Contract interpretation

In resolving disputes, treaty-based tribunals may need to ascertain the content of contractual provisions, or in other words, to interpret contracts. Contract interpretation appears as an integral part of the tribunals’ decision-making along with regular treaty interpretation and occasional statutory interpretation.

Despite its relevance and importance for treaty-based disputes, contract interpretation has received substantially lesser coverage in a plethoric scholarship in the field of investment treaty arbitration than treaty interpretation. Efforts are being spent to depict peculiarities of treaty interpretation whereas contracts are addressed mostly from the perspective of the interrelations between contract and treaty claims and interplay between various standards of investment protection and contractual rights.

A broad range of contract types may require interpretation in investment treaty arbitration: concession agreements,¹ lease agreements,² construction agreements,³ joint venture agreements,⁴ privatization agreements,⁵ contracts of sale⁶ and many others. In terms of contractual clauses, tribunals often have to deal with stabilization clauses,⁷ force majeure clauses,⁸ provisions on waiver or limitation of liability,⁹ termination clauses,¹⁰ exclusivity clauses,¹¹ renegotiation clauses¹² and various others.

The need to interpret contracts in investment treaty arbitration is not limited to occasions on the application of umbrella clause,¹³ although the standard, despite its continuous controversies, comes closer to contracts than any other standard of investment protection. Contract interpretation may be needed for the decision on the ultimate application of other standards of investment protection, like fair and equitable treatment¹⁴ and expropriation.¹⁵ Tribunals also may need to interpret contracts in order to decide on jurisdiction¹⁶ or to establish the amount of compensation.¹⁷

Unlike treaties, contracts do not have uniform international law rules for their interpretation. Articles 31-33 of the Vienna Convention on the Law of the Treaties do not apply to contract interpretation.¹⁸

Generally seen, tribunals reasoning on contract interpretation may fall in either of the two groups. In one group tribunals fail to consider municipal law¹⁹ applicable to a contract,²⁰ whereas in another group tribunals apply in one form or another municipal law to contract interpretation.²¹

Compelling reasons exist in support of the latter approach on the application of municipal law to contract interpretation. Firstly, treaty-based tribunals possess an implied and inherent power to interpret contracts. Secondly, contracts cannot be entirely isolated or disengaged from governing municipal law as they are not autonomous, nor application of the UNIDROIT Principles for International Commercial Contracts ensures their entire autonomy from the governing municipal law. Thirdly, differences exist as to how municipal laws regulate contract interpretation and, accordingly, it matters which municipal law rules are taken into account.

Contract interpretation as a part of a complex decision-making process in investment treaty arbitration shall be distinguished from the borderline analytical efforts in relation to contracts. An assessment of the ultimate effect of contractual provisions under public international law following the initial ascertainment of their content is not contract interpretation.²² Contract interpretation shall be also distinguished from the pure fact-finding analytical efforts.

Alexandrov, S.A., Breach of Treaty Claims and Breach of Contract Claims: Is It Still Unknown Territory?, in Yannaca-Small, K., (ed.), Arbitration under International Investment Agreements: A Guide to Key Issues, 2010.

Alexandrov, S.A. and Mendenhall, J., Breach of Treaty Claims and Breach of Contract Claims: Simplification of International Jurisprudence, in Rovine, A.W. (ed.), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers, 2014.

Chernykh, Y., Contract Interpretation in Investment Treaty Arbitration, International Litigation in Practice, Vol. 12, 2022.

Cordero-Moss, G., Conclusion: The Self-sufficient Contract, Uniformly Interpreted on the Basis of Its Own Terms: An Illusion, but not Fully Useless, in Boilerplate Clauses, International Commercial Contracts and the Applicable law, 2011.

Cordero-Moss, G., International Commercial Contracts: Applicable Sources and Enforceability, 2014.

Crawford, J., Treaty and Contract in Investment Arbitration, Arbitration International, 2008, pp. 351-374.

Douglas, Z., The International Law of Investment Claims, 2009.

Gordley, J., The Philosophical Origins of Modern Contract Doctrine, 1991.

Herbots, J.H., Interpretation of Contracts, in Smits, J.M. (ed.), Elgar Encyclopedia of Comparative Law, 2006.

Hepburn, J., Domestic Law in International Investment Arbitration, 2017.

Kjos, H.E., Applicable Law in Investor-State Arbitration: The Interplay Between National and International Law, 2013.

McLachlan, C., Shore, L. and Weiniger, M., International Investment Arbitration: Substantive Principles, 2^nd ed., 2017.

Sasson, M., Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International and Municipal Law, 2^nd ed., 2017.