1 National Grid PLC. V.
The Argentina2 I. Sinclair, The ViennaConvention on the law of Treaties (1984) 3 R. Yannick The Application ofthe Most-favored Nation Clause to the Dispute Settlement Provisions ofBilateral investment treaties : Domesticating the Trojan Horse4 Supra As aconclusion States need to think twice before adding a MFN clause to thebilateral investment treaties.
They need to write the clause in way that thescope of the MFN clause can be understood without a doubt. “The clausecan thus be viewed as a ‘Trojan Horse’. The paradox of the ‘Trojan Horse’ isthat it was brought into the city by the inhabitants themselves, just as theMFN clause is introduced by the contracting states within the BIT.”4A very goodmetaphor about the issue is been made by Yannick Radi as he states, In thisarticle, the controversial issue about the scope of the MFN clause and itseffect to the dispute resolution clauses in the BIT’s is discussed. The relevantcases are shown to understand the scope of the MFN clauses. Similar cases arecompared to demonstrate the inconsistency in the international practice. Thearticle targeted to find an answer to the question whether is it possible toreplace the clauses of the BIT’s with the MFN clause. Accordingly, the articleshowed the possible ways to draft a MFN clause and its effects.
Here it is alsoexplained that the interpretation of the MFN clause should be done according tothe all relevant circumstances including the negotiations before and aftertreaty has signed. Article 36 of the Vienna Convention on the Law of Treatieswhich regulates the interpretation of the international treaties should also betaken into account while interpreting an international treaty.Conclusion Thisstatement also shows that the undeterminable scope of the MFN clause createsirrationality about its place in the BIT’s. As we mentioned above, the MFNclause enables the replacement of the provisions which were negotiated by thestates which can afford the best legal counsels. This situation undermines theparties’ intention. Accordingly, in my opinion to prevent this situation,parties to an agreement or a treaty needs to draw the scope of the MFN clausevery clearly.
In order to achieve this the matters that the parties want toinclude should be counted in the MFN clause. Additionally, not only the mattersthat the parties want to include but also the matters that the parties want toexclude should be stated explicitly in the agreement or the treaty. Only thisway the scope of the MFN clause is going to be determinable. Otherwise as it isexplained above, one may always argue that the MFN clause covers the disputesettlement provisions unless they are clearly excluded. “Contracting states bring a “Trojan Horse”into the city when providing for most-favored nation clauses in bilateral investmenttreaties. This affects the general equilibrium of treaties.”3 On the otherhand considering the inconsistent reviews of the tribunals and the ambiguousinterpretation of the MFN clause arises the question of whether the MFN clauseshould be given place in the BIT’s or not. Since the MFN clause enables partiesto incorporate the more favorable provisions of a third State, the intention ofthe parties become pointless.
One of the articles about the issue likens theMFN clauses in BIT’s to a Trojan horse. Yannick Radi states that This way ofinterpretation is also in line with the article 36 of the Vienna Convention onthe Law of Treaties which regulates the interpretation of the internationaltreaties. Whiledetermining whether parties intended the MFN clause to include the disputeresolution provisions or not, we may take into account the preparatory stage ofthe drafting of the BIT’s. Here it is not suggested that the soleinterpretation of the preparatory stage of the drafting of the agreement isenough to reveal the parties’ intention, however drafting stage of the contractis a supplementary tool to reveal parties intention. As an example of this isthe Free Trade of the Americas agreement, while at time of the drafting theagreement, parties explicitly stated that “theMFN clause does not encompass the international dispute resolution mechanism”.This intention is showed before the signing of the agreement. However, if thisis not taken this into account and a sole interpretation from the purpose ofthe agreement is made, then parties’ intentions are going to be denied. This iswhy it is critical to consider all relevant circumstances.
