Title: Social security issues in international investment law: How a dispute on a social security exemption would be handled by an international investment tribunal
Keywords: Jurisdictional issues on disputes on social security laws, possible grounds of violations of social security laws, defences for social security laws
Persefoni Vernadou
Master-track: International Trade and Investment Law Name of Supervisor: Hege Elisabeth Kjos
Abstract
This thesis elaborates on the interaction between international investment law and social security law. The main enquiry is the extent to which international security law and investment law are two distinct fields with no overlapping scope, or whether there could be situations that might arise involving questions relating to both fields. Even though international economic law is usually viewed from a strict economic perspective, jurisprudence has demonstrated its effects on social policies involving issues of public health or public welfare. Furthermore, since it is suggested that international investment law and social security law may overlap in certain situations, it is further analysed how social security issues should be taken into account in an international investment law context. More specifically, the research question of the thesis is how international investment law affects a state’s right to regulate on social security issues through the resolution of investor-state disputes by arbitral tribunals. This question is part of the wider discussion on the interaction of international investment law and the rights of states to regulate on social policies.
The analysis begins with a current case pending before Greek administrative courts. While the case is founded in domestic law, it provides an interesting factual background which is transposed to international investment law in order to examine how these issues would be handled by an investor-state arbitration tribunal. More specifically, it is first examined how certain jurisdictional and admissibility issues might arise and how they could be resolved. Such issues concern inter alia the role and effect of the investment being in accordance with the laws of the host state, and the question whether international investment agreements (IIA) covers matters of social security laws. Second, possible host state violations of IIAs are assessed, including the treaty standards on indirect expropriation, fair and equitable treatment (FET), and the umbrella clause. Third and finally, possible defences of the respondent will be analysed; and these relate to exception clauses within the IIA, other international obligation of the host state, and possible counterclaims.
The thesis concludes that legal tools exist for investor-state arbitration tribunals to address social security issues within the context of international investment law. Jurisprudence shows ways in which international investment law has incorporated social consideration in disputes involving economic issues. However, for reasons of legal certainty, it is suggested that future IIAs make explicit provision for these issues, in a way that recently concluded IIAs do.
TABLE OF CONTENTS
1. Introduction...4
2. Jurisdictional and admissibility issues of investment cases involving social security law...5
2.1. Jurisdictional limits as to the types of claims that can be brought by the investor ...6
2.2. The issue of conformity of the investment contract with the laws of the host state...7
2.2.1. The criterion of investments “in accordance with the state law”...7
2.2.2. The possibility of estoppel argument brought by the complainant in the present case...9
2.3. Carve-outs...9
2.4. Interim conclusions...11
3. Grounds of violations within the IIA that may be invoked by the investor...11
3.1. The claims relating to expropriation...12
3.2. The fair and equitable treatment obligation (FET)...14
3.3. Observance-of-undertakings clauses...16
3.4. Interim conclusions...18
4. Grounds that the respondent state may invoke...19
4.1. Exceptions within the IIA...19
4.2. Invocation of international obligations as regards social security law...21
4.3. The role of EU obligations in investment disputes about social security laws. 22 4.4. The counterclaims that the host state may make...23
4.5. Interim conclusions...25
5. GENERAL CONCLUSIONS...26
1. INTRODUCTION
The field of international investment law has received much public criticism about the limiting effect it has on a state’s right to regulate and the effect it has on social policies and their implementation.1 The challenging by investors of measures taken in pursuance of public policy objectives such as public health, has raised concerns about the effect of obligations undertaken under international investment law on the freedom of states to enact new public policy measures. For example, could a new law raising the amount of social security contributions to protect the economic viability of social security funds be challenged as a measure resulting in indirect expropriation? Relatedly, what should be the balance to be achieved between social policies and the protection of the economic interests and property rights of investors? The research question of this thesis addresses these concerns about the interaction of international investment law and social security law. More specifically, it is examined how social security issues should be addressed in a dispute between a foreign investor and a state applying the rules of an international investment agreement (IIA).
The starting point of the analysis is an administrative case before the Council of State, the supreme administrative court of Greece, which involves a foreign investor, and is based on an investment contract between the investor and Greece. The investment contract contained a social security exemption for the investor for the contributions of the employees, leaving this group without social security coverage. In this point, it should be noted that the pension rights in Greece depend on the working days and the contribution paid for the insured person;2 therefore this exemption directly interferes with the rights of the employees. A few years after the contract was signed, a law was enacted that retroactively obliged the investor to pay the amounts that the agreement exempted it from.
The present thesis analyses how the claims in this dispute should be handled if the investor would bring the a case before an investor-state arbitration tribunal set up pursuant to an IIA, and more specifically the Greece- Cyprus bilateral investment treaty (BIT).3 The thesis shows that international investment law and social security law do not constitute separate regimes but in fact overlap and interact with each other. It analyses the claims that each side of the dispute can invoke and how a tribunal might evaluate them. In this sense, it shows the clash that sometimes appears between the economic rights of the investor and the social rights of the employees and assesses how they could be reconciled. The analysis adopts an internal perspective to highlight the interaction of the two fields with the aim to finding a balance between them. More specifically, it examines whether, how and to what extent social security issues can be taken into account in international investment disputes on social security regulations, substantiated from arguments which also are derived from the principles that underlie 1 Steven R. Ratner, ‘International Investment Law through the Lens of Global Justice’ (2017) 20(4) JIEL, 747, 751-752; Barnali Choudhury, ‘Exception provisions as a gateway to incorporating human rights issues into international investment agreements’ (2011) 49(3) Columbia J. Transnatl. Law, 670, 673-674.
2 Law 4387/2016 (12 May 2016) No.85 A of Greek Official Gazette art.28.
3 The issues of the validity of the BIT as an intra-EU BIT following the recent Achmea judgement (284/16) of the European Court of Justice (ECJ) will not be examined.
the international legal system (positive morality arguments). Accordingly, the research is normative, containing descriptive parts as a starting point and incorporating, where relevant, advisory parts on how future agreements could better address these issues.
