Jarrod Hepburn is a Lecturer in Law at the University of Exeter, UK.
There has been much discussion in recent years – and in recent weeks on this blog – of the potential for investment treaty arbitration to benefit from a ‘comparative public law’ approach. In brief, the approach conceives of investment treaty arbitration as a form of public law, and calls for tribunals to draw on comparative domestic constitutional and administrative law, as well as other regimes of international public law such as WTO law and human rights law, to give content to the often vaguely-worded standards of typical investment treaties.
In the midst of contemporary enthusiasm for comparative public law, it is tempting to think that the approach is a new one that has been growing in prominence only over the last few years. However, this week brings news from Investment Arbitration Reporter that an UNCITRAL-rules investment treaty award dating from 1995, Saar Papier Vertriebs GmbH v Poland, has been unearthed. Amongst other aspects detailed by IAReporter, the case is particularly notable for its explicit use of domestic administrative law to interpret the provisions on indirect expropriation in the Germany-Poland BIT.
Indeed, this newly-uncovered investment treaty award – only the second ever (currently) known to be rendered, following AAPL v Sri Lanka in 1990 – contains intriguing indications that the comparative public law approach is a practically useful one for investment treaty arbitration. Furthermore, the age of this award raises the tempting view that, rather than being a new development in the field, comparative public law has been there all along.
However, as I discuss below, despite the treaty context of the claim, it is unclear whether the Saar Papier tribunal considered itself to be applying international law. Without this international law framework, it becomes more difficult to characterise the case as an instance of comparative public law at work.
German and Swiss administrative law employed to interpret treaty provisions
The essential question facing the tribunal was whether a ban on the import of a key raw material used by the investor constituted a ‘measure having effect equivalent to expropriation’ under the BIT. In answering this question, the tribunal majority’s primary approach was to draw from domestic administrative law. They explicitly observed that ‘[t]o interpret the Treaty administrative law practice in Germany and Poland would be helpful’ (). The majority reviewed various conceptions of expropriation in German law, finding loss of economic value to be central. Given that the claimant’s business had been entirely destroyed as a result of the ban, the majority found an indirect expropriation ().
In a complementary analysis, the majority drew from Swiss law (though not Polish law, despite their indication) to elaborate the concept of good faith. They connected good faith to the principle of legitimate expectations, and they set out five requirements (taken directly from case law of the Swiss Federal Supreme Court) needed to generate a legitimate expectation. The majority then imported this domestic public law analysis wholesale into the BIT’s provision on expropriation ().
There is a nod to proportionality in the award as well. Relying on the German law theory of sonderopfer (‘special burden’), the majority considered that an indirect expropriation would be found where ‘a measure has a general impact but nevertheless burdens a particular right of ownership far more than all others’ (). This theory was given approval eight years later in Tecmed v Mexico (), and also features prominently in expropriation claims before the European Court of Human Rights (eg, James v UK).
Is comparative public law always state-friendly?
Observers of the comparative public law approach to investment law might assume that it is broadly a state-friendly approach, drawing doctrines of proportionality, deference and the margin of appreciation from domestic and international law. The approach emphasises that the respondent state is a sovereign, not merely an ordinary contracting party. Certainly, those doctrines of public law just cited tend to support that view, by acknowledging that states need leeway to protect public interests.
In Saar Papier, however, the effect of this recourse to domestic administrative law is not to excuse Poland’s conduct, but instead to impose liability on Poland. But this too may be compatible with the comparative public law approach. As Anthea Roberts has noted, the public law paradigm ‘has also been invoked to protect investors against abuses of sovereign powers (drawing on concepts like due process, good faith and legitimate expectations)’, rather than automatically operating in favour of states (at 74, emphasis added).
In any case, the majority hinted that, if the import ban was objectively justified, they may actually have deferred to the state and rejected the investor’s claim. They commented that the reason for the ban was ‘by no means obvious’, and that Poland was ‘incapable of providing any policy grounds’ for it ([93(c)]). This might provide evidence that the majority would have been willing to undertake a deferential public law exercise if the facts of the case had allowed it – thus bolstering Saar Papier’s public law credentials.
Arbitrator background and the comparative public law approach
The background of the arbitrators themselves is a further intriguing aspect of Saar Papier. Roberts has also suggested that the public law paradigm has not been prominent until recently because the arbitrators appointed to early tribunals did not have public law expertise. Instead, their largely commercial law background ‘contributed to the lack of awareness of and sensitivity to the public international law and, in particular, to the public law dimensions of investment treaty arbitration in many early awards’ (77).
