Like Oil and Water? Human Rights in Investment Arbitration in the Wake of Philip Morris v. Uruguay
Whether considered `wholly distinct, autonomous, or even antagonistic legal domains', or seen as two sets of legal regimes belonging to the same legal system with `meaningful relationships between them', the international law of investments and the law of human rights appear to have, in the practice of arbitration, an uneasy, tense, strained relationship.
For some commentators, public international law (of which human rights is a part) and international investment law would have `structural differences', which have `led investment tribunals to grant precedence to the contractual rules that have been agreed upon by host states and investors'. For others, human rights are `a marginal issue in investment law', `peripheral at best', to fulfil `no more than an ancillary role in the settlement of investorstate disputes'.
This article looks into the fundamental relationship between human rights and investment law in the wake of the recent Philip Morris v. Uruguay and Urbaser v. Argentina cases. In doing so it addresses questions such as: Are human rights and investment arbitration animals of a different nature? Are human rights arbitrable within an investment claim?
Whether considered `wholly distinct, autonomous, or even antagonistic legal domains'1 or seen as two sets of legal regimes belonging to the same legal system with `meaningful relationships between them',2 the international law of investments and the law of human rights appear to have, in the practice of arbitration, an uneasy, tense, strained relationship.
* Barrister at 20 Essex Street (LL.M., Diploma of the Hague Academy of International Law). This article is based on a Lecture I delivered as part of the Public International Law Discussion Group Series (Michaelmas Term 2016) at All Souls College, University of Oxford. E-mail: mferia-tinta@20essexst. com.
1 As critically observed by Pierre Marie Dupuy, it is usually considered by scholars and arbitrators. P. M. Dupuy, Unification Rather than Fragmentation of International Law? The Case of International Investment and Human Rights Law, in Human Rights in International Investment Law and Arbitration 4562, 46 (P. M. Dupuy, F. Francioni & E. U. Petersmann eds, OUP 2010).
2 See the conclusions of the International Law Commission (ILC) in Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, A/CN.4/L.702 18 July 2006, at para. 14.
Feria-Tinta, Monica. `Like Oil and Water? Human Rights in Investment Arbitration in the Wake of Philip Morris v. Uruguay'. Journal of International Arbitration 34, no. 4 (2017): 601630. 2017 Kluwer Law International BV, The Netherlands
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For some commentators, public international law (of which human rights is a part) and international investment law would have `structural differences'3 which have `led investment tribunals to grant precedence to the contractual rules that have been agreed upon by host states and investors'.4 For others, human rights, are `a marginal issue in investment law',5 `peripheral at best',6 to fulfil `no more than an ancillary role in the settlement of investor-state disputes'.7
This article looks into the fundamental relationship between human rights and investment law in the wake of the recent Philip Morris v. Uruguay case,8 followed by Urbaser v. Argentina.9 In doing so it addresses questions such as the following. Are human rights and investment arbitration animals of a different nature? Are human rights arbitrable within an investment claim?
2 HUMAN RIGHTS AND THE `NUTS AND BOLTS' OF INVESTMENT ARBITRATION
Much of the thinking on the relevance of human rights law in investment arbitration arose in the context of reflections on what has been referred to as a `systemic crisis' or `legitimacy crisis'10 in the system of investment arbitration, albeit questions concerning the extent to which states' human rights obligations may come into play in arbitration under International Investment Agreements, have attracted interest in the literature since the early 2000s.11
3 As asserted in M. Hirsch, Interactions Between Investment and Non-Investment Obligations, in The Oxford Handbook of International Investment Law 179 (Muchlinski, Ortino & Schreuer eds, 2008).
4 Ibid. 5 As aptly noted in B. Simma, Foreign Investment Arbitration: A Place for Human Rights?, 60 ICLQ 573
596, 578 (July 2011). 6 As assumed in C. Reiner & C. Schreuer, Human Rights and International Investment Arbitration, in
Human Rights in International Investment Law and Arbitration 83 (P. M. Dupuy, F. Francioni & E. U. Petersmann eds, OUP 2010). 7 As critically observed in Simma, supra n. 5, at 578. 8 Philip Morris Brands Srl, Philip Morris Products S.A. & Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016. 9 Urbaser S.A. & Consorsio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 Dec. 2016. 10 See e.g. T. Landau, Rethinking the Substantive Standards of Protection Under Investment Treaties (Response to the Report), in Flaws and Presumptions Rethinking Arbitration Law and Practice in a New Arbitral Seat 367372, 367 (The Mauritius International Arbitration Conference 2010), Papers from the joint conference of the Government of Mauritius UNCITRAL, PCA, ICSID, ICC, ICCA and LCIA held in Mauritius on 13 and 14 Dec. 2010; M. Toral & T. Schultz, The State, A Perpetual Respondent in Investment Arbitration? Some Unorthodox Considerations, in The Backlash Against Investment Arbitration: Perceptions and Reality 577602 (M. Waibel, A. Kaushal, K-H Liz Chung & C. Blachin eds, The Hague: Kluwer Law 2010); Simma, supra n. 5, at 575; T. Gazzini, States and Foreign Investment: A Law of the Treaties Perspective, in The Role of the State in Investor-State Arbitration 2348, 23 (S. Lalani & R. Polanco Lazo eds, Brill Nijhoff 2015). 11 United Nations Conference on Trade and Development, Selected Recent Developments in IIA Arbitration and Human Rights, IIA Monitor No. 2 (2009) International Investment Agreements, United Nations,
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A tension between an understanding of the arbitral process in investment
arbitration as fundamentally concerned with private and merely consensual rights (the commercial arbitration model)12 as opposed to an understanding that discerns `the international law' (in a pivotal role) and the `public law' strands, in addition to `the commercial' strand in the arbitral process, runs through the literature on the relationship between investment law and human rights, as a leitmotiv.
As pointed out by Judge Christopher Greenwood:
[i]n marked contrast to `ordinary' commercial arbitration, in which the legal basis for the arbitrators' jurisdiction is usually an agreement between the two parties to the arbitration, in investment treaty arbitration that jurisdiction is derived from a treaty between two States to which the investor is not party.13
In other words, even if seen as possessing a `sui generis' or a `hybrid' character,14 investment arbitration is essentially grounded in a treaty and the `interpretation of the extent of the arbitrator's jurisdiction and the rules which the treaty enjoins
them to apply, requires recourse to the public international law rules on treaty
interpretation rather than the contractual principles with which many arbitrators will be more familiar'.15
Seen from a practical perspective on the other hand (i.e. the arbitrator's point of view), in investment arbitration, as put by Toby Landau, `[y]our mandate unlike
commercial arbitration is to review the exercise of discretion by a sovereign by way of its executive, its legislative even its judiciary.'16 In this exercise moreover, `[y]ou are tasked ... with applying extremely broadly worded standards.'17 Often investment treaties would be silent about human rights. Yet, the `beyond the
2009. UNCTAD/WEB/DIAE/IA/2009/7, 23. In particular, note the work, e.g. of the United
Nations High Commissioner for Human Rights, High Commissioner for Human Rights, Liberalization of
Trade in Services and Human Rights, 25 June 2002, (E/CN.4/Sub.2/2002/9), https://documents-dds-
ny.un.org/doc/UNDOC/GEN/G02/141/14/PDF/G0214114.pdf?OpenElement (accessed 20 Nov.
2016); UN High Commissioner for Human Rights, Report on Human Rights, Trade and Investment, 2
July 2003, (E/CN.4/Sub.2/2003/9), https://documents-dds-ny.un.org/doc/UNDOC/GEN/G03/
148/47/PDF/G0314847.pdf?OpenElement (accessed 20 Nov. 2016). 12 See Van Harten's observation that `there is a general tendency in investment treaty arbitration in favour
of a commercial arbitration approach', G. Van Harten, Investment Treaty Arbitration and Public Law 121
(OUP 2007) as cited in R. Castro de Figueiredo, Fragmentation and Harmonization in the ICSID
Decision-Making Process, in Reshaping the Investor-State Dispute Settlement System, Journeys for the 21st Century 506530, 511 (J. E. Kalicki & A. Joubin-Bret eds, Brill Nijhoff 2015). 13 C. Greenwood, Rethinking the Substantive Standards of Protection Under Investment Treaties (Response to the Report), in Flaws and Presumptions Rethinking Arbitration Law and Practice in a New Arbitral Seat 373
378, 373 (The Mauritius International Arbitration Conference 2010), Papers from the joint conference
of the Government of Mauritius UNCITRAL, PCA, ICSID, ICC, ICCA, and LCIA held in
Mauritius on 13 and 14 Dec. 2010. 14 Z. Douglas, The Hybrid Foundations of Investment Treaty Arbitration, 74(1) Brit. Y.B. Int'l L. 151289,
151 (2003). 15 Greenwood, supra n. 13, at 374. 16 Landau, supra n. 10, at 367. 17 Ibid.
