magnify
Home International Economic Law Bilateral Investment Treaties Ecuador v. United States Inter-State Arbitration under a BIT: How to Interpret the Word “Interpretation”?

Ecuador v. United States Inter-State Arbitration under a BIT: How to Interpret the Word “Interpretation”?

Published on August 31, 2012        Author: 

There is an inter-State arbitration pending between Ecuador and the United States under the Bilateral Investment Treaty (BIT) between those two countries (Treaty between United States of America and the Republic of Ecuador Concerning the Encouragement and Reciprocal Protection of Investment, 27 August 1993). The Ecuador v. US case , which was initiated in June 2011, is, as far as I am aware, a very very rare instance of inter-State arbitral proceedings under a BIT. As is well known, one of the main purposes of BITs is to give investors the right to bring claims against the host state of investment. This feature of BITs, and the vast number of such treaties, has meant that investor-State arbitrations under BITs have replaced diplomatic protection as the primary means of settling investment disputes. There have been hundreds of investor-State proceedings before arbitral tribunals.  However, BITs also contain compromissory clauses by which disputes concerning the interpretation or application of disputes under these treaties can be brought before arbitral tribunals established under the BIT. The only other inter-State BIT cases that I am aware of are the recent Italy and Cuba cases which were discussed in the April 2012 issue of the American Journal of International Law. In general, States leave it to the investor to protect its rights under the BIT.

The present proceedings brought by Ecuador are particularly interesting for a couple of reasons: one specific to investment law, the other relating to general international law. First of all, as the case arises out of Ecuador’s dissatisfaction with the interpretation given by an earlier investor-State arbitral tribunal (Chevron and Texaco Petroleum Company v. Republic of Ecuador, Partial Award, 30 March 2010) to a particular provision of the Ecuador – US BIT,  the case may be construed as a way by which Ecuador is trying to use the inter-State procedure as a way of appealing the results of a case brought under the investor-State procedure. There have been concerns by many that there is no appellate procedure in the investment treaty system and this case seems to be an attempt to create one.

Secondly, Ecuador’s case raises a general question about how one interprets the standard compromissory clause to be found in treaties where jurisdiction is granted to an  international tribunal over disputes between the parties “concerning the interpretation or application of the treaty”. Ecuador is of the view that the US has a different interpretation from it of a provision of the BIT. However, Ecuador does not argue that the US has violated the BIT, it only seeks to resolve a question about how the BIT should be interpreted. So, does the tribunal have jurisdiction over a case where the parties disagree about how a treaty should  be interpreted but where there is no allegation that the respondent party has actually misapplied the treaty or done any act which constitutes a violation of the treaty. The question is whether this standard formulation of a compromisory clause means that international tribunals can only deal with concrete disputes about violations of treaties or whether they can play a general advisory function with respect to the meaning of the treaty. In short, what is a dispute about “interpretation”of a treaty?After the Chevron and Texaco Petroleum Company v. Republic of Ecuador, Partial Award, Ecuador wrote to the US to state that it disagreed with the interpretation given the tribunal in that case and asked the US to state whether it agreed with Ecuador’s interpretation. In short, Ecuador was trying to come to agreement with the other party regarding the interpretation of the treaty. Under the Vienna Convention on the Law of Treaty, that subsequent agreement would have been as good as binding with regard to the interpretation of the treaty.  The US refused to respond to Ecuador’s request. Ecuador then brought this case arguing that there was a dispute regarding interpretation of the treaty. It seems rather strange to say that a failure of the US to respond to a request to clarify its interpretation means that there is a dispute regarding interpreation. The US may well agree with Ecuador’s interpretation but surely it cannot be under an obligation to say so. In English contract law, it is well established that one party cannot unilaterally require that silence in response to an offer equals acceptance (the rule in Felthouse v. Bindley). Likewise, Ecuador cannot unilaterally impose the view that silence equates to disagreement.

In any event, even assuming the US disagreed with Ecuador’s interpretation, the US has not violated the provision in question. And Ecuador is not claiming that it has violated the provision. In other words, there is no dispute about the application of the treaty. The question of interpretation is one that arises, in a sense, in the abstract, i.e it is unconnected with a dispute about how the treaty has been applied.  Does this abstract dispute fall, under the compromissory clause, within the jurisdiction of the tribunal provided for in that clause?

In the Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement Advisory Opinion of 1988, the ICJ dealt with a similarly interesting question regarding how to construe these types of compromissory clauses. There, the issue was whether the US was under an obligation to enter into arbitration with the United Nations regarding the legality of attempts by the US Congress to force the closure of the Palestinian Liberation Organizations mission to the UN in New York. The US Executive agreed that such a closure would violate its obligations under the US/UN Headquarters Agreement but it opposed arbitration. Its argument then was that there was no dispute regarding the interpretation or application of the treaty because both the US and the UN agreed that the proposed act would be a violation of the treaty (and the US had not actually committed the act of closing the office). The ICJ disagreed. It was of the view that agreement over interpretation of the treaty did not mean there was no dispute regarding “interpretation or application.” In  that case there was no dispute about the interpretation of the treaty but there was one about its application.

