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Most Favoured Nation Treatment -- Substantive Protection in Investment Law

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The Dickson Poon School of Law
Somerset House East Wing
Strand, London, WC2R 2LS

Most Favoured Nation Treatment –

Substantive Protection
in Investment Law

David D. Caron
Esme Shirlow

King’s College London Dickson Poon School of Law

Legal Studies Research Paper Series: Paper No. 2015-23
 CHAPTER 29: MOST FAVOURED NATION TREATMENT – SUBSTANTIVE
PROTECTION

I. INTRODUCTION

Most investment treaties contain most favoured nation (‘MFN’) clauses.1 These
clauses vary in their precise wording but in general state that the treatment or rights enjoyed
by investors covered by a particular investment treaty shall not be less than that ‘accorded to
investments made by investors of any third State’. MFN clauses reflect principles of equality
and non-discrimination.2 As the tribunal in Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v.
Islamic Republic of Pakistan noted, for example, MFN clauses ‘provide a level playing
field…between foreign investors from different countries’.3 If one reflects on the difficulties
likely to arise in the negotiation of an investment treaty, then one can appreciate why such
clauses are widespread. At the point of negotiation, the inclusion of an MFN clause arguably
reduces the burden on the negotiating parties to review their treaty partner’s prior treaty
practice. This is because, generally speaking, any better protections or concessions afforded
by the treaty partner in existing treaties of the same class would be incorporated by reference
through the MFN clause. MFN clauses arguably also operate to ensure that States will not be
disadvantaged by the later conclusion by their treaty partner of treaties conferring more
favourable treatment on investors of other countries.4 MFN clauses might also reduce the
necessity for States to renegotiate older treaties if their policy toward the protection of foreign
investment evolves to encompass more favourable standards of protection of a type
encompassed by their earlier treaties.5

As a substantive protection obligation, an MFN clause in a ‘base treaty’ operates by

reference to any more favourable standards of protection accorded by the host State to
investors of third party nationality – whether that treatment is accorded in practice
(‘comparator practice’), or is stipulated in a provision of a treaty between the host State and a

1
United Nations Conference on Trade and Development (UNCTAD), Most-Favoured-Nation Treatment II
UNCTAD Series on Issues in International Investment Agreements, 12 (2010) (noting that 80.4% of treaties
reviewed by UNCTAD included a reference to MFN); Rudolf Dolzer and Christoph Schreuer, Principles of
International Investment Law 186 (Oxford University Press 2008),.
2
See, further, United Nations Conference on Trade and Development (UNCTAD), Most-Favoured-Nation
Treatment II UNCTAD Series on Issues in International Investment Agreements, 12 (2010); League of Nations
Economic Committee, Equality of Treatment in the Present State of International Commercial Relations The
Most-Favoured-Nation Clause Doc C.379.M.250.1936.II.B, 6 (12 September 1936); Stephan Schill,
Multilateralizing Investment Treaties through Most-Favored-Nation Clauses 27(2) Berkeley Journal of
International Law 496, 500 (2009); Jurgen Kurtz, The MFN Standard and Foreign Investment: An Uneasy Fit?
5 Journal of World Investment & Trade 861, 861 (2004); Wei Shen, Leaning Towards a More Liberal Stance? –
An Evaluation of Substantive Protection Provisions under the New ASEAN-China Investment Agreement in
Light of Chinese BIT Jurisprudence 26(4) Arbitration International 549, 563 (2010).
3
ICSID Case No. ARB/03/29, Award (27 August 2009), ¶386 (Gabrielle Kaufmann-Kohler, Karl-Heinz
Böckstiegel (Cl), Franklin Berman (R)).
4
Stephan Schill, Multilateralizing Investment Treaties through Most-Favored-Nation Clauses 27(2) Berkeley
Journal of International Law 496, 508 (2009).
5
Okezic Chukwumerije,Interpreting Most-Favoured-Nation Clauses in Investment Treaty Arbitrations 8(5)
Journal of World Investment & Trade 643, 611 (2007); Wei Shen, Leaning Towards a More Liberal Stance? –
An Evaluation of Substantive Protection Provisions under the New ASEAN-China Investment Agreement in
Light of Chinese BIT Jurisprudence 26(4) Arbitration International 549, 563 (2010).

Electronic copy available at: http://ssrn.com/abstract=2590557

third State (a ‘comparator treaty’).6 The invocation of substantive MFN treatment is usually
made by reference to a comparator treaty rather than comparator practice,7 though even the
reference to a comparator treaty has various permutations.8

The notion that MFN clauses could operate to incorporate stronger substantive
protection standards is overwhelmingly accepted in principle, but successful invocation of the
MFN provision to reach a stronger substantive protection obligation is extremely rare in
practice.9 Whilst MFN clauses do have the potential to act as a ‘potent ratchet’ for substantive
protections,10 therefore, it is important to recognise how such clauses have been invoked as
well as the manner in which investment treaties, as interpreted by tribunals, in practice
provide a scope of substantive MFN protection that is narrower than generally assumed to be
the case.

II. LANDMARK CASE

A. MTD Equity Sdn Bhd. and MTD Chile S.A. v. Republic of Chile11

MTD v. Chile concerned claims filed by a Malaysian company and its wholly owned
subsidiary12 (collectively, ‘MTD’) against Chile under the Agreement between the
Government of Malaysia and the Government of the Republic of Chile for the Promotion and
Protection of Investments (‘the Malaysia-Chile BIT’).13 MTD invested as part of a joint
venture project for the construction of a residential and commercial complex in Chile.14 MTD
entered into a joint venture agreement with another private party who owned a plot of land
which was to be the site of the project, although at the time of the agreement the land was
zoned solely for agricultural use.15

MTD filed an application with Chile’s Foreign Investment Commission (“FIC”)

describing the project and seeking the FIC’s approval.16 The application was approved by the

6
MFN may be thought of as potentially incorporating more advantageous procedural provisions of comparator
treaties or more advantageous substantive provisions of comparator treaties. This Chapter addresses MFN
clauses in terms of substantive provisions. For a discussion of procedural provisions, see Chapter 18.
7
We identified some 50 investor-State cases involving a claim for substantive MFN treatment, and 37 such
cases involved a substantive MFN claim framed by reference to a comparator treaty; the other 13 involved a
substantive claim framed by reference to comparator practice. A further 11 cases were identified in which
substantive MFN treatment was mentioned, but only cursorily discussed such that it is difficult to discern
whether they were framed as claims by reference to a comparator treaty or to comparator practice.
8
See, further, Section III(A).
9
Based upon a review of 50 investment treaty cases in which a Tribunal has referred to substantive MFN
treatment in its decision or award. The importance of the scope of substantive MFN treatment is not an ICSID-
specific issue, and the following discussion thus considers as appropriate cases decided under the ICSID, ICSID
Additional Facility and other procedural Rules.
10
Campbell McLachlan, Laurence Shore, Matthew Weiniger, International Investment Arbitration: Substantive
Principles (Oxford International Arbitration Series 2007) p. 254.
11
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7 (Andrés Rigo
Sureda, Marc Lalonde (Cl), Rodrigo Oreamuno (R)) (hereinafter MTD v. Chile).
12
Pursuant to Article 25(2)(b) of the ICSID Convention and Article 6(2) of the BIT, the subsidiary was deemed
to be a Malaysian national for the purposes of the proceedings: Award (25 May 2004) ¶94.
13
Signed 11 November 1992, entered into force 4 August 1995.
14
Award (25 May 2004), ¶40.
15
Ibid ¶¶42-45.
16
Ibid ¶52.