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immediate parties' elements of investment arbitration can be well summarized in Landau's own observations:
You are supposedly to rule upon the interest of an individual investor and yet in doing so, you may well impact upon a whole community. If you are going to rule that a carbons emission quota system is contrary to a Bilateral Investment Treaty (`BIT'), in order to safeguard the interest of a particular coal-fired power plant in a country, then, you may well be impacting upon a whole environment policy of an entire nation. If you are going to rule on the rights of an investor in the water system of Tanzania, you may well be affecting 350 000 water users in Dar Es Salaam. If you are going to question and rule upon South Africa's policy in favour of black economic empowerment, in order to safeguard the interest of the individual mining interest before you the wider impact is obvious. And, you do so with the ability to impose damages unlike many public law municipal systems and those damages may be significant. You have the power to affect the most extraordinary allocation of public funds.18
Against that backdrop, it is not surprising that arbitrators with jurisdiction over international investment disputes are increasingly confronted with human rights arguments. In that context, to put it simply, in the words of former International Court of Justice (ICJ) Judge Bruno Simma, `are a State's obligations to its own population to be weighed against investor rights under BITs?'19 Take the example of Biwater Gauff v. Tanzania.20 When confronted with conflicting obligations (those of the state towards the investor and those of the state towards its own population), is harmonization `to be explored, and vigorously'?21 Or should the normative specialization of international investment law trump? Quite crucially, what standard of approach should an investment arbitration tribunal actually take in terms of `nuts and bolts'?22 Are human rights arbitrable within an investment claim?
3 THREE GATEWAYS TO THE RELATIONSHIP BETWEEN INVESTMENT LAW AND HUMAN RIGHTS LAW AND RELATED NOTIONS
There are at least three gateways through which one can approach the relationship between investment law and human rights law to be identified from the literature on the topic: (1) the jurisdictional gate; (2) the interpretative gate; and (3) the procedural gate (proportionality).
18 Ibid., at 367368 (footnotes omitted). 19 Simma, supra n. 5, at 591. 20 Biwater Gauff v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para.
380 (summarizing arguments of the amicus in that regard). 21 Simma, supra n. 5, at 592. 22 To borrow a term used by Toby Landau to pin down the fundamental question behind the task of an
arbitrator in an investment arbitration case. Landau, supra n. 10, at 367.
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3.1 JURISDICTIONAL GATE
For some, the gateway is a jurisdictional one. It is `the formulation of the compromissory clause in the treaty or contract which would reveal the breadth of the tribunal's jurisdiction'.23 Would the relevance of human rights in an investment treaty case then be tied to jurisdiction? Would it be tied to a party raising the issue? What would it be tied to? From that perspective, as the tribunal's jurisdiction is `based on, and limited to, the agreement of the parties', `the mere allegation of human rights violations would not suffice to confer jurisdiction on a tribunal'; `[t]o determine whether an investment tribunal is competent to decide on human rights issues, the clause establishing jurisdiction' would be `decisive'.24
The key question to pose to this perspective is: are substantive human rights
standards within the Bilateral Investment Treaty (BIT) necessary for an arbitral tribunal to be competent to rule on human rights issues? The answer would be `yes', unless `those related to the protection of the investor's property may at the same time constitute a breach of a particular treaty obligation and hence fall within the realm of the tribunal's competence',25 or `if and to the extent that the human rights violation affects the investment, it will become a dispute "in respect of" the investment and must hence be arbitrable'.26
3.2 INTERPRETATIVE GATE
From another angle, the issue is broader. It would be an issue of sources. As put by Simma, to the extent that `human rights law can only be taken into account if, and as far as an investment tribunal is allowed to consider rules of international law whose source is not found in the treaty in question', `[i]n order for such "external" rules to be admitted to the scene at all, they must be placed in a particular relationship with the investment treaty concerned'.27
This second gateway focuses on issues of interpretation, when facing conflicting rules how to make sense of a jigsaw relating to the broader normative content, i.e. the legal framework, of a treaty. If going into the meaning of a specific term, this would entail, for example, applying a principle of evolutionary or dynamic interpretation: `where treaties use "known legal
23 Reiner & Schreuer, supra n. 6, at 83. 24 Ibid. 25 Ibid. As in Biloune & Marine Drive Complex Ltd. v. Ghana Investments Centre and the Government of
Ghana, UNCITRAL, Award on Jurisdiction and Liability, 27 Oct. 1989, 95 ILR 184. 26 Reiner & Schreuer, supra n. 6, at 84. 27 Simma, supra n. 5, at 582583.
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terms whose content the parties expect would change through time", the
meaning of those terms will be determined by reference to international law as it has evolved and stands at present'.28
However, is there a presumption of coherence within existent international law even if `to be handled with care, and on a case by case basis'?29 Moreover, does
party autonomy have a limit (e.g. jus cogens, multilateral obligations owed to third
parties)? These two fundamental questions underline some of the thinking on the
subject produced by Simma. He remarked in that sense that whilst Article 31(3)(c) of the Vienna Convention on the Law of Treaties (VCLT)30 would indeed
enshrine this presumption of coherence within existent international law, a principle set out in the Oil Platforms case31 by the ICJ,32 party autonomy would find its limits `in the presence of jus cogens (as was the case in Oil Platforms) or of certain multilateral obligations owed to third parties'.33
The interpretative gate draws on the work of the International Law Commission (ILC)34 on `Fragmentation of International Law', which regarded Article 31(3)(c) of the VCLT as the master key to international law,35 or the solver of `a systemic problem an inconsistency, a conflict' 36 between different rules, often
as a consequence of the emergence of the functional specialization of regulatory regimes in international law (e.g. `trade law', `human rights law'). The ILC held in that sense that `[i]n International Law, there is a strong presumption against normative conflict'.37
28 Ibid., at 583. 29 Ibid., at 584. 30 VCLT, Art. 31, reads: `1. A treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise in addition to the text, including its preamble and annexes ... 3. There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties.' (emphasis added). 31 Oil Platforms (Islamic Republic of Iran v. United States of America) Judgment  ICJ Rep. paras 7378. See in particular para. 41 of the judgment citing VCLT, Art. 31(3)(c). 32 Simma, supra n. 5, at 583584. 33 Ibid., at 584. As noted by McNair, indeed `[i]t is difficult to imagine any society, whether of individuals or of States, whose law sets no limit whatever to freedom of contract', Lord A. D. McNair, The Law of Treaties 213214 (Oxford: Clarendon Press 1961). 34 ILC, Fragmentation of International Law: Difficulties Arising from the Diversification Expansion of International Law, Report on the Study Group of the International Law Commission (prepared by Martti Koskenniemi), para. 37, UN doc A/CN.4/L.682 (13 Apr. 2006). 35 Ibid., para. 420. As noted by Simma, the `term was coined by the ILC member (now ICJ Judge) Xue Hanqin during a more recent commission debate on the significance of Art. 31(3)(c)'. Simma, supra n. 5, at 584. 36 ILC, supra n. 34, para. 420. 37 Ibid., para. 37.
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3.2[a] The `Master Key' to International Law (or the Principle of Systemic Integration)
There are four fundamental propositions emerging from the above-mentioned work of the ILC relating to `the master key to international law' in my view. These are: (1) conflict-resolution and interpretation cannot be distinguished from each other; (2) international law is understood as a system; (3) all international law exists in a systemic relationship with other law (therefore in interpreting a rule one ought to look into the normative environment of a treaty); and (4) a limited jurisdiction does not imply a limitation of the scope of the law applicable in the interpretation and application of the treaty. I shall look at each one in turn.
3.2[a][i] Conflict resolution and interpretation cannot be distinguished from each other
As pointed out by the ILC, Article 31 of the VCLT `has helped to place the problem of treaty relations in the context of treaty interpretation'.38 Although authors like Simma himself have warned `[a]s against such enthusiasm, I would advise keeping in mind what the provision was designed to be, namely a principle for the interpretation of treaties, nothing more'39 and stated `[w]hat can Article 31 (3)(c) yield as an entry point for international human rights law in the interpretation of an investment treaty? ... [I]t can only be employed as a means of harmonization qua interpretation, and not for the purpose of modification, of an existing treaty',40 the fact is that the mere notion of `conflict' implies already an interpretation exercise.
