The Sword and the Shield
Imposing Human Rights Obligations on Investors through Counterclaims and through the Legality Requirement in Investor-State Disputes under International Investment
Treaties
By Michael M.A. Serphos
LL.M. Thesis
International & European Law: International Trade & Investment Law Supervisor: Dr. H.E. Kjos
Student number: 10220275 July 2016
ABSTRACT
There is a growing need to bind multinational enterprises to human rights obligations. As investment treaties, in principle, do not impose substantive obligations on investors, the purpose of this paper is to examine how this goal can still be pursued in investor-State arbitration. Specifically, this paper examines to what end counterclaims and the legality requirement can be employed to impose human rights obligations on investors. By analyzing a variety of sources, such as investment treaties, considerations of tribunals and normative theories, it will be shown that imposing these obligations is indeed possible. However, as the nature of a counterclaim (sword) and the legality requirement (shield) is different, the way in which these mechanisms can constrain investors is also different. The different nature also explains why for the legality requirement, but not for counterclaims, the “clean hands doctrine” could legitimize the imposition of human rights obligations under international law.
TABLE OF CONTENTS
1. Introduction 4
2. Growing Need for Investor Obligations 5
3. Current Interactions between Investment Law and Human Rights law 8
3.1. Reference to human rights in IIAs 9
3.2. Interpreting IIA provisions through human rights law 10
3.3. Human rights obligations as a (necessity) defense 11
3.4. Interim Conclusions 13
4. Human Right Obligations on Investors Outside IIAs 13
4.1. Obligations under international human rights law 14
4.2. Obligations under domestic human rights law 16
4.3. Human rights obligations under voluntary codes of conduct 17
4.4. Interim Conclusions 18
5. Counterclaim – The Sword 19
5.1. What are counterclaims 19
5.2. Jurisdiction 21
5.2.1. The arbitration rules 21
5.2.2. The arbitration clause 22
5.3 Connection requirement 24
5.4. Applicable law 25
5.5. Interim Conclusions 26
6. Legality Requirement – The Shield 26
6.1. Distinction between different types of illegalities 27
6.2. Legality requirement with an “in accordance with the law” clause 28 6.3. Legality requirement without an “in accordance with the law” clause 29 6.4. International human rights obligations on investors in the context of the legality
requirement 31
6.5. Legitimacy of reference to international human rights obligations 33
6.6. Interim Conclusions 34
7. General Conclusions 34
1. INTRODUCTION
In this age of globalization, the power of many multinational enterprises (“MNEs”) has increased significantly. However, in principle, international investment agreements (“IIAs”) have not undergone any major substantive reconsideration. In general, they keep following the traditional notion, which is to provide investors with rights vis-à-vis the host State, without imposing (human rights) obligations on them.
In light of the increased power of MNEs, there is growing support to hold them accountable for human rights violations.1 Even though there is some overlap between human
rights law and international investment law, this interaction is very one-sided. In principle, the references to human rights obligations in international investment law and arbitration constrain only (host) States, and not investors. Therefore, the current interactions seem insufficient to respond to the growing need to impose human rights obligations on MNEs.
Imposing human rights obligations on MNEs outside the framework of international investment law is not necessarily easier. Domestic law and domestic courts often fail to hold MNEs accountable for human rights breaches, as they want to remain attractive to foreign investors, are politically influenced or swayed by corruption.2 Human rights standards under voluntary codes of conduct, to which many MNEs have committed themselves, are unenforceable and therefore when human rights abuses occur, they are ineffective. Human rights instruments under international law do not provide a solution either, as MNEs lack international personality.3
In light of the increasing support to hold MNEs accountable for human rights violations and at the same time an apparent unwillingness by States to reconsider IIAs, in this paper it will be examined to what extent human rights obligations on investors can be expressed under the current framework of IIAs and investor-State arbitration. Specifically,
1 S.P. Subedi, International Investment Law. Reconciling Policy and Principle, Hart Publishing (2008), p. 168;
See e.g. United Nations Conference on Trade and Development (UNCTAD), ‘Investment Policy Framework for
Sustainable Development’, UNCTAD/DIAE/PCB/2015/5, pp. 92, 112. Available at
<http://unctad.org/en/PublicationsLibrary/diaepcb2015d5_en.pdf> (accessed 14 July 2016); H. Man, K. Von Moltke, L.E. Peterson and A. Cosbey, ‘IISD Model international Agreement on Investment for Sustainable Development’, International Institute for Sustainable Development (2005) (hereinafter: “IISD Model international Agreement on Investment for Sustainable Development”), Introduction V.
2 C. Cronstedt & R.C. Thompson, ‘A Proposal for an International Arbitration Tribunal on Business and Human Rights’, Harvard International Law Journal Vol. 57 (Online Symposium) (2016), p. 66. Available at <http://www.harvardilj.org/2016/07/a-proposal-for-an-international-arbitration-tribunal-on-business-and-human-rights> (accessed 14 July 2016).
3 M.N. Shaw, International Law, Cambridge University Press (2014) p. 191, K. Nowrot, ‘New Approaches to the International Legal Personality of Multinational Corporations. Towards a Rebuttable Presumption of Normative Responsibilities’, in: Fleur E. Johns (ed.), International Legal Personality, Ashgate Publishing (2010), p. 376
this paper examines to what extent counterclaims and the legality requirement – both of which have received recent attention in case law and academia – can be employed to impose human rights obligations on investors.
This paper starts with explaining that there is a growing need to impose human rights obligations on investors (Section 2). This is the basis for this research, namely: the assessment of whether there are mechanisms available to impose human rights obligations on investors. Subsequently (Section 3) it will be assessed to what extent human rights law and investment law are currently interacting. It seems that the references of human rights law to international investment law are scarce, indirect and one-dimensional. A clear picture of the shortcomings is necessary in order to understand what gap the proposed mechanisms should fill. In anticipation of the mechanisms which will be proposed in this paper, the different sources of human rights obligations the mechanisms can refer to will be explained in Section 4. The subsequent sections (Section 5 and 6) will examine if, and to what extent, counterclaims and the legality requirement are adequate mechanisms to impose human rights obligations on investors, in order to respond to the growing need for investor obligations, as explained in Section 2. In Section 5 and 6 it will be shown that the nature of the proposed mechanisms are different. For that reason, the sources of human rights obligations to which they can refer are not the same.
