Originally from Investment Treaty Arbitration and International Law - Volume 3

With the advent of bilateral and multilateral investment treaties since the 1980s (today estimated to be over 2,500), the traditional diplomatic protection mechanism by home states of their nationals investing abroad has been largely replaced by direct access by investors to arbitration against host states. Arbitration is now the generally accepted avenue for resolving disputes between investors and states. This phenomenon does not, however, take away the basic prerequisite for arbitration: an agreement between parties to arbitrate.

It is a well established principle, both in domestic and international law, that such an agreement should be clear and unambiguous. In the framework of a BIT, the agreement to arbitrate is arrived at by the consent to arbitration that a state gives in advance in respect of protected investment falling under the BIT, and the acceptance thereof by an investor.

The different expressions of consent to arbitration have led to disputes in a great number of cases. Tribunals applying these expressions of consent have had “to grapple with their proper interpretation.”

As treaties, BITs are to be interpreted in accordance with the principles of public international law and more particularly those found in Articles 31 to 33 of the 1969 Vienna Convention on the Law of Treaties (“VCLT”). These principles would apply in interpreting a BIT irrespective of whether or not the contracting states are parties the Vienna Convention as they reflect customary international law. 

Investment treaties do not cast the interests and benefits of a host state and of an investor in an antithetic mode; instead, the purpose underlying such treaties assumes that the parties share a joint purpose. In this sense, “it would be alien to the nature of an investment treaty to contrast the interests of the host state and of the foreign investor as opposed to each other.” Can the traditional opposition between the restrictive interpretation, favourable for states and the extensive interpretation in favour of investors survive any longer?

Are the traditional rules of interpretation of consent in investment arbitration still relevant today? The answer to this question depends in turn on whether traditional standards of interpretation guarantee coherence and consistency of the overall process. In practice, the principles contained in the Vienna Convention are not wholly useful in resolving questions of BIT interpretation, as the guidance they provide is insufficiently concrete.