The relevant rules in international investment disputes can include the provisions of international investment agreements, other rules of international law, domestic law of the capital importing state, as well as the provisions of the investment contract of the investor with the host state.4 This thesis will focus on the obligations derived from international investment agreements and their application. Not every provision of the IIA will be examined; rather the most relevant clauses which are commonly found in IIAs will be assessed. These clauses include provisions requiring the investment to be “in accordance with the laws of the host state” to be considered a covered by the IIA investment; clauses excluding certain sector from the application of the IIA (carve-out clauses); applicable law provisions; clauses on expropriation and fair and equitable treatment (FET), and the umbrella clause; as well as clauses concerning exceptions from the obligations of the IIAs of measures taken in pursuance of a public policy objective.
The analysis will follow the structure that is mostly used in investment arbitration: the jurisdictional and admissibility issues will be examined in section 2; the issues pertaining to substantive obligations will be analysed in section 3; and section 4 will consider possible defences on behalf of the respondent state. Section 5 concludes. These steps will demonstrate the interconnection of international investment law and social security issues, and show how the latter can be considered by an investor-state arbitration tribunal. The conclusions reached in each section will also indicate how the balance between the competing interests involved in these cases should struck, and how it can be secured in arbitral practice.
2. JURISDICTIONAL AND ADMISSIBILITY ISSUES OF INVESTMENT CASES INVOLVING SOCIAL SECURITY LAW
This section will examine issues that relate to the jurisdiction and admissibility of claims in an international investment dispute about social security issues. The distinction between the concepts of jurisdiction and admissibility has attracted much debate.5 However, this will not be the focus in this thesis, which will emphasise the substance and the merit of each claim and not its classification. More specifically, the issues examined in this chapter are the following: the question of the jurisdiction rationae materiae and the substantive applicable law; the criterion of the legality of the investment agreement with the laws of the host state; and the possibility of a carve-out of social security law. Section 2.4 will contain the interim conclusion on jurisdictional and admissibility issues.
4 Hege E. Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and
International Law (OUP 2013), 4.
5 Laurent Gouiffés and Melissa Ordonez, ‘Jurisdiction and admissibility: are we any closer to a line in the sand?’ (2015) 31 Arbitration International, 107, 108; Waste Management, Inc. v. United Mexican
2.1. Jurisdictional limits as to the types of claims that can be brought by the investor
The jurisdiction of a tribunal is defined as its “power to exercise the judicial… function”.6 A breach of an obligation of an investment contract may result in claims based on the contract, the national law of the host state or/and international law.7 The nature of claims that can be brought by investors depends on the dispute settlement clause of the IIA defining the tribunal’s jurisdiction.8 If the provision is broad enough, for example referring generally to “disputes concerning investments”9 the claims that can be brought will include violation of the provisions of an international investment agreement as well as violations of a contract or the domestic law. Narrower dispute settlement provisions may limit the jurisdiction of the tribunal to all violations of the IIAs,10 violations of certain provisions of the IIAs or only expropriation claims.11 In principle, the jurisdiction of the tribunal to hear claims relating to social security laws of the host state is not precluded by the nature of the measures at issue. The only case in which the jurisdiction of the tribunal might be precluded would be in the existence of an exclusion of social security laws from the application of the bilateral investment treaty BIT, an issue discussed in section 2.3 of the thesis. In particular in cases relating to contractual breaches, as is the one under examination, a narrow dispute settlement clause might result in the denial of jurisdiction by an arbitral tribunal.
In the present case, the investment contract is between the government of Greece and a Greek company, which is owned by a company established in Cyprus. Therefore, the applicable BIT, in case of an investment dispute is the Greece-Cyprus BIT. The agreement contains a broad dispute settlement clause, referring to “any dispute concerning an investment”.12 Under this broadly-phrased clause, the investor could bring claims based on the contract, Greek domestic law or international investment law.
6 Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Dissenting Opinion of Georges Abi-Saab (28 October 2011) [126]; Waste Management v Mexico (n 5) [58]; Gouiffés and Ordonez (n 5) 109.
7 Kjos (n 4) 108-109; Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of
Ecuador, ICSID Case No. ARB/04/19, Award (18 August 2008) [311]
8 Kjos (n 4) 105.
9 Agreement between the Arab Republic of Egypt and the Federal Republic of Germany concerning the Encouragement and Reciprocal Protection of lnvestments (adopted 16 June 2005, entered into force 22 November 2009) art.9; Agreement between the Government of the Republic of Turkey and the Government of the Kingdom of Morocco for the Promotion and Protection of Investments (adopted 8 April 1997, entered into force 30 May 2004) Art.8(1).
10 Agreement between the Government of the United Arab Emirates and the Government of the Hellenic Republic on the Promotion and Reciprocal Protection of Investments (adopted 6 May 2014, entered into force 6 March 2016) Art.10.
11 Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Union of Soviet Socialist Republics (adopted 5 October 1989, entered into force 20 July 1991), art.9.2 and 9.3; China and Singapore Agreement on the promotion and protection of investments (with exchanges of letters) (adopted 21 November 1985, entered into force 7 February 1986) art.13.3.
12 Agreement between the Government of the Hellenic Republic and the Government of the Republic of Cyprus concerning the Encouragement and Reciprocal Protection of lnvestments (adopted 30 March 1992, entered into force 26 February 1993) art.9.
2.2. The issue of conformity of the investment contract with the laws of the host state
Considerable jurisprudence of international investment arbitration has elaborated on the prerequisite of an investment being in accordance with the host state law in order to be protected.13 This section will examine whether and how an investment based on an investment agreement with the state that is contrary to the host state’s laws can result in dismissal of claims on jurisdictional or admissibility grounds.
2.2.1. The criterion of investments “in accordance with the state law”
A number of IIAs contain in the definition of investment the requirement that the investment is made “in accordance with the laws” of the host state.14 But even in cases where no such clauses exist, tribunals have examined this issue.15 Therefore, the assessment of this criterion is possible even in cases where there is no provision in the applicable IIA.
This requirement excludes from the application of the IIAs illegal investments.16 It is required that the investor exercises due diligence and does not plan an investment that does not comply with the laws of the host state.17 However, not any element of illegality, for instance lack of performance of formalities under the domestic laws, results in the non-application of the BIT. Instead, a level of substantial violation of the domestic laws must be found,18 while in some cases it is required that there is a breach of “fundamental legal principles of the host country.”19 Therefore, there is a de minimis rule applied to the issue of illegality of investments.20 Moreover, in some cases it has been stated that the breach of the domestic legislation should have the effect under this legislation of rendering the investment illegal per se, excluding it from the BIT protection. In accordance with this reasoning, the loss of
13 Michael Polkinghorne and Sven Volkmer, 'The Legality Requirement in Investment Arbitration' (2017) 34(2) Journal of International Arbitration, 149, 150.
