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Executive Summary

This chapter provides an overview of various factors that can affect whether the jurisdiction of a tribunal in a particular case is time-barred. In addition, it examines common provisions used by states to limit the jurisdiction of a tribunal or otherwise narrow the scope of their potential liability. These include denial of benefits provisions, fork-in-the-road and waiver clauses, as well as carve-outs for tax matters. Together, these provisions help to define the scope of a tribunal’s jurisdiction and the limits of state liability under investment treaties.

1.0 Introduction

International investment law is a system of law predicated on consent. This aspect is discussed in the previous chapter. The modern form of international investment law derives largely from a network of bilateral and multilateral treaties, and the consent of the states that choose to participate in the system is reflected in their accession to those treaties.¹ Investors, who are third-party beneficiaries of the system, consent to its use by initiating a claim under a treaty, thereby invoking their rights.

By choosing to participate in the investment law system, states and investors convey authority to arbitral tribunals in the form of jurisdiction. As discussed in the previous chapter, so long as consent has been given, the next two elements of the jurisdictional equation are whether the tribunal has authority over: (1) the subject of the dispute (i.e., is there an investment?), and (2) the parties to the dispute. The third element, discussed in this chapter, is whether the dispute at issue and the events underlying the dispute fall within the temporal authority of the tribunal. In other words, was the state bound by treaty obligations at the time the allegedly actionable conduct occurred, has the investor asserted a timely claim, and have any temporal pre-conditions to arbitration been satisfied?

2.0 Temporal Jurisdiction

The jurisdiction of an arbitral tribunal is determined by the scope of consent granted by the parties to a treaty. Each treaty will define who is protected, what activities are protected, and the temporal limits of those protections. Thus, as with subject-matter jurisdiction and party jurisdiction, the temporal jurisdiction of a tribunal is prescribed by the governing treaty, statute, contract, or other document defining the relevant investment regime. As the vast majority of investment claims arise under a bilateral or multilateral treaty, this chapter will focus on the question of temporal jurisdiction as it arises in those instruments.

The temporal jurisdiction of an investment treaty may be shaped in several ways: (a) prohibiting the retroactive application of a treaty’s substantive and dispute-resolution provisions; (b) setting waiting periods or other conditions precedent before submitting

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a claim to arbitration; (c) establishing limitation periods on claims; and (d) determining the extent of a state’s potential liability after it has renounced or withdrawn from a treaty. The following sections discuss each of these issues.

2.1. Retroactive Application of a Treaty’s Substantive and Dispute-Resolution Provisions

It is a fundamental tenet of international law that, without a clear expression of intent to the contrary, when a state enters a treaty its obligations are forward-looking only. As such, states will not normally be held liable for conduct that occurred prior to the entry into force of a treaty if such conduct was permissible at the time. This principle is made clear in Article 28 of the Vienna Convention on the Law of Treaties (“Vienna Convention”), which provides:

Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that Party.2

This basic rule also has been endorsed by various investment tribunals.

2.1.1 Continuing Acts

Continuing acts are those acts that begin prior to a treaty’s entry into force and continue after it has entered into force. Such acts potentially subject a government to liability for any damages caused by its post-entry-into-force actions.

Ultimately, the question of whether a treaty will apply to continuing actions is a difficult one. The conduct itself must constitute a breach of the state’s treaty obligation — a question that has its own complexities. For example, a state that breaches a contract with an investor prior to entry into force of an applicable investment treaty could continue that breach into the period after the treaty has become effective. While the breach may constitute a “continuing act”, a fundamental question exists as to whether the breach rises to the level of a treaty violation. Ultimately, these decisions are highly fact-dependent and will turn on the precise nature of the state’s actions and the particular language in the treaty setting out the state’s substantive obligations.

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2.1.2 Composite Acts

A state that issues an expropriation decree has directly expropriated an asset. This is a single act that could give rise to a treaty breach if the state fails to abide by the principles governing its right to expropriate property — due process, nondiscrimination, and compensation. A breach of a treaty arising from composite acts requires a tribunal to piece together a series of individual actions that, in the aggregate, are deemed to be wrongful. For example, a state that enacts a series of laws and regulations that, over time, significantly impair the economic value of an investment could be guilty of a creeping expropriation. While each law and regulation may be legitimate on its own, their cumulative effect may be sufficient to breach an investment treaty depending on the degree of harm suffered by an investor. In such a case, regulations (or related acts) would fall under the expropriation umbrella and would, in the aggregate, constitute a composite act. For purposes of jurisdiction, a tribunal may consider that a state can be held liable for composite acts that occurred over a period of time both prior to and after a treaty has entered into force. Creeping expropriation is discussed in more detail in Chapter 8.