Thus, the ILC has stated in that regard that `[c]ontrary to what is sometimes suggested, conflict resolution and interpretation cannot be distinguished from each other ... Rules appear to be compatible or in conflict as a result of interpretation'.41
3.2[a][ii] International law understood as a system
Article 31 of the VCLT would be a reflection of the principle of `systemic integration' or `a guideline according to which treaties should be interpreted against the background of all the rules and principles of international law in other words, international law understood as a system'.42 The question of the relationship of different rights or obligations `could only be approached through
38 UN Report of the International Law Commission, Fifty-seventh Session (2 May3 June and 11 July5 Aug. 2005), GA Sixtieth Session, A/60/10, para. 467.
39 Simma, supra n. 5, at 584. 40 Ibid. 41 ILC, supra n. 34, para. 412. 42 Supra n. 38, para. 467.
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a process of reasoning that makes them appear as parts of some coherent and meaningful whole'.43
3.2[a][iii] All international law exists in systemic relationship with other law
The ILC noted that:
[i]t is sometimes suggested that international tribunals or law applying (treaty) bodies are not entitled to apply the law that goes `beyond' the four corners of the constituting instrument or that when arbitral bodies deliberate the award, they ought not to take into account rules or principles that are not incorporated in the treaty under dispute or the relevant compromis. But if ... all international law exists in systemic relationship with other law, no such application can take place without situating the relevant jurisdiction endowing instrument in its normative environment.44
In the words of the ILC, this means that `although a tribunal may only have jurisdiction in regard to a particular instrument, it must always interpret and apply that instrument in its relation to its normative environment that is to say "other" international law'.45
An instructive example of the application of such a principle when looking into state obligations under two different regimes, such as investment law and human rights law, can be found in Sawhoyamaxa Indigenous Community v. Paraguay,46 a case adjudicated by the Inter-American Court of Human Rights, in which the state alleged obligations under a BIT as a defence for breaches of the American Convention. The Court stated in that regard:
140. Lastly, with regard to the third argument put forth by the State, the Court has not been furnished with the aforementioned treaty between Germany and Paraguay, but, according to the State, said convention allows for capital investments made by a contracting party to be condemned or nationalized for a `public purpose or interest', which could justify land restitution to indigenous people. Moreover, the Court considers that the enforcement of bilateral commercial treaties negates vindication of non-compliance with State obligations under the American Convention; on the contrary, their enforcement should always be compatible with the American Convention, which is a multilateral treaty on human rights that stands in a class of its own and that generates rights for individual human beings and does not depend on reciprocity among States.47
The ILC emphasized in that sense that `[t]he way in which "other law" is "taken into account" is quite crucial to the parties and to the outcome of any single
43 ILC, supra n. 34, para. 414. 44 Ibid., para. 423 (emphasis added). 45 Ibid. 46 Sawhoyamaxa Indigenous Community v. Paraguay, Inter-American Ct. of Human Rights, Judgment of 29
Mar. 2006 (Merits, Reparations and Costs). 47 Ibid., para. 140. (emphasis added).
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case'.48 But moreover, the principle of systemic integration would `look beyond the individual case' and make sure that `the outcome is linked to the legal environment'.49 The dangers of `isolating' legal institutions from one another was referred to by the ILC as follows:
To hold those institutions as fully isolated from each other and as only paying attention to their own objectives and preferences is to think of law only as an instrument for attaining regime-objectives. But law is also about protecting rights and enforcing obligations, above all rights and obligations that have a backing in something like a general, public interest. Without the principle of `systemic integration' it would be impossible to give expression to and to keep alive, any sense of the common good of humankind, not reducible to the good of any particular institution or `regime'.50
3.2[a][iv] A limited jurisdiction does not imply a limitation of the scope of the law applicable in interpretation and application of the treaty
Finally, from this perspective, whether a tribunal would be able to look into `other law' is not a jurisdictional matter but rather a matter of substantive law (law applicable in the interpretation and application of the treaty). To the author, this is a correct approach. The ILC asserted in that connection:
The jurisdiction of most international tribunals is limited to particular types of disputes or disputes arising under particular treaties. A limited jurisdiction does not, however, imply a limitation of the scope of the law applicable in the interpretation and application of those treaties.51
The ILC noted that in the WTO context, for example, `a distinction has been made between two notions, jurisdiction and applicable law'.52
3.2[b] Fragmentation/Unity of International Law; Harmonization
The literature on the relationship between human rights and investment law having Article 31(3)(c) at its axis, can be broadly divided into two main strings. Whereas one string in the literature looks at this relationship from the angle of the notions of the Fragmentation/Unity53 of International Law (having as its most
48 ILC, supra n. 34, para. 480. 49 Ibid. 50 Ibid., para. 481. 51 Ibid., para. 45 (emphasis added). 52 Ibid. 53 See A. van Aaken, Fragmentation of International Law: The Case of International Investment Protection, XVII
Finnish Y.B. Int'l L. 91130 (2006); J. Fry, International Human Rights Law in Investment Arbitration: Evidence of International Law's Unity, 18(77) Duke J. Comp. & Int'l L. 77149 (2007); Dupuy, supra n. 1, at, 4562 ; S. Karamanian, Human Rights Dimensions of Investment Law, in Hierarchy in International Law: The Place of Human Rights 236271 (E. De Wet & J. Vidmar eds, OUP 2012).
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prominent exponent, Pierre-Marie Dupuy), the other does so rather through the lens of harmonization.54
Although one could just say that the difference in both these approaches is merely a matter of emphasis, there is a more fundamental distinction. Whereas the first focuses on the substance of the law, the latter focuses rather on a procedural exercise, that of balancing of different obligations.55 Thus the fundamental question from the harmonization angle, as coined by Bruno Simma, is: `How can we harmonize the host State's obligations under two regimes?'56 Simma observed in that regard, `a problem inherent in any invocation of external rules of international law relates to the "weight to be attached to particular external material sources in the interpretation process"'.57 A weighing exercise is no longer a matter of substance but rather of procedure. Not surprisingly, the harmonization approach has led to a third gateway, this time, procedural: the proportionality gate.58
3.3 PROCEDURAL GATE: PROPORTIONALITY ANALYSIS
The principle exponent of the proportionality approach is Gebhard Bcheler, a disciple of Simma. In his book Proportionality in Investor-State Arbitration,59 Bcheler sets out to use the principle of proportionality as a tool to resolve conflict or `collisions between different rights and interests'60 by `providing for an appropriate balance between individual rights and the public interest'61 the legal foundation for this principle arising from Article 38(1)(c) of the ICJ Statute as a general principle.62 Bcheler would note in that sense, that Article 31(3)(c) of the
54 The principle of harmonization was defined by the ILC in its Report as follows: `It is a generally accepted principle that when several norms bear on a single issue they should to the extent possible, be interpreted so as to give rise to a single set of compatible obligations'. ILC, Conclusions of the Work of the Study Group on the Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, adopted by the ILC at its Fifty-eighth Session in 2006 and submitted to the General Assembly as part of the Commission's report covering the work of that session, para. 4. For a string in the literature taking the harmonization approach see B. Simma & T. Kill, Harmonizing Investment Protection and International Human Rights: First Steps Towards a Methodology, in International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer 678707 (OUP 2009); Simma, supra n. 5, at 591; J. Levine, The Interaction of International Investment Arbitration and the Rights of Indigenous Peoples, in Investment Law Within International Law, Integrationist Perspectives 106128, 107 (F. Baetens ed., Cambridge University Press 2013).
55 Simma, supra n. 5, at 591. 56 Ibid. (emphasis added). 57 Simma & Kill, supra n. 54 (emphasis added). 58 See also Tor-Inge Harbo, The Functions of Proportionality Analysis in European Law, Brill NV (2015).
Harbo addresses the nature of the principle of proportionality and concludes that it is of a procedural nature. 59 G. Bcheler, Proportionality in investor-State Arbitration (OUP 2015). 60 Ibid., at 1. 61 Ibid. 62 Ibid., at 3.
