Between Rights and Remedies: The Access to Investment Treaty Arbitration as a Substantive Right of Foreign Investors

Between Rights and Remedies: The Access to Investment Treaty Arbitration as a Substantive Right... Abstract Arbitrators in investment treaty arbitration have not been reluctant to express their views that the access to international arbitration forms part of the substantive protection of investors. The present article examines what is the added legal value of such views, and whether they are capable of requalifying procedural rules as substantive ones, or alternatively, breaking the separation line between substantive and procedural rules. This is discussed in the context of the application of most-favoured-nation clauses to dispute settlement clauses, as a case study. It is argued that the arbitral qualification of dispute resolution clauses as a means of investors’ protection cannot prompt a change regarding their legal nature, and has primarily an instrumental role in legitimizing expansionary interpretive outcomes. But the fact that a blurred separation line between substantive and procedural rules appears acceptable in investment treaty arbitration implies fragmentation from general international law in that respect, effected through arbitral lawmaking. 1. INTRODUCTION One of the pressing topics that marked the beginning of the new millennium in investment treaty arbitration was the application of most-favoured-nation clauses (MFN) to dispute resolution clauses.1 At the same time, it seems that little attention was paid to the parallel problem of reconceptualizing dispute resolution clauses as a means of the substantive protection of investors. When in 2000 the Tribunal in the case of Maffezini v Spain decided that the MFN clause contained in the applicable bilateral investment treaty (BIT) was indeed applicable to the dispute resolution provision in the same BIT, the Tribunal also stated that ‘dispute settlement arrangements are inextricably related to the protection of foreign investors’.2 Later on, tribunals felt more and more comfortable to rely on such an ‘inextricable relation’,3 which further led them to characterize the access to international arbitration provided for in international investment agreements (IIA), simply as one of the means of protection of foreign investors.4 The interdependence of substantive and procedural treaty provisions seems new. While investor protection and particularly MFN treatment, was provided for by virtue of substantive provisions, the rules governing investor–state arbitration were regarded as procedural.5 Another question is whether the tribunals’ qualification of the access to arbitration provided for in IIAs as one of the means of investor protection in fact requalifies such provisions from procedural to substantive ones. Both developments prospectively amount to examples of arbitral lawmaking. Indeed, the lawmaking function of international adjudicatory bodies is particularly notable when it comes to the basic principles of international law, whose concrete meaning can be formed only through practical application.6 This is particularly true in investment treaty arbitration, where the lawmaking role of arbitrators has been described as a ‘functional necessity’ caused by the ambiguity of investment treaties.7 The relationship between substantive and procedural provisions in investment treaties seems a fertile field for such developments. General international law recognizes a principled distinction between substantive and procedural rules, which generally prevents their interference.8 A different conclusion reached by arbitrators in respect of concrete issues can produce notable outcomes: it can be seen as a derogation from that principle in the particular context of investment treaty arbitration as a fragmented field of international law,9 but it can also be seen as an arbitral attempt to create a substantive ‘right to arbitrate’. The present article examines what is the added legal value of arbitrators’ views on the access to international arbitration as a substantive right of investors, and particularly whether they are capable of requalifying procedural rules as substantive ones, or alternatively, breaking the separation line between substantive and procedural rules. It uses one particular long-lasting topic in investment treaty arbitration, namely the application of MFN clauses to dispute resolution clauses, as its case study.10 Nevertheless, it should be emphasized that this article does not aspire to engage in the debate on the applicability and reach of MFN clauses to dispute resolution provisions, but only to analyse the views on the relationship between substantive and procedural rules used in arbitral reasonings and their possible effects.11 After reaching the conclusion that arbitral qualifications of dispute settlement clauses as ‘substantive’ cannot add any value prompting a change as regards the legal quality of such clauses, the article argues that such qualifications can have an instrumental role in attempts to legitimize expansionary interpretive outcomes. But the mere fact that a blurred separation line between substantive and procedural rules appears acceptable in investment treaty arbitration implies fragmentation from general international law in that respect, which is effected through arbitral lawmaking. Section 2 discusses the distinction between substantive and procedural rules as a core principle of both general international law and investment treaty arbitration. Section 3 then analyses the arbitral practice qualifying dispute resolution clauses as rules of substantive protection, in the context of the case study (the application of MFN clauses to dispute resolution provisions). Section 4 discusses some possible explanations for shifting the perceptions of dispute resolution clauses in arbitral practice, focusing on their possible legitimizing role in interpretive processes. Section 5 draws concluding remarks. 2. THE SUBSTANTIVE VERSUS PROCEDURAL RULES DISTINCTION AS A CORE PRINCIPLE General international law, and international investment law in particular, are familiar with the suggestion that conferral of any ‘right’ under international law is inextricably linked to making available remedies for their breaches within the same legal system.12 Nevertheless, classical approaches to public international law presume that the two sets of rules—those conferring rights and those providing for remedies—are not necessarily dependent,13 and that they can be defined in different terms.14Substantive rules are the rules imposing an obligation of certain behaviour to a state, and determining the lawfulness of a state conduct.15Procedural rules, on the other hand, are more difficult to define,16 but for the present purposes they regulate dispute resolution mechanisms (such as adjudication or arbitration) in an event of a breach of substantive rules, and provide or deny the injured party an access to remedy.17 The emphasis is made here on those rules that empower tribunals to settle disputes, or in Hart’s words, ‘rules of adjudication’.18 These two qualifications (‘substantive’ and ‘procedural’) will be hereinafter commonly referred to as ‘the nature’ or ‘the quality’ of investment treaty rules. Perhaps a better way to distinguish between substantive and procedural rules is to compare different consequences of their breaches. Non-compliance with a substantive rule amounts to a wrongful act,19 and thus an investor can claim violation of an MFN clause should his host state treat investors from third states more favourably in like circumstances.20 Such a behaviour in respect of procedural rules (ie dispute settlement rules), however, does not lead to the same consequences.21 Nevertheless, it is also clear that both sets of rules might serve the same interests: while substantive rules offer certain protection, procedural rules secure their enforcement by offering the access to judicial remedies. From a theoretical perspective, their connection is significant, because of the risk of resembling ‘toothless law’ or lex imperfecta.22 These two sets of rules have been nevertheless perceived differently, and treated separately, both in general international law (Section 2A) and investment treaty arbitration (Section 2B). A. The Separation in General International Law and the Practice of the ICJ An overall picture of a clear distinction between substantive and procedural rules can be seen in the practice of the ICJ, in the context of general international law and interstate disputes.23 Such a picture can be sketched using various elements from cases involving different subject matters, such as the application of the Genocide Convention, law of self-determination, state immunities etc. This diversity of cases suggests the universality of the separation line between substantive and procedural rules, and its status as a core principle of international law. Because the jurisdiction of the ICJ is equally consensual as jurisdiction of investment tribunals, the Court’s conclusions are relevant in the field of investment disputes. The first element that can be drawn from the ICJ practice is the notion of severability of dispute resolution provisions from the substantive treaty obligations, which primarily concerns separate assessment of (in)validity of the two sets of rules. In 1973, in the Fisheries Jurisdiction Case (United Kingdom v Iceland), when examining Iceland’s argument that the treaty at stake was terminated due to changed circumstances, the Court stated that such an allegation could not affect its jurisdiction under the same treaty.24 Such issues rather belonged to the merits phase of the case, where the Court would essentially examine whether Iceland was bound by the substantive provisions of the agreement.25 Secondly, substantive rules cannot affect procedural ones and vice versa. In 1995, in the Case Concerning East Timor, the Court was faced with the issue whether it could rule on the lawfulness of a state conduct, which would also include assessment of the lawfulness of another state’s conduct. The Court opined that the character of the substantive norm in question (in this case an erga omnes obligation) could not affect the rules governing its jurisdiction (particularly the requirement of consent), simply because of their separation.26 This reasoning was the starting point of the Court’s opinion in Armed Activities on the Territory of the Congo (New Application: 2002), where the Court held that the jus cogens character of an international obligation could not remedy the lack of state consent to the Court’s jurisdiction.27 The separation between substantive and procedural rules was so sharp in the view of the Court that it found that a reservation to the jurisdictional clause in the Genocide Convention did not affect its substantive provisions, either directly or by defeating the object and purpose of that Convention.28 Thirdly, the two sets of rules cannot conflict with each other, and no conclusion can be derived from one set of rules in respect of the other. In Jurisdictional Immunities of the State, after recognizing the procedural nature of the rules of state immunity,29 the Court was faced with the alleged conflict between substantive and procedural rules, where it has been argued that substantive rules of jus cogens nature must prevail over procedural rules. However, the Court thought that such conflict did not exist, precisely because of the distinction between procedural and substantive rules, holding that the former cannot affect the questions of lawfulness, which are governed by the latter.30 Interestingly, the case study of this article (the application of MFN clauses to dispute resolution provisions) also appeared before the ICJ, in the Anglo-Iranian Oil Co Case, already back in the 1950s. In that case, the UK faced the problem that the Iranian declaration accepting the Court’s jurisdiction did so only in respect of the treaties which were concluded after the ratification of that declaration, while the treaties which the UK wished to rely on (containing the relevant substantive rules) were concluded before that date. The UK attempted to establish the jurisdiction of the Court by virtue of the MFN clause contained in two UK–Iran treaties, and three treaties concluded by Iran with other states after the deposition of the declaration accepting the Court’s jurisdiction.31 Eventually, the Court denied such a possibility, primarily relying on the temporal limitation in the Iranian declaration, and stating that in order to reach the discussion on the prospective benefits of an MFN clause, the jurisdiction of the Court must be established in the first place.32 It has been argued that the Court in the Anglo-Iranian Oil Co Case accepted the application of MFN clauses to dispute resolution clauses in principle.33 Although this article does not aim to answer the question whether such application is possible, the same argument implies that the ICJ at some point allowed the interdependence of substantive and procedural rules, contrary to the above discussed practice. However, it seems that such an argument does not follow entirely the judgment. The Court focused on the UK–Iran treaties as the central instruments in the case, and concluded that they did not fall under the temporal scope of Iran’s consent as expressed in its declaration.34 The Court clarified that the invocation of the substantive rules (ie the MFN clause and the third-party treaties) determines the issues of the merits, not jurisdiction.35 The Court kept its position that its jurisdiction, provided for by virtue of procedural rules, remains separate from the substantive ones, where the latter can only be relevant when ruling on what constitutes a breach of the relevant treaty. The ICJ practice has been used to address the separation of procedural from substantive rules as a fundamental principle of public international law even in the context of the application of MFN clauses to dispute resolution rules in investment treaty arbitration.36 But first, it has to be discussed whether this separation of substantive and procedural rules also forms part of the foundations of investment treaty arbitration. B. The Separation at the Foundations of Investment Treaty Arbitration Once states started concluding IIAs, and most importantly BITs, they aimed to create treaty regimes beneficial to foreign investors. IIAs, however, are characterized by vague language, without precise definitions of the holders of the granted rights, or of the quality of such rights.37 Still, there are three reasons supporting the argument that the separation between substantive and procedural rules is embedded at the foundations of international investment law and arbitration. The first point is a straightforward one: questions of jurisdiction and merits are subject to different laws. It has been summarized by Dolzer and Schreuer that it has been generally held by tribunals ‘that questions of jurisdiction are not subject to the law applicable to the merits of the case’, but they are subject to ‘their own system which is defined by the instruments determining jurisdiction’.38 When analysing what constitutes this special system applicable to the issues of jurisdiction in investment arbitration, Douglas concluded that such a system not only comprises the provisions of the applicable IIA, the rules of procedure (chosen by the parties), but also of the domestic law as lex loci arbitri.39 Therefore, substantive and procedural rules within an IIA form two separate systems, one applicable to the merits and the other to the jurisdictional issues. This draws a separation line between them. Secondly, and more theoretically, the entire discussion on whether investors are holders or beneficiaries of the rights granted in IIAs orbits around the separation between substantive and procedural rules. The ‘derivative’ theory suggests that host state’s obligations to provide certain minimum treatment to foreign investors are owed to the investor’s home state (being the other IIA party), but that the investor’s home state confers standing to enforce such obligations in arbitration upon the investor himself.40 In this situation, the separation between substantive and procedural rules is implied in the fact that states confer to investors only procedural rights (the right to institute arbitration). On the other hand, the ‘direct’ theory suggests that ‘investors are recognised to be in a direct legal relationship with the host state and given procedural means to enforce their own substantive rights’,41 which might provide a fertile setting for blurring the line between substantive and procedural rules. However, this does not seem to be the objective of the ‘direct’ theory.42 Another suggested version of the ‘direct’ theory (or rather a compromise between the two) asserts that substantive obligations of investment protection are indeed owed to the other state party to the respective IIA, but that the procedural obligation to submit a case to arbitration is actually owed directly to investors.43 This variation, or a compromise theory, shows the distinction between substantive and procedural rules in its full lighting.44 Whichever theory is taken as the correct one, it somehow distinguishes the set of procedural rules from the substantive ones: none of them denies the procedural right to institute arbitration as a personal right of investors.45 This clearly expresses a separate treatment of that right from those of substantive nature. Thirdly, the addressees of the two sets of rules are, arguably, different. Douglas argued that substantive obligations are addressed to the states parties of the IIA, while the procedural rules are addressed to the tribunal and the parties to the submitted dispute (being the investor and the host state).46 A counterargument could be constructed, that if the corresponding rights to such substantive obligations are still held by investors, and if states’ consent to arbitration in dispute resolution clauses of IIAs is to be regarded as an offer, which can be accepted by investors by virtue of their own right,47 there should be no reason for distinguishing between the two sets of rules.48 But then again, Douglas further argues, the claiming investor and the host state ‘enter into a relationship of procedural equality before the international tribunal once a dispute has been submitted to it’, and that ‘[t]he equality of arms principle is not respected if one of the parties has the ability to adjust the rules relating to the jurisdiction of the tribunal or some other aspect of the procedure after a dispute has arisen.’49 This latter concern primarily aims to rebut the idea of invoking an MFN clause in relation to procedural and/or jurisdictional issues, but it could also be understood as denying the possibility of interdependence between substantive and procedural rules. As seen above in the context of the ICJ’s practice, the main purpose of distinguishing procedural from substantive rules is to prevent creating jurisdiction where it is not provided for by virtue of procedural rules. Accordingly, when particular rules regulate the dispute resolution regime, and for that purpose are addressed to the parties in dispute and the tribunal, it follows that the distinction of those rules from the substantive ones serves the specific task of founding a new and direct legal relationship between the disputing parties. The investment treaty arbitration setting did include the basic international law concept of the separation between substantive and procedural rules. This argument is reinforced even when discussing investment treaty arbitration in the context of its ‘hybrid’ nature, because of its use of the commercial arbitration mechanisms.50 Arbitration law generally accepts the theory of the severability of the arbitration clause, which instructs that the contractual clause providing for arbitration should be deemed separate from the other parts of the contract.51 More importantly, arbitral tribunals have recognized the applicability of the same principle in the context of investment disputes, as governed by public international law.52 Whichever aspect of the investment treaty arbitration system is observed, the separation line between substantive and procedural rules is embedded in it. 3. THE ACCESS TO INTERNATIONAL ARBITRATION AS SUBSTANTIVE PROTECTION BITs are the most important sources of investment law today providing the standards of protection of foreign investors and investments.53 Usually, such protection is given effect using the notion of ‘treatment’, which was defined as ‘a broad term which in the context of BITs refers to the legal regime that applies to investments once they have been admitted by the host State’.54 The fact that BITs contain both substantive and procedural rules, as well as the indeterminacy of their terms, as is the case with the standard of ‘treatment’, open the way to the discussions on the quality and content of their provisions. Section 3A discusses how arbitrators qualify, or deny to qualify, dispute settlement clauses as a means of (substantive) investor protection, particularly in the context of the application of MFN clauses to dispute resolution clauses. Section 3B then pays special attention to the effects of such qualifications. A. The Four Approaches of Arbitral Practice When analysing the practice of investment tribunals concerning the application of MFN clauses to dispute resolution provisions, one has to bear in mind the differences in wording of various MFN clauses. It has been suggested that the issue of whether a dispute settlement regime can be qualified as a means of substantive protection, for the purpose of allowing its conjunction with an MFN clause, depends on the phrasing of the relevant MFN clause.55 Nevertheless, as it will be seen below, in some occasions tribunals felt rather free in constructing the question before themselves and finding an appropriate qualification. The decisions which found some kind of a connecting factor between the rules of substantive protection and those of dispute resolution, and consequently supported the application of MFN clauses to dispute settlement provisions, can be classified into three groups: (i) decisions which merely found a link between substantive and procedural rules, (ii) decisions which qualified dispute settlement clauses as one of the means of investor protection and/or substantive rights and (iii) decisions which qualified dispute settlement clauses as falling under the notion of ‘treatment’, but refrained from emphasizing their protective role. In addition, (iv) in some cases the MFN-dispute resolution conjunction was not allowed, precisely because of the distinction between substantive and procedural rules. This classification of course, does not claim to be an exhaustive list of all cases that have discussed the applicability of MFN clauses to dispute resolution, and moreover, it concentrates only on those decisions which considered decisive certain perceived connections among substantive and procedural rules, or their strict distinction.56 (i) Finding a link between substantive and procedural rules The very first, and leading case that emerged in the context of the application of MFN clauses to dispute resolution provisions, represents at the same time a prototype of the arbitral reasoning that substantive and procedural rules under a BIT are strongly connected: in Maffezini v Spain, the Tribunal stated that ‘today dispute settlement arrangements are inextricably related to the protection of foreign investors’,57 and that ‘[t]hese modern developments [ie the introduction of international arbitration] are essential, however, to the protection of the rights envisaged under the pertinent treaties; they are also closely linked to the material aspects of the treatment accorded.’58 In that way the Tribunal kept a formal distinction between substantive and procedural rules, but pointed to their ‘inextricable relation’ and ‘close link’. The relevant MFN clause in that case referred to ‘all matters subject to this Agreement’,59 and thus the Tribunal was not necessarily faced with the issue of whether the investor–state dispute resolution regime in the given BIT was strongly linked to the substantive protections. Observing the reference to the link ‘to the material aspects of the treatment accorded’, it might also be that the Tribunal recognized the dispute settlement regime as a procedural aspect of treatment. But what seems more obvious and more important in this reasoning, is the preserved separation line between substantive and procedural rules, which are however, according to the Tribunal, strongly connected. Similar reasoning can be found in the 2007 Award on Jurisdiction in RosInvest v Russia. While affirming the application of an MFN clause to the dispute resolution regime, the Tribunal opined that ‘an arbitration clause, at least in the context of expropriation, is of the same protective value as any substantive protection afforded by applicable provisions such as Article 5 of the BIT’.60 The relevant MFN clause was limited