MEALEY’S™

International
Arbitration Report
The Treatment Of Contract-Related Claims
In Treaty-Based Arbitration

by
Michael D. Nolan
and
Edward G. Baldwin

Milbank, Tweed, Hadley & McCloy LLP

Washington, DC and New York

A commentary article
reprinted from the
June 2006 issue of
Mealey’s International
Arbitration Report
MEALEY’S International Arbitration Report Vol. 21, #6 June 2006

Commentary

The Treatment Of Contract-Related Claims

In Treaty-Based Arbitration
By
Michael D. Nolan
and
Edward G. Baldwin

[Editor’s Note: Michael D. Nolan is a partner and The Development Of Treaty Arbitration
Edward G. Baldwin is an associate at the law firm The development of bilateral investment treaty-based
of Milbank, Tweed, Hadley & McCloy LLP, spe- arbitration is a new phenomenon. The authors know
cializing in international arbitration. Copyright of no case prior to 1987 that had been brought before
2006 by the authors. Replies to this commentary the World Bank’s International Centre for Settlement
are welcome.] of Investment Disputes claiming a violation of a BIT.1
The traditional legal remedies for an investor whose
Introduction investment was expropriated or otherwise injured by
Contracts between private parties and States and actions of the host State depended in large part on
their instrumentalities — for the granting of conces- the involvement of the investor’s home government.2
sions, privatizations, the engineering, procurement The involvement of the investor’s home govern-
and construction of infrastructure, and the opera- ment would sometimes be pursuant to a Friendship,
tion of public services, among many others purposes Commerce and Navigation treaty, or at other times
— typically contain dispute resolution clauses of through various forms of “gunboat diplomacy.” 3
some sort. Despite the presence of these clauses, re- Bilateral investment treaties were created, in part, to
cent years have seen an increase in claims relating to depoliticize investment disputes and to create a stable
investor-state contracts in international arbitrations investment environment.4
pursuant to bilateral investment treaties, or “BITs.”
These claims were initially alleged as breaches of tra- For more than a decade after the first claim brought
ditional treaty-based protections — e.g., the obliga- in the ICSID pursuant to a BIT, the fact patterns
tions not to expropriate without compensation and representing what many would consider “typical”
to provide fair and equitable treatment. Investors investor claims. Claims were brought, for example,
have more recently asserted, successfully, that some for physical expropriation of farmland by the govern-
BITs were expansive enough to provide investor ment without prompt, adequate and effective com-
protection against breach of contract as such. This pensation;5 violation of fair and equitable treatment
development has led to the internationalization of for a lack of transparency in regulations governing
contract claims and the blurring of what might previ- an investor’s loan;6 and “discriminatory treatment”
ously have been thought to be a line between the two based on the government’s failure to stop looting of
principal sources of legal protection for foreign in- the claimant’s property by the military.7
vestors, namely public law (treaties) and private law
(contracts). Many questions remain to be answered It was not until 1998 that the ICSID published an
as to how tribunals in treaty-based arbitrations will award examining whether contract-related claims
handle contract-related claims. could be brought pursuant to a BIT.8 Since that time,

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Vol. 21, #6 June 2006 MEALEY’S International Arbitration Report

