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Prior Dispute as an Impediment to Jurisdiction in Investment Arbitration by Maja Stanivukovic
Full professor, Novi Sad Faculty of Law, Serbia
Investors investing in a foreign country are often protected by a Bilateral
Investment Treaty (BIT) entered into between their home State and the host
State that allows them to initiate an international arbitration in case they
consider their rights to be impaired by the host State. The number of such
treaties is constantly on the rise and so is the number of arbitral proceedings
initiated by investors against foreign States.
States, that enter into Investment Treaties hoping that they will bring additional
investments are often unpleasantly surprised by such actions and find
themselves in a position of an unwilling defendant. They are usually less
developed States. Arbitration represents a heavy burden on their budgets and
requires from them international litigation skills for which they usually have no
adequate resources.
Their normal reaction is to contest jurisdiction of an arbitral tribunal established
on the basis of the BIT if they can find reasonable grounds for contesting it. There
are indeed a number of such grounds. The State can claim that the investor was
not a national of the other Contracting Party, that there was no investment
under the BIT, or that the investment ceased to exist at the time the arbitration
was initiated (ratione personae argument), that the claimant has made no
prima facie case of breach of the BIT provisions or that the dispute is not an
investment dispute (ratione materie argument), or that the claimant has not
fulfilled some of the conditions for admissibility of the action (such as exhaustion
of local remedies or attempt at amicable settlement of the dispute). Fairly often,
States also claim that the dispute is beyond the ratione temporis jurisdiction of
the Tribunal. This is a preliminary objection to jurisdiction that will be discussed in
more detail in this paper. The special focus will be on those cases when the
temporal jurisdiction of the Tribunal is limited by a clause excluding disputes that
arose prior to entry into force of the BIT (the “disputes clause”).
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Principle of non‐retroactivity of international treaties Bilateral Investment Treaties are international treaties entered into between
sovereign States. Their conclusion, entry into force and interpretation is
governed by the rules of International Law, and in particular by the provisions of
the Vienna Convention on the Law of the Treaties of 23 May 1969. 1 The
Convention provides a general rule on the non-retroactivity of treaties:
Article 28
Non-Retroactivity of Treaties
Unless a different intention appears from the treaty or is otherwise established, its provisions do
not bind a party in relation to any act or fact which took place or any situation which ceased to
exist before the date of the entry into force of the treaty with respect to that party.
This provision means, as far as BITS are concerned, that substantive guarantees
to investors of the other Contracting Party and procedural remedies provided
therein apply only in relation to acts or events of the Host State that occurred
after the BIT’s entry into force and to situations that may be attributed to the
Host State that commenced before but that continued to exist after the BIT’s
entry into force. The acts of the Host State that occurred before the effective
date of a BIT, though they may seem illegal from the perspective of the BIT, are
not to be adjudged on the basis of its provisions, because these provisions were
not in force at the time the acts took place. These acts may be contrary to
customary rules of international law, but the BIT arbitration would not be
competent to hear these claims. The Host State was not internationally bound to
comply with the provisions of the BIT before that BIT entered into force.
Therefore, no liability for any breach of the BIT provisions may arise in the period
in which these provisions were ineffective. This is confirmed by Article 13 of the
ILC’s Articles on State Responsibility 2 :
Article 13
International Obligations in Force for a State
An act of a State does not constitute a breach of an international obligation unless the State is
bound by the obligation in question at the time the act occurs.
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2
1155 UNTS 331, in force since 27 January 1980.
International Law Commission, Draft Articles on State Responsibility, 2001.
3
It is true that a State may agree to compensate for damage caused as a result
of conduct that was not a breach of any international obligation of that State
at the time it was committed. However, as stated in the Commentary to the
cited Article 13 of the ILC’s Articles on State Responsibility, “cases of the
retrospective assumption of responsibility are rare”. 3
In the absence of an agreement of the parties to a BIT to apply its provisions
retroactively, arbitral tribunals will refrain from extending its application to the
period preceding its effective date.
The application of this principle to BIT claims was explored in some detail by a NAFTA
Tribunal, in Mondev International Ltd. v. the United States of America. The
Tribunal deciding upon the preliminary objection ratione temporis, stated:
“68. The basic principle is that a State can only be internationally responsible for breach of a
treaty obligation if the obligation is in force for that State at the time of the alleged breach. The
principle is stated both in the Vienna Convention on the Law of the Treaties and in the ILC’s
Articles on State Responsibility, and has been repeatedly affirmed by international tribunals.
There is nothing in NAFTA to the contrary…..
70….The mere fact that earlier conduct has gone unremedied or unredressed when a treaty
enters into force does not justify a tribunal applying the treaty retrospectively to that conduct.
Any other approach would subvert both the intertemporal principle in the law of treaties and
the basic distinction between breach and reparation which underlies the law of State
responsibility.” 4
ICSID Tribunals deciding on the basis of BITs have also referred to Vienna
Convention Article 28 when deciding on the preliminary objection ratione
temporis. For example in SGS Société Générale de Surveillance S.A. v. Republic of
the Philippines, the Tribunal stated that the provisions of the BIT between
Switzerland and Philippines
“do not bind the Party in relation to any act or facts which took place or any situation which
ceased to exist before the date of entry into force of the Treaty”. 5
3
Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries
2001, Yearbook of the International Law Commission, 2001, vol. II, Part Two, p. 58.
