1. society
2. work
3. contracts

18.03.15
Differentiating between contract and treaty
claims: New perspectives in investment treaty
arbitration practice
14 March 2015
Jonathan Ketcheson
www.hoganlovells.com
The "origin" of the distinction between investment
and treaty claims
•  Vivendi (I)
"the nature of the facts supporting most of the claims presented in this case
make it impossible for the Tribunal to distinguish or separate violations of the
BIT from breaches of the Concession Contract without first interpreting and
applying the detailed provisions of that agreement. By Article 16.4, the parties
to the Concession Contract assigned that task expressly and exclusively to
the contentious administrative courts of Tucumán"
•  Vivendi annulment decision
where “the fundamental basis of the claim” is a treaty laying down an
independent standard by which the conduct of the parties is to be judged, the
existence of an exclusive jurisdiction clause in a contract between the
claimant and the respondent state or one of its subdivisions cannot operate
as a bar to the application of the treaty standard. At most, it might be relevant
—as municipal law will often be relevant—in assessing whether there has
been a breach of the treaty.
www.hoganlovells.com
2
1
18.03.15
Incidental jurisdiction over contractual issues
•  An investment treaty tribunal has incidental jurisdiction
to decide contractual issues in so far as this is
necessary to decide a treaty claim
•  This is not just limited to "taking into account" a contract
but may require a tribunal to determine the validity of a
contract and whether it has been breached
–  Malicorp v Egypt
–  Deutsche Bank v Sri Lanka
www.hoganlovells.com
3
Why do we need to distinguish between treaty and
contract claims?
•  No reason in principle why an investment treaty
tribunal cannot have jurisdiction over a contractual
claim
–  Lack of privity
–  Exclusive jurisdiction clauses
•  States should not be required to adjudicate disputes
falling outside the jurisdiction ratione materiae of a
tribunal
•  Proper scope of substantive obligations
www.hoganlovells.com
4
2
18.03.15
What tests might be applied at the jurisdictional
stage?
•  Same facts might give rise to both a contract claim and a treaty claim
•  What do the arguments look like?
–  This is a breach of treaty (and it is irrelevant that it might also be a breach of a
treaty)
–  This might be a breach of contract but it is not a breach of treaty
•  What tests might be applied?
–  Fundamental basis of claim
–  Prima facie test
–  Use of sovereign power
"A claim is to be considered a pure contract claim where the Host State, party to a
specific contract, breaches obligations arising by the sole virtue of such contract.
This is not the case where the equilibrium of the contract and the provisions
contained therein are unilaterally altered by a sovereign act of the Host State. […]
Whilst the exercise of such power may have an impact on the contract and its
equilibrium, its origin and nature are totally foreign to the contract." (Abaclat v
Argentina)
www.hoganlovells.com
5
Expropriation of contractual rights
•  General consensus that contractual rights might be
expropriated
•  Particular problems arise where the object of
expropriation is a "claim to money"
•  The relevance of a contractual remedy?
•  Deutsche Bank v Sri Lanka
www.hoganlovells.com
6
3
18.03.15
FET and the protection of contractual rights
•  SGS v Paraguay
The Tribunal considers that the facts alleged by Claimant, if proven, are capable of
coming within the purview of the fair and equitable treatment provision of the BIT.
First, a State’s non-payment under a contract is, in the view of the Tribunal,
capable of giving rise to a breach of a fair and equitable treatment requirement,
such as, perhaps, where the non-payment amounts to a repudiation of the
contract, frustration of its economic purpose, or substantial deprivation of its value.
•  A number of different scenarios should be unbundled
–  Breach of contract as a predicate to a claim based on sovereign
conduct
–  Breach of a contractual promise of a "sovereign character"
–  Breach of a contractual promise through sovereign conduct?
–  No breach of contract but a sovereign act interfering with the
"equilibrium of the contract"
•  Will any sovereign interference in a contract breach the FET
standard?
www.hoganlovells.com
7
Conclusions
www.hoganlovells.com
Hogan Lovells has offices in:
Alicante
Amsterdam
Baltimore
Beijing
Brussels
Budapest*
Caracas
Colorado Springs
Denver
Dubai
Dusseldorf
Frankfurt
Hamburg
Hanoi
Ho Chi Minh City
Hong Kong
Houston
Jakarta*
Jeddah*
Johannesburg
London
Los Angeles
Luxembourg
Madrid
Mexico City
Miami
Milan
Monterrey
Moscow
Munich
New York
Northern Virginia
Paris
Philadelphia
Rio de Janeiro
Riyadh*
Rome
San Francisco
São Paulo
Shanghai
Silicon Valley
Singapore
Tokyo
Ulaanbaatar
Warsaw
Washington DC
Zagreb*
"Hogan Lovells" or the "firm" is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses.
The word "partner" is used to describe a partner or member of Hogan Lovells International LLP, Hogan Lovells US LLP or any of their affiliated entities or any employee or consultant with equivalent standing. Certain individuals, who are
designated as partners, but who are not members of Hogan Lovells International LLP, do not hold qualifications equivalent to members.
For more information about Hogan Lovells, the partners and their qualifications, see www.hoganlovells.com.
Where case studies are included, results achieved do not guarantee similar outcomes for other clients. Attorney Advertising.
© Hogan Lovells 2014. All rights reserved. LIB02/5330013
*Associated offices
4