over a dozen ICSID tribunals have grappled with the again that the forum selection clause prevented the
question of whether investors’ claims relating to a claimant from bringing a contract-related action.
contract could be brought pursuant to a BIT. Given Argentina also argued, however, that Vivendi’s claims
the increase in treaty-based arbitration generally,9 and were essentially breach of contract claims and not
the many forms of contracts between investors and BIT claims. The Vivendi tribunal accepted this argu-
states, the number of contract-related claims brought ment and declined to rule on the merits, concluding
pursuant to BITs is likely to keep increasing. that it could not separate out the “contract claims”
from the BIT claims and the contract claims had to
Claims Alleging Violation be decided by the local courts applying municipal
Of Traditional BIT Protections law.12 The tribunal made this ruling despite the fact
Investors have used several arguments to advance that the claimant alleged violations of the BIT based
contract-related claims in treaty-based arbitration. on actions of government officials independent of the
The early cases involving contract-related claims were contract. Vivendi challenged this ruling in an annul-
brought as violations of traditional public interna- ment proceeding.
tional law bases of claim — e.g., for breach of the
obligation to provide fair and equitable treatment. In the annulment proceeding it commenced,13 Vi-
Claimants have subsequently argued that the inclu- vendi again argued that actions taken by Argentina,
sion in some treaties of a clause obligating States to although related to its contractual duties, violated
“observe obligations” entered into with investors substantive provisions of the BIT — i.e., fair and
— so-called “umbrella clauses” — provide a basis for equitable treatment and expropriation — and that
jurisdiction over claims for breach of contract as such. these claims were distinct from the contract claims.14
Some enterprising claimants have even contended The Vivendi Annulment Committee agreed with the
that the jurisdictional grant to treaty-based arbitral claimant “that the fact that the investment concerns
tribunals over “any disputes” should be read broadly a Concession Contract made with Tucuman . . . does
enough to encompass treaty arbitrations as a forum not mean that the dispute falls outside the scope of
for the determination of municipal law claims includ- the BIT.”15 The Committee reasoned that a “state
ing, but in the arguments of some commentators not may breach a treaty without breaching a contract and
limited to, claims for breach of contract.10 vice versa.”16 The Committee stated that:

Investors have successfully argued that actions taken “where ‘the fundamental basis of the
by a State impairing contracts may violate the provi- claim’ is a treaty laying down an inde-
sions of the BIT embodying traditional international pendent standard by which the conduct
law protections whether or not the state has also of the parties is to be judged, the exis-
committed breach of contract. The first such case tence of an exclusive jurisdiction clause
was Lanco International v. the Argentine Republic. In in a contract between a claimant and the
Lanco, Argentina argued that the tribunal did not respondent state or one of its subdivi-
have jurisdiction to hear Lanco’s claims because the sions cannot operate as a bar to the ap-
contract in question required that disputes be submit- plication of the treaty standard.”17
ted to local courts. The Lanco tribunal rejected that
argument and held that the plain language of the BIT Tribunals have generally accepted the Vivendi Com-
allowed the investor the option to submit an invest- mittee’s reasoning that actions relating to a contract do
ment dispute to international arbitration.11 Argentina not fall outside the protection of the BIT just because
did not raise, and the Lanco tribunal did not consider, of the action’s relation to the contract. For example,
whether contract-related claims could also be viola- in Eureko v. Poland, an ad hoc tribunal determined
tions of Argentina’s obligations under the BIT. that it had jurisdiction to consider whether actions
taken by the government related to a contract can
It was not long before a State challenged the juris- amount to violations of treaty provisions. The tribu-
diction of contract-related claims brought pursuant nal, relying on the Vivendi annulment decision, held
to the BITs substantive provisions. In Vivendi v. that the tribunal was required to “consider whether
Argentina, Argentina unsuccessfully argued once the acts of which Eureko complains, whether or not

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MEALEY’S International Arbitration Report Vol. 21, #6 June 2006