4 Mondev International Ltd. v. the United States of America, ICSID Case No. ARB (AF)/99/2,
Award, October 11, 2002, paras. 68 and 70.
5 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No.
ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction,29 January 2004, para.166
4
This sentence was also repeated in Salini Costruttori S.p.A. and Italstrade S.p.A. v.
The Hashemite Kingdom of Jordan. 6
Similarly, in the case Impregilo S.p.A. v. Islamic Republic of Pakistan, the Tribunal
held:
“It follows that the provisions of the BIT do not bind Pakistan in relation to any act that took
place, or any situation that ceased to exist, before 22 June 2001 and the jurisdiction of the
Tribunal ratione temporis is limited accordingly.” 7
BIT provisions delimiting their temporal scope of application BITs themselves often contain provisions that delimit their scope of application.
Applicability of a BIT may be determined on the basis of various criteria: subjectmatter, personal, and temporal. For example, a BIT entered into between the
Republic of Hungary and the Federal Republic of Yugoslavia 8 provides:
Article 11
Applicability of this Agreement
This Agreement shall apply to investments made in the territory of one of the Contracting Parties
in accordance with its laws by investors of the other Contracting Party prior to as well as after the
entry into force of this Agreement, but shall not apply to any dispute concerning an investment
which arose, or any claim which was settled before its entry into force.
The first part of the clause, although it uses a temporal criterion (“prior to as well
as after the entry into force”), is not primarily concerned with the temporal
scope of application of the BIT. Since it begins with “This Agreement shall apply
to investments” it rather concerns the ratione personae applicability of the BIT.
Applicability ratione personae is determined by definition of an investment and
an investor. For example Article 1 of the same BIT between Hungary and
Yugoslavia defines the terms “investment” and “investor” in Article 1 9 .
ICSID Case No. ARB/02/13, Decision on Jurisdiction, 29 November 2004, paragraph 177.
ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005, para. 314.
8 Agreement between the Government of the Republic of Hungary and the Federal
Government of the Federal Republic of Yugoslavia for the Promotion and Reciprocal Protection
of Investments, signed on 20. June 2001 and entered into force on 30 March 2005.
9 The wording of Article 1 is as follows:
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Article 1
Definitions
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Mentioning of investments made prior to entry into force of the BIT in Article 11
should be understood as an extension of the scope of application of the BIT to
investments as defined in Article 1, made before the BIT came into force.
Without Article 11, there would be doubt whether those investments fall within
the scope of the BIT protection, because they were made earlier, before
obligations under the BIT existed. Article 11 dispels this doubt and confirms that
such pre-BIT investments are also protected.
“But a provision that extends the treaty’s protection to existing investment does not mean that
acts committed before the treaty’s entry into force are covered by it 10 .
Therefore, the investors who made their investments before the BIT are also
protected and may initiate arbitral proceedings under the BIT. However, this
does not mean the retroactive assumption of liability for acts of the host State
preceding the BIT’s effective date. Even for pre-BIT investments, the protection
starts only from the effective date of the BIT.
This interpretation has been confirmed in arbitral practice. In SGS v. Philippines, 11
the Tribunal stated:
For the purposes of this Agreement:
1. The term "investment" shall mean every kind of assets invested in connection with
economic activities by an investor of one Contracting Party in the territory of the other
Contracting Party in accordance with the laws and regulations of the latter and, in
particular, though not exclusively shall include:
/a/ movable and immovable property and any other rights in rem such as mortgages,
liens or pledges and similar rights;
/b/ shares, stocks and other kind of securities of a company and debentures of
companies or any other form of participation in a company;
/c/ claims to money or any other claim under contract having an economic value
associated with an investment;
/d/ intellectual property rights, such as copyrights and other neighbouring rights and
industrial property rights such as patents, licences, industrial designs or models,
trade marks, trade secrets as well as goodwill, technical processes and know-how;
/e/ any right conferred by laws or regulations or under contract and any licenses and
permits pursuant to laws or regulations, including the concessions to search for,
extract, cultivate or exploit natural resources.
Any alteration of the form in which assets are invested shall not affect their
character as investment.
2. The term "investor" shall mean:
(a) a natural person having the nationality and permanent residence in one
Contracting Party in accordance with its laws and making an investment in the
territory of the other Contracting Party;
(b) a legal person or any other entity incorporated, constituted or otherwise duly
organized in accordance with the laws and regulations of one Contracting Party,
having its headquarters in the territory of that Contracting Party and making an
investment in the territory of the other Contracting Party.
10
R. Dolzer, Ch. Schreuer, Principles of International Investment Law, OUP, 2008, p,43.
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“According to Article II of the BIT, it applies to investments ‘made whether prior to or after the
entry into force of the Agreement’. Article II does not, however, give the substantive provisions of
the BIT any retrospective effect. The normal principle stated in Article 28 of the Vienna
Convention on the Law of Treaties applies.”
More complex questions of interpretation may arise with respect to second part
of the clause: “but shall not apply to any dispute concerning an investment
which arose, or any claim which was settled before its entry into force.” Proper
understanding of “the disputes clause” requires determining of its relationship to
the general rule on non-retroactivity, as well as an interpretation of the terms
“dispute concerning an investment” and “arose”.
