Article 29 of the Vienna Convention on the Law of Treaties (VCLT) is the only provision in the Convention offering guidance as to which territories of a given State are governed by an international treaty. Its role is confined solely to that function. As far as the provision itself is concerned, it is comprised by two main parts, (i) a general part (“a treaty is binding upon each party in respect of its entire territory”); and (ii) an exception (“unless a different intention appears from the treaty or is otherwise established”).
The provision does not address related matters such as the succession of State parties to a treaty, the international responsibility of a State, or the application of a treaty in the context of hostilities between States. Nonetheless, it is argued that the Moving Treaty Frontiers (MTF) rule is implicitly codified in Article 29, as part of customary international law.
The MTF rule provides that when a territory is undergoing a change of sovereignty, it moves out of the treaty regime of the predecessor State and into that of the successor State. It is reasoned that had the MTF rule not been implied in Article 29, then a treaty would only be binding upon each signatory State in respect of territories at the time of the conclusion of the treaty. That would be against the spirit of the provision which refers to the “entire territory” of a State, thus implying potential boarder modifications.
Although territoriality has been generally addressed in investment arbitration, usually in the context of confirming whether an investment has taken place in the territory of the host State for the purposes of jurisdiction under an investment treaty, Article 29 itself has not seen much use in the field – at least until recently as it will be explained below.
Uses of Article 29 of the VCLT in Investor-State Arbitration To Date
Albeit limited, the investment case law on the subject matter of Article 29 can be examined under two separate categories. First, in cases where the applicable treaty expressly indicates that it does not apply to a State’s entire territory. Second, in cases where tribunals were expressly required to interpret and apply Article 29 in order to confirm how a BIT applies in specific factual circumstances, usually in the context of state succession or when independent or contested territories were concerned. This post addresses both categories in turn below.
- Exclusion of territories
There are a number of treaties that expressly limit their application in regard to certain territories, and allow their extension (or not) to such territories only upon explicit consent of the State parties.
For example, quite similar to Article 29 of the VCLT, Article 70 of the ICSID Convention provides for the latter’s application to all territories for whose international relations a contracting State is responsible. At the same time, the provision allows contracting States to opt out of the ICSID Convention in relation to specific territories upon notifying their intention to do so. By way of example, New Zealand has excluded the Cook Islands, Niue and Tokelau from the application of the ICSID Convention, while the United Kingdom has respectively excluded the British Indian Ocean Territory, Pitcairn Islands, British Antarctic Territory, the Sovereign Base Areas of Cyprus and New Hebrides.
In terms of BITs, the UK poses a good example of a similar practice, but with an opt-in option this time. By default, UK BITs define the term “territory” to mean the “Great Britain and Northern Ireland”. However, UK BITs do not automatically apply to any of the UK’s fourteen overseas territories (e.g. the British Virgin Islands, the Cayman Islands) and three crown dependencies (e.g. Isle of Man). The latter territories are considered offshore jurisdictions that cannot enter into BITs in their own right.
These additional territories can only benefit from the protection of a UK BIT if said BIT’s signatories formally decide to extend its application to them. This is expressly provided in all such treaties both in the definition of the term “territory” and by separate provisions that elaborate on how the extension process works. To date, only three UK BITs have been extended to such offshore jurisdictions, and only in respect of the Cayman Islands (respectively with Belize, Panama and St Lucia).
In practice, this issue already arose in Menzies Middle East and Africa S.A. and Aviation Handling Services International Ltd. v. Republic of Senegal (ICSID Case No. ARB/15/21), where one of the claimants was incorporated in the British Virgin Islands. The Tribunal observed that the applicable UK-Senegal BIT did not extend to the British Virgin Islands, and thus refused to uphold its jurisdiction.
- Application of Article 29 of the VCLT by investment treaty tribunals
Until recently, investment cases applying Article 29 were limited, with the main illustration of the second category being the tribunal’s decision in Sanum Investments Limited v. Lao People’s Democratic Republic (UNCITRAL, PCA Case No. 2013-13). However, this drastically changed after the Crimean crisis in 2014 when a number of cases were brought by Ukrainian investors against the Russian Federation for investments made in that territory. The latter set of cases brought Article 29 under a new light raising new questions about its application. In this section, we briefly examine the holdings in Sanum vis-à-vis Article 29, before considering its role in cases related to Crimea and the Ukraine.
The Sanum v Laos case was brought by a Macao SAR incorporated claimant, Sanum, seeking protection under the 1993 China-Laos BIT. Until 1999, Macao was controlled by Portugal during which time the BIT was signed. After 1999, sovereignty over Macao resumed to China which controls the area since as a special administrative region (SAR).
The central question that the tribunal had to address was whether Macao SAR was considered Chinese territory for the purposes of extending the protection of the China-Laos BIT to Sanum.
Absent any official guidance as to the status of the China-Laos BIT, the tribunal resorted, among others, to the analysis of Article 29 of the VCLT. The tribunal considered that in order for the general part of Article 29 to apply and thus consider Macao SAR as part of China for the purposes of the China-Laos BIT (“a treaty is binding upon each party in respect of its entire territory”), it would first need to exclude the application of its exception (“unless a different intention appears from the treaty or is otherwise established”). In particular:
The tribunal first noted that the BIT did not expressly reflect the signatories’ intention vis-à-vis Macao SAR. However, it decided not to draw any conclusion based on the BIT’s silence on this issue, taking into account inter alia the principle of territorial extension of a State’s legal order embodied in Article 29.