Electronic copy available at: http://ssrn.com/abstract=2590557

FIC and a Foreign Investment Contract was signed between the FIC and MTD.17 Despite
initial indications that the regional authorities would assist MTD to achieve the necessary
rezoning of the land, the authorities later exhibited reluctance to complete the rezoning.18
MTD met with senior members of the FIC to discuss the slow progress of the rezoning
request, and allegedly was assured that the FIC would make further inquiries.19 The regional
Ministry of Housing and Urban Development later informed MTD that the project was
inconsistent with its urban development policy, and that it would not initiate any modification
to the zoning or allow the project to proceed.20 The FIC thereafter informed MTD that it
could not provide MTD with assistance as its ‘role [was] strictly limited to approving the
inflow of foreign investment funds into Chile’.21 Subsequently, the Ministry formally rejected
the project on the basis that it conflicted with existing urban development policy.22

The BIT under which MTD’s claim was filed (the base treaty) contained an MFN
clause in Article 3(1), which provided that:

Investments made by investors of either Contracting Party in the territory of the other
Contracting Party shall receive treatment which is fair and equitable, and not less
favourable than that accorded to investments made by investors of any third State.

MTD invoked Article 3(1) by reference to certain protections provided under Chile’s BITs
with Croatia and with Denmark (the comparator treaties).23 Specifically, MTD alleged that it
had not been accorded treatment as favourable as that provided under Article 3(2) of the
Croatia BIT (a requirement for the host State to ‘grant the necessary permits [to the investor]
in accordance with its laws and regulations’); Article 4(1) of the Croatia BIT (a requirement
that fair and equitable treatment accorded to the investor ‘not be hindered in practice’); and
Article 3(1) of the Denmark BIT (a commitment to observe obligations entered into with
regard to the investment). As similar obligations were not stipulated in the base treaty, MTD
argued that it was entitled to the benefit of these provisions pursuant to the MFN clause in
Article 3(1). Chile did not dispute the applicability of Article 4(1) of the Croatia BIT,24 but
did contest MTD’s invocation of the other provisions of the comparator treaties.

i) The Tribunal’s Award

In its Award of 25 May 2004, the MTD tribunal noted that the MFN clause was
included alongside, or as part of, the FET provision. It considered that this meant that it first
had to determine:

17
Ibid ¶¶53-54.
18
Ibid ¶64.
19
Ibid ¶71.
20
Ibid ¶¶72-75.
21
Ibid ¶76.
22
Ibid ¶80.
23
Agreement between the Government of the Republic of Chile and the Government of the Kingdom of
Denmark concerning the Promotion and Reciprocal Protection of Investments (signed 28 May 1993, entered
into force 3 November 1995) (hereinafter “Denmark BIT”); Agreement between the Government of the
Republic of Chile and the Government of the Republic of Croatia on the Reciprocal Promotion and Protection of
Investments, art 3(2) (signed 28 November 1994, entered into force 15 June 1996) (hereinafter “Croatia BIT”).
24
MTD Equity v. Chile, ICSID Case No. ARB/01/7, Award (25 May 2004) (Andrés Rigo Sureda, Marc Lalonde
(Cl), Rodrigo Oreamuno (R)), ¶107.

Electronic copy available at: http://ssrn.com/abstract=2590557

 whether the provisions of the Croatia BIT and the Denmark BIT which deal with the
obligation to award permits subsequent to approval of an investment and to fulfilment
of contractual obligations, respectively, can be considered to be part of fair and
equitable treatment’.25

The tribunal concluded that ‘the fair and equitable treatment standard of treatment has to be
interpreted in the manner most conducive to fulfil the objective of the Malaysia-Chile BIT to
protect investments and create conditions favorable to investments’.26 It held that obligations
invoked by the claimant from the Denmark and Croatia BITs were ‘in consonance with this
purpose’.27 The tribunal noted that it was ‘further convinced of this conclusion’ because of
the narrow exceptions provided in the Malaysia-Chile BIT, which related only to tax
treatment and regional cooperation.28 It considered that these narrow exceptions indicated
‘[a] contrario sensu, other matters that can be construed to be part of the fair and equitable
treatment of investors would be covered by the clause’.29 In light of the ‘wide scope of the
MFN clause’,30 the tribunal held that the respondent was required to accord MTD treatment
as favourable as that provided under the Croatia and Denmark BITs.

Ultimately, the tribunal held that the respondent had not breached either of the more
favourable standards of protection. Specifically, it held that Chile had not breached the BIT
by failing to ‘grant the necessary permits’ to MTD because ‘the carrying out of the
investment would have required a change in the norms that regulate the urban sector in Chile,
such that the grant of the permits was ‘not an entitlement that can be based in Article 3(2) of
the Croatia BIT’.31 The tribunal also held that Chile had not acted inconsistently with Article
3(1) of the Denmark BIT because the FIC’s authorisation of the project ‘was not a blanket
authorization but only the initiation of a process to obtain the necessary permits and
approvals’.32 As such, the authorisation did not create an ‘obligation’ to grant those permits
and approvals if to do so would not be ‘in accordance with [Chile’s] laws and policies’.33

ii) The Annulment Proceeding

The respondent sought annulment of the decision of the tribunal, inter alia, on the
grounds that the tribunal ‘confused fair and equitable treatment with most-favoured nation
treatment under Article 3(1) of the [Malaysia-Chile] BIT, rendering this aspect of the Award
incomprehensible’.34 The annulment committee noted that the tribunal’s reasoning ‘appears
to confuse the notion of fair and equitable treatment required by the first part of Article 3(1)
of the Malaysia-Chile BIT with the most-favoured-nation treatment which is required by the
second half’. 35 The annulment committee stated, rather, that the MFN clause was ‘not limited
to attracting more favourable levels of treatment accorded to investments from third States
only where they can be considered to fall within the scope of the fair and equitable treatment

25
Ibid ¶103.
26
Ibid ¶104.
27
Ibid ¶104.
28
Ibid ¶104.
29
Ibid ¶104.
30
Ibid ¶204.
31
Ibid ¶206.
32
Ibid ¶188.
33
Ibid ¶188.
34
Decision on Annulment (21 March 2007) ¶63.
35
Ibid ¶64.
standard’, but rather ‘attracts any more favourable treatment extended to third State
investments and does so unconditionally’.36 Despite construing the MFN clause more broadly
than the tribunal, however, the committee held that the tribunal’s ‘uncertainty’ on this point
had not affected the outcome of the case and declined to annul the Award.

