Prospects for the institutional reform of investor-State dispute settlement (‘ISDS’) include superimposing an appellate mechanism onto the existing arbitration framework and, in the alternative, replacing that framework with a self-standing international court. While the latter option constitutes a more radical departure from the status quo, the former raises legal questions concerning the modification and potential breach of existing ISDS treaties. In particular, the ISDS model found in recent EU treaty texts (EU-Canada CETA, EU-Vietnam FTA, and draft Transatlantic Trade and Investment Partnership) raises the question of whether ICSID Members may establish an appellate mechanism inter se. This question’s importance extends beyond the EU model, as it concerns the broader feasibility of any appellate mechanism with multilateral aspirations. The authors consider that such modification is permitted by Article 41(1)(b) of the Vienna Convention on the Law of Treaties (‘VCLT’), under which Contracting States may agree to treaty modification inter se if:
the modification in question is not prohibited by the treaty and:
(i) does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations;
(ii) does not relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole.
Whereas the chapeau concerns an express textual prohibition, the respective conditions in sub-clauses (i) and (ii) encompass prohibitions which may be implied in the relationship betwee the modified provision and other aspects of the treaty. The three conditions must be satisfied cumulatively.
Recently, some have asserted not only that the chapeau of VCLT Article 41(1)(b) encompasses implied prohibitions, but also that ICSID Convention Article 53 prohibits modification inter se for the purpose of establishing an appellate mechanism (see Calamita, sec. II(2)). However, both the drafting history and commentaries regarding VCLT Article 41(1)(b) confirm that its chapeau concerns only express prohibitions on treaty modification. Indeed, were the chapeau of Article 41(1)(b) intended to cover implied prohibitions, sub-clauses (i) and (ii) would be redundant, having emerged stillborn from the ILC’s prolonged deliberations. As to ICSID Convention Article 53, as discussed below, it is far from clear that modification of this provision is even impliedly prohibited.
Express Prohibition in the Treaty: the Chapeau of VCLT Article 41(1)(b)
It is telling that a 1964 ILC draft of what would be the chapeau of Article 41(1)(b) included the phrase “expressly or impliedly prohibited” (p. 271, para 73), qualifiers which were eventually dropped in favour of the provision’s final text. In this context, Verdross stated at the ILC that “a prohibition could hardly be implied” (ibid., p. 272, para 81). The sole example of prohibited modification given in the 1966 Draft Articles Commentary is Article 20 of the 1908 Berlin Act for the Protection of Literary and Artistic Works, which clearly prohibits modification with certain characteristics (p. 235, para 2)
The Draft Articles listed the three conditions of Article 41(1)(b) separately, with the terms of the present-day chapeau appearing third. At the Vienna Conference, however, an amendment proposed jointly by Bulgaria, Romania, and Syria suggested shifting the third condition to the chapeau position, resulting in the final text of Article 41(1)(b). Viewing the proposal as logical and having the “further merit of underlining the primacy of the text of the treaty”, Mr. Bolintineanu for Romania submitted that “if the treaty prohibited such an inter se agreement, there was no occasion to examine the application of the other two requirements set forth in [the other two] sub-paragraphs” (p. 205, para 34). Mr. Strezov for Bulgaria also submitted that express allowance of modification (under Article 41(1)(a)) and prohibition under the chapeau of Article 41(1)(b) together “state the two outside limits”, while the two remaining sub-clauses “would define the conditions which the agreement must fulfil” (p. 206, para 37). Commentaries have since affirmed that the chapeau concerns clear textual prohibitions. Villiger concludes that such prohibition must be stated expressly, as implied prohibition may be derived from Article 41(1)(b)(ii) (p. 534, paras 6-7; see similarly Rigaux/Simon in Corten/Klein, p. 1001, para 30; Odendahl in Dörr/Schmalenbach, p. 724, paras 13-14).
The express terms of ICSID Convention Article 53, which provides that ICSID awards “shall not be subject to any appeal or to any other remedy except those provided for in this Convention”, appear to contain a rule from which disputing parties cannot depart, rather than one which Contracting States may not modify (see generally Parra, ‘The Limits of Party Autonomy in Arbitration Proceedings under the ICSID Convention’, ICC Bulletin 10(1)). This finds support in the broader context of Chapter IV, Section 6 of the Convention, which takes pains in provisions such as Article 54 to clearly direct specific enforcement obligations to Contracting States. The same conclusion arises through comparison to ICSID Convention Article 27(1) (“No Contracting State shall give diplomatic protection […]”) — a prohibition clearly and specifically directed toward Contracting States rather than disputing parties.
