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Investment Treaty Arbitration and Public Law$

Gus Van Harten

Print publication date: 2008

Print ISBN-13: 9780199552146

Published to Oxford Scholarship Online: January 2009

DOI: 10.1093/acprof:oso/9780199552146.001.0001

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The Transformation of International Law

The Transformation of International Law

Chapter:
(p.95) 5 The Transformation of International Law
Source:
Investment Treaty Arbitration and Public Law
Author(s):

Gus Van Harten

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199552146.003.0005

Abstract and Keywords

This chapter argues that the emergence of the system of investment treaty arbitration, when viewed against the canvass of international law, marks a major transformation in international adjudication. This is because investment treaties uniquely combine various innovative features of international adjudication to formulate a singularly far-reaching and potent system that uses arbitration to review and control states. The elements of investment treaty arbitration, and thus of the wider adjudicative power granted to arbitrators, are examined. It is argued that they establish investment treaty tribunals as the closest the world has come to an international court that has comprehensive jurisdiction over individual claims in the regulatory sphere.

Keywords:   investment treaty arbitration, international adjudication, claims, state liability, forum shopping, international enforceability

All treaties constrain states, one way or another, and many impose obligations that limit democratic choice at the domestic level.1 For centuries, international courts and tribunals have scrutinized the conduct of legislatures and states in general by determining their territorial boundaries, ruling on the legality of the use of force, limiting the scope of their regulatory powers, and ordering compensation for international wrongs, including for harm done to foreign nationals. Thus, since at least the nineteenth century, international arbitrators have made decisions of great resonance for states and their people. So, one might ask, is there really anything remarkable about modern investment treaty arbitration? Are investment treaties simply a manifestation of a long and rich tradition of arbitration in international law?

The argument of this chapter is that the emergence of the system of investment treaty arbitration, when viewed against the canvass of international law, is a major (even revolutionary) transformation in international adjudication. The reason why this is so is that investment treaties uniquely combine various innovative features of international adjudication to formulate a singularly far-reaching and potent system that uses arbitration to review and control states. To be concise, the treaties draw together these features:

  1. 1. Investors can bring international claims against states in the context of regulatory disputes (unlike customary international law and most treaties).

  2. 2. The state's consent to arbitration is prospective (unlike historical claims tribunals before which foreign nationals could bring claims).

  3. 3. The main remedy is state liability in public law (unlike virtually any treaty that allows individual claims).

  4. 4. A liberal approach to forum-shopping by claimants is, in some cases, combined with the removal or limitation of the duty to exhaust local remedies (unlike virtually any treaty).

  5. 5. Awards are enforceable in domestic courts across the globe, with limited opportunity for judicial review (unlike any other adjudicative regime in public law).

(p.96) Each of these elements of investment treaty arbitration, and thus of the wider adjudicative power granted to arbitrators, is examined below. Viewed as a whole, I shall argue, they establish investment treaty tribunals as the closest the world has come to an international court, albeit of judges who are themselves businessmen, that has comprehensive jurisdiction over individual claims in the regulatory sphere.

The Individualization of Claims

Customary international law presumes that the resolution of a regulatory dispute involving a foreign national is, in the first place, a matter for the domestic law of the host state.2 States are not subject to compulsory adjudication of disputes within their territory, whether by international tribunals or foreign courts.3 A dispute arising from one state's treatment of an investor of another state conventionally could trigger a claim of diplomatic protection by the investor's home state,4 but the investor could not make an independent claim.5 The international claim was that of the home state and individuals had no right to bring a claim on their own behalf.6 Moreover, a claim of diplomatic protection by the home state could be made only after the investor had exhausted local remedies in order to give the host state the opportunity to address the investor's complaint before any resort to international law.7 Even then, the dispute could only be referred to international adjudication with the consent of the host state.8 With one exception, no international (p.97) tribunal, including the International Court of Justice (ICJ), has been given comprehensive jurisdiction over disputes between states and foreign nationals.9 The reluctance of many states to refer investment disputes to the ICJ has meant that few cases involving the regulatory relationship between states and foreign investors have come before that court.10 Before the recent proliferation of general consents by states to investment treaty arbitration, such disputes were normally resolved by inter-state diplomacy.

This conventional method of resolving regulatory disputes in the international sphere rests on the assumption that an investor's entitlement to protection under international law in the territory of a foreign state derives from the rights of the investor's home state.11 In seeking diplomatic protection of one of its nationals, an investor's home state was assumed to be acting on its own rights, not those of the individual.12 Thus, a host state could moderate (or aggravate) disputes involving foreign nationals in its negotiations with the home state.13 International claims were subject to the home state's weighing of its other interests and, in principle, to good faith considerations in international relations.14 By authorizing investors directly to advance a claim and seek damages for an alleged violation of international law, investment treaties allow investors to decide when and how to threaten, initiate, or settle a claim; and the investor appoints counsel and approves the legal argument. Thus, the claimant is no longer a publicly representative entity but a private party with full custody of the claim, who can decide the manner and extent to which international adjudication will be used to resolve a regulatory dispute.15

Individualization alters the dynamic of international adjudication with various implications that may be usefully highlighted at this stage even though they are (p.98) not in themselves unique to investment treaty arbitration. In the first place, the protection of an investor's interests under investment treaties is no longer affected by the home state's consideration of its own interest as a representative entity.16 Thus investors are in a position to bring claims and represent their particular interests more vigorously than the home state might because investors do not have an interest in settling or moderating a claim for reasons of the public interest.17 The context for a private firm's decisions about a legal claim is its business strategy, not the interest of the home state, though the two may of course coincide.18 Further, counsel to investors have a new incentive to promote treaty arbitration to generate business:19 the market for legal services is much expanded by the individualization of claims.20 Finally, investors, unlike states, do not face the prospect of defending a treaty claim.21 This is particularly important because of what it reveals about the transformation of arbitration from a reciprocal method of dispute settlement into a one-way system of regulatory adjudication; one-way in that only one class of disputing party, the investor, can activate the process by bringing a claim.

A further implication of individualization is that it expands the opportunities for tribunals to adopt a broad approach to jurisdiction and to the standards of review under an investment treaty. Thus, investors have advocated a more expansive approach to state liability than that adopted by the states parties, including (p.99) the home state, in a number of NAFTA cases to date.22 Of course, this is not surprising. Private claimants will naturally favour an expansive approach to investor protection and to state liability. What is noteworthy is that, by allowing investors to make the arguments, the system establishes an environment in which arbitrators are enabled to adopt a broad interpretation of the treaty even where this conflicts with the unanimous submissions of the states that negotiated and concluded it.23 This environment does not exist in international custom and under most treaties, where access to adjudication, if permitted at all, is limited to states.

The channelling of matters once reserved for diplomacy and international relations into an individualized adjudicative process is by no means an unfortunate development. Making judicial remedies available to individuals under international law, as discussed in Chapter 1 of this book, is broadly consistent with liberal ideals of justice and fairness in a global society, and it is a major and worthwhile project of the international human rights movement, in particular. But one should not jump to the conclusion that all forms of international adjudication advance this greater cause. In consideration of this, we shall for present purposes leave aside the question of the benefits and limitations of international adjudication in order to focus on the special character of individualization under investment treaties.

The Prospective Consent

Historically, individuals were at times authorized to bring international claims against states before tribunals created in the aftermath of war or revolution.24 Thus, states have, on occasion, allowed investor claims under international law prior to (p.100) the innovation of the general consent in investment treaties. Indeed, from the Jay Treaty of 179425 to the Iran–US Claims Tribunal,26 states authorized international tribunals to resolve regulatory disputes arising from one state's treatment of the nationals of another and, in some cases, claims could be brought directly by investors. Nevertheless, these historical tribunals did not involve generalized arbitration, based on comprehensive jurisdiction, because their authority was retrospective. Adjudicative authority was given to the tribunal only after the fact, and was limited to disputes arising from a distinct period, series of events, or subject-matter.27 Take the example of the Iran–US Claims Tribunal. In 1981, after the Islamic revolution of 1979, Iran and the United States consented to the compulsory arbitration of claims by each other's nationals arising out of ‘debts, contracts … expropriations or other measures affecting property rights’.28 Foreign nationals could bring claims before the Tribunal if the amount in dispute was (US)$250,000 or more, and if the claim was outstanding on 19 January 1981.29 Thus the Tribunal had compulsory jurisdiction over certain individual claims, limited to an approximately two-year period following the revolution.

This retrospective consent differs from a general consent to the arbitration of future disputes. In the case of a retrospective consent, a state is more able to anticipate the significance of its acceptance of compulsory arbitration because the consent is given after the events in question have taken place.30 From the investor's point of view, to borrow a phrase from commercial arbitration, the general consent is like ‘a blank cheque which may be cashed for an unknown amount at a future, and as yet unknown, date’.31 By giving a prospective consent in an investment treaty, the state exposes itself in principle to claims by any multinational firm with economic interests that are subject to regulation by the state. As a result, investment treaty arbitration encompasses future disputes involving an indeterminate class of claimants in relation to a very broad range of governmental activity.

(p.101) Among others, Legum (who served as US government counsel in early arbitrations under NAFTA) has argued that the individualization of claims under contemporary investment treaties is not a major departure and that its novelty is overstated.32 Yet all but a few of Legum's examples of other instances in which states have authorized individual claims under international law involve specific consents by states, not general consents.33 In the case of the Jay Treaty of 1794, one of Legum's primary examples,34 the consents to compulsory arbitration by Great Britain and the US were limited to claims by foreign creditors and ship owners that related to events within a discrete period.35 Further, with respect to creditor claims, the Jay Treaty's process of arbitration led in the end to a lump-sum settlement without a single claim being heard, due to disagreements among the state-appointed arbitrators.36 Legum also identifies bilateral investment treaties (BITs) as evidence that investment treaty arbitration is a common phenomenon but, as argued in Chapter 2 of this book, the rapid growth of BITs in the 1990s—and the recent explosion of investor claims—actually highlights the uniqueness of the contemporary system. Finally, Legum refers to just two historical cases in which states provided a prospective consent to international claims by foreign nationals, both dating from the early twentieth century.37

In fact, the state's future-oriented consent makes investment treaty arbitration a highly significant development in international law and, beyond a small number of other treaties, an innovation in international adjudication. When combined with the prospective consent, individualization has two key outcomes. First, it gives arbitrators comprehensive jurisdiction to resolve disputes concerning the legality of state conduct in the regulatory sphere. Second, it makes the analytical framework of public law more directly relevant to international adjudication, especially in matters of state liability. Both outcomes are discussed in the next section.

