2016 The Myth of A Multilateral Framework in International Investment Law PDF

Indian Journal of International Law (2016) 56(3–4):427–461
DOI 10.1007/s40901-017-0052-9
ARTICLE
The myth of a multilateral framework in international

investment law
Aniruddha Rajput
Published online: 1 March 2017

The Indian Society of International Law 2017
Abstract In past, various attempts at creating a multilateral treaty for the protection
of foreign investment have failed. Yet, scholars have tried to fill in the void through
theoretical arguments to the effect that even in the absence of a multilateral treaty, the
bilateral investment treaties create a multilateral normative framework. This frame-
work imposes external disciplines on States. These theoretical arguments do not find
any basis in the treaty text and result into expanding the scope of standards of
treatment provided in the bilateral investment treaties (BITs). The first part establishes
that States are not ready for a multilateral treaty on investor protection and the
reasons for this position based on past experiences. The theoretical arguments used as
a substitute for a multilateral treaty have various aspects. It is claimed that the BITs
have created a framework which is uniform due to a large number of BITs and
consistency in their language. BITs allow corporate restructuring and contain Most
Favoured Nation (MFN) clause, which allows any foreign investors to choose the
most beneficial BIT to file a claim and most beneficial provision from the all the BITs
entered into by the host state. This process is said to have resulted into multilater-
alization – another form of a multilateral framework. These arguments do violence to
the treaty language and stretch the treaty text beyond its purview. The extravagant
interpretations proposed by scholars and adopted by tribunals have forced the regime
of investment arbitration into an uncertain future.
I thank Professor M Sornarajah and members of the Doctoral Reading Group at the Faculty of Law, the
National University Singapore, for their comments. I would also like to thank Rouble Sorkkar for her
efficient research assistance. The responsibility for the views expressed and errors are entirely mine.
Aniruddha Rajput (&)

Member, United Nations International Law Commission, Geneva, Switzerland
e-mail: adrajput@gmail.com
Aniruddha Rajput
Advocate, Supreme Court of India, New Delhi, India
123
428 Aniruddha Rajput
Keywords International investment law Investor State dispute resolution

Investment treaty arbitration International economic law
1 Introduction
The field on international investment law is fractured and divided into

various bilateral investment treaties (BITs), regional investment agree-
ments and regional free trade agreements with investment chapters.
Therefore, the regime of international investment law - if it may be so
called - is a motley collection of treaties. These investment treaties
contain clauses that are the outcome of a quid pro quo bargain between
States. Negotiations for each treaty are conducted keeping in mind the
needs and priorities of the domestic economy of the participating States.
Efforts were made in past, on more than one occasion, to unify the
divided landscape through a multilateral agreement on investment. But
they all failed and the present fragmented system of treaties has
perpetuated. At present, there are around 3,271 investment agreements
entered into between various States.1 These treaties have created a
dense network connecting most of the States. They possess great deal of
similarity in structure and content. Also, there is repeated treaty
making, which has created, and confirmed certain existing principles.
Over the last few decades of the existence of investor State
arbitration, grandiose theoretical arguments have been advanced to
create and solidify some notions to influence the understanding and
interpretation of investment treaties. An important component of the
theoretical arguments is the argument of creation of a multilateral
framework – in the absence of an agreed multilateral treaty – to have
emerged for protection of rights of foreign investors. There are various
versions of the multilateralism argument. The prominent amongst
them are: multilateralization of international investment law2 and
normative framework.3 According to Schreuer and Kriebaum, interna-
tional investment law represents ‘‘community interest’’. The common
thread amongst all these arguments, despite differences in their
formulation, is that they argue that in the regime of international
investment law the bilateral obligations undertaken through a BIT are
1
United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2015 -
Reforming International Investment Governance (UN Publication, Geneva, 2015) 106.
2
See generally, Stephan W Schill, Multilateralization of International Investment Law (CUP, Cambridge,
2009).
3
W Michael Reisman and Robert D Sloane, Indirect Expropriation and its Valuation in the BIT
Generation, 74 British Yrbk Intl L (2003) 115.
123
The myth of a multilateral framework 429
transformed into a framework with common objectives of public

interest. The framework introduces external disciplines that are created
in absence of state consent to those disciplines; and states are bound to
comply with those disciplines. They however, express concerns that the
investment tribunals have not been sufficiently considerate towards
public interests and that they should be mindful of it in the future.4
Other scholars have advanced similar arguments, either supporting the
need of a multilateral treaty or by proposing a theoretical framework to
fill the void of absence of a multilateral treaty.5 All these versions are
discussed in detail and a critique of these arguments is presented in this
article. They are collectively referred to as the ‘multilateral framework
arguments’. It is natural for the spirit of a multilateral framework to be
invigorated with the conclusion of the Trans Pacific Partnership (TPP)
with an investment Chapter.6 TPP has a wide geographical reach with
12 countries on the Pacific Rim as part of it and more are expected to
join. Even while the TPP was being negotiated it was considered to be a
game changer for international investment law, especially from the
perspective of creating multilateral rules.7
This article comprises of four sections. The first section of
introduction is followed by Sect. 2, which presents the failed efforts
at creating a multilateral treaty and the reasons for its failure. These
reasons are helpful in understand the challenges in creating a
multilateral treaty – and these challenges continue. Section 3 discusses
4
Christoph Schreuer and Ursula Kriebaum, From Individual to Community Interest in International
Investment Law, in, Ulrich Fastenrath & others, From Bilateralism to Community Interest: Essays in Honour of
Bruno Simma (OUP, Oxford, 2011) 14.
5
Efraim Chalamish, The Future of Bilateral Investment Treaties: A De Facto Multilateral Agreement?, 34
Brooklyn J Intl L (2008–09) 303; Rafael Leal-Arcas, The Multilateralization of International Investment Law, 35
North Carolina J Intl & Comp Regulation (2009–10) 33; See, Rafael Leal-Arcas, International Trade and Investment
Law: Multilateral, Regional and Bilateral Governance (Edward Elgar, 2010); Andreas Kulick, Global Public Interest
in International Investment Law (CUP, Cambridge, 2012).
6
The United States Trade Department describes the Trans Pacific Partnership as: ‘TPP’s chapter on
Investment strengthens the rule of law in the Asia-Pacific region, deters foreign governments from imposing
discriminatory or abusive requirements on American investors, and protects the right to regulate in the
public interest. To this end, it ensures that American investors have effective remedies in the event of a
breach of their rights, while reforming the investor-state dispute settlement (ISDS) system by providing for
tools to dismiss frivolous claims and instituting a range of other procedural and substantive safeguards.’ The
details of the TPP are available at \https://medium.com/the-trans-pacific-partnership/investment-
c76dbd892f3a#.i10tnlcie[ (last visited 18 April 2016).
7
C Brower & S Blanchard, What’s in a Meme? The Truth about Investor- State Arbitration: Why It Need
Not, and Must Not, Be Repossessed by States, 52 Columbia J Transnatl L (2014) 689, 696–7. According to
Brower and Blanchard: ‘The investment protections and investor-State dispute settlement provisions in
those treaties-the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership-
therefore have the potential to immediately impact global governance of relations between foreign investors
and host States as well as to influence future treaty negotiators.’ The political at the moment does not show
bright prospects for the TPP.
123
the different versions of the multilateral arguments in detail and their

drawbacks. The third section is subdivided into six sub-sections. The
first sub-section discusses the argument of creation of a normative
framework by entering into Bilateral Investment Treaties (BITs). The
normative framework is said to introduce global norms for regulating
state behavior. The contents and drawbacks of the argument are
discussed in detail. The second sub-section focuses upon the argument
of multilateralization. As per this argument, investment treaties are a
‘‘functional substitute’’ for a multilateral treaty. The contents of this
argument are discussed in detail. The third sub-section addresses the
claim that by allowing corporate restructuring, BITs allow investors to
claim benefits under whichever BIT they like. Thereby creating a de
facto multilateral framework. The fourth sub-section tackles the
controversial area of how far the Most Favoured Nation (MFN) clause
can result into multilateralization. The fifth sub-section discusses the
argument and problems of alleged multilateralization through universal
presence of dispute resolution clauses in all BITs. These six sub-sections
address theoretical as well as practical arguments advanced to support
the claim of multilateralization. Sections 3.1 and 3.2 focus on the
theoretical construct, whereas Sects. 3.3, 3.4, 3.5 and 3.6 discuss
arguments based on arbitral practice. The discussion is followed by
conclusions in Sect. 4.
2 Failed efforts of a multilateral treaty
Before discussing the multilateral arguments that are aimed to be

functional substitutes for a multilateral treaty, it is necessary to discuss
the failed efforts at creation of a multilateral treaty for protection of
foreign investment.
Interestingly, the first effort towards creating a treaty based system
for investment protection commenced with the efforts for a multilateral
treaty. This was in 1929, through the Draft Convention on Protection of
Foreigners. The League of Nations and International Chamber of
Commerce had prepared the draft.8 The project was ambitious. It
contemplated wide ranging freedoms for investors. It allowed foreign
investors to participate in the economic activity in the host state and
also civil and political rights on acquisition, preservation and
8
See, AK Kuhn, The International Conference on the Treatment of Foreigners, 24 American J Intl L (1930)
570.
123
transmission of property.9 Despite liberal provisions for investor

protection, the dispute resolution clause was modest. It only allowed
inter-state dispute resolution mechanism and investors were not
equipped to independently raise claims before an international
tribunal.10 Due to the broad range of guarantees of national treatment
it was seen as an excessive intrusion into sovereignty and the States
found the proposal unacceptable.11
The second effort for a multilateral treaty was commenced
immediately after the Second World War. This was a good time to
conclude a multilateral treaty because the post war situation was
considered conducive for the acceptability of multilateral treaties.
Discussions for investor protection were undertaken under the to be
formed International Trade Organization through the Havana Charter.
The American business interests were at the forefront for preparation of
the negotiating text - the Havana Charter. The negotiating States
realized that the text, in existing form, would severely impinge their
regulatory freedom. When the draft underwent negotiations by States,
it was changed drastically. It stipulated that foreign investment should
not be a basis for interference with internal affairs or national policies.12
The final text of the Havana Charter referred to the importance of
foreign investment, but did not contain substantive protections
standards, as are contained in the present-day BITs.13 It only expressed
a hope that Member States would provide reasonable opportunities for
investments acceptable to them, adequate security and avoid discrim-
ination.14 Since the text leaned heavily in favour of preserving the
regulatory freedom of States, the business groups themselves aban-
doned the text that emerged after negotiations.15 The standards of
protection specified in the Havana Charter were unacceptably weak for
the American investors16 and were seen to be reducing the protection
9
Ibid, 571.
10
Gus Van Harten, Investment Treaty Arbitration and Public Law (OUP, Oxford, 2007) 19.
11
EM Borchard, ‘Responsibility of States’, at the Hague Codification Conference, 24 American J Intl L
(1930) 517, 530.
12
The Havana Charter for the International Trade Organization, 1947, (‘Havana Charter’) Article 12 (1)
(c), \http://www.wto.org/english/docs_e/legal_e/havana_e.pdf[.
13
Schill, supra note 2, 33.
14
Havana Charter, supra note 12, Article 12 (2).
15
Ivan Trofimov, The Failure of the International Trade Organization (ITO): A Policy Entrepreneurship
Perspective, 1 J L & Pol (2012) 56, 63–65; Van Harten, supra note 10, 19–20.
16
Richard Toye, Developing Multilateralism: The Havana Charter and the Fight for the International
Trade Organization, 1947–1948, 25 Intl History Rev (2003) 282, 301.
123
the American investors were already enjoying abroad.17 A commentator

