Inducing Voluntary Compliance
On the Added Value and Availability of State-to-State Arbitration in Relation to Voluntary Compliance with Investor-State Arbitration Awards
Thesis
Written as part of the requirements of the degree of Master of Laws (LLM) in International and European Law
(Public International Law track) University of Amsterdam
By Mike Videler, BA, LLB
Supervisor: Dr. Ingo Venzke, Associate Professor of International Law, University of Amsterdam Second reader: Prof. dr. André Nollkaemper, Professor of International Law, University of Amsterdam
Table of Contents
Preface
Introduction………2
Part I – On the Added Value of Diplomatic Protection Claims on Non-Compliance with ISDS Awards
1.1 Some Preliminary Remarks on IR Compliance Theory………...6 1.2 Host State Decision Making on Voluntary Compliance with International Law: An Integrated Theoretical Framework ………...8 1.3 Reputational Loss as Incentive for Voluntary Compliance and the Added Value of SSA………12
Part II - The Legal Framework Governing SSA in the Post-ISDS Phase
2.1 Home State Discretion Regarding Diplomatic Protection Claims………...15 2.1.1 Home State Discretion as Bedrock of the Law of Diplomatic Protection…...16 2.1.2 Accommodating Investors' Concerns, Public Policy, and Justice
Considerations………..17 2.2 SSA Tribunal Jurisdiction over Diplomatic Protection Claims Concerning
Non- Compliance with ISDS Awards………18 2.2.1 Jurisdiction under SSA Clauses in IIAs………..19 2.2.2 Does Art. 64 ICSID Convention Preclude Recourse to SSA After
ICSID Awards?...22 2.3 The Admissibility of Diplomatic Protection Claims in SSA………...25
2.3.1 An Additional Hurdle to the Exercise of Diplomatic Protection under
IIAs………...26 2.3.2 An Internationally Wrongful Act Committed by the Host State……….27 2.3.3 Nationality of the Claim………..28 2.3.4 The Exhaustion of Local Remedies by the Investor and Previous
Interstate Settlement Attempts……….29 2.4 SSA Decision Making: Deference to the ISDS Tribunal and
Establishing International Responsibility………..31 2.4.1 What Standard of Review in SSA Proceedings?...31 2.4.2 Circumstances Precluding Wrongfulness………35
Preface
This thesis, submitted for the degree of Master of Laws in International and European Law at the University of Amsterdam, represents the culmination of a journey. Despite all the
technological developments of the past centuries, journeys, and especially intellectual
journeys, do still on occasion prove laborious and arduous. There was the issue of my health, which put me off-balance for a while, and my various affiliations and external obligations, as well as the course work I was engaged in made strong planning and prioritization of the essence. Yet journeys also provide opportunity for reflection and growth, and I can confidently state that both have found their way to me.
The issue of non-compliance, particularly when of a long-term nature, came rather naturally to me. The late Thomas Wälde stated some years ago that only 10% of disputes are about the application and interpretation of the law, which is what most law schools focus on, and that 90% of disputes revolve in fact around two issues: evidence and enforcement.1As I had dealt
with the former in my Bachelor’s thesis at University College Utrecht, i.e. with the applicable standard of proof before the International Court of Justice in environmental cases where it was confronted with evidence of a technical or scientific nature, it seemed logical to now focus on the latter, or at least what can be done when enforcement fails. Moreover, my work with the Public International Law and Policy Group, advising state and non-state clients on issues of general international law and human rights law, made me want to improve my understanding of the relevance of international law on state actions. And where a previous internship with the Netherlands Permanent Representation to the United Nations at Geneva proved insightful in this regard, I continued to long for answers on a deeper and perhaps more theoretical level.
The thesis is an attempt at multidisciplinary and interdisciplinary research, as it is anchored both in a legal approach (or internal approach to the law), as well as in International Relations theories on compliance with international law. Admittedly, both international investment law and compliance studies were relatively new to me, and I thus had to acquaint myself with the basics and the logic of these areas of study before entering the murkier waters of the more recent academic debates on (non-)compliance by the host state with investor-state
1 Freya Baetens, 'Enforcement of Arbitral Awards: To ICSID or Not to ICSID is Not the Question' (2011)
arbitration awards rendered against it. This process was made infinitely more feasible, and certainly more comfortable by the thesis internship I undertook with De Brauw Blackstone Westbroek in Amsterdam. Naturally, the work does not represent the legal or other position of the firm, and the work submitted is fully my own.
I am very grateful for the supervision provided by Dr. Ingo Venzke, my supervisor, and Prof. André Nollkaemper, the second reader. Their professionalism, procedural flexibility,
substantive comments and enjoyable discussions were instrumental to the writing of this thesis. I would also like to mention Irene ter Stege, study advisor with the University of Amsterdam, who persuaded me to put my health first, which unfortunately does in fact not come natural to me.
Inducing Voluntary Compliance
On the Added Value and Availability of State-to-State Arbitration in Relation to Voluntary Compliance with Investor-State Arbitration Awards
Mike Videler
"Legal obligations that exist, but cannot be enforced, are ghosts that are seen in the law but that are elusive to the grasp."2
Abstract
Host states increasingly refuse to comply with investor-state arbitration awards, leaving aggrieved foreign investors with a hollow victory when enforcement proceedings remain fruitless due to state immunity from execution defence. ‘Recalcitrant’ host states endanger the effectiveness of international investment law. This articles therefore examines the added value and the availability of state-to-state arbitration as a means of diplomatic protection for inducing voluntary host state compliance with prior investment arbitration awards. Part I examines why states comply or fail to comply with investment awards, drawing on an integrated theoretical approach in which the reputation of the host state plays a central role. It is argued that the threat of or the obtaining of a favourable interstate award does have added value in terms of inducing the host state to comply. Subsequently, Part II assesses discusses the legal framework governing state-to-state arbitration on the basis of international investment treaties, discussing home state discretion on diplomatic protection, the jurisdiction of the tribunal, admissibility of claims, and the standard of review to be applied. It is submitted most modern investment treaties make available interstate arbitration for diplomatic protection claims related to non-compliance with prior investment awards.
Introduction
A growing number of investors, having obtained investor-state arbitration (ISDS)3 awards
in their favour, are confronted with states that refuse to ‘voluntarily comply’4 with the pecuniary obligations5 identified in those awards, a phenomenon known as the ‘recalcitrant state’. Host states have refused to voluntarily comply with a significant number of ISDS awards.6 Emblematic of this trend is the award in Yukos Universal Limited (Isle of Man) v
The Russian Federation (2014), rendered in favour of former Yukos shareholders and
representing a value of USD 50.2 billion excluding post-award interest.7 Refusal by the Russian Federation to comply voluntarily has led the former shareholders to seek recognition and enforcement before domestic courts in France, Belgium, the United Kingdom, and the Netherlands; those efforts have thus far remained fruitless.8
3 Investor-state dispute settlement (ISDS) will for the purpose of this study be equated to investor -state
arbitration under an IIA, excluding settlement of investment disputes by domestic courts. The acronym ‘ISA’ is avoided, for it could denote both investor-state arbitration and interstate arbitration.
