Since 1959, the year in which the first Bilateral Investment Treaty (hereinafter BIT) was concluded, the number of BITs has increased to roundly 2500. The rapid growth of that number spells out the outstanding role BITs nowadays play in the global investment protection regime. Typically the host country has not only entered into a BIT with one country but a number of other countries as well. Due to numerous reasons the BITs concluded by the host country often differ in their wording, scope and the guaranteed range of rights. In order to prevent a discrimination and to ensure a balanced competition in the country’s market with equal opportunities for all market players almost all BITs provide for a so-called Most-Favoured-Nation clause (hereinafter MFN clause). Subject to certain limits such a MFN clause, in principle, operates as follows: as soon as the host state accords a more favourable treatment to a third party in another BIT (third party treaty) the party of the basic treaty can rely on the MFN clause to demand the same treatment. Hence, the most favourable treatment agreed upon with one state automatically sets up the standard for the treatment of any other country given that its BIT contains a MFN clause. Although it might be problematic as to what extent a basic treaty can be altered by the operation of MFN clauses, it is commonly accepted that they principally can allow for the incorporation of more favourable substantial rights. However, most BITs do not only address substantial matters but provide for dispute settlement procedures as well. It was the year 2000 when an arbitration tribunal in fact dealt with such a claim for the first time in detail. The pendent dispute gave rise to a question that surprisingly has scraped a shadowy existence before: Are MFN clauses also able to import procedural rights from one BIT to another? Although the competent tribunal in the now-famous Maffezini decision argued in favour of an application with respect to procedural rights the issue today is still alien from being clarified, since other tribunals subsequently have expressly resisted following the Maffezini decision. The divergent decisions caused great legal uncertainty which is not least due to the textual breadth of the MFN clauses the different tribunals had to deal with.
The following essay seeks to “bring light into this legal darkness”.
Table of Contents
I. Introduction
II. The Relevant Case Law
A. Supporting Cases
1. Emilio Augustin Maffezini v Kingdom of Spain – the seminal case
(a) Exhaustion of local remedies condition
(b) Fork in the road clause
(c) Choice of a particular arbitration forum
(d) Precisely stipulated arbitration rules
2. Siemens A.G. v Argentine Republic
3. Gas Natural SDG, S.A. v Argentine Republic
4. Suez, Sociedad General de Aguas de Barcelona S.A. and InterAguas Servicios Integrales del Agua S.A. v Argentine Republic
5. Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A. and AWG Group Ltd. v Argentine Republic
B. Rejecting Cases
1. Tecnicas Medioambientales Tecmed S.A. v United Mexican States
2. Salini Costruttori v Jordan
3. Plama Consortium Ltd. v Republic of Bulgaria
4. Telenor Mobile Communications AS v. Republic of Hungary
III. The general Ability of MFN Clauses to invoke dispute settlement mechanisms
IV. The Scope of a MFN Clause in a Particular Case
A. Is International Arbitration more Favourable than Dispute Settlement before the Domestic Courts of the Host State?
B. The Ejusdem Generis Principle – a First Coarse Filter
C. The Interpretation of a MFN clause
D. Distinction between procedural obstacles and the creation of jurisdiction
V. Conclusion
Objectives and Research Themes
This work examines the extent to which Most-Favoured-Nation (MFN) clauses in Bilateral Investment Treaties (BITs) can be invoked to import procedural rights—specifically dispute settlement mechanisms—from one treaty into another. The research aims to resolve the legal uncertainty created by conflicting arbitral tribunal decisions regarding whether such clauses extend beyond substantive rights to procedural matters, and to propose a systematic framework for future assessments.
- Analysis of supporting vs. rejecting case law regarding the application of MFN clauses to procedural rights.
- Evaluation of the role of the ejusdem generis principle as a filter in treaty interpretation.
- Distinction between procedural obstacles and the fundamental requirement of state consent to arbitration.
- Development of a consistent, systematic approach for tribunals to determine the intended scope of MFN clauses.
Excerpt from the Book
Emilio Augustin Maffezini v Kingdom of Spain – the seminal case
The series of arbitration proceedings dealing with that matter was preluded by the above mentioned and now-famous Maffezini decision. The case involved an investment which the claimant, Mr. Maffezini, an Argentinean citizen, made in the Spanish province of Galicia. The claimant alleged a breach of the Argentina-Spain BIT. Article X of that treaty required prior resort to the host state’s domestic courts for 18 months before submitting the dispute to an arbitral tribunal. However, Article IV (2) of the same BIT also provided for the following MFN clause: In all matters subject to this agreement, this treatment shall not be less favorable than that extended by each Party to the investments made in its territory by investors of a third country. By virtue of that clause the claimant tried to override the 18 months domestic proceedings pre-condition, by referring to Article X of the Chile-Spain BIT which did not contain such a one, but instead allowed for immediate arbitration after a 6 months “cooling-off” period, which had already terminated. Spain, on the other hand, contested the tribunal’s jurisdiction on the grounds of the claimant’s non-compliance with the 18 months period. The word “matters” in the MFN clause, Spain argued, refers only to material aspects of a treatment accorded to another state rather than to procedural questions. Hence, a procedural provision in the basic treaty can never be altered by a MFN clause. Additionally the claimant has by no means evidenced that prior resort to domestic courts disadvantages the investor which is the minimum prerequisite of the applicability of any MFN clause.
