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Juliette Vanderstraeten Monday, 17 July 2017 Student nr: 11316357

Master's programme International and European Law: Track International Public Law

Master Thesis

The Protection of Human Rights under ICSID arbitration:

Illustration with the right to water

Supervisor: Ms. A. Hildering Amsterdam Law School Academic year 2016-2017 Universiteit van Amsterdam

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Table of Contents

Abbreviations ...3

Abstract ...4

A. Introduction ...5

B. Each case tends further towards a greater integration of human rights ...8

1. Aguas del Tunari v Bolivia (2005) ...8

2. Azurix Corp. v Argentina (2006)...9

3. Biwater Gauff v Tanzania (2008) ... 10

4. Suez and Vivendi v Argentina (2010) ... 12

5. Saur v Argentina (2012) ... 13

6. Urbaser v Argentina (2016) ... 14

7. The state of case-law: developments and remaining deficiencies ... 17

C. Methods to broaden the protection of human rights in arbitration ... 19

1. Police powers doctrine ... 19

2. The principle of proportionality ... 22

3. General exception clauses ... 24

4. Application of human rights law in international investment law... 25

(a) The applicable law ... 26

(b) Jurisdiction clause ... 28

(c) Principles of Treaties’ interpretation ... 29

5. Amicus curiae ... 31

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Abbreviations

BIT Bilateral Investment Treaty ECtHR European Court of Human Rights

ICSID International Centre for Settlement of Investment Disputes ICSID

Convention

Convention on the Settlement of Investment Disputes Between States and Nationals of other States

IHRL International Human Rights Law IIA International Investment Agreement IIL International Investment Law

IL International Law

UDHR 1948 Universal Declaration of Human Rights VCLT Vienna Convention on the Law of Treaties

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Abstract

In investment arbitration, International Investment Law [IIL] often deals with issues involving public interests arguments such as International Human Rights Law. Such arbitration usually occurs due to frequent privatization of public services by the host State. This thesis try to establish how the current state of IIL can clash with human rights. The human right to water has been chosen to illustrate how a conflict can arise between the investor’s rights that must be protected and the obligation for States to fulfil all their international obligations, including human rights obligations.

This thesis seeks to examine to what extent human rights are protected under the International Centre for Settlement of Investment Disputes [ICSID] arbitration. Therefore an analysis of the ICSID cases involving the human right to water has been conducted. The examination of the cases have led to the conclusion that from 2002 to 2017 States, non-intervening parties and arbitrators have approached human rights thanks to several methods. The case-law shows that there is a trend in ICSID arbitration towards a greater integration of human rights. However, it appears that States have lost in each of these cases. Considering this statement, this thesis seeks to propose methods to broaden human rights’ protection in ICSID arbitration. These methods contain inclusion of new clauses and reform of others in investment agreements, treaties’ interpretation principles, proportionality test and a procedural tool.

Finally, the thesis comes to the conclusion that although human rights are not protected enough in ICSID arbitration, the situation is evolving since 15 years towards a greater protection of human rights. Besides, in the sense of that evolution, in the framework of the ongoing negotiations between the EU and the Myanmar regarding an investment agreement, the EU conducted an assessment over the potential economic, social, environmental and human rights impacts of the agreement.

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A. Introduction

In investment arbitration, International Investment Law [IIL] often deals with issues involving public interests arguments such as IHRL.1 Such arbitration usually occurs due to frequent privatisation of public services by the host State.2 This thesis will try to establish how the current state of IIL can clash with human rights. The human right to water has been chosen to illustrate how a conflict can arise between the investor’s rights that must be protected and the obligation for States to fulfil all their international obligations, including human rights obligations. Disputes involving the human right to water concern issues such as the access to potable water and to sewerage services.

The scope is narrowed to the human right to water because it is striking to observe that States delegate their obligations concerning this human right to private companies, whereas it is such an essential right for the human beings.3 After such privatization agreements are signed, though

the water remains the property of the State, the utilities such as distribution and sewerage are privatized.4 In many cases, such contracts are not really fruitful for the population.

The Suez and Vivendi v Argentina case5, a textbook case in the matter, depicts in a clear manner what human rights concerns can be raised by such a dispute. The State of Argentina was unable to provide its population with access to potable water and sewerage services. In order to render these services accessible to Argentinian citizens at a low price, they were privatized. When, few years later, Argentina experienced an economic crisis, the government had to take some measures that affected the investors’ rights. The Tribunal considered that these measures didn’t constitute a fair and equitable treatment. Among others, Argentina argued that the measures were needed ‘in order to safeguard the human right to water of the inhabitants of the country.’6

However, the Tribunal found that human right and investment obligations were not exclusive

1 T Van Ho ‘ESIL-International Human Rights Law Symposium: IHRL and Investment Law – What Could A

Human Rights Based Approach Look Like?’ (10 February 2016) EJIL < http://www.ejiltalk.org/esil-international-human-rights-law-symposium-ihrl-and-investment-law-what-could-a-human-rights-based-approach-look-like/> (04 May 2017).

2 ICSID Aguas Argentinas, S.A., Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A.

v The Argentine Republic No. ARB/03/19; ICSID Biwater Gauff (Tanzania) LTD. v United Republic of Tanzania No. ARB/05/22; ICSID Azurix CORP. v The Argentine Republic No. ARB/01/12; ICSID Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine Republic No. ARB/07/26.

3 T Meshel ‘Human Rights in Investor-State Arbitration: The Human Right to Water and Beyond’ (2015) J Intl

Dispute Settlement 6(2), 287.

4 B Farrugia ‘The Human Right to Water: Defences to Investment Treaty Violations’ (2015) Arbitration Intl (0) 8. 5 ICSID Aguas Argentinas, S.A., Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A.

v The Argentine Republic (Decision on Liability) No. ARB/03/19 (30 July 2010).

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and Argentina should have figured a way to respect both. Argentina was found liable for its breaches of the Bilateral Investment Treaty [BIT].

In this decision IIL obligations are prevailing over IHRL and the outcomes are important because arbitral awards are final and binding and the ICSID awards are even subject to a special enforcement procedure.7

Water issues have been at the core of many disputes under the ICSID Convention. Howbeit the right to water, at the international level, can be approached in several frameworks, such as the international economic, the environmental or the human rights one8, this thesis focuses on the protection of the right to water as a human right.

