Urbaser v Argentina: The Origins of a Host State Human Rights Counterclaim in ICSID Arbitration?

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Investment tribunals rarely examine host state arguments based on international human rights law in great depth. The ICSID award Urbaser v Argentina is the first to provide a detailed discussion of a host state’s human rights counterclaim. Hence, this decision presents an opportunity to more fully understand the role of human rights in investment arbitration. As the text of the award is very rich, this post focuses on whether the tribunal has created a precedent for a host state human rights counterclaim in ICSID arbitration.

The Dispute and Counterclaim

The dispute in Urbaser v Argentina arose as a result of Argentina’s financial crisis in 2001-2002. The claimant was a shareholder in a concessionaire that supplied water and sewerage services in Buenos Aires. Argentina’s emergency measures caused the concession financial loss and it eventually became insolvent. The claimant commenced ICSID arbitral proceedings against Argentina for violations of the Spain-Argentina BIT.

Argentina filed a counterclaim based on Article 46 ICSID Convention (and Rule 40(1) ICSID Arbitration Rules) which provides:

Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any incidental or additional claims or counterclaims arising directly out of the subject-matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the jurisdiction of the Centre.

The respondent’s counterclaim alleged that the concessionaire’s failure to provide the necessary level of investment in the concession led to violations of the human right to water.

Jurisdiction

The tribunal in Urbaser v Argentina is the first to accept jurisdiction over a human rights counterclaim. In doing so, it has simplified the jurisdictional requirements for ICSID counterclaims.

The tribunal found that the disputing parties had consented to the use of counterclaims. The terms of Article X of the Spain-Argentina BIT permitted either party to the dispute to commence claims [1143], thus including the possibility of a counterclaim [1144]. The terms in which the claimant accepted the offer to arbitrate did not exclude counterclaims [1146 – 1148]. Further, the tribunal indicated that a claimant cannot unilaterally delimit the competence of a tribunal through the terms of their consent [1147].

The tribunal held that a sufficient connection between the originating claim and the counterclaim was established by the ‘manifest’ factual links between the claims and because the claims were ‘based on the same investment, or the alleged lack of sufficient investment, in relation to the same Concession’ [1151]. This position is contrary to awards that have required a legal connection between the claims (Saluka v Czech Republic). By permitting factual links, the tribunal potentially permits a wider range of counterclaims to be raised by host states.

The counterclaim was also within the ‘jurisdiction of the Centre’. This condition implicitly requires reference to Article 25 ICSID Convention, which only permits an investment tribunal to hear a ‘legal dispute arising directly out of an investment’. The tribunal rejected the position that a human rights claim was inherently beyond its jurisdiction, as it was not convinced that a human rights counterclaim and an investment dispute were mutually exclusive. [1154].

Therefore, provided the terms of the arbitration agreement are wide enough, a counterclaim that is based on human rights is not automatically excluded from the scope of Article 46 ICSID Convention. Further, the tribunal only required that the respondent present a prima facie case [1153] to establish jurisdiction. This does not place a significant onus on a host state. Whilst this aspect of the tribunal’s reasoning is promising for a host state human rights counterclaim, the tribunal’s discussion of the merits presents significant challenges.

Merits

In a positive move from a human rights perspective, the tribunal countered the claimant’s argument that the BIT conferred no obligations on the investor [1182]. The tribunal examined the arbitration clause [1187], the applicable law clause [1188] and Article VII(1) of the Spain-Argentina BIT (a ‘more favourable law’ clause) [1192], all of which permitted reference to sources of law external to the BIT, including treaties and general international law. Consequently, the tribunal found that BIT was not a ‘closed system’ [1191]. Rather, the BIT enabled the respondent to make reference to certain legal sources external to the BIT when identifying obligations that would bind the claimant.

Further, the tribunal rejected the claimant’s view that, as a non-state actor, it was not bound by human rights obligations [1194]. The tribunal considered that, as corporations are the recipients of rights under BITs, they are subjects of international law and can also bear obligations in international law [1195]. The tribunal referred to the Universal Declaration on Human Rights (UDHR) and the International Covenant on Economic, Social and Cultural Rights (ICESCR) to establish that there were human rights obligations associated with a right to water [1196] – [1197]. In addition to these rights, the tribunal used Article 30 UDHR and Article 5(1) ICESCR to establish that private parties owe human rights obligations. The tribunal also relied on the International Labor Office’s Tripartite Declaration of Principles concerning Multilateral Enterprises and Social Policy to support this position [1198]. Using the terminology found in these provisions, the tribunal concluded that, in addition to human rights giving effect to the right to water, there was also ‘an obligation on all parts, public and private parties, not to engage in activity aimed at destroying such rights’ [1199].