2. GROWING NEED FOR INVESTOR OBLIGATIONS
In the late 1950s and 1960s, the first bilateral investment treaties (“BITs”) were concluded. In this period of decolonization States feared the impact of potential changes in government policies on business interests.4 These BITs were aimed to supplement the (marginal) protection that customary international law afforded to aliens and to provide greater certainty as to the legal rules which applied to foreign investments.5 It is this to a great extent due to
this political context that these agreements were exclusively focused on the protection of the investor and its investments.6
4 IISD Model international Agreement on Investment for Sustainable Development (n. 1), introduction V. 5 L.E. Peterson, ‘Human Rights and Bilateral Investment Treaties: Mapping the Role of Human Rights Law within Investor-State Arbitration’, Rights & Democracy (International Centre for Human Rights and Democratic Development) (2009), p. 12.
6 See also A. Anghie, Imperialism, Sovereignty and the Making of International Law, Cambridge University Press (2005), pp. 235-244.
To date, BITs have not left this focus. Typically, they contain provisions such as "full protection and security", "fair and equitable treatment" and "non-discrimination", all providing rights to the investor. In addition, they generally contain a dispute settlement provision, providing the investor with the possibility to bring investor-State claims. Investors can thus enforce their rights before an international arbitral tribunal without relying on their home governments to bring forward their claim.7 This international remedial process of investor-State dispute settlement is a revolutionary shift, and perhaps the most innovative feature of BITs.8 In fact, this mechanism has undermined the traditional dogma of international law, under which only States have international rights and the State intervening to protect its injured nationals, effectively asserts its own right rather than that of the injured person.9 In that sense, it is also different from e.g. the system of the World Trade Organization in which only States can submit claims.10
With the rapid increase since the 1990s in BITs, investors got better equipped against the respective host States. This is especially the case as BITs are generally "single-purpose instruments", i.e. they are in principle aimed at protecting investors and their assets without imposing any explicit obligations on them.11 At the same time, with the increase of foreign investments, investors – and especially MNEs – started having a greater impact on a host State’s own population. As Habbard notes:
[The] international scene is no longer about formal, diplomatic relations between states – it has witnessed the emergence of increasingly powerful non-state actors; powerful in the sense that their activities have a major and direct impact on the lives of millions of people. […] The problem is that their power is not matches by a corresponding degree of responsibility and accountability. Some MNEs have a budget that far exceeds that of many developing countries – and still, there is no mechanism to hold them accountable for the violations of human rights that their activities generate. In many developing countries where these MNEs operate, the rule of law is
7 L.E. Peterson (n. 5), p. 16.
8 J. Wouters & A. Chané, ‘Multinational Corporations in International Law’, KU Leuven Working Paper No. 129 (2013), p. 8.
9 F. Francioni, ʹAccess to Justice, Denial of Justice, and International Investment Lawʹ in P‐M. Dupuy, F. Francioni and E‐U. Petersmann (eds.), Human Rights in International Investment Law, Oxford University Press (2009), p. 65; Mavrommatis Palestine Concessions, PCIJ Rep Series A No. 2 (30 August 1924) at 12: “It is an elementary principle of international law that a State is entitled to protect its subjects, when injured by acts contrary to international law committed by another State, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights — its right to ensure, in the person of its subjects, respect for the rules of international law”.
10 See Marrakesh Agreement establishing the World Trade Organization, Annex 2 - Understanding on Rules and Procedures Governing the Settlement of Disputes (1994).
ineffective; there are no legal remedies, and no possibilities of redress – which goes to say that the MNEs can act in near-total impunity.12
Many other scholars also noted this power-accountability asymmetry.13 In light hereof, the
International Institute for Sustainable Development (“IISD”) introduced the "IISD Model International Agreement on Investment for Sustainable Development" in 2005 (“IISD Model Agreement”), aimed at "addressing the defects in the now over 2,000 bilateral and regional agreements, all of which more or less share the same type of model".14 As a model agreement, it is a tool for negotiators, providing a comprehensive view of the linkages between investment and sustainable development.15 Accordingly, it refers to human rights obligations on investors, such as “[i]nvestors and investments shall not manage or operate the investments in a manner that circumvents international environmental, labour and human rights obligations to which the host State and/or home state are Parties”.16
Also the 2008 Economic Partnership Agreement between the CARIFORUM States and the European Union, which is modeled on the aforementioned article of the IISD Model Agreement, states that the parties shall cooperate and take such measures as may be necessary to ensure that: “[i]nvestors do not manage or operate their investments in a manner that circumvents international environmental or labour obligations arising from agreements to which the EC Party and the Signatory CARIFORUM States are parties”.17 Although this clause might not be sufficient to allow for treaty-based claims against investors, it is worth noting that it provides the linkage between domestic measures and international (environmental and labor) obligations. 18
12 A-C Habbard, ‘The Integration of Human Rights in Corporate Principles: OECD Guidelines for Multinational Enterprises: Global Instruments for Corporate Responsibility’, in OECD Annual Report (2001), p. 99.
13 See e.g. S.P. Subedi (n. 1), p. 168; T. Weiler, ‘Balancing Human Rights and Investor Protection: A New Approach for a Different Legal Order’, Boston College International and Comparative Law Review Vol. 27(2) (2004), p. 432; P.T. Munchlinski, ‘Human Rights and Multinationals: Is there a Problem?’, International Affairs Vol. 77(1), (2001), p. 31; M.T. Kamminga, ‘Holding Multinational Corporations Accountable for Human Rights Abuses: A Challenge for the EC’, in P. Alston (ed.), The EU and Human Rights, Oxford University Press (1999), p. 553; K. Nowrot, ‘Reconceptualising International Legal Personality of Influential Non-State Actors: Toward a Rebuttable Presumption of Normative Responsibilities’, Philippine Law Journal, Vol. 80(4) (2006), p. 563; M. Sornarajah, 'Linking State Responsibility for Certain Harms Caused by Corporate Nationals Abroad to Civil Recourse in the Legal Systems of Home States', in C. Scott (ed.), Torture as Tort: Comparative Perspectives on
the Development of Transnational Human Rights Litigation, Hart Publishing (2001), p. 491.
14 IISD Model international Agreement on Investment for Sustainable Development (n. 1), introduction VII. 15 Ibid.
16 Ibid, Art. 14(D).
17 Economic Partnership Agreement between the CARIFORUM States, of the one Part, and the European Community and its Member States, of the Other Part, OJ L 289 (30 October 2008), art. 72; A. Asteriti, ‘Environmental Law in Investment Arbitration: Procedural Means of Incorporation’, The Journal of Investment & Trade, 16 (2015), pp. 255-256.
