Allocating Adjudicatory Authority: Most-Favoured-Nation Clauses as a Basis of Jurisdiction--A Reply to Zachary Douglas

Abstract

The present article comments on Zachary Douglas, The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails, published in the February 2011 issue of this Journal. It supports Douglas’ argument that arbitral tribunals should interpret investment treaties in accordance with general principles of law, and reason their decisions accordingly, in order to contribute to more consistency and coherence in the field. This, however, does not alleviate tribunals from taking a ‘BIT by BIT’-approach to the interpretation of most-favoured-nation (MFN) clauses. Furthermore, the present article argues that general principles do not support Douglas’ view that MFN clauses cannot serve as a jurisdictional basis in investment treaty arbitration. Much to the contrary, these principles, as enshrined in the jurisprudence of international and domestic courts, and codified by the International Law Commission in its 1978 Draft Articles on Most-Favoured-Nation Clauses, support exactly the effect Douglas sets out to deny. If one understands the issue at stake as one of allocating adjudicatory authority between domestic courts and arbitral tribunals, MFN clauses have been used by international and domestic courts precisely to that effect. Furthermore, the clauses have direct effect in extending more favourable treatment to foreign investors without the need to claim such treatment through an arbitration proceedings. Overall, the present article argues that MFN clauses in investment treaties can have the effect of allocating adjudicatory authority and thus serve as a basis of jurisdiction of an investment treaty tribunal.