Investment Arbitration and the Law of Countermeasures

89 Pages·2009·0.63 MB·English

by  Martins Paparinskis

Investment Arbitration and
the Law of Countermeasures
By Martins Paparinskis*
I. Introduction 265
II. Countermeasures and Investment Protection Law 268 D
o
A. Countermeasures 268 w
n
B. Historical perspective 270 lo
a
C. Contemporary perspective 274 de
d
III. Countermeasures as a Sword: Non-ICSID Arbitration 279 fro
m
A. Diplomatic protection and countermeasures 279 b
y
B. D iplomatic protection excluded by invocation of b
investment arbitration 281 il.ox
fo
C. D iplomatic protection excluded by investor’s invocation rd
of State responsibility 287 jou
D. D iplomatic protection excluded by investment protection rna
ls
law as lex specialis 292 .o
E. Diplomatic protection and the arbitral award 297 brg
y
F. Diplomatic protection and local remedies 300 g
u
G. Countermeasures and procedural conditions of application 302 e
s
IV. Countermeasures as a Sword: ICSID Arbitration 305 t on
A. Diplomatic protection and countermeasures 305 Fe
b
B. After the host State’s non-compliance 309 ru
a
C. Before the investor’s consent 312 ry
1
D. Regarding abstract interpretation 313 6
E. Taken by a diff erent home State 315 , 20
1
1
V. Countermeasures as a Shield 317
A. Obligations not aff ected by countermeasures 317
1. Investment protection law and peremptory norms 318
2. Investment protection law and humanitarian law 319
3. I nvestment protection law and human rights:
the substantive argument 325
* D Phil candidate, University of Oxford, the Queen’s College, AHRC and Commercial Bar
Scholar. I am very grateful to Professor Vaughan Lowe for pointing out the legal issues discussed in
this contribution. Valuable comments and criticisms of Dr Andrés Rigo Sureda, Dr Johannes Koepp,
Gleider Hernández, Markos Karavias, Antonios Tzanakopoulos, and James Upcher, and of the two
anonymous referees are acknowledged. An early version of this paper was presented at the Society of
International Economic Law 2008 inaugural conference in Geneva. I am grateful for the questions
and comments received there, and to the Law Faculty of the University of Oxford for its fi nancial
support for my attendance at the conference. The views expressed and the errors or omissions made
are the responsibility of the author alone.
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THE LAW OF COUNTERMEASURES 265
4. I nvestment protection law and human rights:
the nature of obligations 330
5. I nvestment protection law and human rights:
the nature of rights 331
B. Obligations excluding countermeasures 345
VI. Conclusion 351
I. Introduction
The international law of foreign investment protection has, throughout D
o
the last century of its development, been concerned with the search for the w
n
most appropriate rules and the best means for the settlement of disputes lo
a
d
concerning the application of those rules. In general, the shift has been e
d
away from vague and crude substantive rules (set out in customary law, fro
general principles and evocations of equity) discretionarily enforced by m
b
the home State, and in the direction of ‘treatyfi ed’ law of investment pro- yb
tection, implemented by means of investor-State arbitration. Idelson very il.o
x
astutely observed the direction of this change already in 1931:1 fo
rd
jo
protection of its nationals (including companies) would be much easier for the u
rn
State concerned if the rights of such nationals were defi ned by elaborate treaties a
ls
and not allowed to rest on general principles of International Law. Those prin- .o
ciples were formulated in times when the economic life of nations was much brg
simpler than it is today.2 y g
u
e
The contemporary law of foreign investment protection could therefore s
t o
be said to consist of several strata of legal arguments. The results of the n
F
more recent eff orts of law-making sometimes accept and incorporate e
b
the classic rules; sometimes clarify the classic ambiguities or replace the ru
a
unsatisfactory solutions; sometimes permit diff erent approaches in paral- ry
1
lel; and quite often maintain constructive ambiguity regarding the precise 6, 2
relationship between diff erent rules. The present contribution seeks to 0
1
1
examine the contemporary relationship between the two concepts that
1 Idelson’s insight may have partly come from his own recent experience of arbitrating the
treatment of foreign investors with host States. He was the lead counsel for the claimant in the Lena
Goldfi elds arbitration, where his argument for the internationalization of applicable law through the
application of general principles was ‘a gigantic fi rst step for the international commercial arbitration,
almost equivalent to the caveman’s discovery of fi re’, VV Veeder, ‘The Lena Goldfi elds Arbitration:
The Historical Roots of Three Ideas’ (1995) 47 International and Comparative Law Quarterly 747,
772. When Idelson made his intervention in the Grotius Society on 10 December 1931, the very
considerable award against the USSR had been rendered more than a year ago (on 3 September
1930), but the USSR had not yet complied with the award and did not seem likely to do so in the
nearest future (and indeed the agreement on the compensation between USSR and UK for note-
holders of the already-defunct Lena was agreed upon only in 1968, with the funds coming from the
Baltic gold in the British banks in apparent breach of the UK obligation of non-recognition of the
annexation of Baltic States) (at 789); RB Lillich, ‘The Anglo-Soviet Claims Agreement of 1968’
(1972) 21 International and Comparative Law Quarterly 1.
