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A Critique of the Legitimate Expectations Doctrine in Investment Treaty Arbitration

Published on September 16, 2013        Author: 

Yenkong Ngangjoh-HoduDr Yenkong Ngangjoh Hodu is a Senior Lecturer in Law at the University of Manchester School of Law.

In recent years, the concept of ‘legitimate expectations’ has routinely been put forward by claimants as the basis of claims in investment treaty arbitrations, and endorsed by some arbitrators (see International Thunderbird Gaming Corporation v  United Mexican States, Separate Opinion of T. Walde, para. 37). Relying on ‘legitimate expectations’ that have been frustrated as grounds for an award is troubling, and in the words of a recent EJIL article by Martins Paparinskis “suggest[s] a radical departure from the traditional model of international responsibility”, and may even be tantamount to deciding ex aequo et bono [(2013) 24 EJIL 617, 628]. Tribunals have regarded the doctrine of legitimate expectations as  a part of the fair and equitable treatment standard provided for in investment treaties (see Sempra Energy International v Argentine Republic, pp. 87-88 at para. 298). This is incongruous with the law of state responsibility where the breach of a contract between a state and an alien is not necessarily a violation of international law (Article 4, ILC Articles on State Responsibility). Apart from references to precedent, investment tribunals have, in the majority of cases, hardly taken the pain to justify the overwhelming reliance on legitimate expectations in making awards (Anthea Roberts, 104 AJIL 2010).

Legitimate expectations presuppose that an agreement or a promise generates a certain level of expectations, known as legitimate expectations. It is still unclear what exactly will give rise to legitimate expectations and under what conditions such expectations require unhindered protection. The most popular use of legitimate expectations in domestic jurisdictions (England and Australia) has been in the area of administrative law and more precisely, concerning issues of judicial review. In this context, the basic test for legitimate expectations is the prior existence of a promise (R (Bibi) v London Borough of Newham [2001] EWCA Civ 607) that needed protection by a public authority (Wheeler v Office of the Prime Minister [2008] EWHC 1409). Similarly, in German law the doctrine is connected to the protection of trust (for instance, Article 38 of the German code on Administrative Procedure).

However, in the context of investment arbitration, legitimate expectations is somehow seen as an incentive for foreign investors to settle on a particular investment destination based on a legal structure and representations made by the receiving state. Read the rest of this entry…

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The Course Catalogue of The Hague Academy as a Timeline of International Law

Published on August 26, 2013        Author: 

Sadie BlanchardSadie Blanchard is a Research Fellow at the Max Planck Institute for International, European and Regulatory Procedural Law.

The Hague Academy of International Law (logo, below right, credit) has offered annual courses in public and private international law for eighty-five years as part of its founding objective of promoting “peace through law.” This year’s courses on public international law ended in July and the private international law courses ended this month. Each year the public international law course attracts students from up to eighty countries worldwide, with this year’s hosting a record number of nearly 350 students. The 2013 General Course on Public International Law was delivered by Professor James Crawford (Cambridge) and was titled “The Course of International Law. Practice and Process of the Law of Nations”. Other courses in 2013 included a course by Professor Eyal Benvenisti (Tel Aviv), “The International Law of Global Governance”; a course by Professor Robert Kolb (Geneva) on “Article 103 of the United Nations Charter;” and a course by Professor Anna Wyrozumska (Lodz)  on “The Role of Domestic Judges in the Development of International Law“.

The form and content of Academy courses over the years reflect the evolution of international law and the unfolding of global affairs, and at times Academy courses have even been harbingers of things to come. This post highlights a few examples.

After over forty years of holding courses only in French—then the language of diplomacy—Hague Academywhen the Academy reconvened in 1947 after a hiatus during World War II, it offered its first courses in English, reflecting the rise of U.S. global power after the war. That same year, as the UN General Assembly drafted and considered the Universal Declaration of Human Rights, Hersch Lauterpacht taught The International Protection of Human Rights. The Universal Declaration was adopted the following year.

Interestingly, while among States human rights did not gather steam as an international legal doctrine until after World War II, the courses of The Hague Academy remind us that international law scholars were laying its foundation well before then. Read the rest of this entry…

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Fair and Equitable Treatment: A Rejoinder to Martins Paparinskis

Published on August 16, 2013        Author: 

I don’t think that there’s all that much between Martins Paparinskis and me.   I certainly don’t decry the difference between treaty and custom in this field, or the important part that both play in encouraging investment and in the not inconsiderable task of balancing in that regard the interests of investors and the prerogatives of governments.

But Martins’s responses, valid as they all are, don’t provide an answer to my question, which is how his analysis helps in solving the individual dispute before the individual arbitral tribunal.   It may of course be that there will be cases (though I wouldn’t care to put a statistical probability on their likelihood) in which it can be conclusively established that the treaty Parties definitely did decide that what they wanted to have applied was the customary law standard (whatever that might be), or that they definitely didn’t want that but something else.   But in the normal run a tribunal is confronted with a general standard of protection expressed by agreement in treaty language.   The choice is whether that should be taken to mean what it says, or as hidden code for something else, and to that choice the Vienna Convention gives a clear answer in Articles 31(1) and 31(4). Read the rest of this entry…

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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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