EXPRESS RIGHT TO REGULATE IN INTERNATIONAL INVESTMENT AGREEMENTS: FOR PUBLIC PURPOSE, OR FOR PURPOSE OF SILENCING THE PUBLIC? LLM Thesis written by Milda Venslaviciute under the supervision of Dr. Hege Elisabeth Kjos, and submitted in fulfilment of the requirements for the degree of LLM in International and European Law: Trade and Investment Law at the University of Amsterdam Faculty of Law Date of submission: 29 July 2016 Word count: 14192
ABSTRACT The aim of this thesis is to establish whether the codification of sovereigns’ regulatory power, or the right to regulate for public purpose, should be required in international investment law. There has been a strong consensus amongst some states and nongovernmental organisations that the investor – state dispute settlement system is negatively affecting the states’ initiative to pass measures in areas of public concern. Some states have proposed to codify the right to regulate by adding an express provision to their international investment agreements, hoping that such a clause would force the international investment tribunals to allocate more ‘liberty’ for regulation. The legal effectiveness of such a provision is questionable, considering the nature of the internationally recognised right to regulate that is existent and inherent in the sovereign nature of states. To assess the usefulness of an express right to regulate in practice, my research is based on the interpretative analysis of legal jurisprudence that is focused on the particular cases that were singled out for this purpose. By applying the ‘borrowed’ standard of the proposed ‘declaratory’ right to regulate to the specific circumstances of each case, I conclude that the express right to regulate is superfluous, and more confusing than clarifying. I further assess the motives behind the states’ plea for such a provision, regardless of its redundancy, and suggest some alternatives.
Table of Contents
Table of Contents 2 1. INTRODUCTION 3 2. STATES’ REGULATORY FREEDOM AND RIGHTS OF INVESTORS IN INTERNATIONAL INVESTMENT LAW 5 2.1. EXPRESS ELEMENTS OF STATES’ REGULATORY POWER IN IIAS 8 2.2. THE DOCTRINE OF DEFERENCE AND THE RIGHT TO REGULATE 10 3. STATES’ RATIONALE FOR AN EXPRESS RIGHT TO REGULATE IN IIAS 13 4. CASE ASSESSMENT, OR THE ‘REALITY CHECK’ 18 4.1. TREATY STANDARD FOR THE DECLARATORY RIGHT TO REGULATE AND GENERAL EXCEPTIONS 19 4.2. CASE ANALYSIS 21 4.2.1. VESTEY V. VENEZUELA 21 4.2.2. S.D. MYERS V. CANADA 23 4.2.3. TECMED V. MEXICO 26 4.2.4. GLAMIS GOLD V. US 29 5. CONCLUSION 31 BIBLIOGRAPHY 361. INTRODUCTION
This thesis seeks to answer the question of whether the host states’ right to regulate in international investment law should be codified with an express provision in international investment agreements. In light of prominent international investment disputes, such as
Vattenfall,1 Vattenfall II,2 and Philip Morris,3 and with the negotiations of the Transatlantic
Trade and Investment Partnership (TTIP),4 there have been growing concerns relating to investorstate dispute settlement (ISDS) and its purportedly negative impact on the domestic environmental and public interest matters.5 In addition to the concerns voiced by the public, there is a growing interstate consensus in favour of more regulatory autonomy.6 The ‘right to regulate’ clause7 is supposed to answer to these concerns and strengthen the domestic sustainable development policies whilst still attracting and retaining foreign investment. The European Commission’s suggested ‘right to regulate’ in the public interest should specifically involve the right to take measures in line with a legitimate public policy and to set states’ own level of protection as they consider appropriate.8 Similarly, the German Federal Ministry for Economic Affairs and Energy published a memorandum on a model bilateral investment treaty (BIT) for developed countries9 that supports the ‘right to regulate’ suggestion by introducing public policy exceptions, which somewhat mirrors the idea of GATT10 XX Articles on ‘General Exceptions’. In addition, UNCTAD issued a proposal for International Investment Agreement (IIA) reform, with ‘safeguarding the right to regulate’ as one of the objectives.11 1 Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v. Federal Republic of Germany, ICSID Case No. ARB/09/6. 2 Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12. 3 Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL Arbitration, PCA Case No. 201212. 4 'EU Negotiating Texts in TTIP Trade European Commission' (Trade.ec.europa.eu, 2016) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1230 > accessed 1 June 2016; 'TTIP Round Information' (Ustr.gov, 2016) <https://ustr.gov/ttip/ttiproundinformation > accessed 1 June 2016. 5 The issue of various popular misconceptions on the effects of ISDS is addressed by Charles N Brower & Sadie Blanchard, ‘What’s in a Meme? The Truth about Investor State Arbitration: Why It Need Not, and Must Not, Be Repossessed by States’, Columbia Journal of Transnational Law 52, 2014, 690 – 777; the ‘issue’ of sovereignty is addressed on 719. 6 This is evident from the Addis Ababa Action Agenda of the Third International Conference on Financing for Development 2015 <http://www.un.org/esa/ffd/wpcontent/uploads/2015/08/AAAA_Outcome.pdf > accessed 1 June 2016; COP21 David Rivkin, ‘Climate Change Related Disputes: A Role for International Arbitration and ADR’, speech available at <http://isdsblog.com/wpcontent/uploads/sites/2/2015/12/DavidWRivkinspeechClimate_change_arbitration.pdf> accessed 1 June 2016; UNCTAD work program on International Investment Agreement (IIA) reform, Investment Policy Framework for Sustainable Development (2014), 116; UNCTAD 2015 Investment Policy Framework for Sustainable Development <http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf> accessed 1 June 2016; European Commission, Concept Paper ‘Investment in TTIP and beyond – the path for reform’ launched in May 2015 <http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF> accessed 1 June 2016. 7 For further details and a more elaborate discussion on the scope of an express right to regulate please see subsection 4.1. 8 UNCTAD 2015 Investment Policy Framework for Sustainable Development (n 6) 109. 9 BMWi, Jahreswirtschaftsbericht 2015 der Bundesregierung ‘Investieren in Deutschlands und Europas Zukunft’; UNCTAD 2015 Investment Policy Framework for Sustainable Development (n 6). 10 1994 11 UNCTAD 2015 Investment Policy Framework for Sustainable Development (n 6).