4 Voluntary compliance is the satisfaction of pecuniary obligations identified in an award by the host state’s
executive power, i.e. through a transfer of currency rather than through recognition and enfor cement of the award by domestic courts (whether belonging to the host state or a third state, the latter acting as unilateral enforcer). Voluntary compliance thus includes a subjective element: the host state government’s will to comply, or more generally to cooperate, which by definition excludes unilateral enforcement by the home or a third state. General compliance as such, however, whether voluntary or coercive, is an objective matter. When speaking of ‘compliance’, only the satisfaction or implementation of legal obligations matters, regardless of whether this occurs because of voluntary transfer of monetary damages or through the coercive attachment and execution of state assets abroad. See for a similar use of the term: Tomonori Mizushima, ‘The Role of the State after an Award is Rendered in Investor-State Arbitration’ in Shaheeza Lalani and Rodrigo Polanco Lazo (eds), The Role of the State in Investor-State Arbitration (Brill Nijhoff 2014) 275.
5 This article limits its scope to compliance with pecuniary obligations stemming from ISDS awards. For the
availability of other kinds of remedies, see Berk Demirkol, 'Remedies in Investment Treaty Arbitration' (2015) 6 Journal of International Dispute Settlement 403.
6 See for instance Franz Sedelmayer v The Russian Federation through the Procurement Department of the
President of the Russian Federation, Stockholm Chamber of Commerce, Award (1998); S.A.R.L. Benvenuti & Bonfant v People's Republic of the Congo (ICSID Case No ARB/77/2) Award (1980); Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal (ICSID Case No ARB/82/1) Award (1988); Liberian Eastern Timber Corporation (LETCO) v Republic of Liberia (ICSID Case No ARB/83/2) Award (1986), but
also LETCO v Liberia, District Court SDNY (1986), 2 ICSID Rep 385; AIG Capital Partners Incorporated
and CJSC Tema Real Estate Company Limited v Kazakhstan (ICSID Case No ARB/01/6) Award (2003); CME Czech Republic BV v Czech Republic (UNCITRAL Arbitration Rules, IIC 62) Final Award and
Separate Opinion (2003), and the subsequent judgment of the Svea Court of Appeal (T 8735–01) (2003). On the numerous ISDS awards stemming from the Argentinean financial melt -down of 2001 of which voluntary compliance was refused, see Joost Pauwelyn, 'Rational Design or Accidental Evolution? The Emergence of International Investment Law' in Zachary Douglas, Joost Pauwelyn, and Jorge E Viñuales (eds), The
Foundations of International Investment Law: Bringing Theory Into Practice (OUP 2014) 37; Charity L
Goodman, 'Uncharted Waters: Financial Crisis and Enforcement of ICSID Awards in Argentina' (2007) 28 University of Pennsylvania Journal of International Economic Law 449.
7 Yukos Universal Limited (Isle of Man) v The Russian Federation, UNCITRAL, PCA Case No AA 227,
Final Award (18 July 2014).
8 Cedric Ryngaert, 'Enforcing the Yukos Arbitral Award: Overcoming the State Immunity Defense' (UCALL
Blog, 3 July 2015) <http://blog.ucall.nl/index.php/2015/07/enforcing -the-yukos-arbitral-award-overcoming-the-state-immunity-defense/> accessed 2 October 2016; Neil Buckley, ‘Dutch Court Rejects $50bn Yukos
It is submitted here that state-to-state arbitration (SSA)9 initiated by the home state has
added value for ensuring voluntary host state compliance with ISDS awards – and thereby for general compliance10 with such awards - and is in many instances available as
functional action11 via dispute settlement clauses in modern international investment
agreements (IIAs).12 The re-statification through diplomatic protection13 of non-compliance disputes14 is worthy of renewed attention from states, legal practitioners, scholars, and investors for the purpose of ensuring compliance with ISDS awards, as the trend of reluctant states continues to develop.
In 1969, the Chad-Italy BIT was the first second-generation BIT, or ‘modern IIA’, allowing foreign investors to bring direct claims against their host state through investor-state dispute settlement (ISDS).15 It thereby broke with the tradition found in widely-concluded Treaties of Friendship, Commerce and Navigation (FCN) and first-generation BITs16, of providing for dispute settlement of an exclusively interstate nature, conferring jurisdiction on the International Court of Justice or ad hoc interstate arbitration tribunals.17
Award Against Russia’ Financial Times (20 April 2016) <https://www.ft.com/content/9d3aa3d5 -432f-3b2a-96c5-d10e0f61bc3c> accessed 20 November 2016.
9 Although Art 64 ICSID Convention refers to the International Court of Justice, it is argued here in that
recourse to the Court is in fact precluded (subsection 2.2.2). The focus of this thesis is therefore on the effectiveness and availability of SSA exclusively. Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (1966), 575 UNTS 159 (ICSID Convention); Convention on the Recognition and Enforcement of Arbitral Awards (1958), 21 UST 2517; 330 UNTS 3 (New York
Convention).
10 See n 4.
11 ‘Functional’ is understood as bearing the possibility of a positive outcome. That is, the availability of SSA
without the possibility of the tribunal confirming the obligation to comply with the initial award would render this availability meaningless.
12 ‘IIAs’ include Bilateral Investment Treaties (BITs) and other IIAs. Other IIAs are treaties with investment
provisions (TIPs) such as Free Trade Agreements. For ‘modern IIAs’ see the text to n 15. The ICSID Convention (n 9) and the New York Convention (n 9) are not considered IIAs here.
13 See for other forms of re-statification of investment disputes Wolfgang Alschner, ‘The Return of the
Home State and the Rise of ‘Embedded’ Investor-State Arbitration’ in Lalani and Lazo (n 4) 293 ff.
14 ‘Claims concerning non-compliance’ refer to a dispute or claim concerning non-compliance with an ISDS
award, not the obligations contained in an IIA that give rise to an ISDS award, unless otherwise stated.
15 That is, alongside state-to-state arbitration. Chad-Italy BIT of 1969 (in Italian)
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/659> accessed 3 October 2016. It remains in force today.
16 UNCTAD considers the Germany-Pakistan treaty of 1959 to be the first BIT. UNCTAD, 'Bilateral
Investment Treaties 1959-1999' UNCTAD/ITE/IIA/2 (2000) 1 & 57. Treaty for the Promotion and
Protection of Investments between Germany and Pakistan of 1959
<http://www.iisd.org/pdf/2006/investment_pakistan_germany.pdf> accessed 3 October 2016.