Determining whether allegedly actionable conduct is covered by an investment treaty is a threshold issue for investors seeking to bring a claim. The general rule is that the conduct in question must have arisen after the applicable treaty entered into force unless: (a) there is a clear expression of intention in the treaty that it will apply to pre-entry-into-force conduct, or (b) the conduct constitutes a continuing or composite act.

2.2 Waiting Periods and Pre-conditions to Arbitration

An investor that believes it has been harmed by a state would usually like to seek redress as quickly as possible. The vast majority of investor-state dispute resolution provisions, however, establish a mandatory waiting period or some other procedural pre-condition that must occur between the time a state’s alleged actionable conduct occurs and when the investor may bring a claim to arbitration. Indeed, a 2012 survey by the OECD found that “[a]lmost 90% of the treaties with ISDS provisions require that the investor respect a cooling-off period before bringing a claim.”⁹

2.2.1 Waiting Periods

Waiting periods, or cooling-off periods as they also are known, are periods of time during which an investor is precluded from initiating arbitration. In principle, these periods prevent a race to arbitration and, instead, require an investor to notify the state of the dispute so that proper organs of the state become aware of it.

There is no overarching rule governing the length of waiting periods in investment treaties. They typically range from three to six months, with a majority of treaties using six months.¹⁰ During that time, the parties are either encouraged or required to make efforts to resolve their disputes amicably. This time also gives the state an opportunity to correct harm that may have resulted from the conduct attributable to the state.

What must occur during the waiting period varies among treaties. For example, the US-Argentine BIT states that the parties “should” initially try to resolve the case through consultation and negotiation, while the Austria-Iran BIT provides that the parties “shall” try to settle the matter through consultation and negotiation.¹¹

While some treaties use mandatory language, such as “shall”, in describing what should occur during a waiting period, they cannot compel the parties to undertake any action. The precise language in the treaty, however, should influence steps that an investor takes when initiating a claim. For example, a failure to comply with the duty to try to resolve the dispute in an amicable way is not normally a basis for dismissal of a case. As explained in Chapter 17, it may however lead to more legal proceedings and increased costs.

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In the face of mandatory language like that used in the Austria-Iran BIT, an investor should make a clear record of its efforts to engage the government in negotiations and consultations. This may take the form of correspondence in which the investor invites the host state to participate in such efforts and offers to make its representatives available. At that point, the investor has shifted the onus to the state and if the state refuses to accept the investor’s invitation, the investor arguably has protected itself against a challenge that the pre-condition to arbitration has not been met.

2.2.2 Exhaustion of Local Remedies

Some investment treaties have foregone the typical waiting period and, instead, require investors to exhaust local remedies by submitting claims to local administrative bodies or courts prior to arbitration.

Exhaustion of local remedies is a long-standing and well-recognised principle of customary international law. Outside the investment context, international law requires that parties exhaust local remedies prior to raising a dispute to the international level unless the state accused of wrongdoing waives the requirement. This principle has been recognised by the International Court of Justice¹² and is included in various human rights treaties.¹³

Prior to the modern BIT era, international investors had limited options to hold states accountable for breaches of international law. They could either sue in the courts of the host state or request that their home government espouse their claims. Espousal, however, is a discretionary remedy and itself is subject to an exhaustion requirement under the principles of customary international law. Thus, either way, an investor would likely have no choice but to sue the state in its own courts for alleged violations of international law.

The modern form of international investment law reverses the presumption of exhaustion that exists in customary international law. The rule in investment law is that an investor does not have to exhaust local remedies unless a state expressly requires it. An example of this rule can be seen in Article 26 of the ICSID Convention, which states:

Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.¹⁴

The vast majority of BITs do not require complete exhaustion of local remedies; opting, instead, for the waiting periods discussed above. However a small number of treaties do require investors to fully exhaust local remedies as a pre-condition to arbitration.¹⁵

2.2.2.1 Temporal Exhaustion Requirements

In a number of BITs, states require an investor to pursue local remedies for a specific period of time. An investor may pursue arbitration only if the dispute is not finally resolved within that period or if a dispute continues to exist after a final judgment by the host courts. For example, the investment treaty between the United Kingdom and Argentina allows a claimant to seek arbitration if the domestic tribunal has not produced a final decision within 18 months.¹⁶ Temporal exhaustion requirements, like this one, are arguably not really exhaustion requirements. Given the time it takes to fully resolve disputes in most judicial systems, it would be quite uncommon for an investor to be able to obtain a final decision on a claim within an 18-month period. Thus, these types of requirements typically operate like waiting periods, but force investors to bear the additional cost of having to pursue remedies in the host state.

