In summary, if the treaty does not apply to a qualifying investor and a qualifying investment at the time of an alleged breach, in principle, there is no treaty containing substantive protections that can be breached. Furthermore, if the treaty does not apply to an investor when it seeks to commence an arbitration, the investor is not entitled to commence arbitration.^[3]

II Timing of the investment

Article 24 of the Vienna Convention on the Law of Treaties (VCLT) provides that a ‘treaty enters into force in such manner and upon such date as it may provide or as the negotiating States may agree’. States typically agree on these requirements in the treaty’s final clauses. For example, Article 15 of the India–Netherlands bilateral investment treaty (BIT) provides that ‘[t]his Agreement shall enter into force on the first day of the second month following the date on which the Contracting Parties have informed each other in writing that the procedures constitutionally required have been complied with’.^[4]

Most treaties contain provisions clarifying the time frame within which an investment must have been made for treaty protections to apply. As is the case with most treaties globally, Indian BITs typically cover all investments made before or after the treaty came into force. For example, Article 2 of the India–United Kingdom BIT provides that ‘[t]his Agreement shall apply to all investments made by investors of either Contracting Party in the territory of the other Contracting Party, whether made before or after the coming into force of this Agreement’.

Some Indian BITs, however, do not cover all investments made before the treaty came into force: Article 10(1) of the India-Turkey BIT carves out any investments that have been made but are no longer existing (e.g., if the investor has already exited or repatriated returns or no longer has operations in the host state). The BIT provides that the treaty ‘shall apply to investments existing at the time of entry into force as well as to investments made or acquired thereafter’.^[5] It also carves out any disputes that had already arisen prior to the treaty’s entry into force and notes that the treaty ‘shall not . . . be applicable to disputes which had arisen before its entry into force’.^[6]

III Timing of the breach

i Temporal application of substantive standards

While treaties protect investments made before a treaty comes into force, they do not apply to actions of a state party prior to the treaty’s entry into force. A state can, through actions or omissions, only breach obligations that are in force and binding on that state at the time of the action or omission.

In Ping An v. Belgium,^[7] the Chinese investors were the largest shareholders of Fortis, a Belgian–Dutch entity. The arbitration arose out of Belgium’s emergency measure to resolve Fortis’ liquidity crisis during the 2007–2008 global financial crisis. At the time the measure was enacted, China had in place the 1986 BIT with the Belgium–Luxembourg Economic Union (BLEU). This was replaced in 2009 by a new BLEU–China BIT. Ping An initiated arbitration based on the 2009 BIT. The tribunal determined that even though the 2009 BIT applied to investments made prior to the treaty’s entry into force, it did not have jurisdiction over the dispute because the alleged breaches of the 2009 BIT occurred before it was in force. It also observed that the treaty did not contain language making it applicable to pre-existing disputes that arose before its entry into force.

The actual date of breach is critical to this analysis, and the date on which the claimant had knowledge of the breach is not relevant. In IMFA v. Indonesia,^[8] the Indian investors were shareholders in the Indonesian company PT SRI, which, in 2009, was awarded a coal mining licence. The shares were acquired towards the end of 2010. In April 2011, Indian Metals & Ferro Alloys (IMFA) discovered that the company’s mining licence had not been confirmed by the Indonesian government during a licence audit undertaken by the state, on account of it being issued while overlapping with a licence awarded to a separate entity. IMFA took the position that Indonesia had not appropriately dealt with the issues regarding the overlapping licences – in breach of the investment treaty. In this case, the tribunal was required to assess whether the treaty had been breached in circumstances where the breaching act of the state predated IMFA’s investment, but IMFA had no knowledge of that (and no mechanism to obtain relevant knowledge) at the time of making the investment. The tribunal found that the breach of the treaty in relation to IMFA’s investment is not to be assessed at the date of knowledge but only at the date of breach.

ii Exceptions to the principle of non-retroactivity

Since tribunals are hesitant to extend temporal jurisdiction to disputes pertaining to acts of state parties prior to the treaty entering into force, investors have sought to create exceptions to the non-retroactivity rule, for continuous or composite acts.