The same goes for the 2015 Investment Policy Framework for Sustainable Development of the United Nations Conference on Trade and Development (“UNCTAD”), aimed at helping policymakers to, among others, foster responsible investor behavior.19 This
document includes the following policy option:
Encourage investors to comply with universally recognized standards such as the ILO Tripartite MNE Declaration and the UN Guiding Principles on Business and Human Rights, and to carry out corporate due diligence relating to economic development, social and environmental risks. Provide that non-compliance may be considered by a tribunal when interpreting and applying treaty protections (e.g. FET) or determining the amount of compensation due to the investor.20
As Munchlinski held, and what sufficiently summarizes the identified development, “the traditional notion that only States and States agent can be held accountable for violations of human rights is being challenged as the economic and social power of MNEs appears to rise in the wake of the increasing integration of the global economy that they have helped to bring about”.21 The aforementioned (model) agreements and frameworks show that, as their power has increased significantly, MNEs are increasingly expected to observe human rights obligations. 22 The real challenge is now to implement these expectations in the “hard law” of IIAs.
3. CURRENT INTERACTIONS BETWEEN INVESTMENT LAW AND HUMAN RIGHTS LAW
As was indicated in Section 2, there is increasing support for imposing human rights obligations on investors. In order to explore the opportunities to that end, the purpose of this section it to examine how investment law and human rights law are currently interacting. Even though to date host States have not introduced claims against investors for breaches of human rights, international investment law and human rights law are not isolated from each other.23 In this section it will be shown that the interactions appear somewhat one-sided and
are not always easy to identify. When understanding the ineffectiveness of the current interactions, one knows what gap a solution should fill.
19 United Nations Conference on Trade and Development (UNCTAD), ‘Investment Policy Framework for Sustainable Development’, UNCTAD/DIAE/PCB/2015/5, p. 18.
20 Ibid, p. 107, para. 7.1.2. 21 P.T. Munchlinski (n. 13), p. 31. 22 Ibid, p. 32.
23 C. Reiner & C. Schreuer, ‘Human Rights and International Investment Arbitration’ in P‐M. Dupuy, F. Francioni and E‐U. Petersmann (eds.), Human Rights in International Investment Law, Oxford University Press (2009), p. 89.
3.1. Reference to human rights in IIAs
Investment law and human rights law have a common ground. For instance, the legal concept of property and the protection thereof is at the core of any BIT, and at the same time recognized as a fundamental human right, as far back as the French Déclaration des droits de l'homme et du citoyen of 1789.24 The current overlap, however, is not always easy to identify. In general, IIAs do not contain explicit human rights provisions. The North American Free Trade Agreement (“NAFTA”), the Energy Charter Treaty (“ECT”) and the model BITs of the United Kingdom (2005), France (2006), Germany (2008) and the United States (2012) all make no reference to human rights.25
A few BITs, however, do refer indirectly and in very general terms to human rights. For example, according to Article 3.2 of the Taiwan-China Cross-Strait Bilateral Investment Protection and Promotion Agreement, "[t]he Parties shall strengthen the protection of personal freedom and safety of investors […]".26 "Personal freedom" is clearly a human right.27 Similarly, the US-Uruguay BIT (2005) states in its preamble the desire to "achieve these objectives in a manner consistent with the protection of health, safety, and the environment, and the promotion of consumer protection and internationally recognized labor rights".28 Even more specifically, the preamble of the Draft Model BIT of Norway (2015) provides: "Reaffirming their commitment to democracy, the rule of law, human rights and fundamental freedoms in accordance with their obligations under international law, including the principles set out in the United Nations Charter and the Universal Declaration of Human Rights".29
24 P-M. Dupuy, ʹUnification Rather than Fragmentation of International Law? The Case of International Investment Law and Human Rights Lawʹ in P‐M. Dupuy, F. Francioni and E‐U. Petersmann (eds.), Human
Rights in International Investment Law, Oxford University Press (2009), p. 45.
25 North American Free Trade Agreement (1994); Energy Charter Treaty (1994); UK Model BIT (2005); France Model BIT (2006); Germany Model BIT (2008); US Model BIT (2012). The US Model BIT (2012) does, however, address environmental and labor law; C. Reiner & C. Schreuer (n. 23), p. 82.
26 Cross-Strait Bilateral Investment Protection and Promotion Agreement between Taiwan and China, 9 August 2012, Art. 3.2. Emphasis added. Non-authentic translation on the website of the China-Taiwan Economic Cooperation Framework Agreement available at
<http://www.ecfa.org.tw/EcfaAttachment/InvestDoc/1.%20Cross-Strait%20Bilateral%20Investment%20Protection%20and%20Promotion%20Agreement.pdf>; Chang-fa Lo, ‘Normative and Operational Linkages between Human Rights Law and BITs – Building a Firmer Status of Human Rights in Investor-State Arbitration’, Contemporary Asia Arbitration Journal, Vol. 8(1) (2015), p. 4. 27 International Covenant on Civil and Political Rights (1966) (hereinafter: ICCPR), Art. 9; Chang-fa Lo (n. 26), p. 4.
28 Treaty Between the United States of America and the Oriental Republic of Uruguay concerning the Encouragement and Reciprocal Protection of Investment, 4 November 2005. Emphasis added; ICCPR, Art. 8; Chang-fa Lo (n. 26), p. 5.
29 Draft Agreement between the Kingdom of Norway and . . . for the Promotion and Protection of Investments, Draft Version 130515, May 2015, available at
There are also other ways in which the interaction between human rights and international investment law can appear. First, human rights can be invoked to interpret certain IIA provisions. And second, human rights obligations of the host State to a third party can come up as a defense to certain government actions violating an investor's right under an IIA.30 These different ways will be discussed, in turn, below.
