Human Rights in Investor-State Dispute Settlement
The most significant recent case involving human rights in investor-state dispute settlement is that of Urbaser v. Argentina,Footnote 52 which concerned a concession for water distribution and sewage in Buenos Aires. This case involved a principal claim and a counterclaim, the character of each providing an opportunity for the Tribunal to consider the human rights of the affected population through its interpretation of the IIA provisions, drawing on the principle of systemic integration and referring to general principles of international law. That said, while the Tribunal placed an emphasis on the responsibility of corporate actors to respect human rights, it ultimately found in the counterclaim that the Claimant in this case was not obliged to ensure the right to water of the local population in Buenos Aires.
During the merits of the principal claim, the Tribunal took human rights into consideration when interpreting the relevant standard under the IIA at issue, in this case the fair and equitable treatment provision of the 1991 Spain-Argentina bilateral investment treaty. In the context of this principal claim, the Tribunal came to the view that Argentina was under a simultaneous obligation to fulfil both its investment law and its human rights law commitments.Footnote 53 The Tribunal said that the state was obliged.
to ensure the population’s health and access to water and take all measures required to that effect. This was an important objective of the privatization of the water and sewage services […]. When measures had been taken that have as their purpose and effect to implement such fundamental rights […] they cannot hurt the fair and equitable treatment standard because their occurrence must have been deemed to be accepted by the investor when entering into the investment […]. In short, they were expected to be part of the investment’s legal framework.Footnote 54
The need to ensure the fundamental rights of the local population, the Tribunal said, should have informed the investor’s legitimate expectations about how Argentina might have acted towards it when the investment was made.Footnote 55 As a result, Argentina could not have acted unfairly or inequitably in breach of the relevant IIA that covered the investor’s investment in this sense.
The case is particularly notable, however, as it represents the first investment tribunal to accept jurisdiction over a counterclaim that concerns human rights. This procedural mechanism, as alluded to above, allows a host state to bring a claim against the investor, usually as long as the claim is in connection with the investment, in the context of a dispute that has been submitted by a foreign investor before an investor-state tribunal. In the Urbaser case, the Tribunal determined that there was a sufficient factual connection between the initial claim and the counterclaim. Argentina counterclaimed that Urbaser had breached its obligations under the concession contract to the extent that it did not adequately invest in the water distribution infrastructure and it was not possible to guarantee the right to water to the population in the areas concerned. The Tribunal noted that the claims and counterclaims were ‘based on the same investment, or alleged lack of sufficient investment, in relation to the same Concession’.Footnote 56 This is a much more liberal approach than has been taken in previous awards, which have required a legal connection between the claim and counterclaim.Footnote 57 Moreover, the Tribunal in Urbaser rejected the argument that it could not accept jurisdiction for a human rights claim.Footnote 58 Further still, the Tribunal lowered the procedural burden by only requiring the host state to establish a prima facie case for jurisdiction.Footnote 59
Interestingly, while deliberating on the merits of the counterclaim brought by Argentina against the investor for its failure to provide water to the population of Buenos Aires under the water concession it had been granted, the Tribunal was of the view that the IIA did not constitute a ‘closed system’.Footnote 60 As a result, the state was entitled to invoke legal obligations beyond the treaty. The Tribunal also rejected the argument that the Claimant, being a non-state entity, could not be bound by human rights obligations. The Tribunal emphasized that human rights and labour standards were applicable to public and private actors, although it seemed to suggest that the character of commitment may be different for public and private actors respectively.
When considering the substance of the counterclaim, the Tribunal observed that ‘international law accepts corporate social responsibility as a standard of crucial importance for companies operating in the field of international commerce’.Footnote 61 It also said that it can ‘no longer be admitted that companies operating internationally are immune from becoming subjects of international law’, although it further noted that certain soft law instruments were not ‘on their own sufficient to oblige corporations to put their policies in line with human rights law’.Footnote 62 The Tribunal referred to the Universal Declaration of Human Rights as well as the ICESCR and the International Labour Organization’s (ILO) Tripartite Declaration of Principles and opined that they should be taken into consideration through Article 31(3)(c) of the Vienna Convention on the Law of Treaties (VCLT) in the interpretation of the IIA.Footnote 63 This provision of the VCLT is also known as the principle of systemic integration and encompasses the notion that relevant rules of international law that apply in the relationship between the parties should be taken into account when interpreting a treaty.
The Tribunal ultimately went on to explain that, as regards the right to water, it ‘entails an obligation of compliance on the part of the state, but it does not contain an obligation for performance on part of any company providing a contractually required service’.Footnote 64 Such an obligation was, in the Tribunal’s eyes, ‘distinct from the state’s responsibility to serve its population with drinking water and sewage services’.Footnote 65 Unless the state had legislated to make such an obligation incumbent on private actors, the Tribunal was of the view that ensuring the right to water of local populations remained an obligation for the state to fulfil.Footnote 66 As the Tribunal based its reasoning on human rights law via the reference to general principles of international law in the applicable law provision of the IIA, the result would likely have been different had the IIA referred explicitly to appropriate investor obligations or corporate social responsibility.
