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A Reply to Anthea Roberts and Federico Ortino

Published on August 16, 2013        Author: 

Anthea Roberts puts the argument of my book into broader international law perspective by asking three questions. First, she wonders whether there might be a need to reformulate the criteria of customary law to make them more realistic. Secondly, she gently chides me for being too hasty in dismissing domestic public law arguments. Thirdly, she is interested in the politics of the human rights analogy of investment law. I will first say a few words about human rights analogies and customary law, and then explain my position regarding domestic public law.

Human Rights Analogies

In a recent article (‘Investment Treaty Arbitration and the (New) Law of State Responsibility’ (2013) 24 EJIL 617) and in a forthcoming chapter I also address the analogical reasoning in investment law, looking at particular case studies in the law of State responsibility and law of treaties from different perspectives, including that of human rights law. It seems to me that the major conceptual objection (and here I quote from the chapter, footnotes omitted)

is that the human rights analogy fails to capture the structural dynamic of the investment protection regime. In particular, the grant of legal protection to investors is explicitly linked with and justified by utilitarian considerations of enticing the non-State actor to make the rational choice of engaging in an investment activity and therefore benefiting from protection. The proposition that there might be a rational choice to be made to become human so as to benefit from human rights protection strikes one as patently absurd from the perspective of human rights law; conversely, in investment protection law, the question of whether, when, and how a claimant becomes an investor is an important yet conceptually unremarkable jurisdictional box to be ticked in every dispute.

The idea of choice – and with it, an analogy with the consent-based law of treaties on third parties, rather than human rights – provides a powerful analytical perspective for examining different approaches in the law of treaties and State responsibility. It is less obvious that differences in teleology and structure between human rights and investment law pose similar challenges to arguments by analogy regarding primary obligations, where peculiarities of either regime may be appropriately incorporated in the process of comparative reasoning regarding particular rules. Read the rest of this entry…

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A Reply to Sir Frank Berman

Published on August 15, 2013        Author: 

I am very grateful to Sir Frank Berman, Anthea Roberts, and Federico Ortino for their wide-ranging observations about my book. As much as I would like to give an exhaustive reply to each of them, I could not do justice to all of their comments without exceeding the natural limitations of time and space imposed by the forum. I will therefore focus on a limited number of issues, that either seem to me to pose the most serious challenges to the argument that I make in my book, or to which I have given most thought. I will respond to Sir Frank Berman’s arguments in this post, and will address Anthea Roberts’ and Federico Ortino’s arguments in the next post.

Sir Frank Berman raises a number of questions about the style and substance of my argument. In particular, he seems doubtful about the practical validity of the distinction between treaty and customary rules in the area, and suggests that a clearer distinction between interpretation and application, the latter concept opening a wider scope for case-by-case variation, may dispose of my concern about accommodating investment arbitration in the structure of sources and interpretation of international law. I will address these two issues in turn. Briefly, I believe that the treaty/custom distinction is of considerable practical importance. While I entirely agree with everything that Sir Frank Berman says about the distinction between interpretation and application – and I would be so bold as to say that I do not ignore it in my book – it does not affect my argument that the great reliance on earlier arbitral pronouncements suggests a process of interpretation and application taking place regarding the same rule of (general) international law. (Sir Frank also makes certain observations about the effect that different structures of dispute settlement have on development of law; I will address that point in my response to Federico Ortino).

On the Treaty/Custom Distinction

Is it important whether a ‘fair and equitable treatment’ clause is read as a technical term of reference to custom (or a term that does not refer to custom as such but that does not preclude it from being taken into account in the interpretative process), or rather a term that neither requires nor permits reliance on general international law? In technical terms, an answer to such a question would depend on whether the rules of customary law are identifiably different from those that may be determined by interpretation of the treaty language. It is relatively easy to give an affirmative answer regarding rules on administration of justice, where (as I argue in Chapter 8) the basic principles are well-established: in particular, a wrongful act of denial of justice is complete only when the whole judicial system is exhausted, denial of justice focuses on procedure, and denial of justice by substance of the judgment is exceptional. It is not at all obvious, to say the least, that an interpretation not involving general international law would identify different requirements of exhaustion of remedies as a matter of primary obligation because conduct by a particular organ is concerned, or draw the distinction between procedural and substantive unfairness (the fact that most Tribunals do draw these distinctions strongly suggests that they are implicitly relying on customary law). Read the rest of this entry…

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Custom, Public Law and the Human Rights Analogy

Published on August 14, 2013        Author: 

anthea2Anthea Roberts is a Senior Lecturer in Law at the London School of Economics and a Professor of Law at Columbia Law School.

