Z.O. v Georgia, “The MFN Clause”
An MFN clause may give investors access to a more favourable dispute settlement forum
Background
A dual citizen of Georgia and the United Kingdom initiated arbitration against Georgia under the SCC rules. The dispute settlement provision of the directly applicable Georgia-United Kingdom BIT provided only for arbitration before the International Centre for Settlement of Investment Disputes (ICSID). The investor argued that the MFN clause in the Georgia-United Kingdom BIT allowed him to invoke the dispute settlement provision in the Georgia-Belgium-Luxembourg BIT, which allowed investors to choose SCC arbitration.
The tribunal accepted jurisdiction. Georgia then asked the Svea Court of Appeal to review the tribunal's jurisdiction under section 2(2) of the Swedish Arbitration Act. Georgia argued that it had not consented to SCC arbitration and that the Georgia-Belgium-Luxembourg BIT was not more favourable. The Court of Appeal held that the MFN clause did not apply to the dispute settlement provision and declared the tribunal incompetent.
The Court's Decision
The Supreme Court limited its review to whether the MFN clause in the Georgia-United Kingdom BIT, together with the dispute settlement provision in the Georgia-Belgium-Luxembourg BIT, gave the tribunal jurisdiction.
The Court held that the MFN clause could apply to dispute settlement. Article 3(3) of the Georgia-United Kingdom BIT expressly extended MFN treatment to the treaty's dispute settlement provision. The Court also held that a state may consent to arbitration through an MFN clause read together with a dispute settlement provision in another BIT.
The Court compared the dispute settlement provisions as a whole. If the provision in the comparative BIT is more favourable as a whole, it applies in its entirety. The Georgia-Belgium-Luxembourg provision was more favourable because it gave investors a choice between three arbitration mechanisms, including ICSID arbitration and SCC arbitration. The Georgia-United Kingdom BIT provided only for ICSID arbitration.
Result
The Supreme Court held that the MFN clause in the Georgia-United Kingdom BIT, together with Article 10 of the Georgia-Belgium-Luxembourg BIT, gave the investor the right to start SCC arbitration. Georgia had thus consented to SCC arbitration for claims brought by United Kingdom investors, subject to the requirements in Article 10.
The Court set aside the Court of Appeal's judgment and remitted the case. The Court of Appeal must decide whether the investor met Article 10's requirements or whether those requirements otherwise do not bar jurisdiction.