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International Human Rights Law, Investment Arbitration and Proportionality Analysis: Panacea or Pandora’s Box?

Published on January 7, 2014        Author: 

GuntripEdward Guntrip is a Lecturer in Commercial Law at the University of East Anglia.

Investment law jurisprudence has failed to fully explore the relationship between international investment law and international human rights law (for example, see the cursory examination given in Vivendi v. Argentina para 262 and Pezold v. Zimbabwe Procedural Order 2 paras 57 – 59). As a result, the question of how to approach normative conflict between principles drawn from these regimes remains pertinent when resolving investment disputes with human rights implications. Proportionality analysis has been proposed as a suitable methodology for the resolution of this type of normative conflict (see Schill, ‘Cross-Regime Harmonization through Proportionality Analysis: The Case of International Investment Law, the Law of State Immunity and Human Rights’ 27 ICSID Review – FILJ (2012) 87). The use of proportionality analysis received tacit support when an ICSID arbitral tribunal suggested ‘counterbalancing’ competing obligations drawn from international investment law and international human rights law so as to determine which should be prioritised (see SAUR v. Argentina para 332, although the ICSID arbitral tribunal did not conduct the proposed balancing exercise). Despite support for proportionality analysis, the employment of this methodology by investment tribunals to resolve conflicts between investment protection standards and obligations sourced from international human rights law should be approached with caution. Whilst proportionality analysis is attractive as a concept, its application in instances of inter-regime normative conflict remains problematic.

Proportionality analysis is a legal construct that provides a methodology for decision makers to balance conflicting rights and interests by using a three-stage test. Initially, the decision maker must determine whether the measure giving effect to the interest being prioritised is capable of achieving its objective.  If so, the focus turns to whether the measure is necessary to achieve its end, or whether a less restrictive, but equally effective measure could be used. Finally, the decision maker addresses proportionality stricto sensu. This final stage evaluates whether the effects of the measure adopted are excessive compared to the competing right or interest that has been infringed. The decision maker should appraise the weight of each interest before a determination is made regarding whether the means used achieve their aim.

The application of proportionality stricto sensu is the most problematic aspect of proportionality analysis. Read the rest of this entry…

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Comparative Public Law Methodology in International Investment Law

Published on January 3, 2014        Author: 

In my last post I argued that investment law should be reconceived as a system of public law adjudication in order to react to current criticism. The debate over the role of public law in investment arbitration has resounded in other discussions in this forum. It requires understanding arbitration not only as a dispute settlement mechanism, but also as a form of global governance; understanding arbitrators not only as agents of the parties, but also as trustees of the international community; interpreting investment treaties in light of their global implications; and increasing transparency and third-party participation. In other words: Public law rationales should guide the practice of investor-State arbitration.

This framework has important methodological consequences. Under a public law approach to international investment law, parallel problématiques in domestic public law and in other international legal regimes should be studied in order to resolve investor-State disputes in ways that are acceptable to all stakeholders. Comparative public (administrative, constitutional, and international) law, in particular, should become part of the standard methodology of thinking about and interpreting international investment treaties.

Problems with Classical Methods of Treaty Interpretation

Comparative public law is particularly useful because traditional methods of treaty interpretation and reliance on customary international law, while not irrelevant, face significant limits in international investment law. Although numerous inter-State claims commissions existed in the 19th and early 20th centuries, the jurisprudence of these bodies often concerns issues that are different from problems faced by modern regulatory States. Likewise, traditional methods of treaty interpretation often are too vague to guide the application of international investment treaties. In interpreting, for example, fair and equitable treatment provisions, an interpretation of the ordinary meaning may replace the terms “fair and equitable” with similarly vague and empty phrases such as “just,” “even-handed,” “unbiased,” or “legitimate,” but does not succeed in clarifying the standard’s normative content, nor does it indicate what is required of States in specific circumstances. Read the rest of this entry…

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Of Rights and Powers: Waiving Investment Treaty Protection

Published on December 9, 2013        Author: 

BartBart L. Smit Duijzentkunst is a PhD Candidate at Gonville and Caius College, University of Cambridge.

In November, the media reported that Colombia intends to ask foreign investors vying to construct a $26 billion road project to waive their power to bring claims under an investment treaty. Instead, the dispute would have to be resolved through domestic arbitration.

Until now, the question of a waiver of investment rights remained a mere academic exercise. It ties in with the lively debate, including here on EJILTalk!, over the position of the investor enjoying investment treaty protection—in particular whether investors can be considered right holders under investment treaties. Over the last few years, arbitrators (see here, here and here), advocates (see, for example, here and here) and academics (see, inter alia, here, here, here, here, here and here) have all had their say on this issue.

