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The Empire Strikes Back: Yukos-Russia, 1-1

Published on May 26, 2016        Author: 

In the latest chapter to the ever fascinating Yukos dispute, Russia recently secured a victory in the District Court of The Hague, which set aside the US $ 50 billion awards issued two years ago by an arbitral tribunal constituted under the Energy Charter Treaty (ECT). The crucial issue was whether Russia was bound to arbitrate under the ECT’s provisional application clause. The arbitral tribunal, comprised of Y. Fortier, C. Poncet, and S. Schwebel, said ‘yes’; three Judges of The Hague District Court, D. Aarts, I.A.M. Kroft and H.F.M. Hofhuis, said ‘no’. It will be argued here that the District Court put too much emphasis on the domestic constitutional legality of the ECT’s provisional application, at the expense of investors who were entitled to believe that Russia had agreed to such provisional application.

Earlier Episodes of the Dispute

The dispute between the now defunct oil company Yukos and Russia has grown into a protracted legal battle, involving a number of investment arbitration tribunals, the European Court of Human Rights, and domestic courts in various jurisdictions. At one point the largest oil company in Russia, Yukos was liquidated in 2006 by the Russian authorities in the process of enforcing tax reassessments, which allegedly demonstrated that Yukos had engaged in large-scale tax evasion. According to Yukos and many international observers, the tax reassessments were a pretext for regaining control over the Yukos imperium and bringing down its influential CEO Mikhail Khodorkovsky.

Foreign shareholders of Yukos have brought investment arbitration claims against Russia under various treaties, including the 1989 UK-Russia BIT (award), the 1991 Spain-Russia BIT (award), and the ECT. The investors have been largely successful, obtaining their biggest win on 18 July 2014, when a tribunal constituted under the auspices of the Permanent Court of Arbitration issued three awards granting a total of US $ 50 billion to the claimants, on the ground that Russia had breached the expropriation provision of the ECT (Article 13). These awards have now been set aside by The Hague District Court (some reactions here and an analysis of the consequences here).

Provisional Application

Whereas previous battles focused on whether the Russian tax reassessments and subsequent enforcement measures were mala fide, the crucial issue at the current stage is whether the arbitration clause of the ECT (Article 26) was actually applicable with regard to Russia, which signed but never ratified the treaty, and withdrew from it in 2009 (not the only Member State to do so).

Pursuant to Article 45 ECT, a signatory State agrees to apply the treaty provisionally ‘pending its entry into force’, ‘to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’ (para. 1) and if that State had not objected to provisional application at the moment of signing (para. 2(a)). Given the fact that Russia had not issued such an objection (unlike Norway, Iceland and Australia), the dispute focused on whether a provisional application of the ECT was consistent with Russian law.

Consistency of What: the Piecemeal v. the All-or-Nothing Approach

In spite of its apparently casual wording, Article 45(1) or ‘the Limitation Clause’ raises complicated questions of interpretation. A first point of disagreement between the arbitral tribunal and the Hague District Court is what exactly needs to be consistent with Russian law: the idea of provisional treaty application as such, or the provisional application of specific treaty provisions. According to the court (5.18), the issue of consistency should be assessed separately for any treaty provision to be applied provisionally (‘piecemeal approach’), and not for the entire treaty as a whole (‘all-or-nothing approach’), as the tribunal had found (like the tribunal in Kardassopoulos v. Georgia). While the tribunal and the court emphasized different textual elements of Article 45(1), their conclusions also demonstrate different preoccupations. According to the tribunal, the piecemeal approach would ‘create unacceptable uncertainty in international affairs’, allowing a State to opt out of provisional application at any time, in particular after a dispute had arisen (para. 315 Interim Awards). The court, on the other hand, emphasized that Article 45(1) serves to avoid conflicts between domestic law and international obligations (5.19). The provision might indeed cause some uncertainty, but this was the choice of the States party to the ECT and apparently justified by the wish to prevent inconsistencies between international and domestic law.