The terms of this obligation suggest that Article 30 UDHR and Article 5(1) ICESCR prevent the claimant from relying on its rights under the BIT to destroy human rights. However, I would argue that this obligation cannot be sourced from these provisions. Both Article 30 UDHR and Article 5(1) ICESCR are aimed at preventing the deliberate misinterpretation of one human rights obligation to justify the violation of other rights (see Saul, Kinley and Mowbray, The International Covenant on Economic Social and Cultural Rights: Commentary, Cases, and Materials (OUP 2014), 263). Hence, Article 5(1) ICESCR uses the terms:

‘Nothing in the present Covenant may be interpreted as implying… any right to engage in any activity or to perform any act aimed at the destruction of any of the rights or freedoms recognized herein’ (emphasis added).

Consequently, if the tribunal in Urbaser intended to extend the operation of article 5(1) ICESCR to rights sourced from other treaties, such as BITs, this interpretation is contrary to its express terms. Alternatively, if Article 5(1) ICESCR was intended to be applied as it is drafted, a claimant would need to rely on its own human rights to intentionally destroy the human rights of others to meet this test. A claimant could potentially invoke the right to property (relying on the UDHR) but would need to interpret this right so as to deny a human right of the host state population. This scenario would be unlikely to arise in many investment disputes.

In addition to these problems, the intention behind Article 5(1) ICESCR was to prevent newly formed fascist groups from relying on human rights as a justification for their activities (see Saul, Kinley and Mowbray, The International Covenant on Economic Social and Cultural Rights: Commentary, Cases, and Materials (OUP 2014), 263). Article 17 European Convention on Human Rights, which serves a similar function to Article 5(1) ICESCR, has only been applied in cases that fundamentally undermine its goals, such as incitement to hate. Again, it is difficult to envisage a wide range of circumstances where a comparative policy consideration might be applied in an investment context.

The tribunal held that their interpretation of Article 5(1) ICESCR could not be applied to the human right to water. First, the tribunal found that the respondent’s argument conflated the concessionaire’s provision of water and sewerage services with the obligation to fulfil the human right to water [1206]. The tribunal noted that, based on the respondent’s argument, the origin of the human rights obligation would be the concession contract [1206]. Secondly, as the human right to water provided a duty to perform, the only obligation was placed on the state [1208]. As it was for the state to regulate the supply of water to fulfil this right, the claimant’s obligation would also be sourced from the concession contract or domestic law [1209] – [1210]. These findings were problematic because the tribunal did not have jurisdiction over matters relating to Argentina’s domestic law (Decision on Jurisdiction). Given that the respondent had not identified an independent obligation in international law that was binding on the claimant, the counterclaim could not succeed.

Nonetheless, the tribunal concluded:

The situation would be different in case an obligation to abstain, like a prohibition to commit acts violating human rights would be at stake. Such an obligation can be of immediate application, not only upon States, but equally to individuals and other private parties. This is not a matter for concern in the instant case [1210].

This statement appears to reflect the tribunal’s prior view based on Article 30 UDHR and Article 5(1) ICESCR. Given the difficulties of relying on these provisions outlined above, it is not clear that the ‘obligation to abstain’ can be of ‘immediate application’. Further, the tribunal did not construct its concluding statement in the same terms as its previous formulation of the obligation. It interprets the ‘obligation to abstain’ to include a prohibition on committing acts that violate human rights. Whilst this encompasses cases of deliberately misinterpreting human rights to violate the rights of others, what the tribunal suggests arguably extends beyond these cases to those human rights framed as prohibitions. These are most commonly associated with jus cogens obligations such as the prohibition on slavery, the prohibition on genocide and the prohibition on racial discrimination. Although these prohibitions could apply to investment projects (for example, the dispute in Piero Foresti v South Africa stemmed from the operation of Black Economic Empowerment legislation) this type of claim is rare and would also not automatically bind individuals or corporate entities. As such, the tribunal’s statement does not clarify which human rights bind foreign investors.