I always enjoy reading Martins Paparinskis’ work and have read enough of it to know that I can count on him to have (1) written about questions that are of interest to me, (2) engaged in careful analysis, and (3) researched the hell out of the issue. Paparinskis’ breadth across investment treaty law, general issues of international law like state responsibility, and case law in specific fields like human rights law, is truly impressive. I don’t plan to push Paparinskis on his central thesis.  Instead I want to ask three broader questions about how international law is developed and interpreted.

First, Paparinskis begins and ends his book by endorsing Jennings’ quote that the meaning of rules cannot be deduced a priori but instead “must be hammered out in the practice of Governments and by the familiar process of the development of law through its application by international tribunals” (pp 6 and 259). I agree with this point. In practice, however, we see extensive reference to judicial and arbitral decisions, including some that say they are interpreting treaty provisions as free standing norms and others that say they are interpreting the treaty in light of custom. But we see almost no discussion of the actual practice of governments, including in the latter type of case law. Why is that?

One reason is that the test for establishing custom is problematic. Customary international law is ostensibly made through state practice and opinio juris. But practice can be hard to find and cumbersome or difficult to collect. Paparinskis himself notes that the form of practice that we are most likely to see in the investment treaty context is pleadings by states, but this source has a number of shortcomings, including that pleadings are likely to be made by some states frequently and others rarely or not at all, and pleadings tend not to be made publicly available (pp 144-146, 171). (NAFTA is a notable and welcome exception to the latter point.)

Even when we can find smatterings of practice, it is almost impossible to collect real evidence of (1) general and consistent state practice followed out of (2) a sense of legal obligation. Even when people say that they are finding custom, they are usually relying on short cuts, such as referring to case law that says something is custom, General Assembly resolutions that declare something to be custom, or academic articles that opine that something is custom. Almost no one actually “finds” custom. Instead, arbitrators, academics and counsel typically refer to other sources that supposedly have already “found” custom.

The rules for determining custom are not a good description of what any of us actually do. Instead, they are largely used to critique the work of others. Read the rest of this entry…

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The Interpretation and Application of Fair and Equitable Treatment: An Arbitrator’s Perspective

Published on August 13, 2013        Author: 

frank.berman

Sir Frank Berman KCMG QC is Visiting Professor of International Law at the University of Oxford and a member of Essex Court Chambers where his practice involves a wide range of international law issues, including international arbitration.

There can be no-one active in the field of investment arbitration who hasn’t been challenged, or even perplexed, or at least confronted by the question of the relationship between the guarantee of fair and equitable treatment for foreign investments or investors stipulated in bilateral or multilateral treaties and what is usually referred to as the ‘minimum standard’ laid down by customary international law.  But it won’t be possible for that debate to continue in future without reference to Martins Paparinskis’s superbly researched monograph.  More precisely, no excuse will remain for a failure to bring into the discussion the available materials bearing on the question, all of which are now gathered together between one set of slim covers, both those which are directly relevant to the issue in hand and those which are of interest by way of suggestive analogy.

But it is the very wealth and depth of the analysis that brings the focus back onto the underlying question itself, and how valid or how useful it is.  Listening to the argument (as I regularly do) from the arbitrator’s chair, about whether the Parties to a particular bilateral investment treaty intended ‘fair and equitable treatment’ as a reference to the customary law standard, or to mean something else, I find myself wondering just as regularly in my inner mind how that is going to help me solve the dispute in the case before me:  if the treaty provision should be understood as referring to customary law, then what is the customary law it is referring to?  If it is a reference to something else, then what was it the Contracting States wanted to add to (or subtract from?) the customary standard as they understood it?  It is of course possible that those queries might be answered by the travaux préparatoires if one had them (and for bilateral treaties one usually doesn’t).  But it is equally possible that the Contracting Parties had no common view as to the customary standard, or that they never even bothered to ask themselves the question, but in either case wanted instead to establish a treaty rule on which future investors would be able to rely.  That, after all, is one of the purposes of making treaties.