What Constitutes an Inconsistency?

On the basis of its piecemeal approach, the Hague District Court focused on whether the arbitration clause of the ECT was consistent with Russian law. In this context, the Yukos shareholders argued that an inconsistency between Article 26 and domestic law could only exist in the form of an explicit prohibition under Russian law. The court took a wider approach, ruling that a provisional application of the ECT’s arbitration clause would also be inconsistent with Russian law if there would be no legal basis for this type of dispute settlement. The court would also find an inconsistency if investor-state arbitration did ‘not harmonise with the legal system’ or if it were ‘irreconcilable with the starting points and principles that have been laid down in or can be derived from legislation’ (5.33).

Applying this framework of analysis, the court found that Russian law did not provide ‘a separate legal base’ for investor-State arbitration (5.58). It did not attach much weight to the fact that in 1996 the Russian government had stated that the provisions of the ECT were ‘consistent with Russian legislation’ (5.60). Instead, the court pointed at the history of the ratification of some other investment treaties, demonstrating a parliamentary concern that Russian law did not contain a legal basis for investment arbitration (5.64).

State Sovereignty v. the Legitimate Expectations of the Investor

Provisional application is an exception to the normal rules on how treaties enter into force (reports of the ILC’s Special Rapporteur here). Whereas the period between signing and ratifying normally allows States to reconsider the matter and verify whether domestic law needs to be adapted, a provisional application provision purports to bind States already while these assessments are being made. This is a serious intrusion into State sovereignty, which explains why the ECT contains a Limitation Clause and why it allows signatories to opt out by means of a declaration.

State sovereignty, however, is not the only interest at stake in the context of provisional application, and needs to be balanced against the legitimate expectations of other parties and, in the case of the ECT, investors. When Russia signed the ECT without making a declaration under Article 45(2), it might be thought that it created a presumption of compatibility between the ECT and domestic law. Neither the tribunal nor the court followed the shareholders’ argument that the absence of a declaration under Article 45(2) precluded Russia from invoking the Limitation Clause. However, Russia’s choice not to signal any objections to provisional application but to wait until a claim was filed, sheds doubts on the credibility of the defence. This is even more problematic because the alleged inconsistency concerns ambiguous provisions that seem to allow for legitimate disagreement as to whether they allow investor-State arbitration.

The Hague District Court put a strong emphasis on the importance of the domestic separation of powers. Noting that only the Russian Parliament possesses legislative powers, the court concluded that parliamentary approval was necessary for the creation of a form of dispute resolution which did not have a legal basis in Russian law (5.93). This argument seems to revert back to the question of whether the principle of provisional application is acceptable as such. One could reply that the choice to adopt a provisional application provision in a treaty already means that the signatory States temporarily circumvent the domestic separation of powers, and that they may have good reasons to do so.

Tribunals v. Courts

It is tempting to consider other, more fundamental reasons why the Hague District Court might have decided to set aside the awards. First, since Article 45(1) makes provisional application conditional on domestic law, the court may have felt a need to defer to Russia’s interpretation of its own laws and to follow its argument of inconsistency. Second, it is probable that a court in the Netherlands – with its strong tradition of parliamentary sovereignty – is relatively susceptible to Russia’s arguments concerning the domestic separation of powers. Third, and perhaps most importantly, it is striking that the arbitral tribunal on the one hand and the District Court on the other seem to approach the State in a different manner. The court appears well-disposed towards the State, sharing Russia’s alleged concern over the domestic constitutionality of the provisional application of the ECT, whereas the tribunal is more critical, suggesting doubts as to whether Russia’s invocation of Article 45(1) is sincere and credible. Arguably, the different approaches demonstrate differences between the preoccupations of arbitral tribunals and courts (not only within host states) and the ways in which they balance State sovereignty against investor interests.

