R. Daujotas, ‘MFN principle and investor’s nationality in investor-state arbitration – alternating jurisdictional requirements of BIT’s through MFN principle’ (2013) Eurasia Arbitration Journal, July Vol. 1
This article is purposed to introduce an upcoming research starting in September, 2013 on a complex issue arising in the theory and practice of modern investor-state arbitration. To this end, readers are encouraged to treat this research summary as interactive and to contact the author with their comments so to facilitate fruitful discussion and critical input.
Austrian arbitrator and academic Christoph Schreuer told at a recent conference in London[i]:
“When it comes to access to rights under treaties, nationality is of the utmost importance; yet when a case reaches the merits stage, distinctions based on nationality are taboo”
In a rather short history of investment arbitration, the issue of investor’s nationality had provided a fertile soil for controversy, doubt and disagreement[ii]. Although solely purposed to encourage, attract and facilitate foreign investment, vast majority of multilateral and bilateral investment treaties (BITs) set a high threshold for the investors to access protection provided in such international instruments.
Strict jurisdictional requirements of international investment agreements (IIA’s) based on the nationality of the investor had facilitated an unwelcoming practice of corporate structuring and the so called treaty shopping practice, which is usually echoed as an abuse of rights by the host states[iii]. Similarly, international investment tribunals are constantly faced with a dilemma – how should the tribunal determine whether an investor is entitled to treaty protection if it lacks certain nationality, notwithstanding the fact that the investment itself has been implemented and was totally legitimate?
On the other hand, almost every multilateral or bilateral investment agreement contains the most favored nation (MFN) clause which stipulates that the investor is entitled to a treatment no less favorable than the one the host state offers to investors from other states.
Therefore, it can be argued that a conflict is programed – jurisdictional requirements of BIT’s based on nationality of investors and the MFN principle stand in a direct clash when it comes to access to treaty protection. Thus, it is inevitable that modern investment arbitration practice will need to find a way to deal with this controversy.
Therefore, taking into account the above, the main problem-hypothesis which will be assessed and analyzed in the upcoming research can be summarized as follows – Are jurisdictional requirements of BIT’s based on the nationality of the investor discriminatory and contradictory to the MFN principle and is it possible for the third party investor to access treaty protection using the MFN principle?
SUMMARY AND CONTRIBUTION TO THE FIELD
The scope of this research is multi-disciplinary and will draw upon disciplines of international relations, international law, international trade and investment, foreign investment disputes, multi-nationality of business and globalization. This kind of integration of different disciplines is necessary when assessing such a specific issue of the nationality requirement and the MFN principle in international investment law.
It must be mentioned also that a question of application of the MFN principle in order to access the advantages provided by IIA’s by third party investors is a novel hypothesis, based mainly on the analogies of application of the MFN clause on substantial and jurisdictional standards (not related to nationality) provided in IIA’s[iv] and was not yet analyzed in detail[v]. Although there are diverging views regarding a possibility to apply the MFN clause before actually conforming to the jurisdictional requirements of the IIA’s[vi], the practice had shown that such an approach may be legitimate[vii]. Therefore, the latter could be regarded as an encouragement to take the question of applicability of the MFN clause even further. Thus this is mainly the purpose of this research.
Another encouragement to take such a theoretical approach is the expansion of the treaty shopping practice which just proves once more that the nationality requirement in modern international investment is losing its importance[viii]. Corporate structuring enables investors to structure their investment in a most favorable way so that they can access any relevant BIT. Moreover, it is a long-standing argument in the doctrine that tribunals will try to look through the layers of corporate structure to actually find a “proper” nationality to find jurisdiction[ix]. Therefore, this research would make a significant contribution which would provide a novel way to assess whether certain investor is entitled to treaty protection based on the MFN clause, notwithstanding the fact that the investor does not possess certain nationality required[x].
Furthermore, it is necessary to note the practice of the European Court of Human Rights and the WTO Dispute Settlement Body. Requirement of nationality of the applicant in these tribunals was never such an issue as compared to investor-state arbitration. Even more, a question of discrimination based upon nationality is of utmost importance in ECHR and WTO practice[xi]. Thus the MFN clause has much greater importance in the latter. Therefore, there might be lessons to be learned and assessment of the relevant jurisprudence and doctrine could provide a strong contribution to this research.