It’s for reasons of that kind that most of the arbitral tribunals on which I’ve sat have come to the conclusion that the question is essentially an academic one, and that their task is not to solve the academic debate but to make sense of the treaty in front of them, on its own terms, profiting for that purpose from the very sensible and practical set of provisions on treaty interpretation which the Vienna Convention offers.  The process entails, amongst other things, taking ‘fair and equitable’ as the portmanteau phrase it plainly is, and not trying to disaggregate it into a ‘fairness’ component and an ‘equitable’ component.  Nor have I found that arbitrators experience much difficulty in understanding the import of the phrase, as a broad and general rule enunciated in advance in such a way as to be capable of application to a wide and infinitely variable set of future cases and circumstances which the negotiating Parties couldn’t even begin to enumerate or contemplate at the time of their negotiation.

That leads me to a number of observations, not all of them profound. Read the rest of this entry…

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Investment Tribunals’ Case-by-Case Approach: A Response to Martins Paparinskis

Published on August 13, 2013        Author: 

Federico OrtinoDr Federico Ortino is Reader in International Economic Law at King’s College London.

I will focus my (two) brief remarks on Part II of Martins Paparinskis’ excellent monograph. First, the main argument in Part II (and one of the central themes of the entire work) is that “treaty rules on fair and equitable treatment refer to the customary minimum standard” (p 159) as a matter of Art 31(1) of the VCLT. Interestingly, before explaining the claim in positive terms (pp 160-166), Chapter 5 elaborates at length the claim in negative terms (pp 111-153): “no argument limited to treaty law can explain the existing and accepted practice [of elaborating the concept of fair and equitable treatment on a case-by-case basis]” (p 153). In short, investment tribunals’ reliance on previous investment tribunal decisions for purposes of interpreting pari materia treaty rules (like fair and equitable treatment clauses) cannot be justified within the boundaries of the customary rules of treaty interpretation (Art 31-32 VCLT), unless through the reference to customary law (and the minimum standard of treatment).

While taking into account the investment tribunals’ current practice (particularly when this seems to be a majoritarian one) is important, I wonder whether (or the extent to which) this line of argument is actually persuasive. In other words, the fact that tribunals’ reliance on the decisions of other tribunals interpreting similar rules found in other investment treaties cannot be justified on the basis of customary rules of treaty interpretation, may simply lead to argue that such reliance is misplaced, rather than to argue that treaty rules on fair and equitable treatment must refer to the customary minimum standard. I don’t dispute as such the main argument (treaty rules on FET must refer to customary minimum standard), but simply linking such argument with the ‘problematic’ practice of investment tribunals’ reliance on past decisions interpreting pari materia treaty rules.

Second, as noted above, one of the findings of Part II is that “the dominant approach in the arbitral decisions … has been to use case-by-case analysis to develop criteria, sub-criteria, and presumptions so as to explain the content of fair and equitable treatment” (pp 99-100). An issue that I find particularly interesting and mysterious is the ‘case-by-case’ terminology often employed (by tribunals as well as commentators) to describe a certain adjudicative methodology. Read the rest of this entry…

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The International Minimum Standard and Fair and Equitable Treatment

Published on August 12, 2013        Author: 

Martins Paparinskis

Martins Paparinskis is a Junior Research Fellow at Merton College, Oxford.

I am grateful to EJIL:Talk! for hosting the discussion of my book, The International Minimum Standard and Fair and Equitable Treatment. I am privileged to have Sir Frank Berman, Federico Ortino, and Anthea Roberts as discussants of my book. A full introduction of the book is available online. In the following paragraphs I summarise the main arguments made in the book.

Introduction

Fair and equitable treatment, as Judge Rosalynn Higgins put it in the Oil Platforms judgment in the International Court of Justice, is a legal term of art well known in the field of overseas investment protection ([1996] ICJ Rep 847 [39]). It is also a rule of considerable practical importance in dispute settlement on the basis of investment treaties. Judging from publicly available awards, this is the obligation that investment treaty Tribunals are most likely to find to have been breached, awarding reparations on this basis. However, despite its pedigree and importance, the textual formulation of ‘fair and equitable treatment’ is not an example of excessive prescription regarding the legal criteria to be applied to resolving particular disputes. How should an interpreter, whether operating in an arbitral or a less formalised setting, approach the task of interpreting and applying this treaty rule?