Relationship of the “disputes clause” to the general rule on non‐
retroactivity It may appear upon a superficial reading that the purpose of the second part of
the clause is to provide for retroactivity. According to that reading, acts of the
Host State that occurred before the BIT would be subject to the Tribunal’s
jurisdiction, provided that a dispute about such acts arose only after the BIT’s
entry into force. If the investor did not raise the dispute with the Host State
before the entry into force, he could do that retroactively. However, such
retroactive interpretation is unpersuasive, because, the derogation from the
non-retroactivity rule must be express. According to the International Court of
Justice:
“an important principle of international law should not be held to have been tacitly dispensed
with by international agreement, in the absence of words making clear an intention to do so.” 12
The “disputes clause” can hardly be considered as such an express derogation.
Such a clause should rather be interpreted as a further limitation ratione
temporis on jurisdiction of arbitral tribunals in addition to the non-retroactivity.
This view has support in the doctrine:
“…, while the principle of non-retroactivity governs the applicability ratione temporis of the
substantive provisions of a treaty, the parties to an investment treaty are free to impose further
limitations on the jurisdiction of an ICSID tribunal ratione temporis…..For example, the parties to a
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No.
ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004, para. 166.
12 ICJ, 20 July 1989, Case concerning Elettronica Sicula S.p.a.(ELSI), (United States of America v.
Italy) para. 50.
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treaty can limit ICSID’s jurisdiction ratione temporis by excluding from their scope of consent to
such jurisdiction disputes that have arisen before the entry into force of the BIT. This is the case of
some BITs that expressly exclude disputes arising before the BIT entered into force, even if the
disputes continue to exist after the BIT‘s effective date and even if they involve conduct, facts or
situations continuing or occurring after that date. Under this type of provision, a tribunal would
not have jurisdiction over disputes that arose before the BIT‘s entry into force even when such
disputes are of a continuing nature. In other words, while the acts, facts and situations have not
ceased to exist and are, therefore, covered by the scope of the BIT‘s substantive provisions, an
ICSID tribunal would have no jurisdiction if the dispute relating to such acts, facts, or situations
arose prior to its entry into force. 13 .” (emphasis added)
A dispute that arose prior to the entry into force of the BIT may concern acts
and events that took place or were completed before the BITs entry into force.
Such a dispute is excluded from the jurisdiction of the Tribunal in any case on the
basis of the general rule on non-retroactivity. There is no need for a disputes
clause to exclude it. It follows that the main purpose of the “disputes clause”
must be to exclude disputes about acts that occurred before the effective date
but continued to exist thereafter and about acts that were initiated before the
effective date but were completed thereafter. These are so-called continuing
and composite acts. 14
Those continuing and composite acts that span the period before and after the
entry into force of the BIT would fall into jurisdiction of the tribunal formed under
S. A. Alexandrov, The ‘Baby Boom‘ of Treaty-based Arbitrations and the Jurisdiction of ICSID
Tribunals: Shareholders as Investors and Jurisdiction Ratione Temporis’, The Law and Practice of
International Courts and Tribunals vol. 4, 2005, pp. 56-57.
14 The ILC Articles on State Responsibility, cited above mention continuing and composite acts in
the context of defining the time of the breach of an international obligation:
Article 14
The breach of an international obligation by an act of a State not having a continuing
character occurs at the moment when the act is performed, even if its effects continue.
The breach of an international obligation by an act of a State having a continuing character
extends over the entire period during which the act continues and remains not in conformity
with the international obligation.
The breach of an international obligation requiring a State to prevent a given event occurs
when the event occurs and extends over the entire period during which the event continues
and remains not in conformity with that obligation.
Article 15
The breach of an international obligation by a State through a series of actions or omissions
defined in aggregate as wrongful occurs when the action or omission occurs which, taken with
the other actions or omissions, is sufficient to constitute the wrongful act.
In such a case, the breach extends over the entire period starting with the first of the actions or
omissions of the series and lasts for as long as these actions or omissions are repeated and
remain not in conformity with the international obligations.
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the BIT were it not for the existence of a “disputes clause”. The “disputes clause”
excludes the jurisdiction of the arbitral tribunal formed under the BIT for
composite and continuing acts that would otherwise fall into its jurisdiction,
provided that such acts were already part of a dispute that arose before the
effective date. The Contracting Parties must have had intention to exclude
disputes about that kind of acts when they included such a clause into their BIT.
Interpretation of the terms “dispute concerning an investment that arose” The notion of “a dispute concerning an investment” and the definition of the
point in time when such a dispute arises are crucial for understanding of the
scope of the ratione temporis limitation on jurisdiction imposed by the
Contracting Parties to a BIT that contains a clause of this kind. The Contracting
Parties never define the notion of a dispute in the BIT. This is a matter to be
assessed on the basis of the facts of a particular case. Various questions may
arise during such assessment.
Arbitral tribunals should be careful not to disregard the clear signs of an
existence of a prior dispute in their natural tendency to retain jurisdiction or to
protect the investor. As recognized in a well-known award, “it is not permissible,
as is too often done regarding BITs, to interpret clauses exclusively in favor of
investors”. 15 The interpretation should be balanced all the more so because the
disputes clause will usually be invoked in cases when the BIT was not in force at
the time when the investor made the investment. Therefore, the investment was
not made in reliance on special guarantees of protection provided by the BIT.