Continuous acts

International law recognises acts of a continuous nature under the draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries 2001 (ARSIWA). Article 14(1) of the ARSIWA addresses stand-alone acts with continuing effects and provides that ‘breach of an international obligation by an act of a State not having a continuing character occurs at the moment when the act is performed, even if its effects continue’. On the other hand, Article 14(2) of the ARSIWA refers to acts of a continuous nature and provides that ‘breach of an international obligation by an act of a State having a continuing character extends over the entire period during which the act continues and remains not in conformity with the international obligation’.

If a dispute under an investment treaty arises in relation to a state measure having continuing character, the measure may fall within the temporal scope of the treaty even if it commenced prior to the treaty’s entry into force.^[9]

Composite acts

Article 15 of the ARSIWA applies to breaches of a composite character under international law. It explains composite breaches and provides that ‘breach of an international obligation by a State through a series of actions or omissions defined in aggregate as wrongful occurs when the action or omission occurs which, taken with the other actions or omissions, is sufficient to constitute the wrongful act’. In relation to composite breaches, Article 15(2) provides that ‘[i]n such a case, the breach extends over the entire period starting with the first of the actions or omissions of the series and lasts for as long as these actions or omissions are repeated and remain not in conformity with the international obligation’.

This argument is typically taken in cases where the investor is alleging denial of justice or creeping expropriation. One example of a denial of justice claim arising out of a composite act is if an investor is faced with a series of difficulties in a local court starting before the BIT entered into force. All these difficulties would cumulatively amount to denial of justice. Similarly, one example of a creeping expropriation claim is where an investor alleges that a series of acts attributable to the state over an extended period culminated in the expropriation of the investor’s property.^[10]

IV Temporal requirements and timing of the dispute

Tribunals have also assessed whether an investor and investment must retain qualifying status (i.e., be eligible for protection under the treaty) when an arbitration is commenced (and not only at the time the investment into the host state was made). They have concluded that an investor must maintain qualifying status until the submission of the dispute to arbitration.^[11] The investor’s ownership of the investment, or the investment itself, may not need to continue after that date.

Tribunals have generally accepted that the investor must continue to meet the applicable nationality requirements of the investment treaty at the time of the initiation of arbitration. This is because the investor invokes the arbitration provision of the investment treaty and accepts the offer of consent to arbitration therein at the time of the submission. The investor does not have the option to seek arbitration for redress against treaty breaches against the host state outside the scope of the dispute resolution clause under the treaty.

By contrast, some tribunals have not required that the investor continue to hold the investment at the time of the submission of the claims to arbitration. This has occurred in cases where the contested state measures taken against an investment are in the nature of expropriation (i.e., the state deprived the investor of the investment). The tribunal in Mondev v. United States observed that:

“[t]o require the claimant to maintain a continuing status as an investor under the law of the host State at the time the arbitration is commenced would tend to frustrate the very purpose of [the treaty], which is to provide protection to investors against wrongful conduct including uncompensated expropriation“.^[12]

Several tribunals have also accepted that the investor may sell or transfer the investment after the state breaches the applicable investment treaty.^[13]

Recently, the Paris Court of Appeal has set aside the award of jurisdiction in Agarwal and Mehta v. Uruguay, finding that the tribunal came to an incorrect conclusion in dismissing the claim on the basis that the claimants were only beneficiaries of a discretionary trust (controlled by a third party) at the time of the action by Uruguay that they were seeking to impugn. The Court found that the treaty did not contain a direct ownership requirement that was applicable at the time of the breach. It found that the treaty only requires the dispute to post-date the treaty’s entry into force. The claimant’s claim, therefore, survives.^[14]

V Disputes before a treaty enters into force

If a treaty has been signed but has not entered into force, it may still create obligations on states. This is because obligations under a signed treaty would be considered interim obligations under Article 18 of the VCLT. Alternatively, the treaty may be provisionally applied under Article 25 of the VCLT.

i Interim obligations

Article 18 of the VCLT requires states to avoid conduct undermining the purpose of the treaties they have signed, even in the period before the treaties have entered into force.

The Energy Charter Treaty (ECT)^[15] is an example of a treaty that includes a set of rules governing pre-ratification conduct. That aside, the application of Article 18 has not come up very often in international investment law.

There are two known instances in which investors have sought to rely on Article 18 in international investment law: Tecmed v. Mexico^[16] and MCI v. Ecuador.^[17] These cases take starkly different approaches in relation to the interim application of a signed treaty that has not yet entered into force.