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Extra-Territorial Claims in the “Spider’s Web” of the Law? UK Supreme Court Judgment in Ministry of Defence v Iraqi Civilians

Published on May 25, 2016        Author: 

Over the past decade, the direction of travel of jurisprudence by English courts has significantly departed from an earlier position that considered the acts of the UK government in the exercise of foreign relations to be a non-justiciable area, and shifted towards scrutiny of the impact of UK foreign policy decisions on individuals (see Al Rawi v Secretary of State for Foreign and Commonwealth Affairs [2008] QB 289; the Binyam Mohamed case, and more recently the discussion of crown act of state doctrine in Serdar Mohammed v Secretary of State for Defence). After all, as stated by Lord Sumption back in an address at the London School of Economics in 2012, “the acts of the executive are by definition justiciable in its own courts”. The most significant factor for such a shift, as Lord Sumption noted, was the enactment into English Law of the European Convention on Human Rights (“ECHR”).

Despite this shift in the judicial attitude with regard to review of acts of the executive in foreign affairs, jurisdictional issues (ratione temporis) and time bars are proving to be hurdles in the path of claimants bringing claims with regard to acts engaged in by the UK government extraterritorially. The recent Supreme Court decision in Keyu and others v Secretary of State for Foreign and Commonwealth Affairs  [2015] UKSC 69 (“the Batang Kali massacre case” on which see this previous post) dealt with a temporal jurisdictional obstacle. The Supreme Court’s 12 May 2016 decision in Ministry of Defence (Respondent) v Iraqi Civilians (Appellant) [2016] UKSC 25 (“The Iraqi civilians case”) is another example of a hurdle faced by claimants, this time in the guise of a time bar.

While the Batang Kali massacre case was concerned with the Supreme Court’s interpretation of public international law rules, (quite centrally, with the duties Article 2 ECHR imposes on the UK in the context of inquiries), the decision in the Iraqi civilians case concerned English private international law, and turned on a point of interpretation of The Foreign Limitation Periods Act 1984.

In the Iraqi civilians case, the Supreme Court gave judgment in relation to 14 lead claimants (in claims by over 600 Iraqi citizens), who had alleged unlawful detention and/or physical maltreatment at the hands of British armed forces in Iraq between 2003 and 2009.

The Supreme Court held, applying Iraqi limitation law, that the claims of the Iraqi civilians in England were time-barred. It dismissed the appeal. This post addresses the central holding of this case. Read the rest of this entry…

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Is there a place for sovereign immunity in the fight against terrorism? The US Supreme Court says ‘no’ in Bank Markazi v. Peterson

Published on May 19, 2016        Author: 

The US Supreme Court’s judgment of 20 April 2016 in the case of Bank Markazi, aka The Central Bank of Iran, Petitioner v. Deborah Peterson, et al. highlights the increasingly isolated nature of US practice on sovereign immunity. As well as addressing issues of constitutional law, the judgment is also significant from an international law perspective; the highest jurisdiction of the US took a dangerous step toward the effective application of its terrorism exception to sovereign immunity.

The terrorism exception was introduced to the Foreign Sovereign Immunities Act of 1976 (FSIA) by an amendment made in 1996, and then further revised in 2008.  28 U.S.C. §1605A reads:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case […] in which money damages are sought against a foreign state for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act if such act or provision of material support or resources is engaged in by an official, employee, or agent of such foreign state while acting within the scope of his or her office, employment, or agency.

The court can hear a case under this provision provided the foreign State has been designated as a State sponsoring terrorism by the Department of State and the claimant or the victim was at the time of the act a US national. This law aims at providing justice for victims through massive civil liability judgments, punishing foreign States committing or sponsoring terrorism, and discouraging them from doing so in the future.