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VCLT states that `account is to be taken together with the context, of "any relevant rules of international law applicable in the relations between the parties"', among such principles being `general principles of law' and `general principles of law recognized by civilized nations'. He contends that proportionality would be one such principle. Whilst admitting the emphasis in the literature that `only "rules" of international law fall within the scope of Article 31(3)(c) VCLT',63
and acknowledging that the academic debate on how to categorize proportionality is not settled, he argues that `whether called "metal-constitutional rule", tool of "neutral, rational-decision making" or "principle", for the purposes of Article 38(1)
(c) of the ICJ Statute it only matters that proportionality is a legal concept
sufficiently established in domestic law and transposable to the international level'.64
3.4 OTHER RELEVANT NOTIONS
Finally, a strand of the literature criticizing a merely commercial approach to investment arbitration does so not so much from the perspective of human rights, but rather from the perspective of the `sovereignty of the host state' and the exercise of its regulatory powers (e.g. right to introduce environmental regulation). At the centre of this perspective is the notion of `right to regulate'.65 Interestingly, the Report of the High Commissioner for Human Rights on Human Rights, Trade and Investment,66 one of the first documents (back in 2003) in which the relationship of human rights and investment was explored within the United Nations, refers to the right (and the duty) to regulate, as follows:
From a human rights perspective, States have undertaken to respect, protect and fulfil human rights nationally which apply in all contexts, including the context of investment liberalization. Further, States have committed to international cooperation and assistance to promote human rights and to create a social and international order through which all human rights and fundamental freedoms can be fully realized. Considering investment liberalization from the perspective of the promotion and protection of human rights brings a new dimension to the discussion. While investment liberalization reduces to some extent the field of State action and policy in relation to investors and investment, a human rights approach emphasizes that liberalization should not go so far as to compromise State action and policy to promote and protect human rights. To the extent that investment
63 Ibid., at 100. 64 Ibid. 65 See e.g. Gazzini, supra n. 1, at 2348. 66 UN High Commissioner for Human Rights, Report on Human Rights, Trade and Investment, 2 July 2003
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agreements concern human rights issues, States have a duty to regulate (the duty to fulfil human rights).67
According to the report such `duty to regulate' on the part of the state would include `the flexibility to withdraw commitments to liberalization where experience demonstrates that liberalization has had a negative effect on the enjoyment of human rights' and `the flexibility to introduce new regulations to promote and protect human rights'.68
4 LATIN AMERICA: A CRUCIBLE FOR INVESTMENT ARBITRATION?
The tension between investment law and human rights has been particularly felt in the Latin American region. The last decades have witnessed what has been referred as `an explosion in Latin American investment arbitration'.69 Latin America has, after all, more BITs than any other region in the world.70 Some of these disputes have arisen from regulatory measures involving matters of public interest such as health, environment or economy.71 Take the case of Metalclad,72 in which a waste management business sued Mexico for expropriation after it was denied permission to operate a landfill it had constructed. In its submissions, the government had described the claimant's landfill to be a `threat to health and safety' because it was in fact a hazardous waste landfill.73 Furthermore, Mexico adopted an ecological decree declaring the area where the company was seeking to operate the waste landfill to be a natural reserve. An arbitral tribunal constituted under Chapter 11 of the North America Free Trade Agreement (NAFTA) found that the government had taken a measure tantamount to expropriation and ordered Mexico to pay nearly USD 16.7 million (later reduced to USD 15.6 million) in compensation. To some, this result was the `reverse of the established tenet of environmental policy: the principle that polluters should bear the cost of their pollution rather than be paid not to pollute'.74
67 Ibid., at 3. 68 Ibid. 69 J. Hamilton, A Decade of Latin American Investment Arbitration, in Latin American Investment Treaty
Arbitration: The Controversies and Conflicts 6982, 71 (M Mourra & T Carbonneau eds, Wolters Kluwer 2008). 70 As observed by Mourra in 2008, `Over the past two decades, Latin American States signed more than five hundred bilateral investment treaties with countries around the world.' Latin American Investment Treaty Arbitration: The Controversies and Conflicts 1 (M. Mourra & T. Carbonnau eds, Wolters Kluwer 2008). 71 Ibid., at 2. 72 Metalclad Corp. v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 Aug. 2000. 73 Ibid. Respondent's Countermemorial, 22 May 1998, paras 3233. 74 Private Rights, Public Problems: A Guide to NAFTA Controversial Chapter on Investor Rights 33 (Canada: International Institute for Sustainable Development 2001), cited in supra n. 66, para. 35.
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Bolivia was the first party to the International Centre for Settlement of Investment Disputes (ICSID) Convention to announce its withdrawal,75 which took effect on 3 November 2007.76 Likewise Ecuador denounced the ICSID
Convention on 6 July 2009 and its withdrawal took effect on 7 January 2010. In
January 2012, the Bolivarian Republic of Venezuela denounced the ICSID Convention, becoming the third country to do so.77 Argentina for its part instituted annulment proceedings78 and filed several challenges to arbitral processes and awards in its courts, which `has raised questions about whether the country will ultimately comply with a final award'.79
Against that background Mourra predicted that Latin America would become a crucible for testing whether states' duties, obligations, and responsibilities to its
citizens could be balanced against their responsibilities to investors, by arbitral tribunals.80At the heart of the crucible is the task of interpretation. In commenting
on the case of Metalclad in its 2003 Report on Human Rights, Trade and Investment, the UN High Commissioner for Human Rights indeed recommended that `[i]t
will be important to ensure that interpretation of these and other provisions in
investment agreements place human rights and environmental considerations centrally within their reasoning when relevant'.81 But is this possible in arbitral
On 8 July 2016, the award in the Philip Morris v. Uruguay case was delivered.
The case brought to centre-stage the right to health in investment arbitration in
the context of the examination as to whether tobacco-control measures introduced
by Uruguay in compliance with international agreements amounted to expropria-
tion under a BIT. Unlike earlier cases in which human rights arguments have been
made but not dealt with centrally by the tribunals, the arbitral tribunal in this case
directly engaged with the arguments, raising the conflicting obligations of Uruguay under the BIT (the investors' rights) and the right to health of its population under
external rules (other international agreements). In a majority vote, the tribunal
(composed of Prof. Piero Bernardini (Presiding), Gary Born and Judge James
75 M. Mourra, The Conflicts and Controversies in Latin American Treaty-Based Disputes, in Mourra & Carbonneau, supra n. 70, at 568, 62. Bolivia submitted a notice of denunciation of the ICSID
Convention on 2 May 2007. 76 As per ICSID Convention, Art. 71. 77 Comunicado oficial de Venezuela sobre su salida del CIADI, El Universal, 25 de enero de 2012.
del-ciadi (accessed 3 Mar. 2017). 78 See C. Tomuschat, The European Court of Human Rights and Investment Protection, in International
Investment Law for the 21st Century, Essays in Honour of Christoph Schreuer 636656, 637 (C. Binder,
U. Kriebaum, A. Reinisch & S. Wittich eds, OUP 2009). 79 Mourra, supra n. 75, at 59. 80 Ibid. 81 Supra n. 66, para. 35.
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Crawford) found that Uruguay had not violated its international obligations under the BIT.
I propose that the Philip Morris v. Uruguay case represents a turning point in investment arbitration in Latin America, that of the willingness of investment arbitration to engage with human rights obligations in the context of investment claims. In doing so, it reflects the coming of age of investment arbitration.
5 PHILIP MORRIS V. URUGUAY
5.1 CLAIM IN A NUTSHELL
Brought under Article 10 of the Agreement between the Swiss Confederation and the Oriental Republic of Uruguay on the Reciprocal Promotion and Protection of Investments dated 7 October 1988 (`Switzerland-Uruguay BIT'), at its core the dispute concerned allegations by the claimants that, `through several tobacco-control measures regulating the tobacco industry, Uruguay had violated the BIT in its treatment of the trademarks associated with cigarette brands in which the Claimants had invested'.82 These measures included two main changes: (1) the government's adoption of a Single Presentation Requirement precluding tobacco manufacturers from marketing more than one variant of cigarette per brand family (the `Single Presentation Requirement' or SPR); and (2) the increase in the size of graphic health warnings appearing on cigarette packages (the `80/80 Regulation'), jointly referred to as the `Challenged Measures'. The claimants had originally requested an award of damages of `at least U.S.$25,743,000.00 plus compound interest', having reduced this amount after the first round of pleadings.83
Uruguay in turn held that the Challenged Measures were adopted in compliance with Uruguay's international obligations, i.e. the Framework Convention on Tobacco Control (FCTC) ratified by Uruguay on 9 September 2004 and the BIT, `for the single purpose of protecting public health'.84 As observed by the tribunal, `according to Uruguay, both regulations were applied in a non-discriminatory manner to all tobacco companies, and they amounted to a reasonable, good faith exercise of Uruguay's sovereign prerogatives'.85 Uruguay submitted that the SPR was adopted `to mitigate the ongoing adverse effects of tobacco promotion, including the Claimants' false marketing that certain brand variants [were] safer than others, even
82 Philip Morris v. Uruguay, supra n. 8, para. 9. 83 Ibid., n. 6. 84 Ibid., para. 13. 85 Ibid.
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after misleading descriptors such as "light", "mild", and "ultra-light" were banned'.86 While Uruguay had banned the use of the words `light' and `mild' from cigarette packs to try to dispel smokers' beliefs that the products are safer, the 80/80 Regulation had been adopted to `increase consumer awareness of the health risks of tobacco consumption' (specifically, introducing large warnings
and graphic images including diseased lungs and rotting teeth on cigarette
packages) and to `encourage people, including younger people, to quit or not
to take up smoking, while still leaving room on packages for brand names and logos'.87 Uruguay claimed that the case was `about protection of public health, not interference with foreign investment'.88
5.2 ALLEGED VIOLATIONS
The central claim in the case revolved around the allegation of expropriation under Article 5 of the BIT and denial of fair and equitable treatment (FET) under Article 3(2). The claimants argued, inter alia, that by imposing the SPR and 80/80 Regulation, Uruguay had expropriated their investment, their brand assets, including the intellectual property and goodwill associated with each of their brand variants, in violation of Article 5(1) of the BIT. In construing the notion of expropriation they applied the Vivendi standards of having been `substantially deprived' of the value of their investments. They also argued that the BIT contained no carve-outs on the grounds of public health and that the state's exercise of police powers does not constitute a defence against expropriation, or exclude the requirement of compensation.
