Introduction
Interaction between human rights and international investment arbitration
Key implications
Comment
International arbitral tribunals in investor-state disputes have been increasingly open to drawing on human rights norms and jurisprudence when interpreting and applying international investment agreements (IIAs), and have even upheld jurisdiction over counterclaims by states against investors based on international human rights law (IHRL).
This article provides a snapshot of the interaction between human rights and international investment arbitration, examines recent developments and considers key implications.
Interaction between human rights and international investment arbitration
Human rights issues arise in international investment arbitration in multiple ways. For example, human rights issues may:
- form part of the underlying factual matrix for the investment dispute;
- inform the content and interpretation of rules of international investment law (IIL); and/or
- provide an independent basis for claims or counterclaims.
These types of interaction are considered below.
Human rights as part of underlying factual matrix
Rights to health, to water, to a healthy and safe environment, and to be free from torture, forced labour and arbitrary detention are just some of the human rights affected by the circumstances that give rise to investment disputes.
Abuse of human rights, or failure to protect human rights, may factually underlie an investment dispute. An alleged failure by foreign investors to respect the rights of indigenous peoples, environmental rights or labour rights may lead to a dispute with a local population that escalates into an international investment dispute (eg, Glamis Gold v United States). A host state may also be alleged to violate the human rights of a natural person who is a foreign investor, prompting investor-state proceedings (as demonstrated in Biloune v Ghana and Loewen v United States).
Alternatively, a host state may adopt measures which it claims protect human rights, but which adversely impact an investor.
States have been held accountable for failure to protect individuals' human rights from impacts caused by foreign investors (eg, Awas Tingni v Nicaragua and SERAC v Nigeria). Against that background, states may claim that their regulatory measures which adversely affect foreign investors were adopted in an effort to comply with IHRL. For instance, Argentina claimed that it acted to protect its citizens' human rights, which were allegedly imperilled by economic crisis, in defending against investors' claims in Sempra v Argentina and CMS v Argentina, and relied specifically on the human right to water for its defence in Azurix v Argentina.
Human rights as interpretive guide
Human rights may inform the content and interpretation of rules of IIL. Investor-state tribunals have relied on human rights treaties and case law as authorities on points of interpretation in an ever-increasing number of cases. In Tulip v Turkey, the International Centre for Settlement of Investment Disputes (ICSID) ad hoc Committee noted this trend, and confirmed that human rights are relevant to the interpretation of IIAs. It went on to apply case law from the European Court of Human Rights in assessing and determining multiple grounds asserted by the host state for annulment of the ICSID award being challenged.
Tribunals have frequently drawn on international human rights treaties and jurisprudence when interpreting IIL standards of treatment (eg, Mondev v United States, Saipem v Bangladesh and Al Warraq v Indonesia). Tribunals have also drawn on IHRL in interpreting and applying norms invoked by states, such as the proportionality principle, the police powers doctrine and other public interest or regulatory-based exceptions and defences (eg, Tecmed v Mexico).
The case for using IHRL to interpret IIL is even stronger under new generation IIAs, which refer expressly to human rights instruments, affirm state parties' commitments to universal human rights and prescribe frameworks encouraging "corporate social responsibility" or "responsible business conduct" by investors, taking into account such instruments as the United Nations Guiding Principles on Business and Human Rights and the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises.
Human rights as basis for claims or counterclaims
Whether an investor can succeed in a claim independently based on human rights violations will, in each case, depend on the provisions of the IIA in question (eg, Strabag v Poland). The same is true for a state's prospects of success when advancing a human rights counterclaim, which may face significant hurdles in relation to jurisdiction and admissibility, depending on the applicable IIA.
Human rights and environmental counterclaims have been heralded by some as a potential vehicle for recalibrating the relationship between foreign investors, on the one hand, and host states and local communities, on the other. Several states and commentators have identified such counterclaims as one avenue to address what they perceive as a structural bias in investor-state dispute settlement, which they claim favours investors' interests at the expense of public and regulatory interests, including human rights.
However, it is generally accepted that investors do not have direct obligations under IIAs.
This raises questions about whether human rights counterclaims can be independently based on IHRL, or must rely on domestic law as a conduit.
The decision in Urbaser v Argentina is frequently cited as a landmark case supporting tribunals' jurisdiction over counterclaims based on IHRL. However, the tribunal's reasoning on IHRL was more limited than is often acknowledged. Argentina argued that the claimants' failure to provide the necessary investments relating to a water and sewage concession violated the right to water, which was the purpose of the investment according to the regulatory framework and the concession. The tribunal held that it had jurisdiction over this counterclaim and that IHRL formed part of the applicable law under the relevant bilateral investment treaty. However, the counterclaim failed on the merits. The tribunal considered that positive obligations under IHRL rested not on the claimants but on Argentina, which was obliged to ensure the right to water through its domestic law and in contracts with foreign investors. That is, whereas positive IHRL obligations would be imposed directly on the host state, they would be imposed only indirectly on the investors to the extent provided by a contractual vehicle with the host state.
Key implications of the expanding interaction between human rights and international investment arbitration include:
- expanded prospects for interpretations of IIA provisions that are informed by states' international human rights obligations. This may strengthen arguments for either investors or states based on proportionality, public interest and police powers. It may also alter interpretations of core investment protections – for example, states might argue that for investment-backed expectations to be considered "legitimate", investors must have taken due notice of a state's obligations under IHRL;
- increased susceptibility of corporations to human rights counterclaims by respondent states; and
- greater openness on the part of investor-state tribunals to permit interventions by civil society organisations and affected communities as amicus curiae. Such interventions may bring human rights impacts more squarely into focus before the tribunal.
It is increasingly clear that parties to international investment arbitrations cannot afford to overlook IHRL. Human rights norms are expressly drafted into new generation IIAs, human rights jurisprudence is increasingly relied on to inform interpretations of IIL, and in a growing number of cases, human rights may ground a claim or counterclaim.
These trends form part of a broader evolution in corporations' susceptibility to human rights-based claims, which is also reflected in the launch of the Hague Rules on Business and Human Rights Arbitration in December 2019 and the development of parent company liability principles in domestic courts (for further details, see "Cross-border guide to parent company liability for foreign subsidiaries").
For further information on this topic please contact Alison G FitzGerald, Jo Feldman or Alyssa Glass at Norton Rose Fulbright by telephone (+44 20 7283 6000) or email ([email protected], [email protected] or [email protected]). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.