The Protection of Foreign Investments and Investors under International Law
Part I: Fictional Dispute.
Introduction
Internationally, an investment arbitration[1] is intended to safeguard private investors. The importance of private international investment is categorically stated in the Preamble of the ICSID[2] Convention.[3] According to the convention, an investor is either a private person or a corporation. State-owned corporations and state entities may be allowed as investors in instances where they act under private capacities. The Tribunal was of this stance in the case of CSOB v Slovakia[4]. Wecan is a Vietnamese corporation that has been registered. Under international law, an investor’s nationality is relevant for a variety of reasons. There is a positive as well as a negative criterion concerning nationality when one wants to acquire an entry to settle a dispute under the ICSID Convention[5]. One of the criteria required is that a foreign investor seeking to settle a legal dispute in a manner that conforms with the ICSID Convention must be from a nation that is a party to the ICSID convention. Wecan is a Vietnamese corporation that is a member state to the ICSID Convention. Furthermore, the investor ought to be from another state rather than the host state, which in this case is the Philippines. Wecan is entitled to rely on a jurisdictional clause because it is a national of one of the treaty’s signatories. The Philippines is one of the BIT’s parties[6], and Wecan is a company from Vietnam, a state that is also a party. This means that an arbitration proceeding based on a BIT is attainable. This issue is based on the 1992 investment treaty between the Philippines and Vietnam and the Philippines is a member thus granting the admissibility of the Tribunal that is due to handling an arbitral dispute. Wecan has handled successive businesses in the host state and as it was stated by the Tribunal in Duke Energy v Peru [7]if parties are bound by a contract that contains a clause agreeing to ICSID arbitration, they are bound by it.[8] The tribunal upheld this view in the case of CSOB v Slovakia[9]. Both parties are bound by the Philippines-Vietnam Investment Treaty of 1992 as well as the ICSID convention.
Wecan filed a lawsuit against the Philippine government in a Philippine district domestic court, but the case was dismissed. From an international perspective, before bringing a lawsuit in an international court on behalf of an investor, the foreign investor ought to have attempted alternative methods of resolving the dispute at the host nation before advancing for international alternatives.[10] This is a position that was pursued by Wecan. Article 26 of the ICSID Convention, on the other hand, expressly precludes the duty to exhaust remedies[11]. In Generation Ukraine v Ukraine[12], the Tribunal found that the claimants had the right to initiate international arbitration without first exhausting the remedies available through local courts. Wecan fairly observed the procedural formalities under international law before filing the suit in the circumstances.
Statement of jurisdiction
Jurisdiction of the ICSID heavily relies on the existence of an investment.[13] Despite this fact, the ICSID Convention provides no conclusive meaning of what an investment is. Nonetheless, in Suez v Argentina[14], the Tribunal defined investment to mean an asset developed to allow money to expand. Wecan’s casinos and hotels were investments and ventures in the Philippines. It is a jurisdictional prerequisite for a legal dispute to be there for an investment arbitration to be instituted. In a summary, the existence of an investment may determine jurisdictional matters in investment arbitration. If the matter before the tribunal is not legal but political or economic, the tribunal may lack jurisdiction.[15] Because the accusations against Wecan are legal, the Tribunal in this circumstance should dismiss these arguments. The Tribunal in Suez v Argentina [16]took this stance.
Investment arbitration is always conducted on contractual terms.[17] Consent from both the host state and the foreign investor is a prerequisite for a tribunal’s jurisdiction in arbitration. Both parties must have given their consent for jurisdiction to suffice. Wecan and the Philippine government are embroiled in a legal dispute. A legitimate investment dispute between a foreign investor who is national of a state party to the ICSID Convention and the host nation is required for ICSID’s jurisdiction to be affirmed. Furthermore, both parties to the dispute must have agreed to the jurisdiction of ICSID.[18] The express provision of Article X of the 1992 Philippines-Vietnam Investment Treaty (BIT) in this scenario confirms issues of the state’s consent to the ICSID Convention.[19] Being a party state to the ICSID Convention does not merely establish consent to jurisdiction. In a nutshell, it is not the only fact that should be considered while establishing consent to an arbitration agreement. Article X(2)(c) of the Philippines-Vietnam Investment Treaty (BIT) of 1992 provides for the resolution of disputes involving existing arbitral tribunals mutually agreed upon by the two Contracting Parties.[20] The ICSID Convention is ratified by both the Philippines and Vietnam. As a result, the ICSID has jurisdiction over the matter. The host country and the foreign investor’s nation must both be contracting nations, according to Article 25(1) of the ICSID Convention.[21] Article 8 of the applicable BIT outlined ICSID’s jurisdiction in terms of investment in Salini v Morocco[22], as well as the host’s responsibility in honoring the investor’s jurisdictional choice. Wecan can bring the claim before a Tribunal under Article X(2)(c) of the 1992 Investment Treaty between the Philippines and Vietnam (BIT), demonstrating that the Tribunal has jurisdiction under Article 25 of the ICSID Convention.