3.2. Interpreting IIA provisions through human rights law
With regard to the first issue, invoking human rights to interpret certain IIA provisions, the Vienna Convention on the Law of Treaties (“VCLT”) plays an important role in the interpretation of IIAs as they are part of international law.31 Article 31(3)(c) VCLT provides that "there shall be taken into account together with the context […] any relevant rules of international law applicable in the relations between the parties".32 In light hereof, when interpreting provisions of the NAFTA, the ICSID Tribunal in Mondev v United States, referred to case law regarding the access to court as provided for in Article 6 European Convention on Human Rights (“ECHR”). The relevant NAFTA norm and the one expressed by the ECHR are what have been referred to as “multi-sources equivalent norms”. These are norms with a similar content, but stemming from different sources. Because of the similar content, they may influence one another's interpretation.33 In fact, many standard provisions in IIAs are related to human rights principles. The principle of “fair and equitable treatment”, for example, is closely related to human rights such as the right to a fair trial and the right to property.34 The ICSID Tribunal held:
These decisions concern the “right to a court”, an aspect of the human rights conferred on all persons by the major human rights conventions and interpreted by the European Court in an evolutionary way. They emanate from a different region, and are not concerned, as Article 1105(1) of NAFTA is concerned, specifically with investment protection. At most, they provide guidance by analogy as to the possible scope of
<https://www.regjeringen.no/contentassets/e47326b61f424d4c9c3d470896492623/draft-model-agreement-english.pdf>. Emphasis in the original.
30 L.E. Peterson (n. 5), p. 22; Chang-fa Lo (n. 26), p. 9.
31 Vienna Convention on the Law of Treaties (1969) (hereinafter: “VCLT”); V. Vadi, Analogies in International
Investment Law and Arbitration, Cambridge University Press (2016), p. 230.
32 VCLT, Art. 31(3).
33 A. Tzanakopoulos, 'Judicial Dialogue as a Means of Interpretation' in H.P. Aust & G. Nolte (eds.), The
Interpretation of International Law by Domestic Courts. Uniformity, Diversity, Convergence, Oxford University
Press (2016), p. 86.
NAFTA’s guarantee of “treatment in accordance with international law, including fair and equitable treatment and full protection and security.35
Likewise, in the examination of whether an expropriation had taken place, the ICSID Tribunal in Tecmed v Mexico referred to several human rights courts, such as the Inter-American Court of Human Rights and the European Court of Human Rights (“ECtHr”).36 A similar interaction one can find in the Yukos case. In that case the ECtHR had already held that some of the acts of the Russian government (such as the freezing of the assets) violated the right to property under Protocol No. 1 of the ECHR.37 In the investment dispute relating to (indirect) expropriation the Tribunal referred to these acts and held that even though "it is not a human rights court", it is “within the scope of the Tribunal’s jurisdiction to consider the allegations of harassment and intimidation as they form part of the factual matrix of Claimant’s complaints that the Russian Federation […] subjected Claimant’s investment to measures having the effect equivalent to an expropriation”.38
It should be noted that the applicability of human rights law when interpreting IIAs also has its limits, in the sense that it should be an independent cause of action. This is illustrated by the Tribunal in Biloune v Ghana. The arbitration clause in the respective IIA limited jurisdiction to disputes “in respect of an approved enterprise”.39 When the claimant sought redress for the alleged violations of his human rights, the Tribunal held that its competence is limited to disputes “in respect of” the foreign investment and that hence the Tribunal “lacks jurisdiction to address, as an independent cause of action, a claim of violation of human rights”.40
3.3. Human rights obligations as a (necessity) defense
With regard to the second issue, human rights of non-parties to the arbitration have been relied upon by host States as a “necessity defense” for an alleged violation of an IIA. When
35 Mondev International Ltd. v USA, ICSID Case no. ARB/(AF)/99/2, Award (11 October 2002), para. 144. 36 E.g., Baruch Ivcher Bronstein vs. Peru, Inter-American Court of Human Rights, Judgment (6 February 2001);
In the case of Matos e Silva, Lda., and Others v. Portugal, European Court of Human Rights, Judgment (16
September 1996); Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case no. ARB(AF)/00/2, Award (29 May 2003), paras. 116-122.
37 OAO Neftyanaya Kampaniya Yukos v Russia, European Court of Human Rights, 14902/04 (20 September 2011), para. 653.
38 Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, Award (18 July 2014), para. 765.
39 Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana, UNCITRAL, Award on Jurisdiction and Liability (27 October 1989), para. 188.
such defense is successfully brought forward by the State, there is either no breach of the IIA or it can be a circumstance precluding wrongfulness.41 In fact, human rights obligations impose both a prohibition on engaging in human rights violations as well as a duty to prevent such violations being committed by others.42 This duty requires States to take measures “such as by legislation and administrative practices – to control, regulate, investigate and prosecute actions by non-State actors that violate the human rights of those within their territory”.43 While human rights are increasingly invoked by host States as a defense for an alleged violation of a BIT provision, tribunals seem to be reserved in this respect.
In EDF v Argentina, Argentina argued that its tariff measures were necessary "in order to guarantee the free enjoyment of certain human rights, such as, inter alia, the right to life, health, personal integrity, education, the rights of children and political rights".44 The Tribunal held that indeed, "it does not call into question the potential significance or relevance of human rights in connection with international investment law", but nevertheless it did not find these measures "necessary to guarantee human rights".45 Also in Sempra v Argentina, the Tribunal did not take into account Argentina's human rights based defense of necessity, as it held that "the constitutional order was not on the verge of collapse" and even if emergency legislation became necessary in this context, other measures could still have been taken.46 In Azurix v Argentina, the Tribunal disregarded Argentina's argument that "a conflict with a BIT and human rights treaties must be resolved in favour of human rights because the consumers' public interest must prevail over the private interest of service provider [sic]", as the Tribunal found that a clash with human rights was not necessarily at stake.47 In Continental Casualty v Argentina the Tribunal reached a different conclusion and held that Argentina’s human rights obligations did prevail.48 Also in LG&E Energy v Argentina, Argentina’s necessity defense
was successfully invoked. However, the Tribunal did not refer expressly to Argentina’s
41 See generally C. Ryngaert, ‘State Responsibility, Necessity and Human Rights’, Institute for International Law K.U. Leuven, Working Paper No. 141 (2009).
42 T. Meshel, ‘Human Rights in Investor-State Arbitration: The Human Right to Water and Beyond’, Journal of International Dispute Settlement 6 (2015), p. 280.
43 Ibid, p. 281; F. Balcerzak, ‘Jurisdiction of Tribunals in Investor-State Arbitration and the Issue of Human Rights’ ICSID Review 29(1) (2014), p. 227.
44 EDF International SA, SAUR International SA, and León Participaciones Argentinas SA v Argentine
Republic, ICSID Case No. ARB/03/23, Award, 11 June 2012, para. 192; T. Meshel (n. 42), p. 281.
45 EDF International v Argentine Republic (n. 44), paras. 912-914.
46 Sempra Energy International v The Argentine Republic, ICSID Case No. ARB/02/16, Award (28 September 2007), para 332; T. Meshel (n. 42), p. 282.
