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The Nature of Investor’s Rights under Investment Treaties: A Rejoinder to Martins Paparinskis

Published on October 31, 2013        Author: 

Editor’s note: This is the final installment in the discussion begun last week of Martins Paparinskis’s EJIL article, “Investment Treaty Arbitration and the (New) Law of State Responsibility“.

Martins’ reply to my comments on his EJIL article highlights a number of challenging issues regarding the ongoing debate over the direct or derivative nature of investors’ rights under international investment agreements (IIAs). To summarize our disagreement: Martins, on the one hand, views the derivative rights approach “as only one of a number of plausible ways of articulating international law arguments about investment law”; on the other, I remain strongly reluctant towards this polyphony of plausible  articulations, and rather find that the direct rights model is unconvincing.

Martins questions, first, whether the practice of NAFTA Parties indeed favours the derivative model; second, whether international law provides for causality (or even correlation) between the nature of obligations under treaties and the nature of rights derived thereunder; and, third, whether indeed the HICEE v Slovakia award explicitly adopts the derivative rights model. By way of rejoinder to Martins’ reply, I will address the first point separately, and the second and third points jointly. Read the rest of this entry…

 
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Reforming International Investment Law: Institutional Change v. System-Internal Adaptation

Published on October 30, 2013        Author: 

Stephan Schill4Stephan Schill, LL.M. (Augsburg) 2002; LL.M. (NYU) 2006; Dr. iur. (Frankfurt) 2008, is Senior Research Fellow at the Max Planck Institute for Comparative Public Law and International Law and Principal Investigator in the ERC project on “Transnational Private-Public Arbitration as Global Regulatory Governance: Charting and Codifying the Lex Mercatoria Publica”.

This is the first in a series of posts on the reform debates in international investment law and investor-state arbitration. These posts are meant both to introduce general international lawyers to a field often still foreign to them and to contribute to the ongoing reform processes as states, supranational organizations like the EU, and international organizations like UNCTAD and OECD are reviewing national and international investment policies. Reforms seem necessary in light of the wide-spread criticism of international investment law and investor-state arbitration. The field is even said to face a “legitimacy crisis” because one-off, party-appointed arbitrators review government conduct in areas sensitive to the public interest in ways that differ significantly from domestic courts. Scrutinizing tobacco labeling legislation in Uruguay and Australia or the German nuclear power phase-out are just two recent examples.

Following Broches: “Procedure before Substance”

Reform proposals abound. Most of them focus on changes to investor-state dispute settlement, not on substantive investment law. Perhaps not surprisingly, reforming often means restricting investor-state arbitration. The recent IIA Issue Note by UNCTAD, “Reform of Investor-State Dispute Settlement: In Search of a Roadmap”, summarizes five paths for reforming investment law:

1) promoting alternative dispute resolution;

2) tailoring the existing system through individual investment agreements;

3) limiting investor access to dispute settlement;

4) introducing an appeals facility; and

5) creating a standing international investment court.

Ironically, stressing institutional reform before addressing questions of substantive investment law follows the same pattern that Aron Broches, then General Counsel of the World Bank, proposed when creating the International Centre for Settlement of Investment Disputes (ICSID), the first standing investor-State arbitration forum, in the 1960s. Seeking to overcome the impasse in finding a global consensus on investment protection in times of decolonization and the Cold War, he championed the formula “procedure before substance”. He meant to create a framework for resolving investor-state disputes that could work out substantive rules on the go. Broches’ formula, which later matured into the ICSID Convention, in a sense, released the spirit of investor-state arbitration that over the years started a life of its own and lead to today’s “legitimacy crisis”. As a cure to this crisis, the five reform paths outlined by UNCTAD keep treading Broches’ track of “procedure before substance.” Read the rest of this entry…

 
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Judgment or Judgement: What Has the ICTY Wrought?

Published on October 29, 2013        Author: 

With the ICTY turning 20 this year, perhaps the time has come to pass judgment on it. Or is it judgement? (Preemptive note to readers – this post discusses trivia, and does not claim to engage in any legal analysis, let alone any serious analysis.) As an avid consumer of the ICTY’s case law, one thing has really been bugging me over the years, and the time has come to raise it openly (and no, it’s not the dubious acquittals of a number of bad guys who should have spent the remainder of their days in prison). What’s this, you ask? It’s how the ICTY persists in spelling ‘judgment’ as ‘judgement’ in all of its official documents, including, well, their judgments – so it’s the Blaskic judgement, the Perisic judgement, the Gotovina judgement.  Oh, how I hate that, I really do.