B. MTD v. Chile in Context

The MFN clause invoked in MTD v. Chile consisted of an undertaking by each of the
Contracting Parties to provide to nationals of the other Party treatment no less favourable
than that provided to nationals of both the host and third States. Whilst this MFN provision
broadly reflects the contours of MFN clauses in other investment treaties,37 the formulation of
such clauses is by no means uniform.38 In structure alone, for example, the clause can appear
alongside another standard of treatment (as in MTD), as a standalone provision,39 or as a
limitation on the application of another clause.40 So too, the precise wording of each MFN
clause and the exceptions applicable to it differ significantly as between treaties. Determining
the scope and applicability of MFN clauses will therefore necessarily be a treaty- and fact-
specific exercise.41 This circumstance, particularly when coupled with the non-precedential
status of arbitral decisions for subsequent cases, explains why most tribunals faced with a
substantive MFN claim have tended not to cite or refer to previous decisions in which arbitral
tribunals have considered claims for substantive MFN protection. Indeed, citations to other
arbitral reasoning by tribunals considering the operation of MFN clauses as a substantive
protection standard by reference to comparator treaties are rare. In the some 37 such cases
identified, the tribunals in only five cited or considered decisions of other tribunals on the
scope or applicability of the MFN clause.42 The most frequent references between cases occur

36
Ibid ¶64.
37
See, further United Nations Conference on Trade and Development (UNCTAD), Most-Favoured-Nation
Treatment II UNCTAD Series on Issues in International Investment Agreements (2010).
38
United Nations Conference on Trade and Development (UNCTAD), Most-Favoured-Nation Treatment II
UNCTAD Series on Issues in International Investment Agreements, 3 (2010); Claudia Saloman and Sandra
Friedrich, How Most Favoured Nations Clauses in Bilateral Investment Treaties Affect Arbitration, Practical
Law Arbitration, Resource ID 0-381-7466, 9 (2013); Jurgen Kurtz, The MFN Standard and Foreign Investment:
An Uneasy Fit? 5 Journal of World Investment & Trade 861, 874 (2004); OECD, Most-Favoured-Nation
Treatment in International Investment Law, OECD Working Papers on International Investment 2004/02, ¶2.3
(2004).
39
See, for example, North American Free Trade Agreement, US-Canada-Mexico, art 1103 (signed 17 December
1992, entered into force 1 January 1994) 32 ILM 289, 605 (1993).
40
Such clauses might provide, for example, that a State is entitled to take measures necessary to protect its
security interests provided that in taking those measures it does not treat investors protected by the base treaty in
a manner less favourable than investors of other States.
41
Ambatielos case (Greece v. United Kingdom) (1963) XII UNRIAA 107, Award (6 March 1956) (the scope of
the MFN clause ‘can only be determined in accordance with the intentions of the Contracting Parties as deduced
from a reasonable interpretation of the Treaty’); International Law Commission, Draft Articles on Most-
Favoured-Nations Clause with Commentaries II Yearbook of the International Law Commission, Part 2, 20
(1978); Renta 4 S.V.S.A. v. Russian Federation, Arbitration Institute of the Stockholm Chamber of Commerce,
Award on Preliminary Objections (20 March 2009) (Charles Brower, Toby Landau, Jan Paulsson), ¶94 (‘It
remains necessary to proceed BIT by BIT’).
42
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29,
Award (27 August 2009) ¶¶158-159 (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel (Cl), Franklin
Berman (R)) (citing MTD, and distinguishing Maffezini, Telenor, Plama and Salini); Rafat Ali Rizvi v Indonesia,
ICSID Case No. ARB/11/13, Award on Jurisdiction (16 July 2013) ¶¶218-219, 224, 226 (Gavan Griffith, Joan
Donoghue, Muthucumaraswamy Sornarajah) (distinguishing Maffezini, Societe Generale, and Tecmed); Metal-
Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013) ¶146 (Gabrielle
where a claimant invokes an MFN clause as a standalone treatment obligation prohibiting
discriminatory treatment of it vis-à-vis foreign investors from third States.43 Despite the few
citations, it is undoubtedly clear that the MTD proceedings illustrate, and have been
influential in developing, the contours of this area of law.44

III. MTD V. CHILE’S IMPACT AND CONTRIBUTION TO THE

DEVELOPMENT OF INVESTMENT LAW

As noted above, MTD v. Chile is one of some 50 cases in which a tribunal has
considered invocation of an MFN clause as a substantive protection standard. In the large
majority of such cases, tribunals have – like the tribunal in MTD – ultimately rejected the
MFN claim. For claimants invoking the MFN clause by reference to a comparator treaty, the
overwhelming lack of success reflects an arbitral conclusion that the comparator provision
invoked (1) has not been breached (as in MTD), (2) is not applicable,45 (3) is not more
favourable than that conferred by the base treaty46 or (4) that the MFN clause cannot be used

Kaufmann-Kohler, John Townsend (Cl), Claus von Wobeser (R)) (citing Societe Generale and Berschader);
Occidental Exploration and Production Company v The Republic of Ecuador, LCIA Case No. UN3467, Final
Award (1 July 2004) ¶178 (distinguishing Maffezini); Sergei Paushok, CJSC Golden East Company and CJSC
Vostokneftegaz Company v The Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability (28
April 2011) ¶565 (Marc Lalonde (President), Horacio Grigera Naón, Brigitte Stern) (citing Ambatielos,
Maffezini and Gas Natural).
43
In such cases, other analogous cases tend to be cited by tribunals to determine the type of discrimination that
is prohibited by the MFN clause, or the notion of “like circumstances”: see, for example, Apotex Holdings Inc.
and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award (30 April 2014) (V.V.
Veeder; J William Rowley (Cl); John R Crook (R)).
44
MTD v. Chile has also been oft discussed in literature on both MFN and other standards of treatment, see, for
example: Jurgen Kurtz, “The MFN Standard and Foreign Investment – An Uneasy Fit?” (2004) 5 Journal of
World Investment & Trade 861; Okezic Chukwumerije, “Interpreting Most-Favoured-Nation Clauses in
Investment Treaty Arbitrations” (2007) 8 Journal of World Investment & Trade 597; Stephan Schill,
“Multilateralizing Investment Treaties through Most-Favored-Nation Clauses” (2009) 27(2) Berkeley Journal of
International Law 496; Sebastian Lopez Escarcena, “La Aplicacion de la Clausula de la Nacion Mas Favorecida
y del Trato Justo y Equitativo en la Jurisprudencia Internacional en Materia de Inversion Extranjera – El Caso
MTD” (2005) 32(1) Revista Chilena de Derecho 79; Ruth Teitelbaum, “Who’s Afraid of Maffezini – Recent
Developments in the Interpretation of Most Favored Nation Clauses” (2005) 22(3) Journal of International
Arbitration 225; Tai-Heng Cheng and Robert Trisotto, “Reasons and Reasoning in Investment Treaty
Arbitration” (2008-2009) 32 Suffolk Transnational Law Review 409; Marcela Klein Bronfman, “Fair and
Equitable Treatment: An Evolving Standard” (2006) 10 Max Planck Yearbook of UN Law 609; Han Xiuli, “The
Application of the Principle of Proportionality in Tecmed v. Mexico” (2007) 6 Chinese Journal of International
Law 635; Annie Leeks, “The Relationship between Bilateral Investment Treaty Arbitration and the Wider
Corpus of International Law: The ICSID Approach” (2007) 65(2) University of Toronto Faculty of Law Review
1; Rudolf Dolzer, “The Impact of International Investment Treaties on Domestic Administrative Law” (2004-
2005) 37 New York University Journal of International Law and Politics 953; Fiona Marshall, “Fair and
Equitable Treatment in International Investment Agreements” (2007) IISD, Background Papers for the
Developing Country Investment Negotiators’ Forum (1-2 October 2007, Singapore).
45
Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award
(30 April 2014), ¶¶9.70-9.71 (V.V. Veeder; J William Rowley (Cl); John R Crook (R)).
46
Asian Agricultural Products Ltd v. Sri Lanka, ICSID Case No. ARB/87/3, Award (27 June 1990), ¶54
(Ahmed El-Kosheri, Berthold Goldman (Cl), Samuel Asante (R)); Apotex Holdings Inc. and Apotex Inc. v.
United States of America, ICSID Case No. ARB(AF)/12/1, Award (30 April 2014), ¶9.66 (V.V. Veeder; J
William Rowley (Cl); John R Crook (R)). A number of other such tribunals have dismissed the proceedings on
other grounds and so have not considered the applicability of the MFN provision: Ioannis Kardassopoulos v.
The Republic of Georgia, ICSID Case No. ARB/05/18, Award (3 March 2010) (L Yves Fortier, Francisco
Orrego Vicuña (Cl), Vaughan Lowe (R)), ¶623; Ron Fuchs v. The Republic of Georgia, ICSID Case No.
ARB/07/15, Award (3 March 2010) (L Yves Fortier, Francisco Orrego Vicuña (Cl), Vaughan Lowe (R)), ¶623;
in the manner proposed by the claimant.47 The MTD proceedings usefully illustrate how MFN
clauses might be invoked as substantive protection obligations in practice, and the limitations
imposed by tribunals upon the of scope of such clauses.

