No Consent on MFN: The Svea Court of Appeal Annuls the Award in Zaza Okuashvili v. Georgia
Overview
In an important decision regarding the scope of Most-Favored-Nation (“MFN”) clauses in investment treaties, the Svea Court of Appeal on 12 November 2024 annulled the Partial Award on Jurisdiction and Admissibility in Zaza Okuashvili v. Georgia (SCC Case No. V 2019/058) for want of jurisdiction.[1]
The claimant in that case, a dual UK-Georgia national, could not invoke the BIT’s arbitration provision providing for ICSID arbitration since ICSID excludes claims by dual nationals against their own State. The claimant therefore had sought to use the MFN provision in the Georgia-UK BIT to access the dispute resolution provision enshrined in the BIT between Georgia and the Belgium-Luxembourg Economic Union (“BLEU”), which allows for alternative arbitration fora (including SCC arbitration) and grants dual nationals standing. While the Svea Court acknowledged that an MFN clause could be applied to certain dispute resolution related procedures, it held, contrary to a majority of the distinguished SCC tribunal (composed of G. Petrochilos, G. Mandelli and dissenting arbitrator Dr. R. Knieper), that an MFN clause was incapable of extending Georgia’s consent to ICSID arbitration under the Georgia-UK BIT to include SCC arbitration under the Georgia-BLEU BIT.
Phase I:The Arbitration
The underlying arbitration concerns a dispute between Mr. Okuashvili and Georgia over unpaid taxes owed by his company, LLC OGT (“OGT”). Following court-ordered seizures and compulsory sales of OGT’s property in 2018, Mr. Okuashvili initiated arbitration proceedings on 1 May 2019 under the SCC Rules, invoking Articles 3 (national treatment and MFN) and 8 (dispute resolution) of the Georgia-UK BIT.
Critically, Article 8 of the Georgia-UK BIT only offers ICSID arbitration to affected investors. And as readers will recall, Article 25 of the ICSID Convention bars claims by dual nationals against their own State. This meant that Mr. Okuashvili had no direct access to arbitration under the Georgia-UK BIT.
As a result, Mr. Okuashvili sought to rely on the MFN clause of the Georgia-UK BIT to access the purportedly more favourable dispute resolution clause of the Georgia-BLEU BIT, which incorporates alternative arbitration fora, including SCC arbitration. Mr. Okuashvili argued that the MFN clause in the Georgia-UK BIT extends MFN treatment to dispute resolution mechanisms, including different types of arbitration. Specifically, he argued that, unlike the Georgia-UK BIT which only provides for ICSID arbitration, Article 10 of the Georgia-BLEU BIT offers more favourable treatment as investors may choose among ICSID, ICC or SCC arbitration.
The Tribunal considered three questions regarding the application of MFN clauses and ultimately concluded that Article 3(2) of the Georgia-UK BIT did allow Mr. Okuashvili to access SCC arbitration under the Georgia-BLEU BIT. First, it determined that “treatment” in Article 3(2) included dispute resolution matters, as clarified by the broad scope of Article 3(3), which, “for the avoidance of doubt”, applies MFN treatment to all provisions of Articles 1–11 of the Georgia-UK BIT, including Article 8.[2] Second, it held that SCC and ICSID arbitration constituted the same category of treatment, satisfying the ejusdem generis rule, and rejected Georgia’s argument that allowing access to SCC arbitration contradicted the Georgia-UK BIT’s ICSID arbitration exclusivity under Article 8.[3] Third, the Tribunal found that SCC arbitration is more favourable for Mr. Okuashvili due to his dual nationality, emphasising that favourable treatment depends on the investor’s circumstances. In this case, SCC arbitration allowed Mr. Okuashvili to pursue his claim.[4]
Dr. Knieper issued a Concurring and Dissenting Opinion in which he expressed the view that Georgia’s consent was explicitly limited to ICSID arbitration, contending that the MFN clause “cannot be read as comprising a different consent to a different arbitration system and thus much more than ‘procedural rules of a different arbitral forum’, as asserted by the Claimant.”[5]
Phase II: The Annulment
Georgia challenged the Tribunal’s Partial Award (upholding its jurisdiction) under the Swedish Arbitration Act on various grounds. Ultimately, the Svea Court of Appeal only addressed the issue of whether the investor could invoke the MFN clause in the Georgia-UK BIT to access SCC arbitration via the Georgia-BLEU Treaty.