observed that it gave priority to domestic policy goals over international
standard of investment policy.18
The story of Havana Charter is in contrast with the 1929 Draft
Convention on Protection of Foreigners. In 1929 States considered an
investment treaty with extensive national treatment clauses to be overly
intrusive and during Havana Charter, foreign investors thought that a
narrowly drafted treaty would reduce the rights that they enjoy
otherwise. The situation that exists today is very similar. States are
seeking greater freedom to regulate.19 It is plausible that the business
community itself may not be interested in shunning the present
beneficial system of bilateralism and moving towards a multilateral
regime.
At the initiation of the investors from the United Kingdom and
Germany, the Abs-Shawcross Draft Convention on Investments Abroad
was prepared in 1959. The proposal for the first time envisioned a treaty
claim, to be filed by the investor against the host state.20 The proposal
dealt comprehensively with standards of investment protection and
contained provisions on fair and equitable treatment, most constant
protection, and security and protection against direct and indirect
expropriation.21 It failed due to a spirited opposition from capital
importing countries.22
In the interlude no efforts for a multilateral treaty could sustain
because the developing States had come together and declared the New
International Economic Order (NIEO). Developing countries with their
numerical majority in the General Assembly of the United Nations
declared sovereignty over natural resources23 and States were declared
to possess the authority to remove aliens from their territory at their
choice, by payment of ‘‘appropriate compensation’’.24 The developed
countries then clamored at the Organization for Economic Co-
17
Ibid, 287–88.
18
See, Dattu, A Journey from Havana to Paris, 24 Fordham Intl L J (2000) 275, 288.
19
United States Model Bilateral Investment Treaty, 2012 \https://ustr.gov/sites/default/files/BIT%
20text%20for%20ACIEP%20Meeting.pdf[.
20
George Schwarzenberger, The Abs-Shawcross Draft Convention on Investments Abroad: A Critical
Commentary, 9 J Public L (1960) 147.
21
See, G Schwarzenberger, Foreign Investments and International Law (Stevens, London, 1969) 109–34.
22
Van Harten, supra note 10, at 21.
23
Permanent Sovereignty over Natural Resources, Adopted by the UNGA on 14 December 1962 at its
Seventeenth session, UN Doc A/5217, [1], [6].
24
Charter of Economic Rights and Duties of States, Adopted by the UNGA on 12 December 1974 at its
Twenty-ninth session, UN Doc A/RES/29/3281, Article 2(2)(c).
123
operation and Development (OECD) for the preparation of a multilat-

eral treaty. The OECD prepared the Draft Convention on Protection of
Foreign Property in 1967. The prospects of developing countries
participating in the negotiations were remote. Soon, even the developed
countries expressed their reluctance to support the OECD Draft
Convention.25 The OECD Draft Convention exposed the irreconcilable
ideological divide between the capital exporting and capital importing
countries.26 Frustrated with the consistent failure, the developed
countries moved to individual bargains and entered into BITs. Though,
the OECD Draft Convention did serve as an inspiration for the bilateral
negotiations for the capital exporting countries with the capital
importing countries but never, by itself became a treaty.27
The resistance of the developing States based on the NIEO may resurface
in any negotiations for a multilateral treaty. It would not be initiated by the
developing states, but by the developed states. Reisman argues that the
developing and developed States may enter into a coalition to return to the
NIEO. States would be willing to broaden expropriation clauses and claim
freedom of self-judging for actions undertaken in that direction.28
The last effort for a multilateral treaty was during the peak of the
Washington Consensus, through the Multilateral Agreement on
Investment (MAI). This was the most well suited time because the
World Trade Organization (WTO) replaced the shaky GATT system.
To remove the possibility of developing stats watering down the impact
of substantive protections, the negotiations were shifted to the OECD
by the developed countries.29 Ironically, despite keeping developing
countries out, the developed countries themselves could not agree on
the standards of protection to be granted to foreign investment. The
French and Canadian delegation saw the provisions of the draft text
excessively intrusive into its sovereignty and withdrew from the
negotiations, resulting into collapse of the MAI. They were keen on
protection of cultural rights, which were not adequately protected in
the existing text of MAI.30 Although the stand taken by the French
25
Schill, supra note 2, at 38–39.
26
Rudolph Dolzer and Margarete Stevens, Bilateral Investment Treaties (M Nijhoff, Leiden, 1995) 2.
27
Van Harten, supra note 10, at 21.
28
W Michael Reisman, The Future of International Investment Law and Arbitration, in, Antonio Cassese
(ed) Realizing Utopia: The Future of International Law (OUP, Oxford, 2012) 285.
29
Canner, The Multilateral Agreement on Investment, 31 Cornell Intl L J (1998) 657, 666; Jürgen Kurtz, A
General Investment Agreement in the WTO? 23 Univ Pennsylvania J Intl Econ L (2002) 713, 714.
30
Peter Muchlinski, The Rise and Fall of Multilateral Agreement on Investment: Where Now?, 34 Intl
Lawyer (1999–2000) 1033, 1046–8.
123
delegation was a death knell to the process, the negotiations from

inception were fraught with lack of coherence on the need and extent of
protection of foreign investors.31 The MAI aimed at liberalizing entry
and establishment of foreign investment. Not all developed countries,
including developed countries, were in favour of liberalizing market
access.32 This experience proved that there is a lack of consensus even
amongst traditional capital exporting countries about the appropriate
standards of protection and extent of exceptions.
Another important contributor to the failure of the MAI was the Non-
Governmental Organs (NGOs) movement.33 The time was ripe for a
multilateral treaty on trade but not on investment. This also reflects
difference in attitude of States towards trade and investment. States are more
wary of investment protection due to binding dispute resolution. WTO also
has a binding dispute resolution, but the Dispute Settlement Body (DSB)
directs removal of the offending measure whereas the investment tribunals
award heavy compensations in favour of foreign investor.
Now the situation has become more complex. The primary drivers of a
multilatreral treaty, ie the traditional capital exporting countries are
suffering a brunt of investment claims. For example, Germany, the
prominent votary of investor protection is having second thoughts after it
was sued by investors for banning nuclear power plants.34 There are
different suggestions made for reformation for the system and they all are
very different from each other. It is hard to see a consensus amongst states
on treatment standards, the pattern of dispute resolution and exceptions –
the prospects of a multilateral consensus are way out of question.
The TPP is an important treaty in terms of its coverage. It connects 12
countries. The countries negotiating the Trans-Pacific Partnership
accounted for 40% of world GDP in 2011.35 It is being seen as a unifying
force for international investment law; however, on the contrary, it will
only multiply the existing fractured field of international investment law in
effect. It is adding another treaty to the existing framework of multiple
treaties. There would be doubts as to what would happen to the obligations
31
Kurtz, supra note 29, at 758.
32
Muchlinski, supra note 30, at 1041–3.
33
Jürgen Kurtz, NGOs, the Internet and International Economic Policy Making: The Failure of the
OECD Multilateral Agreement on Investment, 3 Melbourne J Intl L (2002) 213, 231–7.
34
Vattenfall sues Germany over Phase-out Policy, World Nuclear News (16 October 2014) \http://www.
world-nuclear-news.org/C-Vattenfall-sues-Germany-over-phase-out-policy-16101401.html[.
35
Office of the United States Trade Representative, Engagement with The Trans-Pacific Partnership To
Increase Exports, Support Jobs (2011) \https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/
2011/february/engagement-trans-pacific-partnership-increase-export[.
123
undertaken by the Member States to TPP under the Bilateral Investment

Treaties. Would the foreign investor get an alternative to challenge State
action under one more treaty? If they do, then would it not lead to treaty
shopping? Can the foreign investor file an investment claim under the BIT
as well as the TPP? Technically, the foreign investor should be capable to do
so since TPP is a different treaty with a different set of provisions. The
preamble, standards of treatment, negotiating history, etc. would be
different, therefore would be interpreted differently. TPP is going to
complicate the situation rather than simplifying it.
3 The multilateral framework arguments
Despite the failure of states to agree for a multilateral treaty, scholars in

the field have tried to fulfill the void through theoretical arguments
suggesting the presence of a multilateral framework. There are various
versions of the multilateral framework argument. In all their forms,
they seek to impose external obligations on states beyond their consent
in investment treaties. All these are addressed in this section.
3.1 Normative framework
Some scholars have made an effort to create a theoretical framework

based on the incidence of entering into investment treaties by States.
According to them, although the specific provisions of BITs differ, they
contain certain general features aimed at responding to the demands of
globalization and increasing interdependence of national economies. BITs
are seen as an important shift from the Friendship Commerce and
Navigation (FCN) treaties. The FCN treaties relied on very simple
theories of economic development, whereas BITs are entered into with
the intention of creating a normative framework expecting transparency,
stability of regulations, administrative efficiency, etc. in a host State,
which normally is a developing or least developed State.36 Thus
investment treaties aim at creating a stable ‘‘normative framework’’.37
Investment treaties are – arguably - to be seen as instruments created by
developed countries to build a liberal investment regime.38 The public
36
Reisman and Sloane, supra note 3, at 116–8.
37
Ibid, 115.
38
K Vandevelde, Bilateral Investment Treaties: History, Policy, and Interpretation (OUP, New York, 2010)
108–12.
123
policy underlying broader interpretation of indirect expropriation clauses