2 WE Beckett, ‘Diplomatic Claims in Respect of Injuries to Companies’ (1931) 17 Transactions of
the Grotius Society 175, 194.
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266 INVESTMENT ARBITRATION AND
typify the contrast between classic and modern approaches to investment
protection law in perhaps the starkest terms: the law of countermeasures
and investment arbitration.
The application of countermeasures in disputes regarding foreign invest-
ment was a natural and eff ective approach of acting in the classic international
legal order.3 The 1905 fi rst edition of Oppenheim’s International Law refl ects
precisely this kind of thinking, relying on the 1837– 1842 Sicilian Sulphur
dispute to explain the working of countermeasures. Great Britain took the
view that the Two Sicilies had breached the 1816 treaty of commerce (inter
alia providing for the protection of property rights of British nationals) by
the grant of sulphur monopoly rights to a company of French merchants,
D
and therefore in 1840 embargoed Sicilian ships until the grant of the monop- ow
n
oly was withdrawn after a French mediation.4 In the Sicilian Sulphur dispute lo
a
the British countermeasures were employed ‘for the purpose of compelling d
e
d
[Two Sicilies] to consent to a satisfactory settlement of a diff erence created by fro
its own international delinquency’.5 However, countermeasures and foreign m
investment could also interact in the opposite manner, with the counter- by
b
measures being applied against foreign property. To quote Oppenheim once il.o
x
again, ‘[a]n act of reprisal can be performed against anything and everything fo
that belongs or is due to the delinquent State and its citizens.’6 rdjo
u
The more recent developments have taken a profoundly negative view rn
a
about these practices, and indeed some of the modern rules have been ls
.o
created precisely to preclude them. As the Tribunal explained in the rg
Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema b
y
S.A.R.L. v DRC award, ‘[o]ne of the main objectives of the mechanisms gu
e
instituted by the Washington [ICSID] Convention was to put an end to st o
international tension and crises, leading sometimes to the use of force, n
F
generated in the past by the diplomatic protection accorded to an investor e
b
by the State of which it was a national.’7 An investment treaty dispute rua
regarding indirect expropriation—because that is what the Sicilian Sulphur ry 1
6
dispute was, albeit in a very rudimentary form—would now most likely , 2
be resolved through investment arbitration pursuant to a claim brought 01
1
by the investor against the host State. The home State of the investor would
not come into the picture at all, let alone apply countermeasures in defence
of the investor. Conversely, the mistreatment of foreign investment in
response to the investor’s home State would now prima facie constitute
3 Writing in 1885, Phillimore observed that ‘[i]t most commonly happens that Reprisals are resorted
to for the purpose of redressing injuries infl icted upon the Right of Individuals’, R Phillimore,
Commentaries upon International Law (Volume 3, 3rd edn, Butterworths, London, 1885) 19 (emphasis in
the original).
4 L Oppenheim, International Law (Volume 2, Longmans, Green, and Co., London, 1905) 35;
see below n 32.
5 Ibid, 34.
6 Ibid, 38; see discussion at n 302, n 304 and surrounding text.
7 Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v Democratic
Republic of the Congo, ICSID Case No. ARB/98/7, Award, September 1, 2000 (2002) 17 ICSID
Review—Foreign Investment Law Journal 382, 386 (para 15).
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THE LAW OF COUNTERMEASURES 267
only an additional ground of wrongfulness because of the lack of legitimate
public purpose for the particular conduct.8
With these radical changes in mind, the examination of the relationship
between investment arbitration and the law of countermeasures will be
taken in four steps. First of all, the general relationship of countermeasures
and investment protection law will be sketched, and the historical and
contemporary perspectives of the relationship will be explained (Part II).
