To what extent has Investor-State Dispute
Settlement created a balance between investor
protection and the right to water?
Author: Hamdi Majid Najib E-mail: hamdimnajib@gmail.com Student Number: 12293245 Word Count: 12999
Supervisor: Dr. Hege Elisabeth Kjos
Date of Submission: Friday 26 July 2019
University of Amsterdam
Master Track: International Trade and Investment Law (International and European
Law)
Page 1 of 43 ABSTRACT
The UN water-for-all agenda has warranted a rise of water privatisation in countries around the world. States often turn to foreign investors, who hold the needed expertise in this area of services. There is a stigma attached to water privatisation, due to the worry of the foreign investor proceeding to Investor-State Dispute Settlement (ISDS), which is often perceived as biased, favouring investors over public interests. Therefore, this present paper aims to examine the extent to which ISDS has created a balance between investor protection and the right to water. Chapter 2 sets out to examine the right to water as a universal human right, to understand what obligations host states and investors hold. As this section observes that the right to water remains to not be a universal human right, chapter 3 proceeds with an analysis of ISDS jurisprudence. The analysis focuses on three cases concerning the right to water and includes a discussion of the privatisation process, as well as the interplay of four selected themes, i.e. (i) amicus curiae participation, (ii) counterclaims, (iii) proportionality and (iv) legitimate expectations. This paper outlines the criticisms of these decisions, while arguing that the tribunals have managed to achieve a large degree of balance between investor protection and the state’s right to regulate in the public interest, to ensure the right to water. It further suggests that host states can learn from jurisprudence on water-related projects. As a result, states should proceed to draft clear and predictable terms in concession contracts, including obligations for both parties and human rights standards for investors. In the long term, states are advised to recalibrate their BITs to safeguard their right to regulate in the public interest, while incorporating investors obligations.
Page 2 of 43
T
ABLE OFC
ONTENTSAbstract ... 1
Abbreviations ... 3
1. Introduction ... 4
2. Setting The Scene ... 8
2.1. The Right to Water as a Human Right ... 8
2.2. Key Themes ... 10
3. Investor-State Arbitration Cases ... 13
3.1. Biwater v Tanzania (2008) ... 13
3.1.1. Amicus Curiae Participation ... 15
3.1.2. Proportionality ... 18
3.1.3. Contracts Counterclaims ... 20
3.2. Urbaser v Argentina (2016) ... 22
3.2.1. Counterclaims ... 23
3.3. Tallinn v Estonia (2019) ... 27
3.3.1 Legitimate Expectations and Stabilisation Clauses ... 28
3.4. Interim Conclusions ... 31
4. Iraq Privatisation ... 32
4.1. Interim Conclusions: ... 33
5. General Conclusions ... 34
Page 3 of 43 ABBREVIATIONS
ASTV Aktsiaselts Tallinna Vesi BIT Bilateral investment treaty
CEDAW Convention on the Elimination of All Forms of Discrimination Against Women 1979
CRC Rights of the Child 1989
CWS City Water Services
ECA Estonian Competition Authority FET Fair and Equitable Treatment
ICESCR International Covenant on Economic, Social and Cultural Rights 1966 ICSID International Centre for Settlement of Investment Disputes
ICSID Convention International Convention on the Settlement of Investment Disputes IIA International investment agreement (including treaties with
investment protection)
IIL International Investment Law
ISDS Investor-State Dispute Settlement
RTW Right to water
UDHR Universal Declaration of Human Rights 1948 UN SDG United Nations Sustainable Development Goals
UNCITRAL United Nations Commission on International Trade Law UUTBV United Utilities (Tallinn) B.V.
Page 4 of 43 1. Introduction
Water is critical to human survival, yet more than two billion individuals worldwide lack clean able water.1 The United Nations highlight the importance of the ‘water-for-all agenda,’ stating
that water links ‘nearly every [Sustainable Development Goal’ (SDG).2 Although, much
progress has been made towards achieving access to ‘safe and affordable drinking water’ before 2030,3 challenges remain. Due to the lack of water resources to serve a growing world
population, some countries are not yet able to expand and manage their water supply systems adequately.4
The future of water supply systems is often debated, and specifically with respect to the privatisation of water infrastructures to meet the SDGs.5 During the 1990s, various developing
countries privatised their water and sewage infrastructure, often due to the lack of public funds and believing that the investor would provide an efficient service.6 However, water
privatisation has not always proved to be the best solution to countries’ water issues and has resulted in problems such as poor water sanitation and price hikes.
In 2012, the World Bank reported that 34 percent of concession contracts relating to privatised water delivery systems, entered into between 2000 and 2010, have failed or have been in distress.7 As a result, the number of water sanitation disputes between foreign investors
and host States rose. Cases concerning water, sanitation and flood protection currently constitute 5% of all arbitral proceedings administered by the International Centre for Settlement of Investment Disputes (ICSID).8
1 Sustainable Development Goals, ‘Goal 6 to Ensure Access to Water and Sanitation for all’ (UN, 5 September 2018) <https://www.un.org/sustainabledevelopment/water-and-sanitation/> accessed 5 March 2019.
2 High-Level Panel on Water, ‘Water for a Sustainable World’ (UN World Water Development, 2015) <https://sustainabledevelopment.un.org/content/documents/17825HLPW_Outcome.pdf> accessed 12 June 2019.
3 Sustainable Development Goals (n 1).
4 World Water Assessment Programme, ‘Water a Shared Responsibility the United Nations World Water Development Report 2’ (UN Water, March 2006)
<https://unesdoc.unesco.org/ark:/48223/pf0000144409/PDF/144409eng.pdf.multi> accessed 1 June 2019. 5 AD Link, ‘The Perils of Privatisation: International Developments and Reform in Water Distribution’ (2010) 22 Pacific McGeorge Global Business & Development Law Journal 380.
6 Corporate Accountability, ‘Shutting the Spigot on the Private Water: the Case for the World Bank to Divest’ (Corporate Accountability International, April 2012) 6 <https://www.corporateaccountability.org/wp-content/uploads/2012/05/CAI_CasetoDivest_Final_web_rev_FINAL.pdf> accessed 20 May 2019. 7 ibid.
8 World Bank Group, ‘The ICSID Caseload Statistics Issue 2019-1’ (ICSID, 31 December 2018)
<https://icsid.worldbank.org/en/Documents/resources/ICSID%20Web%20Stats%202019-1(English).pdf> accessed 1 June 2019.
Page 5 of 43 There has, however, been much backlash against the investment arbitration regime. Wells considers that this backlash is prominent due to investment tribunals holding a rigid view of international investment agreements leading to ‘the seeming insensitivity of arbitration panels.’9 Notably, in the majority of water-related disputes, investment tribunals have rendered
damages in favour of the investor and such awards have ran into millions in cases like Suez v
Argentina, where the host state was required to pay the investor $37,261,504 plus interest.10
From an economic standpoint, such a sum attached to transnational litigation would seriously impact a developing country’s financial status.