is the objective of encouragement and protection of investments.39
Therefore, expropriation clauses, especially indirect expropriation should
be interpreted broadly to force the host state to conduct its administration
in a manner that fits with the aspirations of the normative framework
created by BITs. The argument is based on provisions in the preambles of
BITs, stating that the investment treaties are entered into for creating
favourable conditions for greater investments.40 The contents and
rational of the normative framework is stated in the following words by
Reisman and Sloane:
The ‘‘favourable conditions’’ established by BITs consist, not merely of natural
phenomena such as climate, resources, and access to the sea, nor even of an
educated population in the host state receptive to and eager to participate in the
benefits of foreign investment; they also contemplate, more significantly and
innovatively, an effective normative framework: impartial courts, an efficient
and legally restrained bureaucracy, and the measure of transparency in decision
that has increasingly been recognized as a control mechanism over governments
and as a vital component of the international standard of governance. Hence, in
a BIT regime, the host state must do far more than open its doors to foreign
investment and refrain from overt expropriation. It must establish and maintain
an appropriate legal, administrative, and regulatory framework, the legal
environment that modern investment theory has come to recognize as a
condition sine qua non of the success of private enterprise. This is not to say, of
course, that every governmental adjustment to this normative framework that
adversely affects the conditions for foreign investment will constitute an
expropriatory act, but that an appropriately operational governmental frame-
work must be in place.41
The regulatory framework is said to be a part of socioeconomic revolution
based on privatization42 and investment treaties are seen as a ‘system of self-
imposed disciplines on States to counter the natural tendencies of govern-
ments of being captured by protectionist and narrow ideological special
interest groups with an influence that is stronger in the domestic political
process than non-voting, and politically and emotionally always remains easily
exploitable by ‘‘foreign’’ companies. One can view such international treaties as
steps towards a proto-constitutional order of global economy to prevent
protectionist tendencies. This proto-constitutional order is dubbed as ‘a
39
Ibid, 115, 144.
40
For example, Preamble, Agreement Between the Government of the United Kingdom of Great Britain
and Northern Ireland and the Government of the Republic of Panama for the Promotion and Protection of
Investments, 7 October 1983, 1461 UNTS 141 (Registered by United Kingdom on 28 April 1987); UNCTAD,
Scope and Definition: UNCTAD Series on Issues in International Investment Agreements II (UN Publication,
Geneva, 2011) 120.
41
Reisman and Sloane, supra note 3, 115, 117.
42
Ibid, 117–8.
123
civilization creating machine being damaged by the centrifugal forces for

domestic politics.’43
The claim of acceptance of external discipline44 is without any
corroborative material, which would represent the intention of the States
in undertaking any such obligations. Concurrent rise of privatization and
BIT cannot be a basis to create a supervening normative framework,
which is multilateral in nature with the ability to influence the
interpretation of indirect expropriation clauses in investment treaties.
Investment treaties do not profess economic commitment of liberaliza-
tion. The economies where major flows of investment are presently
happening scarcely reflect the adherence of these normative obligations.45
The right to choose appropriate economic philosophy is left with the
individual States.46 Also, the current movement of capital is not an
outcome of privatization process. Public corporations continue to wield
influence. They have been the engines of expansion and cross border
capital movement.47 The suggestions that the objective of investment
treaties is to implement the objectives of certain capital exporting
countries to liberalise and privatize other nations undermines the policy of
investment treaties to spread capital and achieve economic progress in the
underdeveloped parts of the world.
The conclusion from the comparison between the FCN treaties and
BITs, that the latter are more liberal with a specific objective of creating
the normative framework, is incorrect. The FCN treaties were more
liberal documents where the rights of investors went beyond those
contemplated under the BITs. To some scholars BITs are a regressive
step.48 FCN treaties were mostly between developed States and they
43
Ibid, 118.
44
Thomas Waelde & Abba Kolo, Environmental Regulation, Investment Protection and ‘Regulatory
Taking’ in International Law, 50 Intl &Comp L Q (2001) 811, 822–3.
45
M Sornarajah, India, China and Foreign Investment, in, M Sornarajah & Jiangyu Wang China, India and
the International Economic Order (CUP, Cambridge, 2010) 136–9.
46
Atlantic Charter, 14 August 1941 \http://avalon.law.yale.edu/wwii/atlantic.asp[; Declaration on
Principles of International Law concerning Friendly Relations and Co-operation among States in accordance
with the Charter of the United Nations, Adopted by the UNGA on 24 October 1970 at its Twenty-fifth
session, UN Doc A/RES/25/2625; Declaration on the Inadmissibility of Intervention and Interference in the
Domestic Affairs of States, Adopted by the on 9 December 1981 at its Thirty-sixth session, UN Doc A/RES/
36/103.
47
See, M Sornarajah, Sovereign Wealth Funds and International Investment Law, 1 Asian J Intl L (2011)
267; See generally, Albert Badia, Piercing the Veil of State Enterprises in International Arbitration (Kluwer Law
International, Alphen aan den Rijn, 2014).
48
Dolzer & Stevens, supra note 26, at 10–3; Kenneth Vandevelde, A Brief History of International
Investment Agreements, 12 UC–Davis J Intl L & Pol’y (2005) 157, 162–6; Wolfgang Alschner, Americanization
of the BIT Universe: The Influence of Friendship, Commerce and Navigation (FCN) Treaties on Modern
Investment Treaty Law, 5 Goetting J Intl L (2013) 455, 463–8.
123
were comfortable with such high standards of protection. They

contemplated absolute standard of treatment – ‘a special protection to
the persons and property’49 or ‘a full and perfect protection for…persons
and property.’50 These broad protections were understandable in view of
the power relations between States. Even where treaties were entered
into between capital exporting and capital importing States, the power
relationship between them was different at the time of entering into FCN
treaties. The hegemonic powers of the time were insistent on strong
protection and the capital importing States were not in a position to resist
such absolutist protection standards. However, the situation has changed
thereafter. The developments such as the Drago Doctrine and the Kellog
Brian Pact51 have eradicated use of force and the gunboat diplomacy52 for
enforcing economic rights of States. There are immense restrictions on
use of force and the UN Charter has outlawed its use for protection of
economic rights.53 This has changed the relationship and bargaining
power between the parties. Also, arguments based on the preamble
ignore that the preamble also contains the obligation of mutual
development. A partial framework favoring some words in the preamble
over others is not a proper and holistic understanding of these provisions.
According to the supporters of the normative framework, the
necessity of States to regulate, especially for the protection of
environment is tarnished as a reincarnation of NIEO, founded in
opposition to investment liberalization and stalling the role of global
markets.54 Regulatory exercises, especially for environment protection
are said to result into ‘unexpected change with an excessive detrimental
impact on the foreign investor’s prior calculation’ to favour domestic
competitors.55 This argument supporting the effects doctrine is based
on the presumption that regulatory policies are based on the objective
of favouring domestic competitors. On the contrary, a regulatory
measure, as discussed below is applied equally to all investors. The so-
called basis to support effects doctrine on the basis of plausible
49
Treaty for Peace, Friendship, Commerce and Navigation between Bolivia and the USA, 13 May 1858,
Article XIII, \http://avalon.law.yale.edu/19th_century/bolivia01.asp[.
50
Treaty of Friendship, Commerce and Navigation between Paraguay and the USA (1959), Article IX,
para 3.
51
Ian Brownlie, Principles of Public International Law, 7th edn (OUP, Oxford, 2008) 731–32.
52
Michael Waibel, Sovereign Defaults Before International Courts and Tribunals (CUP, Cambridge, 2011)
29–38.
53
Brownlie, supra note 51, at 732–3.
54
Waelde and Kolo, supra note 44, at 811–2.
55
Ibid, 819, 820.
123
discrimination is unfounded. Expansive interpretation of indirect

expropriation and adoption of effects doctrine to determine its existence
is attributed to, and defended as the goals of certain hegemonic
powers.56
The argument of creation of a normative framework is also
strengthened through the language of indirect expropriation. It is
argued that the ‘tantamount’ to expropriation clause in BITs extends the
scope of indirect expropriation and failure of host States to maintain the
expected normative framework creating favourable conditions for the
investment would result into indirect expropriation.57 This view has
failed to garner support in investment tribunals and they have preferred
narrow interpretation of ‘tantamount’ to expropriation clause.58
A lot of weight is appended to the incidence of emergence of BITs to
realign the existing international law of foreign investment. BITs
certainly have an effect, in terms of introduction of treaty standards, but
they can hardly be said to create any normative structure. The
theoretical arguments are based on policy predilections, which seek to
replace rules by policy. The drawback of reliance on a policy is that the
policy cannot operate as a replacement for the rule. If a rule exists, then
the policy must give way. The effect of using theoretical perspectives to
expand the scope of treatment standards would amount to revision of
treaty clauses. The adjudicating body is entrusted with interpretation
and cannot revise the treaties.59 For international adjudication,
theoretical approaches alien to the text of treaties are unwarranted.
This is evident from the decision of the Supreme Court of British
Columbia in Metaclad v Mexico where the decision of the arbitral tribunal
was challenged. In view of the Court, the reasoning of the Tribunal that the
BITs had created a normative framework of transparency at the
international level, with which a host State had to comply, is incorrect.
Neither were there such specific terms in the BIT nor could they be
imported under the pretext of interpretation.60 This caution and circum-
spection towards transparency is echoed in some arbitral decisions as well.
In Feldman v Mexico, the Tribunal declined to conclude the existence of
56
Reisman and Sloane, supra note 3, at 116; Waelde and Kolo, supra note 44, at 811, 822.
57
Reisman & Sloane, supra note 3, at 118–9, 128–30.
58
Pope & Talbot Inc v The Government of Canada, UNCITRAL, Interim Award (26 June 2000) [92];
Medioambientales Tecmed SA v The United Mexican States, ICSID Case No ARB(AF)/00/2, Award, (29 May
2003) [114]; SD Myers, Inc v Government of Canada, UNCITRAL, Partial Award (13 November 2000) [286].
59
Interpretation of Peace Treaties with Bulgaria, Hungary and Romania (Second Phase), Advisory
Opinion of 18 July 1950, [1950] ICJ Rep 221, 229.
60
United Mexican States v Metalclad Corporation, 2001 BCSC 664 (Canada) 16–18 [66–80].
123
indirect expropriation on the grounds that the conduct of the authorities fell
short of the reasonable expected standards.61
Especially in the context of BITs, in contradistinction to adjudication
under a multilateral system with an adjudicative body like the Dispute
Settlement Body (DSB) in World Trade Organization (WTO), the treaty
provisions and the institutional structure of the tribunals is free standing.62
The general systematic concerns cannot be ignored, but any external policy
implications are inconceivable. The negotiators of investment treaties have
specific goals in mind, stated expressly in the treatment standards, rather
than any general interests.63 The legitimacy of the process of application of
legal principles depends on the extent up to which the interpreters are
‘faithful to the expectations of the parties; in international investment law,
those expectations derive principally from a specific treaty and contract.’64 If
investment tribunals rely on extraneous theoretical considerations, they
would be overstepping from their judicial mandate outlined in the treaties.
When an adjudicator is faced with a choice for conflict between a rule and
policy, then the rule is to be chosen even if it seems contrary to a major
community goal.65 The reliance on policy considerations would ‘render the
application of virtually all legal rules highly uncertain.’66
3.2 Multilateralization of international investment law
The major contribution to this debate is by Stephan W Schill, presented