Temporal exhaustion requirements can also subject an investor to a limitations period even though the underlying treaty may not contain one. As discussed below, investment claims typically are not subject to limitations periods. However, if a state requires an investor to submit a dispute to local courts prior to initiating arbitration, the investor will be required to do so prior to the expiration of any applicable local-law limitations period. If the investor fails to bring the claim to the local courts within the Part V | Chapter 11 | Temporal Issues , Exceptions , Taxes, Fork-in-the-Road Provisions

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prescribed period, it necessarily would not be able to satisfy the treaty conditions, and thus could be precluded from submitting its claim to arbitration. Some arbitral tribunals, however, have allowed proceedings to move forward if investors can show that they did not submit the dispute to local courts because doing so would have been “futile” or the state has taken some action that would result in further harm if the investor submitted its claim to local courts.¹⁷

The variety of waiting periods and exhaustion provisions contained in investment treaties means that investors from different countries may face different pre-conditions to arbitration. While, in some cases, those differences may not lead to a material difference in treatment between investors, in other cases they do. Take, for example, a situation in which investors from Country X and Country Y are injured by the same state conduct. The treaty between the host state and Country X has a six-month waiting period. The treaty between the host state and Country Y, however, has a temporal exhaustion provision that requires the investor to submit disputes to the local courts for 18 months. The investor from Country X can pursue international arbitration sooner and with much less cost involved.

An investor must determine what pre-conditions to submitting a claim exist in an investment treaty and ensure that those conditions are satisfied. As discussed in the next section, in certain circumstances, an investor may seek to avoid such preconditions by using the treaty’s Most-Favoured-Nation provision to incorporate more favourable terms from another treaty.

In structuring an investment, an investor should be cognizant of the waiting period or exhaustion requirements in potentially available investment treaties. Subject to other considerations, e.g., tax implications, it may be possible to minimise the pre-conditions to arbitration by structuring the investment to take advantage of the most favourable treaty terms.

2.2.2.2 Use of MFN Clause to Reduce or Eliminate Exhaustion Provisions and Waiting Periods

Some investors have successfully persuaded tribunals to incorporate more favourable provisions into their treaty by using the most-favoured-nation (MFN) language in their treaty to draw on commitments in other BITs.

Other tribunals have declined to extend MFN protection to dispute resolution provisions and, in particular, have declined to apply the MFN provision to create jurisdiction where none previously existed.²⁰ A full discussion of the MFN doctrine and its applicability to dispute resolution provisions is outside the scope of this chapter but is provided in Chapter 9. It is important to note that MFN provisions may allow an investor to avoid onerous arbitral pre-conditions. This requires a case-by-case analysis that will turn predominantly on the precise language of the MFN provision in question.

An investor must determine what pre-conditions to submitting a claim exist in an investment treaty and ensure that those conditions are satisfied. In certain circumstances, an investor may seek to avoid such pre-conditions by using the treaty’s MFN provision to incorporate more favourable terms from another treaty. This is a highly fact-specific inquiry that will depend on the language of the relevant MFN provision.

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2.2.3 Time Limits

Strict time limits for the presentation of claims are quite rare in international investment law. Fixed time limits do not exist as part of customary international law. Likewise, the ICSID Convention, which governs the rights and obligations of parties seeking to access ICSID jurisdiction, does not contain or address the applicability of limitations periods. Thus, as a general matter, arbitral tribunals in investor-state disputes are not bound by domestic statutes of limitations when dealing with treaty claims. On the other hand, in cases where an investment claim arises out of a domestic investment statute or a contract governed by the host country law, the claim may be subject to domestic limitations periods. Moreover, even where investors may not have to deal with fixed time limits, they cannot wait forever to bring a claim. Under the doctrine of extinctive prescription, a tribunal may bar a claim as untimely if: (a) the time between when the claim arose and when it is filed is unreasonably long, and (b) the delay has prejudiced the responding state. This is a fact-specific inquiry and there are no brightline rules as to what constitutes an unreasonable delay under this doctrine.