In this post I focus not on the content of the judgment, but rather on the impact of US practice, which has recently seen all assets of the Iranian Central Bank located in the US subject to execution, on international law. Read the rest of this entry…

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A Comment on Croatia’s Concerns over Serbia’s So-Called “Mini-Hague”

Published on April 22, 2016        Author: 

As recently reported, Croatia has blocked the opening of Chapters 23 and 24 of the accession negotiations between Serbia and the European Union (EU). One of the reasons given relates to Serbia’s law establishing the jurisdiction of Serbian prosecutors and courts over war crimes committed anywhere on the territory of the former Yugoslavia. Justifying their actions, Croatian officials have said that Serbia must follow “European standards”, with some Croatian officials and media reports referring to Serbia’s extension of jurisdiction as the creation of a “mini-Hague” (a media report in Serbo-Croatian is available here). Croatia has asserted that such jurisdiction is incompatible with international law and that it actually constitutes a “hybrid”, rather than universal, jurisdiction (available here in Serbo-Croatian). From the perspective of States whose national legislation provides for universal jurisdiction over international crimes, the issues arising here are quite interesting.

The involvement of the European Commission and its request that the Croatian government cease its opposition has added further complexity to the matter. In a ‘non-paper’, the European Commission has expressed its opinion that the arguments advanced by Croatia are not justified. Commenting on the document, a Croatian official has described it as an old document meant for internal use, and one that the Croatian public should not be bothered with.

Jurisdiction over Croatian Nationals

Croatia’s criticism seems to be aimed at the statutory provisions themselves. In particular, Croatia takes issue with Article 3 of the Serbian Law on Organization and Jurisdiction of State Organs in War Crimes Proceedings, which provides:

The government authorities of the Republic of Serbia set out under this Law shall have jurisdiction in proceedings for criminal offences specified in Article 2 hereof, committed on the territory of the former Socialist Federative Republic of Yugoslavia, regardless of the citizenship of the perpetrator or victim. (An older English version of the law is available here; the quoted provision remains unchanged.)

Croatia thus appears concerned with the possibility of Serbia exercising its jurisdiction over Croatian nationals. No accusations of discriminatory or systematic prosecutions by Serbian prosecutors against Croatian nationals have been advanced by Croatia.  To date, universal jurisdiction has not been extensively used to prosecute foreign nationals for war crimes allegedly perpetrated in the Yugoslav conflict; reported cases include both an acquittal and a rejection of a request for extradition (for the reason of an allegedly politically motivated process) of two Bosnians. In 2015, a Croatian national sentenced in Serbia for war crimes was transferred to serve his sentence in Croatia.

Compliance with “European Standards” and International Law

The Croatian government is targeting a particular statutory provision, which in its opinion, marks Serbia’s intention to act as a “regional policeman”. Read the rest of this entry…

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The Bashir Case: Has the South African Supreme Court Abolished Immunity for all Heads of States?

Published on March 29, 2016        Author: 

Earlier this month, the South African Supreme Court of Appeal decided unanimously (see the judgment here) that the South African government had breached its obligations under the South African domestic statute implementing the Rome Statute of the International Criminal Court (ICC), and under the Rome Statute, by failing to arrest and detain for surrender to the ICC Sudanese President Omar Al-Bashir. Bashir visited South African in June 2015 to attend the African Union summit held there. As will be explained below, although the decision was ultimately based on domestic law, it is potentially very far reaching in the effect that it will have in South Africa and possibly internationally. In summary, the Court held that under the South African Implementation of the Rome Statute of the ICC Act 2002, any head of State subject to an ICC arrest warrant may be arrested in South Africa and surrendered to the ICC. However, the Court also held that under the same Act international law immunities, including the immunity of heads of states, do not apply under South African law when a person is sought for domestic prosecution in South Africa for genocide, war crimes and crimes against humanity. This aspect of the decision is particularly remarkable given that the same South African Act provides for universal jurisdiction over those crimes, and the South African Constitutional Court held in 2014 that the South African Police Service may commence an investigation of these crimes even if the person is not present on South African territory. Although the aspect of the Bashir decision relating to domestic prosecution in South Africa, is in my view obiter and not part of the ratio decidendi of the decision, if it stands, it means that South Africa would be a very rare example of a State that claims the authority to prosecute serving heads of state for international crimes.