Conclusion

The award in Urbaser v Argentina does create a precedent for a host state human rights counterclaim. The approach taken by the tribunal makes it easier for counterclaims to fall within a tribunal’s jurisdiction. However, the substantive law that can form the foundation of the counterclaim, consisting of an ‘obligation to abstain’ is not clearly established based on the texts referred to by the tribunal. Further, the tribunal’s final reference to this principle is somewhat ambiguous. Therefore, the next stage in introducing human rights into ICSID arbitration will be to determine, with more precision, which rights are capable of forming the basis of host state human rights counterclaim.

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Andreas Bucher says

February 11, 2017

Thank you for the Article. I expected support from the international community. That's the world's future - abstain from saying "unlikely", "difficult to envisage" when you have no evidence to support such statements. There are plenty of grave human rights violations worldwide committed by investors - open your eyes. When you say: "Article 30 UDHR and Article 5(1) ICESCR" do not support - of course they do, but you read them the wrong way. Did you not read Louis Henkin?
But for all over: thank you for positivly entertaining the debate!

Francisco Javier Zamora Cabot says

February 11, 2017

Thanks for your comment,E. Guntrip. And allow me to say that
a courageous and timely approach to investments and human rights is shown in your award, Professor Bucher, my dear and respected Colleague and friend. Please, do keep on shedding light on these issues of such a great importance.Best regards to both of you. FJZC.

Edward Guntrip says

February 12, 2017

Prof. Bucher,

Thank you for your comments.

I am very supportive of the inclusion of human rights in investment arbitration and see many positive aspects to this award. My concern lies with the use of common Article 5(1) to achieve this aim.

As to the interpretation of this provision, it is clear that our views differ. I understand common Article 5(1) to perform an interpretative function. That is, a right contained in one of the Covenants cannot be interpreted in a manner that destroys the operation of another right in the same Covenant. This would equally apply to the UDHR and the ECHR, which also contain similar clauses. I cannot see how a foreign investor can use an interpretation of a human right they possess to destroy the human rights of others. Based on this approach, I think it is ‘unlikely’ or ‘difficult to envisage’ this type of provision generating a methodology that can be regularly applied in investment disputes.

I am not disputing that non-state actors bear an obligation to ensure the fulfilment of human rights. Further, I did not intend to suggest that investors do not cause human rights violations.

As you state, it is good to stimulate debate on this topic!

Regards,
Edward.

John R Morss says

February 13, 2017

Thankyou Edward Guntrip for this very informative post. It highlights the importance of the rights of populations and of communities, I think. The big picture!

Leave a Comment

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Comments

5 comments

Andreas Bucher says

February 11, 2017

Thank you for the Article. I expected support from the international community. That's the world's future - abstain from saying "unlikely", "difficult to envisage" when you have no evidence to support such statements. There are plenty of grave human rights violations worldwide committed by investors - open your eyes. When you say: "Article 30 UDHR and Article 5(1) ICESCR" do not support - of course they do, but you read them the wrong way. Did you not read Louis Henkin?
But for all over: thank you for positivly entertaining the debate!

Francisco Javier Zamora Cabot says

February 11, 2017

Thanks for your comment,E. Guntrip. And allow me to say that
a courageous and timely approach to investments and human rights is shown in your award, Professor Bucher, my dear and respected Colleague and friend. Please, do keep on shedding light on these issues of such a great importance.Best regards to both of you. FJZC.

Edward Guntrip says

February 12, 2017

Prof. Bucher,

Thank you for your comments.

I am very supportive of the inclusion of human rights in investment arbitration and see many positive aspects to this award. My concern lies with the use of common Article 5(1) to achieve this aim.

As to the interpretation of this provision, it is clear that our views differ. I understand common Article 5(1) to perform an interpretative function. That is, a right contained in one of the Covenants cannot be interpreted in a manner that destroys the operation of another right in the same Covenant. This would equally apply to the UDHR and the ECHR, which also contain similar clauses. I cannot see how a foreign investor can use an interpretation of a human right they possess to destroy the human rights of others. Based on this approach, I think it is ‘unlikely’ or ‘difficult to envisage’ this type of provision generating a methodology that can be regularly applied in investment disputes.

I am not disputing that non-state actors bear an obligation to ensure the fulfilment of human rights. Further, I did not intend to suggest that investors do not cause human rights violations.

As you state, it is good to stimulate debate on this topic!

Regards,
Edward.

John R Morss says

February 13, 2017

Thankyou Edward Guntrip for this very informative post. It highlights the importance of the rights of populations and of communities, I think. The big picture!