The ICSID is the arbitration institution which is the most referred to in IIAs9 between States as

the regime to be used for investment arbitration.10 Since ICSID has decided on many privatization of water services disputes, its framework has been chosen for the evaluation of the protection of human rights in investment disputes.11

Hence, the research question addressed by this thesis is: To what extent are human rights protected under ICSID arbitration and how to extend their protection? And in order to answer this question, this thesis assesses the extent of the protection of the human right to water under ICSID arbitration, as an illustration for all human rights. And the following subquestions will guide to the response to the main question: Has the human right to water already been taken into account in ICSID arbitration? If so, what are the mechanisms that have been used by the parties and by arbitrators? And were attempts to bring up human rights arguments successful until now? [B] Considering the answers to the previous questions, are human rights protected enough in ICSID arbitration? And how can States broaden human rights’ protection in arbitration? [C]

In other words, this paper sought to describe the position of human rights in ICSID arbitration thanks to a descriptive approach of the situation of the human right to water in investment

7 ICSID Convention (adopted in Washington on 18 March 1965, entered into force on 14 October 1966) art 54. 8 A Gaughran ‘Business and Human Rights and the Right to Water’ (2012) ASIL Annual Meetings Proceedings

106, 54.

9 The term IIAs is used to refer to standalone bilateral investment treaties (BITs), bilateral and regional free trade

agreements that include foreign investment obligations, and to sectoral treaties, such as the Energy Charter Treaty (ECT), that include investment obligations.

10 C Schreuer ‘Investment Disputes’ in R Wolfrum (ed) Max Planck Encyclopaedia of Public International Law

(2013) <www.mpepil.com> (12 April 2017) [46].

11 D EH Allen ‘“This Business Will Never Hold Water” International Investment Arbitration on

Public-Private Water Service Provision - A Comment on Biwater Gauff (Tanzania) Limited v. United

Republic of Tanzania’ (13 January 2010) 7 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1540256> (30 May 2017).

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arbitration. This thesis also describes the role of human rights in existing IIAs and the opinion of the doctrine on the function of human rights in the investment field. Thus, this first part aims at describing the current situation of human rights in ICSID arbitration and the clear trend towards a greater recognition of the necessity to include the protection of human rights both in investment treaties and in the arbitral context. Then, considering how the jurisprudence has developed, what the doctrine have brought and what can be found in modern IIAs, the thesis conducts an advisory approach and suggests methods to enhance the protection of human rights in ICSID arbitration.

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B. Each case tends further towards a greater integration of human rights

The following chapter describes the content of the ICSID case-law regarding the human right to water. Thanks to the presentation of the cases in a chronological order, it is possible to observe how the protection of human rights has evolved in the last fifteen years. This chapter tends to evaluate whether parties and arbitrators refer to human rights during arbitration and if so, how they bring human rights considerations under this investment context. From the Aguas del Tunari v Bolivia case (2005) to the Urbaser v Argentina case (2016), many approaches and methods have contributed to a greater protection of human rights. In order to observe this trend in arbitration with accuracy, these approaches and methods must be scrutinized.

1. Aguas del Tunari v Bolivia (2005)

In 1998, the Bolivian government decided to privatize the water and sewage services in the city of Cochabamba.12 The claimant was supposed to provide a regular volume of drinkable water of a certain quality.13 Soon, the enterprise increased water bills by an average of over 50%, leaving the population unable to pay.14 After massive opposition to the Concession, the contract was finally terminated in 2000.15

The NGO’s request to introduce an amicus curiae was introduced before the adoption, in 2006, of article 37(2) of the Arbitration Rules of the ICSID which expressly authorizes amicus curiae submissions.16 Nevertheless, it is interesting to read the NGOs’ reasons for their petition for participation. They considered that this decision would affect issues of broad public concerns. Thus, ‘it would be unfair and inconsistent with the principles of fundamental justice to deny [the Petitioners] opportunity to defend their interests’.17 Further Petitioners, composed i.e. by

SEMAPA18, argued that if the claimant would be successful in its request, SEMAPA would

likely be partly responsible for paying. In order to pay the award, it would augment the price citizens pay for water and thereby limit their access to water.19 That would also affect thousands

12 ICSID Aguas del Tunari, S.A. v Republic of Bolivia (Decision on Respondent’s Objections to Jurisdiction) No.

ARB/02/3 (21 October 2005) [52].

13 ibid [57].

14 ICSID Aguas del Tunari, S.A. v Republic of Bolivia (NGO Petition to Participate as Amicus Curiae) No.

ARB/02/3 (29 August 2002) [1].

15 Aguas del Tunari (Decision on Respondent’s Objections to Jurisdiction) (n12) [73].

16 ‘[T]he Tribunal may allow a person or entity that is not a party to the dispute […] to file a written submission

with the Tribunal regarding a matter within the scope of the dispute.’

17 Aguas del Tunari (NGO Petition to Participate as Amicus Curiae) (n14) [2].

18 The Bolivian company that used to be in charge of the city’s sewage and water system. 19 Aguas del Tunari (NGO Petition to Participate as Amicus Curiae) (n14) [6].

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of families who live on irrigation of food corps and who incidentally produce much of the food eaten in Cochabamba.20

Eventually, their request was dismissed.21 Nonetheless, it shows undoubtedly how an investment dispute can raise major concerns regarding the human rights of the population concerned. Furthermore, the UNHR Council qualified this case an illustration of the threat to a ‘democratic and equitable international order’ that constitutes ‘arbitral Tribunals that acts as if they were above international human rights regime’.22

2. Azurix Corp. v Argentina (2006)

The distribution of potable water and treatment of sewerage in the province of Buenos Aires had been offered as a Concession to an investor.23 Eventually, the Province terminated the contract because of the claimant’s failure to provide the services.24

In arbitration, Argentina brought up the conflict that arose between the investors’ protection offered by the BIT and the consumers’ protection provided by human rights treaties. Following the Argentinian expert, it should be resolved in favour of human rights.25 Albeit Argentina sought to introduce human rights consideration in the arbitration procedure, it didn’t develop the argument further and the Tribunal didn’t dig either and concluded by a failure to understand the incompatibility of both protections in the present case.26

When discussing the allegation of expropriation, the Respondent declared that its intention, namely the public interest and the right to water, needed to be taken into consideration for the determination of its actions as a legitimate or confiscatory regulation.27 In response, the

Tribunal acknowledged that governments take plenty of legitimate actions that serve a public purpose and which may have an economic impact on investments, but the issue was rather whether these actions should give rise to compensation.28 The arbitrators declared that when a

20 Aguas del Tunari (NGO Petition to Participate as Amicus Curiae) (n14) [8].

21 ICSID Aguas del Tunari, S.A. v Republic of Bolivia (Letter from President of tribunal Responding to Petition)

No. ARB/02/3 (29 January 2003).

22 UNGA ‘Report of the Independent Expert on the Promotion of a Democratic and Equitable International Order,

Alfred-Maurice de Zayas’ Human Rights Council, 13th Session A/HR/30/44 (14 July 2015) [15], [22]. 23 ICSID Azurix Corp. v The Argentine Republic (Award) No. ARB/01/12 (14 July 2006) [38]. 24 ibid [44].