The second and third parts will address the role of countermeasures ‘as a
sword’, employed by the home State to ensure the implementation of the
investor’s rights. The Convention on the Settlement of Investment Dis-
putes between States and Nationals of Other States (ICSID Convention)
D
that created the International Centre for the Settlement of Investment ow
n
Disputes (ICSID) expressly excluded the use of diplomatic protection lo
a
(and, as will be further suggested, also countermeasures). The legal argu- d
e
d
ment is conceptually diff erent from other, non-ICSID investment treaty fro
arbitrations. The application of countermeasures in the context of non- m
ICSID and ICSID arbitrations will therefore be considered separately, by
b
respectively in Parts III and IV. Fourthly, the role of countermeasures ‘as il.o
x
a shield’ will be addressed, applied by host States to preclude the wrong- fo
fulness of breach of investment protection treaties (Part V).9 rdjo
u
With the exception of the ICSID Convention, States have not dealt with rn
a
the relationship between countermeasures and investment arbitration in ls
.o
clear and express terms. Therefore, the analysis will consider the relevance rg
of general developments in State practice and the evolution of the inter- b
y
national legal order, as well as of the nature of the rights of investors and gu
e
the obligations of States. It will be argued that, even though diplomatic st o
protection and the accompanying countermeasures have ‘somewhat faded’ n
F
from contemporary State practice, being factually replaced by investment e
b
arbitration, in legal terms the entitlement of the State still very much ru
a
maintains its parallel existence.10 Diplomatic protection and countermea- ry 1
6
sures, considered as a measure to induce compliance with investment pro- , 2
tection law, are not generally precluded, despite express suspension during 01
1
ICSID arbitrations. There does not seem to be any customary law rule
coordinating dispute settlement, and the investor’s invocation of responsi-
bility neither imposes over that of the State nor replaces it as lex specialis.
It is therefore up to the interpretation of the dispute settlement rules of
each particular treaty and the customary law of countermeasures to estab-
lish the procedural conditions for the application of countermeasures.
8 BP v Libyan Arab Republic, Award, October 10, 1973 (1979) 53 International Law Reports 297,
329.
9 To borrow the framework from Pauwelyn’s off ensive / positive and defensive / negative models
of relationship between human rights and WTO law, J Pauwelyn, ‘Human Rights in WTO Dispute
Settlement’ in T Cottier, J Pauwelyn and E Bürgi (eds) Human Rights and International Trade
(Oxford University Press, Oxford, 2005) 205, 206.
10 Case Concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of Congo) [2007]
ICJ Rep (cid:2)http://www.icj-cij.org/docket/fi les/103/13856.pdf(cid:3) (last accessed 28 February 2009), para 88.
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268 INVESTMENT ARBITRATION AND
In its defensive capacity, the relationship between countermeasures
as a circumstance precluding wrongfulness and investment protection
obligations is not entirely clear. It will be argued that the most persuasive
conceptualization would treat countermeasures as not excluded in princi-
ple but as not applicable to the investor’s rights under the treaty, provided
that these rights are considered to be direct. Since the nature of investors’
rights is far from settled, the debate about the limits of countermeasures
is eff ectively dependant on the debate about the nature of investors’ rights.
This correlation between the nature of the rights and the applicability of
countermeasures may provide a pragmatic reason for States in general
and home States in particular to express their views regarding these theo-
D
retical questions in clearer terms. In particular, States could be likely to ow
n
adopt the direct rights approach in the future eff orts of law-making and lo
a
law-application, whatever the possible short-term benefi ts of the derivative d
e
d
rights arguments for host States in particular arbitrations may be. fro
m
b
y
b
II. Countermeasures and Investment Protection Law il.o
x
fo
A. Countermeasures rd
jo
u
The fi rst edition of Oppenheim’s International Law in 1905 defi ned coun- rn
a
termeasures in the following terms: ls.o
rg
injurious and otherwise internationally illegal acts of a State against another as are b
y
exceptionally permitted for the purpose of compelling the latter to consent to a g
u
satisfactory settlement of a diff erence created by its own international delinquency.11 es