The numerous water privatisation lawsuits may be said to have caused a regulatory chill, discouraging countries from taking regulatory action against an investor. Even where a poorly run privatised water system is affecting their population’s water rights. An example can be seen in South Africa, where water prices were so high that destitute individuals sought water from a residing lake, causing a cholera outbreak.11 Despite the 1996 South African Constitution
recognising the right to water (RTW), South Africa took no action against the investor. This has sparked the perception that international investment agreements limit a state’s prerogative to protect public interests, such as the RTW.12 Tribunals decisions, where public
interest issues are at stake, have led commentators to conclude that international investment law (IIL) primarily focuses on the investors’ substantive protection and does not accommodate human rights, including the RTW.13 Certainly, in some cases, foreign investors have been able
to use ISDS as ‘a sword not a shield against governmental interference.’14 Koskenniemi
proclaims that the ISDS regime does not possess the ability to balance investor protection and human rights and for this reason, there is an inherent bias in favour of the investor.15 This has
9 LT Wells, ‘Backlash to Investment Arbitration: Three Causes’ in M Toral, T Schultz (eds), The State, a Perpetual Respondent in Investment Arbitration? Some Unorthodox Considerations (Kluwer Law, The Hague 2010) 341-342.
10 Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v Argentine Republic, ICSID Case No. ARB/03/19, Award, 9 April 2015, para 117.
11 B Choudhury, Public Services and International Trade Liberalization: Human Rights and Gender Implications (Cambridge International Trade and Economic Law 2012) 163.
12 CN Brower and S Blanchard, ‘What’s in a Meme? The Truth about Investor-State Arbitration: Why It Need Not, and Must Not, Be Repossessed by States’ (2014) 52 Columbia Journal of Transnational Law 719.
13 SW Schill and V Djanic, ‘Wherefore Art Thou? Towards a Public Interest-Based Justification of International Investment Law’ (2018) 33 ICSID Review Foreign Investment Law Journal 30.
14 M Waibel, A Kaushal, KHL Chung and C Blachin, ‘The Backlash Against Investment Arbitration: Perceptions and Reality’ in Toral and Schultz (n 9) 577.
15 M Koskenniemi, ‘It’s Not the Cases, It’s the System’ (2017) 18 The Journal of World Investment & Trade 348.
Page 6 of 43 led Toral and Shultz to hold that this form of praxis is characteristically tilted in favour of the investor and has made both domains to be immiscible as ‘oil and water.’16
Nevertheless, several countries have warranted to improve the balance and flexibility between public interests and investor protection by terminating international investment agreements (IIA) and recalibrating international investment policymaking. India can be shown as an example, India terminated a significant number of IIAs and has concluded new bilateral investment treaties (BITs) e.g. the Belarus-India BIT 2018.17 Nonetheless, the accumulating
criticism of the ISDS approach in public interest proceedings has led Bolivia, Ecuador and Venezuela to denounce the ICSID Convention,18 which demonstrates a negative outlook
towards the international system of investment protection.19 Titi, however, asserts that the Latin
American countries’ denunciation means a rejection of a mechanism belonging to the World Bank, and not a full rejection of the investment arbitration regime.20
These rising tensions over the RTW and investor protection have triggered the need to assess whether ISDS has in fact created a balance between both domains. The notion of balance means that the investor has rights, but not to the detriment of the human RTW, nor that a host state has total deference vis-à-vis the investor. The sixth target of the SDGs heavily focuses on the strategy of water privatisation to ensure universal access to water. Thus, it is important not to readily conclude that the policy of water privatisation is unworkable.21 The recent
proceedings of Tallinn v Estonia, demonstrate that the balance between investor protection and the RTW remains a topical issue that needs to be tackled.22 This is furthered by the fact that
countries, such as Iraq, are currently negotiating concession contracts to articulate a water supply in Basra, magnifying the need for developing countries to understand any potential ISDS mandated lessons.23
16 Waibel, Kaushal, Chung and Blachin (n 14) 582.
17 UNCTAD, ‘Taking Stock of IIA Reform: Recent Developments’ (UNCTAD, 7 June 2019) <https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d5_en.pdf> accessed 19 June 2019.
18 C Titi, ‘Investment Arbitration in Latin America: The Uncertain Veracity of Preconceived Ideas’ (2014) 20-1 Arbitration International 363-364.
19 ibid. 20 ibid.
21 Sustainable Development Goals (n 1).
22 United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia, ICSID No. ARB/14/24, Award, 21 June 2019.
23 Waste & Wastewater International, ‘Biwater/Wood Partner to Develop Drinking Water Supply in Basra, Iraq’ (WWI, 23 March 2018) <https://www.waterworld.com/articles/wwi/2018/03/biwater-wood-partner-to-develop-drinking-water-supply-in-basra-iraq.html> accessed 27 April 2019.
Page 7 of 43 Therefore, accordingly the research questions this thesis aims to answer is, first, to what extent has ISDS created a balance between investor protection and the RTW and, second, what host states, such as Iraq, may learn from ISDS jurisprudence.
For the purposes of answering this research question, I will take the following steps. Chapter 2 will briefly discuss the legal standing of the RTW as a human right and address the relationship between the RTW and the privatisation process. It will further outline the key themes the present analysis is based on, which are selected due to their relevance for the establishment of a balance.
Chapter 3 will observe the factual circumstances and awards of three prominent cases: (i) Biwater v Tanzania,24(ii) Urbaser v Argentina25 and (iii) Tallinn v Estonia.26 These three cases have been selected due to their discussion of the specific themes established in Chapter 2 in ISDS’s attempt to create a balance between investor protection and the RTW. This will be followed by an evaluation of whether ISDS has created a balance, and whether any lessons can be mandated for host states wishing to participate in the water privatisation trend.
Chapter 4 will examine the pre-privatisation water phase of Basra in Iraq, focusing on the manner to proceed with its BITs and concession contracts. This paper has selected Iraq since it is considering privatisation and as of December 2015, the ICSID Convention has entered into force in Iraq.27 Therefore, the state offers a fresh perspective on ensuring a balance between investor protection and the RTW.28 Finally, the general conclusion will identify the main findings of the paper and provide an answer to the research questions.
This paper takes an IIL approach, informed by considerations from a human rights perspective. It utilizes legal analysis in its evaluation of prominent cases and draws upon prior academic analysis which considers the interaction of human rights with IIL. Therefore, despite the focus being centred around the RTW, the overall analysis and general conclusions set out in Section 3 can be applied to public interests related to other human rights, such as ingenious rights.
24 Biwater Gauff (Tanzania) LTD v United Republic of Tanzania, ICSID No. ARB/05/22, Award, 24 July 2008. 25 Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016.
26 Tallinn (n 22) Award.
27 ICSID, ‘Database of ICSID Member States’ (World Bank Group, 4 July 2019)
<https://www.webnots.com/seo-tools/http-header-checker/output> accessed 7 July 2019. 28 L Ali, ‘In Basra: Oil in Abundance, but Little Water to Drink’ (UNICEF, 16 July 2019) <https://blogs.unicef.org/blog/basra-oil-abundance-little-water-drink/> accessed 17 July 2019.
Page 8 of 43 2. Setting The Scene
2.1. The Right to Water as a Human Right
Basra in Iraq and Cochabamba in Bolivia are but two examples of cities which have suffered from the lack of potable water and price hikes under the management of both the public and private sector.29 These issues have resulted in the mobilisation of protests, whereby protestors
proclaimed it to be their human right to have access to reliable, sanitary and affordable water.30
The protestors’ arguments are aligned with the UN Resolution 64/292 of 2010, pursuant to which the UN General Assembly unequivocally recognised that affordable access to clean drinking water and sanitation ‘are essential to the realisation of all human rights.’31
Nonetheless, the UN’s recognition of the RTW remains non-legally binding to its Member States. 32 Thus, a question arises regarding the legal status of the RTW in international law and
whether investors too can be required to honour such a right.
