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The most extensive work in terms of collecting and analysing bilateral and multilateral investment instruments has been carried out by the United Nations Conference on Trade and Development's (UNC:TAn) Division on International Investment, which now also makes a large number of such instruments directly available on its Website, at: www.unctadxi.org/templates/Startpage 718.aspx>. 2 Mainly the North American Free Trade Agreement (NAFTA, comprising the United States, Canada and Mexico) and the Energy Charter Treaty (ECT, comprising over fifty States plus the European Communities).
' See, among many others, the as usually incisive analysis by F. A. Main, State Contracts and State Responsibility, 54 A.J.LL. 572 (1960); R. Jcnnings, State Contracts in International Law, 37 B.Y.I.L. 156 (1961); Stephen Schwebel, International Protection of Contractual Agreements, A.S.I.L. Proceedings, 1959, p. 273; and idem, The Breach by a State of a Contract, in Essays ill Honour of Roberto Ago, GiutTre, Milan, 1987, also published as On Mictlicr the Breach by a State e f a Contract with all Alien is a Breach of International Law, injustice in International Law, Selected Writings of Stephen Srhwebel, Grotius, Cambridge, U.K., 1994, at 425. Most recently, on coverage by BITS of contract claims, sec B. Crcmadcs, Clarifying the Relationship Between Contract and Treaty Claims in Investor-State Arbitrations, in N. Horn (ed.), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects, Kluwer Law International, Cambridge, Massachusetts, 2004; and B. Cremades, Recent Develolnnents in Investment Arbitration: Claims under Investment Treaties for Conduct that also Involves Contracts with Government or Government-attributed Entities, OGEL 2, Issue 1, February 2004, available at: <www.gasandoil.com/oge)); Charles Lcben, La theoric dii coiitrat d'Imt et 1'evolution du droit international des investissenrents, Hague Lecture, 2003. 1 The most recent presentation is M. Sornarajah, The International Law on Foreign lnvestment, Grotius, Cambridge, U.K., 1994. On the context, see T. Walde, A Requiem for the New International Economic (�rder, in G. Hafiicrtf et al. (cds.), LiberArnicontrn Professor Ignaz Seidl-Hohenveldern, Kluwer, The Hague, 1998; F.V. Garcia-Amador, Calvo Doctrine, Calvo Clause, in R.L. Bindschedler (ed.), Encyclopaedia of Public International Law, Volume 1, 1992, pp. 521-523; Francisco Orrego Vicuna, Requlatory Expropriatiolls in International Law: Cnrlos Calvo, Honorary Nifty Citizen, 11 N.Y.U. Envt'l L. 19 (2002). U.S. legislation qualified as "taking", under the Hickrnlooper Amendment (Public Law No. 87-195, 22 U.S.C. 2370(e)(1), 1994) the repudiation or nullification of any contract with any U.S. person. 5 It is likely that a more thorough historical analysis would find such emphasis on a culture and legal order protecting contractual commitments in all historical periods with a developed commercial intercourse among nations, not least in Islamic law, where the principle of sanctity of contract-esseutial in the context of long- distance trade as dominated by Mecca at the time of Mohannnad-is supported by the following verse from the Quran. "Oh you who believe, observe covenants" (Alrnaeda Sura, Chapter 5, Verse 1 ); see Walied El-Malik, Minerals Investment under the Sharia Law, Graham and Trotman, London, 1993, p. 102. For an historical survey of economic liberalism in international law, see S. Neff, Friends, but no Allies: Economic Liberalism and the Law of Nations, Columbia University Press, New York, 1991, who traces such international law perspectives back to E. Vattel and H. Grotius. The pertinent arguments—sovereigntist and statist versus advocates of sanctity of contract-have also been made in the context of national and constitutional law; see only the most instructive majority decision, with strong dissent, by the U.S. Supreme Court in United States v. Willstar, 116 S.Ct. 2432 (1996).
These issues played a large role in the establishment of the United States, the economic success of which is often attributed to the priority given to protection of property, sanctity of contract and observance of financial commitments to develop its public credit. For a discussion of the controversy between the first U.S. Secretary of the Treasury (and main author of the Federalist Papers), Alexander Hamilton, and his more populist antagonists, see Ron Chernow, Alexander Hamilton, Penguin, New York, 2004. H Scs v. Pakistan, ICSID Case No. Ai�.i3/01/13, Decision on Objections to Jurisdiction of 6 August 2003, 42 I.L.M. 1290 (2003); 18 1(-SID Rcv-F.IL.J. 301 (2003); and Scs v. Philippirres, ICSID Case No. ARB/02/6, Decision on Jurisdiction of29 January 2004, 42 I.L.M. 1285 (2003), also available at: <www.worldbank.org/icsid>. ICSID cases cited throughout this article are, as a rule, available at: www.worldbank.org/icsid�. They are sometimes also published in the I.L.R., ICSID Rev.-F.LL.J., ICSID Reports and I.L.M. For a comprehensive table of cases, see W. Benharnida, L'arbitraee transuationallll1ilatéral. Reflexions stir line procedure reservee a 1'initiative d'une persmme privee nnrtre line personne publique, Bruylant, forthcoming. A number ofthe cases cited and case comments are also regularly published in OGEL, at: <www.gasandoil.com/ogeh. For a complete comment on the Scs v. Pakistan case, see S. Alexandrov, Introductory Note, 42 I.L.M. 1285 (2003). 9 See Manfred Streit and Michael Wohlgcemuth, The Market Economy and tlre State: Hayckian and Ordoliberal Conceptions, Max Planck Institute for Research into Economic Systems, Jena, Discussion Paper 06-97, with a summary of the concepts by Boehm, Eucken and Hayek; Deepak Lal and H. Myint, The Pnlitical Economy t'/ Pot��y, Equity and Growth, A Corrrparative Study, Clarendon, Oxford, U.K., 1996; Mancur Olson, Power and Prosperity, Basic Books, New York, 2000; also the official views oftwo General Counsels of the World Bank: I. Shihata, Introduction, in A.W. Seidman, R. Seidman and T. Walde, Making Development Work: Legislative Reform /or Institutional Transformation and Good Govemallce, Kluwer, The Hague, 1999, p. XXII; and Roberto Danino, The Importance of the Rule of Law and Respect for Contractual Tights in Transition Countries, available at: <www4.worldbank.org/legal/ publications/Damino_EBRD.pdf. The same link between respect for "proper contract enforcement" and economic development is made in a recent OECD Report: Tlre OECD Initiative on Investment for Development, OECD Doc. DnFFE/Inns/TF, 24 May 2004, at p. 3. For a recent and very clear review of recent economic literature identifying the close nexus between protection of property rights (including contractual commitments), the rule of law and economic development, see William Bernstein, The Birth of Plenty: How the Prosperity of the Modern World
wasCreated, McGraw-Hill, New York, 2004, pp. 284-289. According to Bernstein's analysis, under-development is closely correlated with the absence of an efficient system of property rights; he contrasts in particular Latin America and the Muslim countries with the Anglo-Saxon countries which acquired by colonization the property institutions of the common law. In light of this analysis, it is perhaps not surprising that most current investment arbitration is directed against countries of Spanish colonial heritage (e.g. Mexico, Argentina and the Philippines) and Muslim countries (Indonesia, Egypt and Pakistan). On the link between formal protection of property, efficient institutions and social and commercial culture, see T. Waelde and J. Gunderson, Legislative Reform in Transition Economies, 43 I.C.Q.L. 347 (1994). » For example, the great and ultimately predominant emphasis on repayment of public debt in the founding era of the United States (see Chernow, supra, footnote 7) and the observation made frequently that Britain's emergence as a world power from the 17th century was built on its ability to inspire trust for its public credit (Chemow, supra, footnote 7, at p. 156); also F. Fukuyama, Francis Fukuyama Trust, The Social Virtues and the Creation of Prosperity, Hamish Hamilton, London, 1995. II The establishment of the principle of honouring previous debt by the first Government of the United States-against considerable populist backlash-thus provided the basis for long-term prosperity; Chernow, ibid., at pp. 294-320. 12 This role of international treaties in influencing the power balance in domestic politics in favour of good governance has been explained lucidly by Robert Putnam, Diplomacy and Domectic Politicc: The Logic of Two-level Games, International Organization, Vol. 42, 1988, pp. 427-460. For an illustration of how Russian signature (not ratification) of the Energy Charter Treaty was an instrument to anchor domestic economic reform, see A. Konoplyanik, The Energy Charter Treaty, A Russian Perspective, in T. Walde (ed.), The Energy Charter Treaty, Kluwer, The Hague, 1996, pp. 156-170.