The Dynamic of State Liability

The expansion of international adjudication to encompass regulatory disputes between the state and private parties makes the analytical framework of public (p.102) law, as applied in domestic adjudication of regulatory disputes, more applicable than in conventional international adjudication.38 This point was touched on in Chapter 3 of this book. It is elaborated here by a closer examination of the main remedy in investment treaty arbitration: the damages award. In making a claim under an investment treaty, an investor seeks damages for harm caused by the state's alleged breach of the treaty's standards of review.39 Where a tribunal concludes that a state violated a standard, the tribunal may award damages to the investor.40 Awards are compensatory and usually do not incorporate exemplary or punitive damages.41 That said, they have a more general deterrent effect on the state because they retrospectively sanction conduct that was found unlawful by imposing a potentially crippling fiscal penalty.42 And, while awards are always issued in response to a claim by an investor, both a finding of illegality and an award of damages may have much wider implications for the state's regulatory position because of its status as a representative entity.43

Individualized damages claims are exceedingly rare in international law. Outside Europe, no international regime allows individuals directly to seek damages through international adjudication in response to a state's alleged breach of international law. For example, individual claims were ruled out in the case of the World Trade Organization and non-investment chapters of regional trade agreements, which limit dispute resolution to inter-state adjudication based on non-monetary remedies such as a declaration of illegality or the suspension of concessions by (p.103) affected states.44 In other fields of public international law, such as humanitarian and environmental law, states have eschewed adjudication (let alone damages claims by individuals) as a means to enforce international standards or compensate those harmed by unlawful state conduct.45 In stark contrast to the mainstream of international adjudication, therefore, investment treaties establish an individualized regime of state liability.46

Importantly, damages claims by individuals are also the exception in international human rights law.47 Despite the greatly expanded protection of human rights in dozens of treaties concluded since 1945, individual claims for damages are authorized only under the European Convention on Human Rights (ECHR)48 and the American Convention on Human Rights (ACHR),49 and in both cases the ability of individuals to claim damages is far more limited than under investment treaties. Under the ECHR, the European Court of Human Rights may afford ‘just satisfaction’ to an individual whose rights were violated, where considered necessary by the Court,50 but the Court has declined to award damages for various reasons, including the adequacy of non-monetary remedies and the host state's (p.104) ability to pay.51 In the case of the ACHR, an individual can receive damages only if the Inter-American Commission on Human Rights decides to bring the claim before the Inter-American Court, and the Commission has refused to bring claims on behalf of corporations.52 Further, the Inter-American Court has adopted a cautious approach to money compensation as a remedy for human rights violations.53 Importantly, both conventions (unlike investment treaties) impose a duty on individuals to exhaust local remedies before bringing a claim,54 and, not surprisingly, neither allows individuals to choose the rules that govern the claim, to appoint members of the tribunal, or to enforce an award directly against state assets.55

Beyond the field of human rights, the only other case in which a treaty regime guarantees the right of individuals to claim damages for violations of the treaty is under the law of the European Community. The Francovich doctrine56 of the European Court of Justice, in particular, introduced the principle that individuals must be able to seek damages under domestic law for alleged violations of EC law by member states.57 Outside investment treaty arbitration, the Francovich doctrine is probably the most ambitious attempt to apply treaty-based state liability in relation to international economic integration.58 Even so, the Francovich doctrine is limited by various factors, including the Court's requirement that there be a ‘sufficiently serious’ violation of EC law for damages to be awarded.59

Damages claims are rare in international law and viewed with caution by international courts because damages are traditionally a private law remedy not (p.105) originally used to address sovereign misconduct in public law.60 The theory of damages is based on a private law conception of the relationship between disputing parties; ie a theoretical framework based on legal relations between juridical equals. Thus, damages are classically awarded in the context of a reciprocal relationship; they are paid by one party to another for the violation of a legal duty and both the victim and the wrongdoer are protected by the law and liable to sanction.61 Either disputing party can be the claimant or the respondent in a claim.

In international law, the use of damages as a remedy does not undermine this conceptual framework because a dispute between states is more analogous to a dispute between private parties than to one between the state and an individual.62 (Likewise, a contractual dispute between an individual and a state is conventionally treated as private dispute, subject to the law of contract.63) Thus, in inter-state adjudication, damages are awarded in the context of a dispute between juridical equals.64 On the other hand, in investment treaty arbitration, damages are awarded as the primary remedy to a private party who is subject to the exercise of public authority.65 The fact that state liability arises in the context of a regulatory dispute distinguishes damages awards in investment treaty arbitration from damages awards in private law and in inter-state adjudication.

(p.106) International rules of state responsibility are in many respects more expansive than those that typically apply in the domestic public law of state liability. For example, international law adopts a flexible approach to the attribution of individual acts to the state, holding states responsible for ultra vires acts of its agents in order to encourage active supervision of public officials.66 For similar reasons, a claimant state does not have to prove intent on the part of the respondent state in order to establish liability for acts arising from official error.67 In general, the rules of state responsibility adopt a liberal approach to fault, relative to the domestic public law of state liability.68 This permissive approach reflects the reciprocity of legal relations between states.69 Every state, in principle, enjoys the protection and assumes the risk that flows from liberal rules of attribution, intent, and fault.

The reciprocity of rights and duties breaks down in the adjudication of regulatory disputes between the state and individuals.70 In a regulatory dispute, the state wields powers and assumes responsibilities that no private person can possess.71 Thus the protection of individuals from the exercise of public authority requires the application of norms that uniquely protect individuals from the state. In many public law systems, individuals are in some circumstances allowed to claim damages to compensate for harm they have suffered as a result of the unlawful exercise of public authority. But, in such instances, it must be understood that the individual invokes rights and entitlements that adhere to the individual against the state and not the other way round.72 The state alone can exercise public authority over private parties, including foreign investors, within its territory. Likewise, the state has certain duties that arise only from the exercise of public authority and, as such, (p.107) that cannot be compared to acts of a private party. And without the exercise of public authority the prospect of an individual claim arising out of a regulatory dispute simply does not exist.

The idea of awarding damages to individuals for sovereign wrongs raises thorny issues about the scope and purpose of state liability and the appropriate role of government.73 Should damages be awarded to compensate individuals, or to deter inappropriate state conduct?74 Should liability be limited by requirements of malice or fault on the part of the state,75 or in light of the need to maintain flexibility and predictability in government?76 Should legislative or judicial acts be exempt from liability?77 These important questions have previously been resolved almost exclusively by domestic public law, as part of the reserved domain of domestic jurisdiction.78 With investment treaty arbitration, they are brought within the discretion of arbitrators. In turn, approaches to state liability that evolved in domestic law become more relevant to international adjudication.79

During the twentieth century, in most countries, the classical doctrine of sovereign immunity from suit and from damages awards was whittled away.80 In its place, new rules were developed to delineate the scope of state liability as a public law remedy.81 In the common law tradition, for example, state liability was qualified by the principle of parliamentary sovereignty, which limited the legislature's liability where the passage or amendment of a law caused losses to private individuals.82 Likewise, the liability of the courts was limited in order to promote (p.108) impartiality and finality in judicial decision-making.83 Administrative acts could generally lead to tort liability on the part of the state, although not where the tort flowed from a policy decision that involved the expenditure of public funds.84 In some cases, state liability could arise from administrative acts in the context of unique public law torts but these, too, were subject to limitations on liability.85 Thus a series of compromises was arrived at between governmental immunity and the award of damages to individuals harmed by state regulation. In every legal system, the resulting balance was specific and complex, reflecting the historical evolution of norms regarding the role of the state in society.86

Under an investment treaty, the award of damages to an investor can be approached simply as a form of state responsibility on the international plane. But, as noted, rules of state responsibility were developed in the context of reciprocal legal relations among states. Even in claims of diplomatic protections on behalf of a foreign national, the dispute was treated as a relationship between the host state and the home state of the foreign national.87 The state's duty to protect a foreign national was owed to the home state and, based on Vattel's principle, a harm to the foreign national was treated as a harm to the home state.88 In this context, international law did not confront the varied circumstances that prompted limitations on state liability in domestic public law.89 There was less need to adapt the rules to accommodate the governmental implications of using damages as a public law remedy because no sovereign exercised public authority for the world. Only with the individualization of international claims in the regulatory sphere does the intricate dynamic of state liability fully enter the picture.

(p.109) Despite this transformation, investment treaties typically do not provide for express limits on state liability in order to temper corrective justice and thus accommodate governmental discretion.90 As a rule, a less compromising mode of liability that originates in the reciprocity of inter-state relations is frequently applied by arbitrators in the context of the regulatory relationship, and investors are able to obtain money compensation in circumstances where they could not under domestic law.91 For example, the treaties usually adopt open-ended language to define the standards of review without attaching an express requirement for fault on the part of the state. Also, the international principle of reparation is applied, thus boxing state liability into a private law construction of compensation.92 Perhaps most importantly, the principle of the unity of the state is used to trump limits on state liability for legislative and judicial acts.93 In these circumstances, combined with the far-reaching character of individual claims, the door is opened to a very expansive conception of state liability.

The Far-reaching Nature of Claims

There are various ways to extend to individuals, and to qualify, the right to bring an international claim against the state. Under investment treaties, the particular form of individualization that is adopted is far-reaching because it is prospective and because it adopts damages as a remedy. But this does not exhaust the exceptional breadth and potency of the system as an international review mechanism. In two other respects, the treaties go beyond other international arrangements that allow individual claims. First, many treaties limit or remove the duty to exhaust local remedies, allowing investors to bring a claim before the host state's courts have had the opportunity to resolve the dispute.94 Second, many treaties (p.110) encourage forum-shopping by allowing claims by foreign corporations without imposing restrictions on shareholder nationality or minimum thresholds of foreign ownership and control.95 These two aspects are discussed below.

The removal of the duty to exhaust local remedies

First is the straightforward but essential point that many investment treaties remove the customary rule that a foreign investor must exhaust local remedies before an international claim can be brought. The duty to exhaust local remedies is well established in the international adjudication of cases involving the alleged mistreatment of foreign nationals by a state.96 And, outside of investment treaty arbitration, no treaty that allows individual claims discards this duty. Its removal under the present system is aimed at encouraging the confidence of investors, but it also leads to other, perhaps unanticipated, implications. First, domestic courts are no longer presumed to be capable of delivering justice (even though the customary rule itself never applied where the pursuit of local remedies was obviously futile).97 Second, investors—unlike other foreign nationals—are no longer assumed to have a duty to take into account the domestic means to redress wrongs. Third, and most importantly, the host state's legal system is often denied an opportunity itself to correct any wrongs to a foreign investor. Thus states may be found liable for acts of officials without any review by the courts or other senior decision-makers.

This makes a rich environment for creative lawyering. Above all, investors are able to bring treaty claims in the midst of domestic litigation, in effect allowing more than one bite at the adjudicative apple, even where in some cases the investor specifically agreed in an investment contract to submit to domestic remedies. This latter possibility was considered by the tribunal in SGS v Pakistan in the context (p.111) of a BIT claim based on an ‘umbrella’ clause in the treaty that obliged the states parties to ‘constantly guarantee the observance’ of their ‘commitments’ to investments of foreign investors. The claimant in SGS v Pakistan argued that the umbrella clause allowed the claimant to bring a treaty claim arising from a contract with the respondent state which provided that disputes under the contract were to be resolved by domestic arbitration. However, the tribunal rejected this reading of the umbrella clause, in part because it would establish investment treaty arbitration as a regime parallel to domestic courts in matters of both public law and contract law. According to the tribunal, the investor's approach would incorporate into the treaty ‘an unlimited number of State contracts, as well as other municipal law instruments’ and that by implication ‘an investor may, at will, nullify any freely negotiated dispute settlement clause in a State contract’ and ‘the benefits of the dispute settlement provisions of a contract with a State also a party to a BIT, would flow only to the investor’.98 To avoid this outcome, the tribunal preferred an interpretation of the treaty that would ‘enhance mutuality and balance of benefits in the inter-relation of different agreements located in differing legal orders’99 by preventing investors from being able unilaterally to override the jurisdiction of domestic courts or the agreed dispute settlement provisions of existing investment contracts. Each of these potential problems arises as a consequence, perhaps not fully anticipated when the treaties were negotiated, of the system's unprecedented removal of the duty to exhaust local remedies.

