bridging the gap between business and human rights in...

Bridging the Gap Between Business and Human Rights in Investment Treaty Arbitration: Parameters for Filing Host State Counterclaims for Investor Violations of Human Rights Katrina Monica C. Gaw*

I. INTRODUCTION .......................................................................... 657 II. A CLASH OF REGIMES: EXAMINING THE INTERSECTION

BETWEEN INTERNATIONAL INVESTMENT LAW AND

INTERNATIONAL HUMAN RIGHTS LAW ...................................... 669 A. International Investment Law B. International Human Rights Law C. When Two Worlds Collide: Investor Expectations, Host State

Responsibilities, and a Clash of Protected Rights

* ’18 J.D., with honors, Ateneo de Manila University School of Law. This Note is an abridged version of the Author’s Juris Doctor thesis, which won the Dean’s Award for Best Thesis of Class 2018 (Gold Medal) of the Ateneo de Manila University School of Law (on file with the Professional Schools Library, Ateneo de Manila University). The Author is currently a Junior Associate in Romulo Mabanta Buenaventura Sayoc & De Los Angeles. She was a Member of the Board of Editors of the Ateneo Law Journal. She joined the Board of Editors of the Journal for its 60th Volume and was an Associate Lead Editor for the fourth Issue of the same Volume. She served as a member of the Executive Committee of the 62d Volume as well as the Lead Editor of the first Issue of the same Volume. The Author’s previous works for the Journal include Restoring Balance to the Force (of Fandom): An IP Management Strategy for Walking the Fine Line Between IP Protection and Fan Engagement, 62 ATENEO L.J. 1483 (2018), Discovering Litigation Practice: A Reintroduction to the Modes of Discovery, 61 ATENEO L.J. 454 (2016), co-authored with Atty. George S.D. Aquino, and Beyond Conventional Free TV and Moviehouses: Proposing a Regulatory Framework for Video-on-Demand and Livestreaming Services Content Accessed Through the Internet, and Establishing Norms for Audience Empowerment and Sensitivity on Web-based Entertainment, 61 ATENEO L.J. 123 (2016), co-authored with Atty. Eugenio H. Villareal.

Cite as 64 ATENEO L.J. 655 (2019).

656 ATENEO LAW JOURNAL [vol. 64:655

D. Where Choice of Law is “International Law”: The Extent to Which International Human Rights Law can be Considered in Investment Treaty Arbitration

III. THE BUSINESS OF REGULATING BUSINESS: CORPORATE

ACCOUNTABILITY FOR HUMAN RIGHTS VIOLATIONS VIS-À-VIS

INTERNATIONAL INVESTMENT LAW ........................................... 699 A. Corporate Accountability in the Age of Globalization B. Dissecting Urbaser: Corporate Obligations in the Investment Setting C. Corporations as Non-State Actors under the International Law

Framework D. The Soft Law Approach E. Abuse of Rights: General Principle of Law and Possible Source of

Investor Liability in the Context of a Host State Counterclaim IV. THE INVESTMENT ARBITRATION SYSTEM: PROCEDURAL

CONSIDERATIONS APPLICABLE TO A COUNTERCLAIM UNDER

THE ICSID CONVENTION ........................................................... 747 A. Considerations Ratione Personae B. Considerations Ratione Materiae C. Summary of the Jurisdictional Requirements for an Investor’s Claim D. Counterclaims in Investment Arbitration E. The Issue of Privity: Addressing Investor-Claimant Liability for Acts

of Their Local Subsidiaries V. RESOLVING THE CONUNDRUM: PARAMETERS FOR THE FILING

OF HOST STATE COUNTERCLAIMS BASED ON INVESTOR

VIOLATIONS OF HUMAN RIGHTS IN INVESTMENT TREATY

ARBITRATION ............................................................................. 772 A. Preliminary Considerations B. Harmonizing International Investment Law and International Human

Rights Law Through the Principle of Systemic Integration C. The Grand Debacle: The Issue of Sourcing Corporate Obligations

Under International Law D. Resolving the Corporate Obligation Debate through the Abuse of

Rights Doctrine E. Dealing With The Question of Privity F. Testing the Parameters: Applications in the Philippine Context

VI. CONCLUSION AND RECOMMENDATIONS ................................... 795 A. Conclusion B. Recommendation: Philippine Model Bilateral Treaty

2019] BUSINESS AND HUMAN RIGHTS 657

I. INTRODUCTION

When the trumpet sounded everything was prepared on earth, and Jehovah gave the world to Coca-Cola Inc., Anaconda, Ford Motors, and other corporations. The United Fruit Company reserved for itself the most juicy piece, the central coast of my world, the delicate waist of America. It rebaptized these countries Banana Republics, and over the sleeping dead, over the unquiet heroes who won greatness, liberty, and banners, it established an opera buffa: it abolished free will, gave out imperial crowns, encouraged envy, attracted the dictatorship of flies[.]

— Pablo Neruda1

1. Pablo Neruda, The United Fruit Company, in CANTO GENERAL (John Mitchell trans., 1993). This is an excerpt from a poem by Pablo Neruda, a celebrated South American poet. In this work, he refers to the United Fruit Company, a multinational which dominated vast portions of South America in the 20th Century. The company produced and exported bananas to North America and other parts of the world and is credited for making the banana the household fruit it is today. But it was known in South America for land grabbing, manipulating weak governance systems, fueling racial discrimination, and abusing its laborers.

In A Hundred Years of Solitude, Gabriel García Márquez fictionalizes a real-life event where local authorities opened fire on rallying laborers of the United Fruit Company. GABRIEL GARCÍA MÁRQUEZ, ONE HUNDRED YEARS OF SOLITUDE 293-313 (Gregory Rabassa trans., 1970). Accounts as to the extent of the company’s participation in the atrocity vary. The company still exists today, though its public relations team thought it best to change its name; it is now known as Chiquita Brands International. See Lindsey Morey, Blood for Bananas: United Fruit’s Central American Empire, available at https://history.libraries.wsu.edu/fall2014/2014/08/30/the-united-fruit-companys-effect-on-central-america-in-the-early-1900s (last accessed Nov. 30, 2019) & Daniel Kurtz-Phelan, Big Fruit, N.Y. TIMES, Mar. 2, 2008, available at http://www.nytimes.com/2008/03/02/books/review/Kurtz-Phelan-t.html (last accessed Nov. 30, 2019).


When the multinational as it is today was first conceived, it was designed to encourage “large scale, long-term investments.”2

It was the age of discovery. It was a time when distant lands of spices and riches captivated European merchants and royals. It was also a time, however, when the perils of the sea and the possibilities of sunken ships — and in turn, sunk costs — limited the willingness of potential investors to shell out capital.

Merchants from the Renaissance previously spread the risk of maritime endeavors by pooling funds with a small group of family and friends on a per voyage basis.3 This method, however, was only good for the short term.4 Furthermore, those who injected capital into the venture were allowed to “exit at will.”5 Though lock-in contracts were executed between the investor and the shipowner, these were difficult to enforce in court, for they lacked the force “of a legal innovation.”6

Legal innovation came by way of a royal charter. In 1602, the Dutch government granted the Dutch East India Company, properly known as the Vereenigde Oost-Indische Compagnie (VOC), the means by which to secure long-term funding.7 The VOC charter granted it an exclusive monopoly trade in any newly discovered territories.8 Furthermore, rather than having investors fund one voyage at a time, the VOC was granted authority to issue permanent shares to “raise capital to outfit a proper fleet.”9 With the creation of the VOC, and its voyages into foreign terrain all over the globe, the world’s first

2. Giuseppe Dari-Mattiacci, et al., The Emergence of the Corporate Form, 33 J. LAW

ECON. ORGAN. 193, 196 (2017). While the corporation has been a conception since the Roman times, most scholars agree that the modern corporation — understood as a vehicle for undertaking business and making long-term investments — is traceable to mercantilism and the age of discovery. See also Andrew Beattie, What was the first company to issue stock?, available at http://www.investopedia.com/ask/answers/08/first-company-issue-stock-dutch-east-india.asp (last accessed Nov. 30, 2019).

3. Dari-Mattiacci, et al., supra note 2, at 196.

4. Id.

5. Id.

6. Id. (emphasis supplied).

7. Beattie, supra note 2.

8. Id.

9. Id. This was considered as the first initial public offering in history. Id.


multinational entity (MNE) was born.10 The result — annual dividends that went as high up as 75% of capital11 and profits as high as 400% per return voyage.12 By the late 17th century, the VOC was the “richest company in the world.”13 Its success was to be replicated by similar entities chartered by other European powers following the VOC’s structure.14

The VOC and its contemporaries, however, were more than just investment vehicles. They were given, by royal grant, the power of empires. They colonized and administered “India, Canada, Indonesia, Southern Africa, and other parts of the world.”15 They seized “swaths of African farmland,” “African mineral wealth,” and “significant petroleum sources in the Middle East,” and from these derived profits that would ultimately benefit their home State investors. 16 They committed acts which would constitute atrocities under modern international law — enslaving populations for commercial profit,17 promoting racial discrimination to quell rebellions,18 and dealing

10. Ben Phelan, Dutch East India Company: The World’s First Multinational, available at http://www.pbs.org/wgbh/roadshow/stories/articles/2013/1/7/ dutch-east-india-company-worlds-first-multinational (last accessed Nov. 30, 2019).

11. Id. & Bryan Taylor, The Rise And Fall of the Largest Corporation in History, BUS. INSIDER, Nov. 6, 2013, available at http://www.businessinsider.com/rise-and-fall-of-united-east-india-2013-11 (last accessed Nov. 30, 2019).

12. Id.

13. Phelan, supra note 10. As Ben Phelan observes, “Globalization, which we think of as the modern dilemma, followed more or less immediately upon learning that the world was, in fact, a globe.” Id.

14. Beattie, supra note 2.

15. Steven R. Ratner, Corporations and Human Rights: A Theory of Legal Responsibility, 111 YALE L.J. 443, 454 (2001).

16. Id.

17. The internationalization of trade also contributed to the Atlantic Slave Trade. See HUGH THOMAS, THE SLAVE TRADE — THE STORY OF THE ATLANTIC SLAVE

TRADE: 1440-1870 153-234 (1997).

18. Leonard Doyle, Colonial atrocities explode myth of Dutch tolerance, available at http://www.independent.co.uk/news/world/colonial-atrocities-explode-myth-of-dutch-tolerance-1439153.html (last accessed Nov. 30, 2019).


violently with local dissenters and laborers.19 And they did all these with full impunity. In turn, “[l]ocal communities received few economic benefits ... and had no basis to complain.”20 Foreign direct investment (FDI) thus made its first manifestation in this regard — as unbridled profiteering, that makes no consideration for local communities.

FDI has since evolved. In the modern age, FDI is a tool for social and economic development, particularly for developing countries. When investors such as MNEs enter host State territory, they bring in capital, foster employment, and facilitate know-how transfers.21 Their presence and their investments have also become substantive sources of funding for their host States.22

Today, both developed and developing countries hope to benefit from the positives of FDI. In the hopes of attracting more foreign investors, States participate in a regime of contemporary international law designed to protect investor interests — that of international investment law (IIL).

IIL consists of a network of over 3,000 international investment agreements (IIAs).23 IIAs contain the standards of treatment expected by a signatory State to be granted to its citizens who do business in the other’s territory, often including provisions concerning national treatment, prohibitions against illegal expropriation, and others.24 They are thus a list of

19. Id. See also Marcelo Bucheli, Good dictator, bad dictator: United Fruit Company and Economic Nationalism in Central America in the Twentieth Century (A Paper Prepared for the University of Illinois at Urbana-Champaign, College of Business), available at https://business.illinois.edu/working_papers/papers/06-0115.pdf (last accessed Nov. 30, 2019).

20. Ratner, supra note 15, at 453-54.

21. Id. (citing LORI F. DAMSROCH, ET AL., INTERNATIONAL LAW: CASES AND

MATERIALS 1613 (4th ed. 2001)).

22. Total inflow of investments grew between 1985 and 2017, from around US$60 billion to US$1.52 trillion dollars. Many developing countries have benefited from this dramatic increase. See World Trade Organization, Trade and foreign direct investment, available at https://www.wto.org/english/news_e/pres96_e/ pr057_e.htm (last accessed Nov. 30, 2019).

23. United Nations (UN) Conference on Trade and Development (UNCTAD), Investment Policy Hub, available at http://investmentpolicyhub.unctad.org/IIA (last accessed Nov. 30, 2019).

24. Julia G. Brown, International Investment Agreements: Regulatory Chill in the Face of Litigious Heat?, 3 WESTERN J. OF LEGAL STUD. 1, 2 (2013).


obligations on the part of host States, corresponding to a list of rights granted to investors.25 To give these IIAs teeth, international law has also developed a sui generis system for ensuring host State compliance with their treaty promises — investor-State dispute settlement (ISDS). By signing the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention),26 156 States have allowed foreign investors to rely on dispute settlement provisions found in IIAs to arbitrate claims directly against them.27 By invoking the jurisdiction of the International Centre for the Settlement of Investment Disputes (ICSID), investors can bypass local remedies28 and directly demand, from their host States, a standard of treatment matching the minimum standard of treatment (MST), i.e., “a certain international minimum, even if that minimum standard entailed treatment better than that guaranteed by the States of residence to their own nationals.”29

The combination of substantive and procedural rights granted under IIAs has encouraged foreign investment,30 and, at face value, seems to have resulted in a win-win situation for all involved. But the grant to investors of access to ISDS has led to some tensions between IIL and other fields of law.

As developing countries strive to meet public needs and match international human rights law (IHRL) standards, they often must modify their domestic legal frameworks, and, on occasion, this has meant that they had to implement policies that are arguably violations of their obligations under signed IIAs — cancelling licenses, revamping tax regimes, and redistributing

25. Id.

26. Convention on the Settlement of Investment Disputes between States and Nationals of Other States, entered into force Oct. 14, 1966, 575 U.N.T.S. 159 [hereinafter ICSID Convention].

27. Ministry of Trade and Industry of Singapore, International Investment Agreements, available at https://www.mti.gov.sg/Improving-Trade/ International-Investment-Agreements (last accessed Nov. 30, 2019).

28. The general rule under the ICSID Convention is that there need not be exhaustion of local remedies, unless the host State so specifies in the applicable investment treaty. See ICSID Convention, supra note 27, art. 26.

29. O. Thomas Johnson, Jr. & Jonathan Gimblett, From Gunboats to BITs: The evolution of modern international investment law, in YEARBOOK ON INTERNATIONAL

INVESTMENT LAW AND POLICY 651 (Karl P. Sauvant ed., 2011) (citing EDWIN

BORCHARD, DIPLOMATIC PROTECTION OF CITIZENS ABROAD 33 (1915)).

30. Lathan & Watkins, Investment Treaty Arbitration: A Primer, available at https://www.lw.com/thoughtLeadership/LW-investment-treaty-arbitration-primer 2 (last accessed Nov. 30, 2019).


properties for social purposes.31 Investors have reacted to these changes by making full use of their rights under international law — they file requests to arbitrate before the ICSID, where host States can be legally obligated to pay billions of dollars to aggrieved investors.32

In South Africa, for example, the government required landowners to reapply for licenses to extract minerals, as the former announced that it would enforce Black Economic Empowerment (BEE) policies found in its mining laws, aimed at redistributing the lands to correct past historical injustices caused by apartheid.33 The government’s BEE program resulted in the filing by

31. See, e.g., Oxfam, Tax Battles: the dangerous global race to the bottom on Corporate Tax, available at https://www.oxfam.de/system/files/bp-race-to-bottom-corporate-tax-121216-en.pdf (last accessed Nov. 30, 2019) (showing that developing countries such as Kenya and Nigeria lose billions of US dollars to tax incentives, even if World Bank surveys showed that 93% of East African investors would still have invested even if they had not been granted incentives); Ronald B. Davies & Krishna Chaitanya Vadlamannati, A race to the bottom in labour standards? An empirical investigation, 103 J. DEV’T ECON. 1, 1-14 (2013) (finding that developing countries modified labor legislation or otherwise began to enforce labor laws less stringently in order to attract more foreign investment); & Richard Sandbroke & Pradeep Mehta, FDI and Environment – Lessons from the Mining Sector (A Report from the OECD Rapporteurs report from the OECD Global Forum on International Investment conference in Paris, France on 7-8 Feb. 2002), available at http://www.oecd.org/sweden/2089022.pdf (last accessed Nov. 30, 2019) (sharing that some countries, like Ghana, have been pressured by foreign investors to allow for exploration and mining in its forest reserves, despite a 1996 moratorium on the practice). But see Cassandra Melton, The effects of international business and human rights standards on investment trends and economic growth, available at https://business-humanrights.org/sites/default/ files/media/documents/the_effect_of_business__human_rights_standards_on_investment.pdf (last accessed Nov. 30, 2019) (finding that the “race to the bottom” issue and its connection with foreign direct investment is not firmly established).

32. One of the biggest awards of all time was that in Occidental Petroleum Corporation v. Ecuador, where the company was awarded US$ 2.3 billion. See Occidental Petroleum Corporation v. The Republic of Ecuador, Award, ICSID Case No. ARB/06/11), ¶ 306 (Oct. 5, 2012).

33. Andrew Friedman, Flexible Arbitration for the Developing World: Piero Foresti and the Future of Bilateral Investment Treaties in the Global South, 7 BY INT’L L. & MGT. REV. 1, 3 (2011).


foreign investors of a request for arbitration before the ICSID. 34 In El Salvador, a foreign mining company filed a request for arbitration against El Salvador after the country refused to grant it a license to mine, citing the rights of its indigenous peoples (IPs) and the harms caused by mining in neighboring countries as primary reasons.35

Some investors have also used ISDS to counter disciplinary measures taken against them. In Chevron Corporation & Texaco Petroleum Corporation v. Republic of Ecuador (Chevron v. Ecuador),36 for example, Chevron successfully obtained orders of suspension of a decision made by an Ecuadorian court which found it liable for polluting the Amazon forests. 37 Chevron had invoked the provisions of the United States (US)-Ecuador BIT.38

The Philippines has not been immune to the possibility of a suit before the ICSID for regulatory measures concerning human rights. When President Rodrigo R. Duterte was elected last 2016, he appointed as Acting Secretary of the Department of Environment and Natural Resources (DENR) Regina Paz “Gina” La’O López (Lopez), an outspoken advocate against irresponsible

34. See Piero Foresti, Laura de Carli, and Others v. Republic of South Africa, ICSID Case No. ARB (AF)/07/1, Award, Judgment (Aug. 4, 2010). See also Claire Provost & Matt Kennard, The obscure legal system that lets companies sue states, available at https://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-corportations-sue-states-ttip-icsid (last accessed Nov. 30, 2019).

35. Mining Watch Canada, In El Salvador, OceanaGold Must ‘Pay Up and Pack Up’ available at https://miningwatch.ca/blog/2017/2/23/el-salvador-oceanagold-must-pay-and-pack#sthash.arb6P1C6.dpbs (last accessed Nov. 30, 2019). The suit dragged on for years, and was finally resolved in 2016, with a dismissal, holding that OceanaGold’s claims had no legal basis. Id.

36. Chevron Corporation & Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Claimants’ Memorial on the Merits, ¶ 546 (Sep. 6, 2010) [hereinafter Chevron v. Ecuador, PCA Case No. 2009-23]. See Daniel Behn, The Chevron-Ecuador Saga: Complexities in the Settlement of Investment Disputes, available at http://www.uio.no/studier/emner/jus/jus/JUS5540/h13/ undervisningsmateriale/chevron-presentation1.pdf (last accessed Nov. 30, 2019).

37. See Chevron v. Ecuador, PCA Case No. 2009-23, ¶¶ 1-18 (which explains the allegations of Chevron which amounted to violations of the US-Ecuador BIT).

38. Id.


mining.39 Aiming to ensure that all players in the mining industry passed proper environmental and social standards, Lopez immediately began to audit the various firms.40

At the time, OceanaGold, an Australian mining company operating the Nueva Vizcaya Dipidio goldmines, was issued a show cause order by the DENR.41 Civil society organizations (CSOs) and local communities had long accused the company of committing human rights abuses — the company’s operations sewage and mine tailings allegedly leaked into the Dipidio river, blocking access to clean water for irrigation and for other purposes; the company had also allegedly displaced and demolished the homes of IPs in the area. 42 The company responded to the DENR’s show cause order by informing Australian media that they would review all legal options. 43

39. Katrina Stuart Santiago, OceanaGold: History, Abuse, Mining, MANILA TIMES, Mar. 5, 2017, available at http://www.manilatimes.net/oceana-gold-history-abuse-mining/315478 (last accessed Nov. 30, 2019).

40. Mayvelin U. Caraballo, ‘Regulations main constraint to mining investment’, MANILA

TIMES, May 17, 2017, available at http://www.manilatimes.net/regulations-main-constraint-mining-investment/327628 (last accessed Nov. 30, 2019).

41. Raymon Dullana, Lopez vows cancellation of OceanaGold permit in Nueva Vizcaya, available at https://www.rappler.com/nation/140737-gina-lopez-cancel-oceanagold-permit-nueva-vizcaya (last accessed Nov. 30, 2019). Dramatically, after talking to community leaders and environmental groups about their concerns as regards the practices of OceanaGold, Lopez declared, “I promise I will not let you suffer anymore.” Id.

42. Santiago, supra note 39. In 2012, the company had already been issued an order of suspension by then Commission on Human Rights (CHR) chairperson Leila M. De Lima for its alleged human rights violations, including violations of the rights of indigenous peoples (IPs) in the Dipidio community and the demolition of their homes. Furthermore, the same company has been accused of the forcible displacement of IPs and the killing of anti-mining activists. Id. See also Jonathan Mayuga, Green groups want OceanaGold to account for environmental, human-rights violations, BUS. MIRROR, Feb. 4, 2015 available at https://businessmirror.com.ph/ green-groups-want-oceanagold-to-account-for-environmental-human-rights-violations (last accessed Nov. 30, 2019).

43. Lindsay Murdoch, OceanaGold fights against Philippine mining suspension, SYDNEY

MORNING HERALD, Apr. 24, 2017, available at www.smh.com.au/business/ mining-and-resources/oceanagold-fights-against-philippine-mine-suspension-20170421-gvpusj.html (last accessed Nov. 30, 2019).


Commentators from Australia’s legal community began to discuss investor options to resort to ISDS.44

The examples above demonstrate the tenuous links between IIL and human rights, particularly when placed within the jurisdiction of the ICSID. Whereas the regime of IIL mandates States to give investor protection primacy,45 IHRL obligates States to respect, protect, and fulfill the human rights of persons within their territories;46 and these two obligations do not always align.

This issue has irked all those who have gained awareness of it. Scholars, CSOs, and governments from both developed and developing countries have considered system revamps, 47 major BIT amendments, 48 and even the exclusion of the ISDS mechanism from future IIAs.49 Some further posit that the dichotomy between IHRL and IIL is simply a reflection of an even larger clash of paradigms — that between human rights and international corporation governance.50 This was the status quo when, in December 2016, an ICSID

44. Max Bonnell & Edwina Kwan, Philippine government’s crackdown on nickel mining — Arbitration options for foreign investors, available at http://www.kwm.com/en/au/knowledge/insights/philippine-government-crackdown-nickel-mining-industry-arbitration-20161014 (last accessed Nov. 30, 2019).