25 ibid [254]. 26 ibid [261].

27 P Thielbörger ‘The Human Right to Water Versus Investor Rights: Double-Dilemma or Pseudo Conflict ?’ in

P-M Dupuy E-U Petersmann and F Francioni (eds) Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) 497.

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State takes an expropriatory measure or a measure amounting to an expropriation29, the State is not held liable when the measure pursues a legitimate aim such as a public interest. The Tribunal explained that this type of measure constitutes a bona fide regulation within the accepted police powers of the State. Nevertheless, it considered that examining whether a regulatory measure is taken within the State’s police powers is not enough but this requirement must be complemented. Therefore, the Tribunal referred to the Tecmed case which invoked the principle of proportionality.30 Indeed, in the latter case, the Tribunal declared that ‘[t]here must be a reasonable relationship of proportionality between the charge or weight imposed to the foreign investor and the aim sought to be realized by any expropriatory measure.’31 And then, it cited

the ECtHR which considers that an expropriation must pursue a legitimate aim, such as the public interest, and must be proportional to this goal.32 Thus, the Tribunal, in Azurix, concluded that the test of proportionality between the means employed and the goal sought to be realised offers a useful guidance in determining whether regulatory actions which are expropriatory must give rise to compensation.33 Unfortunately, the Tribunal could have played an important role in the actual weighing of values between investment protection and regulation in the public interest34 but it didn’t assess the governmental actions because they didn’t amount to an expropriation.35 Nevertheless, it had the advantage of clarifying the connection between the principle of proportionality and the concept of State’s police powers.36

3. Biwater Gauff v Tanzania (2008)

Tanzania privatized its water system and the investor was supposed to operate the water production, transmission and distribution systems and the sewerage system.37 Namely, the contract aimed at guaranteeing the right to water.38 As the claimant failed to ensure it, Tanzania terminated the contract and seized Biwater’s assets, occupied the facilities and deported part of

29 In the rest of this thesis, the ‘measures amounting to an expropriation’ are referred as ‘expropriatory measure’

in order to use one generic term.

30 Azurix (Award) (n23) [310-311].

31 ICSID Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States (Award) No. ARB(AF)/00/2 (29

May 2003) [122].

32 ECtHR Case of James and Others v The United Kingdom (Judgement) No. 8793/79 (21 February 1986) [50]. 33 Azurix (Award) (n23) [312].

34 T Meshel (n3) 289.

35 Azurix (Award) (n23) [322].

36 J Krommendijk and J Morijn ‘‘Proportional’ by What Measure(s)? Balancing Investor Interests and Human

Rights by Way of Applying the Proportionality Principle in Investor-State Arbitration’ in P-M Dupuy E-U Petersmann and F Francioni (eds) Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) 440.

37 ICSID Biwater Gauff (Tanzania) LTD. v United Republic of Tanzania (Award) No. ARB/05/22 (24 July 2008)

[8].

38 U Kriebaum ‘Foreign Investment & Human Rights – The Actors and Their Different Roles’ (2013) 10(1)

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the staff. 39 Then, the investor seized an ICSID Tribunal under the BIT between the United Kingdom and Tanzania.40

This case is characterised by the filing of an amicus curiae grounded on the Rule 37(2) of the Arbitration Rules of the ICSID.41 The petitioners declared that the main goal of the contract between the parties was to reduce the proportion of people who are unable to reach or to afford safe drinking water.42 And likewise, they state that the arbitration process must decide on more than a commercial or private issue because the decision will substantially impact the citizens’ ability to enjoy basic human rights.43 In its response, the Tribunal declared that their submissions addressed matters considered to be within the scope of the dispute’.44

In the award stage, the government invoked the human right to water implicitly when it argued that ‘water and sanitation services are vitally important, and the Republic has more than a right to protect such services in case of a crisis’.45 In other words, in order to respect its human rights

obligations, including ensuring the right to water for its population, Tanzania had to terminate the contract entered into with the investor even if it breached the BIT.46 Furthermore, Tanzania

considered that regarding ‘the importance of the issue at hand, […] the Government acted well within the Republic’s margin of appreciation under international law’.47 This ‘margin of

appreciation’ argument is directly grounded on a doctrine developed by the ECtHR.48

Nevertheless, despite the fact that the amicus curiae and the Respondent requested to take the human right to water into consideration, the Tribunal did not tackle the importance of human rights for arbitrating the case49 nor the margin of appreciation that the Respondent may have enjoyed.50

However, the Tribunal, when deciding whether the litigious measures were amounting to expropriation measures, it concluded that they were not justified by necessity or any impeding

39 Biwater (Award) (n37) [15]. 40 ibid [17].

41 ICSID Biwater Gauff (Tanzania) Limited v United Republic of Tanzania (Petition for Amicus Curiae Status)

No. ARB/05/22 (27 November 2006) 2.

42 ibid 7. 43 ibid 8.

44 ICSID Biwater Gauff (Tanzania) Limited v United Republic of Tanzania (Procedural Order No. 5) No.

ARB/05/22 (2 February 2007) [50].

45 Biwater (Award) (n37) [434]. 46 U Kriebaum (n38) 6.

47 Biwater (Award) (n37) [436]. 48 T Meshel (n3) 290.

49 R Pavoni and L E Samuele ‘Environmental Rights, Sustainable Development, and Investor-State Case Law: A

critical Appraisal’ in P-M Dupuy E-U Petersmann and F Francioni (eds) Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) 529.

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public purpose. Thus the Tribunal was balancing the public interest that could justify an expropriatory measure with the effects of the Republic’s acts (i.e. usurpation, occupation, deportation).51 Therefore, when the Tribunal balanced the investment protection and the public

purpose sought by Tanzania, without naming it, it applied some steps52 of the proportionality

test.53

4. Suez and Vivendi v Argentina (2010)

In the eighties, the Argentine Republic suffered a severe decline of its economy. Hence, its public enterprises met serious troubles like under-investment, inefficient management of resources, losses, etc. These circumstances led to the deterioration of the ‘quality and quantity of water and sewage services provided to the public and the inability to expand the services to all inhabitants’.

Argentina engaged in a process of privatization of such public services. Therefore the Argentine Republic offered, on the international market, the Concession of the water distribution and the waste water management of the city of Buenos Aires and the other twenty-three provinces managed until then by Obras Sanitarias de la Nación, a corporation run by the government. In 1993, Aguas Argentinas S.A., an entity organised and managed by Suez and Vivendi, signed the Concession agreement and water distribution and management were privatised. In this case the Tribunal declared, ‘Argentina was not seeking just any investor, but an investor who would provide comprehensive and efficient service at the lowest cost to users.’ Thus the access to potable water and sewage services came in the hands of private investors who should invest new capital and technology therein.

