Jurisdiction ratione voluntatis (consent of the state and the investor) of international investment tribunals indicates the consent of parties to arbitration on a specific scope of potential disputes.
But many investor-state arbitration clauses provided under bilateral investment treaties (BITs) between China and foreign governments in the 1980s and 1990s seemingly limit jurisdiction ratione voluntatis to “disputes concerning compensation for expropriation”. This implicitly built a “jurisdictional Great Wall” for investment arbitration with Chinese characteristics.
KEY POINTS UNDER SCRUTINY
For example, the first sentence of article 8(3) of the 1993 BIT signed between China and Laos states: “If a dispute involving the amount of compensation for expropriation cannot be settled through negotiation within six months … it may be submitted at the request of either party to an ad hoc arbitral tribunal.”
Faced with proceedings initiated by an investor relying on such an arbitration clause, a host state would often raise the defence: do not agree to submit investment disputes other than those involving “compensation for expropriation” to arbitration.
Therefore, an arbitral tribunal lacks jurisdiction ratione voluntatis over non-expropriation disputes – such as disputes in relation to the fair and equitable treatment, full protection and security, and umbrella clause – and other expropriation-related disputes, such as whether expropriation occurred and whether it was lawful.
In this case, when reviewing jurisdiction ratione voluntatis, an arbitral tribunal usually interprets this type of BIT in accordance with articles 31 and 32 of the Vienna Convention on the Law of Treaties, focusing on three key points:
- Whether the scope of jurisdiction ratione voluntatis of the BIT in question is limited only to disputes over the amount of compensation for expropriation;
- Whether consent to arbitration reflected in the arbitration clause can cover both expropriation and non-expropriation claims; and
- Whether the arbitral tribunal can expand the host state’s consent to arbitration by invoking a most-favoured nation (MFN) clause in the BIT in question.
In prior cases, most arbitral tribunals have broadly interpreted such narrow arbitration clauses in the first generation of China’s BITs, covering all issues normally inherent to an expropriation, including whether expropriation occurred and was lawful.
Regrettably, these tribunals denied further expanding the scope of jurisdiction ratione voluntatis to non-expropriation disputes.
In two recent arbitral awards, international tribunals seem to have undergone a significant value shift on the issue of jurisdiction, from protecting investors’ procedural rights to international arbitration, to respecting judicial jurisdiction of host states’ domestic courts over expropriation disputes.
On 30 January 2023, the Permanent Court of Arbitration (PCA) held, in Beijing Everyway Traffic & Lighting Tech v Ghana, that the scope of jurisdiction ratione voluntatis of the China-Ghana BIT was limited only to a dispute involving an amount of compensation for expropriation, saying the tribunal had no jurisdiction over any other treaty arbitration claims.
On 16 February 2023, the International Centre for Settlement of Investment Disputes (ICSID) arbitral tribunal refused to exercise jurisdiction over claims in AsiaPhos and Norwest Chemicals v China for the same reasons.
The two tribunals put the three key above-mentioned points under scrutiny, concluding:
- Scope of jurisdiction ratione voluntatis was limited only to disputes related to the amount of compensation for expropriation, while issues of whether expropriation occurred and was lawful should be subject to the jurisdiction of host states’ domestic courts;
- Scope of jurisdiction ratione voluntatis did not cover non-expropriation claims; and
- The MFN clause in treaties cannot be invoked to expand the scope of jurisdiction ratione voluntatis.
After declining jurisdiction, the two tribunals proposed a remedy. The treaties themselves would not prevent investors from submitting issues of whether an expropriation occurred and was lawful to the host states’ domestic courts for adjudication first, before submitting the quantum issue of expropriation to international arbitration.
Both arbitral tribunals fully considered prior practice in relation to broad treaty interpretation. Nevertheless, they decided to take a narrow approach and arrived at an opposite conclusion regarding the first key above-mentioned, believing it was not appropriate to expand the scope of consent to arbitration.
Notably, both tribunals held that the disputes over whether an expropriation occurred and was lawful should be exclusively decided by the host states’ domestic courts; and the tribunals only had jurisdiction over disputes concerning the amount of compensation for expropriation.
This method of allocating jurisdictions over different expropriation-related disputes between domestic courts and international arbitral tribunals will compel investors who have lost arbitration cases to seek legal remedies under host states’ domestic legal system first, before resubmitting the dispute over the amount of compensation for expropriation to international arbitral tribunals.
This undoubtedly increases the difficulty and cost for investors to protect their legitimate rights and interests by invoking investment arbitration clauses and substantive provisions under BITs.
Given the recent arbitral awards, investors planning to initiate international investment arbitration proceedings against governments of host states on the basis of such narrow BITs should carefully examine the scope of jurisdiction ratione voluntatis to avoid paying substantial legal fees, arbitration costs and expert witness fees only to find all effort was in vain.
Although the recent awards have to some extent caused “jurisdictional anxiety” among investors, the principle of stare decisis (binding precedent) does not apply in international investment arbitration.
There is still no clear-cut answer to the question of whether investors can bring arbitration claims that do not involve the amount of compensation for expropriation against host states based on such narrow BITs.
The question requires a case-by-case interpretation and determination in accordance with treaty law and principles of international law.
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