The foregoing confirms that the chapeau of VCLT Article 41(1)(b) is exclusively concerned with express prohibition in the treaty text, and that ICSID Convention Article 53 states no such prohibition. As initially canvassed in a report submitted by the Geneva Center for International Dispute Settlement to UNCITRAL (‘CIDS Report’) and explored further below, neither of VCLT Article 41(1)(b)’s sub-clauses suggest that the ICSID Convention impliedly prohibits a modification establishing an appellate mechanism inter se.
Implied Prohibition in the Treaty: Sub-Clauses (i) and (ii) of VCLT Article 41(1)(b)
In order to construe an implied prohibition of modification, the reader must interpret the treaty. However, as the objective of this interpretative task is not to determine the meaning of a treaty provision but rather to determine whether its modification is prohibited, this task must be guided by considerations beyond the general rule of interpretation (i.e., VCLT Articles 31-33). The conditions in Articles 41(1)(b)(i) and (ii) guide this interpretative task.
Apart from express prohibition in the ICSID Convention, modification thereof is also prohibited if it may be inferred that such modification would affect the enjoyment by other ICSID Members of their rights under treaty or performance of their obligations. This condition in VCLT Article 41(1)(b)(i) should be applied to the ICSID Convention in light of its status as a ‘reciprocal’ treaty. Unlike ‘absolute’ treaties such as human rights conventions—wherein effectiveness relies upon Members’ adherence to every provision—inter se modification of reciprocal treaties is presumed to not affect the rights and obligations of other Members (see Koskenniemi’s 2006 ILC Report, p. 159, paras 309-313; Rigaux/Simon, p. 1003, paras 35-37; Odendahl, p. 725, para 18). Because the establishment of an appellate mechanism by some ICSID Members would not impede other Members and nationals thereof from utilising the existing ICSID annulment regime, such modification inter se would not prejudice those third States under VCLT Article 41(1)(b)(i) (CIDS Report, para 241; see further Villiger, p. 534, para 8).
Pursuant to VCLT Article 34, a treaty establishing an appellate mechanism cannot itself impose burdens on third States. Thus the EU treaties discussed above (which purport to give rise to certain awards “under the ICSID Convention”) are incapable of creating enforcement obligations for ICSID Members — a situation which would hold true even if the EU were itself an ICSID Member.
Nevertheless, it is important to note that the conclusion or exercise of these EU treaties (or future agreements including similar language) does not itself amount to a breach of obligations under the ICSID Convention. Given that the apparent third-State obligation concerns only enforcement of appellate mechanism awards, only the act of compelling third-State enforcement as if these were awards “under the ICSID Convention” could amount to such a breach. Of course, the fact that these treaties cannot directly create such an obligation means that they are not capable of giving rise to a breach vis-à-vis third-State ICSID Members. The inclusion of this apparently ineffectual language in the EU treaties is thus legally significant only if it were so central to the conclusion of these treaties that its nullity renders the entirety of the treaties void ab initio — an inference unsupported by their terms and context.
Turning to VCLT Article 41(1)(b)(ii) — and recalling our above conclusion that the terms of ICSID Convention Article 53 do not prohibit treaty modification — we note that there is little basis to conclude that derogation from Article 53 is incompatible with the effective execution of the Convention’s object and purpose (see Bottini in Kalicki/Joubin-Bret, p. 459). Those who would look to ICSID Convention Articles 26 and 64 to draw the opposite conclusion conflate restrictions on specific capacities as disputing parties (as found in those provisions) and restrictions on treaty modification as Contracting States.
The truest reflection of the ICSID Convention’s object and purpose for treaty modification purposes is Article 1(2)’s statement that the Convention serves to facilitate dispute settlement between investors and States in an international forum. In this light, a treaty among some ICSID Members removing investment disputes to national courts could be viewed as regressive and incompatible with this object and purpose. The same could not be said of a treaty establishing an appellate mechanism, which maintains and arguably furthers the ICSID Convention’s aim of establishing a neutral international dispute settlement mechanism. Looking beyond the EU treaties — and perhaps the appellate mechanism as well — this neutrality objective would occupy the heart of any multilateral, multi-stakeholder ISDS reform, such as under the auspices of UNCITRAL (see A/CN.9/890 (paras 2, 20)).
Indeed, while we have concluded that this particular ICSID Convention modification inter se is permitted under the law of treaties, it is worth considering whether the legal intricacies of superimposing an appellate mechanism are preferable to replacing the existing arbitration framework with a self-standing international court (and applying the more straightforward denunciation provision in ICSID Convention Article 71). Given that either reform prospect might increase perceptions of ISDS neutrality — and noting that any envisaged international court model may include an appellate tier to increase perceptions of legal correctness and consistency — the difficulties of enforcing appellate mechanism awards “under the ICSID Convention” (as noted above regarding the EU treaties) are thrown into sharp relief.