International treaties do not provide for a universal, legally binding RTW.33 However,
this does not mean the RTW is not present in international treaties. The Convention on the Elimination of All Forms of Discrimination against Women (CEDAW) provides an example in the context of the elimination of discrimination against rural women. CEDAW states that parties must warrant that such women ‘enjoy adequate living conditions,’ including ‘sanitation, electricity and water supply.’34 Moreover, the Convention on the Rights of the Child (CRC)
tackles the issue of water35 by stating that state parties shall recognise the ‘right of the child to
the enjoyment of the highest attainable standard of health’ by striving to ensure ‘provision of
29 BBC Middle East, ‘Water Shortages Fuel Ongoing Protests in Basra, Iraq’ (BBC News, 25 September 2018) <https://www.bbc.com/news/av/world-middle-east-45626170/water-shortages-fuel-ongoing-protests-in-basra-iraq> accessed 4 April 2019; KJ Vandevelde, ‘Aguas del Tunari, S.A. v. Republic of Bolivia. ICSID Case No. ARB/02/3. Jurisdiction 20 ICSID Review’ (2005) Foreign Investment Law Journal 450.
30 ibid.
31 UN General Assembly (UNGA) Res 64/292 (2010) UN Doc S/RES/292.
32 A Quintavalla and K Heine ‘Priorities and Human Rights’ (2019) 23-4 The International Journal of Human Rights 692.
33 P Thielbörger, ‘The Human Right to Water versus Investor Rights: Double-Dilemma or Pseudo-Conflict?’ in PM Dupuy, EU Petersmann and F Francesco, Human Rights in International Investment Law and Arbitration (OUP 2009) 488-489.
34 UNGA, Convention on the Elimination of All Forms of Discrimination Against Women, Resolution 34/180, 18 December 1979, UN Treaty Series, 1249, 20378.
Page 9 of 43 adequate nutritious foods and clean drinking-water.’36 However, both these Conventions’
agenda targets a select group of individuals, i.e. rural women and children, and do not address the question of a universal RTW.
In the absence of explicit provisions in several universal core human rights treaties, like the Universal Declaration of Human Rights (UDHR), it is possible to conclude that the RTW is still not universal. Some commentators, however, have argued that the RTW is a human right.37 Additionally, Article 11 of the International Covenant on Economic Social and Cultural
Rights (ICESR) requires states to ensure that everyone has ‘an adequate standard of living,’38
and Article 12 further guarantees ‘the highest attainable standard of health.’39 Although neither
of these articles explicitly mentions the RTW, the Committee on Economic, Social and Cultural Rights (CESCR) has stipulated otherwise. Upon interpreting Article 11 and 12, the CESR held that the RTW is a ‘prerequisite for the realisation of other humans rights.’40 Therefore,
everyone is entitled to ‘sufficient, safe, acceptable, physically accessible and affordable water’ and state parties must safeguard individuals ‘from unsafe and toxic water conditions.’41
Although the Committee may be applauded for its bold approach in recognising the RTW, its interpretation remains a form of soft law and therefore non-binding. Langford and Russell emphasise this body of scholars’ desire to find the RTW a universal human right, yet the ‘penetration for discourse is limited.’42 In short, the RTW is not sufficiently explicit in
international human rights treaties to be deemed a universal human right.
The status of the RTW under customary international law is also contentious. Although non-binding evidence for opinio juris is abundant e.g. the 1992 Dublin Statement on Water and Sustainable Development43 to UN General Assembly Resolution 64/292,44 numerous states
36 J Lee and M Best, ‘The Human Right to Water: Research Guide and Annotated Bibliography’ (2017) Northeastern University <https://www.northeastern.edu/law/pdfs/academics/phrge/right-to-water.pdf> accessed 4 June 2019.
37 M Windfuhr, Water for Food: a Human Rights Obligations (German Institute for Human Rights, December 2013) 6; R Bos, Manual on the Human Rights to Safe Drinking Water and Sanitation for Practitioners (International Water Association Publishing 2016) 6.
38 UN General Assembly, International Covenant on Economic, Social and Cultural Rights, 16 December 1966, United Nations, Treaty Series, 993, 3.
39 ibid.
40 Committee on Economic, Social and Cultural Rights (CESCR) General Comment 15 ‘The Right to Water’ (2003) UN Doc E/C 12/2002/11 of 26 November 2002, paras 1, 2, 8.
41 ibid.
42 M Langford and AFS Russell, The Human Right to Water: Theory, Practice and Prospects (Cambridge University Press 2017) 48.
43 Thielbörger (n 33) 489. 44 UNGA (n 31).
Page 10 of 43 have yet to fully recognise the RTW.This can be seen in UN General Assembly Resolution 64/292, which shows that a total of forty-one states abstained from recognising the RTW as a human right.45 According to Kirschner, the final step for the right to be deemed a customary
norm is either for it to be recognised by ‘an authoritative and generally recognised source, such as the International Court of Justice,’ or for more states to accept the right.46 To conclude,
following the evidence, the RTW is but an emerging principle of customary international law. Asserting the RTW vis-à-vis investors, i.e. on a horizontal level, may be exceptionally challenging. Firstly, international human rights treaties are specifically mandated for states as the primary duty-bearers. Investors are non-state actors and thus, they are currently not a party to any international human rights treaties.47 Human Rights Committees have correspondingly
upheld this traditional analysis. The CRC Committee recognised that in practice private actors can impact children’s rights, however, the state must ensure that private actors comply with the state’s mandated human rights obligations.48 Indeed, the CESCR further dictates that states
must take the appropriate political or legal steps to ensure that in the instance of privatisation, investors ‘are aware of, and consider the importance of, the RTW in’ pursuing the state’s activities.49 Correspondingly, the CESCR has, in a statement regarding the corporate sector,
elaborated on this point stating that the most a state can do is to safeguard ‘access to effective remedies to victims of corporate abuse.’50 It can, therefore, be said that although investors can
impact human rights, they do not owe the same obligations to private citizens as states. 2.2. Key Themes
In proceeding with privatisation of basic utility systems, the state and the investor conclude a concession contract, which grants the investor to supply potable water and sewerage services to a designated service area and can further mandate obligations to both parties.51 For instance,
45 ibid.
46 AJ Kirschner, ‘The Human Right to Water and Sanitation’ (2011) 15 Max Planck Yearbook of United Nations Law 464.
47 ED Brabandere, ‘Human Rights and International Investment Law’ (2018) Grotius Centre Working Paper 75-HRL 3.
48 Committee on the Rights of the Child, General Comment No. 16 (2013) on State Obligations Regarding the Impact of the Business Sector on Children’s Rights, UN Doc. CRC/C/GC/16 (17 April 2013) paras 8, 36. 49 CESCR (n 40) para 49.
50 CESCR, ‘Statement on the Obligations of States Parties Regarding the Corporate Sector and Economic, Social and Cultural Rights’, UN Doc. E/C.12/2011/1 (20 May 2011) para 5.