A. Patterns of Usage: MFN Clauses as Substantive Protection Standards

The MTD proceedings illustrate two of four potential ways in which an MFN clause
might operate as a substantive protection standard.

First, MFN provisions are frequently invoked to expand or add content to the
standards of treatment already accorded in the base treaty. The MTD tribunal, for example,
interpreted MTD’s invocation of the MFN clause as an attempt to avail itself of more
favourable (or specific) standards of treatment in comparator treaties within the FET
obligation of the base treaty. Numerous investors have utilised MFN clauses in a similar
manner. In ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom
of Jordan, for example, the claimant invoked the MFN clause to expand the types of
treatment that might be considered to be in breach of the base treaty’s FET clause. Referring
to a number of third party comparator treaties, the claimant submitted that the FET obligation
ought to be interpreted as encompassing the customary international law minimum standard
of treatment, a prohibition on discrimination, and a requirement that the respondent provide
‘effective means of asserting claims and enforcing rights with respect to investments’.48 This
usage of the MFN clause is typically uncontroversial, except insofar as it relates to expansion
of the treaty’s material or temporal scope.49 Indeed, in ATA, the respondent itself accepted as
applicable the more detailed standards of treatment stipulated by comparator treaties as
falling within the FET obligation.50

Second, MFN provisions are often invoked in an attempt to benefit from standards of
treatment additional to those provided in the base treaty. The annulment committee in MTD
interpreted the purported use of the MFN clause in this manner, holding that the standards of
treatment invoked from the comparator treaties were of a different kind or class to the FET
obligation included in the base treaty. Since MTD v. Chile, other claimants have similarly
invoked MFN clauses to operate a renvoi to entirely new substantive obligations in
comparator treaties.51 The success of such claims has been mixed and depends to a significant

EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine
Republic, ICSID Case No. ARB/03/23, Award (11 June 2012) (William W Park, Gabrielle Kaufmann-Kohler
(Cl), Jesus Remon (R)), ¶¶999 and 1101; Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No.
ARB/10/17, Award (25 February 2014) (Rodrigo Oreamuno, Joaquin Morales Godoy(Cl), Bernard Hanotiau
(R)), ¶519.
47
See, for example, Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October
2013) (Gabrielle Kaufmann-Kohler, John Townsend (Cl), Claus von Wobeser (R)).
48
ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID Case No.
ARB/08/2, Award (18 May 2010) (L Yves Fortier, Ahmed Sadek El-Kosheri, W Michael Reisman), ¶73.
49
See C, below.
50
Ibid footnote 16.
51
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award (25 May
2004) (Andres Rigo Sureda, Marc Lalonde (Cl), Rodrigo Oreamuno Blanco (R)); Impregilo S.p.A. v. Islamic
Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction (22 April 2005) (Gilbert Guillaume,
Bernardo Cremades (Cl), Toby Landau (R)); L.E.S.I. S.p.A. and ASTALDI S.p.A. v. République Algérienne
Démocratique et Populaire, ICSID Case No. ARB/05/3, Award (12 November 2008) (Pierre Tercier, Bernard
Hanotiau (Cl), Emmanuel Gaillard (R)); Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of
Egypt, ICSID Case No. ARB/05/15, Award (1 June 2009) (David Williams, Michael Pryles, Francisco Orrego
extent upon the wording and structure of the particular MFN clause in issue. Generally,
tribunals have tended to follow the approach of the MTD annulment committee in permitting
such use of the MFN clause.52 Specifically, these claims have tended to relate to invocations
of MFN clauses by reference to, in the absence of such protections in the base treaty, FET
obligations,53 or the obligation to observe commitments entered into in respect of the
investment or investor (‘umbrella clauses’).54

Third, some claimants have invoked an MFN clause to eliminate or overcome

unfavourable provisions in the base treaty.55 In CMS Gas Transmission Company v. The

