Charting the Role of Human Rights Law in Investment Protection
The substantive protection of foreign investment under a bilateral or multilateral treaty, enforceable in a neutral forum, encourages and promotes development in recipient economies. Yet, when an investment dispute arises, can the investor’s conduct (in particular where that conduct fails to comply with human rights standards) be relevant to the assessment of the host State’s liability? In recent years, arbitral tribunals have engaged with issues requiring scrutiny of investor conduct, marking a micro but novel shift away from the conventional one-sided framing of investment protection.[i] Two procedural routes have been traversed: a tribunal may consider a respondent State’s substantive counterclaim, which may expressly allege a violation of international human rights law. Alternatively, a tribunal may be invited to consider whether the investor’s conduct amounts to contributory fault to the international wrong at issue.[ii]
Host State Counterclaim
The tribunal’s jurisdiction to hear a counterclaim will primarily be subject to the drafting of the dispute settlement clause in the BIT.[iii] Disputing parties can otherwise consent to the tribunal’s jurisdiction, but this is rare.[iv] Absent any direct obligation in the BIT, the traditional view supposes that an investor could not be subject to a general obligation under applicable international human rights law. However, the dicta in Urbaser and Aven demonstrate that tribunals may be receptive to the application of international human rights law, in harmony with investor protections.
The decision in Urbaser v Argentina provides the most in-depth discussion of a substantive human rights claim against an investor to date. The dispute arose in the context of Argentina’s 2001-2002 economic crisis, and related to Argentina’s termination of a concession for water and sewage services provided in the Province of Greater Buenos Aires, which had been granted to Aguas Del Gran Buenos Aires S.A. (“AGBA”), of which the claimants were shareholders. Argentina counterclaimed for the claimant’s alleged failure to provide the necessary investment into the concession, therefore violating its commitments and its obligations under international law based on the human right to water. The ICSID tribunal found, in an award handed down in December 2016, that it had jurisdiction to determine the counterclaim: the dispute settlement clause under the Spain-Argentina BIT covered disputes “in connection with investments”,[v] there was no ratione personae restrictions on which party could bring a claim, and it was accepted that the claimant in pursuing proceedings under the BIT, had consented to all disputes in connection with the investment, including any counterclaims of the State.[vi]
The tribunal however found that the counterclaim failed on the merits. In principle, the tribunal opined that a foreign investor company could be subject to international law obligations.[vii] When considering the applicable law, it accepted that “[t]he BIT cannot be interpreted and applied in a vacuum. The Tribunal must certainly be mindful of the BIT’s special purpose as a Treaty promoting foreign investments, but it cannot do so without taking the relevant rules of international law into account. The BIT has to be construed in harmony with other rules of international law of which it forms part, including those relating to human rights.”[viii] Whilst it was undisputed that the right to water and sanitation were protected human rights imposing a corresponding positive obligation on states, the tribunal found no equivalent obligation on the investor.[ix] The source of the obligation on the AGBA (and therefore the claimants) to provide water and sewage services derived from the concession contract under domestic law, over which the tribunal did not have jurisdiction. As there was no independent international law obligation binding on the claimant, the counterclaim failed.
The tribunal in Aven v Costa Rica, in an award rendered in September 2018, considered a counterclaim concerning allegations of environmental and ecosystem damage caused by the claimant in respect of the Las Olas Project site, in violation of domestic Ecuadorian law and obligations under customary international law. Of particular note, the tribunal shared “the views of Urbaser Tribunal that it can no longer be admitted that investors operating internationally are immune from becoming subjects of international law”.[x] The tribunal concluded it had prima facie jurisdiction over the counterclaims, finding that there was no reason of principle to declare inadmissible a counterclaim in which the respondent State claims that the foreign investor has breached obligations falling within the scope of Article 10, Section A of the Dominican Republic-Central America Free Trade Agreement. However, Costa Rica’s counterclaim was ultimately dismissed for failing to meet the procedural requirements of Articles 20 and 21 of the UNCITRAL Arbitration Rules.