t o
Classical international law seems to have generally accepted the permis- n F
sibility of otherwise wrongful acts taken for the purpose of implementing eb
international responsibility,12 and the general proposition remains valid in rua
the contemporary legal order.13 Countermeasures (or reprisals, as they ry 1
6
, 2
0
1
1
11 Oppenheim, above n 4, 34.
12 Eg Phillimore, n 3, 18–43; Ф Мартенс, Современное международное право цивилизованных народов
(Том II, Типогрфия А. Бенке, Санктпетербург, 1905) 506–509; GS Baker (ed) Halleck’s International
Law (Volume 1, 4th ed, Kegan Paul, Trench, Trubner & Co. Ltd., 1908) 505–507; AP Higgins (ed)
Hall’s Treatise on International Law (8th ed, Clarendon Press, Oxford, 1924) 433–436; F von Liszt,
Le droit international: Exposé systématique (9e édn, A. Pedone, Paris, 1927) 296–298; A Verdross, ‘Règles
générales du droit international de la paix’ (1929) 30 Recueil des Cours 271, 491–493; K Strupp, Éléments
du droit international public (2e edn, Les Éditions internationales, Paris, 1930) 344–347; R Ago, ‘Le délit
international’ (1939) 68 Recueil des Cours 419, 536–537.
13 ILC, ‘2001 Draft Articles on Responsibility of States for Internationally Wrongful Acts with
Commentaries’ in Offi cial Records of the General Assembly, Fifty-Sixth Session, Supplement No.10
(A/56/10) 20, arts 22, 49–54; also R Ago, ‘Eighth Report on State Responsibility’ in Yearbook of the
ILC 1979, Vol. II(1) A/CN.4/318 39–47; E Zoller, Peacetime Unilateral Remedies: An Analysis of
Countermeasures (Transnational Publishers, Inc., New York, 1984); OY Elagab, The Legality of Non-
Forcible Counter-Measures in International Law (Clarendon Press, Oxford, 1988); L-A Sicilianos,
Les réactions décentralisées a l’illicité: des contre-measures a la légitime défense (LGDJ, Paris, 1990);
N White and A Abass, ‘Countermeasures and Sanctions’ in M Evans (ed) International Law (2nd edn,
Oxford University Press, Oxford, 2006) 509–521.
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THE LAW OF COUNTERMEASURES 269
were called before the change in the international law treatment of the use
of force transformed the terminology)14 were one of the classic rules of
the decentralized international legal order, and provided the right of self-
help to the injured State.15
Countermeasures are adopted unilaterally by States,16 and not in accor-
dance with or through any collective institutionalized settings.17 Counter-
measures are not automatic but are voluntarily adopted as a reaction to
certain acts.18 Countermeasures are adopted as a reaction to internationally
wrongful acts. While the State will in most cases formulate its own view
on the issue, the wrongfulness is an objective concept and a mere belief
in the wrongfulness is insuffi cient.19 Countermeasures themselves are in
D
principle wrongful, and are thus diff erent from retorsions, acts that are ow
n
unfriendly (and may indeed be adopted unilaterally as a response to a lo
a
wrongful act) but that are not themselves wrongful.20 d
e
d
It is also broadly agreed that countermeasures have to comply with cer- fro
tain procedural and substantive criteria. Logically, countermeasures can be m
adopted only in response to an earlier internationally wrongful act; there- by
b
fore, in the absence of such an act, there can ab initio be no preclusion of il.o
x
wrongfulness.21 The injured State must fi rst call upon the wrongdoing fo
State to comply with its obligations of cessation and reparation,22 and the rdjo
u
countermeasure must also be proportionate.23 There is somewhat less rn
a
agreement about the relationship of countermeasures to judicial methods ls
.o
of dispute settlement and the scope of obligations that are not subject to rg
b
y
g
u
e
14 2001 ILC Articles on State responsibility, ibid, 128. s
15 Third States’ rights to take countermeasures are more controversial, see 2001 ILC Articles on t on
State responsibility, above n 13, art 54; S Talmon, ‘The Constitutive versus the Declaratory Theory F
e
of Recognition: Tertium non Datur?’ (2004) 75 British Yearbook of International Law 101, 162–181; b
M Dawidowicz, ‘Public Law Enforcement without Public Law Safeguards? An Analysis of State ru
a
Practice on Third-Party Countermeasures and Their Relationship to the UN Security Council’ (2006) ry
77 British Yearbook of International Law 333; see discussion at n 417–n 420 and surrounding text. 1
6
16 JL Brierly, ‘Sanctions’ (1932) 17 Transactions of the Grotius Society 67, 68. , 2
17 Sicilianos, above n 13, 2–5. 0
1
18 Ibid, 6. 1
19 J Crawford, ‘Counter-measures as Interim Measures’ (1994) 5 European Journal of International
Law 65, 66.
20 2001 ILC Articles on State responsibility, above n 13, 128.