In the case of Bear Creek v. Peru, a tribunal decided that Peru had indirectly expropriated the investment of a Canadian mining company by revoking a licence granted to them as they sought to operate a silver mine in Peru.Footnote 67 What is notable in this case, however, is a partial dissenting opinion by Arbitrator Philippe Sands. He was of the view that the behaviour of the investor, which led to social unrest in the local community around the investment, should have been taken into account in the determination of the compensation due to the investor. Referring to ILO Convention No. 169 concerning Indigenous and Tribal Peoples in Independent Countries, Sands considered that ‘the fact that the Convention may not impose obligations directly on a private foreign investor as such does not, however, mean that it is without significance or legal effects for them’.Footnote 68 Sands also made reference to the Urbaser tribunal’s engagement with human rights considerations and observed that ‘[t]he same considerations apply in the present case in relation to the requirements of the ILO Convention 169, and in particular its Article 15 on consultation requirements’.Footnote 69 He opined that the investor had not sought to obtain a social licence to operate as it failed to consult with the local population and establish trust. Consequently, he thought that the compensation awarded to the investor, Bear Creek, ought to have been mitigated in light of their contributory fault.
This case did not involve a counterclaim but nevertheless once again highlights that corporations are under increasing scrutiny for their compliance with international human rights norms. These more recent cases provide the strongest evidence yet of a trend that has been emerging in investment arbitration for over a decade. Indeed, several cases illustrate the increasing presence of human rights issues in investor-state dispute settlement cases, and arbitral tribunals have on several occasions recognized the importance that should be attached to human rights. In Phoenix Action v. The Czech Republic, for example, the Tribunal observed that ‘nobody would suggest that [investment] protection should be granted to investments made in violation of the most fundamental rules of protection of human rights, like investments made in pursuance of torture or genocide or in support of slavery or trafficking of human organs’.Footnote 70 In Spyridon Roussalis v. Romania, a tribunal recognised that applicable obligations in investment arbitration ‘could include obligations deriving from multilateral instruments to which those states are parties, including, possibly, the European Convention of Human Rights and its Additional Protocol No. 1’.Footnote 71
Human rights norms have also been interpreted in favour of investors in investment arbitration. In Hesham T.M. Al Warraq v. Republic of Indonesia, the Tribunal made extensive reference to various human rights instruments as it navigated its way through allegations of mistreatment in criminal proceedings conducted by the Indonesian authorities against the Claimant following a bank bailout.Footnote 72 The Tribunal said that ‘the State Party undertakes to refrain from doing anything injurious to human rights and do everything to ensure respect for human rights of the individual person concerned. It is the failure to honour this obligation that amounts to a violation of the principles of good faith’.Footnote 73 Ultimately, the Tribunal found that criminal proceedings violated the relevant standard in the IIA and, in interpreting this standard, it relied on the right to a fair trial under Article 14 of the International Covenant on Civil and Political Rights.Footnote 74 That said, the Tribunal did not award damages in the case because the Claimant had breached the investor obligations clause in the IIA and, as a result, violated the clean hands doctrine.Footnote 75 This also illustrates the role that investor obligations explicitly provided for in an IIA can play.
Similar developments are apparent in respect of international environmental norms in the investor-state dispute settlement arena, to which I will turn next.
