Waiver and the Exhaustion of Local Remedies Rule in NAFTA Jurisprudence

Abstract

NAFTA Chapter Eleven contains a waiver of the customary international law requirement that disputing investors exhaust local remedies available to them prior to filing an international claim. Or does it? The provision in NAFTA that arguably waives the local remedies rule itself requires a waiver by the claimant bringing a NAFTA claim, yet the language is not straightforward. Article 1121 requires claimants to waive their right to "initiate or continue proceedings with respect to the measure at issue" once they have chosen NAFTA dispute resolution. This requirement was intended, at the least, to limit multiple and potentially duplicative decisions on the same issue, and the best view of the provision is that it does indeed waive the local remedies rule, notwithstanding contrary suggestions by a few tribunals. Yet even if that is the case, the language of the waiver leaves many questions unanswered. For example, must an investor stop local proceedings addressing matters tangentially related to the Ameasure@? What if the local authority refuses to dismiss the case? What is the effect of those local remedies should any decisions on the merits of any underlying claim have issued from local tribunals? Moreover, given the many purposes served by the local remedies rule, its blanket waiver with respect to an undefined class of prospective cases may have been unwise. As arbitrations multiply, the wisdom of having waived the local remedies rule will likely become ever more questionable. Restoring a local remedies rule that includes a reasonable, but strict time-frame for those remedies to ensue, or provides a reasonable tolling period of the statute of limitations, while still maintaining a right for an individual to bring a claim directly should those remedies fail, has the potential to balance the rights of investors against the rights of State Parties.

Keywords: bilateral investment treaties, investor-State arbitration, exhaustion of local remedies, NAFTA Chapter 11

JEL Classification: F13, K33