In the face of BIT claims that parallel the available domestic remedies (including those previously agreed in a contract), respondent states have argued that an investor should not be able to bring a treaty claim where local remedies have not been exhausted or where the claimant or a domestic company owned by the claimant is already pursuing such remedies. Unlike in SGS v Pakistan, most tribunals have rejected these arguments and read the relevant treaty to allow parallel claims.100 They have done so in essentially two ways. First, they have distinguished the cause of action under the treaty from that of domestic law, even where (p.112) the claims in question arise from the same dispute and the relevant parties are the same. Second, the tribunals have differentiated treaty claims brought by the foreign owners of a domestic company from the pursuit of local or contractual remedies by the domestic company itself, thus refusing to ‘pierce the corporate veil’. Such reasoning may be defensible as a form of interpretive gap-filling where the relevant treaty language is silent or ambiguous (as is usually the case) on the issue of parallel claims. But it also permits uncertain outcomes that are intolerable from a governmental perspective where it evolves treaty arbitration into a separate adjudicative system that duplicates the remedial function of domestic courts. A prudential approach, also perfectly defensible in the absence of clear treaty language to the contrary,101 is to preclude access by investors to treaty arbitration where local remedies have not been resorted to, or not yet exhausted, by the claimant or by a domestic company that the claimant controls.102

Let us revisit the apprehension expressed by the International Court of Justice concerning the possible multiplication of claims in cases of diplomatic protection involving foreign investment. In Barcelona Traction, the ICJ declined to allow Belgium, the home state of foreign shareholders of a Canadian company, to bring a claim of diplomatic protection against Spain for the alleged expropriation of the company's assets in Spain. One of the main rationales for this ruling was the need to avoid a proliferation of international claims in light of fragmented international ownership of investments in the world economy.103 The underlying concern was that, if parallel international claims could be brought on behalf of any foreign shareholder of an investment, then investment disputes could generate numerous claims by different states, and multinational enterprises would have an incentive to structure their investments so as to entangle as many powerful states as possible in a potential dispute.104

(p.113) Fast forward to the NAFTA arbitration in GAMI, involving a claim by American minority shareholders of a Mexican company that owned assets in that country's sugar industry.105 The shareholders brought a NAFTA claim against Mexico for the alleged expropriation of their ‘investment’—the Mexican company—while the Mexican company itself pursued a concurrent action for relief in Mexican courts. Both Mexico and the US submitted that, in such circumstances, the claim by the minority shareholders could be advanced under NAFTA ‘only for injuries to their interests and not for injuries to the [domestic] corporation’. An understandable rationale for this, one may assume, was to avoid parallel claims arising from the same dispute as defined by the triggering act of the state. But this concern did not sway the GAMI tribunal, which concluded that it had jurisdiction over all of the shareholder's treaty claims, including those deriving from alleged injuries to the domestic company.106 In adopting this approach, the tribunal opted not to temper the force of its disciplinary authority and, more broadly, it extended the reach of the system beyond what was envisaged by the governments of the affected states parties in their submissions to the tribunal, as well as beyond the prudential boundaries that were delimited by the ICJ in Barcelona Traction.

The facilitation of forum-shopping

A second aspect of far-reaching individualization is the way in which the system invites forum-shopping by investors.107 To bring a claim under an investment (p.114) treaty, an investor must quality as a ‘foreign’ investor. In other words, the claimant must establish that it is a national of a state party to the treaty other than the host state, whether as a natural or legal person.108 In the case of a natural person, the claimant must demonstrate that he or she is a national of another state party based on the laws of citizenship of that other state;109 however, a legal person need satisfy only the relevant laws of incorporation or business establishment.110 Thus the question of whether an investor is foreign is determined by the rules of nationality of the investor's home state, not those of the host state, and it is within the power of the home state to allow forum-shopping by investors by adopting liberal rules of incorporation.111 By establishing a holding company in one state party to an investment treaty, multinational firms, though they lack a substantial business connection to that state, may acquire its nationality and obtain protection under the treaty for their assets in the other state party.

As such, investment treaties often allow claims by foreign investors regardless of whether the investor's ownership rights extend through a series of companies in (p.115) other jurisdictions.112 A claim can be made at any point in the chain of international ownership, so long as the actual claimant has the nationality of another state party and, under some treaties, so long as the claimant has a minimum amount of ownership or control of the investment.113 This gives multinational firms the flexibility to choose the point in their corporate structure from which to launch a claim. Indeed, firms have an incentive to design their corporate structure in order to maximize their options to bring claims, given the degree to which different treaties open the door to parallel claims and to state liability.114 This does not mean that firms will necessarily adapt their corporate structures in this way. Other factors, particularly tax considerations, may take precedence over the ability to access investment treaty arbitration. Even so, variations among treaties have become a relevant factor for firms to consider and it is reasonable to anticipate that strategic forum-shopping will increasingly factor into actual claims.

By implication, it should be assumed that an investor of a state party to an investment treaty may be ultimately owned by an investor of a non-state party,115 or by an investor of the host state itself.116 In the CME arbitration, as discussed in Chapter 1 of this book, the US national Ralph Lauder used a Dutch holding company to launch parallel claims against the Czech Republic under two separate treaties in the same dispute, and was able to collect a substantial award, even though only one of the claims was successful.117 In Tokios a majority of the tribunal (remarkably, with the presiding arbitrator dissenting) allowed a claim against the Ukraine by a Lithuanian company that was 99 per cent owned by Ukrainians, who were thus able to leverage their ownership of a foreign firm into a claim against their own state, in effect opening the system to claims by domestic investors who shift capital to a foreign platform and then re-invest it in the home country.118 (p.116) Most recently, in Aguas del Tunari, the tribunal allowed a claim by the US firm Bechtel, which, after it became apparent that there was serious public opposition to its privatized water utility in Bolivia, cleverly ‘migrated’ the business from the Cayman Islands to the Netherlands—again, by shifting its legal ownership to a newly created Dutch company—thus enabling it to bring a claim under the Netherlands–Bolivia BIT.119 In each of these cases flexible rules of nationality in the treaties combined with a liberal approach by the tribunal to its jurisdiction led to a significant expansion of the system and of the supervisory remit of arbitrators.

As capital moves beyond the domestic sphere, so too does the regulatory relationship between investors and state. As foreign ownership expands and fragments, so too does the likelihood that governmental authority will trigger international claims. The ownership of assets in one country will frequently be split among investors of other countries, often leaving host states unaware of whether, and to what extent, a particular business is protected by an investment treaty.120 Given that it is sometimes impossible for states to track foreign ownership, governments are left to assume that any economic activity in their territory involving substantial capital could lead to an international claim. The foreignness of an investor is neither identifiable nor stable where firms can legally manœuvre to alter and expand their nationalities.

In light of this, it should be emphasized that investment treaties often protect much more than actual flows of capital between the states parties to the treaty, since actual flows may not correspond to the legal arrangements for the ownership of assets.121 Despite the bilateral framework of most treaties, in the stark words of the Tokios tribunal: ‘The origin of the capital is not relevant to the existence of an investment’.122 Investors can become foreign by a paper transfer of assets among companies without any commitment of new money to the host economy.123 This was so in Aguas del Tunari, mentioned above, but also in the Fedax arbitration, where the tribunal allowed a Dutch company to make a BIT claim against Venezuela in a dispute concerning promissory notes issued by the Venezuelan (p.117) government.124 Prior to the claim the promissory notes had been transferred to the Dutch company by a Venezuelan firm; however, Venezuela's argument that the investor had not made an actual investment in the country's economy was rejected.125 With such possibilities for forum-shopping, as well as for parallel claims, existing networks of investment treaties establish an exceptionally far-reaching mechanism of international review that engages a very broad conception of the regulatory relationship between states and international business.

International Enforceability

In an investment dispute, negotiations between a foreign investor and a state—whether before or after a claim has been filed—are informed by each party's assessment of the pressures that can be brought to bear on states to encourage compliance. As well, the force of an arbitration award ultimately rests on the prospects for its enforcement. Without a realistic hope for enforcement, claimants would rely on the goodwill of the host state to pay up, and arbitration under such conditions would have more in common with mediation or conciliation than compulsory adjudication.126 Today, the use of force to enforce international law without authorization by the UN Security Council is legally prohibited, and in most cases practically unfeasible, thus foreclosing a significant means of enforcement in earlier eras. Nevertheless, investment treaties provide a powerful and exceptional alternative, one that taps into the collective authority of domestic courts to seize assets within the territory of their state.

Conventionally, it is very difficult for individuals to enforce public law awards and decisions in courts other than those of the state in which the dispute arose. Under international custom, courts may decline to rule on the sovereign acts of foreign states, whether for reasons of sovereign immunity, act of state, or non- justiciability.127 The government of the investor's home might even object to its courts ruling on a foreign dispute in order to preserve its executive discretion to (p.118) manage foreign affairs.128 Under investment treaties, however, the host state's general consent entails a broad waiver of its immunity from suit, not only before an international tribunal but also before a domestic court called upon to enforce an award.129 In addition, investment treaties authorize the enforcement of awards by investors under the ICSID Convention or the New York Convention.130 As a result, investors can seek enforcement of an award against assets of the respondent state in any state that is a party to these treaties.

Let us backtrack a little to review more closely the different ways in which awards can be enforced under investment treaties. First, if a state refuses to abide by an award, it may be subject to diplomatic and economic pressure from the home state, from other capital-exporting states, from international financial institutions, and from the international capital market. Second, investment treaties often obligate states in express terms to recognize and enforce an award issued under the treaty, which allows an investor to seek enforcement in the courts of any state party to the treaty itself.131 Third, where an investment treaty provides for enforcement under the ICSID Convention, the Panama Convention, or the New York Convention,132 an investor can seek enforcement in the domestic courts of any state party to these arbitration treaties. This last method of enforcement is exceptionally powerful because most states have ratified at least one of these treaties: for example, approximately 165 states are party to either the New York Convention or the ICSID Convention.

