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India and Bangladesh to issue joint interpretative note on bilateral investment treaty
India and Bangladesh to issue joint interpretative note on bilateral investment treaty
5 September 2017
Series
Blogs
5 September 2017
A recent press announcement by the Government of India indicates that India and Bangladesh have recently agreed to issue a joint interpretative note in respect of the India Bangladesh Agreement for the Promotion and Protection of Investments, 2009 (“India-Bangladesh BIT”) (the “Note”). According to the announcement, the Note would clarify the interpretations of various clauses in the treaty including the definitions of investor and investment, exclusion of taxation measures and other substantive standards such as most favoured nation, national treatment and fair and equitable treatment. The exact terms of the Note have not been released yet by either India or Bangladesh.
The Note is a result of India’s attempts to overhaul its investment treaty regime. In 2016, India served termination notices in respect of its BITs with 58 countries. However, it could not terminate its BITs with 25 countries including Finland, Iceland and Bangladesh as they had not completed their initial terms (the initial period in which a party cannot terminate the treaty). Therefore, India released a draft joint interpretative note to be shared with the 25 countries in February 2016. It appears that the Note on the India-Bangladesh BIT is based on this draft. India’s press release noting its approval of the Note, also states that such joint statements are likely to have strong persuasive value before tribunals. The treatment that tribunals would accord such statements would depend on their status under international law and under the individual BITs. Tribunals may also take guidance from decisions of other investment arbitration tribunals.
The principles for the interpretation of treaties are codified in Article 31 of the Vienna Convention on the Law of Treaties, 1969 (“VCLT”). Article 31(1) provides that a treaty has to be interpreted in good faith, in accordance with the ordinary meaning to the terms of the treaty in their context and in light of the treaty’s object and purpose. Further, Article 31(3) of the VCLT provides that together with the context, any subsequent agreement, or practice which establishes such agreement, between the parties regarding the interpretation of the treaty has to be taken into account while interpreting the treaty. A joint interpretative statement by the contracting parties to a treaty would constitute such a subsequent agreement under Article 31(3) of the VCLT. According to the International Law Commission, a subsequent agreement on the interpretation of a provision is an authentic interpretation of such a provision which must be read into the treaty (Yearbook of the International Law Commission, Vol II, p 221, para 14 (1966)). A similar approach was adopted by the International Court of Justice in the Ambatielos case (Preliminary Objection, ICJ Reports 1952 at [40]).
Joint interpretative statements are not novel to investment arbitration. A number of multilateral treaties and BITs contain provisions for joint interpretative statements that are binding on the tribunal (Article X(6), Canada – Czech Republic BIT (2009); Article 1131 (2) and Article 2001, North American Free Trade Agreement (“NAFTA”) between the United States of America, Canada and Mexico (1992)). Other treaties expressly provide for consultations between the parties regarding interpretations of provisions (Article 9, Netherlands – Czech Republic BIT (1991); Article 12, Ghana – Netherlands BIT (1989)). These can either be binding in nature or have high persuasive value depending on the consultations and agreements concluded between the parties.
Joint interpretative statements have been considered in a few instances by investment arbitration tribunals. In CME Czech Republic B.V. v Czech Republic (Final Award, UNCITRAL (2003)), the tribunal relied on the common interpretation reached by the governments of the Netherlands and the Czech Republic in respect of principles of res judicata applicable to disputes under the treaty.
The tribunal in ADF Group v United States (ICSID Case No. Arb AF/00/1) reached a similar conclusion in respect of interpretations by the Free Trade Commission (“FTC”) set up under Article 2001 of NAFTA. The FTC is constituted of cabinet level representatives of the NAFTA parties and has the power to resolve disputes regarding the interpretation and application of NAFTA. The tribunal in ADF Group v United States found that the FTC interpretations were binding on it under Article 1131 (2) of NAFTA.
In Pope & Talbot v Canada (Damages Award, UNCITRAL (2002)), the tribunal had to consider the impact of an interpretation of the standards of fair and equitable treatment and full protection and security issued by the FTC under Article 1131(2) of NAFTA. The FTC noted that these standards did not require treatment in addition to or beyond that of the customary international law standard. This interpretation was issued after the tribunal had found Canada to be liable, but before the damages phase of the arbitration. In the liability phase, the tribunal had found that the fairness standards (i.e. fair and equitable treatment and full protection and security standards) were in addition to the international law minimum. Therefore, the interpretation caused considerable concern to the tribunal, as it seemed to be an attempt to influence or interfere with the outcome of the arbitration. After the interpretation of the FTC was provided to it, the tribunal asked Canada a number of questions on who had initiated the process for the interpretation, whether the FTC had been informed of the possible conflict with the tribunal’s decision and whether Canada had informed the FTC that it would argue that the interpretation would have an effect in the arbitration proceedings.
Despite its concerns, the tribunal found that the interpretation was binding. However, it found that its interpretation of fair and equitable treatment and full protection and security fell within the remit of customary international law. Therefore, the interpretation issued by the FTC did not affect its decision on liability.
The use of a joint interpretative note in respect of the India-Bangladesh BIT is an innovative solution to address India’s concerns regarding what it considers to be adverse interpretations by investment arbitration tribunals. It would be interesting to see whether other countries intending to terminate their BITs (for e.g. Ecuador) follow India’s lead in using joint interpretative statements rather than an outright termination of their BITs. Most BITs have a “sunset clause” which affords protection to investments even after termination for a period of 10-15 years. In any case, it is appropriate that investors are accorded rights that can be enforced in independent, international tribunals. Further, investors from these countries would also lose all rights against other states. Joint interpretative statements could provide an appropriate solution to such concerns. These joint interpretative statements would be binding or would have high persuasive value, depending on their terms. However, it remains to be seen whether other capital-exporting countries agree to such statements as they could be perceived to be contrary to the interests of the investors from such countries.
Matthew Weiniger and Ula Cartwright-Finch would like to thank Akshay Sewlikar for his assistance in writing this article.