to the investors’ ‘management, maintenance, use, enjoyment or disposal of their investments’.61 Hence, the Tribunal had to engage in finding a link between such limitations and dispute settlement, which it used to develop its argument on the protective value of international arbitration.62 But the Tribunal kept a clear distinction between the substantive and procedural rules of the BIT.63 The references to ‘the same protective value’ and ‘a highly relevant part of the corresponding protection for the investor’ point to the link between the substantive and procedural provisions, which is their common protective purpose. It has been argued that the Tribunal in RosInvest distinguished between substantive and procedural ‘protections’, and then held that ‘both should be considered under a single chapeau of “treatment” for the purposes of the MFN clause’.64 However, it seems that the Tribunal’s emphasis on ‘the same protective value’ of the substantive and procedural rules was the major motive for linking the two sets of rules. As it will be seen below, qualifying procedural rules as covered by the notion of ‘treatment’ is also doable in a technical ‘black-letter’ manner, without any (or at least dominant) reliance on their protective role or value. These cases are notable for maintaining the existing distinction between substantive and procedural rules, but at the same time finding a link between them, and consequently allowing the application of MFN clauses to dispute settlement provisions. (ii) Qualifying dispute resolution clauses as substantive protection The second group encompasses those decisions which qualified the access to international arbitration either as a substantive right, or as a means of investor protection, regarding it as part of one, single and unbreakable protection regime of the BIT and consequently ignoring any distinction between the two sets of rules. In the 2004 jurisdictional decision in Siemens v Argentina, the Tribunal opined that ‘the Treaty itself, together with so many other treaties of investment protection, has as a distinctive feature special dispute settlement mechanisms not normally open to investors’, that ‘[a]ccess to these mechanisms is part of the protection offered under the Treaty’, and that ‘[i]t is part of the treatment of foreign investors and investments and of the advantages accessible through a MFN clause.’65 The MFN clause in the relevant BIT simply referred to ‘treatment’ and ‘treatment of activities related to investments’.66 It seems that considering the dispute resolution regime as an aspect of the ‘treatment’ would suffice to trigger the application of the MFN clause. Still, the Tribunal went to qualify that regime as part of the protection. Although such a qualification does not tell much about the substantive nature of dispute settlement clauses, it shows that the decisive factors were their protective value and perceived unity with other treaty guarantees. In 2005, the Tribunal in Gas Natural v Argentina held that ‘provision for international investor-state arbitration in [BITs] is a significant substantive incentive and protection for foreign investors’,67 and further ‘that assurance of independent international arbitration is an important – perhaps the most important – element in investor protection’.68 The MFN clause in the relevant BIT was not limited in any way, referring to ‘all matters governed by the present Agreement’.69 Although Argentina argued that the MFN clause was limited to ‘substantive measures of regulation by the host state’,70 a clear answer to this objection was not given. Rather, the Tribunal held that ‘the critical issue is whether or not the dispute settlement provisions of bilateral investment treaties constitute part of the bundle of protections granted to foreign investors by host states’.71 By addressing the protective purpose of dispute resolution clauses in the immediately following sentences, the Tribunal was able to conclude that the access to arbitration formed part of ‘the bundle of protections granted to foreign investors’. Although the MFN clause referred to ‘all matters’, the Tribunal saw it limited to the ‘bundle of protections’, and by including the dispute settlement regime into that bundle, the Tribunal saw the access to arbitration as a substantive right of investors. Similarly, in 2006, practically the same Tribunal in Suez and InterAguas v Argentina and Suez and Vivendi/AWG v Argentina, took the view that ‘[a]fter an analysis of the substantive provisions of the BITs in question, the Tribunal finds no basis for distinguishing dispute settlement matters from any other matters covered by a bilateral investment treaty’.72 It further stated that ‘[f]rom the point of view of the promotion and protection of investments …, dispute settlement is as important as other matters governed by the BITs and is an integral part of the investment protection regime that the respective sovereign states have agreed upon’.73 While one of the applicable BITs referred to ‘all matters governed by this Agreement’ in its MFN clause,74 the other one limited the scope of application of such clause to the treatment of investors ‘as regards their management, maintenance, use, enjoyment or disposal of their investments’.75 The Tribunal in Suez and Vivendi/AWG opined that this difference should not affect the interpretive result, specifying that ‘[t]he right to have recourse to international arbitration is … particularly related to the “maintenance” of an investment, a term which includes the protection of an investment.’76 By observing the unity of the substantive and dispute resolution provisions, depicted in the notion of protection, the arbitrators indeed saw the dispute resolution regime as a substantive right. Finally, the 2011 Decision on Jurisdiction in Hochtief v Argentina held that ‘the provisions … which on any interpretation confer upon investors the possibility of recourse to arbitration in addition to the right to have recourse to national courts, are a form of protection’, and that such protection falls under the limit of the relevant MFN clause.77 The Tribunal reasoned that the investor–state arbitration regime ‘is a protective right that sits alongside the guarantees against arbitrary and discriminatory measures, expropriation, and so on’.78 An important feature of all these decisions, but especially of Suez and Vivendi/AWG and Hochtief, is that the qualification of dispute resolution regimes as protective rights played the crucial role in triggering the application of the applicable MFN clauses. In the latter two decisions the protective character of the dispute settlement regimes was used to overcome the limitations of the scope of application of the relevant MFN clauses. In other cases, such as Siemens and Gas Natural, where tribunals were not faced with similar limitations, such a character of dispute settlement regimes was used for their inclusion into the ‘bundle’ of rights which are normally covered by the respective MFN clauses. These cases contributed to perceiving dispute resolution clauses as primarily serving a protective purpose, but ultimately also as investors’ substantive rights. In 2013, the Tribunal in the case of Garanti Koza v Turkmenistan essentially closed any doubts as for this new view on dispute settlement regimes. The MFN clause in that case explicitly provided that it covered the investor–state dispute resolution provision.79 Thus, the Tribunal did not need to engage in qualifying the dispute resolution regime as a means of protection for the purpose of triggering the application of the MFN clause.80 Nevertheless, the Tribunal still felt necessary to state that ‘[t]he protection of the U.K.-Turkmenistan BIT includes the access to international arbitration to which the sovereign parties consented’, and that ‘nothing in the BIT prevents an investor from simultaneously invoking the right to international arbitration provided by the BIT and invoking the MFN clause to obtain the benefit of a more favorable arbitration process provided by another treaty’.81 This narrative somehow marked the end of the shift in the perception of investor–state dispute settlement regimes, where the access to arbitration was increasingly seen as a right under the BIT substantive protection regime. (iii) Qualifying dispute resolution regimes as ‘treatment’ In the 2006 jurisdictional decision in the case of National Grid v Argentina, the Tribunal took what seems to be a middle approach. The Tribunal in that case focused on the notion of ‘treatment’, and concluded that ‘“treatment” under the MFN clause of the [basic] Treaty makes it possible for UK investors in Argentina to resort to arbitration without first resorting to Argentine courts, as is permitted under [a third-party BIT]’.82 The Tribunal based its conclusion on the assumption that few previous decisions ‘concurred that the element of dispute settlement at issue was part of the protection – treatment – of investors’.83 Thus, the Tribunal emphasized that what mattered was not so much the protective quality of the dispute resolution mechanism, but rather its qualification as part of the ‘treatment’. The MFN clause in the applicable BIT was also limited ‘as regards their [investors’] management, maintenance, use, enjoyment or disposal of their investments’, which the Tribunal did not address.84 This is an example of cases which did not insist on the protective role of dispute settlement regimes, but rather concentrated on bringing the procedural rules under the notion of ‘treatment’, disregarding the other aspects of the applicable MFN clause. However, this approach seems to be least represented.85 (iv) The distinction between substantive and procedural rules as an obstacle to the application of MFN clauses to dispute resolution clauses Some tribunals expressed completely opposite opinions on the applicability of MFN clauses to dispute resolution provisions, and denied such a possibility. More importantly, in reaching such an outcome, tribunals relied heavily on the distinction between provisions of substantive and procedural nature. The Tecmed v Mexico case involved an interesting issue of expanding arbitral jurisdiction retroactively by virtue of an MFN clause. Ultimately, the Tribunal denied such a possibility and declined to consider acts or conduct that took place before the applicable treaty’s entry into force.86 In doing so, the Tribunal used the distinction between substantive and procedural rules to conclude that the rules governing the temporal application of the substantive protection must be regarded as specially negotiated by the treaty parties.87 This was somewhat modest, yet quite pragmatic, use of the said distinction. Then, in 2006 two important awards in this regard were delivered. First, the Tribunal in the case of Berschader v Russia declined the use of an MFN clause for the establishment of the arbitral jurisdiction ratione materiae. Commenting on the Protocol to the basic treaty, the Tribunal said that ‘[t]he use of the expressions “treatment” and “in its territory” should be noted’, and that ‘[t]his language appears to indicate that what the Contracting Parties had in view was the material rights accorded to investors within the territory of the Contracting States.’88 The Tribunal noted that some ‘would argue that the right to arbitration is in fact a form of investment protection’, of the same kind as substantive protection, leading to the conclusion that the ‘right to arbitration’ must be covered by the MFN clause.89 Crucially, the Tribunal identified the question before itself as ‘whether the Contracting Parties shared the view that arbitration is an integral part of investment protection and, therefore, must be covered by an MFN clause’,90 ultimately answering in the negative.91 The territorial limitation of the notion of ‘treatment’ and the extraterritorial nature of international arbitration played a major role in other decisions reaching the same interpretive outcome.92 Secondly, the Tribunal in Telenor v Hungary was faced with essentially the same issue as the one in Berschader. When interpreting the relevant MFN clause, the Tribunal advanced a very straightforward argument: 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 of the investments are to be treated no less favourably than under a BIT between the host State and a third State, and there is no warrant for construing the above phrase as importing procedural rights as well.93 Ultimately, the Tribunal found that the relevant MFN clause could not be used for an extension of its jurisdiction ratione materiae and declined to hear the case.94 The quoted paragraph was followed as a principle by other tribunals.95 Finally, at least one tribunal relied on the specific function of dispute resolution clauses to refer to the distinction between substantive and procedural rules. In 2013, the Tribunal in the Kiliç v Turkmenistan case faced the question of the application of the MFN clause to the dispute resolution clause aimed to bypass the mandatory recourse to domestic courts. The Tribunal started by examining the structure of the relevant BIT,96 and then stated that ‘[t]he text of the Treaty indicates that its drafters recognised a distinction between substantive rights in relation to investments, and remedial procedures in relation to those rights’,97 ultimately finding that the latter could not fall under the scope of the MFN clause.98 Qualifying BIT rules as ‘substantive’ or ‘procedural’ was clear enough in the eyes of these tribunals. However, Professor Brigitte Stern in Impregilo v Argentina challenged such a view.99 The distinction between the two sets of rules, she argued, required a better explanation, which she found in the exceptionality of international adjudication.100 She concluded that the separation between substantive and jurisdictional rules lies in the different conditions of access to the rights they confer.101 As MFN clauses could not alter the conditions of access to substantive rights, they equally could not do so in regard to the conditions of access to remedies contained in jurisdictional clauses.102 This reasoning does not exhaust the differences between the two sets of rules. Tribunals have also identified them in the special function of dispute settlement clauses as offers to arbitrate, which lead towards the establishment of an independent relationship between an investor and his host state.103 Others have added that any discussion on the application of substantive rights cannot precede the establishment of a jurisdictional relationship between the parties by virtue of procedural rules.104 Tribunals which strongly supported the distinction between substantive and procedural rules invoked it as a principle to rebut the possibility of the application of MFN clauses to dispute resolution.105 The opinions of the tribunals in Berschader and Kiliç are particularly important, because they clearly took the view that if anyone would be capable of changing the nature of dispute settlement clauses from procedural to substantive, these could be only the states parties to the treaty at stake. B. Dubious Effects of Arbitral Practice When qualifying dispute settlement clauses as somehow connected to the substantive rights of foreign investors, as seen above, arbitrators took various approaches.106 A common element seems to be relying on the protective purpose, value or role of such clauses. It has been argued that already Maffezini and Siemens tribunals admitted that dispute resolution regimes ‘are part of the substantive protection extended to the beneficiary of the clause’.107 But as seen above, these two tribunals took different approaches: while the former merely established a link between the two sets of rules, the latter qualified dispute resolution rules as part of the substantive protection. The critical question, which is discussed in this Section, is what is the added value of these approaches, commonly aiming to connect dispute settlement rules to the substantive investor protection? Can they indeed characterize those rules as granting substantive rights to investors, creating a substantive ‘right to arbitrate’? The distinction between interpretation and creation of the law has been called a fiction.108 Arbitrators certainly enjoy some discretion in interpreting the relevant treaty rules.109 It must be emphasized, however, that the issue discussed here rather concerns arbitrators’ views on certain rules, their roles and nature, which can be used as an input to the interpretive exercise over such rules. While the issue of the application of MFN clauses to dispute resolution provisions certainly involves numerous questions of treaty interpretation,110 whether an arbitrator will characterize a dispute resolution clause as a means of substantive protection, or will refrain from doing so, appears as a matter of his own understanding of that provision (or rather of the concept of investor–state dispute settlement). Therefore, to what extent the border between applying personal understandings of the law and its creation can also be called ‘fictional’? Scholars have also raised doubts in qualifying dispute resolution clauses as procedural rules, and it has been suggested that ‘having recourse to law enforcement mechanisms also can be understood as a substantive right of an investor protected under an investment treaty’.111 Indeed, it is undeniable that dispute resolution regimes under IIAs, providing for investor–state arbitration, favour in their own way investment protection, by providing a forum for enforcement of investors’ substantive rights.112 Such arguments are normally built from the perspective of beneficiaries of certain rights, and their need to have a possibility of enforcement of those rights.113 But such considerations rather pertain to practical weighting of interests and possibilities, than to the status of rules as part of the substantive investor protection in IIAs. The discussion on the changing nature of a rule, therefore, must be made in a more technical legal manner, particularly examining whether the view supporting such a change is widespread enough, so as to form part of the ‘body of investment law’.114 One of the main characteristics of dispute settlement clauses in investment treaties is that they are addressed to a group (or a class) of investors.115 Indeed, this characteristic contributes to viewing dispute settlement clauses as not being any different from other (substantive) rights in IIAs. However, such a view collides with another characteristic of dispute settlement clauses, namely the fact that they operate as an offer to arbitrate, which upon an investor’s acceptance forms an agreement to arbitrate and, ultimately, the basis of arbitration.116 The drafters of IIAs are not arbitrators, but states, and therefore, the starting point in resolving the dilemma as to which one of the two characteristics prevails, should be (as usual) the intention of the states parties. Nevertheless, IIAs are applied by arbitrators, which brings them in a conflict with states as for who should have the principal authority to interpret such treaties.117 An analogous conflict certainly appears when it comes to the question how dispute settlement provisions are seen or understood. The uncertainty as regards the quality of dispute settlement clauses is thus twofold: while they per definition allow to be seen differently due to their various aspects, the capacity of arbitrators to make a strong determination in that respect is also questionable. Still, few reasons make it clear that arbitrators’ views on the importance of dispute resolution clauses for investment protection cannot result in any legal change as regards their nature. The first reason, a very obvious one, is that a substantive right to arbitrate would require a quite different mechanism of operation from that of IIA dispute settlement clauses. Technically, such a mechanism would require neglecting the character of dispute resolution clauses as an offer, leading to an agreement to arbitrate as the basis of arbitration. Dispute settlement clauses would instead have to be understood as providing standing rights to investors, without the eventual formation of a bilateral agreement between the investor and the host state.118 Furthermore, if dispute settlement clauses would be understood as granting substantive rights, they would have to be conceptualized as rights that could actually be ‘taken care of’ by the host state. In other words, it would have to present a guarantee provided and secured by the host state, where a failure to do so by the host state would lead to its responsibility.119 This would be contrary to the real mode of operation of dispute settlement clauses, where they serve as the basis of entrance into an equal relationship before an independent arbitral forum, and where a failure to engage in the arbitral process amounts to a binding arbitral decision, rather than another internationally wrongful act.120 In that respect, judicial protection under the ‘fair and equitable treatment’ standard can be taken as an example.121 There, judicial protection by the host state indeed appears as a substantive right of foreign investors, because it is ‘the responsibility of the State under international law and, consequently, of the courts of a State, to provide a fair trial of a case to which a foreign investor is a party’, and ‘[i]t is the responsibility of the courts of a state to ensure that litigation is free from discrimination against a foreign litigant and that the foreign litigant should not become the victim of sectional or local prejudice.’122 A failure to comply with such standards of treatment indeed amounts to an internationally wrongful act and causes state responsibility.123 Clearly, this is not how the functioning of dispute settlement clauses is understood by arbitrators, even when qualifying such clauses as a means of substantive protection.124 One tribunal was right in noting that if an obligation to provide consent could be secured by virtue of another substantive guarantee (an MFN clause), a non-compliance with that obligation would amount to violation of the substantive guarantee at stake, and not to consent as a procedural rule forming the basis for arbitration.125 Secondly, there is no real intention in the analysed arbitral practice to bring about a legal change. It appears that arbitrators are rather willing to see dispute settlement clauses as ‘substantive’ when they need such a qualification to trigger the application of an MFN clause to dispute resolution.126 Surveying the decisions of the present case study, it is obvious that the references to dispute settlement regimes as a means of protection are made exclusively when examining whether they are within the scope of the applicable MFN clause. In addition, views on dispute settlement clauses as substantive rules are not widespread enough to be taken as a common understanding of their nature. It has been argued that the decisions which denied the application of MFN clauses to dispute resolution contributed to ‘re-assert[ing] the traditional distinction between the incorporation by way of MFN clauses of, on the one hand, substantive protections from BITs with third states and, on the other, the dispute settlement provisions of those treaties’.127 As seen above, some tribunals simply took the distinction between substantive and procedural rules as the basis of their decisions on the applicability of MFN clauses to dispute resolution. But it can be argued that other tribunals also had this distinction in mind, despite not regarding it as decisive when denying the applicability of an MFN clause.128 In both sets of cases, arbitrators saw dispute settlement clauses differently and in opposition to those arguing that what matters is the protective purpose of such clauses. In the end, even if the understanding of dispute resolution clauses as substantive rights could be taken as common, this again brings arbitrators back to a conflict with states. While there are some instances where it could be argued that states have accepted the understanding of dispute settlement clauses as substantive,129 the practice of states opposing such a view seems more widespread, either by virtue of new model BITs,130 by recording such an approach in negotiations documents131 or by virtue of interpretative notes.132 If the separation between the two sets of rules is indeed reinforced in their root, arbitrators’ occasional statements that dispute settlement clauses substantively protect foreign investors do not amount to their requalification as substantive rights, or to the creation of a substantive right to arbitrate.133 From an overall perspective, it seems that arbitral views hardly add any value to the legal quality of dispute settlement clauses. However, they might seek to add value to another aspect of their work: the legitimacy of arbitral reasoning. 