The thesis question concerning the usefulness of an express right to regulate provision will be answered using the method of legal case study. My research is focused on the analysis of four investment tribunal awards12 and whether a ‘right to regulate’ would have hypothetically influenced the outcome of the awards if it had been binding at the time of the proceedings. The cases for the analysis were singled out from the claims concerning four areas of public interest: political reform and ideology; human health; environment; and culture. The key awards depicting the current situation in investment arbitration were chosen from the period of 2002 to 2016 and are not limited to a particular tribunal. In order to challenge the tribunal’s decisions with a question of ‘what if?’, namely ‘what if the decisions were rendered had the express right to regulate existed?’, a particular standard of an express right to regulate will be borrowed from the Norwegian Model BIT 2015.13 In addition to the declaratory right to regulate,14 this Model BIT includes exceptions of public security interests and exclusions of cultural policy, taxation and regulation in good faith.15 I believe that these provisions are the most accurate and realistic reflection of the current consensus towards the ‘right to regulate’. The thesis is structured as follows. The first section concerns the definitional matters including the origin of the right to regulate, as well as the main forms in which it may be expressed. This section will highlight some of the unique features of investment arbitration that distinguish it from general public international law. Section two discusses contemporary issues pertaining to the dissatisfaction with the ISDS system, helping to grasp the motives behind the active campaign for an express right to regulate. Section three seeks to provide a ‘reality check’ as defined by Brower and Blanchard.16 In this section, the selected cases contain an analysis against the right to regulate and the public policy exceptions as set out in Norway Model BIT. By assessing how, if at all, the ‘right to regulate’ clause would have affected the tribunals’ decisions in each particular case, I wish to prove my hypothesis that express exceptions for public purpose are not necessary. I will also give attention to more effective alternatives that may answer to the concerns of states and the public instead of the 12 Please see subsection 4.2. 13 Norwegian Model BIT 2015 Art 12: ‘Nothing in this Agreement shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Agreement that it considers appropriate to ensure that investment activity is undertaken in a manner sensitive to health, safety, human rights, labour rights, resource management or environmental concerns.’ 14 The term ‘declaratory right to regulate’ borrowed from Lars Markert ‘The Crucial Question of Future Investment Treaties: Balancing Investors' Rights and Regulatory Interests of Host States’ (2011) 149 150 in Marc Bungenberg, Jörn Griebel and Steffen Hindelang, International Investment Law and EU Law (Springer 2011); Aikaterini Titi, The Right to Regulate in International Investment Law (Nomos Verlagsgesellschaft 2014) 112. 15 Norwegian Model BIT 2015 Art. 12; 24 28. 16 Brower & Blanchard ‘What’s in a Meme?’ (n 5) 690 – 777.
right to regulate clause. The results of the research and suggestions will be rounded up in the concluding section. 2. STATES’ REGULATORY FREEDOM AND RIGHTS OF INVESTORS IN INTERNATIONAL INVESTMENT LAW The investor’s ability to question the states’ regulations has inflicted disapproval amongst some states and their public. The reasons behind such disapproval will be discussed in section two. For now, it suffices to note that the understanding of the sovereign power and ability to regulate has a different character in international investment law to the one in public international law more generally. In order to be able to analyse and assess the extent of the states’ ‘right to regulate’ in international investment law, one ought to fully grasp the concept and eliminate any confusions that may be attached to this term. The international community has accepted the inherent and implied power to regulate within their respective borders as the states may seem fit.17 Such a power of a state is undisputed,18 however, it may be limited so as to comply with international obligations. Examples of the interstate relations may be in the form of bilateral reciprocal benefits,19 or for wider community interests in the form of multilateral treaties. One example that demonstrates the reciprocal relationship for states’ mutual benefits are free trade agreements, whereby two or more states define their rights and obligations towards each other in relation to facilitation of international trade. For the benefit of wider international community, a broader law making treaty, may for instance concern environmental issues, such as the Basel Convention.20 What these examples have in common is that they are agreements between the equal states and the liability towards each contracting state are governed by the ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts (ILC rules of state responsibility).21 International investment agreements (IIAs), however, introduce an aspect that renders the system somewhat more peculiar in contrast to traditional traitéloi and traitécontrats22 17 ‘Sovereign’s right to constitutional or organizational autonomy […] is a consequence of the plenary jurisdiction over the State’s internal affairs.’ in Samantha Besson, ‘Sovereignty’ (2011) Max Planck Encyclopedia of Public International Law [MPEPIL] para 121; territorial sovereignty as described in Island of Palmas case 2 R.I.A.A. 829, Huber J. at 839 (1928); Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States of America) (Merits) [1986] ICJ Rep 14 para. 212214; on sovereignty over natural resources see Nico J Schrijver, ‘Natural Resources, Permanent Sovereignty over’, Max Planck Encyclopedia of Public International Law [MPEPIL] last updated 2008. 18 ‘It is each State’s undeniable right and privilege to exercise its sovereign legislative power.’ in ParkeringsCompagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8 Final Award 11 September 2007, para 337 – 338. 19 Elihu Lauterpacht et al, International Law Reports: Interpretation of Treaties (19th edn. CUP 1952) 479. 20 1992 21 ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts 2001.
