Authentic (or Authoritative) Interpretation of Investment Treaties by the Treaty Parties

General remarks

The interpretation of investment treaties is governed by the rules on interpretation codified in Articles 31 to 33 of the Vienna Convention on the Law of Treaties (VCLT). The hybrid nature of Investor-State arbitration, in which the parties to the dispute and the parties to the treaty do not coincide, calls for a “particular duty of caution” in applying these rules (Berman, Diss. opinion in Lucchetti v. Peru, ICSID ARB/03/4, Annulment, para 9).

Being the masters of the treaty, State parties retain the power to amend it, by modifying its substantive or procedural provisions. They can therefore also agree upon its authentic interpretation (PCIJ, Jarzowina, Advisory opinion, 1923, 37). As clearly pointed out by the United States, “[t]he authentic interpretation of a treaty remains the exclusive province of the States parties themselves that may construct the treaty either expressly or tacitly through subsequent conduct” (Canadian Cattlement v. United States, (UNCITRAL) NAFTA, Jurisdiction, 28 January 2008, Reply by the United States, p. 11).

Authentic interpretation

An authentic interpretation does not alter the content of a treaty and is meant:

• to clarify its meaning, thus increasing the consistence, coherence and predictability of treaty interpretation;
• to eliminate uncertainties and ambiguities (i.e. Government of India, Issuing Joint Interpretative Statements, 8 February 2016); and
• to correct any misinterpretation by arbitral tribunals (i.e. EU-CETA Joint interpretation, § 6 (e), OJ L11/3, 14.1.2017).

According to Art. 31.3 (a) VCLT, the interpreter must “take into account” subsequent agreements regarding the interpretation of the treaty. As pointed out by the UN International Law Commission (ILC), these agreements do not necessarily possess a “conclusive effect” (Draft Conclusions on Subsequent Agreement and Subsequent Practice in Relation to the Interpretation of Treaties, A/73/10, 2018, para 4). Accordingly, the ILC preferred to use the expression “authentic means of interpretation” instead of “authentic” or “authoritative” interpretation.

Yet, while not expected to mechanically interpret the treaty in accordance with the authentic interpretation, the interpreter can hardly depart from it, provided that such interpretation is one of the plausible interpretations that could have been reached by applying Articles 31 to 33 VCLT. In choosing between two or more possible interpretations – which is the essence of the business of interpretation – the interpreter must pick up the one formally agreed upon by the parties in the authentic interpretation, even if other interpretations are equally possible (and even if the interpreter would have otherwise preferred a different one).

A useful example is the authentic interpretation of Art. 4 (MFN treatment) the BIT between India and Bangladesh contained in the 2017 Joint Interpretative Notes. The broadly drafted original provision can be interpreted as inclusive or exclusive of procedural provisions. Indeed, arbitral tribunals have interpreted provisions similar to Art. 4 both ways. Through the authentic interpretation, the parties to the treaty excluded that the MFN clause applies in relation to dispute settlement. They thus clarified which of the two plausible interpretations reflects the meaning they intended to attach to Art. 4 . A tribunal could not interpret Art. 4 differently. After all, the purpose of interpretation is precisely to establish the intention of the Parties as recorded in the treaty.

It remains that what is presented as  an authentic interpretation may in reality be a disguised amendment of the treaty, which cannot produce retroactive effects at the expenses of foreign investors. States are certainly free to amend the treaty, but this “would not affect rights acquired under the Treaty by investors or other beneficiaries” (Enron v. Argentina, ICSID ARB/01/3, Award, para 337). In other words, States cannot move the goalposts with regard to pending disputes or disputes arising out of facts that occurred before the amendment of the treaty.

Distinguishing interpretations from amendments of the treaty may be extremely difficult as the interpretation of Art. 1105 NAFTA by the Free Trade Commission has demonstrated (Notes of Interpretation of Certain Chapter XI Provisions, 31 July 2001. For a sharp critique, see Second Opinion Jennings in Methanex v. United States, UNCITRAL, 6 September 2001).

