the obligation to comply with the award arising out of the BIT, it may not be entirely assimilated to a question of “abstract interpretation” in the first sense seen above, because it would involve and presuppose an injury (already ascertained by an investor-State arbitral tribunal) to the home State’s national, on whose behalf the home State is acting. At the same time, it is different from the “classic” diplomatic protection scenario described above, because it would not involve a full litigation on the facts and substantive breaches of the BIT (on which a different tribunal has already ruled), but would merely aim at obliging the host State to comply with the arbitral award.

  14. 14.

    Rubins and Kinsella 2005, p. 420. One such example is the ELSI case, where there was no doubt that the claim brought by the US on behalf of two American companies was subject to the State-to-State dispute settlement clause contained in the FCN Treaty between Italy and the US, which provided that “any dispute (…) as to the interpretation and the application of this Treaty” be submitted to the ICJ. See ICJ: Elettronica Sicula S.p.A. (ELSI) (United States v. Italy), Judgment (20 July 1989), paras 48–49.

  15. 15.

    ICJ: Interhandel (Switzerland v. United States), Judgment (21 March 1959), p. 25.

  16. 16.

    Ibidem. See also ELSI, supra n. 14, para 50, where the rule is referred to as “an important principle of customary international law”.

  17. 17.

    The question also arose in the negotiation of the so-called Multilateral Agreement on Investment (MAI) within the OECD framework. See The Multilateral Agreement on Investment. Commentary to the Consolidated Text, OECD Doc. DAFFE/MAI(98)8/REV1 (22 April 1998), hereinafter MAI Commentary, p. 36 for a commentary on Article C.1.a (dealing with State-to-State proceedings). Documents related to the MAI are available at www1.oecd.org/daf/mai/index.htm, accessed 15 October 2011.

  18. 18.

    It may occur—although this is rather infrequent—that BITs expressly address the applicability or inapplicability of the exhaustion of local remedies rule within the framework of clauses on investor-State arbitration. In this regard, see also Article 26 of the ICSID Convention, providing for a waiver of the exhaustion rule with regard to investor-State arbitration. See also Schreuer et al. 2009, pp. 402–413, esp. 405–407.

  19. 19.

    See Amerasinghe 2004, pp. 146–168; International Law Commission, Draft Articles on Diplomatic Protection with Commentaries, UN Doc. A/61/10 (2006), hereinafter Draft Articles on Diplomatic Protection, pp. 70–76. For a case applying this distinction, see Arbitral Tribunal: Air Service Agreement of 27 March 1946 between the United States of America and France (United States/France), Decision (9 December 1978), paras 19–32.

  20. 20.

    ILC, Second Report on Diplomatic Protection by Mr. John Dugard, Special Rapporteur, UN Doc. A/CN.4/514 (28 February 2001), hereinafter Dugard Second Report 2001, para 18 (footnotes omitted).

  21. 21.

    See ibidem, paras 18–31; Draft Articles on Diplomatic Protection, supra n. 19, pp. 74–76. See also Amerasinghe 2004, pp. 146–168; Meron 1959, pp. 84–86.

  22. 22.

    Article 14(3) of the ILC Draft Articles provides: “Local remedies shall be exhausted where an international claim, or request for a declaratory judgment related to the claim, is brought preponderantly on the basis of an injury to a national or other person referred to in draft article 8”.

  23. 23.

    See in particular the discussion in Dugard Second Report 2001, supra n. 20, paras 18–31.

  24. 24.

    Italy v. Cuba Interim Award, supra n. 6, paras 24–25.

  25. 25.

    Ibidem, para 25. It could be said that Italy’s position was coherent with the more traditional (but highly debated) view on the legal nature of diplomatic protection as reflected in the “Mavrommatis paradigm” (whereby “[b]y taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights”). The discussion of this topic (on which see ILC, Preliminary Report on Diplomatic Protection by Mr. Mohamed Bennouna, Special Rapporteur, UN Doc. A/CN.4/484 (4 February 1998); ILC, First Report on Diplomatic Protection by Mr. John Dugard, Special Rapporteur, UN Doc. A/CN.4/506 (7 March 2000), paras 10–40; Pellet 2008) is beyond the scope of this paper.

  26. 26.

    Italy v. Cuba Final Award, supra n. 6, para 96.

  27. 27.

    Italy v. Cuba Interim Award, supra n. 6, para 57.

  28. 28.

    ELSI, supra n. 14, paras 50–52.

  29. 29.

    Ibidem, para 51.

  30. 30.

    Ibidem, para 52. But see ICJ: Avena and Other Mexican Nationals (Mexico v. United States), Judgment (31 March 2004), para 40.

  31. 31.

    Italy v. Cuba Interim Award, supra n. 6, paras 86–91.

  32. 32.

    Dugard Second Report 2001, supra n. 20, para 30 (emphasis in the original); Draft Articles on Diplomatic Protection, supra n. 19, p. 76.

  33. 33.

    See ILC, Third Report on Diplomatic Protection by Mr. John Dugard, Special Rapporteur, UN Doc. A/CN.4/523 (7 March 2002), paras 46–64; Draft Articles on Diplomatic Protection, supra n. 19, Article 15.e and relating commentary (pp. 83–86); Amerasinghe 2004, pp. 247–279, with further references.

  34. 34.

    See Draft Articles on Diplomatic Protection, supra n. 19, Article 15.e and relating commentary (pp. 83–86).

  35. 35.

    Amerasinghe 2004, p. 276 (noting that “[t]he reference to negotiation as a pre-condition for arbitration is a reference to what is required of the parties to the BIT. It does not affect what is required of the investor, if a party to the treaty wishes directly to exercise diplomatic protection”).

