Bart 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.
From Argentina to Colombia
Colombia’s action is, of course, reminiscent of the Calvo doctrine, named after the 19th century Argentine jurist Carlos Calvo. At the time, Latin American states asked foreign investors to waive their ‘right’ to diplomatic protection. Home states retorted that investors did not enjoy such a ‘right’; instead, bringing a claim of diplomatic protection was a right of the home state itself, and only the latter could decide whether to exercise it or not. In the era of investment treaties, the tables seem to have turned. Investment treaties often enable investors to file claims directly at an international tribunal, without involvement of their home state. Yet as discussions in court rooms, on conference floors and law blogs demonstrate, the question of who holds these rights lingers on.
Some consider that investment treaties create direct rights for investors and that investors should thus be able to waive these rights if they so please. Others maintain that the power of the investor to bring claims merely derives from the rights of states; investors are just beneficiaries of investment treaties and should not be considered as the actual holders of rights under them. A third position takes the investor as an agent of the state—investors may enjoy certain procedural powers under investment treaties, but they are merely stepping in for their states, who remain the real right holders. In literature and case law, arguments have been developed for and against each of these positions, but no clear answer has emerged. Can rights theory shine a light on this debate?
Getting the theory right
The first step is to distinguish between the different types of entitlements that investment treaties create. Rights theorists since Wesley Hohfeld (1879-1918) have recognized the difference between, on the one hand, substantive rights that impose duties and, on the other, powers to bring claims. For example, an investor may enjoy a right to fair and equitable treatment and the corresponding power to bring a claim at an investment tribunal, in case the host state fails to comply with its duty.
Rights theory also has something to say about the holders of rights. Here, the field splits into two groups: the will theorists and the interest theorists. Will theorists argue that right holders are those who control rights, i.e. those who decide whether to enforce a right or not. Under investment treaties, it is the investor who enforces rights by bringing claims. Accordingly, the will theory could be seen as favouring investors as the proper holders of rights under investment treaties.
On the other end of the spectrum, interest theorists maintain that right holders are those who benefit most from a right—those whose interests are best served by the right. Again, the interest theory seems to point to investors as the right holders under investment treaties, as they are the most direct beneficiaries of investment treaty protection.
So, rights theory does not seem to allow much debate over who actually holds investment treaty rights: it is the investor that controls and benefits most from the right. This is similar to the ‘direct rights’ position mentioned above.
But there is a catch. While investors may be the holders of substantive rights and related powers to bring claims, that does not necessarily mean they can waive such rights. The ‘right’ to waive is in itself a Hohfeldian power that must be distinguished from the substantive right (eg the right to fair and equitable treatment), or the power to bring a claim. Thus, the question who can waive investment treaty protection is not a question of who holds substantive investment rights, or who can bring investment claims; rather, it is a question of who holds the power to alter these rights and claims.
This question can be answered in different ways. On the one hand, it could be argued that the holders of the primary rights and claims under an investment treaty should also be able to give them up, as this would confirm their autonomy over their legal position. In more practical terms, it should be up to the investors to calculate the economic risks and benefits of waiving investment treaty protection.
On the other hand, home states have carefully crafted and negotiated investment treaties to create a web of protection for their investors abroad. Allowing investors to waive investment treaty protection will eventually not be in their best interest, as it enables host states to force investors to give up their protection. Investment treaties on the whole are silent on the power to waive rights—creating such a new power may weaken the entire system of investment treaty protection. Maybe investors should be barred from waiving rights for their own good.
Rights theory does not offer clear a clear answer to these questions. After all, the question of whether a waiver should be allowed is one of policy, not of law. But theory does help us understand that, even if we adopt the ‘direct rights’ model, the issue is not settled. The questions ‘who is the right holder’ and ‘who can waive rights’ raise separate concerns. An answer to the one does not necessarily imply an answer to the other.