In Tecmed v. Mexico, the investor was claiming that the grant of a one-year permit to operate the landfill (superseding the previous, indefinite permit enjoyed by the claimant) was contrary to Mexico’s interim obligations under the Mexico–Spain BIT, pending its entry into force. The tribunal observed that it:

“shall take into account the principle of good faith… [as] embodied in Article 18 . . . with respect to the Respondent’s conduct between . . . the date on which the Agreement was signed by the Contracting Parties . . . and the date of its entry into force“.^[18]

It further noted the following:

“Article 18 . . . does not only refer to the intentional acts of States but also to conduct which falls within its provisions, which need not be intentional or manifestly damaging . . . but merely negligent or in disregard of the provisions of a treaty or of its underlying principles, or contradictory or unreasonable in light of such provisions or principles“.^[19]

The tribunal in MCI v. Ecuador adopted an entirely different approach: it rejected the claimant’s argument that Ecuador had defeated the object and purpose of the Ecuador–United States BIT when it interfered with MCI’s power plants before the treaty had entered into force. It also observed that Article 18 of the VCLT only embodies the principle of good faith and does not provide for retroactive application on the treaty.^[20]

ii Provisional application

Under Article 25 of the VCLT, parties may agree to provisionally apply a treaty before it enters into force. No form has been prescribed in relation to such an agreement, and tribunals typically only look for an intention to give provisional application.^[21]

The leading case on the issue of provisional application and the date of termination of the provisional application of a treaty is Yukos Universal v. Russia,^[22] in which several findings were made in relation to the provisional application of the ECT. The ECT was applied provisionally by Russia on the basis of Article 45 of the ECT and Article 25 of the VCLT. The ECT included a ‘sunset’ clause providing for the applicability of treaty guarantees in favour of covered investors for a period of 20 years following the effective date of termination of the treaty. On 20 August 2009, Russia issued an official notification to the Depositary of the ECT that it did not intend to become a party to the ECT; therefore, in accordance with Article 45(3) of the ECT, Russia terminated its provisional application of the treaty.

The issue that arose was whether the 20-year protection clause was applicable in relation to Russia, notwithstanding the fact that Russia had never ratified the ECT but merely applied the ECT on a provisional basis; in other words, the issue was whether a clause on the termination of a treaty could be applied by analogy to the termination of the provisional application. In the interim award on jurisdiction and admissibility, the tribunal answered this question in the affirmative. Since Russia’s notification of termination became effective on 19 October 2009, the tribunal concluded that any energy-related investment made in Russia before 19 October 2009 would continue to be protected for another 20 years.^[23]

Following this award, Russia initiated proceedings before the District Court in The Hague seeking to set aside the interim award on jurisdiction and admissibility^[24] and the final arbitral award on the merits,^[25] on various grounds, including that the arbitral tribunal did not comply with its mandate and was constituted irregularly, and there was no valid arbitration agreement. On 20 April 2016, the District Court annulled the awards rendered against Russia in excess of US$50 billion in July 2014.^[26] On 18 February 2020, the Court of Appeal in The Hague reversed this decision,^[27] and, on 15 May 2020, Russia submitted an appeal to the Dutch Supreme Court. At the time of writing, the matter is still unresolved, and it remains to be seen what investment protection obligations bind Russia by virtue of its provisional application of the ECT.

VI Temporal scope of terminated treaties

International investment law is presently in a transitional phase. During this phase, various states have taken steps to terminate their investment treaties.^[28] For example, in 2016, India sought to terminate 58 of its investment treaties. For the 25 remaining treaties, which had not completed their initial term, India issued a joint interpretative statement seeking to affirm the contracting parties’ understanding of the scope and meaning of the treaty provisions.^[29] Of the 25 remaining treaties, 19 have since been unilaterally terminated.^[30]

These circumstances have raised several questions in relation to the temporal scope of the terminated investment treaties. Most investment treaties contain sunset clauses that maintain the benefits of the treaty for a certain period (10 to 20 years) after termination, so long as the investment itself was made while the treaty was in force. For example, Article XV of the India–United Kingdom BIT (terminated on 23 March 2017) provides the following:

“This Agreement shall remain in force for a period of ten years. Thereafter it shall continue in force until the expiration of twelve months from the date on which either Contracting Party shall have given written notice of termination to the other. Provided that in respect of investments made whilst the Agreement is in force, its provisions shall continue in effect with respect to such investments for a period of fifteen years after the date of termination and without prejudice to the application thereafter of the rules of general international law.”

