Investor-state Arbitral Tribunals Research Articles

The Relationality of Community Development Agreements towards a Human Rights Due Diligence Good Faith Requirement

Abstract Human rights due diligence (HRDD) is a buzzword in business and human rights (BHR) activities. However, multinational corporations (MNCs) often conduct it as a tick-box exercise without transparency. Using a relational contract theory, this article argues that when MNCs contract with local communities through community development agreements (CDAs) to perform HRDD, such contracts are internationalized relational contracts that attract a level of good faith. An established principle in international economic law, good faith serves as a standard for assessing conduct designed to discharge obligations in international contracts between states and MNCs (investor-state contracts). Similar to how investor-state arbitration tribunals use good faith jurisprudence in regulating the relationship between states and MNCs, this article proposes a BHR good faith jurisprudence to prescribe how HRDD obligations should be discharged. The article concludes that a good faith interpretational exercise in BHR would (1) reduce MNCs’ cosmetic compliance with HRDD principles; (2) increase transparency in the HRDD exercise; and (3) become a source of rights for local communities to enforce corporate accountability.

Fraud on the tribunal in investor–State arbitration

Abstract Fraud on investor–State arbitration tribunals is somewhat uncommon but hardly rare. This article summarises 17 publicly known investor–State arbitration awards addressing fraud on the tribunal, to contribute to this underdeveloped field of law. The article notes that investor–State tribunals have confronted this wrongdoing in various ways, ranging from avoiding findings of fraud to imposing arbitral sanctions. It notes, however, the apparent dearth of referral to criminal processes arising out of proven fraud. It concludes with a summary of the potential remedies available to the tribunal when confronted with fraud.

Exercising Governmental Authority to Claim Section 1782 Assistance: What Does It Mean?

On 13 June 2022, the Supreme Court published a highly anticipated decision in two consolidated cases that limited the availability of 28 USC § 1782. The Court ruled (1) that § 1782 was only available to arbitral tribunals exercising governmental (sovereign) authority; and (2) that neither private contract-based arbitral tribunals nor many investor-state arbitral tribunals meet the sovereign authority test. From a broad strokes perspective, the Court’s narrow reading of § 1782 resolved the split among the Courts of Appeals. The decision left open, however, important questions that will no doubt be the focus of future cases. This article will review the § 1782 cases that played out in the Courts of Appeals prior to the Supreme Court’s decision. The article will then examine the June 2022 decision and identify some of the questions left unanswered. international, commercial, arbitration, tribunal, evidence, 1782, comity, statute, circuit split, legislative history, supreme court

Non-Pecuniary Remedies Revisited: Expanding Influence of the ILC Articles?

Abstract Although non-monetary remedies for international law violations are a fixture of the International Law Commission’s Draft Articles on Responsibility of States for Internationally Wrongful Acts (ILC Articles), investor-State arbitral tribunals have considered or ordered such remedies only rarely. This article surveys the role that the ILC Articles on non-monetary remedies have, and could have, in investor-State arbitration. It first reviews how tribunals have referenced and applied the ILC Articles, or the legal principles it codifies, when grappling with their power to award non-monetary remedies, the specific content of such non-monetary remedies, and the reasons not to award such remedies. It concludes that, while the ILC Articles have increasing significance, tribunals remain hesitant to award the full range of remedies provided for in the ILC Articles. The article then addresses considerations beyond the ILC Articles that tribunals have referenced in decisions on non-monetary remedies—usually as grounds to reject non-monetary remedies. The most common is concern for the effects of such remedies on State sovereignty, but considerations less frequently raised include questions about enforceability and the need for party consent. These features indicate that some tribunals remain willing to go beyond the ILC Articles in reaching decisions on non-monetary remedies. The article finally considers what lessons may be gleaned from human rights practice on non-monetary remedies. By contrast with investor-State tribunals, human rights adjudicators have enthusiastically embraced non-monetary remedies and their practice provides insights for how such remedies may be employed in disputes between private individuals and sovereign States.

From Traction to Treaty-Bound: Jus Cogens, Erga Omnes and Corporate Subjectivity in International Investment Arbitration

Abstract This article suggests that the arbitral use of jus cogens and erga omnes is slowly producing a ‘presumption of applicability’ in investor–state arbitration tribunals tasked with determining whether international law applies to investors. Looking backward from two recent counterclaims at tribunals established under investor–state dispute settlement (ISDS) clauses in international investment agreements that support our claim, the article first analyses the evolution and use of jus cogens in attaching rights-claims to non-State subjects of international law. Secondly, it explores the origins and uses of obligations erga omnes in attaching obligations-claims to non-State subjects of international law. It attempts to define the contours of jus cogens and erga omnes as they are deployed in recent ISDS case law and highlights the limits of each concept. The article concludes that there is a potential for a presumption of applicability in international investment arbitration for investor obligations and that this presumption can be sourced from general international law.