  36. 36.

    Italy v. Cuba Interim Award, supra n. 6, para 41.

  37. 37.

    Ibidem, para 90.

  38. 38.

    Draft Articles on Diplomatic Protection, supra n. 19, p. 85; ELSI, supra n. 14, para 50.

  39. 39.

    See extensively Amerasinghe 2004, pp. 56–64.

  40. 40.

    Ibidem, p. 57.

  41. 41.

    Schreuer 2007, p. 349.

  42. 42.

    Only certain Chinese BITs contain a clause addressing the general relationship between the two dispute settlement mechanisms. See Article 13.12 of the China-New Zealand BIT (1988) and of the China-Singapore BIT (1985), and Article 13.11 of the China-Sri Lanka BIT (1986).

  43. 43.

    The wording of Article 27 (quoted infra n. 49) is clear on the point at issue. This is also indirectly confirmed by the MAI Commentary, supra n. 17, p. 36, sub. Article C 1.b of the draft MAI (quoting the view expressed on Article 27 by the ICSID observer).

  44. 44.

    But see contra Broches 1972, p. 377.

  45. 45.

    See Kaufmann-Kohler 2011.

  46. 46.

    Netherlands–Czech Republic BIT (1991), Article 9.

  47. 47.

    UNCITRAL: CME Czech Republic B.V. (The Netherlands) v. Czech Republic, Final Award (14 March 2003), paras 87–93, 216–226.

  48. 48.

    Ibidem, paras 437, 504.

  49. 49.

    Article 27.1 ICSID Convention reads: “No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute”. During the ICSID Convention’s drafting, the question of competing remedies in investor-State and State-to-State proceedings was discussed at some length. Schreuer notes, with reference to the travaux of the Convention, that “[t]he issue remained unregulated but there seemed to be consensus that inter-State arbitration should neither interfere in investor-State cases nor affect the finality of ICSID awards”. See Schreuer 2007, p. 349.

  50. 50.

    See Juratowitch 2008, pp. 16–22; Schreuer et al. 2009, p. 426.

  51. 51.

    Schreuer 2007, p. 350.

  52. 52.

    Certain BITs elucidate that the parties are barred from resorting to State-to-State arbitration “in consideration of Article 27”, thus clearly instituting a link between this latter provision and the need to avoid concurrent State-to-State proceedings. See Article 10.6 of the Germany-Barbados BIT (1994), of the Germany-Bolivia BIT (1987), of the Germany-Estonia BIT (1992), and of the Germany-Poland BIT (1989).

  53. 53.

    Schreuer 2007, p. 350.

  54. 54.

    ICSID: Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, ARB/98/7, Award (1 September 2000), para 18.

  55. 55.

    ICSID: Autopista Concesionada de Venezuela, C.A. v. Venezuela, ARB/00/5, Decision on Jurisdiction (27 September 2001), para 140.

  56. 56.

    The compromissory clause in Article 64 has so far never been resorted to.

  57. 57.

    See Article 10.5 of the Model Agreement involving the Government of the Italian Republic on the Promotion and Protection of Investments. In: UNCTAD (2003) International Investment Instruments: A Compendium 12: 295–303, www.unctad.org/en/docs/dite4volxii_en.pdf, accessed 15 October 2011. A similar provision had been incorporated in the draft MAI. See Article C.1.b of the MAI Draft Consolidated Text, OECD Doc. DAFFE/MAI(98)7/REV1 (22 April 1998).

  58. 58.

    Paparinskis 2008, p. 285.

  59. 59.

    Italy v. Cuba Interim Award, supra n. 6, para 65.

  60. 60.

    Ibidem.

  61. 61.

    Paulsson 1995, p. 256.

  62. 62.

    Sacerdoti 1997, p. 436.

  63. 63.

    See Kokott 2002, pp. 24–25; Juratowitch 2008, p. 33.

  64. 64.

    Article 27 ICSID Convention envisages precisely this possibility. See supra n. 49.

  65. 65.

    Productivity Commission 2010, Bilateral and Regional Trade Agreements, Research Report, Canberra, pp. 276–277. www.pc.gov.au/projects/study/trade-agreements/report. Accessed 15 October 2011. Already the 2004 Australia-United States Free Trade Agreement does not contain provisions allowing for investor-State dispute settlement (but provides merely for State-to-State dispute settlement). See Dodge 2006.

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  1. Lecturer, Master in International Dispute Settlement (MIDS), Graduate Institute of International and Development Studies, University of Geneva, Geneva, Switzerland

    Michele Potestà

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  1. , Dipartimento di diritto pubblico, University of Milan - Statale University, Via Festa del Perdono 7, Milan, 20122, Italy

    Nerina Boschiero

  2. Bicocca University, Dipartimento giuridico, University of Milan, Piazza dell’Ateneo Nuovo 1, Milan, 20126, Italy

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  3. , Dipartimento di Diritto,, University of Parma, Via Università 12, Parma, 43121, Italy

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  4. , Dipartimento di diritto pubblico, University of Milan - Statale University, Via Festa del Perdono 7, Milan, 20122, Italy

    Chiara Ragni

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Potestà, M. (2013). State-to-State Dispute Settlement Pursuant to Bilateral Investment Treaties: Is There Potential?. In: Boschiero, N., Scovazzi, T., Pitea, C., Ragni, C. (eds) International Courts and the Development of International Law. T.M.C. Asser Press, The Hague, The Netherlands. https://doi.org/10.1007/978-90-6704-894-1_55

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