While the international framework for the protection of foreign investments essentially takes the form of bilateral or multilateral investment treaties concluded among States, foreign direct investments are often made in the form of direct contractual arrangements between the private investor and the host State’s relevant agency or State-owned company. As such, one same investment may lead to claims of different nature, either contract-based, or treaty-based.
The distinction between treaty claims and contractual claims in investment law was first noted in the Decision on Annulment in the Vivendi v. Argentina I case, where the ad hoc committee observed that “whether there has been a breach of the BIT and whether there has been a breach of contract are different questions”.1 Subsequent tribunals have followed this approach.2
II. Jurisdiction of investment tribunals over contract claims
A. No jurisdiction over pure contract claims
In other words, an investment tribunal has jurisdiction only in the case where claimant’s claims arise out of a BIT.5 In this sense a tribunal concluded in a recent award that a contract breach is unlikely to be sufficient to retain a breach of the treaty, “and the State would have to have acted in its sovereign capacity” for a claim to arise under the respective BIT.6 In another case, the tribunal decided that it had no jurisdiction given that claimant’s claim was a simple contractual claim “dressed up as a Treaty case” that had already been decided in a previous arbitration between the same parties by a tribunal whose jurisdiction, contrary to the second tribunal, encompassed treaty claims, but also contractual claims.7
B. Sources of jurisdiction over some contract claims
1. Umbrella clauses and fork-in-the-road clauses
Umbrella clauses are treaty provisions allowing tribunals to have jurisdiction over investors’ claims based on the failure by the host State to comply with its contractual undertakings. By contrast, fork-in-the-road are triggered by investors having filed a claim before a domestic court when there is an identity of cause of action between the two actions, which may require the tribunals to distinguish between contract and treaty claims.
2. Broad treaty dispute resolution clauses
A BIT’s dispute settlement clause could incorporate jurisdiction of the arbitral tribunal over disputes arising from a breach of contract, irrespective of whether the alleged breach of contract simultaneously constitutes a breach of the BIT by means of, for instance, a broadly worded dispute resolution clause that would refer to “all disputes concerning investments”.8 In such a circumstance, the arbitral tribunal would likely have jurisdiction not only over the treaty claims but also over contract claims in light of such all-encompassing consent clause contained in the BIT.9
C. Consequences of the availability of a contractual remedy
There may also be questions of fact as to whether there is a contractual remedy available. In the Vivendi v. Argentina I Annulment proceedings, the tribunal noted that where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the contract.10
This seems to be the current trend. Following the decision in the Vivendi v. Argentina I Annulment proceedings, numerous tribunals held that in cases where the contract between the investor and the State contains a forum selection clause, such a forum clause does not deprive the tribunal of its jurisdiction to hear claims for the breach of treaty.11 Additionally, the said clause does not deprive the tribunal’s jurisdiction to interpret the contract in determining whether or not a breach of the BIT has occurred.12
Gary Born’s dissenting opinion in Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania further noted that an investment tribunal has the authority of deciding claims under a BIT and under international law, while the national court or commercial arbitral tribunal has the mandate of deciding claims under the applicable national law and the parties’ contractual agreement(s).13
More recently, the tribunal in Malicorp v. Egypt cited SGS v. Philippines, Joy Mining v. Egypt, and LESI v. Algeria, in order to conclude that the protection of an investment treaty does not necessarily cover purely contractual claims where the parties to the contract have agreed to another clause granting jurisdiction, provided the parties are the same.14
III. Main criteria of distinctions between contract and treaty claims
To determine whether the claimant is bringing contract or treaty claims, the ad hoc committee in Vivendi I ruled that the tribunal must consider the fundamental basis of the claimant’s claim.15 Following the Vivendi I decision, several trends dealing with the distinction between treaty and contract claims have emerged. Practitioners and tribunals have suggested a distinction between treaty and contract claims based on five criteria which are not cumulative. Different tribunals have taken distinct approaches, but at least some of these criteria are present in most decisions:16
IV. Breaches of contracts amounting to breaches of treaties
Practitioners may also be required to assess when a breach of contract constitutes a breach of treaty.23 It is noteworthy that there is no uniform case law providing for circumstances in which a breach of contract would be considered as amounting to a treaty breach. On the one hand, tribunals have considered that typical contract breaches shall not be deemed to be a treaty violation,24 while on the other hand, tribunals have also considered that contractual rights are protected in the context of the standard of fair and equitable treatment.25
Claims for breach of contract and treaty claims are juridically two different types of claims and remain so even where both arise out of the same factual circumstances.26 In a case where the investor has a right under both the contract and the treaty, it has a self-standing right to pursue the remedy accorded by the treaty.27 Yet, not every violation of a contract entered into by a State with an investor of another State is by itself a violation of international law standards,28 and therefore of a treaty.