For eight years, the contractual relationship worked well but, in 2001, Argentina was plunged into a severe financial crisis. The government took several measures to deal with it such as the Emergency Law. This law abolished the currency board that had linked the Argentine Peso to the U.S. Dollar, abolished the adjustment of public service contracts according to agreed upon indexations and authorized the executive authorities of the State to renegotiate all public services contracts. This measure combined with others altered the investment framework of the claimant and the reason for their complaint.

51 Biwater (Award) (n37) [515-516].

52 The several sub-elements of the proportionality test will be studied in a further chapter. 53 J Krommendijk and J Morijn (n36).

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The Tribunal concluded that the Emergency Law and the renegotiation process of the Concession Contract that the government had set up were contrary to the BIT. Thus the Tribunal decided that Argentina was responsible for the failure to grant a fair and equitable treatment to the applicant.

Argentina argued its defence on the ground of necessity which is to be found in article 25 of the International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts. Considering the financial crisis that had struck the world, an ‘economic recovery package’ was the unique way to react to the crisis. And the respondent adds that the litigious measures were necessary ‘to safeguard the human right to water of the inhabitants of the country’. In the light of the fundamental role of water in sustaining life and health, Argentina requested a broader margin of appreciation when evaluating the conformity of the governmental actions with treaties obligations.

The Amicus Curiae also contended that the case involved basic public interest and fundamental rights and that IHRL required from Argentina to adopt measures to respect, protect and fulfil the right to water for their population. Thus, NGOs have stated that Argentina had to ensure the access to water, including financially speaking, and that consequently its actions were in conformity with IHRL which should be taken into account when interpreting the BIT.

On the other hand, the Claimant argued i.e. that this dispute was about Argentina breaching its obligations under the BITs and that IHRL was out of place in that matter.

Finally, the Tribunal decided in the same way. Even though the crisis has been harsh and Argentina had to preserve its public order and security interests, it was not sufficient to preclude Argentina from respecting its treaties obligations. The Tribunal considers that the conditions to plead necessity were not met. Especially, the arbitrators didn’t find any basis to conclude that the State’s obligations regarding the human right to water would trump the obligations that Argentina had under the BIT. Argentina should have figured out a way to respect both IHRL and its treaty obligations.

5. Saur v Argentina (2012)

Saur, a French company, had been granted with the Concession regarding the operation of water and sewage services in the Argentine Province of Mendoza.54 When the financial crisis arose, the Province of Mendoza had to enact emergency measures impacting the investor’s interests.

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Hence, the investor claimed an increase of the water tariffs which was refused.55 At some point, the situation of the company became so precarious that the company couldn’t provide its services properly. In order to avoid a severe infringement to the public interest, to the population’s health and to the human right to water, the Concession contract was terminated.56

In the decision on jurisdiction and liability, Argentina expresses that its obligations towards the investor did not modify its human right obligations which are part of the constitutional Argentinian legal order. Further, it asserts that investment obligations must be interpreted in conformity with human rights and more specifically with the human right to water. Thus, when Argentina intervened administratively and then terminated the contract, it was acting within its police powers.57 The Tribunal endorsed this argumentation. It considered that human rights, and more particularly the right to water, are part of the diverse sources that should be taken into account when deciding in the award. Access to potable water is a public service of first necessity that constitutes a fundamental right for the citizens. Moreover, the public authority has a legitimate power to intervene in order to protect the general interest.58 However, the Tribunal considered that the fundamental right to water and the right of an investor to protection of its investment operate on different planes59 and its task must be to balance these two principles.60 Unfortunately, while the Tribunal recognised the involvement of the human right to water and the necessity of balancing different rights, it didn’t appear both in the decision on liability and the final award on compensation. Therefore, this decision acknowledges the human right to water but does not integrate it into the international legal framework on investments.61

6. Urbaser v Argentina (2016)

Anew, the claimant was in contractual relationship with Argentina regarding the privatization of water and sewerage services. Following emergency measures that have caused the investor’s loss and the termination of the contract, he filed a complaint for violations of the Spain-Argentina BIT.62 Then, Argentina filed a counterclaim grounded on article 46 of the ICSID Convention which supports that ‘Except as the parties otherwise agree, the Tribunal shall, if

55 SAUR (Sentence) (n54) [68].

56 CIRDI SAUR International S.A. c. République argentine (Décision sur la Compétence et sur la Responsabilité)

No. ARB/04/4 (6 June 2012) [32].

57 ibid [328]. 58 ibid [330]. 59 ibid [331]. 60 ibid [332].

61 T Meshel (n3) 294.

62 ICSID Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine

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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.’ A counterclaim is the opportunity for a State that is being sued to respond by claiming that the investor also breached its obligation. In this case, Argentina alleged that the concessionaire’s failure to provide the necessary investment violated International Law including the human right to water.63

By accepting a counterclaim based on human rights obligations, the Tribunal simplified the jurisdictional requirements for ICSID counterclaims.64 Indeed, the counterclaim must respond to three conditions: the consent, arising directly out of the subject matter of the dispute and being within the jurisdiction of the Centre. The consent is quite easy to establish. The jurisdiction of the Centre refers to article 25 of the ICSID Convention. As for the second conditions, it is clear-cut when the first claim arose from a breach of the contract and so does the counterclaim. However, it is more complicated when, like here, the counterclaim does not rely on the same instrument, but rather on human rights obligations.65

This decision is important because, for the first time, an ICSID arbitral Tribunal accepted jurisdiction over a human rights counterclaim.66 The Tribunal considered that the requirements

of article 40 of the Arbitration Rules of the ICSID were met considering that both claims were grounded on the same investment. The ‘Respondent argues indeed that Claimants’ failure to provide the necessary investments caused a violation of the fundamental right for access to water, which was the very purpose of the investment agreed upon in the Regulatory Framework and the Concession Contract and embodied in the protection scheme of the BIT. It would be wholly inconsistent to rule on Claimants’ claim in relation to their investment in one sense and to have a separate proceeding where compliance with the commitment for funding may be ruled upon in a different way. Reasonable administration of justice cannot tolerate such a potential inconsistent outcome.’67

63 Urbaser (Award) (n62) [36].

64 E Guntrip ‘Urbaser v Argentina: The Origins of a Host State Human Rights Counterclaim in ICSID Arbitration?’

(10 February 2016) EJIL < https://www.ejiltalk.org/urbaser-v-argentina-the-origins-of-a-host-state-human-rights-counterclaim-in-icsid-arbitration/> (16 May 2017).

65 J A Rivas and J Choi (Arnold & Porter LLP) ‘Three Recent Decisions Further Shaping Investment Treaty Case

Law on Counterclaims: Part I’ (13 October 2015) < http://kluwerarbitrationblog.com/2015/10/13/three-recent-decisions-further-shaping-investment-treaty-case-law-on-counterclaims-part-i/> (14 July 2017).