45. Todd Weiler, Balancing Human Rights and Investor Protection: A New Approach for a Different Legal Order, 27 B.C. INT’L & COMP. L. REV. 429, 433 (2004).

46. Frédéric Mégret, Nature of Obligations, in INTERNATIONAL HUMAN RIGHTS LAW 131 (Daniel Moeckli, et al. eds., 2013).

47. See, e.g., Stephan W. Schill, Reforming Investor-State Dispute Settlement (ISDS): Conceptual Framework and Options for the Way Forward (A Think Piece Submitted for the U.N.CTAD’s E15 Task Force on Investment Policy), available at https://pure.uva.nl/ws/files/2512304/ 163092_E15_Investment_Schill_FINAL.pdf 1(last accessed Nov. 30, 2019).

48. See, e.g., Patrick Dumberry & Gabrielle Dumas-Aubin, How to Impose Human Rights Obligations on Corporations Under Investment Treaties? Pragmatic Guidelines for the Amendment of BITS, in YEARBOOK ON INTERNATIONAL INVESTMENT LAW

& POLICY 577-587 (Karl P. Sauvant ed., 2011-2012).

49. Uche Ewelukwa Ofodile, Foreign Investments in Land and the Clash of Regimes: Mapping the Role of International Investment Law and International Human Rights Law, 7 HUM. RTS. & INT’L LEGAL DISCOURSE 56, 88 (2013).

50. See Ratner, supra note 15, at 454.


tribunal promulgated a decision on the merits in the arbitral dispute between Urbaser, S.A. v. Argentina.51

Urbaser involved a water concession agreement between the investor’s domestic subsidiary, Aguas Del Gran Buenos Aires, S.A. (AGBA), and Argentina, which was cancelled when the country plunged into deep financial crisis. 52 Urbaser and Consorcio de Aguas Bilbao Bizkaia (CABB), two investors, filed a claim against Argentina under the Spain-Argentina BIT, for violating the fair and equitable treatment (FET) standard and illegal expropriation.53 In a counterclaim, Argentina charged the investors for failing to make the necessary investments in AGBA, as a result of which AGBA failed to perform its obligation under its contract to fulfill the people of Argentina’s human right to water.54

In a first, the Urbaser tribunal held that it had jurisdiction over the human rights counterclaim. Using provisions found in human rights treaties,55 the tribunal concluded that making IHRL effective would entail an obligation on all persons, and not only States, not to engage in activity aimed at destroying such rights.56 This would include corporate investors, for “international law accepts corporate social responsibility (CSR) as a standard of crucial importance for companies operating in the field of international commerce.”57

However, the Urbaser tribunal ultimately held that the investors were not obligated to fulfill the right to water of Argentina’s citizens, for such was a

51. Urbaser S.A. & Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award, Judgment (Dec. 8, 2016) [hereinafter Urbaser v. Argentina, ICSID Case No. ARB/07/26].

52. Id. ¶ 71.

53. Urbaser v. Argentina, ICSID Case No. ARB/07/26, ¶ 35.

54. Id.

55. Id.


57. Urbaser v. Argentina, ICSID Case No. ARB/07/26, ¶ 1195 (citing Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework, U.N. Human Rights Council, U.N. Doc. A/HRC/17/31 (Mar. 21, 2011)).


State obligation, rather than an investor’s.58 At the same time, the tribunal held that investors had an obligation to abstain from violating human rights.59

Urbaser became the subject of discussion as soon as the decision was released. It was a landmark decision for two reasons:

(1) it was the first decision that extensively discussed human rights vis-à-vis IIL; and

(2) it was the first decision to claim that corporate investors had human rights obligations under international law, and thus could be made liable in ISDS through a counterclaim grounded on IHRL.

While many saw the application of IHRL in a positive light, most skeptics could not find legal basis for the Urbaser tribunal’s pronouncement that investors have human rights obligations — after all, in the view of most authorities, corporate investors, as non-State actors, did not have such binding legal obligations under IHRL.60 And history has made it so. As one flips through the pages of history, all the way back to the inception of the corporate form, corporations have never explicitly been made subjects of international law for their violations of human rights.61 Though attempts have been made to formulate hard law obligations for MNEs vis-à-vis human rights, none have been formalized.62 Furthermore, the IIL regime has long been criticized for its asymmetrical nature; 63 IIAs typically impose no explicit international


59. Id.

60. See, e.g., MALCOLM N. SHAW, INTERNATIONAL LAW 249-50 (6th ed. 2008).

61. While there is an unsettled debate on whether or not a corporation should be considered a subject, rather than an object, of international law, it is still the more established view that corporations are not currently subjects of international law. See Erika R. George, Empire, Global Enterprise, and Global Justice, 10 U. ST. THOMAS L.J. 917, 923-30 (2013) (for a discussion on the competing views on corporate personhood under international law) & Part III of this Note.

62. The UN Guiding Principles on Business and Human Rights is the most widely accepted document on international corporate governance. However, it contains “no legally binding framework for ensuring accountability.” See George, supra note 61, at 956. See also Part III of this Note.

63. ANDREW PAUL NEWCOMBE & LLUÍS PARADELL, LAW AND PRACTICE OF

INVESTMENT TREATIES: STANDARDS OF TREATMENT 64 (2009).


obligations on foreign investors in the operation of investments.64 And yet, the ICSID Convention explicitly provides for counterclaims,65 hence opening the door to the question of when investors can be deemed to have obligations under IIL. Given these circumstances, is there a way to harmonize IIL with IHRL and make corporations accountable for human rights violations in the ISDS setting?

This Note seeks to answer this question. It dips into the gray area that represents the cross-sections between IIL, IHRL, and international corporate governance to establish that there exists a place for human rights in investment arbitration, as well as a basis for legal liability for human rights violations committed by corporations under international law.

The Note begins with its primary legal question, as culled from Urbaser: In ISDS, can a counterclaim against an investor based on human rights violations committed by said investor while in the host State prosper? The Note will also address the following sub-issues:

(1) Can human rights considerations under IHRL be made in investment arbitration?

(2) Can a corporate investor — a non-State actor under international law — be made liable for human rights violations it commits in the host State, via counterclaim, in the ISDS setting?

(3) Can a corporate investor be made liable for the acts of its investments or subsidiaries in the territory of the host State?

(4) What are the procedural requirements for the counterclaim to prosper?

The Note will then apply the legal theory it proposes to a Philippine example to test when and how its created framework can be used in concrete situations. It concludes with recommendations for provisions to include in future investment treaties, in order to ensure that IHRL considerations are made even in the IIL setting.

64. Id.

65. ICSID Convention, supra note 26, art. 42.


II. A CLASH OF REGIMES: EXAMINING THE INTERSECTION BETWEEN

INTERNATIONAL INVESTMENT LAW AND INTERNATIONAL HUMAN

RIGHTS LAW

IIL and IHRL are often depicted as two conflicting fields of law in the ISDS setting.66 This is largely because IIAs are “human rights-blind[.]”67 In a 2014 fact-finding survey published by the Organisation for Economic Co-operation and Development (OECD) on Investment Treaty Law, Sustainable Development and Responsible Business Conduct, the OECD analyzed over 2,000 investment treaties and found that only 0.5% of them even mentioned human rights.68 This “blindness” to human rights concerns has, in turn, led to some perceived issues as to the possibility of making human rights considerations in IIL.69

This Section examines the nexus between the two regimes. It first describes them separately and then demonstrates how they interact, both in theory and in practice. It then describes how arbitrators reconcile conflicts between the two subsystems of international law in ISDS.

A. International Investment Law

1. The History and Framework of International Investment Law

IIL consists of a complex web of IIAs between capital-exporting and capital-importing States, with the latter consisting mostly of developing and formerly

66. See, e.g., Nicolas Klein, Human Rights and International Investment Law: Investment Protection as Human Right?, 4 GOETTINGEN J. INT’L L. 200, 200 (2012) & Sumithra Dhanarajan, Transnational state responsibility for human rights violations resulting from global land grabs, in LAND GRABS IN ASIA, WHAT ROLE FOR THE LAW? 178 (Connie Carter & Andrew Harding eds., 2015).

67. Id. at 178.

68. Kathryn Gordon, et al., Investment Treaty Law, Sustainable Development and Responsible Business Conduct: A Fact Finding Survey (An Organisation for Economic Co-operation and Development (OECD) Working Paper on International Investment dated Jan. 2014) 5, available at http://www.oecd.org/ investment/investment-policy/WP-2014_01.pdf (last accessed Nov. 30, 2019). The survey found that in investment treaties, environmental protection is mentioned 10% of the time, while labor standards are mentioned 5.5% of the time. Id. at 5.

69. See, e.g., Yira Segrera Ayala, Restoring the Balance in Bilateral Investment Treaties: Incorporating Human Rights Clauses, 32 REVISTA DE DERECHO 139 (2009).


communist countries. 70 The treaties are designed to facilitate foreign investment to host States, i.e., a “transfer of funds or materials from [the capital-exporting country] to [the host country] in return for a direct or indirect participation in the earnings of that enterprise.”71 They provide for the substantive rights and protections of investors from the capital-exporting country as guaranteed by the capital-importing host State.72

IIL traces its historical roots in diplomatic protection. 73 Hence, it is understood that, as a principle arising from a State’s sovereignty, no State is obliged to admit foreign investors into its territory.74 However, once an alien has been admitted into the host State’s territory, the latter must grant to the former treatment equivalent to the “minimum international standard[.]”75 Thus, “however harsh the municipal laws might be against the [S]tate’s own citizens, aliens should be protected by certain minimum standards of human protection.”76

Previously, as a result of diplomatic protection, when host countries failed to provide the MST to aliens, the alien’s home State could choose to assume its national’s claim as its own and sue the offending host State.77 This allowed for international arbitration to flourish between home and host States in the 1800s as a means of settling disputes.78 As an alternative, however, developed countries would resort to gunboat diplomacy — essentially, the deployment

70. GUS VAN HARTEN, INVESTMENT TREATY ARBITRATION & PUBLIC LAW 3 & 6 (2007).

71. Id. at 3.

72. RUDOLF DOLZER & CHRISTOPH SCHREUER, PRINCIPLES OF INTERNATIONAL

INVESTMENT LAW 6 (2012).

73. Id.

74. Id. & FR. JOAQUIN G. BERNAS, S.J., INTRODUCTION TO PUBLIC

INTERNATIONAL LAW 223 (2009 ed.).

75. BERNAS, supra note 75, at 229.

76. Id.

77. Kenneth J. Vandevelde, A Unified Theory of Fair and Equitable Treatment, 43 INT’L

L. & POLITICS 42, 160 (2010) (citing 8 MARJORIE MILLACE WHITEMAN, DIGEST

OF INTERNATIONAL LAW, at 1216-19 (1967)).

78. Thomas Johnson, Jr. & Jonathan Gimblett, From gunboats to BITs: The evolution of modern international investment law, in YEARBOOK ON INTERNATIONAL

INVESTMENT LAW & POLICY 653-54 (2010).


of military forces “to protect overseas nationals and their investments.”79 In 1965, however, the ICSID Convention was introduced as the new means by which disputes regarding the treatment of foreign investors could be resolved.

The ICSID Convention is a multilateral treaty “formulated by the Executive Directors of the World Bank to further the Bank’s objective of promoting international investment.”80 It established the International Centre for the Settlement Disputes (ICSID) and adopted an innovation which had been cropping up in some agreements between large corporations and their host States over the previous few decades — a dispute resolution mechanism which allowed investors to directly arbitrate with host States, bypassing the need to resort to diplomatic protection.81

The ICSID was intended to be an “independent, depoliticized[,] and effective dispute-settlement institution,” 82 and would have the power to resolve investment disputes brought by investors directly against their host States. 83 The ICSID Convention provides for a “self-contained” dispute settlement mechanism which, among its special features, includes awards that are final and binding on both parties to the dispute.84

The ICSID Convention is now the most frequently used arbitration regime for ISDS.85 Under the ICSID Convention’s provisions, jurisdiction over the investor’s claim is a simple matter of consent. For the investor, consent is established by its filing of the dispute. For the host State, the fact of its signing of an IIA incorporating its “general consent” to be subject to arbitration would suffice for the ICSID to have jurisdiction.86 This matter of jurisdiction highlights the relationship between IIAs and the ICSID

79. Johnson, Jr. & Gimblett, supra note 79, at 652.

80. International Centre for the Settlement of Investment Disputes, About ICSID, available at https://icsid.worldbank.org/en/Pages/about/default.aspx (last accessed Nov. 30, 2019).

81. Vandevelde, supra note 77, at 175.

82. Id.

83. Walter Mattli & Thomas Dietz, Rise of International Commercial Arbitration, in INTERNATIONAL ARBITRATION AND GLOBAL GOVERNANCE: CONTENDING

THEORIES AND EVIDENCE 3 (Walter Mattli & Thomas Dietz eds., 2014).

84. Id.

85. Kaj Hobér, Investment Treaty Arbitration and Its Future – If Any, 7 Y.B. ARB. &

MEDIATION 58, 58 (2015).

86. VAN HARTEN, supra note 70, at 26-27.


Convention — while IIAs provide the substantive rights of foreign investors, the ICSID Convention provides the procedural framework under which investors may request to arbitrate a dispute against one of 156 signatory host States.87

2. Substantive Rights of Investors: Provisions as to Expected Treatment and Expropriation

This sub-Section of the Note explains two types of provisions in IIAs that are most commonly placed at odds with the human rights of host State citizens in ISDS: the expected treatment of investors and provisions on expropriation.88

i. Treatment of Investors

There are two types of treatment which host States grant to investors: the non-contingent and contingent standards. The non-contingent standards are those that are absolute, in that they “apply to protect a given entity irrespective of the treatment accorded to others.”89 Contingent standards, on the other hand, are those standards that are determined, “not by reference to the standard itself, but by reference to an exterior state of law or fact, namely the treatment accorded to other persons or entities, who stand in the requisite relationship to the protected investor.”90

The first type consists of the non-contingent standards and includes:

(1) FET,

(2) Protection against arbitrary or discriminatory measures, and

87. United Nations Conference on Trade and Development, Investment Policy Hub — International Investment Agreements, available at http://investmentpolicyhub.unctad.org/IIA (last accessed Nov. 30, 2019).

88. Interestingly, international investment agreements (IIAs) often contain the same substantive provisions, as most of them were modeled after the same limited number of sources, including drafts created by the Organisation for Economic Co-operation and Development in 1967. CAMPBELL MCLACHLAN, ET AL., INTERNATIONAL INVESTMENT ARBITRATION: SUBSTANTIVE PRINCIPLES 26 (2014).

89. Id. at 207.

90. Id.


(3) Full protection and security.91

The assurance of FET is considered “the most basic protection for foreign investment.”92 It has its roots in the MST of foreigners and their property, granted to aliens under custom.93 When found in treaties, it is often simply phrased as follows: “Investments shall at all times be accorded [FET] ... in the territory [of the host State.]”94

The accepted notion of FET prohibits the denial of justice to investors “in the course of the host State’s judicial process.”95 It also provides for review of administrative action whenever there is “breach of the standard in the investor’s treatment by the executive department of the host State’s government.”96 Under this latter category also falls the doctrine of legitimate expectations, which entails that the host State must keep its promises to the investor as regards the overall stability of the business and legal framework of the country. 97 However, as held in Enron Corporation v. Argentina, 98 the legitimate expectations that have been formed by the investors should have been “derived from the conditions that were offered by the State to the

91. Id. at 11. See, e.g., Agreement between the Government of Canada and the Government of the Republic of the Philippines for the Promotion and Reciprocal Protection of Investments, Canada-Philippines, art. 2 (2), Nov. 10, 1995, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/ 627 (last accessed Nov. 30, 2019) [hereinafter Canada-Philippines BIT] & DOLZER

& SCHREUER, supra note 72, at 193.

92. MCLACHLAN, ET AL., supra note 88, at 11.

93. Id. at 32.

94. MCLACHLAN, ET AL., supra note 88, at 200. See, e.g., Canada-Philippines BIT, supra note 91, art. 2 (2) (a) (which states that “[e]ach Contracting Party shall accord investments or returns of investors of the other Contracting Party ... fair and equitable treatment [(FET)] in accordance with principles of international law.”).

95. MCLACHLAN, ET AL., supra note 88, at 11. See, e.g., Loewen Group, Inc. v. United States of America, ICSID Case No. ARB(AF)/98/3, Award (June 26, 2003). In this case, the ICSID tribunal held that failure to grant an investor the right to fair trial is a violation of the FET standard.


97. Id. at 234 & Christoph Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6 J. WORLD INV. & TRADE 357 (2005).

98. Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award (May 22, 2007) [hereinafter Enron Corporation v. Argentina, ICSID Case No. ARB/01/3].


investor at the time of the investment[;]”99 these conditions should have also been “relied upon by the investor when deciding to invest.”100 FET is also applied to administrative processes, and host States are made liable when an ICSID tribunal finds that there has been discrimination, 101 a failure to act in a transparent manner,102 or a lack of due process.103

On the other hand, protection against arbitrary or discriminatory measures entails protecting foreign investors from measures which will affect them without “engaging in a rational decision-making process.”104 Examples of measures which tribunals have accepted as arbitrary or discriminatory include measures that “inflict damage on the investor without serving any apparent legitimate purpose[,]”105 measures taken “in [willful] disregard of due process and proper procedure[,]”106 and measures which are imposed “not based on legal standards but on discretion, prejudice, or personal preference.”107

Meanwhile, granting full protection and security to investors entails taking “such measures as may be reasonably necessary to ensure the protection and

99. Enron Corporation v. Argentina, ICSID Case No. ARB/01/3, ¶ 84 (emphasis supplied). It is additionally of note, however, that the FET standard is seen as one which allows for of the interests of both the investor and the host State. As such, most tribunals will attempt to determine the host State’s compliance with the FET standard under investment law by juxtaposing public interest, as promoted by the host State, and the protection of the investor’s private interests. MCLACHLAN, ET AL., supra note 88, at 206.

100. Enron Corporation v. Argentina, ICSID Case No. ARB/01/3, ¶ 84.

101. Methanex Corporation v. United States of America, 44 I.L.M. 1345 (2005).

102. Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (Aug. 30, 2000).


104. LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, ¶ 158 (Oct. 3, 2006).

105. DOLZER & SCHREUER, supra note 72, at 193 (citing EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, ¶ 303 (Oct. 8, 2009) & Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Jurisdiction and Liability, ¶ 262 (Jan. 15, 2010).

106. Id.

107. Id.


security of the covered investments.”108 This concerns the host State’s “failure to protect the investor’s property from actual damage caused by either miscreant State officials, or the actions of others, where the State has failed to exercise due diligence.”109 It is often linked to failure to properly exercise police power.110

The second type of expected investor treatment, contingent standards, concerns the right of non-discrimination, which, in turn, may also pertain to the most favored nation (MFN) treatment or national treatment. These standards must be expressly granted by treaty to apply, as customary international law has never required the grant of these standards to aliens.111

The MFN clause is usually phrased as follows: “Each Contracting Party shall grant to investments, or returns of investors of the other Contracting Party, treatment no less [favorable] than that which, in like circumstances, it grants to investments or returns of investors of any third State.”112 The MFN clause may also be applied to investors and not just investments.113

108. Association of Southeast Asian Nations Comprehensive Investment Agreement, art. 11 (2) (b), Feb. 26, 2009, available at http://investasean.asean.org/files/ upload/Doc%2005%20-%20ACIA.pdf (last accessed Nov. 30, 2019).


110. Id. An illustration of this standard can be found in Asian Agricultural Products Ltd. (AAPL) v. Sri Lanka, in which a farm owned partly by the investor and partly by the Sri Lankan government was destroyed during a counter-insurgency operation conducted by the Sri Lankan government. The ICSID tribunal in that case held the host State liable for failure to take precautionary measures before launching the counter-insurgency operations, including the government’s failure to remove the employees of the farm before it launched its offensive. See Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, ICSID Case No. ARB/87/3 (June 27, 1990).


112. This version of the most favored nation clause was taken from the Canada-Philippines BIT. Canada-Philippines BIT, supra note 91, art. 3 (1). See also Agreement between the Federal Republic of Germany and the Republic of the Philippines for the Promotion and Reciprocal Protection of Investments, Ger.-Phil., art. 3 (1), Apr. 18, 1997, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/1392 (last accessed Nov. 30, 2019) [hereinafter Germany-Philippines BIT].

113. An example from the Canada-Philippines BIT provides — “Each Contracting Party shall grant investors of the other Contracting party, as regards their


Meanwhile, the national treatment clause typically comes in this form: “Neither the Contracting Party shall in its territory subject investments or returns of nationals or companies of the other Contracting Party to treatment less [favorable] than that which it accords its own nationals or companies[.]”114 The clause is also usually applied to investors, whether individuals or companies.115

ii. Expropriation

Expropriation is defined as “the compulsory acquisition of a property by a State.” 116 The classic rules of international law have accepted “the host [S]tate’s right to expropriate alien property.” 117 IIL acknowledges this sovereign power of the host State as well. However, whether the expropriation is legal or illegal, IIL mandates that the host State pay damages.118 The question of whether or not the expropriation is illegal is relevant in determining the amount that the host State will have to pay.119

Expropriation can be direct or indirect. Direct expropriation “occurs when the [S]tate directly transfers legal title to the asset to the [S]tate, such as through [nationalization].”120 One clear example of direct expropriation is

management, use, enjoyment[,] or disposal of their investments or returns, treatment no less [favorable] than that which, in like circumstances, it grants to investors of any third State.” Canada-Philippines BIT, supra note 91, art. 3 (2).

114. DOLZER & SCHREUER, supra note 72, at 76.

115. Id.

116. Lorenzo Cotula, The regulatory taking doctrine, available at http://pubs.iied.org/pdfs/17014IIED.pdf (last accessed Nov. 30, 2019).


118. Ursula Kriebaum, Regulatory Takings: Balancing the Interests of the Investor and the State, 8 J. WORLD INV. & TRADE 717, 719 (2007).