t3 Developed by the chief Gnrr thinker, Jan Tumlir, and popularized by E.U. Petersmann,; see, among many others, J. Tumlir, GATT Rules and Community Law, in Meinhard Hilf and Ernst-Ulrich Petersmann, National Constitutions and International Economic Law, Kluwer, Deventer, 1993, pp. 1-52.
11 I have discussed the implicit advocacy of positions favouring perpetuation of poverty in developing countries by well-nreaning European scholars in another context: T. Walde, Sustainable Development and Natural Resources: From Goud Intentions to Good Consequences, in N. Schrijvcr and!'. Weiss (eds.), International Law and Sustainable Development, Brill, Leiden, 2004; also available at: ww-w.gasaiidoil.cojii/ogel,. IS Bernstein, supra, footnote 9, at p. 307. 16 see L. Condorclli, Prenrier Protocol Additionnel, in L.-E. Pettiti, E. Decaux and P.-H. Imbert, La Convention Europi·enne· des Droits de 1'Honutre, Economica, Paris, 1995; also M. Mendelson, The IIK Natiollalisatio/l Cases and the ECHR, 57 B.Y.I.L. 33 (1986); T. Waelde, Overview, in T. Weiler (ed.), N9FTA Investment Law and Arbitration, Transnational Publishers, Ardsley, New York, 2004. r� For further references to repudiation of contract, see Unctad, State Contracts, Paris, 2004, at pp. 20-21 (I quote from a draft of July 2004) with reference in particular to: the 1985 MICA Convention, Article 11 (a)(iii): Islamic Investment Insurance Corporation, Article 19(2)(C); and World Bank Guidelines on Foreign Investment 1992, para. 11, Section tv. All these instruments discourage the repudiation by the host government of contracts with foreign investors, but where the State acts as sovereign and not as contracting party. m The Alien Tort Claims Act (1789), 28 U.S.C. 51350. See Y. Belgore, Problems with Litigating Oil Pollutions Injuries in Nigerian Courts: Can Litigants Gain Access to Courts in England and the USA? OGEL Study No. 2 (2004), available at: (www.gasandoil.coni/ogel,; C.C. Hufbauer and N.K Mitrokostas, International Implications of the Aliell Tort Statute, 7 J.LE.L. 245 (2004); H. Hongju Koh, Separatinq Myth fronr Reality about Corporate Responsibility Litigation, 7 J.LE.L. 263 (2004).
14 This theme is repeated in many recent arbitral awards; see, for example, Robert Azinian and Ochers v. United Mexican States (Aziniarr), ICSID Case No. ARB(AF)/97/2, available at: (www.naftalaw.org); Mnndev International Ltd. v. United States of America (Mondev), ICSID Case No. APB(AF)/99/2, available at: <www.naftalaw.org>; and Raymond b)eiieii and Loewen Corp. v. United ,States of America (LoellICII), ICSID Case No. ARu(AF)/98/3, available at: ,www.ii�ift�ilaw.org,. However, it is rarely thought through; formally, investment arbitral tribunals are never a supra-national appeals body but, from a more material perspective, they provide-as appeals courts do-a recourse to judicial decision-making when the domestic option either appears non-appealing or, in some cases, has failed to satisfy the aggrieved investor. 2<1 John Head, Evolution of the Governing Law,for Liiii Agreements of the World Bank and other Multilateral Development Banks, 90 A.J.LL. 214 (1996), at 214-234. =' S. Arrowsmith, Transparency in Government ProCllremellt- The Objectives of Regulation and the Boundaries of the WTO, 37 J.W.T. 2, April 2003; Mary Footer, Renredies under the New GATT Agreemfllt Oil Government Procurement, Sweet & Maxwell, London, 1995, pp. 80-93. 22 This theme is repeated in many recent arbitral awards, such as Aziniarr, sura, footnote 19; Morulev, suyra, footnote 19; and Loeweit, .!�m, footnote 19. Formally, investment arbitral tribunals are never a supra-national appeals body on domestic law matters: they do not decide domestic legal issues but take domestic law as facts; they do, however, review domestic law in cases of denial ofjustice, for example if the domestic court decision is contrary to or deliberately misapplies domestic law. See, for example, Article 26 ECT and in particular Article 26(3)(b)(i), where only the four Annex ID countries exclude recourse to Article 26 arbitral jurisdiction if there was a previous recourse to a domestic jurisdiction. 23 Ernst-Ulrich Petersmann, Proliferation and Fragrnentation of Dispute Settlement ill International Trade: WHJ o Dispute Settlement Procedllres and Alternative Dispute Resolution Mechallisms, 2004, manuscript in possession of author. 24 Gregory Shaf3�er, Defendinq Interests: Public-Private Partllerships in Wro Litigation, The Brookings Institution Press, Washington, D.C., 2003.
=5 Richard Kreindler, Aspects of Illegality in the Formation and Performance of Contracts, OGEL archive at: <www.gasandoil.com/ogel>; William Park, Determining Arbitral Jurisdiction: Allocation of T'asks between Courts and Arbitrators, 8 Am. Rev. Int'l Arb. 133 (1997). 26 This assumption did play a role in the Hilmarton and Chromalloy cases (see Hilmarton c. OTV, Rev. Arb. 1994, p. 327, O'rv c. Hilmarton, Rev. Arb. 1997, p. 376; and Chromalloy Aerosen,ices v. The Arab Republic of Egypt, 939 F. Supp. 907, 909 (1�.D.C;. 1996), Egypte v. Chromalloy, Rev. Arb. 1997, p. 395, and 22 Y.B.C:.A. 691 (1997)) and also in the lack of external cnforccability of most of the anti-arbitration injunctions issued by domestic courts in developing host States involved in investment disputes. See also Abdulhay Sayed, Corruption in International Trade and Commercial Arbitration, Kluwer, The Hague, 2003. 27 Le Figaro, 7 July 2004.