In such cases the investor does not have
“an a priori entitlement to resort to this international forum. It cannot say that it made its
investment in reliance on the BIT… It cannot conceivably contend that it invested in reliance on
the existence of this international remedy.” 16
Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award of 12 October 2005, para.
52. The whole sentence reads: “While it it is not permissible, as is too often done regarding BITs, to
interpret clauses exclusively in favor of investors, here such an interpretation is justified.”
16 Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. Republic of Peru, ICSID Case No. ARB/03/4,
Award of 7 February 2005, paragraph 61.
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The meaning of the term “arose” If there is a “disputes clause” in the BIT the decisive moment for the applicability
of the obligation of the State to arbitrate for jurisdiction of the Arbitral tribunal is
the moment when the dispute arose. „Arise“ is the synonym of begin, start,
originate. Thus, in deciding upon the ratione temporis objection to its jurisdiction
the Tribunal must answer the question when did the dispute begin, i.e. was
starting point of the dispute. Usually, an exact date which the Tribunal will take
as the relevant date on which the dispute “arose” or “crystallized”, “took shape”
will have to be determined. If that date falls prior to the date of entry into force
of the BIT, the objection to jurisdiction will succeed. If it is found that it falls after
the date of entry into force, the objection will fail.
The meaning of the term “dispute” The International Court of Justice gave several definitions of a dispute in its
judgments and opinions. It said that a dispute is a “disagreement on a point of
law or fact, a conflict of legal views or of interests between two persons”, 17 a
“situation in which two sides hold clearly opposite views concerning the question
of the performance or non-performance”, 18 and a situation in which “the claim
of one party is positively opposed by the other”. 19 These definitions differ and
may demand varying degrees of evidence in order to prove the existence of a
dispute. They are not binding upon arbitral tribunals deciding in investment
cases, but may be considered as relevant.
Must there be a formal presentation of a claim?
The first and the simplest question that may arise before the arbitral tribunal
having to decide on the scope of the “disputes clause” is whether it is necessary
for the investor to bring a claim in order to have a dispute with the host State.
The word dispute should be interpreted in accordance with its ordinary
meaning. In the ordinary sense, it is not necessary to “bring a claim” or to “state
a claim” in order to have a dispute. A dispute usually arises some time before
the claim is brough. Furthermore, the resolution of a dispute does not always
Mavromatis Palestine Concessions (Greece v. United Kingdom), Judgment of 30 August 1924,
1924 P.C.I.J. (ser A), No. 2, p. 11.
18 Interpretation of Peace Treaties with Bulgaria, Hungary and Romania, Advisory Opinion of
March 1950, I.C.J. Reports 1950, p. 74.
19 South West Africa, Preliminary Objections, Judgment, I.C.J. Reports 1962, p. 328.
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necessitate bringing of a claim in the legal sense of the word – i.e. starting a
litigation before a competent court or arbitral tribunal. There are also other ways
to resolve an international dispute, besides litigation, such as negotiations,
conciliation and diplomatic protection. Article 11 of the BIT between Hungary
and Yugoslavia, taken as an example of the “disputes clause” does not mention
the bringing of the claim as a relevant factor for the obligation to arbitrate. It
mentions “disputes concerning an investment which arose” and “claim that is
settled” alternatively. If the words “dispute” and “claim” had the equivalent
meaning, Article 11 would not distinguish between them, but would read as
follows: “but shall not apply to any claim which was brought or was settled
before its entry into force.” However, it reads: “but shall not apply to any dispute
concerning an investment which arose, or any claim which was settled.”
Therefore, the notions dispute and claim must be distinguished. This is confirmed
by Arbitral tribunal in the Maffezini Decision on jurisdiction 20 :
“It should also be noted that the Kingdom of Spain has correctly argued that there is a
difference between a dispute and a claim in terms of Article II(2) of the Argentine-Spain BIT.
While a dispute may have emerged, it does not necessarily have to coincide with the
presentation of a formal claim. The critical date will in fact separate, not the dispute from the
claim, but the dispute from prior events that do not entail a conflict of legal views and interests.
It follows that if the dispute arises after the critical date it will qualify for its transformation into a
claim, while if the dispute has arisen before such date it will be excluded by the terms of the BIT.”
Does the relevant dispute have to be a dispute under the BIT?
The extent of subject matter (rationae materiae) jurisdiction of arbitral tribunals is
not uniform under all Bilateral Investment Treaties (BITs). While arbitration clauses
in some BITs restrict their scope solely to “settlement of disputes arising under the
BIT” others extend the jurisdiction to “any dispute relating to investments.” 21 For
example, the arbitration clause in the BIT between Hungary and former
Yugoslavia, contained in Article 8, is a broad provision: „Any dispute which may
arise between an investor....and the other Contracting Party in connection with
an investment .....“. Arbitration clauses in other agreements entered into by
former Yugoslavia are narrower. For example, Article 9 para 1. of the BIT with
Egypt states: „Disputes between an Investor of one Contracting Party and the
other Contracting Party concerning an obligation of the latter under this
Emilio Agustin Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the
Tribunal on Objections to Jurisdiction, 25 January 2000, para 97.