17 Lauge N Skovgaard Poulsen, 'Sacrificing Sovereignty by Chance: Investment Treaties, Developing
Most modern IIAs allow for ISDS.18 However, ISDS tribunals lack enforcement powers of
their own19, and investors are therefore to a large extent dependent on the existing
decentralized20 investment law enforcement regime21 when host states refuse to comply
voluntarily.22
Over the last 15 years there has been a stark increase in the number of annulment proceedings under the ICSID Convention, with annulment applications numbering 46 between January 2012 and April 2016,23 compared to only 5 between 1966 and 2000.24 These numbers illustrate the changing host state attitudes towards voluntary compliance with ISDS awards. Even when ISDS awards are recognized and exequaturs are issued, domestic state immunity laws often render certain non-commercial assets outside the purview of attachment, those within often escape locating by the investor.25 Although described by some commentators as "relatively efficacious"26, the modern enforcement regime is thus far from a watertight antidote against recalcitrant states. Rather, it is
relatively deficient, due to its inability to deal effectively with recalcitrant states. However,
18 Although it is important to note a careful move away from ISDS in some recent IIAs. Those IIAs have
returned to a model that allows for SSA, but excludes ISDS. See e.g. Australia-United States Free Trade
Agreement (2004)
<http://dfat.gov.au/about-us/publications/trade-investment/australia-united-states-free-trade-agreement/Documents/Final_text_ausfta.pdf> accessed 27 November 2016; Agreement Between Japan and the Republic of the Philippines for an Economic partnership (2006)
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/2734> accessed 27 November 2016.
19 Mizushima (n 4) 274.
20 See for instance Pauwelyn (n 6).
21 Consisting of the 1965 ICSID Convention within the framework of the World Bank Group, the 1958 New
York Convention, the IIAs currently in force and to a lesser degree by the UNCITRAL Model Law on International Commercial Arbitration, a number of regional treaties, and domestic laws. Baetens (n 1) 3. See ICSID Convention (n 9) Art 64; UNCITRAL Model Law on International Commercial Arbitration (1985, amended 2006), <http://www.uncitral.org/pdf/english/texts/arbitration/ml -arb/07-86998_Ebook.pdf> accessed 15 October 2016; e.g. The Inter-American Convention on International Commercial Arbitration (1975), 14 ILM 336. SSA is not considered a mechanism of enforcement here, as it does not involve powers to recognize and enforce an award against certain assets of the host state by attachment and execution.
22 Regime is understood here as defined by Robert Keohane, After Hegemony: Cooperation and Discord in
the World Political Economy (Princeton University Press, 1984) as referred to in José E Alvarez, The Public International Law Regime Governing International Investment (Hague Academy of International Law 2011)
25. (‘defining international regimes as “sets of implicit or explicit principles, norms, rules and decision-making procedures around which actors’ expectations converge in a given area of international relations”’).
23 ICSID, 'Updated Background Paper on Annulment for the Administrative Council of ICSID' (5 May 2016)
<https://icsid.worldbank.org/apps/ICSIDWEB/resources/Documents/Background%20Paper%20on%20Annul ment%20April%202016%20ENG.pdf> accessed 26 November 2016, 11.
24 Baetens (n 1) 4. See also Christoph Schreuer 'From ICSID Annulment to Appeal: Half Way D own the
Slippery Slope' 10 The Law and Practice of International Courts and Tribunals (2011) 211, 225.
25 Ryngaert, ‘Enforcing the Yukos Arbitral Award’ (n 8); Cedric Ryngaert, 'Embassy Bank Accounts and
State immunity from Execution: Doing Justice to the Financial Interests of Creditors' (2013) 26 Leiden Journal of International Law 73; Mizushima (n 4) 279.
this thesis takes that relatively deficiency as a given.27 Instead a solution is sought external
to the enforcement system, i.e. in SSA proceedings.
There is of course reason to question the problematic nature of such relative deficiency.28 That deficiency is, however, of serious concern not only to the substantive protection of specific foreign investors, who will only have secured a hollow victory when their ISDS award is not complied with, but also for legal certainty, and the reliability and
effectiveness29 of the IIL regime itself.
Whereas scholarship appears increasingly aware of the relative deficiency of the enforcement system due to its inability to deal effectively with recalcitrant states30,
academia and legal practice have hitherto largely neglected state-to-state arbitration (SSA) as instrument against recalcitrant states.31 No SSA claim has been brought yet in relation to non-compliance with ISDS awards.32 This thesis seeks to revisit the lethargy on the re-statification of investment disputes in the post-award phase33, unearthing its hidden potential for ensuring compliance with investor-state arbitration awards. By doing so, this
27 The reason is the complexity of changing the enforcement system due to fierce opposition against greater
enforcement capacities by some states.
28 This is not to say that all is well in the land of IIL. Serious concerns have been expressed over the
infringement of regulatory powers of states, the degradation of environmental and labour standards, the unidirectional nature of investment protection vis-à-vis human rights violations by foreign investors, inequality between the Global North and South and the conditions under which states have consented to elements of the IIL regime (including ISDS). See Zachary Elkins, Zachary T Guzman , Beth A Simmons, 'Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960 -2000' (2006) 60(4)
International Organization 811; Poulsen (n 17). However, important discussions on these topics are taking place in academic circles. See e.g. José E Alvarez et al., The Evolving International Investment Regime:
Expectations, Realities, Options (OUP 2011). Moreover, IIAs are being renegotiated and some reversal of
precedent has taken place. Furthermore, many BITs are now concluded between states from the Global South (South-South BITs) or the Global North (North-North BITs). See Pauwelyn (n 6) notes 11, 44, 45. I opt for making IIL a fairer as well as a more effective regime, rather than abandoning it altogether. The issues identified signal that much remains to be done, and influential contributions will most likely take the form of incremental change rather than grand redesign and revolution.
29 See n 36. In international investment law, the change of state behavior is of course aimed at the pro tection
of investors.
30 See e.g. Baetens (n 1) 4; Andrea K Bjorklund 'State Immunity and the Enforcement of Investor -State
Arbitral Awards' in Christina Binder, Ursula Kriebaum, August Reinisch, and Stephan Wittich (eds),
International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP 2009).
31 As stated in Victorio J Tejera Pérez, 'Diplomatic Protection Revival for Failure to Comply with Investment
Arbitration Awards' (2012) 3 Journal of International Dispute Settlement 445, 445. Alternative solutions include risk insurance and changing immunity from execution laws. See respectively Rudolf Dolzer and Cristoph Schreuer, Principles of International Investment law (2nd Ed, OUP 2012) 228-231, and Ryngaert,
‘Embassy Bank Accounts’ (n 25) 73.
32 At least none such claims are publicly known.
33 See e.g. Charles N Brower and Sadie 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 The Columbia Journal of Transnational Law 689. See also Jarrod Wong, 'The Subversion of State -to-State Investment Treaty
thesis seeks to strengthen a portion of the concepts of ‘embedded ISDS34 and to take stock
of what has been termed the third era of the IIL regime as one of hybridity and interaction between ISDS and state involvement.35
The article is divided into two Parts, which are intended to complement and reinforce each other by drawing on the limitations, the power, and the interrelatedness of the law and the political. Part I places the question of compliance in an international relations (IR) context. Section 1.1 argues the added value of eclectic IR scholarship on the issue of compliance with international law. The subsequent section explicates such an approach, drawing on constructivist, rational choice, and Liberal approaches, in order to demonstrate how interests in (non-)compliance with ISDS awards come about and how they can be altered, specifically by means of reputational losses (section 1.3). It concludes by demonstrating the added value of SSA for voluntary compliance with ISDS awards.
