Uses and abuses of authentic interpretations of international investment agreements: Reflections on the role of arbitral tribunals as masters of the judicial function

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In their previous posts, Catharine Titi and Tarcisio Gazzini discussed some general aspects concerning authentic (joint) interpretations of international investment agreements. They brilliantly clarified aspects concerning the timing of joint interpretations as well as the murky difference between interpretations and amendments of investment treaties. This post will not delve into what was already explained by my distinguished colleagues, but will focus on the – often distorted – effects of authentic interpretations on ongoing investment disputes.

Both Professors Titi and Gazzini seem to accept the possibility that a subsequent authentic interpretation is binding upon established arbitral tribunals if the relevant treaty so disposes. In this regard, Prof. Gazzini also adds that – even in presence of an authentic interpretation which does not clarify its effects on pending disputes – an arbitral tribunal can hardly depart from it, unless the authentic interpretation disguises an amendment of the applicable treaty (something that, as rightly noted by the author, is prohibited by the customary principle tempus regit actum). Indeed, in Gazzini’s opinion, “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”. Similarly, other authors already affirmed that states are the masters of treaties in international law and that, as a consequence, they have in principle the power to interfere with ongoing disputes (see Marotti).

In this author’s own opinion, however, an approach which better balances the interests of both the parties of investment disputes should be considered. In this regard, we should start from the assumption that, when an investment dispute is started, the litigating parties do not coincide with the parties of the relevant investment treaty. According to the well-known mechanism of arbitration without privity, when the offer to arbitrate contained in the BIT is accepted through the investor’s commencement of arbitration proceedings, a new, implied, arbitration agreement is formed between the investor and the host State. This agreement constitutes the legal basis of the jurisdiction of arbitral tribunals, whose task is to solve the dispute between the investor and the state (and not between the states who drafted the relevant investment treaty).

On this premise, it is necessary to consider that, once an arbitral tribunal is established, it exercises the judicial function in the interest and as an instrument of the disputing parties. Third parties, including the party(ies) of the relevant investment agreement not involved in the dispute, are not free to influence the work and agenda of an adjudicating body which has been created through a manifestation of consent by the investor and the disputing state. We can, in this regard, recall the opinion of who affirmed that the judicial function in investment arbitration involves certain inherent limits for states which are external to the dispute (Marotti, L’interpretazione autentica dei trattati in materia di investimenti, Diritto del commercio internazionale, 2018, p. 651 ff, p. 678 ff.).

The 1969 Vienna Convention of the Law of Treaties, dictating that authentic interpretations shall be taken into account by adjudicators (i.e. they are one among various factors to be considered in the interpretation of international treaties), does not preclude this approach. “Taking into account”, indeed, means that a tribunal must consider what the treaty parties stated in their joint interpretation, but is nevertheless not bound by it. The circumstances of the case may well require that an independent judicial body, which has to do justice between the disputing parties, departs from the authentic interpretation and take a different decision (see the International Law Commission Draft Conclusions on Subsequent Agreement and Subsequent Practice in Relation to the Interpretation of Treaties, Commentary to the Conclusion 3, para. 4; see also, more generally, Palombino p. 143 ff.). This possibility obviously implies a significant effort by arbitrators in motivating their decision, but – in this author’s opinion – is perfectly allowed by general international law.

The problem therefore moves to the cases where the parties of the treaty expressly state that any authentic interpretation is “binding” on the disputing parties and on adjudicators dealing with the treaty provisions which were the object of the authentic interpretation.

There is obviously no issue when the word “binding” expressly refers to interpretations taking place in future disputes. In these cases, States are free to dictate interpretations of the relevant treaty and even to amend it. Here, states are legitimately making use of their power to issue authentic interpretations and to amend existing treaties.

The situation, however, is different when the treaty is silent on the temporal effects of the authentic interpretation, which might therefore interfere with ongoing disputes (i.e. either already brought before arbitrators or still at a pre-arbitration stage). As an example of this kind of provisions, it is possible to mention Art. 9.24 of the 2015 Korea-Vietnam FTA, stating that interpretations issued by the treaty’s Joint Committee “shall be binding on a Tribunal” and that awards “shall be consistent with that interpretation”. In these circumstances, arbitrators should balance the investors’ legitimate expectation to see the dispute governed by the law as existing when the dispute arose with the states’ freedom to issue authentic interpretations of the treaty text (on the nature of legitimate expectations – which are protected by a general principle of international law – see Palombino, p. 85 ff.). The necessity to carry out such a balancing process is the reason why the “taking into account approach” as outlined above is to be welcomed: indeed, it allows arbitrators to duly consider the authentic interpretation, while giving them freedom to depart from it on the basis of the circumstances of the concrete case. This approach also fosters the rule of law (to be here intended as legal certainty), which is to be considered, at least in fieri, as an inherent feature of the international legal system (see Savarese).