21 OECD Working Papers on International Investment, Number 2006/3., p. 1.
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Agreement in relation to an investment of the former, shall be settled, as far as
possible, through negotiations.“ Similarly, Article 9 of the BIT with Greece
provides: „Disputes between an investor of a contracting Party and the other
contracting Party concerning an obligation of the latter under this Agreement,
in relation to an investment of the former, shall if possible be settled by the
disputing parties in an amicable way.“ Those provisions indicate that when the
Contracting Parties mean „a dispute to be settled under the BIT“ they clearly
spell it out.
When a BIT contains a “disputes clause”, it may be an issue whether the dispute
that arose before the BIT’s entry into force has the requisite quality to lead to the
application of the relevant clause.
The common case in practice will be that a dispute that already emerged
before the entry into force of the BIT is subsequently reformulated by the
claimant as a claim under the BIT. The claimant will assert lack of fair and
equitable treatment or lack of full protection and security or expropriation,
relying on the same acts of the Host State that were previously the subject of the
dispute between him and the Host State and will seek a new remedy under the
BIT. Arbitral tribunal should not be led into believing that this is a new dispute. It
should give decisive value to the facts that are the basis of the dispute and not
to the legal qualification of the claim.
The Lucchetti Tribunal 22 clearly stated this principle:
“The Tribunal considers that, whether the focus is on the ‘real causes’ of the dispute or on its
‘subject matter’, it will in each instance have to determine whether or not the facts or
considerations that gave rise to the earlier dispute continued to be central to the later dispute.”
and
“It is true, of course, that Claimants are entitled to have this Tribunal adjudge rights and
obligations set forth in the BIT. But this is so only if and when the claim seeks the adjudication of a
dispute which, pursuant to Article 2 of the BIT is not a dispute that arose prior to that Treaty’s
entry into force. ...a pre-BIT dispute can relate to the same subject matter as a post-BIT dispute
and, by that very fact, run afoul of Article 2. That, as has been seen above, is the case here.“
Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. Republic of Peru, ICSID Case No. ARB/03/4,
Award of 7 February 2005, paragraphs 50 and 59. The application for the annulment of the
Award was not successful: Industria Nacional de Alimentos Luchetti v. Peru, Decision on
Annulment, 5 September 2007.
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Therefore, the dispute that triggers the application of ”disputes clause” does not
have to be defined in the legal terms of the BIT – for example as lack of fair and
inequitable treatment or as expropriation - nor is any reference to the BIT
required. Otherwise the ratione temporis restriction based on the existence of a
prior dispute would become meaningless, because „a dispute to be settled
under the BIT“ may not arise before the BIT comes into force. Such interpretation
“would deprive this provision of any meaning, a result that would not be compatible with
generally accepted principles of treaty interpretation, particularly those of the Vienna
Convention on the Law of Treaties.” 23
This self-evident proposition is well explained in the submission of the Egyptian
government in the case Jan de Nul N.V. and Dredging International N.V. v. Arab
Republic of Egypt 24 :
“It is obvious that when two States bound by a BIT decide to exclude the application of the BIT
to the disputes that arose prior to its entry into force, they can not, when making such decision,
have in mind disputes based on the said treaty given that, by hypothesis, no previous dispute
that arose before the entry into force of a treaty can be based on a breach of that treaty. They
regard thus necessarily disputes that have another causae petendi than the breach of the
treaty, in particular the alleged violation of their own domestic law.”
Should there be identity of the parties and of the subject-matter?
While identity of the legal basis of the claim or remedies that are sought is not
required, the dispute does have to meet certain criteria in order to trigger the
application of the “disputes clause”. It must be a dispute between an investor of
one Contracting Party and the other Contracting Party in connection with his
investment in the territory of the other Contracting Party. In other words, there
has to be identity of the parties and an identity of the subject matter.
The issue that is often presented in relation to identity of the parties is whether
disputes between the investor and various organs, authorities, agencies or other
bodies of the Host State may be considered as disputes between the investor
and the Host State. The theory of attribution that often works against the
Emilio Agustin Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the
Tribunal on Objections to Jurisdiction, 25 January 2000, para 97, para. 36.
24 Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICISD Case No.
ARB/04/13, Decision on Jurisdiction of 16 June 2006, para. 115.
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respondent governments should be applied also in cases when it goes in their
favor. A dispute between the investor and a State authority should be deemed
to be a dispute between the investor and the Host State. It would be difficult to
reconcile an award on the merits holding a government responsible for
breaches of the BIT on the basis of attribution of the acts committed by its
authorities, with an award on jurisdiction in which a dispute between that same
authority and the investor was held insufficient to trigger the application of the
“disputes clause”, because the parties to the dispute were different. The same is
true in reverse situation, when the original dispute against the Host State was
initiated by the investor’s subsidiary company established in the Host State. If the
tribunal finds that the investor is entitled to claim on behalf of the subsidiary
company for any loss on its investment channeled through this company, then it
would be only fair to treat a dispute between this company and the Host State
as a dispute between the investor and the Host State.
The problem of identity of the subject-matter will often be posed by an evolving
or continuing dispute that starts with one action of the investor (a letter, a legal
proceeding) but is continued with other actions that may also be undertaken as
a reaction to various new acts by the Host State or its authorities. The effective
date of the BIT may fall in between these various actions. The Claimant’s theory
in such cases will usually be that there is a new dispute that arose after the BIT
entered into force. For example, that was the Claimant’s theory in both
Lucchetti and Jan de Nul cases that will be discussed in more detail below.