51 PPPLRC, ‘Water and Sanitation Concession /BOT /DBFO’ (World Bank Group, 27 November 2017)
<https://ppp.worldbank.org/public-private-partnership/sector/water-sanitation/concessions-and-bots> accessed 1 July 2019.
Page 11 of 43 an investor’s obligation can be to ‘upgrade and improve facilities and expand access to water.’52 Therefore, if an investor impacts a populaces RTW, the state could in retaliation take
action against the investor, e.g. expropriation or regulatory changes. This runs the risk of the investor pursuing a claim under the concession contract or the BIT.
If the dispute proceeds to ISDS, there are a number of legal tools to ensure the success of the arbitral process in balancing the rights of the parties. This section provides a brief explanation of these tools corresponding to the themes used later in the analysis. This includes the procedural themes of (i) amicus curiae participation and (ii) counterclaims, as well as the substantive themes: (iii) proportionality and (iv) legitimate expectations.
A petitioner could file a petition to the Tribunal to participate in the proceedings as an
amicus curiae (friend of the court). Amicus curiae are non-disputing parties, which can present
written submissions, access key arbitration documents and attend oral hearings.53 The
acceptance of the amicus curiae petition depends on the relevant arbitration rules.
Regarding written submissions, Rule 37(2) of the ICSID Arbitration Rules 2006 provides the tribunal the discretion to admit amicus briefs on grounds that they (i) ‘assist the tribunal by providing a perspective different from the disputing parties’ (ii) ‘address a matter within the scope of the dispute’ (iii) have ‘a significant interest in the proceeding.’54 Notably,
the ICSID Tribunal can accept the amici submissions even against both contending parties objections.55 However, the amicus curiae involvement must ‘not disrupt the proceedings or
unduly burden or unfair prejudice either disputing party.’56 The 2013 United Nations
Commission on International Trade Law (UNCITRAL) Rules on Transparency in Treaty-based Investor-State Arbitration allow the tribunal to permit amicus briefs57 based on similar
conditions.58
As to oral hearings, the ICSID Arbitration Rules and the 2013 UNCITRAL Arbitration Rules respectively require that disputing parties do not object or agree on the amicus
52 ibid
53 See Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Procedural Order No.2, 26 June 2012; Biwater (n 24) Procedural Order No.5, 2 February 2007.
54 ICSID Rules of Procedure for Arbitration Proceedings (ICSID Arbitration Rules) (April 2006) r 37. 55 ibid.
56 ibid.
57 UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (December 2013) art 4(1). 58 ibid, art 4(3).
Page 12 of 43 attendance.59 Investors tend to view amici participation with scepticism since they regularly
defend a host states action, thus, this criterion will unlikely be satisfied.60
Importantly, if the amicus briefs are accepted, there remains no general legal principle, which obliges the tribunal to ‘consider, either explicitly or implicitly the arguments made by the amicus curiae.’61 Consequently, praxis has shown that tribunals do not affirmingly engage
with the amicus briefs, as demonstrated by Glamis Gold.62
Next, Tribunal may turn to proportionality as a tool to assess the measure in question. Importantly, the analysis of proportionally holds three elements; suitability, necessity and proportionality. First, the suitability test necessities to the suitability of the objective achieved.63 Second, the necessity test observes whether the measure was the least restrictive
means available.64 Third, ‘there must be a reasonable relationship of proportionality between
the means employed and the aim sought to be realised.’65
Linked to proportionality is the fair and equitable treatment (FET) standard, part of which are legitimate expectations. One of the most commonly invoked concepts in investment law was first established in investment arbitration in Techmed, where the Tribunal asserted that investments shall be provided treatment ‘that does not affect the basic expectations that were taken into account by the foreign investor to make the investment.’66 The investor is not
protected from any regulatory changes but from ‘unreasonable modifications’ of the regulatory regime.67 Therefore, the question of equilibrium arises between stability and legitimate
expectations and the host state’s right to regulate in response to changing circumstances.68
The host state can, subject to concession contract or the BIT, launch a counterclaim against the investor for ‘violations of the investors obligations’ under the selected instrument.69
59 ICSID Arbitration Rules (n 54) r 32(2); UNCITRAL Arbitration Rules 2016 (July 2016) art 28(3). 60 Biwater (n 24) Award; M Dimsey, ‘Foreign direct investment and the alleviation of poverty: is investment arbitration falling short of its goals?’ in KN Schefer (eds), Poverty and the International Economic Legal System: Duties to the World’s Poor (Cambridge University Press 2013) 175.
61 J Harrison, ‘Human Rights Arguments in Amicus Curiae Submissions: Promoting Social Justice’ in Dupuy, Petersmann and Francesco (n 33) 415.
62 ibid. Glamis Gold, Ltd v The United States of America, UNCITRAL, Award, 8 June 2009, para 8. 63 V Vadi, Analogies in International Investment Law and Arbitration (Cambridge University Press) 196. 64 ibid.
65 EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009, para 293. 66 See M Potestà, ‘Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept’ 28(1) ICSID Review; Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para 154.
67 Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Award, 21 June 2011, para 291. 68 Potestà (n 66) 113.
69 JA VanDuzer, P Simons and G Mayeda, Integrating Sustainable Development into International Investment Agreements Country Negotiators (Commonwealth Secretariat 2013) 401.
Page 13 of 43 If the counterclaim and investors claim succeeds, the host state can ‘offset any award in favour of the investor’ or if only the counterclaim succeeds, the investor may be liable to pay damages in favour of the host state.70
To conclude this chapter, the RTW falls short of being designated as a universal human right. Most importantly, it remains unclear whether investors could be required to facilitate this right under international law. Therefore, states should take note from arbitral jurisprudence to understand the key themes identified above.
3. Investor-State Arbitration Cases
As shown in the previous chapter, the current international framework does not designate the RTW to be a universal human right. This highlights the importance of the link between the RTW and investor protection. In considering the themes established in chapter 2, this chapter analyses the extent to which ISDS has created a balance between investor protection and the RTW in public interest litigation. For this reason, the present research primarily focuses on three awards: (i) Biwater v Tanzania,71 (ii) Urbaser v Argentina72 and (iii) Tallinn v Estonia.73
The key facts and aspects of the proceedings will be summarized, after which the themes identified will be studied in light of the related case. As noted above, this paper understands balance to mean that the investors’ rights are guaranteed, yet not to the detriment of the human RTW, which the state protects. Notably, these awards have been selected due to their discussion of the relevant themes, as well as for the Tribunal’s approach in Biwater being perceived to hold no successful balance.74 Urbaser is the first instance an ICSID award has
designated much discussion to human rights counterclaims (HRCC). Lastly, Tallinn is the most recent case discussing water privatisation in ISDS.
3.1. Biwater v Tanzania (2008)
Biwater v Tanzania concerns a World Bank-funded project, whereby the Biwater subsidiary
City Water Services (CWS) acquired a ten year contract to upgrade and expand Dar es Salam water and sewerage supply.75 The project encountered multiple fronts of hardship, such as
70 ibid. 71 Biwater (n 24). 72 Urbaser (n 25). 73 Tallinn (n 22). 74 Dimsey (n 60) 173.