Tribunal matters on substantive issues of the law: A case of the Wecan
The motive of international investment law is to protect private foreign investment. In addition to the protection of foreign investments, the law also provides for the protection of investments by nationals of a particular state. Wecan’s rights under international law with regard to international investments were subsequently violated by the Philippine government. The investor’s nationality is of uttermost significance. This is because international tribunal’s jurisdiction is decided by the nationality of the investor. Where the host state consents to jurisdiction through a treaty, then such will only apply to nationals of states that are signatories to the treaty. The Tribunal stated this in Soufraki v UAE[23].
Most bilateral investment treaties (BITs) and other investment treaties ensure that foreign investments are treated fairly and equally.[24] This position, which was breached by the Philippines, is guaranteed by Article V1 of the 1992 investment treaty between the Philippines and Vietnam (BIT).[25] Under the circumstances, Wecan has a claim, and the Tribunal ought to rule that the Philippine government did not treat Wecan fairly and equally. Only the Japanese investor was protected by the government, which amounted to discrimination. The tribunal in Azurix v Argentina[26] interpreted Article II(2) of the Argentina-US BIT [27]which ensured equal and fair treatment of foreign investors. In summary, those who invest internationally will not be treated any differently than they would be treated under international law. In Mondev v United States[28], the Tribunal noted that determining what is fair and equitable cannot be done in a vacuum and subsequently stated that it must be based on the circumstances of the case. Similarly, in Waste Management v Mexico[29], the Tribunal recognized that the test is somewhat flexible and must be tailored to the facts of each case. In this case, the Philippines’ government has violated Article V1 of the 1992 Investment Treaty between the Philippines and Vietnam (BIT), therefore the Tribunal should decide against them. A state is liable for all of its organs under customary international law. In CMS v Argentina[30], the tribunal found that investment tribunals have adopted the principle of accountability for all state organs and applied it to state-foreign investor relationships. Wecan was owed an international duty of protection by the Philippines. Having failed to do so, the government should compensate Wecan for the loss suffered.
Part II: Question Two
Critically discuss the police power doctrine and to what extent it protects States’ right to regulate.
Police power doctrine
The Black’s Law dictionary defines state’s police power to be the power of the state to impose restrictions on people’s individual freedoms and proprietary rights for the protection of public health, general prosperity, public convenience, morals and safety.[31] According to the police powers theory, a state has an inherent right to regulate in the public good and does not behave unlawfully when it enacts proportionate, bona fide, and non-discriminatory restrictions in line with due process while using this power.[32]
The policing powers of the state are certainly not unrestricted. The theory does not provide the government free reign to do anything it wants. First, it is claimed that its use is limited to a few measures dealing with the most severe public policy concerns.[33] In the case Quiborax versus Bolivia, the court was very keen to propose a compounded three part test with the aim of having it determine whether the use of police power was legal. The tribunal looked into:
- if the revocation is based on the claimant’s actual violation of the law,
- if the concessions are terminated as a result of such violations, and
- if the revocation was done in accordance with the law[34]
It would be more true to argue that the whole theory of state police authority is an invention of the courts, which arose from the need to harmonize provisions of state and national written constitutions with the necessary demands of civilized society.[35]
Tribunals must assess the state’s aim in adopting a measure in order to establish whether it has a regulatory character and comes within the police powers .Legal research, like the Saluka tribunal, generally acknowledges the state’s police authorities as having customary international law standing.[36]
Police power doctrine and state’s right to regulate
When foreign investors dispute a host country’s regulatory measures, they may be seen as infringing on the host country’s regulatory power. When states eclectically chip away at the value of foreign investment, they may be viewed as purposefully or inadvertently misusing their regulatory authorities.
