International Investment Law Outline

International Investment Law
International Investment Law 4
A. Introduction
4
1.
Treaty Schemes for Bilateral Investment Disputes 7
a.
Introduction: Why Treaties Have Been Concluded with Respect to International Investment 7
b.
Precursors of Modern Investment Treaties 8
c.
History of Attempts to Create Bilateral Investment Treaties 8
d.
What should be addressed in an Investment treaty? 9
e.
Modern Investment Treaties 10
2.
Contractual Provisions and Investment Disputes 12
a.
AIPN Model Form International Operating Agreement 12
b.
O Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth, Inc. 12
c.
O National Iranian Oil Company v. Ashland 13
d.
Case Law on Choice of Law Clauses 13
i.
O Wena Hotels Ltd. V. Arab Republic of Egypt 13
ii.
O Mobil Oil Iran, Inc. v. Government of the Islamic Republic of Iran 13
iii.
O AGIP Copmany v. Popular Republic of the Congo 13
iv.
O British Petroleum Co. (Libya) v. Government of the Libyan Arab Republic. 14
v.
O Texaco Overseas Petroleum Company v. Government of the Libyan Arab Republic 14
vi.
O Libyan American Oil Co. v. Government of the Libyan Arab Republic 14
vii.
O Sapphire International Petroleums Ltd. v. National Oil Co. 14
e.
O National Oil Corp. v. Libyan Sun Oil 14
f.
O Amoco International Finance Corp. v. Government of the Islamic Republic of Iran 14
g.
O Libyan American Oil Company v. Government of the Libyan Arab Republic 14
3.
Forums for Resolving Investment Disputes 16
a.
International Responsibility: Generally 16
i.
Development of the Law of State Responsibility 16
ii.
The general Character of State Responsibility Principles 20
iii.
Responsibility Under International and Internal Law 20
iv.
The Lex Specialis Issue 21
b.
Attribution of Conduct to the State 23
ii.
Organs of the State or of Political Subdivisions 23
iii.
State Enterprises 24
iv.
Conduct of Private Parties 25
v.
Succession of Responsibility 26
c.
Breach of an International Obligation 27
ii.
The Concept of Due Diligence and the Role of Fault 28
iii.
Obligation of Conduct and Result 28
iv.
Irrelevance of Sovereign Commercial Act Distinction 28
4.
State Responsibility and Investment Law 30
a.
Violations of Investor Rights Under Customary International Law 30
i.
Expropriation 30
ii.
Discriminatory Conduct 46
iii.
Arbitrary Conduct 46
iv.
Denial of Justice 46
v.
Abuse of Rights 50
vi.
Unjust Enrichment 50
vii.
Unlawful Interference 53
5.
Investor Protection Under Customary International Law 55
a.
1. ABSOLUTE STANDARDS 55
i.
O Loewen Group, inc v. US 55
ii.
O Waste Management Inc. v. United Mexican States 56
b.
— Full Protection and Security 57
i.
O Elettronica Sicula (ELSI) 57
ii.
O Asian Agricultural Products Ltd. v. Republic of Sri Lanka 57
iii.
O American Manufacturing & Trading, Inc. v. Republic of Zaire 58
iv.
O Ronald Lauder v. The Czech Republic 58
v.
O CME Czech Republic v. The Czech Republic 58
vi.
Rodolf Dolzer, BITs 58
vii.
UNCTAD, BIT in the Mid-1990s 58
c.
— Treatment no Less Favorable than Required by International Law 59
i.
O LFH Neer v. Mexico 59
ii.
O Mondev International Ltd. v. USA 60
iii.
O CME Czech Republic v. The Czech Republic 60
iv.
O Ronald Lauder v. The Czech Republic 60
v.
O American Manufacturing v. Zaire 60
vi.
O Elettronica Sicula, S.A. 60
vii.
Kenneth J. Vandavelde, US Investment Treaties: Policies and Practice 60
viii.
UNCTAD BITs in the 1990s 61
d.
— Arbitrary Treatment 61
i.
O Elettronica Sicula, S.A. (ELSI) 61
ii.
Sean D. Murphy, The ELSI Case 61
iii.