4. ATTEMPTS AT LEGITIMIZING INTERPRETIVE PROCESSES AND EXPANSIONARY OUTCOMES Statements that dispute resolution clauses substantively protect foreign investors usually follow brief analyses of the favourability of international arbitration to them.134 But, as already concluded, such statements are not capable of changing the nature of dispute settlement clauses from procedural to substantive. Now, what motivates arbitrators to make such qualifications of dispute settlement clauses? At the outset, qualifying dispute settlement clauses as substantive protection seems to be quite a manipulative operation.135 It is obvious that an IIA provision providing for access to a judicial forum protects investors who enjoy the substantive protection under that treaty; the same protective purpose is served by an arbitration clause in an investment contract.136 However, insisting on such purpose cannot requalify procedural rules as substantive, in the same way as a contractual arbitration clause cannot lose its severability because of its protective role.137 Nevertheless, such an insistence might change the perspective of how dispute settlement clauses are seen. It seems that arbitrators are keen to insist on such a qualification of dispute settlement clauses when they face the necessity of qualifying them as substantive protection, with the aim of applying MFN clauses to dispute resolution clauses.138 In such situations, tribunals often have to find a way to bring the latter under the scope of the former.139 It would be hard to imagine that none of the acting arbitrators has a personal standing on the general applicability of MFN clauses to dispute resolution. Giving more or less importance to the protective role of dispute settlement clauses can help their aim on the main issue, at least by strengthening the legitimacy of the interpretive outcome. Every attempt at explaining different arbitral views used in treaty interpretations is speculative. But two possible explanations are particularly interesting for this analysis. The first one is that arbitrators can be motivated to insist on certain views because of their preference to stronger or weaker investor protection.140 Some tribunals argued that the overall protective purpose of BITs supported the interpretation of their provisions in favour of even stronger investor protection.141 Again, such preferences can be explained on various bases. On the one hand, that can be a matter of different views on investment law as such.142 On the other, some concerns regarding arbitral decision-making have been more aggressive, alleging the ‘dependency of arbitrators on prospective claimants’, assuming that if investors see investment arbitration as beneficial, more and more cases will be initiated, leading to an increasing number of arbitral appointments.143 The concerns about arbitral expansionism in jurisdictional determinations are well known in the field.144 Applied in the context of the present case study, these propositions lead to the suggestion that, having a preferential attitude towards investors, arbitrators might insist on qualifying dispute settlement clauses as substantive protection with the aim to enable the application of MFN clauses to dispute resolution provisions.145 The other possibility is that arbitrators are motivated to insist on certain understandings because of their differing views on the functioning of investment arbitration as a dispute settlement mechanism. It has been argued that there are two perspectives of looking at investment arbitration. The one of public international lawyers ‘suggest[s] the importance of systematizing, looking for coherence and universality, identifying and advocating the progressive development of international law as a global “public” legal order—a “quasi-judicial” function’.146 The one of international commercial lawyers, on the other hand, ‘would suggest the importance of focusing not on questions of general principle but on the arbitrator’s role as a “private” dispute resolution “service provider”’.147 Statements that dispute settlement clauses have an important protective purpose, perceiving such clauses as providing investors a right (rather than an offer) to arbitrate, and consequently qualifying such clauses as substantive protection, resemble the public international law perspective.148 The other perspective, it seems, would solely aim to resolve the given dispute, not allowing arbitrators to engage in attempts to requalify the given rules, or eventually in lawmaking.149 Then again, it is often said that most of the members of the new investment treaty arbitration ‘specialised bar’ come from commercial arbitration.150 Should their background determine the perspective they are taking on investment arbitration, perceiving dispute settlement clauses as granting substantive rights, and drawing legal consequences from such generalized qualifications, would be a rarity. But as seen above, arbitrators are not quite hesitant to express their generalized views on the protective purpose of dispute settlement clauses and eventually to give them effect. This can be explained by the suggestion that the commercial arbitration perspective leads arbitrators to neglect states’ interpretative interests in the given IIA, which they primarily have as its parties, and which ultimately can offer arbitrators more lawmaking opportunities.151 The fact that arbitrators are privately appointed can be another starting point for the allegations of the expansionistic tendencies in arbitral jurisdictional determinations.152 The commercial arbitration perspective might not look so much for the qualities of coherence and universality in arbitral jurisprudence, and arbitrators may use the opportunities to expand their jurisdiction when they are not obliged to follow some common understanding of the role and nature of certain rules. But the absence of a common understanding of the nature of dispute settlement clauses—which is surely the case because of their various characteristics—does not allow arbitrariness and arbitrators are still required to justify the interpretive outcomes affecting their application. Both these possibilities in the context of the present case study navigate towards the conclusion that qualifying dispute settlement clauses as granting substantive rights has an instrumental purpose. Facing the investor’s argument that an MFN clause is applicable to a dispute resolution clause, tribunals push forward their views on the protective purpose of the access to international arbitration, as an input to the interpretive process, seeking its legitimization. Such views cannot change the nature of dispute settlement provisions, but the similarity of qualifications of the two sets of rules and the narratives on the protective purpose of international arbitration might be directed at justifying the affirmative—or expansionary—interpretive outcomes. 5. CONCLUSION Arbitrators’ views on dispute settlement clauses as providing substantive rights to foreign investors, or as one of the means of their protection, do not add any value prompting a legal change. They neither requalify procedural rules as substantive ones, nor break the traditional separation line between substantive and procedural rules. Qualifications of dispute settlement clauses as ‘substantive’ are not made with any intention of bringing about a change, and such clauses are not—nor they could be—given a full substantive character. Furthermore, arbitrators do not appear to support an open interdependence between substantive and procedural treaty rules. Rather, when in need of establishing a connection, they tend to invoke the protective purpose of dispute settlement rules. Nevertheless, in this particular respect, investment treaty arbitration does appear as a fragmented field of international law, because arbitrators seem willing, from time to time, to take some steps towards connecting substantive and procedural rules. The separation line between substantive and procedural rules appears much weaker than described by the ICJ in the context of general international law. The steps thus taken have an instrumental role: the separation line between substantive and procedural rules is becoming blurred in pursuance of the legitimization of the expansionary interpretive outcomes. In sum, arbitrators in a certain way do become lawmakers, because to some extent they redefine the separation line between substantive and procedural rules within IIAs, thus discreetly affecting the definition of dispute settlement regimes in investment treaty arbitration. Footnotes 1 See, among many others, Rudolf Dolzer and Terry Myers, ‘After Tecmed: Most-Favored-Nation Clauses in Investment Protection Agreements’ (2004) 19 ICSID Rev–FILJ 49; Dana H Freyer and David Herlihy, ‘Most-Favored-Nation Treatment and Dispute Settlement in Investment Arbitration: Just How “Favored” is “Most-Favored”?’ (2005) 20 ICSID Rev–FILJ 58; Brigitte Stern, ‘ICSID Arbitration and the State’s Increasingly Remote Consent: Apropos the Maffezini Case’ in Steve Charnovitz, Debra P Steger and Peter Van den Bossche (eds), Law in the Service of Human Dignity: Essays in Honour of Florentino Feliciano (CUP 2005) 246; Scott Vesel, ‘Clearing a Path Through a Tangled Jurisprudence: Most-Favored-Nation Clauses and Dispute Settlement Provisions in Bilateral Investment Treaties’ (2007) 32 Yale J Int’l L 125; Guido Santiago Tawil, ‘Most Favoured Nation Clauses and Jurisdictional Clauses in Investment Treaty Arbitration’ in Christina Binder and others (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP 2009) 9; Kaj Hobér, ‘MFN Clauses and Dispute Resolution in Investment Treaties: Have We Reached the End of the Road?’ in ibid 31; Yas Banifatemi, ‘The Emerging Jurisprudence on the Most-Favoured-Nation Treatment in Investment Arbitration’ in Andrea K Bjorklund, Ian A Laird and Sergey Ripinsky (eds), Investment Treaty Law: Current Issues III. Remedies in International Investment Law. Emerging Jurisprudence of International Investment Law (BIICL 2009) 241; Martins Paparinskis, ‘MFN Clauses and International Dispute Settlement: Moving beyond Maffezini and Plama?’ (2011) 26 ICSID Rev–FILJ 14; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 270–75; Francisco Orrego Vicuña, ‘Reports of [Maffezini’s] Demise Have Been Greatly Exaggerated’ (2012) 3 J Int’l Disp Settlement 299; Sam Wordsworth and Chester Brown, ‘A Re-run of Siemens, Wintershall and Hochtief on Most-Favoured-Nation Clauses: Daimler Financial Services AG v Argentine Republic’ (2015) 30 ICSID Rev–FILJ 365. 2 Emilio Agustín Maffezini v The Kingdom of Spain, ICSID Case No ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (25 January 2000) para 54. This is the leading case that supported the application of MFN clauses to dispute resolution clauses in principle. Other tribunals disagreed: see generally Salini Costruttori SpA and Italstrade SpA v The Hashemite Kingdom of Jordan, ICSID Case No ARB/02/13, Decision on Jurisdiction (15 November 2004); and Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24, Decision on Jurisdiction (8 February 2005). 3 See s 3(A)(i)-(ii). 4 For example, Garanti Koza LLP v Turkmenistan, ICSID Case No ARB/11/20, Decision on the Objection to Jurisdiction for Lack of Consent (3 July 2013) para 62. 5 See chapeau in s 2. 6 See Alan Boyle and Christine Chinkin, The Making of International Law (OUP 2007) 266–69; and Gleider I Hernández, ‘International Judicial Lawmaking’ in Catherine Brölmann and Yannick Radi, Research Handbook on the Theory and Practice of International Lawmaking (Edward Elgar 2016) 200–22. Of course, the term ‘law-making’ in this context should not be taken in the strict, formal sense. As rightly noted, decisions of international judicial bodies in the context of their lawmaking function have evidentiary, rather than constitutive role, and such their function is primarily based on the potential to influence the understanding and development of international law: ibid. 220–21. 7 Zachary Douglas, ‘The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails’ (2010) 2 J Int’l Disp Settlement 97, 99. 8 See s 2(A). 9 For the present purposes, the term ‘fragmentation’ is used to describe the development of specialized rules or principles in a particular field of international law, deviating from a general rule or principle which has been seen as part of general international law. See ILC, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law. Report of the Study Group of the International Law Commission Finalized by Martti Koskenniemi’ (13 April 2006) UN Doc A/CN 4/L 682, para 8. 10 As noted by the International Law Commission Study Group in its 2015 Report on the MFN clause, the entire problem of the scope of treatment under MFN clauses ‘concerns the applicability of an MFN clause to procedural provisions, as distinct from the substantive provisions of a treaty’. See ILC, ‘Final report. Study Group on the Most-Favoured-Nation clause’ in ‘Report of the International Law Commission Sixty-seventh session’ (4 May–5 June and 6 July–7 August 2015) UN Doc A/70/10 (hereafter ILC Report) para 80. 11 Accordingly, this article does not address other important aspects of that debate, such as the distinction between the issues of jurisdiction and admissibility. 12 See Hans Kelsen, Principles of International Law (Rinehart and Co 1952) 140, 143–44 (noting, in the context of human rights, that ‘[i]f “rights” are to be conferred on individuals by an international agreement, the latter must impose upon the states parties to the agreement the obligation to recognize the jurisdiction of a tribunal to which the individuals have access in case of a violation of the rights on the part of the state, as well as the obligation to comply with the decision of the tribunal’, and that ‘[w]ithout subjecting the state to the jurisdiction of a tribunal, no “rights” of individuals in relation to the state are established’); and, for the challenge of the substantive/procedural distinction in investment law in particular, Sergio Puig, ‘No Right Without a Remedy: Foundations of Investor-State Arbitration’ (2014) 35 Univ Penn J Int’l L 829. 13 See LaGrand (Germany v United States of America) (Judgment) (2001) ICJ Rep 466, para 77; Eric De Brabandere, Investment Treaty Arbitration as Public International Law. Procedural Aspects and Implications (CUP 2014) 55–70; and Impregilo SpA v Argentine Republic, ICSID Case No ARB/07/17, Concurring and Dissenting Opinion of Professor Brigitte Stern (21 June 2011) paras 45, 53. 14 This article uses a neutral term ‘rules’ (being a vehicle for conferring rights, obligations, or providing for remedies), following the terminology used by the International Court of Justice (hereafter ICJ) in the context of the substantive/procedural divide: see East Timor (Portugal v Australia) (Judgment) (1995) ICJ Rep 90, para 29 (referring to ‘norms’ and ‘rules’). 15 By virtue of investment treaties, states undertake obligations to respect certain minimum standards of treatment of foreign investors and investments in their territories. See Zachary Douglas, The International Law of Investment Claims (CUP 2009) 1 (discussing the purpose, nature and usual types of obligations in investment treaties). 16 For a detailed attempt to define substantive and procedural rules, encountering some problems as regards the latter, see Stefan Talmon, ‘Jus Cogens after Germany v. Italy: Substantive and Procedural Rules Distinguished’ (2012) 25 Leiden J Int’l L 979, 981–83. 17 Investment treaties usually provide for two dispute settlement mechanisms, namely investor–state and interstate dispute settlement mechanisms. This article focuses on the issue of seeing the access to the first one—the investor–state dispute settlement mechanism—as a substantive right of investors. For an overview of dispute settlement regimes under investment treaties see Douglas (n 15) 2–6. 18 HLA Hart, The Concept of Law (3rd edn, OUP 2012) 96–97. Hart also includes in this class the rules defining the adjudicative procedure, which are not in the focus of the present article. 19 A breach of substantive rules (or obligations) triggers the secondary rules of state responsibility, which create new obligations for the state in breach. See James Crawford, State Responsibility (CUP 2013) 64–66. International investment law is known for having a special system of secondary rules for breaches of investment treaties, due to the fact that the new obligations created upon the state in breach correspond to the new rights of the injured investor (rather than to the rights of the other state party to the investment treaty). See Douglas (n 15) 94–106. The differences between substantive and procedural rules and their different consequences have also been analysed by Hart, suggesting that a non-compliance with procedural rules does not constitute an offence [sic], and which stand at the foundations of his primary/secondary rules dichotomy. See Hart (n 18) 29–30, 81. 20 See, for example, Parkerings-Compagniet AS v Republic of Lithuania, ICSID Case No ARB/05/8, Award (11 September 2007) paras 366–71. But see Accession Mezzanine Capital LP and Danubius Kereskedőház Vagyonkezelő Zrt v Hungary, ICSID Case No ARB/12/3, Decision on Respondent’s Objection under Arbitration Rule 41(5) (16 January 2013) para 73 (‘MFN clauses are not and should not be interpreted or applied to create new causes of action beyond those to which consent to arbitrate has been given by the Parties.’ [reference omitted]). 21 A non-compliance with procedural rules (at least with those concerned in this article) does not amount to an internationally wrongful act, and it does not trigger the secondary rules of state responsibility. Rather, if a party to a binding arbitration agreement does not comply with that procedural rule, a decision based on that agreement would be binding upon it, despite the failure to take part in arbitration. See Convention on the Settlement of Investment Disputes between States and Nationals of Other States (opened for signature 18 March 1965, entered into force 14 October 1966) 575 UNTS 159, art 53(1) and art 54(1); and ICSID Rules of Procedure for Arbitration Proceedings (10 April 2006) r 42(1). However, for the suggestion that certain procedural rules may result in international legal responsibility, see Talmon (n 16) 985. A clear example is state immunity, whose breach does amount to an internationally wrongful act: Jurisdictional Immunities of the State (Germany v Italy: Greece intervening) (Judgment) (2012) ICJ Rep 99. 22 See Menachem Mautner, ‘Michael Reisman’s Jurisprudence of Suspicion’ (2009) 34 Yale J Int’l L 505, 511. 23 See also in detail Talmon (n 16) 986–1001. It is worth noting that Talmon acknowledges the possibility of ‘a certain (limited) effect’ of substantive rules of jus cogens status on the procedural ones ‘upon their interpretation and application’ (ibid 995). 24 Fisheries Jurisdiction (United Kingdom v Iceland) (Jurisdiction) (1973) ICJ Rep 3, para 40. 25 ibid. 26 East Timor (n 14) para 29. 27 Armed Activities on the Territory of the Congo (New Application: 2002) (Democratic Republic of the Congo v Rwanda) (Jurisdiction and Admissibility) (2006) ICJ Rep 6, para 64. 28 ibid para 67 (‘Rwanda’s reservation to Article IX of the Genocide Convention bears on the jurisdiction of the Court, and does not affect substantive obligations relating to acts of genocide themselves under that Convention. In the circumstances of the present case, the Court cannot conclude that the reservation of Rwanda in question, which is meant to exclude a particular method of settling a dispute relating to the interpretation, application or fulfilment of the Convention, is to be regarded as being incompatible with the object and purpose of the Convention.’). 29 Jurisdictional Immunities of the State (n 21) para 58 (noting: ‘as the Court has stated (in the context of the personal immunities accorded by international law to foreign ministers), the law of immunity is essentially procedural in nature’, and ‘[i]t regulates the exercise of jurisdiction in respect of particular conduct and is thus entirely distinct from the substantive law which determines whether that conduct is lawful or unlawful’). For personal immunities see Arrest Warrant of 11 April 2000 (Democratic Republic of the Congo v Belgium) (Judgment) (2002) ICJ Rep 3, para 60. 30 Jurisdictional Immunities of the State (n 21) para 93 (‘In the opinion of the Court, however, no such conflict exists. Assuming for this purpose that the rules of the law of armed conflict which prohibit the murder of civilians in occupied territory, the deportation of civilian inhabitants to slave labour and the deportation of prisoners of war to slave labour are rules of jus cogens, there is no conflict between those rules and the rules on State immunity. The two sets of rules address different matters. The rules of State immunity are procedural in character and are confined to determining whether or not the courts of one State may exercise jurisdiction in respect of another State. They do not bear upon the question whether or not the conduct in respect of which the proceedings are brought was lawful or unlawful.’). 31 Anglo-Iranian Oil Co (United Kingdom v Iran) (Jurisdiction) (1952) ICJ Rep 93, 107–09. 32 ibid 109. For a similar argument, see Garanti Koza LLP v Turkmenistan, ICSID Case No ARB/11/20, Dissenting Opinion by Laurence Boisson de Chazournes (3 July 2013) paras 40–44, 51; and Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Separate and Dissenting Opinion of J Christopher Thomas QC (7 October 2011) paras 75–82. 33 See Stephan W Schill, The Multilateralization of International Investment Law (CUP 2009) 192–93 (arguing that ‘the Court declined jurisdiction in the case at hand not because it considered that an MFN clause could not incorporate more favourable jurisdiction, but rather because the jurisdiction of the ICJ itself was limited by the Court’s Statute in connection with the Iranian declaration’, and that the Court ‘did not reject the proposition that MFN clauses could incorporate broader consent to jurisdiction’). 34 Anglo Iranian Oil Co (n 31) 109. 35 ibid 109–10. 36 Douglas (n 7) 102–03. 37 Anthea Roberts, ‘Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’ (2013) 107 AJIL 45, 58. 38 Dolzer and Schreuer (n 1) 263. See further Christoph Schreuer, ‘Jurisdiction and Applicable Law in Investment Treaty Arbitration’ (2014) 1 McGill J Disp Res 1. 39 Zachary Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 British Yrbk Int’l L 151, 224 (of course, with the exception of arbitrations under the auspices of the International Centre for Settlement of Investment Disputes (hereafter ICSID), which, as a denationalized system, is not subject to domestic law as lex loci arbitri). 40 ibid 163. 41 ibid 164. 42 The ‘direct’ theory is rather concerned with attributing the granted protection directly to investors: Corn Products International Inc v The United Mexican States, ICSID Case No ARB(AF)/04/01, Decision on Responsibility (15 January 2008) paras 167–69 (‘It is now clear that States are not the only entities which can hold rights under international law; individuals and corporations may also possess rights under international law. In the case of rights said to be derived from a treaty, the question will be whether the text of the treaty reveals an intention to confer rights not only upon the Parties thereto but also upon individuals and/or corporations. … In the case of Chapter XI of the NAFTA, the Tribunal considers that the intention of the Parties was to confer substantive rights directly upon investors.’). 43 Douglas (n 39) 184. See eg The Loewen Group Inc and Raymond L Loewen v United States of America, ICSID Case No ARB(AF)/98/3, Award (26 June 2003) para 233 (‘There is no warrant for transferring rules derived from private law into a field of international law where claimants are permitted for convenience to enforce what are in origin the rights of Party states.’). 44 Although this proposition can be challenged as well: Puig (n 12) 859. 45 Douglas (n 39) 170 (arguing that ‘in the absence of some specific provision in the BIT, the national state of the investor retains no interest in an investment treaty arbitration instituted against another contracting state’, and that ‘[t]his is consistent with the perception that an investor is invoking its own right in instituting an investment treaty arbitration.’). 46 Douglas (n 7) 104. 47 See Dolzer and Schreuer (n 1) 257; Andrea Marco Steingruber, Consent in International Arbitration (OUP 2012) 196–97. 48 Therefore, it could be argued that the suggestion that substantive and procedural rules are addressed to different addressees would assume accepting the derivative or the compromise theory. 49 Douglas (n 7) 104. 50 See generally Douglas (n 39). 51 See generally Jan Paulsson, The Idea of Arbitration (OUP 2013) 60–72. For the application of that principle in the discussion on MFN clauses and dispute resolution: Douglas (n 7) 103. 52 Plama (n 2) para 212; and H&H Enterprises Investments Inc v Arab Republic of Egypt, ICSID Case No ARB/09/15, Award (6 May 2014) para 358. 53 Generally on BITs as sources of international investment law and their structure see Dolzer and Schreuer (n 1) 13–14. 