rights (and on some occasions obligations) of individuals. Despite the aspect of a private party figuring in the relationship, the relationship remains reciprocal a state may vow more regulatory stability, or agree to be bound by international standards of treatment to attract foreign investment. In exchange, foreign investment contributes towards economic growth23 and in some cases to the rule of law and other community interests of the host state.24 From here it follows that if an investor chooses to invest within the state’s territory, certain limitations on regulatory power will apply. This results in an ‘unequal equilibrium’ that involves three parties in cases of bilateral investment treaties: the host state, the home state and the investor having the nationality of the home state. Whereas the BIT is based on the consent of two states, the investor plays a major role as it has an interest in being treated fairly and equitably, or holding individual rights to arbitrate, for instance. When the investment is made, the investor becomes a key party in the trilateral relationship, capable of challenging state’s treaty obligations, non performance of which may have an adverse effect on an investment. The host state’s obligations agreed upon with a home state are diverted towards the investor, who, as a result, holds certain procedural and, according to some, substantive rights set out in the applicable BIT. Douglas highlights the distinction between the substantive rights directly owned by investors and indirect substantive rights as a matter of interstate relationship between the contracting states.25 The latter requires a notice of arbitration by an investor, before a legal relationship between the host state and the investor can be established.26 The US – Mexico dispute27 puts the debate on whether an investor is capable of holding direct substantial rights into perspective. Mexico imposed a tax forcing soft drinks producers to use Mexican sugar instead of other types of sweetener arguing that it was a legitimate countermeasure in response to a prior US violation of interstate obligations under the North American Free Trade Agreement (NAFTA).28 Investors who were affected by the measure initiated 22 For an indepth description and explanation of these concepts see Jan Anne Vos, The function of public international law (Asser 2013) 139 – 142; see also Enrico Pattaro, A treatise of legal philosophy and general jurisprudence (Springer 2005) 202 – 203. 23 Eduardo Borensztein et al, ‘How does foreign direct investment affect economic growth?’ (1998) 45 Journal of International Economics 115135. 24 Hege Elisabeth Kjos, Domestic Courts Under Scrutiny: The Rule of Law as a Standard (Of Deference) in InvestorState Arbitration. in Kanetake M and Nollkaemper A (Eds.), The Rule of Law at The National and International Levels: Contestations and Deference (Studies in International Law, 56) (Oxford: Hart Publishing 2016) 354. 25 Zachary Douglas, The International Law of Investment Claims (CUP 2009) 95, para 169. 26 Ibid 35, para 69 – 76. 27 Mexico – Tax Measures on Soft Drinks and Other Beverages (DS308) Panel Report 2005. 28 North American Free Trade Agreement, U.S.Can.Mex., Dec. 17, 1992, 32 I.L.M. 289 (1993); Sergio Puig, ‘No Right Without a Remedy: Foundations of InvestorState Arbitration’ (2014) 35 Journal of International Law 849.
investment arbitration proceedings claiming that Mexico had breached a number of its obligations under Chapter XI of NAFTA. The debate emerged on whether Mexico’s countermeasure defence could be invoked against individuals. In Archer Daniels29 the tribunal found that investors have no direct substantial rights, but merely secondary ‘procedural rights to invoke the responsibility of a sovereign state before an international dispute settlement body.’30 As a result, the countermeasure did not prevent the investor from exercising their procedural right to bring a claim, as the tax ‘had no relation whatsoever with the respondent's offer to submit the present dispute to arbitration.’31 Here the home state remained the main rightholder and beneficiary in the trilateral relationship. In contrast, in the Corn Products32 case, concerning the same tax, the tribunal concluded that investors have direct substantial rights arising out of the language of NAFTA Chapter XI and the intent of the contracting parties.33 Mexico had obligations toward the investor as a direct beneficiary under Chapter XI, separate from the NAFTA obligations owed to the US.34 In this case, the countermeasure defence precluding wrongfulness could not be raised against the investor, as the sole target party should have been the US.35 Consequently, if the investor holds substantive rights, the home state is only a qualifying aspect to the proceedings, considering the requirement of specific nationality for the BIT to apply. As Douglas insightfully notes, despite the possible theories on the nature of investors rights, a breach of the host state’s obligations establishes a legal relationship that exists ‘exclusively between the host state and the investor’,36 and is governed by a ‘distinct regime of international responsibility.’37 Once the arbitration commences the host state and the investor are treated as equal parties to the proceedings. In contrast, the relationship between the host state and an investor is not equal, due to the powers of the sovereign and changing governments and policies.38 However, the BIT enables investors to seek remedies that may place states’ regulatory decisions under tribunal’s scrutiny, which explains the needed balance between the unequal 29 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States (ICSID Case No. ARB(AF)/04/5) Award 21 November 2007. 30 Ibid para 171. 31 Ibid para 179. 32 Corn Products International, Inc. v. United Mexican States (ICSID Case No. ARB(AF)/04/1) Decision on Responsibility 15 January 2008. 33 Ibid para 167 – 169, 174, 176. 34 Ibid para 176. 35 Ibid; Martins Paparinskis, ‘Investment Treaty Arbitration and the (New) Law of State Responsibility’ (2013) 24 European Journal of International Law 617, 626, 632. 36 Douglas, The International Law of Investment Claims (n 25) 95, para 169. 37 As opposed to the ILC rules on international responsibility between states; Ibid. 38 Brower & Blanchard ‘What’s in a Meme?’ (n 5) 713; Stephan W. Schill, 'Deference in Investment Treaty Arbitration: Re Conceptualizing the Standard of Review' (2012) 3 Journal of International Dispute Settlement 587.
parties’ interests in international dispute settlement proceedings. The task falls upon a chosen international investment tribunal to interpret and apply the provisions of the BIT, whilst also taking into account the imbalance of character and powers between the parties, including the fact that states represent wider public interests and community concerns. 2.1. EXPRESS ELEMENTS OF STATES’ REGULATORY POWER IN IIAS Whilst the purpose of IIA is to facilitate and encourage foreign direct investment by offering protection to investors, some clauses contain elements expressing the right to regulate of the host state. The following subsections provide for an overview of the possible ways in which states may seek an added protection of their right to regulate in investment agreements: definitional limitations (i); substantive provisions and provisions limiting the applicability of the BIT (ii); the preamble and the express declaratory right to regulate provision (iii). (i) Definitional limitations A bilateral investment treaty is an instrument that contains an open invitation (consent) to investors to file arbitration proceedings against a state. However, the conditions that the investor must meet, namely the definitional qualifications of an investor, or their investment, are limitations on the group, or number of claimants who may invoke treaty obligations. These limitations allow for state protection against unlimited claims and may come at differing levels of threshold. The states may use the stringent or more relaxed criteria for an investor to qualify as a claimant, which adds an element of protection to state’s regulatory power.39 (ii) Substantive provisions and provisions limiting the applicability of the BIT The second element of limitation, and therefore protection, is often found in more substantive treaty provisions such as expropriation provisions. One example is the expropriation provision in the PanamaCzech BIT: ‘investment shall not be expropriated […] except, in the case of the Czech Republic for a public purpose, and in the case of the Republic of Panama for a public or social interest.’40 UNCTAD in World Investment Report 201541 separates this
kind of ‘IIA standard of protection’ from the additional type ‘safety valves’. Express