O Ronald S. Lauder v. The Czech Republic 61
iv.
Kurt Hamrock, The ELSI Case: Toward an International Definition of Arbitrary Conduct 63
e.
— Discrimination 63
i.
Nafta Art. 1104 63
ii.
O Amoco International Finance Corp. v. Islamic Republic of Iran 63
iii.
O Ronald S. Lauder v. The Czech Republic 63
iv.
A.F.M. Maniruzzaman, Expropriation of Alien Property and the Principle of Non-Discrimination in International Law of Foreign Investment: An Overview. 63
f.
— Comply With All Obligations Undertaken Towards Investments 64
i.
F.A. Mann, British Treaties for the Promotion and Protection of Investments 64
ii.
SGS Societe Generale de Surveillance v. Republic of the Philippines 64
g.
— Currency Transfer 66
i.
US Model BIT 66
ii.
NAFTA Art. 1109 66
iii.
ECT Art. 14 66
iv.
Rudolf Dolzer, Bilateral Investment Treaties 66
h.
— Expropriation 66
i.
US Model BIT 66
ii.
NAFTA Art. 1110 66
iii.
ECT Art. 13 66
iv.
O Metalclad Corp. v. United Mexican States 66
v.
Azinian v. United Mexican States 67
vi.
SD Meyers v. Government of Canada 67
vii.
Waste Management, Inc. v. United Mexican States 67
viii.
CME Czech Republic 68
ix.
Phillips Petroleum v. Iran 68
x.
Elettronica Sicula, S.A. (ELSI) 69
i.
— UNCTAD, Taxing of Property 70
j.
— UNCTAD, BITs in the 1990s 70
k.
2. RELATIVE STANDARDS 71
i.
National Treatment 71
ii.
Most Favored Nation Treatment 76
iii.
Transparency 76
6.
Procedure and Proof: Developing the Case 82
a.
Initiation of an ICSID Case 82
i.
O Compania de Aguas del Aconquija S.A. v. Argentine Republic 82
b.
Preliminary Hearing 82
i.
Holtzman, Streamlining Arbitral Proceedings (Iran-US Tribunal) 82
c.
Jurisdictional Objections 82
i.
O Compania de Aguas del Aconquija S.A. v. Argentine Republic 82
d.
Arbitral Procedure 82
i.
 
Professor Howse
Winter Semester 2005
IBA Rules on the Taking of Evidence 82
1. Tuesday, January 18, 2005 – Vol. 1, p. 1-33
A. Introduction
Foreign Investment Disputes
Class Notes:
We are going to be dealing with FDI, not merely international portfolio investment. However, the distinction between the two is starting to break down, particularly when investors have brought claims against Argentina concerning foreign currency repatriation. The problems that international investment law deals with is when a foreign company comes in and establishes a business. In the case of dispute settlement, when the investor is suing or can sue for violating commitments, we have a decentralized dispute settlement system, mostly it is done through ICSID.
An annulment proceeding in International Investment Law is not really an appeal, even though it deals with bias of the court, etc… however it doesn’t look at the law. There is the case of an arbitral panel’s award being set aside by a domestic court. It isn’t an appeal mechanism since usually the party wanting the award set aside needs to jump through a high hoop to show something was wrong in the arbitral panel. Because many of these decision of ad hoc arbitral tribunals are controversial, there is increasing interest in creating an appellate body that provides some control over the tendency of the tribunals to decide the cases from a view of the law that another ad hoc tribunal would not look at. There are increasing calls for some kind of appellate body in this area.