47 Azurix Corp. v The Argentine Republic, ICSID Case No ARB/01/12, Award (14 July 2006), paras. 254 and 261.
48 Continental Casualty v Argentina, ICSID Case No. ARB/03/9, Award (5 September 2008), paras. 180-181, 270, 276.
human rights obligations, but rather emphasized the social and health related effects of the financial crisis.49
Several other cases seem to suggest the same conclusion that although international investment tribunals have opened the door for human rights related defenses, they still appear somewhat reluctant.50 Not only are tribunals reluctant to refer direct to human rights obligations, they seem to prefer dismissing the human rights related arguments raised by the host States on a procedural ground, rather than to deal with the merits of it.51
3.4. Interim Conclusions
In this section we have seen the overlap between human rights law and international investment law. The references to human rights in IIAs are in principle scarce, indirect and one-dimensional: they are directed towards the States and not the investors. The same goes for human rights when interpreting IIA provisions. When a reference is made to human rights, it does not constrain the operation of investors or their ability to invoke the IIA. For human rights obligations as a (necessity) defense, again, the obligations of the host States are what matter, and not those of the investors. These shortcomings create the gap the proposed mechanisms should fill.
4. HUMAN RIGHT OBLIGATIONS ON INVESTORS OUTSIDE IIAS
Having assessed (the absence of) explicit human rights obligations of MNEs under IIAs, we will now turn in this section to their human rights obligations under international law in general, domestic law and voluntary codes of conduct. The fact that in principle IIAs do not impose human rights obligations on MNEs does not mean that no other branches of law do. This exploration is necessary in order to determine to what sources of human rights obligations counterclaims (Section 5) and the legality requirement (Section 6) can refer.
49 LG&E Energy v Argentina, ICSID Case No. ARB/01/1, Decision on Liability (3 October 2006), para. 234; L. Boisson de Chazournes & B. McGarry, ‘Constitutional Law and the Settlement of Investor-State Disputes: Some Interplays’, in C.C. Jalloh & O. Elias (eds.), Shielding Humanity: Essays in International Law in Honour of
Judge Abdul G. Karoma, Brill Nijfhoff (2015), p. 240.
50 See also Glamis Gold Ltd v United States of America, UNCITRAL, Award (8 June 2009); Continental
Casualty Company v Argentina, ICSID Case No. ARB/03/9, Award, 5 September 2008; T. Meshel (n. 42), pp.
281-282.
4.1. Obligations under international human rights law
The traditional notion of international law, as governing only inter-State relations, is outdated. Currently, international law, including international human rights law, also governs the relations between States and individuals.52 The question whether international human rights law imposes obligations on MNEs, however, is highly debated.53
As the International Court of Justice (“ICJ”) held in its Advisory Opinion in Reparation for Injuries, for an entity to have the capacity to bring an international claim, it need to be enquired first whether that entity possesses international personality.54 The same
goes for having obligations under international law: the entity concerned should be subject of international law.
States are the original and major subjects of international law.55 Some international organizations also possess international personality. This can either be derived from the constituent document, i.e. when legal personality is expressly recognized in it, or, such as in the Reparation for Injuries case when the legal personality of the UN was implicitly recognized, based on the functioning of the organization.56 For other entities, such as MNEs, international personality can be acquired by subjecting an agreement with a recognized international person, such as a State, directly to the rules of international law.57 This would render the MNE an international person in the context of the arrangement in question.58 However, no such human rights agreement between States and MNEs exist. International personality may also be acquired by virtue of being directly subjected to international duties.59 To individuals this applies in specific cases such as war crimes, piracy and genocide.60
52 E.g. the ECHR provides individuals and legal persons the right to bring forward claims based on the treaty.
See ECHR, Art. 34; P.H.P.H.M.C. van Kempen, ‘Human Rights and Criminal Justice Applied to Legal Persons.
Protection and Liability of Private and Public Juristic Entities under the ICCPR, ECHR, ACHR and AfChHPR’, Electronic Journal of Comparative Law, Vol. 14(3) (2010), p. 3.
53 Chang-fa Lo (no. 26), p. 11.
54 Reparation for Injuries Suffered in Service of the United Nations, ICJ, Advisory Opinion (11 April 1949) (Hereinafter: “Reparation for Injuries”), pp. 178-179. According to the ICJ, international personality means “that it is a subject of international law and capable of possessing international rights and duties, and that it has capacity to maintain its rights by bringing international claims”.
55 M.N. Shaw (n. 3), p. 191.
56 Reparation for Injuries (n. 54), p. 182; N.D. White, The United Nations System. Toward International
Justice. Lynne Rienner Publishers (2002), p. 29.
57 M.N. Shaw (n. 3), p. 191. 58 Ibid.
59 Ibid.
60 Ibid; A. Bianchi, ‘The Fight for Inclusion: Non-State Actors and International Law’ in Fastenrath et al (eds.) From Bilateralism to Community Interest: Essays in Honour of Bruno Simma, Oxford University Press (2011), p. 53.
The question whether also MNEs are directly subjected to international duties, has been highly debated. In 2003 the United Nations (“UN”) sub-commission on the Promotion and Protection of Human Rights proclaimed the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (“Norms”).61 This was an ambitious attempt to codify the human rights principles to which companies must adhere.62 The Norms laid down a comprehensive framework, entailing direct obligations for business enterprises and supplemented by a rigid enforcement mechanism (including monitoring by non-State actors).63 Some powerful MNEs and international business institutions, such as the International Chamber of Commerce and the International Organization of Employers, however, strongly opposed the idea that human rights obligations would be applicable to MNEs, thereby departing from the traditional framework of international law in which States are the legal subjects of public international law.64
According to the UN Commission on Human Rights, the Norms contained "useful elements and ideas", but it did not approve them and said that, as a draft proposal, it had “no legal standing”.65 Thereafter, the UN Secretary-General appointed Ruggie as a Special Representative in order to clarify the human rights responsibilities of companies. In his Report, Ruggie concluded that “[…] it does not seem that the international human rights instruments […] currently impose direct legal responsibilities on corporations”.66 However, he also indicated that “[u]nder customary international law, emerging practice and expert opinion increasingly do suggest that corporations may be held liable for committing, or for complicity in, the most heinous human rights violations amounting to international crimes, including genocide, slavery, human trafficking, forced labour, torture and some crimes against humanity."67
61 Commission on Human Rights, Sub-commission on the Promotion & Protection of Human Rights, ‘Economic, Social and Cultural Rights: Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights’, U.N. Doc. E/CN.4/Sub.2/2003/12/Rev.2 (13 August 2003); S.P. Subedi (n. 1), p. 48.
