MFN clauses and BIT arbitration: Wintershall v. Argentina

Earlier on this blog, I have referred to the concept of the “umbrella clause” in bilateral investment treaties. Another complex issue in BIT arbitration concerns itself with the role of Most-Favoured-Nation clauses (MFN clauses) in dispute settlement under the provisions of the BITs.

MFN clauses typically provide that the host state shall provide treatment no less favourable to investors from the signatory state than to investors from third states. Thus, if countries A and B sign a BIT, an MFN clause in the BIT may provide that state A shall accord investors from state B treatment no less favourable than that accorded to investors from third states.

What exactly is the scope of protection under an MFN clause? In this context, it is generally accepted that MFN clauses are to be construed according to the ejusdem generis principle. Under this rule, an MFN clause can only attract matters as to which the clause relates. For instance, if an MFN clause says that the “no less favourable” treatment is to be granted particularly with respect to the procurement of government contract, it would not be proper to argue purely based on the MFN rule that the host state cannot treat third state investors more favourably in management of investments. While this rule may be a useful general guideline, it is difficult to apply it in some particular situations, particularly in deciding whether the MFN clause applies to dispute resolution procedures.

For instance, one may assume that the MFN clause in the BIT between states X and Y says that the MFN clause applies in respect of “all matters related to commerce”. Most BITs generally contain such broad references (“matters related to commerce” is just one example) regarding the scope of the MFN clause. Let us further assume that the BIT between X and Y provides for a specific dispute resolution procedure. State X then enters into another BIT with state M; wherein investors of state M are granted more favourable dispute settlement procedures than investors under the X-Y BIT. Does such treatment violate the MFN clause in the X-Y BIT? If it does, can an investor from state Y rely on the “more favourable” dispute resolution provisions in the other BIT? Does the protection under an MFN clause relate only to substantive treatment, or does it include treatment in terms of procedural requirements? Does “commerce” in an MFN clause include “administration of justice”?

One might seek to argue that even dispute resolution procedures are within the scope of MFN clauses. The decision of the ICSID Tribunal in the Maffezini case supports such an interpretation. There, the Tribunal noted that there are good reasons to conclude that dispute settlement arrangements are inextricably connected to the protection of foreign investors. The Tribunal in that case went on to say:

“… if a third-party treaty contains provisions relating to dispute settlement procedures which were more favourable than those included in the basic BIT, then those beneficial provisions may be extended to the beneficiary of the MFN clause.”

This view was followed in the Siemens decision. On the basis of these decisions, one may argue that an efficient dispute-resolution system is essential for the development and promotion of commerce, and therefore the phraseology “all matters related to commerce” would include dispute resolution procedures.

On the other hand, one can argue on the basis of the ejusdem generis principle that dispute settlement procedures are outside the ambit of MFN clauses such as the one described above. Other decisions of the ICSID, notably those in the Salini and Plama cases, seem to have narrowed down the broad propositions of Maffezini. In Salini, it was held that in accordance with the ejusdem generis principle, it was not possible to read in to the MFN protection those matters which were not included in the categories specifically enumerated in the MFN clause. Thus, where dispute resolution procedures or the administration of justice was not specifically incorporated into the MFN clause, the same could not be read into the MFN protection. In Plama, the ICSID affirmed the principle that an agreement to arbitrate must be clear and unambiguous. Therefore, if an MFN clause was used to incorporate into a BIT a dispute resolution procedure from a different BIT, the parties’ intentions in this regard must be clear and unambiguous. Ordinarily, it is not possible to incorporate into one BIT (which has an MFN clause) the dispute resolution procedure from another BIT on the basis of the MFN clause.

These questions involve important issues involving elements of investment law, international law and arbitration law. The position surrounding these matters seems rather hazy, considering the conflicting decisions rendered by investment tribunals. Can these decisions be reconciled? Can a general rule be derived from these cases which will help bring about a proper understanding of the legal position? Indeed, what appears to be the best formulation of a rule governing such cases – both in law, and in policy?

Another recent decision of an ICSID tribunal (headed by Fali S. Nariman), Wintershall v. Argentine Republic, revisits this complicated issue. In Wintershall, there were extensive arguments offered on the scope of an MFN clause. The factual situation was somewhat similar to the one in Maffezini. The relevant BIT contained a dispute-resolution clause which mandated a waiting period before submitting the dispute to ICSID arbitration. Another BIT entered into by the Respondent and a third state did not contain this waiting period. It was alleged by the Claimant that the waiting period was therefore “less favourable” treatment, and that the Claimant could submit the dispute to ICSID directly. Maffezni had allowed a similar request. In Wintershall, after considering the previous decisions on the point, the Tribunal refused to follow Maffezini and said:

“In the absence of language or context to suggest the contrary, the ordinary meaning of ‘investments shall be accorded treatment no less favourable than that accorded to investments made by investors of any third State’ is that the investor’s substantive rights in respect to the investments are to be treated no less favourable than under a BIT between the host State and a third State. It is one thing to stipulate that the investor is to have the benefit of MFN treatment but quite another to use a MFN clause in a BIT to bypass a limitation in the settlement resolution clause of the very same BIT…”

Thus, it appears that the broad approach of Maffezini (of treating the MFN clause as governing both substantive and procedural matters) has been narrowed down. This may perhaps be the best course to take – there is no sound reason to disregard a specifically provided dispute settlement provision in a BIT on the basis of a separate BIT. In any case, every waiting period need not be a “less favourable” treatment – a waiting period may well be, viewed from the shoes of the parties at the time of entering into the BIT, a “more desirable” form of conciliation and settlement.

The ICSID decisions cited in this post, except for Wintershall, are available on the ICSID website here. The Wintershall decision is available here on Professor Andrew Newcombe's Investment Treaty Arbitration website - an excellent site for resources on international investment law. A discussion on the nature of a ‘waiting period’ in ICSID arbitrations, although in a different context, is found on this blog here.