Saar Papier, however, might represent a new challenge to this observation. As described by IAReporter, the tribunal had a strong commercial arbitration slant, with no particular claimed expertise in public law (or public international law). But, despite this, the two majority arbitrators displayed few qualms in resorting to public law principles to interpret the BIT and impose liability on the state. (Their Swiss and German nationalities also likely explains their parochial choice of Swiss and German law when searching for public law analogies.)
The applicable law in Saar Papier
However, there are several reasons to take a more cautious view of Saar Papier.
The premise of the comparative public law approach is that investment treaty tribunals are tasked with applying international law, but struggle to do so because the relevant concepts (such as fair and equitable treatment or indirect expropriation) are vague and ill-defined. In Saar Papier, however, it is not entirely clear that the tribunal considered itself bound to apply international law at all.
The tribunal appeared to enjoy a degree of discretion in choosing the applicable law. The parties themselves had made no explicit choice, and the Germany-Poland BIT does not contain an applicable law clause. In these circumstances, the arbitration rules (Article 33(1) UNCITRAL 1976) provide for the tribunal to apply ‘the law determined by the conflict of laws rules which the tribunal considers applicable’. Because the arbitration was seated in Zurich, these rules are found in Swiss law, under which the tribunal shall decide according to ‘the rules of law with which the case has the closest connection’ (Article 187 PILA).
Since the investor was claiming that Poland had breached a treaty, the rules of international law must surely have met the ‘closest connection’ test. But the majority did not refer directly to this test. Instead, they appeared to consider that German, Polish and Swiss law were the relevant bodies of law that would decide the merits of the case. Indeed, the majority asked the parties for submissions on the meaning of expropriation in German and Polish administrative law ().
Admittedly, the majority also requested submissions on ‘comparative law, including the Washington Convention and ICSID awards’ (). Even though only one BIT award was available in 1995 (AAPL v Sri Lanka), there were certainly ICSID awards in existence that dealt with the customary international law of expropriation, such as Amco Asia v Indonesia (1988) or SPP v Egypt (1992). Nevertheless, the Saar Papier award does not further discuss any international law materials. The jurisprudence of the Iran-US Claims Tribunal – a frequent source of guidance on questions of expropriation in many investment treaty awards – is not mentioned. Also left unacknowledged are the well-known Libyan oil arbitrations of the 1970s, which analysed the customary law of expropriation alongside domestic law.
The arbitrators’ commercial law background was charitably viewed above as a refreshing counter-example to the view that such tribunals are unlikely to favour a comparative public law approach. The same factor might explain, though, the tribunal’s complete lack of reference to public international law. In AAPL, five years before Saar Papier, the tribunal comprised two public international lawyers and a commercial arbitrator. The AAPL award, perhaps unsurprisingly, makes frequent reference to public international law jurisprudence and the VCLT.
By contrast, the Saar Papier majority ultimately relied on ‘its own understanding on general administrative law and the principle of good faith to interpret the Treaty’ (). As noted, in their subsequent analysis they applied German law and Swiss law – without any particular explanation – to elaborate the concept of indirect expropriation.
Accidental comparative public law?
Therefore, there are reasons to doubt that the Saar Papier tribunal was (even unconsciously) applying a comparative public law approach. Instead, it seems more likely that the arbitrators, faced with a novel treaty provision and unaware of relevant international jurisprudence, simply reached for the closest analogy that they could find, fulfilling the commercial arbitration instinct of ad hoc dispute resolution rather than regime-building adjudication – and, in the process, accidentally producing something only superficially similar to comparative public law.
Even if Saar Papier can be taken as another (indeed, the very first) instance of the comparative public law approach in investment treaty arbitration, the tribunal’s reasoning suffers from one of the major criticisms levelled at the approach – that of selectivity. The majority presented their analysis as being one of ‘general administrative law’, perhaps suggesting – at a stretch – that the stated principles constituted general principles of law under Article 38(1)(c) of the ICJ Statute. But even if this is so, evidence taken solely from German and Swiss law is only the very beginning of the ‘more exacting methodology’ (as Stephan Schill recently put it) needed to substantiate these general principles.
Nevertheless, the facial analogies between doctrines of public law and the broadly-worded standards of investment treaties seem too strong to resist entirely, if only as food for thought, as the Saar Papier arbitrators appeared to have discovered for themselves. Amidst Roberts’ ‘clash of paradigms’, the release of this award provides a timely prompt for blind men to re-assess the elephant of investment treaty arbitration.