Part II examines the operative legal framework governing SSA proceedings in the post-ISDS award phase. It commences by restating the absolute discretion of home states regarding diplomatic protection and future municipal remedies that could mitigate the effects of that discretion (section 2.1). Sections 2.2 and 2.3 argue that SSA tribunals do have jurisdiction over non-compliance claims under modern IIAs and discuss the
admissibility criteria applicable to such claims. Section 2.5 concludes by claims that the applicable standard of review to be applied SSA tribunals in respect of the previously issued ISDS awards requires these tribunals to accord great deference to the latter.
Part I – On the Added Value of Diplomatic Protection Claims on
Non-Compliance with ISDS Awards
1.1 Some Preliminary Remarks on IR Compliance Theory
Before discussing the legal framework governing the availability of SSA in situations where an investor is confronted with a recalcitrant state (Part II), it seems appropriate first to examine the added value of SSA in terms of its ability to induce a state to comply
34 Alschner (n 13).
35 Anthea Roberts, ‘State-to-State Investment Treaty Arbitration: A Hybrid Theory of Interdependent Rights
voluntarily. In order to make claims on the factors influencing predictions on the likelihood of voluntary compliance, one must first determine why states comply with international obligations. The relevance or effectiveness36 of international law is often just assumed by
international lawyers, sometimes by stating that rules simply have a compliance pull.37 It has been observed, inter alia by Henkin, that states generally observe international norms. However, such statements as such fail to address the ‘why’ question.
As was previously alluded to, SSA has not yet been employed for claims related to non-compliance with ISDS awards, or at least such cases are not publicly known.
Consequently, there is a lack of data on this specific issue.38 As such, recourse is had to theories of state behaviour, e.g. developed by international relations (IR) theorists , in order to answer the why question. IR aims to explain state behaviour and the relation between state behaviour and international law through simplified and imperfect models of reality, or perceptions of reality.39
Yet despite their often ostensibly irreconcilable world views, there is much insight to be gained from eclectic IR scholarship, particularly where different strands of theory are complementary.40 Such is the foundation of the analysis presented here, which draws on
the three major approaches to compliance issues: rationalism, constructivism, and the Liberal approach.41 It must be borne in mind too that the discussion of the effectiveness of
law is approached as separate from ontological questions that attach to compliance debates (essentially: "is law without enforcement really law?"), especially in the context of
36 The effectiveness of international law is in this Part understood in terms of its ability to change state
behavior by regulating or influencing the decisions made by those states. The effectiveness of international investment law, as alluded to in Part II, relates more to the ability of the regime to deliver the inve stment protection it promises. The two are of course interrelated.
37 See Andrew T Guzman, ‘A Compliance-Based Theory of International Law’ [2002] 90(6) California Law
Review 1823, 1826; Moshe Hirsch, ‘Compliance with Investment Treaties: When Are States More Likely to Breach or Comply with Investment Treaties?’ in Binder (n 30) 866.
38 See for a related study (although exclusively from an internal legal perspective) lacking data regarding
non-compliance dispute settlement before the ICJ in light of Art 64 ICSID Convention: Gauthier Vannieuwenhuyse, 'Bringing a Dispute Concerning ICSID Cases and the ICSID Convention Before the International Court of Justice' (2009) 8 The Law and Practice of International Courts and Tribunals 115, 120.
39 See on (the importance of) simplified assumptions Kenneth Abbott, ‘Modern International Relations
Theory: A Prospectus for International Lawyers’ (1989) 14 Yale J. Int’l Law 335, 351.
40 Amanuel Adler, 'Constructivism in International Relations: Sources, Contributions, and Deb ates' in Walter
Carlsnaes, Thomas Risse, Beth A Simmons, Handbook of International Relations (Sage 2012) 112.
41 It is acknowledged that this Part draws heavily on research by Cohen, who has realized a formidable
attempt at reconciling seemingly irreconcilable rationalist, constructivist, and Liberal approaches to compliance with international law. Harlan G Cohen, ‘Can International Law Work? A Constructivist Expansion’ [2009] 27(2) Berkeley J. Int’l Law 636.
sanctions.42 Thus, it is solely concerned with the effectiveness of international law, leaving
untouched the question of whether one is actually dealing with law.
One must equally careful with drawing grand conclusions on the basis of IR models of reality. It is in particular posited that there is a substantial need for space for casuistry in compliance modelling. IR theories, with some relative exceptions such as Slaughter’s Liberal theory, assume states to be relatively uniform actors (the “billiard ball” model of the international system).43 However, it would be folly to base compliance predictions on models that do not seriously take into account the diversity of states44 and the variety and multitude of political considerations that are at play at any given mo ment. This article is not concerned with adding to or invalidating certain strands of the, at times highly philosophical, debates on IR theory, but it cannot circumvent the need to make
methodological choices based on certain assumptions on the world in wh ich states operate and on the nature of states themselves. The added value of SSA in ensuring voluntary compliance with ISDS awards will therefore be explored from a methodologically integrated vantage point, drawing on rationalist, constructivist, and Liberal approaches.
1.2 Host State Decision Making on Voluntary Compliance with International Law: An Integrated Theoretical Framework
Voluntary compliance requires cooperation by the host state45; but how can cooperation be
ensured? The integrated approach departs from the realist or rational choice assumptions that states are egoistical and rational actors.46 They are egoistical for they are driven by
self-interest.47 They are rational, since their preference for compliance or non-compliance – for cooperation or defection – in principle is the outcome of a rational decision-making
42 Marry Ellen O'Connell, The Power and Purpose of International Law: Insights from the Theory and
Practice of Enforcement (Oxford University Press 2008) 83. Note moreover that Franck already mentioned
in 1992 that international law had finally reached a "post-ontological" era, although of the postmodern challenge to international law had of course yet to arrive at that time. Thomas M Franck, Principles of Fairness in International Law (paper presented at Annual Meeting of American Political Science
Association, Chicago, IL, September 1992), cited in Anne-Marie Slaughter Burley, 'International Law and International Relations Theory: A Dual Agenda' (1993) 87 AJIL 205.
43 Slaughter Burley (n 42) 226.
44 E.g. in terms of international recognition, constitutional make -up, constitutional culture, cultural and
social attitudes towards the international, histories of interstate hostilities or sour diplomatic relations, specific historical events with bearing on political attitudes towards the international.
45 Unlike coerced compliance through for instance enforcement measures. 46 Hirsch (n 37) 865.
process involving a cost-benefit analysis of different interests of political, economic, or military nature. 48 A recalcitrant state will have concluded or ‘calculated’ that its interests
non-compliance are greater than its interests in compliance, resulting in a preference for non-compliance. Rational choice is, however, far from a simple pursuit of immediate self-interest, as expected continuation of interaction in the future – ‘iterated games’ in game theory terms – leads to strategic rationality which takes into any possibilities for future cooperation.49
Notwithstanding the rational choice model, much of international lawyers’ 'belief' in the relevance and effectiveness of international law based on the observation that international law is most often complied with50, often contrary to their self-interest, is explained by states’ 'internalization' of international norms.51 Internalization, or normalization, is a
concept relied on by constructivist scholars who underscore how language and
interpretation shape social reality52, and who argue that “individual choices are largely shaped by social factors”.53
Internalization occurs when the language (‘law talk’) and the relevance of international law have become engrained in the social practice or even a habitus. Voluntary compliance is then not contingent on the existence of sanctions54, nor is it subject to a constant cost-benefit analysis, but instead comes from a deeper level of a sense of obligation, of idealism, a standard practice, or a "sober loyalty of nations to the law and their obligations".55 Internalization occurs when a norm is viewed as a “social standard of appropriate behaviour”.56 States internalize international legal rules in order to avoid
accidental non-compliance and resultant diplomatic confrontation.57
48 Abbott (n 39) 349; Hirsch (n 37) 866. 49 Abbott (n 39) 351; Hirsch (n 37) 868.
50 Guzman (n 37) 1826. Louis Henkin, How Nations Behave: Law and Foreign Policy (Columbia University
Press 1979) 46-49. Abraham H Chayes and Antonia Chayes, 'On Compliance' (1993) 47 Int'l Org. 175, 176. Roger Fisher, Improving Compliance with International Law (The University Press of Virginia 1981) 12.