66 ibid [1155]; E Guntrip (n64). 67 Urbaser (Award) (n62) [1151].

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Regarding the merits, the reasoning of the Tribunal goes as it follows. First, the focus is on the applicable law under the BIT. Article X(5) of the BIT requires from the Tribunal to take its decision, when suitable, on the basis of the general principles of IL.68 This provision can only

be meaningful as long as the BIT is not interpreted and applied in a vacuum with the sole purpose of protecting investors’ rights.69 The VCLT compels to interpret in good faith.70 In

other words, the BIT must be interpreted ‘in respect of its purpose as a rule with an effective meaning’ in order ‘to avoid an interpretation which leads to either an impossibility or absurdity or empties the provision of any legal effect’.71 Moreover, if a matter is governed by both the

BIT and a source of IL, the parties are subject to the more favourable source.72 To sum up, the BIT is not to be applied as a secluded set of rules of IL.73

The second part targets the relationship between the BIT and IL including HR. 74 The Tribunal conceded that the UDHR provides for a right to a standard of living adequate for health and for everyone’s dignity and that no individual or entity public or private can’t complete any act that would go against those rights and freedoms. The International Covenant on Economic, Social and Cultural Rights contains a right to secure an adequate standard of living which extend to the right to water. Thus, the latter rights can’t be disrespect by any public or private parties’ activities. The arbitrators further recalled that the BIT must be interpreted in the light of the VCLT which supports that an interpretation in harmony with the other set of rules of IL, such as IHRL.75 Besides, article X(5) BIT and 42 ICSID Convention have a similar approach. The right to water is recognised as a human right complemented by an obligation for States to provide it for people under their jurisdiction but the Court needed to answer whether it is also completed by a duty based on IL on part of the investors.

The respondent said that, under the Concession agreement, the investor had to provide sewage and services and thus fulfil the right to water. Hence, the Tribunal concluded that the investor’s obligation to ensure access to water was not based on international law but rather on the Concession agreement. Furthermore, the BIT did not confer any obligations to perform services

68 Agreement between the Argentine Republic and the Kingdom of Spain on the Reciprocal Promotion and

Protection of Investments (adopted 3 October 1991, entered into fore 28 September 1992)

<https://www.investorstatelawguide.com/documents/documents/BIT-0008%20-%20Argentina-Spain%20(1991)%20[english%20translation]%20UNTS.pdf> (16 May 2017) art X(5).

69 Urbaser (Award) (n62) [1189]

70 United Nations, Vienna Convention on the Law of Treaties (adopted in Vienna on 23 May 1969 and entered

into force on 27 January 1980) Treaty Series vol. 1155 p. 331 art 31§1.

71 Urbaser (Award) (n62) [1190]. 72 Argentina-Spain BIT (n68) art VII(1). 73 Urbaser (Award) (n62) [1992]. 74 ibid [1195-1210].

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in compliance with human rights. Thus, Argentina could not identify an independent obligation in IL that could bind the claimant. In conclusion, the human right to water requires an obligation of compliance for States but no obligation for the company. Thus, the Tribunal decided that the counterclaim should fail.76

7. The state of case-law: developments and remaining deficiencies

In the related cases, States have attempted to introduce human rights considerations into investment arbitration. Except in Urbaser, States were responding that the enactment of the litigious measures were necessary to respect their human rights obligations towards their respective population. While in the Urbaser case, Argentina was claiming that the investor had violated the human right to water.

Thus, two sorts of cases can give rise to human rights concerns in the field of IIL arbitration. Either, States take measures in order to fulfil their human rights obligations and they actually act in breach of the IIA. Either, the foreign investor himself has proceeded to human rights violations that should prevent him from enjoying the protection of its interests by the IIA.77 In the previous cases, human rights were brought up by several means.

Since amicus curiae petitions are formally authorised in ICSID arbitration, non-disputing parties are free to file a written submission regarding human rights violation as long as the request respects the conditions set by the Arbitration Rules. This way, when the human rights of the population are touched upon by the result of the failed investment, the population’s voice can be heard in the proceedings.

The police power doctrine and the principle of proportionality were both recognised by tribunals. Thanks to the police power the State can take an expropriatory measure without compensation when it aims at protecting public interests such as human rights. The test of proportionality on the other hand, balances the public purpose of the litigious measures with the protection that should investors benefit from the IIA. Thus, the Tribunal recognizes that a State has international human rights obligations and that it must take all the necessary measures to fulfil them.

The Urbaser case, the most recent one, is even a step further in the direction of the integration of human rights’ protection in ICSID arbitration. The requirements concerning the acceptance of an ICSID counterclaim got clarified and it opened a way for a general acceptance of human

76 Urbaser (Award) (n62) [1220-1221]. 77 B Farrugia (n4) 6.

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rights counterclaim.78 Regarding the common subject-matter that must exist in the claim and the counterclaim, 79 a manifest factual link is sufficient.80 Not limiting the connection to the legal one, authorizes a broader range of counterclaims for States.81 The counterclaim must also

be within the jurisdiction of the Centre,82 which means that it should arise directly out of an

investment.83 In that regards, it seems that a human rights based counterclaim must not be

rejected on a simple prima facie basis and that this kind of counterclaim does not necessarily falls outside of the Tribunal’s competence.84

However, regarding the substantive law that can form the bedrock for a counterclaim, it is not clear yet what are the sources capable of creating the ground for a human rights counterclaim.85 Hence, there is a trend towards a greater integration of human rights in IIL arbitration. Both States and arbitrators have developed their argumentation in that direction. Besides, even if arbitral decisions are not considered to be authoritative element in Tribunals’ reasoning or conclusions,86 arbitral tribunals have a general duty to contribute to a harmonious development

of IIL.87 Thus, the case law clarifies the line of conduct of ICSID arbitration which tends to a

greater integration of human rights. However, it also clarified the remaining deficiencies. Indeed, it appears that States have failed until now to win any case that was involving the human right to water.

This statement leads us to the next chapter which focuses on the means to broaden the protection of human rights in ICSID arbitration. Considering how the case law has evolved, what the doctrine advices and human rights reference that can be found in modern IIAs, the next chapter advices methods to strengthen the protection of human rights in ICSID arbitration.

78 E Guntrip (n64).

79 ICSID Convention (n7) art 46. 80 Urbaser (Award) (n62) [1151]. 81 E Guntrip (n64).

82 ICSID Convention (n7) art 46. 83 ibid art 25.

84 Urbaser (Award) (n62) [1154], E Guntrip (n64). 85 E Guntrip (n64).

86 PCA Romak S.A. (Switzerland) v The Republic of Uzbekistan (Award) No. AA280 (26 November 2009) [170]. 87 ICSID Saipem S.p.A. v The People’s Republic of Bangladesh (Award) No. ARB/05/7 (30 June 2009) [90]; ICSID

SGS Société Générale de Surveillance S.A v. Republic of the Philippines (Decision of the Tribunal on Objections to Jurisdiction) No. ARB/02/6 (29 January 2004) [97].