The lead judgment of the South African Supreme Court of Appeal was given by Wallis JA, with whom two judges concurred. A further two judges concurred in the result but agreed with the lead judgment only in in so far as it was based on South African ICC Implementation Act. Read the rest of this entry…

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CETA’s New Domestic Law Clause

Published on March 17, 2016        Author: 

The recent, widely-reported ‘legal scrub’ of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) has drawn attention for its endorsement of a radical shift away from the model of investor-state dispute settlement that has prevailed in investment agreements to date. The new text indicates that Canada has agreed to the EU’s proposals on an investment court system, with a permanent roster of arbitrators appointed by Canada and the EU, rather than ad hoc tribunals whose members are appointed by the disputing parties themselves. In another innovation, CETA will also include an appeals mechanism, which will have power to review the merits of first-instance rulings, going beyond the limited grounds for annulment of awards in the existing ICSID system.

Alongside these revolutions, the new CETA text also contains another change from the earlier text. Under the heading of ‘Applicable law and interpretation’, Article 8.31(2) of the new text provides:

The Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of the disputing Party. For greater certainty, in determining the consistency of a measure with this Agreement, the Tribunal may consider, as appropriate, the domestic law of the disputing Party as a matter of fact. In doing so, the Tribunal shall follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party and any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party.

Although the provision is new in CETA, it has also recently appeared in the EU-Vietnam FTA and in similar language in the EU’s November 2015 TTIP proposals. While this might suggest that the provision is a recent invention of the EU, its inspiration in CETA could equally have come from Canada, which included a similar provision in its 2008 FTA with Colombia. In fact, Colombia itself appears to have first spearheaded the provision, including language on domestic law broadly similar to the provision’s first sentence in its 2007 Model BIT and in agreements signed as far back as 2006 with Japan, the UK, India, Belgium, China, Peru and Switzerland. Read the rest of this entry…

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New German Constitutional Court Decision on “Treaty Override”: Triepelianism Continued

Published on February 29, 2016        Author: 

By Court order of decision of 15 December 2015 (2BvL 1/12), published only recently, the German Constitutional Court (second Senate) has confirmed the practice of treaty override in tax law. The euphemism “treaty override” means that the German legislator adopts a law which violates a prior international treaty (often a treaty on double taxation). The Federal Tribunal on Finances (Bundesfinanzhof) had doubts about the constitutionality of this practice. It was convinced that a recent amendment of the Income Tax Act which is incompatible with a German-Turkish dual taxation treaty of 1985 is unconstitutional, exactly because it violates the treaty.

If in a pending judicial proceeding, a German court is convinced that a legal provision, which it needs to apply to resolve the case under scrutiny, is unconstitutional, that court must stay the proceeding and pose a reference question on the law’s constitutionality to the German Constitutional Court (Art. 100(1) German Basic Law). Such a reference procedure guarantees that the Constitutional Court retains the monopoly for declaring a law unconstitutional, and is thus a hallmark of the concentrated system of constitutional control in Germany.

Translation into constitutional questions
The judicial proceeding under Art. 100(1) Basic Law is available only for questions of constitutionality, not for questions of compatibility with international law. This worked, because the courts involved in fact “translated” the question of the relationship between international law and domestic law into a constitutional law question of the separation of powers and of constitutional principles: rule of law versus democracy.

The Federal Tribunal on Finances deemed the treaty override unconstitutional for violation of the rule of law and of the German constitutional principle of “friendliness towards international law” (“Völkerrechtsfreundlichkeit”).