According to the Arbitral Tribunal in CMS Gas Transmission Co. v. Argentina, 25
the critical element in determining the existence of one or two separate
disputes is whether or not they concern the same subject-matter:
“The argument that the background to the so-called two disputes is different is also not a
deciding factor as to whether there are one or two disputes. What the Tribunal has to look at is
the nature of the dispute or disputes; their background may be different but again, what counts
is whether the rights of the investor have been affected or not and whether the claims arise
directly out of the same subject-matter.”
The subject-matter of the dispute is inextricably connected to facts of the
dispute. In deciding whether a new dispute arose after the BIT entered into
CMS Gas Transmission Co. v. Argentina, Case No. ARB/01/8, Decision of the Tribunal on
Objections to Jurisdiction, 17 July 2003, para 111.
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force, the Tribunal should depart from the facts described as a basis for
investor’s actions that preceded the BIT’s entry into force and compare them
with the facts that are described as a basis for the investor’s claim under the BIT.
If these facts are similar in substance, if the “facts or considerations that gave
rise to the earlier dispute continued to be central in the later dispute”, 26 the
Tribunal should conclude that the dispute before it is the same as the old
dispute, i.e. that the action under the BIT is a continuation of the old dispute.
What should be taken as evidence of the existence of a dispute?
A dispute is certainly a bilateral affair. At least two sides must exist. These two
sides must hold opposing views on a legal matter (point of law or fact which
must be communicated to the other Party. According to Ch. Schreuer:
“The existence of a dispute presupposes a certain degree of communication between the
parties. The matter must have been taken up with the other party, which must have opposed
the claimant’s position if only indirectly. Practice demonstrates that the threshold requirement in
terms of communication between the parties for the existence of a dispute is fairly low. In certain
situations a dispute may exist even in the absence of active opposition by one party to the claim
of the other party.” 27
The easiest cases to determine the existence of a dispute prior to the BIT
effective date will be those when there was previous litigation either before
another arbitral tribunal or in domestic courts of the Host State. For example, in
the Lucchetti case cited above, the investor initiated proceedings before the
domestic courts of Peru against the decrees of the municipal authorities of Lima.
These court proceedings were terminated by judgments rendered in Claimants’
favor in 1998, prior to the BIT. The Claimants’ were granted authorization to
operate the plant and their plant continued in operation for two and a half
years, until that authorization was effectively revoked by new decrees of
municipal authorities of Lima rendered in August 2001. The Arbitral tribunal had
no difficulty to conclude that there was a dispute between the parties before
the BIT effective date and to decline jurisdiction on the basis of a “disputes
clause” contained in Article 2 of the BIT between Chile and Peru. The Claimant’s
argument that there was a new dispute initiated under the BIT was rejected, in
spite of the fact that the new decrees were passed after the BIT entered into
Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. Republic of Peru, ICSID Case No. ARB/03/4,
Award of 7 February 2005, paragraph 50.
27 Ch. Schreuer, What is a Legal Dispute, TDM 4 December 2007,
http://www.univie.ac.at/intlaw/main03.html, p.3.
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force. The Tribunal held that it was an ongoing dispute, i.e. that “the facts before
the Tribunal indicate, …that the original dispute had continued. 28 ” Also, the
lapse of time between the judgments of the municipal court and the new acts
of the Peruvian government was not considered determinative:
“The Tribunal is of the view that the lapse of two and a half years between these judgments and
the adoption of Decrees 258 and 259 does not in and of itself compel the conclusion that the
earlier dispute had come to an end and that a new dispute arose in 2001.”
Although the Tribunal’s holding that a dispute between the parties existed prior
to 3 August 2001 when the BIT entered into force is persuasive, it is less so in the
part where it rejects the Claimants argument that a new dispute arose after the
BIT entered into force. The earlier judgments of the Peruvian courts enabled the
Claimant to operate its factory. It may be said that they ended the dispute in
the Claimant’s favor. In contrast, the Decrees issued in 2001 ordered the
cancellation of the Claimants’ operating license for the production of pasta
and decreed the closing and removal of their factory. They radically changed
the Claimant’s situation that existed prior to 2001 and practically reversed the
holding of the Peruvian courts. Therefore, the facts upon which the Claimant
initiated the BIT dispute (the enactment of the new Decrees) could have been
treated as new facts which gave rise to a new dispute between the same
parties.
Practice shows that even when there is previous litigation, a pro-investor inclined
tribunal can come to a different conclusion concerning the existence of a prior
dispute. The best illustration is the Decision on Jurisdiction in the case Jan de Nul
N.V. and Dredging International N.V. v. Arab Republic of Egypt. 29 In that case
the dispute before the Tribunal arose out of a Contract which the Claimants
entered into with SCA, a public agency of the Arab Republic of Egypt. The
Contract for widening and deepening of certain stretches of the Suez Canal
was entered into in 1992, and the works were completed in 1994. The BIT
between the Belgo-Luxembourg Economic Union and the Arab Republic of
Egypt on which the Claimants’ action was based entered into force on 24 May
2002 and contained a “disputes clause” in Article 12. Pursuant to this clause the
BIT “shall …not be applicable to disputes having arisen prior to its entry into
Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. Republic of Peru, ICSID Case No. ARB/03/4,
Award of 7 February 2005, paragraph 56.