 The book suggests that an answer, while not a straightforward and obvious one, may be found within the four corners of public international law reasoning. The treaty rule on fair and equitable treatment must be put in the context of broader law-making processes of international law, appreciating both the continuities and discontinuities with the traditional rules and remedies with regard to the minimum standard of treatment of aliens. The argument is presented in three parts. First, the peculiarities of the law-making process are explained, starting from the 19th century customary law on the treatment of aliens and concluding with contemporary investment treaty law. Secondly, the source of the contemporary standard is identified, suggesting that the modern treaty rules on fair and equitable treatment make reference to custom. Thirdly, a methodology for establishing the content of the modern standard is suggested, synthesising traditional customary law and modern developments, when necessary, by the assistance of careful comparative human rights reasoning. Read the rest of this entry…

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Discussion of Martins Paparinskis’s International Minimum Standard and Fair and Equitable Treatment

Published on August 12, 2013        Author: 

Paparinskas FET BookThis week we will be hosting a discussion of Martins Paparinskis’ book The International Minimum Standard and Fair and Equitable Treatment, recently published by Oxford University Press. Martins  is currently a Junior Research Fellow at Merton College, Oxford. Prior to this he was a Hauser Research Scholar at NYU Law School and completed his MJur and doctoral work in Oxford. It has been a pleasure and a delight to have him first as a graduate student and then as a colleague in Oxford for so many years. He will be taking up a Lectureship at University College London in the coming academic year.  In addition to this book, he has published a number of articles and book chapters on the law of foreign investment protection with much of his work showing how that law interacts with general principles of international law. Last year he compiled Basic Documents on International Investment Protection (Hart). His monograph and thoughts on the topic will be subjected to careful scrutiny this week by Sir Frank Berman (Oxford), Federico Ortino (King’s College, London), and Anthea Roberts (Columbia Law School/London School of Economics). We are grateful to all four for agreeing to have this discussion here.

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Ecuador v. United States Inter-State Arbitration under a BIT: How to Interpret the Word “Interpretation”?

Published on August 31, 2012        Author: 

There is an inter-State arbitration pending between Ecuador and the United States under the Bilateral Investment Treaty (BIT) between those two countries (Treaty between United States of America and the Republic of Ecuador Concerning the Encouragement and Reciprocal Protection of Investment, 27 August 1993). The Ecuador v. US case , which was initiated in June 2011, is, as far as I am aware, a very very rare instance of inter-State arbitral proceedings under a BIT. As is well known, one of the main purposes of BITs is to give investors the right to bring claims against the host state of investment. This feature of BITs, and the vast number of such treaties, has meant that investor-State arbitrations under BITs have replaced diplomatic protection as the primary means of settling investment disputes. There have been hundreds of investor-State proceedings before arbitral tribunals.  However, BITs also contain compromissory clauses by which disputes concerning the interpretation or application of disputes under these treaties can be brought before arbitral tribunals established under the BIT. The only other inter-State BIT cases that I am aware of are the recent Italy and Cuba cases which were discussed in the April 2012 issue of the American Journal of International Law. In general, States leave it to the investor to protect its rights under the BIT.

The present proceedings brought by Ecuador are particularly interesting for a couple of reasons: one specific to investment law, the other relating to general international law. First of all, as the case arises out of Ecuador’s dissatisfaction with the interpretation given by an earlier investor-State arbitral tribunal (Chevron and Texaco Petroleum Company v. Republic of Ecuador, Partial Award, 30 March 2010) to a particular provision of the Ecuador – US BIT,  the case may be construed as a way by which Ecuador is trying to use the inter-State procedure as a way of appealing the results of a case brought under the investor-State procedure. There have been concerns by many that there is no appellate procedure in the investment treaty system and this case seems to be an attempt to create one.