To illustrate, the investment chapter of NAFTA incorporates the enforcement structure of both the ICSID Convention and the New York Convention. The question of which treaty applies to a NAFTA award depends on the rules under which an investor files its claim. Investors may file a NAFTA claim under the (p.119) ICSID Rules, the ICSID Additional Facility Rules, or the UNCITRAL Rules. If an investor selects the ICSID Rules, the arbitration proceeds under the ICSID Convention, which provides that an award has the force of a final court judgment of a state party under its domestic law and that the award cannot be reviewed by domestic courts.133 An ICSID award is thus enforceable, independent of the New York Convention (although it is still possible that a court might decline to execute an award against state assets for reasons of sovereign immunity).134 Alternatively, if the investor selects the ICSID Additional Facility Rules or the UNCITRAL Rules, NAFTA arbitration proceeds under the New York Convention, which provides that an award shall be recognized as binding and that domestic courts may review the award only on limited grounds.135 Based on this structure, investment treaty awards are more widely enforceable than the rulings of any court or tribunal, international or domestic, that has the authority to resolve individual claims in regulatory disputes. For instance, the few human rights treaties that allow an international court or tribunal to hear individual claims do not authorize enforcement by domestic courts,136 whereas judgments of the International Court of Justice are enforceable only by the UN Security Council.137 In contrast, awards issued by investment treaty tribunals are enforceable in the courts of as many as 165 countries, which gives them a coercive force that is unrivalled in public law adjudication.

Conclusion

The customary position of individuals in international law is subordinated to decision-making by states and to inter-state dispute resolution, but this does not (p.120) mean that individual rights and interests do not exist on the international plane. What it means is that such rights and interests are rarely directly actionable and enforceable.138 Based on Vattel's principle and, above all, the duty to exhaust local remedies, regulatory disputes between state and individual are filtered by the legal system of the host state so as to insulate international adjudication from many of the regulatory considerations that domestic law confronts. Where investors can bring international claims, arising from regulatory disputes, the dynamic of the adjudication changes dramatically.

This engagement with regulatory concerns is more pronounced in the case of investment treaty arbitration than in any other form of international adjudication. Virtually all investment treaties are broad in scope and apply liberal standards of review; many also invite forum-shopping while limiting the duty of investors to exhaust local remedies. As a system, the treaties greatly expand state liability in public law by extending it to legislative and judicial acts, and by allowing damages to be awarded in the absence of fault.139 These elements take the system beyond other mechanisms of international review, with the possible exception of the European Union, that allow individual claims.

Giving investors more control over whether and how their rights and interests are protected under international law is not necessarily a bad thing. Encouraging international investment indeed justifies the removal of certain sensitive disputes from domestic legal systems as part of a wider movement towards international institutions. But the contribution of investment treaties to this movement is highly problematic. By opening the door to parallel claims and forum-shopping under so many treaties, states have moved too far and too selectively in favour of international business. It seems they have executed a transformation of international adjudication without adequate consideration of the consequences. As argued above, the transformation has been major in its scope and depth; what makes it revolutionary is that private arbitrators are given the power to resolve regulatory disputes. In the next chapter, the discussion examines the approaches thus far adopted by arbitrators in wielding this power.

Notes:

(1) KW Abbott et al, ‘The Concept of Legalization’ in JL Goldstein et al (eds) Legalization and World Politics (Cambridge: MIT Press, 2001) 30.

(2) Case Concerning the Payment of Various Serbian Loans Issued In France (France v Serbia) (1921), PCIJ Ser A, No 20, para 41. I Delupis, Finance and Protection of Investments in Developing Countries (Epping: Gower Press, 1973) 123; W Peter, Arbitration and Renegotiation of International Investment Agreements (The Hague: Kluwer Law International, 1995) 167–9 (arguing that the conclusion of the ICSID Convention indicates that the dictum in Serbian Loans can no longer be upheld in light of the changing structure of international law).

(3) eg Status of Eastern Carelia, Advisory Opinion (1923), PCIJ Ser B, No 5, 27; Ambatielos Claim (Greece v United Kingdom) (1956), 12 RIAA 83 [cited as Ambatielos], 103.

(4) eg Nottebohm (Liechtenstein v Guatemala), [1955] ICJ Rep 4 [cited as Nottebohm], 23–4; Barcelona Traction, Light and Power Co (Belgium v Spain), [1970] ICJ Rep 3, 9 ILM 227 [cited as Barcelona Traction], para 35–6. EM Borchard, ‘Basic Elements of Diplomatic Protection of Citizens Abroad’ (1913) 7 AJIL 497, 576.

(5) Mavrommattis Palestine Concessions (Greece v Great Britain) (1924), PCIJ Ser A, No 2 [cited as Mavrommattis], 12. MO Hudson, International Tribunals (Washington: Carnegie Endowment for International Peace and the Brookings Institution, 1944) 67–9 and 198.

(6) Administrative Decision No V (1924), 7 RIAA 119, 19 AJIL 612 [cited as Administrative Decision No V], 626–7 (US–Germany Mixed Claims Commission); Barcelona Traction (n 4 above) para 79. Hudson (n 5 above) 67–9; PT Muchlinski, Multinational Enterprises and the Law (Oxford: Blackwell, 1999) 534–6; UNCTAD, Bilateral Investment Treaties in the Mid-1990s (Geneva: United Nations, 1998) 89–90.

(7) Ambatielos (n 3 above) 118–19; Interhandel Case (Switzerland v United States), [1959] ICJ Rep 6, 26–7. C Eagleton, The Responsibility of States in International Law (New York: NYU Press, 1928) 70; Hudson (n 5 above) 189–90; P Okowa, ‘Admissibility and the Law on International Responsibility’ in MD Evans (ed) International Law (2nd edn, Oxford: OUP, 2006) 498.

(8) Hudson (n 5 above) 69.

(9) The exception is the Central American Court of Justice of 1907 to 1918: HM Hill, ‘Central American Court of Justice’ in R Dolzer et al (eds) Encyclopedia of Public International Law, vol 1 (Amsterdam: North-Holland Publishing, 1987) 41–2.

(10) These include: Barcelona Traction (n 4 above); Elettronica Sicula SpA (United States v Italy), [1989] ICJ Rep 14 [cited as ELSI]; and Anglo-Iranian Oil Company (United Kingdom v Iran), [1952] ICJ Rep 93. LB Sohn, ‘The Role of Arbitration in Recent International Multilateral Treaties’ in TE Carbonneau (ed) Resolving Transnational Disputes Through International Arbitration (Charlottesville: University of Virginia Press, 1984) 26; M Sornarajah, The Settlement of Foreign Investment Disputes (Boston: Kluwer, 2001) 19–20.

(11) Barcelona Traction (n 4 above) para 78. M Whiteman, Damages in International Law, vol 1 (Washington, 1937–43) 82–3.

(12) Mavrommattis (n 5 above) 12; Administrative Decision No V (n 6 above) 626–7; Nottebohm (n 4 above) 24; Barcelona Traction (n 4 above) para 78–9. But see Iran–United States No A/18 (1984), 5 Iran–US CTR 251, 23 ILM 489, 498.

(13) Hudson (n 5 above) 191–4; JG Merrills, ‘The Means of Dispute Settlement’ in MD Evans (ed) International Law (2nd edn, Oxford: OUP, 2006) 543–4.

(14) MA Luz, ‘NAFTA, Investment and the Constitution of Canada: Will the Watertight Compartments Spring a Leak’ (2001) 32 Ottawa L Rev 35, 83–4.

(15) Enron Corporation v Argentine Republic (Jurisdiction) (2 August 2004), ICSID Case No ARB/01/3 [cited as Enron], para 37, online: ICSID, ITA, Investment Claims. R Baldwin and C McCrudden, Regulation and Public Law (London: Weidenfeld & Nicolson, 1987) 57 and 65.

(16) Administrative Decision No V (n 6 above) 626–7. Hudson (n 5 above) 191–4 and 198; DC Ohly, ‘A Functional Analysis of Claimant Eligibility’ in RB Lillich (ed) International Law of State Responsibility for Injuries to Aliens (Charlottesville: University Press of Virginia, 1983) 284.

(17) eg Fireman's Fund Insurance Company v United Mexican States (Jurisdiction) (17 July 2003), 15(6) World Trade and Arb Mat 3 [cited as Fireman's Fund], para 64 (rejecting the claimant's submission that ‘as a general policy consideration, direct investor recourse to arbitration has become the rule in modern investment agreements, although there may be exceptions, and that the value of investor-state arbitral mechanism is so substantial that it should only be foreclosed when that result is unmistakably required by treaty provision’); Siemens AG v Argentine Republic (Jurisdiction) (3 August 2004), 44 ILM 138 [cited as Siemens], para 116, 120, and 135 (accepting the claimant's submission that the inclusion of a most favoured nation clause in a BIT ‘implies the right [of the claimant] to select those aspects of provisions in different treaties that favor the [investor] most’, thus allowing investors to pick and choose from the provisions of different treaties and to construct them into the most desirable collection of procedural and substantive rights in relation to a claim).

(18) RK Paterson, ‘A New Pandora's Box? Private Remedies for Foreign Investors under the North American Free Trade Agreement’ (2000) 8 Willamette J Int'l L and Dispute Res 77, 82.

(19) For an illustration of firms’ promotional material: RD Bishop, SD Dimitroff, and CS Miles, ‘Strategic Options Available When Catastrophe Strikes’ (2001) 36 Texas Int'l LJ 635; Freshfields Bruckhaus Deringer, ‘The Argentine Crisis—Foreign Investors’ Rights’ (Report, January 2002); Freshfields Bruckhaus Deringer, ‘Dispute Resolution in the Caspian Region’ (Report, June 2002).

(20) M Shapiro, ‘The Globalization of Law’ (1993) 1 Ind J Global Legal Studies 37, 59–60.

(21) J Paulsson, ‘Arbitration without Privity’ (1995) 10 ICSID Rev 232, 232; J Werner, ‘The Trade Explosion and Some Likely Effects on International Arbitration’ (1997) 14(2) J Int'l Arb 5, 6; JC Thomas, ‘Investor–State Arbitration Under NAFTA Chapter Eleven’ (Paper presented to the NAFTA Chapter 11 Investor–State Disputes: Litigating Against Sovereigns conference, Canadian Bar Association, Toronto, March 2000) 4–5; PG Foy, ‘Effectiveness of NAFTA's Chapter Eleven Investor–State Arbitration Procedures’ (2003) 18 ICSID Rev 44, 50.

(22) eg Ethyl Corporation v Government of Canada (Investor's Submissions) (2 October 1997), UNCITRAL Rules, para 31, online: DFAIT, NAFTA Claims; SD Myers, Inc v Government of Canada (Investor's Submissions) (20 July 1999), UNCITRAL Rules, para 77, online: DFAIT, NAFTA Claims; Pope & Talbot Inc v Government of Canada (Investor's Submissions) (28 January 2000), UNCITRAL Rules, para 53–7 and 72, online: DFAIT, NAFTA Claims; United Parcel Service of America, Inc v Government of Canada (Investor's Submissions) (23 March 2005), UNCITRAL Rules, para 515–16, 521, 528, and 536–7, online: DFAIT, NAFTA Claims.

