Journal of International Dispute Settlement, Vol. 2, No. 1 (2011), pp.

97–113
doi:10.1093/jnlids/idq015
Published Advance Access December 10, 2010

The MFN Clause in Investment

Arbitration: Treaty Interpretation
Off the Rails

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ZACHARY DOUGLAS*
In this article the author revisits the vexed question of whether the jurisdiction of
an international tribunal, established in accordance with the terms of the basic
treaty, can be expanded by reference to the terms of a third treaty through the
investor’s reliance upon the MFN clause in the basic treaty. The recent line of cases
suggesting that no general answer to that question can be provided in view of the
nuanced differences in the wording of MFN clauses is considered and criticized as
failing to pay adequate attention to the principles of general international law as
mandated by Article 31(3)(c) of the Vienna Convention on the Law of Treaties.
The application of those principles leads to a negative answer to the question. A
claim for MFN treatment secures the treatment represented by the third treaty, it
does not effect the automatic incorporation of the terms of the third treaty into the
basic treaty before the investor files its claim. Moreover, for the investor to assert a
claim for MFN treatment it must first accept the standing offer of international
arbitration in accordance with the terms of the basic treaty and at that point an
arbitration agreement comes into existence. The terms of that agreement cannot be
amended retroactively at the suit of one of the parties. There is a fundamental
distinction in general international law between the substantive obligations in a
treaty, which are addressed to the state parties, and the provisions that create a
jurisdictional mandate for an international tribunal, which are addressed to the
tribunal and to the disputing parties, who enter into a relationship of procedural
equality once arbitration proceedings have been commenced. This distinction must
be respected by investment treaty tribunals in confronting the question of the scope
of MFN clauses.

1. Introduction
At the present stage in the development of an international law of investment,
not many questions can be formulated so as to yield a ‘yes’ or ‘no’ answer. But
one question that has been posed with precision and seems worthy of a straight
answer is whether the jurisdiction of an international tribunal established in

* University of Cambridge and Matrix Chambers. The opinions expressed in this article are those of the
author and do not necessarily reflect the views of parties represented by the author.
ß The Author 2010. Published by Oxford University Press. All rights reserved. For permissions,
please e-mail: journals.permissions@oup.com
98 Journal of International Dispute Settlement
accordance with the terms of the basic treaty can be expanded by incorporating
the more favourable ‘treatment’ reflected in the jurisdictional provisions of a
third treaty through the investor’s invocation of the most-favoured-nation
(MFN) clause in the basic treaty.
It is notorious that this question has proved to be among the most divisive in
the jurisprudence. This does not bode well for the future of precise questions in
this field. There are, broadly, three schools of thought evidenced in the
jurisprudence and no school can claim a clear numerical supremacy of adherents:

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there is the ‘yes’ school,1 the ‘no’ school2 and the ‘question cannot be formulated
in general terms’ school.3 The third approach has the potential to be the most
damaging to the legitimate expectations of the actual users of the investment
treaty system. There is a high premium on certainty when it comes to rules for
the adjudication of disputes because the alternative is litigation about how to
litigate, which is hardly an attractive proposition for investors or respondent
states. As the third approach makes litigation about the scope of claims that can
be litigated quite inevitable, its purported justification deserves special scrutiny.
The third approach is said to be consistent with or even mandated by Article
31 of the Vienna Convention on the Law of Treaties (1969): it is a question of
treaty interpretation that must be resolved by giving an ordinary meaning to
the terms of the particular MFN clause in the basic treaty. There are nuanced
differences in the language of each MFN clause in each treaty and so it follows,
according to this school of thought, that no general question on the application
of MFN clauses to jurisdictional provisions can be formulated consistently with

1
Some of the decisions listed in the three footnotes relate to issues that are properly characterized as
‘procedural’ rather than ‘jurisdictional’. The fundamental difference between jurisdictional and procedural
requirements is that the latter can be waived by the tribunal in appropriate circumstances: see, in relation to a
negotiation requirement, Z Douglas, The International Law of Investment Claims (CUP, Cambridge 2009) paras
332–4. Some of the arguments set out in this article are also relevant to whether the MFN clause can be applied
to ‘procedural’ issues. In short, not only is the application of the MFN clause to procedural requirements flawed
as a matter of principle, it is redundant in so far as such requirements are not condition precedents to the
exercise of the tribunal’s jurisdiction and can be waived in circumstances where strict adherence to them would
be futile. Emilio Agustı́n Maffezini v Kingdom of Spain (Decision on Objections to Jurisdiction, 25 January 2000)
ICSID Case No ARB/97/7, 5 ICSID Rep 396 (hereinafter ‘Maffezini’); Gas Natural SDG, S.A. v The Argentine
Republic (Decision of the Tribunal on Preliminary Questions on Jurisdiction, 17 June 2005) ICSID Case No
ARB/03/10, 14 ICSID Rep 284; Suez, Sociedad General de Aguas de Barcelona SA & InterAguas Servicios Integrales
del Agua SA v Argentine Republic (Decision on Jurisdiction, 16 May 2006) ICSID Case No ARB/03/17; National
Grid plc v Argentine Republic (Decision on Jurisdiction, 20 June 2006) UNCITRAL.
2
Salini Costruttori S.p.A. and Italstrade S.p.A. v The Hashemite Kingdom of Jordan (Decision on Jurisdiction, 15
November 2004) ICSID Case No ARB/02/13, 14 ICSID Rep 306; Plama Consortium Limited v Republic of Bulgaria
(Decision on Jurisdiction, 8 February 2005) ICSID Case No ARB/03/24, 13 ICSID Rep 272; Telenor Mobile
Communications A.S. v Republic of Hungary (Award, 13 September 2006) ICSID Case No ARB/04/15, Vladimir
Berschader & Moı̈se Berschader v Russian Federation (Award, 21 April 2006) SCC Case No 080/2004; Wintershall
Aktiengesellschaft v Argentine Republic (Award, 8 December 2008) ICSID Case No ARB/04/14; Austrian Airlines v
Slovak Republic (Final Award, 9 October 2009) UNCITRAL.
3
Siemens A.G. v Argentine Republic (Decision on Jurisdiction, 3 August 2004) ICSID Case No ARB/02/8, 12
ICSID Rep 174; RosInvestCo UK Ltd v Russian Federation (Award on Jurisdiction, October 2007) SCC Case No
V079/2005 (hereinafter ‘RosInvest’); Renta 4 S.V.S.A. et al v Russian Federation (Award on Preliminary
Objections, 20 March 2009) SCC Case No 024/2007 (hereinafter ‘Renta’).
 The MFN Clause in Investment Arbitration 99
the tribunal’s interpretive mission. Our destiny, then, is to have a series of sui
generis answers to the question without the certainty of a uniform solution.
I have analysed elsewhere the merits of the arguments deployed by the ‘yes’
school and the ‘no’ school in respect of the jurisdictional question under
consideration.4 In this article, I elaborate further upon the reasons why a
negative answer must be given to this question as a matter of general principle.
Another purpose of this article, however, is to confront the arguments that are
said to justify the third school of thought, which seems to be on the rise in