62 M.T. Kamminga, ‘Corporate Obligations under International Law’, Paper presented at the 71st Conference of the International Law Association, plenary session on Corporate Social Responsibility and International Law, Berlin, 17 August 2004, p. 1.
63 S. Bachmann & P. Miretski, ‘Global Business and Human Rights: the UN “Norms on the Responsibility of Transnational Corporations and other Business Enterprises with regard to Human Rights” - A Requiem’, Deakin Law Review, Vol. 17(1) (2012), p. 4.
64 S.P. Subedi (n. 1), p. 49; S. Bachmann & P. Miretski (n. 63), p. 5.
65 UN Commission on Human Rights Decision. 2004/116, UN Doc E/CN.4/DEC/2004/116, (20 April 2004). 66 Report of the Special Representative of the Secretary-General on the issue of Human Rights and Transnational Corporations and Other Business Enterprises, A/HRC/4/035 (9 February 2007) (hereinafter: Report of the Special Representative), paragraph 44. Emphasis added.
67 Interim Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises to the United Nations Economic and Social Council, E/CN.4/2006/97 (22 February 2006), para. 61; C. Reiner & C. Schreuer (n. 23), p. 86.
Even though he observed that "it does not seem that the international human rights instruments discussed here [such as the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural rights] currently impose direct legal responsibilities on corporations",68 he also noted that "[c]orporations increasingly are recognized as 'participants' at the international level, with the capacity to bear some rights and duties under international law".69 His conclusions were subsequently endorses by the Human Rights Council.70
It seems clear that for now MNEs are not subjected to international human rights duties.71 It would be incorrect, however, to think that this could not change in the future. In
academia there is already increasing support for the notion that in relation to certain acts international law imposes human rights obligations on non-State actors.72 States no longer enjoy a “monopoly” on international personality. Not only international organizations, but also individuals - via human rights treaties such as the ECHR and through the imposition of international responsibility for e.g. war crimes - have acquired international legal personality.73 Indeed, as was already indicated in Section 2, as MNE’s take on more significant power, it is only logical to conclude that their potential for liability under international human rights law should (and will) be similarly expanded.74
4.2. Obligations under domestic human rights law
A host State’s domestic law may impose obligations on the investor reflecting international human rights law. Indeed, domestic law typically criminalizes torture, murder, and other
68 Report of the Special Representative (n. 66), para. 44; C. Reiner & C. Schreuer (n. 23), p. 87. 69 Report of the Special Representative (n. 66), para. 20; C. Reiner & C. Schreuer (n. 23), p. 87.
70 Human Rights Council Resolution 17/4 Representative of the Human Rights Council, 17th Session, May 31 – June 17, 2011, U.N. GAOR, 66th Session, Supp. No. 53, A/66/53 (16 June 2011) at 136; G. K. Foster, ‘Investors, States and Stakeholders: Power Asymmetries in International Investment and the Stabilizing Potential of Investment Treaties’, Lewis & Clark Law Review, Vol. 17(2) (2013), p. 390.
71 See also K. Nowrot (n. 3), p. 376; C. Reiner & C. Schreuer (n. 23), p. 87; In the absence of being subjected to international human rights duties, these MNEs lack international personality. See M.N. Shaw (n. 3), p. 191. 72 Report of the Special Representative (n. 66); Y. Kryvoi, ‘Counterclaims in Investor-State Arbitration’, LSE Law, Society and Economy Working Papers Vol. 8 (2011), pp. 17-24; See also D. Atanasova, C.A.M. Benoit, and J. Ostřanský, ‘Counterclaims in Investor-State Dispute Settlement (ISDS) Under International Investment Agreements (IIAs)’, The Graduate Institute Centre for Trade and Economic Development (2012), p. 44.
73 D. Kinley & J. Tadaki, ‘From Talk to Walk: The Emergence of Human Rights Responsibilities for Corporations at International Law’, Virginia Journal of International Law, Vol. 44(4) (2004), p. 945.
74 See also T. Weiler (n. 13), p. 441; See generally S.R. Ratner, ‘Corporations and Human Rights: A Theory of Legal Responsibility’, Yale Law Journal, Vol. 111 (2001).
wrongs simultaneously addressed by international human rights law.75 Norms which are similar in their substance, but stem from different sources of different (at least partial) legal orders are referred to as "consubstantial norms".76 Consubstantial human rights norms are
sometimes so intertwined, that distinguishing their originating source is almost impossible.77 As Tzanakopoulos noted:
The first modern declarations of human rights, such as the French and American declarations of the late eighteenth century, and the constitutional traditions which they established, inspired the first instruments for the international protection of human rights, be it the Universal Declaration of Human Rights, the ECHR, or the ICCPR. These international instruments, in turn, provided the blueprint for many modern constitutions […]. As such, the two types of norms have been feeding each other, creating a 'feedback loop' and effectively entangling themselves in an inextricable knot.78
Often host States fail to hold investors accountable for their breach of domestic law. Especially economically weaker States may simply lack the institutional capacity to regulate the activities of MNEs or may be unwilling to enact or enforce human rights laws in order to remain attractive to foreign investors.79 Indeed, if another State imposes less regulation, an
MNE might disinvest and move its operation. This downward regulatory spiral is what can be referred to as "a race to the bottom". Faced with competition, States may fail to enact or enforce human rights standards under domestic law to the detriment of their citizens.80
4.3. Human rights obligations under voluntary codes of conduct
In the absence of effective human rights obligations under domestic law, some MNEs have imposed voluntary codes of conduct. Even though these codes have a voluntary nature, it would be incorrect to disregard them as they do regulate activities of MNEs.81 According to Kinley and Tadaki, “[o]ne would be hard-presses to find any major corporation today that did not make some claim to abiding by a code of conduct that comprises, at least in part,
75 G.K. Foster (n. 70), p. 384; S. Pillay, ‘Absence of Justice: lessons from the Bhopal Union Carbide Disaster for Latin America’, Michigan State Journal of International Law, Vol. 14 (2006), pp. 479, 502.
76 Which is different from the concept of "multi-sourced equivalent norms", which stem from different sources in the same legal order. See A. Tzanakopoulos (n. 33), p. 86.