Investor Contributory Fault
Alternatively, investor misconduct (which could involve noncompliance with human rights standards) could be considered by tribunals when assessing compensation by way of full reparation.[xi] Article 39 of the ILC Articles of State Responsibility provides that “[i]n the determination of reparation, account shall be taken of the contribution to the injury by wilful or negligent action or omission of the injured State or any person or entity in relation to whom reparation is sought.”[xii] Select decisions in recent years shed some light on how this doctrine has been applied – in particular in the context of community engagement and in responding to social unrest.
The tribunal in Copper Mesa v Republic of Ecuador found that the claimant’s injury in respect of two mining concessions was caused both by Ecuador’s unlawful expropriation in violation of the Canada-Ecuador BIT and by the claimant’s own contributory negligent acts and omissions and unclean hands. Such conduct included taking “the law into its own hands” in response to the protests from local communities.[xiii] Accordingly, the tribunal reduced the quantum of the compensation by 30%, to US$19.4m.[xiv]
Causation is a necessary element in contributory fault.[xv] In Bear Creek Mining Corporation v Peru, the tribunal found that Peru unlawfully expropriated the claimant’s right to operate the Sana Ana silver mining concession, in violation of the Free Trade Agreement between Canada and Peru. However, the majority (in an award dated 30 November 2017) held that the respondent had not proved a causal link between the acts or omissions in respect of outreach programmes, and with measures taken by the State to prohibit mining in the area in response to the emergence of social unrest.[xvi] It opined that the ILO Convention No. 169 (on Indigenous and Tribal Peoples) and which only imposed direct obligations on States, adopts principles of how community consultations should be undertaken, but does not impose an obligation of result.[xvii] On the evidence, the majority concluded that the claimant “could take it for granted to have complied with all legal requirements with regards to its outreach to the local communities.”[xviii] There was therefore no finding of contributory fault or liability.
In his dissenting opinion, Professor Philippe Sands concluded that the respondent had clearly established the claimant’s contributory responsibility to the social unrest, which had led to the Project’s collapse leading to the issuance of the ‘Decree 32’ by the government. Citing the decision in Urbaser, he considered the requirements of ILO Convention No. 169, in particular in relation to consultation requirements, was an applicable rule of international law to be taken into account for the purpose of the dispute.[xix] On the evidence, he found that the investor’s outreach programme was inadequate, and that the claimant’s contribution to fault was “significant and material”, such that that the measure of damage in his view should be reduced by 50%.[xx]
Interestingly, in assessing damages, the tribunal was not persuaded that a hypothetical purchaser of the Santa Ana Project would have been able to obtain the necessary ‘social license’ (i.e. general acceptance from the local communities) to be able to proceed with the Project.[xxi] The tribunal therefore awarded damages in the amounts invested of US$18.2m, rejecting the claimed amount of US$224m based on expected probability.
Conclusion
This cursory review reveals that there is not a uniform or coherent approach to contributory fault in the context of investor breaches of human rights standards. It is anticipated that treaty drafting, over time, will provide clarity to tribunals. The Netherlands’ 2019 Model Investment Agreement, for instance, expressly provides that investor behaviour can be taken into account when awarding compensation, including the investor’s compliance (or non-compliance) with its commitments under the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.[xxii] The direction of travel suggest that new generation investment treaties could more openly harmonise international human rights law and international investment law; in the meantime, it is clear that the role of human rights in investment disputes will increase.
[i] An investor may assert a violation of its human rights – for instance, if applicable, by reference to Article 1 of Protocol No. 1 to the European Convention on Human Rights, protecting peaceful enjoyment of property.