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terms of its recruitment of adherents.
The significance of this particular battle of ideas, of course, goes far beyond
the interpretation of the MFN clause. There is a growing tendency to eschew
the resolution of general propositions of international investment law by
reference to the apparent strictures of Article 31 of the Vienna Convention. If
each case is to be approached as a sui generis exercise in treaty interpretation,
then the prospects for a coherent international law of investment seems remote.
A law-making role for investment treaty tribunals is a functional necessity given
the open-textured drafting that characterizes investment treaties. The healthy
scepticism that greeted the emergence of a new lex mercatoria for contractual
disputes has no place in respect of the international law of investment.
This time it is not a question of suppressing what are often the elaborate
rules of an otherwise applicable law; it is a question of elaborating the
sparse applicable law in order to address the concrete issues in dispute.
Koskenniemi’s observation about the judicial process of treaty interpretation
holds particularly true in this context: it ‘tends to create meaning rather than
to discover it’.5
Does Article 31 of the Vienna Convention really mandate a ‘BIT by BIT’6
analysis of the MFN clause, in particular, or the investment protection
standards, more generally? ‘MFN’ is a term of art in international law and
treaty obligations employing this term of art have an ancient pedigree.7 When
state parties enter into modern investment treaties with an MFN clause, they
surely do not intend to relegate the received wisdom on the nature, scope and
effect of such clauses to the dustbin of history. To the contrary, by agreeing
upon a slender text with copious references to terms of art in international
law (‘expropriation’, ‘national treatment’ and so on), the state parties agree
that the general principles of international law are to assume a major part

4
Douglas (n 1) Ch 9.
5
M Koskenniemi, From Apology to Utopia: The Structure of International Legal Argument (CUP,
Cambridge 2006).
6
Renta (n 3) para 94.
7
See generally, S Hornbeck, ‘The Most-Favored-Nation Clause’ (1909) 3 AJIL 395.
100 Journal of International Dispute Settlement
of the interpretative burden when it comes to resolving disputes.8 As Verzijl
remarked:
Every international convention must be deemed tacitly to refer to general principles
of international law for all questions which it does not itself resolve in express terms
and in a different way.9
The International Law Commission, which has taken up the topic of MFN
clauses again in recent times, appears to agree:

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The fundamental questions about MFN clauses are matters of public international
law. The central issue is how should MFN clauses be interpreted. And while this may
appear to be a narrow question, in reality it is a broad question involving both treaty
interpretation and the nature and extent of obligations undertaken by States under
the ambit of an MFN clause. It engages our understanding of the role and function of
MFN clauses and of their relationship to the principle of non-discrimination in
international law.10
Article 31 of the Vienna Convention cannot be invoked by tribunals to sever
the terms of art employed in investment treaties from international law as
the legal system that hitherto has sustained them. There are not as many
ordinary meanings of the MFN standard as there are investment treaties.
As Schwarzenberger remarked: ‘[t]hough there is not such thing as the m.f.n.
clause, it is equally necessary to emphasize that there is such a thing as the
m.f.n. standard.’11
Investment treaties frequently contain a definition of their spatial scope as
including the ‘territorial sea’ of the state parties.12 In settling upon an
interpretation of this term, is the final port of call really a dictionary? Would a
permissible interpretation, in view of the dictionary meanings provided for each
word, be ‘a sea enclosed by a territory’? Or given the object and purpose stated
in the preamble of the investment treaty, would it be more appropriate to
recognize that any investment operation taking place on the continental shelf of
a state party is within the ‘territorial sea’ of that state party if the investment
operation generates economic benefits for that state party (such as the taxation
of revenues)? Would an oil drilling investment in the Gulf of Mexico, for
instance, fall within the definition of the ‘territorial sea’ for the United States
pursuant to the (hypothetical) UK/US BIT?