Developing Human Right Norms for Investor-State Arbitration: The Needed Panacea for Environmental Injustice?

The dissatisfaction of States and some non-State actors with investor-State arbitration has deepened over the years. This has resulted in agitations for the reform of investor-State dispute settlement. Part of the reform agenda is the need for international investment tribunals to be required to consider human right norms, in appropriate cases, in the determination of arbitration matters before them. This is because, as good as the idea of protecting foreign investments is, if it is not put in its right perspective, it may lead to good government policies and the human rights of indigenes of host communities being sacrificed on the ‘altar’ of investment protection. Thus, this work aims at contributing to the ongoing debate on the need for international investment tribunals to always take public interest into account when deciding disputes before them. In that regard, this work examines the connection between human rights and investor-State arbitration, with particular focus on how these evolving human right norms would produce the needed panacea for environmental injustice. Although the ongoing agitations for reform transcend investor-State arbitration, this work in limited to discussing the specific issue of the need for investor-State arbitration tribunals to be required to give adequate consideration to human right norms in the determination of the matters that come before them. In this work, we used qualitative methodology based on doctrinal approach. The research design used is content analysis, which helps in describing the connection between human rights and investor-State arbitration as well as the concept of developing human right norms in investor-State arbitration. Keywords: Environmental injustice, Human right norms, Investment, Investor-State arbitration, Public interest DOI: 10.7176/JLPG/111-06 Publication date: July 31 st 2021

Application of MFN to investment dispute settlement: rule of law issues

PurposeOver the past two decades, the application of most-favoured-nation (MFN) clauses in international investment agreements (IIAs) to dispute settlement matters has generated controversy. The purpose of this paper is to help resolve some of the controversies by examining the rule of law issues that may arise from such application of MFN.Design/methodology/approachThe study describes controversies regarding the application of MFN to dispute settlement as per the extant literature on the subject. It explores the elements of rule of law in investor-state arbitration. The paper then analyses the implications of applying MFN to dispute settlement matters for the elements of rule of law. Based on such analysis, the study argues that the application of MFN to dispute settlement matters undermines certain elements of rule of law.FindingsThe paper has outlined the relevant elements of rule of law in investor-state arbitration as access to dispute settlement; judicial (or tribunal) independence, fairness and impartiality; consistency and predictability of law and decisions; transparency; accountability and subjection of dispute forums and systems to law. It found that the application of MFN undermines various components of rule of law, in particular of consistency and predictability and the requirement of tribunals to adjudicate within the limits of the law.Originality/valueThe findings of this study will help future investor-state arbitral tribunals to decide on the application of MFN to dispute settlement matters.

Treaty Interpretation in Investor-State Arbitration

This study examines the exercise of discretion by investor-state arbitral tribunals in treaty interpretation. It builds upon the premise that it is an illusion to pursue a single right answer to a given legal problem when the human experience is marked by an incomplete and fragmented perception of reality. Adjudication and legal interpretation, therefore, are not understood in this study as a matter of discovery or illumination, but as a matter of choice and persuasion over choices made. Even still, the exercise of hermeneutical discretion does not amount to a license for arbitrary behavior. There may not be one single correct reading of a treaty, but certainly not all interpretations of a treaty are possible. Notably, the semantic horizon of treaty interpreters is a finite one, as the methodology established by the Vienna Convention on the Law of Treaties (“VCLT”) constrains the hermeneutical choices open to interpreters. Article 31 lays out a general rule of treaty interpretation, while Article 32 provides supplementary means of interpretation that can be used either to validate an outcome reached through Article 31 or, in exceptional circumstances, to autonomously determine the meaning of a treaty. Within this framework, this study examines interpretative practices of investment-treaty arbitral tribunals in light of the interpretive regime established by the VCLT, exploring their conformity or non-conformity to that regime. Investment Arbitration; Investor-State Dispute Settlement; Treaty interpretation; Discretion; Vienna Convention on the Law of Treaties; VCLT; Article 31, VCLT; Article 32, VCLT.