28 The European Bank of Reconstruction and Development (Etsuu) and the World Bank have been carrying out analyses of the effectiveness and the perceptions of the integrity of domestic courts; see, for example, the annual Legal Indicator Surveys by the EBRD, available at: �www.ebrd.com/country/sector/law/about/assess/lisannex.pdf and published regularly in its "Law in Transition" Newsletter; and similar survey and governance/judiciary quality assessments by the World Bank, available at: (www1.worldbank.org/publicsector/anticorrupt/lcgal.htm.. The increasing reliance of governments seeking to escape from arbitration commitments on the use of domestic courts and anti-arbitration injunctions only illustrates that this concern is not theoretical but very real; see the discussion of anti-suit injunctions by the Jakarta Court against the Karaha Bodas arbitration in the U.S. Court of Appeals for the Fifth Circuit, Karalra Bda v. Pertamina, 18June 2003, available at: Lexis 12267 2003 US App. On the second-highest priority in developing countries given to corruption in the judicial system, see the Transparency International Corruption Perception Index; available at: <www.transparency.org>. 29 On such cyclicity, see Neff, supra, footnote 5; and Walde, supra, footnote 4. '° This is similar to the observations reported by Bernstein, supra, footnote 9, at p. 313, that successful societies tend to be more open and failing and threatened societies more self-enclosed and suspicious of whatever appears foreign. 31 Mann, supra, footnote 3; G. Schwarzenberger, Foreign Investments, Stevens, London, 1969, p. 117, in his commentary on Article 2, "Observance of Undertakings" of the draft Abs-Shawcross Convention; Justus Alenfeld, Die bwestitionsfoerderungsvertraege der Bundesrepublik Deutschland, 1971, p. 96, at p. 97 (suggesting the application of domestic law and international contract-law principles such as rebus sic stantibus to the pacta sunt servanda clause, first introduced by the German BITS in 1959). Gesellschaft zur Foerdenmg des Schutzes von Auslandsinvestitionen (Gesellschaft), Heft 3, Cologne, 1960, p. 101, where the point is made that a State's use of its sovereign power to frustrate the legitimate expectation that it will observe its contractual undertakings breaches international law (from reply by the U.S. section of the International Law Association on the expropriation questionnaire of the I.L.A. of 20 February 1958. The members included James Hyde, Kenneth Carlston, Martin Domke, Richard Gardner, Philip Jessup and Stephen Schwebel).
3= Note most explicitly Article W (c) of the "Abs-Docllc" Convention draft (one of the two precursors to the subsequent Abs-Shawcross Model Convention), Gcsellscliaft, ibid., Heft 2, 1958, at pp. 96-97. 33 Gesellscliaft, ibid., Heft 2, at pp. 28-31, citing, inter alia, the 1936 Argentine Electricity Concessions, the C:ompagnic Umverselle du Canal de Suez nationalization, and the nationalization, starting in Mexico in 1927, of petroleum concessions; Gcsellscll<1{t, ibitl.. Heft 3, p. 100, referring to the Serbian Loans, the EI Triitnjo, Landreau and Slutfeld claims, the Radio Corporation of Arrrerica cases, North American Dredging v. Mexico and other cases of the inter-war period. 3; Gesellschaft, ibid., Heft 3, 1960, pp. 100—101, translating the reply of the U.S. section of the International Law Association to a questionnaire of the International Expropriation Committee of 20 February 1958; the English version is published in Schwebel, 1994, supra, footnote 3, at 38s-400; on the significance of concession dispute arbitration in the intcr-war period, see also S. Schwebel and W. Wetter, Some Little-Known Cases on Concessions, B.Y.I.L., 1964, pp. 436-489.
35 Compare K.S. Carlston, Concession Agreements and Nationalization, 52 A.J.I.L. 260 (1958). 36 Id., distinguishing between different categories of breach or non-performance of a State contract: (1) an exercise of a claimed contractual right; (2) law enforcement sovereign measures of a punitive nature which affect the investor's contractual rights; (3) exceptional measures taken in the public interest; (4) necessary response to changed circumstances,. 11 If there was an element of long-tenn sales eontract-as in some oil-related agreements such as the Iranian Consortium Agreement-it was an element of larger contractual package regulating foreign direct investment and replacing the more traditional straightforward concession contract on the other. '" Nor example, Jennings, supra, footnote 3, at p. 168, referring to F. Mann: "If it is merely that there is an honest dispute as to the meaning of the contract according to the local law at the time it was made, the interpretation of the local courts is likely to be final in the absence of a denial ofjustice in the strict sense." However, he assumes an international (expropriatory) claim "if the defendant state whose law governs the contract has, in the exercise of its legislative or executive powers, taken measures specifically to terminate or interfere with the particular contract in issue". He refers here also to F. Mann, who equally distinguishes between a tort which consists in confiscatory, discriminatory or arbitratory measure, in short, in the "abits rle droit" on one hand and a "nornial" dispute about the legal position with respect to breach of contract on the other. 3') AlIg!o-Im"i"" Oil case, Pleadings. Oral Arguments and l7ocumcnts. I.C.J. Rcp., 1952. pp. 87-88. 4" Organisation for Economic Co-operation and Development Publication No. 15637, December 1962, Appendix 13; Ohcd Publication No. 23081, November 1967; S. Zamora and R. Brand, Basic Uunnnerris 4 International Economic Law, CUI, volts. i and 1I, 1990.
�r The most comprehensive and now most accessible collection of such investment-related documents has been published by UNCTAD and is now available from its Website, at: <www.unctadxi.org/templates/ Startpage 718.aspx>. 42 Emilio Augustin Maffezini v. Kingdom �f Spain (Ma�ezim), IcsiD Case No. ARB/97/7; available at: <www.worldbank.org/icsid>, at para. 54; commented upon in detail by C. Crepet, Traitemeru national et traitement de la nation la plusfavoriset', IHEI Colloquium, May 2004.
11 Such as the Case Concerniny Elettronica Sicrda S.A. (ELSI) (United Stales v. Italy), I.C.J. Reports, 1988, p. 69. See also F.A. Mann, Foreign Investment in the International Court ofJustice: '17ie ELSI Case, 86 A.j.1.L. 94 (1992). 44 Joseph Weiler, The Rule of Lawyers and the Ethos ofDiplol1lats: R�flectioiis ou the IIIterl1<1l and External Legitimacy of W7o Disputes Settlement, 35 J.W.T. 2, April 2001, pp. 191-207.
11 Sec, on this distinction also utilized by P. Weil and other French scholars, Benhamida, SlIpra, footnote 8, paras. 85-88, with the proviso that this distinction is difficult to put into effect (para. 89). 46 Sec Noah Rubins, The Notinn of Investment in International Investment Arbitration, in Horn (ed,), supra, footnote 3. 47 Mann, supra, footnote 43; Azinian, supra, footnote 19; J. Paulsson, Denial of Justice, Hersch Lauterpacht Memorial Lectures, Cambridge University, 10-12 November 2003, Cambridge University Press, Cambridge, U.K., 2004; references to this principle also in Mondev, supra, footnote 19; Loewen, supra, footnote 19. See also Noah Rubins, T7ie FI'ollltioll of Investment Arbitration ill the US FT,4s with Singapore and Chile, OGH 5 (2003) on the new U.S. BIT/Foreign Trade Agreements (FTAS) with Singapore and Chile; see also the reference in Article 5 of the United States-Chile FTA: "... 'fair and equitable treatment' includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world."