Now you may ask yourself, come on, isn’t Marko overreacting (as usual)? Isn’t ‘judgment’ without an ‘e’ the American spelling, and ‘judgement’ with the ‘e’ the British spelling, and isn’t the ICTY just using the British variant? Wrong! Wrong, wrong, wrong. It’s true that in common usage in the US ‘judgment’ is used almost exclusively, while both ‘judgement’ and ‘judgment’ are used in the UK, with the former being more prevalent. However, in the British legal context the spelling ‘judgment’ is the conventional one and is used almost exclusively; thus the UK Supreme Court delivers judgments, not judgements. In other words, a proper, ‘public’ school and Oxbridge educated British lawyer would modestly write of himself as being indeed possessed of a fine and discerning judgement, but that today he read a jolly good judgment by Lady Hale or Lord Bingham or whoever. (For sources and discussions of the whole judgment/judgement thing, see here, here, here, and here).

I can thus only say that the ICTY’s use of ‘judgement’ to denote its own decisions is a complete and utter travesty (although I wouldn’t go so far, as I’m sure my friend Kevin Heller would, to label it as hypocrisy), since even British lawyers wouldn’t use that particular spelling in this particular context. More Catholic than the Pope, more English than the Queen, as it were. So how did this travesty get going?

Read the rest of this entry…

 
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The AU’s Extraordinary Summit decisions on Africa-ICC Relationship

Published on October 28, 2013        Author: 

Dr Solomon Ayele Dersso is a senior researcher at the Institute for Security Studies, Addis Ababa and Adjunct Professor of Human Rights, College of Governance, Addis Ababa University.

Introduction

The African Union (AU) Assembly, the highest decision making body of the continental organization, took a decision on Africa’sAfrican Union relationship with the International Criminal Court (ICC) at its extraordinary summit held on 12 October 2013. In this commentary I wish to reflect on the details of the major points of the decision, their likely outcome and their implications with respect to a) the on-going Kenyan cases and b) immediate future of Africa-ICC relationship. (photo, African Union headquarters, credit)

As I will show below, the implication of the decision is that not only that Africa-ICC relationship is today worse than before the summit but also there is serious possibility that it would even get much worse.

Immediate context for the extraordinary summit

With the ascendance of Uhuru Kenyata and William Ruto to power in Kenya through generally free and fair elections taking advantage of the cases opened against them at the ICC, a clear case of tension between popular sovereignty (expressed through the ballot) and the demands of international justice arose. This issue predictably emerged on the agenda of the African Union when Uhuru Kenyata attended for the first time as President of Kenya the summit of the AU Assembly held in May 2013.

During the debate at the AU Assembly, many expressed the view that the continuation of the ICC cases against President Kenyata and his deputy Ruto undermines the sovereignty of the people of Kenya who expressed their will in a vote to represent them as their leaders and threatens the process of reconciliation in the country. The 21st summit of the AU Assembly accordingly adopted a decision (at p. 14) requesting the ICC to refer back to Kenya its cases against Kenyan President Kenyata and his deputy. Read the rest of this entry…

 

Better Get A Lawyer: Are Legal Constraints Defeating Britain’s Armed Forces on the Battlefield?

Published on October 25, 2013        Author: 

Aurel SariAurel Sari is a Lecturer in Law at the University of Exeter and an affiliated member of its Strategy and Security Institute.

Last Friday, the Policy Exchange, a British think tank dedicated to the development and promotion of new policy ideas, published a Report entitled ‘The Fog of Law: An Introduction to the Legal Erosion of British Fighting Power’. The Report makes fascinating reading and deserves serious attention. Written by Thomas Tugendhat and Laura Croft, its aim is to explain how the cumulative effect of legal developments taking place over the past decade has undermined the ability of Britain’s armed forces to operate effectively on the battlefield. The Report questions the desirability of what it calls ‘legal mission creep’ and offers seven policy recommendations designed to reverse it or at least arrest its future development.