21 Responsabilité de l’Allemagne à raison des dommages causés dans les colonies portugaises du sud de
l’Afrique (sentence sur le principe de la responsabilité) (Portugal contre Allemagne) (1928) II Reports
of International Arbitral Awards 1011, 1025–1028; ‘Régime des représailles en temps de paix’ in
Résolutions de l’Institut de Droit International: 1873–1956 (Editions juridiques et sociologiques S.A.,
Bâle, 1957) 167, 168, art 1; Air Service Agreement of 27 March 1946 between the United States of
America and France (1978) XVIII Reports of International Arbitral Awards 417, 443 (para 81);
Gabčíkovo-Nagymaros Project (Hungary/Slovakia) [1997] ICJ Rep 7, 56 (para 83); 2001 ILC Articles
on State responsibility, above n 13, art 49.
22 Naulilaa, ibid, 1027–1028; ‘Régime des représailles en temps de paix’, ibid, art 6(1); Air Service
Agrement, ibid, 444 (paras 85–87); Gabčíkovo-Nagymaros Project, ibid, 56 (para 84); 2001 ILC
Articles on State responsibility, above n 13, art 52(1).
23 Naulilaa, ibid, 1027–1028; ‘Régime des représailles en temps de paix’, ibid, art 6(2); Air Service
Agrement, ibid, 443 (para 83); Gabčíkovo-Nagymaros Project, ibid, 56 (paras 85–87); 2001 ILC Articles
on State responsibility, above n 13, art 51; T Franck, ‘On Proportionality of Countermeasures in
International Law’ (2008) 102 American Journal of International Law 715.
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270 INVESTMENT ARBITRATION AND
countermeasures. These are issues of particular importance in the context
of investment arbitration regarding the use of countermeasures respec-
tively ‘as a sword’ and ‘as a shield’, and will be further discussed in greater
detail.24
The 2001 International Law Commission’s (ILC) Articles on State
Responsibility (‘2001 ILC Articles on State responsibility’) refl ect the most
recent thinking on the topic of countermeasures. The 2001 ILC Articles
on State responsibility address countermeasures in two places, in Article
22 under the rubric of circumstances precluding wrongfulness, and in
Articles 49–54 under the rubric of implementation of the international
responsibility of the State. This approach accurately captures the dual
D
context vis-à-vis a specifi c primary rule that countermeasures may occupy: ow
n
both to preclude the wrongfulness of the breach of that primary rule, and lo
a
as a measure undertaken to ensure implementation of the responsibility d
e
d
for its breach. fro
In investment law countermeasures could appear in two guises: as a m
shield used by the host State to preclude the wrongfulness of a breach of by
b
the primary obligations under investment protection law and as a sword il.o
x
used by the home State to ensure the implementation of those primary fo
obligations (and perhaps applying countermeasures regarding investment rdjo
u
protection rules as well). It is from this perspective that the present con- rn
a
tribution will address the relationship of investment arbitration and coun- ls
.o
termeasures: on the one hand, countermeasures as a sword used by the rg
home State to ensure the implementation of investment protection obliga- by
tions, and on the other hand, as a shield used by the host State to preclude gu
e
the wrongfulness of the breach of these obligations. st o
n
F
e
B. Historical perspective bru
a
Countermeasures have traditionally been connected with the treatment ry 1
and protection of economic interests of aliens. Even before the emer- 6, 2
gence of international law, the XIV century practices recognized the right 0
1
1
of a prince to grant rights of private reprisals to an individual in case of
denial of justice by foreign princes,25 and the concept of denial of justice
and procedures for invoking reprisals was described in surprisingly mod-
ern terms.26 The link of denial of justice and reprisals turned out to have
24 ‘Régime des représailles en temps de paix’, ibid, arts 5 and 6(4); 2001 ILC Articles on
State responsibility, above n 13, arts 50 and 52(3), (4). See discussion at III.G and V.A.
25 De Bello, de Represaliis et De Duello (Oxford University Press, Oxford, 1917) 307–329, esp. 324;
J Paulsson, Denial of Justice (Cambridge University Press, Cambridge, 2005) 101.