also breaches of [contract], constitute breaches of the sory notes violated Venezuela’s obligations under the
Treaty.”18 The tribunal further stated that “[t]here BIT.23
is an amplitude authority for the proposition that
when a State deprives the investor of the benefit of In two cases brought by SGS, both alleging breaches
its contractual rights, directly or indirectly, it may be by host States of contracts under which SGS was
tantamount to a deprivation in violation” of a bilat- to provide “pre-shipment inspections” of customs
eral investment treaty.19 The tribunal went on to find exports, distinguished tribunals reached opposite
that acts taken by Poland relating to Eureko’s contract conclusions on this question. The first of these cases
violated Poland’s obligations under the BIT. decided was SGS v. Pakistan.24 SGS contended that
the “observance of commitments” clause25 meant that
In the recent jurisdictional award in Bayindir v. Paki- the State agreed to have allegations that it did not
stan, ICSID Case No. ARB/03/29 (Nov. 14, 2005), observe its contracts with an investor heard by an
the tribunal similarly held that contract-related claims ICSID tribunal. The tribunal rejected SGS’s argu-
may also be BITclaims. The tribunal found that an ment and concluded that this clause did not “elevate”
investor has a “self-standing right” to pursue BIT- claims grounded solely on breach of a contract to
claims independent from contract claims. Id., ¶ 167. claims grounded on the investment treaty, and thus
The tribunal was not troubled by the common set of held that it lacked jurisdiction over the breach of con-
facts forming the bases for both contract and treaty tract claims.26 The tribunal referenced the traditional
claims, noting merely that the claims “arose out of the requirement that treaty-based arbitration must be
same set of facts.” Id., ¶ 160. based on acts of a State in its sovereign capacity, not
its commercial capacity.
The ‘Umbrella Clause’ And
The Internationalization Of Contract Claims Shortly after the SGS v. Pakistan decision was issued,
In addition to the substantive treaty protections af- a separate ICSID tribunal issued its decision on juris-
forded to investors, such as fair and equitable treat- diction in SGS v. Philippines.27 The SGS v. Philippines
ment and protection from discrimination, many tribunal rejected the SGS v. Pakistan holding and held
investment treaties include clauses by which a State instead that the term “any obligation” “is capable of
agrees that it will observe obligations or commitments applying to obligations arising under national law,
it has entered into with investors, sometimes referred e.g. those arising from a contract.”28 The tribunal also
to as “umbrella clauses.” These provisions often are concluded that the SGS v. Pakistan decision had failed
framed essentially as follows: to ascribe any meaning to the observance of obliga-
tions clause. Ultimately, the tribunal held that it had
“Each Contracting Party shall observe jurisdiction to hear SGS’s breach of contract claims
any obligation it may have entered into because of the observance of obligations clause.29
with regard to investments of investors
of the other Contracting Party.”20 The SGS decisions present the two divergent conclu-
sions as to whether observance of obligation clauses
Investors have argued in ICSID cases that an ob- should be read as consent to treaty-based arbitral
servance of obligations clause is a State’s consent to jurisdiction over breach of contract claims. Recent
have claims for breach of contract obligations heard decisions, however, suggest that the SGS v. Philippines
by treaty-based arbitration tribunals.21 In Fedax v. reasoning will be more persuasive for future tribunals.
Venezuela, the investor had brought a claim pursuant For example, in Eureko v. Poland, the tribunal adopted
to the Venezuela-Netherlands BIT for payments due the view that the umbrella clause provided jurisdiction
under promissory notes.22 Article 3 of the Venezu- over contract claims between the state and an investor.
ela-Netherlands BIT contained an umbrella clause The tribunal stated that the “plain meaning — the
requiring the parties to “observe any obligation it ordinary meaning — of a provision prescribing that
may have entered into with regard to the treatment a State ‘shall observe any obligations it may have en-
of investments or nationals of the other Contracting tered into’ with regard to certain foreign investments
Party.” The Fedax tribunal found that Venezuela’s is not obscure.”30 The tribunal went on to hold that
failure to pay the amounts due under the promis- contractual obligations fall within the plain meaning

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Vol. 21, #6 June 2006 MEALEY’S International Arbitration Report