in the book The Multilateralization of International Investment Law67 and
alluded further in two articles: The Multilateralization of International
Investment Law: Emergence of a Multilateral System of Investment Protection
on Bilateral Grounds68 and Multilateralizing Investment Treaties through
Most-Favored-Nation Clauses.69
61
Marvin Feldman v Mexico, ICSID Case No ARB(AF)/99/1, Award, (16 December 2002) [113, 133].
62
Glaims Gold Ltd v United States of America, NAFTA Chapter 11 Tribunal (UNCITRAL), Award, (8 June
2009) [3].
63
WM Reisman, ‘‘Case Specific Mandates’’ versus ‘‘Systematic Implications’’: How Should Investment
Tribunals Decide?: The Freshfields Arbitration Lecture, 29 Arb Intl (2013) 131, 142.
64
Ibid, 150.
65
Oscar Schachter, International Law in Theory and Practice: General Course in Public International
Law, 178 Collected Courses of the Hague Academy of International Law (1982) 21, 50.
66
Ibid, 49. Schachter gives a fitting example from the law of the law. The freedom of seas is a major
‘‘community policy’’, but that cannot override rules of navigation or unlawful conduct on the high seas.
67
Schill, supra note 2.
68
SW Schill, The Multilateralization of International Investment Law: Emergence of a Multilateral
System of Investment Protection on Bilateral Grounds, 2 Trade L & Dev (2010) 59.
69
SW Schill, Multilateralizing Investment Treaties through Most-Favored-Nation Clauses, 27 Berkeley J
Intl L (2009) 496–569.
123
The core of the multilateralization argument is that bilateral treaties

of inter-party nature, are ‘‘functional substitute’’ for a multilateral
treaty.70 Although, the efforts for a multilateral treaty on investment
have repeatedly failed in the past, multilateralism still serves as an
‘‘ordering paradigm’’ of international relations.71 This ordering paradigm
is created by the nature of bilateralism in investment relations.
Bilateralism in international investment law is so shaped that it has
created generally applicable rules and principles – similar to those
enshrined in a multilateral treaty.72 BITs create a ‘‘multilateral system’’
and develop international investment law into a ‘uniform governing
structure for foreign investment with only limited room for insular
deviations by individual States’, even in the absence of a multilateral
treaty.73
Allegedly, the convergence of investment treaties is not a coincidence
but an outcome of the intention of States to create uniform and
universal rules on investment protection. The negotiation practice,
especially of developed States evidences this claim. The developed
States (which are mostly capital exporting), offered to negotiate treaties
with developing countries (which areprimarily capital importing) on the
basis of model investment treaties.74 The model treaties that formed the
basis of negotiations and thereby profoundly influenced the treaties that
possess a strong investor protection bent. Therefore, the treaties
negotiated and contracted on the basis of standard clauses possessed
remarkable similarity. Consequentially, bilateral treaties are merely the
vehicle for implementation of multilateral aspirations that could be
realized in past.75
This does not mean that all the treaties, negotiated on the basis of
those model treaties, eventually turned out to be exactly the same as the
model treaties. Model treaties are not an absolute offer that has to be
accepted in entirety; they merely form the basis for negotiations.
Overreliance on the impact of draft multilateral treaties on BITs is
fraught with challenges. The prime example is of the use of NAFTA as
the basis for negotiating the MAI and this was one of the important
70
Schill, supra note 2, at 24.
71
Ibid, 15.
72
Ibid, 16–17.
73
Ibid, 15–16.
74
Ibid, 89.
75
123
reasons for the failure of MAI. While negotiating the MAI, States were
aware of the limitations imposed on regulatory power by NAFTA.76
According to Schill, creating a de facto multilateral effect was a part of
the international ‘‘multilateral planning’’77 and thus the bilateral treaties
possess a multilateral rationale and do not reflect a bilateral quid pro quo
bargain of States.78 Few developed states always had a multilateraliza-
tion agenda and this was achieved through BITs. Bilateral treaties were
negotiated on the basis of model treaties to ensure consistency in treaty
practice and transfer liberal investment standards at the multilateral
level. Thus, multilateral aspirations of developed States were achieved
despite the failure to negotiate a multilateral treaty. In view of these
developments, a multilateral interpretative approach towards bilateral
investment treaties shall be adopted.79
In the absence of a multilateral treaty, if bilateral treaties are
themselves performing the task of a multilateral treaty then the utility
of a multilateral treaty to replace the present fractured framework is not
necessary. Little would be left for the enthusiasts of a multilateral treaty
for the future!
If at all there was any multilateralization agenda, it could be imputed
only to certain developed States, who negotiated on the basis of model
BITs. Except this, there is no evidence to support that States are using
model BITs to push certain ideological predilections. If assumed correct,
it exposes the concern of scholars that the investment treaties are an
outcome of the influence of hegemonic powers.80 This makes the
multilateralization argument lose its claim of objectivity. The multilat-
eralists have introduced the phenomena by saying that a multilateral-
ized approach will introduce uniform rules and norms. They will
introduce a level playing field and thereby protect the interests of weak
developing and underdeveloped States and they would be put at par
with the capital exporting States.81
The agenda of certain developed States to multilateralize their
investment protection agenda may not hold ground any more,
76
Kurtz, supra note 29, at 755–6.
77
78
Ibid, 68–69.
79
Ibid, 17.
80
M Sornarajah, Mutations of Neo-Liberalism in International Investment Law, 3 Trade, L & Dev (2011)
203; M Sornarajah, The Fair and Equitable Standard of Treatment: Whose Fairness? Whose Equity? In,
Frederico Ortino, Lahra Liberti, Audley Sheppard and Hugo Warner (ed) Investment Treaty Law: Current
Issues, vol 2 (BIICL, London, 2007).
81
123
especially since the developed States have started toning down the
strong investor protection provisions in their treaties to accommodate
regulatory requirements of host State. If at all there was any agenda of
multilateralism, it is over now.82 The developed States have changed
their model treaties and started a move towards ‘‘balancing treaties’’,83
by botching the bandwagon of liberal investor protection standards.
Lastly, the multilateralization argument may seem convincing to the
extent that the investment treaties use similar treatment standards – the
important ones being fair and equitable treatment, national treatment,
most favoured nation treatment, expropriation and investor State
arbitration.84 But a closer look at the treatment standards shows that
they differ substantially in scope and coverage. The language of the
clauses differs widely. The treatment standards per se may look the
same, but their consequences are entirely different. Tribunals have
frequently warned to refrain from generalizations based on similar
clauses in different treaties.85 The claim of a common pattern creating
norm is unsustainable.86 Since the clauses in treaties are so different, it is
not sustainable to develop a uniform theoretical paradigm that prefers
academic aspirations over the actual text.
3.3 Multilateralization through corporate restructuring
Investment treaties provide protection only to investors specifically

recognized and granted protection under the BIT. This is called the
ratione personae requirement. It is a jurisdictional requirement and a
tribunal cannot adjudicate a dispute unless the investor establishes that
82
See the Indian Model BIT. For an analysis, see, Aniruddha Rajput, Shifting Treaty Practice of India:
From 2003 Model BIT to 2015 Model BIT, 7 (2) Jindal Global L Rev (2016) 201.
83
For a discussion on balancing treaties, see Sornarajah (Mutations of Neo-Liberalism), supra note 80, at
228; J Alvarez, Return of the State, 20 Minnesota J Intl L (2011) 223; K Vandevelde, A Comparison of the 2004
and 1994 US Model BITs: Rebalancing Investor and Host Country Interests, 1 Yrbk Intl Investment L & Pol’y
(2008–09) 283; G Gagne & J-F Morin, The Evolving American Policy on Investment Protection: Evidence
from Recent FTAs and the 2004 Model BIT, 9 J Intl Econ. L (2006) 357, 363; M Kantor, The New Draft Model
US BIT: Noteworthy Developments, 21 J Intl Arb (2004) 383, 385; S Schwebel, The United States 2004 Model
Bilateral Investment Treaty: An Exercise in the Regressive Development of International Law, 3(2) Transnatl
Disp Management (2006).
84
85
In Pac Rim v El Salvador the Tribunal was posed with the interpretation of denial of benefits clause
(discussed in detail below) under Article 10.12.2 of Dominican Republic – Central America – United States
Free Trade Agreement (CAFTA). It declined to rely on interpretation of denial of benefits clause in Article 17
(1) of the Energy Charter, advanced by other Tribunals. Although the nature and purport of the clause was
same, its contents were different and thus interpreted independently. Pac Rim Cayman LLC v The Republic of El
Salvador, ICSID Case No ARB/09/12, Decision on the Respondent’s Jurisdictional Objections, (1 June 2012)
[4.1–4.5].
86
M Sornarajah, Pursuit of Nationalized Property M Nijhoff, Leiden, 1986 36–7.
123
he is covered by the investment treaty in question.87 The right of