Investor protection: The original sources were in customary international law in the protection of aliens. In the Roberts case an American was given a rough time in a Mexican jail. It suggests that a host country has a legal duty in international law to the home country of the alien to treat the alien decently. So there is an early era where the idea of diplomatic protection (basic protection to an alien within its territory) and there is no question of the alien being able to sue the host government. However, the home country has to choose to espouse the alien’s claim (“diplomatic espousal”). In a different era, the post-war era the world was divided between the communist and free world and there was the struggle for the hearts of the people in the developing world. In this era, relations between foreign investors and host countries were very tense. If you look at the investment law in the 60s and 70s it is a reflection of the attempt to address the ideological conflict so that investors are not subject to arbitrary nationalization of assets and so that countries are able to pursue economic strategies that may be at odds with profit-oriented investors. In the 80s many countries are in debt and it results in countries being unable to repay the debts. Indebted countries have to look elsewhere in terms of getting money from foreign investors, not as a means of begrudging an inherent ideological conflict, but rather as a kind of upside of attracting investors – saying we are open for business (not economic nationalism any more). The country shows that it will not expropriate investment or scare of top level employees. Then, the “Asian miracle” was that a number of countries experienced huge rates of growth by opening themselves up to trade and foreign investment. Today, the scholarship says it isn’t so simple, they opened up to a certain degree, but they also negotiated a set of conditions for technology transfer, etc… to ensure that the investment paid of in terms of domestic development – so not completely liberalization, but so that the investment could be maximized in domestic economic strategy (requirement of performance strategy). Before the 80s and 90s performance requirements were not disallowed, but generally speaking the law was concerned with expropriation or nationalization. However, in the 80s and 90s the agenda shifted and is ideologically neo-liberal, that incorporates the liberal ideas of international trade with the more conservative agenda of international investment (expropriation). One of the differences between moving toward the neo-liberal agenda relates to the difference between dispute settlement in investment law and in the WTO. In the WTO, dispute settlement is only between states on the treaty norms and there are no damage awards (it is prospective and not retrospective). In investment law, a private party can sue the host country. Private parties can sue for monetary damages based on the treaty norms. The combination of this has proven rather explosive in the last couple of years.
In the course we are going to be looking at 9 parts (see syllabus)
a. Introduction
1. The main institution specializing in investment disputes is The International Centre for Settlement of Investment Disputes (ICSID). It is handling many more cases recently. More than 2200 bilateral investment treaties (BITs) have come into force in the past 40 years.
2. In BITs or in multilateral agreements (eg. NAFTA) governments consent to international arbitration of any investment disputes with qualifying private investors from the other contracting countries. Consent is a critical factor to establish standing.
ii. Brief History
1. The most prevalent form of investment at the turn of the 18th century was indirect, through loans and bonds, now foreign direct investment (FDI) is prevalent. Most of this is infrastructure projects.
2. Calvo Doctrine – the idea that foreign investors were entitled to treatment no different or better than the citizens of the country where they invested. Foreign investors were to have their claims heard by the courts of the countries where they invested, but they were not to be entitled to seek diplomatic protection of their governments or to have their claims presented to international arbitral tribunals.
3. In 1962 the UN adopted Resolution 1803 (XVII) which recognized the “authority of governments to nationalize investments in their natural resources, provided that ‘appropriate compensation’ was paid to the investors whose property was taken.
4. In the 80s the US made the USA’s Model BIT.
5. Also MIGA was created, which like OPIC, provides political risk insurance to foreign investors. It created a set of general conditions of guarantee for equity insurance claims and also arbitral rules.
iii. International Commitment to Encouraging and Protecting Foreign Investment
1. There is a gap between the standard of living in developed and developing countries has increased. It is seen as a way to jump start some economies, a short cut to higher wages, an improved infrastructure, and better schools and hospitals.
2. With the spread of BITs there are also arbitral institutions, like ICSID and the International Court of Arbitration of the International Chamber of Commerce (ICC) and rules by the UN Commission on International Trade law (UNCITRAL).
iv. What is a foreign Investment Dispute?
1. It is a dispute between an investor from one country and a government that is not its own that relates to an investment in the host country.
2. An investment is distinguished in four ways
a. Temporal duration (not a single sale)
b. Commitment by the investor is substantial
c. Expectation of profit
d. Undertaking of risk by the investor and sometimes by the host government as well.
e. Often, contribution of investment to the development of the state, by building or enhancing its infrastructure or its economy.
v. Investment Treaties
1. General obligations
2. standards for expropriation
3. currency transfer standards
4. dispute settlement procedures
5. In many BITs governments commit to provide foreign investors with national treatment (treatment as favorable as that provided to the host country’s citizens), most favored nation treatment (treatment as favorable as that given to other countries’ citizens).
