Maffezini v. Spain

Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7 (Decision on Jurisdiction)

Decision available at https://www.italaw.com/cases/641

Keywords

Dispute resolution provisions, exhaustion of remedies, most favoured nation treatment

Key dates

Request for Arbitration: 30 October 1997

Constitution of Tribunal: 24 June 1998

Decision on Jurisdiction: 25 January 2000

Award: 9 November 2000

Rectification of the Award: 21 January 2001

Arbitrators

Prof. Francisco Orrego Vicuña (president, appointed by the chairman of ICSID’s Administrative Council)

Judge Thomas Buergenthal (claimant appointee)

Mr. Maurice Wolf (respondent appointee)

Forum and applicable procedural rules

International Centre for Settlement of Investment Disputes (ICSID)

ICSID Rules of Procedure for Arbitration Proceedings

Applicable treaty

Argentina–Spain Bilateral Investment Treaty (BIT)

Legal issues raised in the Decision on Jurisdiction

  • Jurisdiction—exhaustion of remedies
  • Jurisdiction—most favoured nation treatment

1.0 Summary of the decision on jurisdiction

Mr. Emilio Agustín Maffezini, a national of Argentina, brought a claim against Spain under the Argentina–Spain Bilateral Investment Treaty (BIT). Mr. Maffezini had invested in a Spanish company engaged in the production and distribution of chemical products. The dispute resolution clause in the BIT required that a dispute between the investor and state be referred to the courts of the host state (in this case, Spanish courts) before it could be brought to international arbitration. Spain contested the Tribunal’s jurisdiction on, among other grounds, the basis that the investor had not submitted the claim to Spanish courts as required by the Argentina–Spain BIT.

The investor, however, argued that he had not needed to go to Spanish courts to pursue local remedies because the most favoured nation (MFN) clause in the BIT allowed him to go straight to international arbitration. Like other typical MFN clauses, the Argentina–Spain MFN clause provided that each treaty party must not treat the investor of the other treaty party less favourably than it treats an investor from any third state. Based on this, Maffezini argued that the MFN clause in the Argentina–Spain BIT allowed him to invoke more favourable provisions in the Chile–Spain BIT, because the latter did not include a requirement to seek local remedies prior to recourse to international arbitration.

The Tribunal rejected Spain’s objections to jurisdiction, agreeing with Maffezini that the MFN clause included in the Argentina–Spain BIT allowed the investor to rely on the more favourable arrangement contained in the Chile–Spain BIT regarding dispute resolution. In contrast to Spain’s BIT with Argentina, its BIT with Chile permitted the investor to submit the dispute to ICSID arbitration without first accessing the Spanish courts.

After confirming it had jurisdiction over the investor’s claim, the Tribunal issued its decision on the merits in an award dated 9 November 2000, finding Spain liable for breaches of the BIT.

2.0 Select Legal Issue: Using The Most Favoured Nation Clause to Broaden Dispute Settlement Rights

The Tribunal’s decision on the application of the MFN clause to dispute resolution provisions in BITs was a “first” and triggered a debate on the scope of MFN clauses. In particular, the decision raised concerns that MFN clauses could undermine dispute resolution clauses negotiated in treaties if investors were permitted to rely on more favourable provisions granted in third party treaties. Some countries reacted by adopting specific treaty texts stipulating that the MFN clause did not apply to procedural matters.

The analysis below focuses on the Tribunal’s findings regarding the MFN clause and its application to dispute resolution provisions.

The Tribunal noted that the Argentina–Spain BIT provided domestic courts with the opportunity to deal with a dispute for a period of eighteen months before the matter could be submitted to international arbitration. Based on this provision, the Tribunal acknowledged that the investor’s failure to submit the case to the Spanish courts prior to bringing the claim to international arbitration as required by the Argentina–Spain BIT would, in principle, have prevented the Tribunal from assuming jurisdiction. The investor, however, argued that, pursuant to the MFN clause in the Argentina–Spain BIT, the investor could rely on more favorable provisions in Spain’s BITs with third parties. The MFN clause read, “In all matters subject to this Agreement, this treatment shall not be less favourable than that extended by each Party to the investments made in its territory by investors of a third country.” According to the investor, the reference to “all matters” encompassed not only the BIT’s substantive provisions, but also its procedural provisions, such as the clauses regarding dispute settlement. Based on that interpretation, the investor sought to rely on the Chile–Spain BIT, and argued that he was consequently allowed direct access to ICSID arbitration without first going to Spanish courts.