8
The preamble of the Vienna Convention itself requires that: ‘disputes concerning treaties . . . should be
settled . . . in conformity with the principles of justice and international law’.
9
Georges Pinson (France v Mexico) 5 RIAA 327, 422 (1928). See also: P Daillier and A Pellet, Droit
international public (L.G.D.J., Paris 2002) 266 (‘Un traité ne peut être considéré isolement. Non seulement il est
encré dans les réalités sociales, mais encore ses dispositions doivent être confrontées avec d’autres normes
juridiques avec lesquelles elles peuvent entrer en concurrence.’).
10
Report of the Working Group on the ‘Most-Favoured-Nation Clause’, UN Doc. A/CN.4/L.719, 20 July
2007, para 34.
11
G Schwarzenberger, ‘The Most-Favoured-Nation Standard in British State Practice’ (1945) 22 BYBIL 96,
104.
12
See, eg UK Model BIT (2005, with 2006 amendments) Art 1(c). Reproduced in Douglas (n 1) p 560.
 The MFN Clause in Investment Arbitration 101
The cult of the dictionary in treaty interpretation leads to the erosion of
settled meanings for international legal concepts and, instead, fixates upon the
lowest common denominator of meaning generated by a sterile linguistic
analysis of the treaty terms. The consequences of such an approach are
manifold: (i) the authority of past decisions and awards in giving content to an
international law of investment will be undermined because of judicial
insistence that everything depends upon the language used in the particular
treaty; (ii) the opportunity to confront general problems and articulate general

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solutions in each case will be more limited; (iii) the consistency of outcomes
across cases will be jeopardized because tribunals will profess to have a blank
slate in each individual case; (iv) as tribunals will be less constrained by the
authority of past decisions, there will be more focus upon the profiles of the
individual arbitrators as a guide to likely outcomes; and (v) given that shift
in focus, prominent arbitrators will be even less inclined to develop their views
on matters of substance in academic texts despite the obvious value of such
contributions for the development of the law.13
This article is now divided into two sections. First, the arguments of general
principle against permitting a claimant to rely upon an MFN clause in the
basic treaty to modify or expand the jurisdiction of the tribunal constituted in
accordance with the terms of the basic treaty will be reiterated and expanded.
The second section analyses how those arguments of general principle should
properly inform the interpretative exercise envisaged by Article 31 of the
Vienna Convention.

2. The Background of General International Law

A. The Position Before Maffezini v Spain
The decision in Maffezini was the first time that a party has been permitted to
rely upon an MFN clause to modify the jurisdictional mandate of an
international tribunal. Across the hundreds of years of activity of international
courts and tribunals leading up to Maffezini, there had only been judicial
pronouncements against such a device, including: the International Court of
Justice’s judgment in the Anglo-Iranian Oil Company Case14 and the British–
Venezuelan Mixed Claims Commission’s decision in Aroa Mines.15 Also, prior
to Maffezini, there does not appear to be any support in the writings of
publicists for the extension of the MFN clause to jurisdictional matters.

13
Indeed, one arbitrator has recently been subject to a challenge on the basis of his published academic
views on the MFN clause. The challenge was unsuccessful: Urbaser S.A. & Consorcio de Aguas Bilbao Bizkaia,
Bilbao Biskaia Ur Partzuergoa v Argentine Republic (Decision on Claimants’ Proposal to Disqualify Professor
Campbell McLachlan, Arbitrator, 12 August 2010) ICSID Case No ARB/07/26.
14
(United Kingdom v Iran) 1952 ICJ Rep 93. The case is analysed in Douglas (n 1) para 649C.
15
J Ralston, Venezuelan Arbitrations of 1903 (1904) 344; Douglas (n 1) para 673.
102 Journal of International Dispute Settlement
An error committed by the tribunal in Maffezini, and in several subsequent
awards that have followed it, is the finding that the Commission of Arbitration’s
award in the Ambatielos Case16 supports the application of the MFN clause to the
jurisdictional provisions of a third treaty.17 The Commission of Arbitration
affirmed that there is no general principle preventing an MFN clause being
applied to matters relating to the ‘administration of justice’. But the ‘adminis-
tration of justice’ in this context was the substantive obligation to provide foreign
nationals with ‘free access’ to the national courts of each contracting state to the

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treaty of commerce and navigation. The MFN clause in the treaty was invoked by
the Hellenic Government, on behalf of Mr Ambatielos, to found a claim of denial
of justice for prejudice alleged to have been suffered by Mr Ambatielos in the
English courts. The MFN clause was not invoked in respect of the jurisdiction of
the international tribunal hearing the case. The jurisdiction of the Commission of
Arbitration was simply not in issue.18
Some tribunals have exposed the error in Maffezini. In Plama v Bulgaria,19
the tribunal said:
[The Ambatielos] ruling relates to provisions concerning substantive protection in the
sense of denial of justice in the domestic courts. It does not relate to the import of
dispute resolution provisions of another treaty into the basic treaty.20
Likewise, in Salini v Jordan,21 it was observed in respect of the Ambatielos decision:
The Tribunal will observe that in this case, Greece invoked the most-favored-nation
clause with a view to securing, for one of its nationals, not the application of a dispute
settlement clause, but the application of substantive provisions in treaties between the
United Kingdom and several other countries under which their nationals were to be
treated ‘‘in accordance with ‘‘justice’’, ‘‘right’’ and ‘‘equity’’. The solution adopted by
the Arbitration Commission cannot therefore be directly transposed in this specific
instance.22
The Maffezini decision represents a point of departure from the existing
conception of the function of MFN clauses in international law.

