1. Investments made by investors of one of the Contracting Parties in the territory of the other Contracting Party may not be expropriated or subjected to other measures of direct or indirect dispossession, total or partial, having a similar effect, unless such measures are:
(a) taken in accordance with a lawful procedure and are not discriminatory;
(b) accompanied by provisions for the payment of compensation, which shall be paid to the investors in convertible currency and without delay. The amount shall correspond to the real value of the investments on the day before the measures were taken or made public.
3. The provisions of paragraphs 1 and 2 are applicable to investors of each Contracting Party, holding any form of participation in any company whatsoever in the territory of the other Contracting Party.
1. Any dispute relating to the interpretation or the application of the present Agreement shall be settled, as much as possible, between the Contracting Parties by means of diplomatic channels.
2. Failing settlement by such means, the dispute shall be submitted to a mixed Commission, composed of representatives from the Contracting Parties. This commission shall meet without delay, at the request of one or other of the Contracting Parties.
3. If the dispute cannot be settled in this manner within a period of six months from the date of the start of negotiations, it shall be submitted to an arbitral tribunal, at the request of one of the Contracting Parties.
1. Disputes between one of the Contracting Parties and an investor of the other Contracting Party concerning compensation due by virtue of Article 3 Paragraphs (1) and (3), shall be the subject of a written notification, accompanied by a detailed memorandum, addressed by the investor to the concerned Contracting Party. To the extent possible, such disputes shall be settled amicably.
2. If the dispute is not resolved within six months from the date of the written notification specified in Paragraph (1), and in the absence of any other form of settlement agreed between the parties to the dispute, it shall be submitted to arbitration before an ad hoc tribunal.
... to strengthen their economic cooperation by creating conditions favourable for the making of investments by the investors of one of the Contracting Parties in the territory of the other Contracting Party …
[d]isputes between the Contracting Parties and an Investor of the other Contracting Party concerning compensation due by virtue of Art.3 paragraph (1) and (3) of the Treaty'. (emphasis added).
In short summary, the Czech Republic contends that the Tribunal's jurisdiction is limited to disputes as to the amount of compensation to be paid to an investor following expropriation; in other words, it is limited to issues of quantification. EMV contends that the Tribunal is conferred with jurisdiction to make an award of compensation following expropriation; in other words, the jurisdiction extends not simply to the amount of compensation, but to whether compensation should be paid to the investor.
It would seem to exclude from that jurisdiction any claim for relief other than compensation (e.g. a claim for restitution or a declaration that a contract was still in force).
The Czech Republic criticises this conclusion as short on reasoning and unsupported by authority. EMV submits that the Tribunal's conclusion was correct and fully justified both on analysis and authority.
i) The Treaty was signed by the Czechoslovak Socialist Republic in 1989 before the political changes which brought about democratic elections and market reforms. It was the policy of Communist States at the time to agree to arbitration with private investors in relation to disputes as to the amount of compensation following expropriation. The wider agreements to arbitrate with investors, which are now usual in modern Bilateral Investment Treaties ('BITs') were avoided by Communist States as impermissible intrusions on their sovereignty. During sessions of the Belgian Parliament dealing with the incorporation of the Treaty into Belgian law, the policy of the Czechoslovak Socialist Republic was expressly acknowledged on behalf of the Belgian Government; and the fact that it was reflected in the terms of Art.8 of the Treaty was recognised by the Belgian Senate. Following the political changes which led to the ending of Communist power in Czechoslovakia, the Czech Republic adopted consent to arbitration in wide terms: for example, consent regarding ' any disputes arising out of an investment' and 'all investment disputes '.
ii) The circumstances in which the Treaty was concluded show an intention to confine the right to arbitrate in Art.8 to disputes about the level of compensation to be awarded.
iii) The terms of Art.7 of the Treaty provide the mechanism for dispute resolution and were intended to apply to the determination of liability in a case of expropriation of the investment. The usual considerations of diplomatic protection would apply to any resort to Art.7 and, for this reason, was more acceptable to the Czechoslovak Socialist Republic at the relevant time. It is unnecessary for liability for an expropriation under Art.3 to be actionable before an arbitral tribunal constituted pursuant to Art.8 in order to give effect to Article 3. First, Art.3 is actionable before an arbitral tribunal constituted pursuant to Article 7. Secondly, since the Treaty has direct effect in the municipal law of the Czech Republic, an investor can challenge the legality of any State expropriation in the municipal courts.