39 Titi, The Right to Regulate (n 14) 47.
40 Art 5 (1) Panama – Czech Republic BIT 2000.
41 UNCTAD World Investment Report 2015 Overview: Reforming International Investment Governance (UN, New York
exceptions for public policies, national security, balanceofpayments crises42 are standalone provisions found in IIAs, and because of their excluding function that further limits the application of the treaty in specific situations, they are often referred to as ‘safety valves’, or ‘carveouts’. (iii) The preamble and the express declaratory right to regulate provision The preamble of IIAs often include states’ right to regulate in light of objectives relating to, inter alia, environment, public health or labour standards.43 Although ‘the Preamble does not create independent legal rights or obligations,’44 it is an important tool to influence tribunals’ interpretations of treaty provisions.45 Due to this effect, the significance of the right to regulate in the preamble comes close to an express right to regulate provision,46 the socalled genuine and declaratory right to regulate. This fourth form of the state ‘shield’ from investors is found as a standalone section. The right to regulate here is declaratory and specific to regulation in public interests. One example is EFTA – Hong Kong FTA, stating that: Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure consistent with this Chapter that is in the public interest, such as measures to meet health, safety or environmental concerns and reasonable measures for prudential purposes.47 In sum, it is evident that states may choose any of the mentioned options to accord themselves a higher level of protection against potential liabilities in various stages and parts of IIAs. The definitional protection, whereby an investor must meet specific criteria to initiate a claim, can be distinguished by its importance at the jurisdictional stage. For instance, if an investor fails to meet definitional requirements such as nationality, the jurisdiction of the tribunal will not be established due to the lack of state consent and none of the substantial treaty provisions will apply. Here the ‘genuine’ right to regulate and the protective limitations relating to the merits stage of the proceedings will not be relevant. The most obvious conclusion would be that the ‘right to regulate’ is foreseen to be applicable at the merits stage 42 Ibid 43 Titi, The Right to Regulate (n 14) 116; referred to the Preamble to Japan – Papua New Guinea BIT (2011); US – Croatia (1996); Canada – Colombia FTA (2008); US – Chile FTA (2003); NAFTA, and others. 44 Titi, The Right to Regulate (n 14) 115; Andrew Paul Newcombe, Lluís Paradell, Law and Practice of Investment Treaties (Wolters Kluwer Law & Business 2009) 124; Rudolf Dozler, Margrete Stevens, Bilateral Investment Treaties (Martinus Nijhoff Publishers 1995) 20. 45 Titi, The Right to Regulate (n 14) 115. 46 Ibid 122. 47 Art 4.6 (1) EFTA – Hong Kong FTA 2012.
only, as a forceful guidance for the tribunals to take into account the sovereign right to regulate. However, the existence of this provision does not alter the already implied and inherent right to regulate; in other words, in the absence of the right to regulate provision states will not lose their sovereign power. 2.2. THE DOCTRINE OF DEFERENCE AND THE RIGHT TO REGULATE Whilst the similar content of the IIAs applies, the tribunals’ interpretation and fact assessment may differ. Investment treaties seek to protect foreign investors against the power of the sovereign but it is important that ‘states do not feel unduly prejudiced by the system of international investment protection and […] remain able to implement legitimate domestic public policies.’48 One way of protecting states’ policy space from unrestricted tribunals’ scrutiny is by way of deference.49 Kjos distinguishes between ‘latitude’ and ‘institutional/procedural deference’ accorded to states in investment arbitration proceedings.50 Latitude encompasses the freedom or the scope of policy space accorded to the host state. The conduct of the state party would have to reach a certain level before a violation of a BIT can be established.51 Institutional deference relates to the synergy of the law making and law reviewing powers. The international tribunals’ recognition and respect for the state’s agencies’ expertise and the ability to assess internal laws or policies better52 are recognised under the doctrine of deference. For the purpose of this thesis, the two concepts of latitude and institutional/procedural deference will intertwine. Whilst fundamentally different in nature from the legal right to regulate,53 the doctrines of institutional/procedural deference and latitude may be favourable and unfavourable to a host state, depending on the tribunal’s interpretation. Titi notes that deference ‘is contingent on the whim of the adjudicator and there is no automatic presumption in [the state’s] favour’.54 There are numerous examples that demonstrate the flexibility that deference and latitude for state behaviour incorporates into the system. The following examples demonstrate the tribunals’ recognition of the states’ right to regulate in practice. In S.D. Myers v Canada55 the tribunal recognised the ‘high level of deference that 48 Schill, 'Deference in Investment Treaty Arbitration’ (n 38) 606. 49 Titi, The Right to Regulate (n 14) 40. 50 Kjos, Domestic Courts under Scrutiny (n 24) 354 footnote 4. 51 Ibid 52 Ibid; Schill, 'Deference in Investment Treaty Arbitration’ (n 38) 602 – 603. 53 Independent of whether implied or express right to regulate. 54 Titi, The Right to Regulate (n 14) 40.
international law generally extends to the right of domestic authorities to regulate matters within their own borders.’56 The Saluka Investments v The Czech Republic57 award expressed
the idea of States’ ‘legitimate right to regulate domestic matters in the public interest’, which must be taken into account when considering reasonability of investors’ expectations.58 A stronger recognition of the right to regulate as part of latitude is evident in the privatisation case of Plama Consortium v Republic of Bulgaria.59 The claimant contended that the Bulgarian ‘national legislative and judicial authorities and other public authorities and agencies deliberately created numerous, grave problems for Nova Plama’60 creating circumstances equal to expropriation. The tribunal stated that ‘the State maintains its legitimate right to regulate, and this right should also be considered when assessing the compliance with the standard of fair and equitable treatment.’61 It further noted that ‘the ECT does not protect investors against any and all changes in the host country's laws [and] there were no promises or other representations made to freeze its legislation on environmental law to the Claimant, or at all.’62 Some tribunals highlight states’ ultimate ‘right and privilege to exercise its sovereign legislative power’.63 The broad latitude may undermine the scrutiny of state conduct, infringing on the investor’s right to a fair dispute settlement. However, most tribunals respect the right to regulate whilst balancing it with international obligations.64 The tribunal in Occidental Petroleum v. Republic of Ecuador65 found that a state has the undisputable sovereign authority to enact laws in order to raise revenue for the public welfare; but, as is equally wellestablished in ADC v. Hungary,66 the exercise of such right is not unlimited and must have its boundaries. Similarly, the British Caribbean Bank v. Belize67 award held that while a state is: 55 S.D. Myers, Inc v. Government of Canada, UNCITAL Arbitration Partial Award 13 November 2000; Second Partial Award 21 October 2002; Final Award 30 December 2002. 56 Ibid 263; thesis section 4. 57 Saluka Investments B.V. v. The Czech Republic, UNCITRAL Arbitration, Partial Award 17 March 2006. 58 Ibid para 305. 59 Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Final Award 27 August 2008. 60 Ibid para 72. 61 Ibid para 177. 62 Ibid para 219; 217. 63 Yury Bogdanov v. Republic of Moldova, SCC Arbitration No. V (114/2009) Final Award 30 March 2010. 64 Amongst many others, S.D. Myers v. Canada (n 56); Saluka v Czech Republic (n 58); BG Group Plc. v. The Republic of Argentina, UNCITRAL 2007; AWG Group Ltd. v. The Argentine Republic, UNCITRAL, 2015 para 236; Parkerings Compagniet AS v. Republic of Lithuania (n 18) para 332; 334; 337 – 338. 65 Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB/06/11, Final Award 5 October 2012. 66 ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of Hungary, ICSID Case No. ARB/03/16, Award 2 October 2006. 67 British Caribbean Bank Limited v. The Government of Belize, UNCITRAL, Award 19 December 2014.