[ii] A tribunal may also find that an investor claim is inadmissible on the basis that the investor failed to comply with applicable laws at the time of the investment or otherwise on the doctrine of “clean hands”. For instance, the challenge to admissibility of an investor claim was successfully raised in Álvarez y Marín Corporación S.A. v. Panama (ICSID Case No. ARB/15/14, award dated 12 September 2008). Panama argued that the claimants had acquired their investment (in an ecotourism resort along the Panamanian Caribbean) through acquisitive prescription proceedings allegedly tainted by fraud and irregularities, in violation of Panamanian law affording special protections to indigenous communities. The tribunal agreed that it lacked jurisdiction, finding that all investment treaties have implicit requirement for an investor to comply with domestic law. In this case, the tribunal found that the investment was procured in breach of the applicable legal regime, which prevented the claimants nor the investments from benefitting from protection of the investment treaty or international law.
[iii] Where applicable, Article 46 of the ICSID Convention entitles a tribunal to determine any counterclaims “arising directly out of the subject matter of the dispute” provided they are within the scope of the parties’ consent.
[iv] For instance, in Burlington Resources Inc v Ecuador (ICSID Case No. ARB/08/5), the parties agreed that the tribunal could hear Ecuador’s counterclaim for alleged breaches of Ecuadorian law in respect of environmental mediation, as well as various contractual obligations. In February 2017 the tribunal upheld the counterclaim, ordering the claimant to pay US$41.7m. Burlington was awarded US$379.8m for its primary claim. In a parallel claim in Perenco Ecuador Ltd v Ecuador (ICSID Case No. ARB/08/6) Ecuador raised similar counterclaims based on Perenco’s failure to comply with Ecuadorian law, which included a strict liability regime for environmental law. Ecuador was awarded US$54m in damages for its counterclaim.
[v] Agreement for the promotion and protection of investments between the Kingdom of Spain and the Republic of Argentina dated 3 October 1991, Article X
[vi] Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016) (“Urbaser”), para 1150
[vii] Urbaser, para 1194
[viii] Urbaser, para 1200
[ix] Urbaser, para 1206-1208
[x] David R. Aven and Others v. Republic of Costa Rica, ICSID Case No. UNCT/15/3, Award (18 September 2018), para 738
[xi] For instance, see the analysis conducted by J-M Marcoux and AK Bjorklund, ‘Foreign Investors’ Responsibilities and Contributory Fault in Investment Arbitration’ (2020) 69 International and Comparative Law Quarterly 877
[xii] International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, November 2001, Supplement No. 10 (A/56/10), chp.IV.E.1 Article 39
[xiii] Copper Mesa Mining Corporation (Canada) v. The Republic of Ecuador, PCA Case No. 2012-2, Award (15 March 2016), paras 6.97-6.102
[xiv] The tribunal rejected the claimant’s market based valuation of its damages of US$69.7m as being too uncertain and subjective, instead awarding the proven expenditure
[xv] For instance, in South American Silver Limited (Bermuda) v. the Plurinational State of Bolivia, PCA Case No. 2013-15, Bolivia sought for any compensation granted to the claimant should be reduced by at least 75% in light of the claimant’s alleged acts and omissions. In its award (dated 22 November 2018), the tribunal found that the violation of the BIT – here the failure to pay compensation – was not attributable to the investor nor based on the conduct that Bolivia attributes to the investor. Paras 875-876.
[xvi] Bear Creek Mining Corporation v Republic of Peru, ICSID Case No. ARB/14/21 (“Bear Creek”), Award (30 November 2017), paras 568-69, 664-67
[xvii] Bear Creek, Award, para 664
[xviii] Bear Creek, Award, para 412, 665
[xix] Bear Creek, Partial Dissenting Opinion of Professor Philippe Sands QC (12 September 2017), para 11
[xx] Bear Creek, Partial Dissenting Opinion of Professor Philippe Sands QC (12 September 2017), paras 34-49
[xxi] Bear Creek, para 599
[xxii] Netherlands model Investment Agreement, 22 March 2019, Article 23. Article 7 also provides for ‘Corporate Social Responsibility’ and Article 7.1 directs that “Investors and their investments shall comply with domestic laws and regulations of the host state, including laws and regulations on human rights, environmental protection and labor laws.”