(23) eg Pope & Talbot Inc v Government of Canada (Merits, Phase 2) (10 April 2001), 13(4) World Trade and Arb Mat 61, para 79 (rejecting the submissions of the NAFTA Parties that Article 1102 is limited to the prohibition of discrimination on the basis of nationality); GAMI Investments, Inc v Government of the United Mexican States (Merits) (15 November 2004), 44 ILM 545, 17(2) World Trade and Arb Mat 127 [cited as GAMI], para 29–30. Contrast ADF Group Inc v United States of America (Merits) (9 January 2003), 18 ICSID Rev 195, 6 ICSID Rep 470, 15(3) World Trade and Arb Mat 55, para 177.

(24) eg the Alabama Claims Arbitration established after the American Civil War, the Mixed Tribunals and Claims Commissions after the First World War, the Iran–United States Claims Commission after the Islamic revolution in Iran, and the UN Compensation Commission after the Gulf War of 1990–91. Hudson (n 5 above) 3–6 and 196–7; J Collier and V Lowe, The Settlement of Disputes in International Law (Oxford: OUP, 1999) c 1 and 3; A Redfern and M Hunter, Law and Practice of International Commercial Arbitration (4th edn, London: Sweet & Maxwell, 2004) 60–2.

(25) Treaty of Amity, Commerce and Navigation between Great Britain and the United States (the Jay Treaty) (19 November 1794; 52 Cons TS 243; entered into force 28 October 1795). Hudson (n 5 above) 3–4; H Neufeld, The International Protection of Private Creditors From the Treaties of Westphalia to the Congress of Vienna (Leiden: AW Sijthoff, 1971) 68–77.

(26) Established by the Declaration of the Government of the Democratic and Popular Republic of Algeria concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran (the Algiers Declaration) (Algiers, 19 January 1981; 20 ILM 230 (1981)), art II(1). CD Gray, Judicial Remedies in International Law (Oxford: Clarendon, 1987) 181–5; M Mohebi, The International Law Character of the Iran–United States Claims Tribunal (The Hague: Kluwer Law International, 1991); CN Brower and D Brueschke, The Iran–United States Claims Tribunal (The Hague: Kluwer Law International, 1998); RB Lillich and DB Magraw, The Iran–United States Tribunal: Its Contribution to the Law of State Responsibility (Transnational Publishers, 1998).

(27) C Kennedy, ‘Address’ (1907) Am Soc'ty Int'l L Proc 100, 110–11; Hudson (n 5 above) 3–6 and 11–12.

(28) Algiers Declaration (n 26 above) art II.

(29) Algiers Declaration (n 26 above) art II.

(30) An agreement to arbitrate concluded after the dispute is typically called a compromis. Historically, in many states, this was the only means of consenting to arbitration even in commercial disputes: Redfern and Hunter (n 24 above) 20–1.

(31) Redfern and Hunter (n 24 above) 21.

(32) B Legum, ‘The Innovation of Investor–State Arbitration Under NAFTA’ (2002) 43 Harv Int'l LJ 531, 538; J Paulsson, Denial of Justice in International Law (Cambridge: CUP, 2005) 54–5 and 261; JA Rabkin, Law Without Nations? (Princeton: Princeton University Press, 2005) 214. See also SE Eizenstat, ‘ “Fast Track” needs protections for investors’ The Boston Globe (2 May 2002).

(33) Legum (n 32 above) 535–6 (referring to individual claims under a ‘significant number of treaty regimes’, such as the Mixed Claims Tribunals after the First World War, the Iran–US Claims Tribunal, and regional human rights tribunals, although conceding that few of these claims were based on prospective consents by the state).

(34) Legum (n 32 above) 534–5.

(35) Hudson (n 5 above) 3.

(36) H-J Schlochauer, ‘Jay Treaty (1794)’ in R Dolzer et al (eds) Encyclopedia of Public International Law, vol 1 (Amsterdam: North-Holland Publishing, 1987) 109–10; Neufeld (n 25 above) 70–7.

(37) Legum (n 32 above) 536 (noting states’ prospective consents in the case of the Central American Court of Justice 1907 and the Upper Silesian Arbitral Tribunal of 1922).

(38) eg Feldman Karpa (Marvin Roy) v United Mexican States (Jurisdiction) (6 December 2000), 18 ICSID Rev 469, 7 ICSID Rep 327, para 61–3 (referring to the domestic law of the NAFTA states on claims of estoppel to block tax enforcement); Mondev International Ltd v United States of America (Merits) (11 October 2002), 42 ILM 85, 6 ICSID Rep 192, 15(3) World Trade and Arb Mat 273 [cited as Mondev], para 149–50 (domestic law on the tortious immunity of public authorities); SD Myers, Inc v Government of Canada (Merits) (13 November 2000), 40 ILM 1408, 15(1) World Trade and Arb Mat 184 [cited as SD Myers], para 249 (domestic law on equality rights); United Parcel Service of America, Inc v Government of Canada (Jurisdiction) (22 November 2002), UNCITRAL Rules [cited as UPS], para 85 (domestic competition law), online: DFAIT, ITA, NAFTA Claims. The change here is one of degree given that international tribunals have examined or analogized issues of domestic law in the past: eg Fabiani Case (France v Venezuela) (1896), 10 RIAA 33 (state responsibility for the official acts of its agents).

(39) eg North American Free Trade Agreement (NAFTA) (17 December 1992; 32 ILM 296 and 605; entered into force 1 January 1994), art 1116 and 1117; Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India (the UK–India BIT) (London, 14 March 1994; UKTS No 27 (1995); Cmd 2797; entered into force 6 January 1995), art 9.

(40) eg NAFTA (n 39 above) art 1135.

(41) eg NAFTA (n 39 above) art 1135(3).

(42) CT Oliver, ‘Legal Remedies and Sanctions’ in RB Lillich (ed) International Law of State Responsibility for Injuries to Aliens (Charlottesville: University Press of Virginia, 1983) 61–5; JHH Weiler, ‘Emerging Issues on Compliance and Effectiveness of Community Law’ (1997) 91 Am Soc'ty Int'l L Proc 172, 173; JA VanDuzer, ‘NAFTA Chapter 11 to Date: The Progress of a Work in Progress’ in L Ritchie Dawson (ed) Whose Rights? The NAFTA Chapter 11 Debate (Ottawa: Centre for Trade Law and Policy, 2002) 48–9.

(43) C Harlow, State Liability: Tort Law and Beyond (Oxford: OUP, 2004) 27, 80, and 85–6 (noting ‘the possible “chilling effects” on decision-taking’ of damages awards and the risk of ‘decision traps’ for state).

(44) Understanding on Rules and Procedures Governing the Settlement of Disputes (the WTO Dispute Settlement Understanding) (15 April 1994; 33 ILM 112), para 19 and 22; NAFTA (n 39 above) c 19 and 20. PM Nichols, ‘Participation of Nongovernmental Parties in the World Trade Organization’ (1996) 17 U Penn J Int'l Econ L 295, 297–8 and 302–3; BR Killmann, ‘The Access of Individuals to International Trade Dispute Settlement’ (1996) 13(3) J Int'l Arb 143, 164; S Dillon, International Trade and Economic Law in the European Union (Oxford: Hart, 2002) 372–4.

(45) EB Weiss, ‘Invoking State Responsibility in the Twenty-first Century’ (2002) 96 AJIL 798, 811–12; C Greenwood, ‘The Law of War (International Humanitarian Law)’ in MD Evans (ed) International Law (2nd edn, Oxford: OUP, 2006) 808–9. The United Nations Convention on the Law of the Sea [(Montego Bay, 10 December 1982; 21 ILM 1261; entered into force 16 November 1994), art 187(c) and 188(2); art 5(4) and 13(15) (annex III) ] permits individuals to make claims before the International Sea-Bed Disputes Chamber, but only in contractual disputes: RR Churchill, ‘Dispute Settlement in the Law of the Sea’ in MD Evans, Remedies in International Law: The Institutional Dilemma (Oxford: Hart, 1998) 89; Sohn (n 10 above) 36–7.

(46) A Afilalo, ‘Constitutionalization Through the Back Door: A European Perspective on NAFTA's Investment Chapter’ (2001) 34 NYU J Int'l L & Pol 1, 6. In this book, the term ‘state liability’ is used rather than ‘state responsibility’ to highlight the distinction between a damages award in investment treaty arbitration and a damages award in conventional international adjudication. In investment treaty arbitration, damages are paid to an individual in the context of a regulatory relationship between the individual and the state. In conventional international adjudication, damages are paid to a state in the context of a reciprocal relationship between states.

(47) eg International Covenant on Civil and Political Rights (16 December 1966; 999 UNTS 171, 61 AJIL 870; entered into force 23 March 1976), art 41 (providing for an optional system of claims by states parties) and (First) Optional Protocol (1966) (providing for an optional system of individual petitions leading to the consideration of individual claims and an expression of views by an international committee, but not to compulsory arbitration or a damages award). D Shelton, Remedies in International Human Rights Law (Oxford: OUP, 1999) 137–8 and 142–7; Weiss (n 45 above) 809–11; R Bachand and S Rousseau, ‘International Investment and Human Rights: Political and Legal Issues’ (Background Paper for Rights & Democracy, 11 June 2003) 14.

(48) Convention for the Protection of Human Rights and Fundamental Freedoms (the European Convention on Human Rights [ECHR] ) (4 November 1950; Eur TS 5, 213 UNTS 222; entered into force 3 September 1953), art 34.

(49) American Convention on Human Rights (ACHR) (1144 UNTS 123; entered into force 18 July 1978), art 44.

(50) ECHR (n 48 above) art 41.

(51) Shelton (n 47 above) 101, 154–9, and 218–20; J-P Costa, ‘The Provision of Compensation Under Article 41 of the European Convention on Human Rights’ (Address to the British Institute of International and Comparative Law, 7 December 2001) 1–3 and 16–17; JA Weir, ‘Human Rights and Damages’ (2001) 40 Washburn LJ 412, 421–9, and 436; Harlow (n 43 above) 68 and 71.

(52) ACHR (n 49 above) art 44. eg Tabacalera Boquerón SA v Paraguay (1997), Inter-Am Comm HR, Rep No 47/97, Annual Report of the Inter-American Commission on Human Rights: 1987, OEA/Ser.L/V/II.98/Doc.7/Rev (1998) 225, para 25 and 36. Shelton (n 47 above) 169–72.

(53) ACHR (n 49 above) art 63(1). Shelton (n 47 above) 221–3.

(54) ECHR (n 48 above) art 35; ACHR (n 49 above) art 46(1).

(55) Shelton (n 47 above) 90; Costa (n 51 above) 15.

(56) Francovich and Bonifaci v Republic of Italy (No 6 and 9/90), [1991] ECR I-5357, (1993) 2 CML Rev 66 [cited as Francovich].

(57) More precisely, damages must be available as a remedy before the domestic courts of the member states, subject to the overriding jurisdiction of the European Court of Justice in matters of EC law: Francovich (n 56 above) para 35 and 40. PP Craig and G De Búrca, EU Law—Text, Cases, and Materials (3rd edn, Oxford: OUP, 2003) 257–74.

