Falling foul of a limitation period can stop a treaty claim in its tracks. For claimants, how you frame an alleged treaty breach may, for the purposes of computing time, determine whether the claim is barred in whole or in part. For respondents, successfully proving the expiry of a limitation period may be an entire defence. Whilst a number of international investment treaties (notably, the North American Free Trade Agreement (NAFTA)) contain limitation periods, tribunals have not often addressed this topic in detail, and there is no uniform jurisprudence on how limitation periods should apply. Ultimately, each case must be analysed in its own context. An overly strict approach may, for instance, improperly punish investors that delay filing their notices of arbitration in hopes of finding an amicable solution, particularly where states have represented that, given time, they will provide a remedy. In any event, regardless of how limitation periods are interpreted, investors would be well served by negotiating an agreement with the state that suspends or tolls the limitation period to remove any doubts. This blog post therefore discusses the enforceability of such agreements and flags some practical issues for consideration.
Given ambiguities in the case law, tolling or “consultation” agreements can provide investors with some certainty in the midst of protracted negotiations that take place as the clock is ticking. Under these agreements, the state expressly agrees to toll a limitation period vis-à-vis an investor’s claims, or suspend the limitation period during the pendency of negotiations, buying the parties time to find a negotiated solution. Tolling provisions in settlement agreements also ensure that an investor’s claims will not be barred under the applicable treaty if the state breaches settlement terms after the limitation period has expired.
The enforceability of a tolling agreement is an issue that case law has not squarely addressed. To date, the publicly available case law suggests that no party has challenged the enforceability of tolling agreements in investor-state disputes. In fact, two recent cases suggest parties have relied on tolling agreements without challenging their validity.
In Gramercy Funds Management LLC, et al. v Peru, the parties discussed and were ultimately unable to agree on the terms of a tolling or “consultation” agreement. Notably, Peru did not question the validity of such an agreement and was amenable to suspending the limitation period during a five-month consultation period.
In KBR, Inc. v Mexico, KBR asserted that, during a procedural conference, Mexico had agreed to “toll the statute of limitations governing KBR’s NAFTA claims in exchange for a lengthy procedural schedule on the [NAFTA] waiver issue” and that Mexico had subsequently attempted to curb the scope of its promise, “claiming that it had intended to toll the statute of limitations for the instant proceeding only, not any subsequent claim that KBR might file”. Here, the parties appear to have disagreed on the scope of the agreement, not its underlying validity. Nevertheless, under Mexico’s position, KBR would have been barred from filing a new claim if the tribunal ruled against the sufficiency of KBR’s waiver on jurisdictional rather than admissibility grounds. To protect itself, KBR requested that the tribunal acknowledge the tolling agreement pending their decision on waiver and hold “that any revised submission filed by KBR may be considered timely on or before the date that the tribunal considers to represent the end of the tolled period.” Although the tribunal ultimately dismissed the investor’s claims, any finding the tribunal may have made on the scope of the tolling agreement remains undisclosed because the award is not public.
On its face, there is no apparent reason why a tribunal would not enforce a written tolling agreement signed by an investor and the competent state authority with power to bind the state. Here, it is worth emphasising that tolling agreements do not purport to change the terms of a treaty, the limitation period, or a state’s rights and obligations vis-à-vis the other state party or parties. Instead, through a validly executed tolling agreement, a state consents to waive its right to raise the limitation period as a defence vis-à-vis a specific investor’s claims. Given that consent and party autonomy are cornerstones of international arbitration, concerns that a tolling agreement alters treaty rights between a state and a party that did not sign the applicable treaty seem misplaced.
Moreover, there are practical reasons that militate in favour of enforcing valid tolling agreements. First, tolling agreements provide parties with certainty where the case law on limitation periods does not. Second, tolling agreements encourage parties to take the time required to explore negotiated solutions. An investor might fear that the state will retaliate if the investor files a claim. With this in mind, filing a notice of arbitration is typically a measure of last resort (particularly for investors with multiple investments in the host country or the desire to invest there in the future). Finally, encouraging negotiated resolution of disputes saves the parties significant costs and resources.
Some practical considerations for parties contemplating a tolling or “consultation” agreement include:
- Written, properly executed agreements are likely to provide more certainty than oral undertakings.
- Investors should confirm that the party signing on behalf of the state is authorised to bind the state. This issue will likely depend on the domestic law of the country entering into the tolling agreement.
- Parties should endeavour to define clearly the claims covered by the tolling agreement and the period of time during which the limitation period is tolled or suspended.
Limitation periods can raise thorny but important issues in an arbitration or potential arbitration. As such, both claimants and respondents alike should be mindful of how a limitation provision may affect their potential claims and defences.