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ICSID tribunal enforces MFN clause to allow reliance on umbrella clauses in other BITs
Practical Law UK Legal Update 8-520-6148 (Approx. 3 pages)
ICSID tribunal enforces MFN clause to allow reliance on umbrella clauses in other BITs
by PLC Arbitration
| Published on 01 Aug 2012 • International |
In EDF International SA and others v Argentine Republic (ICSID Case No ARB/03/23), an ICSID tribunal considered whether the claimants could rely on a Most Favoured Nation (MFN) clause in the bilateral investment treaty between France and Argentina to incorporate an umbrella clause from another treaty entered into by Argentina.
An ICSID tribunal has permitted claimants to invoke the Most Favoured Nation (MFN) clause in the France/Argentina bilateral investment treaty (BIT) to allow them to rely on the umbrella clauses in two other BITs entered into by Argentina. The claimants were investors in a company that was party to a concession agreement with the Government of Mendoza. The claimants argued that Argentina had breached "commitments" that were contained in the concession agreement and in the regulatory framework.
Noting that opinion diverged on the application of MFN clauses, the tribunal concluded that, if it did not give effect to the MFN clause to allow incorporation of the umbrella clauses, it would effectively be "reading the MFN language out of the treaty".
Turning to the umbrella clauses, the tribunal considered that their wording was broad enough to cover the claimants' claims in respect of breach of specific commitments. This was so even though the claimants were not parties to the concession agreement. The clauses obliged Argentina to observe commitments undertaken in respect of investors or in connection with investments of nationals of a contracting state.
The tribunal also rejected the argument that the claimants should be bound, in respect of the claims under the umbrella clauses, by the forum selection clause in the concession agreement, which required claims to be submitted to local courts. The tribunal said that the claimants were not parties to the concession agreement; their claim rested on breach of a BIT and, therefore, clearly fell within the tribunal's jurisdiction.
The scope of umbrella clauses and the application of MFN clauses continues to be a matter of debate. This case adds to the line of awards advocating a broad approach to the interpretation of both types of clause.
For detailed discussion about MFN and umbrella clauses, see Practice notes, How most favoured nation clauses in bilateral investment treaties affect arbitration and Umbrella clauses.