6. Property may be expropriated if it is taken for a public purpose, in a non-discriminatory manner, in accordance with due process of law, and full, adequate and effective compensation is promptly paid.
vi. International Forums for Resolving Investment Disputes
1. ICSID – a division of the World Bank. It has an advantage since countries will comply with ICSID to keep on the good side of the bank. ICSID is also supported by a multilateral treaty.
a. It administers three types of procedures
i. Fact finding
ii. Conciliation
iii. Binding arbitration
b. To satisfy the jurisdictional prerequisites of the ICSID convention an investor must show:
i. The existence of a legal dispute
ii. That arises out of an investment
iii. That arises between a government that is a party to the ICSID convention
iv. The consent of both parties to ICSID to resolve the dispute
2. UNCITRAL
3. FCSC – foreign claims settlement commission
vii. Political Risk Insurance
1. OPIC in the US is the body that does it
viii. Applicable Law
1. Customary international law or general principles of law to investor-state contracts
2. The ICSID Convention provides that a tribunal will apply the law chosen by the parties, or in the absence of such a choice, the law of the host country and such principles of international law that are applicable.
3. Some arbitrators and commentators take the view that international law is limited to a supplementary and corrective role.
ix. International Claims
1. Most common is for expropriation
a. De jure (executed by an act or decree of the government)
b. De facto (a creeping expropriation that results from a series of acts none of which purports expressly to be a taking.
2. Discriminatory action
3. Breach of contract
4. Abuse of rights
5. Denial of justice
6. Unjust enrichment
x. Procedure and Proof
1. There is both oral and written procedure
2. Limited discovery
3. No formal rules of evidence
xi. Transparency and the Role of NGO’s
xii. Sovereign Immunity and the Enforcement of State Awards
1. Governments enjoy varying measures of immunity. Investors usually seek an express waiver of immunity in their contracts with government or government-owned companies.
2. A waiver may be explicit or implicit (an agreement to arbitrate)
2. Monday, January 24, 2005 – Vol. 1, p. 36-60
Treaty Schemes for Bilateral Investment Disputes
a. Introduction: Why Treaties Have Been Concluded with Respect to International Investment
b. Precursors of Modern Investment Treaties
c. History of Attempts to Create Bilateral Investment Treaties
d. What should be addressed in an Investment treaty?
e. Modern Investment Treaties
i. Bilateral Treaties
1. Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties
a. The alien was traditionally accorded limited rights and States therefore frequently sought to protect those of their subjects who engaged in foreign business ventures.
b. FCNs (forerunner of BITs) contain provisions relating to foreign property but were primarily concerned with facilitating trade as opposed to regulating foreign investment.
c. The UN Resolutions which were vague in their legal implications underscored the desire of developing countries not to be closely bound to the economies of developed countries.
d. As it became necessary to divide the various subject matters and treat them with greater detail BITs emerged as the preferred type of agreement for forging bilateral protection agreements on investments over FCN.
i. Eli Lauterpacht, The Drafting of the Treaties for the Protection of Investment
1. It is always open to member of the US to sign the optional clause in sufficiently comprehensive terms to cover this category of dispute. Should you favor the restatement of the substantive rules of law relating to the treatment of investments with the contention that international tribunals are incapable of developing the law to meet the situation. Courts are capable of developing the substantive rules.
2. Declaratory or constitutive?
a. Do you choose a treaty which declares existing rules or one which creates new ones.
3. Protection of something more?
a. Treaty with the protection of investment and those which have something more in view.
4. Consideration?
a. Is there any justification for the suggestion that a convention which deals exclusively with the protection of foreign investment looks one-sided. Should there be an obligation upon the States from which the investment flows to contribute, or ensure the contribution of capital?
5. Contents of a Treaty?
a. Object of protection:
i. What is an investment? Do you define it broadly or narrowly?
b. Against what is protection given?
i. We are concerned with the acts of the State which represent the direct and deliberate intrusion by the State upon the free disposition by the alien of his property.
ii. It must be recognized that there are limits to the extent to which the conduct of the State in relation to alien property can be limited or controlled.
iii. It is scarcely justifiable to exclude the sovereign right of a state to nationalize foreign property.
iv. How do you structure the issue of compensation and deal with the grey area between a taking and something else.