4S The presentation by Yves Nouvel, L'arbitre a la rechercfre dllfilit etatique, IHEI/Paris 11 Colloquium of 3 May 2004 (to be published by Charles Leben), contains an extensive review and discussion of cases where the qualification as governmental (of the State enterprise, the specific incriminated conduct and the character of a contractual relationship) was used to determine the attribution of both the State enterprise and, separately, the contractual conduct by the State enterprise to the State. The cases and criteria identified in Nouvel's survey, though not necessarily his analysis and conclusions, should be relevant for qualification of State and State enterprise/instrumentality conduct as governmental. 4<l Presumptions and burden of proof are extensively used by international tribunals for a variety of reasons. Partly they help to manage not absolutely clear and complete information; partly they apply a probabilistic and plausibility judgment; and partly, and perhaps most importantly, they put some of the burden of loss on the losing party itself. The European Court of Justice has employed the burden of proof mechanism for precisely the same reasons; see, for example, EU Commission France et al., 1997 (energy export monopoly). In investment arbitration, it is in particular with respect to the following issues that tribunals have successfully operated burden-of-proof and prima facie proof mechanisms: attribution of State enterprise conduct to the State (the structural test of Statc control gives rise to a presumption that the conduct at issue is functionally a public matter and should be attributed to the State; see Maffezini, supra, footnote 42; Salini Constnotori S.p.A, and Italstrade S.p.A, v. Kingdom of Morocco (Salini), Icsil) Case No. AK.H/00/4; T. Walde and K. Hober, 7lie First Energy Charter Treaty Arbitral Award, OceL?, October 2004, available at: (www.gasandoil.com/oge!» and with respect to discrimination (distinct treatment of prirna jarie- like situations requires the State to prove that situations are not alike and/or that distinct treatment is based on legitimate reasons; see the WTO cases on alcoholic beverages; the WTO Asbestos case (EC— Canada, WT/DS135/9, 8 November 2000); S.D. Dyers, Inc. v. Government of Canada (S.U. Myers), NAFTA Arbitration under the UNCITRAL Arbitration Rules, available at: www.iiaftalaw.org�; and Marl'ill Roy Felornan Ikarpa v. United Mexican States (Feldman Karpa), lesln Case No. Ai�,B(AF)/99/1. Sec also G. Vcrhoosel, National Treatment and W't'o Dispute Settlement, Hart Publishing, Oxford, U.K., 2002. 511 For the most detailed discussion, see K.-H. Bockstiegel, Der Staat als Vertragspartner allslaClldisehcr Privatrrrrterndrnu·n, Atheneum, New York, 1971, with an English follow-up study published in 1984. Majfezini, ibid., and Salini, ibid., have been published at: (www.worldbank.org/icsid) and published and commented upon by E. Gaillard in Clunct/Joarnal de droit international (2003) and by B. Cremades, supra, footnote 3; for a discussion of attribution, including for State enterprises, see also the cases cited by Nouvel, sura, footnote 48 (though we have not as yet been able to examine and appreciate his analysis in depth). 5r Note here the not yet conclusive considerations by Nouvel, ibid.
-�2 P.J. Slot, Rcyulatiou of Prices in the Energy Sector in the EC, 1997, manuscript in possession of the author. See both the Dutch Hortintlturalists (van der Kooy) and the CoJaz cases: Commission Decision 83/215; Court Decisions: 1988 ECR 2129 Cofaz I, 1986 ECR 408; Commission Decision: OJ 1992 C 344/4; Cofaz u: Case 169/84; Altmark Decision, C-280/00 of July 2003. The market investor test examines if a "private investor applying ordinary commercial criteria and disregarding considerations of a social, political or philanthropic nature" would have undertaken an action: SI'U v. La P<:�, 1996, EC 1-3547, para. 60 (AG Jacobs). See also A. Biondi, P. Eeckhout and J. Flynn (eds.), T7�e Law of State Aid in the Europcan Union, Oxford University Press, Oxford, U.K., 2004, pp. 8-10 and throughout; Catt Analytical Guide, Vol. II, 1995, p. 476 (relating to Article xvii CGArr). 53 Mann, supra, footnote 3; on the exposure of contracts to State police powers, also see Gesellschaft, supra, footnote 31, Heft 2, 1958, p. 32 (Introduction to draft Abs Convention). Sa There may, though, be use of dominant private economic power, which usually triggers the application of competition law (See Article 1, U.S. Sherman Act; Article 82 EU Treaty). There could be an argument that a treaty should apply to the abuse of dominant private economic power or to privately organized but government-owned economic power, but here the reason to identify a governmental dimension and attribute the power to the governments would be the governnent's duty to exercise its powers-ownership, control or regulation-to prevent abuse by dominant economic power. 95 On good faith and abuse of right, see Bin Cheng, General Principles of Law, Sweet & Maxwell, London, 1953, reprinted by Grotius, Cambridge, U.K., 1987, at pp. 123 et seq.
56 W5]dc, supra, footnote 4. 57 53 I.L.R. 389 (1979); 17 I.L.M. 1 (1978). 51 See Sornar'�ah, supra, footnote 4. so See E. Denza and S. Brooks, Protection Treaties: UK J:xperieuœ, 36 908 (1987); R. Scott Gudgeon, Arbitration Provisions of US Bilateral Investment Treaties, in S. Rubin and R. Nelson, International Investment Disputes: Avoidance and Settlement, West Publishing, St. Paul, Minnesota, 1985, p. 41. 1. ''" U.S. Fcn treaties did not (apart from a possible predecessor in the 1949 United States-Ethiopia treaty, which, however, could not be a proper umbrella clause without a binding dispute settlement provision) include pacta siiitt servanda clauses. Alenfeld, supra, footnote 31, at p. 104, footnote 210, suggests with reference to a 1963 AHA report (Report by the Committee on International Trade and Investment of the Section of International and Comparative Law of the American Bar Association, Tlre Protection of Private Properly Invested Abroad, American Bar Association, published privately, 1963, at p. 28) that the United States felt that such a clause would have limited its "eminent domain" powers. However, U.S. and U.K. l3rrs from the 1980s onwards, as a rule and where accepted by the other State, contain this clause; see, for example, the 1992 United States-Argentina Bit, 31 I.L.M. 124 (1992). The parta sunt semrurda clause again disappeared from both the NAFTA and the post-2003 U.S. FrAs; see N. Rubins, Final Damages Award in the CItE Czech Republic Bv. r. Czerh Republic: An Ovemiem, O<�sr 4 (2003), available at: <www.gasandoil.com/ogel'; D. Gantz. Cf�M�n� A'fy 7ftrf.<��ftjf Prf!'�/<�.< of the NAFTA with the United States-Chile Fr.A, in Wciler (ed.), supra, footnote 16; Mark Kantor, Corruption and Arbitration: All�gatiotis by i Host State, Oc;el 2 (2004), available at: www.gasandoil.com/ogelr. ''' Schwarzenbcrgcr, suyra, footnote 31, at p. 160, suggests that the first occurrence of the clause in Article 11 of the Abs-Shawcross Model Convention was meant to reject the Iranian argument in the Anglo-Iranian Oil case, snpra, footnote 39, that an assurance given on the domestic level did not amount to a commitment under international law. Also, for example, some of the libertarian positions taken by the Poye fez 7<!�f. Inc. v. Covernment of Canada (I'oye & Talbot), NAFIA Arbitration under the UNCITRAL Arbitration Rules, Final Award, available at: <www.naftalaw.org'. and the comparable S.D. Dyers Award, supra, footnote 49, seem to have led to the 2001 NAFTA Parties' Interpretative Decision purporting to restrict the "fair and equitable" concept to the traditional minimum standard in international law and also to similar restrictive formulations in subsequent U.S. FTA practice (as illustrated by the United States-Chile and United States-Singapore FTAS; see Gantz, ibid.
1,2 Its purpose was both to protect the contract from legislative interference and thus simply to highlight the principle ofpacta siitit seniatida and also, in a particular variety (the "freezing clause"), to freeze the regulatory regime applicable at the time of the contract's conclusion. The modern version of the stabilization clause effects stabilization by renegotiation; that is, it obliges the parties (and may empower a tribunal) to adapt the contract to compensate for a change in the regulatory/fiscal framework that impacts detrimentally on the contract's economic equilibrium; see T Walde and G. Ndi, Stabilizing International Investment Commitments, 31 Texas]. Intl Law 2115 (1996). �3 Walde and Ndi, ibid.; Charles Leben, Quelques reflexions tlreoriqnes a propos des cortrats d'etat, in Melnnges Philippi Knlm: Souverainete etatique et marchés illtfrll<1tiollallx, 3(l ans de recherche du Credirni, Vol. 20, Travaux dc Credimi, 2000. 1,1 My solution to the question whether the umbrella clause is the equivalent of the stabilization clause but on the level of treaty law (compare Benhamida, supra, footnote 8) is that the umbrella/sanctity of contract clause may not "freeze" applicable law, as some stabilization clause provisions purport to do, but that it prevents the State from invoking its sovereign and regulatory powers in an abusive way to escape from contractual commitments assumed earlier. This is one of the functions of the contractual stabilization clause, but it docs not cover the "freezing" automatically. There may be changes in the regulatory context of a project which are of a general nature, non- discriminatory and justified by legitimate public policy adjustment of the legal context to changing circumstances and international standards. Such changes should, as a rule, not be caught by the "sanctity of contract" clause, as they do not represent an abusivc reliance on sovereign powers to undermine contractual commitments. 6' I rely here very much on Anthony Sinclair's concurrent examination of the history of the 1',,((a SIIIIt sfrI'alld" clause: Tlre Origins of the Umbrella (clause in tlre International Law of Investment Protection, 4 Arb. Int'l (2004).