‘entitled to broad latitude to devise its public policy as it sees fit, the tribunal does not accept that the mere avoidance of payment, without more, can serve as a legitimate public policy objective for an expropriation of property, particularly when expropriation under the treaty requires the provision of just and equitable compensation.’68 In Perenco v. Ecuador,69 the tribunal in its interim decision on the environmental counterclaim noted that: ‘nothing precludes Ecuador from promulgating new regulations that hold oilfield operators to more stringent environmental standards (or indeed to prohibit such activities altogether in areas which it considers to be ecologically sensitive), provided that this is done consistently with the Constitution’s requirements and any international legal obligations voluntarily assumed by the State.’70 These examples show that whilst respecting the regulatory space of the host states, the tribunals recognise the sensitiveness of the sovereign being challenged for exercise of its acknowledged regulatory power. The award of Achmea v. Slovak Republic I highlights that ‘nothing in these findings of the tribunal should be taken to suggest that the treaty is hostile towards particular policies on the provision of healthcare facilities.’71 The tribunal quite accurately noted that the policies are to be chosen freely by the states, and that the treaty’s role is to assess the manner in which such regulations have been implemented.72 The awards in this subsection demonstrate that even in the absence of the express right to regulate the tribunals generally recognise this inherent legal power of the host states by according both a generous deference and a broad latitude. Whilst it is, in theory, in the whim of arbitrators to interpret the treaty in light of the states’ right to regulate which may introduce uncertainty, in practice deference is a common occurrence. Despite the nonbinding nature of precedent, the notion of predictability and reliance should be stronger than it is amongst the states. 68 Ibid para 236. 69 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. 70 Ibid para 347. 71Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 200813 (formerly Eureko B.V. v. The Slovak Republic) Award 7 December 2012, para 294. 72 Ibid
*** In sum, section two discussed the unorthodox relationship between the claimant and respondent in international investment arbitration, due to the interplay of the private and public nature of the parties. Investors’ ability to challenge the host states’ measures or certain behaviour arise out of an interstate treaty that is often argued to be capable of creating substantial rights of an individual. These rights are subject to limitations. The states’ sovereign power to regulate within its borders has been recognized by the international community; and is widely accorded to the states in arbitration proceedings by way of deference or a certain measure of latitude. In addition, elements of the sovereign right to regulate can be found in sections of IIAs, such as definitional limitations, substantive provisions, provisions limiting the applicability of the BIT, the preamble and the express declaratory right to regulate. From here it follows that the balance between the state that represents public interests on the one hand and an investor’s rights and interests, who is vulnerable to sovereign’s regulatory power on the other, must be struck by an international investment tribunal. The extent to which legal scrutiny, deference and latitude will be applied will depend on the specific facts of a case, and, in particular, the states’ behaviour in relation to the particular investor. 3. STATES’ RATIONALE FOR AN EXPRESS RIGHT TO REGULATE IN IIAS The allegedly frustrated state autonomy to regulate for public purpose in international investment law is one of the concerns causing dissatisfaction with the ISDS system. The very fact that and an individual may challenge the sovereign’s measures has been seen as a controversy. For instance, at the European Commission it has been argued that the ISDS is a system whereby investors sue governments whenever their profits are negatively affected by a newly introduced measure.73 In the context of the negotiations of the TTIP,74 some ‘political
groups, in particular the social democrats, trade unions, consumer organizations and
other NGOs’75 have been campaigning and pledging for complete termination of negotiations
or an omission of ISDS provisions in future IIAs.76 The examples that support the argument 73 European Commission, Concept Paper (n 6) 5.
74 EU Negotiating Texts in TTIP (n 4); Office of the United States Trade Representative, 11th Round Transatlantic Trade and
Investment Partnership Negotiations <https://ustr.gov/ttip/ttiproundinformation> accessed 1 June 2016; 'Investment' (Ustr.gov, 2016) <https://ustr.gov/tradeagreements/freetradeagreements/transatlantictradeandinvestmentpartnershipt tip/ttip5> accessed 25 July 2016.