51 By some accounts, internalization refers to the notion of international norms having been incorporated into
domestic systems. See e.g. Harold Hongju Koh, 'Why Do Nations Obey International Law?' (1997) 106 The Yale Law Journal 2599.
52 Adler (n 40) 113. 53 Hirsch (n 37) 872.
54 See for a similar account Henkin (n 50) 49. (‘The threat of such sanctions is not the principal inducement
to observe international obligations’).
55 Henkin (n 50) 47. 56 Hirsch (n 37) 873. 57 Cohen (n 41) 659.
Where internalization takes place, the rule of international law is no longer ‘on the table’.58
A preference for compliance has become a given and is in that sense non-rational.59 The
submerged rule, rather than interests external to the rule, thus changes a state’s preference regarding compliance with international law; the rule itself now exerts a gravitational pull towards compliance.60
The rule that international arbitral awards and judgments are binding and ought to be complied with is internalized by a significant number of states. Although a trend is developing away from voluntary compliance with ISDS awards61, practice demonstrates that international arbitral awards and judgments are generally complied with.62 This speaks in favour of a practice of internalization. Moreover, it has been argued that legitimacy of a rule of IIL, i.e. the acceptance of the authority of that rule, carries importance for whether or not internalization takes place.63 In this regard, it is noteworthy that the rule of the binding force of an ISDS award and the related obligation to comply with the award gain significantly in legitimacy due to the fact that its binding force is posited both by most modern IIAs and by customary international law.64 The rule on compliance with ISDS awards is thus to a certain extent internalized by states.
So how can one explain the instances of host state reluctance to comply voluntarily with some ISDS awards? At times, extraordinary events will lead states to reconsider rules that were thus far internalized. Such events can be related to security issues65, negative
coverage by NGOs of foreign investment practices, economic crises, social and political revolution, news reports detailing human rights violations by foreign investors, or altered domestic legislation, as well as international pressure from other states and international organizations on a matter that precludes compliance with the internalized rule of the
58 Cohen (n 41) 661. 59 Cohen (n 41) 671. 60 Cohen (n 41) 661.
61 See n 6. However, even if this trend persists and internalization can no longer be said to take place in
respect of ISDS awards, the argumentation that follows holds as it is argued that the rule of compliance with awards is in any case brought ‘back on the table’ due to extraordinary circumstances.
62 Colter Paulson, ‘Compliance with Final Judgments of the International Court of Justice Since 1987’
[2004] 98(3) AJIL 434; Heather L Jones, ‘Why Comply? An Analysis of Trends in Compliance with Judgments of the International Court of Justice since Nicaragua’ (2010) 12 Chicago-Kent Journal of International and Comparative Law 57.
63 Hirsch (n 37) 873. See on the role of legitimacy in compliance generally Thomas M Franck, The Power of
Legitimacy among Nations (OUP 1990).
64 Hirsch (n 37) 873-874. 65 Cohen (n 41) 669.
binding force of ISDS awards. The economic crisis in Argentina (2001-2003) and its subsequent refusal to comply voluntarily with the pecuniary obligations identified in ISDS awards related to measures taken during that crisis is illustrative in this regard.66 Events
like those propel the submerged rule ‘back on the table’, and compliance will be subject anew to a rational choice decision. Moreover, these events result in an inflated discount rate, for present exigencies will overshadow concerns over future cooperation.67 As such, they tilt the balance of the cost-benefit analysis toward non-compliance, making the host state recalcitrant.
In order to understand how to influence state interests in compliance with awards – for instance by initiating SSA proceedings -, and whether this is even at all possible, it is imperative to understand how state interests on cooperation or compliance with
international law come about. Relying specifically on a constructivist understanding, it is argued that interests are not a given – such as the classical realist assertion that all states seek power –, but instead come into existence through various processes which involve a variety of actors.
Some approach rational decision making as a cut-and-dry quantifiable economic decision-making model.68 However, what ultimately steers states in their decision making is the
perception of interests, whether those interests are expressed in a currency, or in values or
policy briefs. The value of interests will therefore be a matter of subjective perception by (members of) a state’s government or agencies. Additionally their subjective perception is significantly, although this holds up mostly for Liberal democracies, influenced by the preferences of domestic groups and individuals such as voters, NGOs, academic
communities, multinational companies and local companies engaged in partnership with foreign investors. The perception of interests is too a large extent shaped by the
phenomenon of reputation.
66 Hirsch (n 37) 869. 67 Ibid.
1.3 Reputational Loss as Incentive for Voluntary Compliance and the Added Value of SSA
The approach presented in this article is first and foremost premised on the idea that a recalcitrant state will incur reputational loss as a consequence to non-compliance, that loss being more or less severe according to the circumstances. Reputation touches upon trust as bedrock of (future) cooperation.
Naturally, reputation is not a singular and uniform phenomenon, and one must ask the question what kind of reputational loss a state suffers.69 That is, a reputation can hardly be understood to attach to a person – or state as an international legal person in this query – in generic terms.
One is inevitably confronted with various reputations attaching to such a state on different areas (investment, human rights, war and peace, environment). Even more so, reputations are effectively constituted through perceptions and interpretations of such perceptions by other actors in their capacity as perceivers.70 Reputations do not exist objectively and independently of their perceivers; they are constructed socially, i.e. in relation to other actors (states, international organizations, investors, NGOs). As a matter of course the reputations of states will vary among the different perceivers of these reputations. As such, the question becomes what the reputation of a state is on a particular area of cooperation in the eyes of a certain set of perceivers.
In non-compliance with ISDS awards, there are at least three reputational configurations that experience a negative modification. First, a respondent state’s reputation as a reliable treaty partner, as perceived by the home state and third states, is at stake. Non-compliance demonstrates indifference or even hostility towards fulfilling duties under treaty regimes, existent or yet to be established. The home state and third states will reconsider before entering into agreements of similar nature with the non-compliant host state. Along the same lines, those same perceivers have reason to doubt the host state’s consideration and
69 See for a critique of how many international lawyers treat reputation of states as a unitary concept: Rachel
Brewster, 'Unpacking the State's Reputation' 50 Harvard International Law Journal (2009).
fulfilment of its wider international legal obligations, whether constituted by treaty or by virtue of customary international law or even soft law agreements.71
Also, focusing on a different subset of perceivers, the recalcitrant state’s reputation as trustworthy and safe destination for FDI will be jolted. What are investors, whether havin g the home state’s nationality or that of a third state, to make of the host state’s refusal to comply with international obligations that (might) apply to them by analogy, depending on the IIA in force provides for ISDS? Particularly in light of the certainty that businesses seek to operate in, such as reputation stands to attract losses in terms of (future or existing) FDI.72 The reputational loss therefore translates in decreased future political and economic cooperation.