Application of Most-Favoured-Nation Clauses by Investor-State Arbitral Tribunals, Implications for the Developing Countries: A Collection of Chapter Abstracts of the Book

This paper compiles the draft chapter abstracts of my book entitled, 'Application of Most-Favoured-Nation Clauses by Investor-State Arbitral Tribunals. International Law and the Global South (Perspectives from the Rest of the World). Springer, Singapore, 2020. This book comprehensively examines various issues regarding the scope of Most-Favoured Nation (MFN) Clauses in International Investment Agreements (IIAs), and addresses the reform, interpretation, and enforcement of IIAs with a specific focus on the MFN clause. The book begins with a study of the history and evolution of the MFN. It then presents a substantive analysis focusing on the drafting style and how it affects the scope of the MFN; rules of interpretation and arbitral case law on the scope of the MFN, procedural prerequisites to arbitration and jurisdiction of arbitral tribunals, and the implications of adopting an expansive approach to the MFN clause. The book’s argument centres on the need for arbitral tribunals to interpret the MFN in a manner that reflects the expressed intent of the parties. This requires taking into consideration the text of the MFN, its purpose, and the overall context of the IIA, rather than relying on values and assumptions that have nothing to do with the original intent of the parties. In making this argument, the book draws on Articles 31 and 32 of the Vienna Convention on the Law of Treaties and other interpretative rules. What sets the book apart is its comprehensive coverage of issues concerning the interpretation and application of the MFN in IIAs. At the same time, it addresses issues in connection with an expansive interpretation of MFN clauses, as well as concerns regarding the legitimacy crisis in investor-state arbitration. Accordingly, it contributes to future Investor-State Dispute Settlement (ISDS) reform, while also offering a wealth of theoretical and practical insights for future treaty drafters, arbitrators, and policymakers.

Restrictive Interpretation of Investment Treaties: A Critical Analysis of Arbitral Case Law

This article critically discusses the recourse to the principle of restrictive interpretation (in dubio mitius) by treaty-based investor-state arbitral tribunals. Although its status as a rule of international law is at best controversial, in dubio mitius has been applied by a number of arbitral tribunals interpreting umbrella clauses and most-favoured-nation (MFN) provisions contained in investment treaties. This article shows that restrictive interpretation is inappropriate and undesirable. It highlights, first of all, that no rational justification for in dubio mitius exists and that the sovereignty-based rationale put forward is obsolete, illogical and largely dysfunctional. It also shows that restrictive interpretation frequently clashes with other, more fundamental, rules of treaty interpretation and that in dubio mitius interpretation of investment treaties has an inherently discriminatory effect on investors. Investment Treaties, Treaty Interpretation, Restrictive Interpretation, In Dubio Mitius, Umbrella Clause, Mfn Provision, State Sovereignty, Investment Law

Arbitral interpretation of investment treaties : problems and remedies for the debate on "legitimacy"

The last couple of decades have seen a considerable increase in the submittal of investment claims to Arbitral Tribunals – a process which has often been linked to the “proliferation” of investment treaties. Alongside, a debate on the so-called “legitimacy” of the Investor-State dispute settlement mechanism not only emerged (and prompted calls for reform) but also refuses to go away. Treaty interpretation has not been in the forefront of discussion. Authorized (“authoritative”) interpretation – as performed by Arbitral Tribunals – is perhaps one of the issues of least (if any) concern. This Article explores the distinction between authentic and authorized interpretation vis-a-vis the multiple issues arising from vesting excessive significance in authorized interpretations of Investor-State Arbitral Tribunals, in the events in which States Parties to the relevant investment treaty do not have opposing views on the construction of a conventional clause. Drawing on the referral to the notable cases in which this issue has arisen, this Article will present a few recommendations.

Taxation Measures under the Energy Charter Treaty after the Yukos Awards Articles 21(1) and 21(5) Revisited

Abstract As the number of investment arbitrations under the Energy Charter Treaty has soared in recent years, parties and arbitrators have faced arguments concerning its Article 21 on taxation measures, which had seldom been applied before. In 2014, the tribunal ruling on the Yukos trilogy held that even though Article 21 excludes taxation from the scope of the treaty, the carve-out could apply “only to bona fide taxation actions, i.e., actions that are motivated by the purpose of raising general revenue for the State”. Article 21 also provides that in cases regarding expropriation “[t]he Investor or the Contracting Party alleging expropriation shall refer the issue of whether the tax is an expropriation or whether the tax is discriminatory to the relevant Competent Tax Authority. Failing such referral by the Investor” in cases of investor-state arbitration, the tribunal “shall make a referral to the relevant Competent Tax Authorities”. The Yukos tribunal considered said referral to be a futile exercise when it is unequivocal that the host State acted in bad faith towards the foreign investor. As a consequence of the Yukos trilogy, the Energy Charter Secretariat has published a report on the issue that recommends potential amendments to clarify Article 21. A number of investor-state arbitral tribunals have also addressed these issues since the Yukos trilogy. Taking a public international law approach, this article critically explores awards and decisions rendered by those tribunals, paying particular attention to their findings on Article 21 vis-à-vis the sovereign power to tax. This article concludes that recent awards dealing with Article 21 arguments have struck an appropriate balance between the prerogatives of States and their obligations under the Energy Charter Treaty. Thus, the article affirms that no amendment seems necessary.