of the requirement to observe any obligations that the violation of the Treaty rights and obliga-
State has entered into.31 tions or a violation of contract rights of
such a magnitude as to trigger the Treaty
Although the developing trend is to follow the SGS protection, which is not the case.”37
v. Philippines reasoning and allow claims for con-
tractual obligations pursuant to an umbrella clause, One commentator has explained the reason for this
not all tribunals have followed this trend. In El Paso result as follows:
Energy v. Argentina, ICSID Case No. ARB/03/15
(April 27, 2006), the tribunal adopted the reasoning “the breach of such a contract by a State
of the SGS v. Pakistan tribunal. The El Paso tribunal in ordinary commercial intercourse is
was concerned that “investors will not use appropri- not, in the predominant view, a violation
ate restraint” in decidingwhether to bring claims for of international law, but the use of the
“trivial disputes” pursuant to an umbrella clause. El sovereign authority of a State, contrary
Paso, ¶82. to the expectations of the parties, to ab-
rogate or violate a contract with an alien,
The tribunal in Noble Ventures v. Romania reached a is a violation of international law.”38
similar result. In that case, the Tribunal stated that
an “umbrella clause is usually seen as transforming The decisions by several tribunals that have allowed
municipal law obligations into obligations directly breaches of contracts to be brought pursuant to an
cognizable in international law.”32 The tribunal fur- observance of obligations clause can be understood
ther stated that “an umbrella clause, when included to conclude that the umbrella clause has the effect of
in a bilateral investment treaty, introduces an excep- internationalizing contractual obligations. Although
tion to the general separation of States obligations the extent of those obligations will likely still be re-
under municipal and under international law.”33 The solved with reference to the municipal law governing
tribunal, noting that the BIT in question included an the contract, whether the obligation itself has been
umbrella clause even more straightforward than the observed will be examined under principles of inter-
clause in SGS v. Philippines, held that the BIT trans- national law.
ferred contract questions under municipal law into
international obligations under the BIT.34 Jurisdiction Over Breach Of Contract Claims
Based On The Introduction
Some tribunals have read the observance of obliga- To The Dispute Resolution Clause
tions clause to, in fact, obligate the State to honor The final mechanism discussed in some awards for
its contractual obligations but has restricted the ob- the internationalizing of contract claims is by use
ligation to exclude commercial actions of the State. of the dispute resolution clause. Most investment
The tribunal in Joy Mining Machinery v. Egypt, for treaties include a dispute resolution clause that states
example, held that it purely commercial obligations the mechanisms available to investors to seek redress
could not be protected under the BIT.35 The tribu- against the State. The dispute resolution clause in
nal stated that “the fact that a State agency might investment treaties typically is presented in a sec-
be a party to the Contract involving a commercial tion of the treaty distinct from the substantive treaty
transaction of this kind does not change its nature” provisions. Dispute resolution clauses make avail-
and that violations of commercial actions were not able to investors various dispute resolution forums,
the subject of investment disputes.36 The tribunal often including ICSID or UNCITRAL arbitration.
concluded that: These clauses often begin with a phrase such as
“disputes related to an investment shall be resolved
“it could not be held that an umbrella in accordance with the terms of this clause . . . .”
clause inserted in the Treaty, and not Two tribunals have stated in dicta that such language
very prominently, could have the effect should be read as embodying the consent of the State
of transforming all contract disputes into to have any claim between an investor and a State
investment disputes under the Treaty, resolved under the dispute resolution mechanisms
unless of course there would be a clear of the treaty.39

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MEALEY’S International Arbitration Report Vol. 21, #6 June 2006

In the ICSID annulment proceeding in Vivendi v. Ar- has not to date been adopted by other tribunals. It
gentina, the annulment tribunal considered a dispute may be expected, however, that investors may urge
resolution clause that began as follows: the adoption of such a reading of similar clauses to
attempt to achieve treaty-based arbitration, especially
“Any disputes relating to investments when applicable investment treaties do not have so-
made under this Agreement between one called “umbrella clauses.” States, on the other hand,
Contracting Party and an investor of the may be expected to argue that such language should
other Contracting Party.”40 be regarded as introductory rather than substantive
and thus should not be understood to embody a
The annulment tribunal concluded that this clause broad consent to treaty-based arbitration of contract
should be read as consent by Argentina to ICSID (and other) claims with municipal law bases. The
jurisdiction for any dispute related to an investment, interpretation of these clauses is another open ques-
including contract claims. The tribunal rejected an tion in treaty-based arbitration that presents poten-
argument by Argentina that the clause should be read tial options, and potential risks, for parties to State
only as a preamble to the dispute resolution clause contracts.
and was not intended to expand the substantive reach
of treaty-based arbitration. The Vivendi annulment Questions Still To Be Resolved
tribunal concluded that it was not the relationship Given the relatively few cases that have dealt with con-
between a claim and substantive treaty obligations tract-related claims brought pursuant to BITs, there
that created treaty-based jurisdiction.41 The annul- are a number of questions implicated by this develop-
ment tribunal decided that all that was needed was a ment that have not been definitively answered. The
relationship between the claim and the investment. first is the application of municipal law by tribunals.
If a tribunal finds jurisdiction over a State’s contrac-
The tribunal in SGS v. Philippines, relying upon the tual obligations pursuant to an umbrella clause, that
Vivendi annulment decision, reached a similar con- tribunal will likely have to determine what the State’s
clusion as to the effect of the dispute resolution clause obligations are by examining municipal law that is
of the relevant investment treaty.42 The tribunal stated typically selected by the parties in the contracts them-
that the dispute resolution clause was “an entirely gen- selves. Although international arbitral tribunals of all
eral provision, allowing for submission of all invest- kinds often must deal with municipal law, the inclu-
ment disputes by the investor against the host State.”43 sion of contract claims in treaty-based arbitration has
The tribunal therefore concluded that the dispute the potential significantly to change what has up to
resolution clause was consent by the State for contract now been the international law-driven complexion of
claims to be submitted to ICSID arbitration.44 such proceedings.47