14 Agreement between the Federal Republic of Germany and the Republic of the Philippines for the Promotion and Reciprocal Protection of Investments (adopted 18 April 1997, entered into force 1 February 2000) art.1(1); Agreement between the Government of the Czech Republic and the Government of the State of Israel for the Reciprocal Promotion and Protection of Investments (adopted 23 September 1997, entered into force 13 March 1999)Art.1(1).
15 Yaung Chi Oo Trading Pte. Ltd. v. Government of the Union of Myanmar, ASEAN I.D. Case No. ARB/01/1, Award (31 March 2003) [58]; Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (27 August 2008) [135], [138]-[140]; Stephan W. Schill, ‘Illegal Investments in Investment Treaty Arbitration’ (2012) 11(2) LPICT, 281, 282.
16 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction (31 July 2001) (French Original: 129 Journal du droit international 196 (2002)) (English translation: 42 ILM 609 (2003), 6 ICSID Rep. 400 (2004)) [46]; Tokios Tokelés v.
Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction (29 April 2004) [84]; Schill (n 15)
283-284.
17 Alasdair Ross Anderson et al v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award (19 May 2010) [58].
18 Tokios Tokelés (n 16) [86].
19 Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of
Kazakhstan, ICSID Case No. ARB/05/16, Award (29 July 2008) [319].
privileges as an effect of the violation under domestic law does not amount to rendering the investment illegal.21
The requirement of legality of an investment is examined under the legislation of the host country, creating a renvoi to domestic law.22 Together with domestic legislation, jurisprudence has also referred to general principles of international law when assessing this requirement, such as the principle of good faith.23 Investment that have been found to be made in violation of good faith are not considered to comply with the legality requirement.24
It should be noted that according to some tribunals, the requirement of legality refers to the establishment of the investment and is also limited to the laws that specifically regulate investments. As regards the latter element, when the law that is violated is unrelated to investments, it is argued that the state can take action in accordance with its domestic laws to address the illegalities found.25
In the case under examination, or similar cases involving social security exemptions to foreign investors, the issue of the legality of this exemption could arise. Article 2.1 of the Greek-Cyprus BIT provides that “Each Contracting Party promotes investments of investors of the other Contracting Party in its territory and admits such investments, in accordance with its legislation and investment policy”.26 Therefore, it is possible that an arbitral tribunal finds that the protection of investments is limited to the investments made “in accordance” with the Greek legislation, assessing the legality of the investment under Greek law.
Article 4 of the Greek Constitution establishes the right of equality of the Greek citizens and provides that all Greeks have equal rights and obligations.27 Furthermore, Article 1 of the Greek social security law (4387/2016) reaffirms the social security right of all Greek citizens and residents of Greece. Article 38.3(g) of the same law provides that the employers are obliged to pay a specific part (13,33% of the employee’s salary) of the contribution for pension benefits on behalf of the employee. Similar provisions apply for the other social security benefits.28 The payment of social security contributions is obligatory under Greek legislation and no exceptions are permitted. Therefore, under Greek law, it appears that the clause providing for the social security exemption is contrary to the aforementioned social security provisions. Moreover, one could argue that these provisions are found in the core of social security policy and constitute fundamental legal principles of the country, since they ensure the employees’ rights and access to social security protection. The investor could be found to have violated the due diligence obligations 21 Schill (n 15) 294; Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction (8 March 2010) [145].
22 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, Award (16 August 2007) [394]; Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award (2 August 2006) [218].
23 Inceysa v El Salvador (n 22) [229-230]; Plama v Bulgaria (n 15) [138]-[140]; Phoenix Action, Ltd.
v. The Czech Republic, ICSID Case No. ARB/06/5, Award (15 April 2009) [106]-[107].
24 Inceysa v El Salvador (n 22) [234-239].
25 Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award (14 July 2014) [119]. 26 Greek-Cyprus BIT (n 12) art.2.1.
27 The Constitution of Greece (1975) art.4. 28 Law 4387/2016 (n 2).
by agreeing in this term, since this obligation is known to the public and can assessed by basic research on the sector.
However, two issues require special attention: first, the illegal term of the contract does not render the investment as an activity illegal per se; and, second, the illegality is not connected to the investment regulations, an element required in some cases, as stated above. Furthermore, the illegality does not directly relate to the acquiring of the investment and does not prohibit the investment activity as such. The existence of the investment per se complies with the laws and the issue of legality appears pertinent merely to a condition under which the investment operates. Therefore, the possibilities are that the legality criterion will be found to be met in cases of social security exemptions and the investment will be found to be protected by the BITs.
2.2.2. The possibility of estoppel argument brought by the complainant in the present case
Even if the criterion of “in accordance with the laws” is not met, in cases where the illegality is derived from a contract with a state, the issue of whether the state can in fact invoke this deficiency arises.
It can be argued that when the state itself is also involved in the illegal action, then it cannot rely on the illegality to claim lack of jurisdiction.29 This involvement of the state is considered to create legitimate expectations that the state will not invoke the illegality to deprive the investor of the protection under the BIT.30 These arguments put forward by the tribunals are in effect an invocation of the principle of estoppel.31
However, it should be noted that estoppel, falling under the principle of good faith, should be applied in cases in which the expectations created are “legitimate”. It would be difficult, for instance, to accept that a contract establishing a situation which is contrary to human rights’ obligations of the state, should be enforced and that the contracting state cannot invoke these deficiencies of the contract. Similarly, in social security contracts which are contrary to the constitutional rights of the state or to international human rights obligations of the state, it would seem absurd to oblige the state to adhere to these obligations.
2.3. Carve-outs
In certain international investment agreements, carve-outs exist as regards social issues or tax law issues that preclude the application of the IIAs to social or taxation issues. This section will analyse the function and scope of these carve-outs and the possibility of social security law being excluded from the application of an international investment agreement. Carve-outs usually provide that the agreement or 29 Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction (6 July 2007) [182].
30 Kardassopoulos (n 29) [193]-[194]; Southern Pacific Properties (Middle East) Limited v. Arab
Republic of Egypt, ICSID Case No. ARB/84/3, Award (20 May 1992) [83].