The Duty of Arbitrators to Delimitate between Jurisdiction and Admissibility in Investor-State Arbitration: A Developed Consensus or an Enduring Lacuna?

Abstract This article considers the growing influence that de facto precedent, in the form of jurisprudence constante, has on the duties and interpretive powers of investor-state arbitration tribunals. Specifically, a review of case law from the past decade establishes that tribunals are consistently and coherently recognizing a delimitation between the “jurisdiction” of a tribunal and the “admissibility” of a claim, and the practical effect of those two individual concepts. This has therefore created a jurisprudence constante that, in appropriate circumstances, should be followed by investor-state arbitration tribunals.

Expert Scientific Evidence in a Broader Context

The primary mandate of international adjudicators (such as Judges of the International Court of Justice and members of investor-State arbitral tribunals) is to settle the legal dispute presented to them in a given case. They have scope to decide scientific questions only in the course of settling those disputes. Many cases involving scientific issues do not call for findings of scientific facts by adjudicators. In those cases that do call for findings of scientific facts, however, the methodology of judicial assessment is not peculiar to scientific facts. Regardless of whether the facts at issue are scientific in nature, adjudicators rarely base their conclusions on direct evidence, relying instead on second-order indicators. These second-order indicators are well-suited to the evaluation of evidence adduced through party-appointed experts, but are of more limited use when a court or tribunal appoints its own expert.

Should the MFN within Investment Treaties Exclude Dispute Resolution? An Evaluation of the Australian Approach

International Investment Agreements (IIAs) frequently include Most-Favoured-Nation (MFN) clauses to multilateralise the treaty protections. During 2000 to 2016, some Investor-State Arbitral (ISA) tribunals have used the treatment to bypass various procedural prerequisites to arbitration including the requirement to litigate in the domestic forum of the host state before arbitration. The tribunals have done so by using MFN to import more favourable Dispute Settlement Provisions (DSPs) from other treaties. While such use of MFN benefits the investors, it limits the power of the domestic courts of the host state. Globally, to address the issue, some countries have recently reformed their IIAs by excluding DSPs explicitly from the scope of MFN. In the global context mentioned above, this Article examines the approach taken by Australia to deal with the issue. The Article finds that, while some countries are moving towards a narrower MFN which excludes DSPs, Australia is following a case-by-case approach. The Article argues that Australia should maintain the status quo since the current approach is the most suitable to the economic policies of the country.

Human Rights in Investor-State Arbitration: The Human Right to Water and Beyond

This article analyzes the restrictive approach adopted by investor-State arbitration tribunals to human rights arguments raised by host States, as exemplified in the case of the human right to water, and examines the potential implications of this approach for the international human rights regime and the legitimacy of investment arbitration. The article argues that as governments continue to fail to address human rights issues in investment treaties, and in light of the considerable influence that investor-State arbitration can exert on domestic policy-making, arbitral tribunals are uniquely placed to strengthen and promote important human rights that may be negatively impacted by investment protection measures. Doing so would also reinforce their own legitimacy as ultimate arbiters of investor-State disputes involving issues of public interest. The article suggests procedural and interpretive tools that States and arbitral tribunals could employ in order to have human rights arguments adequately considered in investment arbitration.

Jurisdictional Overlap in WTO Dispute Settlement and Investment Arbitration

The ‘problem’ of overlapping international disputes has long vexed scholars and adjudicators. This article addresses an increasingly important form of overlap that has begun to emerge: parallel or successive disputes before the World Trade Organization (WTO) and investor-state arbitral tribunals. This overlap does not give rise to judicial competition, and these proceedings are largely complementary. But they raise the possibility of conflicting factual and legal determinations, inconsistent remedies, and inefficiencies. This article considers various techniques for addressing this form of overlap, in light of existing jurisprudence, scholarly commentary, and treaty practice. We conclude that investment tribunals generally have greater flexibility in confronting situations of overlap than WTO panels and the Appellate Body. Nonetheless, many of the traditional adjudicative approaches to overlap, such as res judicata, have little bearing on the phenomenon of overlapping WTO and investment disputes. This article explores alternative approaches, grounded in considerations of comity and case management. We also consider treaty-based approaches, such as subject matter carve-outs and fork-in-the-road clauses. We conclude that ‘softer’ treaty provisions, which provide decision-makers with more authority and guidance in confronting situations of overlap, hold greater promise.

