Cooling-Off Periods

“Cooling-off periods” (also called “Waiting periods”) are features of International Investment Agreements which require the investor to abstain, for a specified period, from initiating arbitration proceedings against a host State and to attempt to settle the alleged dispute amicably. The obligation to attempt settling the dispute amicably has been described in itself as an obligation of means instead of an obligation of result, implying good effort negociations from both parties.¹ Other tribunals have however upheld less stringent standards.²

Around 90% of all investment treaties (including Bilateral/Multilateral Investment Treaties and Free Trade Agreements with investment chapters) are estimated to contain clauses imposing a cooling-off period on investors.³ Such clauses may also be found in national investment laws.⁴

Although they are a common feature of BITs, cooling-off periods can vary significantly in duration. The most common duration is 6 months,⁵ although periods ranging from 60 days⁶ to 24 months⁷ may be found. Periods shorter than 6 months are more common than cooling-off periods of a longer duration.⁸

The cooling-off period often begins when an investor sends a written notification of the existence of a dispute to the host State, commonly referred to as a trigger letter.⁹ Other, less formal triggers for the cooling-off period, however, have been accepted by the tribunals in the past.¹⁰ Tribunals have held that where a BIT requires investors to send a formal notice of the dispute, the cooling-off period should be calculated from the date of the notification and not the date of the alleged breach of the treaty.¹¹ Tribunals have also held that formal notifications must detail the existence and nature of the dispute in sufficient detail and cover all claims the investor expects to make, so as to give the parties a realistic picture of the matter before them and enable them to reach a negotiated settlement.¹² The cooling-off period typically cannot be waived but there have been exceptions.¹³ A Most Favoured Nation clause has however been used in the past to circumvent the requirement of a cooling-off period.¹⁴ Moreover, a showing of futility may obviate the need to observe the cooling-off period.¹⁵

Furthermore, the running of the cooling-off period does not bar an application for emergency measures,¹⁶ subject to a showing of futility of the waiting.¹⁷

Four main views have been taken on the consequences of an investor’s failure to comply with a clause providing for a cooling-off period:

1. The first interpretation views such clauses as hortatory, which do not create a legal obligation to pursue alternative routes for dispute resolution, in particular negotiations. In classifying cooling-off periods as “procedural and directory, rather than jurisdictional and mandatory”,¹⁸ this view allows investors to ignore any notice requirements and directly commence arbitration when a dispute arises, without risking any adverse consequence.¹⁹ This approach is however fact specific and depends on the circumstances of each case.²⁰ Commentators consider it to be the most widely adopted interpretation of such clauses.²¹
   
   
2. The second interpretation views compliance with the cooling-off period as one of the investor’s legal obligations.²² This interpretation considers failure to comply with the cooling-off requirement as resulting in the tribunal’s lack of jurisdiction²³ as it interferes with the consent of the contracting parties to the applicable investment agreement.²⁴ According to this interpretation, an investor can successfully file a request for arbitration without exhausting the entire cooling-off period only if its attempts to negotiate are clearly and unequivocally rebuffed²⁵ or if any attempt to negotiate would have necessarily been futile in the circumstances.²⁶ This position is roughly similar to the International Court of Justice’s reasoning in the context of other public international law instruments. When applying the Convention on the Elimination of all Forms of Racial Discrimination (“CERD”), for instance, the ICJ held that failure to observe a mandatory negotiation period by the parties could deprive it of jurisdiction over that case.²⁷ It also held that such negotiations must involve a genuine attempt from both sides to amicably resolve the dispute.²⁸
   
   
3. As part of the third interpretation, several tribunals maintain that the requirement of the cooling-off period is a matter of admissibility rather than jurisdiction. Failure to comply with the cooling-off period therefore may be cured and the claim may be resubmitted with no adverse jurisdictional consequences for such resubmitted claim.²⁹
   
   
4. The fourth interpretation adopts a middle path, considering cooling-off periods as a contractual obligation to negotiate. Consequently, if a failure to comply with this requirement does not affect the tribunal’s jurisdiction, it nonetheless creates a possibility for the investor to be liable for damages or for the damages claimed by the investor to be reduced in the award.³⁰ This interpretation has not been tested in practice yet and is currently limited to an academic discussion originated in international commercial arbitration practice.³¹
   

Akhman, A., Consent to Submit Investment Disputes to Arbitration under Article 26 of the Energy Charter Treaty, International Arbitration Law Review, 2007, p. 61.

Ganesh, A., Cooling-Off Period (Investment Arbitration), Max Planck Institute Luxembourg for Procedural Law, 2017.

Born, G. and Šćekić, M., Pre-Arbitration Procedural Requirements: ‘A Dismal Swamp’, in Caron, D. and Others, Practising Virtue: Inside International Arbitration, 2015.

Schreuer, C., Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses and Forks in the Road, Journal of World Investment and Trade: Law, Economics, Politics, 2004, pp. 231-256.

Baltag, C., Not Hot Enough: Cooling-Off Periods and the Recent Developments under the Energy Charter Treaty, Indian Journal of Arbitration Law, 2017, pp. 190-196.

Deutsch, R., An ICSID Tribunal Denies Jurisdiction for Failure to Satisfy BIT’s Cooling-Off Period: Further Evidence of a Sea-Change in Investor-State Arbitration or a Meaningless Ripple?, Houston Journal of International Law, 2011, p. 590.

Chapman, S., Multi-Tiered Dispute Resolution Clauses: Enforcing Obligations to Negotiate in Good Faith, Journal of International Arbitration, 2010, p. 89.

von Kumberg, W. and Others, Enabling Early Settlement in Investor-State Arbitration: The Time to Introduce Mediation Has Come, ICSID Review-Foreign Investment Law Journal, 2014, pp. 1-9.