11 I. Seidl-Hohenveldem, IlItcmatio,,,,1cs KOIl/iskatiolls- und Enteignungsrecht, 1952. (,7 This is very clear from H.J. Abs, Internationale Prableme nad Fragen der IIll'estitiolls/il1allzicrtmg, in Gesellschaft, supra, footnote 31, Heft 2, 1958, pp. 7-17; H. Shawcross, Die Foerdernng internationaler IIII'estitioI1C1l, Rede vor der Gecellscha/t our Foerdemng Aes Schutzes von Auslarrdsinvestitionerr in Koeln anr 7. Dezember 1959, in Grsellschaft, supra, footnote 31, Heft 3, 1960, pp. 49-67.
'■" It seems to me that "umbrella" clause is not the best term. Prosper Weil, from whose work, Problernes relati/s aux contrats passes entre uii �t4it et nn partiadier, Recueil des Cours III, 1969, pp. 130-135, many derive the label, spoke of "trait� de couverture" ("treaty of coverage") rather than of "umbrella clauses". The term "umbrella clause" does not convey the same meaning as "traite de coulJerture", nor does the German term "Abschirm'mgsklausel" (some indications arc that the term was first used in German and translated into English as "umbrella" clause by Ignaz Seidl-Hohenvcldern, then the Chairman of the ILA Committee on Expropriation). The German term suggests rather the sense of "protection against" (cxpropriatory measures) than "umbrella" in the sense of a higher-level protective legal instrument. 11 The draft Mm is available from the OECD Website, at: v;A�.oecd.org,� and the UNCTAD Website, at: <www.unctad.org>; references to delegations' proposals for "respect clauses" are at p. 196. For a more detailed analysis of various types of such clauses and their implications, see W. Bcnharnida, La Cause relative au respect des engagements dam les traites d'investissemeut, IHEI/Paris U Colloquium, 3 May 2004, to be published by Charles Leben. 71) See the more detailed analysis by Sinclair, supra, footnote 65; Schwarzenbcrger, supra, footnote 31, at p. 160. It is interesting to note that the British and German efforts at a model investments convention referred to quite different cases. In the British instance, it was in particular the Anglo-Iranian Oil case, supra, footnote 39 (revocation under the Mossadegh Government); in the German instance it was-apart from Mexican oil, Argentine electricity, the Suez Canal and other, mainly East European (i.e. Communist), concession disputes—mainly post-World War I disputes with Poland and post-World War 11 disputes with Czechoslovakia which form the backdrop to the final joint Abs-Shawcross Model Convention; see Gesellschaft, supra, footnote 31, Heft 2, 1938, pp. 27-31; Seidl-Hohenveldern, sura, footnote 66. 71 See H.J. Abs, The Safety of Capital, in S. Bruchley and J. Daniel (eds.), Private Investment, Ayer, Manchester, New Harnpshire, 1980, p. 69; and, in German, in Cesellschaft, ibid., Heft 2, p. 46.
72Gc,s(,11.�(liaji, id., commentary at pp. 58 and 59; I have translated the relevant parts of the text. There is also a possibly significant reference to national treatment which is ambiguous (i.e. it is not clear if compliance with national treatment provides an exception for the cancellation and restriction of concessions). Concessions are earlier defined as based on public law (e.g. the civil-law concept of "wlltrat administratif") . They are protected if they are "backed" by investment and then acquire the status of protected acquired rights. The protection contains elements of "legitimate, iuvesUnent-backed" expectations, abuse of right, nenire contra factll/1/ proprium and good faith. �3 As cited and discussed in Schwarzenberger, supra, footnote 31, at pp. 116 and 160. 4 2 I.L.M. 241 (1963); for an amended version, see 7 LL.M. 118 (1968). Weil, supra, footnote 68, at p. 131, makes reference to a related clause in the 1963 France-Tunisia investment treaty, though the text of this provision does not contain the same explicitness about a contractual commitment being covered by the treaty. 5 Richard Happ, Dispute Settlement under the Energy Charter Trenty, 45 German Ybk. lnt'1 Law 331 (2003). 76 For a discussion of such interpretative efforts, see Benharnida, supra, footnote 69.
77Supra, footnote 8. 7" I have suggested elsewhere (Waelde, supra, footnotc 16) that direct investor-State arbitration is better understood using the analogy with judicial review ofadministrative decisions (in civil-law countries, usually carried out by specialized administrative law courts) than with international commercial arbitration. In judicial review, it is the affected citizen alone who can bring an action for nullity of a State action or compensation before such courts. This is an asymmetric right: only the citizen has the right, not the State. It is to defend individual rights against interference by the State. There is no jurisdiction agreement (as in commercial arbitration), no parity or symmetry (as in commercial arbitration); the action is exclusively at the option of the affected holder of individual rights. Investment arbitration plays an equivalent role in the relationship between foreign right-holders and host States; it only uses the forms and procedures of commercial arbitration as-apart from the European Court ofJustice and, to some extent, the European Court of Human Rights-no standing international court for such "international judicial review" has so far developed. However, it is possible that experience with and criticism of investment arbitration will lead to more permanent international tribunals, including an appeals function. �y See Gcsellsclw{t, cupra, footnote 31, Heft 3, 1960, pp. 10(�-101.
80 Lecture to the Abs-Doelle Committee, GesellschaJi, ibid., Heft 3, 1960, pp. 60 and 61. Presumably, the term "Staatsakt" is comparable to the French tenn "/ait �tatiqzie" discussed by Nouvel, supra, footnote 48. 82 Weil, supra, footnote 68, pp. 132 ct seq.; idelll, Droit international et rontrats d'Etat, in A1é1allgrs offerts a Paul Reiiter, Pedone, Paris, 1981, pp. 549-582. See also N. David, Les dauses Ac stabilisation dans les mntrats 1)�tr�)iit,rs, Journal du droit international, 1986, p. 79. 83 Careful management of contractual drafting may, however, not be superfluous- First, the pada sunt serpallda clause is not necessarily a perfect substitute for a stabilization clause; and, secondly, it is not clear how effective an umbrella clause would be where the contract is governed by the host State's law, which is likely to include a govemmental right to suspend, vary or terminate the contract.