Uruguay contended that the claimants' argument really referred to a claim of indirect expropriation but that (1) if `"sufficiently positive" value remains then, there is no expropriation'89; and (2) `[i]nterference with foreign property in the valid exercise of police power is not considered expropriation and does not give rise to compensation'.90
5.3 TRIBUNAL'S DECISION
The tribunal adopted an approach of systemic integration to the conflicting rules with which it was presented. It followed the interpretative gate via the
86 Ibid. 87 Ibid. 88 Ibid. 89 Ibid., para. 190. 90 Ibid., para. 188.
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master key of international law and integrated the proportionality principle into its tools of legal reasoning to state the law. It further used some subsidiary means (in line with the sources of international law enshrined in Article 38 of the ICJ Statute) for the determination of some rules, such as judicial decisions by the European Court of Human Rights. Its key findings were as follows.
The tribunal held that `clearly the Claimants' claim relat[ed] to indirect or de facto expropriation' and agreed with both arguments of Uruguay in that respect, mainly: (1) `[a]s long as sufficient value remains after the Challenged Measures are implemented, there is no expropriation'91 (a partial loss of the profits does not amount to expropriation); (2) the adoption of the Challenged Measures by Uruguay was a valid exercise of the state's police powers and thus did not amount to expropriation.92
5.3[a][i] State's exercise of `police powers': Protection of public health
In a key passage, the tribunal stressed that the BIT `does not prevent Uruguay, in the exercise of its sovereign powers, from regulating harmful products in order to protect public health after investments in the field have been admitted'.93 Quite crucially the tribunal held that it disagreed with the proposition of the claimants that `there is no room under Article 5 (1) or otherwise in the BIT for carving out an exemption based on the police powers of the State'. It stated:
As pointed out by the Respondent, Article 5(1) of the BIT must be interpreted in accordance with Article 31(3)(c) of the VCLT requiring that treaty provisions be interpreted in the light of `[a]ny relevant rules of international law applicable to the relations between the parties', a reference `which includes ... customary international law'. This directs the Tribunal to refer to the rules of customary international law as they have evolved.
Protecting public health has since long been recognized as an essential manifestation of the State's police power, as indicated also by Article 2(1) of the BIT which permits contracting States to refuse to admit investments `for reasons of public security and order, public health and morality'.94
91 Ibid., para. 286. 92 Ibid., para. 287. 93 Ibid., para. 288. 94 Ibid., paras 290291 (footnotes omitted and emphasis added).
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5.3[a][ii] Scope, content and conditions of the state's police powers doctrine: Bona fide exercise of police powers
The tribunal followed the interpretative gate, albeit focusing first on customary international law as a source, in asserting the scope, content and conditions of the state's police powers doctrine. It asserted that `[w]hether a measure may be characterized as expropriatory depends on the nature and purpose of the State's action',95 a principle that would have been reflected in earlier arbitral awards some of which relied on jurisprudence of the European Court of Human Rights, based on Article 1 of Protocol 1 to the Convention.96 It noted, for example, that in Saluka v. Czech Republic,97 the tribunal (composed of Sir Arthur Watts, Yves Fortier, and Prof. Peter Behens) recorded the scope, conditions and effects of the police powers doctrine, stating:
It is now established in international law that States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a nondiscriminatory manner bona fide regulations that are aimed at the general welfare.98
Further relying on Saluka, the Philip Morris tribunal noted that `the principle that the State adopts general regulations that are "commonly accepted as within the police power of States" forms part of customary international law today'.99 The Philip Morris tribunal stated in that respect:
It should be stressed that the SPR and the 80/80 Regulation have been adopted in fulfilment of Uruguay's national and international legal obligations for the protection of public health. Article 44 of the Uruguayan Constitution 398 states: `The State shall legislate in all matters appertaining to public health and hygiene, to secure the physical, moral and well-being of all the inhabitants of the country.' ... Article 7 [of the Uruguay
95 Ibid., para. 295. 96 Ibid. Among the arbitral awards that would have relied on such jurisprudence it mentioned: Tecmed
(CLA-203), para. 122; Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/2, Award, 14 July
2006, (CLA-296), para. 311; EDF (Services) Ltd. v. Romania, ICSID Case No. ARB/05/13, Award, 8
Oct. 2009, (CLA-224), para. 293. 97 Saluka Investments B.V. v. Czech Republic, Arbitration under the UNCITRAL Arbitration Rules 1976,
Partial Award, 17 Mar. 2006. 98 Philip Morris v. Uruguay, supra n. 8, para. 297, citing para. 255 in Saluka (emphasis added).
It must be noted that the Saluka tribunal further referred to the final award in Methanex Corp. v. USA where an arbitral tribunal stated: `[i]t is a principle of customary international law that, where
economic injury results from a bona fide regulation within the police powers of a State, compensation is not required'. 99 Philip Morris v. Uruguay, supra n. 8, para. 297. This is not a correct citation of Saluka. The relevant excerpt in Saluka actually reads: `[T]he principle that a State does not commit an expropriation and is
thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are "commonly accepted as within the police power of States" forms part of customary international law today.' Saluka, supra n. 97, para. 262.
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Constitution] states the principle of protection pursuant to which `the inhabitants of the Republic have the right to be protected in the enjoyment of their life'.100
5.3[a][iii] Guaranteeing the human right to health
The tribunal referred further to other domestic law that enabled obligations of Uruguay under the FCTC. In other words, the tribunal engaged with further relevant rules of international law applicable to the relations between the parties, this time arising from another treaty. It observed:
It is based on these obligations that the SPR and the 80/80 Regulation have been adopted. The FCTC is one of the international conventions to which Uruguay is a party guaranteeing the human right to health; it is of particular relevance in the present case, being specifically concerned to regulate tobacco control.101
A particular slip in the award, however, would be found in footnote 403 where the tribunal referred to Uruguay as `a party to the European Convention for the Protection of Human Rights, whose Article 1, Protocol I, is another source of decisions regarding the police powers doctrine'. This is an error in the award. To this author's knowledge, Uruguay is not a party to this treaty,102 which is open for signature only to Member States of the Council of Europe. It would have been interesting to find reference at this point to other human rights treaties which enshrined the right to health, to which Uruguay is an actual party, including the American Convention on Human Rights, which contains a provision on the right to life whose scope has been interpreted to include positive duties to foster life. The slip is nevertheless inconsequential, as the central treaty on which the human rights analysis of the tribunal rested was the FCTC.
In sum, in respect of the allegations of expropriation the tribunal held that `as indicated by earlier investment treaty decisions, in order for a State's action in exercise of regulatory powers not to constitute indirect expropriation, the action has to comply with certain conditions'.103 Those conditions would be (1) that the action must be taken bona fide for the purpose of protecting the public welfare; and (2) must be non-discriminatory and proportionate. In the tribunal's view, the measures introduced by Uruguay satisfied these conditions. It noted that such measures had been taken by Uruguay with a view to protecting public health in fulfilment of its
100 Philip Morris v. Uruguay, supra n. 8, para. 302. 101 Ibid., para. 304 (emphasis added). 102 For the full list of signatures and ratifications of the European Convention on Human Rights, see
http://www.coe.int/en/web/conventions/full-list/-/conventions/treaty/005/signatures?p_auth= mfnxMOxF (accessed 1 Dec. 2016). 103 Philip Morris v. Uruguay, supra n. 8, para. 305.
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national and international obligations104 (reflecting a systemic integration approach to
rules under international law). The tribunal did not find the measures `arbitrary and unnecessary' but rather to be potentially `effective means to protecting public health', a conclusion endorsed also by the World Health Organization (WHO)/ Pan American Health Organization (PAHO) submissions.105
5.3[b] Denial of Fair and Equitable Treatment Under Article 3(2) of the BIT
The tribunal rejected the proposition of the claimants that FET under the BIT referred to `an autonomous standard'. It rather held that this legal standard referred to `treatment required by the minimum standard of treatment under international law'.106 It thus adopted, again, a systemic integration approach. In order to interpret Article 3(2) of the BIT, it followed `the normal canons of treaty interpretation as contained in Articles 31 and 32 of the VCLT'. This included interpretation in the light of `[a]ny relevant rules of international law applicable to the relations between the parties'. The tribunal remarked that this includes rules under general international law.