B. General Principles of International Law Relevant to the Question

Underlying this conception is the fundamental distinction between the
substantive obligations in a legal instrument, such as a treaty, and the
provisions in the same instrument addressing the jurisdiction of a court or
tribunal that is conferred adjudicative power to resolve disputes arising out

16
(Greece v UK) 12 RIAA 119 (1956).
17
Maffezini (n 1) para 50.
18
See Douglas (n 1) para 657C ff.
19
(Decision on Jurisdiction, 8 February 2005) ICSID Case No ARB/03/24, 13 ICSID Rep 272.
20
Ibid, para 215.
21
(Decision on Jurisdiction, 15 November 2004) ICSID Case No ARB/02/13, 14 ICSID Rep 306.
22
Ibid, para 112.
 The MFN Clause in Investment Arbitration 103
of the legal instrument. Recently, the International Court of Justice had to
consider a plea that the jus cogens status of the prohibition of genocide should
have the effect of invalidating a reservation to its jurisdiction founded upon the
Genocide Convention. The Court ruled as follows:
Rwanda’s reservation to Article IX of the Genocide Convention bears on the
jurisdiction of the Court, and does not affect substantive obligations relating to acts of
genocide themselves under that Convention. In the circumstances of the present case,
the Court cannot conclude that the reservation of Rwanda in question, which is

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meant to exclude a particular method of settling a dispute relating to the interpret-
ation, application or fulfilment of the Convention, is to be regarded as being
incompatible with the object and purpose of the Convention.
[. . .]
[T]he Court deems it necessary to recall that the mere fact that rights and obligations
erga omnes or peremptory norms of general international law (jus cogens) are at issue
in a dispute cannot in itself constitute an exception to the principle that its
jurisdiction always depends on the consent of the parties. . .23
In other words, the status of the substantive obligation to desist from acts of
genocide in the Genocide Convention has no impact upon the jurisdictional
mandate of the Court in resolving disputes arising out of the Convention. Each
treaty provision addresses different things. They are not ejusdem generis.
The distinction between substantive obligations and jurisdictional provisions is
manifest in dispute resolution in private international law as well. The provisions
of commercial contracts conferring jurisdiction to arbitral tribunals, for instance,
are severable from the main contract and their validity and interpretation can be
subject to different legal rules from those regulating the substantive obligations in
the main contract. The doctrine of the severability of the arbitration clause from
the main contract is one of the most pervasive features of comparative arbitration
law.24 The principle is that a clause conferring adjudicative power to an arbitral
tribunal has a different purpose and, therefore, legal quality from the substantive
obligations in the main contract. A claim that the main contract is void for illegality
does not, for instance, impact upon the continued viability of the arbitration clause
that is severable.25
The jurisprudence of investment treaty tribunals also reflects a distinction
between the substantive obligations of investment protection and the provisions
of the treaty conferring adjudicative power upon an international tribunal. It is
now widely accepted that an investor can structure its investment in order to

23
Armed Activities on the Territory of the Congo (New Application: 2002) (Democratic Republic of the Congo v
Rwanda), Jurisdiction and Admissibility, Judgment, ICJ Reports 2006, p 6, paras 67 and 125. See also, Case
Concerning East Timor (Portugal v Australia) ICJ Reports 1995, p 90, para 29.
24
See generally, E Gaillard and J Savage (eds), Fouchard, Gaillard & Goldman on International Commercial
Arbitration (Kluwer, Leiden 1999) 198–212.
25
See, eg in England: Fiona Trust & Holding Corp v Privalov [2007] UKHL 40; [2008] 1 Lloyd’s Rep 254.
104 Journal of International Dispute Settlement
benefit from the substantive protection of an applicable investment treaty.
What the investor cannot do, however, is to restructure its investment after a
dispute with the host state has arisen in order to establish the jurisdiction of an
international tribunal on the basis of an investment treaty.26
The reason for the distinction between the substantive obligations in an
investment treaty and the provisions creating a jurisdictional mandate for an
international tribunal is straightforward. Substantive obligations of investment
protection are addressed to the contracting state parties. The object of

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protection is, generally, investments made by nationals of one contracting state
in the territory of the other contracting state. The provisions conferring
adjudicative power upon an international tribunal are addressed to that judicial
organ once constituted and to the parties to the dispute that has been
submitted to that judicial organ. Those disputing parties are not the
contracting state parties to the investment treaty but the investor and
the host state, which enter into a relationship of procedural equality before
the international tribunal once a dispute has been submitted to it. In the
context of adjudicating a dispute between an investor and the host state, how
can it make sense for one disputing party to receive ‘MFN’ treatment from the
other disputing party in respect of the rules for adjudicating the dispute? The
whole purpose of the equality of arms principle in international litigation is to
ensure that the parties are treated the same. The equality of arms principle is
not respected if one of the parties has the ability to adjust the rules relating to
the jurisdiction of the tribunal or some other aspect of the procedure after a
dispute has arisen.
One might also ask how a respondent state is expected to accord MFN
treatment in relation to the jurisdictional mandate of the tribunal? Once a
dispute with the investor has arisen, the only way for a respondent state to
provide an investor that ‘treatment’ would be to waive any jurisdictional
objections it may have upon receipt of the investor’s request for arbitration.
Hence the Maffezini doctrine requires the respondent state to capitulate in
respect of the investor’s demands concerning the adjudication of a specific
dispute. That is hardly consistent with the principle of procedural equality.
The MFN clause is a treaty obligation just like the other substantive
obligations in the treaty. It can be invoked by an investor/claimant by asserting
a claim against the host state for a breach of that obligation. There are logically
two parts to a claim based upon an obligation to accord MFN treatment. First,
the host state has granted more favourable treatment to investors of another
state under a third treaty or by some domestic legal enactment or as a de facto
practice. Second, that in failing to accord that treatment to investors of the
state party to the basic treaty, the host state has breached the MFN clause in
the basic treaty and thus is liable to repair that breach.