119. Id.

120. Mark W. Friedman, et al., Expropriation and Nationalisation (An Article Published in the Global Arbitration Review), available at http://globalarbitrationreview.com/chapter/1142558/expropriation-and-nationalisation (last accessed Nov. 30, 2019). See, e.g., Amoco International Finance Corporation v. The Government of the Islamic Republic of Iran and the National Iranian Copper Industries Company, 15 Iran-U.S. Cl. Trib. Rep. 189 (1987) & TOPCO v. Libya, Award, 17 I.L.M. 1 (1978).


when the host State terminates the right granted to a concession and then later grants the same right to a rival concession.121

Meanwhile, there is indirect expropriation when there is a taking “through measures tantamount to expropriation.”122 These have also referred to as “creeping acquisitions.”123 Indirect expropriation often takes the form of what are referred to as regulatory takings, which “require[ ] host States to compensate foreign investors for regulatory measures that negatively affect ongoing investment projects to a significant degree.”124

One key doctrine in expropriation is the “sole effects” doctrine, which provides that compensation given to an investor is not determined by the host State’s intent to expropriate; rather, the only determinative factor is the “effect of the governmental measure on the investment.” 125 An example of a regulatory taking amounting to expropriation is the arbitral dispute of Metalclad v. Mexico,126 where the Federal Government of Mexico had allowed the claimant to operate its hazardous landfill facility.127 Subsequently, the local government denied the company’s construction permit, and the regional government declared the area a protected area due to the presence of rare cacti, thus barring the claimant from continuing operations.128 The tribunal

121. See, e.g., Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/05/18, Award, ¶ 387 (2010).

122. Mark W. Friedman, et al., Expropriation and Nationalisation (An Article Published in the Global Arbitration Review), available at http://globalarbitrationreview.com/chapter/1142558/expropriation-and-nationalisation (last accessed Nov. 30, 2019). See, e.g., Occidental Petroleum and Production Co. v. Republic of Ecuador, LCIA Case No. U.N. 3467, Final Award, ¶ 85 (2004).

123. Patrick Simon S. Perillo, Transporting the Concept of Creeping Expropriation from de Lege Ferenda to de Lege Lata: Concretizing the Nebulous under International Law, 53 ATENEO L.J. 435, 436 (2008) (citing Rudolf Dolzer, Indirect Expropriation of Alien Property, 1 ICSID REV. - FOREIGN INV. L.J. 41, 41 (1986)).

124. Cotula, supra note 116.


126. Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (Aug. 30, 2000) [hereinafter Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1].

127. Id. ¶¶ 28-29.

128. Id. ¶¶ 45-69.


held that there was an indirect expropriation, and that Mexico was liable to compensate the claimant.129

The above common provisions, as contained in IIAs, establish that IIL is actually a rights-based regime focused on protecting the investor’s property rights.130 As José E. Alvarez, former president of the American Society of International Law, opines, “like human rights regimes, BITs [ ] require States to:

(1) respect the legal values of stability, predictability[,] and consistency;

(2) protect legitimate expectations;

(3) grant procedural and administrative due process and avoid denials of justice

(4) achieve transparency; and

(5) take only reasonable and proportionate actions.”131

This observation as to the nature of IIL provides it with a necessary link to IHRL and allows for a comparison between the two regimes.

B. International Human Rights Law

1. The Framework of International Human Rights Law

In 1946, following the events of the Second World War, the UN Committee on Human Rights was instituted and given the vital task of the drafting of an International Bill of Rights.132 Eventually, in 1948, the UN General Assembly promulgated the Universal Declaration of Human Rights (UDHR).133

The UDHR lists what are considered the most fundamental human rights.134 It reads as if it has been written by the world community, both States

129. Id. ¶ 109.

130. DAVID COLLINS, AN INTRODUCTION TO INTERNATIONAL INVESTMENT LAW

16 (2016).

131. José E. Alvarez, Are Corporations “Subjects” of International Law?, 9 STA. CLARA J. INT’L L. 1, 15 (2011).

132. Id. at 35.

133. Id.

134. Id.


and persons, and is addressed to them as well. 135 When it was first promulgated, however, it was emphasized that the UDHR is not a treaty and did “not purport to be a statement of law or of legal obligations.” 136 Nevertheless, the 48 States that passed the UDHR accepted it as “a common standard of achievement for all peoples and all nations.”137

Today, some provisions of the UDHR constitute general principles of law and “represent [ ] elementary considerations of humanity.” 138 This is evidenced by the UDHR’s use in decisions of the ICJ,139 as well as its function as a template for many domestic constitutions around the world.140

Two other documents are of vital importance to the current framework of IHRL: the International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic, Social and Cultural Rights (ICESCR). These two Covenants are treaties, and are thus binding obligations on the part of signatory States.

The ICESCR protects social, economic, and cultural rights. The ICESCR includes provisions on the right to work (Articles 6 and 7), the right

135. See, e.g., Universal Declaration of Human Rights, G.A. Res. 217A (III), pmbl., U.N. Doc. A/810 (Dec. 10, 1948) (which makes reference to the people of the U.N. affirming their fundamental belief in human rights and the Member States pledging to achieve “the promotion of universal respect for and observance of human rights and fundamental freedoms[.]”) & Id. art. 30 (which states that “[n]othing in [the UDHR] may be interpreted as implying for any State, group[,] or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms set forth herein.”).

136. Ed Bates, History, in INTERNATIONAL HUMAN RIGHTS LAW 35 (2011).

137. Id.

138. IAN BROWNLIE & GUY S. GOODWIN-GILL, BROWNLIE’S DOCUMENTS ON

HUMAN RIGHTS 39 (2010).

139. See, e.g., Case Concerning United States Diplomatic and Consular Staff in Tehran (U.S. v. Iraq), 1980 I.C.J 3, 42 (Nov. 29) & Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v. U.S.), 1986 I.C.J 14, 100 & 133 (June 27).

140. See Hurst Hannum, The Status of the Universal Declaration of Human Rights in National and International Law, 25 GA. J. INT’L & COMP. L. 287, 289 (1995).


to social security (Article 9), the right to food (Article 11), and the right to health (Article 12).141

Meanwhile, the ICCPR protects the civil and political rights of individuals, including the right of peoples to self-determination (Article 1), the right to liberty and security of the person (Article 9), and the right to due process (Article 14). Article 2 of the ICCPR requires all States to respect the human rights of all individuals within their territory and subject to their jurisdiction the rights therein recognized.142 These provisions of the ICCPR are immediately enforceable.143

The UDHR, the ICESCR, and the ICCPR, along with the latter’s two Optional Protocols, would eventually constitute what is understood to be the International Bill of Rights.144 Today, IHRL consists largely of these three documents, followed by treaties aimed at addressing specific issues.145 Some principles and rights under this paradigm have ripened into customary law.146 Still, IHRL remains largely governed by treaty as well — for the most part, States are obligated to promote human rights that are found in treaties they have bound themselves to perform.147

2. Respect, Protect, Fulfill: How States Must Realize Human Rights Under International Law

141. International Covenant on Economic, Social and Cultural Rights arts. 6, 7, 9, 11, & 12, opened for signature Dec. 19, 1966, 993 U.N.T.S. 3 (entered into force Jan. 3, 1976).

142. Hannum, supra note 140, at 289.

143. Id. at 265-66.

144. Office of the High Commissioner on Human Rights, Fact Sheet No.2 (Rev.1), The International Bill of Human Rights, available at https://www.ohchr.org/Documents/Publications/FactSheet2Rev.1en.pdf (last accessed Nov. 30, 2019).

145. See, e.g., International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families, opened for signature Dec. 18, 1990, 2220 U.N.T.S. 3 & Convention on the Rights of Persons with Disabilities, opened for signature Dec. 13, 2006, 2515 U.N.T.S. 3.

146. JAMES CRAWFORD, BROWNLIE’S PRINCIPLES OF PUBLIC INTERNATIONAL LAW 642-43 (8th ed. 2012).

147. Id. at 643.


States are mandated to enforce human rights within their territory. But given the broad language of human rights obligations under treaties, the extent to which States have this obligation can appear difficult to estimate. To cure this, human rights treaty bodies have come up with a general framework for understanding the scope of this State obligation, using a “tripartite typology” which obligates States to respect, protect, and fulfill human rights.148

The obligation to respect is linked with the duty to secure the human rights of individuals in its territory. Thus, a State has “a negative obligation not to take any measures that result in a violation of a given right.”149

The obligation to protect, on the other hand, means that States must protect individual from human rights violations, by “proactively [ensuring] that persons within its jurisdiction do not suffer from human rights violations at the hands of third parties.”150 Under this obligation, a State is not liable for every “adverse interference with individuals’ rights by private actors.”151 They are, instead, liable when the actions of private individuals who have violated the human rights of another can be traced back to the State’s failure to come up with proper laws to prevent the violation from happening.152 This is referred to as the “indirect horizontal effect” of human rights.153 It is so termed because it involves the elevation of a non-State actor, indirectly, as an obligor with respect to human rights in the international law plane, when as a general rule only States are seen as actors in international law, and only they are treated as equal to one another, in a legal order that is “horizontal and consensual.”154

The obligation to fulfill means that States should proactively seek, through legislation, policies, and programs, the full enjoyment of human rights for

148. Mégret, supra note 46, at 131.

149. Id. at 130.

150. Id. at 130-31.

151. Id. at 131.

152. Id. (citing X & Y v. The Netherlands, 8 EHRR 235 (1985) & Young, James & Webster v. United Kingdom, 4 EHRR 38 (1982)). This concept stems from the concept of Drittwirkung in German law, and has been adopted extensively under European human rights law. See Carlos Manuel Vásquez, Direct vs. Indirect Obligations of Corporations, 43 COLUM. J. OF TRANSNATIONAL L. 927, 937 (2005).


154. ALEXANDER ORAKHELASHVILI, PEREMPTORY NORMS IN INTERNATIONAL

LAW 9 (2006).


individuals in their jurisdictions.155 Included in the obligation to fulfill is the obligation of the State to ensure that individuals whose rights are violated have remedies, whether judicial or administrative.156

3. Customary Human Rights Norms

States are not only bound to human rights norms found in treaties they have signed; they are also bound by those norms which have crystallized into custom.157

For there to be a rule of customary international law, two requisites must be met. First, the custom must be evidence of actual State practice.158 Second, States must engage in that practice “out of a sense of legal obligation” — the rule must thus constitute so-called opinio juris.159

In order to meet the first element, State practice must be “both extensive and virtually uniform in the sense of the provision invoked.”160 And, while there need not be absolute strict conformity, State conduct has to be generally consistent with the proposed customary rule, with instances of derogation should “generally have been treated as breaches of that rule.”161

155. Mégret, supra note 46, at 131 & Patricia Sta. Maria, Life, Death, and Data: Examining the Human Rights Implications of Introducing Data Exclusivity to India’s Pharmaceutical System, in light of the Global Situation of Diseases such as HIV/AIDS in the Philippines and Other Developing Countries, at 70 (on file with the Ateneo de Manila University School of Law) (citing Office of the High Commissioner on Human Rights, Fact Sheet No. 31, The Right to Health 1, (June 2008), available at http://www.refworld.org/docid/48625a742.html (last accessed Nov. 30, 2019)).


157. Statute of the International Court of Justice art. 38 (1), signed June 26, 1945, 33 U.N.T.S. 933.

158. SHAW, supra note 60, at 74.

159. Curtis A. Bradley & Mitu Gulati, Withdrawing from International Legal Custom, 120 YALE L.J. 202, 209 (2010).

160. The North Sea Continental Shelf Cases (Ger. v. Den. &. Neth.), Judgment, ¶ 74 (Feb. 20, 1969), available at https://www.icj-cij.org/files/case-related/51/051-19690220-JUD-01-00-EN.pdf (last accessed Nov. 30, 2019).

161. Case Concerning Military and Paramilitary Activities In and Against Nicaragua (Nicar. v. U.S.), Judgment, ¶ 186 (June 27, 1986), available at https://www.icj-


In order to meet the second element, the State practice should “occur[ ] in such a way as to show a general recognition that a rule of legal obligation is involved.”162

Certain human rights, particularly those under the International Bill of Rights, are now be regarded as having entered into the category of customary international law in light of State practice and opinio juris. These include the prohibition against slavery and the principle of non-discrimination.163

4. Jus Cogens

Any talk of jus cogens must depart from Article 53 of the Vienna Convention on the Law of Treaties (VCLT), which provides that “[a] treaty is void if, at the time of its conclusion, it conflicts with a peremptory norm of general international law.”164 The VCLT chooses not to make a list of norms that are considered jus cogens. Instead, it provides that a peremptory norm is one that is “accepted and recognized by the international community of States as a whole as a norm from which no derogation is permitted and which can be modified only by a subsequent norm of general international law having the same character.”165

Jus cogens is an exceptional rule. While as a general rule, all norms and obligations that arise out of international law are more or less equal, since they are all grounded on the consent of States, jus cogens norms are lex superior and will prevail in all cases and in all circumstances in a universal and definitive way.166

cij.org/files/case-related/70/070-19860627-JUD-01-00-EN.pdf (last accessed Nov. 30, 2019).

162. North Sea Continental Shelf Cases, ICJ Judgment, ¶ 74.

163. Case concerning the Barcelona Traction, Light and Power Company, Limited (Bel. v. Spain), Judgment, ¶ 34 (Feb. 5, 1970), available at https://www.icj-cij.org/files/case-related/50/050-19640724-JUD-01-00-EN.pdf (last accessed Nov. 30, 2019).

164. Vienna Convention on the Law of Treaties art. 57, opened for signature May 23, 1969, 1155 U.N.T.S. 331 (entered into force Jan. 27, 1980) [hereinafter Vienna Convention on the Law of Treaties].

165. Id.


LAW 8-9 (2006).


The ICJ has had opportunity to discuss the prohibition against violating jus cogens in its jurisprudence, as in the case Nicaragua v. United States of America.167 Of interest, the Nicaragua case demonstrates that jus cogens applies beyond Article 53 of the VCLT, so that, in the absence of an explicit treaty, a State may be deemed to have violated a peremptory norm.168 Peremptory norms have thus found an application in international law beyond Article 53.

Human rights have long been considered a key component of jus cogens norms.169 There was, for example, wide acceptance among the delegates to the Vienna Conference which drafted the VCLT that human rights could constitute peremptory norms.170 But the question of which particular human rights are jus cogens is more controversial; those that are widely accepted, such as the prohibition against torture and genocide,171 relate to human rights obligations that are clear to all.

Treaty provisions can also become peremptory norms. For example, under the ICCPR, Malcolm N. Shaw, a renowned author on International Law, posits that “the rights to life and recognition as a person before the law, the freedoms of thought, conscience and religion and the prohibition on torture, slavery, retroactivity of criminal legislation and imprisonment on grounds solely of inability to fulfill a contractual obligation are non-derogable.”172

The above survey of IHRL summarizes the human rights norms that bind all States vis-à-vis those who reside in their territories: the first are those that are found in treaties that particular States have chosen to sign; the second are

167. Nicaragua v. United States of America, 1986 I.C.J 14. The case involved the intervention of the United States in the political unrest in Nicaragua, which led to the United States using military force in the country to establish a pro-US government and aid this government in retaining power. Citing Article 2, paragraph 4 of the U.N. Charter, the Court ruled that the non-use of force is actually a peremptory norm acknowledged and honored by all States. Id. ¶ 290.

168. Kamrul Hossain, The Concept of Jus Cogens and the Obligation Under the U.N. Charter, 3 SANTA CLARA J. INT’L L. 76-77 (2005).

169. Andrea Bianchi, Human Rights and the Magic of Jus Cogens, 19 EUR. J. INT’L L. 491, 492 (2008).

170. Id. at 492 (citing Yearbook of the International Law Commission, ii, at 248, U.N. Doc A/CN.4/SER.A/1966/Add. 1 (May 4-July 19, 1966)).

171. Bianchi, supra note 169, at 495 (citing RESTATEMENT (THIRD) ON FOREIGN

RELATIONS LAW OF THE UNITED STAES, § 702 (1987)).



those that have since become customary international law; the third are human rights that are also jus cogens norms.

C. When Two Worlds Collide: Investor Expectations, Host State Responsibilities, and a Clash of Protected Rights

For two regimes often depicted to be at two different ends of a spectrum, IIL and IHRL share many similarities. For one, both put primacy on protecting people, and by extension their properties. Furthermore, both regimes set limits to State power. The great difference lies in the enforcement mechanism granted to those aggrieved by host State excesses under the two separate regimes. For while IHRL calls on the exhaustion of local remedies and gives primacy to the role of domestic mechanisms and to State sovereignty, IIL’s enforcement mechanism — investment treaty arbitration — involves, as a general rule, the host State’s waiver of its right under international law to require its consent prior to being sued.173 This has had the corollary effect of regulating State conduct vis-à-vis foreign investment in ways that some have characterized to be conflicting with State obligations to respect, protect, and fulfill human rights.174 As observed by Professor John G. Ruggie, a professor of Human Rights and International Affairs at Harvard’s Kennedy School of Government, “the terms of [IIAs] may constrain States from fully implementing new human rights legislation, or put them at risk of binding international arbitration if they do so.”175

The constraints, according to literature on the matter, come in two forms: a race to the bottom and regulatory chill.176

Scholars observe that, in a move to attract more FDI, some governments have modified domestic legislation to better accommodate foreign investors, or otherwise, began to enforce laws in certain sectors less vigorously.177 Thus, rather than striving to move towards progressive economic realization, some countries have instead participated in “a race to the bottom,”178 modifying

173. JAMES L. CRAWFORD, CREATION OF STATES IN INTERNATIONAL LAW 81 (1979).

174. Weiler, supra note 45, at 433.

175. Id.

176. Ian Sheldon, Trade and Environmental Policy: A Race to the Bottom? 57 J. AGRIC. ECON. 365, 369 (2006).

177. Id.

178. Id.


domestic frameworks in what some refer to as a “commercialization of sovereignty.”179

Regulatory chill, on the other hand, refers to the tendency of States to “refrain from addressing human rights issues, thereby putting themselves in violation of their human rights obligations so as to avoid upsetting investors or potential investors so that they may continue to be seen as open to foreign investment.”180 What is more, the presence of IIAs with provisions providing for ISDS further “chill” government behavior aimed at addressing human rights concerns because the efficiency and reliability of investment treaty arbitration as an enforcement mechanism for investors makes it highly possible that erring host States will have to pay hefty compensation packages for their failure to uphold the substantive provisions of IIAs.181 Compounding the problem is the fact that “those countries which are greatest in need of affirmative legislation pertaining to human rights, or, more broadly, development issues often also happen to be the ones which commit to the most stringent protections in favor of foreign investors.”182

The clash of human rights considerations and the protection of investor interests stand out particularly in the industries which involve natural resources, for it is in this area where investors most often meet opposition from local communities.183 In this particular sub-sector of potential investments arise issues as to land grabbing by players in the international agribusiness industry violating the right to food, as well as the destruction of communities as a result of irresponsible mining practices violating the right to health and

179. RONAN PALAN, ET AL., TAX HAVENS: HOW GLOBALIZATION REALLY WORKS 262 (2009).

180. NADIA BERNAZ, BUSINESS AND HUMAN RIGHTS: HISTORY, LAW AND POLICY

— BRIDGING THE ACCOUNTABILITY GAP 132 (2016).

181. Id. See also U.N. Human Rights Council, Report of the Special Rapporteur on the rights of indigenous peoples, U.N. Doc. A/HRC/33/42, at 4 (Sep. 19, 2016).

182. Jan Wouters & Nicolas Hachez, When Rules and Values Collide: How Can a Balanced Application of Investor Protection Provisions and Human Rights be Insured?, 3 HUM. RTS. & INT’L LEGAL DISCOURSE 301, 310 (2009).

183. Horatia Muir Watt, The Contested Legitimacy of Investment Arbitration and the Human Rights Ordeal: The Missing Link, in INTERNATIONAL ARBITRATION AND

GLOBAL GOVERNANCE: CONTENDING THEORIES AND EVIDENCE 219-220 (Walter Mattli & Thomas Dietz eds., 2014).


life, and, furthermore, abuses of foreign multinational investors vis-à-vis their local workforce.184

There are examples from which this observation is drawn. Fears of investor backlash have stopped countries from implementing regulatory measures that are aimed at protecting the general welfare. In 2002, for example, Indonesia imposed a ban on open-pit mining in protected forests, a move that was simultaneously aimed at protecting cultural heritage and the IP communities in the area.185 Ultimately, however, the country’s Ministry of Forestry decided to change the forest’s designation from “protected” to “production” forests, after affected foreign investors threatened to commence investment arbitration proceedings against the Indonesian government.186 In the example given in the introduction, where the South African government sought to revoke mining licenses and redistribute land belonging to companies in furtherance of its post-apartheid policies, the resulting arbitral dispute, Piero Foresti, was only dropped when South Africa agreed on a compromise with the aggrieved foreign investors instead of taking 26% of their property, as the local mining authorities actually required, foreign investors agreed to settle on giving up 5%.187

And there are, further, real life examples of foreign investors retaliating to State action by resorting to ISDS, even if these government actions also arose from social and environmental concerns. In South American Silver Limited v. Bolivia, 188 an arbitral dispute currently pending, the claimant is seeking US$387 million in damages arising from the alleged expropriation of its mining concessions and violations by Bolivia of FET standards found in its BIT with

184. Valentina S. Vadi, When Cultures Collide: Foreign Direct Investment, Natural Resources, and Indigenous Heritage in International Investment Law, 42 COLUM. HUM. RTS. L. REV. 797, 832 (2011).

185. Id.

186. Id.

187. Claire Provost & Matt Kennard, The obscure legal system that lets companies sue states, available at https://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-corportations-sue-states-ttip-icsid (last accessed Nov. 30, 2019).

188. South American Silver Limited v. Bolivia, PCA Case No. 2013-15, Award (Nov. 22, 2018), available at https://www.italaw.com/sites/default/files/case-documents/italaw10361.pdf (last accessed Nov. 30, 2019).


the United Kingdom of Great Britain and Northern Ireland.189 The country responded to the allegations by arguing that its suspensions were the result of IP communities’ protests, and by alleging, as defense, that the investor-claimant had actually fabricated having obtained consent from the IPs in the area and had — since beginning its operations in the country — been committing acts of violence against indigenous communities. 190 Investor protection requirements can even lead to reversals of decisions made by domestic judiciaries, as shown in the case of Chevron v. Ecuador, where Chevron was successfully able to obtain, from an investment arbitral tribunal, an annulment of a judicial decision released by a local Ecuadorian court which held the company liable for destroying the community and home of the residents of the Ecuadorian Amazon.191

The above cases demonstrate the current state of affairs in the intersection between IIL and IHRL — an uneasy conflict between public interests and human rights concerns that States are obligated to address, and the investor protections they promised to grant under effective IIAs.

In some ways, the eagerness of developing countries to enter into IIAs have become unprecedented burdens to many host States, as their attempts to reconcile the human rights of their citizens are met with opposition under IIL, in the form of ISDS. Ecuador’s Vice Minister of Foreign Affairs, Lautaro Pozo, had once opined that the BIT regime reflected a “50-year-old ideology.”192 Pozo observed that they were signed at a time when many countries did not have “sufficient understanding of their implications,” resulting in the casting aside of legitimate host State concerns vis-à-vis human rights.193 Some legal scholars have made the same observation, as they have opined that the current

189. South American Silver Limited v. Bolivia, PCA Case No. 2013-15, Claimant’s Statement of Claim and Memorial, at 49-67 (Sep. 24, 2014). See Report of the Special Rapporteur on the Rights of Indigenous Peoples on her mission to Brazil, Comments of the Government of Brazil to the report of the Special Rapporteur, at 10, U.N. Doc. A/HRC/33/42/EN.

190. South American Silver Limited v. Bolivia, PCA Case No. 2013-15, Respondent’s Counter-Memorial, at 22-31. See also U.N. Human Rights Council, supra note 181, at 10-11 (discussing this arbitral dispute and others which have clashed with the rights of indigenous peoples).