31 Schill (n 15) 302; Rahim Moloo and Alex Khachaturian, ‘The compliance with the law requirement in international investment law’ (2011) 34(6) FordhamIntlLJ, 1473, 1497-1498.
parts of the agreement “shall not apply to” a category of measures.32 Therefore, if a tribunal finds that measure is found to be within one of the categories listed in the carve-outs, it does not proceed to examine its consistency with the provisions of the IIA. Therefore, the issue of the carve-outs affects the jurisdiction of a case rationae materiae,33 since it limits the “categories of … disputes in relation to which the arbitral tribunal can adjudicate’.34 Contrary to the exceptions, the examination of whether a measure is included in the carve-out comes prior to the examination of its consistency with the agreement.
My research of recently concluded IIAs led me to the conclusion that this generation of IIAs include an exception from their application to taxation measures.35 The exception ranges from certain obligations which do not apply to the non-application of the IIA in whole.36 A considerable number of states believe that tax issues are a sensitive sector that should be excluded from the scope of IIAs and addressed in international taxation agreements.37 This is understandable considering the number of international disputes that have arisen in relation to taxation issues.
A close look at the similarities of social security and tax systems could suggest that these clause could also include the social security legislation of the states. Both taxation and social security systems are based on financial contributions that every citizen should provide to the state or the relevant state agency. The income that is collected is then redistributed and returned (directly or indirectly) to the citizens or the society, taking into account the needs of different groups of the population.38 Further, complying with the rules of both systems are mandatory for persons within a state’s jurisdiction; the rules are at the core of the competencies of the state and take into account the income levels of each person subject to the state’s jurisdiction. In some countries, for example, Italy, Ireland, the United Kingdom, Sweden and France, the revenues from both systems are even collected together.39
In the Greek-Cyprus BIT, there is an exception stating that the most-favoured nation (MFN) and the national treatment obligations of the contracting parties do not 32 Agreement between the Government of Japan and the Government of the Republic of Kenya for the Promotion and the Protection of Investment (adopted 28 August 2016, entered into force 14 September 2017) art.20; China and Singapore BIT (n 11) art.5.2.
33 Andrew Newcombe, ‘Investor Misconduct: Jurisdiction, Admissibility or Merits?’ in Chester Brown and Kate Miles (eds), Evolution in Investment Treaty Law and Arbitration (CUP 2011) 193; Gouiffés and Ordonez (n 5) 109-110.
34 Zachary Douglas, The International Law of Investment Claims (CUP 2009) [293]; Gouiffés and Ordonez (n 5) 109.
35 Cooperation and Facilitation Investment Agreement between the Federative Republic of Brazil and the Republic of Suriname (adopted 2 May 2018) art.11 (tax exemption); Agreement Between Canada and Mongolia for the Promotion and Protection of Investments (adopted 8 September 2016, entered into force 24 February 2017) art.16(7)(8) (tax exemption).
36 Christian Tietje and Karolin Kampermann, ‘Taxation and Investment: Constitutional Law Limitations on Tax Legislation in Context’ in Stephan W. Schill (ed), International investment law and
comparative public law (OUP 2010) 571-572.
37 Tietje and Kampermann (n 36) 571-572.
38 Martin Feldstein & Jeffrey B. Liebman, Social security (National Bureau of Economic Research, Cambridge 2001), 1.
39 Louis D. Enoff & Roddy McKinnon, ‘Social security contribution collection and compliance: Improving governance to extend social protection’ (2011) 64(4) International Social Security Review, 99, 109.
apply to benefits or advantages that the Contracting Parties grant to investors of third states on the basis of a taxation agreement. This could include social security exemptions that are given on the basis of a bilateral social security agreement.40 However, the facts of the present case do not seem to support the application of this clause, since the basis of the social security exemption is a contract and not an international agreement.
Probably due to the fact that there are no relevant international investment disputes so far involving social security issues, this issue has not been addressed in the relevant BIT provisions or in academic literature. However, since the possibility of future disputes is not precluded, it would be advisable for states to incorporate in future BITs provisions on social security that resemble to the ones regulating taxation.
2.4. Interim conclusions
From the analysis of jurisdictional and admissibility issues, the following conclusions can be drawn: In principle, social security issues are not excluded from the scope of application of IIAs. The nature of claims that can be brought in a dispute will largely depend on the scope of the dispute settlement provision. In the present case, the applicable BIT contains a broad dispute settlement provision, encompassing contractual claims, claims under national law as well as international investment claims. The requirement of an investment being “in accordance with” the laws of the state is likely to be examined even in the absence of a relevant provision in the applicable IIA. However, it is difficult to see how a derogation of social security legislation, fundamental as it may be, will justify the exclusion of the investment from the protection of the IIA, especially in cases in which the state itself is also involved in the formation of the contractual clause at issue. With respect to the issue of carve-outs, social security issues could arguably be incorporated in clauses that exclude taxation issues from the application of the IIA. Furthermore, the practice of taxation clauses in IIAs can provide useful guidance on how to incorporate similar social security provisions in future IIAs. Based on the current practice and jurisprudence, an arbitral tribunal would be most likely to proceed on the merits of a case such as the one under examination.
3. GROUNDS OF VIOLATIONS WITHIN THE IIA THAT MAY BE INVOKED BY THE INVESTOR
This section examines the possible grounds of violation that can be invoked in a dispute relating to social security law issues. The analysis is limited to the following treaty standards of protection, seeing that these are most likely to be invoked in our context: obligations concerning expropriation, the fair and equitable treatment obligation and the umbrella clause.
3.1. The claims relating to expropriation
The revocation by law of an investment contract clause which is contrary to the laws of the host state is likely to be challenged as an indirect expropriation by the 40 Greek- Cyprus BIT (n 12) art.3.3(b).
investor. Direct expropriation is not as likely to be alleged, since the measure does not entail a transfer of title, but rather contains provisions that “interfere with the rights of the foreign owner without a formal taking of title.”41 Similar cases have arisen in international arbitration, in which investors claim that a regulatory measure resulted in indirect expropriation.42
The regulation of indirect expropriation is frequently found in IIAs under the wording of measures having effect “tantamount” or “equivalent” to direct expropriation. Indirect expropriation cases are defined as cases in which the investor’s title is not affected; however the investor loses the ability “of utilising the investment in a meaningful way”.43 This contains that requirement that the measures do not simply affect the investment, but rather result in “substantial deprivation” of the investment.44 This substantial deprivation could result in the investor not being able to continue his or her economic activity45 or receive the reasonably expected economic benefits.46 However, the breach of a contract does not necessarily result in indirect expropriation.47 Especially when the investor retains control of the investment, the economic activity continues and the business generates profit, it is difficult to prove that an indirect expropriation has taken place.48 Therefore, extra levies49 or the loss of granted benefits are not sufficient to establish a violation of the expropriation provisions.50
When it comes to regulatory measures examined under claims of expropriation, a balance is sought between the protection of investors’ rights and the right of a state to regulate.51 In striking this balance, investors are not entitled to be “unjustly enriched” to the detriment of social welfare.52 When the legislation subsequent to the investment remains within the contours of reasonable governmental 41 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edition,
OUP 2012) 99.