29 Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICISD Case No.
ARB/04/13, Decision on Jurisdiction of 16 June 2006.
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force.” The Claimants have initiated proceedings against SCA before the
Egyptian administrative courts in 1993 pursuant to the dispute resolution clause
contained in the Contract. In 1995 they have filed a second action against the
SCA and both proceedings were joined before the Administrative Court of
Ismaïlia. That court rendered its decision on 22 May 2003. “In substance, the
Court rejected the claims for annulment of the Contract in their entirety (first
action) and awarded approximately one third of the amounts sought for
deductions applied by the SCE (second action).” 30 The Claimants filed an
appeal against this judgment on July 20, 2003, and commenced the ICSID
proceedings under the BIT on 23 December 2003. The Claimants conceded that
the dispute decided by the Court of Ismailia arose before the effective date of
the BIT. However, their case was that the dispute submitted to the ICSID Tribunal
was different from the one submitted to the Administrative Court of Ismaïlia, and
that that new dispute arose after the Judgment of that Court was handed
down. This argument was accepted by the Arbitral tribunal. The Tribunal was
persuaded that legal formulation of the Claimants’ claim as a BIT claim
transformed the earlier dispute into a new dispute:
“117. In the present case, while the dispute which gave rise to the proceedings before the
Egyptian courts and authorities related to questions of contract interpretation and of Egyptian
law, the dispute before this ICSID Tribunal deals with alleged violations of the two BITs, specifically
of the provisions on fair and equitable treatment, on continuous protection and security, and on
the obligation to promote investments.
….
119. Moreover, the claims regarding the judgment and the manner in which the Egyptian courts
dealt with the dispute address the actions of the court system as such, and are thus separate
and distinct from the conduct which formed the subject matter of the domestic proceedings.
Hence, they do not coincide with the conduct examined in the course of the dispute brought
under domestic law. The fact that the most important part of the Claimants’ SoC is devoted to
alleged BIT violations in connection with the very facts that founded the claim before the
Ismaïlia court (and only a minor part to the alleged wrongdoings of the court system) does not
change the situation. In Professor’s Schreuer’s words, the (relevant) fact is that “the domestic
dispute antedated the international dispute and ultimately led towards it”
The Tribunal concluded that the Respondents implied argument that the
Claimants were merely trying to disguise their contract case as a treaty case is
unconvincing. The Tribunal tried to reconcile its decision with the award of the
Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICISD Case No.
ARB/04/13, Decision on Jurisdiction of 16 June 2006. para. 21.
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Lucchetti Tribunal, by testing whether in this case “the facts or considerations
that gave rise to the earlier dispute continued to be central to the later
dispute.” 31 After acknowledging that
“124. In substance, it is the Respondent’s case in this arbitration that the central element of this
dispute remains the alleged misrepresentations made during the pre(contractual) phase (as it
was before the Court of Ismaïlia)….”
the Tribunal nevertheless found that
126. The application to this case of the test adopted in Lucchetti leads to the conclusion that the
present dispute is a new one.…
127. ...Admittedly, the previous dispute is one of the sources of the present dispute, if not the
main one. It is clear, however, that the reasons, which may have motivated the alleged
wrongdoings of the SCA at the time of the conclusion and/or performance of the Contract, do
not coincide with those underlying the acts of the organs of the Egyptian State in the postcontract phase of the dispute. Since the Claimants also base their claim upon the decision of
the Ismaïlia Court, the present dispute must be deemed a new dispute.
128. The intervention of a new actor, the Ismaïlia Court, appears here as a decisive factor to
determine whether the dispute is a new dispute. As the Claimants’ case is directly based on the
alleged wrongdoing of the Ismaïlia Court, the Tribunal considers that the original dispute has
(re)crystallized into a new dispute when the Ismaïlia Court rendered its decision.
Labeling the Ismaïlia Court as a new actor in the dispute is not very convincing
when one knows that the dispute had been before this court since 1995. Also
the reasons that motivated the alleged wrongdoing of the SCA and the reasons
which motivated the alleged wrongdoing of the Ismaïlia Court in the postcontract phase of the dispute do not seem to merit the conclusion that there
were in fact two different disputes. If the Arbitral tribunal was convinced that the
Claimant was opening a new dispute by referring to the wrongdoing of the
Ismaïlia Court it should have retained jurisdiction only for that part of the action,
while declining jurisdiction to decide on those facts (the alleged
misrepresentations by SCA made during the pre(contractual) phase) that have
already been adjudicated as a dispute by that court.
While existence of a previous litigation may seem to be persuasive evidence,
there is other evidence that may also easily prove the existence of a dispute. In
Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. Republic of Peru, ICSID Case No. ARB/03/4,
Award of 7 February 2005, paragraph 50.
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particular, employment of any other recognized method of resolution of
disputes by the investor should per se be treated as evidence of the existence of
a dispute. For example, initiation of negotiations with the Host State or its
authorities and requests for diplomatic protection by the investor’s Home State
may be considered as prima facie evidence of a dispute.
Diplomatic protection is undoubtedly evidence of the existence of an
international dispute between the investor and the host state. A State does not
resort to diplomatic protection unless there is a dispute between its citizen and
another State. The question that may be raised is whether in order to be treated
as evidence of a dispute, diplomatic protection must be effected by initiation of
proceedings by the investor’s Home State against the Host State before a
competent international tribunal or it may be effected by other means.