11 See E. Paasivirta, Energy Chartrr Treaty and Investment Contract, in Wä1de, supra, footnote 12, at pp. 358 and 359. H5 Ibid., at p. 358. H6 So also R. Dolzer and M. Stevens, Bilateral Investment Treaties, Brill, Leiden, 1995, at p. 82. They seem to envisage the clause to cover both "simple breach of contract" and interference by administrative and legislative acts. They have no doubt that "obligations" cover obligations arising from investment contracts, with reference also to D.W. Bowett, State Contrasts with Aliens, 59 B.Y.I.L. 88 (1992). These earlier discussions, however, do not have the benefit of the testing of the clause in the two 2003 Ses Decisions nor of the in-depth research into the history of the clause and its original intentions. 87 Schwarzcnberger, supra, footnote 31, at pp. 116 and 160. Schwarzerrberger also suggests that the clause clarifies that no exhaustion of domestic remedies is necessary, a position confirrned in the investor-State arbitration provisions of modern investment treaties. He does, though, at pp. 161 and 159, suggest that contract-law principles, such as non-performance and Force mnjeure, need to be made applicable. Our distinction between "commercial- only" contracts and contracts with a governmental dimension is otherwise not present in such older writing, possibly because they all envisaged "investment contracts" between a State and an investor and not purely commercial contracts. Also, since in older investment law the home State had the exclusive right to sponsor a claim by one of its investors, there was an additional restrictive "valve" controlling the type of claims raised, something that is not present in modern situations where the investor on its own can decide to raise a claim.
gm Rubins, supra, footnote 46. See Tknicas Medioarnbientales Tecmed, S.A. v. United Mexican States (Teemed), ICSID Case No. AIU3(AF)/00/2, Award of 29 May 2003, 43 I.L.M. 133 (2004). 9u See M. Kantor, Investor— State Arbitration over Iiivesttiients ill Financial Services, Tuna 3 (2004); available at: <www.transnational-dispute-management.conu. The investment agreement concept is limited to agreements with a national authority of the host State, not local authorities. This is therefore a version, but a quite limited one, of the conventional pacta sunt senatidti clause.
91 See, for example, amongst many others, the 1995 United States-Latvia BIT. i. 1)2 Mm draft, supra, footnote 69, p. 1 04. country-specific proposals: "Each Contracting Party shall observe any other obligation in writing it has assumed with regard to investments in its territory by investors of another Contracting Party. Disputes arising from such obligations shall only be settled under the terms of the contracts underlying the obligations" (a precursor to the subsequent reasoning of the Scs Philippilles Award in 2003); and the "respect clause": "Each Contracting Party shall observe any obligation it has entered into with regard to a specific investment of an investor of another Contracting Party." ''3 UNCTAD, Bilateral Investment Treatics in the Mid-'1990s, United Nations, New York and Geneva, 1998, pp. 54-56. 'J4 Alenfeld, supra, footnote 31, at p. 104, footnote 210, reports that Chile refused to accept in its then-BIT with German the parta stint servallda clause included in the standard German BIT proposal. 9S Fedax N. f`'. v. The Republic of Venezuela, ICSID Case No. ARBl96/3. 9h Mainly F.A. Mann: Alenfeld, supra, footnote 31, pp. 99—104: Weil, supra, footnote 68; and idem, supra, footnote 82. 1)7 Alenfeld, ibid., at pp. 102 and 103. <J8 Note the Protocol, No. 8, to the Germany-Turkey Brr, quoted in Alenfeld, ibid., p. 98. v`r Though the first alternative for the respect clause proposed by one delegation for the Mm, supra, footnote 69, suggests the solution later reached by the Sc.s v. Philippines Tribunal. 11111 Alenfeld, supra, footnote 31, at p. 104. "" Ibid., at pp. 97 and 100, suggests that the clause can be read as a "waiver" of otherwise available governmental powers to revoke the contract or restrict it in the public interest. 1112 F.A. Mann, British Treaties Jor the Promotion and Protection of Investments, 52 B.Y.I.L. 24 (1981), at 246; Dolzer and Stevens, supra, footnote 86, pp. 81 and 82.
,,1.\ Note only: "A state is only directly responsible, on the international plane, for acts involving breaches of contract where the breach is not a simple breach ... but involves an obviously arbitrary or tortuous element" and, with respect to the earlier Norwegian Loans case (I.C:.J. Reports (1957), p. 9): "Lauterpacht would have considered that a failure by a government to honour a gold clause in a contract with a foreigner involved a sufficiently tortuous element to bring the case within the above mentioned principle." Gerald Fitzmaurice, Hersch Lauterpacht, 37 B.Y.I.L. (1961), pp. 64-65. Also: "... the breach of such a contract by a state in ordinary commercial intercourse is not, in the predominant view, a violation of international law, but the use of sovereign authority of a state, contrary to the expectations of the parties, to abrogate or violate a contract with an alien is a violation in international law." Schwebel, 1987, supra, footnote 3, at 409 et seq. '°4 As seems to have been suggested by Claimant in the 5(;.s' v. Pakistani and Scs r. Phi/¡j'pillc5 cases, relying, mainly, on Prosper Weil's theory that the umbrella clause in an umbrella treaty "lifts" the contract breach to the level of international law. r"' For example, in Article 10(1) Ecj "... shall observe any obligations it has entered into with an investor or an investment of an investor" (emphasis added). 106 Thc Award has been briefly reported in the SD-lnvest Newsletter of December 2003 and in the Latvian press; an article by Kaj Hober, Investment Arbitration in Eastern Europe: Receiit Cases on Exproprintion, in 0(;Fi, 5 (2003), available at: (www.gasandoil.com/ogeh. discusses the factual background and early legal argument. Under the rules of the Stockholm Chamber of Commerce, it is not publicly available. For a sanitized case comment, sec Walde and Hob6r, supra, footnote 49.
IU7 The case was settled in 2004 (according to a message posted on OcEn�in>: www.cepmlp.org�), which means that there will not be an award on the merits. IOH This conflict between contract-based and treaty-based arbitration was identified in the-then only theoretical-discussion of the then very new investment arbitration facility under the ECT in T. Wa'lde, investment Arbitration wider the Energy Charter Treaty, 12 Arb. Int'l (1996), pp. 429-467; see also Thomas W. Waolde, International Investment unrler the 1994 Energy Charter Treaty, 29 J.W.T. 5, October 1995, pp. S-72; see also the simultaneously written analysis by Genevieve Burdcau, Notivelles perspectives pnur 1'arbitrate, dans le rontt·ntieux economique interessarrt les etats, Rev. de l'arbitrage (1995), pp. 2-37, which also identifies the jurisdictional conflicts raised by the new direct investor-State (without explicit agreement) arbitration mechanism. 10'1 On this, see Cremades, supra, footnote 3; and Benhamida, 2004, supra, footnote 69. (..its Gas Transmission Company v. Argentine Republic (C,iis), Icsid Case No. ARJ}/()1/8; Salini, supra, footnote 49; Maffezini, supra, footnote 42; Tradex Hellas S.A. v. Republic 4 Albania (Tradex), Icsm Case No. AttB/94/2; Care v. Czech Republic (Cme), Partial Award of 13 September 2001, available at-.<www.cetv-net.corn/ ifiles/1439-cme-cr eng.pdf': .San�)He 1)(ipioa New Guinea, Award of 1998, 117 LL.R., pp. 552-SfiS; YaulIg Chi Oh v. Myanrnar, We,,,, Horels Lirnited v. Arab Republir of l:::�Yl't (Wena Hotels), ICSID Case No. AnEi/98/4; Ceskoslovenska ohchodrri banka, a.s, v. Slovak Republic, IcSiD Case No. ARH/97/4; Lancs International, Inc. v. Argentine Republic (Lanco), ICSIJ) Case No. AltH/97/6; Azurix Corp. v. Argentine Republic (Azurix), ICStD Case No. ARH/OI /12; Aziuian, supra, footnote 19. Case comments by E. Gaillard on the Ymmg Clri Oh case and the Vivendi ' Annulment (Campania rle Aguas del Acollqllija S.A. and Vivendi Universal v. Argentine Repuhlic, ICSID Case No. Aai3/97/3) were published in OGH 4 (2003); available at: <www.gasandoil.com/ogcl>. '" 41 I.L.M. 1135-1163 (2002); also at: <www.worldbank.org/icsid>. The Vivendi Annulment Decision holds that contract and treaty claims are separate and that a domestic jurisdiction clause for a contract claim does not prevent pursuit of a treaty claim, but it opens up in an obiter dictum a small window for giving priority to domestic jurisdiction if the subject-matter and the parties are identical. For a survey of Argentine cases, see A. Escobar, Arg('//tilla's Deh(Re of Investor-State Arbitration Procecdillgs, IHEI/Paris n Colloquium of 3 May 2004; and TDM 3 (2004), at: <www.transnatioual-dispute-management.com>. 112 For a comment on the Fedax case, supra, footnote 95, see C. Chatterjee, Investment-Related Pnnnissory Notes Are Investments under the Icsm CcHrfMtx'M—Ff</t)x N.V. v. Tlrc Republic, of Venezuela, 3 J. W.1. 1, February 2002, pp. 147-159.