standing - jus standi is the jurisdictional requirement for the arbitral
tribunal to hear the alleged wrongdoing of the state. The issue is
relatively simple for individuals. They shall possess nationality of the
other Contracting Party to the investment treaty under which the
dispute arises, though there are some complications in cases of double
nationality (but not necessary for the purposes of this article).88
Multilateralization does not cover either of these two situations. It relies
solely on the possible restructuring of legal persons. Although mostly
corporations are involved in investment disputes – role of individuals
cannot be completely ignored. This gap exposes the insufficiency of the
multilateralization approach.
The anomaly is that multilateralization would exist for corporations
but not for individual investors. If multilateralization is to serve as a
substitute to positive law then it cannot change with the manner of
organization of the claimant. Often, in investment disputes, determi-
nation of corporate nationality becomes a complicated task. Different
legal systems adopt different procedures for creation and recognition of
corporate entities. In common law jurisdictions, nationality of the
corporation depends on the place of incorporation. Whereas in other
European countries following civil law traditions, nationality of the
corporation depends on actual control. The test of actual control is
reflected in the phrase: siège social. Under this test, the place of actual
control of the corporation is used as a reference point for deciding the
nationality of the corporation.89 Investment treaties use different
definitions for determining nationality of corporations and other
associations, depending mostly on the legal traditions of the parties to
the treaties. The multilateralization argument fails in the situations
where control based nationality test is applied.
The multilateralization argument suggests that differences in the laws
of organizing legal personality in different jurisdictions allow corpora-
tions to structure themselves in such a manner that they can bring
themselves within the investment treaty they wish. Since investors can
87
Phoenix Action, Ltd v The Czech Republic, ICSID Case No ARB/06/5, Award, (15 April 2009) [54].
88
Sornarajah, supra note 88, 324; R Dolzer & C Scheruer, Principles of International Investment Law (OUP,
Oxford, 2008) 45–46.
89
Case Concerning the Barcelona Traction, Light and Power Company Limited (Belgium v Spain), Second
Phase, Judgment of 5 February 1970, [1970] ICJ Rep 42 [70]; Sornarajah, supra note 88, 324.
123
choose the treaty under which they wish to claim protection, there is
multilateralization. Three specific examples are used to substantiate this
claim: right of standing of minority shareholders, interposition of corporate
entities and corporate veil. These three are discussed below in turn.
In Barcelona Traction, the International Court of Justice (ICJ)
distinguished between the rights of shareholders and the rights of a
corporation.90 Violation of rights of company does not always imply
violation of rights of shareholders.91 Shareholders have to indepen-
dently establish that they have suffered injury.92 And their host State has
to espouse their claim by granting them diplomatic protection.
However now, investment treaties grant a right to the shareholders
to bring claims directly, because they include shares within the definition
of covered investments.93 Shareholders, including minority shareholders
thereby get a right to file a claim on their own.94
Arguably, as per the multilateralization argument, in such a situation
a bilateral obligation gets converted into a multilateral erga omnes
obligation. Since all shareholders, including minority shareholders can
claim protection under the BIT between their home State and the host
State, the host State has to treat all shareholders uniformly. Addition-
ally, States have to maintain the standard of its behavior towards the
shareholders that matches the highest obligation towards shareholders
from all investment treaties.95 Therefore while taking a measure, the
host state, has to factor in the rights and interests of all the shareholders
that belong to different nationalities. This creates an expectation of
uniform behavior on the part of States and States normally behave in
this manner.96 Foreign investors holding shares in a locally incorporated
company possess an independent right to initiate arbitration. These
shareholders belong to different nationalities.
This argument presupposes that a State would always behave
discriminatorily towards different shareholders. States take various
90
Barcelona Traction case, ibid, [38].
91
Ibid, [41], [43].
92
Ibid, [44]. The requirement of direct injury to shareholders, independent of the corporation is codified
in the Draft Articles on Diplomatic Protection, 2006. Article 12 specifies: ‘To the extent that an
internationally wrongful act of a State causes direct injury to the rights of shareholders as such, as distinct
from those of the corporation itself, the State of nationality of any such shareholders is entitled to exercise
diplomatic protection in respect of its nationals.’\http://legal.un.org/ilc/texts/instruments/english/draft%
20articles/9_8_2006.pdf[.
93
Dolzer and Schreuer, supra note 88, 56–59.
94
Schill, supra note 2, 202–203.
95
Ibid, 196–200.
96
Ibid, 217–218.
123
measures from time to time. It is only when some action of a State that
has caused injury to an investor a claim can arise. A claim of an investor,
even as a shareholder cannot arise in vacuum without any cause of
action.
Although shareholders get a direct standing before an investment
tribunal, the requirement of injury is not dispensed with. Shareholders
have to establish that they have suffered injury independently from that
suffered by the corporation in which they hold shares; otherwise there
will be no cause of action to initiate arbitration. The principle set out in
Barcelona Traction that injury to a corporation does not mean injury to
shareholders continues to hold ground and is not altered by the BITs.
The cleavage and distinction between injury to the company and
shareholders remains, and the shareholder will have to independently
establish the injury suffered. This in effect puts the shareholder’s right
for substantial rights, into the position contemplated by Barcelona
Traction. Investment treaties get rid of the independent procedural
requirement of diplomatic protection and grant them the standing to
bring the claim. The procedural right of standing, in any case is a treaty
right and a jurisdictional question. It depends on the treaty and cannot
be multilateralized theoretically.97
The multilateralization argument draws a lot of support from the
possibility of corporate structuring to avail the benefits of a bilateral
treaty from the various treaties entered into by the host State –
particularly by interposition of corporations, coupled reliance on the
principle of corporate veil (that is, a corporation is independent of its
shareholders).98 Since shareholders, including minority shareholders
possess standing; it is possible to interpose an entity through corporate
planning. The interposed entity can possess the nationality of the State
of incorporation and investment claims can be brought on its behalf –
devoid of the nationality of shareholders. Investors can choose the most
favourable nationality99 and even change their nationality to opt for a
‘‘foreign BIT regime’’ with strong investor protection standards.100
97
There is reference to the effect of Barcelona Traction in arbitral jurisprudence, but that is limited mostly
to the standing of minority shareholders. See GAMI Investments Inc v The Government of the United Mexican
States, UNCITRAL, Final Award, (15 November 2004) [29–38]. Interestingly, Schill acknowledges this
problem of obscurity of substantive protection of shareholders’ rights. Schill, supra note 2, 209.
98
Schill, supra note 2, 207–208.
99
Ibid, 221.
100
Ibid, 221.
123
This argument is based on a simplified understanding of corporate

restructuring and hiding behind corporate veil to obtain benefits of
BITs. In Schill’s view, tribunals have declined to look behind the
corporate structure to find out the real ownership. It is the place of
incorporation or siège social which is relevant.101 This is not an absolute
rule because there are various obstacles within the BIT structure,
limiting the possibility of corporate restructuring to gain benefit under a
BIT as presented in doctrine of piercing of corporate veil, abuse of
process and denial of benefits clause.
It is incorrect to suggest that the principle of independent corporate
personality or corporate veil is absolute and an international tribunal
cannot look behind the corporate personality to find out the real
control. It can be pierced in certain, albeit limited circumstances. In the
words of ICJ in Barcelona Traction case:
[T]he law has recognized that the independent existence of the legal entity
cannot be treated as an absolute. It is in this context that the process of ‘‘lifting
the corporate veil’’ or ‘‘disregarding the legal entity’’ has been found justified and
equitable in certain circumstances or for certain purposes. The wealth of practice
already accumulated on the subject in municipal law indicates that the veil is
lifted, for instance, to prevent the misuse of the privileges of legal personality, as
in certain cases of fraud or malfeasance, to protect third persons such as a
creditor or purchaser, or to prevent the evasion of legal requirements or of
obligations.102
The ICJ listed four illustrative situations: prevention of misuse of the
privileges of legal personality, fraud or malfeasance, protection of
creditors and evasion of legal requirement or obligations. In passing, the
majority in Tokios Tokelés referred to these conditions and said that they
are extreme situations and corporate structuring solely to obtain benefit
of a BIT cannot fall into ‘misuse of privileges of legal personality.’103
The determination of the majority in the Tokios Tokelés has received
attention and criticism due to a strong dissent by the President of the
Tribunal.104 In this case, the investor was claiming breach of certain
investment standards of the Ukraine-Lithuania BIT. Ukraine objected to
the jurisdiction of the Tribunal on the ground that admittedly, ninety
nine percent of the shares were owned, and two-thirds of the
101
Ibid, 59, 68, 74.
102
Barcelona Traction, supra note 89, [56].
103
Tokios Tokelès v Ukraine, ICSID Case No ARB/02/18, Decision on Jurisdiction, (29 April 2004) [56].
104
See, A Alexeyev & S Vitocich, Tokios Tokele‘s Vector: Jurisdictional Issues in ICSID Case Tokios
Tokelés v Ukraine, 9 J World Investment & Trade (2008) 519.
123
management composed of, Ukrainian nationals.105 Allowing them to

maintain a claim would be contrary to the ICSID Convention, which
aimed at covering disputes between a Contracting Party and investors
belonging to another Contracting Party, and not nationals suing their
own State.106 The majority declined to pierce the corporate veil on the
ground that the only condition under the BIT was incorporation under
the laws of that country and not the nationality of the controlling
shareholders or siege social.107 The control test shall not be used to
narrow the definition of investor under the BIT because the preamble
expresses the Contracting Party’s intent to ‘intensify economic coop-
eration to the mutual benefit of both States’ and ‘create and maintain
favourable conditions for investment of investors of one State in the
territory of the other State’.108 The Tribunal declared that there was no
reason to pierce the corporate veil to find the true nationality of the
corporation because the claimant corporation was not structured with
the sole objective of gaining access of ICSID jurisdiction. The
restructuring, as per the majority, was not for any improper purpose.109
To this, the President expressed a strong dissent since the interpretation
of the majority was at odds with the object and purpose of the ICSID
Convention and ‘might have jeopardized the future of the
institution’.110
In the words of the President of the Tribunal, the ‘assumption that
origin of capital is irrelevant flies in the face of object and purpose of the
ICSID Convention, the Preamble and the Report of the Executive
Directors.’111 Further, the piercing of corporate veil need not happen
only in cases of fraud, it may happen in situations which involve ‘only
and exclusively a question of giving effect to the object and purpose of
the ICSID Convention…preserving its integrity.’112 This view empha-
sizes the need of piercing corporate veil in certain situations. More so
because ICSID has been time and again seen as a tool for promoting
105
Tokios Tokelès, supra note 103, at [21].
106
Ibid, [22]; Also, see, Report of the Executive Directors on the Convention on the Settlement of
Disputes between States and Nationals of Other States, ICSID, April 2006, [28–30].
107
Ibid, [30].
108
Ibid, [31].
109
Ibid, [56].
110
Tokios Tokelès v Ukraine, ICSID Case No ARB/02/18, Dissenting Opinion (Chairman Prosper Weil,
President), (29 April 2004), [1].
111
Ibid, [6], [11].
112
Ibid, [25].
123
international public policy,113 which will be defeated if misuse of its