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C. Methods to broaden the protection of human rights in arbitration

From the upper case-law, it can be attested that ‘[w]hen the responsibility for water provision is transferred from a government to a private contractor, there is a potential for conflicts between a State’s human rights obligation to ensure safe drinking water and a State’s contractual obligations to its private sector partner.’88 In order to improve the protection of human rights in ICSID arbitration, this thesis identifies five different methods. First, the doctrine of police powers would bring the public interests of the host State on the front stage (1). Then, the principle of proportionality would secure a balanced evaluation of police powers argument (2). IIAs could also include an exception clause which guarantee the regulatory power of States to protect their legitimate public welfare objectives (3). Besides, the applicable law, the jurisdiction clause and as different methods of interpretation could contribute to the integration of IHRL in the field of IIL (4). Finally, through amicus curiae submission, human rights consideration can integrate the arbitral debate (5).

1. Police powers doctrine

In IL it is recognised that a State has the right to take some measures in the exercise of their police powers. As an elementary component of their sovereignty, States have a general right to regulate even if it significantly alters foreign interests. Thus, these measures do not require any compensation to be paid because they are essential for the functioning of the State.89 In other words, police powers are ‘[t]he powers granted by the Constitution of the State in order to govern, establish, adopt as well as enforce laws that are designed for the protection as well as preservation of the public health. The government also gets the right to make use of private property for public usage.’90 On the contrary, complying with IIAs is a restriction to the State’s

right to use its police powers. To sum up, following the police powers doctrine, when a non-discriminatory taking of property happens without compensation, it can be lawful if decided for a reason of public interest.91

In Suez and Interagua v Argentina, the Tribunal ‘acknowledges that States have a legitimate right to exercise their police powers to protect the public interest. […] The police powers

88 D EH Allen (n11) 16.

89 J Krommendijk and J Morijn (n36) 432; OECD ‘"Indirect Expropriation" and the "Right to Regulate" in

International Investment Law’ OECD Working Papers on International Investment, 2004/04, OECD Publishing <http://dx.doi.org/10.1787/780155872321> (28 May 2017) 4-5.

90 <http://thelawdictionary.org/police-power/> (28 May 2017).

91 A Pellett ‘Police Powers or the State’s Rights to Regulate’ in M Kinnear, G R Fischer, J R Almeida, L F Torres,

M U Bidegain (eds.) Building International Investment Law – The First 50 Years of ICSID (Kluwer Law International Alphen 2016) 448.

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doctrine is a recognition that States have a reasonable right to regulate foreign investments in their territories even if such regulation affects investor property rights.’ However, the Tribunal limited the application of this doctrine to case of expropriation.92

In Tecmed v Mexico, the Tribunal clearly confirmed the application of the doctrine ‘The principle that the State’s exercise of its sovereign powers within the framework of its police power may cause economic damage to those subject to its powers as administrator without entitling them to any compensation whatsoever is undisputable.’93

The recurring recognition of the doctrine of police powers has brought a strong support to it. Besides, it contributes to define its scope and extent.94 In Fireman’s Fund v Mexico, arbitrators made a list of the factors which should be taken into account to determine the whether an expropriation occurred. To distinguish whether such an expropriation should be compensable or not, the Tribunal retain the following elements: ‘whether the measure is within the recognized police powers of the host State; the (public) purpose and effect of the measure; whether the measure is discriminatory; the proportionality between the means employed and the aim sought to be realized; and the bona fide nature of the measure.’95

Considering the varying arbitral jurisprudence as to the scope of police powers, some recent IIAs have included provisions regarding indirect expropriation and the right to regulate.96 The US model BIT provides that:

‘Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.’97

The Canada’s model BIT states that:

‘Except in rare circumstances, such as when a measure or series of measures are so severe in the light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith, non-discriminatory measures of a Party that are designed and

92 ICSID Suez, Sociedad General de Aguas de Barcelona S.A., and InterAgua Servicios Integrales del Agua S.A.

v The Argentine Republic (Decision on Liability) No. ARB/03/17 (30 July 2010) [147-148].

93 Tecmed (n31) [119]. 94 A Pellett (n106) 451.

95 ICSID Fireman’s Fund Insurance Company v The United Mexican States (Award) No. ARB(AF)/02/01 (17

July 2006) [176].

96 OECD (n104) 21.

97 US Model BIT <https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf> (28 May

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applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriation.’98

Accordingly, States have done endeavours to protect their regulatory powers. By incorporating such provision in IIAs, it clarifies the scope and extent of the concept of police powers and offers a provision to rely on for Tribunals.99

The remaining issue is whether human rights are included in this ‘public welfare objective’. The wording ‘such as’ seems to imply that the list provided is rather illustrative than exhaustive and could include human rights. Moreover, the terms ‘except in rare circumstances’ indicate that regulatory takings not compensated with a payment are the general rule. Thus, the use of police powers in order to protect human rights appears to be considered as a regulatory act that does not entail any compensation. Besides, investment treaties can also clearly formulate in a provision the legitimate public welfare objectives that are covered by police powers.100 And if

the scope and extent are not clearly formulated in the IIA, arbitral Tribunals have to interpret what is covered by it. In Saur v Argentina, the Tribunal acknowledged that access to potable water is a public service of first necessity that constitutes a fundamental right and that the public authority has a legitimate power to intervene in order to protect the general interest.101 Thus, police powers encompass the general interest of the population. Arbitral tribunals seem to be opened to a broad interpretation of the concept of police powers including measures taken in order to protect human rights.

To recap, the concept of police powers is admitted in ICSID arbitration. But tribunals have outlined that the general interest sought by States must be balanced with the effect of the expropriatory measure on the investor’s rights. Unfortunately, in the related cases, the doctrine was only cited but not fully applied. Either, the Tribunal considered that the State didn’t act in the exercise of its sovereign powers. Either, arbitrators considered that the measure did not amount to an expropriation. Or while arbitrators reached the conclusion that the State was acting within its police powers, they didn’t operate the balancing in the award.

To conclude, when taking an expropriatory measure in order to fulfil their human rights obligations, States could avoid to compensate the investor thanks to the police powers doctrine.

98 Canada’s 2004 Model Foreign Investment Promotion and Protection Agreement (FIPA)

<http://www.italaw.com/documents/Canadian2004-FIPA-model-en.pdf> (18 April 2017) Annex B.13(1).