Surely, one might argue, however that having disregard for an ISDS award will itself create repercussions through reputational loss. This is not contested here. Rather, it is submitted that a subsequent SSA award in favour of the home state can substantially alter the interests of the recalcitrant state in compliance in a number of ways.
First, the host state’s international responsibility for failure to fulfil its legal obligations
towards another sovereign state amplifies the seriousness of its refusal to comply with the
ISDS award, and thereby reinforces the attendant reputational loss. That is, the respondent state will have to answer directly to the home state when it continues to refuse to comply. The home state, and third states, will think twice before entering into agreements with the respondent state if its international responsibility respecting non-compliance has been reconfirmed after ISDS by a third party, i.e. by the SSA tribunal.73 The same argument
holds in respect of potential foreign investors, who might perceive a deterring severity of lacking will in continued non-compliance. Similarly, the domestic business community and political actors might protest and exert influence on the host state government as continued host state non-compliance in the face of an SSA award decrying such non-compliance will influence their opportunities for future cooperation with foreign investors and other
international actors.
71 On compliance with non-binding norms see Dinah Shelton (ed), Commitment and Compliance: The Role
of Non-Binding Norms in the International Legal System (Oxford University Press 2000).
72 It has been noted in several studies that the empirical evidence for increased flows of FDI is weak. See
Pauwelyn (n 6) 40. However, the point here is not that FDI would increase when ISDS awards are complied with, but rather that FDI flows will decrease when they are not. The latter is part of the reputational costs of non-compliance.
Unlike ISDS awards, which turn into paper victories when enforcement proceedings fail, SSA awards can moreover, partly pending continued home state involvement by mean s of diplomatic protest and follow-up, constitute instruments for applying constant pressure on the host state to comply. SSA thus provides a counterbalance to the effect on the discount factor of the extraordinary event that evoked non-compliance with the award, as the SSA award will cast the future losses in terms of cooperation to be sustained through
reputational losses in a novel limelight. It is a constant reminder of the relevance of the reputational losses incurred, which reinforces the perception of an increased interest in compliance after SSA.
Even a credible threat of initiating arbitral proceedings augments the pressure on recalcitrant states to comply with ISDS awards. As Alschner writes, SSA “provid[es] a credible threat of escalation”.74 Moreover, host states will want to avoid a situation in
which a home state raises the compliance dispute to an ‘international controversy’.75 The leverage thus created over the host state can be utilized to the home state’s advantage in negotiations. Therefore, the availability of SSA can influence the host state’s interests in compliance both before and after such proceedings take place. Whether or not the non-complying state will be persuaded to choose compliance over non-compliance ultimately depends on whether the altered interest are strong enough to counter the interests of the respondent state in continuing non-compliance. However, it is submitted that SSA does have added value in terms of altering the interests of the host state in voluntary compliance with ISDS awards.76
74 Alschner (n 13) 325.
75 Juliane Kokott, ‘Interim Report on the Role of Diplomatic Protection in the Field of the Protection of
Foreign Investment’ in ILA, Report of the Seventieth Conference, New Delhi (2002) 25.
76 This conclusion is not invalidated by the fact that a host state might have to go against the decision of its
own courts where those have previously refused to enforce the award. That is, the added value of SSA in changing the state’s interests in compliance will remain standing.
Part II - The Legal Framework Governing SSA in the Post-ISDS Phase
2.1 Home State Discretion Regarding Diplomatic Protection Claims
The home state of an aggrieved investor, who is faced with a recalcitrant host state and whose enforcement efforts have proved fruitless77, can essentially bring claims on behalf of two kinds of rightsholders.78 It may either bring a claim in respect of alleged breaches of its own rights under a treaty or it may bring a claim on behalf of one or several of its
nationals.79 This flows from the interdependent nature of rights accorded to states and investors under IIAs, which is one of the premises of Part II.80 Where it brings both claims simultaneously, the home state will seek ‘double standing’.81 However, both claims are
considered diplomatic protection claims; they cannot be severed as the state’s claim concerning its own rights are necessarily ‘bound up’ with its claim on behalf of its nationals.82 The criteria discussed in Part 2 thus apply to both kinds of claims.
77 See n 6.
78 See for cases in which the home state sought to do both: LaGrand Case (Germany v United States)
(Judgment) [2001] ICJ Rep 466; Italy v Cuba (ad hoc arbitration) Interim Award (in French) (2008) <http://www.italaw.com/sites/default/files/case-documents/ita0435_0.pdf> accessed 19 November 2016.
79 In fact, third states may according to Broches also commence proceedings under Art 64 for a declaratory
award in relation to breaches of the obligation to comply with an ICSID award or to enforce it (Arts 53 and 54 ICSID Convention (n 9)). Mizushima disagrees, however. Mizushima (n 4) 290 -292. Even if the obligation to comply with an ICSID award were to be accepted as an obligation erga omnes partes, it falls outside the scope of this thesis, which deals exclusively with the re -statification of non-compliance disputes by the home state. Aron Broches, ‘The Convention on the Settlement of Investment Disputes between S tates and Nationals of Other States’ Recueil des cours de l’Academie de Droit International 136 (1972) 379 -380, cited and discussed in Mizushima (n 4) 291-292.
80 For a deeper discussion of the interdependent nature of investment treaty rights see Roberts (n 35) 43ff. 81 Michele Potestà, 'State-to-State Dispute Settlement pursuant to Bilateral Investment Treaties: Is There
Potential?' in Nerina Boschiero and Tullio Schovazzi (eds), International Courts and the Development of
International Law - Essays in Honour of Tullio Treves (T.M.C. Asser Press 2012) 342.
82 Case Concerning Elletronica Sicula S.p.A (ELSI) (United States of America v Italy) (Merits) [1989] ICJ
Rep 15, paras 51-52, referring to Interhandel case (Switzerland v United States) [1959] ICJ Rep 6, pages 28-29 (‘faced with a not dissimilar argument by Switzerland that in that case its "principal submission" was in respect of a "direct breach of international law" and therefore not subject to the local remedies rule, the Court, having analysed that "principal submission", found that it was bound up with the diplomatic protection claim, and that the Applicant's arguments "do not deprive the dispute . . . of the character of a dispute in which the Swiss Government appears as having adopted the cause of i ts national . . ."’) (emphasis added). Cf Italy v Cuba (n 78) 88, which evidently misapplied the Interhandel test in its Interim Award. (‘II est indiscutable, tel que relevé par la République d’Italie, que l'Etat agissant pour la défense de ses droits internationaux subjectifs ne peut être obligé à épuiser une quelconque voie de recours dans l'ordre juridique d'un autre Etat, aucune juridiction n'y ayant compétence pour recevoir son action. Aussi ne peut -on lui opposer un tel défaut, même si il fonde la violation de l'Accord qu'il invoque sur des préjudices
prétendument subis par des investisseurs particuliers’). In para 89 of the Interim Award, the tribunal makes an explicit reference to the Interhandel case. The Elsi, Interhandel and Italy v Cuba cases only concerned the exhaustion of local remedies on this point. However, the other criteria for the exercise of diplomatic
protection (see section 2.3) would in any case remain applicable, as without them it will be hard to demonstrate that the home state itself has suffered an international wrong by means of the Mavrommatis principle.