42 Dolzer and Scheuer (n 41) 99. 43 Dolzer and Scheuer (n 41) 101.
44 Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de
Electricidad del Este, S.A. v. The Dominican Republic, UNCITRAL, LCIA Case No. UN 7927, Award
on Preliminary Objections to Jurisdiction (19 Spetember 2008) [64]; Alpha Projektholding GmbH v.
Ukraine, ICSID Case No. ARB/07/16, Award (8 November 2010) [408]; Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008) [463].
45 Dolzer and Scheuer (n 41) 107.
46 Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000) [103]; CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Partial Award (13 September 2001) [604].
47 Biwater Gauff v Tanzania (n 41) [457]; Waste Management, Inc. v. United Mexican States ("Number
2"), ICSID Case No. ARB(AF)/00/3, Award (30 April 2004) [174]; Dolzer and Scheuer (n 41) 128.
48 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005) [263]; Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award (14 July 2006) [322].
49 Telenor Mobile Communications A.S. v. The Republic of Hungary, ICSID Case No. ARB/04/15, Award (13 September 2006) [79].
50 Archer Daniels Midland Co and Tate & Lyle Ingredients Americas Inc v Mexico, ICSID Case No. ARB(AF)/04/5, Award (21 November 2007) [251]-[252].
51 L. Yves Fortier and Stephen L. Drymer, ‘Indirect Expropriation in the Law of International Investment: I Know It When I See It, or Caveat Investor’ (2004) 19(2) ICSID Review, 293, 298;
LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic,
ICSID Case No. ARB/02/1, Decision on Liability (3 October 2006) [189]. 52 Fortier and Drymer (n 51) 298.
regulation that can be expected by a prudent investor, it will be difficult to prove that an indirect expropriation has taken place.53
Article 4 of the Greek-Cyprus BIT provides that the investments of investors of one Contracting Party shall not be subject to expropriation, nationalisation or any other measure equivalent to expropriation or nationalisation in the territory of the other Contracting Party unless under the following requirements are met: (a) the measures are taken for reasons of public interest and under due process of law; (b) the measures are clear and do not entail discrimination and (c) the measures are accompanied by provisions for the payment prompt, adequate and effective compensation. This compensation shall be equivalent to the commercial value of the affected investment right before the measures that fall under the provisions of this paragraph or before these measures became publicly known. The compensation shall be paid immediately after the completion of the legal procedures for the expropriation and is transferrable in a freely convertible currency. In case of delay for the payment of compensation from the responsible Contracting Party it shall pay interest which is calculated according to the London interbank six- month offered rate which is applied for the same currency. The amount of compensation is subject to review under due process of law.54 Therefore, the article provides that indirect expropriation should be made for a public purpose, be non-discriminatory and be accompanied by prompt, adequate and effective compensation. Not every raise of the amount of contributions will result to indirect expropriation. Rather, the raise should have a severe effect to the economic feasibility of the investment. Additionally, one could consider the cumulative effect of taxation and social security measures.
In the present case, the revocation of the social exemption affects the profits of the investor, since it imposes an additional financial burden on him. However, the control of the investment remains with the investor and the measure does not affect the operation of the business, which continues to generate profits. Prior to the enactment of the measure, meetings were held between the government and the investor that addressed the problem and after the legislation the investor is given a considerable amount of time (almost a year) to pay the amount required. No extra charges are charged and there should not be any, since the non-payment is based on an agreement with the state. In this sense, the subsequent legislation seems to bring the framework back into conformity with the constitution of the country and its international obligations of ensuring equal rights to all employees, without levying extra charges to the investor. Therefore, one could argue that it is within the limits of reasonable governmental action.
The answer becomes more complicated in cases of excessive increase of the payable social security contributions. Similar concerns have been raised for taxation measures, especially when new legislation is applied retroactively.55 Within the domestic legal context of Germany, the retroactivity of legislation raising a payable tax has been considered acceptable in cases that this retroactivity cures inequalities 53 Dolzer and Scheuer (n 41) 115-116.
54 Greek- Cyprus BIT (n 12) art.4. 55 Tieje and Kampermann (n 36) 580.
created in the previous regime.56 Retroactive taxes are also accepted, under certain conditions, in the US, Italy, Spain and France.57 Similarly, retroactive imposition of social security contributions up to the level of the contributions paid from the other insured persons and employers could be accepted in this case.
3.2. The fair and equitable treatment obligation (FET)
Measures of the host state that fall short of amounting to an indirect expropriation may nonetheless violate the more lenient standard of fair and equitable treatment.58 In the Greek-Cyprus BIT, the obligation of the parties to fair and equitable treatment of the investors is regulated in art.2.2. This paragraph states that investments of investors of one Contracting Party shall at all times enjoy fair treatment and full protection and security in the territory of the other Contracting State. Each Contracting State shall ensure in its territory that the management, maintenance, use, enjoyment or disposal of investments of investors of the other Contracting Party are not impaired in any way by unreasonable or discriminatory measures.59
The change of the terms of the contract by national legislation can also be seen as a violation of the obligation to accord fair and equitable treatment if it frustrates the reasonable expectations of the investor as to the performance of the contract. However, the issue of whether the expectations are reasonable becomes complicated when the investment agreement is contrary to non-derogable laws of the host state. Can an investor rely or a clause of a contract to force a state to derogate from its laws of basic social policy?
The fair and equitable treatment obligation has been characterised as an aspect of the bona fide principle of international law.60 It is a broad obligation that can be invoked in a number of different circumstances61 and is assessed on a case-by-case basis.62 Fair and equitable treatment incorporates the obligation on behalf of the state to treat the investor in an even-handed and just manner.63 It has been interpreted as requiring states not to frustrate the basic expectations that the investors considered for making their investment.64 That means that the states undertake the obligation to act in a consistent manner, so that an investor can know beforehand the legislative framework covering its investment and plan its investment accordingly.65 The
56 Tieje and Kampermann (n 36) 581. 57 Tieje and Kampermann (n 36) 582-584.
58 Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Award (28 September 2007) [300]; Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award (5 September 2008) [254].