191. Chevron v. Ecuador, PCA Case No. 2009-23.

192. Adam Robert Green, Bilateral investment treaties coming back to bite, available at http://www.thisisafricaonline.com/Business/Legal-Bulletin/Bilateral-investment-treaties-coming-back-to-bite?ct=true (last accessed Nov. 30, 2019).

193. Id.


landscape of IIL “has laid public interests in private hands, which [marginalizes] the specifically global public interests (and local non-economic interests) involved.”194

Despite this criticism, investors have increasingly resorted to ISDS to address violations of their substantive rights. This particular sub-system of international law has experienced exponential growth. From 1996 to 2005, 166 claims by investors were registered at the ICSID, compared to 35 in the 30 years prior.195 And in 2016 alone, investors initiated 62 claims.196 Host States will increasingly face more challenges to their exercise of their regulatory authority in their domestic jurisdictions, including measures taken to address legitimate human rights concerns that involve investor conduct.

Commentators have varied as to their recommendations for this problem. The arbitral award in Urbaser v. Argentina, however, suggests a relatively unexplored approach to the problem: the filing of counterclaims against investors for their violations of human rights.197

Article 46 of the ICSID Convention explicitly provides that counterclaims are a possibility, providing only jurisdictional conditions for the counterclaim to be heard on the merits: first, the counterclaim must arise directly out of the subject matter of the dispute; second, the relevant party (i.e., the investor) must have consented to be the subject of a counterclaim; and, third, the counterclaim must be within the jurisdiction of the Centre.198 However, most counterclaims so far have been based on contract or on domestic law rather than international law. 199 This is because of the perceived difficulty of harmonizing concerns from non-treaty related claims based on international law, given the content of investment treaties themselves. As has been said, IIAs

194. Noor Kadhim, Is a Spade always a Spade? The Protection of Human Rights and Indigenous Rights under Investment Treaties, available at http://theartvocate.blogspot.com/2017/03/is-spade-always-spade-protection-of.html (last accessed Nov. 30, 2019) (citing ANNE PETERS, ET AL., THE

CONSTITUTIONALISATION OF INTERNATIONAL LAW 252 (2009)).

195. VAN HARTEN, supra note 70, at 4.

196. United Nations Conference on Trade and Development, 62 new Investor-State arbitrations initiated in 2016, available at http://investmentpolicyhub.unctad.org/ News/Database/Home/537 (last accessed Nov. 30, 2019).


198. Pierre Lalive & Laura Halonen, On the Availability of Counterclaims in Investment Treaty Arbitration, 2 CZECH Y.B. INT’L L. 141 (2010).

199. Id.


currently contain only a list of investor rights, without providing for explicit investor obligations — they are thus perceived as asymmetrical.200 Thus, most commentators previous to Urbaser observed that a counterclaim against an investor, to prosper, would likely require amendments of current IIAs, and explicit provisions regulating investor conduct.201

In Urbaser v. Argentina, however, the tribunal relied solely on two provisions of the Spain-Argentina BIT to hold that IHRL could apply in the form of a counterclaim — the broad wording of the scope of disputes covered,202 and the provision providing that choice of law would include “general international law.” 203 To the mind of the Urbaser tribunal, Argentina’s non-treaty claims, sourced from wider international law, could be considered.204 The tribunal declared that “[t]he BIT has to be construed in harmony with other rules of international law of which it forms part, including those relating to human rights.”205

The Urbaser tribunal’s ruling on the issue of the scope of the dispute will be discussed in further detail in Section IV, for this relates to the technicalities that come with filing an ancillary claim. The question of the extent and meaning of “general international law” in an IIA, however, is next addressed.

D. Where Choice of Law is “International Law”: The Extent to which International Human Rights Law can be Considered in Investment Treaty Arbitration

1. Applicable Law in Treaty-Based Investment Arbitration

Where investors exercise their right under an investment treaty to resort to investment treaty arbitration under the auspices of the ICSID, absent a prior agreement between the investor and the host State as to the scope of the dispute and the applicable law, the treaty’s dispute resolution provisions will

200. Patrick Dumberry & Gabrielle Dumas-Aubin, How to Impose Human Rights Obligations on Corporations Under Investment Treaties? Pragmatic Guidelines for the Amendment of BITs, in YEARBOOK ON INTERNATIONAL INVESTMENT LAW AND

POLICY 569 (Karl P. Sauvant ed., 2011).

201. Id. at 595-96.


203. Id.

204. Id.

205. Id. ¶ 1200 (citing Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Decision on Annulment, ¶¶ 86-92 (Dec. 30, 2015)).


serve as the default rules that will govern the dispute.206 Some treaties will provide for domestic law or international law as applicable law,207 while others call for their simultaneous application.208

Where the IIA is silent, Article 42 of the ICSID Convention states that the tribunal must apply “the law of the Contracting State party to the dispute (including its rules on the conflict of laws)[,] and such rules of international law as may be applicable.”209

The issue as to the extent that IHRL can apply in IIL begins with interpreting an IIA which explicitly provides that only general principles of international law, international law, or international law alongside domestic law will apply. Given the silence of IIAs as regards human rights in general, an issue arises as to whether IHRL considerations based on human rights treaties signed by the host State or on custom can be considered, given the invocation of “international law” or “general international law” as applicable law.

2. The Extent of the Application of “International Law” vis-à-vis International Human Rights Law in Interpreting Express Treaty Terms

Where IHRL and other provisions culled from wider international law are used to interpret terms that are already present in investment treaties, there is no controversy. For example, to determine the question of whether or not there is illegal expropriation and to make determinations as to due process considerations, tribunals often use the case law of the European Court of Human Rights (ECHR) and the Inter-American Court of Human Rights (IACrtHR) for illumination. 210 This application of human rights law is validated by the fact that the term “expropriation” actually appears in the treaty text. The bigger issue arises, however, when one considers whether or

206. HEGE E. KJOS, APPLICABLE LAW IN INVESTOR-STATE ARBITRATION: THE

INTERPLAY BETWEEN NATIONAL LAW AND INTERNATIONAL LAW 110 (2013).

207. Id.

208. Id.

209. ICSID Convention, supra note 26, art. 42 (1) (emphasis supplied).

210. See, e.g., Técnicas Medioambientales S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award (May 29, 2003) (an ICSID case where standards of Inter-American Court of Human Rights as regards expropriation were used) & Ronald S. Lauder v. Czech Republic, 2001 WL 34786000, Final Award, ¶ 200 (Sep. 3, 2001) (an UNCITRAL case where the standards of expropriation as set out by the European Court of Human Rights were used).


not considering human rights concerns should be accommodated in other instances — i.e., when there is no term within the treaty to interpret other than the words “international law.”

3. The Extent the Term “International Law” has been Expanded Beyond Express Treaty Terms

Among scholars, there is conflict as to whether or not the invocation of “international law” would be enough to allow human rights considerations to be made in investment arbitration. For those who believe that “international law” cannot be construed to include human rights in the context of ISDS or who otherwise argue that explicit amendments to existing IIAs must first be made before human rights concerns can be accommodated, the asymmetrical nature of investment arbitration and its ultimate goal to promote investor protection is the primary emphasis.211 Those who support this view rely on a teleological and literal approach to treaty interpretation, and on Article 31 (1) of the VCLT, which states that a treaty “shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”212 In line with this argument, a BIT, executed in the 1990s between a host and home State for the purpose of protecting foreign investments, should not be interpreted to be colored by elements of IHRL or other regimes of international law, as the States party to the treaty would not have intended to give it that effect.213

Meanwhile, scholars who believe that non-treaty claims such as those grounded in human rights concerns can be made despite the absence of explicit language in current IIAs, invoke the principle of systemic integration, which is found in Article 31 (3) (c) of the VCLT. The provision states that, in the interpretation of treaties, there is to be taken into account “[a]ny relevant rules of international law applicable in the relations between the parties.”214

211. See, e.g., Omar E. Garciá-Bolivar, The Teleology of International Investment Law: The Role of the Purpose in the Interpretation of the International Investment Agreements, 6 J. WORLD INV. & TRADE 751, 772 (2005) (where the Author opines that when arbitrators construe IIAs, they should not go beyond the purpose of the particular IIA concerned, as found in the text’s preamble, provisions, and travaux préparatoires).

212. Vienna Convention on the Law of Treaties, supra note 164, art. 31 (1).

213. SAVERIO DE BENEDETTO, INTERNATIONAL INVESTMENT LAW AND THE

ENVIRONMENT 28 (2013).

214. Vienna Convention on the Law of Treaties, supra note 164, art. 31 (1) (c).


Those who espouse the use of the principle of systemic integration aim to address the issue of fragmentation. Fragmentation is what occurs when international law is understood as a decentralized set of rules.215 The result is that there arise seemingly irreconcilable conflicts between the various paradigms within international law, resulting in decision-making which considers one regime in isolation from the other. These conflicts, according to the ILC, exist in two situations:

(1) When there is incompatibility between two treaties, in that “a party to two treaties can comply with one rule only by thereby failing to comply with another rule[;]”216 or

(2) When a treaty “frustrate[s] the goals of another treaty without there being any strict incompatibility between their provisions.”217

When these situations of fragmentation arise, the ILC calls for treaty interpretation made “in a manner that safeguards harmony within the broader normative environment [—] that is, the international legal order.”218 Thus, scholars that espouse the use of the principle of systemic integration argue that when tribunals fail to apply non-treaty international law, such as IHRL, when these prove relevant to the dispute, they fail to properly harmonize the various systems of international law and contribute to fragmentation.219

215. U.N. International Law Commission, Fragmentation of International Law: Difficulties arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law Commission, finalized by Martti Koskenniemi, U.N. Doc. A/CN.4/L.682, at 10 (Apr. 13, 2006) (citing C. Wilfried Jenks, The Conflict of Law-Making Treaties, 30 B.Y.B.I.L. 403 (1953)). As Wilfred Jenks observes, “[l]aw-making treaties are tending to develop in a number of historical, functional[,] and regional groups which are separate from each other and whose mutual relationships are in some respects analogous to those of separate systems of municipal law.” Id.

216. Id. at 19.

217. Id.

218. Vassilis P. Tzevelekos, The Use of Article 31 (3 )(C) of the VCLT in the Case Law of the ECtHR: An Effective Anti-Fragmentation Tool or a Selective Loophole for the Reinforcement of Human Rights Teleology?, 31 MICHIGAN J. INT’L L. 621, 624 n. 7 (2010).

219. Campbell McLachlan, The Principle of Systemic Integration and Article 31 (3) (C) of the Vienna Convention, 54 ICLQ 279, 279-320 (2005).


Tribunals also have different views as to how to deal with IHRL concerns brought up in ISDS.

The first investment tribunal decision to mention human rights demonstrates the teleological or literal view. Biloune and Marine Drive Complex Ltd v. Ghana Investments Centre and the Government of Ghana (Biloune v. Ghana)220 involved Antoine Biloune, a Syrian national who was a principal stockholder of Marine Drive Complex Ltd. (MDCL), a company which entered into an informal joint venture agreement with Ghana Tourist Development Company (GTDC), a company-owned and controlled by the Ghana government.221 Under their agreement, MDCL and GTDC would construct a resort in Ghana, with MDCL taking charge of constructing the resort and financing it.222 The joint venture fell through, however, when the city council of Accra issued a Stop Work notice on the ground that MDCL had failed to obtain the proper building permits.223 Biloune was arrested and held in custody for 13 days without charge. 224 Eventually, Biloune was deported.225 Following this series of events, Biloune and the government of Ghana filed a request for arbitration. 226 Aside from alleging illegal expropriation, Biloune alleged that his arbitrary detention and illegal deportation constituted violations of IHRL.227 While ruling generally in favor of Biloune, the tribunal rejected the claim arising out of IHRL.228 While it acknowledged that under international law, “all individuals, regardless of nationality, are entitled to fundamental human rights,” it, nevertheless, held that it “was not [authorized] to deal with allegations of violations of fundamental human rights.”229 It opined that

220. Biloune and Marine Drive Complex Ltd v. Ghana Investments Centre and the Government of Ghana (Biloune v. Ghana), 95 ILR 184 (1995).

221. Id. at 192-93.

222. Id.

223. Id. at 195.

224. Id. at 199-200.

225. Id.

226. Biloune v. Ghana, 95 ILR at 200. It is to be noted that in making its findings, the tribunal in Biloune held that it would be applying customary international law. Id. at 207.

227. Id. at 187.

228. Id. at 203.

229. Id.


the Government agreed to arbitrate only disputes ‘in respect of’ the foreign investment. Thus, other matters — however compelling the claim or wrongful the alleged act — are outside this tribunal’s jurisdiction. Under the facts of this case it must be concluded that, while the acts alleged to violate the international human rights of [Mr.] Biloune may be relevant in considering the investment dispute under arbitration, this tribunal lacks jurisdiction to address, as an independent cause of action, a claim of violation

of human rights.230

In the 2012 dispute of Border Timbers Limited v. Zimbabwe,231 involving the expropriation by the Government of Zimbabwe of properties belonging to Swiss and German investors, indigenous communities tried to submit their claims before the tribunal, claiming that the lands involved were actually theirs. 232 The Border Timbers tribunal rejected an amicus submitted by indigenous communities and stated that there is “no evidence or support for [the Petitioners’] assertion that [IIL] and [IHRL] are interdependent such that any decision of these Arbitral tribunals which did not consider the content of international human rights norms would be legally incomplete.”233 This was the given interpretation despite the fact that the applicable treaty, the Switzerland-Zimbabwe BIT, provided for the applicability of international law to the dispute.234

Sempra Energy International v. Argentina235 presents a situation where a tribunal hesitates to directly address human rights arguments propounded by the host State. The dispute revolved around Argentina’s 2001-2002 financial crisis. 236 In its submissions, Argentina chose to extensively discuss its obligations under international law to guarantee the basic needs of its citizens and, in relation to this, to defend austerity measures it imposed which in turn

230. Id.

231. Border Timbers Limited and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/25 and Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/25, Procedural Order No. 2, ¶ 62 (June 26, 2006).

232. Id.

233. Id. ¶¶ 54-56 & 62.

234. Agreement between the Swiss Federation and the Republic of Zimbabwe on the Promotion and Reciprocal Protection of Investments, Switzerland-Zimbabwe, art. 10 (3), Feb. 9, 2001, available at http://investmentpolicyhub.unctad.org/ Download/TreatyFile/4837 (last accessed Nov. 30, 2019).

235. Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award (Sep. 28, 2007).

236. Id. ¶ 52.


negatively impacted investors.237 Argentina argued that measures it took to stabilize its collapsing economy — which may have resulted in violation of investor rights under relevant BITs — were necessary from a human rights lens.238 The tribunal, however, chose not to discuss the human rights concerns and instead attacked Argentina’s claim that the economic and political order of the country was about to collapse, saying “[t]he tribunal believes that the constitutional order was not on the verge of collapse, as evidenced by ... the orderly constitutional transition that carried the country through five different Presidents in a few days’ time, followed by elections and the reestablishment of public order.”239 The tribunal, thus, did not find that there was a direct conflict between the investor’s claims and the State’s obligation to respect, protect, and fulfill human rights in its territory.240

Other tribunals, however, more readily take human rights into consideration, even when treaty provisions do not explicitly provide for the interpretative application of IHRL. In the 2009 case of Phoenix v. Czech Republic,241 the tribunal had to consider the issue of whether or not treaty shopping on the part of the claimant, demonstrating the latter’s bad faith, was

237. Id. ¶ 53.

238. Id. ¶ 232.

239. Id. ¶ 332. Andreas Kulick, a Senior Research Fellow at Eberhard Karls University Tübingen, Germany on International Law and Justice, notes that the tribunal’s consideration of what constitutes political stability is arguably evidence of the government’s instability, given that, in the span of a few days, five Presidents were elected. ANDREAS KULICK, GLOBAL PUBLIC INTEREST IN INTERNATIONAL

INVESTMENT LAW 281 (2012).

240. The same was done by an ICSID tribunal in the case of Suez v. Argentina and Biwater v. Tanzania. In both cases, amicus curiae were submitted by NGOs and other interested parties, and were accepted and considered by the tribunal. In both cases, the ICSID tribunals issued rulings against the investor. However, they only acknowledged the public interest issues that were expressed in the amici. The decisions did not turn on the application of human rights, nor did the tribunals discuss the human rights law concerns beyond merely acknowledging they were invoked. Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. Argentine Republic, ICSID Case No. ARB/03/19, Award (Apr. 9, 2015) (it is to be noted that a request for annulment of this decision was filed but was denied on May 5, 2017) & Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (July 24, 2008).

241. Phoenix Action, Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, ¶¶ 102, 104, & 143 (Apr. 15, 2009).


fatal to the claimant’s cause.242 The ICSID tribunal held in the affirmative, as it observed that allowing the claim to prosper otherwise would be countenancing bad faith, which is inherently opposed to the entire system of international law.243 The tribunal, thus, held that the investment made was not protected.244 In an obiter dictum, the tribunal opined that “[n]obody would suggest that ICSID 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.”245

Then there is the most recent case of Urbaser and how the tribunal addresses the matter there.

In Urbaser, the investors emphasized that the asymmetrical nature of investment arbitration. They argued that “the uneven manner in which investor and host State are treated is widely recognized[,]”246 and, thus, called for the tribunal to apply the same “uneven treatment,” 247 favoring and protecting the investor, in this case. The tribunal rejected this argument and instead opined that the applicable BIT’s reference to general principles of international law would be meaningless “if the position would be retained that the BIT is to be construed as an isolated set of rules of international law for the sole purpose of protecting investments through rights exclusively granted to investors.”248

The tribunal referred to the principle of effectiveness (or the principle of effet utile) in international law, and opined —

Any treaty rule is to be interpreted in respect of its purpose as a rule with an effective meaning rather than as a rule having no meaning and effect. It is given effect within Article 31 (1) of the [VCLT] by virtue of the requirement to interpret in good faith. Effectiveness of a treaty rule denotes the need to

242. Id.

243. Id.

244. Id.

245. Id. ¶ 78.


247. Id.

248. Id. ¶ 1189.


avoid an interpretation which leads to either an impossibility or absurdity or

empties the provision of any legal effect.249

The Urbaser tribunal then held that, since the Spain-Argentina BIT allowed it to apply international law and to deal with any dispute between the investor and host State, the possible scope of claims to be submitted to arbitration under Article X could not be limited to rights arising from the BIT alone.250 Otherwise, the broader scope provided under the provisions of the treaty would not be given any effect, depriving portions of the BIT of meaning.251

The tribunal then went on to espouse its view that the ICSID Convention, when reconciled with the VCLT, accommodates an integration of principles under international law within that of the investment treaty regime. Citing Article 31, Section 3 (c) of the VCLT, it opined that account is to be taken of “any relevant rules of international law applicable in the relations between the parties.”252 As such, the tribunal emphasized, the BIT “cannot be interpreted and applied in a vacuum. Though the BIT’s special purpose as a Treaty was one for promoting foreign investments, relevant rules of international law must still form part and parcel of decisions involving interpretations of the BIT. As such, it declared that “[t]he BIT has to be construed in harmony with other rules of international law of which it forms part, including those relating to human rights.”253 The tribunal then referred once more to Article X (5) to buttress its reliance on the principle of systemic integration, stating that “Article X (5) itself that states the evidence that the BIT is not framed in isolation, but placed in the overall system of international law.”254 Finally, the tribunal juxtaposed Article X (5) with the default rules for applicable law provided in Article 42 (1) of the ICSID Convention and held that both provisions do “not provide for any restriction in respect of these [‘]applicable rules of international law[’] ... [T]hey necessarily include all such rules which according to their self-determined scope of application cover the

249. Id. ¶ 1190 (citing Urbaser v. Argentina, ICSID Case No. ARB/07/26, Decision on Jurisdiction, ¶ 52 (Dec. 19, 2012)).

250. Id. ¶ 1191.

251. Id.


253. Id. (citing Tulip Real Estate v. Turkey, ICSID Case No. ARB/11/28, Decision on Annulment, ¶¶ 86-92 (Dec.30, 2015)).



legal issue arising in the particular case.”255 The Urbaser tribunal’s reasoning thus shows its espousal of a harmonization approach to the question of investor obligations under international law.

The Note has thus far explored the IIL and IHRL as separate regimes, as well as how they intersect in ISDS. It demonstrated how the way investors use the system currently has resulted in a conflict of interest on the part of host States — while host States find themselves obligated under IHRL to respect, protect, and fulfill the human rights of those in their territories, IIL’s investor protections have put a cap on the regulatory power of host States. These result in some clashes, particularly when host State actions arise directly from human rights concerns. The Note then tackled Urbaser and its implications on the possibility of host States filing counterclaims for investor violations of human rights. Finally, it explored the two approaches that tribunals and legal scholars espouse as to the extent by which reference may be made to human rights outside of interpreting the plain text of the applicable IIA, where choice of law includes “international law.”

The Note now turns to the next issue that must be resolved: the question of how corporations may be made liable for violations of human rights, given the current framework of corporate governance under wider international law.

III. THE BUSINESS OF REGULATING BUSINESS: CORPORATE

ACCOUNTABILITY FOR HUMAN RIGHTS VIOLATIONS VIS-À-VIS

INTERNATIONAL INVESTMENT LAW

Section II explored the relationship between IHRL and IIL. This Section advances to the next issue that must be hurdled to be able to file a human rights-based counterclaim against an investor: the legal personhood of corporations, and their human rights obligations under international law.

A. Corporate Accountability in the Age of Globalization

Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?

— Lord Chancellor First Baron Edward Thurlow256

255. Id. ¶ 1202.

256. MARC GOERGEN, INTERNATIONAL CORPORATE GOVERNANCE 153 (2012) (citing JOHN POYDNER, 1 LITERARY EXTRACTS 268 (1844)). An alternative version of the quote goes, “Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like.” Dr. Benito Teehankee, Can a corporation be an ethical being?, BUSINESSWORLD, June 8, 2017, available at http://www.bworldonline.com/content.php?section=Opinion&title=can-a-


Corporations have come a long way since the age of discovery. At present, the biggest even dwarf some of the world’s countries — according to statistics, 51 of the world’s 100 largest economies are corporations.257 As has been observed, “[t]hat the world’s largest multinational corporations ... are more powerful and influential than many States has been a cliché since the 1960s.”258

Accompanying the meteoric rise of corporate power, however, has been the growth of collective sentiment that companies are “prospering at the expense of their communities,” 259 and are a “major cause of social, environmental, and economic problems.”260

These perceptions are not unfounded. In some ways, they are simply reflective of traditional corporate governance theories. In the classic shareholder theory, a corporation is said to have only one social responsibility: “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game[.]”261 Under this governance approach, the board of a corporation exists primarily for the benefit of its shareholders — those who injected capital into the venture, and who are also

corporation-be-an-ethical-being&id=146426 (last accessed Nov. 30, 2019) (citing Edward Thurlow, Lord Chancellor of Great Britain in the late 1770s).