The Environment in Investor-State Dispute Settlement
Counterclaims have also been availed of in recent litigation involving environmental matters that have arisen in investor-state dispute settlement, and have even resulted in the first awards of compensation for environmental damage.Footnote 76 In Burlington Resources v. Ecuador, a tribunal ordered the payment of $41 million to compensate environmental damage caused by the investor in that case.Footnote 77 However, prior to this in 2012, the Tribunal had found that Ecuador had breached the relevant IIA for unlawfully expropriating Burlington’s investment, which consisted of oil production facilities in the Amazon rainforest, awarding the investor approximately $380 million.Footnote 78
The Tribunal made the counterclaim award on the basis of Ecuadorian national law, which provided for strict liability where corporate actors caused environmental damage. Interestingly, the Tribunal appraised the damage that was caused by the investor and calculated the cost of reparation at each of the 40 sites in the oil field exploited by the Claimant and the Tribunal even made site visits.Footnote 79
In a different case involving Ecuador, a tribunal handed down on 12 September 2014 a Decision on Remaining Issues of Jurisdiction and on Liability in Perenco v. Ecuador.Footnote 80 There, the Tribunal was of the opinion that Ecuador was liable for breaches of fair and equitable treatment and expropriation under the applicable IIA. In 2015, the Tribunal issued an Interim Decision on the principal claims and the counterclaims that had subsequently been filed by Ecuador concerning the activities of Perenco.Footnote 81
In the context of the counterclaim, Ecuador argued that the investor caused environmental damage by polluting parts of the Amazon rainforest. It submitted that it should be paid around $3 billion in compensation to repair the damage. Recognizing the difficulty in appraising the value of such damage and criticizing the testimony of the parties’ experts, the Tribunal in that case appointed its own independent environmental expert to assist with the task.Footnote 82 On 27 September 2019, the Tribunal issued its final award.Footnote 83 In this decision, the Tribunal decided on the damages that were to be apportioned in the case, awarding $449 million to Perenco and $54 million to Ecuador for its counterclaim.Footnote 84
In its reasoning on the environmental counterclaim, the Tribunal noted that ‘[p]roper environmental stewardship has assumed great importance in today’s world’ and that if the relevant IIA permits it, the state may make a counterclaim for environmental damage caused by the investor and, if a tribunal is satisfied that the counterclaim is substantiated, the state should be awarded full reparation.Footnote 85 The Tribunal in Perenco v. Ecuador explained that the Rio Declaration on Environment and Development had been an important source in drafting the Ecuadorian law on the protection of the environmentFootnote 86 and was of the view that ‘a State has wide latitude under international law to prescribe and adjust its environmental laws, standards and policies in response to changing views and a deeper understanding of the risks posed by various activities, including those of extractive industries such as oilfields’.Footnote 87
Interestingly, Perenco had argued that Ecuador should pay any compensation awarded for the environmental counterclaim to an environmental remediation fund.Footnote 88 Ecuador agreed to this.Footnote 89 However, the Tribunal declined to make such an order.Footnote 90 It considered that this ‘would require continued monitoring of Ecuador’s remediation activities’ and such monitoring ‘would be inconsistent with the Tribunal’s role’, not least because, following the issuance of the Award, ‘the Tribunal is functus officio’.Footnote 91 That said, the Tribunal went on to declare its ‘firm expectation […] that the proceeds of the damages award made in favour of Ecuador in the environmental counterclaim will be devoted to remediation’.Footnote 92
In David Aven et al. v. Costa Rica, a tribunal found that the Claimants had breached environmental law in Costa Rica and that Costa Rica was justified in interfering with a tourism project investment on the grounds of environmental protection.Footnote 93 The Claimants submitted that they had received the required permits and approvals, including those related to the environmental viability of the project. However, following subsequent inspection of the site, Claimants argued that administrative and judicial actions were taken to shut down the project. According to Claimants, this destroyed the investment and breached the relevant IIA’s provisions on fair and equitable treatment, non-discrimination and expropriation.
Costa Rica responded that it took the measures it did to avoid environmental harm being caused to affected wetlands and forests. The state went on to argue that environmental protection was a legitimate policy, that environmental protection could be prioritized over the rights of investors and that it acted in accordance with domestic environmental law in order to protect its environment and ecosystems. Costa Rica also submitted a counterclaim against the Claimants for breach of the provisions on environmental protection under the IIA. In this context, Costa Rica asked the Tribunal to order that Claimants pay compensation to Costa Rica for repairing the environmental damage caused by Claimants’ activities.Footnote 94
The Tribunal ultimately considered that Costa Rica had not violated the IIA.Footnote 95 Moreover, it observed that the Claimants had caused environmental damage and that Costa Rica had acted to protect the wetland at risk, in accordance with domestic and international law. As for the environmental counterclaim filed by Costa Rica, the Tribunal rejected this for procedural reasons.Footnote 96 Costa Rica had not properly presented its claim for environmental damage in a timely manner.Footnote 97
That said, the Tribunal was of the view that ‘environmental law is integrated in many ways to international law, including [the applicable IIA]’Footnote 98 and that states should implement appropriate legislation that would subject corporate actors to environmental obligations. Moreover, the Tribunal opined that investors were under an obligation to comply with measures taken at the national level for environmental protection and that there was no reason to excuse such actors from obligations addressed to them in IIAs like those at issue in the present case.Footnote 99
By way of concluding this part, the above jurisprudence suggests that treaties having human rights and environmental obligations for investors is the most promising way to allow investment tribunals to hold corporate actors responsible for behaviour at odds with international standards. This will at the very least clarify for tribunals that they may take human rights or environmental obligations into account. It will also serve the purpose of clarifying that private actors too have a duty to respect such obligations. Other avenues that allow for corporate actors to be held to account for compliance with international human rights or environmental standards may be through domestic law or contractual obligations that become internationalized via an international investment agreement’s legality requirements or applicable law clause and the VCLT’s systemic integration provision.Footnote 100