Page 14 of 43 CWS financial struggle, its failure to meet targets and CWS management had rapidly deteriorated the water system.76 In response, Tanzania terminated the contract, seized the
company’s assets and deported its senior management.77 This subsequently led to Biwater
initiating ICSID proceedings against Tanzania under the UK-Tanzania BIT.
The Biwater Tribunal is generally known for being the first case to consider the 2006 ICSID Arbitration Rules, which introduced provisions on amicus curiae participation. Indeed, five non-governmental organisations,78 specialised in sustainable development and human
rights, attained the amicus curiae status (amicis) through the Tribunal permitting their joint amici briefs.79 Conversely, the Tribunal rejected the amicis request for key arbitration
documents and to attend the orals hearings.80 Due to Biwater opposing the amicis participation,
the Tribunal was unable to permit, under the ICSID Arbitration Rules, the amicis to hold direct participation in the proceedings.81
Consequently, the amicis’ joint briefs focused on human rights and sustainable development. The Tribunal outlined the key themes of the amici submissions, which included that the RTW is a ‘basic human right,’ which even Biwater itself has prior to the dispute explicitly recognised in the World Water Forum. 82 The amicis noted that investors hold the
utmost responsibility when engaging in projects linked to human rights in ensuring their protection.83 Accordingly, the amicis noted that it was the investors own actions and omissions
that led to the investments failure, not the host state’s actions.84 Indeed, the host state was acting
in good faith to ensure no occurrence of a human rights breach.85 The amicis concluded that
the Tribunal should not allocate damages to the investor to send a clear signal to future investments that compromise a population’s human rights.86 The Tribunal then stated that the
amici submission were a ‘useful contribution’ to the analysis of the claim set out below.87
76 ibid paras 15, 163.
77 ibid paras 1, 15.
78 Lawyers Environmental Action Team (LEAT); Legal and Human Rights Centre (LHRC); Tanzania Gender Networking Programme (TGNP); Center for International Environmental Law (CIEL); and the International Institute for Sustainable Development (IISD).
79 Biwater (n 24) Procedural Order No.5, 2 February 2007, paras 11, 60. 80 ibid, para 17.
81 ICSID Arbitration Rules, r 32(2). 82 Biwater (n 24) Award para 379. 83 ibid para 380.
84 ibid para 381. 85 ibid para 386. 86 ibid para 391. 87 ibid para 359.
Page 15 of 43 The host state, Tanzania, implored an indirect human rights defence, arguing that the investor generated a ‘real threat to public health and welfare,’ and thus, Tanzania acted ‘well within its margin of appreciation under international law.’88 In juxtaposition, Biwater
contended that Tanzania’s conduct resulted in abusive treatment towards the investor, which was evidently not ‘the conduct of a normal contractual counter-party’, thereby amounting to expropriation.89
Upon considering the parties’ arguments, along with the amici submissions, the Tribunal acknowledged that CWS generated the crisis and that the issue ‘had to be resolved one way or another,’ making the contract termination inevitable.90 Nevertheless, the Tribunal
found that Tanzania’s conduct amounted to expropriation and violated the UK-Tanzania BIT. The Tribunal stated that Tanzania’s undertakings were unreasonable, arbitrary and that ‘no necessity or impending public purpose could justify the government’s intervention in the way that it took place.’91 Regardless, the Tribunal noted that when the state took action the
investment was ‘equivalent to nil.’92 The Tribunal, therefore, declined for Tanzania to pay
damages, as the ‘loss suffered’ was directly due to the investors own conduct and not the causation of the host state.93
3.1.1. Amicus Curiae Participation
The Biwater v Tanzania decision has issued much appraisal, but also scepticism on whether the amici briefs truly assisted the Tribunal’s decision to award no damages; in other words, whether the amicus curiae assisted the Tribunal in creating a balance between investor protection and the RTW. Ragni investigated this topic and concluded that optimists should rethink the amicis significance in swaying the Tribunal’s outcome.94 This standpoint has been
reached by other commentators,95 reasoning that the amicis arguments were not raised in any
88 ibid para 436.
89 ibid paras 408, 410, 411. 90 ibid paras 518, 654. 91 ibid para 515.
92 ibid para 798. F Aldson, ‘Biwater v Tanzania: Do Corporations have Human Rights and Sustainable
Development Obligations Stemming from Private Sector Involvement in Natural Resource Provision’ (2002) 2 Environmental Liability 64.
93 ibid paras 805-808.
94 T Treves, F Seatzu and S Trevisanut, ‘Foreign Investment, International Law and Concerns’ in C Ragni, The Role of Amicus Curiae in Investment Disputes: Striking Balance Between Confidentiality and Broader Policy Considerations (Routledge 2014) 89-92.
Page 16 of 43 decision making. Thus, installing the belief that the Tribunal was merely willing to permit the joint amici briefs and reiterate the key themes of their submissions.
Juxtaposed, Butler writes that although the Tribunal linked their decision not to award damages to causation they recognised the amici main argument of the investor not meeting their contractual obligation to improve the welfare of a population.96 Interestingly, Butler
additionally holds the amici briefs in Biwater to be so influential as to have the ‘greatest effect’ compared to all amici submissions ever made in the history of ICSID.97 Perhaps Butler’s
perspective is correct, but her approach leaves stagnation on the fact that the Tribunal did not explicitly engage with the amicis briefs. This could be reasoned with feasible practice; as noted in Chapter 2.2, it is not custom for investment tribunals to address amici briefs. Hence, the Biwater Tribunal merely confined in engaging with the amicis submissions, but still considered their core message. Nonetheless, the Biwater Tribunal did not explicitly recognise that it would not address the amici briefs, contrary to the Glamis Gold Tribunal.98 However, investment
arbitration does not subscribe to the stare decisis doctrine, thus the Biwater Tribunal did not need to rationalise their intended approach.
To further suggest that the Biwater Tribunal would not have reached the same outcome had it not been for the amicis submission is too far-reaching. Any adjudicator’s decisions, including those of arbitrators, are based on the ‘assessment of the strengths’ of the thorough contentions placed by the disputing parties.99 Then again, Dimsey writes that when
approaching human rights issues, arbitrators are hesitant due to their lack of expertise in the human rights domain.100 Nonetheless, it would be grim to the legitimacy of the arbitral process
to suggest that an adjudicator can be wholly influenced by a non-disputing party, which has not even presented detailed perspectives like the contending parties. In Biwater, the amicis were indeed denied key documents. This factors that the amicis cannot be deemed to have utterly altered the Tribunal’s decision nor were they just a lip service. It is therefore only fitting that the amici likely tip the scale in favour of the contending parties, making amicis a variable, which assists investment tribunals reach a balanced decision.101
96 N Butler, ‘Non-Disputing Party Participation in ICSID Dispute: Faux Amici?’ (2019) 66 Netherlands International Law Review 158.
97 ibid 159.
98 Glamis (n 62) Award.
99 Biwater (n 24) Award para 412. 100 Dimsey (n 60) 173.
101 M Hirano, ‘Public Participation in the Global Regulatory Governance of Water Services: Global
Administrative Law Perspective on the Inspection Panel of the World Bank and Amicus Curiae in Investment Arbitration’ (2016) Utilities Policy 43, 28.