The SGS v. Pakistan tribunal reached the opposite Another issue regarding the internationalization of
conclusion after reviewing the similar introduction to contract-related claims is the possibility of multipli-
the dispute resolution clause in the investment treaty cation of proceedings, because of contemporaneous
between Switzerland and Pakistan.45 The tribunal contract-based adjudication and treaty-based adjudi-
held that the dispute resolution clause should be read cation. These multiple proceedings may involve the
to “comprehend disputes constituted by claimed vio- same parties but could also involve the State and an
lations of [investment treaty] provisions establishing entity, such as a locally incorporated project company,
substantive standards of treatment by one Contract- not a party to the contract itself. There is also the
ing Party of investors of the other Contracting Party.” question of the assertion by the State, whether per-
The SGS v. Pakistan tribunal thus concluded that the missively or compulsorily, of counterclaims pursuant
dispute resolution clause “does not relate to the legal to contract — and even non-contract municipal law
basis of the claims, or the cause of action asserted in — in treaty-based arbitration.
the claims.”46
There is also a potential convergence of inter-
The expansive reading of dispute resolution clauses national law bases of claims with municipal law
by the tribunals in SGS v. Philippines and Vivendi contract claims. Recent BIT decisions have con-

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Vol. 21, #6 June 2006 MEALEY’S International Arbitration Report

strued broadly the fair and equitable standard. Endnotes

Unlike NAFTA arbitration in which the fair and
equitable standard has been specifically tied to the 1. The first ICSID case decided pursuant to a bilateral
customary international law minimum standard investment treaty was reportedly Asian Agricultural
of treatment,48 most tribunals interpreting the fair Products Limited v. Democratic Socialist Republic of
and equitable standard of BITs have not confined Sri Lanka, ICSID Case No. ARB/87/3, which was
themselves to violations of accepted minimum registered on July 20, 1987. The ICSID arbitrations
standards.49 Rather, tribunals have more commonly prior to this were brought pursuant to contractual
looked for an autonomous standard under which agreements between the investor and the host state.
to interpret the fair and equitable obligation by ex-
amining the BIT itself,50 with some commentators 2. Kenneth J. Vandevelde, U.S. Bilateral Investment
asking whether the BITs themselves are in this way Treaties: the Second Wave, 14 MICH. J. INT’L L. 621,
altering customary international law.51 As tribu- 626 (1993).
nals in notable recent cases have examined fair and
equitable treatment claims in light of “reasonable 3. Susan D. Franck, The Legitimate Crisis in Investment
investment-backed expectations”,52 a convergence Treaty Arbitration: Privatizing Public International
of this basis of claim with contract law standards Law Through Inconsistent Decisions, 73 FORDHAM L.
may further blur the line between an international REV. 1521, 1525-28, (2005).
and private law claims.53
4. See Vandevelde, supra note 1.
Party autonomy is another issue implicated by the de-
velopment of contract-related treaty claims. Although 5. Tradex Hellas S.A. v. Republic of Albania, ICSID
the issue of party autonomy raises many potential ques- Case No. ARB/94/2.
tions, one in particular is that States may be inclined
to seek ways to limit BIT protections to contract via 6. Emilio Agustín Maffezini v. Kingdom of Spain,
clauses in the contract itself. The first obvious ques- ICSID Case No. ARB/97/7.
tion is whether a State’s requirement that an investor
opt-out of the protections of the BIT in order to enter 7. American Manufacturing & Trading, Inc. v. Demo-
into a contract would be given effect. Although this cratic Republic of the Congo, ICSID Case No.
question remains to be resolved, tribunals may consider ARB/93/1.
such provisions in certain factual contexts to be non-ef-
fective as against the investor.54 8. The first major ICSID case to address the issue
of contractual claims brought pursuant to a BIT
Even if, however, a State conditions the execution of was Lanco International, Inc. v. Argentine Republic,
a contract on the contract party’s opting-out of BIT ICSID Case No. ARB/97/6.
protections and a tribunal finds that opting-out to be
effective as against that party, this may not insulate 9. ICSID has seen a dramatic increase in use within the
the State from treaty arbitration for contract-related past decade. In the first 30 years of the existence of
claims due to a lack of privity. Contracts that become ICSID up through 1996, it registered only 35 arbi-
the subject of an international arbitration, for exam- trations. Since 1996, ICSID has seen the number
ple, may be between the State and a special purpose of cases increase to almost 200, including 25 cases
entity created for the particular contract. Moreover, registered in 2005 alone. See ICSID Annual Report
significant investors may be able to bring contract-re- 2005, available at http://www.worldbank.org/icsid.
lated claims for obligations due to a project company.
Simply put, there are many scenarios in which the in- 10. See, e.g., Rudolf Dolzer & Margrete Stevens, BILAT-
vestor asserting contract-related claim in treaty-based ERAL INVESTMENT TREATIES (1995).
arbitration may not be the party to the contract. In
those circumstances, the construction that an treaty 11. Lanco v. Argentina, Preliminary Decision on Juris-
tribunal might give an opt-out provision becomes diction, December 8, 1998, 40 ILM 457 (2001),
even more uncertain. ¶¶ 23-25.