A small number of treaties do contain their own provisions on time limits.²¹ They define when a state’s potential liability for actionable conduct expires and the deadline by which an investor must bring a claim. The first investment treaty to contain a time limit was the 1992 North American Free Trade Agreement (NAFTA).²² It provides that an “investor may not make a claim on behalf of an enterprise” if “more than three years have elapsed from the date on which the enterprise first acquired or should have first acquired, knowledge of the alleged breach and knowledge that the enterprise has incurred loss or damage.”²³ Similar language is found, for example, in Mexico’s treaties with the United Kingdom and France.²⁴ In the former, investors must bring their claims within three years,²⁵ while in the latter an investor has four years to initiate a case.²⁶

Time limits tend to run from two to five years and, as can be seen from the language above, the periods typically run from the date an investor obtained actual or constructive knowledge of an alleged breach or the event that gave rise to the dispute. In some cases, treaties tie the start of the period to the investor’s knowledge that it suffered harm as a result of the state’s actions.

Provisions on time limits directly affect a tribunal’s jurisdiction, as they define the outer limits of a state’s consent to arbitrate. Once that time limit expires with respect to a particular claim, the state’s consent to arbitrate that claim likewise ends and the tribunal no longer has authority over the subject of the dispute.

An investor must determine whether a claim is subject to a time limit. A small number of treaties do contain such time limits. Also, an investor may be subject to local-law limitations periods if its substantive rights — including the right to arbitration — arise from an investment statute or contract. A tribunal’s temporal jurisdiction ends when a time limit expires. Even where there is no strict time limit, an investor cannot delay making its claim for an unreasonably long time.

2.2.4 Applicability of Treaty After a State’s Denunciation

The consent-based nature of the international investment law system means that states may withdraw their consent if they so choose. States either may allow investment treaties to expire or, subject to any express restrictions set out in a treaty, withdraw from their international agreements.

Once a state has denounced a treaty, it is no longer a contracting party and no longer has the rights and obligations attached to that status. As such, it can no longer be bound by new obligations. A question arises, however, as to the extent to which a state will continue to be bound in existing disputes by the treaty’s obligations.

Article 70(1) of the Vienna Convention on the Law of Treaties provides that, absent express provisions dealing with denunciation in the treaty, a party that terminates its participation in a treaty is released from any further obligation to perform under the treaty, but is not released from any right, obligation, or legal situation that existed prior to the termination. Thus, to the extent a state engaged in conduct that violated a treaty prior to denouncing the treaty, its denunciation would not relieve the state of

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potential liability for its actions. However, if the state took the same actions after its denunciation became effective, it could not be held liable as it no longer would be bound by the relevant treaty provisions.

The general rule established in the Vienna Convention is also reflected in the ICSID Convention. ICSID Article 72 provides that:

[n]otice by a contracting state pursuant to Articles 70 or 71 shall not affect the rights or obligations under this Convention of that state or of any of its constituent subdivisions or agencies or of any national of that state arising out of consent to the jurisdiction of the Centre given by one of them before such notice was received by the depository.

Denunciation of a treaty effectively terminates a state’s substantive obligations and consent to arbitrate for certain categories of claims and claimants. Careful investigation is needed therefore to determine whether a particular claim is affected by a state’s denunciation.

3.0 Common Treaty-Based Exceptions and Carve-Outs to Jurisdiction

As noted, modern international investment law is predicated on a system of consent. States choose to enter into investment treaties and, in doing so, consent to be bound by specific substantive obligations and to arbitrate certain disputes. As part of this process, states have the right and ability to limit the scope of their consent through the inclusion of specific exceptions and reservations in their treaties.²⁷

3.1 Denial of Benefits

One important issue, also discussed in Chapters 6 and 10, is whether the claimant qualifies as a “national” for purposes of invoking a treaty’s protections. Denial of benefits clauses are used in some investment treaties to preclude nationals of third states from obtaining treaty protection through the use of shell companies or “mailbox” corporations. Through these clauses, states “reserve the right to deny the benefits of the treaty to a company that does not have an economic connection to the state on whose nationality it relies. The economic connection would consist in control by nationals of the state of nationality or in substantial business activities in that state.”²⁸

Although denial of benefits clauses are common in treaties with certain countries (e.g., the United States, Canada and the United Kingdom), they are not applied universally. At least one arbitral tribunal has made clear that tribunals should respect a state’s choice whether to include a denial of benefits clause in a BIT and not read one into a treaty where one does not expressly exist.²⁹

Investors should carefully scrutinise available treaties to determine whether they contain a denial of benefits clause and ensure that the requirements for a state’s denial of benefits are not met.