procedure is allowed.
According to the multilateralization argument, shell or mailbox
companies shall not be denied benefit of investment treaties.114 The
suggestion gives the impression that any structuring, exclusively aimed at
gaining benefit of investment treaty arbitration would be permissible. Much
to the contrary, tribunals have decried such a practice, because it amounts
to ‘‘abuse of process’’. In Phoenix v Czech Republic, the Tribunal used the
principle of abuse of process to deny protection to a foreign investor, who
restructured the investments, only to gain access to arbitration under the
BIT and the ICSID.115 So also, an indirect chain of ownership cannot be
created for claiming nationality for a corporation under a particular
treaty.116 This defeats the argument of interposition of corporate entities as
well. A legitimate use of corporate structuring and restructuring on the basis
of investor friendly environment, based on the provisions of the bilateral
investment treaty between the home and the host State of the investors is
possible. But an abusive and fraudulent multi-jurisdictional structuring will
not be recognized.117 A corporate veil could certainly be pierced to find out
the real ownership and deny protection in cases of fraud.118
States often include denial of benefits clause in investment treaties.119
The objective of this clause is to exclude those investors who aim
simply to hide behind the corporate veil to gain access and consequen-
tial benefits of a BIT. They bar shell and mail box companies from
113
Christoph Schreuer and others, The ICSID Convention: A Commentary, 2nd edn (CUP, Cambridge, 2009)
137.
114
115
Phoenix Action, Ltd v The Czech Republic, ICSID Case No ARB/06/5, Award, (15 April 2009), [106–113].
116
Standard Chartered Bank v The United Republic of Tanzania, ICSID Case No ARB/10/12, Award, (2
November 2012) [196–201].
117
Auguas del Tunari, SA v Republic of Bolivia, ICSID Case No ARB/02/3, Decision on Respondent’s
Objections to Jurisdiction, (21 October 2005) [19].
118
ADC Affiliate Limited and ADC & ADMC Management Limited v The Republic of Hungary, ICSID Case No
ARB/03/16, Award of the Tribunal, (2 October 2006) [358]; Saluka v Czech Republic, UNCITRAL, Partial
Award, (17 March 2006) [222–42].
119
See Agreement between the Republic of Austria and the Republic of Uzbekistan for the Promotion
and Protection of Investments, 2000, Article 10 \http://investmentpolicyhub.unctad.org/Download/
TreatyFile/226[; Agreement between the Hashemite Kingdom of Jordan and the Republic of Austria for the
Promotion and Protection of Investments, 2001, Article 10 \http://investmentpolicyhub.unctad.org/
Download/TreatyFile/194[; Agreement between the Lebanese Republic and the Republic of Austria on the
Reciprocal Promotion and Protection of Investments, 2001, Article 10\http://investmentpolicyhub.unctad.
org/Download/TreatyFile/198[; Agreement between the Republic of Austria and the Great Socialist
People’s Libyan Arab Jamahiriya for the Promotion and Protection of Investments 2002, Article 9 \http://
investmentpolicyhub.unctad.org/Download/TreatyFile/199[; Agreement between Japan and the Socialist
Republic of Vietnam for the Liberalization, Promotion and Protection of Investment, 2003, Article 22
\http://investmentpolicyhub.unctad.org/Download/TreatyFile/1738[.
123
claiming benefits under investment treaties.120 Based on these clauses,

tribunals can find the true identity of those controlling the corporation.
If those in actual control belong to the host State or are from third
States, the treaty does not protect such investors. Needless to say,
multilateralization argument would fail if the treaty contains denial of
benefits clause. Tribunals have disregarded the corporate veil to find out
true ownership. In arbitral jurisprudence, the only inconsistency is of
the level up to which the corporate veil shall be pierced – once, twice or
until the true owner is found out. In some cases, tribunals have looked
behind the first layer to find out the nationality of those who are in
actual control of the investor,121 and in some they went further and
pierced two layers of control.122
The question that remains is whether in the absence of denial of
benefits clause in a treaty, the true control of the investment shall be
found to determine the nationality of the real investor. As shown above,
in situations of abuse of process, where corporate structuring is done
with the sole intention to gain access to ICSID jurisdiction, the true
control would be found out and the protection denied. There is some
grey area in relation to those cases which do not fall within abuse of
process, but the restructuring is doubtful. Can the true control be found
out in situations where the structuring is doubtful and the treaty does
not contain denial of benefits clause?
The majority in Tokios Tokeles ruled out such a possibility. According
to them, absence of denial of benefits clause shows the intention of the
parties not to exclude third parties or nationals of the same State from
bringing arbitral claims. It is not for tribunals to restrict the scope of
investment treaties.123 The majority arrived at this conclusion by
referring to the US-Argentina BIT, which contained a denial of benefits
clause. The Tribunal concluded that since the parties did not add a
denial of benefits clause to their BIT, they did not intend to exclude
misuse of the investment treaty for corporate structuring and
120
Rachel Thorn and Jennifer Doucleff, Disregarding the Corporate Veil and Denial of Benefits Clauses:
Testing Treaty Language and the Concept of ‘‘Investor’’ in Michael Waibel, Asha Kaushal, Kyo-Hwa Liz
Chung and Claire Balchin (eds) The Backlash Against Investment Arbitration: Perceptions and Reality (Wolters
Kluwer, 2010), 10.
121
Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on
Jurisdiction, (25 September 1983) [105–8]; Autopista Concessionada de Venezuela, CA v Bolivarian Republic
of Venezuela, ICSID Case No ARB/00/5, Decision on Jurisdiction, (27 September 2001), [51, 52, 63–6,
110–6].
122
Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal, ICSID Case No ARB/82/1 Decision on
Jurisdiction, (1 August 1984) [41–6].
123
Tokios Tokelès case, supra note 103, [36].
123
restructuring.124 This approach is purportedly based on the principles of

treaty interpretation. The finding begs the question – whether treaties
entered into between third parties can be invoked to interpret a treaty
to which none of those States are a party and can that treaty represent
the intention of the parties?
Article 31 of the Vienna Convention of the Law of Treaties sets out
three principles to be applied simultaneously for treaty interpretation:
text, context object and purpose.125 Context is one of the factors to be
kept in mind and applied along with other principles. Context, in turn,
includes: ‘any agreement relating to the treaty which was made
between all the parties in connection with the conclusion of the
treaty’126 and ‘any instrument which was made by one or more parties
in connection with the conclusion of the treaty and accepted by the
other parties as an instrument related to the treaty.’127 These two
classes of documents are helpful in forming the context of the treaty.
However, none of the documents used from these classes shall be
‘‘unilateral’’.128 Documents entered into by only one of the parties to the
treaty in question cannot form the context for interpretation.
The majority in Tokios Tokele‘s used a treaty, to form the context of
interpretation, to which none of the parties in dispute were a party. The
approach of majority does not confirm to settled cannons of interpre-
tation. It would have been appropriate for the majority to look at the
treaty that they were interpreting to find out if the parties intended to
exclude mischievous use of structuring to defeat the objective of the
treaty. In addition to denial of benefits clause at times, a combination of
provisions used to narrow the coverage of qualified investors for a
treaty is not infrequent.129 In any case, multilateralization captures only
a few facets of investment treaties but is not an all-pervasive
phenomenon, and thus cannot form the basis of interpretation or a
theoretical approach towards international investment law.
124
Ibid, [35].
125
Vienna Convention on the Law of Treaties, 23 May 1969, 1155 UNTS 331, Article 31.1.
126
Ibid, Article 31.2 (a).
127
Ibid, Article 31.2 (b).
128
United Nations, Draft Articles on the Law of Treaties with Commentaries, 2 ILC Yrbk (1966) 187, 221.
129
UNCTAD (Scope and Definition), supra note 40, at 38, 39; See Articles 1.3–1.5, Indian Model BIT 2015.
123
3.4 Multilateralization through most favoured nation (MFN) clauses
MFN is a non-discrimination clause. It has a long history originating in

international trade law and has been a corner stone of international
trading system.130 It aims at preventing distortion of competition caused
by measures discriminating between two foreign entities, in a similar
position.131 In the initial stages of international trade, States were
reluctant to treat foreign goods at par with national goods – thus
denying national treatment (NT). It was thought more practical to
convince States, through treaties, to abandon discrimination between
two foreigners; and then progressively introduce parity between
domestic and foreign goods. MFN became a predecessor of NT. Both
these provisions were prominent in international trade and soon found
their way in international investment treaties.
The ILC attempted to define MFN in its Draft Articles on MFN
Clauses in following words:
Most-favoured-nation treatment is treatment accorded by the granting State to
the beneficiary State, or to persons or things in a determined relationship with
that State, not less favourable than treatment extended by the granting State to a
third State or to persons or things in the same relationship with that third
State.132
The phrase most-favoured-nation is misleading in comparison to its
actual contents. It does not expect a State to award a stand-alone special
– ‘‘most favoured’’ treatment. All it expects is that the investor shall not
be treated ‘‘less favourably’’ in comparison to other foreigners. Also, the
manner of treatment is not expected to be the same for all the foreign
investors. It shall be same only when the two foreign investors are ‘in
the same relationship with that third State.’ This requirement is often
referred as the like circumstances test and is elaborated below.
MFN clause is the strongest argument for transformation of
bilateralism into multilateralism. According to multilateralists, MFN
operates as a key to unlock the bilateral relationship between States and
130
See Canada – Autos, WTO-AB, 31 May 2000 [69]; EC- Tariff Prefrences, WTO-AB, (7 April, 2004) [104];
US – Section 211 Appropriations Act, WTO-AB, (2 January 2002) [297]; See, J Jackson, W Davies and A Sykes,
Legal Problems of International Economic Relations: Cases, Materials, and Text on the National and International
Regulation of Transnational Economic Relations, 4th edn (West Group, 2002) 415.
131
UNCTAD, Most-Favoured-Nation Treatment: UNCTAD Series on Issues in International Investment
Agreements II (United Nations Publication, 2010) 13–14.
132
United Nations, Draft Articles on most-favoured-nation clauses with commentaries, 2 ILC Yrbk (1978)
16, Article 5. The Draft Articles were never adopted by the General Assembly and they remain of persuasive
value.
123
opens it into the broad horizon of multilateralism. By incorporating

MFN clauses into treaties, States give the opportunity to investors to
choose a better and preferential treatment from the extensive web of
treaties that the host State has with all other States. They ‘prevent States
from shielding bilateral bargains from multilateralization and from
making exclusive or preferential promises to specific States and their
nationals.’133 In other words, MFN is the demise of bilateralism. This
argument is based on oversimplification of the MFN clause and
disregards the true nature and scope of the MFN clause. In public
international law and international trade law there is clarity on the
theoretical meaning of MFN. But arbitral jurisprudence is fraught with
inconsistency. The tribunals do not provide a clear guide about the
contents and application of the MFN clause134 and are often in contrast
with the very basic understanding of the term.
Some general points regarding the nature of MFN will help in dispelling
the temptation of oversimplification that multilateralists tend to indulge
into. MFN is a treaty-based clause - neither customary international law nor
a general principle of international law.135 The treaty has to specifically
award MFN treatment to the investor in question.136 Therefore, there can
be no presumption of its existence unless so specifically agreed by the States
and its exact scope will depend on the wordings used by the parties. Since it
is an outcome of quid pro quo bargains, States have an opportunity of
tailoring MFN clauses to suit their specific objectives. The subjects to which
MFN clauses apply also differ greatly because MFN clauses always operate
within the ‘‘agreed sphere of relationship’’.137 By its very nature, MFN
possesses some inherent limitations, which makes it difficult to generalize
its scope, and those limitations, in turn dismiss the possibility of
multilateralization. These are discussed hereunder:
3.5 MFN: a relative standard
MFN is not an absolute standard as claimed by the multilateralization

thesis. MFN is a relative and comparative standard.138 The requirement
of comparison with similarly placed investors – the like circumstances
133
134
UNCTAD (Scope and Definition), supra note 40, at 3, 6.
135
John Jackson, The World Trading System: Law and Policy of International Economic Relations, 2nd edn (MIT
Press, Cambridge, 1997) 157–160.
136
Supra note 132, Article 7; Ibid, 2.
137
Supra note 132, Article 4.
138
UNCTAD (Scope and Definition), supra note 40, at 23.
123
requirement is embedded in the concept of MFN.139 Therefore, the