The claimants had alleged that the Neer case107 reflected the applicable FET standards; mainly actions that:
amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental actions so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.108
The tribunal did not agree with this. Citing Chemtura v. Canada,109 it stated that the determination of FET standards `[could] not overlook the evolution of customary international law, nor the impact of BITs, on this evolution'.110 It pointed out that based on investment tribunal's decisions, typical fact situations have led a leading commentator to the identification of the following principles as reflecting the FET standard: (1) transparency and the protection of the investor's legitimate expectations; (2) freedom from coercion and harassment; and (3) procedural propriety and due process, and good faith.111 Arbitrary, grossly unfair, unjust or idiosyncratic or discriminatory acts (based on unjustifiable distinctions), as well as
104 Ibid., para. 306. 105 Ibid. 106 Ibid., para. 316. 107 Neer (U.S.A) v. United Mexican States, U.S.-Mexico General Claims Commission, 15 Oct. 1926. 108 See Philip Morris v. Uruguay, supra n. 8, n. 413. 109 Chemtura Corp. v. Government of Canada, UNCITRAL (formerly Crompton Corp. v. Government of
Canada), Award, 2 Aug. 2010. 110 Philip Morris v. Uruguay, supra n. 8, at 318. 111 Ibid., at 320, citing C. H. Schreuer, Fair and Equitable Treatment in Arbitral Practice, J. World Inv. &
Trade 373374 (June 2005).
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wilful neglect of duty, would all be indicative of a breach of the FET standard. The analysis of the tribunal on the FET standard was articulated by a line of reasoning on arbitrariness, on the one hand, and on the legitimate expectations notion (which was treated jointly together with the allegation of denial of justice in the case) on the other.
An arbitrary or unreasonable act, according to the submissions of the claimants, consisted of `a measure that inflicts damage on the investor without serving any apparent legitimate purpose'.112 Whether or not the measures introduced by Uruguay had been arbitrary was the central issue the tribunal addressed. Based on the notion of `arbitrariness' as set forth by the ICJ Chamber in the ELSI case, which defined it as `a willful disregard of due process of law, an act which shocks or at least surprises, a sense of juridical propriety',113 the Philip Morris tribunal concluded that the measures challenged by the claimants were not arbitrary. It noted:
Both measures have been implemented by the State for the purpose of protecting public health. The connection between the objective pursued by the State and the utility of the two measures is recognized by the WHO and the PAHO Amicus Briefs, which contain a thorough analysis of the history of tobacco control and the measures adopted to that effect. The WHO submission concludes that the `Uruguayan measures in question are effective means of protecting public health.' The PAHO submission holds that `Uruguay's tobacco control measures are a reasonable and responsible response to the deceptive advertising, marketing and promotion strategies employed by the tobacco industry, they are evidence based, and they have proven effective in reducing tobacco consumption.'114
Furthermore, the tribunal applied the margin of appreciation doctrine in addressing the `proper degree of deference', or discretionary exercise of public power to advance right to health. It held that a `margin of appreciation' is to `be recognized to regulatory authorities when making public policy determinations'. The claimants argued that the `margin of appreciation' doctrine had no application in the proceeding because it was `a concept applied by the ECHR for interpreting the specific language of Article 1 of the Protocol to the Convention, no analogous provision being contained in the BIT'.115 The tribunal stated in that sense:
The Tribunal agrees with the Respondent that the `margin of appreciation' is not limited to the context of the ECHR but `applies equally to claims arising under BITs', at least in
112 Philip Morris v. Uruguay, supra n. 8, para. 325. 113 Ibid., para. 190. 114 Ibid., para. 391 (footnotes omitted). 115 Ibid., para. 398.
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contexts such as public health. The responsibility for public health measures rests with the government and investment tribunals should pay great deference to governmental judgments of national needs in matters such as the protection of public health. In such cases respect is due to the `discretionary exercise of sovereign power, not made irrationally and not exercised in bad faith ... involving many complex factors'. As held by another investment tribunal, `[t]he sole inquiry for the Tribunal ... is whether or not there was a manifest lack of reasons for the legislation'.116
The tribunal proceeded to assess in concreto whether the measures introduced
by Uruguay were in conformity with the FET standard and it noted that both measures had been `adopted in an effort to give effect to general obligations under the FCTC'. The tribunal held in that regard, `[t]he FCTC is a point of reference on the basis of which to determine the reasonableness'.117
In his Concurring and Dissenting Opinion, Gary Born did not agree to `the
transposition of the doctrine of a margin of appreciation from the ECHR context to either the Switzerland-Uruguay BIT or international law more generally'.118
5.3[b][ii] Legitimate expectations: Denial of justice
The claimants had also asserted that the FET standards require that contracting parties do not affect the `"basic expectations" that were taken into account by the foreign investor when making its investment'.119 The claimants had argued that they had legitimate expectations that Uruguay would:
(a) allow the Claimants to continue to deploy and capitalize on their brand assets; (b) refrain from imposing restrictive regulations without a well-reasoned, legitimate purpose; (c) respect the Claimants' intellectual property rights; and (d) ensure that the Claimants had access to a just, unbiased, and effective domestic court system.120
In other words, they argued that they had a legitimate expectation that the regulatory environment would not drastically change, and in particular, that if they were permitted to register their trademarks lawfully, then they could expect to use them for the purpose for which they were registered. They argued that under the FET standards Uruguay was required to provide `a reasonably stable and predictable legal system'.121 Uruguay for its part argued that the standards for the notion of legitimate expectations had been properly formulated by the El Paso tribunal122 as follows:
116 Ibid., para. 399 (footnotes omitted and emphasis added). 117 Ibid., para. 401. 118 Ibid. Concurring and Dissenting Opinion, Gary Born, Arbitrator, para. 191. 119 Philip Morris v. Uruguay, supra n. 8, para. 340. 120 Ibid., para. 341. 121 Ibid., para. 346. 122 El Paso Energy Int'l Co. v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 Oct. 2011.
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Under a FET clause a foreign investor can expect that the rules will not be changed without justification of an economic, social or other nature. Conversely, it is unthinkable that a State could make a general commitment to all foreign investors never to change its legislation whatever the circumstances and it would be unreasonable for an investor to rely on such a freeze.123
The tribunal found that Uruguay had made no specific commitments to the claimants. It held that:
Legitimate expectations depend on specific undertakings and representations made by the host State to induce investors to make an investment. Provisions of general legislation applicable to a plurality of persons or of category of persons, do not create legitimate expectations that there will be no change in the law.124
The tribunal further held that:
[c]hanges to general legislation (at least in the absence of a stabilization clause) are not prevented by the fair and equitable treatment standard if they do not exceed the exercise of the host State's normal regulatory power in the pursuance of a public interest and do not modify the regulatory framework relied upon by the investor at the time of its investment `outside of the acceptable margin of change'.125
But, moreover, the tribunal asserted:
Manufacturers and distributors of harmful products such as cigarettes can have no expectation that new and more onerous regulations will not be imposed ...
On the contrary, in light of widely accepted articulations of international concern for the harmful effect of tobacco, the expectation could only have been of progressively more stringent regulation of the sale and use of tobacco products. Nor is it a valid objection to a regulation that it breaks new ground.126
Finally, some words in relation to the argument concerning denial of justice (as the claimants had argued that `access to a just, unbiased, and effective domestic court system' was a legitimate expectation of the investor). Article 6(1) (Fair Trial) of the European Convention on Human Rights (ECHR) was of decisive importance in interpreting the FET standard of Article 3(2) of the BIT to construe whether the investors had been denied justice, in particular in order to assess alleged contradictory decisions by the Tribunal Contencioso Administrativo (TCA) and the Supreme Court of Justice in a civil law system (where no doctrine of precedent exists). In respect of the standards meeting the notion of fairness in proceedings, it referred to Sahin v. Turkey127as follows:
123 Ibid., para. 372. 124 Philip Morris v. Uruguay, supra n. 8, para. 426. 125 Ibid., para. 423. 126 Ibid., paras 429, 430. 127 Nejdet Sahin & Perrihan Shain v. Turkey, ECHR, Application No. 13279/05, Judgment of 20 Oct.
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81. ... The Court considers that in a domestic legal context characterized ... by the existence of several Supreme Courts not subject to any common judicial hierarchy, it cannot demand the implementation of a vertical review mechanism of the approach those courts have chosen to take. To make such a demand would go beyond the requirements of a fair trial enshrined in Article 6 1 of the Convention. ...