Undermining the warfighting ethos

Flexibility, initiative and the acceptance of risk and responsibility are central to British military doctrine. As the British Defence Doctrine puts it, one of the key components of the ‘British way of war’ is ‘a style of command that promotes decentralised command, freedom and speed of action and initiative’. ‘The Fog of Law’ brings together a considerable body of examples to suggests that the growing legal regulation and civilian oversight of the armed forces—in particular the spread of inquiries, the extension of civilian duty of care standards and the constant threat of litigation—have begun to undermine the warfighting ethos of the military and restrict commanders’ freedom to act. A series of legal developments have contributed to this change. However, Tugendhat and Croft direct their fiercest criticism against the European Convention on Human Rights, which they describe as the ‘main weapon used in the legal challenge against the [UK Ministry of Defence]’ (p. 17). In their view, the extension of ‘a civilian understanding of duty of care and rights guaranteed by the ECHR’ to combat operations represents a ‘legal intrusion into decisions made in a time of war’ (p. 28).

It is important to stress that ‘The Fog of Law’ does not advocate the complete exemption of the armed forces from the rule of law. The Report makes abundantly clear Tugendhat and Croft’s view that the problem is not the imposition of legal constraints on the armed forces as such, but the extension of civilian law to the military. Indeed, their entire discussion seems to be predicated on an underlying assumption that civilian law and military law are distinct normative regimes and that their respective spheres of application can, and should, be neatly separated from one another. Civilian law and oversight are thus depicted as alien forces which ‘intrude’, ‘assault’ and ‘intervene’ into the military sphere, ‘encircling’ it and ‘encroaching’ upon its autonomy. This is the stuff of high drama, but the accuracy of the picture painted is open to question. The assumption that there is law for civilians and law for the military seems to mistake both the nature of the problem and its solution. Read the rest of this entry…

 

Reply to Howley and Howse

Published on October 24, 2013        Author: 

I am grateful to Jessica Howley and Rob Howse for their thoughtful comments. This post replies to each of their responses.

My response to Jessica Howley will focus on the first and third questions that both, albeit in different ways, challenge my argument that choice is the right criterion for distinguishing the third party model from other approaches. In the first question, Howley wonders whether public interest underlying international human rights could not provide a better explanation for the human rights/investment law distinction than consent. In the third question, she identifies the choice of an individual to become a rights-holder as also present in the diplomatic protection model, thus blurring the distinction between those approaches. I am grateful to Howley for raising questions about the limits of third party model and will answer them in turn, after first briefly outlining my general argument.

Law of third parties and choice

It seems to me that one is on fairly safe conceptual and legal grounds when discussing the tension between elements of inter-State and investor-State dispute resolution in investment treaty arbitration. In my response to Gourgourinis, I sketched some aspects of this tension, and it has been addressed in leading legal writings (in particular by James Crawford ((2002) 96 AJIL 874, 887-8) and Zac Douglas ((2003) 74 BYBIL 151, 160-94). The LaGrand judgment of the International Court also provides some guidance on the criteria for identifying the presence of individual rights in treaty instruments ([2001] ICJ Rep 466 [77]).

My article suggests that that the image of a spectrum of different expressions of inter-State and individual-State elements in the structure of international dispute settlement regimes is right but may be incomplete. A triangle provides a more accurate portrayal of the legal dynamic of investment law. The three corners of the triangle are human rights, diplomatic protection, and third party rights. International law permits creation of rights of non-treaty parties under two regimes – rights of individuals and rights of third parties – that are in many ways as distinct from each other as they are from the inter-State diplomatic protection regime. The distinction between those models is not intuitively clear, but in technical terms the most distinctive element of the law of third parties is a requirement of consent as a precondition for the creation of rights (VCLT arts 34-37). My thesis is that consent and the choice to provide consent are instrumental for the law of third parties but not the law of human rights and law of diplomatic protection, and therefore would provide a convenient analytical perspective for discussing investment law. Howley questions both aspects of the distinction, and I will respond to these arguments in the following paragraphs. Read the rest of this entry…

 
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Reply to Gourgourinis

Published on October 24, 2013        Author: 

I am very grateful to Anastasios Gourgourinis, Robert Howse, and Jessica Howley for their remarks about my EJIL article. I hope that my responses will enable me to clarify my position (and thinking) on the aspects of my argument with which each commenter has engaged. Since there is very little overlap between their comments, I will address them in turn, responding to Gourgourinis in this post and then to Howley and Howse in the next.

Gourgourinis makes a strong argument in favour of derivative rights (which the article calls ‘delegated rights’), suggesting that (1) State practice favours the derivative model, (2) individual rights of the human rights character derive from multilateral obligations, and investment law is not multilateral in that sense, and (3) the HICEE v Slovakia award explicitly adopts the derivative rights model. I will take the first and third argument together, first explaining my basic thesis to ensure that our arguments do not pass each other like two doomed ships in storm.