(58) The Francovich doctrine applies to legislative acts and omissions (Brasserie du Pêcheur SA v Germany; Secretary of State for Transport, ex parte Factortame Ltd and Others (No 46 & 48/93), [1996] ECR I-1131, (1996) 1 CML Rev 889 [cited as Brasserie du Pêcheur]), administrative decisions (R v Ministry of Agriculture and Fisheries, ex parte Hedley Lomas (Ireland) Ltd (No 5/94), [1996] ECR I-2553), judicial decisions (Köbler v Austria (No C-224/01), [2003] ECR I-10239, 3 CML Rev 28), and acts of sub-national governments (Salomone Haim v Kassenzahnärztliche Vereinigung Nordrhein (No 424/97), [2000] ECR I-5123).

(59) Brasserie du Pêcheur (n 58 above) 990. See the discussion in Ch 6 below, p 147–9.

(60) A Chayes, ‘The Role of the Judge in Public Law Litigation’ (1976) 89 Harv L Rev 1281, 1287; Gray (n 26 above) 8; Shelton (n 47 above) 38–9.

(61) EJ Weinrib, The Idea of Private Law (Harvard: Harvard University Press, 1995) 10 and 19.

(62) TJ Lawrence, The Principles of International Law (London: Macmillan & Co, 1923) 47 and 51; H Lauterpacht, Private Sources and Analogies of International Law (Longmans, Green & Co, 1927) 3–5; VS Mani, International Adjudication (The Hague: Martinus Nijhoff, 1980) 3–4.

(63) CN Gregory, ‘Expropriation by International Arbitration’ (1907) 21 Harv L Rev 23, 23; WW Willoughby, The Fundamental Concepts of Public Law (New York: Macmillan, 1924) 322–4; Eagleton (n 7 above) 16; Hudson (n 5 above) 188; FA Mann, ‘State Contracts and State Responsibility’ (1960) 54 AJIL 572, 573 and 582. See also Whiteman (n 11 above) 6–7; International Law Commission, ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts’, Report of the International Law Commission on the Work of Its Fifty-third Session, UN GAOR, 56th Sess, Supp No 10, annex, UN Doc A/56/10 (2001) 43, art 42.

(64) J Dutheil de la Rochère, ‘Member State Liability for Infringement of European Community Law’ (1996) 11 Tul Euro Civ LF 1, 10; D Bodansky and JR Crook, ‘Symposium: The ILC's State Responsibility Articles—Introduction and Overview’ (2002) 96 AJIL 773, 775–6 and 785–6; Weiss (n 45 above) 798–9; C Warbrick, ‘States and Recognition in International Law’ in MD Evans (ed) International Law (2nd edn, Oxford: OUP, 2006) 222–4. But see Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory (Advisory Opinion) (9 July 2004), ICJ General List No 131 [cited as Construction of a Wall], 147 and 152 (concluding that states have an obligation, having breached a rule of customary international law that protects individuals, ‘to make reparation for the damage caused to all the natural or legal persons concerned’ and ‘to compensate, in accordance with the applicable rules of international law, all natural or legal persons having suffered any form of material damage’ as a result of the breach); Janes Claim (United States v Mexico) (1926), 4 RIAA 82, para 23–6 (assessing the state's liability for murder of a foreign national in terms of loss to the individuals concerned, rather than the home state, and awarding compensation to the relatives of the deceased).

(65) Eagleton (n 7 above) 3, fn 2; SJ Toope, Mixed International Arbitration—Studies in Arbitration Between States and Private Persons (Cambridge: Grotius Publications, 1990) 184–7.

(66) Caire Claim (France v Mexico) (1929), 5 RIAA 516 [cited as Caire Claim], 529–30. Noble Ventures v Romania (Merits) (12 October 2005), ICSID Case No ARB/01/11, para 81, online: ITA, Investment Claims. JA Hessbruegge, ‘The Historical Development of the Doctrines of Attribution and Due Diligence in International Law’ (2004) 36 NYU J Int'l L & Pol 265, 270.

(67) Union Bridge Company Claim (United States v Great Britain) (1924), 6 RIAA 138, 141–2. See also Asian Agricultural Products Ltd (AAPL) v Sri Lanka (Merits) (27 June 1990), 30 ILM 577, 4 ICSID Rep 246, para 69 and 77; In the Matter of Cross-border Trucking Services (Merits) (6 February 2001), 13(3) World Trade and Arb Mat 121, para 214.

(68) Caire Claim (n 66 above) 529–30; Corfu Channel (Merits) (United Kingdom v Albania), [1949] ICJ Rep 4, 22. See also Tippetts v TAMS–ATTA (1985), 6 Iran–US CTR 219, 226. Eagleton (n 7 above) 18–20; MT Ahmedouamar, ‘The Liability of the Government in France as a Consequence of its Legal Activities’ (1983) 11 Int'l J Legal Info 1, 6 and 10; A Nollkaemper, ‘Concurrence Between Individual Responsibility and State Responsibility in International Law’ (2003) 52 ICLQ 615, 633.

(69) Lauterpacht (n 62 above) 134; Eagleton (n 7 above) 5.

(70) Chayes (n 60 above) 1302; AA Fatouros, ‘Transnational Enterprise in the Law of State Responsibility’ in RB Lillich (ed) International Law of State Responsibility for Injuries to Aliens (Charlottesville: University Press of Virginia, 1983) 362–3; DW Bowett, ‘Claims Between States and Private Entities: The Twilight Zone of International Law’ (1986) 35 Cath U L Rev 929, 933–4; W Twining, Globalisation and Legal Theory (London: Butterworths, 2000) 51–3; Shelton (n 47 above) 39 and 47–50.

(71) WI Jennings, The Law and the Constitution (London: University of London Press, 1959) 312; D Cohen and JC Smith, ‘Entitlement and the Body Politic: Rethinking Negligence in Public Law’ (1986) 64 Can Bar Rev 1, 5–6; C Harlow and R Rawlings, Law and Administration (London: Butterworths, 1997) 5 and 41–5; Warbrick (n 64 above) 231–2.

(72) Toope (n 65 above) 388.

(73) C Harlow, Compensation and Government Torts (London: Sweet & Maxwell, 1982) 51; Ontario Law Reform Commission (OLRC), Report on the Liability of the Crown (Toronto: OLRC, 1989) 7; C Harlow, ‘Francovich and the Problem of the Disobedient State’ (1996) 2 Eur LJ 199; Dutheil de la Rochère (n 64 above); PW Hogg and PJ Monahan, Liability of the Crown (3rd edn, Toronto: Carswell, 2000) 151.

(74) Gray (n 26 above) 151; JHH Weiler (n 42 above) 172–3.

(75) C Morris, ‘The Role of Criminal Statutes in Negligence Actions’ (1949) 49 Col L Rev 21, 27–9; H Street, Governmental Liability (Cambridge: CUP, 1953) 66; PP Craig, ‘Compensation in Public Law’ (1980) 96 LQ Rev 413, 441–3; D Fairgrieve, ‘The Human Rights Act 1998, Damages and Tort Law’ (2001) Pub Law 695, 699–700; Harlow (n 43 above) 53–4 and 61.

(76) JM Evans et al,Administrative Law—Cases, Text, and Materials (4th edn, Toronto: Emond Montgomery, 1995) 1401.

(77) eg R v Treasury, ex parte British Telecommunications (No 392/93), [1996] ECR I-1631, 3 WLR 203, para 40 (‘A restrictive approach to state liability is justified … in particular [because of] the concern to ensure that the exercise of legislative functions is not hindered by the prospect of actions for damages whenever the general interest requires the institutions or member states to adopt measures which may adversely affect individual interests’).

(78) I Brownlie, Principles of Public International Law (6th edn, Oxford: OUP, 2003) 291.

(79) Harlow (1996) (n 73 above) 205–6. See the discussion in Ch 6 below, p 143–5.

(80) eg Federal Tort Claims Act 1946, 28 USC, s 1346(b), 2671–80 (USA); Crown Proceedings Act 1947 (UK). OLRC (n 73 above) 8–11; WB Lafferty, ‘The Persian Gulf War Syndrome: Rethinking Government Tort Liability’ (1995) 25 Stetson L Rev 137, 148–9.

(81) eg Blanco (8 February 1873) Rec 1er Supp 61 (recognizing the tort liability of the state in relation to its commercial activities, although noting that state liability is ‘neither general, nor absolute’, reflecting the need to balance the opposing and competing interests at stake). Street (n 75 above) 6–24; Ahmedouamar (n 68 above) 2–12; Weir (n 51 above) 418–20 and 428–9.

(82) Domestic courts may have the authority to award damages to individuals for legislative acts, but typically only in relation to constitutionally protected rights. Street (n 75 above) 11, 45–6, and 70–2; FL Morrison, ‘The Liability of Governments for Legislative Acts in the United States of America’ (1998) 46 Am J Comp L Supp 531, 543–6; Hogg and Monahan (n 73 above) 122 and 149–54.

(83) eg Garnett v Ferrand (1827) 6 B & C 611, 108 ER 576, 581 (KB); Fray v Blackburn (1863) 3 B & S 576, 122 ER 217, 217 (QB). Street (n 75 above) 41–5 and 69–70; Ahmedouamar (n 68 above) 6–9; OLRC (n 73 above) 18–20.

(84) The state's liability in tort for administrative acts has been limited, eg, to cases arising from ‘operational’ decisions by the administration, to cases in which liability is warranted for policy reasons; to cases in which non-monetary remedies are unavailable, and to cases involving more than pure economic loss. eg Anns v Merton (1977) [1978] AC 728, 2 All ER 492 (HL); Nielsen v Kamloops [1984] 2 SCR 2, 10 DLR (4th) 641; Brown v British Columbia (Minister of Transportation and Highways [1994] 1 SCR 420, 112 DLR (4th) 1; Swinamer v Nova Scotia (Attorney General) [1994] 1 SCR 445, 112 DLR (4th) 18; Dalehite v United States (1953) 364 US 15; Indian Towing Co v United States (1955) 350 US 61. Harlow (1982) (n 73 above) 53; M Lunney and K Oliphant, Tort Law (Oxford: OUP, 2000) 501–3.

(85) Such as the requirement that the claimant show fault or malice on the part of the public body or official in order to receive damages; or, in the case of the public law tort of breach of statutory duty, that the statutory duty be intended to benefit a particular class of the public: Lunney and Oliphant (n 84 above) 501–3 and 527; Hogg and Monahan (n 73 above) 147–8 and 151; Morrison (n 82 above) 533, 537–8, and 541; RC Evans, ‘Damages for Unlawful Administrative Action: The Remedy for Misfeasance in Public Office’ (1982) 31 ICLQ 640; Harlow (1996) (n 73 above) 209; Fairgrieve (n 75 above) 697–8. Note that a ‘public law’ tort can only arise from the exercise of public authority.

(86) Harlow and Rawlings (n 71 above) 605–6.

(87) Hudson (n 5 above) 192–3.

(88) E Vattel, Le Droit de gens, book II, c VI, s 74–5 and c VIII, s 108–9 (an injury to a citizen is an injury to the state).