iv) The terms of Art.8(1) of the Treaty confirm the limited scope of the Contracting Parties' consent to arbitration. If the Contracting Parties had intended that an arbitral tribunal constituted under Art.8 should have jurisdiction to determine the liability of a Contracting Party for an expropriation, the words 'compensation due by virtue of ' would have been omitted.
i) The object of the BIT was the promotion and protection of investments. This was achieved by providing direct rights between investors and host States. A key element of effective protection was the provision of a direct and effective right to arbitrate.
ii) There was no immutable policy of the Czechoslovak Socialist Republic to confine Arbitration Agreements to the amount of compensation to be paid. This may have been the position from which negotiations began; but it was not always the position where negotiations ended. The background material relied on by the Czech Republic did not throw any significant light on the proper interpretation of Art.8.
iii) Art.7 did not assist in the interpretation of Art.8 since it was concerned with different issues: disputes which might arise between the Contracting Parties. Such issues were susceptible to settlement by customary diplomatic means, whereas Art. 8 was expressly concerned with disputes between a Contracting Party and investors from the other Contracting Party. There was no reason to approach the construction of Arts.3, 7 and 8 on the basis that the primary route to settlement of a dispute was intended to be by diplomatic means. On the contrary, the underlying commercial intent was that BITs were intended to provide directly enforceable rights to investors.
iv) Although it was common ground that the terms of Art.8(1) of the Treaty confined the agreement to arbitration, the Contracting Parties had used a phrase ' concerning compensation due by virtue of' the expropriation provisions contained in Art.3(1) and (3) ' which was very much wider in ambit than was found in other BITs. As a matter of ordinary meaning the phrase encompassed direct and indirect expropriation, both as to the nature and amount of compensation and whether any compensation was due pursuant to Art.3(1) and/or (3).
It is now well-established that a challenge to the jurisdiction of an arbitration panel under section 67 proceeds by way of a re-hearing of the matters before the arbitrators. The test for the court is: was the tribunal correct in its decision on jurisdiction? The test is not: was the tribunal entitled to reach the decision that it did.
Article 31 General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.
It will be necessary to consider the terms, ' ordinary meaning ' and ' object and purpose ' later in this judgment.
Article 32 Supplementary means of interpretation
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.
One method (and perhaps the one that has the most direct natural appeal) is to ask the question, 'What did the parties intend by the clause?' This approach has, however, been felt to be unsatisfactory, if not actually unsound and illogical, for a number of reasons...
One of the reasons that the approach is unsatisfactory is that,
It ignores the fact that the treaty was, after all, drafted precisely in order to give expression to the intentions of the parties, and must be presumed to do so. Accordingly, this intention is, prima facie, to be found in the text itself, and therefore the primary question is not what the parties intended by the text, but what the text itself means: whatever it clearly means on an ordinary and natural construction of its terms, such will be deemed to be what the parties intended.
Another reason is that
... the aim of giving effect to the intentions of the parties means, and can only mean, their joint or common intentions... This means that, faced with a disputed interpretation, and different professions of intention, the tribunal cannot in fact give effect to any intention which both or all the parties will recognise as representing their common mind.
... the 'intentions' of the parties may never have crystallised or been formulated beyond a certain point. Every lawyer knows that the parties to a contract contemplate only performance; they enter into the transaction with optimism, and do not ordinarily advert to the problems raised by, for example, frustration. The courts pretend that the parties intended what they, the court, believe they would have intended had they reflected on the matter. It is clear, then that 'intention' is very often a fiction, and even when there was a conscious intention the words designed to be expressive of it may not be particularly helpful for this purpose. The same is true of treaty interpretation with the added difficulty that the parties may never really have wanted to come to an agreement and may have deliberately left the area of operation of the treaty opaque.