99 J Krommendijk and J Morijn (n36) 435.

100 Free Trade Agreement between the Republic of Korea and the United States of America’

<http://www.wipo.int/edocs/lexdocs/treaties/en/kr-us/trt_kr_us.pdf> (29 May 2017) Annex 11-B ‘For greater certainty, the list of “legitimate public welfare objectives” in subparagraph (b) is not exhaustive.

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As every Tribunal could have a different interpretation of the legitimate objectives that are covered by the notion of the general interest, States should better introduce police powers provision in new or revised IIAs. Besides, the clause should include the proportionality principle because it is essential for the concept of police powers to be legitimately invoked by a host State in arbitration.102 Indeed, a too broad interpretation of the regulatory capacity for

States to take measures in the public interest could lower the protection of investment.103

2. The principle of proportionality

Recently the principle of proportionality has been approached by many academics and by arbitrators in ICSID.104 It promotes the solution of conflicts between different rights. The

principle eases the resolution of these conflicts by providing a method to balance public interest’s justifications for interferences, like human rights related arguments, with the investor’s rights.105 The principle requires a ‘reasonable relationship of proportionality between

the means employed and the aim sought to be realized’.106 In other words, three elements must

be assessed by the Tribunal: suitability, necessity and proportionality. The first step is to determine whether the measure is suitable for the goal pursued, it must be appropriate. Thus a causal link must exist between the act and the end intended. Then, it must be evaluated whether the measure is necessary or whether a less restrictive and burdensome measure could have achieved the same result. Finally if the measure is suitable and necessary, it should be observed whether the outcomes of the measure are proportional to the benefit sought. This last step is the proportionality test stricto sensu and involves balancing the effects of the measure on the investor’s rights with the desired objective.107 Therefore if the end pursued is very important,

like the protection of the human right to water, the means have a greater chance to be considered legal.108

This principle is borrowed to the field of IHRL but is spreading to various branches of IL.109

The first time the principle of proportionality has been formulated in ICSID arbitration was in

102 J Krommendijk and J Morijn (n36) 443. 103 ibid 436.

104 H Xiuli ‘On the Application of the Principle of Proportionality in ICSID and Proposals to Government of the

People’s Republic of China’ (2006) 13 James Cook University L Review 233

<http://www.austlii.edu.au/au/journals/JCULawRw/2006/11.txt/cgi-bin/download.cgi/download/au/journals/JCULRev/2006/11.pdf> (29 May 2017).

105 J Krommendijk and J Morijn (n36) 438. 106 H Xiuli (n104) 234.

107 P Ranjan ‘Using the Public Law concept of Proportionality to Balance Investment Protection with Regulation

in International Investment Law: A critical Appraisal’ (2014) 3 Cambridge J of Intl and Comparative L 856 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2549416> (29 May 2017) 856.

108 H Xiuli (n104) 234. 109 ibid 235.

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Tecmed v Mexico.110 The Tribunal cited the jurisprudence of the ECtHR and required ‘a reasonable relationship between the burden imposed on the foreign investor and the interest that the expropriating measure wanted to achieve’. 111 Since then, it has been applied in many ICSID

arbitrations, either in plain words as in Azurix v Argentina or without directly naming it as in Biwater Gauff v Tanzania.112

Even if the use of the proportionality test is supported, it has not been well applied in the Tecmed decision and in the further ones. The Tribunal’s argumentation was always jumping directly to the third step of the proportionality mechanism. The principle was always applied in a curtailed way.113 Nonetheless, although the current practice remains ambiguous, for arbitrators to balance public and private interest is already a significant development.114

Whenever the ECtHR relies on the principle of proportionality in its decisions, it is made on a textual basis.115 Similarly, when the WTO appellate body refers to the proportionality test it is

grounded on a provision of the GATT.116 Hence, what appears to be the best way to implement

a genuine use of the proportionality principle in IIL is to provide for a textual basis. As expressed above the United States have started to include references to the proportionality principles in the IIAs they conclude.117

With a legal basis, host States would have some legitimacy to bring a proportionality-related argument and arbitrators would be entailed to balance opposite interests. Some academics even go further and offer that in their decisions arbitrators could rely on human rights experts. ‘States should consider including in treaties mandatory referral procedures providing for consultation with expert agencies or human rights adjudicative mechanisms on human rights law issues.’118 This external expertise would also enhance the quality of the application of the proportionality test by arbitrators. 110 Tecmed (n31) [122]. 111 H Xiuli (n104) 240. 112 Biwater (Award) (n37) [515]. 113 P Ranjan (n107) 866.

114 J Krommendijk and J Morijn (n36) 446. 115 P Ranjan (n107) 876.

116 General Agreement on Tariffs and Trade (adopted 15 April 1994, entered into force 1 January 1995) art XX(b):

‘Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: necessary to protect human, animal or plant life or health’.

117 US Model BIT (n97). 118 T Meshel (n3) 302.

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3. General exception clauses

As already observed IIAs are mostly silent about human rights.119 The police powers doctrine integrates human rights considerations into IIL but in the limited context of expropriation measures. 120 Similarly, general exception clauses guarantee the regulatory power of States in order to protect legitimate public welfare objectives. Their goal is also to improve the host State’s flexibility to take regulatory measures affecting investors’ interests without being held responsible before arbitral Tribunals. General exception clauses include a limited list of objectives to which public interest can be attached.121 They are inspired by the international trade law field and its main instrument, the GATT.122

General exception clauses can already be found in some investment treaties such as the Canada’s New Model which provides that:

‘Subject to the requirement that such measures are not applied in a manner that would constitute arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary:

(a) to protect human, animal or plant life or health;

(b) to ensure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; or

(c) for the conservation of living or non-living exhaustible natural resources.’123

While the Canadian Model acknowledges the prime importance of the investor’s protection, it also declares that the protection can’t be ensured to the detriment of i.e. human life, health and exhaustible natural resources. It offers a more balanced situation to parties. This clause does not address human rights as such but expresses attachment to social and environmental issues. Further than asserting in the preamble of the IIA that the latter issues are relevant in foreign investment, the general exception clause elevates it a substantive treaty provision. Even if it doesn’t properly refer to the respect of human rights, an argument regarding the right to water

119 B Farrugia (n4) 18.

120 J Krommendijk and J Morijn (n36) 437.

121 L Sabanogullari ‘The Merits and Limitations of General Exception Clauses in Contemporary Investment treaty

Practice’ IISD (21 May 2015) <https://www.iisd.org/itn/2015/05/21/the-merits-and-limitations-of-general-exception-clauses-in-contemporary-investment-treaty-practice/> (4 June 2017).