The Constitutional Court did not follow this view. It opined that the constitutional principle of democracy (which includes the principle of discontinuity of parliament following elections) demands that the German Parliament is free to change its mind and to make or amend a law even if this violates an international treaty which had been ratified by a previous Parliament (Order of 15 Dec. 2015, paras 53-54). Read the rest of this entry…

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The United Kingdom Ministerial Code and International Law: A Response to Richard Ekins and Guglielmo Verdirame

Published on December 11, 2015        Author: 

Until very recently, little attention had been paid by academic international lawyers to the United Kingdom’s Ministerial Code (though see this discussion of the role of the Code with respect to legal advice relating to the Iraq War of 2003). The Code, is a document issued by the Cabinet Office, but effectively by the Prime Minister. It sets out the standards of conduct expected of ministers with respect to the discharge of their duties. As was recently stated in this House of Commons Briefing Paper on the Code [p.3],”It has become the convention for the Code to be released at the beginning of a new administration and at a new Parliament.” Paragraph 1.2 of the 2010 version of the Code (as well as some earlier versions) stated that the Code was to be read against “the background of overarching duty on Ministers to comply with the law including international law and treaty obligations . . .” However, in October 2015, Paragraph 1.2 was changed to state that: “The Ministerial Code should be read against the background of the overarching duty on Ministers to comply with the law . . .” without any reference to international law or treaty obligations. Much has been written in the British media and in legal blogs about this change (see here for posts on the UK Constitutional Law blog and here, here and here for pieces in the Guardian and on the BBC).

This post responds to just one of the pieces that have been written in support of the change. We argue that the position set out in the piece by our colleagues, Richard Ekins and Guglielmo Verdirame (and in a twin piece by the same authors) misconceives the role of the reference to international law in the previous version of the Ministerial Code; misunderstands the relevance of international law to the rule of law; and goes too far in drawing a distinction between the binding force of international law on the state and on state officials. Read the rest of this entry…

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The (Non-)Judicialisation of War: German Constitutional Court Judgment on Rescue Operation Pegasus in Libya of 23 September 2015 (Part 2)

Published on October 22, 2015        Author: 

Editor’s Note:  This is the second of two posts discussing the ‘Rescue Operation Pegasus’ Judgment of the German Federal Constitutional Court.

4. Assessment

The legal reasoning of the German Federal Constitutional Court in the Rescue Operation Pegasus Judgment is quite obviously inspired by the desire to avoid impractical results. It is somewhat in tension with the Court’s insistence on an otherwise joint and unified power of Government and Parliament (“Entscheidungsverbund”; para. 83).

Still, I find the teleological argument fully convincing: On the premise that Parliament has the war power because it is supposed to co-decide in the face of political and military risk but not to assess the lawfulness of the operation, an ex post “ratification” does not make sense.

Importantly, in the different factual situation of an ongoing operation, parliamentary approval would have to be sought, and its refusal would deploy its effect ex nunc and oblige Government to withdraw troops (para. 87).

It is also worth noting, that – like a counter-point to the actual holding against Parliament − the Court by way of dicta highlighted and strengthened parliamentary powers in numerous respects. Read the rest of this entry…

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The (Non-)Judicialisation of War: German Constitutional Court Judgment on Rescue Operation Pegasus in Libya of 23 September 2015 (Part 1)

Published on October 21, 2015        Author: 

Editor’s Note: This is the first of two posts discussing the ‘Rescue Operation Pegasus’ Judgment of the German Federal Constitutional Court.

In the middle of the civil war in Libya in 2011 (before the start of the UN authorised military operation), the German Chancellor, following the proposals made by the Ministers of Foreign Affairs and of Defence, decided to evacuate 132 persons (German and other civilians) from an industrial camp in Nafurah, 400 km south of Benghazi. The operation – dubbed “Operation Pegasus” – succeeded without any combat action.

Subsequently, a group of members of the German Bundestag seized the German Federal Constitutional Court and argued that the constitutional and statutory division of powers among the Executive and the Legislative branch when it comes to deciding about military action not only demands parliamentary ex ante approval but also, in those urgent cases where the Executive is allowed to decide on its own, requires a formal ex post approval. This claim was rejected by the Court (judgment of the Second Senate, 23 September 2015, No. 2 BvE 6/11).

1. The legal framework and background

Germany is probably the state with the most detailed legal regime on parliamentary involvement in decisions on the use of military force abroad. Read the rest of this entry…

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