... a dispute as to treaty interpretation arises only when two or more parties place differing constructions upon the text; by doing so they are in reality professing differing intentions in regard to that text and, of necessity, professing to have had differing intentions from the very start. If this is the case, there can be no common intentions of the parties aside or apart from the text they have agreed upon. The text is the expression of the intention of the parties; and it is to that expression of intent that one must first look.
The object and purpose of the BIT supports an effective interpretation of Article X(2) [the "umbrella clause" of the Philippines-Switzerland BIT].
The BIT is a treaty for the promotion and reciprocal protection of investments. According to the preamble it is intended 'to create and maintain favourable conditions for investments by investors of one Contracting Party in the territory of the other'. It is legitimate to resolve uncertainties in its interpretation so as to favour the protection of covered investments
We accept Mr Greenwood's submission that the object and purpose of a BIT (including this BIT) is to provide effective protection for investors of one state (here OEPC) in the territory of another state (here Ecuador) and that an important feature of that protection is the availability of recourse to international arbitration as a safeguard for the investor. In these circumstances it is permissible to resolve uncertainties in its interpretation in favour of the investor: see eg the views of the arbitrators in para 116 of their award in SGS Societe Generale de Surveillance SA v Republic of the Philippines (2004) 8 ICSID Reports 515.
There is... the risk that the placing of undue emphasis on the object and purpose of the treaty will encourage teleological methods of interpretation. The teleological approach. in effect is based on the concept that, whatever the intentions of the parties may have been, the convention as framed has a certain object and purpose, and the task of the interpreter is to ascertain that object and purpose and then interpret the treaty so as to give effect to it.
i) At the time the Treaty was signed by Czechoslovakia (on 24 April 1989) the Communist Government was still in power. The Czechoslovak Socialist Republic (like other Communist States) objected to any interference by Capitalist States in its internal affairs. The preference of Western States for binding third party dispute settlement procedures was seen as intrinsically linked to such interference; and Communist States insisted that disputes with foreign parties were submitted to domestic courts. BITs between Communist and non-Communist States very frequently, if not invariably, limited the ambit of the arbitration clause. Thus in the period 1989-1990 the arbitration provisions in BITs to which the USSR was a party were limited to disputes concerning the amount or method of calculating compensation to be paid following an expropriating act.
ii) After the fall of Communist power in Czechoslovakia, the successor States, the Czech and Slovak Federal Republics, reversed the policy and signed BITs which did not limit the jurisdiction of independent arbitration tribunals. From this time the consent to arbitration between the investor and the State was generally expressed in the widest possible terms such as 'any dispute arising out of an investment' or 'all investment disputes'. Thus, of the 68 BITs signed by the Czech and Slovak Federal Republic and then the Czech Republic after the fall of Communism, 65 of them record the Contracting State Parties' consent to investor/State arbitration in broad terms.
i) The Explanatory Statement dated 2 April 1990 in the Belgian Parliamentary Record. For international treaties to have effect under Belgian municipal law, they must be approved and adopted as law by the Belgian Parliament (House of Representatives and Senate). A contemporaneous official record of the sessions of the Belgian Parliament on the ratification of the Treaty stated that the Czechoslovak Socialist Republic had succeeded in extracting concessions from the Belgian-Luxembourg Economic Union to reflect its Socialist policy at the time. One of the concessions related to a departure from the Model BIT of the Belgian-Luxembourg Economic Union , in relation to the dispute resolution mechanism in the Treaty. The Record of the Session of the Chamber of Deputies of the Belgium Parliament, dated 2 April 1990, noted that
At the beginning of the negotiations however, three specific points had revealed some divergences of opinion between the two delegations.
The third divergence of opinion was as to the 'scope' of the submission to arbitration and the 'procedure' for arbitration in Article 8 of the Treaty. On this the Record of the Session notes:
There exists a divergence of opinion between the delegations more with regards to the field of applications than as to the procedure. The Czechoslovaks were not accepting at the beginning of the negotiations the idea that 'the State' should be subject to an international arbitration. Nevertheless, after examining similar agreements with other countries from the East, the concept of an 'ad hoc' arbitration has been accepted.
ii) The 6 December 1990 Belgian Parliamentary Record. The relevant record of the Belgian Parliament reads:
The Minister calls the Bill under discussion as the confirmation of a typical bilateral investment treaty. It is true that the treaty itself was concluded with Czechoslovak Republic, which was at the time 'Socialist'. The qualifying adjective 'Socialist' has in the meantime been replaced by 'Federal' and 'Czechoslovak' by 'Czech-Slovak'. A certain continuity is however necessary in interstate relations.