When Investor-State Arbitration Tribunal Becomes Policy Maker: Reflection on Jurisdiction Decision of Philip Morris v. Uruguay

Investor-State arbitration (ISA) consists of numerous individual ad hoc Tribunals as a mechanism to settle disputes between an investor and a State arising out of an investment, however, the aggregate effect of individual tribunals presents certain systematic structure of governance of which the awards have policy implications beyond the very individual disputes to both stakeholder in host states and other ISA tribunals per se. Philip Morris v. Uruguay offers us a chance to conceptualize ISA as a governance mechanism. Philip Morris v. Uruguay involves public health measures of tobacco control which is of broad implications to multilevel stakeholder, including foreign investor, industrial competitors, public authority in host state, and public interests in host state as a whole. Uruguay has made prerequisite domestic litigation procedure for investment treaty claims which constitutes an interface of interaction of two governance mechanisms. Detailed analysis of Jurisdiction decision of Philip Morris v. Uruguay reveals the flexible self-enforcement approach to jurisdiction, including confirmation of broad treaty terms, e.g. investment, disputes, and satisfactions of prerequisite jurisdiction conditions, which could be characterized as reflections of ISA as governance mechanism. ISA awards have the policy externality of which the implications go beyond disputants in individual disputes to stakeholders in host state because foreign disputes always involve public interest per se as well as through individual case reasoning and awarding, tribunals review states’ measures, either regulatory or commercial, and by interpretation of treaty obligations and general international law, set standards for states in their internal administrative process. Policy externality of individual awards is only the initial step of institutionalization of ISA as governance which is ultimately fulfilled through the conscious or unconscious self-enforcement of ISA as a system by individual arbitrators. With direct rights of foreign investors to sue state in international arbitration and abstract but similar IIA terms, considerable discretions are vested to ISA arbitrators. The large number but homogenous arbitrators interact with each other, gradually establishing certain shared understanding concerning the interpretation method, the content of core concepts in IIAs. With the long term and large scale evolvement, ISA finally becomes an institution which de facto and should exercise public authority over public policy issues in domestic level, rather than an simple ad hoc dispute settlement tribunal, which could escape from individual states’ treaty design and acquire certain institutional ability of self-maintenance. ISA achieve public policy function through two approaches - substitution effect and review effect - in dealing three kinds of disputes, namely contract disputes, regulatory disputes and administrative disputes (if not overall overlapped with regulator disputes). During the institionalization process, critics follow. Justifications and safeguard measures to ISA as governance mechanism are of great urgency and significance which call for further research.

Investor-State Arbitration in Sovereign Debt Restructuring: The Role of Holdouts

Abaclat and others v. Argentina is the first investor-state arbitration case that deals with holdouts. International arbitration, compared to litigation, gives holdouts a more efficient way to enforce a final and binding decision as well as to attach and execute against sovereign assets. However, the jurisdiction of investor-state arbitration tribunals over holdout claims is a complex matter, since the claims have to be treaty claims, and they have to be legal disputes related to an investment. The fact that investor-state arbitration tribunals assess jurisdiction over these kinds of disputes may have a positive impact on the restructuring process and the sovereign debt markets. Nevertheless, holdout arbitration may also disrupt the restructuring process. In order to avoid such a problem, arbitration tribunals should limit the scope of the arbitration remedy.

Investor-state tribunals and constitutional courts: The Mexican sweeteners saga

This article tackles the complex question of the relationship between international and domestic adjudicatory bodies. It does so by analyzing the debate between liberals and developmentalists over the effects of investor-state arbitration tribunals on domestic courts. For liberals, investor-state tribunals are a positive complement to domestic judicial institutions for their ability to “de-politicize” investment disputes, leading to economic policy stability that encourages foreign investment. For developmentalists, the same international alternatives reduce institutional quality by allowing powerful actors such as powerful corporations to skirt local judicial institutions. Through a comprehensive analysis of the negotiations of Chapter Eleven of NAFTA and the recent cases in the sweeteners conflict between Mexico and the United States, this article attempts to address how investor-state arbitration tribunals and constitutional courts interact and affect each other. The case study reveals two important lessons to this debate: i) scholars arguing against investor-state arbitration on the grounds of “circumvention” of domestic courts may do well to calibrate the debate of the use of remedies as one of added remedial possibilities in complex litigation; ii) those defending investor-state arbitration on the grounds of “de-politicization” of investment disputes may do well to consider the veto power wielded by international adjudicatory bodies that impact the judiciary and political systems of the host country.