83. The Court further considers that in a judicial system like that of Turkey, with several different branches of courts, and where several Supreme Courts exist side by side and are required to give interpretations of the law at the same time and in parallel, achieving consistency of the law may take time, and periods of conflicting case-law may therefore be tolerated without undermining legal certainty. ...
94. ... [I]t must avoid any unjustified interference in the exercise by the States of their judicial functions or in the organization of their judicial systems. Responsibility for the consistency of their decisions lies primarily with the domestic courts and any intervention by the Court should remain exceptional.128
The tribunal found that divergent jurisdiction is not sufficient to amount to a denial of justice. It further stated that `arbitral tribunals should not act as courts of appeal to find a denial of justice, still less as bodies charged with improving the judicial architecture of the State'129 and noted:
In general, when considering procedural improprieties arbitral tribunals have adopted a high threshold for a denial of justice. For a denial of justice to exist under international law there must be `clear evidence of ... an outrageous failure of the judicial system' or a demonstration of `systemic injustice'.130
5.4 SOME OBSERVATIONS
Five observations can be made in general terms, relevant to how human rights rules and doctrines came to be used in the adjudication of this case.
5.4[a] Right to Health
At the substantive level, or at the level of sources, what is noticeable is the engagement of the tribunal with human rights primary rules (enshrined in treaties relevant to the determination of the case) to resolve the central conflict of rules in the case. Uruguay argued that the measures introduced were to comply with its obligations under the FCTC, mainly `to protect public health'. The tribunal accepted that the FCTC is one of the international conventions to which Uruguay is a party, guaranteeing the human right to health. The tribunal made further general references to other human rights treaties to which Uruguay is a
128 Ibid., paras 81, 83, 94. 129 Philip Morris v. Uruguay, supra n. 8, para. 528. 130 Ibid., para. 500 (footnotes omitted).
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party, however, it did not elaborate further. It would have been interesting to see further analysis of other human rights treaties enshrining the right to health and binding on Uruguay, having a role in the resolution of conflict between the rights of the investor and the right to health of those under Uruguay's jurisdiction. The step taken by the Philip Morris tribunal, to centrally recognize the relevance of the right to health in resolving the dispute, nevertheless represents an important turning point in investment arbitration case-law.
5.4[b] Regulatory Power of the State
Also at the substantive level, it is noted that the approach taken by the tribunal in construing the notion of expropriation, in particular in identifying the right (and duty) of the state to regulate (carving out an exemption, even if not expressed in the treaty, based on the police powers of the state under Article 5(1) of the BIT). The tribunal relied, inter alia, on standards applied under the ECHR, Protocol 1, Article 1 (Right to Property). The tribunal's reasoning in the context of this case is a contribution to understanding the scope, content and conditions of the state's police powers doctrine under international law.
5.4[c] Margin of Appreciation Doctrine
In construing the scope of the FET standard, in particular in dealing with allegations of arbitrariness, the tribunal applied the margin of appreciation doctrine (a doctrine which comes from the human rights sphere, from the ECHR) to address the proper degree of deference to the discretionary exercise of public power to advance the right to health. Although this extrapolation was not agreeable to the dissenting vote, as noted by publicists, the capacity of international courts and tribunals to employ the margin of appreciation doctrine derives from `the inherent power of international judicial bodies to determine their own procedures' which would include `the ability of courts to set applicable standards of review'.131
5.4[d] Fair Trial Standards
Also in construing the scope of the FET standard, in particular, in dealing with the notion of denial of justice, the tribunal referred to judicial decisions in the area of human rights (due process standards), as subsidiary means for the determination of the rule to apply.
131 Y. Shany, Toward a General Margin of Appreciation Doctrine in International Law?, 16(5) EJIL 911.
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5.4[e] Third Party Intervention
At the procedural level, the tribunal accepted submissions of amicus briefs on the basis that these provided an independent perspective on the matters in dispute and contributed expertize from `qualified agencies'. In accepting these submissions, the tribunal noted that given the `public interest involved in this case' the amicus briefs would `support the transparency of the proceeding'. Although amicus briefs raising human rights issues are not a new feature in investment arbitration, the unprecedented trait of the Philip Morris case in that respect is that (unlike other cases), the tribunal subsequently relied on the amicus brief at several points of the factual and legal analysis in their decision. Indeed, the amicus briefs, for example, were crucial in providing evidence for a finding of lack of arbitrariness on the part of Uruguay.
6 URBASER V. ARGENTINA
The turning point marked by the Philip Morris v. Uruguay case has been taken further in the recent decision in Urbaser v. Argentina, relating to a concession for water and sewage services to be provided in the Province of Greater Buenos Aires, delivered in December 2016. Not only did the Urbaser tribunal engage with human rights arguments, but it did so quite centrally: it had an entire section on the BIT's relation to international and human rights, as well as a section on the human right to water in the framework of the concession in the case. The tribunal dismissed all allegations of breach of the Argentina-Spain BIT made by the investors (Urbaser S. A. and Consorcio de Aguas Bilbao Bizkaia (CABB)), with the exception of a breach of the FET standard in relation to the renegotiation of the Concession Contract in the period between 2003 and 2005. There are three key aspects to note in this case in relation to human rights in investment arbitration:
(1) human rights in a counter-claim: this is the first case in which a tribunal has addressed the merits of a counter-claim (relating to human rights) brought by the state in the context of investment arbitration;
(2) private parties' human rights obligations: human rights obligations are brought up not only at the vertical level (state obligations) but also at the horizontal level (human rights obligations on the part of the private sector);
(3) widening of the spectrum of human rights instruments referred to: references to human rights standards are broad and include not only the ECHR, but other binding and non-binding human rights instruments, such as the International Covenant on Economic, Social and Cultural Rights (ICESCR) and the Universal Declaration on Human Rights.
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6.1 HUMAN RIGHTS IN A COUNTER-CLAIM
`We must ask ourselves how, in which situations and to what extent the state is legally capable, and politically and economically likely, to act as a claimant,' Toral and Schultz wrote back in 2010.132 Urbaser v. Argentina is an instance in which a state successfully lodged a counter-claim and thus the award provides a reasoning which clarifies the position as to the situations in which a counter-claim can succeed.
The Urbaser tribunal rejected the claimant's position that the asymmetric nature of BITs prevented a host state from invoking any right based on such a treaty, including through the submission of a counter-claim. Rather, analysing the wording of the BIT under examination it found that both investor or the host state could be a party submitting a dispute in connection with an investment to arbitration.133 In this particular instance, Argentina had filed a counter-claim relating to the human right to access to drinking water and sanitation. The tribunal identified two situations in which a counter-claim was likely to fail: (1) narrowly drafted arbitration clauses; and (2) lack of close connection of counter-claims based on domestic law.
One of the claimants' main objections was that Argentina's counter-claim `had no connection with claimant's claim under the BIT'.134 The tribunal disagreed. It held:
The Tribunal observes that the factual link between the two claims is manifest. Both the principal claim and the claim opposed to it are based on the same investment, or the alleged lack of sufficient investment, in relation to the same Concession. This would be sufficient to adopt jurisdiction over the counterclaim as well. The legal connection is also established to the extent the Counterclaim is not alleged as a matter based on domestic law only. Respondent argues indeed that Claimant's failure to provide the necessary investments caused a violation of the fundamental right for access to water, which was the very purpose of the investment agreed upon in the Regulatory Framework and the Concession Contract and embodied in the protection scheme of the BIT. It would be wholly inconsistent to rule on Claimant's claim in relation to their investment in one sense and to have a separate proceeding where compliance with the commitment for funding may be ruled upon in a different way. Reasonable administration of justice cannot tolerate such a potential inconsistent outcome.135
From this perspective, that of a counter-claim, the question of whether the tribunal could address the merits of the state's submissions (human rights arguments) came
132 Toral & Schultz, supra n. 10, at 577602, 578. 133 Urbaser v. Argentina, supra n. 9, para. 1143. 134 Ibid., para. 1151. 135 Ibid.
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through a jurisdictional gate. The tribunal found it had the jurisdiction to see the merits of Argentina's counter-claim.
6.2 PRIVATE COMPANIES' HUMAN RIGHTS OBLIGATIONS
In `The State, A Perpetual Respondent in Investment Arbitration? Some Unorthodox Considerations', Toral and Schultz explored the topic of corporate actors or private parties' obligations under human rights norms, and their relevance under the terms of BITs.136
In Urbaser v. Argentina this became centre-stage. Argentina quite boldly made submissions alleging that the private companies' failure to guarantee provision of water and sewage services breached the human right to water (although it did not state that such an obligation on the part of the investors was based on international law). Whilst the tribunal did not agree with the investors that private parties had `no commitment or obligation for compliance in relation to human rights',137 the tribunal concluded that the duty as a guarantor of the right to water lay with the state, in line with international human rights doctrine. It supported this view on General Comments of the Committee of Experts under the ICESCR. The tribunal held:
1208. ... The human right to water entails an obligation of compliance on the part of the State, but it does not contain an obligation for performance on the part of any company providing the contractually required service. Such obligation would have to be distinct from the State's responsibility to serve its population with drinking water and water services.