Secondly, Ecuador’s case raises a general question about how one interprets the standard compromissory clause to be found in treaties where jurisdiction is granted to an  international tribunal over disputes between the parties “concerning the interpretation or application of the treaty”. Ecuador is of the view that the US has a different interpretation from it of a provision of the BIT. However, Ecuador does not argue that the US has violated the BIT, it only seeks to resolve a question about how the BIT should be interpreted. So, does the tribunal have jurisdiction over a case where the parties disagree about how a treaty should  be interpreted but where there is no allegation that the respondent party has actually misapplied the treaty or done any act which constitutes a violation of the treaty. The question is whether this standard formulation of a compromisory clause means that international tribunals can only deal with concrete disputes about violations of treaties or whether they can play a general advisory function with respect to the meaning of the treaty. In short, what is a dispute about “interpretation”of a treaty? Read the rest of this entry…

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Oil exploration around the Falklands (Malvinas)

Published on August 13, 2012        Author: 

In June, I looked at the longstanding sovereignty dispute over the Falklands Islands (Malvinas) on the occasion of the 30-year anniversary of the 1982 war. I revisit this topic today to examine the question of investor protection in areas where sovereignty is disputed, taking the Falklands (Malvinas) as an example. The promise of an oil boom in the South Atlantic has prompted several companies listed in London, including Falkland Oil and GasBorders and Southern PetroleumRockhopper, Desire Petroleum and Argos Resources, to survey the area. They obtained exploration licenses from the Falklands administration in 2011, which drew strong criticism from Argentina. Shareholders in these inherently risky ventures may wonder whether they have any legal protections should the sovereignty dispute intensify.

The sovereignty dispute adds an additional layer of uncertainty for the companies engaged in exploratory drilling and their shareholders, aside from the uncertainty on how much oil, if any, will ultimately be discovered. The listing prospectuses of the companies concerned all mention the pending sovereignty dispute as a risk factor, but likely underplayed its importance. For example, the Falkland Oil and Gas Prospectus contains the following disclaimer:

There may be other unforeseen matters such as disputes over borders. Investors will be  aware that the Falkland Islands were, in 1982, the subject of hostilities between the  United Kingdom and Argentina.

The Argentine Government has not relinquished all its claims in relation to the Falkland Islands. However, the position of the UK and Falkland Islands Governments is that the   United Kingdom has no doubt about its sovereignty over the Falkland Islands, South   Georgia and the South Sandwich Islands and the surrounding maritime areas. Her Majesty’s Government  remains fully committed to the offshore prospecting policy pursued by the Falkland Islands Government, as laid out in the Offshore Petroleum (Licensing) Regulations 2000. This policy is entirely consistent with Her Majesty’s sovereign rights over the Falkland Islands.

Do investments in the territorial sea of the Falklands (Malvinas) fall under the territorial scope of application of the UK’s BIT (or, for that matter, under the scope of Argentina’s BITs)? Read the rest of this entry…

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Necessity in Investor-State Arbitration: The Sempra Annulment decision

Published on August 16, 2010        Author: 

Sahib Singh is a  member of the international litigation and arbitration group at Skadden and a visiting lecturer at the University of Vienna. This note was prepared before the Enron v. Argentina annulment decision became available at the beginning of August. A note on that case is forthcoming on EJIL: Talk!

On 29 June 2010, the ad hoc ICSID Annulment Committee annulled the initial award in Sempra Energy International v. Argentina, finding that the initial tribunal had exercised a manifest excess of powers. The decision is central to our understanding of necessity in international investment law, and particularly the relationship between necessity under Article XI of the Argentina-US BIT of 1991 and under customary international law. Unfortunately, the committee’s decision leaves much to be desired in terms of its interpretive methodology. The central critique of this post, is the degree of relevance the committee’s decision gives to necessity under customary international law when interpreting Article XI. It also questions the presumptive relevance of necessity under custom as an interpretive tool, when the latter can only apply if the investor does not hold substantive or procedural rights under the BIT.

Background

The investor-state arbitration awards concerning Argentina are, for the most part, centred on the Argentine financial crisis that hit the country in late 2001. As a consequence of the crisis, Argentina undertook specific regulatory measures which liquidated the value of foreign investments (the factual matrix is far more complex, but shall not be entered into here). In the spade of investment arbitrations brought by foreign investors, Argentina has argued that it is not liable under a range of BITs due to the defence of necessity. In regards to US investors, such arguments have fallen under both customary international law and Article XI of the Argentina-US BIT. The latter reads as follows:

‘This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfilment of its obligations with respect to the maintenance or restoration of international peace and security, or the protection of its own essential security interests.’

Thus far six rulings have been made on the operation of necessity under Article XI and custom. Read the rest of this entry…

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