3.2 Tax Issues

A state’s control over its fiscal and monetary policy is a fundamental component of its sovereignty. The right to collect taxes goes to the core of that control. The question of whether tax-related measures are properly regulated by investment treaties has been the subject of much debate.

In practice, the treatment of tax-related measures varies widely in investment treaties. In some treaties, tax measures are not addressed at all and, as such, potentially fall within the scope of conduct that could give rise to a claim. In other treaties, states have attempted to exclude all, or at least some tax measures from the scope of their commitments.

Even among states that have elected to address tax issues in their investment treaties, the manner in which those issues are addressed varies greatly. Some treaties expressly

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carve out tax-related measures from specific treaty protection. One of the most common efforts in this regard is for a state to exclude tax measures from its most favoured- nation and national treatment obligations. This type of provision can be seen, for example, in the investment treaty between the United Kingdom and Belarus, which provides that the most-favoured-nation and national treatment provisions do not apply to “any international agreement or arrangement relating wholly or mainly to taxation or any domestic legislation relating wholly or mainly to taxation.”30 These types of provisions also can be found in the French, Belgian, Canadian, and US model investment treaties^.31

The Energy Charter Treaty (ECT) addresses tax issues somewhat differently. Rather than provide a blanket exception for all tax-related issues, the ECT excludes “taxation measures” from the scope of the treaty, which are defined as provisions of domestic tax law or tax conventions:³²

Except as otherwise provided in this Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties. In the event of any inconsistency between this Article and any other provision of the Treaty, this Article shall prevail to the extent of the inconsistency.³³

NAFTA also contains a comprehensive provision governing the treatment of taxes.³⁴ Under this provision, for example, tax measures relating to income, capital gains, the taxable capital of corporations, estates, inheritances and gifts, and other specifically defined taxes are excluded from the national treatment and most-favoured-nation treatment protections set out in NAFTA Articles 1102 and 1103.³⁵ Further, specific restrictions are placed on an investor’s ability to claim that certain tax measures constitute an expropriation under NAFTA Article 1110.³⁶ Like the ECT, NAFTA’s provision covers “taxation measures”. However, the term “measure” is defined more broadly in Article 201 to include “any law, regulation, procedure, requirement, or practice”. Thus, this type of language would seemingly go beyond the tax laws enacted by NAFTA parties and cover enforcement practices as well. A broad interpretation of this type of language has been recognised by at least one arbitral tribunal, which stated that in the face of such language, “there is no reason to limit [the relevant article] to the actual provisions of the law which impose a tax.”³⁷

Investment treaties address tax-related measures in a variety of ways. The extent to which an investor can bring a claim based on tax-related measures will depend on the precise language used in the treaty. Investors must carefully review relevant treaties to determine the precise manner in which tax matters are covered.

3.3 Fork in the Road and Waiver

Another way states can shape the scope of their consent is by defining where disputes may be submitted for resolution and constraining the opportunities available to investors to submit treaty-based claims in multiple forums.

With respect to defining where disputes may be submitted for resolution, most investment treaties provide investors the choice of submitting their disputes to local administrative or judicial tribunals, or to international arbitration in one or more venues. For example, the UK-Argentina BIT permits investors to choose among a “competent tribunal of the Contracting Party in whose territory the investment was made”, the “International Centre for Settlement of Investment Disputes” or “an international arbitrator or ad hoc arbitration tribunal to be appointed by a special agreement or established under the Arbitration Rules of the United Nations Commission on International Trade Law.”38 These types of options are found in many investment treaties. They give investors a degree of freedom in choosing a preferred forum and also recognise that over time circumstances may change such that one or both of the Contracting States may no longer be a member of the ICSID Convention and, thus, no longer able to access ICSID jurisdiction.

Although states generally are content to give investors a choice of forums for resolving their disputes, they want some degree of assurance that the investor will not be able to

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submit their treaty claims to more than one tribunal. Indeed, states have a vested interest in preventing duplicative actions against them and, as a result, many investment treaties include a provision requiring investors to make a fixed choice as to how their disputes will be resolved, either through domestic adjudication or international arbitration.