257. Dina Medland, Time For Corporate Minds To Link Human Rights With Legal Fines, FORBES, Oct. 16, 2016, available at https://www.forbes.com/sites/dinamedland/ 2016/10/16/time-for-corporate-minds-to-link-human-rights-with-legal-fines/ (last accessed Nov. 30, 2019) (citing Amnesty International, Corporate Accountability, available at https://www.amnesty.org/en/what-we-do/ corporate-accountability (last accessed Nov. 30, 2019)).

258. Menno T. Kamminga, Holding Multinational Corporations Accountable for Human Rights Abuses: A Challenge for the EC, in THE EU AND HUMAN RIGHTS 553, 553 (Philip Alston ed., 1999).

259. Michael E. Porter & Mark R. Kramer, Creating Shared Value, HARV. BUS. REV. 43, 43 (Jan.-Feb. 2011).

260. Id.

261. CESAR L. VILLANUEVA & TERESA VILLANUEVA-TIANSAY, PHILIPPINE

CORPORATE LAW 1062 (2013 ed.) (citing Milton Friedman, The social responsibility of business is to increase profits, N.Y. TIMES, Sep. 30, 1970, at 30).


vested with ultimate control, through their votes.262 Thus, board members and corporate officers must focus on maximizing profit.263

Adherence to this classic theory, however, has led to a disconnect between the expectations of corporate insiders and those of society at large. This is particularly true in instances when MNEs with global reach have, in the course of operations, become involved in human rights violations. Examples of these instances are not hard to find.

Fast fashion companies like Marks & Spencer, Nike, and Primark have been engulfed in scandals with respect to the supply chains of their clothing — they have been accused of employing “child refugees from Syria working in very poor conditions,”264 of subjecting laborers to “low wages and poor working conditions in Indonesia,”265 and of reducing distraught Chinese factory workers to stuffing handwritten notes in finished products, containing statements such as “We work 15 hours every day and eat food that wouldn’t even be fed to pigs and dogs” and “We’re [forced to] work like oxen.”266

Outside the field of labor law, MNEs have also been caught up in scandals. In 1984, for example, US company Union Carbide’s pesticide plant leaked toxic gas into the city of Bhupal, India.267 The factory was surrounded by

262. Daniel K. Saint & Aseem Nath Tripathi, The Shareholder and Stakeholder Theories of Corporate Practice, available at http://www.knowledgeworkz.com/ samatvam/newsletter/The%20Shareholder%20and%20Stakeholder%20Theories%20of%20Corporate%20Purpose.pdf (last accessed Nov. 30, 2019).

263. Id.

264. This accusation was leveled against Marks & Spencer. See Medland, supra note 257.

265. This accusation was against Nike. See Max Nisen, How Nike Solved Its Sweatshop Problem, BUS. INSIDER, May 9, 2013, available at http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5 (last accessed Nov. 30, 2019).

266. Sophie Brown, Primark investigating ‘forced labor’ notes found in clothing, available at http://edition.cnn.com/2014/06/26/world/asia/primark-chinese-prison-labor-note/index.html (last accessed Nov. 30, 2019).

267. Andrew Johnson, Poisoned legacy of Bhopal: Campaigners call on Dow Chemical to answer criminal charges, 31 years after toxic explosion, available at http://www.independent.co.uk/news/world/asia/poisoned-legacy-of-bhopal-campaigners-call-on-dow-chemical-to-answer-criminal-charges-31-years-after-a6779231.html (last accessed Nov. 30, 2019).


shantytowns, and more than 600,000 people were exposed to the deadly gas cloud.268 The gases caused victims’ throats and eyes to burn, and several died.269 A similar incident happened in Indonesia — Newmont Minahasa, a subsidiary of a US mining corporation, was charged with releasing toxic chemicals in the country, a practice which it was also infamously known for in other territories.270

Most of these corporate actions which violate the human rights of local communities occur in developing countries which do not have the funds to sustain all their social welfare policies, let alone monitor human rights abuses.271 As has been opined, “[t]he capacity of the [S]tate to look after the welfare of its citizens has been severely impaired by the globalization of the capitalist system[.]”272

Despite the general consensus that the power of MNEs has been elevated by the sheer scale of modern-day globalization, there remain several hurdles to the imposition of liabilities upon transnational corporations under domestic and international law. This portion of the Note tackles several of them, before discussing international corporate governance strategies.

1. Limited Liability Challenges Arising from the Strong Juridical Personality of the Corporate Form

Corporations are legal creatures. As part of this, it is a universal legal assumption that a corporate entity’s legal existence is separate and distinct from that of its shareholders. 273 This is crystallized by the doctrine of limited liability, which essentially provides that shareholders of a corporation cannot be financially liable to victims for the actions and debts of such corporation

268. Id.

269. Id.

270. Tracy M. Schmidt, Transnational Corporate Responsibility for International Environmental and Human Rights Violations: Will the United Nations’ “Norms” Provide the Required Means?, 36 CAL. W. INT’L L.J. 217, 223 (2005).

271. Id.

272. George Soros, Towards a Global Open Society, in ATLANTIC MONTHLY 20 (1998).

273. Robert B. Thompson, Piercing the Corporate Veil: An Empirical Study, 76 CORNELL

L. REV. 1036, 1039 (1991).


beyond the level of their investment.274 The same doctrine extends to parent corporations and subsidiaries, for it is understood that parent corporations retain control over subsidiaries essentially through shareholdings in the latter.275

Limited liability allows the corporate form to protect shareholders from risk.276 As investors are only liable to the extent of their actual contribution to capital, shareholders become more willing to invest — they are able to get returns far greater than the initial funds they spend, without the possibility of their being made liable to creditors or other third persons.

The benefits of limited liability are further amplified by the existence of the cross-border nature of modern business. As has been noted, “[t]he principles of [S]tate sovereignty and political territoriality make separation of assets even more attractive. When corporations are dispersed across jurisdictions with different rules of corporate law, the corporate form allows even more flexibility for the owners to structure their assets and limit the reach of creditors.”277

Limited liability explains the capacity of business today to grow to colossal proportions that dwarf even some developing countries, and in many ways, is one of the key merits of the corporate form.

However, while the doctrine of limited liability is good for business, it can have detrimental effects on parties outside the corporate structure. Some believe that it tends to allow corporations to externalize costs to the detriment of the wider community for the furtherance of its own purposes.278 It allows, and even encourages, a focus on profit maximization, and ensuring that shareholders get the highest return for their investments. 279 As Thomas Clarke, an author in the Journal of Business Ethics, opined, just “as evolution has made the shark a perfect eating machine, the device of limited liability has allowed the corporation to perfect its function ... permitting corporations to

274. Gwynne Skinner, Rethinking Limited Liability of Parent Corporations for Foreign Subsidiaries’ Violations of International Human Rights Law, 72 WASH. & LEE L. REV. 1769, 1772 (2015).

275. Id. at 1773.

276. Id.

277. Id.

278. Thomas Clarke, Corporate Social Responsibility, in INTERNATIONAL CORPORATE

GOVERNANCE: A COMPARATIVE APPROACH 267 (2007).

279. Id.


externalize the costs of stock price [maximization], that is[,] to push those costs onto others.”280

The multijurisdictional nature of MNEs further amplifies the problem. Because the parent company of a multinational is set up thousands of miles away from its subsidiaries and it is the latter — with its own set of directors and officers — that truly controls operations in its particular jurisdiction, the tendency is for those in the cerebrum of the entire corporate structure to neglect the finer details of those areas of the firm that are more distant to central management. Thus, “[m]ultiple layers of control and ownership insulate individuals from a sense of responsibility for corporate actions.”281

From a legal perspective, this insulation is further substantiated. From the lens of the law, the parent company, domiciled in its home State, is most often considered simply a majority shareholder of any subsidiaries it may establish abroad; they are not collectively considered as one large international corporation, for such a structure does not exist. Thus, the parent company is protected against liability “for the obligations of its subsidiaries, even if they were conducting essential parts of a single, unitary business.”282

Specific issues dealing with the doctrine of limited liability in the context of filing counterclaims before ICSID arbitral tribunals in the investment arbitration setting will be dealt with in Section IV of this Note. For now, however, it is of interest to determine how corporations self-regulate, and also, how they are regulated under domestic law, in order to understand why an accountability mechanism under international law may find relevance in the modern context.

2. Voluntary Codes of Conduct and Corporate Social Responsibility

Corporations are not necessarily evil. As vehicles, they remain the tools of those that control them. Some companies take voluntary initiatives to ensure that they have a positive impact on society and integrate corporate social responsibility (CSR) initiatives into their business strategies.

CSR “deals with the managerial consideration of non-market forces or social aspects of corporate activity outside of a market or regulatory framework.”283 These social aspects include “employee welfare, community

280. Id. (citing LAWRENCE E. MITCHELL, CORPORATE IRRESPONSIBILITY: AMERICA’S NEWEST EXPORT (2001)).

281. Id.

282. Philip I. Blumberg, Limited Liability and Corporate Groups, 11 J. CORP. L. 573, 604 (1986).

283. GOERGEN, supra note 256, at 153.


programs, charitable donations, and environmental protection.” 284 When companies integrate CSR into their business plans, they often make real efforts to address social and environmental issues.285 Some companies even create voluntary codes of conduct to self-regulate and ensure the ethical conduct of their businesses. 286 Some scholars, including Professor John G. Ruggie, espouse the use of voluntary codes of conduct, CSR initiatives, and other soft law approaches as the primary means by which the behavior of MNEs should be regulated.287

While some companies are a positive example, however, their voluntary human rights due diligence is not indicative of a trend amongst other corporations. In 2016, the British Institute of International & Comparative Law (BIICL) and the global law firm Norton Rose Fulbright released a study which included a survey of 152 major companies.288 It showed that out of the corporations surveyed, only about half performed “a dedicated human rights due diligence assessment which encompassed the full range of a company’s

284. Id. at 153.

285. Id.

286. Anna Triponel, Business & Human Rights Law: Diverging Trends in the United States and France, 23 AM. U. INT’L L. REV. 855, 887 (2008). One example is Nestlé. Following allegations and a lawsuit where the company was accused of employing child slaves, the company began to formulate its own code of conduct, codes of conduct for their suppliers, and also started to annually release reports on the social impact of their business, using the creating shared value framework of Michael E. Porter and Mark R. Kramer as their internal corporate governance strategy. See Nestlé, Creating Shared Value Report 2011, available at http://www.nestle.com/asset-library/documents/library/documents/ corporate_social_responsibility/2011-csv-report.pdf (last accessed Nov. 30, 2019) & Michael E. Porter & Mark R. Kramer, Creating Shared Value: How to Reinvent Capitalism — and Unleash a New Wave of Innovation and Growth, HARV. BUS. REV. 63-70 (2011).

287. See, e.g., Andrew Clapham, Non-State Actors, in INTERNATIONAL HUMAN

RIGHTS LAW 563 (Daniel Moeckli et al. eds. 2013) (citing Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises, Interim Report, E/CN.4/2006/97, ¶ 68 (Feb. 22, 2006)) & Ernesto K.B. Tan, Corporate Social Responsibility as Corporate Soft Law: Mainstreaming Ethical and Responsible Conduct in Corporate Governance, 31 SINGAPORE L. REV. 227 (2013).

288. Medland, supra note 257.


human rights obligations.”289 Of these, “77% identified actual or potential human rights impacts, and 72% identified adverse impacts linked to the activities of their third party relationships.”290 The numbers thus show a failure on the part of many corporations to voluntarily initiate programs to ensure they are not committing any human rights violations.291

Furthermore, in the same report, it was found that 67% of the respondents cited two main incentives for undertaking human rights due diligence: the avoidance of legal risk and the safeguarding of the company’s reputation.292 This indicates that, at day’s end, the two biggest deterrents to MNE conduct which would violate remains to be the possibility of legal liability or negative public sentiment. As opined by Anne-Christinę Hubbard, the author of The Integration of Human Rights in Corporate Principles,

companies do not spontaneously want to be regulated ... one cannot grant them the benefit of the doubt when it comes to the implementation of such charters ... For companies to satisfactorily implement their charter, the same type of pressure as that which led to its adoption has to be applied, which means that an independent and credible enforcement procedure has to be put in

place.293

Hubbard thus concludes that full reliance on CSR could prove shaky at best. This sentiment is shared by James Crawford, who is quick to point out that “[c]odes of conduct are all very well, but they influence only the willing and are no substitute for enforcement by the [S]tate[.]”294

Considering all these, it may not be viable to rely fully on CSR to regulate corporate behavior in relation to human rights, environmental, and other public policy concerns.

289. Id.

290. Id.

291. Florian Wettstein also observed that human rights has not actually played a great role vis-à-vis corporate social responsibility (CSR) in the past. See Florian Wettstein, CSR and the Debate on Business and Human Rights: Bridging the Great Divide, 22 BUS. ETHICS Q. 739, 739-70 (2012).

292. Id.

293. Anne-Christinę Habbard, The Integration of Human Rights in Corporate Principles, in ORGANIZATON FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, GUIDELINES FOR MULTINATIONAL ENTERPRISES 101 (2001) (emphases supplied).

294. JAMES CRAWFORD, BROWNLIE’S PRINCIPLES OF PUBLIC INTERNATIONAL LAW 656 (8th ed. 2012).


3. Domestic Law and Corporate Abuse

The next question would be whether or not reliance on domestic legislation would suffice to ensure the protection of human rights from corporate abuse in the context of the investor and host State relationship. After all, as has been emphasized, the traditional view holds that corporate liability, including liability for violations of human rights, should be a matter for domestic law.295 An exploration of this matter necessarily involves the question of which States would have jurisdiction of States over these human rights violations under international law.

Jurisdiction is defined as “the authority to affect legal interests.”296 There are five principles of jurisdiction under international law: the territoriality principle, the nationality principle, the protective principle, the universality principle, and the passive personality principle.297 Of these, however, only the territoriality, nationality, and universality principles are relevant to the discussion.298

The territoriality principle provides that a State has absolute sovereignty over its territory, and would thus have the power “to prescribe, adjudicate[,] and enforce rules for conduct that occurs within its territory.” 299 If this principle is to be used, then in the context of investments by MNEs, it would be the host State’s primary responsibility to ensure the protection of its own citizens from human rights violations; additionally, the State would have territorial jurisdiction over the foreign investor operating within its boundaries.

The adequacy of territorial jurisdiction may, however, be complicated by other matters — one of them is when legislation covering an internationally

295. Clapham, supra note 287, at 563 & Carlos Manuel Vázquez, Direct vs. Indirect Obligations of Corporations Under International Law, 43 COLUM. J. TRANSNAT’L L. 927, 944-45 (2005).

296. Id. at 928.

297. Id.

298. The protective principle applies to “conduct outside the territory of a state which threatens its security, as long as that conduct is generally recognized as criminal” by the international community. Examples of this include terrorism. BERNAS, supra note 74, at 156.

Meanwhile, the passive personality principle refers to the application of criminal law outside the territory of a State to a person not its national, where the victim is the national of the State concerned. Id.

299. Id. at 133.


recognized standard in human rights law has not been passed yet. One example is the matter of human trafficking — though it is illegal, and its prohibition has been recognized as a jus cogens norm,300 nine countries, including Hong Kong,301 still do not have human trafficking as a specific offense in their legislation.302 There may also be absence of political will to seek out and punish foreign companies and individuals for their human rights violations.303 Host States are often eager to encourage foreign investment as a source of funding for its projects, and rely on investors for many aspects of their economic development. 304 Furthermore, some MNEs are even more financially sound than many developing countries and have the funds to engage in long legal battles, clean up ex post facto, or even pack up and leave for a friendlier jurisdiction.305

The nationality principle provides that every State has “jurisdiction over its nationals, even when those nationals are outside the [S]tate.”306 When it comes to natural persons, a State would rely either on jus soli or jus sanguinis to determine nationality, as well as the effective link doctrine,307 to determine

300. Kristina Kangaspunta, Was Trafficking in Persons Really Criminalised?, 4 ANTI-TRAFFICKING REV. 80, 80 (2015).

301. Raquel Carvalho, Hong Kong does not need laws against human trafficking, says government: victims are routinely criminalised, says Bar Association, SOUTH CHINA

MORNING POST, June 11, 2016, available at http://www.scmp.com/news/hong-kong/law-crime/article/1972513/hong-kong-does-not-need-laws-against-human-trafficking-says (last accessed Nov. 30, 2019).

302. Id.

303. BERNAZ, supra note 180, at 132.

304. Id.

305. 3 MENNO KAMMINGA, CHALLENGES IN INTERNATIONAL HUMAN RIGHTS

LAW, at 553 (2017).

306. BERNAS, supra note 74, at 140 (citing Blackmer v. United States, 284 U.S. 421 (1932)).

307. The effective link doctrine provides that, for purposes of determining a person’s nationality under international law, it is not enough for said person to be considered a citizen of a particular state through jus soli or jus sanguini. It must be established that the nationality claimed is said person’s “real and effective nationality, that which accoded with the facts, that based on stronger factual ties between the person concerned and one of the States whose nationality is involved.” See The Nottebohm Case (Liechtenstein v. Guatemala), 1955 ICJ 1

(1955).


nationality. When it comes to juridical persons, on the other hand, “a [S]tate would have jurisdiction over corporations organized under its laws.”308

The nationality principle opens up the possibility that home States could also impose sanctions against investors incorporated within their jurisdictions, given that these would be considered their corporate citizens. Some scholars have also argued that home States are actually in the best position to impose obligations upon their corporate citizens to respect and protect the human rights of citizens of other jurisdictions.309 The trouble is that many developed countries will not exert additional efforts to protect the citizens of other States, to the detriment of their own.310 Furthermore, there is no legal obligation on the part of home State countries to enact legislation concerning the extraterritorial business activities of their nationals.311 Currently, most home States of the world’s biggest investors use soft law or guidelines to encourage sound business practices on the part of their nationals abroad.312 There are, however, signs of progress in this direction. For example, in 2017, France enacted a law that would require all businesses headquartered in the country “with over 5,000 employees in France,” or “10,000 globally,” to prepare and submit human rights and environmental due diligence plans to the government, or possibly be subject to fines.313 However, these movements are


309. Id.

310. See Penelope Simons, The governance gap: domestic law and other governance mechanisms, in THE GOVERNANCE GAP: EXTRACTIVE INDUSTRIES, HUMAN

RIGHTS, AND THE HOME STATE ADVANTAGE 7 (Penelope Simons & Audrey Macklin eds., 2014) (detailing failed efforts on the part of several developed countries to enact hard laws requiring responsible corporate governance vis-à-vis human rights).

311. Emeka Duruigbo, Corporate Accountability and Liability for International Human Rights Abuses: Recent Changes and Recurring Challenges, 6 NW. J. INT’L HUM. RTS. 222, 246 (2008).

312. Penelope Simons & Audrey Macklin, Introduction, in THE GOVERNANCE GAP: EXTRACTIVE INDUSTRIES, HUMAN RIGHTS, AND THE HOME STATE

ADVANTAGE 178-270 (Penelope Simons & Audrey Macklin eds., 2014).

313. Debevoise & Plimpton, French Corporate Human Rights and Environmental Due Diligence Legislation, available at http://www.debevoise.com/insights/ publications/2017/03/french-corporate-human-rights (last accessed Nov. 30, 2019).


still novel, and most developed countries that are the main sources of FDI have no similar mechanisms.314

Another principle that could find application here is the universality principle. In substance, it provides that “each and every [S]tate has jurisdiction to try particular offences.”315 The basis for this principle is that “the crimes involved are regarded as particularly offensive to the international community as a whole.”316 Crimes traditionally covered by universal jurisdiction include war crimes, crimes against humanity, and piracy.317 It is also sometimes argued that jus cogens offenses are also subject to universal jurisdiction in general, though this is still debatable.318 This principle is relevant for the purposes of domestic remedies for corporate abuse because some countries have enacted some form of statute vesting jurisdiction upon its courts for crimes said to be of universal jurisdiction.

One such law is the US Alien Torts Claims Act (ATCA).319 The law provides for “federal jurisdiction over suits by aliens only for torts committed in violation of a treaty of the [US] or the law of nations.”320 The law was specifically envisioned by Congress to be a means for aliens to seek redress after being victimized “by violations of international law.”321 The ATCA was once seen by many as a possible tool against human rights violations, especially those considered jus cogens under international law. 322 The law was first successfully used against a non-American citizen in the 1980 case of Filártiga v.

314. See Sarah Murray, Tighter standards of conduct for supply chains, FINANCIAL TIMES, Nov. 16, 2017, available at https://www.ft.com/content/d4b05aae-af83-11e7-8076-0a4bdda92ca2 (last accessed Nov. 30, 2019) (which compares this new French law on the duty of vigilance to that in other jurisdictions).

315. SHAW, supra note 60, at 668 (6th ed. 2008).

316. Id.

317. Id.

318. Id. at 673.

319. Alien Tort Statute, 28 U.S.C. § 1350 (1789).

320. Joan Fitzpatrick, The Future of the Alien Torts Claims Act of 1789: Lessons from In Re Marcos Human Rights Litigation, 67 ST. JOHN’S L. REV. 491, 492 (1993).

321. Id. at 492-93 (citing Anne-Marie Burley, The Alien Tort Statute and the Judiciary Act of 1789: A Badge of Honor, 83 AM. J. INT’L L. 461, 475-80 (1989)).

322. Id.


Peña-Irala.323 Following Filártiga, others were also able to bring claims under the ATCA.324

The ACTA has been used against corporations on more than 40 occasions 325 and has been referred to as the “largest body of domestic jurisprudence regarding [c]orporation responsibility for international crimes.”326 However, recent developments in ACTA litigation have blocked the law as an option for victims of corporate abuse. In the 2013 case of Kiobel v. Royal Dutch Petroleum Co.,327 residents of Ogoniland, Nigeria filed suit against Royal Dutch Shell (Shell), a British-Dutch MNE incorporated in the U.K. and headquartered in the Netherlands, with operations in Nigeria. According to the complaint, after the residents of Ogoniland began holding protests against the environmental effects of Shell’s practices, the company enlisted the country’s government to suppress the demonstrations.328 It further alleged that, “throughout the early 1990’s ... Nigerian military and police forces attacked Ogoni villages, beating, raping, killing, and arresting residents and destroying or looting property[,]” acts which the company aided and abetted.329 The crackdown on the protesters culminated in the torture and killing of the late Dr. Barinem Kiobel and other Nigerian activists by the

323. Filártiga v. Peña-Irala, 630 F.2d 876, 878 (2d Cir. 1980) (U.S.). In the case, the Filártiga family filed a claim for the kidnap, torture, and eventual death of Joelito Filártiga. They alleged that Peña-Irala, a policeman, was the perpetrator, and that the acts were done in retaliation for the political beliefs of Joelito’s father. At the time the events happened, all parties involved were residing in Paraguay. And when the case was filed, all parties happened to be residing in the US, though they remained citizens of Paraguay. The federal court ultimately awarded the Filártiga family US$10.8 million for the torture and death of their son. Id.

324. Fitzpatrick, supra note 320, at 492.

325. Report of the Special Representative of the Secretary-General (SRSG) on the issue of human rights and transnational corporations and other business enterprises, Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts, U.N. Doc. A/HRC/4/035, ¶ 30 (Feb. 9, 2007).