77 A. Tzanakopoulos (n. 33), p. 87. 78 Ibid.
79 T. Weiler (n. 13), p. 433; J. Wouters & A. Chané (n. 8), p. 1. 80 G.K. Foster (n. 70), p. 384.
adherence to human rights standards”.82 Some MNEs have committed to follow non-enforceable human rights duties promulgated by international organizations, NGOs and businesses, such as Amnesty International's Human Rights Guidelines for Companies,83 the
OECD Guidelines for Multinational Enterprises,84 the UN Global Compact,85 the Global Business Initiative on Human Rights,86 and the Voluntary Principles on Security and Human Rights for the Extractive and Energy Sectors.87 In the absence of monitoring mechanisms, the effectiveness of these voluntary codes remains hard to assess.88 However, due to the fact that the standards are unenforceable, when a human rights abuse occurs, these standards are inevitably ineffective.
4.4. Interim Conclusions
Unlike States, and to a certain extent NGOs and individuals, MNEs are not directly subjected to duties under international human rights law. It is not unlikely, however, that this will change in the future. Under domestic law, typically, there are human rights obligations on MNEs. Especially economically weaker States, however, might lack mechanisms or willingness to enforce them. Voluntary codes of conduct, although increasingly adopted by MNEs, are unenforceable and for that reason they cannot be very effective
The expectation that international law might once impose human rights obligations on MNEs, the human rights obligations under domestic law, and the willingness of MNEs to bind themselves on human rights norms under voluntary codes of conduct, provide useful starting points to impose human rights obligations on MNEs in investor-State arbitration. In the next sections it will be assessed to what extent counterclaims and the legality requirement could be used as mechanisms to that end.
82 D. Kinley & J. Tadaki (n. 73), pp. 953-54; G.K. Foster (n. 70), p. 384.
83 Amnesty International UK Business Group, ‘Human Rights Guidelines for Companies’ (1998).
84 The Organisation for Economic Co-operation and Development, ‘OECD Guidelines for Multinational Enterprises’, OECD Publishing (2011), p. 31: "States have the duty to protect human rights. Enterprises should, within the framework of internationally recognised human rights, the international human rights obligations of the countries in which they operate as well as relevant domestic laws and regulations: 1. Respect human rights, which means they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved".
85 The Ten Principles of the UN Global Compact. Available at <https://www.unglobalcompact.org/what-is-gc/mission/principles> (accessed 15 July 2016): "(I) Businesses should support and respect the protection of internationally proclaimed human rights; and (II) make sure that they are not complicit in human rights abuses"; G.K. Foster (n. 70), pp. 384-385.
86 See <https://business-humanrights.org/en/about-us> (accessed 15 July 2016).
87 See <http://www.voluntaryprinciples.org/wp-content/uploads/2013/03/voluntary_principles_english.pdf> (accessed 15 July 2016); S.P. Subedi (n. 1), p. 44.
5. COUNTERCLAIM – THE SWORD
This section explores the possibilities and obstacles for host States to assert counterclaims against investors based on human rights violations. First it will be explained what counterclaims are. The second subsection concerns jurisdiction and the importance of consent. In the third subsection the connection requirement will be explained. And the fourth, and final, subsection concerns the applicable law in the dispute which gives rise to the counterclaim.
5.1. What are counterclaims
Counterclaims are those claims submitted by the party different from the one initiating the proceedings, in the same legal proceedings.89 It is an independent claim against the claimant, which turns the claimant into a respondent with regard to the counterclaim. Therefore, a counterclaim is rather a sword than a shield (the latter which is an instrument to defend instead of attack).90 Since almost all investor-State disputes are initiated by investors, counterclaims are typically submitted by host States.91 There are various reasons for allowing counterclaims. First, they facilitate more fairness and equality between the parties.92 Second, counterclaims enhance efficiency of the procedure as they could arise from related agreements between the parties.93 And third, the alternative forum to bring forward a claim if a counterclaim would not be allowed is typically a domestic court. For a State an international award instead of one from a domestic court offers better enforcement opportunities, due to the regime of e.g. the ICSID Convention and the New York Convention.94 For these reasons,
89 Y. Kryvoi (n. 72), p. 4.
90 C. Fountoulakis, Set-off Defences in International Commercial Arbitration: A Comparative Analysis, Hart Publishing (2011), p. 21.
91 Y. Kryvoi (n. 72), p. 4.
92 See also D. Atanasova, C.A.M. Benoit, and J. Ostřanský (n. 72), p. 16.
93 See also Saluka Investments B.V. v Czech Republic, UNCITRAL, Decision on Jurisdiction Over the Czech Republic's Counterclaim (7 May 2004) (hereinafter: “Saluka”), para. 24 (the argument of the Czech Republic: “Moreover, the exercise of jurisdiction by the Tribunal over the Respondent’s counterclaim would advance the goals of economy and efficiency in international dispute resolution, since otherwise the Respondent would have to pursue its claims elsewhere”); H. Bubrowski, ‘Balancing IIA arbitration through the use of counterclaims’, in A. de Mestral & C. Lévesque (eds.), Improving International Investment Agreements, Routledge (2013), p. 214. 94 See Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965) (“ICSID Convention”), Art. 54(1): “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State”; Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) ("New York Convention"), Art. III; Y. Kryvoi (n. 72), pp. 4-5.
almost all national and inter-State proceedings provide for the possibility to file counterclaims.95
With the recent (2010) amendment of the UNCITRAL Arbitration Rules, the strict requirement that a respondent could only submit a counterclaim “arising out of the same contract” was left.96 An increase in counterclaims under UNCITRAL arbitration can therefore be expected.97 Also the fact that more tribunals are dealing with counterclaims, more scholars are publishing on this topic and the fact that new IIAs, such as the Trans-Pacific Partnership, explicitly refer to the possibility to submit counterclaims, contributes to and confirms the growing attention for this mechanism. 98
Whether counterclaims could be used as a mechanism to impose human rights obligations on MNEs, however, has yet not received much attention in academia and certainly not in arbitration proceedings.99 It has been argued that because investors' activities in non-commercial areas such as human rights and environmental law are usually not regulated by IIAs, "investor-State tribunals are reluctant to broaden their subject-matter jurisdiction to [these areas]."100 However, recent case law points in a different direction.101 It is therefore worth exploring what the possibilities are to incorporate human rights obligations on investors in the counterclaims mechanism.
95 H.E. Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and International
Law, Oxford University Press (2013), p. 128; ICSID Convention, Art. 46; International Chamber of Commerce
Arbitration Rules (2012), Art. 5(5); ICSID Arbitration Rules (2006), Rule 40; United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules (as amended in 2010), Art. 21.