Finally, it could be argued that the notion of nationality and principle of the MFN in investment arbitration have an obvious relationship which was never assessed in detail or even ignored. Thus, in the era of multinational business and treaty shopping practice, a critical approach must be taken, which would enable this research to build originally upon the work in the area and will make a significant contribution to the field of international investment law.
[i] The Seventh Annual Fordham Law School Conference on International Arbitration and Mediation, held at King’s College London on 26 and 27 April, 2012;
[ii] For example, Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Award, 7 July 2004;Amco Asia Corporation, Pan American Development Ltd. and P.t. Amco Indonesia v. The Republic of Indonesia, Decision on Jurisdiction, ICSID case No. ARB/81/1; Tokios Tokelés v. Ukraine, Case No. ARB/02/18, 29 April 2004; Saluka Investments B.V. v. The Czech Republic, under UNCITRAL Rules, Partial Award 17 March 2006; Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3 and others;
[iii] For example, Mobil Corporation and Others v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/27, June 10, 2010); Yukos Universal Limited (Isle of Man) v The Russian Federation, PCA Case No AA227, (Interim Award on Jurisdiction and Admissibility, 30 November 2009); Phoenix Action v The Czech Republic, ICSID Case No. ARB/06/5 (Award on Jurisdiction, 15 April 2009) and others;
[iv] See footnotes 8 and 9;
[v] There were diverging views in international investment arbitration practice, for example, tribunals in Maffezini orAmbatielos case supported the application of the MFN clause to the jurisdictional provisions of a third treaty, however, others (Plama v Bulgaria, Salini v Jordan) had regarded this as an error of law; see for example ‘The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails’, Zachary Douglas, J Int. Disp. Settlement (2011) 2 (1): 97-113; ‘Most favoured nation treatment and dispute resolution under bilateral investment treaties: a turning point?’ Stephen Fietta, Most favoured nation treatment and dispute resolution  Int.A.L.R.;
[vi] For example, prof. Dolzer argued that in the context of investment arbitration, the MFN clause ensures that a host country does not treat investors from a particular foreign country less favorably than investors from any other country (Dolzer, R., and Myers, T., After Tecmed: Most-Favored-Nation clause in Investment Protection Agreements, 19 ICSID Review FILJ 49 (2004). However, prof. B. Stern had expressed a different view: “I suggest to avoid such a chaotic situation, in endorsing the principle that an MFN clause cannot displace any of the conditions under which a State gives its consent to arbitration to a foreign investor and would therefore endorse the Plama proposal’” see dissenting opinion inImpregilo SpA v Argentina Republic;
[vii] For example, Maffezini; Siemens A.G. v. Argentine Republic;
[viii] This argument was elaborated by SW Schill in ‘The Multilateralization of International Investment Law’ where it was stated that “nationality as a gateway that determines the applicability of an investment treaty, is not only becoming increasingly irrelevant in passively determining the conduct of hosts states”;
[ix] “International arbitration tribunals, whether under the Washington Convention or not, have been generally consistent: They pierce the corporate façade and go up the chain of ownership until they find an entity with standing to bring a treaty claim and stop at that point” in Investor-State Arbitration, Christopher Dugan, Don Wallace, Noah Rubins, Borzu Sabahi, OUP USA, Mar 8, 2012, reference could also be made to Waste Management v United States tribunal;
[x] For example, in case of Generation Ukraine v Ukraine, the respondent invoked Article 1(2) of the BIT to deny the claimant the advantages of the BIT because, Ukraine alleged, the claimant had so substantial business activities in the US and was in fact controlled by Canadians. Therefore, a logical conclusion could be drawn that the MFN clause in any of the BITs concluded by Ukraine should provide similar treatment to both the nationals of USA and Canada, thus the jurisdictional requirements of BIT based on nationality would lose their relevance;
[xi] The issue of discrimination based on nationality in the area of human rights was assessed by Freya Baetens in her doctoral research “Nationality-based discrimination in public international law, with a specific focus on human rights, trade and investment law”;