Vicuna); Pantechniki S.A. Contractors & Engineers (Greece) v. The Republic of Albania, ICSID Case No.
ARB/07/21, Award (30 July 2009) (Jan Paulsson); Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic
Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009) (Gabrielle Kaufmann-Kohler,
Karl-Heinz Böckstiegel (Cl), Franklin Berman (R)); ATA Construction, Industrial and Trading Company v. The
Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Award (18 May 2010) (L Yves Fortier, Ahmed
Sadek El-Kosheri, W Michael Reisman); Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17,
Award (21 June 2011) (Gilbert Guillaume, Bernardo Cremades (Cl), Toby Landau (R)); Abaclat and Others v.
Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (4 August 2011)
(Pierre Tercier, Albert Jan van den Berg (Cl), Georges Abi-Saab (R)); EDF International S.A., SAUR
International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No.
ARB/03/23, Award (11 June 2012) (William W Park, Gabrielle Kaufmann-Kohler (Cl), Jesus Remon (R)); Mr.
Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award (8 April 2013) (Bernardo
Credmades, Bernard Hanotiau (Cl), Rolf Knieper (R)); Gold Reserve Inc. v. Bolivarian Republic of Venezuela,
ICSID Case No. ARB(AF)/09/1, Award (22 September 2014) (Piero Bernardini, David Williams (Cl), Pierre
Marie Dupuy (R)).
52
The invocation of the MFN clause was upheld in seven such cases out of twelve (twice by party agreement):
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award (25 May
2004) (Andres Rigo Sureda, Marc Lalonde (Cl), Rodrigo Oreamuno Blanco (R)); L.E.S.I. S.p.A. and ASTALDI
S.p.A. v. République Algérienne Démocratique et Populaire, ICSID Case No. ARB/05/3, Award (12 November
2008) (Pierre Tercier, Bernard Hanotiau (Cl), Emmanuel Gaillard (R)); Pantechniki S.A. Contractors &
Engineers (Greece) v. The Republic of Albania, ICSID Case No. ARB/07/21, Award (30 July 2009) (Jan
Paulsson) (by party agreement); Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan,
ICSID Case No. ARB/03/29, Award (27 August 2009) (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel
(Cl), Franklin Berman (R)); ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of
Jordan, ICSID Case No. ARB/08/2, Award (18 May 2010) (L Yves Fortier, Ahmed Sadek El-Kosheri, W
Michael Reisman) (by party agreement); EDF International S.A., SAUR International S.A. and León
Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Award (11 June 2012)
(William W Park, Gabrielle Kaufmann-Kohler (Cl), Jesus Remon (R)); Mr. Franck Charles Arif v. Republic of
Moldova, ICSID Case No. ARB/11/23, Award (8 April 2013) (Bernardo Credmades, Bernard Hanotiau (Cl),
Rolf Knieper (R)). In a further two cases the tribunal did not decide the issue, having decided the claim on other
grounds: Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and
Admissibility (4 August 2011) (Pierre Tercier, Albert Jan van den Berg (Cl), Georges Abi-Saab (R)); Gold
Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award (22 September 2014)
(Piero Bernardini, David Williams (Cl), Pierre Marie Dupuy (R)).
53
L.E.S.I. S.p.A. and ASTALDI S.p.A. v. République Algérienne Démocratique et Populaire, ICSID Case No.
ARB/05/3, Award (12 November 2008) (Pierre Tercier, Bernard Hanotiau (Cl), Emmanuel Gaillard (R));
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29,
Award (27 August 2009) (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel (Cl), Franklin Berman (R));
ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID Case No.
ARB/08/2, Award (18 May 2010) (L Yves Fortier, Ahmed Sadek El-Kosheri, W Michael Reisman).
54
EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine
Republic, ICSID Case No. ARB/03/23, Award (11 June 2012) (William W Park, Gabrielle Kaufmann-Kohler
(Cl), Jesus Remon (R)); Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award
(8 April 2013) (Bernardo Credmades, Bernard Hanotiau (Cl), Rolf Knieper (R)).
55
See: CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award (12
May 2005) (Francisco Orrego Vicuña, Marc Lalonde (Cl), Judge Francisco Rezek (R)); Bernardus Henricus
Republic of Argentina, for example, the claimant invoked the MFN clause to overcome a
necessity exception provided in the base treaty, on the basis that other treaties concluded by
the respondent did not contain a similar exception and were thus more favourable.56 The
tribunal rejected this submission, holding that it was ‘not convinced’ that the mere absence of
such a defence in the other treaties necessarily made them more favourable and, moreover,
noting that the claimant’s invocation of the MFN clause ‘would in any event fail under the
ejusdem generis rule’.57 These are two important limiting factors on the scope of MFN
provisions, and will be considered in more detail below.

Finally, MFN clauses have also been used as substantive protection standards in their
own right, prohibiting host States from according more favourable treatment to nationals of
third States vis-à-vis the claimant protected under the base treaty.58 Any such finding of
breach will give rise to State liability and an obligation to compensate the investor on account
of the less favourable treatment it has received. While this function of MFN clauses is
overwhelmingly accepted in principle, no investor has yet succeeded in such a claim before
an ICSID tribunal. Tribunals have generally rejected such claims on the basis of restraints
embedded in the MFN clause, which are considered in more detail below.

As MTD v. Chile and these later cases make clear, the outcome of a claim invoking
substantive protection through an MFN clause will depend to a significant degree upon the
tribunal’s interpretation and application of any express or implied restraints on the MFN
clause. MTD v. Chile thus brings into focus the relevance of both express and implied
exceptions to the interpretation and application of MFN clauses as substantive protection
obligations.

B. The Role of Express Exceptions in the Treaty to Interpretation of the Scope of

MFN Standards as Substantive Protection Obligations

Express exceptions to MFN clauses can operate as an important limiting device for
negotiating States so as to ensure that an MFN clause does not have unintended consequences

Funnekotter and others v. Republic of Zimbabwe, ICSID Case No. ARB/05/6, Award (22 April 2009) (Gilbert
Guillaume, Dean Ronald Cass (Cl), Mohammad Wasi Zafar (R)); Gemplus S.A., SLP S.A., Gemplus Industrial
S.A. de C.V. v. The United Mexican States, ICSID Case No. ARB(AF)/04/3, Award (16 June 2010) (V.V.
Veeder, L Yves Fortier (Cl), Eduardo Magallon Gomez (R)); Talsud S.A. v. The United Mexican States, ICSID
Case No. ARB(AF)/04/4, Award (16 June 2010) (V.V. Veeder, L Yves Fortier (Cl), Eduardo Magallon Gomez
(R)).
56
Award (12 May 2005) (Francisco Orrego Vicuña, Marc Lalonde (Cl), Francisco Rezek (R)), ¶343.
57
Ibid ¶377. “Ejusdem generis” means “of the same kind” and operates to limit the scope of MFN clauses. It is
considered in more detail in Section C, below.
58
See: Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No.
ARB/03/29, Award (27 August 2009); Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. The Republic of
Peru, ICSID Case No. ARB/03/4, Award (7 February 2005); Parkerings-Compagniet AS v. Republic of
Lithuania, ICSID Case No. ARB/05/8, Award (11 September 2007); Cargill, Incorporated v. United Mexican
States, ICSID Case No. ARB(AF)/05/2, Award (18 September 2009); AES Summit Generation Limited and
AES-Tisza Erömü Kft v. The Republic of Hungary, ICSID Case No. ARB/07/22, Award (23 September 2010);
Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada,
ICSID Case No. ARB/10/6, Award (10 December 2010); GEA Group Aktiengesellschaft v. Ukraine, ICSID
Case No. ARB/08/16, Award (31 March 2011); Apotex Holdings Inc. and Apotex Inc. v. United States of
America, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014).
or application.59 Almost all investment treaties containing an MFN clause designate express
exceptions to constrain its application. Many investment treaties exempt certain measures60 or
sectors61 from the scope of the MFN clause, or designate as exempt from MFN treatment
benefits conferred by particular comparator treaties.62 Other treaties subject the MFN clause
to more generic exceptions applicable to the treaty as a whole.63

To date, ADF v. USA has been the only case in which an investment treaty tribunal
has interpreted and applied an express exception to reject an MFN claim.64 ADF v. USA
concerned a Canadian investor’s challenge under the North American Free Trade Agreement
(‘NAFTA’) to a domestic use requirement imposed under contract by the US state of
Virginia. The claimant invoked the MFN clause in NAFTA by reference to allegedly more
favourable standards of protection accorded to investors under the respondent’s BITs with
Albania and Estonia. In response, the respondent argued that the measures were government
procurement measures and thus exempt under Article 1108(7)(a) of NAFTA from application
of the MFN provision. The tribunal agreed with the respondent, holding that the acts of
Virginia were excluded under Article 1108 from the application of Article 1103 of NAFTA
such that the MFN clause could not be relied upon by the Claimant.65

Conversely, the absence of express exceptions has operated as a key factor in

prompting tribunals to adopt an expansive interpretation of MFN clauses. Indeed, this was a
key factor supporting the MTD tribunal’s interpretation of the MFN clause.66 A similar line of
reasoning was adopted by the tribunal in Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v.
Islamic Republic of Pakistan.67 In that case, the respondent argued that the absence of an
obligation of fair and equitable treatment in the base treaty indicated the Contracting Parties’
specific intention to exclude that standard of treatment from the scope of the treaty (and thus