96 UNCITRAL Arbitration Rules (1976 edition), Art. 19(3). 97 Y. Kryvoi (n. 72), p. 8.
98 E.g. Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (7 December 2011) (hereinafter: “Roussalis”); Antoine Goetz & Consorts and SA Affinage des Metaux v Burundi, ICSID Case No ARB/01/2, Award (21 June 2012) (hereinafter: “Goetz”); Perenco Ecuador Ltd. v The Republic of Ecuador and Empresa
Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the
Environmental Counterclaim (11 August 2015) (hereinafter: “Perenco”); Trans-Pacific Partnership, Art. 9.19(2),
available at <https://medium.com/the-trans-pacific-partnership/investment-c76dbd892f3a#.9w7oatvu8> (accessed 22 July 2016); A. Asteriti (n. 17), p. 256.
99 However, see generally T. Weiler (n. 13). This article does propose a counterclaim mechanism for the violation of serious international rules.
100 Y. Kryvoi (n. 72), p. 3.
101 See e.g. Perenco (n. 98), para. 34 in which the Tribunal accepted, in principle, the submission of an environmental counterclaim by Ecuador against an investor: "The Tribunal agrees that if a legal relationship between an investor and the State permits the filing of a claim by the State for environmental damage caused by the investor’s activities and such a claim is substantiated, the State is entitled to full reparation in accordance with the requirements of the applicable law".
5.2. Jurisdiction
While in principle tribunals have jurisdiction over counterclaims unless this is explicitly prohibited in their constitutive instrument, the practical feasibility of successful counterclaims depends on the arbitration rules governing the proceedings, and on the wording of the
arbitration clause in the IIA.102 Both will be discussed, in turn, below.
5.2.1. The arbitration rules
The requirements for asserting a counterclaim under the UNCITRAL Arbitration Rules can be found in Article 21(3):
In its statement of defense, or at a later stage in the arbitral proceedings if the arbitral tribunal decides that the delay was justified under the circumstances, the respondent may make a counterclaim or rely on a claim for the purpose of a set-off provided that the arbitral tribunal has jurisdiction over it.103
The requirements under the ICSID Convention can be found in Article 46:
Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any incidental or additional claims or counterclaims arising directly out of the subject-matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the jurisdiction of the Centre.104
There are basically two requirements for asserting a counterclaim under Article 46 of the ICSID Convention.105 In the context of this paper these are: first, the jurisdictional requirement of consent of the parties for bringing a human rights counterclaim. And second, the admissibility requirement of a connection between the original claim and the counterclaim.
102 See e.g. NAFTA (1994), Art. 1136(2): “a Party shall not assert, as a defense, counterclaim, right of set off or otherwise, that the investor concerned has received or will receive, pursuant to an insurance or guarantee contract, indemnification or other compensation for all or part of its alleged damages”; A. Asteriti (n. 17), p. 257. 103 UNCITRAL Arbitration Rules (2010), Art. 21(3).
104 ICSID Convention (1965), Art. 46.
105 This, notwithstanding ICSID Convention, Art. 25(1): "The jurisdiction of the Centre shall extend to any
legal dispute arising directly out of an investment […]". Emphasis added in footnote. In principle, if the main
claims pass the jurisdictional test, the ICSID possesses jurisdiction on counterclaims that arise out of the same investment. See also P. Lalive & L. Halonen, ‘On the Availability of Counterclaims in Investment Treaty Arbitration’, Czech Yearbook of International Law (2011), p. 144.
5.2.2. The arbitration clause
The consent requirement under Article 46 of the ICSID Convention has been discussed recently by the tribunals in Spyridon Roussalis v Romania (“Roussalis”) and Antoine Goetz v Burundi (“Goetz”). The arbitration clause of the Romania-Greece BIT in Roussalis provided that if "[d]isputes between an investor of a Contracting Party and the other Contracting Party concerning an obligation of the latter under this Agreement, in relation to an investment of the former", cannot be settled in an amicable way, "the investor concerned may submit the dispute either to the competent courts of the Contracting Party in the territory of which the investment has been made or to international arbitration".106 The applicable law clause in the
Romania-Greece BIT provided that "[t]he arbitral tribunal shall decide the dispute in accordance with the provisions of this Agreement and the applicable rules and principles of international law […]."107 Given the wording of both the arbitration clause and the applicable law clause, the majority of the Tribunal held that:
As mentioned above, the BIT imposes no obligations on investors, only on contracting States. Therefore, where the BIT does specify that the applicable law is the BIT itself, counterclaims fall outside the tribunal’s jurisdiction. Indeed, in order to extend the competence of a tribunal to a State counterclaim, ‘the arbitration agreement should refer to disputes that can also be brought under domestic law for counterclaims to be within the tribunal’s jurisdiction’.108
Like the Tribunal in Roussalis,109 the majority of tribunals seem to agree that counterclaims must fall within the scope of consent of the parties as expressed in their arbitration clause, based on the relevant IIA.110 However, unlike the Tribunal in Roussalis, the Tribunal in Goetz held that it is irrelevant whether or not an IIA contains an explicit authorization for asserting a counterclaim.111 The Tribunal accepted its jurisdiction and firmly held that "[e]n décider autrement serait aller non seulement contre la lettre, mais contre l’esprit de la Convention de
106 Agreement between the Government of Romania and the Government of the Hellenic Republic on the Promotion and Reciprocal Protection of Investments (23 May 1997), Art. 9.
107 Roussalis (n. 98), para. 870.
108 Roussalis (n. 98), para. 871. Emphasis omitted. Referring to P. Lalive and L. Halonen (n. 105), p. 141. 109 Which excluded counterclaims as the arbitration clause in the BIT was limited to claims relating to breaches of the BIT. See Roussalis (n. 98), para. 871: "As mentioned above, the BIT imposed no obligations on investors, only on contracting States. Therefore, where the BIT does specify that the applicable law is the BIT itself, counterclaims fall outside the tribunal's jurisdiction".
110 See also Saluka (n. 93), para 39; Sergei Paushok et al v The Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability (28 April 2011), para. 689; Gustav W. F. Hamester GmbH & Co KG v. Republic of
Ghana, ICSID Case No. ARB/07/24, Award (18 June 2010), (hereinafter: “Hamester”), paras. 353-354; D.
Atanasova, C.A.M. Benoit, and J. Ostřanský (n. 72), p. 13. 111 Goetz (n. 98), para. 279.