(89) Gray (n 26 above) 8–9 and 18–19; Brownlie (n 78 above) 17.

(90) K Roach, ‘The Limits of Corrective Justice and the Potential of Equity in Constitutional Remedies’ (1991) 33 Ariz L Rev 859, 864–5.

(91) VL Been and JC Beauvais, ‘The Global Fifth Amendment: NAFTA's Investment Protections and the Misguided Quest for an International “Regulatory Takings” Doctrine’ (2003) 78 NYU L Rev 30, 59–86.

(92) The principle was established in The Chorzow Factory (Germany v Poland) (1928), PCIJ Ser A, No 17, 28, based on ‘the rules of international law in force between the two States concerned, and not the law governing relations between the State which has committed the wrongful act and the individual who has suffered the damage’. Regarding the application of the principle in the adjudication of an investment dispute: eg Amoco International Finance Corp v Iran (1987), 15 Iran–US CTR 189, para 193; Metalclad Corporation v United Mexican States (Merits) (30 August 2000), 16 ICSID Rev 168, 40 ILM 36, 5 ICSID Rep 212, 13(1) World Trade and Arb Mat 45, para 122; CME Czech Republic BV v Czech Republic (Merits) (13 September 2001), 14(3) World Trade and Arb Mat 109 [cited as CME (Merits) ], para 616–17.

(93) Eagleton (n 7 above) 63–9; Bean and Beauvais (n 91 above) 81–2.

(94) Under some investment treaties, investors must forgo domestic remedies in order to make a claim; under others, they must first exhaust them; under others, they may pursue treaty-based and/ or domestic remedies: eg Maffezini (Emilio Agustín) v Kingdom of Spain (Jurisdiction) (25 January 2000), 16 ICSID Rev 212, 124 ILR 9, para 19; eg CME (Merits) (n 92 above) para 410; CME Czech Republic BV v Czech Republic (Damages) (14 March 2003), 15(4) World Trade and Arb Mat 83 and 245 [cited as CME (Damages) ], para 398 and 412–13; CMS Gas Transmission Company v Argentine Republic (Jurisdiction) (17 July 2003), 42 ILM 788, 7 ICSID Rep 492 [cited as CMS], para 73; SGS Société Générale de Surveillance v Pakistan (Jurisdiction) (6 August 2003), 18 ICSID Rev 301, 42 ILM 1290, 8 ICSID Rep 406, 16(2) World Trade and Arb Mat 167, para 151. Foy (n 21 above) 66; UNCTAD, Dispute Settlement: Investor–State, UNCTAD Series on Issues in International Investment Agreements (New York: United Nations, 2003) 31–7; Been and Beauvais (n 91 above) 83–6.

(95) Tokios Tokelès v Ukraine (Jurisdiction) (29 April 2004), 20 ICSID Rev 205, 16(4) World Trade and Arb Mat 75 [cited as Tokios], para 36; CMS (n 94 above) para 47. See also eg Waste Management Inc v United Mexican States (Merits) (30 April 2004), 43 ILM 967, 16(4) World Trade and Arb Mat 3 [cited as Waste Management No 2 (Merits) ], para 80; International Thunderbird Gaming Corporation v United Mexican States (Merits) (26 January 2006), 18(2) World Trade and Arb Mat 59, para 101–10.

(96) Eagleton (n 7 above) 79, 96, and 100; EM Borchard, ‘The Access of Individuals to International Courts’ (1930) 24 AJIL 359, 362–3; Okowa (n 7 above) 493–4.

(97) Norweigen Loans (France v Norway), [1957] ICJ Rep 9, 39. AV Freeman, The International Responsibility of States for Denial of Justice (London: Longman, 1938) 74; BA Wortley, Expropriation in Public International Law (Cambridge: CUP, 1959) 23–4 and 140–2.

(98) SGS v Pakistan (n 94 above) para 168.

(99) SGS v Pakistan (n 94 above) para 168.

(100) eg Lanco International Inc v Argentine Republic (Jurisdiction) (8 December 1998), 40 ILM 457, para 19; Genin (Alex) and Others v Republic of Estonia (Merits) (25 June 2001), 17 ICSID Rev 395, 6 ICSID Rep 304, para 330–2; Middle East Cement Shipping and Handling Co v Arab Republic of Egypt (Merits) (12 April 2002), 18 ICSID Rev 602, 7 ICSID Rep 173, para 71; CMS (n 94 above) para 78 and 80; Azurix Corp v Argentine Republic (Jurisdiction) (8 December 2003), 43 ILM 262, 16(2) World Trade and Arb Mat 111 [cited as Azurix], para 99–100; Champion Trading Company v Arab Republic of Egypt (Jurisdiction) (21 October 2003), 19 ICSID Rev 275; PSEG Global Inc v Republic of Turkey (Jurisdiction) (4 June 2004), 44 ILM 465, para 158; Occidental Exploration and Production Company v Republic of Ecuador (Merits) (1 July 2004), 17(1) World Trade and Arb Mat 165, para 52 and 58; Enron (n 15 above) para 47–51; Siemens (n 17 above) para 151 and 160; Petrobart Ltd v Kyrgyz Republic (Merits) (29 March 2005), SCC Rules, SCC Arbitration Institute Case No 126/2003, 65–6; Sempra Energy International v Argentine Republic (Jurisdiction) (11 May 2005), ICSID Case No ARB/02/16 [cited as Sempra], para 42, online: ICSID, ITA, Investment Claims. C Söderlund, ‘Lis Pendens,Res Judicata and the Issue of Parallel Judicial Proceedings’ (2005) 22 J Int'l Arb 301.

(101) eg ELSI (n 10 above) para 59, where a less strict approach to the comparison of local to treaty remedies was adopted by the ICJ in its determination of whether local remedies had been exhausted: ‘… the local remedies rule does not, indeed cannot, require that a claim be presented to the municipal courts in a form, and with arguments, suited to an international tribunal, applying different law to different parties: for an international claim to be admissible, it is sufficient if the essence of the claim has been brought before the competent tribunals and pursued as far as permitted by local law and procedures, and without success.’ Based on this reasoning, the resort to remedies under an investment treaty (the text of which was ambiguous on the matter) could also be precluded—but for a denial of justice—where ‘the essence of the claim’ was already under consideration by a domestic court or tribunal, due to the investor's prior resort to domestic remedies.

(102) Sedelmayer (Franz) v Russian Federation (Merits) (7 July 1998), SCC Rules [cited as Sedelmayer], p 2–3 (dissenting opinion), online: ITA, Investment Claims; Lauder (Ronald S) v Czech Republic (Final Award) (3 September 2001), (2002) 4 World Trade and Arb Materials 35, para 287; Joy Mining Machinery Ltd v Arab Republic of Egypt (Jurisdiction) (6 August 2004), 19 ICSID Rev 486, 44 ILM 73, para 78–9; Encana Corporation v Republic of Ecuador (Merits) (3 February 2006), London Court of International Arbitration Administered Case No UN 3481 [cited as Encana], para 186–7 and 194; Canfor Corporation v United States of America (Jurisdiction) (6 June 2006), UNCITRAL Rules, para 242–3, online: State Department, ITA, NAFTA Claims.

(103) Barcelona Traction (n 4 above) para 96.

(104) Administrative Decision No V (n 6 above) 613–14. W Barnes, ‘Remarks’ (1907) Am Soc'ty Int'l L Proc 100, 142; Ohly (n 16 above) 283–4; Okowa (n 7 above) 484. For example, a well-known risk management strategy of multinational enterprises is to internationalize the economic stake in a business venture, and thus engage the nationals and governments of as many states as possible, in order to have more leverage in the event of a dispute with the host state. This can be illustrated by the case of Kennecott and the nationalization of the Chilean copper industry (Peter (n 2 above) 241–3). In the 1960s Kennecott agreed to sell 51% of its interest in the copper industry to the Chilean government and committed to the terms of a new joint venture based on a 10-year management contract. Kennecott insured, with US AID, the (US)$80 million that Kennecott had committed to the joint venture. Fresh capital was supplied by an Eximbank loan and by the Chilean Copper Corporation. Kennecott also raised funds by concluding long-term contracts for future production with European and Japanese firms, and sold the collection rights on these contracts. Peter, at 242, quotes a Kennecott executive: ‘The aim of these arrangements is to ensure that nobody expropriates Kennecott without upsetting relations to customers, creditors and governments in three continents’. This strategy proved successful when, in the early 1970s, Chilean President Allende proposed to expropriate Kennecott's interest, with payment of partial compensation, due to windfall profits. In response, the assets of the Chilean national airline and Copper Corporation were seized in the US based on guarantees given by the Chilean state, and European and Asian creditors pressured the Paris Club of creditors to use the renegotiation of Chile's external debt as leverage to secure compensation for Kennecott.

(105) GAMI (n 23 above).

(106) GAMI (n 23 above) para 29 and 37–43. See also CMS (n 94 above) para 48; Champion Trading Company v Arab Republic of Egypt (Jurisdiction) (21 October 2003), 19 ICSID Rev 275, para 3.4.3; Sempra (n 100 above) para 77; Bogdanov (Iurii) et al v Moldova (Merits) (22 September 2005), SCC Rules, 18–19, online: ITA, Investment Claims. Contrast Continental Casualty Company v Argentine Republic (Jurisdiction) (22 February 2006), ICSID Case No ARB/03/9, para 77–9 and 86–90, online: ITA.

(107) With respect to forum-shopping, the underlying strategy of multinational firms—in adopting the nationality that is most convenient for a particular transaction, tax assessment, or legal claim—is to exploit variations among regulatory regimes in different jurisdictions. S Timberg, ‘International Combines and National Sovereigns’ (1947) 95 U Penn L Rev 575, 588; S Picciotto, International Business Taxation (London: Weidenfeld & Nicolson, 1992) 94–6; Peter (n 2 above) 37–8; WW Bratton et al, ‘Introduction: Regulatory Competition and Institutional Evolution’ in WW Bratton et al (eds) International Regulatory Competition and Coordination (Oxford: Clarendon, 1996) 9, 21, and 40–1; R Palan, ‘Trying to Have Your Cake and Eating It: How and Why the State System Has Created Offshore’ (1998) 42 Int'l Studies Q 625, 630. This is the flip side of inter-state competition to attract investment: forum-shopping by international capital: UNCTAD, Taxation, UNCTAD Series on Issues in International Investment Agreements (New York: United Nations, 2000) 62; Fatouros (n 70 above) 362.

(108) Nottebohm (n 4 above) 24; Barcelona Traction (n 4 above) para 70. R Donner, The Regulation of Nationality in International Law (2nd edn, Ardsley, NY: Transnational Publishers, 1994) 19 and 34–42.

(109) eg NAFTA (n 39 above) art 1117 and 1138. Feldman (n 38 above) para 24–38. Olguín (Eudoro Armando) v Republic of Paraguay (Merits) (26 July 2001), 18 ICSID Rev 143, 6 ICSID Rep 164, para 61–2; Soufraki (Hussein Nuaman) v United Arab Emirates (Jurisdiction) (7 July 2004), 17(1) World Trade and Arb Mat 129 [cited as Soufraki], para 55. UNCTAD, Scope and Definition, UNCTAD Series on Issues in International Investment Agreements (New York: United Nations, 1999) 35.