In the present case, does a lack of dispute about the application of the treaty mean there is no dispute about interpretation?

Print Friendly
 

9 Responses

  1. Jonathan Ketcheson

    Dapo,

    The proceedings are highly unusual in the sense that they seek an “advisory opinion” on the meaning of certain provisions in a treaty.

    The argument that the US can avoid dispute settlement by “ignoring” Ecuador would seem problematic. It seems that there is a “dispute” about an abstract question about the meaning of a term of a treaty. It would seem that after a “reasonable” period, the US cannot rely on its failure to respond (imagine a hypothetical involving Russia failing to respond to Georgia’s complaints of racial discrimination ….). However, it is a different question as to whether a tribunal can or should accede to Ecuador’s request.

    Part of the answer may lie in the need for a (concrete?) “dispute” whether or not the proceedings involve “interpretation” or “application” (or both). There are very few examples where a tribunal has given an abstract interpretation of a treaty in the absence of an underlying “dispute”. The Mavrommatis formula, although frequently quoted, is formulated too widely (Ecuador’s request would seem to fit within this formula) and in practice a dispute probably requires the opposition of claims (per South West Africa cases). The expert opinions filed by the parties examine the relevant examples. However, for the most part reading the cases – as opposed to quoting a selective extract – reveals that there was an underlying “dispute” or claim (eg. Certain German Interests, which was relied upon by Ecuador, really involved a question of whether a Court could consider whether the Polish legislation was a violation of international law per se). Certainly a feature of the cases (and literature) is inconsistent taxonomy – different things are meant by “interpretation’, “application” and “declaratory” judgments.

    However, arbitral tribunals (like other tribunals) are generally reluctant to give up what jurisdiction they have. It seems not unlikely that the Tribunal will find it has jurisdiction. If Inter-State dispute resolution does not extend to this type of dispute, what type of dispute would it cover? The ICSID Convention has a compromissory clause in relation to disputes between States involving the interpretation and application of the Convention. (Article 64) It is not entirely clear what types of proceedings are envisaged – apparently not an appeal or review of an award (the annulment procedure is exclusive) but perhaps a dispute in relation to the failure of a State to recognize and enforce an ICSID award.

    It is also worth mentioning that this case has been brought in the context of ongoing proceedings in the other Chevron v Ecuador case, involving the Lagro Agria plaintiffs. While this request is probably not an abuse of process like the request to obtain an “advisory opinion” in the NATO cases (vis-à-vis pending proceedings in the Application of the Genocide Convention case), there are some parallels (i.e. seizing an alternative forum in the hope of obtaining a favourable ruling for the purpose of pending litigation).

  2. Dapo Akande

    Jonathan,

    Many thanks for your comments. I agree that the proceedings are highly unusual. It is not entirely clear what purpose the proceedings are meant to serve. Even if Ecuador were to succeed in getting the tribunal to pronounce on the interpretation of the provisions in question and succeeded in having its interpretation upheld this would not change the effects of, nor affect the validity of, the previous award in the Chevron/Texaco case. Furthermore, the new award would not bind any future tribunal in a future dispute. Success by Ecuador would just mean that there would be an award that sets out a different interpretation from that obtained in the Chevron/Texaco case. But some may argue that it would be just as good for Ecuador to just wait until an actual dispute arises again on the issue and to seek to persuade a tribunal set up to examine that dispute.

    However, it seems to me there is at least one advantage (to Ecuador) of taking the route it has taken. Perhaps the main benefit of the present proceedings for Ecuador is that the case seeks to force the US to take a stand on its interpretation. A future investor-State dispute would not do that. However, were Ecuador to succeed in persuading the tribunal to take jurisdiction in this case, the US would then have to say what its interpretation of the provision is. If it agrees with Ecuador then there would be agreement of the parties on the issue. Whilst the award of the tribunal would not itself be binding on future tribunals, the agreement of the parties on interpretation would be.

    But the key question is whether there is a dispute between Ecuador and the US regarding interpretation. You say that after a reasonable period the US cannot rely on its failure to respond. But this is to say that the US has an obligation to respond to a request to state its view on the interpretation of the treaty. What would that oblgiation to state a view be based on? I do not think that the analogy with Russia and Georgia is apposite. In that case, Georgia claimed that Russia was actually engaging in racial discrimination. A failure by Russia to respond would not change the fact that there was a dispute in which one side claimed that the acts of the other side amounted to a breach, and the other side, even if silent on whether the act was in breach or not, was undertaking the act or not denying that it was. That would be a dispute about the application of the treaty and that case would be very similar to theObligation to Arbitrate Advisory Opinion. In the Ecuador case, it is more difficult to see that there is a dispute about interpretation as the US is just silent and is not acting in breach.