As permitted by the Swedish Arbitration Act, the Court conducted a de novo review of the Tribunal’s jurisdiction and ultimately ruled that the Tribunal lacked jurisdiction to hear the dispute.[6] In addition to importing more favourable substantive protections, the Court held that, in principle, the MFN clause in the Georgia-UK BIT could also be used to import more favourable dispute resolution procedures. However, the Court disagreed with the Tribunal on the crucial question of whether MFN clauses could be used to create jurisdiction by substituting one agreed arbitral forum (e.g., ICSID arbitration) with a different one (e.g., SCC arbitration).
In reaching this conclusion, the Court held that the term “treatment” in Article 3(2) of the Georgia‑UK BIT “normally refers in international law to the manner in which a State or other legal authority regulates, protects or otherwise acts in relation to other parties.”[7] The Court concluded that “there is no support in case law for the concept of ‘treatment’ to be considered to also include the issue of jurisdiction.”[8] Specifically, the Court concluded that the consequence of the Tribunal’s approach “would be that there are in practice no limits to the application of MFN clauses to dispute resolution clauses in investment protection agreements.”[9] As a result, the Court held that its conclusion “strongly argues against applying the MFN clause in the present case so that the arbitral institution agreed upon by the parties can be replaced by another arbitral institution.”[10]
Key Takeaways
The scope of MFN clauses has been a contentious issue in international arbitration, particularly regarding the extent to which they can apply to dispute resolution clauses. As Dr. Knieper noted in his Concurring and Dissenting opinion (citing the Study Group on the Most-Favoured-Nation Clause):
The scope of the treatment to be provided under an MFN provision has become one of the most vexed interpretative issues under international investment agreements. The problem concerns the applicability of an MFN clause to procedural provisions, as distinct from the substantive provisions of a treaty.[11]
In holding that MFN clauses could apply to dispute resolution procedures, the Svea Court adopted the same approach as many investor-State tribunals (including the tribunals in Maffezini v. Spain; Orazul v. Argentina; Impregilo v. Argentina (I); and Gas Natural v. Argentina).[12] However, the Svea Court rejected the argument that the MFN clause in the Georgia‑UK BIT could apply to questions of jurisdiction. The Court seemingly emphasised the distinction between applying an MFN clause to streamline procedural steps and applying an MFN clause to replace one agreed arbitral forum with another—the latter, in its view, being a far more significant application of the clause.[13]
That restrictive reading of the MFN clause is consistent with the reasoning of the Maffezini tribunal, which accepted that dispute resolution procedures could be imported via an MFN clause but maintained that MFN clauses should not alter the fundamental jurisdictional framework agreed upon by the contracting parties to a treaty.[14] This reasoning holds that an agreement for a particular arbitration forum, such as ICSID, reflects the deliberate intent of the parties and cannot be replaced by invoking an MFN clause to access a different system; doing that would exceed the consent provided and, by extension, fundamentally alter the parties’ agreement. The Maffezini tribunal noted that “[a] distinction has to be made between the legitimate extension of rights and benefits by means of the operation of the clause, on the one hand, and disruptive treaty-shopping that would play havoc with the policy objectives of underlying specific treaty provisions, on the other hand.”[15]
However, not all tribunals have followed this approach. Some tribunals (or arbitrators in dissent) have used MFN clauses to expand jurisdiction.[16] For example, the Dissenting Opinion of Judge Brower in Renta4 v. Russia argued that MFN clauses ensure fundamental equality, with access to arbitration forming part of the fair and equitable treatment standard. On that basis, denying investors access to broader dispute resolution options could constitute a denial of justice for the simple reason that fair and equitable treatment encompasses a State’s obligation to provide effective means of resolving disputes, including arbitration.[17]
Whether MFN clauses can be used to create jurisdiction beyond what is agreed in a treaty thus remains a controversial issue. The Svea Court of Appeal’s dictum that there was “no support” for the Tribunal’s reasoning ignored the findings of several tribunals that, in fact, have used MFN clauses to expand jurisdiction. Nevertheless, the Svea Court did recognise the important issues at stake and granted Mr. Okuashvili a right of appeal to the Swedish Supreme Court. If ultimately upheld by the Swedish Supreme Court, however, the decision would at least provide clarity on the application of MFN clauses vis-à-vis procedural steps and jurisdiction in investment treaties in the context of Swedish‑seated arbitrations.