2.1.1 Home State Discretion as Bedrock of the Law of Diplomatic Protection
The International Law Commission (ILC) defines diplomatic protection as follows:
"[…] diplomatic protection consists of the invocation by a State, through diplomatic action or other means of peaceful settlement, of the responsibility of another State for an injury caused by an internationally wrongful act of that State to a natural or legal person that is a national of the former State with a view to the implementation of such responsibility." 83
As this article makes clear, it is imperative to distinguish between ‘diplomatic action’, or informal diplomatic exchanges84, and ‘other means of peaceful settlement’, which “embraces all forms of lawful dispute settlement, from negotiation, mediation and conciliation to arbitral and judicial dispute settlement”.85 Both, however, must always
involve the invocation of the legal responsibility of the other state.86 For purposes of dispute settlement, diplomatic exchanges or diplomatic actions are often differentiated from diplomatic protection.87
It is well established in international law that states have a right or even a privilege88, yet no obligation at any stage, to espouse a national's claim.89 The espousal of a claim is
therefore in principle contingent on the political will of the home state.90 The corollary of
the non-obligatory nature of the institution of diplomatic protection is that individuals, whether natural or legal persons, cannot claim a right to diplomatic protection under
83 ILC, ‘Draft Articles on Diplomatic Protection with Commentaries’ (2006)
<http://legal.un.org/docs/?path=../ilc/texts/instruments/english/commentaries/9_8_2006.pdf&lang=EF> accessed 20 November 2016, Art 1 (DADP). The ICJ recognized the content of customar y international law in this article. Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo) (Preliminary Objections) General List No 103 [2007] 599, para 39 (Diallo Preliminary Objections).
84 The ILC’s Draft Articles speak of ‘all the lawful procedures employed by a State to inform another State
of its views and concerns, including protest, request for an inquiry or for negotiations aimed at the settlement of disputes’. ILC, ‘Draft Articles on Diplomatic Protection’ (n ) 27.
85 Ibid. 86 Ibid.
87 See e.g. ICSID Convention (n 18), Art 27(2), which exempts informal diplomatic exchanges from the
general rule on diplomatic protection under Art 27(1).
88 Chittharanjan F Amerasinghe, Diplomatic Protection (Oxford University Press 2008) 92.
89 Barcelona Traction, Light and Power Company, Limited (Belgium v Spain) (Merits) [1970] ICJ Rep 3,
44-45, paras 78-80. Ben Juratowitch, ‘The Relationship Between Diplomatic Protection and Investment Treaties’ (2008) 23 ICSID Review 10, 13.
90 Juratowitch, ‘The Relationship’ (n 89) 13. The same can of course, and despite the fact that such action
does not qualify as diplomatic protection according to the ILC definition, be said on the bringing of a claim on the basis of a breach of a state’s own rights under an IIA.
international law.91 Note, however, the progressive Art. 19 of the International Law
Commission’s (ILC) Draft Articles on Diplomatic Protection, which recommends that states should 'give due consideration to the possibility of exercising diplomatic protection', and 'take into account, wherever feasible, the views of injured persons.'92 It has furthermore been pointed out in literature that states may be most inclined to espouse a claim if an ISDS award has already been produced, which is the subject of this specific inquiry.93
However, discretion need not solely be a negative. Admittedly political in nature, the home state’s decision to espouse can serve as a check against overly-zealous investors, taking into account the findings of the ISDS tribunal and case specifics94, the political reality, as well as justice considerations relating to the host state’s regulatory powers.
2.1.2 Accommodating Investors' Concerns, Public Policy, and Justice Considerations
The absence of a right to diplomatic protection in light of the home state’s absolute discretion can frustrate investors’ attempts at seeking compliance with ISDS awards. Investors might thus stand to gain from policy guidelines on the matter issued by their home state, or a system of domestic protection licenses to be requested through a procedure of administrative law. Alternatively, investors could negotiate and conclude contracts with their home states on claim espousal, as well as on sharing control over any subsequent SSA proceedings. Such administrative or contractual initiatives could include the standards to be used in the decision making process on claim espousal and require a reasoned opinion on refusal to do so, preferably enforced by municipal courts. These procedures could increase transparency and thereby provide some measure of legal certainty in what otherwise remains a political marshland.
91 This was acknowledged and lamented as a missed opportunity by Special Rapporteur John Dugard,
‘Introductory Note to the International Law Commission's Draft Articles on Diplomatic Protection’ (2013) <http://legal.un.org/avl/pdf/ha/adp/adp_e.pdf> accessed 7 October 2016, 8.
92 ILC, ‘DADP’ (n 83) Art 19.
93 Juratowitch, ‘The Relationship’ (n 89) 33.
94 Such as the constitution and impartiality of the ISDS tribunal, the strength of the tribunal’s legal
reasoning, the extent of previous unsuccessful enforcement attempts, whether the dispute concerns a key sector of the home economy, and the importance of the claim for the continuance of the investor's business activities.
South African law is illustrative of the potential and limitations of the role of domestic courts in entertaining petitions for the failure to exercise diplomatic protection. The South African Constitutional Court has recognized, relying on the commitment to international human rights in the South African Constitution of 1996, recognized a duty of the South African government to exercise diplomatic protection on behalf of its nationals to protect them “against a gross abuse of international human rights norms”.95 Would that same
protection (as a matter of domestic constitutional law) be extended to alle gations of breaches of the minimum standards in respect to property? The Supreme Court of Appeal ultimately answered this question in the negative in 2005, and confirmed this conclusion in 2011.96 Notwithstanding the fact that most domestic legal systems do not provide for a right to diplomatic protection, South African case law does illustrate the possibilit ies that might lie there in the future. Where no remedies for refusal to exercise diplomatic
protection are made available in domestic law, investors will however have to be conscious of the fact that customary international law does not award them a right to diplomatic protection and that their requests may fall on deaf ears.
2.2 SSA Tribunal Jurisdiction over Diplomatic Protection Claims Concerning Non-Compliance with ISDS Awards
If a home state does wish to espouse the investor’s claim on non-compliance with an ISDS award in subsequent SSA proceedings97, that tribunal will itself have to establish whether it
has jurisdiction to pronounce on the merits of every submission made to it98, due to its competence-competence.99 The home state in essence has a choice between exercising
diplomatic protection by bringing a claim under customary international law or pursuing treaty-based interstate dispute settlement. The former, which would take the form of a
95 Kaunda and Others v President of the Republic of South Africa 2005 (4) SA 235 (CC) para 69. (‘There
may […] be a duty on the government, consistent with its obligations under international law, to take action to protect one of its citizens against a gross abuse of international human rights norms. […] It is unlikely that such a request would ever be refused by government, but if it were, the decision would be justiciable and a court would order the government to take appropriate action’).
