by Sujoy Sur
While allowing investors the right to directly bring a claim against the States has said to be the single most progressive development in International Law in the 20th century, they also have gained recognition as ‘subjects’ of international law. It is this recognition which puts a corollary duty on the investor to regard human rights while carrying out activities in the host state. Over the past couple of decades, there has been a growth in, both, international human rights jurisprudence and investment arbitration claims by investors against States. With both procedural and substantive matters of importance coming to the fore, it has led to the convergence of both the areas and raised a valid concern of the importance of erga omnes obligations of human rights in investment arbitration. A human rights concern is a two-way street, with States being concerned about human rights violations by the investor in their territory and the investor being careful that his/her human rights are not unjustly violated by the State.
The recent award in the case of Urbaser v. Argentina brought to the fore the aspect of increasing convergence of human rights with investment law. This case cements the strengthening position being given to non-treaty international obligations in investment arbitration cases, besides mercantile obligations, as also seen previously in the Phillip Morris cases last year. The Panel, besides deciding on other questions on merit of the case, successfully allowed the State to make a human rights counter-claim against the Spanish corporation, Urbaser. A first of its kind, as the treaty allowed for filing of claims from either of the parties, thus, allowing for the possibility of counter-claims.
The dispute arose under the Spain-Argentina BIT. The claimant investor was a shareholder in a concessionaire which provided water and sewerage services in the Province of Buenos Aires, Argentina. This was granted to the claimant’s subsidiary, AGBA, in early 2000s. Argentina faced a financial emergency in 2001-02. It took emergency measures in January 2002, in the process of which the Claimant’s concession was also terminated in 2006 by Buenos Aires, leading to Claimant’s financial loss and insolvency. Citing obstruction and persistent neglect of AGBA’s shareholders’ interests, the Claimants alleged violations of the BIT, namely:
- Article III.1, on the prohibition to adopt unjustified or discriminatory measures;
- Article IV.1, on the obligation to afford fair and equitable treatment to the referred investments; and
- Article V, which forbids any illegal and discriminatory expropriation of foreign investments, imposing obligations to compensate.
After analyzing Article X(5) of the BIT, which states that, “The arbitral tribunal shall make its decision on the basis of… norms of private international law, and the general principles of international law”, the tribunal held that it is permitted by the BIT to incorporate principles of international law to adjudicate the claim, thus, the BIT was not a ‘closed system strictly preserving investors’ right under the BIT. On the basis of this the Tribunal rejected the Claimant’s contention that guaranteeing the human right to water is a duty that may be born solely by the State, and never borne also by private companies like themselves. The Tribunal referred to the Universal Declaration of Human Rights (“UDHR”) and the International Covenant on Economic, Social and Cultural Rights (“ICESCR”) while reasoning its stance on making private companies liable for human rights violations in investment disputes. Article 30 of the UDHR imposes the duty on any group or person to maintain rights under the Declaration, while General Comment 15 (Art. 11 and 12) by the Committee on Economic, Social and Cultural Rights stresses the importance of the supply and the economic accessibility of water, which will be the duty of States to ensure, in case it is being provided by third parties. Corroborating its finding, the Tribunal further held that ‘international law accepts corporate social responsibility as a standard of crucial importance for companies operating in the field of international commerce’, which includes the duty to comply with human rights obligations in countries other than the seat of their incorporation. Further, the Tribunal relied on Article 31(3)(c) of the Vienna Convention on Law of Treaties (“VCLT”) and Tulip Real Estate v. Republic of Turkey to conclusively hold that rules of international law, of which human rights are also a part of, cannot be ignored when adjudicating a claim arising out of a BIT, especially when the treaty provides for it.
The decision reached by the Panel is of consequential importance for two reasons. Firstly, investment treaty arbitration is in a precarious situation as many countries are either signing out of it or have already rescinded their treaties, owing to the regulatory chill they have been facing because of multitudes of investment claims. Secondly, the decision reaffirms the greater scope which States are being given off late by arbitral tribunals to regulate, to assert their sovereignty in a bona fide manner, and to make sure the rights of their citizens are not violated in fear of protecting the treaty rights of alien investors. In Philip Morris v. Uruguay last year in the investor was not allowed to subvert the national policy adopted for the purposes of public health. The intention of the State, it being bona fide, to take a public policy measure was given a higher legal ground against the claims of it being unreasonable, discriminatory and disproportionate which were analysed and rejected by the tribunal. The tribunal had also imported the human rights doctrine of “margin of appreciation” from the jurisprudence of European Court of Human Rights to grant Uruguay a regulatory space to take such a measure for its national needs. The ruling in Urbaser also squarely goes against the ruling in cases of Biloune v. Ghana Investments Centre and Tradex Hellas S.A. v. Albania, where the tribunals expressly dismissed human rights argument stating that its competence is limited only to the commercial merits in the dispute.