326. Id.

327. Kiobel v. Royal Dutch Petroleum Co., 33 S.Ct. 1659 (2013) (U.S.).

328. Id. at 1662.

329. Id.


military dictatorship, following a dummy trial.330 The Nigerian citizens prayed that the US Supreme Court would take cognizance of their case under the ACTA.331 The US Supreme Court, however, held that the presumption against the extraterritorial application of US law applies to claims under the ATCA and that “nothing in the text, history, or purposes of the statute rebuts that presumption.”332 Furthermore, the Court held that the ATCA could only apply in cases that would “touch and concern” the US with “sufficient force.”333 Finding that these requisites were not met in the case of plaintiffs, the Court dismissed the case.

Whether the nationality principle, the universality principle, or the territoriality principle is applied, the above demonstrates that there remain gaps at the domestic level for addressing corporate violations of human rights. Taking into account the issue of limited liability, and the scope and extent by which MNEs successfully stretch out their operations in various jurisdictions all over the globe, the matter is further complicated. As Beth Stephens, author of The Amorality of Profit: Transnational Corporations and Human Rights, observed that

330. Marco Simons, Kiobel v. Royal Dutch Petroleum: A Practitioner’s Viewpoint, 28 MD. J. INT’L L. 28, 28-29 (2013). Stakes were high for all involved. Even other corporations filed submissions before the Court. BP America opined that allowing the Kiobel case to be heard would put “many corporations conducting business in developing countries ... at risk of billion-dollar claims based solely on their incidental contacts with the governing regimes in these countries.” The Chamber of Commerce also said its piece and contended that the ATCA would “impose additional risks to corporations and discourage corporations from investing overseas.” Meanwhile, US Ambassador David J. Scheffer contended “that if the [ATCA] has extraterritorial reach, it will enforce the global trend that is moving towards applying more civil liability for corporations that violate international human rights, and as a permanent member of the U.N. Security Council, the US should support the trend and hold corporations accountable for their human rights violations.” The members of the Parliament of the Federal Republic of Germany submitted briefs, and opined that the use of the ATCA in this case “would support notions of international justice, and provide a remedy to victims of human rights violations.”

Claire Artemis Holton-Basaldua & Dean Caruvana, Kiobel v. Royal Dutch Petroleum (10-1491), available at https://www.law.cornell.edu/supct/cert/10-1491 (last accessed Nov. 30, 2019).

331. Kiobel, 33 S.Ct. at 1662.

332. Id. at 1665.

333. Id. at 1669.


[a]s corporate power becomes increasingly international and increasingly disassociated from the nation-[S]tate, regulation becomes more difficult. ‘The fact that they have multiple production facilities means that TNCs can evade [S]tate power and the constraints of national regulatory schemes by moving their operations between their different facilities around the world.’ Regulatory schemes are largely domestic, based upon national laws, administrative bodies and judicial systems, while transnationals operate across

borders.334

These observations on the difficulties of employing a purely domestic approach in regulating corporations explain the fast-growing trend of pushing for corporate accountability at the international level. In fact, in 2014, the UN Human Rights Council (HRC) adopted a resolution “calling for the establishment of an open-ended intergovernmental working group ‘to elaborate an international legally-binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises.’”335 This binding instrument is still in its infancy, and its full elaboration is outside the scope of this Note. However, its formation opens the door to the question as to the current status of corporations under international law and how international law has regulated corporate behavior thus far.

B. Dissecting Urbaser: Corporate Obligations in the Investment Setting

This Chapter began by exploring MNEs in the age of globalization and how corporate activities can sometimes undermine human rights, as well as the effectivity of domestic law and CSR initiatives in addressing these human rights concerns. This Section begins to enter the domain of international law by looking at the decision in Urbaser.

1. Urbaser v. Argentina and Investor Obligations as Regards Human Rights

334. Beth Stephens, The Amorality of Profit: Transnational Corporations and Human Rights, 20 BERKELEY J. INT’L L. 45, 58 (citing Claudio Grossman & Daniel D. Bradlow, Are We Being Propelled Towards a People-Centered Transnational Legal Order?, 9 AM. U. J. INT’L L. & POL’Y 1, 8 (1993)).

335. Olivier de Schutter, Towards a New Treaty on Business and Human Rights, 1 BUS. & HUM. RTS. J. 41, 41 (2015) (citing U.N. Human Rights Council, Elaboration of an International Legally Binding Instrument on Transnational Corporations and Other Business Enterprises with Respect to Human Rights, U.N. Doc. A/HRC Res. 26/9, ¶ 9 (June 26, 2014)).


In Urbaser, Argentina filed a counterclaim against claimant and corporate investors, Urbaser and CABB.336 Argentina sought to make the investors liable for their failure to make the necessary investments in their domestic subsidiary, AGBA, as promised in the Province of Buenos Ares’ agreement.337 Argentina then claimed that, because of Urbaser and CABB’s failure to make these investments, Argentina was unable to fulfill its own obligation as a State to provide for the people of Argentina’s human right to water.338

As defense, Urbaser and CABB opined that the rules of international law bound only States, and not private parties.339 Furthermore, they argued that it was AGBA, and not Urbaser and CABB themselves, which undertook the obligation to make certain investments vis-à-vis the Province of Buenos Ares.340 Therefore, the Argentina did not have standing to file a claim against Urbaser.341

In response to these arguments, Argentina rejected the investor’s claim that only Argentina was obligated to protect human rights, but this obligation did not fall upon private parties.342 Argentina argued that Urbaser and CABB’s “most important obligation during the Concession term was to guarantee the access to water and thus to comply with a fundamental human right.”343 To support this stance, Argentina invoked the UDHR as customary international law344 and argued that a mere reading of the UDHR would show that the “obligations arising therefrom do not lie exclusively on States.”345 Further, the


337. Id.

338. Id. ¶ 1129.

339. Id.

340. Id. ¶ 1169.

341. Id.


343. Id.

344. Id. ¶ 1158.

345. Id. ¶ 1159. Argentina listed the provisions in the UDHR which it argued to be applicable even to non-State actors, including investor-corporations like Urbaser and CABB, as follows —

The Preamble expressly sets forth that the duties would lie both on institutions and on individuals. Article 1 states that its provisions apply to individuals even in private relationships. Article 30 declares that


country invoked the provisions of the ICESCR recognizing the “right of everyone to an adequate standard of living, including adequate food, clothing[,] and housing.”346 Argentina thus espoused the view that even an investor-corporation, a non-State actor under international law, could be made liable for violations of IHRL.347

On this point, the tribunal began by stating that it could not hold that human rights obligations were borne solely by States, and never private companies.348 The tribunal further opined that

[a] principle may be invoked in this regard according to which corporations are by nature not able to be subjects of international law and[,] therefore[,] not capable of holding obligations as if they would be participants in the State-to-State relations governed by international law. While such principle had its importance in the past, it has lost its impact and relevance in similar

terms and conditions as this applies to individuals.349

The tribunal observed that within the paradigm of the Spain-Argentina BIT, there were also provisions that granted investors rights; for example, the MFN clause of the BIT showed that investors are entitled to invoke rights resulting from international law.350 This made a foreign investor-company a subject of international law, one capable not only of having rights, but also of having international law obligations.351

nothing in the Declaration may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of the rights and freedoms set forth herein. Article 29 sets forth that everyone has duties to the community. Therefore, business companies and international corporations are affected by the obligations included in international human rights law.

Id.

346. Id. ¶ 1160 (citing International Convention on Economic, Social and Cultural Rights, supra note 141, arts. 11 & 12).

347. Urbaser v. Argentina, ICSID Case No. ARB/07/26, ¶ 1161. Argentina also listed the several instruments under international law that, in its view, proved that corporations had obligations under international law. However, these were all soft law instruments, such as the OECD Guidelines for Multinational Entities. Id. ¶ 1162.

348. Id. ¶ 1193.

349. Id. ¶ 1194.

350. Id.

351. Id.


The tribunal further based its finding that corporations had obligations under international law on the rise of CSR as a globally-accepted standard for measuring corporate compliance with human rights —

[I]nternational law accepts corporate social responsibility [(CSR)] as a standard of crucial importance for companies operating in the field of international commerce. This standard includes commitments to comply with human rights in the framework of those entities’ operations conducted in countries other than the country of their seat or incorporation. In light of this more recent development, it can no longer be admitted that companies operating

internationally are immune from becoming subjects of international law.352

At the same time, however, the above holding was given with the caveat that corporations did not have human rights obligations in all circumstances —

[E]ven though several initiatives undertaken at the international scene are seriously targeting corporations human rights conduct, they are not, on their own, sufficient to oblige corporations to put their policies in line with human rights law. The focus must be[ ] on contextualizing a corporation’s specific activities as they relate to the human right at issue in order to determine whether any international law obligations attach to the non-State

individual.353

The Urbaser tribunal thus affirmed that the general rule remains to be that the primary duty to ensure that the human rights of individuals are protected, respected, and fulfilled, fall upon States. However, the tribunal also emphasized that, “in order to ensure that [human] rights [are] enjoyed by each person, it must necessarily also be ensured that no other individual or entity, public or private, may act in disregard of such rights[.]”354 The tribunal also cited Article 30 of the UDHR, which it held to be applicable to multinational corporations —

Nothing in the present Covenant may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights or freedoms recognized

352. Urbaser v. Argentina, ICSID Case No. ARB/07/26, ¶ 1195 (citing U.N. Special Representative, John Ruggie’s Final Report on “Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework”, U.N. Doc. A/HRC/17/31 (Mar. 21, 2011)) (emphasis supplied).

353. Id. ¶ 1195.

354. Id. ¶ 1196.


herein, or at their limitation to a greater extent than is provided for in the

present Covenant.355

This same provision, the tribunal opined, could also be found in the ICESCR.356 As such, it is “to be admitted that the human right for everyone’s dignity and its right for adequate housing and living conditions are complemented by an obligation on all parts, public and private parties, not to engage in activity aimed at destroying such rights.”357

As for what human rights obligations a corporation may be liable for, the ICSID tribunal named three possibilities:

(1) “[P]eremptory norms of general international law [ ] to the extent they may be of interest in an investment matter.”358 These norms, the tribunal opined, would “prevail over any contrary provision of the BIT, as per the express statement in Article 53 of the Vienna Convention[;]”359

(2) Those which are found in a treaty which falls under the framework of the investment;360 and

355. Id.

356. Id. ¶ 1197.

357. Id. ¶ 1199.


359. Id. The ICSID tribunal cited Phoenix Action, Ltd. v. The Czech Republic where the same pronouncement as to jus cogens was made. Phoenix Action, Ltd. v. The Czech Republic, ICSID/ARB/06/5, ¶ 78 (LARA-68) Id. (citing Phoenix Action, Ltd. v. The Czech Republic, ICSID/ARB/06/5, ¶ 78).

Article 53 of the VCLT provides that

[a] treaty is void if, at the time of its conclusion, it conflicts with a peremptory norm of general international law. For the purposes of the present Convention, a peremptory norm of general international law is a norm accepted and recognized by the international community of States as a whole as a norm from which no derogation is permitted and which can be modified only by a subsequent norm of general international law having the same character.” Vienna Convention on the Law of Treaties, supra note 164, art. 53.



(3) Those which “represent a general principle of international law.”361

In this case, however, the tribunal found that Argentina was not able to prove that Urbaser and CABB had an obligation vis-à-vis the human right to water in favor of the people of Buenos Ares.362 In fact, according to the ICESCR and the UN Committee on Economic, Social and Cultural Rights, it is the States that are parties to the ICESCR that “should ensure that the right to water is given due attention in international agreements.”363 The Urbaser tribunal opined that any obligation on the part of Urbaser to grant the right to water to the citizens of Argentina was based on the concession agreement between AGBA and Argentina, and as such, could not be considered to be an obligation sourced from international law.364

The tribunal then ended by saying that “[t]he situation would be different in case an obligation to abstain, like a prohibition to commit acts violating human rights would be at stake. Such an obligation can be of immediate application, not only upon States, but equally to individuals and other private parties.”365 A determination of what constitutes this obligation to abstain, however, was found by the tribunal to be outside the scope of the Urbaser arbitration.366

The above pronouncements are a considerable development from traditional views on corporate obligations under international law, and have already become the subject of much debate. Primarily, the question that has most arisen is the matter of corporate accountability under international law.

2. Commentary on Urbaser’s Theory of Corporate Liability

Commentary on Urbaser has been positive from the perspective of the advancement of the place of human rights in investment arbitration but skeptical as to the decision’s pronouncements as regards the source and extent of an investor’s obligations and corporate liability under international law.

While Edward Guntrip, Senior Lecturer in International Law at the University of Sussex Law School, touted the Urbaser decision as a “positive

361. Id.

362. Id. ¶ 1208.

363. Id.

364. Id. ¶ 1210.

365. Id.



move from a human rights perspective,”367 he also found the legal reasoning of the tribunal problematic.368 Guntrip noted that the tribunal used, as legal basis, Article 30 of the UDHR and Article 5 (1) of the ICESCR to prevent the claimant from relying on its rights under the BIT to destroy human rights. But, based on the travaux préparatoires of these provisions, Article 30 UDHR and Article 5 (1) ICESCR are aimed at preventing the deliberate misinterpretation of one human rights obligation to justify the violation of other rights and were primarily targeted towards fascist groups.369 Though the tribunal identified an obligation to abstain from committing acts which violate the rights of others, the human rights involved were not actually fleshed out, nor were they substantiated by the supports the tribunal cited.370

As for Noor Kadhim, partner and international arbitration expert at Gardner Leadershe, she observed that the ability of investment treaty tribunals to intervene in the area of human rights and, in particular, the protection of IPs, addresses a governance gap in the framework of human rights protections.371 For, while a State is obliged to protect the human rights of individuals on their territory — even if IHRL presumes that they will — most home States of investors have refrained from enacting laws to directly regulate the extraterritorial behavior of their corporate nationals that may violate human rights, as in any case, there is an absence of clear international legal obligation on the part of the home States. 372 She also made note, however, that traditionally non-State actors like corporations are still not subjected to human rights obligations in the way that States are.373 Kadhim also takes on the perspective of investors as to the ruling of the ICSID tribunal, by asking: “Is it fair to expect an investor to be liable for breaches of human rights in circumstances where it only signed up to an economic, contractual,

367. Edward Guntrip, Urbaser v. Argentina: The Origins of a Host State Human Rights Counterclaim in ICSID Arbitration?, available at https://www.ejiltalk.org/ urbaser-v-argentina-the-origins-of-a-host-state-human-rights-counterclaim-in-icsid-arbitration (last accessed Nov. 30, 2019).

368. Id.

369. Id.

370. Id.

371. Kadhim, supra note 194.

372. Id.

373. Id.


investment project? And where the international instruments referred to have as their proper subjects States rather than private parties?”374

The most comprehensive analysis on Urbaser thus far has come from a law journal article by Kevin Crow and Lina Lorenzoni Escobar. Therein, the authors ascertain that Urbaser offered three standards of obligations of corporations vis-à-vis human rights: (1) an obligation not to aim at destroying human rights; (2) an obligation to perform; and (3) an obligation to abstain.375

An obligation not to “aim” at destroying human rights is difficult to be traced to a corporation in the sense that a corporate entity’s mens rea or intent to destroy human rights can be a difficult task to determine, since it is seen largely as a fictional creature with no feelings whatsoever. 376 Crow and Escobar opine that a link could be established between this doctrine and that of the principle of joint criminal enterprise (JCE), taken from the Nuremberg trials and the tribunals of the International Criminal tribunal of Yugoslavia (ICTY).377 According to this standard, even legal persons may be subject to criminal liability for egregious crimes against humanity legal person have a “common plan or purpose,” which is demonstrated through the results of the legal person’s actions.378

As for the obligation to perform, Crow and Escobar observe that the tribunal’s reference to “negative obligations” may find difficulty given that the ICESCR and UDHR, as invoked, “impose positive obligations only upon [S]tates.”379

The obligation to “abstain” was seen as a prohibition against the committing of violations of jus cogens norms380 since the case citation provided

374. Id.

375. Kevin Crow & Lina Lorenzoni Escobar, International Corporate Obligations and the Urbaser Standard, 35 B.U. INT’L L.J. 87 (2018), available at https://papers.ssrn.com/ sol3/papers.cfm?abstract_id=2984987 (last accessed Nov. 30, 2019). The Draft as of May 12, 2017 is online and was the draft used in this Note. The pagination of this early draft was used for citations in this Note.

376. Crow & Escobar, supra note 377, at 12.

377. Id. at 11.

378. Id.

379. Id. at 14.

380. Id. at 14-15.


by footnote by the tribunal was the case of Filártiga v. Peña-Irala,381 a US case which made a Paraguay State agent liable for torturing another Paraguayan national.

The problem, however, begins with the issue of corporate subjectivity under international law. The Urbaser tribunal tries to solve the conundrum by requiring that a specific context be provided and linked this context to CSR.382 CSR was characterized by Urbaser tribunal as a “standard,” which would ultimately require contextualization and trickle subjectivity down to corporations.383 While espousing the use of CSR by the Urbaser tribunal,384 Crow and Escobar conclude that addressing the issue of subjectivity would require an obligation sourced from treaties which bind corporations, or from general principles of law.385 Otherwise, the legal theory of Urbaser would not stand. Despite these misgivings as to Urbaser’s legal theory, however, Crow and Escobar agree that, “While Urbaser contributes to this debate, it provides no definite answers.”386

Given these initial comments, it is clear that the tribunal’s decision leaves several legal issues to be addressed as regards the issue of corporate personality.

C. Corporations as Non-State Actors under the International Law Framework

While Urbaser is praised for its progressive view on human rights, the validity of the its legal theories on corporate accountability, as seen in the preceding sub-Section of this Note, is subject to debate. For most scholars, the first issue to hurdle is that it remains the majority view that corporations, as non-State actors, have no direct hard law obligations vis-à-vis human rights under international law. How, then, would an investor-corporation be made liable through a counterclaim in ISDS? This Note now delves into the status quo as

381. Crow & Escobar, supra note 375, at 14 (citing Filártiga v. Peña-Irala, 630 F.2d 876 (2nd Cir. 1980) (U.S.)).

382. Id. at 16-17.

383. Id.

384. Kevin Crow & Lina Lorenzoni Escobar, International Corporate Obligations and the Urbaser Standard, 35 B.U. INT’L L.J. 87, 17-19 (2018). Here, the authors espouse that the investor company’s voluntary commitment to the U.N. Global Compact and adherence to OECD Guidelines, according to its own website and CSR Reports, could have been used against it in the arbitral dispute. Id.

385. Id. at 21-22.

386. Id. at 22.


regards the subjectivity of non-State actors and corporations under current international law.

1. Non-State Actors and Their Place in the International Law Paradigm

International law is classically defined as “a body of rules and principles of action which are binding upon civilized [S]tates in their relations to one another.”387 International law was thus initially conceived as a paradigm where States served as the sole actors.388 It was only the State which traditional public international law scholars considered to be subjects of international law, and thus, only States were considered “to have rights and obligations in the international order.”389 Furthermore, only States had personality enough to commence suits on the international plane.390 As summed up by Lauterpacht: “the orthodox positivist doctrine has been explicit in the affirmation that only [S]tates are subjects of international law.”391 Given this, the traditional scheme of international law is that its primary rules are addressed to States.392 Hence, only States incur breaches under international law.393

Over time, however, as non-State actors began to take on a more significant role in international affairs, some of them were given the status of rights and duty bearers under international law as well. The most prominent are “international organizations, insurgents, [and] liberation movements[.]”394 The extent to which they are considered subjects of international law, however, is highly dependent on the circumstances. Unlike established sovereign States, which have international legal personality for all purposes under international law, non-State actors must fulfill certain requisites to be considered subjects of international law and are only bound by rules applicable to them and not the whole gamut of rules under public international law. When it comes to insurgents, for example, their personality is “primarily

387. JAMES LESLIE BRIERLY, THE LAW OF NATIONS 1 (6th ed. 1963) (emphasis supplied).


389. Id. at 71.

390. Id.

391. SHAW, supra note 60, at 197 (citing HERSCH LAUTERPACHT, INTERNATIONAL

LAW 489 (Edward Gorden ed. 1978)).

392. Vázquez, supra note 295, at 932.

393. Id. at 932-33.



dependent upon the de facto administration of specific territory.”395 They have rights linked to the right to self-determination, which is recognized as an erga omnes obligation under international law;396 as such, over time, they may be recognized by governments.397 However, they have obligations to conform to the standards and rules of international law “with respect to the conduct of hostilities.”398 Insurgents thus do not have full and complete powers under international law; thus, they cannot enter into treaties399 nor sue before the ICJ.400

Following the Nuremberg trials, individuals have also become subjects of international law;401 the extent of their rights and obligations, however, is still restricted under the paradigm. When it comes to rights, individuals are entitled to the respect, protection, and fulfillment of their human rights by States, under the International Bill of Rights, as well as to investment protection.402 When it comes to their obligations, on the other hand, individuals can be punished of crimes under the Rome Statute of the International Criminal Court.403 To the extent therefore, that individuals can be the accused under international criminal law, they have human rights obligations owed to their fellow men. However, it cannot be said that they have human rights obligations as broad in scope as that of States, for States are still ultimately charged with ensuring that the human rights of their own citizens are respected and fulfilled.404 It has thus been noted that human rights norms “are not yet


396. Id.

397. Id. at 245.

398. Id.

399. Id.

400. Id.

401. See 1 TRIAL OF THE MAJOR WAR CRIMINALS BEFORE THE INTERNATIONAL

MILITARY TRIBUNAL, NUREMBERG, NOV. 14, 1945-OCT. 1, 1946, at 223 (1947) (on the Tribunal’s judgment in United States, et al. v. Hermann Wilhelm Göring, et al.).

402. JAMES CRAWFORD, BROWNLIE’S PRINCIPLES OF PUBLIC INTERNATIONAL LAW

121 (2012 ed.).

403. See Rome Statute of the International Criminal Court, U.N. Doc. A/CONF.183/9 (1998).

404. CRAWFORD, supra note 402, at 121.


regarded as applying horizontally to individuals, in parallel to or substitution for the applicable national law.”405

From the above examples, one begins to understand that non-State actors that are considered subjects of international law have varying rights and obligations under the paradigm. As the ICJ has opined on the matter, “the subjects of law in any legal system are not necessarily identical in their nature or in the extent of their rights.”406 Indeed, the fact that “individuals, groups[,] or bodies have legal personality and are subjects of international law does not necessarily imply that they have equal rights and duties.” 407 To Markos Karavias, the author of Corporate Obligations Under International Law, this means that international law allows a person to be vested with rights and yet have no corresponding international law obligations.408 He states that the perfect example of this is the IHRL paradigm, which grants individual persons rights under international law, addressing obligations only to States.409

Arriving at the question of corporations as subjects under international law, some qualified publicists in international law have found opportunity to comment early on. Philip C. Jessup once opined as to the treaty-making power of the VOC and similar entities —

The Dutch East India Company and the British East India Company had the power to make war and peace and to conclude treaties on which their [S]tates relied as the basis of rights. Because of the traditional concept that only [S]tates were international persons, Judge Huber as sole Arbitrator in the Palmas Island case between the [US] and the Netherlands, felt compelled to hold that the agreements made by these companies were not ‘in the international law sense, treaties or conventions capable of creating rights and

obligations such as may, in international law, arise out of treaties.’410

Jessup would later on observe, however, that “at the same time [Judge Huber] felt impelled to attribute to them certain legal significance which is

405. Id.

406. Reparation for Injuries Suffered in the Service of the United Nations, Advisory Opinion, 1949 I.C.J. 174, 1788 (Apr. 11).