Additionally, as theagreement suggests, explicit exclusion of the dispute resolution clause is notthe only way to understand the parties’ intension to exclude it. Whiledetermining the common intention of the parties all relevant circumstancesincluding the negotiations, preparatory stages, any practices which the partieshave established between the parties should be taken into account. Only thisway, we can reveal the real intention of the parties. In contrary,this way of interpretation shouldn’t be used while determining the scope of theMFN clause. Otherwise the result will always be the same because there is nosuch BIT that is not aiming to protect the investor. This way of interpretinghowever denies the parties’ intentions.
Thus, it is a “risk that the placing of undue emphasis on the object and the purpose of a treaty will encourage teleologicalmethods of interpretation which, in some of its more extreme forms, will even deny the relevance of theintention of the parties”.2In this point of view, interpreting the clause according to all relevantcircumstances is the only way to come to the conclusion that the MFN clausedoes not cover the dispute resolution clause. The reasonbehind signing a BIT is to protect investors.
The whole InternationalInvestment law aims to create an investor friendly habitat. Having this inmind, if we try to make an interpretation according to the main purpose of theBIT’s, it is almost impossible to conclude that the MFN clause does not coverthe dispute resolution clause. Since the reason of having a dispute resolutionclause is also to protect investors, an interpretation in the light of thepurpose will always be in favor of the investor. b- Interpretation of the MFNClause According to All Relevant Circumstances To summarizethe drafting part, the scope of the MFN clause is ambiguous unless the mattersare explicitly excluded.
One may always are argue that the MFN clause coversthe dispute settlement provisions unless they are clearly excluded. Since theinternational practice and the Tribunal reviews are inconsistent with eachother it is not healthy to make an interpretation just from the wording of theclause. The thirdway to draft a MFN clause is to exclude the dispute resolution clauseexplicitly without a doubt. In this way of drafting, parties may either draft abroad clause or may list the matters to be included as long as they explicitlyexclude the dispute resolution clause. As an example of this is the article 4/3of the Spain-Argentina BIT. As the article states that “the treatment shall not extendto the privileges which either Party…” The wording of the article 4/3of the Spain-Argentina BIT clearly suggest that the matters listed are not inthe scope of the MFN clause.
However, such an article also suggest that thematters are not excluded are actually included vice versa. Accordingly, whileanalyzing the Spain-Argentina BIT in the Suez-AWG case, tribunal stated thatthe dispute resolution clause is not counted among the excluded matters.Therefore the MFN clause covers the dispute resolution clause. A similar viewis also adopted by the Tribunal in the National Grid case National Grid PLC.
V. The Argentina. In the case at hand theTribunal stated that “specific mention ofan item excludes others”1.?f the dispute resolution clause is not counted in the list of the excludematters, then it shall be included. Thedifferences between the interpretations of the scope of the MFN clauses createsan ambiguity. One of the interpretation tools to interpret a clause is theinternational practice. However, international practice is not consistent forthis issue. According tothe Tribunal, the MFN clause mentioned above does not exclude the disputeresolution clause.
The Tribunal bases its argument on the fact that the word “maintenance” also covers the disputeresolution provisions. Since the word “maintenance”refers to the protection of the investment, it also covers the disputeresolution clause. “Neither contracting party shall in its territorysubject investors of the other Contracting Party, as regards their management, maintenance, use, enjoyment ordisposal of their investments, to treatment less favorable than that whichit accords to its own investors or to investors of any third state”Secondly,the MFN clause may be drafted in a way where the matters covered in the clauseare explicitly listed. Thus, if the dispute resolution clause does not takeplace in the list then we may reach to a conclusion that it is excluded. As anexample of this may be found in the NAFTA, article 1103 reads as “each party shall accord to investors ofanother party treatment no less favorable than it accords, in likecircumstances, to investors of any other party or of non-party with respect tothe establishment, acquisition,expansion, management, conduct, operation, and sale or other disposition ofinvestments”. The Plama Tribunal in the case Plama Consortium Ltd. v. Republic of Bulgaria analyzed thisarticle.