26 De Bello, ibid, 310–311 (reprisals may be granted to mere residents that contribute to the State;
an argument relying on eff ective economic link as an alternative to nationality), 311 (citizens not
subject to jurisdiction by their own free will are not protected; an argument relying on lack of eff ec-
tive nationality), 312 (reprisals against the State of citizenship may not be ordered in principle, but
can in cases of double citizenship), 313 (citizens of other States may be protected pursuant to special
documents), AV Freeman, The International Responsibility of States for Denial of Justice (Longmans,
Green and Co., London, 1938) 54–56; Paulsson, ibid, 13. The similarities are even more striking if
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THE LAW OF COUNTERMEASURES 271
a lasting impact on legal thinking,27 leading to extensive analyses of the
defi nition of denial of justice in the classic texts.28 The main reason
appears to be that reprisals, even after the monopolization by the State of
the use of military force changed them from public to private,29 were still
considered available only against actions that fell within the concept of
denial of justice.30 Even after denial of justice and reprisals were fi nally
conceptually divorced, the focus on denial of justice still informed the pre-
Second World War debate about the international standard on the treat-
ment of aliens, in particular regarding the possibility of creating such rules
outside the concept of denial of justice.31 In that sense, it may be said that
the link between the archaic rules on the treatment of aliens and counter-
D
measures mutually reinforced each other and strengthened the law-making ow
n
arguments that elucidated the broader international standard of treatment lo
a
regarding the protection of property.32 d
e
d
fro
m
one does not rely on what appears to be a somewhat unpersuasive translation by Brierly. De Legnano b
y
analysed the possible situations of denial of justice, drawing distinction between the situation where b
the judgment is pronounced ‘ob gratiam partis’ (and the remedy is restitution), ‘ob gratiam illorum il.o
qui regnunt’ (and the remedy is compensation) and ‘ex solo iuidicis motu’ (and there is no remedy), xfo
De Bello, above n 25, 168. Brierly translates these sentences as meaning ‘from favour to the other rd
parties’, ‘favour to the rulers’ and ‘from the judge’s own motion’, and this translation is certainly jo
u
grammatically plausible, ibid, 323. However, the contrast between the bias in favour of parties or the rn
a
State on the one hand and the judge’s action proprio motu on the other hand seems illogical, because ls
the examples are not incompatible, describing the judge’s motivations and the nature of his acts. .o
A more persuasive translation would distinguish between judgments unjust because of ‘favour / brg
gratitude from / infl uence of parties / the State’ (CT Lewis, A Latin Dictionary (Oxford University y
Press, Oxford, 1991) 825–826, 1233) and simply erroneous uninfl uenced judgments, mirroring the gu
contemporary diff erentiation of wrongfulness of corrupt or dependent judicial administration and es
lack of wrongfulness for substantive judicial errors, eg Freeeman, at 287–303, 308–361; Paulsson, t o
n
ibid, 73–81, 157–163, 164–167, 195–196. F
27 HW Spiegel, ‘Origin and Development of Denial of Justice’ (1938) 32 American Journal of eb
International Law 63, 63–64; Freeman, above n 26, 53–67. ru
a
28 Eg H Grotius, De jure belli ac pacis libri tres (Clarendon Press, Oxford, 1925) 626–627; E de ry
Vattel, The Law of Nations or the Principles of Natural Law (Carnegie Institute, Washington, 1916) 1
6
228–230; RH Dana (ed) Wheaton’s Elements of International Law (8th edn, Sampson Lowe, Son, and , 2
Company, London, 1866) 269–370; Phillimore, above n 3, 19–20; Halleck, above n 12, 505–506; 0
1
E Nys, Le droit international (M. Weissenbruch, Bruxelles, 1912) 266; Hall, above n 12, 59–60. 1
29 Мартенс, above n 12, 506–508; G Clark, ‘English Practice with Regard to Reprisals by Private
Persons’ (1933) 27 American Journal of International Law 695, 721–722; F Kalshoven, Belligerent
Reprisals (Leyden, A.W. Sijthoff , 1971) 1–10.
30 C de Visscher, ‘Le déni de justice en droit international’ (1935) 52 Recueil des Cours 369, 369–374;
EJ de Aréchaga, ‘International Responsibility’ in M Sorensen (ed) Manual of Public International
Law (Macmillan, London, 1968) 553, 555.
31 Proceeding from diff erent levels of appreciation of the concreteness of the law on treatment of
aliens, the spectrum of views ranged from addressing all rules under the rubric of denial of justice to
addressing denial of justice as the only rule, with the intermediate (and ultimately successful)
approach considering denial of justice as one and non-exhaustive rule in the law of treatment of
aliens, G Fitzmaurice, ‘The Meaning of the Term “Denial of Justice”’ (1932) 13 British Yearbook of
International Law 93, 93–105; OJ Lissitzyn, ‘The Meaning of the Term Denial of Justice in Interna-
tional Law’ (1935) 19 American Journal of International Law 632; Freeman, above n 26, 84–186.