75 Reinhard Quick, 'Why TTIP Should Have an Investment Chapter Including ISDS' (2015) 49 Journal of World Trade 199. 76 Ibid footnote 2: ‘The positions on ISDS of the Socialist and Democrats in the European Parliament (S&D), the trade
and demonstrate the alleged frustration of the sovereign right to freely regulate consist of prominent cases such as Vattenfall I77 and Vattenfall II,78 and Phillip Morris.79
Vattenfall I concerned a Swedish energy company claiming against Germany for creating political obstacles and preventing a coalfired power plant from being built. The construction permit had been issued by the local authorities of Hamburg in 2007; however, after local elections in 2008, the new coalition including the Green Party had allegedly introduced other constraints that resulted in project delays and increased expenditures. The public and environmental groups had voiced concerns pertaining to projected Carbon Dioxide and fine particle emissions, and its impact on the adjacent Elbe River.80 In 2007, a UN report was published on the environmental effects of global warming;81 and this was central to the arguments on the proenvironment side. Despite that, Vattenfall sought damages for costly delays and project’s inability to operate in full capacity due to local government’s allegedly arbitrary environmental measures and restrictions. The claimant argued unfair and unequitable treatment prohibited under the Energy Charter Treaty (ECT). One can only predict what the outcome of the arbitration procedure would have been, had the parties not settled. However, Vattenfall I was followed by Vattenfall II, which concerned premature closure of Vattenfall’s nuclear power plants in Krümmel and Brunsbüttel, Germany, due to government policy reversal on nuclear power.82 The second arbitration case fuelled the environmental group and public criticisms even more, adding discontent with the lack of transparency in the ongoing proceedings.83 The lack of transparency and the fact that the final award is pending make it difficult to assess the balance between the right to regulate of the state and the investors interests at this particular stage; however it does demonstrate the grounds for public condemnation of investors’ ability to initiate proceedings against a state. Another recent claim featuring in the headlines is the Phillip Morris v Australia,84 or been very hostile to ISDS sometimes reducing the argument in an untenable way, see for example, the article ‘was handeln wir uns da ein’ by Heike Buchter, Petra Pinzler und Wolfgang Ucharius, published in DIE ZEIT on 26 Jun. 2014’. 77 Vattenfall.I v. Germany (n 1). 78 Vattenfall II v. Germany (n 2). 79 Philip Morris v. Australia (n 3). 80 'Germany Faces Energy Charter Treaty Claim by Swedish Corp Over Regulatory Squeeze On CoalFired Power Plant Investment Arbitration Reporter' (Iareporter.com, 2016) <http://www.iareporter.com/articles/germanyfacesenergycharter treatyclaimbyswedishcorpoverregulatorysqueezeoncoalfiredpowerplant/> accessed 1 June 2016. 81 Working Group II Contribution to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, ‘Climate Change 2007: Impacts, Adaptation, And Vulnerability’ <https://www.ipcc.ch/pdf/assessment report/ar4/wg2/ar4_wg2_full_report.pdf > accessed 1 June 2016. 82 Vattenfall II v. Germany (n 2). 83 Nathalie BernasconiOsterwalder, Martin Dietrich Brauch, ‘The State of Play in Vattenfall v. Germany II: Leaving the German public in the dark’ Briefing Note December 2004, International Institute for Sustainable Development, <http://www.iisd.org/sites/default/files/publications/stateofplayvattenfallvsgermanyIIleavinggermanpublicdark en.pdf> accessed 1 June 2016. 84 Philip Morris v. Australia (n 3).
the WTO Plain Packaging cases.85 Whilst the investment arbitration was discontinued following the tribunals decision on lack of jurisdiction, the case intensified the discussions at state and public level regarding legislation for public health. The law in question was the Australian Tobacco Plain Packaging Act 2011 consisting of tobacco control measures in order to reduce smoking and prevent smoking related disease in Australian population.86 The law prohibited appealing packaging of tobacco products and introduced requirements for health warnings in the form of warning statements, graphics, explanatory messages, and information messages.87 These requirements had allegedly frustrated investors’ rights and resulted in negative effect on their profits and investment. The initiation of the arbitration proceedings inflicted a large dissatisfaction amongst the public and Australia in particular, critics highlighting the ability of an individual to contest states’ regulatory power and the importance of the investor interests versus public health policy. Many argue that in order to avoid costly claims, states may choose not to regulate for the public good, such as for environmental protection or social wellbeing.88 The same ‘regulatory chill’ effect has been argued to be caused by the content of the ‘stable business environment’ and ‘legitimate expectations’ doctrines.89 These criticisms arise out of tribunals’ interpretations to allegedly include a ‘guarantee against repeated legislative changes.’90 NGOs argue that the ‘public authorities must keep the political power and structures necessary to protect certain sensitive sectors and safeguard standards important to our quality of life’.91 It is questionable whether the states are being prevented from regulating in public interest as a result of ISDS and whether the system causes regulatory chill. The criticism is grounded on a few cases that inflicted much negative publicity; however, it fails to consider the much larger 85 Australia — Certain Measures Concerning Trademarks, and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (DS434) and Australia — Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (DS435, DS441, DS458 and DS467). 86Australian Government, AttorneyGeneral’s Department, ‘Tobacco plain packaging—investorstate arbitration’ <https://www.ag.gov.au/tobaccoplainpackaging> accessed 1 June 2016; Julie Maupin ‘Differentiating Among International Investment Disputes’ 490 in Zachary Douglas, Joost Pauwelyn and Jorge E Viñuales, The Foundations Of International Investment Law (OUP 2014). 87 Part 2 and 3 of the Competition and Consumer (Tobacco) Information Standard 2011, Australian Competition and Consumer Act 2010. 88 Regulatory chill – EC Staff Working Document Report ‘Online public consultation on investment protection and investor tostate dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement‘ (2015) <http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153044.pdf> accessed 1 June 2016; Titi, The Right to Regulate (n 14) 46; Government of Australia Productivity Commission (2010) Bilateral and Regional Trade Agreements; Government of Australia Productivity Commission Research Report, Canberra, November 2010 271; Muthucumaraswamy Sornarajah, ‘Right to regulate and safeguards, in UNCTAD The Development Dimension of FDI: Policy and RuleMaking Perspectives’, UNCTAD/ITE/IIA/2003/4, NY & Geneva: UN 2009 < http://unctad.org/en/Docs/iteiia20034_en.pdf> accessed 1 June 2016. 89 'Statement Against Investor Protection in TTIP, CETA, And Other Trade Deals Seattle to Brussels Network' (Seattle to
Brussels Network, 2016) <http://www.s2bnetwork.org/statementisdsics/> accessed 17 June 2016.