122 GATT (n116) Art XX. 123 FIPA (n98) art 10(1).

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could be grounded on this clause and could convincingly be held in a front of an arbitral Tribunal.124

Unfortunately, until now there is no jurisprudence regarding general exceptions. Thus it remains to be determined how the balance will be achieved between the need for investors to be protected from arbitrary government and the obligation for government to regulate in order to fulfil domestic legitimate and public objectives.125

At the present time, it is more than 15 BITs that are in force between Canada and other States and which are containing general exception clause.126 The Norway Model BIT has also integrated such provision. Nowadays, Canada and Norway are still exceptions but those clause are progressively introduced in new or renegotiated IIAs.

4. Application of human rights law in international investment law

Arbitral Tribunals do not seem to consider that human rights considerations and private interests are mutually exclusive but rather that they can be balanced. However, they have often been reluctant to ‘admit human rights-based claims or incorporate human rights considerations in their decision-making’ because of the ‘party consent as the basis of the jurisdiction or authority of arbitral Tribunals’.127 Jurisdiction over a claim concerning the human right to water can be either grounded on a provision of the BIT including clearly the protection of human rights or on the jurisdictional clause providing for human rights law as part of the applicable law but IIAs rarely contain such clauses. Besides, thanks to certain methods of interpretation, it is possible to broaden the scope of jurisdiction of ICSID arbitral Tribunals.

At this stage, we already mentioned that police powers, the principle of proportionality and exception clauses could support the protection of human rights in ICSID arbitration. In addition, the jurisdictional clause, the applicable law and the principles of treaties’ interpretation would also offer possibilities to take human rights into consideration in arbitration.128

124 R Willard and S Morreau (Allen & Overy LLP) ‘The Canadian Model BIT – A Step in the Right Direction for

Canadian Investment in Africa?’ (18 July 2015) Kluwer Arbitration Blog

http://kluwerarbitrationblog.com/2015/07/18/the-canadian-model-bit-a-step-in-the-right-direction-for-canadian-investment-in-africa/ (18 April 2017).

125 B Farrugia (n4) 19.

126 Available on http://investmentpolicyhub.unctad.org/IIA/CountryBits/35; The Norway Model BIT has also

integrated such provision http://investmentpolicyhub.unctad.org/Download/TreatyFile/2873 (3 June 2017) art 24.

127 U Kriebaum (n38) 12. 128 T Meshel (n3) 295.

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The ICSID Convention organizes that the Tribunal should apply the rule of law agreed by the parties when deciding on the dispute. If the parties haven’t made a choice on the applicable law, the Tribunal applies the law of the Contracting State party to the dispute and the rules of IL when applicable.129

Thus, either the BIT binding the parties refers to the ICSID Convention, either it contains its own choice-of-law clause which could ‘include international law, covering treaties and customary law, as well as national law of the host State. Human rights law can be part of the applicable law as part of international law.’ But human rights norms can also be applied as part of the local law of the Host State. 130

Some IIAs mention IL as part of the applicable law, like the US model BIT which refers for the applicable law to the rules of IL and in certain cases to domestic law accompanied by the rules of IL.131

When it is left to the ICSID Convention to appoint the applicable law, the Report of the World Bank Executive Directors states that the term ‘international law’ should be understood as having the same meaning as the one offered by article 38(1)132 of the Statute of the International Court of Justice.133 In addition, it appears from an analysis of the travaux préparatoires and of international arbitral case-law that arbitral tribunals can resort to IL as a body of substantives rules.134 For these reasons, arbitrators have the possibility to apply IL including human rights,

customary IL and may even refer to jurisprudence of human rights courts regarding its interpretation and the application of its principles.

Therefore, tribunals are more and more willing to quote human rights instruments as authority for their decisions.135 In Tecmed v Mexico, the Tribunal referred to the European Convention

129 ICSID Convention (n7) art 42(1). 130 U Kriebaum (n38) 12.

131 US model BIT (n97) art 30.

132 a. international conventions, whether general or particular, establishing rules expressly recognized by the

contesting states; b. international custom, as evidence of a general practice accepted as law; c. the general principles of law recognized by civilized nations; d. subject to the provisions of Article 59, [.e. that only the parties bound by the decision in any particular case,] judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.

133 Report of the Executive Directors of the Convention on the Settlement of Investment Disputes between States

and Nationals of other States, 1 ICSID Reports 31 [40].

134 T Meshel (n3) 295; P-M Dupuy ‘Unification rather Than Fragmentation of International Law? The Case of

International Investment Law and Human Rights Law’ in P-M Dupuy E-U Petersmann and F Francioni (eds) Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) 56.

135 C Reiner and C Schreuer ‘Human Rights and International Investment Arbitration’ in P-M Dupuy E-U

Petersmann and F Francioni (eds) Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) 94.

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on human rights thanks to the BIT which was requesting from arbitrators to solve the dispute in accordance with IL.136

The issue of the application of IL as a set of substantive rules was largely discussed in Urbaser v Argentina. As explained above, the Spain-Argentina BIT provides that tribunals should take their decision on the basis of this Agreement or where appropriate on the ground of general principles of IL, international treaties binding the parties or domestic law.137 In addition, the ‘more favourable terms’ provision states that ‘[w]here a matter is governed by this Agreement and also by another international agreement to which both Parties are a party or by general international law, the Parties and their investors shall be subject to whichever terms are more favourable.’138 The Tribunal was reluctant to share the claimant’s position that human rights obligations are only to be borne by the State and never by private companies. The principle whereby companies are not subject of IL by nature and thus, are not capable of holding obligations is, nowadays obsolete. 139 Indeed, it is essential to protect against harm to human dignity regardless of whether the wrongdoer is a state or a company.140 Thus the resort to IL in arbitral decision is accepted by arbitrators. However, in Urbaser, the Tribunal could not find any ground in IL to attribute responsibility regarding the right to water to the investor.141 The

issue that remains is which legal ground is capable of holding investors responsible for a breach of human rights.

On the one hand, domestic law can play a certain role. If the applicable law include provisions of the host State’s ‘domestic law which bind the foreign investors to the respect of health, environmental, or social standards that the local population deems to be endangered by the investment.’142 This possibility is fully supported by the ICSID Convention as in the absence of any parties’ agreement, the Tribunal should apply the law of the Contracting State party to the dispute.143

On the other hand, the Tribunal in Urbaser agreed that a corporate social responsibility on the part of private companies in the field of international commerce was nowadays accepted in

136 B Farrugia (n4) 5.

137 Argentina-Spain BIT (n68) art X(5). 138 ibid art VII(1).

139 Urbaser (Award) (n62) [1193]. 140 C Reiner and C Schreuer (n135) 86. 141 Urbaser (Award) (n62) [1210].

142 F Francioni ‘Access to Justice, Denial of Justice, and International Investment Law’ in P-M Dupuy E-U

Petersmann and F Francioni (eds) Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) 72.

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