The arbitral tribunal eventually declined the respondent’s submissions and upheld its jurisdiction. According to the tribunal’s view it is generally not justifiable to differentiate between procedural and substantial rights. The arbitral court held that “there are good reasons to conclude that today dispute resolution arrangements are inextricably related to the protection of foreign investors” and that they are “essential […] to the protection of the rights envisaged under the pertinent treaties [and] are closely linked to the material aspects of the treatment accorded.”
Summary of Chapters
I. Introduction: This chapter highlights the rising importance of BITs in global investment protection and introduces the core problem: whether MFN clauses can be used to bypass dispute settlement regimes by importing more favorable procedural rights from other treaties.
II. The Relevant Case Law: This section provides a comprehensive review of arbitral decisions, categorizing them into cases that supported the extension of MFN clauses to procedural rights (e.g., Maffezini, Siemens) and those that rejected it (e.g., Tecmed, Salini, Plama, Telenor).
III. The general Ability of MFN Clauses to invoke dispute settlement mechanisms: This chapter argues that the distinction between substantive and procedural rights is not warranted in the context of MFN clauses, as both are essential to protect investors against discriminatory and ineffective judicial systems.
IV. The Scope of a MFN Clause in a Particular Case: This section develops a framework for interpretation, emphasizing the importance of treaty wording, the ejusdem generis principle as a filter, and the critical distinction between removing procedural obstacles versus the creation of jurisdiction through state consent.
V. Conclusion: The concluding chapter summarizes the proposed systematic approach, suggesting that while broad MFN clauses should generally be assumed to cover procedural rights, they cannot be used to override the fundamental requirement of state consent to arbitration.
Keywords
Most-Favoured-Nation Clause, MFN, Bilateral Investment Treaty, BIT, Investment Arbitration, ICSID, Dispute Settlement, Procedural Rights, Substantive Rights, Treaty Interpretation, State Consent, Ejusdem Generis, Investment Protection, Maffezini Decision, Treaty Shopping
Frequently Asked Questions
What is the core issue discussed in this book?
The book investigates whether Most-Favoured-Nation (MFN) clauses in Bilateral Investment Treaties allow investors to bypass the specific dispute settlement procedures defined in their basic treaty in order to adopt more favorable procedural rules found in other treaties.
What are the central themes of the work?
Central themes include the scope of MFN clauses, the tension between substantive and procedural treaty rights, the principles of treaty interpretation under the Vienna Convention, and the necessity of state consent for international arbitration.
What is the primary objective of the research?
The goal is to move beyond the current confusion caused by inconsistent arbitral rulings and to develop a consistent, systematic framework for future tribunals to evaluate whether an MFN clause can legitimately import procedural rights.
Which scientific method is employed?
The author employs a comparative legal analysis, contrasting the arguments and reasonings of various ICSID tribunal decisions to identify patterns, logical inconsistencies, and the evolution of legal thought on the application of MFN clauses.
What does the main body of the work cover?
It covers a detailed analysis of landmark cases such as Maffezini, Siemens, and Plama, evaluates the utility of the ejusdem generis principle, and establishes the limits of MFN clauses, particularly regarding the requirement for explicit state consent to arbitration.
Which keywords characterize this work?
Key terms include MFN clause, investment arbitration, treaty interpretation, dispute settlement, procedural rights, and state consent.
How does the author distinguish between "procedural obstacles" and "creation of jurisdiction"?
The author argues that while an MFN clause can remove "procedural obstacles" (like waiting periods) in a treaty where consent to arbitration already exists, it cannot be used to "create jurisdiction" (importing consent) where the host state has never explicitly agreed to arbitrate a specific type of dispute or forum.
Why does the author argue that the distinction between substantive and procedural rights is flawed?
The author contends that both substantive and procedural rights complement each other; a high level of substantive protection is effectively worthless if the investor is forced to pursue claims in a biased or ineffective domestic judicial system of the host state.
- Arbeit zitieren
- LL.M. Sebastian Röder (Autor:in), 2009, To what extent, if any, are most favoured nation clauses able to be invoked by investment treaty claimants suing under one bilateral investment treaty in relation to procedural rights granted by another bilateral investment treaty?, München, GRIN Verlag, https://www.grin.com/document/282056
