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Home International Tribunals Archive for category "Investor-State Arbitration Tribunals" (Page 8)

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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Investment Treaty Arbitration and the (New) Law of State Responsibility

Published on October 21, 2013        Author: 

Martins PaparinskisI am grateful to EJIL:Talk! for hosting the discussion of my article and chapter. I am privileged to have Anastasios Gourgourinis, Jessica Howley, and Robert Howse as discussants. In the following paragraphs I summarise the main arguments made in the article and the chapter.

The starting point of the argument is that investment law partly borrows and partly diverges from pre-existing regimes of international law. An interpreter of an investment protection treaty is required to determine the degree of similarity and difference so as to elaborate the meaning of particular terms, broader systemic structures, and underlying secondary rules. In order to situate investment protection law within the broader international legal order, an interpreter might draw upon multiple legal techniques from established legal regimes. Within the four corners of international law reasoning, the models of direct rights, beneficiary rights, and agency are the most plausible, relying on techniques drawn from, respectively, the law of human rights, law of treaties on third parties, and diplomatic protection. A firm position regarding the legally most plausible model will not be taken. Instead, the implications of relying on the techniques of those regimes will be spelled out, applying across different branches of international law.

The EJIL article under discussion examines whether and how the invocation of responsibility by a non-state actor has affected secondary rules of state responsibility. The shift from the state to the investor as the entity invoking responsibility for the breach of investment treaties seems to have influenced the law of state responsibility in a number of distinct ways. The apparent disagreement about the law of state responsibility may sometimes properly relate to questions of treaty interpretation, while in other cases rules from an inter-state context are applied verbatim. In yet other cases, the different perspectives lead to importantly different conclusions regarding circumstances precluding wrongfulness, elements of remedies, waiver of rights, and, possibly, interpretative relevance of diplomatic protection rules. The forthcoming chapter applies the same analytical perspective to the law of treaties, examining rules on interpretation and treaty-making through the lenses of other regimes of international law. The overall thesis is that the conceptual perspective of plausibly different readings of the genealogy of foundational structures of investment law is very important, but needs to be applied with subtlety: sometimes all the perspectives point in the same direction; sometimes they do not; sometimes they do but for very different reasons; and, in any event, a diligent application of such traditional techniques of legal reasoning as interpretation, resolution of conflicts, and analogies is just as important for reaching the right legal result.

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Discussion of Martins Paparinskis’s Investment Treaty Arbitration and the (New) Law of State Responsibility

Published on October 21, 2013        Author: 

This week we will be hosting a discussion of Martins Paparinskis’s EJIL article, Investment Treaty Arbitration and the (New) Law of State Responsibility, and his related forthcoming chapter, Analogies and Other Regimes of International Law. Martins  is a Lecturer in Law at the University College London and a book review editor of the Journal of World Investment and TradeHis article  will be subjected to careful scrutiny this week by Anastasios Gourgourinis (Lecturer, National and Kapodistrian University of Athens), Jessica Howley (DPhil Candidate, Oxford), and Robert Howse (Professor, New York University). We are grateful to all four for agreeing to have this discussion here.

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An EU-China Investment Agreement?

Published on October 15, 2013        Author: 

Notes from Glasgow #1

EU China BITMany thanks to Dapo, Marko and Iain for inviting me to contribute to EJIL: Talk! on a regular basis. It’s a great blog, and it complements my favourite international law journal, so I accept with pleasure. The first of my ‘Notes from Glasgow’ focuses on international investment law – an area of law that EJIL: Talk! has, I think it is fair to say, so far approached with a measure of caution. Investment law is exciting, though: not so much because of the number of awards produced, week by week, by arbitral tribunals. (In fact, just tracing awards quickly becomes boring.) But rather because it is such an interesting field-study in how international law evolves, how ‘exotic’ branches are rapidly mainstreamed, and how they change in the process.