54 Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (Kluwer Law Int’l 1995) 58 (with reference to Jean-Pierre Laviec, Protection et promotion des investissements (Graduate Institute Geneva 1985) 79). 55 Emmanuel Gaillard, ‘Establishing Jurisdiction Through a Most-Favored-Nation Clause’ (2005) 233 New York L J 3. 56 Some tribunals recognized the distinction between substantive and procedural rules, however, did not find that distinction useful in reaching their decisions: Daimler Financial Services AG v Argentine Republic, ICSID Case No ARB/05/1, Award (22 August 2012) para 219; Austrian Airlines v The Slovak Republic, UNCITRAL ad hoc arbitration, Final Award (9 October 2009) para 124; Renta 4 SVSA and others v The Russian Federation, SCC Case No 24/2007, Award on Preliminary Objections (20 March 2009) para 101. Other tribunals have not made clear to what extent that distinction, or lack of it, played a role in rendering their decisions: Ansung Housing Co Ltd v People’s Republic of China, ICSID Case No ARB/14/25, Award (9 March 2017) para 138; Sanum Investments Limited v The Government of the Lao People’s Democratic Republic, PCA Case No 2013-13, Award on Jurisdiction (13 December 2013) para 358; Teinver SA Transportes de Cercanías SA and Autobuses Urbanos del Sur SA v The Argentina Republic, ICSID Case No ARB/09/1, Decision on Jurisdiction (21 December 2012) paras 181–82; Les Laboratoires Servier SAS, Biofarma SAS and Arts et Techniques du Progrès SAS v Republic of Poland, UNCITRAL arbitration, Final Award (14 February 2012) para 519. See also Ivan Peter Busta and James Peter Busta v The Czech Republic, SCC Case No 14/2015, Final Award (10 March 2017) para 167 (reaching a negative conclusion on the MFN-dispute settlement conjunction on textual grounds, and stating that the question ‘whether access to arbitration is a procedural or substantive right become[s] moot’). 57 Maffezini (n 2) para 54. 58 ibid para 55. 59 ibid para 38. See also Telefónica SA v The Argentine Republic, ICSID Case No ARB/03/20, Decision of the Tribunal on Objections to Jurisdiction (25 May 2006) paras 100–02. 60 RosInvestCo UK Ltd v The Russian Federation, SCC Case No 79/2005, Award on Jurisdiction (October 2007) para 132. 61 ibid para 130. 62 ibid (arguing that ‘it is difficult to doubt that an expropriation interferes with the investor’s use and enjoyment of the investment, and that the submission to arbitration forms a highly relevant part of the corresponding protection for the investor by granting him, in case of interference with his “use” and “enjoyment”, procedural options of obvious and great significance compared to the sole option of challenging such interference before the domestic courts of the host state’). 63 See also Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law Int’l 2009) 219 (arguing that, as another important point, ‘the RosInvestCo tribunal correctly noted that although protection of an investment is a highly relevant aspect of treatment, arbitration is a procedural right of an investor, not an investment’). 64 Douglas (n 7) 112. 65 Siemens AG v The Argentine Republic, ICSID Case No ARB/02/8, Decision on Jurisdiction (3 August 2004) para 102. 66 ibid para 82. 67 Gas Natural SDG SA v The Argentine Republic, ICSID Case No ARB/03/10, Decision of the Tribunal on Preliminary Questions on Jurisdiction (17 June 2005) para 31. 68 ibid para 49. 69 ibid para 26. 70 ibid para 27. 71 ibid para 29. 72 Suez Sociedad General de Aguas de Barcelona SA and InterAguas Servicios Integrales del Agua SA v The Argentine Republic, ICSID Case No ARB/03/17, Decision on Jurisdiction (16 May 2006) para 57; Suez Sociedad General de Aguas de Barcelona SA and Vivendi Universal SA/AWG Group Ltd v The Argentine Republic, ICSID Case No ARB/03/19, Decision on Jurisdiction (3 August 2006) para 59. As for AWG Group Ltd, the proceedings were conducted under the UNCITRAL arbitration rules, although administered by the ICSID. 73 Suez and Vivendi/AWG ibid para 59. Essentially the same was stated in Suez and InterAguas, using a slightly different wording. 74 Suez and InterAguas (n 72) para 53; Suez and Vivendi/AWG (n 72) para 53. 75 Suez and Vivendi/AWG (n 72) para 56. 76 ibid para 57. 77 Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Decision on Jurisdiction (24 October 2011) para 68. The scope of the MFN clause was limited to ‘the management, utilization, use and enjoyment of an investment’. 78 ibid. 79 Garanti Koza (n 4) para 42. 80 See ILC Report (n 10) para 163 (suggesting: ‘Where the parties have explicitly included the conditions for access to dispute settlement within the framework of their MFN provision, then no difficulty arises. Equally, where the parties have explicitly excluded the application of MFN to the conditions for access to dispute settlement, no difficulty arises.’); and Schill (n 33) 174. 81 Garanti Koza (n 4) para 62. cf Venezuela US SRL v The Bolivarian Republic of Venezuela, PCA Case No 2013-34, Interim Award on Jurisdiction (on the Respondent’s Objection to Jurisdiction Ratione Voluntatis) (26 July 2016) paras 100–03 (where, facing an MFN clause which provided for its application to the dispute resolution clause, the Tribunal refrained from invoking the protective purpose of the access to international arbitration, and concentrated on textual interpretation of the basic and third-party BITs). 82 National Grid plc v The Argentine Republic, UNCITRAL ad hoc arbitration, Decision on Jurisdiction (20 June 2006) para 93. 83 ibid para 89. The Tribunal relied, arguably wrongly, on the practice of the Ambatielos Commission, the ICJ, and the Maffezini Tribunal. 84 ibid para 81. 85 For a similar approach see Impregilo SpA v Argentine Republic, ICSID Case No ARB/07/17, Award (21 June 2011) para 99 (holding that ‘the term “treatment” is in itself wide enough to be applicable also to procedural matters such as dispute settlement’); and Tza Yap Shum v The Republic of Peru, ICSID Case No ARB/07/6, Decision on Jurisdiction and Competence (19 June 2009) para 213 (although holding that the specific wording of the dispute settlement clause should prevail over the general notion of ‘treatment’). See also Impregilo Concurring and Dissenting Opinion (n 13) paras 25–38. For an argument that ordinary meaning of the term ‘treatment’ covers both substantive and procedural provisions see also Stephanie L Parker, ‘A BIT at a Time: The Proper Extension of the MFN Clause to Dispute Settlement Provisions in Bilateral Investment Treaties’ (2012) 2 Arbitration Brief 30, 45. 86 Tecnicas Medioambientales Tecmed SA v The United Mexican States, ICSID Case No ARB(AF)/00/2, Award (29 May 2003) para 67. 87 ibid para 69 (‘The Arbitral Tribunal will not examine the provisions of such [third-party] Treaty in detail in light of such [MFN] principle, because it deems that matters relating to the application over time of the Agreement, which involve more the time dimension of application of its substantive provisions rather than matters of procedure or jurisdiction, due to their significance and importance, go to the core of matters that must be deemed to be specifically negotiated by the Contracting Parties.’ [emphasis added]). 88 Vladimir Berschader and Moïse Berschader v The Russian Federation, SCC Case No 80/2004, Award (21 April 2006) para 185 (emphasis added). 89 ibid para 195. 90 ibid para 198. 91 ibid para 208. 92 ICS Inspection and Control Services Limited v The Argentine Republic, PCA Case No 2010-9, Award on Jurisdiction (10 February 2012) paras 308–09; Daimler (n 56) paras 225–31; ST-AD GmbH v The Republic of Bulgaria, PCA Case No 2011-06, Award on Jurisdiction (18 July 2013) paras 394–96; Beijing Urban Construction Group Co Ltd v Republic of Yemen, ICSID Case No ARB/14/30, Decision on Jurisdiction (31 May 2017) paras 116–21. See also Venezuela US SRL (n 81), Dissenting Opinion of Professor Marcelo G Kohen (26 July 2016) paras 18–19. cf Impregilo (n 85) para 100; Telefónica (n 59) para 102. 93 Telenor Mobile Communications AS v The Republic of Hungary, ICSID Case No ARB/04/15, Award (13 September 2006) para 92 (emphasis in the original). 94 ibid para 102. 95 Wintershall Aktiengesellschaft v Argentine Republic, ICSID Case No ARB/04/14, Award (8 December 2008) para 168. 96 Kiliç Ȝnşaat Ȝthalat Ȝhracat Sanayi ve Ticaret Anonim Şirketi v Turkmenistan, ICSID Case No ARB/10/1, Award (2 July 2013) para 7.3.1 (‘A careful reading of the BIT indicates that the grant of substantive rights in relation to investments is established by the provisions of Articles II-VI, whereas procedures (or modalities) for resolving disputes in relation to the protection of those substantive rights are addressed in Article VII (and, in relation to disputes between the Contracting Parties in Article VIII).’ [emphasis in the original]). 97 ibid para 7.3.9 (emphasis in the original). See also European American Investment Bank AG (Austria) v The Slovak Republic, PCA Case No 2010-17, Award on Jurisdiction (22 October 2012) paras 451–52; and Hochtief Separate and Dissenting Opinion (n 32) paras 70–73. 98 Kiliç (n 96) para 7.3.9 (‘This distinction suggests strongly that the “treatment” of “investments” for which MFN rights were granted was intended to refer only to the scope of the substantive rights identified and adopted in Articles II-VI.’ [emphasis in the original]). It is worth highlighting that the relevant MFN clause referred to the treatment of investments (para 7.1.1). cf n 63. 99 Impregilo Concurring and Dissenting Opinion (n 13) para 29. 100 ibid para 45. See also, on the exceptionality of international adjudication, Menzies Middle East and Africa SA et Aviation Handling Services International Ltd c République du Sénégal, ICSID Case No ARB/15/21, Award (5 August 2016) para 130; Garanti Koza Dissenting Opinion (n 32) para 6. 101 Impregilo Concurring and Dissenting Opinion (n 13) paras 51–56. 102 ibid paras 50, 57–99. See also ST-AD (n 92) para 397. 103 European American Investment Bank (n 97) paras 445–46. Similarly, some tribunals implied the distinctive nature of procedural from substantive treaty provisions, holding that dispute settlement clauses operate as ‘an agreement on their own’: Plama (n 2) para 212; and H&H Enterprises (n 52) para 358. 104 See n 32. 105 Other tribunals also took note of the distinction between substantive and procedural rules, although not as a decisive argument: Plama (n 2) para 191 (‘it can be argued with equal force that the second paragraph [of the MFN clause] demonstrates that the first paragraph is solely concerned with provisions relating to substantive protection to the exclusion of the procedural provisions relating to dispute settlement’). 106 In comparison, some arbitrators simply stated that the two groups of rules should not be distinguished: Renta 4 SVSA and others v The Russian Federation, SCC Case No 24/2007, Separate Opinion of Charles N Brower (20 March 2009) para 10. 107 Gaillard (n 55) 2. 108 Anthea Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104 AJIL 179, 188 (references to Boyle and Chinkin (n 6) 268). 109 ibid 185 (arguing that ‘[t]he zone of interpretive discretion of investment tribunals may be understood as the interpretive powers explicitly or implicitly delegated to them minus the formal and informal powers retained by treaty parties to influence their interpretations, including through dialogue’ [reference to Alec Stone Sweet, ‘Constitutionalism, Rights, and Judicial Power’ in Daniele Caramani (ed), Comparative Politics (OUP 2008) 228–29]). 110 See generally literature in n 1; n 7; and Schill (n 33) 174–77. 111 ibid 181. 112 For an argument that the access to investment arbitration is the central aspect of investment law see Thomas W Wälde, ‘The Specific Nature of Investment Arbitration’ in Philippe Kahn and Thomas W Wälde (eds), New Aspects of International Investment Law (Martinus Nijhoff 2007) 55–57 (‘It is the creation of arbitral jurisdiction, I suggest, and not the formulation of substantive investment protection obligations in national laws and treaties which is the pivot around which international investment law turns.’). See also Case C-284/16 Slowakische Republik v Achmea BV [2017] ECLI:EU:C:2017:699, Opinion of AG Wathelet, paras 76–77 (‘Article 8 [providing for investor-State arbitration] of the BIT is not a benefit separable from the remainder of the BIT, but is an integral part thereof to such an extent that a BIT without an ISDS mechanism would be pointless since it would not achieve its aim, which is to encourage and attract foreign investment … the right of investors to have recourse to international arbitration is the most essential element of the BITs, since, in spite of its procedural content, it is in itself an indispensable guarantee that encourages and protects investments’). Even Professor Brigitte Stern in Impregilo recognised the importance of the access to arbitration, and for that reason agreed with the proposition that the access to arbitration can be considered part of ‘treatment’: Impregilo Concurring and Dissenting Opinion (n 13) paras 25–38. 113 See Millicom International Operations BV and Sentel GSM SA v The Republic of Senegal, ICSID Case No ARB/08/20, Decision on Jurisdiction of the Arbitral Tribunal (16 July 2010) para 65 (arguing that otherwise such rights would be ‘lex imperfecta’). 114 Stephan W Schill, ‘W(h)ither Fragmentation? On the Literature and Sociology of International Investment Law’ (2011) 22 EJIL 875, 880 (‘It is these [arbitral] decisions that, as non-binding precedent, influence the interpretation and application of investment treaties by later arbitral tribunals. Together, they create a body of investment law that concretizes and further develops the law applicable to and by investment treaty tribunals.’ [references omitted]). 115 See Gus Van Harten and Martin Loughlin, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’ (2006) 17 EJIL 121, 142–45 (analysing a general/specific consent dichotomy). 116 See Dolzer and Schreuer (n 1) 257–60; Steingruber (n 47) 196–67. The Tribunal in European American Investment Bank v Slovakia invoked this character of dispute settlement provisions, next to the fact that they are derived from interstate agreements, to emphasise their ‘dual character’. European American Investment Bank (n 97) para 445. 117 Roberts (n 108) 179. 118 Once invoked (accepted) by an investor, a dispute settlement clause loses its character as a treaty clause and becomes an agreement to arbitrate between that investor and the host state, which forms the basis of arbitration: Dolzer and Schreuer (n 1) 257; Steingruber (n 47) 196–97. 119 ILC, ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts’ in ‘Report of the International Law Commission on the work of its fifty-third session’ (23 April–1 June and 2 July–10 August 2001) UN Doc A/56/10, art 12. 120 cf Case Concerning Rights of Nationals of the United States of America in Morocco (France v United States of America) (Judgment) (1952) ICJ Rep 176, 190ff (regarding consular jurisdiction); The Ambatielos Claim (Greece, United Kingdom of Great Britain and Northern Ireland) Award (6 March 1956) XII RIAA 83, 107 (regarding ‘administration of justice’); Douglas (n 7) 107 (regarding the application of MFN clauses to dispute resolution clauses; arguing that by invoking an MFN clause the claimant is asking the tribunal for a remedy, for which ‘the claimant must establish the constituent elements of a wrongful act’, and rhetorically asking: ‘Can the claimant maintain that it was wrongful for the host state to have made a standing offer of arbitration in a third treaty that is different (or more favourable from the claimant’s perspective) from the standing offer of arbitration in the basic treaty by virtue of the MFN clause in the basic treaty?’). 121 For judicial protection, or the concept of denial of justice, as part of fair and equitable treatment, see Organisation for Economic Co-operation and Development (OECD), ‘Fair and Equitable Treatment Standard in International Investment Law’ (2004) OECD Working Papers on International Investment 2004/03, 28-36. For the concept of arbitrariness, see Elettronica Sicula SpA (ELSI) (United States of America v Italy) (Judgment) (1989) ICJ Rep 15, paras 124–28 (‘It is a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety.’); and Asylum (Colombia v Peru) (Judgment) (1950) ICJ Rep 266, 284. 122 Loewen (n 43) para 123. 123 See ibid para 121 (‘whether the whole trial, and its resultant verdict, satisfied minimum standards of international law, or the “fair and equitable treatment and full protection and security” that the Contracting States pledged in Article 1105 of NAFTA’; although this Tribunal did not rule on the merits, it is instructive in recalling that if domestic proceedings would not satisfy such standards of treatment, that would indeed amount to a breach of the respective IIA provisions). 124 Interestingly, the Tribunal in Renta 4 v Russia faced the issue whether the access to international arbitration constituted part of fair and equitable treatment. The Tribunal’s answer was negative, stressing that there was no reason to conclude that lack of such access would be ‘unfair or inequitable’: Renta 4 (n 56) paras 103–06. cf Renta 4 Separate Opinion (n 106) paras 22–23. 125 Menzies Middle East and Africa (n 100) paras 129–51 (rejecting the argument that consent to arbitration could be secured by virtue of an MFN clause contained in the General Agreement on Trade in Services and a third-party BIT). See particularly ibid para 141 (‘Si l’article II de l’AGCS (dans l’hypothèse, non établie, où ce dernier couvrirait l’arbitrage d’investissement) était applicable en l’espèce, dans la mesure où le Sénégal a fait des offres d’arbitrage à deux catégories d’investisseurs mais a refusé le même bénéfice aux autres, la seule conséquence qui en découlerait serait que le Sénégal pourrait se trouver en violation de ses obligations en vertu de l’article II de l’AGCS.’). See also Venezuela US Dissenting Opinion (n 92) paras 25–38. 126 Instrumental use of such qualifications was also noted by the ILC Study Group, when it said that ‘[k]ey to the decision in Maffezini is the conclusion that dispute settlement provisions are, in principle, part of the protection for investors and investments provided under bilateral investment agreements’: ILC Report (n 10) para 95. See further s 4. 127 Stephen Fietta, ‘Most Favoured Nation Treatment and Dispute Resolution Under Bilateral Investment Treaties: A Turning Point?’ (2005) 8 Int’l Arbitration L Rev 131, 138. 128 See Salini (n 2) para 112; Plama (n 2). See also n 56. 129 See UK Model BIT (2008) <http://investmentpolicyhub.unctad.org/Download/TreatyFile/2847> accessed 11 February 2018, art 3(3). 130 See Norwegian Model BIT (13 May 2015) <http://investmentpolicyhub.unctad.org/Download/TreatyFile/3350> accessed 11 February 2018, art 4(3); Comments on the Individual Provisions of the Model Agreement (Norwegian Model BIT) (13 May 2015) <www.regjeringen.no/contentassets/e47326b61f424d4c9c3d470896492623/comments-on-the-model-for-future-investment-agreements-english-translation.pdf> accessed 11 February 2018, 8 (‘Internationally, there is disagreement as to whether an MFN clause also encompasses the right to invoke a special dispute settlement mechanism or the special conditions for initiating international arbitration proceedings (so-called “procedural rights”), or whether only substantive rights relating to market access and the treatment of investors are covered.’). 131 Newcombe and Paradell (n 63) 224 (‘The US approach has been to record in its investment negotiations that MFN is not intended to extend to dispute settlement provisions.’). 132 See National Grid (n 82) para 85 (noting that ‘after the decision on jurisdiction in Siemens, the Argentine Republic and Panama exchanged diplomatic notes with an “interpretative declaration” of the MFN clause in their 1996 investment treaty to the effect that, the MFN clause does not extend to dispute resolution clauses, and that this has always been their intention’). 133 Even the ILC Study Group concluded in its Report that the applicability of MFN clauses to dispute resolution clauses should be negotiated by states. This suggestion indirectly defers the determination of the quality of treaty rules to states. See ILC Report (n 10) para 216. 134 See eg Maffezini (n 2) paras 54–55; Siemens (n 65) para 102; Gas Natural (n 67) para 29. 135 Some degree of caution towards such qualifications can be seen in the work of the ILC Study Group, when it observed ‘that conclusions about the applicability of MFN clauses to dispute settlement provisions should be based on the interpretation and analysis of the provisions in question and not on assumptions about the nature of investment agreements or of the rights that are granted under them’. See ILC Report (n 10) para 173. 136 For the argument that contract-based and treaty-based investment arbitrations share their common purpose of protecting and facilitating cross-border investment flows see Charles N Brower and Shashank P Kumar, ‘Investomercial Arbitration: Whence Cometh It? What Is It? Whither Goeth It?’ (2015) 30 ICSID Rev–FILJ 35. 137 cf Yannick Radi, ‘The Application of the Most-Favoured-Nation Clause to the Dispute Settlement Provisions of Bilateral Investment Treaties: Domesticating the “Trojan Horse”’ (2007) 18 EJIL 757, 763 (arguing that ‘the intellectual distinction between procedural and substantive provisions, which is at the basis of the severability concept, is rendered moot by the protective dimension of the dispute settlement mechanism in international investment law’). 138 See n 126 and the accompanying text. 139 This might not be the case when an MFN clause refers to ‘all matters’ subject to the relevant IIA. See eg Maffezini (n 2) para 38. 140 Thus, in the context of weighting public and private interests in defining the standards of treatment, see Alex Mills, ‘Antinomies of Public and Private at the Foundations of International Investment Law and Arbitration’ (2011) 14 J Int’l Economic L 469, 491 (‘One analysis may start from the position that the standard should reflect the private interests or expectations of investors.’). 141 SGS Société Générale de Surveillance SA v Republic of the Philippines, ICSID Case No ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para 116. 142 For example, giving preference to the role of investment treaties in the international community to effectively protect foreign investors, or to more traditional concerns of public international law, such as the centrality of state consent. The effect of these considerations on jurisdictional determinations was the subject of the author’s previous analysis: Relja Radović, ‘Inherently Unneutral Investment Treaty Arbitration: The Formation of Decisive Arguments in Jurisdictional Determinations’ (2018) 2018 J Disp Res 143. 143 Gus Van Harten, Investment Treaty Arbitration and Public Law (OUP 2007) 172–73 (also expressing a concern as to the overall activities of arbitrators, which include both adjudicating investment cases and representing investors in arbitrations, often at the same time, and noting that ‘[a]rbitrators are members of an industry the purpose of which is to supply adjudicative services in exchange for (lucrative) remuneration’). 144 M Sornarajah, Resistence and Change in the International Law on Foreign Investment (CUP 2015) 136ff. 145 For the argument that investors’ interests can be emphasised in arbitral interpretations of treaties, because of their position as parties in arbitrations, see Mills (n 140) 490. 146 ibid 483–84. 147 ibid 484. 148 A counterargument is possible: that precisely those who emphasize a principled distinction between substantive and procedural norms take the public international law perspective on international investment law. 149 Mills (n 140) 485 (‘Viewing international investment law as a process of law-making, rather than bilateral dispute resolution, implies a commitment to systemic goals like consistency in substantive international investment law.’). 150 Schill (n 114) 880 (also arguing at 888 that ‘investment treaty arbitration thus had the effect of commercializing international investment law also from a sociological perspective’ and that ‘with rising numbers of disputes, the centre of gravity increasingly moved to the commercial arbitration bar’). See also Wälde (n 112) 54 (‘The thinking, attitudes, procedures and concepts of commercial arbitration dominate at present investment arbitration.’). 151 See Robert O Keohane, Andrew Moravcsik and Anne-Marie Slaughter, ‘Legalized Dispute Resolution: Interstate and Transnational’ (2000) 54 Int’l Organization 457, 459 (‘Transnational dispute resolution seems to have an inherently more expansionary character; it provides more opportunities to assert and establish new legal norms, often in unintended ways.’); and Roberts (n 108) 184 (noting, as a consequence, the failures ‘to recognize the interpretive interests of the treaty parties’). 152 Van Harten and Loughlin (n 115) 148. © The Author(s) 2018. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of International Dispute Settlement Oxford University Press

Between Rights and Remedies: The Access to Investment Treaty Arbitration as a Substantive Right of Foreign Investors