11.\ The merits of the case had been partially settled and the Tribunal did not need to attach any particular weight to the umbrella clause; but it did apply it. 114 Supra, footnote 49; discussed, inter alia, by E. Gaillard, Chrolliquc dcs sentences arbitrates, CIRDI, 130 Clunet/Journal du droit international (2003), pp. 162-259. 115 See on this also the liivendi Annulment, suprn, footnote 111, paras. 101-102. See also Kurt Lipstein, 77re Place of tlre Calvo Clause in International Law, 22 B.Y.I.L. 130 (1945). This does not mean that some interaction between domestic law and international law is impossible. Claimants' rights protected by international law are created primarily by domestic law, even if domestic law is controlled internationally from un-making such rights abusively. Similarly, procedural actions under domestic law-such as recourse to domestic courts-can be judged under international-law concepts such as denial ofjustice. Also, compensation due under international law will be influenced by damages paid under domestic law; otherwise there could be double recovery. Domestic law furthermore comes into play when discrimination is to be identified, requiring a comparison of laws/regulations and administrative practices as applied to the foreign investor compared with domestic investors in like circumstances. 116 Lipstein, ibid.; Gudgeon, supra, footnote 59; and ideiii, US Bilateral Investment Treaties, Int'l Tax & Business Lawyer, 1986, p. 105.
rr� The refusal here to apply the literal text and plain meaning of the clause in the Switzerland-Pakistan BIT recalls a similar approach rejecting the "plain meaning" approach applied to the "fair and equitable standard" advocated by J. (;. Thomas, one of the arbitrators in the Sc.s r. Pakistan case, in his recent article, Reflections on Article 1105 0% Nafia: History, State Practice <",d Influence of Commentators, 17 1(:sii) Rcv.-F.I.L.j. (2002). rr" See Section m of this article for a more extensive discussion of the background and occurrence of umbrella/sanctity of contract clauses. UNCTAD, supra, footnote 93, is the only published study referring to numerous occurrences of this clause in modern investment treaties. The applicability of the clause was raised in the first ECT award, where the tribunal accepted its possible application but felt the national treatment discipline provided sufficient legal basis for deciding the claim. Some information on the-restrictive-position there argued can be inferred from Happ, supra, footnote 75, p. 331-361. 119 This is a function that is usually ignored by international lawyers; see T. Wacldc, Energy Charter 7r(�aty and Srutninable Development, in F. Weiss (ed.), Economic Development with a Human Face, Kluwer, Deventer, 1998, p. 223.
121' The ECT, in its freamble, is quite clear about this focus on "placing commitments on a secure and binding international basis" and on "effective implementation". The nexus between the intention to provide specific protection duties on the level of international law and acceptance of international arbitration had already been identified in the Award in TevacolCalasiatic, supra, footnote 57. It is therefore not surprising that investment instruments which do not include international arbitration also do not include specific justiciable investment disciplines (such as the umbrella clause) but only adhortatory policy statements. For an overview of such instruments, see UNCTAD. Internatiunnl Investment Amitigenwuts, CD-Itonn, 2003; also available now at: <www.unctad.org�.
r'-� There are other ways of identifying a governmental commitment: by formal statements in other treaties; in investment legislation (see A.A. Fatouros, Government Guarantees to Forcign Investors, Columbia University Press, New York, 1962, p. 157); in investment promotional literature or official statements; in formal letters (permits, authorizations, interpretative assurances and authorizations) given to investors with a sense of formality and of a legally relevant character. See, for example, the famous Pyramid case, Decision (in excerpts) published in 16 Y.B. Conun. Arb. 16 (1991), at 32; comments by G.R. Delaume and W.L. Craig, 8 Icsin Rev.-F.I.L.J. 231, 264 (1993). See also Soutlrern Pacific Properties v. Arab Republic of Eqypt, 8 ICSID Rev.-F.I.LJ. 328 (1993). Governmental commitments can also be relevant for other disciplines, such as the principle of legitimate expcctations/dctrimental reliance subsumed under the fair and equitable treatment duty. However, nothing comes close to contracts in their unambiguously formal and legally binding nature. t22 This has been so far the general understanding of what is meant by "commitments" in umbrella clauses; see only Paasivirta, supra, footnote 84, pp. 358-359; and Dolzer and Stevens, supra, footnote 86. All view the meaning of such "commitments" to be primarily investment-related contracts by the investor with the government. 123 For a detailed analysis, see Benhamida, 2004, op. cit.
This argument is likely to have been based on Prosper Weil's much earlier analysis of the umbrella clause function (see Weil, supra, footnote 68). Paasivirta, supra, footnote 84, at p. 359, also suggests that one way to interpret the clause is to view "any deviation from the terms of the contract" by the government as a breach of the treaty. Note also Dolzer and Stevens, supra, footnote 86, and Mann, supra, footnote 3, in that sense-though without any in-depth examination of the question if breaches other than those conditioned by governmental interference are and should properly be covered by the pacta sunt servauda clause. '-'S Schwebel, 1987, supra, footnote 3, at 401; re-published in Schwebel, 1994, supra, footnote 3.
"6 See supra, footnote 52 and accompanying text, and, most recently, the EU Commission Decision on the Ryan Ai�Airport of Charleroi case, Press Release IP/04/1 57 of 3 February 2004, available at: <www.europa.eu.int); Biondi et al. (cds.), supra, footnote 52. 127 It is surprising that the Tribunal was quite ready to protect the pada stint sCYI'cll1d" clause when it came to arbitration-its own concern-but not when it came to the claimant-investor's concern-that the government not deploy its powers to escape from a contract it no longer liked. "8 This is partly correct. The Fedax Tribunal, suprn, footnote 95, was the first to apply a pacta suitt servanda clause to promissory notes issued by the Govrmment of the Netherlands. However, the issue was partly settled, and the Tribunal did not and did not need to examine the harla SUllt sewanda clause in any depth. Nevertheless, given the, in principle, positive attitude of the Fedax Tribunal with respect to the umbrella clause, one could have expected the Sc.s v. Philippines Tribunal to examine the issue in more depth and with more caution. 12'' Schwebel, 1987, supra, footnote 3.
°Restntement('I7aird)ForeiqnRelationsLawoftheUiiitcdStates, American Law Institute Publishers, St. Paul, Minnesota, 1987, §712 provides: "A state is responsible under international law for injury resulting from a repudiation or breach by the state of a contract with a national of another state where the repudiation or breach is discriminatory or motivated by other non-commercial considerations and compensatory damages are not paid." 131 Swiss Ambassador Marino Baldi provided to the 1ICSID Secretariat a brief comment on the umbrella clause in the Swiss BIT practice. This is not conclusive and constitutes quite indirect evidence of the formal Swiss intentions with respect to the umbrella clause, but it does not support, and rather detracts from, the Tribunal's reasoning as to the intentions of the two countries when concluding the Bit. I .
�j=Supra, footnote 93. Also by the discussion of the umbrella clause in the standard work on BITs by Dolzer and Stevens, sura, footnote 86. "3 Denza and Brooks, supra, footnote 59; and Gudgeon, sura, footnote 59.