59 Greek- Cyprus BIT (n 12) art.2.2.
60 Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003) [153].
61 Dolzer and Scheuer (n 41) 130.
62 Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award (11 October 2002) [118]; Waste Management v Mexico (n 47) [99].
63 MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award (25 May 2004) [113]; Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006) [307].
principle incorporates the prohibition of venire contra factum proprium.66 Therefore, the revocation of special assurances that are given to the investor may result in the violation of fair and equitable treatment.67 The breach of contractual obligations could also lead to a FET violation,68 especially in cases when the state uses its prerogatives to interfere to the contractual arrangements.69 However, not any expectation is protected. Rather, the expectations protected from the FET standard must be legitimate and reasonable.70 As in the obligation of indirect expropriation, the assessment of the fair and equitable obligation requires a balance between the public interests of the state and the protection of the investors’ rights.71
When considering the legitimate expectations of an investor in the examination of a breach of fair and equitable treatment, the legal framework that the investor should take into account includes the domestic legislation of the host state as well as its international obligations.72 Furthermore, the concept of “fairness” incorporated in the FET obligation can be interpreted as including the obligation of both the state and the investor to respect the human rights of the people of the host state.73 As regards the incorporation of social security rights in the texts of human right obligations of the state, article 9 of the International Covenant on Economic, Social and Cultural Rights of the United Nations General Assembly (ICESCR) provides that “[t]he [s]tates [p]arties to the present Covenant recognize the right of everyone to social security, including social insurance”. This recognition of the right includes the obligations of the states to “prevent violations” of the rights recognised in the convention by third parties, for example, states should ensure that private employers respect the rights of their workers.74 These rights of the workers consist of their participation at the system of social security and the distribution of the payable contributions between the employee and the employer. Furthermore, the right of equal treatment requires that all employees are treated similarly and enjoy the same benefits. The exclusion of the employees of an investor from the beneficial to the 65 Tecmed (n 60) [154]; Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No.UN3467, Final Award (1 July 2004) [183]; CMS v. Argentina (n 48) [276].
66 No one may set himself in contradiction to his own previous conduct; Dolzer and Scheuer (n 41) 132.
67 National Grid plc v. The Argentine Republic, UNCITRAL, Award (3 November 2008) [173]; Dolzer and Scheuer (n 41) 145.
68 Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award (12 October 2005) [182];
Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29,
Decision on Jurisdiction (12 February 2010) [149]; Dolzer and Scheuer (n 41) 152. 69 Dolzer and Scheuer (n 41) 153-154.
70 EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award (8 October 2009) [217]; Dolzer and Scheuer (n 41) 148; Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal
Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016)
[422]-[423].
71 Total S.A. v. The Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010) [123]; El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award (31 October 2011) [358].
72 Dolzer and Scheuer (n 41) 145. 73 Choudhury (n 1) 684.
74 International Commission of Jurists (ICJ), Maastricht Guidelines on Violations of Economic, Social and Cultural Rights, 26 January 1997, available at: http://www.refworld.org/docid/48abd5730.html [accessed 11 June 2018] guideline no.6; Choudhury (n 1) 685-686.
employee distribution of social security contributions seems to be contrary their right to equal treatment, especially in a system that the benefits are calculated on the basis of the contributions paid, such as the Greek one.75
In the present case, there is a breach of a contractual obligation that the host state has undertaken towards the investor, probably contrary to the expectations of the latter. The state indeed adopts radically different approaches at the time of the signing of the contract and at the time the measure providing for the retroactive payment of the social security contributions is enacted. The measure contradicts previous obligations by the state and specific undertakings that it took towards the investor, since the host state utilised its prerogative to legislate to interfere with the contractual terms.
Nonetheless, another consideration that one should take into account is how legitimate are the expectations of the investor in the present case and whether the principle of good faith requires the observance of the contractual obligation or the protection of the social security rights of the employees. The assessment of this obligation will necessarily involve the analysis of the conflict in the present case of the economic rights of the investor and the social security rights of the employees. In this vein, it would be difficult to argue fair and equitable treatment would require from the state to continue a regime of a unique social security exemption that operates to the detriment of a vulnerable group of employees. Therefore, the retroactive payment per se would probably not breach the FET obligation of the state. In a different scenario, this obligation might be breached if additionally to the payment of the charges the investor would have to pay extra charges for the late payment or if the investor was not given a reasonable period of time to pay the amount.
3.3. Observance-of-undertakings clauses
The Greek-Cyprus BIT does not contain any relevant clause, the facts of the case, however, which include a contractual breach, require the examination of the umbrella clause obligations. An umbrella clause or “observance-of-undertakings” clause76 is a provision found in several BITs that “guarantees the observance of obligations assumed by a host state vis-à-vis the investor”.77 The wording can variate to a narrower or broader scope, affecting the interpretation of the clause.78 One example of an umbrella clause with broad scope is Article II.2(c) of the Argentina-US BIT, which states that: “each party shall observe any obligation it may have entered into with regard to investments”.79
An additional claim that can be brought by the investor is the non-fulfilment of the obligations of the host state with respect to the agreement. The first issue that 75 L.4387/2016 (n 2) arts.7 and 8.
76 Pan American Energy LLC and BP Argentina Exploration Company v. The Argentine Republic, ICSID Case No. ARB/03/13, Decision on Preliminary Objections (27 July 2006) [99].
77 Dolzer and Scheuer (n 41) 166.
78 James Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) 24(3) Arbitration International, 351, 367.
79 Treaty Between United States of America and The Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment (adopted 14 November 1991, entered into force 20 October 1994) art.II.2(c).
should be assessed is whether an international arbitration tribunal can hear a claim of contractual nature. If it can, then the issue is raised that these obligations are contrary to the law of the state.