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Abstract

Abstract Arbitrators in investment treaty arbitration have not been reluctant to express their views that the access to international arbitration forms part of the substantive protection of investors. The present article examines what is the added legal value of such views, and whether they are capable of requalifying procedural rules as substantive ones, or alternatively, breaking the separation line between substantive and procedural rules. This is discussed in the context of the application of most-favoured-nation clauses to dispute settlement clauses, as a case study. It is argued that the arbitral qualification of dispute resolution clauses as a means of investors’ protection cannot prompt a change regarding their legal nature, and has primarily an instrumental role in legitimizing expansionary interpretive outcomes. But the fact that a blurred separation line between substantive and procedural rules appears acceptable in investment treaty arbitration implies fragmentation from general international law in that respect, effected through arbitral lawmaking. 1. INTRODUCTION One of the pressing topics that marked the beginning of the new millennium in investment treaty arbitration was the application of most-favoured-nation clauses (MFN) to dispute resolution clauses.1 At the same time, it seems that little attention was paid to the parallel problem of reconceptualizing dispute resolution clauses as a means of the substantive protection of investors. When in 2000 the Tribunal in the case of Maffezini v Spain decided that the MFN clause contained in the applicable bilateral investment treaty (BIT) was indeed applicable to the dispute resolution provision in the same BIT, the Tribunal also stated that ‘dispute settlement arrangements are inextricably related to the protection of foreign investors’.2 Later on, tribunals felt more and more comfortable to rely on such an ‘inextricable relation’,3 which further led them to characterize the access to international arbitration provided for in international investment agreements (IIA), simply as one of the means of protection of foreign investors.4 The interdependence of substantive and procedural treaty provisions seems new. While investor protection and particularly MFN treatment, was provided for by virtue of substantive provisions, the rules governing investor–state arbitration were regarded as procedural.5 Another question is whether the tribunals’ qualification of the access to arbitration provided for in IIAs as one of the means of investor protection in fact requalifies such provisions from procedural to substantive ones. Both developments prospectively amount to examples of arbitral lawmaking. Indeed, the lawmaking function of international adjudicatory bodies is particularly notable when it comes to the basic principles of international law, whose concrete meaning can be formed only through practical application.6 This is particularly true in investment treaty arbitration, where the lawmaking role of arbitrators has been described as a ‘functional necessity’ caused by the ambiguity of investment treaties.7 The relationship between substantive and procedural provisions in investment treaties seems a fertile field for such developments. General international law recognizes a principled distinction between substantive and procedural rules, which generally prevents their interference.8 A different conclusion reached by arbitrators in respect of concrete issues can produce notable outcomes: it can be seen as a derogation from that principle in the particular context of investment treaty arbitration as a fragmented field of international law,9 but it can also be seen as an arbitral attempt to create a substantive ‘right to arbitrate’. The present article examines what is the added legal value of arbitrators’ views on the access to international arbitration as a substantive right of investors, and particularly whether they are capable of requalifying procedural rules as substantive ones, or alternatively, breaking the separation line between substantive and procedural rules. It uses one particular long-lasting topic in investment treaty arbitration, namely the application of MFN clauses to dispute resolution clauses, as its case study.10 Nevertheless, it should be emphasized that this article does not aspire to engage in the debate on the applicability and reach of MFN clauses to dispute resolution provisions, but only to analyse the views on the relationship between substantive and procedural rules used in arbitral reasonings and their possible effects.11 After reaching the conclusion that arbitral qualifications of dispute settlement clauses as ‘substantive’ cannot add any value prompting a change as regards the legal quality of such clauses, the article argues that such qualifications can have an instrumental role in attempts to legitimize expansionary interpretive outcomes. But the mere fact that a blurred separation line between substantive and procedural rules appears acceptable in investment treaty arbitration implies fragmentation from general international law in that respect, which is effected through arbitral lawmaking. Section 2 discusses the distinction between substantive and procedural rules as a core principle of both general international law and investment treaty arbitration. Section 3 then analyses the arbitral practice qualifying dispute resolution clauses as rules of substantive protection, in the context of the case study (the application of MFN clauses to dispute resolution provisions). Section 4 discusses some possible explanations for shifting the perceptions of dispute resolution clauses in arbitral practice, focusing on their possible legitimizing role in interpretive processes. Section 5 draws concluding remarks. 2. THE SUBSTANTIVE VERSUS PROCEDURAL RULES DISTINCTION AS A CORE PRINCIPLE General international law, and international investment law in particular, are familiar with the suggestion that conferral of any ‘right’ under international law is inextricably linked to making available remedies for their breaches within the same legal system.12 Nevertheless, classical approaches to public international law presume that the two sets of rules—those conferring rights and those providing for remedies—are not necessarily dependent,13 and that they can be defined in different terms.14Substantive rules are the rules imposing an obligation of certain behaviour to a state, and determining the lawfulness of a state conduct.15Procedural rules, on the other hand, are more difficult to define,16 but for the present purposes they regulate dispute resolution mechanisms (such as adjudication or arbitration) in an event of a breach of substantive rules, and provide or deny the injured party an access to remedy.17 The emphasis is made here on those rules that empower tribunals to settle disputes, or in Hart’s words, ‘rules of adjudication’.18 These two qualifications (‘substantive’ and ‘procedural’) will be hereinafter commonly referred to as ‘the nature’ or ‘the quality’ of investment treaty rules. Perhaps a better way to distinguish between substantive and procedural rules is to compare different consequences of their breaches. Non-compliance with a substantive rule amounts to a wrongful act,19 and thus an investor can claim violation of an MFN clause should his host state treat investors from third states more favourably in like circumstances.20 Such a behaviour in respect of procedural rules (ie dispute settlement rules), however, does not lead to the same consequences.21 Nevertheless, it is also clear that both sets of rules might serve the same interests: while substantive rules offer certain protection, procedural rules secure their enforcement by offering the access to judicial remedies. From a theoretical perspective, their connection is significant, because of the risk of resembling ‘toothless law’ or lex imperfecta.22 These two sets of rules have been nevertheless perceived differently, and treated separately, both in general international law (Section 2A) and investment treaty arbitration (Section 2B). A. The Separation in General International Law and the Practice of the ICJ An overall picture of a clear distinction between substantive and procedural rules can be seen in the practice of the ICJ, in the context of general international law and interstate disputes.23 Such a picture can be sketched using various elements from cases involving different subject matters, such as the application of the Genocide Convention, law of self-determination, state immunities etc. This diversity of cases suggests the universality of the separation line between substantive and procedural rules, and its status as a core principle of international law. Because the jurisdiction of the ICJ is equally consensual as jurisdiction of investment tribunals, the Court’s conclusions are relevant in the field of investment disputes. The first element that can be drawn from the ICJ practice is the notion of severability of dispute resolution provisions from the substantive treaty obligations, which primarily concerns separate assessment of (in)validity of the two sets of rules. In 1973, in the Fisheries Jurisdiction Case (United Kingdom v Iceland), when examining Iceland’s argument that the treaty at stake was terminated due to changed circumstances, the Court stated that such an allegation could not affect its jurisdiction under the same treaty.24 Such issues rather belonged to the merits phase of the case, where the Court would essentially examine whether Iceland was bound by the substantive provisions of the agreement.25 Secondly, substantive rules cannot affect procedural ones and vice versa. In 1995, in the Case Concerning East Timor, the Court was faced with the issue whether it could rule on the lawfulness of a state conduct, which would also include assessment of the lawfulness of another state’s conduct. The Court opined that the character of the substantive norm in question (in this case an erga omnes obligation) could not affect the rules governing its jurisdiction (particularly the requirement of consent), simply because of their separation.26 This reasoning was the starting point of the Court’s opinion in Armed Activities on the Territory of the Congo (New Application: 2002), where the Court held that the jus cogens character of an international obligation could not remedy the lack of state consent to the Court’s jurisdiction.27 The separation between substantive and procedural rules was so sharp in the view of the Court that it found that a reservation to the jurisdictional clause in the Genocide Convention did not affect its substantive provisions, either directly or by defeating the object and purpose of that Convention.28 Thirdly, the two sets of rules cannot conflict with each other, and no conclusion can be derived from one set of rules in respect of the other. In Jurisdictional Immunities of the State, after recognizing the procedural nature of the rules of state immunity,29 the Court was faced with the alleged conflict between substantive and procedural rules, where it has been argued that substantive rules of jus cogens nature must prevail over procedural rules. However, the Court thought that such conflict did not exist, precisely because of the distinction between procedural and substantive rules, holding that the former cannot affect the questions of lawfulness, which are governed by the latter.30 Interestingly, the case study of this article (the application of MFN clauses to dispute resolution provisions) also appeared before the ICJ, in the Anglo-Iranian Oil Co Case, already back in the 1950s. In that case, the UK faced the problem that the Iranian declaration accepting the Court’s jurisdiction did so only in respect of the treaties which were concluded after the ratification of that declaration, while the treaties which the UK wished to rely on (containing the relevant substantive rules) were concluded before that date. The UK attempted to establish the jurisdiction of the Court by virtue of the MFN clause contained in two UK–Iran treaties, and three treaties concluded by Iran with other states after the deposition of the declaration accepting the Court’s jurisdiction.31 Eventually, the Court denied such a possibility, primarily relying on the temporal limitation in the Iranian declaration, and stating that in order to reach the discussion on the prospective benefits of an MFN clause, the jurisdiction of the Court must be established in the first place.32 It has been argued that the Court in the Anglo-Iranian Oil Co Case accepted the application of MFN clauses to dispute resolution clauses in principle.33 Although this article does not aim to answer the question whether such application is possible, the same argument implies that the ICJ at some point allowed the interdependence of substantive and procedural rules, contrary to the above discussed practice. However, it seems that such an argument does not follow entirely the judgment. The Court focused on the UK–Iran treaties as the central instruments in the case, and concluded that they did not fall under the temporal scope of Iran’s consent as expressed in its declaration.34 The Court clarified that the invocation of the substantive rules (ie the MFN clause and the third-party treaties) determines the issues of the merits, not jurisdiction.35 The Court kept its position that its jurisdiction, provided for by virtue of procedural rules, remains separate from the substantive ones, where the latter can only be relevant when ruling on what constitutes a breach of the relevant treaty. The ICJ practice has been used to address the separation of procedural from substantive rules as a fundamental principle of public international law even in the context of the application of MFN clauses to dispute resolution rules in investment treaty arbitration.36 But first, it has to be discussed whether this separation of substantive and procedural rules also forms part of the foundations of investment treaty arbitration. B. The Separation at the Foundations of Investment Treaty Arbitration Once states started concluding IIAs, and most importantly BITs, they aimed to create treaty regimes beneficial to foreign investors. IIAs, however, are characterized by vague language, without precise definitions of the holders of the granted rights, or of the quality of such rights.37 Still, there are three reasons supporting the argument that the separation between substantive and procedural rules is embedded at the foundations of international investment law and arbitration. The first point is a straightforward one: questions of jurisdiction and merits are subject to different laws. It has been summarized by Dolzer and Schreuer that it has been generally held by tribunals ‘that questions of jurisdiction are not subject to the law applicable to the merits of the case’, but they are subject to ‘their own system which is defined by the instruments determining jurisdiction’.38 When analysing what constitutes this special system applicable to the issues of jurisdiction in investment arbitration, Douglas concluded that such a system not only comprises the provisions of the applicable IIA, the rules of procedure (chosen by the parties), but also of the domestic law as lex loci arbitri.39 Therefore, substantive and procedural rules within an IIA form two separate systems, one applicable to the merits and the other to the jurisdictional issues. This draws a separation line between them. Secondly, and more theoretically, the entire discussion on whether investors are holders or beneficiaries of the rights granted in IIAs orbits around the separation between substantive and procedural rules. The ‘derivative’ theory suggests that host state’s obligations to provide certain minimum treatment to foreign investors are owed to the investor’s home state (being the other IIA party), but that the investor’s home state confers standing to enforce such obligations in arbitration upon the investor himself.40 In this situation, the separation between substantive and procedural rules is implied in the fact that states confer to investors only procedural rights (the right to institute arbitration). On the other hand, the ‘direct’ theory suggests that ‘investors are recognised to be in a direct legal relationship with the host state and given procedural means to enforce their own substantive rights’,41 which might provide a fertile setting for blurring the line between substantive and procedural rules. However, this does not seem to be the objective of the ‘direct’ theory.42 Another suggested version of the ‘direct’ theory (or rather a compromise between the two) asserts that substantive obligations of investment protection are indeed owed to the other state party to the respective IIA, but that the procedural obligation to submit a case to arbitration is actually owed directly to investors.43 This variation, or a compromise theory, shows the distinction between substantive and procedural rules in its full lighting.44 Whichever theory is taken as the correct one, it somehow distinguishes the set of procedural rules from the substantive ones: none of them denies the procedural right to institute arbitration as a personal right of investors.45 This clearly expresses a separate treatment of that right from those of substantive nature. Thirdly, the addressees of the two sets of rules are, arguably, different. Douglas argued that substantive obligations are addressed to the states parties of the IIA, while the procedural rules are addressed to the tribunal and the parties to the submitted dispute (being the investor and the host state).46 A counterargument could be constructed, that if the corresponding rights to such substantive obligations are still held by investors, and if states’ consent to arbitration in dispute resolution clauses of IIAs is to be regarded as an offer, which can be accepted by investors by virtue of their own right,47 there should be no reason for distinguishing between the two sets of rules.48 But then again, Douglas further argues, the claiming investor and the host state ‘enter into a relationship of procedural equality before the international tribunal once a dispute has been submitted to it’, and that ‘[t]he equality of arms principle is not respected if one of the parties has the ability to adjust the rules relating to the jurisdiction of the tribunal or some other aspect of the procedure after a dispute has arisen.’49 This latter concern primarily aims to rebut the idea of invoking an MFN clause in relation to procedural and/or jurisdictional issues, but it could also be understood as denying the possibility of interdependence between substantive and procedural rules. As seen above in the context of the ICJ’s practice, the main purpose of distinguishing procedural from substantive rules is to prevent creating jurisdiction where it is not provided for by virtue of procedural rules. Accordingly, when particular rules regulate the dispute resolution regime, and for that purpose are addressed to the parties in dispute and the tribunal, it follows that the distinction of those rules from the substantive ones serves the specific task of founding a new and direct legal relationship between the disputing parties. The investment treaty arbitration setting did include the basic international law concept of the separation between substantive and procedural rules. This argument is reinforced even when discussing investment treaty arbitration in the context of its ‘hybrid’ nature, because of its use of the commercial arbitration mechanisms.50 Arbitration law generally accepts the theory of the severability of the arbitration clause, which instructs that the contractual clause providing for arbitration should be deemed separate from the other parts of the contract.51 More importantly, arbitral tribunals have recognized the applicability of the same principle in the context of investment disputes, as governed by public international law.52 Whichever aspect of the investment treaty arbitration system is observed, the separation line between substantive and procedural rules is embedded in it. 3. THE ACCESS TO INTERNATIONAL ARBITRATION AS SUBSTANTIVE PROTECTION BITs are the most important sources of investment law today providing the standards of protection of foreign investors and investments.53 Usually, such protection is given effect using the notion of ‘treatment’, which was defined as ‘a broad term which in the context of BITs refers to the legal regime that applies to investments once they have been admitted by the host State’.54 The fact that BITs contain both substantive and procedural rules, as well as the indeterminacy of their terms, as is the case with the standard of ‘treatment’, open the way to the discussions on the quality and content of their provisions. Section 3A discusses how arbitrators qualify, or deny to qualify, dispute settlement clauses as a means of (substantive) investor protection, particularly in the context of the application of MFN clauses to dispute resolution clauses. Section 3B then pays special attention to the effects of such qualifications. A. The Four Approaches of Arbitral Practice When analysing the practice of investment tribunals concerning the application of MFN clauses to dispute resolution provisions, one has to bear in mind the differences in wording of various MFN clauses. It has been suggested that the issue of whether a dispute settlement regime can be qualified as a means of substantive protection, for the purpose of allowing its conjunction with an MFN clause, depends on the phrasing of the relevant MFN clause.55 Nevertheless, as it will be seen below, in some occasions tribunals felt rather free in constructing the question before themselves and finding an appropriate qualification. The decisions which found some kind of a connecting factor between the rules of substantive protection and those of dispute resolution, and consequently supported the application of MFN clauses to dispute settlement provisions, can be classified into three groups: (i) decisions which merely found a link between substantive and procedural rules, (ii) decisions which qualified dispute settlement clauses as one of the means of investor protection and/or substantive rights and (iii) decisions which qualified dispute settlement clauses as falling under the notion of ‘treatment’, but refrained from emphasizing their protective role. In addition, (iv) in some cases the MFN-dispute resolution conjunction was not allowed, precisely because of the distinction between substantive and procedural rules. This classification of course, does not claim to be an exhaustive list of all cases that have discussed the applicability of MFN clauses to dispute resolution, and moreover, it concentrates only on those decisions which considered decisive certain perceived connections among substantive and procedural rules, or their strict distinction.56 (i) Finding a link between substantive and procedural rules The very first, and leading case that emerged in the context of the application of MFN clauses to dispute resolution provisions, represents at the same time a prototype of the arbitral reasoning that substantive and procedural rules under a BIT are strongly connected: in Maffezini v Spain, the Tribunal stated that ‘today dispute settlement arrangements are inextricably related to the protection of foreign investors’,57 and that ‘[t]hese modern developments [ie the introduction of international arbitration] are essential, however, to the protection of the rights envisaged under the pertinent treaties; they are also closely linked to the material aspects of the treatment accorded.’58 In that way the Tribunal kept a formal distinction between substantive and procedural rules, but pointed to their ‘inextricable relation’ and ‘close link’. The relevant MFN clause in that case referred to ‘all matters subject to this Agreement’,59 and thus the Tribunal was not necessarily faced with the issue of whether the investor–state dispute resolution regime in the given BIT was strongly linked to the substantive protections. Observing the reference to the link ‘to the material aspects of the treatment accorded’, it might also be that the Tribunal recognized the dispute settlement regime as a procedural aspect of treatment. But what seems more obvious and more important in this reasoning, is the preserved separation line between substantive and procedural rules, which are however, according to the Tribunal, strongly connected. Similar reasoning can be found in the 2007 Award on Jurisdiction in RosInvest v Russia. While affirming the application of an MFN clause to the dispute resolution regime, the Tribunal opined that ‘an arbitration clause, at least in the context of expropriation, is of the same protective value as any substantive protection afforded by applicable provisions such as Article 5 of the BIT’.60 The relevant MFN clause was limited to the investors’ ‘management, maintenance, use, enjoyment or disposal of their investments’.61 