26
See: Douglas (n 1) paras 551–3 and authorities cited therein.
 The MFN Clause in Investment Arbitration 105
We are fortunate that one tribunal has analysed the very different nature of
an investor/claimant’s reliance upon an MFN clause for jurisdictional purposes.
In Renta, the Tribunal distinguished between asserting a breach of the MFN
clause and relying upon the MFN clause as ‘evidence’ of conferring a more
expansive jurisdictional mandate to the tribunal:
To be clear: the Claimants are not seeking to establish that Russia breached an
obligation under the basic treaty (the Spanish BIT) by failing explicitly to grant to
Spanish investors the same access to international arbitration as the access the

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Claimants say is enjoyed by Danish investors. The question is instead simply whether
Article 5(2) of the Spanish BIT [the MFN clause] evidences Russia’s consent that
this Tribunal’s jurisdiction should have an ambit beyond that of Article 10 [the
investor/state dispute resolution clause].27
The difficulty, however, with the Renta Tribunal’s characterization of the
problem as the proper construction of the arbitration clause is that the
invocation of provisions in a third treaty granting more favourable treatment
requires the operation of the legal device built into the MFN clause in the basic
treaty; the question is whether that legal device is triggered in the absence of a
claim for MFN treatment. That is a question of law and it cannot be avoided
by labelling the exercise as a search for ‘evidence’. The task confronting the
tribunal cannot be defined as simply the construction of the terms of a written
instrument that are alleged to address the parties’ consent to an arbitral
jurisdiction.
The MFN clause does not, in truth, operate automatically to ‘incorporate’
provisions of a third treaty so that all that remains for a tribunal to do is to
interpret the amended text of the basic treaty. It is not an exercise in the
construction of a static legal text that has been modified by an invisible hand
prior to or upon the commencement of arbitration proceedings. The MFN
clause operates to secure more favourable treatment for the claiming party; it
does not operate to rewrite the terms of a treaty in respect of which the
claimant is not even a signatory. Let us not forget that the more favourable
treatment can be granted to an investor of a third state by means of a domestic
legislative enactment or by any other act of state (judicial decision, adminis-
trative circular and so on).28 It would be wrong to suppose that the documents
recording this treatment are ‘incorporated’ into the basic treaty by the
operation of the MFN clause. It is the ‘treatment’ represented by these
documents that can be invoked by the investor claiming through the MFN
clause in the basic treaty.

27
Renta (n 3) para 83. Emphasis in the original.
28
‘Final Draft Articles on Most Favoured Nation Clauses’ YB of Int L Commission (Vol 2, Pt 2, 30th session,
1978) 16 and 25.
106 Journal of International Dispute Settlement
So it turns out that the ‘incorporation by reference’ analogy is inapposite and
is liable to mislead.29 If more favourable provisions of a third treaty were really
‘incorporated’ into the basic treaty by operation of the MFN clause at the time
the third treaty enters into force, then it would follow that the continued
validity of that third treaty would be irrelevant to the right of investors under
the basic treaty to invoke that more favourable treatment. But that is not the
case, as the International Court30 and the International Law Commission have
made abundantly clear.31 If the third treaty is terminated, then so is the right to

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invoke that treatment through the MFN clause in the basic treaty.
The fundamental point is that the more favourable treatment granted in
a third treaty must be claimed through the MFN clause in the basic treaty.
That is how the MFN clause works. It does not operate to amend or
supplement the text of the basic treaty. Schwarzenberger is responsible for
the memorable phrase that ‘m.f.n. clauses serve as an insurance against
incompetent draftsmanship and lack of imagination on the part of those
who are responsible for the conclusion of international treaties’.32 But
Schwarzenberger was acutely aware that the idea of automatic incorporation
is a fiction:
The object of any attempt to give legal expression to the m.f.n. standard is to enable
the beneficiary automatically to acquire the rights, present and future, granted by the
promisor to any third State. The device by which this end can be achieved most
conveniently is to consider the relevant stipulations of treaties between the promisor
and third States as automatically becoming part of the treaty between the promisor
and the beneficiary. As in other spheres of municipal and international law, so here
the resort to legal fictions has enabled draftsmen to popularize a new legal principle.33
One can appreciate the wisdom of the International Law Commission’s
decision to avoid the language of ‘incorporation of reference’ in its Draft
Articles on MFN Clauses and of the International Court’s rejection of that
approach.34 It is a domestic contract law analogy that is probably the root
cause of the mistaken approach taken by investment treaty tribunals to the
MFN clause. Reliance upon an MFN clause is not the same as reliance upon
an express term in a commercial contract making reference to the standard
terms of a trade organization, for instance.

29
I am guilty of using the same terminology in the past: Douglas (n 1), Ch 9.
30
Case Concerning the Rights of Nationals of the United States of America in Morocco (France v USA) ICJ
Reports 1952, 176 and 191–2.
31
‘Final Draft Articles on Most Favoured Nation Clauses’ (n 28) 16 and 55 (art 21).
32
G Schwarzenberger, ‘The Most-Favoured-Nation Standard in British State Practice’ (1945) 22 BYBIL 96,
99.
33
Ibid, 104.
34
Case Concerning the Rights of Nationals of the United States of America in Morocco (France v USA) ICJ
Reports 1952, 176 and 191–2.
 The MFN Clause in Investment Arbitration 107
The claimant, by relying upon an MFN clause in respect of a jurisdictional
matter, is in essence asking the tribunal to declare that it is entitled to the more
favourable ‘treatment’ represented by the terms of a third treaty dealing with
the jurisdiction of the tribunal that is to be constituted in the event of a dispute
arising under that third treaty. A declaration is a remedy (or a secondary
consequence attaching to an internationally wrongful act to adopt the
nomenclature of the International Law Commission’s Articles on State
Responsibility). A remedy is not granted automatically or in abstracto; the