59
UNCTAD, Most-Favoured-Nation Treatment II Series on Issues in International Investment Agreements, 99
(2010).
60
See, for example: North American Free Trade Agreement, US-Canada-Mexico, art 1108 (signed 17 December
1992, entered into force 1 January 1994) 32 ILM 289, 605 (1993) (government procurement, government
subsidies, government grants).
61
See, for example: North American Free Trade Agreement, US-Canada-Mexico, Annex IV (signed 17
December 1992, entered into force 1 January 1994) 32 ILM 289, 605 (1993) (aviation, fisheries etc).
62
See, for example: North American Free Trade Agreement, US-Canada-Mexico, Annex IV (signed 17
December 1992, entered into force 1 January 1994) 32 ILM 289, 605 (1993) (benefits accorded under treaties
signed prior to entry into force of NAFTA).
63
See, for example: North American Free Trade Agreement, US-Canada-Mexico, art 2102 (signed 17 December
1992, entered into force 1 January 1994) 32 ILM 289, 605 (1993) (national security).
64
ADF Group Inc. v. United States of America, ICSID Case No. ARB(AF)/00/1, Award of the Tribunal (9
January 2003) (Florentino Feliciano, Armand deMestral (Cl), Carolyn Lamm (R)). It can be assumed, however,
that many claimants have not sought to invoke MFN clauses because of the presence of applicable exceptions to
their scope. It remains to be seen how ICSID tribunals will in the future interpret and apply the increasing
variety of exceptions included by States to MFN clauses in newly negotiated BITs. Note that the tribunal in
United Parcel Service of America Inc v. Government of Canada held that one of the impugned measures (the
Postal Imports Agreement) was a government procurement contract and as such that the exception of Article
1108(7)(a) applied, though did not expressly consider the implications of this in the context of the MFN claim:
UNCITRAL, Award (3 November 2008) (Andrés Rigo Sureda (President), E. Whitney Debevoise (Cl),
Alejandro Garro (R)), ¶¶135-136.
65
Ibid ¶¶170-171.
66
Ibid ¶104.
67
ICSID Case No. ARB/03/29, Award (27 August 2009) (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel
(Cl), Franklin Berman (R)).
the MFN clause).68 The tribunal, however, held that the limited exceptions applicable to the
scope of the MFN clause (encompassing benefits provided under customs, free trade, or
taxation treaties) ‘show[ed] that the parties to the Treaty did not intend to exclude the
importation of a more favourable substantive standard of treatment accorded to investors of
third countries’.69

C. The Role of the Wording of the MFN Clause to Interpretation of its Scope as a
Substantive Protection Standard

Tribunals have, similarly to MTD v. Chile, recognised a range of further important

restraints on MFN clauses that have limited their capacity to enliven substantive protection.
In particular, numerous tribunals have referred to the formulation of the MFN clause itself as
limiting the scope of its application.70 Many MFN clauses, for example, are expressed to
accord only ‘more favourable treatment’ to investors that are in ‘like circumstances’ to the
claimant or who have invested ‘in the territory’ of the host State. These constraints have
featured to differing degrees in arbitral jurisprudence depending upon whether the MFN
clause is invoked by reference to third party treaty provisions or substantive treatment
accorded by the host State to third party nationals in practice.

In the former category of claims, many tribunals have relied upon the notion of ‘more
favourable treatment’ to reject the invocation of MFN clauses.71 Thus, in Waguih Elie
George Siag and Clorinda Vecchi v. The Arab Republic of Egypt the tribunal held that ‘the
obligations referred to by Claimants are adequately protected by the BIT’ such that ‘nothing
would be added to Claimants’ claim by the invocation of the most favoured nation
doctrine’.72 It ought to be noted that most MFN clauses are silent as to the focus of the
assessment of the favourability of ‘treatment’: such clauses do not stipulate whether the
investor need only show that there is a more favourable obligation or protection standard in
the comparator treaty or, conversely, whether the investor must show that – globally – the
comparator treaty accords investors more favourable treatment.73 Chukwumerije, for
example, argues that:

68
Ibid ¶150.
69
Ibid ¶157.
70
Cf: Stephan Schill, Multilateralizing Investment Treaties through Most-Favored-Nation Clauses 27(2)
Berkeley Journal of International Law 496, 503 (2009) (‘it is widely accepted that slight differences in the
wording of the clauses do not alter their function’).
71
Asian Agricultural Products Ltd v. Sri Lanka, ICSID Case No. ARB/87/3, Award (27 June 1990) (Ahmed El-
Kosheri, Berthold Goldman (Cl), Samuel Asante (R)); CMS Gas Transmission Company v. The Republic of
Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005) (Francisco Orrego Vicuña, Marc Lalonde (Cl),
Judge Francisco Rezek (R)); Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt,
ICSID Case No. ARB/05/15, Award (1 June 2009) (David Williams, Michael Pryles, Francisco Orrego Vicuna);
Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award (25
August 2014) (V.V. Veeder; J William Rowley (Cl); John R Crook (R)); Gold Reserve Inc. v. Bolivarian
Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award (22 September 2014) (Piero Bernardini, David
Williams (Cl), Pierre Marie Dupuy (R)).
72
ICSID Case No. ARB/05/15, Award (1 June 2009) (David Williams, Michael Pryles, Francisco Orrego
Vicuna), ¶¶463-464.
73
For criticism of this approach, see Okezic Chukwumerije, Interpreting Most-Favoured-Nation Clauses in
Investment Treaty Arbitrations 8(5) Journal of World Investment & Trade 643, 621 (2007). For a defense of this
approach, see: Tony Cole, The Boundaries of Most Favored Nation Treatment in International Investment Law
33(3) Michigan Journal of International Law 537, 579 (2012).
 If the basic purpose of MFN clauses is to prevent discrimination between investors
from different countries, then “treatment no less favourable” analysis would require a
tribunal to evaluate the totality of treatment accorded by the host state to investors
from Country A against the totality of treatment accorded to investors from country B.

Such an approach would allow, for example, for provision-specific less favourable treatment
to be remedied by an overall assessment that the claimant investor is nevertheless still
better-off overall under the base treaty. Tribunals have overwhelmingly opted not to engage
in these global assessments. This may reflect underlying assessments that a global approach
could quickly become unworkable and would introduce significant unpredictability into this
area of law. Indeed, the tribunal in Daimler Financial Services AG v. Argentine Republic
emphasised that an investor can pick and choose provisions from a comparator treaty without
being subject to any of the treaty’s more restrictive jurisdictional or threshold provisions.74

The requirement of ‘likeness’ can also play an important constraining role. Generally,
tribunals considering the use of the MFN clause by reference to more favourable provisions
from other treaties have not assessed the issue of likeness, rather assuming the existence of a
class of investors at large who are capable of invoking the comparator treaty provisions.75 By
contrast, the notion of ‘likeness’ has featured much more prominently where the MFN clause
is invoked by reference to comparable practice, that is the treatment accorded to other
investors by the host State in practice.76 In such cases, a core feature of the tribunal’s analysis
will be whether there is an investor of a third State that is in ‘like’ or ‘similar’ circumstances
to the claimant, who is receiving more favourable treatment from the host State than the
claimant.77 Tribunals have interpreted the notion of likeness to avoid penalising differential
treatment per se; focusing instead on whether the more favourable treatment provided to the
‘like’ investor can be justified as reasonable, proportionate or legitimate.78 In Bayindir Insaat
Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, 79 for example, the tribunal
rejected the claimant’s allegations of discrimination under the MFN clause on the basis that
the claimant had not provided any ‘sufficiently specific data on the terms and performance of