1209. This obligation, as all others retained in the Covenant referred to above, `imposes a duty on each State party to take whatever steps are necessary to ensure that everyone enjoys the right to water, as soon as possible'. This includes establishing `accountability mechanisms to ensure the implementation of the strategy'. The necessary step is therefore that a host State accepting investments in the domain of the provision of water relies on the BIT to have the investor participating to its obligation under international law. It thus complies with the conclusion of the UN Committee on Economic, Social and Cultural Rights that `States parties should ensure that the right to water is given due attention in international agreements.' This includes the possibility to consider matters related to the human right to water in the dispute resolution mechanisms provided for in such agreements. However, the investor's obligation to ensure the population's access to water is not based on international law. This obligation is framed by the legal and regulatory environment under which the investor is admitted to operate on the basis of the BIT and the host State's laws.
1210. Whilst it is thus correct to state that the State's obligation is based on its obligation to enforce the human right to water of all individuals under its jurisdiction,
136 See Toral & Schultz, supra n. 10. 137 Urbaser v. Argentina, supra n. 9, para. 1193.
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this is not the case for the investors who pursue, it is true, the same goal, but on the basis of the Concession and not under an obligation derived from the human right to water. Indeed, the enforcement of the human right to water represents an obligation to perform. Such obligation is imposed upon States. It cannot be imposed on any company knowledgeable in the field of provision of water and sanitation services. In order to have such an obligation to perform applicable to a particular investor, a contract or similar legal relationship of civil and commercial law is required. In such a case, the investor's obligation to perform has as its source domestic law; it does not find its legal ground in general international law. The situation would be different in case an obligation to abstain, like a prohibition to commit acts violating human rights would be at stake. Such an obligation can be of immediate application, not only upon States, but equally to individuals and other private parties. This is not a matter for concern in the instant case.138
6.3 WIDENING OF THE SPECTRUM OF HUMAN RIGHTS INSTRUMENTS REFERRED TO
IN INVESTMENT CASES
Most notably, the Urbaser tribunal stated that the BIT `[could] not be interpreted and applied in a vacuum' and that it had to be `construed in harmony with other rules of international law of which it forms part including those relating to human rights'.139 It found evidence in the BIT itself, that it `[was] not framed in isolation but placed in the overall system of international law'.140 In effect, in this way the tribunal applied a systemic interpretation of the rules in the case. These rules included human rights rules contained broadly in relevant human rights treaties (i.e. the ICESCR). But even further, the tribunal made reference to non-binding instruments and reports such as the UN Special Representative John Ruggie's Final Report on Guiding Principles on Business and Human Rights,141 and General Comments of Committee experts under the ICESCR. It demonstrated that the sources for resolving a BIT dispute could well include human rights obligations.
7 HUMAN RIGHTS IN THE CONTEXT OF INVESTMENT: A TWO-WAY ROAD?
It should be noted that invoking human rights has not been a one-way road (i.e. invoked by states only or third parties, against investors' rights). Investors have also invoked such standards to their benefit. It has been a two-way road. Take the Biloune v. Ghana paradigm in which an investor requested redress also for violations
138 Ibid., paras 12081210 (footnotes omitted). 139 Ibid., para. 1200. 140 Ibid., para. 1201. 141 UN Special Representative's John Ruggie's Final Report on Guiding Principles on Business and Human
Rights: Implementing the United Nations, `Protect, Respect and Remedy' Framework (A/HRC/17/3), 21 Mar. 2011.
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of human rights in the context of an investment arbitration, as referred to above.142
The current ongoing case concerning Al Jazeera Media Network v. Arab Republic of Egypt,143 a USD 150 million international arbitration claim arising from the
enforced closure of Al Jazeera business in Cairo and the arrest and alleged harassment of its journalists, is a further example of investors' invoking human rights standards in an investment arbitration case.144 Al Jazeera is alleging breaches of the
Qatar-Egypt BIT, including breaches of human rights obligations such as freedom of expression.145
Even further, investors have resorted to human rights courts to have their
rights protected. Indeed, at one point Christian Tomuschat put it quite squarely: `Given the fact that the great advantage of swift decision is seemingly
fading away, the question may be asked whether investors could not be better served by submitting their claims to human rights bodies.'146 There is an important strand in the literature, in this regard, covering investors' protection in human rights claims.147 Writing back in 2009, Tomuschat manifested hope
that jurisprudence arising from mechanisms under the ECHR and investment arbitration (i.e. ICSID) would `engage in a process of active cross-fertilization'.148 The Philip Morris case may well represent the beginning of cross-fertilization
in that sense.
But beyond investment arbitration, human rights have been embraced by
international arbitration to its benefit as a litigation tool. Parties to arbitration
cases have resorted to human rights courts raising right to access to justice (Article 6 ECHR), as in the Pirelli case149 (access to justice trumps party autonomy), or
equality of parties (also under the notion of due process in Article 6 ECHR), as in Yukos v. Russia,150 to cite two examples.
142 See supra. s. 3.1 Jurisdictional Gate and n. 25. 143 Al Jazeera Media Network v. Arab Republic of Egypt, ICSID Case No. ARB/16/1, http://investmentpo
licyhub.unctad.org/ISDS/Details/700. 144 Al-Jazeera Takes Legal Action Against Egyptian Government, Guardian (27 Jan. 2016), www.theguardian.
com/media/greenslade/2016/jan/27/al-jazeera-takes-legal-action-against-egyptian-government. 145 Ibid. 146 Tomuschat, supra n. 78, at 636656, 637. 147 Ibid. Further see L. Wildhaber & Isabelle Wildhaber, Recent Case Law on the Protection on Property in the
European Convention on Human Rights, in International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer 657677 (C. Binder, U. Kriebaum, A Reinisch & S. Wittich eds, OUP
2009); U. Kriebaum. Is the European Court of Human Rights an Alternative to Investor-State Arbitration?, in Human Rights in International Investment Law and Arbitration 219245 (P. M. Dupuy, F. Francioni & E.
U. Petersmann eds, OUP 2010). 148 Tomuschat, supra n. 78, at 656. 149 La socit Pirelli & C v. La socit Licensing Projects et al, Cour de cassation, 1st chambre civile, Judgment
No. 392 of 28 Mar. 2013 (1127.770). 150 OAO Neftyanata Kompaniya Yukos v. Russia, ECtHR Application No. 14902/04, Judgment, 8 Mar.
2012; Judgment (Just Satisfaction), 31 July 2014.
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In short, it may be warranted to say that arbitration (a private animal) has been invaded by the public element (and not only in investment arbitration), the public element being crucial to the future of investment arbitration in particular.
As noted by publicists, international investment law has appeared to be in recent years `the fastest growing area of international law at this time'.151 It is not surprising, therefore, that in this context, conflicts in the law have arisen, at a fast rate. Inadequate treatment of rules giving rise to dissonance (or `disappointing platitudes', to borrow a term used by Alain Pellet)152 may have arisen in the practice of investment arbitration. Dissonance, however, may not be a sign of failure but of growth. It has taken some time for the practice of investment arbitration to address human rights law centrally in its analysis when relevant. Yet, the Philip Morris and the Urbaser cases may well represent the `coming of age' of investment arbitration in that respect. In reconciling the `commercial', `public law', and `international law' elements in investment arbitration, international law considerations have dominated.153
Whether by taking the systemic integration approach (in the language of the ILC) or viewing the resolution of conflict in this area as a matter of Fragmentation/Unity of International Law (as seen by Dupuy) or as one of `harmonization' (in the language of Simma), or using the test of `proportionality' as suggested by Bcheler, human rights and investment law are not like oil and water, as the cases discussed in this article prove. Rather, as the conclusions of the ILC stressed, `these two sets of legal regimes belong to the same legal order, namely the international one'.154
151 C. Brower & S. Schill, Is Arbitration a Threat or a Boon to the Legitimacy of International Investment Law?, 9 (2) Chi. J. Int'l L. 471498, 472, Art. 5.
152 Alain Pellet, The Case Law of the ICJ in Investment Arbitration, 28(2) LALIVE lecture ICSID Rev. 223 240, 239 (2013).
153 As Christopher Greenwood thought it should be. Greenwood, supra n. 13, at 376. 154 Dupuy, supra n. 1, at 61.