The commissioner notes that the treaty under discussion contains a certain amount of exceptions to the normal provisions generally found in these types of treaties. According to the explanatory report, these exceptions are due to the objections from the Czechoslovak side, which were in turn attributable to the regime which at that time was still communist. Since then, the Czech and Slovak Republic is no longer a communist regime. The petitioner asks whether in the circumstances such exceptions still make sense.
The Minister states that the derogations to the usual protection are minimal. They are limited to the following:
(1) Recourse to international arbitration is limited to disputes relating to compensation due in the event of expropriation (Article 8);
... The petitioner ends the discussion by asking if it would not be desirable to remedy the imperfections existing in the treaty under discussion and a few others concluded with previously communist States by an additional treaty which would this time correspond perfectly to normal practice on this point as between Western countries.
The Minister considers that it is indeed desirable.
Lord Brennan QC submitted that this passage shows that Article 8(1) of the Treaty was recognised as a departure from the Model BIT of the Belgian-Luxembourg Economic Union Model which was insisted upon by the Communist Regime in power in Czechoslovakia when the Treaty was signed. Mr Landau submitted that while the Minister is reported to have stated that the derogations from the usual protections were 'minimal', the derogations for which the Czech Republic contends were significant given the impact on the effectiveness of Art.3.
iii) The Record of the Federal Assembly of the Czech and Slovak Federative Assembly on September 18, 1990. This shows that the Minister was advising the Assembly that the Treaty was similar to other BITs entered into under the Communist Regime. There had been suggestions that the Treaty was too narrow in the light of political developments since the negotiations and that it should be cancelled prior to ratification.
However, the Belgian party is interested in immediate ratification of the Agreement as it was concluded, it does not want to reopen the whole complex process of internal (sic) negotiations.
Upon considering all circumstances, it has been proposed that the Czechoslovak side agrees with implementing the issues of diagonal disputes in the agreement. However, it is necessary to enforce that the relevant article is of the agreement is formulated in such manner so that this agreement does not interfere with the fundamental rights of a sovereign country (namely the right of a country to limit or to interfere with assets located within its sovereign territory in compliance with the law).
In the event of any dispute between the investor and the State pertaining to the amount of compensation for intervention with property rights [emphasis added].
The same document also shows that the negotiations in relation to Art 8 were difficult and that Czechoslovakia had been unable to maintain its intended position.
Czechoslovakia had to take a more flexible approach to so-called diagonal disputes, i.e. disputes between an investor and the State on whose territory the investment was made.
... the contents of BITs vary greatly: as much as any individual country might like to impose its own idea of a standard BIT, the varying negotiating strength of the other side has the effect of rendering most countries' portfolios of BITs quite heterogeneous... in particular, the scope of and nature of third party access to international arbitration through BIT mechanisms are so different from one BIT to the next that one cannot speak of a dominant practice: each BIT must be examined on its own.
... must be given independent meaning derivable from the sources mentioned in articles 31 and 32 and without taking colour from distinctive features of the legal system of any individual contracting state. In principle therefore there can only be one true interpretation of a treaty.
The terms of the treaty must be interpreted according to the meaning which they possessed, or which would have been attributed to them, and in light of current linguistic usage, at the time when the treaty was originally concluded.
i) whether there has been an 'expropriation';
ii) whether there have been 'other measures';
iii) whether such measures are 'taken in accordance with a lawful procedure and are not discriminating';
iv) whether the measures are 'accompanied by provisions for the payment of compensation';
v) whether the payment of compensation is 'paid to the investor is convertible currency and without delay'; and
vi) whether the amount of compensation 'corresponds to the real value of the investment... ’?
In addition, the reference to Article 3(3) may involve the question whether or not an investor holds 'any form of participation in any company... in the territory of the other Contracting State'.
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