[1] Georgia v. Zaza Okuashvili, Judgment of the Svea Court of Appeal, 12 November 2024, Case No. T 11278-22 (“Judgment”). The authors wish to thank Ana Sanahuja, intern at Baker Botts, for her assistance in preparing this article.
[2] Zaza Okuashvili v. Georgia, SCC Case No. V 2019/058, Partial Award on Jurisdiction and Admissibility (“Partial Award”), 31 August 2022, at [172]-[186].
[3] Ibid at [187]-[212].
[4] Ibid at [213]-[225].
[5] Zaza Okuashvili v. Georgia, SCC Case No. V 2019/058, Concurring and Dissenting Opinion of Professor Dr. Rolf Knieper (“Concurring and Dissenting Opinion”) at [75].
[6] Judgement at [16] (“The Court of Appeal’s starting point is therefore to conduct an independent review of the arbitral tribunal’s jurisdiction.”).
[7] Judgment at [23].
[8] Ibid. While the mainstream approach to interpreting MFN clauses often encompasses both substantive protections and certain procedural steps, the use of MFN to incorporate jurisdictional provisions remains a highly contested issue in practice.
[9] Ibid at [24].
[10] Ibid.
[11] Concurring and Dissenting Opinion at [25].
[12] See Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (“Maffezini v. Spain”), 25 January 2000, at [64]. See also, Orazul International España Holdings S.L. v. Argentine Republic, ICSID Case No. ARB/19/25, Award, 14 December 2023, at [393]-[394]; Impregilo S.p.A. v. Argentine Republic (I), ICSID Case No. ARB/07/17, Award, 21 June 2011, at [99]; Gas Natural SDG, S.A. v. Argentine Republic, ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary Questions on Jurisdiction, 17 June 2005, at [49].
[13] Judgment at [23].
[14] See Maffezini v. Spain, at [62]-[63].
[15] Ibid.
[16] See Garanti Koza LLP v. Turkmenistan, ICSID Case No. ARB/11/20, Decision on the Objection to Jurisdiction for Lack of Consent, 3 July 2013, at [64]–[79]. See also, Quasar de Valores SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. and ALOS 34 S.L. v. The Russian Federation, SCC Case No. 24/2007, Separate Opinion Of Charles N. Brower, 20 March 2009, at [3] (“I disagree with the majority’s analysis insofar as it denies Claimants access through the MFN clause of the Spanish treaty to the broader consent to international arbitration Respondent gave under Article 8(1) of the Danish treaty. Thus I would have ruled that this Tribunal has jurisdiction not only to consider Claimants’ claim of expropriation, with all of its ramifications, under Article 6 of the Spanish treaty, but also to hear claims arising under Articles 4 (protection against arbitrary or discriminatory measures) and 5(1) (fair and equitable treatment) of that treaty.”).
[17] Ibid. at [21]-[24].
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