Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. Termination and Renegotiation of IIAs Conference “International Investment Agreements: Balancing Sustainable Development and Investment Protection” Freie Universität Berlin, 10/11 October 2013 Prof. Dr. Karsten Nowrot, LL.M. (Indiana) University of Hamburg, Germany

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. Introduction Discussion of Four Issues  Termination and Renegotiation of IIAs as Key Procedural Issues in Current Investment Law  Underlying Reasons  “Termination without Renegotiation”  Unilateral Terminations of IIAs  “Termination as a Result of Renegotiation”  Termination of IIAs by Mutual Consent (of the Parties)  “Renegotiation without Termination”  Modifications of IIAs by Mutual Consent

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. T & R of IIAs as Key Issues: Underlying Reasons T & R of IIAs in principle not a new phenomenon Revised investment policies of many countries as the decisive factor for current prominence of T & R  Increasing number of unilateral terminations  Continued terminations (and replacements) of existing IIAs by mutual consent  Developments in the realm of regional integration agreements  Recent importance of T & R legal issues  for the (former) parties  for foreign investors

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination without Renegotiation” Unilateral Termination of IIAs: Legal Issues  Legality of unilateral terminations  Temporary prohibition of denunciations under IIAs  Clauses stipulating an initial minimum period of application (5 to 15 years) »The Treaty “shall remain in force for a period of ten years and shall continue in force unless […]” (Article XVI (1) US-Jordan BIT 1997)  Provisions providing for subsequent fixed terms  Denunciations based on rules of general public international law on treaties (?)  1969 Vienna Convention on the Law of Treaties (VCLT)  E.g. fundamental change of circumstances (Art 62 VCLT)

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination without Renegotiation” Unilateral Termination of IIAs: Legal Issues  Consequences of unilateral terminations  Prevention of termination with immediate effect under IIAs  “Survival clauses” (typically 5 to 20 years)  “In respect of investments acquired prior to the date of termination of this Agreement, the provisions of this Agreement shall continue to be effective for a period of ten years from the date of termination of this Agreement.” (Article 29 (3) Japan-Peru BIT 2008)  Doubtless applicability to unilateral terminations made in accordance with the termination clause of the IIA at issue

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination without Renegotiation” Unilateral Termination of IIAs: Legal Issues  Consequences of unilateral terminations  Effects of denunciations based on general grounds for termination under VCLT/CIL (?)  In particular: applicability of survival clauses  E.g. Eastern Sugar v. Czech Republic (Partial Award 27 March 2007) para. 175: yes (Article 59 VCLT)  Fundamental change of circumstances (Article 62 VCLT) »Arguably: no  Consequence: interpretation of survival clauses in the sense of not covering all cases of unilateral terminations based on general rules of public international law

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination as a Result of Renegotiation” Termination of IIAs by Mutual Consent (of the Parties)  Two alternatives  Termination in accordance with the provisions of the IIA (uncontroversial)  Termination by consent of all the parties not in conformity with the provisions of the IIA

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination as a Result of Renegotiation” Termination of IIAs by Mutual Consent (of the Parties) in disregard of IIA provisions  Applicability of fixed-term and survival clauses (?)  Parties as “masters of the agreement”  Article 54 (b) VCLT  Challenge: “third party rights” of foreign investors  Related discussion with regard to the termination of human rights treaties  Article 37 (2) and Article 70 (1) (b) VCLT not directly applicable

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination as a Result of Renegotiation” Termination of IIAs by Mutual Consent (of the Parties) in disregard of IIA provisions  Applicability of fixed-term and survival clauses (?)  Are investment agreements conferring (temporary) legal entitlements under international law to foreign investors?  In the affirmative: Relevance of general principles of law (?)  Principle of estoppel (?)  Doctrine of abuse of rights (?)  Doctrine of acquired rights (?)

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination as a Result of Renegotiation” Termination of IIAs by Mutual Consent (of the Parties) in disregard of IIA provisions  Applicability of fixed-term and survival clauses (?)  Possible solution: narrow interpretation of these provisions in the sense of only applying to unilateral terminations  Rejection in arbitral practice »E.g., Walter Bau AG v. Thailand (Award 1 July 2009), paras. 9.5 and 9.69 »Eastern Sugar v. Czech Republic (Partial Award 27 March 2007) para. 175

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination as a Result of Renegotiation” Termination of IIAs by Mutual Consent (of the Parties) in disregard of IIA provisions  Possible solution: narrow interpretation of these provisions in the sense of only applying to unilateral terminations  Certain supportive state practice  Article 13 (2) Bangladesh-Turkey BIT 2012: “This Agreement replaces the [previous BIT] which shall be terminated on the date of entry into force of this Agreement. The disputes submitted to arbitration after the date of entry into force of this Agreement shall be settled in accordance with the provisions of this Agreement.”

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination as a Result of Renegotiation” Termination of IIAs by Mutual Consent (of the Parties) in disregard of IIA provisions  Narrow interpretation of survival clauses  Certain supportive state practice  Argumentation of Egypt in Jan de Nul N.V. v. Egypt (Decision on Jurisdiction 16 June 2006) para. 59  “Rumors” about the Draft Comprehensive Economic and Trade Agreement (CETA)

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Termination as a Result of Renegotiation” Termination of IIAs by Mutual Consent (of the Parties) in disregard of IIA provisions  Narrow interpretation of survival clauses  Underlying reasoning  minimum period of application- and survival clauses as “old” IIA provisions »E.g. Article 14 (2) and (3) Germany-Pakistan BIT 1959 »Originally not directly enforceable by foreign investors (only state-state dispute settlement)  Investor-state dispute settlement provisions as comparatively “new” IIA provisions  Related discussions concerning the scope of application of MFN clauses and “umbrella clauses”

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Renegotiation without Termination” Modification of IIAs by Mutual Consent (of the Parties)  Explicit provisions on amendments, authoritative interpretations etc. in IIAs  E.g., NAFTA, Articles f. FTA US-Singapore 2003, Article 14 (3) Turkey-Gabon BIT 2012, Article 52 (3) Canada-Benin BIT 2013  Implicit amending and interpretative authority of the parties to an IIA  Advantages compared to the termination and replacement of IIAs

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. “Renegotiation without Termination” Modification of IIAs by Mutual Consent (of the Parties)  Possible legal constraints (?)  Applicability of survival clauses to certain fundamental modifications of IIAs (?)  Based on a broad reading of these provisions  In particular: subsequent treaty amendments aimed at “neutralizing” the survival clause itself  E.g. approach of terminating the BIT between the Czech Republic and Denmark in 2009

Termination and Renegotiation of IIAs Prof. Dr. Karsten Nowrot, LL.M. Termination and Renegotiation of IIAs Conference “International Investment Agreements: Balancing Sustainable Development and Investment Protection” Freie Universität Berlin, 10/11 October 2013 Prof. Dr. Karsten Nowrot, LL.M. (Indiana) University of Hamburg, Germany