134 The other ones are: stabilization clauses; international arbitration; and finally treaty-based, not contract- based, direct investor-State arbitration relying on a number of specific treaty disciplines (compensation for expropriation; fair and equitable trcatment; national treatment; full and constant security and protection; repatriation of revenues). 5 See Section m of this article. The most-cited (and, from an Nreo perspective, heavily criticized) case is TcxawIC"I"siatir, supra, footnote 57. But see also the last unanimous UN resolution on Permanent Sovereignty over Natural Rcsources of 1962 (1803-xvn UNCA): "Foreign investment agreements freely entered into by ... sovereign states shall be observed in good faith." On the evolution of this resolution, see S. Schwebel, Tltc Story of the LOW Dedarntion on Permanent Sovereignty over Natural Resources, in Schwebel, 1994, SlIP"', footnote 3, at 401. 130 Note the references in the narrative by Schwebel, ibid., of the origin of the 1962 UN resolution and, in particular, to the positions then taken by the Soviet Union. 137 In the first version of this case comment, I have used the term the "Che Guevara" approach to international law. That is not a term I feel is appropriate in a finalized and published comment,. Lls It is ever so useful to look carefully at an authoritative legal text: here the Vienna Convention's guidelines for interpreting treaties in its Article 31. The Se�.s n. Pakistan Tribunal seems to have treated the Vienna Convention in a similarly cavalier fashion as it treated the plain meaning of the Switzerland-Pakistan Bii.
1W Most relevant here are UN(;A resolutions 3201 and 3202 of 1974 on the "New International Economic Order". 140 T. Waelde and T. Weiler, Investment Arbitration under the Energy Charter Treaty in tlre Light of New NAFTA Precedents, in G. Kaufmann-Koehler and 13. Stucki, Investment Treaties and Arbitration, ASA Swiss Arbitration Association, Special Series No. 19, Zurich, 2002, at p. 159; also available at: (www.gasandoil.com/ogel> and (www.transnational-dispnte-management.c01n>;alsoT.Wäldc.IlIlJestmelltArbitratiollll5aDisâl.li/l(. o( Good COrICrIII1I1CC, in Weiler, supra, footnote 16.
141Frnnamirhv.Italy, Ecta 1-5357 (1993). 142 For a survey on this issue, sec S. Schwcbcl, International ,9rlritrntion: Three Salient Problems, Grotius, Cambridge, U.K. 1987, pp. 61-125.
1',\ Ibid.
"I Under Islamic law (Shari'a), every lawful contract must be observed. This principle is supported by the following verse from the Holy Quran. "Oh you who believe, observe covenants". (Almaeda Sura, Chapter 5, Verse 1). ). 145 Note also the exclusion of all other obligations not included in Part m of the ECT from the ECT'S Article 26 direct investor-State arbitration provisions. 116 This result can be confirmed by another provision envisaged in the Award: Article 7 of the Switzerland- Pakistan BIT ("Most Favourable Provisions") allows the import of more favourable provisions agreed by either of the two Parties with an investor of the other Party. If a more favourable provision can be imported from another investment contract, then one cannot find a reason to exclude, without specific language to this effect, the favourable Article 11 of the Switzerland-Pakistan BIT from having full effect. 147 For example CNtE, stipra, footnote 110; the Svca Court of Appcals' Final Judgment, together with references to the various Cme awards and an introductory comment by this author is published in 42 I.L.M. 811 (2003); Metalclad Corporation v. United Mexican States, ICSID Case No. Ann(AF)/97/1.
148 See S.D. Myers, stipra, footnote 49; Feldman Knrpa, supra, footnote 49; see also the �LS7 case, supra, footnote 43: "What is a breach of treaty may be lawful in the municipal law and what is unlawful in the municipal law may be wholly innocent of violation of a treaty provision." 14" See Pnpe & Talbot, supra, footnote 61; Tecmed, supra, footnote 89, para. 122.
1511 Most detailed and most recently: Salini, supra, footnote 49; Maffezini, supra, footnote 42 (Jurisdiction^ Award and Award on the Merits); earlier, see Tradex, supra, footnote 110. See also B6ckstiegel, supra, footnote 50, pp. 58-75. C. Schreucr, Travelling tlre Bn Route — Of Waitillg Periods, Umbrella Clauses atid Forks ill the Road, 5J.W.I.T. 2, April 2004, pp. 231-256; Scs v. Philippines Award, supra, footnote 8; Alexandrov, supra, footnote 8.
152 Mann, supra; Dolzer and Stevens, supra, footnote 86. 153 But note my treatment of Article 10(1) Ec:T, where I distinguish between "govemment.1)" and "commercial" conduct and suggest that the clause would not apply to contract disputes over the purchase of fuel oil by a French village; Walde, supra, footnote 108. 134 SCS v. Philippines, supra, footnote 8.
For topology of clauses, see Benhamida, 2004, supra, footnote 69; the main distinction seems to be between commitments "relating to an investment" (which are more ambiguous and could include inter- governmental agreements relating to an investment) and commitments entered into with an investor or its (domestically incorporated) investment which clarify that it is investor-State contracts that are covered and that inter-governmental agreements are excluded. That seems to be an implication of paras. 128 and 141 of the Award. The investment treaty's function is here described as "support and supplement" to the actually negotiated investment arrangements. This criterion recalls the "centre of gravity" test that is often employed, in particular, in U.S. conflict of laws detennination; see W.M. Richman and W.L. Reynolds, Understanding Cmfiict of Laws, 3rd edition, Matthew Bender, New York, 2002, at p. 205.
157 Schwebel, supra, footnote 142, at 61-125; sec recently, Andrea Bjoerklund, in Weiler (ed.), supra, footnote 16 (dealing with, inter alia, the I..oewerI case, stipra, footnote 19). 158 For example, Article 10(3)(a) ofthe Gemiany-Argeiitini BIT; available at: <www.unctad.org>. 15y Supra, footnote 19. ��° Supra, footnote 19.
r Supra, foottnote 111. 162 Mainly because tribunals and writers (such as Cremades, supra, footnote 3) have distinguished between contract claims and quite different treaty claims (where the contractual relationship was a relevant fact but not identical with the treaty relationship); see, for example, the Viverrdi Annulment, ibid; CAtS, supra, footnote 110; Azurix, sura, footnote 110; Wenn Hotels, supra, footnote 1 10; Ldf!�, supra, footnote 1 10. For an overview of the Argentina cases, see Escobar, supra, footnote 111; O. Garcia-Bolivar, Icsm Decisions Oil Jurisdiction, TDM 3 (2003), available at: <www.transnational-disputc-management.com>.
161 On this function of investment treaties to grant a right to investors irrespective of whether they were able to negotiate a corresponding deal in their specific contractual arrangements, see Gudgeon, sura, footnote 59. 16" Also Benhamida, 2004, ny. cit., paras. 105 and 106, who suggests that the SGS v. Pldlippines Tribunal takes the opposite position to both the Annulment Decision in the Vivendi case, supra, footnote 111, and the previous understanding (including UNCTAD's) of the investor option in investment treaties to select the for them appropriate jurisdiction, irrespective of domestic jurisdiction agreements they may have accepted for the contract dispute per se.
�r�5 T. Waelde and P. Wouters, State Responsibility in a Liberalized World Economy: "State, Privileged and Subnational Authorities" under the 1994 Energy Charter Treaty, 27 Netherlands Ybk. Int'l L. 143 (1996), pp. 172-173; Nouvel, supra, footnote 48; Thomas W. W51de, Energy Charter 'lYeaty-based Investment Arbitration-Controversial Issues, 5 J.W.LT. 3, June 2004, pp. 373-412.
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