A probable example of amendment disguised as interpretation relates to Art. 3.2 (Fair and equitable treatment) of the BIT between India and Bangladesh, as dealt with in the 2017 Joint Interpretative Notes. The original text reads:

Investments and returns of investors of each Contracting Party shall at all times be accorded fair and equitable treatment in the territory of the other Contracting Party.

According to the relevant part of the joint interpretation:

The concept of “fair and equitable treatment” under Article 3(2) does not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens, and does not create additional substantive rights.

For greater certainty, a measure shall constitute a violation through customary international law minimum standard of treatment in case of: denial of justice in any judicial or administrative proceedings; or fundamental breach of due process; or

targeted discrimination on manifestly unjustified grounds, such as gender, race or religious belief; or manifestly abusive treatment, such as coercion, duress and harassment. […]

Following the adoption of the interpretation, the standard has been pegged to customary international law and dramatically squeezed into a comprehensive list of heavily qualified measures. It can be argued that this is not an interpretation, but rather an amendment of the treaty as the substantive obligations of the host State – and the corresponding rights of the investor – have been modified. It is for adjudicators to establish whether the alleged authentic interpretation amounts to an amendment. Should this be the case, the alleged interpretation should be disregarded in pending disputes or disputes related to facts that occurred before the adoption of the joint interpretation.

Legal effects of authentic interpretations

States are aware of the need to protect investors against possible amendments of the treaty disguised as authentic interpretations. Several provisions have been designed for that purpose. According to Art. 24.2 of The Netherlands Model BIT, joint interpretative declarations are binding, but “not applicable in cases where the Tribunal was already established”. An interpretation agreed in the 2017 Indian Bangladesh Joint Interpretative Notes is binding for tribunals established “upon issuance of that interpretation”. Under Art. 8.31.3 CETA, the Joint Committee may decide that an interpretation shall have binding effect from a specific date. 

These provisions raise two important questions. The first one concerns the meaning of “binding”. Intuitively, this means that tribunals need to interpret the treaty in accordance with the authentic interpretation, without considering any other possible interpretation(s) and presumably without going through the interpretative process of Article 31 to 33 VCTL. By agreeing to making the interpretation binding, the parties have moved beyond the obligation incumbent upon the interpreter under Article 31.3 (a) to “take into account” such interpretation in the holistic process of interpretation. If the authentic interpretation makes sense, this is the end of the matter. Yet, tribunals may be advised to double-check that the interpretation is indeed a genuine authentic interpretation and not a disguised amendment.

The second question relates to the temporal scope of an authentic interpretation. The three provisions above are quite effective in safeguarding investors against the risk of the retroactive application of an amendment of the treaty disguised as interpretation. However, they do not clarify the legal effects of the interpretation on pending disputes, or disputes related to facts that have arisen before the issuance of the interpretation and for which the tribunal has not been constituted yet. While the Dutch provision may even hint that tribunals should not apply the joint interpretation, the Indian and the CETA provisions allow – but do not oblige – arbitral tribunals to follow the authentic interpretation in pending disputes or disputes concerning facts that have arisen before the issuance of such interpretation.

There is no reason not to apply an authentic interpretation to pending disputes or disputes related to facts that occurred before the adoption of the such interpretation (or after the date indicated in accordance with Art. 8.31.3 CETA). Precluding tribunals from applying it in those disputes may lead to an unintended distorted interpretation (if the interpretation is a genuine one, i.e. clarifies the meaning of the treaty without altering it). In other words, in settling those disputes, tribunals should refrain from interpreting a treaty differently from the interpretation agreed by the parties, as this would unavoidably affect the consistency and coherence of the decisions rendered before and after the adoption of the authentic interpretation.

Conclusions

Authentic interpretations are an important tool in the hands of States to improve the accuracy of treaty interpretation and enhance the coherence and consistency of investment arbitration. States must use them consciously and with due respect for the rights of foreign investors. It is ultimately for adjudicators, on the one hand, to follow such interpretations with a view to establishing the proper meaning of the treaty, and, on the other hand, to ensure that amendments disguised as interpretations do not produce any retroactive effects.