The latter aspect – change in international investment law – is the theme of the following thoughts. I take my cue from a resolution passed in the European Parliament (EP) on 8 Oct 2013. (See here for the BBC’s coverage of the debate.) As was reported in the media, the EP in principle approved the start of negotiations towards a China-EU Investment Agreement, but added a number of caveats: notably, according to a useful summary by the EP Library (which condenses the resolution’s 49 recitals and thus can be quoted meaningfully), the EP wants the future agreement to “ensur[e] equality of investment environments” in China and the EU, to include binding provisions on “social responsibility, social and environmental standards”, to protect European public services, and to be negotiated with maximum transparency. All this is interesting for a number of reasons. I’ll flag four of them, hoping to return to some of them in subsequent posts. (photo above left, accompanying China’s announcement that it will seek an investment treaty with the EU) Read the rest of this entry…

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A Rejoinder to Yenkong Ngangjoh-Hodu

Published on September 20, 2013        Author: 

Thank you, Yenkong, for the thoughtful reply to my post.

Yenkong has now clarified that his original post was suggesting that a State may raise a defense (rather than a counter-claim) to a claim that it violated an investor’s legitimate expectations, on the grounds that the investor engaged in tax avoidance.  I agree wholeheartedly that an investor’s own conduct may be relevant to a determination of whether its legitimate expectations were violated. That is an uncontroversial point. However, to be relevant, the investor’s conduct must relate in some way to the State’s alleged breach such that it contextualizes or justifies the State’s actions. Where the State’s conduct would otherwise violate the applicable legal standard, it may show that its conduct was in fact an appropriate response to some action or omission of the investor. In contrast to such a circumscribed approach, Yenkong’s original post seems to argue that a State may raise a “tit for tat” defense without needing to establish the existence of a causal relationship between the investor’s tax avoidance and the State’s allegedly breaching conduct.

Further, it is still not clear to me how invoking “legitimate expectations” would advance the State’s position in such a scenario or even how that standard would become legally applicable to the investor’s conduct. Yenkong acknowledges that the fair and equitable treatment (FET) obligation on which the legitimate expectations standard is based runs one way, defining the State’s obligations to the investor. That the investor’s actions may be relevant to assessing whether the State violated its FET obligation does not imply a reversal of the direction of the obligation. It is not the objective of investment treaties to govern the investor’s obligations toward the host State. The treaties instead set out substantive obligations of the State and offer investors recourse to arbitration in order to correct a real or perceived power imbalance created by the obsolescing bargain problem and a lack of credibility of domestic courts in handling claims by foreigners. The aim is to permit the host State to make a credible commitment to protect foreign investors. The investor’s obligations toward the State, by contrast, are governed by its contract with the State (where applicable) and the host State’s laws. The State is able to pursue the captive investor for violations through its own domestic administrative, criminal, and civil processes and, where applicable, international arbitration. In short, investment treaties do not seek to protect the State’s legitimate expectations (expressly or implicitly), because there are other legal mechanisms available for that purpose.

As regards balancing the interests of the investor and the development needs of the host State as a method of interpreting the State’s substantive obligations, the treaty would have to provide a textual basis for such an approach. Read the rest of this entry…

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Legitimate Expectations in Investment Disputes: A Reply to Sadie Blanchard

Published on September 17, 2013        Author: 

Let me clarify some few points which Sadie Blanchard has disagreed with in my last post. As indicated in my last post, the fair and equitable standard from which the doctrine of legitimate expectations is derived requires the host state among other things to act in good faith and without arbitrariness towards foreign investors (See Techmed v Mexico, ICSID,  2003).  While it is clear that the state is always at the receiving end with regards to the fair and equitable treatment doctrine, the role/the conduct of the investor may not be totally irrelevant in assessing the application of the standard. Surprisingly, Sadie seems to disagree with this very simple fact despite the well settled maxim ‘Caveat Investor’.  In EDF (Services) Limited v. Romania , the tribunal stated that: “Legitimate expectations cannot be solely the subjective expectations of the investor. They must be examined as the expectations at the time the investment is made, as they may be deduced from all the circumstances of the case, due regard being paid to the host State’s power to regulate its economic life in the public interest.” (Award Merits, (8/10/2009), para. 219). Moreover, it is clearly not sufficient not to contextualise the interpretation of fair and equitable treatment when considering whether the legitimate expectation of an investor has been frustrated. Such context will obviously take into account the conduct of the claimant as well as the overall objective of the investment treaty. Surprisingly, Sadie finds this view problematic although it is not new (see Peter Muchlinski, 55 ICLQ, 2006, Garcia-Bolivar, O. CUP, (2011)).