In Tokios Tokeles case, 32 the Tribunal stated that
“The term “diplomatic protection” includes not only espousing the claim of a national, but also a
variety of other actions / such as formal diplomatic interventions of the type at issue here – that
may be undertaken by a State to protect its national’s interest in respect of a matter in dispute.”
In that case the measure that was qualified as diplomatic protection was the
letter sent by the Lithuanian Embassy in Ukraine to the Ukrainian Ministry of
Foreign Affairs alleging violation of Claimant’s subsidiary rights under Ukrainian
law due to a tax investigation. The Tribunal also found that the Claimant’s letter
to his government was a request for diplomatic protection. The threshold for the
confirming the existence of a dispute should be fairly low – while the diplomatic
intervention of the investor’s Home State of the type described in the Tokios
Tokeles case should be sufficient evidence of the existence of a dispute
between the investor and the Host state, even a request by an investor for
diplomatic protection, without any further steps taken by his government, might
be taken as sufficient evidence.
In Tradex v. Albania 33 the issue was whether the Claimant has shown a good
faith effort for amicable settlement of the dispute. The Tribunal found that it did
on the basis of five letters that claimant sent to the Ministry of Agriculture prior to
initiating the dispute before the ICSID.
Tokios Tokeles, v. Ukraine, Case No, ARB/02/18, Order no. 3, para 21.
Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Decision on Jurisdiction of
24 December 1996, page 184.
32
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19
“The Tribunal notes that all five letters are addressed to the Ministry, that the letters contain
references to the 1992 Investment Law, to non-commercial difficulties and interference from
“outside” the joint venture, to legal obligations, and to the amounts of possible damages, as well
as a suggestion to organize a meeting for finding a solution. The Tribunal further notes that none
of the letters was answered or resulted in any relevant action by Albania. The Tribunal finds these
letters to be a sufficient good faith effort to reach an amicable settlement within the meaning of
Art. 8 of the 1993 Law”.
In cases like that when the Claimant addressed letters to the respondent
Government referring to non-commercial difficulties affecting its investment,
and sought amicable settlement, the letters should also be considered as
evidence of a dispute even if there was no response from the other side. As
stated by a distinguished author
“…a simple failure to respond will not exclude the existence of a dispute. The decisive criterion
for the existence of a dispute is not an explicit denial of the other party’s position but a failure to
accede to its demands.” 34
Conclusion The Contracting Parties to BITs often extend their application to investments that
were made before the BIT. Such an extension is often accompanied by a
“disputes clause” which excludes any disputes that arose between the investor
and the Host State prior to the entry into force of the BIT from jurisdiction of the
arbitral tribunal formed under the BIT. The purpose of such clause is mainly to
exclude jurisdiction of the Tribunal and the liability of the Contracting State
under the BIT for acts that occurred before the effective date but continued to
exist thereafter, provided they have already given rise to a dispute. The same
exclusion also often applies to acts that were initiated before the effective date
but were completed thereafter, if they have already given rise to a dispute in
their initial phase. When entering into a BIT, the Contracting Parties want to foster
and promote investments pro futuro, by guaranteeing that starting from the
effective date of the BIT, investments will be protected no matter when they
were made. They have no intention, however, to provide a new procedural
remedy for those investors with whom they have already had disagreements
prior to the BIT’s entry into force. „Effect utile“ of the BIT is not diminished by
34
Ch. Schreuer, What is a Legal Dispute, p. 7.
20
excluding from its protection pre-BIT investments that have given rise to a
dispute, because all other pre-BIT investments that did not give rise to a dispute
will be protected. The relevant dispute need not result in the formal presentation
of a claim, and it need not be a dispute under the BIT. However, there should be
identity of the parties and of the subject matter of the dispute. Prior litigation
before national courts, requests for diplomatic protection and even
correspondence between the parties may be taken as evidence of the
existence of a dispute prior to the BIT’s effective date.
- Summary The Contracting Parties to Bilateral Investment Treaties often extend their
application to investments that were made before entry into force of the BIT.
Such a an extension is usually accompanied by a “disputes clause” which
excludes any disputes that arose between the investor and the Host State prior
to the entry into force of the BIT from jurisdiction of the arbitral tribunal formed
under the BIT. The Article explores the meaning of this clause, its relationship with
the principle of non-retroactivity of international Treaties, the meaning of the
terms “arose” and “dispute” and other issues relevant to its interpretation. The
author concludes that the purpose of such clause is mainly to exclude
jurisdiction of the Tribunal and liability of the Contracting State under the BIT for
acts that occurred before the effective date but continued to exist thereafter,
and for acts that were initiated before the effective date but were completed
thereafter, provided they have already given rise to a dispute before the BIT.
When entering into a BIT, the Contracting Parties have no intention to provide a
new procedural remedy for those investors with whom they have already had
disagreements. The relevant dispute need not result in the formal presentation of
a claim, and it need not be a dispute under the BIT. However, there should be
identity of the parties and of the subject matter of the dispute. Prior litigation
before national courts, requests for diplomatic protection and even
correspondence between the parties may be taken as evidence of the
existence of a dispute prior to the BIT’s effective date.