The coverage of contractual claims by the umbrella clauses of IIAs is far from undisputed.80 Some tribunals have rejected to hear the contractual claims of the applicant, despite the existence of an umbrella clause in the applicable BIT. These tribunals distinguish between contractual and treaty obligations and reject the idea that the umbrella clauses transform contractual violations into treaty breaches.81 Other tribunals have adopted a different approach and ruled that contractual claims can be incorporated in the umbrella clauses obligations.82 The rules on state responsibility in international law support the inclusion of contractual claims within the jurisdiction of the tribunal is in conformity with the rules on state responsibility, since these rules provide for the international responsibility of a state for an act constituting a breach of international law, regardless of its characterisation as iure imperii or iure gestionis.83
In the present case, the enactment of a law that in effect invalidates a clause of the contract between the state and the investor constitutes a violation of this contract. According to the analysis made above, if one opts for the restrictive interpretation of umbrella clauses excluding the violations of contracts, it appears difficult to find a violation on this basis.
If one accepts the broad interpretation of the umbrella clause obligations, including violations of contractual obligations, the legality of this contractual clause under the fundamental laws of the state and international human rights’ obligations should be taken into consideration. International obligations of the state in the area of social security and human rights can serve in the interpretation of the umbrella clauses as involving only the lawful obligations undertaken by the state. Under Article 31.3(c) of the Vienna Convention on the Law of Treaties, during the interpretation of a rule of an international treaty, one should take into account, together with the context of the clause “any relevant rules of international law applicable in the relations between the parties”.84 Under this rule, umbrella clauses should be interpreted as requiring the observance of undertakings that are in accordance with the other international obligations of the states. In this sense, umbrella clauses should not be interpreted to oblige states to comply with contractual obligations which derogate from human rights’ rules, which include the protection of social security rights, as mentioned
80 Gouiffés and Ordonez (n 5) 118; Crawford (n 78) 351; Pan American Energy v. Argentina (n 76) [105].
81 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (6 August 2003), [167]-[173]; Joy
Mining Machinery Limited v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on
Jurisdiction (6 August 2004) [81]-[82].
82 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment (3 July 2002) [111]-[115]; SGS Société Générale de
Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal
on Objections to Jurisdiction (29 January 2004), [115]-[127]; SGS v. Paraguay (n 68) [167]. 83 Crawford (n 78) 356-357.
84 Vienna Convention on the law of treaties (adopted 23 May 1969, entered into force 27 January 1980) 1155 UNTS 331 art.31.3(c).
above in section 3.2. Therefore, the umbrella clauses should be interpreted strictly in cases involving undertakings contrary to other international obligations of the states.
Furthermore, as regards the case under examination, another factor that should be taken into account is that the obligation not observed by the state is not the primary one of the investment contract. The contractual breach refers to a secondary aspect of the operation of the investment, the primary one being the license to operate in a sector, an obligation that remains unaffected. Taken into account all these considerations, a tribunal would possibly find that no violation of the umbrella clause is established.
3.4. Interim conclusions
The analysis of the previous sections leads to the following conclusion with respect to the violations that are likely to be claimed by the investor: In all claims, the fact that the social security exemptions are contrary to other international obligations and constitutional rules has to be taken into account. Due consideration should be given that the invocation of the exemption, although it contradicts previous assurances by the state, brings the investment contract into conformity with the laws of the state without severely affecting the operation of the business or the control of the investment by the investor. During the assessment of violations of the BIT clauses, a balance is sought between the right of the state to regulate and enact measures implementing public policies on the one hand and the protection that the investor should be afforded on the other hand. In this sense, the analysis above shows that international investment law jurisprudence has provided the tools for taking into account the social policy considerations when examining the BIT violations.
More specifically, in the case at hand, due to the fact that the investor remains in control the business, which continues to operate and generate profits, it is possible that no expropriation will be found to have taken place. As regards the FET obligation, the international obligations of the state that are complied with by the enactment of the measure providing for the retroactive social security contributions will probably lead to the conclusion that there has been no violation of the FET standard either. This conclusion might be different if the investor was obliged to pay also interest or charges for the delay of the payment. Moreover, the issue of a violation of the umbrella clause might arise in similar cases, since the applicable to this case BIT does not contain this clause. In the interpretation of these clauses, other applicable rules between the contracting states could be taken into account, in accordance with art.31.3(c) of the VCLT. These rules include art.9 of the ICESCR, which provides for the obligations of the states to ensure the protection of human rights of the employees. If this interpretation is accepted, in combination with the fact that the contractual breach affects a secondary aspect of the contract, it is possible that no umbrella clause violation is found.
4. GROUNDS THAT THE RESPONDENT STATE MAY INVOKE
This section addresses the defences the host state could raise in an investment dispute about social security provisions, as well as the relevance of counterclaims.
The defences include exceptions that may be found within the IIA, and possibly relevant international obligations and European Union law provisions. The issue of counterclaims that can be made by the respondent state will also be assessed.
4.1. Exceptions within the IIA
In case a violation of an IIA is found, this violation may be justified under an exception contained in the IIA. It should be noted that the Greek-Cyprus BIT does not contain an exception clause. Nonetheless, the thesis will examine how a possible exception could be assessed in the case at hand as well as in similar cases.
An increasing number of IIAs contain exception provisions that refer to human rights.85 Human rights also encompass the right of social security, which is connected to the right of equality,86 as shown in section 3.2. Human rights have been addressed in international investment law and are thought by some to take precedence over the obligations contained in IIAs, even in the context of international investment disputes.87 A more modest view recognises the necessity of observance of both human rights’ and investment obligations, accepting the importance of human rights’ considerations in the context of international investment law.88
In order to balance the sometimes competing interests of protecting investors and pursuing other policy objectives, IIAs contain provisions that allow states to derogate from the obligations contained in the IIA if certain requirements are met. These exception clauses range from permitting measures that violate specified provisions of the agreements, for example the fair and equitable treatment, to the permission of measures that violate any clause contained in the agreement.89 Some exceptions contain a broad reference to “international legal obligations” of the states,90 which undisputedly include the human right obligations of the states. Another broad reference that incorporates human rights is the one to the “national interests” of the states.91
85 Ernst-Ulrich Petersmann, ‘International Economic Law without Human and Constitutional Rights? Legal Methodology Questions for my Chinese Critics’ (2018) 21(1) JIEL, 213, 228; Choudhury (n 1) 684-685.
86 Art.9 of the International Covenant on Economic, Social and Cultural Rights of the United Nations General Assembly; Keihan Barzegar and Fatemeh Sarreshteh Izadmoosa, ‘The right to social security in international documents’ (2017) 7(1) Juridical Tribune, 39, 39-40.