Hence, the Tribunal had to engage in finding a link between such limitations and dispute settlement, which it used to develop its argument on the protective value of international arbitration.62 But the Tribunal kept a clear distinction between the substantive and procedural rules of the BIT.63 The references to ‘the same protective value’ and ‘a highly relevant part of the corresponding protection for the investor’ point to the link between the substantive and procedural provisions, which is their common protective purpose. It has been argued that the Tribunal in RosInvest distinguished between substantive and procedural ‘protections’, and then held that ‘both should be considered under a single chapeau of “treatment” for the purposes of the MFN clause’.64 However, it seems that the Tribunal’s emphasis on ‘the same protective value’ of the substantive and procedural rules was the major motive for linking the two sets of rules. As it will be seen below, qualifying procedural rules as covered by the notion of ‘treatment’ is also doable in a technical ‘black-letter’ manner, without any (or at least dominant) reliance on their protective role or value. These cases are notable for maintaining the existing distinction between substantive and procedural rules, but at the same time finding a link between them, and consequently allowing the application of MFN clauses to dispute settlement provisions. (ii) Qualifying dispute resolution clauses as substantive protection The second group encompasses those decisions which qualified the access to international arbitration either as a substantive right, or as a means of investor protection, regarding it as part of one, single and unbreakable protection regime of the BIT and consequently ignoring any distinction between the two sets of rules. In the 2004 jurisdictional decision in Siemens v Argentina, the Tribunal opined that ‘the Treaty itself, together with so many other treaties of investment protection, has as a distinctive feature special dispute settlement mechanisms not normally open to investors’, that ‘[a]ccess to these mechanisms is part of the protection offered under the Treaty’, and that ‘[i]t is part of the treatment of foreign investors and investments and of the advantages accessible through a MFN clause.’65 The MFN clause in the relevant BIT simply referred to ‘treatment’ and ‘treatment of activities related to investments’.66 It seems that considering the dispute resolution regime as an aspect of the ‘treatment’ would suffice to trigger the application of the MFN clause. Still, the Tribunal went to qualify that regime as part of the protection. Although such a qualification does not tell much about the substantive nature of dispute settlement clauses, it shows that the decisive factors were their protective value and perceived unity with other treaty guarantees. In 2005, the Tribunal in Gas Natural v Argentina held that ‘provision for international investor-state arbitration in [BITs] is a significant substantive incentive and protection for foreign investors’,67 and further ‘that assurance of independent international arbitration is an important – perhaps the most important – element in investor protection’.68 The MFN clause in the relevant BIT was not limited in any way, referring to ‘all matters governed by the present Agreement’.69 Although Argentina argued that the MFN clause was limited to ‘substantive measures of regulation by the host state’,70 a clear answer to this objection was not given. Rather, the Tribunal held that ‘the critical issue is whether or not the dispute settlement provisions of bilateral investment treaties constitute part of the bundle of protections granted to foreign investors by host states’.71 By addressing the protective purpose of dispute resolution clauses in the immediately following sentences, the Tribunal was able to conclude that the access to arbitration formed part of ‘the bundle of protections granted to foreign investors’. Although the MFN clause referred to ‘all matters’, the Tribunal saw it limited to the ‘bundle of protections’, and by including the dispute settlement regime into that bundle, the Tribunal saw the access to arbitration as a substantive right of investors. Similarly, in 2006, practically the same Tribunal in Suez and InterAguas v Argentina and Suez and Vivendi/AWG v Argentina, took the view that ‘[a]fter an analysis of the substantive provisions of the BITs in question, the Tribunal finds no basis for distinguishing dispute settlement matters from any other matters covered by a bilateral investment treaty’.72 It further stated that ‘[f]rom the point of view of the promotion and protection of investments …, dispute settlement is as important as other matters governed by the BITs and is an integral part of the investment protection regime that the respective sovereign states have agreed upon’.73 While one of the applicable BITs referred to ‘all matters governed by this Agreement’ in its MFN clause,74 the other one limited the scope of application of such clause to the treatment of investors ‘as regards their management, maintenance, use, enjoyment or disposal of their investments’.75 The Tribunal in Suez and Vivendi/AWG opined that this difference should not affect the interpretive result, specifying that ‘[t]he right to have recourse to international arbitration is … particularly related to the “maintenance” of an investment, a term which includes the protection of an investment.’76 By observing the unity of the substantive and dispute resolution provisions, depicted in the notion of protection, the arbitrators indeed saw the dispute resolution regime as a substantive right. Finally, the 2011 Decision on Jurisdiction in Hochtief v Argentina held that ‘the provisions … which on any interpretation confer upon investors the possibility of recourse to arbitration in addition to the right to have recourse to national courts, are a form of protection’, and that such protection falls under the limit of the relevant MFN clause.77 The Tribunal reasoned that the investor–state arbitration regime ‘is a protective right that sits alongside the guarantees against arbitrary and discriminatory measures, expropriation, and so on’.78 An important feature of all these decisions, but especially of Suez and Vivendi/AWG and Hochtief, is that the qualification of dispute resolution regimes as protective rights played the crucial role in triggering the application of the applicable MFN clauses. In the latter two decisions the protective character of the dispute settlement regimes was used to overcome the limitations of the scope of application of the relevant MFN clauses. In other cases, such as Siemens and Gas Natural, where tribunals were not faced with similar limitations, such a character of dispute settlement regimes was used for their inclusion into the ‘bundle’ of rights which are normally covered by the respective MFN clauses. These cases contributed to perceiving dispute resolution clauses as primarily serving a protective purpose, but ultimately also as investors’ substantive rights. In 2013, the Tribunal in the case of Garanti Koza v Turkmenistan essentially closed any doubts as for this new view on dispute settlement regimes. The MFN clause in that case explicitly provided that it covered the investor–state dispute resolution provision.79 Thus, the Tribunal did not need to engage in qualifying the dispute resolution regime as a means of protection for the purpose of triggering the application of the MFN clause.80 Nevertheless, the Tribunal still felt necessary to state that ‘[t]he protection of the U.K.-Turkmenistan BIT includes the access to international arbitration to which the sovereign parties consented’, and that ‘nothing in the BIT prevents an investor from simultaneously invoking the right to international arbitration provided by the BIT and invoking the MFN clause to obtain the benefit of a more favorable arbitration process provided by another treaty’.81 This narrative somehow marked the end of the shift in the perception of investor–state dispute settlement regimes, where the access to arbitration was increasingly seen as a right under the BIT substantive protection regime. (iii) Qualifying dispute resolution regimes as ‘treatment’ In the 2006 jurisdictional decision in the case of National Grid v Argentina, the Tribunal took what seems to be a middle approach. The Tribunal in that case focused on the notion of ‘treatment’, and concluded that ‘“treatment” under the MFN clause of the [basic] Treaty makes it possible for UK investors in Argentina to resort to arbitration without first resorting to Argentine courts, as is permitted under [a third-party BIT]’.82 The Tribunal based its conclusion on the assumption that few previous decisions ‘concurred that the element of dispute settlement at issue was part of the protection – treatment – of investors’.83 Thus, the Tribunal emphasized that what mattered was not so much the protective quality of the dispute resolution mechanism, but rather its qualification as part of the ‘treatment’. The MFN clause in the applicable BIT was also limited ‘as regards their [investors’] management, maintenance, use, enjoyment or disposal of their investments’, which the Tribunal did not address.84 This is an example of cases which did not insist on the protective role of dispute settlement regimes, but rather concentrated on bringing the procedural rules under the notion of ‘treatment’, disregarding the other aspects of the applicable MFN clause. However, this approach seems to be least represented.85 (iv) The distinction between substantive and procedural rules as an obstacle to the application of MFN clauses to dispute resolution clauses Some tribunals expressed completely opposite opinions on the applicability of MFN clauses to dispute resolution provisions, and denied such a possibility. More importantly, in reaching such an outcome, tribunals relied heavily on the distinction between provisions of substantive and procedural nature. The Tecmed v Mexico case involved an interesting issue of expanding arbitral jurisdiction retroactively by virtue of an MFN clause. Ultimately, the Tribunal denied such a possibility and declined to consider acts or conduct that took place before the applicable treaty’s entry into force.86 In doing so, the Tribunal used the distinction between substantive and procedural rules to conclude that the rules governing the temporal application of the substantive protection must be regarded as specially negotiated by the treaty parties.87 This was somewhat modest, yet quite pragmatic, use of the said distinction. Then, in 2006 two important awards in this regard were delivered. First, the Tribunal in the case of Berschader v Russia declined the use of an MFN clause for the establishment of the arbitral jurisdiction ratione materiae. Commenting on the Protocol to the basic treaty, the Tribunal said that ‘[t]he use of the expressions “treatment” and “in its territory” should be noted’, and that ‘[t]his language appears to indicate that what the Contracting Parties had in view was the material rights accorded to investors within the territory of the Contracting States.’88 The Tribunal noted that some ‘would argue that the right to arbitration is in fact a form of investment protection’, of the same kind as substantive protection, leading to the conclusion that the ‘right to arbitration’ must be covered by the MFN clause.89 Crucially, the Tribunal identified the question before itself as ‘whether the Contracting Parties shared the view that arbitration is an integral part of investment protection and, therefore, must be covered by an MFN clause’,90 ultimately answering in the negative.91 The territorial limitation of the notion of ‘treatment’ and the extraterritorial nature of international arbitration played a major role in other decisions reaching the same interpretive outcome.92 Secondly, the Tribunal in Telenor v Hungary was faced with essentially the same issue as the one in Berschader. When interpreting the relevant MFN clause, the Tribunal advanced a very straightforward argument: 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 of the investments are to be treated no less favourably than under a BIT between the host State and a third State, and there is no warrant for construing the above phrase as importing procedural rights as well.93 Ultimately, the Tribunal found that the relevant MFN clause could not be used for an extension of its jurisdiction ratione materiae and declined to hear the case.94 The quoted paragraph was followed as a principle by other tribunals.95 Finally, at least one tribunal relied on the specific function of dispute resolution clauses to refer to the distinction between substantive and procedural rules. In 2013, the Tribunal in the Kiliç v Turkmenistan case faced the question of the application of the MFN clause to the dispute resolution clause aimed to bypass the mandatory recourse to domestic courts. The Tribunal started by examining the structure of the relevant BIT,96 and then stated that ‘[t]he text of the Treaty indicates that its drafters recognised a distinction between substantive rights in relation to investments, and remedial procedures in relation to those rights’,97 ultimately finding that the latter could not fall under the scope of the MFN clause.98 Qualifying BIT rules as ‘substantive’ or ‘procedural’ was clear enough in the eyes of these tribunals. However, Professor Brigitte Stern in Impregilo v Argentina challenged such a view.99 The distinction between the two sets of rules, she argued, required a better explanation, which she found in the exceptionality of international adjudication.100 She concluded that the separation between substantive and jurisdictional rules lies in the different conditions of access to the rights they confer.101 As MFN clauses could not alter the conditions of access to substantive rights, they equally could not do so in regard to the conditions of access to remedies contained in jurisdictional clauses.102 This reasoning does not exhaust the differences between the two sets of rules. Tribunals have also identified them in the special function of dispute settlement clauses as offers to arbitrate, which lead towards the establishment of an independent relationship between an investor and his host state.103 Others have added that any discussion on the application of substantive rights cannot precede the establishment of a jurisdictional relationship between the parties by virtue of procedural rules.104 Tribunals which strongly supported the distinction between substantive and procedural rules invoked it as a principle to rebut the possibility of the application of MFN clauses to dispute resolution.105 The opinions of the tribunals in Berschader and Kiliç are particularly important, because they clearly took the view that if anyone would be capable of changing the nature of dispute settlement clauses from procedural to substantive, these could be only the states parties to the treaty at stake. B. Dubious Effects of Arbitral Practice When qualifying dispute settlement clauses as somehow connected to the substantive rights of foreign investors, as seen above, arbitrators took various approaches.106 A common element seems to be relying on the protective purpose, value or role of such clauses. It has been argued that already Maffezini and Siemens tribunals admitted that dispute resolution regimes ‘are part of the substantive protection extended to the beneficiary of the clause’.107 But as seen above, these two tribunals took different approaches: while the former merely established a link between the two sets of rules, the latter qualified dispute resolution rules as part of the substantive protection. The critical question, which is discussed in this Section, is what is the added value of these approaches, commonly aiming to connect dispute settlement rules to the substantive investor protection? Can they indeed characterize those rules as granting substantive rights to investors, creating a substantive ‘right to arbitrate’? The distinction between interpretation and creation of the law has been called a fiction.108 Arbitrators certainly enjoy some discretion in interpreting the relevant treaty rules.109 It must be emphasized, however, that the issue discussed here rather concerns arbitrators’ views on certain rules, their roles and nature, which can be used as an input to the interpretive exercise over such rules. While the issue of the application of MFN clauses to dispute resolution provisions certainly involves numerous questions of treaty interpretation,110 whether an arbitrator will characterize a dispute resolution clause as a means of substantive protection, or will refrain from doing so, appears as a matter of his own understanding of that provision (or rather of the concept of investor–state dispute settlement). Therefore, to what extent the border between applying personal understandings of the law and its creation can also be called ‘fictional’? Scholars have also raised doubts in qualifying dispute resolution clauses as procedural rules, and it has been suggested that ‘having recourse to law enforcement mechanisms also can be understood as a substantive right of an investor protected under an investment treaty’.111 Indeed, it is undeniable that dispute resolution regimes under IIAs, providing for investor–state arbitration, favour in their own way investment protection, by providing a forum for enforcement of investors’ substantive rights.112 Such arguments are normally built from the perspective of beneficiaries of certain rights, and their need to have a possibility of enforcement of those rights.113 But such considerations rather pertain to practical weighting of interests and possibilities, than to the status of rules as part of the substantive investor protection in IIAs. The discussion on the changing nature of a rule, therefore, must be made in a more technical legal manner, particularly examining whether the view supporting such a change is widespread enough, so as to form part of the ‘body of investment law’.114 One of the main characteristics of dispute settlement clauses in investment treaties is that they are addressed to a group (or a class) of investors.115 Indeed, this characteristic contributes to viewing dispute settlement clauses as not being any different from other (substantive) rights in IIAs. However, such a view collides with another characteristic of dispute settlement clauses, namely the fact that they operate as an offer to arbitrate, which upon an investor’s acceptance forms an agreement to arbitrate and, ultimately, the basis of arbitration.116 The drafters of IIAs are not arbitrators, but states, and therefore, the starting point in resolving the dilemma as to which one of the two characteristics prevails, should be (as usual) the intention of the states parties. Nevertheless, IIAs are applied by arbitrators, which brings them in a conflict with states as for who should have the principal authority to interpret such treaties.117 An analogous conflict certainly appears when it comes to the question how dispute settlement provisions are seen or understood. The uncertainty as regards the quality of dispute settlement clauses is thus twofold: while they per definition allow to be seen differently due to their various aspects, the capacity of arbitrators to make a strong determination in that respect is also questionable. Still, few reasons make it clear that arbitrators’ views on the importance of dispute resolution clauses for investment protection cannot result in any legal change as regards their nature. The first reason, a very obvious one, is that a substantive right to arbitrate would require a quite different mechanism of operation from that of IIA dispute settlement clauses. Technically, such a mechanism would require neglecting the character of dispute resolution clauses as an offer, leading to an agreement to arbitrate as the basis of arbitration. Dispute settlement clauses would instead have to be understood as providing standing rights to investors, without the eventual formation of a bilateral agreement between the investor and the host state.118 Furthermore, if dispute settlement clauses would be understood as granting substantive rights, they would have to be conceptualized as rights that could actually be ‘taken care of’ by the host state. In other words, it would have to present a guarantee provided and secured by the host state, where a failure to do so by the host state would lead to its responsibility.119 This would be contrary to the real mode of operation of dispute settlement clauses, where they serve as the basis of entrance into an equal relationship before an independent arbitral forum, and where a failure to engage in the arbitral process amounts to a binding arbitral decision, rather than another internationally wrongful act.120 In that respect, judicial protection under the ‘fair and equitable treatment’ standard can be taken as an example.121 There, judicial protection by the host state indeed appears as a substantive right of foreign investors, because it is ‘the responsibility of the State under international law and, consequently, of the courts of a State, to provide a fair trial of a case to which a foreign investor is a party’, and ‘[i]t is the responsibility of the courts of a state to ensure that litigation is free from discrimination against a foreign litigant and that the foreign litigant should not become the victim of sectional or local prejudice.’122 A failure to comply with such standards of treatment indeed amounts to an internationally wrongful act and causes state responsibility.123 Clearly, this is not how the functioning of dispute settlement clauses is understood by arbitrators, even when qualifying such clauses as a means of substantive protection.124 One tribunal was right in noting that if an obligation to provide consent could be secured by virtue of another substantive guarantee (an MFN clause), a non-compliance with that obligation would amount to violation of the substantive guarantee at stake, and not to consent as a procedural rule forming the basis for arbitration.125 Secondly, there is no real intention in the analysed arbitral practice to bring about a legal change. It appears that arbitrators are rather willing to see dispute settlement clauses as ‘substantive’ when they need such a qualification to trigger the application of an MFN clause to dispute resolution.126 Surveying the decisions of the present case study, it is obvious that the references to dispute settlement regimes as a means of protection are made exclusively when examining whether they are within the scope of the applicable MFN clause. In addition, views on dispute settlement clauses as substantive rules are not widespread enough to be taken as a common understanding of their nature. It has been argued that the decisions which denied the application of MFN clauses to dispute resolution contributed to ‘re-assert[ing] the traditional distinction between the incorporation by way of MFN clauses of, on the one hand, substantive protections from BITs with third states and, on the other, the dispute settlement provisions of those treaties’.127 As seen above, some tribunals simply took the distinction between substantive and procedural rules as the basis of their decisions on the applicability of MFN clauses to dispute resolution. But it can be argued that other tribunals also had this distinction in mind, despite not regarding it as decisive when denying the applicability of an MFN clause.128 In both sets of cases, arbitrators saw dispute settlement clauses differently and in opposition to those arguing that what matters is the protective purpose of such clauses. In the end, even if the understanding of dispute resolution clauses as substantive rights could be taken as common, this again brings arbitrators back to a conflict with states. While there are some instances where it could be argued that states have accepted the understanding of dispute settlement clauses as substantive,129 the practice of states opposing such a view seems more widespread, either by virtue of new model BITs,130 by recording such an approach in negotiations documents131 or by virtue of interpretative notes.132 If the separation between the two sets of rules is indeed reinforced in their root, arbitrators’ occasional statements that dispute settlement clauses substantively protect foreign investors do not amount to their requalification as substantive rights, or to the creation of a substantive right to arbitrate.133 From an overall perspective, it seems that arbitral views hardly add any value to the legal quality of dispute settlement clauses. However, they might seek to add value to another aspect of their work: the legitimacy of arbitral reasoning. 