Page 17 of 43 The Biwater Tribunal demonstrates that investment tribunals find it challenging to ignore human rights arguments derived from amicis compared to a host state. On the side of practicality, if investment tribunals readily prioritise public interest defences, this could serve as a consistent host state defence, in turn, engendering a deterrent against foreign direct investment.102 Indeed, amicus intervention is overwhelmingly sought in public interest matters
are involved,103 and the Tribunal will only permit participation if they meet the relevant
arbitration rules requirements.104 Since amicis are a non-disputing party, they tend to present
balanced arguments towards ‘investor protection provisions and supporting state positions.’105
In the long run, amicis arguments provide an equilibrium in integrating the RTW and investor protection, which may also entail human rights concerns, i.e. access to justice.
The lesson for host states is to affirmingly permit amicus intervention. Indeed, investment tribunals have dealt with numerous non-disputing parties attempting to attain the
amicus curiae status, most of which have been permitted.106 The high number of amicus curiae
petitions being accepted represents a positive trend of amicus curiae in water-related arbitration cases.107 The host state merely needs to accept such initiative. As noted in Chapter 2.2, if direct
participation is not permitted, amicus briefs, a form of indirect participation, could always be an alternative option. Perhaps, the exact effectiveness of the amicis on a case-by-case basis depends on the tribunal’s discretion but permitting the amici could potentially support the host states when reaching litigious damages. Furthermore, as demonstrated in Biwater, amicis are generally experts on the public interest at stake, which in turn makes the Tribunal likely to appreciate their human rights arguments. This will also work to the host states advantage in the long-term since they could focus on different legal strategies enabling a higher chance of success.108
102 Dimsey (n 60) 173-174.
103 E Levine, ‘Amicus Curiae in International Investment Arbitration: The Implications of an Increase in Third-Party Participation’ (2011) 200 Berkley Journal of International Law 209.
104 ibid.
105 Butler (n 96) 176.
106 C Schliemann, ‘Requirements for Amicus Curiae Participation in International Investment Arbitration: A Deconstruction of the Procedural Wall Erected in Joint ICSID Cases ARB/10/25 and ARB/10/15’ (2013) 12 The Law and Practice of International Courts and Tribunals 365.
107 ibid; S Steininger, ‘What’s Human Rights Got to Do With It? An Empirical Analysis of Human Rights References in Investment Arbitration’ (2018) 31 Leiden Journal of International Law 35.
108 CP Oman, Development Centre Studies, Policy Competition for Foreign Direct Investment, a Study of Competition Among Governments to Attract FDI (OECD 2000) 97.
Page 18 of 43 3.1.2. Proportionality
Despite the amicis effectiveness, the Tribunal’s approach has instigated the perception that it missed an opportunity to balance investor protection and the RTW.109 It is recalled that the
focal point of the case was Tanzania’s terminating the concession contract, seizing CWS assets and the deportation of management. In this context, Kriebaum contends that the Tribunal’s reasoning was ‘strictly investment,’ thereby activating a further biased gap in favour of investor protection.110 This perspective does not, however, consider that the Tribunal’s rejection of
Tanzania’s defence did subtly execute the principle of proportionality to create a balance between investor protection and the RTW.111 However, the Tribunal did not elaborate on the
appropriate level of deference. It is indeed questionable for an investment tribunal to remain silent upon applying proportionality.
The question therefore arises concerning the reasoning behind the tribunal not explicitly elaborating on its recourse to proportionality. Notably, only a state’s measures, which affect foreign investment ‘to achieve a public purpose in a disproportionate manner,’ would be found in violation.112 Despite the Tribunal’s failure to elaborate on the permitted level of deference,
it is conceivable that no explanation is required to understand that Tanzania’s actions were disproportionate. Indeed, on the safest spectrum, Tanzania should have taken no action since the investment was equivalent to nil. Due to the nature of the investment’s financial failure, had the Tanzanian government waited a while longer, ensuring the ‘normal contractual course of termination,’ there would have possibly been no room to seek ISDS. 113 Instead, the
government went to great lengths by deporting CWS senior management to assert public control over the water utilities. Considering this, the Tribunal reached a balanced outcome since Tanzania’s actions were, suffice to say, politically opportunistic. This demonstrates that investment tribunals through the use of proportionality are able to differentiate between legitimate regulation and illegitimate opportunistic behaviour.
109 K Ursula, ‘Foreign Investments and Human Rights – The Actors and their Different Roles’ (2013) TDM 1 <www.transnational-dispute-management.com/article.asp?key=1925> accessed 1 May 2019.
110 ibid.
111 J Vanderstraeten, ‘The Protection of Human Rights under ICSID Arbitration: Illustration with the RTW’ (Graduate thesis, University of Amsterdam 2017) 12 <www.scriptiesonline.uba.uva.nl/document/652147> accessed 3 January 2019.
112 SW Schill, ‘In Defence of International Investment Law’ in M Bungenberg, C Herrmann, M Krajewski and JP Terhechte (eds), European Yearbook of International Economic Law 2016 (Springer 2016) 323.
113 J Chaisse, Charting the Water Regulatory Future: Issues, Challenges and Directions (Edward Elgar Pub 2017) 32, 62.
Page 19 of 43 The lack of information dictating the investor’s legal obligations and the appropriate level of state deference has led commentators to believe that the award is but a pessimistic reading.114 Undeniably, the Tribunal’s creation of a balance investor protection and the RTW
could have been demonstrated more clearly, but the Tribunal’s primary mandate is to resolve the individual dispute and not to consider system-level concerns of higher prominence.115
Had the Tribunal not found a breach of the BIT, the arbitral process would indeed be viewed as an inequitable imbalance against the investor. Thus, the principle of proportionality assists in balancing the RTW and investor protection. Arguably, if the application of proportionality is not deemed sufficient, the result alone should be rendered a success. According to UNCTAD statistics regarding concluded cases, this instance fits the 2 percent of ISDS decisions where liability was found ‘but no damages [were] awarded.’116 The award thus
dictates as a positive trend to that an incompetent investor will not be able to proceed with a successful award when they have unduly affected a population’s RTW.
The Tribunal’s use of proportionality installs a lesson for host states contemplating water privatisation. The focal point of the case was Tanzania’s ‘usurpation, deportation and occupation’.117 When an investor damages an essential utility associated with human survival,
such as water supply systems, this will likely lead to an ‘intensification of political pressure,’ in which governments, such as Tanzania, will take a ‘number of opportunistic actions’ resulting in subsequent ISDS claims.118 Bakker has reasoned that protests in developing countries often
lead to governments issuing contracts cancelations and indirect expropriation.119 Politically
opportunistic actions are, however, not advisable as they will likely be rendered disproportionate even if carried out in the name of the populaces RTW. This is further illustrated by Azurix v Argentina, whereby the successful claim of both investors was due to the governmental political sphere intervening against the investor.120
An analogy can be made between investor protection and states right to take action for the public’s RTW and awards concerning states regulation of environmental standards. The
114 Aldson (n 92) 64.
115 B Kingsbury and SW Schill, ‘Investor-State Arbitration as Governance: Fair and Equitable Treatment, Proportionality and the Emerging Global Administrative Law’ (2009) 9 New York University Public Law and Legal Theory Working Papers 150.