74
ICSID Case No. ARB/05/1, Award (22 August 2012) ) (Pierre-Marie Dupuy, Charles Brower (Cl), Domingo
Bello Janeiro (R)), ¶93.
75
Tony Cole, The Boundaries of Most Favored Nation Treatment in International Investment Law 33(3)
Michigan Journal of International Law 537, 583 (2012).
76
There is some debate about whether a likeness requirement can be ‘read in’ to the base treaty where it is not
expressly included. See, further: UNCTAD, Most-Favoured-Nation Treatment II UNCTAD Series on Issues in
International Investment Agreements, 54 (2010); Jurgen Kurtz, The MFN Standard and Foreign Investment: An
Uneasy Fit? 5 The Journal of World Investment & Trade 861, 875 (2004); Prabhash Ranjan, International
Investment Agreements and Regulatory Discretion: Case Study of India 9(2) The Journal of World Investment
& Trade 17 (2008).
77
See, for example, Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case
No. ARB/03/29, Award (27 August 2009) (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel (Cl), Franklin
Berman (R)). Another limitation expressed in the MFN clause might be that the comparator investor have made
their investment ‘in the territory’ of the host State. See, for example, Cargill, Incorporated v. United Mexican
States, ICSID Case No. ARB(AF)/05/2, Award (18 September 2009) (Michael Pryles, David Caron (Cl),
Donald McRae (R)).
78
See, for example, Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award
(11 September 2007) (Laurent Levy, Julian Lew (Cl), Marc Lalonde (R)); Apotex Holdings Inc. and Apotex Inc.
v. United States of America, ICSID Case No. ARB(AF)/12/1, Award (25 August 2014) (V.V. Veeder; J William
Rowley (Cl); John R Crook (R)), ¶2.31.
79
ICSID Case No. ARB/03/29, Award (27 August 2009) (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel
(Cl), Franklin Berman (R)).
the different contracts involved’ such that the tribunal was unable to assess whether the
comparator investor was truly in a ‘like’ position to the claimant.80

A further restraint arises from the structure or placement of the MFN provision. The
principle of ejusdem generis operates by reference to the placement of the MFN clause to
exclude from its scope subjects not belonging to the same category as those to which the
clause relates.81 This is one way in which the structure of an MFN clause could significantly
constrain its impact. For example, the MTD tribunal limited the application of the MFN
clause (incorrectly, according to the annulment committee) by reference to its placement
alongside the FET provision. There, the tribunal held that the standards invoked by reference
to the comparator treaty could be encompassed by the FET standard and as such fell within
the scope of the MFN clause. Different tribunals have taken differing approaches to such
issues. The tribunal in Sergei Paushok, CJSC Golden East Company and CJSC
Vostokneftegaz Company v. The Government of Mongolia rejected the claimants’ attempt to
invoke the MFN clause by reference to an umbrella clause in a comparator treaty, on the
basis that the base treaty did not itself contain such a provision.82 Contrary to the tribunal in
MTD, the Paushok tribunal considered that the umbrella clause could not be characterised as
falling within the FET obligation, noting that:

The Treaty is quite clear as to the interpretation to be given to the MFN clause
contained in Article 3(2): the extension of substantive rights it allows only has to do
with Article 3(1) which deals with fair and equitable treatment. If there exists any
other BIT between Mongolia and another State which provides for a more generous
provision relating to fair and equitable treatment, an investor under the Treaty is
entitled to invoke it. But, such investor cannot use that MFN clause to introduce into
the Treaty completely new substantive rights, such as those granted under an umbrella
clause.83

Thus far, the principle of ejusdem generis has rarely been expressly cited by tribunals
considering the availability of substantive protection under MFN clauses.84 The application of
each MFN clause will turn on its own wording, but the better view is probably that the
ejusdem generis principle operates by reference to the subject matter of the base treaty, rather

80
Ibid ¶¶ 417-420.
81
Ambatielos case (Greece v. United Kingdom) (1963) XII UNRIAA 107, Award (6 March 1956); OECD,
Most-Favoured-Nation Treatment in International Investment Law, OECD Working Papers on International
Investment 2004/02, ¶3.2 (2004); Stephan Schill, Multilateralizing Investment Treaties through Most-Favored-
Nation Clauses 27(2) Berkeley Journal of International Law 496, 515 (2009). Rudolf Dolzer and Christoph
Schreuer, Principles of International Investment Law (Oxford University Press, 2012), p. 186.
82
UNCITRAL, Award on Jurisdiction and Liability (28 April 2011) (Marc Lalonde (President), Horacio
Grigera Naón, Brigitte Stern).
83
Ibid ¶570
84
Note that the tribunal in Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan,
ICSID Case No. ARB/03/29, Award (27 August 2009) (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel
(Cl), Franklin Berman (R)) noted that the principle did not come into play because the wording of the treaty
clearly contemplated application of the more favourable provision under the MFN clause: ¶159. The clause has
been more frequently invoked in procedural MFN cases see, for example: Suez, Sociedad General de Aguas de
Barcelona S.A., and InterAguas Servicios Integrales del Agua, S.A. v. The Republic of Argentina, ICSID Case
No. ARB/03/17, Decision on Jurisdiction (16 May 2006) (Jeswald Salacuse, Gabrielle Kaufmann-Kohler (Cl),
Pedro Nikken (R)), ¶58.
than by reference to the MFN clause’s subject matter as such.85 The principle of ejusdem
generis has not been applied at all in cases involving MFN claims operating by reference to
more favourable treatment accorded in practice, rather than under a comparator treaty. In
these cases, the class of ‘treatment’ accorded under the MFN clause has generally been
interpreted by tribunals expansively. In Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v.
Islamic Republic of Pakistan, for example, the tribunal held that the clause could apply to
‘regulatory treatment’, as well as to ‘the manner in which a State concludes an investment
contract and/or exercises its rights thereunder’.86

A number of tribunals appear to have applied a principle akin to ejusdem generis

without necessarily having characterised it thus.87 Some claimants have, for example,
invoked MFN clauses in an effort to alter the scope of the base treaty.88 The first such claim
was considered by the ICSID tribunal in Técnicas Medioambientales Tecmed, S.A v. United
Mexican States.89 In that case, the Claimant attempted to overcome the prospective
application of the base treaty by invoking through the MFN clause the ‘more favourable’
(retrospective) application of one of the host State’s other BITs.90 The tribunal rejected this
purported use of the MFN provision, holding that the temporal operation of a treaty is one of
the core ‘determining factors for [the Contracting Parties’] acceptance of the Agreement’
such that it cannot ‘be impaired by the principle contained in the most favoured nation
clause’.91 Tribunals have used similar reasoning to reject attempts to invoke MFN clauses to
expand the material scope (ratione materiae) of investment treaties. In Metal-Tech Ltd. v.
Republic of Uzbekistan, for example, the claimant invoked the MFN clause to overcome the
legality requirement embedded in the notion of ‘investment’ in the base treaty, arguing that
another of the host State’s investment treaties provided a ‘more favourable definition of
investment…which includes no legality requirement’.92 Rejecting this invocation of the MFN
clause, the tribunal noted that ‘ordinarily, an MFN clause cannot be used to import a more
favourable definition of investment contained in another BIT’ because the term ‘investment’