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MEALEY’S International Arbitration Report Vol. 21, #6 June 2006

12. Compañiá de Aguas del Aconquija S.A. and Vivendi 25. SGS v. Pakistan, ¶ 53 (the observance of obligations
Universal v. Argentine Republic, ICSID Case No. clause stated that “Either Contracting Party shall
ARB/97/3, Award (Nov. 21, 2000) (“Vivendi I”), constantly guarantee the observance of the com-
¶ 81. mitments it has entered into with respect to the in-
vestments of the investors of the other Contracting
13. Compañiá de Aguas del Aconquija S.A. and Vivendi Party”).
Universal v. Argentine Republic, ICSID Case No.
ARB/97/3, Decision on Annulment (July 3, 2002) 26. SGS v. Pakistan, ¶ 165.
(“Vivendi II”).
27. SGS Société Générale de Surveillance S.A. v. Repub-
14. Vivendi II, ¶ 60. lic of the Philippines, ICSID Case No. ARB/02/6,
Decision on Objections to Jurisdiction (January
15. Vivendi II, ¶ 75. 29, 2004) (“SGS v. Philippines”) (The observance
of obligations clause stated that “Each Contract-
16. Vivendi II, ¶ 95. ing Party shall observe any obligation it has as-
sumed with regard to specific investments in its
17. Vivendi II, ¶ 101. territory by investors of the other Contracting
Party”.)
18. Eureko B.V. v. Poland, Ad Hoc Proceeding, Partial
Award on Liability (Aug. 19, 2005), ¶ 112. 28. SGS v. Philippines, ¶ 115.

19. Eureko, ¶ 241. 29. Notwithstanding the tribunal’s conclusion that that
it had jurisdiction over the claims, it decided that
20. Agreement Between the Government of Hong the breach of contract claim was not admissible at
Kong and the Government of Japan for the Promo- that time because of an exclusive dispute resolution
tion and Protection of Investment, May 15, 1997, clause in the contract.
Art. 2(3).
30. Eureko, ¶ 246.
21. The idea that an observance of obligations clause
protects contractual expectations is not necessarily a 31. Eureko, ¶ 260.
new argument. In an article written in 1990 by the
U.S. State Department’s Office of Legal Advisor, this 32. Noble Ventures, Inc. v. Romania, ICSID Case No.
obligation was specifically discussed. In discussing a ARB/01/11, Award (Oct. 12, 2005), ¶ 53.
recently signed BIT between Poland and the U.S.,
the Advisor wrote that the parties were “obliged to 33. Noble Ventures, ¶ 55.
observe their contractual obligations with regard to
investments and commercial activities . . . .” Mar- 34. Noble Ventures, ¶ 55.
ian Nash Leigh, U.S. Practice, 84 A.J.I.L. 885, 898
(1990). 35. Joy Mining Machinery Limited v. Arab Republic of
Egypt, ICSID Case No. ARB/03/11, Award (Aug.
22. Fedax N.V. v. Republic of Venezuela, ICSID Case No. 6, 2004), ¶¶ 78-79.
ARB/96/3, Decision on Objections to Jurisdiction
(July 11, 1997), ¶ 26. 36 Joy Mining, ¶ 79.