(110) Soufraki (n 109 above) para 83. R Dolzer and M Stevens, Bilateral Investment Treaties (The Hague: Martinus Nijhoff, 1995) 33–6 (noting that, for companies and other legal entities, BITs rely on three basic criteria to determine nationality: the place of incorporation (eg US); the location of the seat or actual management of the company (eg Germany); and the nationality of controlling shareholders); Muchlinski (n 6 above) 622–4.

(111) Waste Management No 2 (Merits) (n 95 above) para 80; CME (Merits) (n 92 above) para 419. RR Wilson, ‘Postwar Commercial Treaties of the United States’ (1949) 43 AJIL 262, 265–6; H Walker, ‘Treaties for the Encouragement and Protection of Foreign Investment: Present United States Practice’ (1956) 5 Am J Comp L 229, 233. Note that some investment treaties, including NAFTA and the Energy Charter Treaty, allow a state party—subject to prior notification and consultation—to deny the benefits of the treaty to a foreign investor of another state party, or their investments, that is a company which is owned or controlled by investors of a non-state party and which has no substantial business activities in the state in which it is established: NAFTA (n 39 above) art 1113(2); Energy Charter Treaty (annex I of the Final Act of the European Energy Charter Conference) (Lisbon, 17 December 1994; 34 ILM 373), art 17(1).

(112) Dolzer and Stevens (n 110 above) 35–6.

(113) eg GAMI (n 23 above) para 29–30 and 38; Waste Management No 2 (Merits) (n 95 above) para 85. eg Sedelmayer (n 102 above) para 57–9; Compañía de Aguas del Aconquija SA & Vivendi Universal v Argentine Republic (Annulment) (3 July 2002), 41 ILM 1135, 125 ILR, 58, 6 ICSID Rep 340 [cited as Vivendi], para 50; Azurix (n 100 above) para 21 and 42; CMS (n 94 above) para 47 and 55; Siemens (n 17 above) para 137; Sempra (n 100 above) para 42; Encana (n 102 above) para 117–18.

(114) M-F Houde and K Yannaca-Small, ‘Relationships between International Investment Agreements’ (OECD Working Paper on International Investment No 2004/1, May 2004) 4; Harlow (n 43 above) 46.

(115) Fireman's Fund (n 17 above) para 5; Mondev (n 38 above) para 79.

(116) Wena Hotels Ltd v Egypt (Jurisdiction) (25 May 1999), 41 ILM 881, 888; Tokios (n 95 above) para 21 and 38. But see Vacuum Salt Products, Ltd v Republic of Ghana (Jurisdiction) (16 February 1994), 9 ICSID Rev 72, 20 Ybk Comm'l Arb 11, para 17–20 and 29–30 (concluding in relation to an investment in Ghana that a company owned 20% by Greeks and the remainder by Ghanaians was not foreign controlled for the purposes of ICSID jurisdiction).

(117) CME (Merits) (n 92 above) para 396; CME (Damages) (n 94 above) para 432–3 (concluding that the claimant could make claims under two investment treaties, in relation to the same underlying dispute, by channelling ownership of its investment through a holding company in the Netherlands). UNCTAD, Most-Favoured-Nation Treatment, UNCTAD Series on Issues in International Investment Agreements (New York: United Nations, 1999) 11.

(118) Tokios (n 95 above) para 21, 38, and 80 (allowing an ICSID claim against the Ukraine by a Lithuanian company that was 99% owned by Ukrainian nationals who also comprised two-thirds of the company's management).

(119) Aguas del Tunari SA v Republic of Bolivia (Jurisdiction) (21 October 2005), 18(2) World Trade and Arb Mat 271, para 69, 73, and 237, and para 4 and 10 (dissenting opinion). See also Vivendi (n 113 above) para 50.

(120) Waste Management No 2 (Merits) (n 95 above) 78–9 (dismissing Mexico's submission that local government entities in Mexico were unaware of the claimant's corporate structure, including the use of holding companies in the Cayman Islands, and that the claimant therefore failed to satisfy the NAFTA definition of ‘investor’). C McLachlan, ‘Commentary: The Broader Context’ (2002) 18 Arb Int'l 339, 341; UNCTAD (n 109 above) 37.

(121) Peter (n 2 above) 17; UNCTAD, World Investment Report 2004 (Geneva: United Nations, 2004) 238, fn 15; G Xiao, ‘People's Republic of China's Round-Tripping FDI: Scale, Causes and Implications’ (Asian Development Bank Institute Discussion Paper No 6, 2004) 2.

(122) Tokios (n 95 above) para 80.

(123) eg Tradex Hellas SA v Republic of Albania (Merits) (29 April 1999), 14 ICSID Rev 161, 5 ICSID Rep 47, para 109; Ceskoslovenska Obchodni Banka v Slovak Republic (Jurisdiction) (24 May 1999), 14 ICSID Rev 251, 17(3) World Trade and Arb Mat 189, para 78; Tokios (n 95 above) para 80–2.

(124) Fedax NV v Republic of Venezuela (Jurisdiction) (11 July 1997), 37 ILM 1378, 5 ICSID Rep 186 [cited as Fedax].

(125) Fedax (n 124 above) para 18 and 24–5. See also Saluka Investments BV v Czech Republic (Merits) (17 March 2006), 18(3) World Trade and Arb Mat 166, para 1, 209–11, 226, and 240–2.

(126) M Habicht, Post-War Treaties for the Pacific Settlement of International Disputes (Cambridge: Harvard University Press, 1931) 1035.

(127) eg Blad v Bamfield (1674) 3 Swan 604, 36 ER 992; Duke of Brunswick v King of Hannover (1844) [1848] 6 Beav 1, 2 HLC 1; Oetjen v Central Leather Co (1918) 246 US 297, 303–4. EF Mooney, Foreign Seizures—Sabbatino and the Act of State Doctrine (University of Kentucky Press, 1967) 7–9 and 22; AFM Maniruzzaman, ‘Internationalization of Foreign Investment Agreements—Some Fundamental Issues of International Law’ (2000) 1 J World Investment 293, 315; E Denza, ‘The Relationship Between International and National Law’ in MD Evans (ed) International Law (2nd edn, Oxford: OUP, 2006) 442–4. See generally, FA Mann, ‘The International Enforcement of Public Rights’ (1987) 19 NYU J Int'l L & P 603, 604.

(128) Banco Nacional de Cuba v Sabbatino (1964) 376 US 398, 3 ILM 381, 398

(129) eg under NAFTA Chapter 11, the investor's duty to exhaust local remedies is limited and arguably removed: Waste Management, Inc v United Mexican States (Jurisdiction) (26 June 2002), 41 ILM 1315, 6 ICSID Rep 549, 14(6) World Trade and Arb Mat 203, para 29–30; Waste Management No 2 (Merits) (n 95 above) para 116; Mondev (n 38 above) para 154; Feldman (n 38 above) para 71–4. See also Azinian (Robert) et al v United Mexican States (Merits) (1 November 1999), 14 ICSID Rev 538, 39 ILM 537, para 97–9; Loewen Group, Inc and Raymond L Loewen v United States of America (Merits) (26 June 2003), 42 ILM 811, 7 ICSID Rep 442, 15(5) World Trade and Arb Mat 97, para 142–57; GAMI (n 23 above) para 29–30, 38, 101–3, and 133. GR Delaume, ‘Sovereign Immunity and Transnational Arbitration’ (1987) 3 Arb Int'l 28, 29–31; WS Dodge, ‘National Courts and International Arbitration: Exhaustion of Remedies and Res Judicata Under Chapter Eleven of NAFTA’ (2000) 23 Hast Int'l & Comp L Rev 357, 383; Foy (n 19 above) 49; PI Hansen, ‘Judicialization and Globalization in the North American Free Trade Agreement’ (2003) 38 Tex Int'l LJ 489, 498–9.

(130) eg NAFTA (n 39 above) art 1130 (providing that a Chapter 11 arbitration must be held in the territory of a NAFTA state that is a party to the New York Convention unless the disputing parties agree otherwise). ER Leahy, ‘Enforcement of Arbitral Awards Issued by the Additional Facility of the International Centre of Settlement of Investment Disputes (ICSID)’ (1985) 2(3) J Int'l Arb 15, 15–16; UNCTAD (n 94 above) 62–4.

(131) eg NAFTA (n 39 above) art 1136(2) and (4) (requiring each state party to ‘abide by and comply with an award without delay’ and to ‘provide for the enforcement of an award in its territory’).

(132) n 133 and 135 below.

(133) Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the ICSID Convention) (Washington, 18 March 1965; 4 ILM 524; entered into force 14 October 1966), art 54 (providing that ‘Contracting States will recognise an award as if it was a final judgment of a court in that State’) and 53(1) (providing that ‘The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award …. ’). See also Rules Governing the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes, 27 September 1978, revised 1 January 2003, 1 ICSID Rep 213 [cited as ICSID Additional Facility Rules], art 53(4).

(134) Note that the enforcement of an award under the ICSID Convention is possible only where both the host state and the investor's home state are parties to that treaty. Thus, enforcement under the ICSID Convention is presently unavailable in the case of NAFTA arbitrations because neither Canada nor Mexico is party to the ICSID Convention.

(135) United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) (New York, 10 June 1958; 330 UNTS 3; entered into force 7 June 1959), art I, III, and V. Finally, the award may also be enforced under the Inter-American Convention on International Commercial Arbitration (the Panama Convention) (Panama, 30 January 1975; 14 ILM 336), which contains provisions that are similar to those under the New York Convention: art 1, 4, and 5.

(136) See n 55 above. Hudson (n 5 above) 128–9.

(137) Thus to impose enforcement of an ICJ decision, the successful state would need the support of 9 Security Council members including the 5 permanent members. Charter of the United Nations (26 June 1945; UKTS No 67 (1946) (not published in the UNTS); entered into force 24 October 1945), art 94(2); DJ Harris, Cases and Materials on International Law (6th edn, London: Sweet & Maxwell, 2004) 1027–8; MN Shaw, International Law (5th edn, Cambridge: CUP, 2003) 996–7; JE Alvarez, ‘The New Dispute Settlers: (Half) Truths and Consequences’ (2003) 38 Texas Int'l LJ 405, 416 (remarking that ICJ cases do not always secure compliance and that the ICJ relies ‘by conscious design on the most political of bodies, the Security Council, for [its] effectiveness’).

(138) eg Jurisdiction of the Courts of Danzig (Advisory Opinion) (1928), PCIJ Ser B, No 15, 17–18; LaGrand (Merits) (Germany v United States), [2001] ICJ Rep 466, 40 ILM 1069, para 77; Construction of a Wall (n 64 above) para 147 and 152.

(139) Harlow (1996) (n 73 above) 205–6 and 208; Hogg and Monahan (n 73 above) 122 and 149–54.