Sadie seems to be unconvinced that the legal framework of foreign investment must protect the legitimate expectations and interests of both the investor and the host state. To Sadie, the centre of the universe in investment treaty should be the protection of the interests of the investors rather than balancing the interest of the latter and the development needs of the host state expected under any FDI. Sadie’s one-sided approach is very troubling because it is incongruous with the object and purpose of most investment treaties. Read the rest of this entry…

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The Shaky Proposition of the State’s Legitimate Tax Expectations: A Response to Yenkong Ngangjoh-Hodu

Published on September 17, 2013        Author: 

I do not share a number of Yenkong Ngangjoh-Hodu’s views about the legitimate expectations doctrine, but this response focuses on the final paragraph of his post, in which he argues that a State could somehow raise a legitimate expectations argument against a foreign investor that engages in “tax avoidance.” For the sake of clarity, I understand Yenkong to mean not tax evasion, which would violate the law of the host State and thus subject the investor to domestic criminal and civil penalties, but what has been defined as “the minimization of tax liability by lawful methods.” This is also known as “tax planning.” (Photo: Avoiding the window tax in England, credit)

I see several problems with Yenkong’s suggestion. First, as he correctly explains, the legitimate expectations doctrine is an interpretation of the fair and equitable treatment (FET) provisions contained in many investment treaties. Those provisions invariably impose a one-way obligation that governs the State’s treatment of the investor, not the reverse. This is a separate issue from whether (a) a State can invoke an investor’s actions to show that it treated the investor fairly in the circumstances (it can), or (b) a State can raise counterclaims (it can in some cases), or even (c) some treaties do or may in the future impose specific substantive obligations on investors (they likely will). However, even considering those possibilities, it is not clear on what legal ground a State would “develop” “an argument . . . that its legitimate expectations [were] frustrated.”

Second, Yenkong asserts that tax avoidance or tax planning is “incongruous with the spirit of any bilateral investment agreement.” While he makes no attempt to support this claim, it is not obviously true. BITs typically state their goals in their preambles, and I have yet to see one that refers to increasing tax revenue. Instead, they refer to promoting greater economic cooperation, stimulating the flow of private capital, fostering economic growth and development, and maximizing effective use of economic resources. It thus appears entirely possible for an investment to uphold the “spirit” of a BIT by creating new and beneficial cross-border economic activity while still minimizing its tax liability within the confines of the law.

Third, he states that, “instead of an unqualified ‘legitimate expectations’, tribunals ought to clearly take into account investor’s conduct.” There are a few problems here. He appears to have shifted from an argument that a State should be able to claim that its expectations were violated to an argument that an investor’s tax conduct might appropriately be raised as a defense to the investor’s allegation that its legitimate expectations were violated. Is he hinting at the possibility of a counter-claim (in which case, on what legal theory, since as noted above FET is a one-way obligation), or is he suggesting a defense? If the latter, as he acknowledges earlier in his post, the investor’s conduct is already considered as part of the determination of whether its alleged expectations were legitimate and whether the State’s actions thwarted them. However, it is not at all apparent in what factual situation tax avoidance/planning would be relevant to an investor’s claim that its legitimate expectations were violated. Such scenarios would certainly be rare.

Finally, assuming for the sake of argument that there were a legal foundation on which a State could raise a legitimate expectations claim, on what basis would a State allege to have developed a legitimate expectation to collect a certain level of tax beyond that legally required? It seems to me there would have to be some kind of agreement on this between the investor and the State to found a claim.

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