6. Whose property is covered?
a. Is it a persons. Is it the corporate-owned property?
7. Remedial process?
a. At the ICJ or an ad hoc character.
b. In the municipal sphere the doctrine of State immunity will preclude any direct action by an aggrieved property owner against a State which causes him injury, in most cases.
c. Sanctions
ii. Reisman and Wiedman, Contextual Imperatives of DRMs…
1. the planning from intra-national transactions do not need to be elaborate since there is no compulsory court system between states. So you must establish the appropriate DRM on the public side.
2. On the private side there is an arbitration or forum selection clause.
3. The difference between public and private economic relations in DRMs is that with private parties the nominal parties are almost always the real parties – the parties at interest. (“Client heterogeneity).
4. DRMs
a. Equalize otherwise unequal parties within their structured and bounded arenas. Parties will not generally seek a compulsory, neutral third party DRM. If there is no formal DRM the stronger party will be able to exploit its dominance – but this is a false assumption. There is a difference between cpacity to exercise fate control and behavior control. When there is an asymmetry of power one can expect an elaborate DRM which nevertheless allows play for retorsions – acts which one State engages in manifestly unfriendly, but nonetheless lawful activities, in response to another State’s actions.
b. Lawyers think the ideal DRM must closely approximates adjudication in developed legal systems. The ideal DRM channels disputes to certain for a and prevents seisin by arenas whose decisions are likely to stress or even disrupt them.
i. Jeswald W. Salcuse, BIT by BIT…
1. It was the traditional method of fciilitating trade and occasionally contained provisions affecting the ability of one countries nationals to do business or own property on the territory of another. The US movement to protect investment post-WWII lost momentum when developing countries were skeptical of the benefits that they might derive.
2. European countries got BITs going again. The agreements dealt exclusively with foreign investment and sought to create a basic legal framework. Germany has signed the most. Europe was successful and not the US because the Europeans were less demanding with respect to guarantees on matters such as free convertibility of local currency, abolition of performance requirements and protections against expropriation.
3. The usual BIT is between a capital-exporting state and a developing country, although it doesn’t necessarily have to be this way.
ii. F.A. Mann, British Treaties for the Promotion and Protection of Investments
1. There is reciprocity written in to most of the agreements although it is a matter more of prestige than reality since the agreement is mostly between developed and developing countries.
2. The text of the BTI is valid in both languages.
i. Kenneth J. Vandevelde, The Bilateral Investment Treaty Program of the US.
1. Early FCN Treaties
a. The earliest ones, completed by the founders provided for MFN treatment. They had expropriation provisions and currency transfer restrictions. This typically included a due process obligation and just compensation.
b. The signing of the GATT which afforded MFN treatment obviated the need for FNC’s bilateral trade obligations.
2. Modern FCN Treaties
a. After WWII the goal was to protect US investment abroad. They contained
i. National and MFN treatment
ii. Prompt, adequate and effective compensation in takings
iii. Protection against exchange controls
ii. Treaties of Friendship, Commerce and Navigation
1. US-Polish Treaty of Friendship, Commerce and Consular Relations (1931)
i. Jeswald W. Salcuse, BIT by BIT…
1. There has been an increase in BITs in the last 30 years because of nationals and companies to undertake FDIs in other consequences and the consequent need to create a stable international framework to facilitate and protect those investments.
2. International law offered foreign investors little protection, it had no generally accepted rules and lacked a binding mechanism. Under customary international law the ability of a foreigner to undertake investment is under the exclusive sovereignty of the host country. The host has:
a. Right to control the movement of capital into its country
b. Regulate all matters pertaining to the acquisition and transfer of property within boundaries
c. To determine the conditions of the exercise of economic activity
d. To control the entry and activity of aliens
e. (the fear is that this will create barriers).
3. Article 2(c) of the UN Charter on Economic Rights and Duties of States holds that the host country is not required to give foreign companies preferential treatment, and that it has the