4. ATTEMPTS AT LEGITIMIZING INTERPRETIVE PROCESSES AND EXPANSIONARY OUTCOMES Statements that dispute resolution clauses substantively protect foreign investors usually follow brief analyses of the favourability of international arbitration to them.134 But, as already concluded, such statements are not capable of changing the nature of dispute settlement clauses from procedural to substantive. Now, what motivates arbitrators to make such qualifications of dispute settlement clauses? At the outset, qualifying dispute settlement clauses as substantive protection seems to be quite a manipulative operation.135 It is obvious that an IIA provision providing for access to a judicial forum protects investors who enjoy the substantive protection under that treaty; the same protective purpose is served by an arbitration clause in an investment contract.136 However, insisting on such purpose cannot requalify procedural rules as substantive, in the same way as a contractual arbitration clause cannot lose its severability because of its protective role.137 Nevertheless, such an insistence might change the perspective of how dispute settlement clauses are seen. It seems that arbitrators are keen to insist on such a qualification of dispute settlement clauses when they face the necessity of qualifying them as substantive protection, with the aim of applying MFN clauses to dispute resolution clauses.138 In such situations, tribunals often have to find a way to bring the latter under the scope of the former.139 It would be hard to imagine that none of the acting arbitrators has a personal standing on the general applicability of MFN clauses to dispute resolution. Giving more or less importance to the protective role of dispute settlement clauses can help their aim on the main issue, at least by strengthening the legitimacy of the interpretive outcome. Every attempt at explaining different arbitral views used in treaty interpretations is speculative. But two possible explanations are particularly interesting for this analysis. The first one is that arbitrators can be motivated to insist on certain views because of their preference to stronger or weaker investor protection.140 Some tribunals argued that the overall protective purpose of BITs supported the interpretation of their provisions in favour of even stronger investor protection.141 Again, such preferences can be explained on various bases. On the one hand, that can be a matter of different views on investment law as such.142 On the other, some concerns regarding arbitral decision-making have been more aggressive, alleging the ‘dependency of arbitrators on prospective claimants’, assuming that if investors see investment arbitration as beneficial, more and more cases will be initiated, leading to an increasing number of arbitral appointments.143 The concerns about arbitral expansionism in jurisdictional determinations are well known in the field.144 Applied in the context of the present case study, these propositions lead to the suggestion that, having a preferential attitude towards investors, arbitrators might insist on qualifying dispute settlement clauses as substantive protection with the aim to enable the application of MFN clauses to dispute resolution provisions.145 The other possibility is that arbitrators are motivated to insist on certain understandings because of their differing views on the functioning of investment arbitration as a dispute settlement mechanism. It has been argued that there are two perspectives of looking at investment arbitration. The one of public international lawyers ‘suggest[s] the importance of systematizing, looking for coherence and universality, identifying and advocating the progressive development of international law as a global “public” legal order—a “quasi-judicial” function’.146 The one of international commercial lawyers, on the other hand, ‘would suggest the importance of focusing not on questions of general principle but on the arbitrator’s role as a “private” dispute resolution “service provider”’.147 Statements that dispute settlement clauses have an important protective purpose, perceiving such clauses as providing investors a right (rather than an offer) to arbitrate, and consequently qualifying such clauses as substantive protection, resemble the public international law perspective.148 The other perspective, it seems, would solely aim to resolve the given dispute, not allowing arbitrators to engage in attempts to requalify the given rules, or eventually in lawmaking.149 Then again, it is often said that most of the members of the new investment treaty arbitration ‘specialised bar’ come from commercial arbitration.150 Should their background determine the perspective they are taking on investment arbitration, perceiving dispute settlement clauses as granting substantive rights, and drawing legal consequences from such generalized qualifications, would be a rarity. But as seen above, arbitrators are not quite hesitant to express their generalized views on the protective purpose of dispute settlement clauses and eventually to give them effect. This can be explained by the suggestion that the commercial arbitration perspective leads arbitrators to neglect states’ interpretative interests in the given IIA, which they primarily have as its parties, and which ultimately can offer arbitrators more lawmaking opportunities.151 The fact that arbitrators are privately appointed can be another starting point for the allegations of the expansionistic tendencies in arbitral jurisdictional determinations.152 The commercial arbitration perspective might not look so much for the qualities of coherence and universality in arbitral jurisprudence, and arbitrators may use the opportunities to expand their jurisdiction when they are not obliged to follow some common understanding of the role and nature of certain rules. But the absence of a common understanding of the nature of dispute settlement clauses—which is surely the case because of their various characteristics—does not allow arbitrariness and arbitrators are still required to justify the interpretive outcomes affecting their application. Both these possibilities in the context of the present case study navigate towards the conclusion that qualifying dispute settlement clauses as granting substantive rights has an instrumental purpose. Facing the investor’s argument that an MFN clause is applicable to a dispute resolution clause, tribunals push forward their views on the protective purpose of the access to international arbitration, as an input to the interpretive process, seeking its legitimization. Such views cannot change the nature of dispute settlement provisions, but the similarity of qualifications of the two sets of rules and the narratives on the protective purpose of international arbitration might be directed at justifying the affirmative—or expansionary—interpretive outcomes. 5. CONCLUSION Arbitrators’ views on dispute settlement clauses as providing substantive rights to foreign investors, or as one of the means of their protection, do not add any value prompting a legal change. They neither requalify procedural rules as substantive ones, nor break the traditional separation line between substantive and procedural rules. Qualifications of dispute settlement clauses as ‘substantive’ are not made with any intention of bringing about a change, and such clauses are not—nor they could be—given a full substantive character. Furthermore, arbitrators do not appear to support an open interdependence between substantive and procedural treaty rules. Rather, when in need of establishing a connection, they tend to invoke the protective purpose of dispute settlement rules. Nevertheless, in this particular respect, investment treaty arbitration does appear as a fragmented field of international law, because arbitrators seem willing, from time to time, to take some steps towards connecting substantive and procedural rules. The separation line between substantive and procedural rules appears much weaker than described by the ICJ in the context of general international law. The steps thus taken have an instrumental role: the separation line between substantive and procedural rules is becoming blurred in pursuance of the legitimization of the expansionary interpretive outcomes. In sum, arbitrators in a certain way do become lawmakers, because to some extent they redefine the separation line between substantive and procedural rules within IIAs, thus discreetly affecting the definition of dispute settlement regimes in investment treaty arbitration. Footnotes 1 See, among many others, Rudolf Dolzer and Terry Myers, ‘After Tecmed: Most-Favored-Nation Clauses in Investment Protection Agreements’ (2004) 19 ICSID Rev–FILJ 49; Dana H Freyer and David Herlihy, ‘Most-Favored-Nation Treatment and Dispute Settlement in Investment Arbitration: Just How “Favored” is “Most-Favored”?’ (2005) 20 ICSID Rev–FILJ 58; Brigitte Stern, ‘ICSID Arbitration and the State’s Increasingly Remote Consent: Apropos the Maffezini Case’ in Steve Charnovitz, Debra P Steger and Peter Van den Bossche (eds), Law in the Service of Human Dignity: Essays in Honour of Florentino Feliciano (CUP 2005) 246; Scott Vesel, ‘Clearing a Path Through a Tangled Jurisprudence: Most-Favored-Nation Clauses and Dispute Settlement Provisions in Bilateral Investment Treaties’ (2007) 32 Yale J Int’l L 125; Guido Santiago Tawil, ‘Most Favoured Nation Clauses and Jurisdictional Clauses in Investment Treaty Arbitration’ in Christina Binder and others (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP 2009) 9; Kaj Hobér, ‘MFN Clauses and Dispute Resolution in Investment Treaties: Have We Reached the End of the Road?’ in ibid 31; Yas Banifatemi, ‘The Emerging Jurisprudence on the Most-Favoured-Nation Treatment in Investment Arbitration’ in Andrea K Bjorklund, Ian A Laird and Sergey Ripinsky (eds), Investment Treaty Law: Current Issues III. Remedies in International Investment Law. Emerging Jurisprudence of International Investment Law (BIICL 2009) 241; Martins Paparinskis, ‘MFN Clauses and International Dispute Settlement: Moving beyond Maffezini and Plama?’ (2011) 26 ICSID Rev–FILJ 14; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 270–75; Francisco Orrego Vicuña, ‘Reports of [Maffezini’s] Demise Have Been Greatly Exaggerated’ (2012) 3 J Int’l Disp Settlement 299; Sam Wordsworth and Chester Brown, ‘A Re-run of Siemens, Wintershall and Hochtief on Most-Favoured-Nation Clauses: Daimler Financial Services AG v Argentine Republic’ (2015) 30 ICSID Rev–FILJ 365. 2 Emilio Agustín Maffezini v The Kingdom of Spain, ICSID Case No ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (25 January 2000) para 54. This is the leading case that supported the application of MFN clauses to dispute resolution clauses in principle. Other tribunals disagreed: see generally Salini Costruttori SpA and Italstrade SpA v The Hashemite Kingdom of Jordan, ICSID Case No ARB/02/13, Decision on Jurisdiction (15 November 2004); and Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24, Decision on Jurisdiction (8 February 2005). 3 See s 3(A)(i)-(ii). 4 For example, Garanti Koza LLP v Turkmenistan, ICSID Case No ARB/11/20, Decision on the Objection to Jurisdiction for Lack of Consent (3 July 2013) para 62. 5 See chapeau in s 2. 6 See Alan Boyle and Christine Chinkin, The Making of International Law (OUP 2007) 266–69; and Gleider I Hernández, ‘International Judicial Lawmaking’ in Catherine Brölmann and Yannick Radi, Research Handbook on the Theory and Practice of International Lawmaking (Edward Elgar 2016) 200–22. Of course, the term ‘law-making’ in this context should not be taken in the strict, formal sense. As rightly noted, decisions of international judicial bodies in the context of their lawmaking function have evidentiary, rather than constitutive role, and such their function is primarily based on the potential to influence the understanding and development of international law: ibid. 220–21. 7 Zachary Douglas, ‘The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails’ (2010) 2 J Int’l Disp Settlement 97, 99. 8 See s 2(A). 9 For the present purposes, the term ‘fragmentation’ is used to describe the development of specialized rules or principles in a particular field of international law, deviating from a general rule or principle which has been seen as part of general international law. See ILC, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law. Report of the Study Group of the International Law Commission Finalized by Martti Koskenniemi’ (13 April 2006) UN Doc A/CN 4/L 682, para 8. 10 As noted by the International Law Commission Study Group in its 2015 Report on the MFN clause, the entire problem of the scope of treatment under MFN clauses ‘concerns the applicability of an MFN clause to procedural provisions, as distinct from the substantive provisions of a treaty’. See ILC, ‘Final report. Study Group on the Most-Favoured-Nation clause’ in ‘Report of the International Law Commission Sixty-seventh session’ (4 May–5 June and 6 July–7 August 2015) UN Doc A/70/10 (hereafter ILC Report) para 80. 11 Accordingly, this article does not address other important aspects of that debate, such as the distinction between the issues of jurisdiction and admissibility. 12 See Hans Kelsen, Principles of International Law (Rinehart and Co 1952) 140, 143–44 (noting, in the context of human rights, that ‘[i]f “rights” are to be conferred on individuals by an international agreement, the latter must impose upon the states parties to the agreement the obligation to recognize the jurisdiction of a tribunal to which the individuals have access in case of a violation of the rights on the part of the state, as well as the obligation to comply with the decision of the tribunal’, and that ‘[w]ithout subjecting the state to the jurisdiction of a tribunal, no “rights” of individuals in relation to the state are established’); and, for the challenge of the substantive/procedural distinction in investment law in particular, Sergio Puig, ‘No Right Without a Remedy: Foundations of Investor-State Arbitration’ (2014) 35 Univ Penn J Int’l L 829. 13 See LaGrand (Germany v United States of America) (Judgment) (2001) ICJ Rep 466, para 77; Eric De Brabandere, Investment Treaty Arbitration as Public International Law. Procedural Aspects and Implications (CUP 2014) 55–70; and Impregilo SpA v Argentine Republic, ICSID Case No ARB/07/17, Concurring and Dissenting Opinion of Professor Brigitte Stern (21 June 2011) paras 45, 53. 14 This article uses a neutral term ‘rules’ (being a vehicle for conferring rights, obligations, or providing for remedies), following the terminology used by the International Court of Justice (hereafter ICJ) in the context of the substantive/procedural divide: see East Timor (Portugal v Australia) (Judgment) (1995) ICJ Rep 90, para 29 (referring to ‘norms’ and ‘rules’). 15 By virtue of investment treaties, states undertake obligations to respect certain minimum standards of treatment of foreign investors and investments in their territories. See Zachary Douglas, The International Law of Investment Claims (CUP 2009) 1 (discussing the purpose, nature and usual types of obligations in investment treaties). 16 For a detailed attempt to define substantive and procedural rules, encountering some problems as regards the latter, see Stefan Talmon, ‘Jus Cogens after Germany v. Italy: Substantive and Procedural Rules Distinguished’ (2012) 25 Leiden J Int’l L 979, 981–83. 17 Investment treaties usually provide for two dispute settlement mechanisms, namely investor–state and interstate dispute settlement mechanisms. This article focuses on the issue of seeing the access to the first one—the investor–state dispute settlement mechanism—as a substantive right of investors. For an overview of dispute settlement regimes under investment treaties see Douglas (n 15) 2–6. 18 HLA Hart, The Concept of Law (3rd edn, OUP 2012) 96–97. Hart also includes in this class the rules defining the adjudicative procedure, which are not in the focus of the present article. 19 A breach of substantive rules (or obligations) triggers the secondary rules of state responsibility, which create new obligations for the state in breach. See James Crawford, State Responsibility (CUP 2013) 64–66. International investment law is known for having a special system of secondary rules for breaches of investment treaties, due to the fact that the new obligations created upon the state in breach correspond to the new rights of the injured investor (rather than to the rights of the other state party to the investment treaty). See Douglas (n 15) 94–106. The differences between substantive and procedural rules and their different consequences have also been analysed by Hart, suggesting that a non-compliance with procedural rules does not constitute an offence [sic], and which stand at the foundations of his primary/secondary rules dichotomy. See Hart (n 18) 29–30, 81. 20 See, for example, Parkerings-Compagniet AS v Republic of Lithuania, ICSID Case No ARB/05/8, Award (11 September 2007) paras 366–71. But see Accession Mezzanine Capital LP and Danubius Kereskedőház Vagyonkezelő Zrt v Hungary, ICSID Case No ARB/12/3, Decision on Respondent’s Objection under Arbitration Rule 41(5) (16 January 2013) para 73 (‘MFN clauses are not and should not be interpreted or applied to create new causes of action beyond those to which consent to arbitrate has been given by the Parties.’ [reference omitted]). 21 A non-compliance with procedural rules (at least with those concerned in this article) does not amount to an internationally wrongful act, and it does not trigger the secondary rules of state responsibility. Rather, if a party to a binding arbitration agreement does not comply with that procedural rule, a decision based on that agreement would be binding upon it, despite the failure to take part in arbitration. See Convention on the Settlement of Investment Disputes between States and Nationals of Other States (opened for signature 18 March 1965, entered into force 14 October 1966) 575 UNTS 159, art 53(1) and art 54(1); and ICSID Rules of Procedure for Arbitration Proceedings (10 April 2006) r 42(1). However, for the suggestion that certain procedural rules may result in international legal responsibility, see Talmon (n 16) 985. A clear example is state immunity, whose breach does amount to an internationally wrongful act: Jurisdictional Immunities of the State (Germany v Italy: Greece intervening) (Judgment) (2012) ICJ Rep 99. 22 See Menachem Mautner, ‘Michael Reisman’s Jurisprudence of Suspicion’ (2009) 34 Yale J Int’l L 505, 511. 23 See also in detail Talmon (n 16) 986–1001. It is worth noting that Talmon acknowledges the possibility of ‘a certain (limited) effect’ of substantive rules of jus cogens status on the procedural ones ‘upon their interpretation and application’ (ibid 995). 24 Fisheries Jurisdiction (United Kingdom v Iceland) (Jurisdiction) (1973) ICJ Rep 3, para 40. 25 ibid. 26 East Timor (n 14) para 29. 27 Armed Activities on the Territory of the Congo (New Application: 2002) (Democratic Republic of the Congo v Rwanda) (Jurisdiction and Admissibility) (2006) ICJ Rep 6, para 64. 28 ibid para 67 (‘Rwanda’s reservation to Article IX of the Genocide Convention bears on the jurisdiction of the Court, and does not affect substantive obligations relating to acts of genocide themselves under that Convention. In the circumstances of the present case, the Court cannot conclude that the reservation of Rwanda in question, which is meant to exclude a particular method of settling a dispute relating to the interpretation, application or fulfilment of the Convention, is to be regarded as being incompatible with the object and purpose of the Convention.’). 29 Jurisdictional Immunities of the State (n 21) para 58 (noting: ‘as the Court has stated (in the context of the personal immunities accorded by international law to foreign ministers), the law of immunity is essentially procedural in nature’, and ‘[i]t regulates the exercise of jurisdiction in respect of particular conduct and is thus entirely distinct from the substantive law which determines whether that conduct is lawful or unlawful’). For personal immunities see Arrest Warrant of 11 April 2000 (Democratic Republic of the Congo v Belgium) (Judgment) (2002) ICJ Rep 3, para 60. 30 Jurisdictional Immunities of the State (n 21) para 93 (‘In the opinion of the Court, however, no such conflict exists. Assuming for this purpose that the rules of the law of armed conflict which prohibit the murder of civilians in occupied territory, the deportation of civilian inhabitants to slave labour and the deportation of prisoners of war to slave labour are rules of jus cogens, there is no conflict between those rules and the rules on State immunity. The two sets of rules address different matters. The rules of State immunity are procedural in character and are confined to determining whether or not the courts of one State may exercise jurisdiction in respect of another State. They do not bear upon the question whether or not the conduct in respect of which the proceedings are brought was lawful or unlawful.’). 31 Anglo-Iranian Oil Co (United Kingdom v Iran) (Jurisdiction) (1952) ICJ Rep 93, 107–09. 32 ibid 109. For a similar argument, see Garanti Koza LLP v Turkmenistan, ICSID Case No ARB/11/20, Dissenting Opinion by Laurence Boisson de Chazournes (3 July 2013) paras 40–44, 51; and Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Separate and Dissenting Opinion of J Christopher Thomas QC (7 October 2011) paras 75–82. 33 See Stephan W Schill, The Multilateralization of International Investment Law (CUP 2009) 192–93 (arguing that ‘the Court declined jurisdiction in the case at hand not because it considered that an MFN clause could not incorporate more favourable jurisdiction, but rather because the jurisdiction of the ICJ itself was limited by the Court’s Statute in connection with the Iranian declaration’, and that the Court ‘did not reject the proposition that MFN clauses could incorporate broader consent to jurisdiction’). 34 Anglo Iranian Oil Co (n 31) 109. 35 ibid 109–10. 36 Douglas (n 7) 102–03. 37 Anthea Roberts, ‘Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’ (2013) 107 AJIL 45, 58. 38 Dolzer and Schreuer (n 1) 263. See further Christoph Schreuer, ‘Jurisdiction and Applicable Law in Investment Treaty Arbitration’ (2014) 1 McGill J Disp Res 1. 39 Zachary Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 British Yrbk Int’l L 151, 224 (of course, with the exception of arbitrations under the auspices of the International Centre for Settlement of Investment Disputes (hereafter ICSID), which, as a denationalized system, is not subject to domestic law as lex loci arbitri). 40 ibid 163. 41 ibid 164. 42 The ‘direct’ theory is rather concerned with attributing the granted protection directly to investors: Corn Products International Inc v The United Mexican States, ICSID Case No ARB(AF)/04/01, Decision on Responsibility (15 January 2008) paras 167–69 (‘It is now clear that States are not the only entities which can hold rights under international law; individuals and corporations may also possess rights under international law. In the case of rights said to be derived from a treaty, the question will be whether the text of the treaty reveals an intention to confer rights not only upon the Parties thereto but also upon individuals and/or corporations. … In the case of Chapter XI of the NAFTA, the Tribunal considers that the intention of the Parties was to confer substantive rights directly upon investors.’). 43 Douglas (n 39) 184. See eg The Loewen Group Inc and Raymond L Loewen v United States of America, ICSID Case No ARB(AF)/98/3, Award (26 June 2003) para 233 (‘There is no warrant for transferring rules derived from private law into a field of international law where claimants are permitted for convenience to enforce what are in origin the rights of Party states.’). 44 Although this proposition can be challenged as well: Puig (n 12) 859. 45 Douglas (n 39) 170 (arguing that ‘in the absence of some specific provision in the BIT, the national state of the investor retains no interest in an investment treaty arbitration instituted against another contracting state’, and that ‘[t]his is consistent with the perception that an investor is invoking its own right in instituting an investment treaty arbitration.’). 46 Douglas (n 7) 104. 47 See Dolzer and Schreuer (n 1) 257; Andrea Marco Steingruber, Consent in International Arbitration (OUP 2012) 196–97. 48 Therefore, it could be argued that the suggestion that substantive and procedural rules are addressed to different addressees would assume accepting the derivative or the compromise theory. 49 Douglas (n 7) 104. 50 See generally Douglas (n 39). 51 See generally Jan Paulsson, The Idea of Arbitration (OUP 2013) 60–72. For the application of that principle in the discussion on MFN clauses and dispute resolution: Douglas (n 7) 103. 52 Plama (n 2) para 212; and H&H Enterprises Investments Inc v Arab Republic of Egypt, ICSID Case No ARB/09/15, Award (6 May 2014) para 358. 53 Generally on BITs as sources of international investment law and their structure see Dolzer and Schreuer (n 1) 13–14. 54 Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (Kluwer Law Int’l 1995) 58 (with reference to Jean-Pierre Laviec, Protection et promotion des investissements (Graduate Institute Geneva 1985) 79). 