32 One of the early cases of indirect expropriation was the Sicilian Sulphur dispute where the UK
applied reprisals to ensure implementation of responsibility for what it considered to be a treaty breach,
Great Britain, State Papers 1839–1840 Volume 28 (Harrison and Sons, London, 1857) 1163–1242; State
Papers 1840–1841 Volume 29 (James Ridgway and Sons, London, 1857) 175–204; State Papers 1841–
1842 Volume 30 (James Ridgway and Sons, London, 1858) 111–120; AP Fachiri, ‘Expropriation and
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272 INVESTMENT ARBITRATION AND
However, in another sense, reprisals very much undermined the argu-
ment for developing a sophisticated international standard for the treat-
ment of aliens and their property interests. From the Latin American
perspective the procedural aspect was perceived, as Álvarez wrote in 1909,
to constitute simply the ‘use of force, such as the seizure of customs houses,
pacifi c blockades, etc., in order to compel the recognition of claims’. This
procedural context infl uenced the perception of the underlying sub-
stantive rules as an attempt by the US and European States to ‘assur[e]
unduly for their citizens who came to those countries a specially privi-
leged situation’.33 As Jennings later noted, the substance of the law was
not necessarily bad law, but the perception of it as a rationalization of
D
European policies at a period of their dominance could not be dismissed.34 ow
n
It is perhaps not surprising that one of the fi rst exercises in multilateral lo
a
universal treaty-making to restrict the use of force was directed precisely d
e
d
at reprisals for economic reasons: the 1899 Hague Convention Respecting fro
the Employment of Force for the Recovery of Contract Debts.35 m
Even after the prohibition of forcible reprisals, the consistently unsuc- by
b
cessful attempts at multilateral treaty-making regarding treatment of aliens il.o
x
both between the World Wars and after the Second World War36 suggested fo
a continuing d istrust of the perceived earlier misuse of law and procedure rdjo
u
by former colonial and imperial powers.37 Consequently, in order to move rn
a
beyond the normatively and emotionally contentious customary law38 and ls
.o
particularly its methods of dispute settlement reminiscent of reprisals, rg
the focus of investment law-making gradually moved to treaty law both in b
y
substantive and procedural terms. gu
e
s
t o
n
F
e
b
International Law’ (1925) 6 British Yearbook of International Law 159, 163–164. Great Britain relied on ru
the authority of this case regarding the law on the treatment of aliens both in the context of codifi cation ary
and adjudication, see respectively S Rosenne (ed) League of Nations Conference for the Codifi cation of 1
CInatseer n(aGtiroenaat lB Lraitwai n[ 1v9 B30e]lg i(uVmo)lu PmCeI IJI R, Oepc eSaenraie Ps uCb 7li5c a5t1io–n5s7,. Inc., New York, 1975) 551; Oscar Chinn 6, 20
1
33 A Álvarez, ‘Latin America and International Law’ (1909) 3 American Journal of International 1
Law 269, 300; see the historical perspective in W Shan, ‘Calvo Doctrine, State Sovereignty and the
Changing Landscape of International Investment Law’ in W Shan, P Simons and D Singh (eds)
Redefi ning Sovereignty in International Economic Law (Hart Publishing, Oxford, 2008) 247.
34 RY Jennings, ‘State Contracts in International Law’ (1961) 37 British Yearbook of International
Law 156, 159.
35 I Brownlie, International Law and the Use of Force by States (Clarendon Press, Oxford, 1963)
24; also AS Hershey, ‘The Calvo and Drago Doctrines’ (1907) 1 American Journal of International
Law 26; LM Drago, ‘State Loans in Their Relation to International Policy’ (1907) 1 American Journal
of International Law 692; JB Scott, ‘The Work of the Second Hague Peace Conference’ (1908) 2
American Journal of International Law 1, 15; H Accioly, Traité de droit international public (Recueil
Sirey, Paris, 1940) 290–293.
36 G van Harten, Investment Treaty Arbitration and Public Law (Oxford University Press, Oxford,
2007) 18–21.
37 S Rosenne, ‘State Responsibility: Festina Lente’ (2004) 75 British Yearbook of International Law
363, 364.