23. Fedax, ¶ 29. 37. Joy Mining, ¶ 81.

24. SGS Société Générale de Surveillance S.A. v. Islamic 38. Impregilo S.p.A. v. Islamic Republic of Pakistan,
Republic of Pakistan, ICSID Case No. ARB/01/13, ICSID Case No. ARB/03/3, Decision on Jurisdic-
Decision on Objections to Jurisdiction (August 6, tion (April 22, 2005), fn. 118 (citing Stephen M.
2003) (“SGS v. Pakistan”). Schwebel, “Justice in International Law” (Gro-

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Vol. 21, #6 June 2006 MEALEY’S International Arbitration Report

tius/CUP), Chapter 26). The BIT in question p. 10, available at http://www.oecd.org/datao-

in the Impregilo case did not include an umbrella ecd/22/53/33776498.pdf.
clause.
50. Dolzer and Stevens have stated that “the fact that
39. The two tribunals were the SGS v. Philippines tribu- parties to BITS have considered it necessary to
nal and the Vivendi Annulment Committee. It is stipulate this standard as an express obligation
not surprising that the two tribunals shared reason- rather than rely on a reference to international law
ing as both of the distinguished tribunals included and thereby invoke a relatively vague concept such
Professor James Crawford. as the minimum standard is probably evidence of a
self-contained standard.” Dolzer & Stevens, supra
40. Vivendi II, ¶ 53. note 10. See also Lauder v. Czech Republic, Final
Award (September 3, 2001) (stating that in “the
41. Vivendi II, ¶ 55. context of bilateral investment treaties, the “fair and
equitable” standard is subjective and depends heav-
42. SGS v. Philippines, ¶ 34. ily on a factual context”).

43. SGS v. Philippines, ¶ 131. 51. Judge Schwebel has discussed the effect BITs have
had on customary international law. See Stephen
44. SGS v. Philippines, ¶ 135. Schwebel, The Influence of Bilateral Investment
Treaties on Customary International Law, TRANSNA-
45. SGS v. Pakistan, ¶ 150. TIONAL-DISPUTE MANAGEMENT, Vol. 2, issue #05
(November 2005).
46. SGS v. Pakistan, ¶ 161.
52. See, e.g., Saluka Investments BV v. the Czech Republic,
47. To date, the role of international law in treaty-based Partial Award (March 17, 2006), ¶¶ 301-02.
arbitration has been so great that one influential
commentator has argued that this typical approach 53. This is a point recently made by Daniel M. Price
of tribunals fails to give effect to Article 42(1) of in oral remarks at the 2006 annual meeting of
the ICSID Convention, which directs tribunals to the American Society of International Law, held
“apply the law of the Contracting State party to the in Washington D.C. from March 29 to April 1,
dispute . . . as may be applicable.” See Reisman, 2006.
The Regime for Lacunae in the ICSID Choice of Law
Provision, 15 ICSID REV. 362, 369 (2000). 54. See, e.g., Aguas del Tunari, S.A. v. Republic of Bolivia,
ICSID Case No. ARB/02/3, Decision on Jurisdic-
48. NAFTA Free Trade Commission, Binding Interpreta- tion (Oct. 21, 2005), ¶¶ 115-123. Although the
tion, July 21, 2001. tribunal did not determine whether a waiver of BIT
protection could be effective against an investor, the
49. Fair and Equitable Treatment Standard in Inter- tribunal found that the language was not specific
national Investment Law, OECD (Sept. 2004), enough to effect a waiver in any event. ■

8
 Arbitration And The Fisc:

NAFTA’s ‘Tax Veto’

by
William W. (Rusty) Park

Professor of Law at Boston University

Vice President, London Court of International Arbitration
Arbitrator, Claims Resolution Tribunal for
Dormant Accounts in Switzerland

A case of note
reprinted from the
May 2001 issue of
Mealey's
International Arbitration Report.

© Copyright 2001 Mealey Publications. All rights reserved. Reproduction strictly prohibited without written permission.
 MEALEY'S INTERNATIONAL ARBITRATION REPORT
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