This is a guest post from Gabriela Sánchez of the Universidad de los Andes, Bogotá
Last September 3rd, the Permanent Court of Arbitration issued the Final Award on the case Michael Ballantine and Lisa Ballantine v. Dominican Republic. The case was governed under UNCITRAL (2010) arbitral rules and under the Dominican Republic-Central America FTA (CAFTA-DR).
Michael and Lisa Ballantine (dual nationals of the United States and Dominican Republic) were the owners of a real estate and infrastructure project in Dominican Republic: Jamaca de Dios and Aroma de la Montaña. The dispute arose because of the rejection by the Ministry of Environment and Natural Resources of the claimants’ request to expand Jamaca de Dios, as well as other actions by the central and local government. The Ballantines alleged that Dominican Republic had breached its obligations under CAFTA-DR of, among others, national treatment, most-favored nation, fair and equitable treatment and indirect expropriation.
However, since the beginning of the proceedings, it was clear that the dispute was going to revolve around the question of whether the Ballantines could demonstrate that their United States nationality was "dominant and effective." In a majority award, the Tribunal found that the Claimants’ dominant and effective nationality was that of the Host State (Dominican Republic) and that the Tribunal therefore lacked jurisdiction to hear the dispute under CAFTA-DR. As recognized by the Tribunal in the Award, this appeared to be the first time that an international investment arbitral tribunal dealt with the “dominant and effective” test. Although addressed in other forums,such as the International Court of Justice (Nottebohm Case), the Italian-United States Conciliation Commission (Mergé Case) and the Iran-United States Claims Tribunal, it had not been directly and deeply addressed by an arbitration tribunal.
Even though the decision appears to be consistent with the development of the “dominant and effective” standard in these other forums, this Award raises two issues to reflect upon. The first one relates to the direct “transplant” of precedent from other forums and the second one concerns the application of the rule of interpretation of Article 31 of the Vienna Convention on the Law of Treaties (VCLT).
Firstly, the Tribunal seems to have applied the standard developed by other forums (especially from the Nottebohm Case) without much debate. Albeit recognizing that the factors developed under customary international law were instructive, the Tribunal clearly stated that these had been developed in a different period of time and under different circumstances. Therefore, the application of the standard in this case deserved special consideration to the factual circumstances rather than “directly incorporating any other standard, which would disregard the rules of interpretation under VCLT” (para. 533). However, it appears that the Tribunal took the factors to determine the “dominant and effective nationality” developed by the Notebohm Case (and then reaffirmed in the Mergé Case and by the Iran-US Claims Tribunal) and applied them to the present case without much discussion. The issue of the “dominant and effective nationality” seems far from being a “rule of thumb”. Yet, it is inevitable to wonder whether the Tribunal failed to identify the characteristics or issues that made the application of this standard in an investment arbitration any different from those other cases and those forums.
Secondly, despite explicitly referring to the rule of interpretation contained in Article 31 VCLT to give meaning to the term “dominant and effective”, the application of this rule can be seen as insufficient. The Tribunal alluded to the ordinary meaning (Article 31.1 VCLT) of the terms “dominant” and “effective” and then directly referred to “other relevant rules of international rules applicable to the relations between the parties” (Article 31.3(c) VCLT). Even though the general rule of interpretation contained in this Article is far from requiring a rigid examination of all its elements, it would have been desirable that the Tribunal had engaged in a more rigorous and comprehensive application of Article 31 VCLT. Not because it demands so, but rather because it could have enriched the analysis of the “dominant and effective” test, especially when applying it to a regime that had not been applied before in international law. Probably, the elements contained in Article 31.3 (a) and (b) (Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions and Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation) could have shed light on some interesting insides of the particular facts of this case.
In conclusion, although being consistent with previous cases in other areas of international law, the decision of the Arbitral Tribunal Michael Ballantine and Lisa Ballantine v. Dominican Republic raises some concerns regarding the undisputed “transplant” of precedent between international dispute resolution forums and the rigor in the application of the general rule of interpretation contained in Article 31 VCLT. After all, the exercise done by an arbitral tribunal is one of treaty interpretation. It will be in the hands of future investment arbitration tribunals (for example in the current Carrizosa v. Colombia Cases) to take into consideration these reflections to provide a more meticulous evaluation of the “dominant and effective nationality” standard.