407. MARKOS KARAVIAS, CORPORATE OBLIGATIONS UNDER INTERNATIONAL

LAW 30 (2013).

408. Id.

409. Id. See also Carlos Manuel Vásquez, Treaty-Based Rights and Remedies of Individuals, 92 COLUM. L. REV. 1082, 1087-97 (1992).

410. Philip C. Jessup, Subjects of the Modern Law of Nations, 45 MICHIGAN L. REV. 383, 389 (1947) (citing Island of Palmas Case, 2 RIAA 829, 838 (1929)).


hardly distinguishable in fact from that which they would have had if he had called [the agreements] international law treaties.” 411 Indeed, practically speaking, corporations do have power and scope enough to be subjects under international law. But if one looks upon traditional texts of qualified publicists, most agree they are not. This is exactly the issue that most who have commented on Urbaser focused on — the ICESCR and the UDHR, they have opined, binds States and not corporations, nor other non-State actors. Furthermore, assuming that corporations could become subjects of international law, how would one determine which human rights corporations must learn to respect?

To arrive at an answer to the first question — that of the subjectivity of the corporation — the Note will next expound on what are considered to be international law rights and obligations of corporations, integrating, where appropriate, progressive views on corporate liability under international law.

Some preliminary groundwork must be established, however, for a better understanding of the traditional view that only States have human rights obligations under international law — this is the distinction between rights and obligations that are direct and indirect under international law.

When one speaks of direct rights and obligations under international law, they speak of rights and obligations which may be asserted on an international plane — i.e., those which may addressed by rules of international law, rather than domestic law.412 The essential effect of this is that the violation of a given right, and the corresponding breach of an obligation may be brought before an international-level tribunal or court and determined under the rules of international law.413 An example can be culled from the direct rights of individuals to assert IHRL vis-à-vis States. Where an individual is aggrieved by State treatment and can identify the acts of the State as a violation of his or her right under, say, the ICCPR, the individual may directly address Working Groups constituted under the provisions of that Covenant.414 The obligation of the State, in this case, is direct and immediate, and its breach is thus vested with an international character.415

411. Id.

412. Vásquez, supra note 152, at 927-28.

413. Id.

414. See International Covenant on Civil and Political Rights, opened for signature Dec. 19, 1966, 999 U.N.T.S. 171.

415. Id. at 927-28.


Indirect rights and obligations are those that persons may have, but which it is the duty of States, as the primary actors in the system of international law, to ensure grant or compliance with.416 Under the traditional view, when a human rights treaty states, for example, that no person can aim to destroy the rights of others, this essentially activates the State’s duty to protect by enacting domestic laws which will serve to regulate the behavior of those in its jurisdiction.417 The obligation found in the treaty is, therefore, directed at that treaty’s addressees: the States and not the individuals themselves.418 With an understanding of direct and indirect rights and obligations, it is now possible to delve further into the question of the subjectivity of the corporations.

To determine what rights and obligations corporations have vis-à-vis human rights under international law requires an examination of their possible sources. According to Article 38 of the Statute of the ICJ, there are four sources of international law-treaty, custom, the general principles of law recognized by civilized nations, and, as supplementary to these first three, decisions and teachings of the MHQPs.419

This Section first explores corporate liability under treaty or custom, before moving onto the application of the general principles of law.

2. Corporate Rights Under Treaty and Custom

As to treaties, at least one type of treaty unarguably grants corporations extensive rights — and that is the investment treaty, the foundation of the IIL regime. Through these treaties, corporations are vested with rights to avail of ISDS without need to resort to diplomatic protection. The investment treaty system is essentially the only system where investor-corporations can indisputably have standing to impose their rights through and under a setting that falls under international law.420

416. Merja Pentikäinen, Changing International ‘Subjectivity’ and Rights and Obligations Under International Law — Status of Corporations, 8 UTRECHT L. REV. 145, 149 (2012).

417. Id.

418. Id.

419. BROWNLIE, supra note 138, at 18-19 (citing Statute of the International Court of Justice, supra note 161, art. 38 (1)).

420. Clapham, supra note 287, at 563.


The question of whether corporations have other direct rights, whether by custom or by treaty, is still subject to great debate.421

As to custom, it cannot be said that corporations have some form of right that it may directly enforce under international law. As has been said, custom requires the combination of two elements:

(1) a general practice of States, and

(2) the presence of opinio juris.422

Though there have been cases with corporations involved, such as that of Barcelona Traction, this was ultimately still a question of diplomatic protection, which implies that the rights were indirectly owed.

Thus, to the extent of the sui generis regime of IIL and investment arbitration, corporations have directly recognized international rights.

3. Corporate Obligations Under Treaty or Custom

The question of whether or not corporations have obligations is more controversial. It is granted that, if a treaty provides that corporations have obligations, then they would be made liable under international law.423 But does such a treaty currently exist?

One example of a treaty that opens up the possibility is the ICSID Convention. Since the Convention explicitly provides that a State can file counterclaims, 424 then it necessarily follows that corporations may have obligations that are imposable upon them before an ICSID arbitral tribunal; however, this is still dependent on the applicable IIA, and whether or not, absent express terms referencing to human rights, the tribunal will interpret the IIA’s provisions through the use of a teleological or a harmonization approach.425

As to custom, scholars are in general agreement that there is one possible source of liability for corporations — jus cogens norms. Ruggie notes that direct corporate liability for peremptory norms is the most possible route for human

421. SHAW, supra note 60, at 249-50. For example, the question of whether or not corporations have human rights would likely warrant a separate Note.

422. North Sea Continental Shelf Cases, 1969 I.C.J. at 43.

423. Clapham, supra note 287, at 563.


425. See Chapter II of this Note.


rights violations,426 and at least one ICSID tribunal has also shown possible support for the idea.427

One other candidate for direct corporate obligations under international law, in the view of some scholars is the International Bill of Rights, particularly the UDHR. As has been noted, though the UDHR was not originally intended to be legally binding, some of its provisions have crystallized into international law. With respect to corporations, it is pointed out that the Preamble of the UDHR states that it is meant to be “a common standard of achievement for all peoples and all nations,” to the end that “every individual and every organ of society, keeping [the UDHR] constantly in mind, shall strive by teaching and education to promote respect for [its provided] rights and freedoms.”428 There is thus the argument that the Preamble was meant to apply to all, and that the word “organ of society” refers to legal creatures that operate within the international community; this necessarily includes corporations.429 Since the provision requires all to respect human rights, it is

426. Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises, supra note 287, ¶ 61. There is also a demonstration of corporate liability for violation of jus cogens norms in ATCA litigation. See, e.g., Presbyterian Church of Sudan v. Talisman Energy, Inc., 244 F.Supp.2d 289, 320-24 (S.D.N.Y. 2003) (U.S.) (citing Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment, adopted Dec. 10, 1984, 1465 U.N.T.S. 85 (entered into force June 26, 1987); Convention on the Prevention and Punishment of the Crime of Genocide, adopted Dec. 9, 1948, 78 U.N.T.S. 277 (entered into force Jan. 12 1951); Agreement for the prosecution and punishment of major war criminals of the European, Axis, and Establishing the Charter of the International Military Tribunal, opened for signature Aug. 8, 1945, 82 U.N.T.S. 279 (entered into force

Aug. 8, 1945); Statute of the International Criminal Tribunal for Rwanda, S.C. Res. 955, U.N. Doc. S/RES/955 (Nov. 8, 1994); & Statute of the International Tribunal for the Prosecution of Persons Responsible for Serious Violations of International Humanitarian Law Committed in the Territory of the Former Yugoslavia since 1991, S.C. Res. 827, U.N. Doc. S/RES/827 (May 25, 1993)).

427. It was opined that “[n]obody would suggest that ICSID 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.” Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5, ¶ 78.

428. Universal Declaration of Human Rights, supra note 135, pmbl. (emphases supplied).

429. Vásquez, supra note 152, at 942.


argued that the UDHR also addresses corporations.430 Aligning with this view, Professor Louis Henkin thus once opined that “[e]very individual includes juridical persons. Every individual and every organ of society excludes no one, no company, no market, and no cyberspace. The Universal Declaration applies to them all.”431

The Urbaser tribunal seems to have adopted Henkin’s view, for it cited provisions of the UDHR and the ICESCR to buttress its remarks as to the existence of corporate obligations under international law.432

D. The Soft Law Approach

International law has so far chosen to tackle the issue of corporate liability vis-à-vis human rights obligations using soft law instruments and voluntary codes of conduct. This is demonstrable by the number of executed soft law instruments containing business principles which seek to regulate MNEs.

1. OECD Guidelines for Multinational Enterprises

The OECD was first created in 1961 as “an organization of countries sharing a commitment to a market economy and a pluralistic democracy.”433 In 1976, the OECD issued Guidelines for MNEs (OECD Guidelines) — a set of non-binding recommendations addressed to business enterprises domiciled or operating in any of the 42 adhering countries.434 The OECD Guidelines were doubly important because the adhering countries represented “the source of the large majority of the world’s foreign direct investment and the headquarters of a majority of the world’s largest MNEs.”435

430. Id.

431. Louis Henkin, The Universal Declaration at 50 and the Challenge of Global Markets, 25 BROOK. J. INT’L L. 17, 25 (1999).

432. Urbaser v. Argentina, ICSID Case No. ARB/07/26, ¶ 1196-97.

433. Elisa Morgera, OECD Guidelines for Multinational Enterprises, in HANDBOOK OF

TRANSNATIONAL GOVERNANCE: INSTITUTIONS & INNOVATIONS 314 (Thomas Hale & David Held eds. 2011) (citing Organisation for Economic Co-operation & Development, OECD Guidelines for Multinational Entities (MNEs), at 12, available at http://www.oecd.org/corporate/mne/1922428.pdf (last accessed Nov. 30, 2019) [hereinafter OECD Guidelines for MNEs]).

434. Id.

435. Id. at 315.


The OECD Guidelines are addressed directly to MNEs from adhering countries.436 They cover areas like the environment, bribery and corruption, employment, and industrial relations.437 In 2000, the OECD Guidelines were modified to expressly provide for their applicability to MNEs and their related entities in both adhering countries and abroad.438 Then, in 2011, the OECD Guidelines were revised to include a new chapter on human rights, and recommended all MNEs to conduct human rights due diligence in their operations.439

Though the OECD Guidelines were envisioned as a voluntary initiative, there is an implementation mechanism — adhering governments are required to establish National Contact Points (NCPs) to resolve complaints. 440 Individuals or NGOs could submit their complaints to the NCPs, either in the enterprise’s home country or any country in which the enterprise operates and which adheres to the Guidelines.441 The NCPs then assess the issue and act as mediators in the dispute. If the dispute is not resolved, it can be taken up to the Committee on Investment and Multinational Enterprises (CIME).442 The CIME, which is composed of all the OECD members and observers, will then make a non-binding decision based on consensus.443

2. UN Global Compact

The UN Global Impact (GC) is a voluntary multi-stakeholder initiative aimed at coming up with a set of principles in the areas of “human rights, labor standards, environmental protection[,] and, since 2004, anti-corruption.”444

436. Id.

437. Id.

438. Id.

439. OECD Guidelines for MNEs, supra note 433, at 4-5.

440. Morgera, supra note 433, at 316.

441. Id.

442. Id.

443. Id. at 316.

444. John G. Ruggie, Business and Human Rights: The Evolving International Agenda, 101 AM. J. INT’L L. 819 (2007).


The UN GC is considered the world’s largest CSR initiative — over 3,000 companies have pledged to follow the principles.445

The GC was first announced in 1999.446 At the time, the GC represented a new phase of the UN’s engagement with business — prior to the GC, there were movements for the regulation of corporate conduct within the UN, which, in turn, were heavily opposed by private enterprises.447 The GC “recast this competitive relationship as a cooperative one.”448 Business was seen as the UN partner in promoting its principles and goals, rather than its enemy.449 To join the GC, the highest-ranking executive of the company has to send a letter to the UN Secretary-General pledging commitment to the ten principles laid out by the GC.450 Following this, the business is expected to report to the GC Secretariat annually.451

While the GC does not have a disciplinary mandate, the GC Office, the official UN entity charged with managing the GC, entertains complaints.452 Companies proven to be unwilling to change would then be delisted from the GC.453

3. Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights

Another key development in soft law approaches to regulating business practice was the Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights

445. Thomas Hale, United Nations Global Impact, in HANDBOOK OF TRANSNATIONAL

GOVERNANCE: INSTITUTIONS & INNOVATIONS 350 (Thomas Hale & David Held eds., 2011).

446. Id.

447. Id.

448. Id. at 351.

449. Id.

450. Id.

451. Hale, supra note 447, at 352.

452. Id.

453. Id.


(Draft Norms).454 Calls for business accountability for human rights violations and a binding instrument aimed at regulating corporations had been mounting throughout the 1990s, leading to the formation by the UN Sub-Commission on the Promotion and Protection of Human Rights of a working group specifically aimed at tackling the issue of business and human rights.455 The Norms were intended to serve as “the basis for elaborating a treaty or other binding international law instrument, or customary international law recognizing obligations of corporations.”456 The Draft Norms themselves, however, were not intended to be binding legal documents.457

The contents of the Draft Norms proved to be controversial458 because they imposed full obligations on corporations, essentially equivalent to those which are imposed by international law upon States — thus, they required corporations to respect, protect, and fulfill human rights.459 Ultimately, the UN CHR did not approve the Draft Norms.460 Instead, Professor John G. Ruggie was appointed as the Special Representative of the UN Secretary-

454. U.N. Sub-Commission on the Promotion and Protection of Human Rights, Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, U.N. Doc. E/CN.4/Sub.2/2003/12/Rev.2 (Aug. 13, 2003).

455. Ruggie, supra note 444.

456. Vázquez, supra note 152, at 928.

457. Id.

458. Duruigbo, supra note 311, at 242.

459. U.N. Sub-Commission on the Promotion and Protection of Human Rights, U.N. Res. No. 2003/16, Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, U.N. Doc. E/CN.4/Sub.2/2003/12/Rev.2 (Aug. 13, 2003).

460. Id. The Draft Norms thus provided, under the header General Obligations —

States have the primary responsibility to promote, secure the [fulfillment] of, respect, ensure respect of[,] and protect human rights recognized in international as well as national law, including ensuring that transnational corporations and other business enterprises respect human rights. Within their respective spheres of activity and influence, transnational corporations and other business enterprises have the obligation to promote, secure the [fulfillment] of, respect, ensure respect of[,] and protect human rights recognized in international as well as national law, including the rights and interests of indigenous peoples and other vulnerable groups.

Id.


General on business & human rights, and was asked to conduct a study on how to best ensure corporate accountability for human rights abuses.461

4. The UN Guiding Principles on Business and Human Rights

Ruggie created the “Protect, Respect and Remedy” Framework and the UN Guiding Principles on Business and Human Rights462 (UNGPs) to bridge the gap between business practices and human rights. Ruggie’s studies on the subject convinced him that imposing direct legal obligations on corporations was not the answer — to him, States were the only true subjects of international law, and hence were the only persons who had direct human rights obligations.463 In his view, as demonstrated in the Interpretative Guide accompanying the UNGPs, international human rights instruments currently did not “impose direct legal responsibilities on corporations.”464

Based on this observation, Ruggie created a framework grounded on soft law, where he maintained that it was the State’s duty to protect human rights and to uphold them, as legal obligations.465 Meanwhile, business enterprises

461. United Nations, U.N. Secretary General, Secretary-General Appoints John Ruggie of United States Special Representative on Issue of Human Rights, Transnational Corporations, Other Business Enterprises, available at https://www.un.org/press/en/2005/sga934.doc.htm (last accessed Nov. 30, 2019).

462. The State duty to protect human rights is recognized by Principle 1 of the “[U.N.] Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework,” Report of the Special Representative of the U.N. Secretary-General on the issue of human rights and transnational corporations and other business enterprises, Human Rights Council, U.N. Doc. A/HRC/17/31 (Mar. 21, 2011).

463. Office of the High Commissioner on Human Rights, Interpretative Guide to the U.N. Guiding Principles on Business and Human Rights, at 10, available at http://www.ohchr.org/Documents/Issues/Business/RtRInterpretativeGuide.pdf (last accessed Nov. 30, 2019).

464. Id.

465. Report of the Special Representative of the U.N. Secretary-General on the issue of human rights and transnational corporations and other business enterprises, Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Act, Human Rights Council, ¶ 4, U.N. Doc. A/HRC/4/035 (Feb. 9, 2007).


had the responsibility to respect human rights.466 This entailed that “they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved.”467

Under Ruggie’s framework, business enterprises have legal obligations, as opposed to responsibility for due diligence, only when so required by domestic laws; thus, the duty to ensure the protection, respect, and fulfillment of human rights remained with the State. Business enterprises, on the other hand, had roles as “specialized organs of society performing specialized functions,” and were thus “required to comply with all applicable laws and to respect human rights.”468

The UN Human Rights Council endorsed the UNGPs in 2011. 469 Today, the “Protect, Respect and Remedy” Framework and the UNGPs are considered the most influential instruments in the emerging field of business and human rights, and serve as the current standard for corporate governance under international law.470

5. Conventions and Guidelines of the International Labor Organization

The ILO has issued a series of Conventions (and non-binding Recommendations) on national labor practices covering industrial relations, employment policy, and labor-based social security, such as the ILO Declaration on Fundamental Principles and Rights at Work.471 One of these instruments is the Tripartite Declaration of Principles Concerning

466. The State duty to protect human rights is recognized by Principle 1 of the UN Guiding Principles on Business and Human Rights and the UN “Protect, Respect and Remedy” Framework. Id. at 6-7.

467. Id. at 13.

468. Id. at 6.

469. United Nations, U.N. Human Rights Council endorses principles to ensure businesses respect human rights, available at https://news.un.org/en/story/2011/ 06/378662-un-human-rights-council-endorses-principles-ensure-businesses-respect-human last accessed Nov. 30, 2019).

470. Larry Catá Backer, From Institutional Misalignments To Socially Sustainable Governance: The Guiding Principles For The Implementation Of The United Nations’ “Protect, Respect And Remedy” And The Construction Of Inter-Systemic Global Governance, 25 PAC. MCGEORGE GLOBAL BUS. & DEV. L.J. 69, 78-79 (2012) & Justine Nolan, Refining the Rules of the Game: The Corporate Responsibility to Respect Human Rights, 30 UTRECHT J. OF INT’L & EUROPEAN L. 7, 12 (2014).

471. Id.


Multinational Enterprises and Social Policy (MNE Declaration). 472 These instruments, however, are also considered soft law.

6. Soft Law as Non-Binding Law and the Issue of Compliance

The above instruments are the status quo in international corporate governance. While they show the willingness of States and private actors to consider setting standards for regulating MNEs, these instruments remain largely non-binding and are considered soft standards,473 designed to help businesses draft their CSR strategies and give them a “clearer blueprint of how to articulate their human rights commitments.”474 For some, these soft law instruments are enough to move the ball forward until hard law obligations are fully formed.475 But there is also a view that the current soft laws lack teeth, and do not suffice to address legitimate human rights concerns that relate to MNEs.476 After all, soft law that has not ripened into custom cannot be characterized as binding and imposes no enforceable hard law obligations under international law.477 As has been opined, “[s]oft law has its place, but it is by no means a silver bullet solution in all spheres.”478

472. International Labor Organization, Tripartite declaration of principles concerning multinational enterprises and social policy (MNE Declaration) — 5th Edition (March 2017), available at http://www.ilo.org/empent/Publications/ WCMS_094386/lang--en/index.htm (last accessed Nov. 30, 2019).

473. Crow & Escobar, supra note 375, at 17.

474. Id. at 20, n. 143.

475. Nolan, supra note 470, at 12.

476. Adefolake Adeyeye, Corporate Responsibility in International Law: Which Way to Go?, 11 SING. Y.B. INT’L L. 141, 141-42 (2007). The movement towards hard law obligations is also evidenced by the support of some governments, scholars, and CSOs for a binding treaty on business and human rights. See, e.g., Douglass Cassell & Anita Ramasastry, White Paper: Options For a Treaty on Business and Human Rights, 6 NOTRE DAME J. INT’L & COMP. L. 1, 17-18 (2016) & Progressio 75, Why we need a binding treaty on business and human rights, available at http://www.progressio.org.uk/blog/progressio-blog/why-we-need-binding-treaty-business-and-human-rights (last accessed Nov. 30, 2019).

477. Perillo, supra note 123, at 439 (citing ALAN BOYLE & CHRISTINE CHINKIN, THE

MAKING OF INTERNATIONAL LAW vii (Malcolm D. Evans ed., 2006)).

478. Francesco Sindico, Soft Law and the Elusive Quest for Global Governance, 19 LEIDEN

J. INT’L L. 829, 835 (2006).


One clear example of the failure of soft law to fully address human rights relating to MNEs comes to mind. The UN Security Council previously relied on the OECD Guidelines for MNEs in its investigations of the illegal exploitation of resources in the Democratic Republic of Congo (DRC).479 Reports arose that MNEs were involved and profited from the civil wars in the country, which had claimed up to 3 million lives; the MNEs had allegedly fueled the war in order to “maximize exploitation of gold, diamonds, and other minerals in the east of the DRC,”480 and financed many of the different armed groups and factions fighting in the area. 481 The Security Council established a working group to conduct field visits and check on the irresponsible conduct of MNEs in the DRC.482 The working group of experts used the Guidelines as a benchmark for determining corporate involvement in the civil wars, and discovered that 85 companies, including 57 headquartered in 10 adhering countries, had not observed the Guidelines in their operations in the DRC.483 The working group recommended the adhering governments who had jurisdiction over the companies involved to make use of their NCPs to make the involved businesses accountable.484 Few governments, however, made any actual efforts to investigate further as to the involvement of the MNEs in the DRC.485

The discussions so far have explored all traditional approaches to corporate accountability under international law. One more source of international law, however, may be made the basis of investor liability in the ICSID setting, particularly since it has already been used with success in ICSID arbitration — the abuse of rights doctrine.

479. Morgera, supra note 433, at 320.

480. Rights & Accountability in Development, Unanswered Questions: Companies, conflict, and the Democratic Republic of Congo, available at http://www.raid-uk.org/sites/default/files/unanswered-qq.pdf (last accessed Nov. 30, 2019).