87 Ratner (n 1) 763; Petersmann (n 85) 217; Choudhury (n 1) 682.
88 Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine
Republic, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010) [262]; EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID
Case No. ARB/03/23, Award (11 June 2012) [912]; Phoenix v. Czech Republic (n 23) [78]. 89 Choudhury (n 1) 687-688.
90 Treaty Between the United States of America and the Republic of Kyrgyzstan concerning the Encouragement and Reciprocal Protection of Investment (signed 19 January 1993, adopted 12 January 1994) art.IX(b); Treaty between United States of America and the Arab Republic of Egypt concerning the Reciprocal Encouragement and protection of Investments (adopted 11 March 1986, entered into force 27 June 1992) art.X(1).
91 Agreement between the Government of the Democratic Socialist Republic of Sri Lanka and the Government of the People’s Republic of China on the Reciprocal Promotion and Protection of Investment (adopted 13 March 1986, entered into force 25 March 1987) art.11.
A different kind of exception that is found in a number of IIAs is the exception of “public order” or “public policy” measures,92 which refers to the protection of “fundamental values of the society”.93 In order to determine whether the public order exception should be applied, tribunals have referred to social phenomena, such as the rise of unemployment, social hardships of the population, poverty, the risk to the healthcare system and increased pressure upon a state to provide social services and security to the people.94 All these issues relate to the social protection of the people and constitute values that incorporate the protection of fundamental human rights.95 Furthermore, the term “public security” could arguably incorporate human security considerations,96 a concept that includes social security rights. Therefore, social security considerations, at least in serious situations that affect the living standards of groups of the population to a considerable extent, could be considered as matters of public order or public security.
Similarly, human rights considerations could be considered under the IIAs exceptions that refer to public morals.97 The meaning of “public morals” has not been interpreted by international investment tribunals. However, guidance can be provided by the jurisprudence of the World Trade Organization (WTO), the Court of Justice of the European Union and the European Court of Human Rights, which have underlined that “public morals” may vary from state to state and that every state enjoys a certain degree of freedom in defining the concept of “public morals”.98 The protection of human rights, and specifically social security rights, relates to the standards of living of the working force and therefore, could raise issues of public morality.
In most provisions, the measures should not simply address the protected objective, but they should be “necessary” to the realisation of the objectives.99 In other IIAs, a more lenient approach is adopted, requiring measures to be “taken for reasons of”.100 The requirement of a measure being “necessary” has been interpreted by international investment tribunals as being the only alternative.101 Other tribunals have adopted a more flexible approach, assessing the contribution of the measure to the objective.102
92 Agreement between the Government of the State of Qatar and the Government of the Republic of Turkey concerning the Reciprocal Promotion and Protection of Investments (adopted 25 December 2001, entered into force 12 February 2008) art.VII.1.
93 Choudhury (n 1) 690.
94 Continental Casualty v Argentina (n 58) [180]; LG&E v Argentina (n 51) [234]. 95 Choudhury (n 1) 691-692.
96 Choudhury (n 1) 696.
97 Agreement between the People's Republic of China and the Federal Republic of Germany on the Encouragement and Reciprocal Protection of Investments (adopted 1 December 2003, entered into force 11 November 2005) art.3(2)(3) and Protocol to the Agreement between the People’s Republic of China and the Federal Republic of Germany on the Encouragement and Reciprocal Protection of Investments (adopted 1 December 2003, entered into force 11 November 2005) no.4 (ad art.3); US-Egypt BIT (n 90) art.X(1); Qatar-Turkey BIT (n 92) art.VII.1.
98 Choudhury (n 1) 693.
99 Turkey-Qatar BIT (n 92) art.VII.1.
100 China- Germany BIT Protocol (n 97) no.4.
101 Sempra v Argentina (n 58) [347, 350-351]; Choudhury (n 1) 700. 102 Continental Casualty v Argentina (n 58) [196]; Choudhury (n 1) 701.
In cases similar to the one which is examined in this thesis, one could make an argument for the exceptions of international obligations and national interests, if found in the IIA. It would be increasingly difficult to argue that the measure was taken for reasons of “public order” and “public security” in their restrictive interpretation. Similarly, it would be difficult to argue on the basis of a public morals’ exception. However, if one adopts a more flexible interpretation of these terms, measures that address social security issues can be included in these exception.
Furthermore, if one accepts that social security issues are incorporated in the exception clause, the second issue that should be assessed, if the clause so provides, is whether the measure is “necessary” to address the objective pursued. Under the restrictive interpretation of the necessity of measure as being the only alternative, the burden of proof that the state should meet is considerably high. Under the more flexible approach of contribution of the measure to the objective, measures that address social security concerns are more likely to be considered necessary.
The analysis above indicates that within international investment law, inconsistencies remain as to the extent of the application of exception clauses. For reasons of specificity, it would be advisable to states to include in future IIAs exceptions with respect to measures adopted to ensure human rights’ obligations or more specifically, social security issues.103
4.2. Invocation of international obligations as regards social security law
Apart from the exception specifically mentioned in the IIAs, the question arises what is the relevance of international social security agreements in investment disputes and whether, and how, a tribunal will take them into account. It has been stated that international investment law obligations should not be assessed in isolation of public international law;104 and that rather, human rights’ law should be taken into account in international investment disputes.105 According to Article 27 of the Vienna Convention on the Law of Treaties, a state may not invoke its own laws as a justification for not performing its international obligations.106 In monist states, these laws of the state also include international investment treaties.107 In Greece, ratified international treaties are considered an integral part of the Greek legal system, according to Article 28.1 of the Greek Constitution.108
The invocation of international obligations other than those found in the IIA will raise issues of the applicable law in the dispute, since the legal basis of these claims will lay outside the IIA. The answer on the tribunal’s jurisdiction as regards these claims will be found on the dispute settlement provision applicable in each case. In cases in which the dispute settlement provision narrows the consent of the parties to disputes concerning the application of the provisions of the IIA, the state should not be able to invoke other rules apart from those found in the agreement. However, in 103 Choudhury (n 1) 711.
104 Phoenix v, Czech Republic (n 23) [78]; Choudhury (n 1) 677. 105 Choudhury (n 1) 677.
106 Vienna Convention on the law of treaties (n 84) art.27.
107 Malcolm N. Shaw, International Law (6th edition, CUP 2008) 131; Crawford (n 78) 352.