determination whether the foreign investor is getting the treatment it
deserves under the MFN clause depends on the treatment received by
another, similarly placed foreign investor. Furthermore, that another
foreign investor shall be receiving a better treatment. Investor cannot
claim any special or preferential treatment based on the MFN clause,
independent of the treatment bestowed on the compared foreign
investor, allegedly receiving the better treatment. Satisfaction of the
comparative test is a binding and important component in determina-
tion of breach of an MFN clause. If the claimant investor is not in ‘‘like
circumstances’’ to the third country investor, with whom comparison is
sought, then MFN is not attracted. ‘‘Like circumstances’’ is an
inseparable component of the meaning of MFN and even in the
absence of that term in the MFN clause, determination of like
circumstances has to be made.140 Some examples of like circumstances
determined by investment tribunals are: same business or economic
sector,141 same area of activity142 and direct competitors.143 It is not that
MFN automatically put all investors at par and directs them to be
treated equally. Therefore, an investor cannot claim equality with
another investor if they do not stand in a legitimately comparative
position. For example, investors operating in different sectors cannot
claim equal treatment with foreign investors operating in another
sector.144 The subject matter of comparison must be reasonable and the
situations must be objectively comparable.145
MFN clauses do not cast an absolute obligation of non-discrimination
on States. There are several exceptions to the MFN rule. Even when
two entities are in a comparable position, there can be legitimate
reasons to justify discrimination amongst them.146 States can justify
139
Ibid, 26, 53–54; Parkerings-Compagniet AS v Republic of Lithuania, ICSID Case No ARB/05/8, Award, (11
September 2007) [368], [369].
140
UNCTAD (Scope and Definition), supra note 40, at 26, 54.
141
See, SD Myers, Inc v Government of Canada, UNCITRAL, Final Award, (30 December 2002).
142
See, Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/1, Award, (16
December 2002). See, Champion Trading Company, Ameritrade International, Inc v Arab Republic of Egypt, ICSID
Case No ARB/02/09, Award, (27 October 2006). See, United Parcel Service of America Inc v Government of
Canada, UNCITRAL, Award on the Merits, (24 May 2007).
143
See, Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v the United Mexican
States, ICSID Case No ARB(AF)/04/5, Award, (21 November 2007); Corn Products International, Inc v the
United Mexican States, ICSID Case No ARB(AF)/04/1, Decision on Responsibility, (15 January 2008).
144
UNCTAD (Scope and Definition), supra note 40, 26.
145
Ibid, 26.
146
See Pope & Talbot Inc v The Government of Canada, UNCITRAL, Award on the Merits of Phase 2, (10
April 2001).
123
discrimination if the measures are undertaken for performance of

legitimate regulatory exercises.147 Difference in treatment, does not by
itself amount to discriminatory treatment. Apart from being non-
discriminatory, the treatment also has to be less favourable.148 All these
factors coupled with the inherent nature of MFN do not create a perfect
equality amongst all foreign investors, as postulated by the multilater-
alization argument. On the contrary, alleging that MFN has or can
create perfect equality, is a failure to understand the true nature of MFN
clause and will amount to adding a meaning that it does not possess.
Furthermore, in treaty practice of States there are various exceptions
to the application of MFN clauses.149 The model investment treaties of
traditionally capital exporting States stipulate such exceptions. For
example, United States, Canada, Norway and Italy have incorporated
various exceptions to the MFN clause, ranging from customs unions to
regional agreements, dispelling the myth that MFN leads to multilat-
eralism. BITs use different categories of exclusion from the operation of
MFN clauses. Telling examples being the Model BITs of the traditional
capital exporting countries. For example, the Canadian Model BIT
excludes free trade areas and customs unions150 and certain sectors,
such as aviation, fisheries, and maritime matters including salvage.151
Likewise the exceptions to the MFN clause in the German Model BIT
include, customs or economic union, common market or a free trade
area;152 benefits awarded under ‘an agreement for the avoidance of
double taxation in the field of taxes on income and assets or other
agreements regarding matters of taxation’153 and measures taken for
reasons of public security and order.154
Norway’s Model BIT includes much broader exceptions: ‘a measure
applied by a government in pursuance of legitimate policy objectives of
public interest such as the protection of public health, safety and the
environment, although having a different effect on an investment or investor
147
Parkerings-Compagniet AS v Republic of Lithuania, ICSID Case No ARB/05/8, Award, (11 September
2007), paras 428–30.
148
149
UNCTAD, (Most-Favoured-Nation Treatment), supra note 131, 45–53.
150
Annex IIII, Article 2 (2), Canada Model BIT, 2004.
151
Annex IIII, Article 2 (2), Canada Model BIT, 2004.
152
Article 3 (3), Germany Model BIT, 2008.
153
154
123
of another Party, is not inconsistent with national treatment and most

favoured nation treatment when justified by showing that it bears a
reasonable relationship to rational policies not motivated by preference of
domestic over foreign owned investment.’155 It also excludes certain bilateral
agreements and a free trade agreement.156 Whereas the United States Model
BIT excludes non-confirming measures,157certain sectors and subsectors,158
exceptions made under the Trade Related Intellectual Property Rights
Agreement (TRIPS Agreement),159 government procurement,160 subsidies
or grants provided by the State, including government-supported loans,
guarantees, and insurance.161 Some investment tribunals have also acknowl-
edged the limitations of MFN clauses. In Techmed, the tribunal took the view
that MFN does not apply to those core principles, which are an outcome of
negotiations of States.162 MFN is limited by the ejusdem generis rule, which
means, MFN would apply to issues belonging to the same subject matter or
the same category of subjects to which the clause relates. This principle was
developed in Ambiatelos by the Permanent Court of International Justice
(PCIJ) and followed by the arbitral tribunal in Maffezini. Most of the tribunals
thereafter have adopted this approach.163 The rising trend amongst
investment tribunals is not to use MFN clause to expand the jurisdiction of
the tribunal or to add new provisions to the BIT.164
3.6 Multilateralization through arbitration clause
The multilateralization argument draws strength from the decision of

the tribunal in Maffezini v Spain to argue that arbitration clauses are
155
Foot note 2 to Article 4, Norway Model BIT, 2007.
156
Annexure B, Norway Model BIT, 2007.
157
Article 14 (1) (c), United States Model BIT, 2012.
158
Article 14 (2), United States Model BIT, 2012.
159
Article 14 (3), United States Model BIT, 2012.
160
Article 14 (5) (a), United States Model BIT, 2012.
161
Article 14 (5) (b), United States Model BIT, 2012.
162
Técnicas Mediombientales Tecmed, SA v The United Mexican States, ICSID Case no ARB (AF)/00/02,
Award, (29 May 2003) [69]; MCI Power Group LC and New Turbine, Inc v Republic of Ecuador, ICSID Case No
ARB/03/6, Award, (31 July 2007).
163
UNCTAD (Scope and Definition), supra note 40, at 24.
164
Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Decision on Jurisdiction, (24 October
2011) [81]; European American Investment Bank AG (EURAM) v Slovak Republic, UNCITRAL, Award on
Jurisdiction, (22 October 2012) [446–56]; Les Laboratoires Servier, SAA, Biofarma, SAS, Arts et Techniques du
Progres SAS v Republic of Poland, UNCITRAL, Award (redacted), (14 February 2012) [511]; Vannessa Ventures
Ltd v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/04/6, Award, (16 January 2013) [133]; Rafat
Ali Rizvi v Republic of Indonesia, ICSID Case No ARB/11/13, Award on Jurisdiction, (16 July 2013) [220]; ST-
AD GmbH v Republic of Bulgaria, UNCITRAL PCA Case No 2011–06 (ST-BG), Award on Jurisdiction, (18 July
2013) [396]; Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award, (4 October 2013)
[145–163].
123
instruments of multilateralization. The Tribunal held that MFN clause

in that treaty was wide enough to apply to the dispute resolution clause.
The investor need not adhere to the waiting period after notice, under
the underlying BIT. The investor can initiate proceedings in a shorter
period stipulated in another BIT entered into by the host state. The
multilateralization thesis employs this interpretation to mean that MFN
clause allows investors to import whichever arbitration clause they find
favourable from the treaties host State has entered into.
There are various problems with this argument. The approach of
Maffezini was unexpected by State parties to BITs165 and has resulted
into consequences unintended by them while entering into the BIT.
States are wary and critical of the Maffezini award. Realizing that the
tribunals may embark on an unauthorized journey to claim jurisdiction,
States have started limiting the scope of arbitration clause by adding a
clause that Maffezini principle will not apply to the treaty in question.
This also shows that States do not want the future tribunals to be
guided by the Maffezini approach. Maffezini is criticized by various other
tribunals and they have declined to follow this broad interpretation.166
They have challenged the presumption of Maffezini on the basis that the
jurisdiction of international tribunals is limited to a clear and specific
consent of the concerned States.167 Investment arbitration operates as
an exception to the ordinary rule of customary international law that
the foreign investor has to first exhaust the local remedies and the home
state must be willing to espouse its claim. The intent to forego the
customary rule of exhaustion of local remedies must be clear.168
Another example of limited application of MFN is that it cannot force
States to allow a foreign investor to enter its jurisdictions. States have an
exclusive right to determine whether to allow, and if so on which terms
and conditions. Unless, treaties specifically allow free entry, investors
cannot claim to enter the host State. Presence of an MFN clause in the
BIT cannot authorize the investor to claim that it possesses a right to
165
UNCTAD (Scope and Definition), supra note 40, iv.
166
Salini Costruttori SpA and Italstrade SpA v The Hasemite Kingdom of Jordan, ICSID Case No ARB/02/13,
Decision on Jurisdiction, (9 November 2004) [115–8]; Plama Consortium Limited v Republic of Bulgaria, ICSID
Case No ARB/03/04, Decision on Jurisdiction, (8 February 2005) [208–09, 212, 219]; Telenor Mobile
Communications AS v The Republic of Hungary, ICSID Case No ARB/04/15, Award, (13 September 2006)
[92–5]; Vladimir Berschader and Moïse Berschader v The Russion Federation, Arbitration Institution of the
Stockholm Chamber of Commerce Case No 080/2004, Award, (21 April 2006) [178], [181].
167
Wintershall Aktiengesellschaft v Argentine Republic, ICSID Case No ARB/04/14, Award, (8 December
2008) [160 (3)].
168
123
enter the host state because the state has allowed investors from other
States. Likewise, MFN cannot be used to violate the sector wise
restrictions that host States impose on entry of foreign investment. It
cannot disturb a regulatory framework that imposes conditions of entry.
In order to establish that the investor is entitled to claim MFN
protection, the first task is to prove that the investor is a qualified
investor.169 The basic treaty has to be validly invoked; otherwise MFN
does not come into operation.170
MFN does not apply to investment. It is only a treatment standard.171
It is not an open-all mechanism and cannot be used to ‘create wholly
new rights where none otherwise existed’.172 The tribunals are divided
on the question of true contours of it and there is no jurisprudence
constant on this point in arbitral decisions.173 There are various
approaches to interpretation of MFN prevailing in arbitral jurispru-
dence. A broad interpretation adopted by Maffezini was inappropriately
based on teleological interpretation.174 On the other hand, there is a
group of tribunals that have doubted this reasoning on various grounds.
They have justifiably concluded that MFN clause applies only to
substantive provisions and not procedural, thereby disallowing exten-
sion of the scope of tribunals’ jurisdiction.175 Any such interpretation
will expand the tribunals’ jurisdiction, making it prone to abuse by
restructuring.176 Also, the provision sought to be imported would not
necessarily be beneficial than that continued in the underlying BIT in
question.177 A more convincing view, in conformity with the jurispru-
dence of public international law and international trade law is that the
169
Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este,
SA v The Dominican Republic, UNCITRAL LCAI Case No UN 7927, Award on Preliminary Objections to
Jurisdiction, (19 September 2008) [41].
170
supra note 49, 62.
171
Daimler Financial Services v Argentine Republic, ICSID Case No ARB/05/1, Award, (22 August 2012),
paras 232–3. The adhoc Annulment Committee declined to interfere with these observations Daimler
Financial Services v Argentine Republic, ICSID Case No ARB/05/1, Decision on Annulment, (7 January 2015)
[141–6].
172
Hochtief AG v. The Argentine Republic, ICSID Case No. ARB/07/31, 24 October 2011, Decision on
Jurisdiction, para 81; International Law Commission, Final Reprot: Study Group on the Most-Favoured-Nation
Clause \http://legal.un.org/ilc/reports/2015/english/annex.pdf[ [106].
173
JA Maupin, MFN-Based Jurisdiction in Investor-State Arbitration: Is there any Hope for a Consistent
Approach?, 14(1) J Intl Econ L (2011) 157.
174
Ibid, 176–77; Also, see, Wintershall Aktiengesellschaft v Argentine Republic, ICSID Case No ARB/04/14,
Award, (8 December 2008) [88–91].
175
Telenor Mobile Communications AS v The Republic of Hungary, ICSID Case No ARB/04/15, Award, (13
September 2006) [92].
176
Telenor Mobile Communications case, supra note 175, at [93], citing Plama v Bulgaria.
177
Telenor Mobile Communications case, supra note 175, at [95–7].
123
scope of MFN is limited to the treatment.178 MFN cannot be interpreted