85
See, further: Yas Banifatemi, The Emerging Jurisprudence on the Most-Favoured-Nation Treatment in
Investment Arbitration in Andrea Bjorklund, Ian Laird and Sergey Ripinsky (eds), Investment Treaty Law:
Current Issues III (British Institute of International and Comparative Law 2009) 241, 246; Stephan Schill,
Multilateralizing Investment Treaties through Most-Favored-Nation Clauses 27(2) Berkeley Journal of
International Law 496, ¶522 (2009); CMS Gas Transmission Company v. The Republic of Argentina, ICSID
Case No. ARB/01/8, Award (12 May 2005) (Francisco Orrego Vicuña, Marc Lalonde (Cl), Judge Francisco
Rezek (R)), ¶377.
86
ICSID Case No. ARB/03/29, Award (27 August 2009) (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel
(Cl), Franklin Berman (R)), ¶388.
87
Endre Ustor, The Most-Favoured-Nation Clause in the Law of Treaties: Working Paper II Yearbook of the
International Law Commission 165, ¶23 (1968) (noting that the limiting effect of the scope ratione materiae of
a treaty to the operation of an MFN cluse derives from the ejusdem generis principle).
88
Técnicas Medioambientales Tecmed, S.A v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award
(29 May 2003) (Horacio Grigera Naon, Jose Carlos Fernandez Rozas (Cl), Carlos Bernal Verea (R)); M.C.I.
Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award (31 July
2007) (Raul Vinuesa, Benjamin Greenberg (Cl), Jaime Irarrazabal (R)); Metal-Tech Ltd. v. Republic of
Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013) (Gabrielle Kaufmann-Kohler, John Townsend
(Cl), Claus von Wobeser (R)); Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No.
ARB(AF)04/6, Award (16 January 2013) (Vaughan Lowe, Charles Brower (Cl), Brigitte Stern (R)).
89
ICSID Case No.ARB(AF)/00/2, Award (29 May 2003) (Horacio Grigera Naon, Jose Carlos Fernandez Rozas
(Cl), Carlos Bernal Verea (R)).
90
Ibid ¶69.
91
Ibid ¶69.
92
Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013) (Gabrielle
Kaufmann-Kohler, John Townsend (Cl), Claus von Wobeser (R)), ¶107.
is ‘used in the MFN clause itself, so that the treatment assured [by the MFN
clause]….necessarily refers to investments and investors as defined [in the base BIT]’.93 The
tribunal explained, in this respect, that ‘one must fall within the scope of the treaty, which is
in particular circumscribed by the definition of investment and investors, to be entitled to
invoke the treaty protections, of which MFN treatment forms part’.94 Similar reasoning has
been adopted by one tribunal rejecting the use of an MFN clause by reference to new
standards of protection not included in the base treaty.95 The tribunal in that case noted that,
‘[t]he substantive protection of the MFN clause is very wide in so far as it relates to all
matters regulated by the BIT. Nevertheless, the reference to matters regulated by the BIT sets
an outer limit, and it is debateable whether contractual breaches are matters regulated by the
BIT’.96 It remains to be seen whether other tribunals will also adopt such reasoning to limit
the scope of application of MFN clauses in the future.97

D. The Relevance of Constraints in the Comparator Treaty

An issue that did not arise in MTD was the role of the comparator treaty itself in
constraining the ability of a claimant to avail itself of more favourable protection through an
MFN provision. Primarily, it is possible that the comparator treaty might operate to constrain
application of the base treaty’s MFN clause where the tribunal holds that the provision of the
comparator treaty is inapplicable to the facts of the case. In Impregilo S.p.A. v. Islamic
Republic of Pakistan, for example, the claimant invoked the MFN clause to avail itself of the
umbrella clauses of other BITs which it contended should apply to protect its contractual
rights.98 The tribunal held that reliance on these provisions ‘takes the matter no further’
because the claimant’s contracts were not concluded with the host State and so the umbrella
clauses would be inapplicable.99

A slightly more unusual scenario is presented when a tribunal determines that the
provision in the comparator treaty is expressed such that it immunises itself from operation of
other treaties’ MFN clauses. We are aware of only one case in which a tribunal has invoked
the wording of a comparator treaty to this effect. In that case, the claimant had invoked the

93
Ibid ¶145.
94
Ibid ¶145.
95
Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Award (21 June 2011) (Gilbert
Guillaume, Bernardo Cremades (Cl), Toby Landau (R)). Note that although use of MFN clauses was rejected in
four other such cases, it was not rejected in principle, but rather because the additional provisions would not add
to the protections available in the base treaty: Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No.
ARB/03/3, Decision on Jurisdiction (22 April 2005) (Gilbert Guillaume, Bernardo Cremades (Cl), Toby Landau
(R)); Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award (22
September 2014) (Piero Bernardini, David Williams (Cl), Pierre Marie Dupuy (R)); Waguih Elie George Siag
and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award (1 June 2009) (David
Williams, Michael Pryles, Francisco Orrego Vicuna); Abaclat and Others v. Argentine Republic, ICSID Case
No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011 (Pierre Tercier, Albert Jan van den
Berg (Cl), Georges Abi-Saab (R)).
96
Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Award (21 June 2011) (Gilbert
Guillaume, Bernardo Cremades (Cl), Toby Landau (R)), ¶184.
97
UNCTAD, Most-Favoured-Nation Treatment II UNCTAD Series on Issues in International Investment
Agreements, 61 (2010).
98
ICSID Case No. ARB/03/3, Decision on Jurisdiction (22 April 2005) (Gilbert Guillaume, Bernardo Cremades
(Cl), Toby Landau (R)), ¶84.
99
Ibid ¶223.
 MFN clause to expand the temporal operation of the BIT.100 The tribunal rejected the claim
on the basis that the provision from the comparator treaty was expressed in terms indicating
that the treaty parties’ intention had been to apply it only to the parties to the comparator
treaty. The tribunal held on this basis that the clause could not be invoked through use of the
MFN clause contained in the base treaty.101

IV. CONCLUSION

It is widely accepted that MFN clauses can function as a substantive protection

obligation. As this Chapter has illustrated, however, the structure and wording of such clauses
give rise to a range of constraints on their application. The identification, interpretation and
application of exceptions – both express and implied – significantly determines the extent to
which such provisions operate to accord investors substantive protection.

The interpretation of exceptions to MFN treatment is only likely to become more

important in investment treaty arbitration in light of the increasingly complex network of
investment treaties and changes in drafting practices over time. Further, and despite the
significant consideration of such clauses by investment treaty tribunals to date, a number of
important issues remain open in respect of the interpretation of substantive MFN treatment. It
remains to be seen, for example, how the principle of ejusdem generis will be developed and
applied by future tribunals in the context of substantive MFN protection.

This Chapter has highlighted a number of such issues, which are ripe for future
clarification by States drafting new investment treaties and for consideration by the arbitral
tribunals applying them. It has highlighted the importance of treaty structure and language to
the interpretation by arbitral tribunals of this standard of protection. It has further highlighted
that, in drafting and negotiating MFN provisions, States retain a key role in setting the scope
of protection that might be conferred by such clauses in the future.

100
M.C.I. Power Group L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award
(31 July 2007) (Raul Vinuesa, Benjamin Greenberg (Cl), Jaime Irarrazabal (R)).
101
Ibid ¶127.

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