Now it seems that the debate over a waiver will move from theory into practice. Yet before we push theory to the side, I would like to suggest that, in this case, it can help us to identify, if not the answers, at least the correct questions to ask in this debate. Read the rest of this entry…

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The Public Law Paradigm in International Investment Law

Published on December 3, 2013        Author: 

In my last post, I discussed the virtues of investor-State arbitration and suggested that this dispute settlement system could react to current criticism by reconceptualizing the system from within. To succeed, a reconceptualized system would have to provide an accountability mechanism to implement the rule of law that produces results similar to those of other accountability mechanisms for the control of government authority, whether at the national or the international level. Thinking of investor-State arbitration as a mechanism that is similar to judicial review, and adopting the methods and results of such mechanisms, in my view, is the key to reforming international investment law. This means appreciating international investment law as a public law discipline and an instrument of global governance.

Prevailing Mindsets in Investment Treaty Arbitration

Yet, in practice the view prevails that investor-State arbitration is primarily a mechanism to settle individual legal disputes. In fact, lawyers with either a commercial arbitration or a public international law background –the two approaches that most actively shape international investment law and arbitration at present – stress such a limited function of arbitration, while having divergent views on what the rule of law may mean in this context. Those coming from commercial arbitration tend to stress the private nature of dispute settlement; for them the rule of law means faithfulness to party consent, party autonomy, and sanctity of contracts. Public international lawyers, by contrast, tend to emphasize the embeddedness of investment treaty arbitration in a public world order that imposes constraints on State conduct under international law. Their idea of the rule of law is connected more strongly to the idea of limiting the exercise of public authority by procedural and substantive conditions, but their thinking often remains grounded in an inter-State context.

Responding to the Public Law Challenge

Yet, neither a pure international law understanding nor a pure commercial law understanding of investor-State arbitration appears sufficient in itself to comprehend the specific characteristics of international investment law and the challenges the system faces. These challenges, I submit, stem from a disconnect between a broadly held view of the role of investor-State arbitration, on the one hand, and the details of its actual functioning, on the other. It is widely expected that investor-State arbitration should fulfill a role similar to that of judicial review under domestic administrative and constitutional law, subjecting host State public authority to an understanding of the rule of law that focuses chiefly on restrictions in the relations between public and private actors. However, arbitral review of public authority as actually implemented does not conform to public law standards. Specifically, the requirement that the reviewing powers themselves meet public law standards of the rule of law and democracy is absent. Neither commercial arbitration nor public international law approaches can grasp these challenges adequately because they do not sufficiently capture the public law nature of international investment law. Read the rest of this entry…

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The Virtues of Investor-State Arbitration

Published on November 19, 2013        Author: 

In my last post I discussed the different options for reforming investor-state dispute settlement put forward in a recent UNCTAD policy paper and argued that enacting institutional reforms without addressing substantive law is unlikely to fully address investment law’s legitimacy problems. Instead, I suggested that the current regime could be reformed from within, that is, by arbitrators bringing their conduct in line with public law values, in particular the idea of the rule of law. Today, I want to discuss the virtues of investor-State arbitration in order to show why reforming this institution from within, rather than restricting access to it, or completely overhauling it, makes sense.

The Importance of Individual Recourse to Investor-State Dispute Settlement

Investor-State arbitration is important because, above all, it offers foreign investors a mechanism to hold States accountable for breaches of the promises they make in investment treaties. This transforms investment treaties from political declarations into readily enforceable rules to stabilize investor-State relations. Conversely, from the host State’s perspective, the investor’s access to arbitration enables States to make the commitments vis-à-vis foreign investors under investment treaties credible. This, in turn, reduces the political risk of foreign investment, lowers the risk premium connected to it, and makes foreign investment projects more cost-efficient. This benefits investors and host States, as the products and services offered become cheaper.

Certainly, the credibility of commitments of the host State is not only a matter of the availability of dispute settlement. Reputation, community pressure, the moral obligation to keep promises, or host States’ self-interest may also contribute to its living up to promises made in investment treaties. A host State will also be restrained in its treatment of foreign investors as mistreatment of one investor may keep others from investing. Yet, such mechanisms only work imperfectly because host States can benefit by unilaterally breaching their original obligation after an investor has made its investment, for example the construction of a power plant or factory, by imposing additional obligations or even expropriating the investment. For host States to make credible commitments and to offer ways to be held accountable, independent third-party dispute settlement mechanisms are necessary.

Domestic and International Fora and Their Limits

Such mechanisms can be set up at the domestic and/or the international level. However, host State courts are often not well-positioned to enforce governments’ promises vis-à-vis foreign investors. Read the rest of this entry…

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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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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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