The ruling in Urbaser can also be held to be controversial for the purposes of imposing a human rights liability on investors, but this goes well with the prevailing trend of, I) Investors having a legal personality as transnational in international law, therefore, II) having the duty to uphold international law, including human rights. Back in August 2003 itself, the Sub-Commission on the Promotion of Human Rights of the United Nations Commission on Human Rights (CHR) approved the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights which defines human rights as one in the UN multilateral and customary system, being in consonance with Articles 1, 2, 55 and 56 of the UN Charter. The Norms on Transnational Corporations reinforce how corporations must pay heed to international human rights law. Similarly, the UN issued another document in June 2011, titled ‘Guiding Principles of Business and Human Rights’ which lays down principles of human rights which Corporations must follow, in recognition of the State’s obligation to protect human rights in its territory and the duty on Corporations, as specialised organs performing specific functions, to respect human rights while doing so. Although these obligations might be obligatory in nature, they are a restatement of the will of the international community and act as a guiding mechanism for international courts/panels to adjudicate upon disputes. These are obligations besides the more binding ones which the Panel cited, such as the UDHR, ICESCR, which have attained peremptory status in International Law.
From the point of view non-investment treaty obligations, the incorporation of it was also done by an arbitral panel in the case of SPP v. Egypt, where on the basis of the wordings of the treaty, the Panel interpreted that these obligations exist as far as the dispute is concerned when seen through Article 42 of the ICSID Convention. Though Egypt was not allowed the defence as the cancellation of the contract took place before it ratified the UNESCO Convention under which the contract would be illegal, SPP findings laid down that a) Investment obligation can be held to be against the State’s general international obligations, b) International obligations can be given precedence over investment promises. However, in the Urbaser case, Article X of the BIT specifically provided for adherence to international law and obligations besides contractual and investment law obligations, thus providing the tribunal a scope to directly adjudicate the case through the parameters of non-treaty obligations.
The Urbaser case has many far reaching implications. Besides the jurisdictional implication as far as counter-claims are concerned, it sets a path for greater allowance for conflict of other international law norms with that of international investment law, thus, a greater scope for regulation and assertion of sovereignty for the host States.
It is not that this is first case where the defence of human rights has been acknowledged. In Suez v. Argentina the tribunal did acknowledge the validity of State’s action in accordance with international law, by virtue of Article 42 of ICSID, but it held the concern to be mutually exclusive from that of the State’s obligations for the investor. In SAUR International v Argentine Republic the tribunal had also acknowledged the need for the State to regulate for human rights concerns as a part of its ‘governmental powers’, but said it has to be balanced out against the investors interests, thus, holding Argentina’s actions as one eligible for compensable expropriation to the investor. The tribunal in this case not only acknowledged the importance of human rights obligations in the role they play as a part of international law in a consent based mechanism such as investment arbitration, which in earlier cases was disregarded, but also stated the value of both the norms when seen from a wider aperture of international law. Although one can say that human rights obligations, here that of water, trumped the BIT obligations but a hierarchical nature of obligations was not stated explicitly. This position might become clearer with similar disputes in the future.
By directly adjudicating that a human rights issue and an investment dispute are not mutually exclusive, the tribunal’s decision can be ascertained to hold that different aspects of international law are under the ambit of one legal system which is how a dispute must be seen. Investment claims cannot be allowed to fragment international law by making them an exception to inherent obligations which every subject of international law is expected to follow. Such an inclusion and interpretation by ad-hoc tribunals is another way how investment law can converge and is seen to be converging with other branches of international law, rather than fragmenting it, besides multilateralization of investment treaty law as another way. This, thus, is the great comeback which the bilateral investment treaty regime can build upon.
What this dispute also inspires is how a treaty should be worded to allow the arbitral panel a greater scope to assess the action of the host State in light of its domestic and international obligations. Many States which are backing out of the investment treaty regime should and will come up with treaties which expressly state that tribunal should adjudicate a claim on the basis of principles of private and public international law, as seen in Article X of the Spain-Argentina BIT. Article 14(9) of the India’s new Model BIT, Article 9.23 of the TPP are a couple of examples.
It will be pertinent to see whether human rights as a whole will be put on a pedestal which might act as the looking glass through which investor duties and violations will be analysed or will it be graded so that only the most important rights which are peremptory in nature are allowed as a defence. This will also to an extent satiate the concerns raised by the tribunal in the SAUR case of there being an asymmetrical power relationship between the investor and the State. However, as far as right to water is concerned, it has always been acknowledged by international law as one of the most important human rights guarantee but it got disregarded owing to myriad of technical and jurisdictional reasons.
Lastly, such a decision by the tribunal also changes the scenario as far as the liability of investors is concerned and as to how investors must pay regard to other international obligations, particularly to that of human rights. This makes the investors more accountable to the kind of investments they make, forcing them to foresee the repercussions of their actions. This will surely bring a positive change to the investment climate in the world and allow States to take confidence in the investment treaty regime with renewed vigor.
* Sujoy Sur, BA/LLB, Gujarat National Law University.