In the award, the tribunal accepted that the dispute resolution clausewas intentionally left out from the list, therefore this clause does not extendto the dispute resolution clause. However, in a similar case, tribunal adopteda very different view. In the Suez-AWG case, AWG Group Ltd.
v. The ArgentinaRepublic the tribunal analyzed the UK-Argentina BIT. Article 3(2) of theUK-Argentina BIT, it states that Firstly, ageneral and a broad wording such as the BIT signed between the Spain andArgentina. This BIT had the MFN clause broadly drafted, “in all matters governed by thisAgreement, such treatment shall be no less favorable than that accorded byeach party to investment made in its territory by investors of a third country”.In Spain-Argentina BIT the word “matter” creates an ambiguity about whetherthe clause covering the substantive or procedural issues. Another example of abroadly drafted MFN clause takes place in the BIT signed between Greece andUnited Kingdom in 1886. In this BIT, the MFN clause stated “allmatters relating to commerce and navigation”. These somewhat broadly drafted MFN clauses were subject todifferent tribunals such as Mafezzini v.
Kingdom of Spain, Gas Natural SDG, SA v. The Argentina Republic, Suez,Sociedad General de Barcelona SA v. The Argentina Republic. Since thedispute resolution provisions are matters in the treaty, these tribunals accepted that the word “matter” covers the disputeresolution provisions. Additionally, the main reason behind signing a BIT is toprotect the investment, so excluding the dispute resolution clause from thescope of a broadly drafted MFN clause is going to be against purpose of thetreaty.
Therefore, broadly worded MFN clauses are accepted as they also coverthe dispute resolution clause. It is also stated that if a party is willing toexclude the dispute resolution clause, then it should be written explicitlywhile drafting the treaty. However, this interpretation also suggests that if aMFN clause is not broadly drafted, in other words, does not articulatestatements such as “all matters” then itdoes not cover the dispute resolution clause.
Tribunals accept this opinion. a- Drafting of the MFNclauseThere aredifferent opinions about the scope and the interpretation of the MFN clause. Atthis point, the drafting of the clause plays an important role.
Parties to atreaty may choose to draft a broad or a narrow MFN clause. There are threewording types of MFN clauses mostly seen in BIT’s. In this articleinterpretation of the clause is going to be explained, firstly (a) an interpretation will be deducedfrom the drafting of the MFN clause. Secondly, (b) the MFN clause will be interpreted according to all relevantcircumstances. 1- Understanding the Scopeof the MFN Clause in BIT’s through relevant cases The issue iswhether the MFN clause covers the dispute resolution clause in BIT’s or not. Inother words, is it possible to incorporate dispute resolution provisions of athird party BIT’s through the MFN clause. The conflict especially exists whenthe parties does not expressly show their intentions in the wording of treaties.If the MFN clause explicitly excludes the dispute settlement provisions orclearly lists the scope of the clause, then there shall be no need forinterpretation.
However not every MFN clause contains such statements.Therefore, this kind of clauses needs interpretation in order to reveal theintention of the parties and determine to scope of the clause. Firstly,relevant cases are going to be examined. Secondly, the systematicinterpretation is going to take place. According toGATT, the most favored nation principle mainly aims to prevent discriminationin international trade. Today, the MFN clause takes place in many differentareas such as international investment. The reason behind adopting MFN clausein BIT’s is to protect investments and prevent discrimination between foreigninvestors. However, usage of the MFN clause arises conflicts in internationalinvestment law.
Since the existence of MFN clause allows the party to betreated equally as the more favored third party, the scope of the clause isproblematic. Introduction The controversial issue about the application of the MostFavored Nation clause (hereinafter”MFN clause”) to the dispute resolutionprovisions in Bilateral Investment Treaties (hereinafter “BIT”) is going to be discussed in this article.Is it possible to replace the dispute resolution provisions in BIT’s throughthe MFN clause? This article considers the scope of the MFN clause in light ofthe relevant cases and scholars opinions. Additionally, the article isconcerned about the rationale of adding a MFN clause to the BIT’s.
This articlealso suggests that the adoption of the MFN clause in the BIT’s requires partiesto show their intentions clearly. Finally, the interpretation of the MFN clauseis going to take place in the article. Abstract