In light of the above, it is also possible to criticize some recent treaty provisions concerning authentic interpretation, such as Art. 24.2 of the 2019 Netherlands Model BIT and the 2017 Indian Bangladesh Joint Interpretative Notes (see para. 3 concerning the interpretation of art. 9 of the 2009 India-Bangladesh BIT), both asserting that authentic interpretations bind all the tribunals established after the issuance of the authentic interpretation. Actually, this approach may allow an authentic interpretation to affect disputes already arisen but in which the arbitral tribunal has not been constituted (it is sufficient to think about a dispute which is at the “cooling off” stage but will be reasonably brought before an arbitral tribunal). In this case, as well as in all cases where states enact treaties to be retroactively applied to existing disputes, one may argue that the correct exercise of the judicial function and the respect for the principle of legal certainty may authorize tribunals to disregard retroactive authentic interpretations.

Hence, it is possible to affirm that, in all the cases where states are trying to affect the outcome of an existing dispute through a retroactive authentic interpretation – regardless of the fact that this dispute was already brought before an arbitral tribunal – they are abusing of their power to issue such interpretations. As a consequence, arbitral tribunals – in their autonomous exercise of the judicial function and in compliance with the taking into account approach – are free to disregard the authentic interpretation and to decide in accordance with their interpretation of the treaty text as existing when the dispute arose. It could be objected that – by applying this approach – we would treat all authentic interpretation as forms of (precluded) retroactive amendments. However, as Prof. Gazzini noted in his blogpost, “distinguishing interpretations from amendments of the treaty may be extremely difficult”. This is not by chance: when states perceive the necessity to issue an authentic interpretation, this is because a treaty provision is open to more than one meaning. As a consequence, in presence of an open-ended wording, an arbitral tribunal is free to decide according to one of these interpretations. The goal of an authentic interpretation provision is exactly to limit this freedom of choice (most likely precluding pro-investors interpretations). Hence, for the purpose of existing disputes, authentic interpretations may radically change the ways in which a treaty could have been applied; thus somehow working as amendments of the existing treaty.

In conclusion, if we accept, as my distinguished colleagues do, that retroactive amendments of investment agreements are forbidden, we should also accept that retroactive authentic interpretations of investment treaties (shall be taken into account but) are not capable of finally determining the outcome of ongoing disputes. Indeed – in compliance with the taking into account approach – tribunals may depart from them on the basis of the concrete circumstances and in the interest of justice, avoiding abuses and fostering legal certainty.

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Koagne Zouapet Apollin says

August 28, 2020

I wonder about the real room for manoeuvre of the arbitrators even in the hypothesis of an authentic interpretation occurring after the dispute has arisen. If one accepts on the one hand that the purpose of interpretation is to seek the intention of the parties to the treaty text, and on the other hand that the authentic interpretation given is plausible, then how could the arbitrator rule out such an interpretation without in fact substituting his/her intention for that of the parties clearly expressed. As Professor Zarra acknowledges, the parties provide an authentic interpretation when more than one interpretation is possible, and they intend to set aside the other competing interpretations in order to restore, one may reasonably assume, the intention that was theirs at the time of the conclusion of the treaty. What, then, would be the arbitrators’ motivation for rejecting this interpretation? How could they argue that this was not the original intention of the parties as long as the interpretation given is plausible and not unreasonable? In such a hypothesis, my impression is that the arbitrator can only set aside the authentic interpretation if it is in bad faith (which arbitrator would have to demonstrate) and manifestly unreasonable (in that it would be an amendment rather than an interpretation of the text), or if it comes late (i.e. after the close of the proceedings and during deliberation). Apart from these hypotheses, it will be difficult for the arbitral tribunal to depart from the authentic interpretation, without substituting its will for that of the parties.

Giovanni Zarra says

August 31, 2020

Dear Colleague,
Thank you for your comment. Actually, as far as I understand, the 1969 VCLT sets forth an objective method of interpretation of international treaties. This means that what arbitrators have to look for is the parties' intention as it emerges from the treaty and not as presumed by the parties.
In presence of an authentic interpretation aimed at retroactively changing the possible interpretations of a treaty, the parties are also retroactively changing what objectively emerged from the treaty (i.e. they are de facto amending its scope of application). As I explained in the blog, this is - in my opinion - not acceptable (especially if we reason from a "rule of law" perspective).
Kind regards,