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claimant must establish the constituent elements of a wrongful act. And here
the conceptual problems facing a claim for more favourable ‘treatment’ in
respect of the jurisdiction of the very tribunal constituted to resolve the claim
become obvious.
The claimant cannot maintain that it was wrongful for the host state to have
made a standing offer of arbitration in the terms that it did in the basic treaty
per se. Arbitration depends upon consent and it is open to the contracting state
parties to investment treaties to consent to arbitration on the terms they see fit.
Can the claimant maintain that it was wrongful for the host state to have
made a standing offer of arbitration in a third treaty that is different (or more
favourable from the claimant’s perspective) from the standing offer of
arbitration in the basic treaty by virtue of the MFN clause in the basic treaty?
One hurdle to be overcome in the assertion of such a claim is to establish
that the different terms relating to the consent of the host state to the
jurisdiction of an arbitral tribunal fall within the concept of ‘treatment’ under
the MFN clause so that they are ejusdem generis. For the reasons already
provided, this hurdle is insurmountable.
There is another important consideration that is fatal to such a claim.
As previously observed, it cannot be said that the terms of the standing offer of
arbitration in the basic treaty were, prior to the commencement of proceedings,
somehow automatically amended by reference to the terms of a third treaty
before the standing offer is even invoked by the putative claimant. The MFN
clause does not automatically incorporate the terms of a third treaty into the
basic treaty. It secures the treatment afforded by the host state to investors with
the requisite nationality under a third treaty for the benefit of investors with the
requisite nationality under the basic treaty. The more favourable treatment
must be identified and then compared with the treatment afforded to the
particular claimant. The claimant must assert a right to more favourable
treatment by claiming through the MFN clause in the basic treaty. It can only
do so by instituting arbitration proceedings and thus by accepting the terms of
the standing offer of arbitration in the basic treaty. At that point an arbitration
agreement between the claimant and the host state comes into existence.
And the existence of that arbitration agreement is critical to the viability of
the arbitration regime envisaged by the investment treaty. For instance, it
is essential to the application of the New York Convention on the Recognition
108 Journal of International Dispute Settlement
and Enforcement of Foreign Arbitral Awards to the arbitration and to the
ultimate award.35
Hence there is a logical fallacy underlying the claim under consideration.
The claimant can only assert the claim for MFN treatment by entering into an
arbitration agreement on the terms offered by the host state in the basic treaty.
But it is the terms of that arbitration agreement that the claimant is seeking to
displace or modify by asserting the claim.
In summary, investment treaty tribunals have attempted to convert the

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fiction of automatic incorporation into a reality by pretending that the terms
of their own jurisdiction in the basic treaty are rewritten before the
commencement of proceedings by reference to the provisions of a third
treaty. The claimant/investor is not making a claim for MFN treatment but is
rather being permitted to enforce this fiction. This is contrary to general
principle and authority for the reasons discussed.

3. The Vienna Convention Rules of Interpretation

Article 31 of the Vienna Convention reads:
General rule of interpretation
(1) A treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in their context
and in the light of its object and purpose.
(2) The context for the purpose of the interpretation of a treaty shall
comprise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all
the parties in connection with the conclusion of the treaty;
(b) 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.
(3) There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the
interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which
establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations
between the parties.
(4) A special meaning shall be given to a term if it is established that the
parties so intended.

35
See further: Douglas (n 1) paras 125–9.
 The MFN Clause in Investment Arbitration 109
Each of these four elements of Article 31 is expressed in mandatory terms
and is designed to apply within a single and integrated exercise of treaty
interpretation. Article 31 of the Vienna Convention is entitled ‘General rule of
interpretation’ and not ‘General rules of interpretation’. The significance of this
is often overlooked. The International Law Commission described the
importance of this choice of words in the following terms:
The Commission, by hearing the article ‘General rule of interpretation’ in the

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singular and by underlining the connexion between paragraphs 1 and 2 and again
between paragraph 3 and the two previous paragraphs, intended to indicate that the
application of the means of interpretation in the article would be a single combined
operation. All the various elements, as they were present in any given case, would be
thrown into the crucible, and their interaction would give the legally relevant
interpretation. Thus, Article [31] is entitled ‘General rule of interpretation’ in the
singular, not ‘General rules’ in the plural, because the Commission desired to
emphasize that the process of interpretation is a unity and that the provisions of the
article form a single, closely integrated rule.36
The European Court of Human Rights has professed faith in the correct
approach:
In the way in which it is presented in the ‘general rule’ in Article 3l of the Vienna
Convention, the process of interpretation of a treaty is a unity, a single combined
operation; this rule, closely integrated, places on the same footing the various
elements enumerated in the four paragraphs of the Article.37
Compare this statement on the integrated exercise of interpretation mandated
by Article 31 of the Vienna Convention with the following ruling in an
investment award, which is by no means unique in the jurisprudence:
Since the Tribunal has come to the above conclusions on the basis of the ordinary
meaning of Article 8 in the context of the object and purpose of the BIT in
accordance with paragraph (1) of Article 31 VCLT, there is no need to go into the
additional criteria for interpretation in the further paragraphs of that Article.38
In another case,39 the tribunal cited the Advisory Opinion of the International
Court of Justice in Competence of the General Assembly for the Admission of a State
to the United Nations with approval for the proposition that: ‘if the relevant
words [of a treaty] in their natural and ordinary meaning make sense in their
context, that is the end of the matter’.40 The Advisory Opinion in question,
however, was rendered some 30 years before the Vienna Convention came
into force. When this statement was repeated by the International Court

