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M. Gladwin Issac

Associate - S&R Associates

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Dispute Existence

I. Definition

1.

The existence of a dispute, or the lack thereof, is one of the most decisive elements of an investment arbitration tribunal’s jurisdiction ratione materiae. The tribunal’s jurisdiction rests on any given definition and/or scope of the term “dispute” in the applicable instruments. These include contracts, national investment legislations, and various bilateral and multilateral investment treaties in force.

2.

However, in the absence of a clear definition in the applicable instruments, investment tribunals1 have traditionally relied on the well-established definition of “dispute” in general international law.2 The Permanent Court of International Justice in the Mavrommatis Palestine Concessions Case (Mavrommatis) defined a “dispute” as “a disagreement on a point of law or fact, a conflict of legal views or of interests between two persons.”3 Tribunals evaluate whether a “dispute” exists or not on objective grounds, and not on the basis of statements made by either party.4

3.

The term “dispute” is distinct from “any divergence of opinion or disagreement”.5 Investment treaty jurisprudence suggests that a number of other constituent elements are required for a “divergence of opinion or disagreement” to qualify as a “dispute” (see Section III below). A “dispute” is also distinct from “events leading to a dispute” -- which predate a dispute -- and a “claim”, which may succeed a dispute.6

II. General treaty practice

4.

Most applicable instruments, such as the NAFTA, USMCAECT and the ICSID Convention, do not define the term “dispute”. However, they contain several qualifications which restrict the scope of disputes that could be brought before a tribunal. These include the legal nature of the dispute (see Section IV below), directness of the dispute to the investment (see Section V below) as well as the timing of the dispute.

III. Crystallization of a dispute

A. Main characteristics of a dispute

5.

The tribunal in Sociedad Anónima Eduardo Vieira v. República de Chile has summarised the key characteristics of a “dispute” as evidenced in investment treaty jurisprudence.7 In order to qualify as a “dispute”, a disagreement should include a minimum level of communication between the parties, where a party must positively oppose the other’s views.8 One tribunal noted that a party’s failure to respond to the demands of the other does not affect the existence of a dispute between them.9 Another tribunal has clarified that lack of response or silence, unless justified, may indicate positive opposition to the other party’s views.10 Although the disagreement could be over a factual or legal point, the dispute must relate to issues arising out of their relationship, and not academic or hypothetical in nature.11 There must be a verbal or written evidence of the disagreement.12

6.

In the context of mass claims, tribunals have considered the singularity of the dispute between all claimants in establishing its jurisdiction.13 See further Mass claims, Section III.B.

B. Impact on tribunal's jurisdiction ratione temporis

7.

The date of dispute existence can impact a tribunal’s jurisdiction ratione temporis especially when the applicable investment agreement does not cover disputes arising before its entry into force or contains a limitation clause. In these cases, respondent States have argued that the dispute arose before the critical date, barring the tribunal’s jurisdiction.14 To this extent, tribunals have considered that the date to take into account is the date on which the dispute arose, regardless of the dates of the facts.15 Furthermore, when distinguishing or unifying disputes, tribunals tend to consider whether the disputes have the same subject matter or nature16 or cause of action.17

IV. Legal character of dispute

8.

Article 25(1) of the ICSID Convention restricts the scope of disputes that could be brought before it to disputes that are legal in nature. 

9.

The term “legal dispute” is undefined by the Convention but has been accepted by arbitral tribunals to mean a “conflict of rights” going beyond a mere “conflict of interest”18 as per the Report of the Executive Directors on the Convention on the Settlement of Investment Disputes.19 In AES Corporation v. The Argentine Republic, an ICSID tribunal set out a two-prong test to identify a “legal dispute” within the meaning of Article 25(1) of the ICSID Convention: First, whether the claimant has raised any legal issues in relation to a concrete situation; and second, whether the tribunal’s determination of the answer to be given to these issues would have some practical and concrete consequences.20

10.

ICSID tribunals have further clarified that the legal character of a dispute is not affected by the presence of an element within a dispute that is economic or political in nature.21 In contrast, it rests solely on the presentation of the claim by the investor, i.e. if the investor presents its claim on an (alleged) legal right, makes legal arguments in support of its claim, and requests for legal remedies such as restitution and damages.22 One ICSID tribunal held that the fact that the dispute was not over the principle of compensation (which was undisputed) but over the amount of compensation does not affect the legal character of the dispute.23

V. Directness of dispute to investment

11.

Article 25(1) of the ICSID Convention also restricts the scope of disputes that could be brought before it to “disputes that directly arise out of an investment”. This directness is to be evaluated in respect of the dispute and not the investment24 and should be done on a case-by-cases basis.25 While the text of the ICSID Convention mandates the dispute to be connected to the investment, the texts of Article 1101(1) NAFTA and Article 14.2(1) USMCA require the measures to be directly related to the investment. This distinction has been recognised by several ICSID tribunals while rejecting the Respondent States’ objection that the measures leading to the dispute were general in nature and not directed at the investment.26

12.

Other tribunals have upheld the general unity of an investment operation, rejecting similar objections by Respondent States that the dispute did not arise directly out of the investment but from an ancillary activity.27 See further Ownership of investment.

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