96 John Dugard, International Law: A South African Perspective (Fourth Edition, Juta 2012) 293-294;
Annemarieke Vermeer-Künzli, ‘Restricting Discretion: Judicial Review of Diplomatic Protection’ (2006) 75 Nordic Journal of International Law 279.
97 See Part I on why the home state might do so. Of course other actions can be taken, such as resort to
retorsion, countermeasures, and positive inducement. See e.g. Crawford J, State Responsibility: The General Part (OUP 2013).
98 See for an illustration: LaGrand case (n 78) 480-485, paras 37-48.
99 See James Crawford, ‘Continuity and Discontinuity in International Dispute Settlement’ in Christina
compromis to adjudication, however, requires the consent of the host state. Treaty-based
interstate dispute settlement concerning non-compliance is generally not subject to host state consent. That is, advance or ex ante consent is granted through ratification of the IIA, and SSA thereby becomes compulsory.100 Similarly to ISDS proceedings, proceedings before an SSA tribunal can be initiated by a simple filing of a notice of arbitration with the relevant institution.101 The remainder of Part II is concerned with SSA initiated in
accordance with SSA clauses in IIAs.
2.2.1 Jurisdiction under SSA Clauses in IIAs
Almost all modern IIAs currently in force envision and sanction recourse to ISDS as well as SSA proceedings.102 This finding might evoke surprise, if one takes stock of the fact that only four such (publicly known) SSA proceedings have been instituted under those IIAs.103 In addition to their rarity, only two of these cases were brought by the home state (Italy v
Cuba; Mexico v United States), one was discontinued on request of the applicant party
(Peru v Chile)104, and none of these actions concerned non-compliance with a prior ISDS award, although Ecuador v United States was initiated subsequent and in relation to an ISDS award. In addition, only Italy v Cuba and Mexico v United States were decided on the merits105, and the decision by the tribunal in Ecuador v United States that declined
jurisdiction was not made public.106
100 Amerasinghe (n 88) 335; See e.g. Model US BIT 2012 Art 37(1) (‘shall be submitted on the request of
either party to arbitration for a binding decision or award by a tribunal’); China -Iceland BIT Art 8(2) (‘upon the request of either Contracting Party’); ICSID Art 64 (‘by the application of any party’).
101 A practice established by the arbitration tribunal in Asian Agricultural Products Ltd (AAPL v Republic of
Sri Lanka), ICSID Case No ARB/87/3, Final Award, 27 June 1990.
102 Potestà (n 81) 755; John Dugard, Fourth Report on Diplomatic Protection, Doc A/CN.4/530 and Add.1
(2003) 27. ("The second procedure [SSA] is usually available in all cases, with the consequence that it acts as a reinforcement of the investor-State dispute resolution mechanism."). Note that ISDS and SSA are sometimes found in a single dispute settlement proviso. See e.g. the Italy-Chad BIT (n 10), Art 8.
103 Nathalie Bernasconi-Osterwalder, ‘State-State Dispute Settlement in Investment Treaties’ (The
International Institute for Sustainable Development 2014) 8-16. These cases are Italy v Cuba (n 78);
Ecuador v United States of America (PCA Case No 2012-5) Award (not public), 29 September 2012; Peru v Chile (2003) (no known award); Mexico v United States (in the Matter of Cross-Border Trucking Services),
NAFTA Chapter 20 State-to-State arbitration, (2001) Final Report of the Panel.
104 Roberts (n 35) 8 (‘and Peru did not subsequently press its claim against Chile’). Cf Luke Eric Peterson,
‘Ecuador Initiates Unusual State-to-State Arbitration Against United States in Bid to Clarify Scope of Investment Treaty Obligation’ (4 July 2011) Investment Arbitration Reporter
<http://www.iareporter.com/articles/ecuador-initiates-unusual-state-to-state-arbitration-against-united-states-in-bid-to-clarify-scope-of-investment-treaty-obligation/> accessed 26 November 2016. (‘the state-to-state arbitration appears to have been abandoned’).
105 Peru v Chile was discontinued. See text to n 50. In Ecuador v United States the tribunal declined
jurisdiction. Bernasconi-Osterwalder (n ) 11.
The scope of the jurisdiction of an SSA tribunal constituted under an IIA is delimited by the SSA clause embodied in that IIA.107 That clause typically takes the following form:
“1. Any dispute which may arise between the Contracting Parties relating to the interpretation and application of this Agreement shall, as far as possible, be settled amicably through diplomatic channels.
2. In the event that the dispute cannot be settled within six months of the date on which one of the Contracting Parties notifies, in writing, the other Contracting Party, the dispute shall, at the request of one of the Contracting Parties, be laid before an ad hoc Arbitration Tribunal as provided in this Article”.108
Notwithstanding some variations in the wording109, preconditions110, and deadlines111, SSA clauses thus typically require for the purposes of jurisdiction: 1) a dispute, 2) between the Contracting Parties, 3) concerning the interpretation or application of the IIA. These must be read in conjunction with one another, but will be discussed separately.
First, the arbitral tribunal will have to ascertain whether a dispute exists in the technical sense of the applicable SSA clause, which ordinarily does not define a ‘dispute.’ According
107 Unlike e.g. ISDS proceedings under the ICSID Convention, where the jurisdiction of the tribunal will
subject to Art. 52 of the ICSID Convention, postulating the ‘outer limits’ of ICSID jurisdiction. Dolzer and Schreuer (n ) 44-78.
108 Agreement Between the Government of the Italian Republic and the Government of the Republic of
Ecuador on the Promotion and Protection of Investments of 2001 (Italy-Ecuador BIT)
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/3394> accessed 19 November 2016, Art 10. See for a very similar phrasing Agreement Between the Government of the People’s Republic of China and
the Government of the Republic of Iceland Concerning the Promotion and Reciprocal Protection of
Investments of 1994 (China-Iceland BIT) <http://investmentpolicyhub.unctad.org/Download/TreatyFile/741>
accessed 25 November 2016, Art 8.
109 See e.g. China-Iceland BIT (n 54) Art 8 (‘concerning the interpretation or application of this
Agreement’); Bilateral Agreement for the Promotion and Protection of Investments Between the Government
of the United Kingdom of Great Britain and Northern Ireland and Republic of Colombia [sic] of 2010, Art
10 <http://investmentpolicyhub.unctad.org/Download/TreatyFile/3253> accessed 25 November 2016 (‘regarding the interpretation or application of this Agreement’);
110 See for a requirement of ‘direct negotiations’ or ‘diplomatic negotiations’ instead of settlement ‘through
the diplomatic channels’, respectively: UK-Colombia BIT (n ) Art 10; Agreement on Encouragement and
Reciprocal Protection of Investments Between the Kingdom of the Netherlands and the Republic of Chile of
1998, Art 11(1) <http://investmentpolicyhub.unctad.org/Download/TreatyFile/691> accessed 19 November 2016.
111 See for a deadline lacking altogether: Agreement between the Government of the United Kingdom of
Great Britain and Northern Ireland and the Government of the Republic of Kazakhstan for the Promotion and Protection of Investments of 1995, Art 9