36
A/CONF.39/11/Add.2, 39, para 8.
37
Golder v United Kingdom (Application no 4451/70) 1 EHRR 524, para 30.
38
RosInvest (n 3) para 119.
39
Austrian Airlines v Slovakia (Final Award, 9 October 2009) UNCITRAL, para 99.
40
Competence of the General Assembly for the Admission of a State to the United Nations, ICJ Reports 1950, 4
and 8.
110 Journal of International Dispute Settlement
40 years later, in Case Concerning the Arbitral Award of 31 July 1989,41 it was
immediately tempered with (or perhaps contradicted by) the following
observation:
The rule of interpretation according to the natural and ordinary meaning of the words
employed: ‘is not an absolute one. Where such a method of interpretation results
in a meaning incompatible with the spirit, purpose and context of the clause or
instrument in which the words are contained, no reliance can be validly placed on
it.’42

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A ‘BIT by BIT’ approach to the interpretation of the text of each MFN clause
in each individual treaty without reference to wider principles of international
law risks prioritizing the interpretive task in subsection 1 of Article 31 of the
Vienna Convention at the expense of the other elements in subsections 2 and
3.43 Dictionary meanings of specific treaty terms may triumph over settled
meanings in the general corpus of international law. In particular, the
mandatory instruction to take into account ‘any relevant rules of international
law applicable in the relations between the parties’ in Article 31(3)(c) of the
Vienna Convention is being ignored.44
In fact, the relevant rules of general international law are sometimes
juxtaposed with the tribunal’s limited mandate to decide the specific case
before it on the basis of the specific wording of the MFN clause. In RosInvest
it was stated:
[S]ince it is the primary function of this Tribunal to decide the case before it rather
than developing further the general discussion on the applicability of MFN clauses to
dispute-settlement-provisions, the Tribunal notes that the combined wording in
Article 3 and 7 of the UK-Soviet BIT is not identical to than in any of such other
treaties considered in these other decisions.45
The point is, however, that this ‘general discussion’, to the extent that it
elucidates the principles of international law that have a bearing upon the
‘applicability of MFN clauses to dispute-settlement-provisions’, is relevant to

41
(Guinea-Bissau v Senegal) Judgment, ICJ Reports 1991, 53.
42
Ibid, 69–70, quoting South West Africa, Preliminary Objections, Judgment, ICJ Reports 1962, 336.
43
In his recent treatise on treaty interpretation, Gardiner cautions against blinkered reliance on the ‘ordinary
meaning’ of treaty terms:

First and foremost, in considering the role of the ‘‘ordinary meaning to be given to the terms of the
treaty’’, it is necessary to stress that the ordinary meaning is not an element in treaty interpretation to be
taken separately when the general rule is being applied to a particular issue involving treaty interpretation.
Nor is the first impression as to what is the ordinary meaning of a term anything other than a very fleeting
starting point. For the ordinary meaning of treaty terms is immediately and intimately linked with context,
and then to be taken in conjunction with all other relevant elements of the Vienna rules.

R Gardner, Treaty Interpretation (2008), 161–2.

44
The leading modern analysis of this provision is: C McLachlan, ‘The Principle of Systemic Integration
and Article 31(3)(c) of the Vienna Convention’ (2005) 54 ICLQ 279.
45
RosInvest (n 3) para 137.
 The MFN Clause in Investment Arbitration 111
the interpretative exercise in Article 31 of the Vienna Convention and, indeed,
is mandated by subsection 3(c) of that provision.
How would recourse to general principles of international law have impacted
upon the analysis in RosInvest? The MFN clause in Article 3 of the UK–Soviet
BIT read as follows:
(1) Neither Contracting Party shall in its territory subject investments or
returns of investors of the other Contracting Party to treatment less
favourable than that which it accords to investments or returns of

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investors of any third State.
(2) Neither Contracting Party shall in its territory subject investors of the
other Contracting Party, as regards their management, maintenance, use,
enjoyment or disposal of their investments, to treatment less favourable
than that which it accords to investors of any third State.46
The RosInvest Tribunal held that the first paragraph of the MFN clause is not
capable of extending to jurisdictional provisions of a third treaty but that the
second paragraph is capable of being invoked for this purpose:
[W]hile the protection by an arbitration clause covering expropriation is a highly
relevant aspect of [the] ‘treatment’, if compared with the alternative that the
expropriation of an investment can only be challenged before the national courts of
the Host State, it does not directly affect the ‘investment’, but rather the procedural
rights of the ‘investor’ for whom paragraph (2) of Article 3 provides a separate rule.
The Tribunal purported to ground its conclusion exclusively in the ‘specific
wording’ of the MFN clause ‘without entering into the much more general
question whether MFN-clauses can be used to transfer arbitration clauses from
one treaty to another’.47 But it will be seen from the Tribunal’s reasoning that,
however it sought to portray its interpretative approach, in reality it made a
value judgment about the relative merits of recourse to domestic courts versus
recourse to international tribunals and concluded that the latter must be a
‘highly relevant part of the corresponding protection for the investor’.48
The RosInvest Tribunal, like so many others that have declared fidelity to the
specific terms of the treaty and eschewed engagement with general principles,
actually decided on the basis of generalities. A purely textual analysis would
have run into difficulties with the words ‘in its territory’ that are to be found in
each paragraph of the MFN clause. How can the host state provide more
favourable treatment in relation to the scope of an international tribunal’s
jurisdiction ‘in its territory’? Article 31(1) of the Vienna Convention requires
the interpreter to give effect to all the terms in the relevant provision: ut res
magis valeat quam pereat.49 Moreover, the ‘context’ in which the MFN clause