Sunset clauses extend an investor’s substantive protections and permit them to bring arbitrations during the sunset period.

Investors are likely to take the position that rights conferred under investment treaties are vested and cannot be revoked at the will of the contracting states;^[31] on the other hand, states will oppose noting that rights cannot survive against the explicit will of the masters of the treaties.

VII Conclusion

As things stand, it appears that sunset clauses will continue to protect foreign investors in India and Indian investors abroad that qualify for investment treaty protection; however, these provisions have not yet been fully tested before arbitral tribunals.^[32] Early jurisprudence indicates that the termination of treaties would have no impact on ongoing proceedings.^[33]

Since tribunals have not analysed these issues in detail, it will be necessary to closely watch cases as and when they are considered. In particular, the cases to watch will be those arising from India’s unilateral termination of treaties (as sunset periods start to expire) and the European Union’s termination of intra-EU treaties.

Footnote

[1] Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), Article 25. Additionally, if an investor seeks to bring its investor-state arbitration under the International Centre for Settlement of Investment Disputes (ICSID) system, additional jurisdictional requirements set out under the ICSID Convention also must be satisfied.

[2] Agnes Rydberg and Malgosia Fitzmaurice, ‘Legal Questions Concerning the Temporal Application of Treaties in International Investment Arbitration Cases’, in Esmé Shirlow and Kiran Nasir Gore (eds.), The Vienna Convention on the Law of Treaties in Investor-State Disputes: History, Evolution and Future, Kluwer Law International, 2012, p. 236.

[3] Arif Hyder Ali and David L Attanasio, ‘Jurisdiction and Admissibility: The Scope of Investment Protection’, in International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice, Chapter 5 at pp. 161–162.

[4] Similarly, Article 14 of the India–United Kingdom bilateral investment treaty (BIT) provides that ‘[t]his Agreement shall be subject to ratification and shall enter into force on the date of exchange of Instruments of Ratification’.

[5] India–Turkey BIT, Article 10.

[6] ibid.

[7] Ping An Life Insurance Company, Limited and Ping An Insurance (Group) Company, Limited v. The Government of Belgium, ICSID Case No. ARB/12/29, Award, 30 April 2015.

[8] Indian Metals & Ferro Alloys Ltd v. Republic of Indonesia, PCA Case No. 2015-40, Award, 29 March 2019.

[9] Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, SA v. The Dominican Republic, LCIA Case No. UN 7927, Award, 19 September 2009 Paragraph 94; Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No ARB(AF)/99/1, Interim Decision on Preliminary Jurisdictional Issues, 6 December 2000, Paragraph 62.

[10] Sean D Murphy, Temporal Issues Relating to BIT Dispute Resolution, ICSID Review: Foreign Investment Law Journal, Vol. 37, Issue 1-2, 2022, p. 66.

[11] Michael Ballantine and Lisa Ballantine v. The Dominican Republic, PCA Case No. 2016-17, Final Award, 3 September 2019, Paragraph 527; Serafín García Armas and Karina García Gruber v. Bolivarian Republic of Venezuela, PCA Case No. 2013-3, Decision on Jurisdiction, 15 December 2014, Paragraph 217; Veteran Petroleum Limited (Cyprus) v. The Russian Federation, PCA Case No. 2005-05/AA228, Interim Award on Jurisdiction and Admissibility, 30 November 2009, Paragraphs 562–63.

[12] Mondev International Ltd v. United States of America, ICSID Case No. ARB(AF)/99/2, Award, 11 October 2002, Paragraph 91.

[13] See, e.g., Daimler Financial Services AG v. Argentine Republic, ICSID Case No. ARB/05/1, Final Award, 22 August 2012. In this case, the investor had sold its shares to its parent company prior to the arbitration. The tribunal noted that an investor could pursue investor-state arbitration even if it sold the investment prior to the commencement of arbitration. Observing that it is common for legal claims to be severable from assets, it concluded that it ‘should accord standing to any [covered] investor under the relevant treaty texts who suffered damages as a result of the allegedly offending governmental measures at the time that those measures were taken—provided that the investor did not otherwise relinquish its right to bring an ICSID claim’ (Paragraph 145).