Investment law as progeny of three regimes of international law

My basic thesis is that investment protection law partly borrows and partly diverges from three different regimes of public international law (international human rights law, law of treaties on third parties, and inter-State law of diplomatic protection). Law-makers and adjudicators will conduct the debate within the broad contours of the following propositions. They will debate the appropriateness of analogies; the content of particular rules flowing from analogies; the appropriateness of the particular rules and other related rules; and the appropriateness of analogies reconstructed back from those rules, etc. It remains to be seen how the issue will develop, both in terms of State practice and arbitral decisions, and doctrinal evaluations. At the moment, each perspective seems to dominate particular aspects of the system without being excessively concerned about internal inconsistency. The pragmatic ‘without prejudice to the broader principle’ practice may continue, or a particular perspective may gain dominance, or one perspective could provide a starting point that is tweaked by introduction of special rules, possibly borrowed from other perspectives. To avoid any possible doubt, this is not an argument against delegated rights, but an argument that views delegated rights as only one of a number of plausible ways of articulating international law arguments about investment law. Read the rest of this entry…

 
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Interpreting Fair and Equitable Treatment within the Evolving Universe of Public International Law

Published on October 23, 2013        Author: 

Rob HowseRobert Howse is Professor of International Law at New York University Law School.

When a tribunal interprets a treaty it does so not in a vacuum or as an isolated decider, but as an adjudicator embedded in a large and dynamic universe of public international law—as Bruno Simma forcefully articulated in his separate opinion in Oil Platforms. Yet in recent years there have been decisions of investor-state tribunals, fortunately not in the mainstream but still much commented on, that adopt a much narrower, hide-bound approach to fair and equitable treatment, the most egregiously awful arguably being Glamis Gold v. United States, where the tribunal froze the meaning of fair and equitable treatment as the content of the standard of diplomatic protection of aliens in the early 20th century. By tracing the reciprocal influences flowing back and forth between investment treaty law and other areas of public international law, Martins Paparinksis’s article provides a good antidote to the misguided thinking behind rulings like Glamis. This thinking is based upon a number of assumptions. One is that investment treaties simply import through fair and equitable treatment a self-contained regime of diplomatic protection, rather than the fair and equitable treatment norm adapting concepts from diplomatic protection to a new context of investor protection, which operates not through espousal but direct access to dispute settlement by investors. Second is the strong presumption against customary law having evolved through the thickening jurisprudence of international and regional courts and tribunals. Third is the very notion that the law of diplomatic protection, or the minimum standard of treatment, is a kind of self-contained regime unaffected by developments in other areas of international law, whether human rights or, for example, various transparency and administrative fairness-type provisions in multilateral and regional economic treaties. All of these dubious assumptions are in effect challenged by Martins’ rich and textured analysis of the fair and equitable treatment standard within the large complex universe of public international law. As Martins shows, although some treaties may explicitly restrict the kind of normative material available for interpretation, in general the ambit is defined broadly, if one takes together Article 31 of the VCLT and Article 38 of the ICJ Statute. Because fair and equitable treatment is a treaty-based obligation, the normative material relevant to defining the standard need not itself have the status of custom. In any case, it is well established that in the modern universe of international law there is a dynamic interplay between custom, conventional law, even soft law. This reality makes the Glamis Gold approach seem particularly sterile or arid.

Also worth further thought in the context of Martins’ article is an issue he raised in his exchange with Anthea Roberts in the recent EJIL:Talk! discussion of his book:  I agree with Martins that one should not lightly have reference to municipal public law as a source for the content of fair and equitable treatment, certainly not as a ceiling. To ensure fair and equitable treatment of an investor it is not enough that a host state have laws on the books that appear to be consonant with public law in other states.  Evaluating the standard set by municipal public law would involve assessing not only the standard implicit or explicit in formal statutes but the actual workings of the system, in other words, administrative practice. Also, even between countries such as the US and Canada there are quite significant differences with respect to how administrative discretion is controlled by judicial review and other vital mechanisms.  The risk of going down the path that Roberts suggests is that the fair and equitable treatment standard could become the lowest common denominator of public law and administrative practice among a certain select group of states.  Another risk is that a host state might be considered to have discharged its state responsibility by having a working system of public law with certain formal guarantees, even if the investor is egregiously mistreated in the process. The fair and equitable treatment standard must, as the word treatment implies, be applicable not only to the laws of the host state, but also to the specific behavior of the host state towards the investor in question.  Just as with human rights law, investor protection ought to provide relief against exceptional abuses even within systems of law that are not formally deficient.  As Martins shows in his article, public international law as it is evolving in diverse areas provides adequately fertile normative material for an evolving international standard of fair and equitable treatment.