46
RosInvest (n 3) para 126.
47
RosInvest (n 3) para 129.
48
RosInvest (n 3) para 130.
49
Territorial Dispute (Libyan Arab Jamahiriya/Chad) (Merits) ICJ Reports 1994, 6 and 23, para 47.
112 Journal of International Dispute Settlement
appeared in the BIT was also disregarded by the Tribunal. Article 3 of the BIT
is entitled ‘Treatment of Investments’. Article 8 of the BIT is entitled ‘Disputes
between an Investor and the Host Contracting State’. It seems very implausible
that, in defining the scope of the arbitral tribunal’s jurisdiction in Article 8, the
Contracting Parties intended that reference should also be made to Article 3.
The titles of the articles of the BIT and the structure of the BIT (preamble,
definitions, substantive obligations, dispute resolution and final provisions) are
an important part of the ‘context’ for the terms used in the treaty for the

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purposes of Article 31(1) of the Vienna Convention.50 Interestingly, the Renta
Tribunal did consider the relevance of the context of the provisions alleged to
have an impact on the scope of the tribunal’s jurisdiction:
There is no rule that the entirety of arbitration agreements must be contained in a
single article of an instrument. There is no rule that elements of arbitral jurisdiction
may not be defined in an article (like Article 5) which also contains substantive
provisions.51
There is, indeed, no such rule but that is not the point. In considering the
context of the terms used in Article 5 (the MFN clause in the Spain–Russia
BIT), the question is whether this reveals an intention on the part of the
Contracting Parties that their agreement on the scope of the tribunal’s
jurisdiction in Article 10 (‘Disputes between One Party and the Investors of the
Other Party’) should be subject to modification by operation of the MFN
clause in Article 5 (‘Treatment’).
But what of the RosInvest Tribunal’s approach to general principles of
international law? The Tribunal recognized a distinction between substantive
and procedural protections but that, in essence, both should be considered
under a single chapeau of ‘treatment’ for the purposes of the MFN clause: ‘an
arbitration clause, at least in the context of expropriation, is of the same
protective value as any substantive protection afforded by applicable provisions
such as Article 5 of the BIT [the prohibition of expropriation]’.52
This conclusion rests upon the assertion that recourse to investment
arbitration is of the same ‘value’ to the investor as the substantive obligations
in the investment treaty. But does satisfaction of the ejusdem generis principle for
the application of the MFN clause really depend upon a perception of the
relative value of different treaty provisions that is attributed to investors as a
general class?53 Or does it depend more upon an objective assessment as to

50
R Gardner, Treaty Interpretation (2008) 180–5.
51
Renta (n 3) para 82.
52
RosInvest (n 3) para 132.
53
The comment of the Tribunal in Telenor v Hungary remains apposite in this context:

Those who advocate a wide interpretation of the MFN clause have almost always examined the issue from
the perspective of the investor. But what has to be applied is not some abstract principle of investment
protection in favour of a putative investor who is not a party to the BIT and who at the time of its
conclusion is not even known, but the intention of the States who are the contracting parties. The
 The MFN Clause in Investment Arbitration 113
whether the subject matter of substantive obligations of investment protection
is the same as the subject matter of the treaty provisions that vest an
international tribunal with jurisdiction over disputes arising out of the treaty?
The latter approach is surely correct. And in answering this question, Article
31(1)(c) of the Vienna Convention directs us to general principles of law on
the operation of MFN clauses.

* * *

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In this article, I have made the case for a negative answer to the question of
whether an MFN clause in a basic treaty can be relied upon by the investor to
expand the jurisdiction of an international tribunal established in accordance
with the jurisdictional provisions in the basic treaty by incorporating the more
favourable ‘treatment’ reflected in the jurisdictional provisions in a third treaty.
The Maffezini doctrine allows one of the disputing parties (the claimant
investor) to rely upon a substantive obligation addressed to the contracting
state parties to the treaty (the MFN clause) in order to modify the
jurisdictional provisions in the treaty, which are addressed to the international
tribunal and to the disputing parties collectively. It relies upon the fiction of the
antecedent automatic incorporation of the terms of a third treaty when, in
reality, a claim based on an MFN clause secures the treatment represented by
that third treaty. It permits the jurisdictional mandate of the tribunal to be
modified after a dispute has arisen at the suit of one of the disputing parties at a
time when the claimant investor and respondent host state have already
concluded a binding arbitration agreement and have entered into a relationship
of procedural equality. It undermines the possibility of a valid and binding
arbitration agreement between the disputing parties coming in existence
before the tribunal rules upon its own jurisdiction, which is inimical to the
requirement of certainty of terms for arbitration agreements and to the
application of the New York Convention to investment treaty awards.54 It leads
to a mass of wasteful litigation about how to litigate.
Whether or not the arguments deployed in making this case are ultimately
found to be persuasive, let us not pretend that a tribunal’s mandate in any
given reference is confined to consulting a dictionary on the meaning of the
word ‘treatment’.

importance to investors of independent international arbitration cannot be denied, but in the view of this
Tribunal its task is to interpret the BIT and for that purpose to apply ordinary canons of interpretation, not to
displace, by reference to general policy considerations concerning investor protection, the dispute resolution
mechanism specifically negotiated by the parties.

Telenor Mobile Communications A.S. v Republic of Hungary (Award, 13 September 2006) ICSID Case No ARB/04/
15, para 95.
54
See Douglas (n 1) paras 673–8.
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