90 European Commission, Concept Paper (n 6) 5.
91 <https://www.transportenvironment.org/sites/te/files/publications/140512%20TTIP%20EU%20Joint%20Statement.pdf>
proportion of cases where the tribunal has accorded a high level of deference, or latitude, to the sovereign right to regulate. In cases where the state has been found liable, critics disregard the reasons for the state liability and the severance of infringement of its international obligations. In CMS v Argentina,92 for instance, the tribunal noted that: ‘it is not a question of whether the legal framework might need to be frozen as it can always evolve and be adapted to changing circumstances, but neither is it a question of whether the framework can be dispensed with altogether when specific commitments to the contrary have been made.’93 Whilst this specific criticism will not be assessed as part of the thesis, it provides with a general background for the dissatisfaction with the investors’ ability to claim for their frustrated investment activities. The general understanding amongst the public is that ‘arbitral tribunals have only considered the objective of protecting the economic interests of the investors and have not balanced it against the sovereign right of states to legislate in the public interest.’94 The ‘one sidedness’ of international investment arbitration ‘meme’ was identified and negated by a convincing fact appraisal of Brower and Blanchard.95 The current statistics show that as of May 2015, 37 per cent of nonICSID cases were decided in favour of the State, 25 per cent in favour of the investor, whilst 53 per cent of ICSID cases throughout 2015 were either dismissed in jurisdictional stage or on merits.96 As a result there are numerous cases that demonstrate this inaccurate allegation of tribunals being more favourable to investors, which is supposedly encouraging the dissatisfaction with the ISDS system as a whole. The express right to regulate provision in the IIAs is seen to be one of the tools to change the ‘one sidedness’ of tribunals or inequality between the parties, and some states have taken initiative to include such a provision.97 The EU Parliament in its 2011 Resolution, for instance, expressed a concern for ‘the level of discretion of international arbitrators to make a broad interpretation of investor protection clauses, thereby leading to the ruling out of legitimate 92 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award 12 May 2005. 93 Ibid para 277. 94 European Commission, Concept Paper (n 6) 5. 95 Brower & Blanchard ‘What’s in a Meme?’ (n 5) 709710; 712. 96 UNCTAD, ‘Investor – State Dispute Settlement: review of Developments in 2014’, May 2015 <http://unctad.org/en/PublicationsLibrary/webdiaepcb2015d2_en.pdf> accessed 1 June 2016; (2016) UNCTAD, ‘Recent Trends in IIAs and ISDS’, February 2015 <http://unctad.org/en/PublicationsLibrary/webdiaepcb2015d1_en.pdf> accessed 7 June 2016; ICSID Caseload – Statistics Issue 20161
<http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153044.pdf> accessed 1 June 2016.
public regulations’.98 As an ‘antidote’ for that, the Parliament called for ‘specific clauses laying down the right of parties to the agreement to regulate, inter alia, in the areas of protection of national security, the environment, public health, workers’ and consumers’ rights, industrial policy and cultural diversity.’99 In cases of claims where the treaty provisions do not contain an explicit right to regulate, it is natural to assume that the tribunal would have more discretion to adopt a doctrine for interpretation it sees fit, than it would have in the presence of an explicit right to regulate provision.100 As a result of this assumption, there is a widely acknowledged preference for the policy space to be founded on solid legal ground, such as an explicit right to regulate, rather than on tribunal discretion.101 Despite the high level of deference and the otherwise recognised right to regulate and even to expropriate, the interstate consensus in favour of more autonomy to regulate is evident from Addis Ababa Agenda,102 COP21103 and
is, to an extent, supported by UNCTAD work program on International Investment Arbitration reform104 and the European Commission.105 The EU’s proposal reflects on this
concern by offering to include ‘an operational provision (an Article) which will refer to the right of Governments to take measures to achieve legitimate public policy objectives, on the basis of the level of protection that they deem appropriate.’106 A provision of this nature is essentially a written declaration of the right to regulate, which already exists under international law as discussed in section two. But the EU argues that an express right to regulate ‘allows setting the right context in which investment protection standards are applied.’107 Similarly, in the commentary on TransPacific Partnership (TPP), the US Trade Representative noted that by including an express provision, the agreement ‘protects the right to regulate’.108 A closer look into the legal nature and tribunals’ interpretation of such a provision negates this statement, as will be seen in section four of this paper. 98 European Parliament resolution of 6 April 2011 on the future European international investment policy (2010/2203(INI)) 'EURLex 52011IP0141 EN EURLex' (Eurlex.europa.eu, 2011) <http://eurlex.europa.eu/legal content/EN/TXT/?uri=celex%3A52011IP0141> accessed 25 July 2016, para 24. 99 ‘Texts Adopted Wednesday, 6 April 2011 European International Investment Policy P7_TA(2011)0141' (Europarl.europa.eu, 2016) <http://www.europarl.europa.eu/sides/getDoc.do?type+TA&reference=P7TA2011 0141&language=EN> accessed 1 June 2016, para 23 – 25. 100 Titi, The Right to Regulate (n 14) 41. 101 Ibid 102 Addis Ababa Action Agenda (n 6). 103 Rivkin, Climate Change Related Disputes (n 6). 104 UNCTAD 2015 Investment Policy Framework for Sustainable Development (n 6). 105 European Commission, Concept Paper (n 6). 106 Ibid 5. 107 Ibid 108 US Government, ‘Made in America: TPP’ <https://ustr.gov/sites/default/files/TPPChapterSummaryInvestment.pdf> accessed 1 June 2016.
A refreshing departure from the active campaign for an express right to regulate is the UNCTAD suggestion to strengthen the ‘safety valves’ or the exceptions for public purpose,109 which may be more effective.110 The proposed right to regulate clause is supposed to answer to the mentioned concerns and strengthen the domestic sustainable development policies whilst still attracting and retaining foreign investment. The question is, however, whether this express right to regulate will change the situation in practice. My proposition is that the explicit right to regulate is redundant as it is readily recognised by investment tribunals without such a codification.111 To challenge and prove my hypothesis in fact, I will assess the following cases that concerned states’ measures on matters of public interest and whether an express right to regulate, or safety valves, would have changed the outcome had they been in force at the time of the legal proceedings. 4. CASE ASSESSMENT, OR THE ‘REALITY CHECK’112 Answering the question of whether the ‘codification’ of the right to regulate is necessary will depend on an assessment of cases concerning public interest and the contested right to regulate. In the following analysis the focus will be on the level of deference and latitude accorded to the states. This shall demonstrate whether states are denied their right to regulate in practice, requiring an express provision confirming it. The cases for the analysis were limited to claims concerning public interest, in the areas of political reform and ideology, health and safety of the public, environment and cultural heritage. A closer look and comparison of the cases will demonstrate whether an express right to regulate would have affected tribunals’ decisions differently in cases concerning diverse areas of public interest. The key awards depicting the current situation in investment arbitration were chosen from the period of 2002 to 2016. The majority of assessed cases consist of awards where states are found to have breached an IIA. Awards in investor’s favour allow for a detailed analysis of whether an express right to regulate would have negated the specific outcome of each case. In order to challenge the tribunal’s decisions with a question of ‘what if?’, namely ‘what if the decisions were rendered had the express right to regulate existed?’, a particular standard of an express right to regulate will be borrowed from the Norwegian Model BIT 2015. 109 UNCTAD World Investment Report 2015 Overview (n 41) 28. 110 Please refer to Section 4. 111 Jörn Griebel ‘The New EU Investment Policy Approach’, in Marc Bungenberg, Jörn Griebel, Stephan Hobe, August Reinisch, International Investment Law, a Handbook (2015) 317, para 3840. 112 Brower & Blanchard ‘What’s in a Meme?’ (n 5) 726.