    Nonetheless, even if one says there is a dispute and that dispute is about interpretation, that would only mean that the tribunal has jurisdiction over the dispute. Questions may then arise as to whether the case is admissible. It may be that there is or ought to be some “ripeness” criterion for admissibility under which an international tribunal will only deal with a case where there is an actual dispute which involves a claim of violation of the treaty in question.

  3. Jarrod Hepburn

    Dapo,

    News today indicates that the tribunal has declined jurisdiction in this case (http://www.iareporter.com/articles/20120903_3). No award is available yet. However, the result seems to indicate that the tribunal considers there to be no dispute between Ecuador and the US here, and that you are right to suggest that US silence is not enough to create a dispute.

  4. Jonathan Ketcheson

    Dapo,

    Thank you for your thoughtful comments.

    I note that the Investment Arbitration Reporter has published an article this morning indicating that the tribunal is going to issue an award finding against Ecuador on the basis of jurisdiction/admissibility.

    While it is possible that an Article 31(3)(a) type agreement on interpretation could arise via pleadings this would be highly unusual. While I am aware of the positions of parties in litigation being taken into account as a means of interpreting a treaty, I cannot think of any examples of an “agreement” arising in such circumstances? (i.e. via an exchange of pleadings in litigation)

    I take your point re Georgia v Russia being different. I suppose my general point is that the ICJ (and other ITs) have taken a dim view on State’s seeking to avoid their dispute resolution obligations by simply ignoring the other party. The ICJ has said that the existence of a dispute may be inferred from the failure of a State to respond to a claim in circumstances where a response is called for – which invites the question – was a response called for in this case? (I do not think it is a question of there being an “obligation” – the US did not breach an obligation by failing to respond to Ecuador) Ecuador did in fact complain to the US about a particular “application” of the treaty – the application of the effective means provision by the tribunal in the first Chevron v Ecuador case – it is just that that “application” of the treaty is not the basis of a “claim” in the inter-State proceedings. (Was a response called for from the US in those circumstances?) In any event, I guess we will find out soon enough the basis for the decision.

  5. Dapo,

    Glad to see discussion of this case on your excellent blog.

    When we first reported on the Ecuador v USA case in July of 2011, we were aware of at least two other state-to-state BIT arbitrations. There was the Italy-Cuba case that we had also uncovered in July of 2011, and a separate Peru-Chile case that was initiated some years earlier. You can find more discussion in our July 2011 report, which I’ve made accessible to non-subscribers at this link: http://www.iareporter.com/articles/20110704_4

    Cheers
    Luke Peterson
    Editor
    Investment Arbitration Reporter

  6. Dapo Akande

    Jarrod, Jonathan and Luke,

    Thanks for your comments and for pointing readers to coverage of this case on Investment Arbitration Reporter. It will be really interesting to see the jurisdiction award when it becomes public.

    Jonathan, perhaps I was hasty in suggesting that the the position of the parties in their pleadings can be regarded as a subsequent agreement regarding interpretation under Art. 31(3)(a) of the Vienna Convention on the Law of Treaties. However, given that this is a bilateral treaty, I can’t see why the two parties cannot be taken to have come to an agreement by their exchange of pleadings, that is intended to respond to the position of the other party. In any event, the pleadings would be “subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation” under Art. 31(3)(b) of the VCLT.

  7. Nice article Dapo. If you ever write on BIT cases relating to Africa do share with us on our AILA Blog (www.blogaila.com)

  8. [...] EJIL:Talk!, Dapo Akande has written about a piece of the Lago Agrio case that hasn’t been on my radar screen until now: the BIT [...]

  9. different interpretation as such may rise earnest concern about the ongoing consent between the parties. this is the core of the good faith principle. as bluntschli puts it, the ongoing confidence in shared interpretation gives the causa of the treaty to have continued force. the will alone may be changing and volatile.
    so, common interpretation, and as such lasting throughout treaty’s validity common interpretation, a dispute about it is core danger of upheld consent. one should not have to wait for the breach and for any discussion about the clausula rebus.
    later agreement, 31 III, or common authoritative interpretation underlies consent which in these cases is not given. although there is no reason to suppose silence means disagreement, silence is strange with good faith fulfilling’s obligation. so why exclude interpretation disputes from disputes? at least good faith principle is about to concern.
    the disagreeing party, although perhaps not bound, as you said, by the corresponding decision, may come closer to estoppel and acquiescence.