[14] Rikita Mehta, Prenay Agarwal and Vinita Agarwal v. Oriental Republic of Uruguay, Paris Court of Appeal, Case No. 20/13899, 21 February 2023.

[15] The Energy Charter Treaty is an international agreement that establishes a multilateral framework for cross-border cooperation in the energy industry, primarily between Europe and post-Soviet nations.

[16] Técnicas Medioambientales Tecmed, SA v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003 (Tecmed v. Mexico).

[17] MCI Power Group LC and New Turbine, Inc v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007 (MCI v. Ecuador).

[18] Tecmed v. Mexico, Paragraph 70.

[19] ibid., Paragraph 71.

[20] MCI v. Ecuador, Paragraph 114. See, generally, Ecuador– United States BIT (since terminated).

[21] Terrien Armand and Fernández Antuña Antolín, ‘Jurisdiction Ratione Temporis’, Jus Mundi, last updated 16 May 2023, www.jusmundi.com/en/document/publication/en-jurisdiction-ratione-temporis (accessed 2 June 2023).

[22] Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. 2005-04/AA227 (Yukos Universal v. Russia).

[23] ibid., Interim Award on Jurisdiction and Admissibility, 30 November 2009, Paragraph 339.

[24] ibid.; Hulley Enterprises Limited (Cyprus) v. The Russian Federation, PCA Case No. 2005-03/AA226, Interim Award on Jurisdiction and Admissibility, 30 November 2009; Veteran Petroleum Limited (Cyprus) v. The Russian Federation, UNCITRAL, PCA Case No. 2005-05/AA228, Interim Award on Jurisdiction and Admissibility, 30 November 2009.

[25] Yukos Universal v. Russia, Final Award, 18 July 2014.

[26] ibid., Judgment of the Hague District Court, 20 Apr 2016, Paragraph 6.

[27] ibid., Judgment of the Hague Court of Appeal 18 February 2020.

[28] UNCTAD World Investment Report FNs. This is just an indicator of a global trend, and the total number of treaties that have been terminated in a year has consistently exceeded the number of treaties entered into.

[29] Government of India, Ministry of Finance, Department of Economic Affairs, Investment Division, Office Memorandum F. No. 26/07/2013-IC, 8 February 2016 [available on file with author].

[30] The initial term of the BITs with Bahrain, Kuwait, Finland, Saudi Arabia, China, Jordan, Iceland, Macedonia, Myanmar, Mozambique, Latvia, Bangladesh, Serbia (Yugoslavia), Sudan, Turkey, Bosnia and Herzegovina, Trinidad and Tobago, Mexico, Syrian Arab Republic, Laos and Brunei has now elapsed, and the treaties have been terminated. The initial terms for the treaties with Senegal (15 years until 16 October 2024) and Lithuania (15 years until 30 November 2026) have not yet elapsed.

[31] Occidental Exploration and Production Company v. The Republic of Ecuador [2005] EWCA Civ 1116, 9 September 2005, Paragraphs 17–18, noting that the right under investment treaties belongs to investors and that ‘[i]t would potentially undermine the efficacy of the protection held out to individual investors, if such protection was subject to the continuing benevolence and support of their national State’.

[32] Borzu Sabahi, Noah D Rubins and Don Wallace Jr, Investor-State Arbitration, 2nd edn., Oxford University Press, 2019, pp. 430–431.

[33] CMC Muratori Cementisti CMC Di Ravenna SOC Coop, CMC Muratori Cementisti CMC Di Ravenna SOC Coop ARL Maputo Branch and CMC Africa Austral, LDA v. Republic of Mozambique, ICSID Case No. ARB/17/23, Award, 24 October 2019, Paragraph 326. (‘An offer to arbitrate the present dispute had thus been made and accepted before the decision in Achmea was issued or the member states issued their declaration. A valid and binding agreement to arbitrate has thus been formed. That agreement is subject to international law, not to EU law. The ICSID Convention provides that, “[w]hen the parties have given their consent, no party may withdraw its consent unilaterally.”’).

This article was originally published in The Law Reviews on 21 July 2023 Co-written by: Ila Kapoor, Partner; Niyati Gandhi, Principal Associate. Click here for original article

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