11 Aug India and the Interpretation of Investment Treaties: Time to Reconsider the Attitude Towards Articles 31 to 33 of the Vienna Convention on the Law of Treaties?
[Tarcisio Gazzini is Professor of international law at the University of East Anglia and visiting professor at the University of Trento and the Geneva Academy of Human Rights and Humanitarian Law.]
The 2015 Indian Model Bilateral Investment Treaty (BIT) (hereinafter “Model”) contains a number of important provisions addressing the main concerns raised about investment law and may be expected not only to serve in the negotiations of BITs between India and other States, but also to inspire the treaty practice of other States and especially developing countries and emerging economies.
It is also interesting from the standpoint of treaty interpretation for at least three reasons. First, according to Article 23.3 of the Model:
The governing law for interpretation of this Treaty by a tribunal constituted under this Article shall be: (a) this Treaty, (b) the general principles of public international law relating to the interpretation of treaties, including the presumption of consistency between international treaties to which the Parties are party, and (c) for matters relating to domestic law, the Law of the Host State.
The reference to the treaty itself under (a) remains mysterious. The treaty is the object of the interpretation and, as such, does not offer any direct guidance on treaty interpretation. It may well indicate the applicable rules on interpretation and in the absence of any indication in this regard, customary international law as codified in Articles 31 to 33 of the Vienna Convention on the Law of Treaties (VCLT). Indeed, (b) refers to the general principles of public international law concerning treaty interpretation, including the presumption of consistency between treaties. Interesting, Article 24.2 expressly mentions the VCLT – although India is not party to it – insofar as the interpreter must take into account subsequent agreements and subsequent practice.
What is more problematic is the reference under (c) to the law of the Host State for matters relating to domestic law. Here the Model conflates two issues. One is the interpretation of the treaty, which is a matter of applying the international rules on treaty interpretation. Another is establishing the meaning of domestic law in order either to assess its consistency with the international obligations of the concerned State; or as the law which governs certain facts that need to be appraised from the standpoint of international law (see the dissenting opinion by Anzilotti in Consistency of Certain Danzig Legislative Decrees with Constitution of Free City, Advisory Opinion, P.C.I.J., Series A/B, No. 65, 1935, 60 at 63).
Second, in accordance with Article 23.1 of the Model:
This Treaty shall be interpreted in the context of the high level of deference that international law accords to States with regard to their development and implementation of domestic policies.
The provision is intended to safeguard the regulatory powers of the Host State against inappropriately intrusive examination by investment tribunals. However, it assimilates two distinct operations. On the one hand, investment tribunals must interpret the treaty in accordance with the rules on treaty interpretation, which require a balanced, unbiased and not preconceived attitude. It is now well established that “there is no principle either of extensive or restrictive interpretation of jurisdictional provisions in treaties” (Mondev International Ltd. v. US, ICSID ARB(AF)/99/2 (NAFTA), Award, para 43, footnote omitted), and more generally that “a balanced interpretation is needed, taking into account both State sovereignty and the State’s responsibility to create an adapted and evolutionary framework for the development of economic activities, and the necessity to protect foreign investment and its continuing flow” (El Paso Energy v. Argentina, ICSID ARB/03/15, Jurisdiction, para 70).
On the other hand, investment tribunals must apply the treaty in order to adjudicate whether the Host State has complied with its treaty obligations. From this perspective, they need to compare the conduct of the Host State with its obligations. They must however refrain from passing a judgment on the decisions taken by the Host State. As recently held in Crystallex International Corporation v. Venezuela, ICSID ARB(AF)/11/2, Award, para 583:
governmental authorities should enjoy a high level of deference for reasons of their expertise and competence […] and proximity with the situation under examination. It is not for an investor-state tribunal to second-guess the substantive correctness of the reasons which an administration were to put forward in its decisions, or to question the importance assigned by the administration to certain policy objectives over others.
Other Tribunals have referred to “a good level of deference to the manner in which a state regulates its internal affairs” (Mesa Power Group v. Canada, UNCITRAL, PCA 2012-17, Award, para 505), or to “great deference to governmental judgments of national needs in matters such as the protection of public health” (Philip Morris v. Uruguay, ICSID ARB/10/7, Award, para 399).
While it is undisputed that investment tribunals must not sit retrospectively in judgment upon the Host State exercise of its sovereign powers (see Electrabel S.A. v. Hungary, ICSID ARB/07/19, Jurisdiction, Applicable Law and Liability, para 8.35), drawing the limits within which they can operate may be rather difficult. Yet, it is not strictly speaking a matter of interpretation, but rather one of respecting the sovereignty of the Host State, while applying the relevant treaty provisions as interpreted in accordance with the rules on treaty interpretation.
Third, Article 24.2 of the Model states:
In accordance with the [VCLT] and customary international law, other evidence of the Parties subsequent agreement and practice regarding interpretation or application of this Treaty shall constitute authoritative interpretations of this Treaty and must be taken into account by tribunals under this Chapter.
The provision is in line with the position of the United Nations International Law Commission (ILC), subject to one clarification. While subsequent agreements are to be considered ipso facto as authentic interpretations, this occurs for subsequent practice only if such practice “shows the common understanding of the parties as to the meaning of the terms” (ILC, 2018 Draft Conclusions on Subsequent Agreements and Subsequent Practice, para 10, p. 26).