Another consideration may include the relevance of the exercise of sovereign State power in contractual performance. Tribunals faced with claims for a contractual breach have considered that a standard of protection under a BIT will only be breached if the host State had acted in the exercise of governmental and sovereign authority.31 For instance, one tribunal found that the revocation of an operating license can qualify as a treaty claim rather than a contract claim at the jurisdictional phase32 (even if one arbitrator disagreed with the majority’s reasoning33).
V. Contractual matters taken into considerations by tribunals
Questions may also arise as to consideration of contract matters by tribunals. It has been noted in multiple awards that arbitral tribunals are sometimes called to distinguish between “deciding” issues relating to the conclusion, performance and termination of a contract (which is beyond the jurisdiction of the tribunal, unless the contract breach is also a breach of the treaty) and “taking into consideration” the facts surrounding the conclusion, performance and termination of such contract in order to decide the treaty claims submitted to the tribunal.34
For example, in the Biwater Gauff award, the tribunal clarified that it did not make determinations on specific contractual issues that were “not necessary to be decided as ingredients of the treaty claims”, but it has “taken into consideration facts concerning the contractual relationship” in order to reach its decision.35 In two other cases, the tribunals found it important to state that their jurisdiction is limited to treaty claims, but that in order to make decisions on such claims the arbitrators would have to consider contract matters “to the extent necessary to rule on the treaty claims”.36 However, both tribunals emphasized that in doing so they would continue to exercise “treaty not contract jurisdiction”.37
VI. Contracts as investments
Occasionally questions may arise as to whether a contract can be considered a protected investment. Generally, a sale and purchase contract can be considered an investment protected by a BIT only if it meets the requirements of the definition of “investment” as envisaged in the BIT.38
VII. Changing the content of the contractual rights
Questions may also be raised as to whether the scope of the contractual rights can be changed by the operations of a Bilateral Investment Treaty (BIT). This issue is part of an ongoing discussion and had to be examined on a case by case basis. For example, in ConocoPhillips v. Venezuela, Georges Abi-Saab opined on the question whether the scope of the contractual rights can be changed. In his dissenting opinion, he noted that “a BIT can add to the protection of the contractual rights but cannot change their configuration, i.e. their content, scope and limitations”.39
VIII. Internationalisation clauses
Internationalisation clauses are a contractual reference to public international law that internationalises the relationship between the foreign investor and the State, and can be seen as a “choice of law clause for international law”.40 Some internationalisation clauses have attempted to remove investment contracts from the regulatory sovereignty of the host State, and instead make them subject to international law.41 The legal qualification of so-called “State contracts” remains controversial.42
IX. Specifity of contractual claims in NAFTA and other regional trade agreements
There is a different arbitral practice in relation to contractual vs. treaty claims in Regional Trade Agreements such as the (now historic) NAFTA. For example, it has been observed that “unlike many bilateral and regional investment treaties, NAFTA Chapter 11 [on investment] does not give jurisdiction in respect of breaches of investment contracts.”43 Therefore demonstrating a breach of a contract was in itself insufficient.44 Further, it has been found that “something more”45 than a breach of contract is required to establish a NAFTA claim, such as “an outright and unjustified repudiation of the transaction”46 without remedy open to the creditor or an additional breach such as denial of justice or discrimination.47
Under the (now obsolete) NAFTA provisions, arbitral tribunals have dealt with the following situations in practice:
X. The applicability of contractual limitations on compensation
Alexandrov, S., Breaches of Contract and Breaches of Treaty: The Jurisdiction of Treaty-Based Arbitration Tribunals to Decide Breach of Contract Claims in SGS v. Pakistan and SGS v. Philippines, Journal World Investment & Trade, 2004, pp. 555-577.
Cantegreil, J., The Audacity of the Texaco/Calasiatic Award: René-Jean Dupuy and the Internationalization of Foreign Investment Law, European Journal of International Law, Vol. 22, No. 2, 2011, pp. 441-458.
Crawford, J., Treaty and Contract in Investment Arbitration, Arbitration International, Vol. 24, Issue 3, 2008, pp. 351–374.
Dolzer, R. and Schreuer, C., Principles of International Investment Law, Oxford University Press, 2012.
Lalive, J-F., Contracts between a State or a State Agency and a Foreign Company: Theory and Practice: Choice of Law in a New Arbitration Case, The International and Comparative Law Quarterly, Vol. 13, No. 3, 1964, pp. 987-1021.
Martinez, L. and Bray D., The Interplay of Contract Claims and Treaty Claims: Bayindir v. Pakistan, TDM 2 (2006).
Tawil, G.S., The Distinction Between Contract Claims and Treaty Claims: An Overview’, in Van den Berg, A.J. (ed.), International Arbitration 2006: Back to Basics?, ICCA Congress Series, Vol. 13, Kluwer Law International; ICCA & Kluwer Law International, 2007, pp. 492-544.
Schreuer, C., Investment Treaty Arbitration and Jurisdiction over Contract Claims – the Vivendi I Case Considered, in Weiler T. and May, C. (eds.), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law, pp. 281-324.
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