Spain countered by arguing that the reference in the MFN clause to “matters” in the Argentina–Spain BIT referred only to substantive or material aspects of the treatment granted to investors and not to procedural or jurisdictional questions.

The Tribunal started with analyzing the subject matter to which the MFN clause applied in the “basic” treaty (in this case, the Argentina–Spain BIT). It found that if the matters covered by the MFN clause in the basic BIT were more favourably treated in a third party treaty, then, by operation of the MFN clause, that better treatment should also be accorded to the beneficiary under the basic BIT. The Tribunal then turned to the issue of whether dispute resolution was a matter covered by the MFN clause in the Argentina–Spain BIT. It referred to treaties such as the U.K.–Albania BIT that contained MFN clauses expressly covering dispute resolution. The Tribunal also referred to MFN clauses in other treaties that did not expressly cover dispute resolution provisions, such as MFN clauses relating to “all rights contained in the present Agreement” or “all matters subject to this Agreement” (in the Argentina–Spain BIT). The Tribunal noted that, although such MFN clauses did not expressly provide that dispute resolution was covered, “there [were] good reasons to conclude that… dispute settlement arrangements are inextricably related to the protection of foreign investors” and therefore such MFN clauses would cover the enforcement of procedural rights in the treaties (para. 54).

The Tribunal then concluded that, because the Chile–Spain BIT contained provisions for the settlement of disputes more favourable to the protection of the investor’s rights and interests than those in the Argentina–Spain BIT, Maffezini could rely on those provisions and submit the dispute to arbitration without first accessing the Spanish courts. The Tribunal rejected the idea that the requirement to first resort to domestic courts reflected a fundamental question of public policy considered in the context of the Argentina–Spain BIT and the negotiations relating to it.

The Tribunal’s view that an MFN clause can apply to dispute resolution provisions, as opposed to only substantive matters, provides an example of an expansive interpretation of the MFN clause. The Tribunal’s decision has the potential of making nuances in treaties’ dispute settlement clauses in large part irrelevant. It should be noted, however, that the MFN clause in the Argentina–Spain BIT was indeed broadly drafted because it specifically applied to “all matters” subject to the BIT. It is therefore uncertain whether a more narrowly worded MFN clause would have been interpreted in the same expansive fashion. Further, the Tribunal identified a number of public policy considerations and circumstances that might in other cases prevent use of the MFN clause to distort the dispute resolution mechanism agreed upon by the parties in the basic treaty.[1] The Tribunal noted, however, that these public policy considerations did not apply to the Argentina–Spain BIT.

The scope of the rights and benefits provided under the MFN clause to dispute- resolution mechanism clauses by the tribunal remains an issue of debate and uncertainty in investment treaty arbitration. Although some tribunals such as that in Siemens v. Argentina have followed the MaffeziniTribunal’s broad reading of the MFN clause, others, such as that in Plama Consortium v. Bulgaria,[2] have adopted a narrower view of MFN provisions, holding that they do not generally cover issues of procedure and dispute settlement.


Notes

[1] The public policy considerations were as follows:

  • First, if a party had conditioned its consent to arbitration in the basic treaty on the exhaustion of local remedies, that requirement could not be bypassed by invoking the MFN clause in relation to a third party agreement that did not contain a requirement to exhaust local remedies, because the stipulated condition reflected a fundamental rule of international law.
  • Second, if the basic treaty included a so-called “fork-in-the-road” clause, pursuant to which the investor was provided a choice, for example, between submission to domestic courts or to international arbitration, and where the choice, once made, became final and irreversible, that stipulation could not be bypassed by invoking the MFN clause.
  • Third, if the basic treaty provided for a particular arbitration forum such as ICSID, for example, that option could not be changed by invoking the MFN clause in order to refer the dispute to a different system of arbitration.
  • Finally, if the treaty contained a highly institutionalized system of arbitration that incorporated precise rules of procedures such as NAFTA, those rules could not be altered by operation of the MFN clause because these were very specific provisions reflecting the precise will of the treaty parties.

[2] ICSID Case No. ARB/03/24.