to be all-pervasive and a key to claim any and every benefit, from
whichever treaty the investor wants. On the contrary, it operates as a
restriction on the state behavior. The treatment of the investor by the
State has to conform to the MFN treatment.179 States have denuded the
Maffezini interpretation by incorporating Maffezini clause that excludes
the all-pervasive interpretation of MFN clauses.180
4 Conclusion
The broad language of the MFN clause in the MAI was an important
reason behind its downfall. It was not acceptable to States, that through
an all-pervasive MFN clause, broad rights, starting from establishment,
conduct, administration and receipt of benefits be given to investors. This
would naturally hamper the freedom of States to a great extent. Once
there is a lack of agreement on broad interpretation of MFN clauses, it is
unfortunate that MFN is reused to foist uniformity on States. Especially,
those conditions are imposed, which were and are unacceptable to States.
The treaties, as they stand today, express pluralism. They do not
comprehend and create a uniform network of obligations. The
obligations remain distinct. Not all, but some tribunals had sought to
multilateralize the regime of investment law by broad interpretation of
MFN clause. But the effort of tribunals is evidently being resisted by
States. States have narrowed the scope of MFN clauses in treaty
practice and some have excluded the clause altogether.181 Even the
International Law Commission has noted the spacious interpretation of
MFN clauses by tribunals and expressed the view that MFN clauses
cannot be presumed to be wide in their scope.182
There is an evident urge in the writing of scholars who support
multilateralization to replace the current regime into a uniform
multilateral regime. A uniform regime will set out common rules that
will apply to each State and will provide greater certainty to investors.
178
Telenor Mobile Communications case, supra note 175, at [92].
179
Daimler Financial Services case, supra note 172, at [240–4].
180
UNCTAD, (Most-Favoured-Nation Treatment), supra note 131, at 84–7, citing examples of various
treaties that have included the Maffezini clause.
181
Ibid; India recently issued a Model BIT and removed the MFN clause from the Model BIT altogether,
available at \http://indiainbusiness.nic.in/newdesign/upload/Model_BIT.pdf[ last visited 14 August 2016.
182
International Law Commission, Most-Favoured-Nation clause: Final Report of the Study Group on
the Most-Favoured-Nation clause, 2015, Vol II (Part Two) ILC Yrbk (2015) [212–7].
123
The nobility of the project cannot be doubted. But, the zealous

theorizing tends to forget the role of creating and undertaking a
multilateral responsibility of the States. They are the creators of law in
the field. In situations where States are forced to adhere to a corpus of
principles, forcing against their consent can result into backlash and
irreparably damage the system, which is evident now.
Equally, there are bleak possibilities of creation of a multilateral
treaty in future. There is some discussion in the academic circles that
since the distinction between capital exporting and importing countries
is blurring, time is ripe for a multilateral treaty.183 The situation is not as
simple as it looks. The interests of States are at cross roads and constant
efforts are being made by States to preserve their regulatory space. The
regime itself is in crises. There is a growing trend amongst developing
countries to withdraw from the system. Nicaragua has passed a
legislation to avoid investment arbitration;184 Venezuela has expressed
its intention to terminate its existing BITs, including investment
arbitration clauses.185 Ecuador has withdrawn from ICSID.186 Romania
also tried to withdraw from the Swedish-Romanian BIT but was tied
back through an arbitral award.187 Philippines has successfully excluded
investor state arbitration clause from its negotiations for free trade
agreement with Japan.188 Now, the Australian Government is the first
developed country to withdraw from the system of investor state
arbitration.189 The concern of the Australian government is that
investment treaties are operating as unnecessary constraint on regula-
tory freedom. According to the Australian government, investor State
arbitrations would ‘constrain the ability of Australian government to
make laws on social, environmental and economic matters in
circumstances where those laws do not discriminate between domestic
183
AK Kanungo, India’s Overseas Investment in Africa: An Initiative for South-South Cooperation, 11 J
World Investment & Trade (2010) 669, 796–798.
184
Ibid
185
Ibid.
186
See, E Gillman, The End of ISA in Ecuador? An Analysis of Article 422 of the Constitution of 2008, 19
American Rev Intl Arb (2008) 269.
187
See, Ioan Micula, Viorel Micula, SC European Food SA, SC Starmill SRL and SC Multipack SRL v Romania,
ICSID Case No ARB/05/20, Decision on Jurisdiction, (24 September 2008).
188
Damon Vis-Dunbar, NGOs Claim the Phillipines Japan Free Trade Agreement is Unconstitutional,
Investment Treaty News, June 5, 2009 \www.iisd.org/itn/2009/06/05/ngos-claim-the-philippine-japan-free-
trade-agreement-is-unconstitutional/[.
189
LE Trakman, Investor State Arbitration or Local Courts: Will Australia Set a New Trend?, 46 J World
Trade (2012) 83, 84.
123
and foreign business.’190 Australia has participated in the TPP with an

investor state dispute resolution clause, but has a tobacco only
exception.191 The resistance in Germany was already discussed above.
It is uncertain whether Norway will enter into any further BITs.192
If a theoretical interpretative model is developed to displace the
consent of States, it will only damage the regime of international
investment law.
190
Department of Foreign Affairs and Trade, Australian Government, Gillard Government Trade Policy
Statement: Trading Our Way to More Jobs and Prosperity (14 April 2011) \http://www.dfat.gov.au/
publications/trade/trading-our-way-to-more-jobs-and-prosperity.pdf[.
191
Article 29.5, Trans Pacific Partnership (TPP).
192
Damon Vis-Dunbar, Norway Shelves its Draft Model Bilateral Investment Treaty, Investment Treaty
News, (8 June 2009) \http://www.iisd.org/itn/2009/06/08/norway-shelves-its-proposed-model-bilateral-
investment-treaty/[.
123

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Indian Journal of International Law (2016) 56(3–4):427–461

The myth of a multilateral framework in international

Published online: 1 March 2017

Aniruddha Rajput (&)

Keywords International investment law Investor State dispute resolution

The field on international investment law is fractured and divided into

transformed into a framework with common objectives of public

the different versions of the multilateral arguments in detail and their

2 Failed efforts of a multilateral treaty

Before discussing the multilateral arguments that are aimed to be

transmission of property.9 Despite liberal provisions for investor

the American investors were already enjoying abroad.17 A commentator

operation and Development (OECD) for the preparation of a multilat-

delegation was a death knell to the process, the negotiations from

undertaken by the Member States to TPP under the Bilateral Investment

3 The multilateral framework arguments

Despite the failure of states to agree for a multilateral treaty, scholars in

3.1 Normative framework

Some scholars have made an effort to create a theoretical framework

policy underlying broader interpretation of indirect expropriation clauses

civilization creating machine being damaged by the centrifugal forces for

were comfortable with such high standards of protection. They

discrimination is unfounded. Expansive interpretation of indirect

3.2 Multilateralization of international investment law

The major contribution to this debate is by Stephan W Schill, presented

The core of the multilateralization argument is that bilateral treaties

3.3 Multilateralization through corporate restructuring

Investment treaties provide protection only to investors specifically

he is covered by the investment treaty in question.87 The right of

This argument is based on a simplified understanding of corporate

management composed of, Ukrainian nationals.105 Allowing them to

international public policy,113 which will be defeated if misuse of its

claiming benefits under investment treaties.120 Based on these clauses,

restructuring.124 This approach is purportedly based on the principles of

3.4 Multilateralization through most favoured nation (MFN) clauses

MFN is a non-discrimination clause. It has a long history originating in

opens it into the broad horizon of multilateralism. By incorporating

3.5 MFN: a relative standard

MFN is not an absolute standard as claimed by the multilateralization

requirement is embedded in the concept of MFN.139 Therefore, the

discrimination if the measures are undertaken for performance of

of another Party, is not inconsistent with national treatment and most

3.6 Multilateralization through arbitration clause

The multilateralization argument draws strength from the decision of

instruments of multilateralization. The Tribunal held that MFN clause

scope of MFN is limited to the treatment.178 MFN cannot be interpreted

The nobility of the project cannot be doubted. But, the zealous

and foreign business.’190 Australia has participated in the TPP with an

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