In the case of expropriation, tribunals have emphasized that the respondent State’s customary or treaty-based authority to regulate does not free it of its need to compensate for the direct or indirect taking arising from a regulatory action. A broad exclusion for regulatory actions would create a gaping breach in international laws against expropriation, according to the Pope and Talbot tribunal. As a result, the investment tribunals have acknowledged that regulatory authorities must be applied in a fair, reasonable, and nondiscriminatory manner.[37]
The tribunal in Chemtura v. Canada found that actions implemented by Canada’s Pest Management Regulatory Agency were “driven by an increased knowledge of the hazards posed by lindane to human health and the environment.” were “a lawful exercise of the State’s police powers and, as a result, [did] not constitute an expropriation,” according to the court.[38] The panel in AWG v. Argentina found that it is critical to recognize that the state might “use its police power in the interests of public good” and that such actions should not be confused with expropriation.[39]
Therefore, police state power to regulate has been held to need to meet some certain standards as stated in Quiborax versus Bolivia[40] The link between the list of factors to consider and the police powers clause itself is still being worked out, but one of the ways the list may be used in practice is to argue for the existence or absence of the exceptional circumstances that would enable a deviation from the doctrine.
[1] Simma, B., 2011. Foreign investment arbitration: a place for human rights? International & Comparative Law Quarterly, 60(3), pp.573-596.
[2] The International Centre for Settlement of Investment Disputes.
[3] The preamble of the ICSID[3] Convention.
[4] The CSOB case.
[5] Schreuer, C.H., 2009. The ICSID Convention: a commentary. Cambridge University Press.
[6] Philippines – Viet Nam BIT (1992).
[7] The Duke Energy case.
[8] Reed, Lucy, Jan Paulsson, and Nigel Blackaby. Guide to ICSID arbitration. Kluwer Law International BV, 2011.
[9] Supra note 4.
[10] Supnik, Kate M. “Making amends: Amending the ICSID convention to reconcile competing interests in international investment law.” Duke Law Journal (2009): 343-376.
[11] Article 26 of the ICSID Convention.
[12] The Generation Ukraine case
[13] Gaillard, E., 2009. Identify or Define? Reflections on the Evolution of the Concept of Investment in ICSID Practice. International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer, pp.403-416.
[14] The Suez case.
[15] McArthur, K.S. and Ormachea, P.A., 2008. International Investor-State Arbitration: An Empirical Analysis of ICSID Decision on Jurisdiction. Rev. Litig., 28, p.559.
[16]Supra note 12.
[17] Crawford, James. “Treaty and contract in investment arbitration.” Arbitration International 24, no. 3 (2008): 351-374.
[18] Schreuer, Christoph. “Denunciation of the ICSID Convention and Consent to Arbitration.” The Backlash Against Investment Arbitration: Perceptions and Reality (2010): 353-68.
[19] Article X of the 1992 Philippines-Vietnam Investment Treaty (BIT)
[20] Article X(2)(c) of the Philippines-Vietnam Investment Treaty (BIT)
[21] Article 25(1) of the ICSID Convention.
[22] The Salini case.
[23] The Soufraki case.
[24] DiMascio, N. and Pauwelyn, J., 2008. Nondiscrimination in trade and investment treaties: worlds apart or two sides of the same coin? American Journal of International Law, 102(1), pp.48-89.
[25] Article V1 of the 1992 investment treaty between the Philippines and Vietnam (BIT).
[26] The Azurix case.
[27] Article II (2) of the Argentina-US BIT.
[28] The Mondev case.
[29] The Waste Management case.
[30] The CMS case.
[31] Black, Henry Campbell. “Black’s Law Dictionary,(6 th edn, St. Paul Minnesota.” (1990).
[32] Chicago & Alton R. Co. v. Tranbarger, 238 U.S. 67, 35 S. Ct. 678, 59 L. Ed. 1204 (1915). Para 238
[33] Marshall v. Kansas City, 355 S.W.2d 877 (Mo. 1962). 883
[34] Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2
[35] Wickersham. “The Police Power, A Product of the Rule of Reason (1914).” Harv. L. Rev. 27: 297.
[36] Porterfield, Matthew C. “State practice and the (purported) obligation under customary international law to provide compensation for regulatory expropriations.” NCJ Int’l L. & Com. Reg. 37 (2011): pg 164-165
[37] Pope & Talbot, Inc. case.
[38] Chemtura Corporation Case, UNCITRAL, Award, 2 August 2010, para. 266.
[39] Anglian Water Group (AWG) Case, UNCITRAL, Decision on Liability of 30 July 2010, para. 139.
[40] Supra note 4.
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