Among the numerous cases brought to ICSID in recent years, Maffezini v Kingdom of Spain stands out as raising issues concerning the Most-Favoured-Nation clause.

Maffezini Case Background

Maffezini v. Kingdom of Spain (2000) concerned a dispute arising from the treatment received by the Argentine investor Emilio Maffezini from Spanish entities, in connection with his investment. Spain objected to the tribunal’s jurisdiction since Mr. Maffezini had failed to comply with an exhaustion of local remedies requirements set forth in the Argentina-Spain BIT. The claimant invoked, by way of its MFN Clause, the more beneficial provisions of the 1991 Spain-Chile BIT. The Argentina-Spain BIT provided domestic courts with the opportunity to deal with a dispute for a period of eighteen months before it could be submitted to international arbitration. However, the Chile-Spain BIT imposed no such condition. It enabled an investor to opt for international arbitration after the six 6 month period allowed for negotiations had expired. Hence, the claimant contended that the Chilean investors were being treated more favourably than Argentina investors in Spain, and that the MFN Clause in the Argentina-Spain BIT gave him the benefit accorded to investors under the Chile-Spain BIT.

Spain argued that reference made in the MFN Clause to “matters” referred specifically to “substantive matters,” or the “material aspects of the treatment granted” to investors and not to procedural or jurisdictional matters, such as dispute settlement.

Tribunal's Decision

Having examined the language of the MFN clause, which provided for a more favorable treatment regarding “all matters” subject to the treaty, the Maffezini Tribunal decided that Mr. Maffezini had the right to import the more favourable jurisdictional provisions of the Chile-Spain Agreement and, as a result, to resort to international arbitration without being obliged to submit its dispute to Spanish courts beforehand. The Tribunal took into account the fact that the MFN Clause in the basic treaty was drafted in broad terms and explicitly refers to “… all matters.” The claimant had convincingly demonstrated that the scope of the MFN Clause in the Argentina-Spain BIT embraced the dispute settlement provisions of the treaty and that therefore the claimant was able to rely on the more favourable dispute settlement provisions contained in the Chile-Spain BIT.

Implications

The Maffezini award thus opened up the possibility that the MFN Clause could have an extremely broad scope not anticipated by the parties when they entered into the treaty, and that the specific formulation of the Clause could be a determining factor with regard to the outcome. What the Maffezini award demonstrates is the importance of clearly de-limiting the scope of application of the MFN Clause.

Subsequent decisions have been divided on whether to follow the Maffezini approach or reject it. There are a number of significant cases in which some Tribunals have sought to give an extremely liberal interpretation to the Maffezini principles (e.g. Siemens case, Gas Natural case), while others have sought to place restrictions on their application (e.g. Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, Plama Consortium Limited v. Republic of Bulgaria).

The Maffezini Tribunal appears to have been conscious of the potential problems that could arise from its decision and of the criticisms that would be levelled against the decision. Accordingly, the Tribunal imposed some limits on the applicability of the clause to dispute settlement mechanism. The limitation which included the exhaustion of local remedies, a fork-in-the-road clause, the provision of a particular arbitration forum or Parties’ intention to have precise rules of arbitral procedures were all based on ‘public policy’ considerations. The Tribunal also left open the possibility that “other elements of public policy limiting the operation of the clause will no doubt be identified by the parties or tribunals.” The challenge is to determine the principles on which such exceptions could be identified.

Post-Maffezini Jurisprudence

A key element which transpires from arbitral jurisprudence since Maffezini is that the precise formulation of a MFN Clause in the basic treaty will have a direct impact on the question of applicability of procedural or substantive provisions of a third party treaty. The problem confronting States, arising out of the Maffezini decision and those which either followed its reasoning or went in the opposite direction, is whether it could be determined in advance, with any degree of certainty, what obligations a State has in fact undertaken when it includes a MFN Clause in an investment treaty. Decisions which placed an expansive interpretation on the MFN Clause, notwithstanding the relatively narrow terms in which the clause was drafted, have compounded the problem.

Considering the above mentioned, Maffezini case is the landmark arbitral award which gave rise to the concerns relating to the relationship between the MFN Clause and the procedural provisions relating to dispute settlement in investment treaties.