4.1. TREATY STANDARD FOR THE DECLARATORY RIGHT TO REGULATE AND GENERAL EXCEPTIONS Article 12 on ‘the Right to Regulate’ in the Norway Model BIT 2015 provides as follows: ‘Nothing in this Agreement shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Agreement that it considers appropriate to ensure that investment activity is undertaken in a manner sensitive to health, safety, human rights, labour rights, resource management or environmental concerns.’ 113 The Norwegian provision is broader than the usual standard adopted, which is most frequently limited to the human health and environmental concerns.114 The scope of the regulatory sphere is much more farreaching in reality, as discussed in section two of this paper. This provision is intended to direct the tribunal to interpret the agreement in light of states’ legitimate regulatory needs. It would be incorrect to assume that the express right to regulate provision may allow a state to disregard the substantive obligations set out in the agreement. Therefore, the only legal purpose of the provision is to direct the tribunal to ensure a higher measure of deference and latitude to states’ regulatory conduct. Article 24 on ‘General Exceptions’ of the Norway Model BIT 2015 states: ‘Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international [trade or] investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary:115 i. to protect public morals or to maintain public order;116 ii. to protect human, animal or plant life or health; 113 Can be accessed here <https://www.regjeringen.no/contentassets/e47326b61f424d4c9c3d470896492623/draftmodel agreementenglish.pdf> accessed 17 June 2016. 114 Environmental regulation: Art VIII UK – Colombia BIT 2010; Art 12 (5) US Model BIT; Art 11.11 USFTA 2004; Art XVII (2) Canada – Latvia BIT 2009; Art 11.17 (1) Mexico – Peru FTA 2011. Health and safety: Art 12 Norway Draft Model BIT 2007. For further examples see Titi, The Right to Regulate (n 14) 113. 115 Original footnote omitted. 116 Original footnote omitted.
iii. to secure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; iv. for the protection of national treasures of artistic, historic or archaeological value; or v. for the protection of the environment.’117 Article 24 is an additional provision that seeks to reserve the host states their policy space.118 However, it differs from Article 12 in that its modelled after Article XX General Agreement on Tariffs and Trade (GATT).119 The provision has a wide coverage over the rest of the treaty and provides for a ‘strongly conditional right to regulate.’120 As Titi notes, similarly to Article XX GATT, ‘the chapeau does not create obligations for the host state or rights for investors, rather it looks at the manner government measures taken in derogation of substantive treaty provisions are applied.’121 Any measures in the areas listed in Article 24 of the Norway Model BIT are not prohibited, as long as they meet the requirement of the chapeau. The ‘nonself judging’ nature of the Article suggests that it will require an objective assessment of the link between the measure and its policy aim122 and the necessity factor at the merits stage. This requirement leads to an increased tribunal’s scrutiny of the measure in question, which may affect the level of institutional deference attributed to the state. 4.2. CASE ANALYSIS This subsection consists of the case analysis that assists in answering the research question of whether an express right to regulate would shift tribunals’ interpretation of facts and treaty provisions in states’ favour. 4.2.1. VESTEY V. VENEZUELA One of the most recent awards concerning state’s right to pass certain measures in areas of public interest is Vestey v. Venezuela. 123 Following president Chavez’s election in 1999, a 117 Can be accessed here <https://www.regjeringen.no/contentassets/e47326b61f424d4c9c3d470896492623/draftmodel agreementenglish.pdf> accessed 17 June 2016. 118 Titi, The Right to Regulate (n 14) 177. 119 GATT 1994; ibid 175. 120 US – Restrictions on Imports of Tuna (DS29/R 1994) WTO Panel Report, para 5.22; ibid 175. 121 Titi, The Right to Regulate (n 14) 176 – 177. 122 Ibid 175; 190. 123 Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award 15 April 2016.
new Venezuelan constitution was enacted that ‘aimed at increasing agricultural
productivity’124 and established the legal basis for a land reform.125 To achieve this aim a
number of land laws were passed that ‘provided for the recovery without compensation of stateowned agricultural land illegally occupied by private persons.’126 Land Law 2010 added a possibility for the state to recover ‘lands over which no “perfect chain of title” could be established’.127 Vestey, a UK company, had started its business activity in beef production in Venezuela in 1909 under the name of Agroflora, and since then it had acquired numerous plots of local agricultural land.128 After the enactment of the new constitution, some of the claimant’s estates were occupied by squatters,129 who caused significant harm to Vestey’s property.130 Some interventions were authorised by the government and the squatters were granted the right to remain, upon the declaration of all the claimant’s estates as idle or affected by an ‘ownership defect.’131 Negotiations to purchase Agroflora132 failed when President Chavez decided to ‘recover the Farms pursuant to the Land Law.’133 The Government ‘assumed immediate control of all the operations’134 and entered the estates accompanied by armed forces on the basis of ‘exceptional interests of public utility and social use, regardless of the productivity of the land in question.’135 The Superior Agrarian Court authorised the occupation, possession and usage of Agroflora.136 The claimant filed an appeal; however the decision dismissing the appeal had allegedly never reached Vestey. The claimant asserted that no compensation was offered.137 As a result, the claimant initiated a claim at ICSID on the basis of breach of Article 5 expropriation and Article 2 full protection and security and FET standard contained in the UK – Venezuela BIT.138 Alleging that Venezuela was not acting in motivation of public interest, the claimant contended that Agroflora’s productive farming business served the domestic market exclusively, providing for food to the local people, therefore negating the argument 124 Ibid para 56. 125 Article 307, Constitution of Venezuela, Exh. C69; Ibid para 57. 126 Vestey v. Venezuela (n 125) para 58. 127 Ibid para 61. 128 Up to 14 additional plots in the period of 1916 to 1988; ibid para 52. 129 Ibid para 63 – 64. 130 Ibid para 82. 131 Ibid para 65 – 66. 132 Acronym for Agropecuaria Flora ‘Agroflora’ C.A. 133 Vestey v. Venezuela (n 125) para 97. 134 Ibid para 98. 135 Ibid para 98 – 100. 136 Ibid para 103. 137 Ibid para 108. 138 1995