116 UNCTAD, ‘Review of ISDS Decisions in 2018: Selected IIA Reform Issues’ (UNCTAD, 23 July 2019) <https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d6_en.pdf> accessed 24 July 2019.
117 Vanderstraeten (n 111) 12. 118 ibid.
119 K Bakker, Privatisation Water: Governance Failure and the Worlds Urban Water Crisis (Cornell University Press 2010) 96-97.
Page 20 of 43 Tribunal in Elena v Costa Rica121 held that expropriation is simply a matter of expropriation
and not of the state’s intention. In contrast, in Chemutra v Canada,122 the Tribunal held that a
state’s protection of the environment is incapable of constituting expropriation. This analogy illustrates differing opinions, with the Chemutra Tribunal providing a more lenient perspective. States contemplating water privatisation should not just depend on an investment tribunal’s leniency. Thus, to remain on the safest side of the proportionality spectrum, it is advisable for states to assess the situation and only take initiative steadily and tactfully.
3.1.3. Contracts Counterclaims
The controversial nature of Biwater has instigated observers to find that due to the investor impacting a populaces RTW, the Tribunal should have awarded damages in favour of Tanzania.123 Indeed, CWS launched a separate proceeding against Tanzania in a London
Tribunal, which was constituted under the UNCITRAL Rules. In this instance, the Tribunal not only dismissed the CWS claim but further awarded Tanzania £3 million in damages.124
Although the outcome is known, the arbitration documents have remained confidential between the contending parties. While it is beyond the scope of this study to speculate whether the UNCITRAL Tribunal created a balance between investor protection and the RTW, it is plausible from the information provided to address lessons for states contemplating water privatisation.
The award of £3 million in favour of Tanzania demonstrates that the respondent successfully submitted a counterclaim. This has led Aldson to perceive that the decision was ‘predicated on contractual issues alone.’125 States contemplating privatisation should therefore
ensure that their concession contract satisfies jurisdictional ground for the contract to be broad enough to ‘cover claims by the investor and the host state based on their mutual rights and obligations.’126 As international law does not recognise investors to be human rights
duty-bearers, host states should designate concession contracts to be governed by national law,
121 Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000.
122 Chemtura Corporation v. Government of Canada, UNCITRAL (formerly Crompton Corporation v. Government of Canada), Award, 2 August 2010.
123 DEH Allen, ‘This Business Will Never Hold Water International Investment Arbitration on Public-Private Water Service Provision – a Comment on Biwater Gauff (Tanzania) Limited v United Republic of Tanzania’ <https://dx.doi.org/10.2139/ssrn.1540256> accessed 25 May 2019.
124 A Seager, ‘Tanzania Wins £3 Damages from Biwater Subsidiary’ (The Guardian, 11 January 2008) <https://www.theguardian.com/business/2008/jan/11/worldbank.tanzania> accessed 24 May 2019. 125 Aldson (n 92).
Page 21 of 43 which will then be applied during the merits stage of the dispute.127 The concession contract
should further include provisions on ‘good governance, genuine competition among contract bidders, manageable risk, a completion of services to render and a realistic possibility of the contract being terminated.’128 Additionally, an explicit obligation could be for the investor to
‘invest in the infrastructure and sanitation improvements in poor areas and limit tariff increases.’129 In the context of investor-state relations, this will further assist to mandate
suitable balance, since host states can successfully submit a counterclaim. Moreover, if the investor was to impact the RTW, a host state has regulatory room to act in their population’s interests, thereby dismantling the regulatory chill.
In addition to the concession contracts, foreign investors can still initiate an ISDS claim under the BIT in question. According to UNCTAD, investment tribunals decisions are changing since modern IIA provisions refer to sustainable development and human rights, thereby permitting the host state to have regulatory room to act.130 However, old generation
IIA remain to be ‘10 times as many as the number of modern IIA.’131 Numerous old generation
BITs one-sidedly focuses on investor rights and host state obligations, thereby granting only investors a right to ‘quasi-judicial review’ against the host state.132 While the concession
contract could be compressive in highlighting the investors obligations, there still runs the potential that the investor could initiate arbitration against the host state under an old generation BIT. Therefore, a host state can be found in violation of a BIT but be well within its limits in a concession contract.133
It is then most probable that an investor would resort to a claim under a BIT to ensure succeeding in an expensive arbitral process. Alternatively, host states could seek to recalibrate their BITs to limit the risk of investors succeeding by placing provisions on sustainable development and human rights. Nevertheless, the negotiations between the two contracting parties to establish a mutually agreed BIT takes time, therefore if a host state must privatise
127 ibid.
128 P Boomgaard, ‘A World of Water: Rain, Rivers and Seas in Southeast Asian Histories’ in O Braadbaart (eds), Privatisation Water The Jakarta Concession and the Limits of Contract (Brill Academic Pub 2007) 297. 129 ES Hasting, ‘The Asymmetrical Legalization of Investment Regimes in Africa: Lessons from Water Privatisation’ in MCC Segger, MW Gehring and AP Newcombe (eds), Sustainable Development in World Investment Law Kluwer Law International 2011) 462-463.
130 UNCTAD (n 17). 131 ibid.
132 Kjos (n 126) 130. 133 ibid.
Page 22 of 43 immediately as seen in Dar es Salam,134 this luxury would not be available to them. According
to Kjos, the rejection of a treaty-based counterclaim could result in a host state pursuing legal action against the investors based on contractual commitments in the arbitration forum agreed upon under the contract.135
Perhaps, host states claiming against investors is an unusual variation, but it still occurs. This can be seen in a case pending before ICSID in which a Rwandan state-owned company initiated arbitration proceedings against a local subsidiary US company.136 The claim was
based on a contract and concerned the failure by the investor to fulfil their obligation to extract methane from Lake Kivu.137 Filing an independent claim provides an example of another
course of action available to states in the event of an investor acting incompetently.
Therefore, host states could seek comfort in recognising that if they do act within their limits as established in the concession contract and their treaty-based counterclaims are dismissed, they could pursue arbitration against the investor as an alternative. By the host state implementing compressive concession contract, they will be able to balance the RTW and investors protection in utilising the fruitful avenue of contracts to their advantage.
3.2. Urbaser v Argentina (2016)
This case concerned a corporation contracted to provide and expand water and sewage services in Buenos Aires. The wake of the economic crisis led to the subsequent insolvency of the corporation and its termination.138 Upon the corporation’s insolvency, the shareholders
(Urbaser and Consorcio de Aguas Bilbao Bizkaia (CABB)) filed a claim for ICSID arbitration alleging that Argentina had violated the Spanish-Argentina BIT, specifically the provisions on indirect expropriation, fair and equitable treatment, non-discrimination and full protection and security. Despite the respondents’ HRCC not passing the merits hurdle, the Tribunal decided in favour of neither party, thus no damages were allocated.
134 R Greenhill, I Wekiya, ‘Turning Off the Taps: Donor Conditionality and Water Privatisation in Dar es Salaam, Tanzania’ (ActionAid International, September 2004)
<https://www.actionaid.org.uk/sites/default/files/turningoffthetaps.pdf> accessed 9 May 2019. 135 ibid.