55 Emmanuel Gaillard, ‘Establishing Jurisdiction Through a Most-Favored-Nation Clause’ (2005) 233 New York L J 3. 56 Some tribunals recognized the distinction between substantive and procedural rules, however, did not find that distinction useful in reaching their decisions: Daimler Financial Services AG v Argentine Republic, ICSID Case No ARB/05/1, Award (22 August 2012) para 219; Austrian Airlines v The Slovak Republic, UNCITRAL ad hoc arbitration, Final Award (9 October 2009) para 124; Renta 4 SVSA and others v The Russian Federation, SCC Case No 24/2007, Award on Preliminary Objections (20 March 2009) para 101. Other tribunals have not made clear to what extent that distinction, or lack of it, played a role in rendering their decisions: Ansung Housing Co Ltd v People’s Republic of China, ICSID Case No ARB/14/25, Award (9 March 2017) para 138; Sanum Investments Limited v The Government of the Lao People’s Democratic Republic, PCA Case No 2013-13, Award on Jurisdiction (13 December 2013) para 358; Teinver SA Transportes de Cercanías SA and Autobuses Urbanos del Sur SA v The Argentina Republic, ICSID Case No ARB/09/1, Decision on Jurisdiction (21 December 2012) paras 181–82; Les Laboratoires Servier SAS, Biofarma SAS and Arts et Techniques du Progrès SAS v Republic of Poland, UNCITRAL arbitration, Final Award (14 February 2012) para 519. See also Ivan Peter Busta and James Peter Busta v The Czech Republic, SCC Case No 14/2015, Final Award (10 March 2017) para 167 (reaching a negative conclusion on the MFN-dispute settlement conjunction on textual grounds, and stating that the question ‘whether access to arbitration is a procedural or substantive right become[s] moot’). 57 Maffezini (n 2) para 54. 58 ibid para 55. 59 ibid para 38. See also Telefónica SA v The Argentine Republic, ICSID Case No ARB/03/20, Decision of the Tribunal on Objections to Jurisdiction (25 May 2006) paras 100–02. 60 RosInvestCo UK Ltd v The Russian Federation, SCC Case No 79/2005, Award on Jurisdiction (October 2007) para 132. 61 ibid para 130. 62 ibid (arguing that ‘it is difficult to doubt that an expropriation interferes with the investor’s use and enjoyment of the investment, and that the submission to arbitration forms a highly relevant part of the corresponding protection for the investor by granting him, in case of interference with his “use” and “enjoyment”, procedural options of obvious and great significance compared to the sole option of challenging such interference before the domestic courts of the host state’). 63 See also Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law Int’l 2009) 219 (arguing that, as another important point, ‘the RosInvestCo tribunal correctly noted that although protection of an investment is a highly relevant aspect of treatment, arbitration is a procedural right of an investor, not an investment’). 64 Douglas (n 7) 112. 65 Siemens AG v The Argentine Republic, ICSID Case No ARB/02/8, Decision on Jurisdiction (3 August 2004) para 102. 66 ibid para 82. 67 Gas Natural SDG SA v The Argentine Republic, ICSID Case No ARB/03/10, Decision of the Tribunal on Preliminary Questions on Jurisdiction (17 June 2005) para 31. 68 ibid para 49. 69 ibid para 26. 70 ibid para 27. 71 ibid para 29. 72 Suez Sociedad General de Aguas de Barcelona SA and InterAguas Servicios Integrales del Agua SA v The Argentine Republic, ICSID Case No ARB/03/17, Decision on Jurisdiction (16 May 2006) para 57; Suez Sociedad General de Aguas de Barcelona SA and Vivendi Universal SA/AWG Group Ltd v The Argentine Republic, ICSID Case No ARB/03/19, Decision on Jurisdiction (3 August 2006) para 59. As for AWG Group Ltd, the proceedings were conducted under the UNCITRAL arbitration rules, although administered by the ICSID. 73 Suez and Vivendi/AWG ibid para 59. Essentially the same was stated in Suez and InterAguas, using a slightly different wording. 74 Suez and InterAguas (n 72) para 53; Suez and Vivendi/AWG (n 72) para 53. 75 Suez and Vivendi/AWG (n 72) para 56. 76 ibid para 57. 77 Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Decision on Jurisdiction (24 October 2011) para 68. The scope of the MFN clause was limited to ‘the management, utilization, use and enjoyment of an investment’. 78 ibid. 79 Garanti Koza (n 4) para 42. 80 See ILC Report (n 10) para 163 (suggesting: ‘Where the parties have explicitly included the conditions for access to dispute settlement within the framework of their MFN provision, then no difficulty arises. Equally, where the parties have explicitly excluded the application of MFN to the conditions for access to dispute settlement, no difficulty arises.’); and Schill (n 33) 174. 81 Garanti Koza (n 4) para 62. cf Venezuela US SRL v The Bolivarian Republic of Venezuela, PCA Case No 2013-34, Interim Award on Jurisdiction (on the Respondent’s Objection to Jurisdiction Ratione Voluntatis) (26 July 2016) paras 100–03 (where, facing an MFN clause which provided for its application to the dispute resolution clause, the Tribunal refrained from invoking the protective purpose of the access to international arbitration, and concentrated on textual interpretation of the basic and third-party BITs). 82 National Grid plc v The Argentine Republic, UNCITRAL ad hoc arbitration, Decision on Jurisdiction (20 June 2006) para 93. 83 ibid para 89. The Tribunal relied, arguably wrongly, on the practice of the Ambatielos Commission, the ICJ, and the Maffezini Tribunal. 84 ibid para 81. 85 For a similar approach see Impregilo SpA v Argentine Republic, ICSID Case No ARB/07/17, Award (21 June 2011) para 99 (holding that ‘the term “treatment” is in itself wide enough to be applicable also to procedural matters such as dispute settlement’); and Tza Yap Shum v The Republic of Peru, ICSID Case No ARB/07/6, Decision on Jurisdiction and Competence (19 June 2009) para 213 (although holding that the specific wording of the dispute settlement clause should prevail over the general notion of ‘treatment’). See also Impregilo Concurring and Dissenting Opinion (n 13) paras 25–38. For an argument that ordinary meaning of the term ‘treatment’ covers both substantive and procedural provisions see also Stephanie L Parker, ‘A BIT at a Time: The Proper Extension of the MFN Clause to Dispute Settlement Provisions in Bilateral Investment Treaties’ (2012) 2 Arbitration Brief 30, 45. 86 Tecnicas Medioambientales Tecmed SA v The United Mexican States, ICSID Case No ARB(AF)/00/2, Award (29 May 2003) para 67. 87 ibid para 69 (‘The Arbitral Tribunal will not examine the provisions of such [third-party] Treaty in detail in light of such [MFN] principle, because it deems that matters relating to the application over time of the Agreement, which involve more the time dimension of application of its substantive provisions rather than matters of procedure or jurisdiction, due to their significance and importance, go to the core of matters that must be deemed to be specifically negotiated by the Contracting Parties.’ [emphasis added]). 88 Vladimir Berschader and Moïse Berschader v The Russian Federation, SCC Case No 80/2004, Award (21 April 2006) para 185 (emphasis added). 89 ibid para 195. 90 ibid para 198. 91 ibid para 208. 92 ICS Inspection and Control Services Limited v The Argentine Republic, PCA Case No 2010-9, Award on Jurisdiction (10 February 2012) paras 308–09; Daimler (n 56) paras 225–31; ST-AD GmbH v The Republic of Bulgaria, PCA Case No 2011-06, Award on Jurisdiction (18 July 2013) paras 394–96; Beijing Urban Construction Group Co Ltd v Republic of Yemen, ICSID Case No ARB/14/30, Decision on Jurisdiction (31 May 2017) paras 116–21. See also Venezuela US SRL (n 81), Dissenting Opinion of Professor Marcelo G Kohen (26 July 2016) paras 18–19. cf Impregilo (n 85) para 100; Telefónica (n 59) para 102. 93 Telenor Mobile Communications AS v The Republic of Hungary, ICSID Case No ARB/04/15, Award (13 September 2006) para 92 (emphasis in the original). 94 ibid para 102. 95 Wintershall Aktiengesellschaft v Argentine Republic, ICSID Case No ARB/04/14, Award (8 December 2008) para 168. 96 Kiliç Ȝnşaat Ȝthalat Ȝhracat Sanayi ve Ticaret Anonim Şirketi v Turkmenistan, ICSID Case No ARB/10/1, Award (2 July 2013) para 7.3.1 (‘A careful reading of the BIT indicates that the grant of substantive rights in relation to investments is established by the provisions of Articles II-VI, whereas procedures (or modalities) for resolving disputes in relation to the protection of those substantive rights are addressed in Article VII (and, in relation to disputes between the Contracting Parties in Article VIII).’ [emphasis in the original]). 97 ibid para 7.3.9 (emphasis in the original). See also European American Investment Bank AG (Austria) v The Slovak Republic, PCA Case No 2010-17, Award on Jurisdiction (22 October 2012) paras 451–52; and Hochtief Separate and Dissenting Opinion (n 32) paras 70–73. 98 Kiliç (n 96) para 7.3.9 (‘This distinction suggests strongly that the “treatment” of “investments” for which MFN rights were granted was intended to refer only to the scope of the substantive rights identified and adopted in Articles II-VI.’ [emphasis in the original]). It is worth highlighting that the relevant MFN clause referred to the treatment of investments (para 7.1.1). cf n 63. 99 Impregilo Concurring and Dissenting Opinion (n 13) para 29. 100 ibid para 45. See also, on the exceptionality of international adjudication, Menzies Middle East and Africa SA et Aviation Handling Services International Ltd c République du Sénégal, ICSID Case No ARB/15/21, Award (5 August 2016) para 130; Garanti Koza Dissenting Opinion (n 32) para 6. 101 Impregilo Concurring and Dissenting Opinion (n 13) paras 51–56. 102 ibid paras 50, 57–99. See also ST-AD (n 92) para 397. 103 European American Investment Bank (n 97) paras 445–46. Similarly, some tribunals implied the distinctive nature of procedural from substantive treaty provisions, holding that dispute settlement clauses operate as ‘an agreement on their own’: Plama (n 2) para 212; and H&H Enterprises (n 52) para 358. 104 See n 32. 105 Other tribunals also took note of the distinction between substantive and procedural rules, although not as a decisive argument: Plama (n 2) para 191 (‘it can be argued with equal force that the second paragraph [of the MFN clause] demonstrates that the first paragraph is solely concerned with provisions relating to substantive protection to the exclusion of the procedural provisions relating to dispute settlement’). 106 In comparison, some arbitrators simply stated that the two groups of rules should not be distinguished: Renta 4 SVSA and others v The Russian Federation, SCC Case No 24/2007, Separate Opinion of Charles N Brower (20 March 2009) para 10. 107 Gaillard (n 55) 2. 108 Anthea Roberts, ‘Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States’ (2010) 104 AJIL 179, 188 (references to Boyle and Chinkin (n 6) 268). 109 ibid 185 (arguing that ‘[t]he zone of interpretive discretion of investment tribunals may be understood as the interpretive powers explicitly or implicitly delegated to them minus the formal and informal powers retained by treaty parties to influence their interpretations, including through dialogue’ [reference to Alec Stone Sweet, ‘Constitutionalism, Rights, and Judicial Power’ in Daniele Caramani (ed), Comparative Politics (OUP 2008) 228–29]). 110 See generally literature in n 1; n 7; and Schill (n 33) 174–77. 111 ibid 181. 112 For an argument that the access to investment arbitration is the central aspect of investment law see Thomas W Wälde, ‘The Specific Nature of Investment Arbitration’ in Philippe Kahn and Thomas W Wälde (eds), New Aspects of International Investment Law (Martinus Nijhoff 2007) 55–57 (‘It is the creation of arbitral jurisdiction, I suggest, and not the formulation of substantive investment protection obligations in national laws and treaties which is the pivot around which international investment law turns.’). See also Case C-284/16 Slowakische Republik v Achmea BV [2017] ECLI:EU:C:2017:699, Opinion of AG Wathelet, paras 76–77 (‘Article 8 [providing for investor-State arbitration] of the BIT is not a benefit separable from the remainder of the BIT, but is an integral part thereof to such an extent that a BIT without an ISDS mechanism would be pointless since it would not achieve its aim, which is to encourage and attract foreign investment … the right of investors to have recourse to international arbitration is the most essential element of the BITs, since, in spite of its procedural content, it is in itself an indispensable guarantee that encourages and protects investments’). Even Professor Brigitte Stern in Impregilo recognised the importance of the access to arbitration, and for that reason agreed with the proposition that the access to arbitration can be considered part of ‘treatment’: Impregilo Concurring and Dissenting Opinion (n 13) paras 25–38. 113 See Millicom International Operations BV and Sentel GSM SA v The Republic of Senegal, ICSID Case No ARB/08/20, Decision on Jurisdiction of the Arbitral Tribunal (16 July 2010) para 65 (arguing that otherwise such rights would be ‘lex imperfecta’). 114 Stephan W Schill, ‘W(h)ither Fragmentation? On the Literature and Sociology of International Investment Law’ (2011) 22 EJIL 875, 880 (‘It is these [arbitral] decisions that, as non-binding precedent, influence the interpretation and application of investment treaties by later arbitral tribunals. Together, they create a body of investment law that concretizes and further develops the law applicable to and by investment treaty tribunals.’ [references omitted]). 115 See Gus Van Harten and Martin Loughlin, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’ (2006) 17 EJIL 121, 142–45 (analysing a general/specific consent dichotomy). 116 See Dolzer and Schreuer (n 1) 257–60; Steingruber (n 47) 196–67. The Tribunal in European American Investment Bank v Slovakia invoked this character of dispute settlement provisions, next to the fact that they are derived from interstate agreements, to emphasise their ‘dual character’. European American Investment Bank (n 97) para 445. 117 Roberts (n 108) 179. 118 Once invoked (accepted) by an investor, a dispute settlement clause loses its character as a treaty clause and becomes an agreement to arbitrate between that investor and the host state, which forms the basis of arbitration: Dolzer and Schreuer (n 1) 257; Steingruber (n 47) 196–97. 119 ILC, ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts’ in ‘Report of the International Law Commission on the work of its fifty-third session’ (23 April–1 June and 2 July–10 August 2001) UN Doc A/56/10, art 12. 120 cf Case Concerning Rights of Nationals of the United States of America in Morocco (France v United States of America) (Judgment) (1952) ICJ Rep 176, 190ff (regarding consular jurisdiction); The Ambatielos Claim (Greece, United Kingdom of Great Britain and Northern Ireland) Award (6 March 1956) XII RIAA 83, 107 (regarding ‘administration of justice’); Douglas (n 7) 107 (regarding the application of MFN clauses to dispute resolution clauses; arguing that by invoking an MFN clause the claimant is asking the tribunal for a remedy, for which ‘the claimant must establish the constituent elements of a wrongful act’, and rhetorically asking: ‘Can the claimant maintain that it was wrongful for the host state to have made a standing offer of arbitration in a third treaty that is different (or more favourable from the claimant’s perspective) from the standing offer of arbitration in the basic treaty by virtue of the MFN clause in the basic treaty?’). 121 For judicial protection, or the concept of denial of justice, as part of fair and equitable treatment, see Organisation for Economic Co-operation and Development (OECD), ‘Fair and Equitable Treatment Standard in International Investment Law’ (2004) OECD Working Papers on International Investment 2004/03, 28-36. For the concept of arbitrariness, see Elettronica Sicula SpA (ELSI) (United States of America v Italy) (Judgment) (1989) ICJ Rep 15, paras 124–28 (‘It is a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety.’); and Asylum (Colombia v Peru) (Judgment) (1950) ICJ Rep 266, 284. 122 Loewen (n 43) para 123. 123 See ibid para 121 (‘whether the whole trial, and its resultant verdict, satisfied minimum standards of international law, or the “fair and equitable treatment and full protection and security” that the Contracting States pledged in Article 1105 of NAFTA’; although this Tribunal did not rule on the merits, it is instructive in recalling that if domestic proceedings would not satisfy such standards of treatment, that would indeed amount to a breach of the respective IIA provisions). 124 Interestingly, the Tribunal in Renta 4 v Russia faced the issue whether the access to international arbitration constituted part of fair and equitable treatment. The Tribunal’s answer was negative, stressing that there was no reason to conclude that lack of such access would be ‘unfair or inequitable’: Renta 4 (n 56) paras 103–06. cf Renta 4 Separate Opinion (n 106) paras 22–23. 125 Menzies Middle East and Africa (n 100) paras 129–51 (rejecting the argument that consent to arbitration could be secured by virtue of an MFN clause contained in the General Agreement on Trade in Services and a third-party BIT). See particularly ibid para 141 (‘Si l’article II de l’AGCS (dans l’hypothèse, non établie, où ce dernier couvrirait l’arbitrage d’investissement) était applicable en l’espèce, dans la mesure où le Sénégal a fait des offres d’arbitrage à deux catégories d’investisseurs mais a refusé le même bénéfice aux autres, la seule conséquence qui en découlerait serait que le Sénégal pourrait se trouver en violation de ses obligations en vertu de l’article II de l’AGCS.’). See also Venezuela US Dissenting Opinion (n 92) paras 25–38. 126 Instrumental use of such qualifications was also noted by the ILC Study Group, when it said that ‘[k]ey to the decision in Maffezini is the conclusion that dispute settlement provisions are, in principle, part of the protection for investors and investments provided under bilateral investment agreements’: ILC Report (n 10) para 95. See further s 4. 127 Stephen Fietta, ‘Most Favoured Nation Treatment and Dispute Resolution Under Bilateral Investment Treaties: A Turning Point?’ (2005) 8 Int’l Arbitration L Rev 131, 138. 128 See Salini (n 2) para 112; Plama (n 2). See also n 56. 129 See UK Model BIT (2008) <http://investmentpolicyhub.unctad.org/Download/TreatyFile/2847> accessed 11 February 2018, art 3(3). 130 See Norwegian Model BIT (13 May 2015) <http://investmentpolicyhub.unctad.org/Download/TreatyFile/3350> accessed 11 February 2018, art 4(3); Comments on the Individual Provisions of the Model Agreement (Norwegian Model BIT) (13 May 2015) <www.regjeringen.no/contentassets/e47326b61f424d4c9c3d470896492623/comments-on-the-model-for-future-investment-agreements-english-translation.pdf> accessed 11 February 2018, 8 (‘Internationally, there is disagreement as to whether an MFN clause also encompasses the right to invoke a special dispute settlement mechanism or the special conditions for initiating international arbitration proceedings (so-called “procedural rights”), or whether only substantive rights relating to market access and the treatment of investors are covered.’). 131 Newcombe and Paradell (n 63) 224 (‘The US approach has been to record in its investment negotiations that MFN is not intended to extend to dispute settlement provisions.’). 132 See National Grid (n 82) para 85 (noting that ‘after the decision on jurisdiction in Siemens, the Argentine Republic and Panama exchanged diplomatic notes with an “interpretative declaration” of the MFN clause in their 1996 investment treaty to the effect that, the MFN clause does not extend to dispute resolution clauses, and that this has always been their intention’). 133 Even the ILC Study Group concluded in its Report that the applicability of MFN clauses to dispute resolution clauses should be negotiated by states. This suggestion indirectly defers the determination of the quality of treaty rules to states. See ILC Report (n 10) para 216. 134 See eg Maffezini (n 2) paras 54–55; Siemens (n 65) para 102; Gas Natural (n 67) para 29. 135 Some degree of caution towards such qualifications can be seen in the work of the ILC Study Group, when it observed ‘that conclusions about the applicability of MFN clauses to dispute settlement provisions should be based on the interpretation and analysis of the provisions in question and not on assumptions about the nature of investment agreements or of the rights that are granted under them’. See ILC Report (n 10) para 173. 136 For the argument that contract-based and treaty-based investment arbitrations share their common purpose of protecting and facilitating cross-border investment flows see Charles N Brower and Shashank P Kumar, ‘Investomercial Arbitration: Whence Cometh It? What Is It? Whither Goeth It?’ (2015) 30 ICSID Rev–FILJ 35. 137 cf Yannick Radi, ‘The Application of the Most-Favoured-Nation Clause to the Dispute Settlement Provisions of Bilateral Investment Treaties: Domesticating the “Trojan Horse”’ (2007) 18 EJIL 757, 763 (arguing that ‘the intellectual distinction between procedural and substantive provisions, which is at the basis of the severability concept, is rendered moot by the protective dimension of the dispute settlement mechanism in international investment law’). 138 See n 126 and the accompanying text. 139 This might not be the case when an MFN clause refers to ‘all matters’ subject to the relevant IIA. See eg Maffezini (n 2) para 38. 140 Thus, in the context of weighting public and private interests in defining the standards of treatment, see Alex Mills, ‘Antinomies of Public and Private at the Foundations of International Investment Law and Arbitration’ (2011) 14 J Int’l Economic L 469, 491 (‘One analysis may start from the position that the standard should reflect the private interests or expectations of investors.’). 141 SGS Société Générale de Surveillance SA v Republic of the Philippines, ICSID Case No ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para 116. 142 For example, giving preference to the role of investment treaties in the international community to effectively protect foreign investors, or to more traditional concerns of public international law, such as the centrality of state consent. The effect of these considerations on jurisdictional determinations was the subject of the author’s previous analysis: Relja Radović, ‘Inherently Unneutral Investment Treaty Arbitration: The Formation of Decisive Arguments in Jurisdictional Determinations’ (2018) 2018 J Disp Res 143. 143 Gus Van Harten, Investment Treaty Arbitration and Public Law (OUP 2007) 172–73 (also expressing a concern as to the overall activities of arbitrators, which include both adjudicating investment cases and representing investors in arbitrations, often at the same time, and noting that ‘[a]rbitrators are members of an industry the purpose of which is to supply adjudicative services in exchange for (lucrative) remuneration’). 144 M Sornarajah, Resistence and Change in the International Law on Foreign Investment (CUP 2015) 136ff. 145 For the argument that investors’ interests can be emphasised in arbitral interpretations of treaties, because of their position as parties in arbitrations, see Mills (n 140) 490. 146 ibid 483–84. 147 ibid 484. 148 A counterargument is possible: that precisely those who emphasize a principled distinction between substantive and procedural norms take the public international law perspective on international investment law. 149 Mills (n 140) 485 (‘Viewing international investment law as a process of law-making, rather than bilateral dispute resolution, implies a commitment to systemic goals like consistency in substantive international investment law.’). 150 Schill (n 114) 880 (also arguing at 888 that ‘investment treaty arbitration thus had the effect of commercializing international investment law also from a sociological perspective’ and that ‘with rising numbers of disputes, the centre of gravity increasingly moved to the commercial arbitration bar’). See also Wälde (n 112) 54 (‘The thinking, attitudes, procedures and concepts of commercial arbitration dominate at present investment arbitration.’). 151 See Robert O Keohane, Andrew Moravcsik and Anne-Marie Slaughter, ‘Legalized Dispute Resolution: Interstate and Transnational’ (2000) 54 Int’l Organization 457, 459 (‘Transnational dispute resolution seems to have an inherently more expansionary character; it provides more opportunities to assert and establish new legal norms, often in unintended ways.’); and Roberts (n 108) 184 (noting, as a consequence, the failures ‘to recognize the interpretive interests of the treaty parties’). 152 Van Harten and Loughlin (n 115) 148. © The Author(s) 2018. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)

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Journal of International Dispute SettlementOxford University Press

Published: Mar 12, 2018

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