38 See Nervo’s and Fitzmaurice’s 1957 debate at the ILC, Yearbook of the ILC 1957, Vol. I A/
CN.4/SER.A/1957 156, 163–164 respectively; cf RB Lillich, ‘Duties of States Regarding Civil Rights
of Aliens’ (1978) 161 Recueil des Cours 329, 360–365.
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THE LAW OF COUNTERMEASURES 273
Against this background and faced with an argument for closer integra-
tion of customary and treaty investment law-making processes in the
Barcelona Traction, Light and Power Company, Limited case, the Interna-
tional Court of Justice chose to treat the processes as largely autonomous
with little potential for normative infl uence either way, a solution generally
perceived at that time as having a profoundly negative and limiting eff ect
on the protection of investors’ rights.39 Counter-intuitively, the long-term
consequences of the Court’s approach have been benefi cial for investors:
showing the States the inadequacy of customary law-making eff orts in the
area; pushing the law-making resources into treaty-making; and clearly rec-
ognizing and confi rming the rights of States to provide more benefi cial
D
treatment to investors through treaty law unhindered by archaic and inap- ow
n
propriate customary law concepts.40 As a result, the apparently ineff ective lo
a
customary law of diplomatic protection and the treaty law of investment d
e
d
arbitration seemed to be developing independently from one another. fro
In light of these developments and in particular after the strong emer- m
gence of an investor-State centred system of dispute settlement, diplomatic by
b
protection and c ountermeasures seemed to have parted the ways with il.o
x
investment protection law. Given law-making eff orts to create both a sub- fo
stantively41 and procedurally depoliticized model of investment dispute rdjo
u
settlement to replace that of diplomatic protection,42 the contemporary rn
a
relevance of countermeasures—the aspect of s econdary rules probably ls
.o
most prone to politicizing the underlying dispute—may not be immedi- rg
ately clear.43 by
g
u
e
s
39 Eg R Higgins, ‘Aspects of the Case Concerning Barcelona Traction, Light and Power Company, t on
Ltd.’ (1970–1971) 11 Virginia Journal of International Law 327, 341; RB Lillich, ‘The Rigidity of F
e
Barcelona’ (1971) 65 American Journal of International Law 522, 552–557; C de Visscher, ‘La notion b
de reference (renvoi) au droit interne dans la protection diplomatique des actionnaires de societés ru
a
anonymes’ (1971) 7 Revue Belge de Droit International 1, 6. ry
40 S Schwebel, ‘Some Aspects of International Law in Arbitration between States and Aliens’ in 1
6
S Schwebel, Justice in International Law (Cambridge University Press, Cambridge, 1994) 196, 210–211; , 2
F Berman, ‘The Relevance of the Law on Diplomatic Protection in Investment Arbitration’ in F Ortino 0
1
et al (eds) Investment Treaty Law: Current Issues II (BIICL, London, 2007) 67, 69; RomPetrol Group 1
N.V. v Romania, ICSID Case No. ARB/06/03, Decision on Respondent’s Preliminary Objections to
Jurisdiction and Admissibility, April 18, 2008, (cid:2)http://ita.law.uvic.ca/documents/RomPetrol.pdf(cid:3)
(last accessed 28 February 2009), para 91; M Paparinskis, ‘Barcelona Traction: A Friend of Investment
Protection Law’ (2008) 8 Baltic Yearbook of International Law 105, 105–133.
41 Eg KJ Vandevelde, ‘The BIT Program: A Fifteen-Year Appraisal’ (1992) 86 ASIL Proceedings
532, 534–535; A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of
Treatment (Walter Kluwer Law and Business, the Hague, 2009), in particular Chapter 1.
42 Eg A Broches, ‘The Convention on the Settlement of Investment Disputes between States and
Nationals of Other States’ (1972) 136 Recueil des Cours 331, 344; IFI Shihata, ‘Towards a Greater
Depoliticization of Investment Disputes: The Roles of ICSID and MIGA’ (1986) 1 ICSID Review—
Foreign Investment Law Journal 1 et seq. As Lowenfeld stated in his separate opinion in the Corn
Products decision on responsibility, ‘[t]he essence of each of these arrangements [ICSID Conventions,
BITs and NAFTA] is that controversies between foreign investors and host states are insulated from
political and diplomatic relations between states’, Corn Products, Separate Opinion of Arbitrator
Lowenfeld, below n 49, para 1.
43 While the vocabulary of depoliticization remained generally uncontested, it was quite ironic
how the argument sought to characterize the discretion within the law of diplomatic protection as
political. The argument drew the distinction between ‘legal’ legal and ‘political’ legal disputes in
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