136 L Bohmer, ‘Rwandan State-Owned Company Initiates Contract-Based ICSID Arbitration Over Gas Extraction and Electricity Generation Project in Rwanda’s Lake Kivu’ (IAREPORTER, 18 January 2019) <https://www.iareporter.com/articles/rwandan-state-owned-company-initiates-contract-based-icsid-arbitration-over-gas-extraction-and-electricity-generation-project-in-rwandas-lake-kivu/> accessed 4 March 2019. 137 ibid.
Page 23 of 43 The applicable law clause in the Spanish-Argentina BIT permitted the use of ‘international law principles’ and the host state’s national law.139 Based on international law
principles, Argentina sought a HRCC alleging that the claimant failed to provide the necessary investment into the concession and had thus breached the RTW.140 To assess whether it had
jurisdiction, the Tribunal looked at Article 46 ICSID Convention, which set three requirements: (i) consent (ii) arising directly out of the subject matter of the dispute and (iii) within the jurisdiction of the centre. The Tribunal held that all conditions had been met, and most importantly, that consent was permitted due to the BIT’s broad language contending that either party could file a claim.141
The counterclaim reached the merits stages, where the Tribunal acknowledged to ensure no absurdity of the law they must focus on the applicable and more favourable law clauses.142 Both permitted the use of external law (i.e. law not explicitly stated in the BIT)
namely general international law. Subsequently, the Tribunal held that BITs are not just intended to solely protect investors, but the many actors involved.143 After further examination
of the facts, the Tribunal recognised through reference to the UDHR and the ICESR the RTW as an ‘undisputed’ human right and that investors too can be imposed with human rights obligations.144 Interestingly, the Tribunal found that the investor has an ‘obligation to abstain’
from compromising human rights of third persons.145
The respondent attempted to find that the investor owed the RTW to the province by arguing that this was established in the concession contract to provide services, but nothing of the sort was present. Furthermore, the BIT did not specify any human rights obligations directly imposed on investors nor was the respondent or the court able to find an independent obligation in international law to effectively bind investors. Thus, the counterclaim failed and was dismissed.146
3.2.1. Counterclaims
The novelty of the Urbaser award has welcomed an imperative precedent for HRCC. Although the HRCC did not succeed, it should still warrant appraisal in that ISDS has effectively shown 139 ibid. 140 ibid para 1165. 141 ibid para 1153. 142 ibid para 1149. 143 ibid para 1191. 144 ibid para 1206. 145 ibid para 1210. 146 ibid.
Page 24 of 43 that it is continuously willing to create a balance. This was not only the first instance to accept a HRCC on amplified jurisdictional grounds but also to accept and assimilate investor protection and the RTW. Kryvoi, writes that although ICSID Arbitration Rules and UNCITRAL Rules facilitate counterclaims, tribunals remain reluctant to invoke a successful counterclaim.147 This standpoint further corresponds with Vohryzek-Griest, who reported that
in the last ‘30 years only about 20 states have [successfully] counterclaimed.’148 This low
number implies that investment tribunals were reluctant to accept the application of counterclaims, which insinuates that previously there was little balance. Against this background, the award of Urbaser brings a new narrative that investment tribunals are equipped to integrate investor protection and the RTW through the acceptance of HRCC, in turn removing the asymmetry problem. The tribunals assimilation of investor protection and the RTW as Schill puts it ‘will make it more likely that compliance by investors with norms protect global public interests.’149 This effectively means that investment tribunals are willing
to mandate a balance between both domains and will consider human rights arguments in more detail to protect a population’s RTW.
Irrespective of the Urbaser award igniting positive appraisal, some remain distrustful of the success of HRCC in future cases. The reasoning behind this is predominately due to the tribunals reliance on human rights treaties to hold that non-state actors owed ‘directly-horizontal obligations.’150 Nevertheless, as further demonstrated in Chapter 2, there remains
no international treaty to date that accounts investors to hold the same responsibilities as states. Indeed, the Urbaser award remains to be the first case which has warranted to find an investor to hold human rights obligations. Perhaps, had the tribunal carefully explained their stance for such an interpretation, there would be less ‘loopholes’ in its reasoning. This has led Garg to believe that the lack of the tribunals reasoning is a disincentive for future tribunal decisions and will consequently not follow suit in removing the asymmetrical problem, thereby rendering once more little balance between investor protection and the RTW.151
147 Y Kryvoi, ‘Counterclaims in Investor-State Arbitration’ (2012) 321 Minnesota Journal of International Law, 216-218.
148 A Vohryzek-Griest, ‘State Counterclaims in Investor-State Disputes: a History of 30 years of Failure’ (2004) 15 International Law Review Colombia Derecho International 87.
149 Schill and Djanic (n 13) 53.
150 P Abel, ‘Counterclaims Based on International Human Rights Obligations of Investors in International Investment Arbitration’ (2018) 1 Brill Open Law 61, 78-80.
151 P Garg, ‘A Meeting of the Two Worlds: the Human Rights Regime and International Investment Law – A Critique of Urbaser v Argentina’ (EFLIA, 23 August 2018) <https://efilablog.org/2018/08/23/a-meeting-of-the-
Page 25 of 43 It is indisputable that the Tribunal’s approach was not in line with human rights treaties due to the selected treaties not holding a horizontal effect. This accumulating criticism against the tribunal should not, however, be rendered correct. Inevitably, arbitrators generally lack the comprehensive expertise compared to rule on whether a human rights standard has been infringed.152 However, as seen in a number of ISDS awards, arbitrators had to understand a
state’s human rights responsibilities and subsequently ‘draw their own conclusions’ on what such requirements demand in practice and more specifically ‘how they interact with investor protection.’153 In short, this therefore means that the Urbaser tribunal purposively applied the
human rights instruments to what they ought to mandate in practice, that being the investor did hold human rights obligations. In other words, attempting to as innovatively as possible balance two norms, in issuing a signal of predictability to ensure that incompetent investors would not act to the detriment of a populations RTW, thus infusing a balance in the arbitral process. Hence, it can be said that the Tribunal did not make any interpretive errors, it simply mandated itself to be fair on both investor protection and the RTW.
In taking the standpoint that the Urbaser tribunal did create a balance, the question still arises as to the reason for the tribunal not explaining its reasoning. Schill articulates that the balance of public interest and investor protection ‘involves delicate policy choice and difficult decisions.’154 Turning to this standpoint, the Urbaser tribunal had several previous awards
related to water privatisation to help it make a difficult decision. Perhaps, the Tribunal was escaping responsibility by being purposively vague. In any event, despite the lack of clarity on proportionality, the award illustrates that the international forum no longer maintains its reticence that investors have an impact on human rights.
The Urbaser v Argentina award has demonstrated that subject to the relevant criteria ISDS will permit a HRCC. As demonstrated in Chapter 2.2, the counterclaim’s success is linked to treaty drafting. In the context of a BIT, this means to hold sufficiently broad language, which enables both an investor and a host state to submit claims. This will not just enable a counterclaim, but also permit a host state to seek an arbitration forum. The majority of host states would likely submit their dispute to their own domestic courts, since the host state might want to ensure the ‘highest possible appearance of neutrality’ to remove disincentive for future
152 UNCTAD, ‘Selected Recent Developments in IIA Arbitration and Human Rights’ (UNCTAD, 6 November 2009) < https://unctad.org/en/Docs/webdiaeia20097_en.pdf> accessed 21 June 2019.
153 ibid.