These provisions generally come in two forms: fork-in-the-road provisions and waiver clauses. Both types of provisions are intended to prevent duplicative actions. From a policy perspective, however, the two provisions are quite different. As discussed below, a true fork-in-the-road provision forces an investor to choose between domestic and international dispute resolution. A waiver clause, however, encourages an investor to at least explore the remedies available in the host-state’s domestic system as a first option. If the investor is unsatisfied, it can change course and later go to international arbitration. Proponents of waiver clauses argue that encouraging domestic resolution of treaty disputes allows states the opportunity to remedy a treaty violation directly before the dispute is raised to the international level.

3.3.1 Fork-in-the-Road Provisions

As the name suggests, a fork-in-the-road provision requires investors to choose a path once they reach the point where a dispute exists. They can either choose the path providing for domestic adjudication or the one leading to international arbitration. Once the choice is made, however, it is intended to be final and an investor may not submit the same claim in a different forum. The starkness of this choice can be seen in the investment treaty between France and Argentina, which provides that an investment claim:

shall be submitted at the request of the investor, either to the national courts of the Contracting Party involved in the dispute, or to international arbitration … Once an investor has submitted the dispute either to the jurisdictions of the Contracting Party involved or to international arbitration, the choice of one or the other of these procedures shall be final.³⁹

The United States has a similar, albeit somewhat more complex, formulation of a fork-in-the-road provision in most of its early BITs. For example, the treaty between the United States and Ecuador provides:

2. If [an investment] dispute cannot be settled amicably, the national or company concerned may choose to submit the dispute, under one of the following alternatives, for resolution:

1. to the courts or administrative tribunals of the Party that is a party to the dispute; or
2. in accordance with any applicable, previously agreed dispute-settlement procedures; or
3. In accordance with the terms of paragraph 3.

3. a. Provided that the national or company concerned has not submitted the dispute for resolution under paragraph 2(a) or (b) and that six months have elapsed from the date on which the dispute arise, the national or company may choose to consent in writing to the submission of the dispute for settlement by binding arbitration.⁴⁰

This provision serves both as a fork-in-the-road provision, requiring the investor to choose between arbitration and domestic adjudication, and a waiting period. Investors who choose to submit their disputes to domestic adjudication may do so immediately, whereas investors choosing international arbitration may not do so for six months from the date on which the dispute arose.

The preclusive effect of a fork-in-the-road provision can be quite severe. An investor that attempts to obtain some relief from the local courts may unwittingly waive its ability to pursue a treaty claim. For this reason, fork-in-the-road provisions have been construed fairly narrowly. As Christoph Schreuer remarks, “[t]he fork in the road provision and the consequent loss of access to international arbitration applies only if the same dispute between the same parties has been submitted to domestic courts or administrative tribunals of the host state before the resort to international

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arbitration.”⁴¹ This narrow reading of fork-in-the-road provisions has led to the development of what is known as the “triple identity test”. Under this test, a claim submitted to a domestic court will be precluded from being submitted to international arbitration only if: (a) the parties, (b) the causes of action, and (c) the object of the dispute, are identical. The triple identity test sets a high standard that must be met before the preclusive effect of a fork-in-the-road provision will apply.

3.3.2 Waiver Clauses

Unlike fork-in-the-road provisions, waiver clauses do not necessarily force an investor to choose a single path when attempting to resolve an investment dispute. Instead, waiver clauses encourage investors to first submit their disputes to the local courts by allowing them the right to withdraw their case and subsequently pursue arbitration.

To do this, waiver clauses permit investors to choose between local adjudication and international arbitration. If the investor chooses international arbitration in the first instance, it must waive its right to initiate litigation in the local courts involving the same matters. If the investor chooses domestic litigation in the first instance, it may subsequently choose to submit its dispute to arbitration. Before doing so, however, the investor must dismiss its litigation and waive its right to continue or reinitiate any domestic litigation. Under this system, arbitration serves as a safety net for an investor that wants to explore local remedies. Once that safety net is used, however, the choice cannot be undone.

The North American Free Trade Agreement is one of the most prominent treaties containing a waiver clause. It provides that an investor may submit a claim to arbitration under NAFTA only if it waives its:

right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach … before an administrative tribunal or court under the law of the disputing Party.⁴²

A number of countries, including the United States and Canada, have adopted waiver clauses in their recent investment treaties. The United States, for example, included a waiver provision in its 2004 and 2012 Model BITs⁴³ and has adopted it in its investment agreements with Chile, Singapore and Uruguay.⁴⁴

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Notes

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