 
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The Nature of Investors’ Rights: A Reply to Martins Paparinskis

Published on October 23, 2013        Author: 

Jessica HowleyJessica Howley is partway through a DPhil at Magdalen College, University of Oxford.

 

In his EJIL article, Martins Paparinskis outlines how the rules of State responsibility, developed in the interstate context, apply in claims between individuals and States in the field of investment law (p 619). He proposes three alternative views one might take of the nature of the ‘rights’ accorded to investors under investment treaties: that they are ‘direct rights’, similar to those found in the regime of human rights (p 622-623); ‘third party rights’, akin to those accorded by treaty parties to third states under Article 36 of the Vienna Convention on the Law of Treaties (p 624); or ‘delegated rights’, where the individual is an agent exercising rights that belong to their home State (p 625).

Paparinskis details the implications of each approach to investors’ rights for various aspects of State responsibility, including for the purposes of reparation, the application of circumstances precluding wrongfulness and the implementation of responsibility (p 619-620), elucidating the practical effects that flow from adopting a particular perspective on investors’ rights. He expressly does not seek to reach a definite conclusion on which of these is the correct approach to take (p 626). He does, however, offer some thoughts on the appropriateness of relying on the human rights paradigm in the investment context.

While noting the functional similarity between many of the rights in the investment and human rights fields, Paparinskis argues (and affirms in this EJIL: Talk! post and a forthcoming chapter available here) that human rights and investment law differ in the key respect that investors choose to become investors, with investment law protections designed to entice an investor to invest in a particular State (p 623). Conversely, one falls under the protection of a given human rights regime not as a matter of choice but simply by virtue of being human. This leads the author to suggest that rights in investment law might be ‘better captured’ by viewing them through the lens of third party rights, rather than from a human rights perspective (p 624).

The purpose of this post is to query the extent to which the choice of the investor provides a useful way of thinking about which of the three models of investors’ rights is most appropriate. Read the rest of this entry…

 
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The Nature of Investor’s Rights under Investment Treaties: A Comment on Paparinskis’ “Investment Treaty Arbitration and the (New) Law of State Responsibility”

Published on October 22, 2013        Author: 

Gourgourinis_photoDr Anastasios Gourgourinis is Lecturer in Public International Law at the National and Kapodistrian University of Athens Faculty of Law, and Research Fellow at the Academy of Athens.

Martins Paparinskis’ EJIL Article argues that the conceptual challenges faced by contemporary investment treaty arbitration can be effectively addressed if the regime is not viewed in isolation from its progeny, i.e. international human rights and consular law, the law of treaties and the law of diplomatic protection. The discussion in Paparinskis’ piece is essentially centred on the debate regarding the character and nature of investors’ rights under international investment agreements (IIAs), i.e. either as direct or derivative rights. Paparinskis address the nature of investors’ rights under IIAs from the terminologically different, but contextually similar, lens of the models of direct rights, beneficiary rights, and agency. He explicitly declines to take a firm position regarding which of these models is the most plausible one, but he appears, at least in my eyes, more prone to side with the direct rights model, especially in view of the analogies with human rights law (see also his analysis here). This is where we will have to part ways, and in this post I take issue with this, largely drawing from my chapter on the direct/derivative rights debate.

Below, I take issue with the idea that an investor may be considered as a holder of direct rights akin to human rights. Although Paparinskis does a tremendous job in drawing normative parallels between the two regimes, I remain of the  view that the very different nature of obligations derived from human rights instruments and IIAs cautions against such an approach, and rather supports the derivative model of investors’ rights. The debate over the direct or derivative nature of investors’ rights received full treatment in the seminal BYBIL article by Zachary Douglas and evidence that it is  ongoing and growing, is manifested by the fact that during the recent 2013 ILA Regional Conference in Sounion, Greece, three papers touching upon these and similar issues were presented (see here, here and here). Read the rest of this entry…

 
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