Originally from Investment Treaty Arbitration and International Law - Volume 3

A traditional point of departure for interpreting bilateral investment treaties (“BITs”) is a three-prong objective test laid out in Article 31 of the Vienna Convention on the Law of Treaties: good faith, ordinary meaning, and the object and purpose of a treaty.

The reasons for applying the Vienna Convention to investment treaty standards vary. Among them are: an endorsement of the universally recognized customary law standards enshrined in Article 31, a habit or respect for tradition, recognition that a BIT is an international treaty just like any other interstate agreement, reliance on prevailing practice, or, sometimes, a simple note that no special rules of interpretation in the BIT context exist.

At the outset, this article will question the basic assumptions underlying these reasons and the applicability of the Vienna Convention in the context of BITs as a matter of principle. First of all, customary international rules codified in the Vienna Convention may have – and in fact must have – evolved, developed and changed since 1969. Second, the sui generis nature of BITs should be taken into account when applying traditional public international law concepts to a mixed public-private investor-state relationship packaged in a state-to-state treaty. Third, reliance on prevailing practice may not always be justified. Calls for restrictive or balanced interpretation taking into account the unique nature of BITs as significant restraints on sovereign powers are becoming more frequent.

A cautious approach towards the habitual or even automatic extension of the traditional rules of interpretation going back some forty years to a modern investor-state relationship becomes even more relevant in the context of state consent to arbitration, which is the cornerstone of jurisdiction of treaty tribunals. Today, States most commonly express their consent by means of a unilateral declaration, a standing offer to arbitrate without privity, found in most modern BITs and in some domestic laws on investment guarantees. In international law, such unilateral declarations are not subject to the Vienna Convention but are governed by the rules applicable to unilateral acts of States. These rules dictate different cannons of interpretation, calling for a careful and conservative reading of unilateral restraints on sovereignty and greater respect for the subjective intent of States.