The tribunal was not swayed either by the fact that Macao had directly entered into BITs with third States, as authorised by China, inter alia with the Netherlands and Portugal. According to the tribunal these treaties served as a supplemental regime of protection for Macanese investors, beyond those protections found in Chinese treaties.
The tribunal also considered that the application of the BIT to Macao would not be incompatible with its object and purpose. Nor did the tribunal consider that the BIT’s application would have an impact on the conditions of its operation.
Having found no reason to exclude the application of the BIT vis-à-vis Macao SAR, the tribunal upheld its jurisdiction.
More recently, the Crimean cases extended the discussion on Article 29 of the VCLT highlighting issues regarding the meaning of the term “territory”. The obvious question in these cases relates to the lawfulness of Crimea’s annexation to the Russian Federation, which accomplished this act via use of military force and other means such as a controversial referendum.
International law recognizes that every State has the duty to refrain from threatening or using force against the territorial integrity or political independence of any State, or in any other manner inconsistent with the purposes of the UN Charter. Simply put, territorial annexations via force are unlawful under international law (see also Article 6 of the 1978 Vienna Convention on State Succession expressly providing for this rule). On this basis, the vast majority of States (also via the UN General Assembly’s Resolution 68/262) formally consider Crimea to still be a Ukrainian territory.
In the context of the Crimean arbitrations and the Ukraine-Russia BIT, a finding that Crimea is not Russian territory would of course mean that the underlying tribunals have no jurisdiction to hear the disputes. To date, at least five tribunals have rendered decisions on this matter upholding their jurisdiction under this BIT (see for example cases brought by the following claimants, PJSC Ukrnafta (PCA Case No. 2015-34), Stabil LLC/others (PCA Case no. 2015-35), Belbek LLC/Kolomoisky (PCA Case No. 2015-07), PJSC CB PrivatBank/Finilon LLC (PCA Case No. 2015-21), Everest Estate LLC/others (PCA Case No. 2015-36)). The majority of these awards are still confidential but their findings have been reported with some detail in the press.
Although the VCLT’s drafters intended to use “territory” in Article 29 as a “comprehensive term designed to embrace all land, appurtenant territorial waters and air space which constitute the territory of a State”, they provided little other guidance. Following the Crimean cases, the debate has concentrated in particular on the question of whether the term means “de facto” or “de jure” territory. The differentiating factor lies in the fact that in the latter case, a tribunal would need to consider as part of a State only territories that are lawfully controlled by it.
The Crimean tribunals have so far adopted the “de facto” approach, relying primarily on the factual circumstances on the ground. Namely, that Crimea is currently being effectively controlled by Russia. In particular, based on reports, the identical tribunals in the PJSC Ukrnafta and Stabil LLC cases noted that the term “entire territory” under Article 29 of the VCLT is not limited to territory under a state’s lawful occupation, nor did the applicable BIT expressed a different intention.
As of 3 October 2022, a redacted version of the award on jurisdiction in the PrivatBank/Finilon LLC case has become public shedding some additional light. Indeed, in the context of the analysis of Article 29 of the VCLT, the tribunal in this case also relied on physical and legal acts performed by Russia in order to establish control in Crimea for the purpose of representing its responsibility for the area’s international relations.
Having adopted this de facto interpretation of “territory” under the VCLT, the tribunal assessed the same term under the Ukraine-Russia BIT to determine whether it warranted a different approach in relation to Crimea. Here too, it did not consider necessary to examine the lawfulness of Crimea’s annexation under international law. It noted that it was not mandated to do so under the BIT’s underlying definition of “territory”, which in its view required conformity with international law only in relation to the signatories’ exclusive economic zones and continental shelf, but not their “territory”.
The Crimean cases have shed light on a few interesting issues. First, the questionable limits of the arbitrators’ adjudicatory powers which warrants further attention in this context. More interestingly, they have highlighted a clash of interests between the protection of private actors, i.e. investors, under international law and the international community’s condemnation of Russia’s unlawful annexation of Crimea, also under international law.
In this context, the work of the ILC on Article 29 warrants more attention. The ILC’s relevant commentary does not seem to encompass any State authority exercised over a territory that is not legally part of it. It is possible that the provision’s language by reference to the “entire territory” of “each party” hints towards the opposite conclusion. Although as mentioned there is little guidance in this respect, and despite the limited scope of Article 29, it is questionable whether the drafters intended to encourage a reading of “entire territory” that covers unlawfully gained or controlled territory which States are obliged under international law to condemn and refrain from pursuing (see for example, Article 2 of the UN Charter, 1970 GA Resolution 2625 (XXV) addressing inter alia the principle of refraining from threatening the territorial integrity of States, 1974 GA Resolution 3314 (XXIX) regarding the definition of aggression and Articles 40 and 41 of the ILC Articles on State responsibility). Arguably, Article 29 of the VCLT is ill equipped to address a situation of extraterritorial application despite not expressly disqualifying it from its ambit.
The unfortunate events of the ongoing war in Ukraine have allowed Russia to annex additional territories via force, backed up with similar controversial referenda. Against this background, it is very likely that Ukrainian investors will continue to bring claims against Russia under the Ukraine-Russia BIT. It remains to be seen whether subsequent tribunals will interpret the term “territory” in Article 29 of the VCLT as “de jure” or continue relying only on the “de facto” pragmatic approach.
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Wesley Pydiamah and Julien Fouret are Partners in the International Arbitration Practice at Eversheds Sutherland. Athina Fouchard Papaefstratiou is an internationally recognised arbitration expert and independent arbitrator, and Dimitrios Papageorgiou is an Associate with the International Arbitration and Public International Law Practice at Eversheds Sutherland.