It is not a coincidence that the Model expressly provides for the possibility for the parties to issues binding interpretation in accordance with Article 24.1. Needless to say, the parties remain the master of the treaty and can address interpretative issues throughout the life of the treaty. For instance, India and Bangladesh considered it necessary, eight years after the conclusion of the BIT, to clarify through Joint Interpretative Notes the meaning they intended to give certain of its provisions. Indeed, several recent investment agreements expressly provide for the adoption by the parties of binding interpretation, which are meant(a) to increase the consistence, coherence and predictability of treaty interpretation by arbitral tribunals; (b) to eliminate uncertainties and ambiguities; and (c) to correct any misinterpretation by arbitral tribunals.
What is peculiar to the Model is that Article 14.9 (iv) provides for binding interpretations by the parties not only of specific provisions of the treaty, but also of decisions on its application adopted by the parties. The provision is certainly consistent with the law of the treaties and ensures that subsequent decisions are implemented in accordance with the intention of the parties, as recorded in the decision.
India is not a party to the VCLT and therefore is not bound as such to its Articles 31 to 33 on treaty interpretation. Yet, these provisions have systematically been considered as reflecting customary international law by the International Court of Justice (see recently Question of the Delimitation of the Continental Shelf between Nicaragua and Colombia, Preliminary Objections, Judgment, I.C.J. Reports 2016, p. 100, para. 33, which includes abundant references to previous decisions), as well as by investment tribunals (i.e. Kiliç v. Turkmenistan, ICSID ARB/10/1, Decision on art. VII.2 of the Turkey-Turkmenistan BIT, para 6.4). Several recent investment treaties, such as the Comprehensive Trade Economic Agreement between the EU and Canada, expressly refer to Articles 31 to 33 VCLT.
Contrary to other States not party to the VCLT – such as the United States – India has been rather reluctant to clearly refer to or rely on Articles 31 to 33 VCLT on the whole as reflecting customary law. Rather it has opted for a reference to the general principles on treaty interpretation combined with references to specific elements of Article 31 VCLT, namely subsequent agreements and practice. This approach, which has been confirmed in the Model, may have been influenced by the position of the Indian Supreme Court, which has accepted that the VCLT “contains many principles of customary international law, and the principle of interpretation, of Article 31 of the Vienna Convention, provides a broad guideline as to what could be an appropriate manner of interpreting a treaty in the Indian context” (Ram Jethmalani v. Union of India (2011) 8 SCC 1). It is nonetheless worth noting that the Indian Law Commission conceded that “the rules of interpretation under Articles 31 and 32 of the VCLT are recognized as codification of customary law”, but suggested deleting any reference to the convention in the draft Model BIT (Report, para 5.9.2).
Leaving aside the rather equivocal reference to “broad guideline” in the Supreme Court decision, which is hardly consistent with the mandatory nature of customary international law, it is argued that the approach adopted by the Government of India may undermine the unity of the interpretative process. As metaphorically pointed out by the ILC, “[a]ll the various elements, as they were present in any given case, would be thrown into the crucible, and their interaction would give the legally relevant interpretation” (18 YBILC (1966-II), p. 219-220). From this perspective, interpretation must be seen as a “holistic exercise that should not be mechanically subdivided into rigid components” (EC – Customs Classification of Frozen Boneless Chicken Cuts, WT/DS269/AB/R, 12 September 2005, para 176). In this regard, the VCLT has been described as a “well-formulated compromise” of the main schools of interpretation (T.W. Wälde, ‘Interpreting Investment Treaties: Experiences and Examples’, in C. Binder et al. (eds.), International Investment Law for the 21th Century, OUP, 2009, 724, 746).
Directing interpreters to apply general principles of public international law on treaty interpretation may indeed introduce an unnecessary degree of flexibility and discretion at the expenses of legal certitude. The risk is amplified with regard to interpretation of treaties by arbitral tribunals since each of them is sovereign and has accordingly refused to be legally bound by decisions rendered by other tribunals (among many decisions, AES Corp. v. Argentina, ICSID ARB/02/17, Jurisdiction, paras 30-31).
The recognition and acceptance of the VCLT rules on interpretation as reflecting customary international law would be beneficial for all actors involved, and most prominently foreign investors, States (including all authorities competent to implement the treaty) and investment tribunals. Clarity on the application of these rules would at once enhance the accuracy of treaty interpretation, facilitate the correct implementation of the treaty and enhance the coherence and consistency of arbitral awards.
The need for clarity is confirmed by the fact that three of the last investment treaties concluded by India take three different stands. The BIT India-Kyrgyzstan follows the approach of Article 23.3 of the Model on the law applicable to treaty interpretation. More persuasively, the BIT India-Belarus refers to the three categories of Article 23.3 of the Model to the law applicable to the dispute, rather than to the interpretation of the treaty. The Investment Cooperation and facilitation Treaty between India and Brazil, finally, does not contain any provision like or similar to Article 23.3 of the Model.
It is argued that the Model as it stands presents some problems and ambiguities with regard to treaty interpretation. The major problems seem to be Article 23.3 on the law applicable to treaty interpretation and Article 23.1 on the deference the interpreter must accord to domestic policies. Fixing these provisions is important as the Model is being used and will be used in the future for the negotiation of numerous BITs involving India. Time may be ripe for India to consider formally embracing the rules of interpretation codified in the VCLT in the interest of legal certainty and predictability.