481. Id.

482. Elisa Morgera, OECD Guidelines for Multinational Enterprises, in HANDBOOK OF

TRANSNATIONAL GOVERNANCE: INSTITUTIONS & INNOVATIONS 319 (Thomas Hale & David Held eds., 2011) (citing OECD Guidelines, supra note 77, at 8).

483. Id. at 320.

484. Id.

485. Rights & Accountability in Development, supra note 480.


E. Abuse of Rights: General Principle of Law and Possible Source of Investor Liability in the Context of a Host State Counterclaim

General principles of law have been defined by Ian Brownlie to be logical propositions resulting from judicial reasoning on the basis of existing international law and municipal analogies.486

Some scholars believe that if corporations were to have any obligations at all under international law, that could be invoked in the context of a host State counterclaim in ISDS, this would most likely be sourced from a general principle of law. This Note explores one particular option which is already being used against investors in the ICSID setting: the abuse of rights doctrine.

1. Abuse of Rights in Investor-State Dispute Settlement

The abuse of rights doctrine has already been used to characterize the treatment of host States against investors in ISDS. This only mimics the historical basis for rules governing diplomatic protection and the treatment of aliens. Thus, tribunals often hold that host States abuse their rights in the context of administrative or legislative measures imposed upon aliens.487 The judiciaries of host States have also been accused of abuse of rights.488

Of interest, however, is the fact that the abuse of rights doctrine has been used against investors — particularly, in the context of abuse of process. Where investors are found to have abused the process of ISDS, tribunals will decline to exercise jurisdiction over the dispute.489 Currently, arbitral decisions have recognized one form of abuse of process in ISDS: that of treaty shopping.

Treaty shopping refers to the practice of investors reinventing their home State by incorporating a subsidiary in a third State, in order to benefit from the protections of an IIA applicable in said third State and the host State.490

486. Id. at 265. (citing BROWNLIE, supra note 138, at 18-19).

487. Michael Akehurst, Jurisdiction in International Law, 46 BRIT. Y.B. INT’L L. 145, 189 n. 3 (1972).

488. Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award (June, 30 2009).The tribunal is of the opinion that the Bangladeshi courts exercised their supervisory jurisdiction for an end which was different from that for which it was instituted and thus violated the internationally accepted principle of prohibition of abuse of rights.

489. Emmanuel Gaillard, Abuse of Process in International Arbitration, ICSID REV., 2017, at 3.

490. Id.


Where it is found that investors abuse the process through treaty shopping, tribunals decline to admit jurisdiction over the dispute.491

At the current stage, abuse of rights in ISDS takes on only the above form of abuse of process through nationality planning, which essentially pertains to an abusive exercise of a procedural right. Ksenia Polonskaya, however, points out that under international law and based on the works of MHQPs, abuse of process vis-à-vis treaty shopping is just one way of that an investor may abuse its rights.492 In her Note, Polonskaya proposed the extension of the abuse of rights doctrine in relation to investor conduct when an investor misuses the international investment regime, makes use of the system in bad faith, or where an investor commits misconduct.493

Polonskaya defends her stance of expanding the use of abuse of rights by the fact that it aligns with the origin of the abuse of right doctrine and the need to maintain the integrity of IIL as a whole.494 As to the misuse of the regime, Polonskaya connects this with a use of ISDS in a way that is contrary to its social and economic purpose.495 To illustrate this usage, she pointed to a decision promulgated by the European Court of Justice (ECJ), in Emsland-Starke.496 In that case, a German company hoping to manipulate the European Union’s regulations as regards refunds of export fees, transported goods to Switzerland, and then immediately rerouted the goods back to Germany. Though the scheme was technically valid, the ECJ ruled that the Germany company violated the spirit of the rules, as it exercised the right to a refund contrary to its specific purpose — which was to facilitate and promote trade in the Union. 497 Drawing from this example by analogy, Polonskaya recommended that investors who violate the specific purpose of the regime — which is to promote economic growth and development in the host State — should suffer consequences.498 She further recommends that the tribunal apply the abuse of rights doctrine when the investor engages in undue

491. Id.

492. Id.

493. Ksenia Polonskaya, Abuse of Rights: Should the Investor-State tribunals Extend the Application of the Doctrine?, at ii (2014) (unpublished LL.M. thesis, University of Toronto) (on file with Author).

494. Id.

495. Id. at *34.

496. Id. at *35.

497. Id.

498. Id. at **35-36.


interference with proceedings, such as when an investor conceals documents, or intimidates witnesses or counsel.499 She classifies this form of behavior as investor misconduct. She also provides that when an investor who makes use of ISDS in a way that is contrary to its stated purpose, then there is no good faith on the part of the investor, and the investor should thus not enjoy the protections of the investment treaty regime.500

To explore the veracity of her theory, and the possibility of it being used for imposing liability, this Note now embarks on an exploration of the current use of the abuse of rights doctrine, beginning with its genesis in municipal law.

2. Abuse of Rights vis-à-vis Municipal Law

The abuse of rights doctrine traces its roots in the Roman maxim sic utere iure tuo ut alterum non laedas, “prescribing the exercise of individual rights in such a way that others would suffer no injury[.]”501 It is a common feature of codes and laws in civil law jurisdictions, and is also used in common law countries as a corrective measure in the absence of clear basis for liability.502

As used in municipal law, the content of abuse of rights applies to interactions between two private persons, 503 including relations between corporations and natural persons. However, State usage of abuse of rights varies, thus making it difficult to pin down exact rules of applicability, except in very general terms. This analysis is useful, however, for the purpose of establishing the broad and accepted application of the doctrine, explaining its eventual migration into international law. It is further useful because the international law standard was developed having in mind that States would be the obligors. But, in this Note, the situation calls for the liability of a private person, i.e., the investor.

Under the paradigm of Roman law, the abuse of rights doctrine was used vis-à-vis property rights.504 As understood under that law, property rights were absolute; however, praetors could temper the application of this absolute

499. Polonskaya, supra note 493, at *41.

500. Id.

501. Id.

502. Polonskaya, supra note 493, at *6 (citing JAMES GORDLEY, THE JURISTS: A

CRITICAL HISTORY 295 (2013)).

503. See ANDRÁS SAJÓ, ABUSE: THE DARK SIDE OF FUNDAMENTAL RIGHTS 38

(2006).

504. ANDRÁS SAJÓ, ABUSE: THE DARK SIDE OF FUNDAMENTAL RIGHTS 38 (2006).


right with ethically driven precepts. 505 This model is mimicked in the Napoleonic Code, which provides that “ownership is absolute ... provided that it is not used in a manner prohibited by law or regulations.”506 French courts, however, encountered instances of the use of property rights that were tantamount to abuse, though not violations of law. As they encountered situations where ownership was exercised in socially dysfunctional ways, they began to interpret the French Civil Code to limit the right of ownership to the extent that it would lead to the abuse of the rights of others.507 This in turn has formed the origin of the abuse of rights doctrine.508

There are generally three approaches to the abuse of rights doctrine in civil law jurisdictions. The first is the classical theory, which requires intent to injure as an element of abuse of right. This is true of the Dutch and the Belgian Civil Code, which require that the purpose of the harmful act was to cause damage to another.509 The Philippine version of the abuse of rights doctrine adheres to this classic approach as well.510

For other civil law jurisdictions, however, harm caused by abuse of rights is not a question of intent but effect. This is referred to as the objective approach. Where a right is exercised in a way that is abusive, and subsequently, has the effect of harming another, though the harm was not intended, the abuse can turn into legal liability. This is the doctrine of abuse of rights as

505. Id.

506. NAPOLENIONIC CODE, art. 554 (Fr.).

507. Vera Bolgár, Abuse of Rights in France, Germany, and Switzerland: A Survey of a Recent Chapter in Legal Doctrine, 35 LOUISIANA L. REV. 1015, 1020 (1975).

508. Michael Byers, Abuse of Rights: An Old Principle, A New Age, 47 MCGILL L.J. 289, 392 (2002).

509. Id. at 393. This is true of the Dutch and the Belgian Civil Code, which both require that the purpose of the harmful act was to cause damage to another.

510. BPI Express Card Co. v. Court of Appeals enumerates the requisites, as follows:

(1) There is a legal right or duty, (2) which is exercised in bad faith, (3) for the sole intent of injuring or prejudicing another. TIMOTEO B. AQUINO, TORTS AND DAMAGES (2013) (citing BPI Express Card Corp. v. Court of Appeals, 296 SCRA 260 (1998) & An Act to Ordain and Institute the Civil Code of the Philippines [CIVIL CODE], Republic Act No. 386, art. 19 (1950)).


understood in the civil codes of Turkey, Spain, and Portugal, among others.511 Thus, the Spanish Civil Code provides that an abuse of right may result from a deliberate intention, the aim pursued, or the circumstances of the harm caused.512 Thus, under the objective approach, intent is not the material consideration; the effect of the exercise of a right, rather, can form grounds to sue another.513

Some civil law jurisdictions attach a socio-economic aspect to the abuse of rights doctrine. This is true of the Soviet Civil Code, which provides that the law protects civil rights, “except in those cases in which they are exercised in a sense contrary to their economic and social purpose.”514 This same provision appears in the laws of many former members of the Soviet Union.515 The Japanese Supreme Court espouses a similar view, with the Court having proclaimed that “[i]n all cases a right must be exercised in such a fashion that the result of the exercise remains within a scope judged reasonable in the light of the prevailing social conscience.”516

In common law, there is no precise principle that equals that of abuse of rights, although some argue that it is the origin of tort law, and doctrines related to duress, good faith, economic waste, and public policy, among others.517 Lauterpacht also observes that the common law of torts is actually “a list of wrongs arising out of what society considers to be an abuse of rights.”518

Though the content of the abuse of rights doctrine varies per jurisdiction as to scope, the basic common elements can be drawn from the above survey:

511. Polonskaya, supra note 493, at *6 (citing COUNCIL OF EUROPE, DIRECTORAT

OF LEGAL AFFAIRS, 19TH COLLOQUY ON EUROPEAN LAW, ABUSE OF RIGHTS

AND EQUIVALENT CONCEPTS: THE PRINCIPLE AND ITS PRESENT DAY

APPLICATION 35 (1990)).

512. Byers, supra note 508, at 394 (citing CO DIGO CODE, art. 7 (Spain)).

513. See, e.g., JAPAN CIVIL CODE & Kazuaki Sono & Yasuhiru Fujioka, The Role of the Abuse of Rights Doctrine in Japan, 35 LOUISIANA L. REV. 1037 (1975).

514. Byers, supra note 508, at 392.

515. See, e.g., CZECHOSLOVAK CIVIL CODE OF 1964, art. 7.

516. Kazuaki Sono & Yasuhiru Fujioka, The Role of the Abuse of Rights Doctrine in Japan, 35 LA. L. REV. 1037 (1975).

517. See, e.g., Byers, supra note 508, at 392.

518. HERSCH LAUTERPACHT, THE FUNCTION OF LAW IN THE INTERNATIONAL

COMMUNITY 297 (2011).


first, there is a right, which is lawful; second, the lawful right is exercised in an abusive manner, which, depending on the jurisdiction, is established by intent, effect, or the way by which the manner of exercise contradicts a wider social or economic purpose; and third, there is harm caused to another.

3. Abuse of Rights Under International Law

The common use of abuse of rights doctrine within several municipal jurisdictions has made for its easy migration into international law, particularly as a general principle of law.519 It has been seen, within international law, as a legal mechanism designed “to ease the inflexibility of the legal relationships derived from statutory, judicial[,] or treaty rules.”520 It serves the purpose of plugging the gaps that international law, as a legal system, initially failed to consider.521

In general, the abuse of rights doctrine is seen as an offshoot of the principle of good faith, which requires parties to a transaction “to deal honestly and fairly with each other, to represent their motives truthfully, and to refrain from taking unfair advantage[.]”522 This principle is also embodied in the VCLT.523 Its development and use in international law, however, has been adapted to the relations of States, given that the traditional actors in international law are State actors.

This Section of the Note will thus outline the doctrine’s current use in international law in order to understand how its standards may be modified and transposed to adapt to the case of an investor suing before the ICSID.

519. Michael Byers, Abuse of Right: An Old Principle, A New Age, 47 MCGILL L.J. 389 (2002). In fact, when the PCIJ Statute was being formulated and the term “general principles of law” was integrated as a provision, there were already comments that this referred to the abuse of rights doctrine. See PERMANENT COURT OF

INTERNATIONAL JUSTICE, PROCÈS-VERBAUX OF THE PROCEEDINGS OF THE

COMMITTEE, JUNE 16-JULY 24, 1920, WITH ANNEXES 314-15, 335 (1920).

520. LAUTERPACHT, supra note 518, at 286.


522. ANTHONY D’AMATO, ENCYCLOPEDIA OF PUBLIC INTERNATIONAL LAW 599 (1992).

523. LAUTERPACHT, supra note 518, at 286.


i. Abuse of Rights as Understood by Most Highly Qualified Publicists

Lauterpacht envisioned the doctrine of abuse of rights to be an instrument of change.524 As defined by him, there is an abuse of right when “the general interest of the community is injuriously affected as the result of the sacrifice of an important social or individual interest to a less important, though hitherto legally recognized, individual right.”525 Given his definition, he posits that the application of the abuse of right doctrine does not depend on intent, although intent may be material.526 The doctrine is instead meant to apply “when the use of a right degenerates into a socially reprehensible abuse of right, not because of the sinister intention of the person exercising it,” but by “the result of social changes unaccompanied by corresponding developments in the law.”527 In such a case, “the assertion of a right grounded in the existing law becomes mischievous and intolerable.”528

In the Fourth Report of Special Rapporteur F.V. García Amador as regards State responsibility, he linked the notion of arbitrariness to the broader doctrine of abuse of rights. He first defined arbitrary acts or omissions as those which, although they also involve conduct on the part of the State that is contrary to international law, occur in relation to acts which are intrinsically “legal.”529 Amador observed that, on the basis of the works of publicists and in diplomatic and legal practice, it is understood that where a State acts in an arbitrary manner against aliens, a State can be understood to have caused injury through the “abusive” exercise of a right; that is to say, “if it ignores the limitations to which State competence is necessarily subject and which are not always formulated in exactly defined and specific international legal obligations[,]” then the State would have been considered to have abused its right. 530 In his view, an example would be the fact that a State, under international law, is sovereign in its territory, and can impose measures such as expropriation of the property of all within it. There is only an international

524. Id. at 331.

525. Id.

526. Id.

527. Id. at 332.

528. Id.

529. Special Rapporteur on State Responsibility, Report of the International Law Commission Covering the Work of Its Fifth Session, Yearbook of the International Law Commission, ¶ 24, U.N. Doc. A/CN.4/119 (1961).

530. Id.


wrong where the taking is arbitrary, though it is legal, and arbitrariness can be shown in many ways — one of these is failure to grant to aliens MST.531

James Crawford explains that the abuse of right doctrine may also aid in tracing the genesis of principles used in certain decisions, although the words “abuse of rights” do not appear in the decision’s text. He notes that the abuse of right doctrine is the likely legal basis of the Trail Smelter decision,532 which in turn contributed to the harm principle in transboundary pollution. The doctrine as espoused in the decision provides that States have no right “to use or permit the use of its territory in such a manner as to cause injury by fumes in or to the territory of another or the properties or persons therein, when the case is of serious consequence and the injury is established by clear and convincing evidence.” 533 Several scholars share the sentiment that transboundary harm is the ideal example of abuse of rights.534 Of note is Guggenheim’s view is that there are two examples of when abuse of rights may be clearly demonstrated under international law: (1) where a criminal is appointed as a diplomat by a sending State, and (2) when a State exploits an international river causing damage to segments of the river, in turn affecting a downriver State. 535 The first example grants the affronted State the international right to refuse to recognize the criminal diplomat. On the other hand, the second example grants the affronted State the right to obtain compensation, in the form of damages.536

Based on the above observations of the abuse of rights doctrine under international law, the doctrine contains the following elements: first, there is a State right, granted by treaty or custom, which is inherently legal; second, the right is misused, or used in an abusive manner; and, third, the extent to which the right is abusive is determined by its harm to others.

531. Id.

532. JAMES CRAWFORD, THE CONDITIONS FOR INTERNATIONAL RESPONSIBILITY 562 (1998) (citing Trail Smelter Case (United States v. Canada), 31 I.L.M. 874 (1905)).

533. Trail Smelter Case, 31 I.L.M.

534. See, e.g., LAUTERPACHT, supra note 518, at 346-47.

535. Byers, supra note 508, at 428 (citing PAUL GUGGENHEIM, LA VALIDITE ET LA

NULLITE DES ACTES JURIDIQUES INTEMATIONAUX 250-54 (1949)). It is noted, however, that there are developed principles already for governing the conduct of the latter example under international law, i.e., the principle of equitable utilization.

536. Id.


ii. Abuse of Rights in International Litigation and Arbitration

Several countries have invoked the abuse of rights doctrine in international litigation and arbitration against other States, in disputes ranging from the use of nuclear tests by sovereign States, 537 to the misuse of powers of administration granted to one nation over another.538

In the Case concerning certain German interests in Polish Upper Silesia (The Merits),539 the PCIJ had opportunity to make mention of the abuse of rights doctrine and its application to the facts. Under the Treaty of Versailles, Germany was ultimately to transfer sovereignty over Upper Silesia. The question was whether or not involved was whether or not Germany could transfer properties in the territory prior to the cession of Upper Silesia. The PCIJ opined that “Germany undoubtedly retained until the actual transfer of sovereignty the right to dispose of her property, and only a misuse of this right could endow an act of alienation with the character of a breach of the Treaty; such misuse cannot be presumed, and it rests with the party who states that there has been such misuse to prove his statement.”540

In the Anglo-Norwegian Fisheries Case,541 the ICJ also had opportunity to mention that, as to the question of determining baselines, a State party had to

537. In the Nuclear Tests Case, Australia argued that France’s insistence on its right to conduct atmospheric nuclear tests, and any exercise of that right would have constituted an abuse of rights. Nuclear Tests Case (Austl. v. Fr.), 1974 I.C.J. 253, 362.

538. In the Case Concerning Certain Phosphate Lands in Nauru (Preliminary Objections), Nauru argued that Australia, which was granted powers of administration over it, misused its granted authority, particularly with regard to the extraction of phosphates, in a manner that amounted to an abuse of rights. Case Concerning Certain Phosphate Lands in Nauru (Nauru v. Austl.), Preliminary Objections, 1992 I.C.J. 240, 244 (June 26).

539. Case concerning certain German interests in Polish Upper Silesia (Ger. v. Pol.), Merits Judgment, 1926 P.C.I.J. (ser. A) No. 7, at 30 (May 25).

540. Id. (emphasis supplied) The decision concerned Germany’s powers in Upper Silesia during the period between the coming into force of the Treaty of Versailles and the transfer of sovereignty to Poland.

541. Contentious Case: Fisheries Case (U.K. v. Nor.), 1951 I.C.J. 116 (Dec. 18).


follow the general direction of the coast; thus, “one cannot confine oneself to examining one sector of the coast alone, except in a case of manifest abuse.”542

Separate opinions rendered by judges and arbitrators of international tribunals have made reference to the abuse of rights doctrine as well. Judge Alvarez, in his separate opinion in Anglo-Norwegian Fisheries Case, even adopted a test for determining when it can be said that States have abused their right to determine their territorial sea. He provides that the determination must be done in a reasonable manner, and in a way that does not constitute abus de droit.543 For him, one manifestation of such abuse is when “a State adopts too great a breadth for its territorial sea, having regard to its land territory and to the needs of its population, or if the baselines which it indicates appear to be arbitrarily selected.”544 He further proclaims that “States have certain rights over their territorial sea, ... but they also have certain duties, particularly those of exercising supervision off their coasts, of facilitating navigation by the construction of lighthouses, by the dredging of certain areas of sea, etc.”545

The abuse of rights doctrine was used in at least one decision by the Appellate Body of the World Trade Organization (WTO) — the 1998 Shrimp-Turtle case — thus affirming its application even in specialized tribunals.546 The case revolved around the interpretation of Article XX (g) of the General Agreement on Tariffs and Trade (GATT), which exempted from its provisions Member-State practices “relating to the conservation of exhaustible natural resources.”547 The controversy arose when US had imposed measures, in efforts to save sea turtles from being caught alongside shrimp, which required foreign fishermen to purchase specially-patented bottom-trawling process.548 The WTO Appellate Body, interpreting Article XX, provided that chapeau of the Article XX is an expression of the good faith principle, and mentioned that the abuse of rights doctrine was a subset of good faith which would

542. It is of note that the abuse of right doctrine is now explicitly provided for in the U.N. Convention on the Law of the Sea. See Contentious Case: Fisheries Case, 1951 I.C.J. 116.

543. Fisheries Case (U.K. v. Nor.), 1951 I.C.J. 116 (Dec. 18).

544. Id.

545. Id.

546. Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (Oct. 12, 1998).

547. Id.

548. Id.


prohibit “the abusive exercise of a [S]tate’s rights,” so that “whenever the assertion of a right ‘impinges on the field covered by [a] treaty obligation, it must be exercised bona fide, that is to say, reasonably.’” The Appellate Body concluded by saying that “an abusive exercise by a Member of its own treaty right thus results in a breach of the treaty rights of the other Members and, as well, a violation of the treaty obligation of the Member so acting.”549

This Note has, thus far, taken off from the pronouncements in Urbaser to explore developments in the emerging field of business and human rights under international law. The Note has striven to explore all the ways by which investor-corporations could possibly be made accountable for their human rights obligations, given the current state of international law. A full understanding of how these possibilities could be operationalized, however, is necessary to give a concrete answer to the legal questions propounded in this Note.

IV. THE INVESTMENT ARBITRATION SYSTEM: PROCEDURAL

CONSIDERATIONS APPLICABLE TO A COUNTERCLAIM UNDER THE ICSID

CONVENTION

This Note will now embark on exploring the remedial aspects of host State counterclaims, and how these may ultimately go into what counterclaims are possible.

To begin this assessment, the first vital provision of the ICSID Convention is that which details the ICSID Centre’s jurisdiction. This provision is vital not only because it determines what issues it may consider in the context of arbitration, but also because a counterclaim is ancillary to the main claim of the investor.550 Article 25 of the ICSID Convention provides —

The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have

given their consent, no party may withdraw its consent unilaterally.551

549. Id.

550. International Centre for the Settlement of Investment Disputes, Rules of Procedure for Arbitration Proceedings, rule 40 [hereinafter ICSID Arbitration Rules]. The Rule provides that “[e]xcept as the parties otherwise agree, a party may present an incidental or additional claim or counter-claim arising directly out of the subject-matter of the dispute.” Id.

551. ICSID Convention, supra note 26, art. 25 (1).


Any investor which seeks to successfully file a claim before the ICSID must be able to show the above jurisdictional requirements, even before the tribunal will issue a decision on the merits.552 This Note will discuss and break down this provision into two parts, following discussions by commentators: personal jurisdiction and subject matter jurisdiction.

A. Considerations Ratione Personae

Ratione personae refers to personal jurisdiction. This is determined by looking at: (1) the nationality of the investor-claimant, and (2) the consent of both the host State and the investor-claimant to submit their dispute to arbitration.553

1. Determining the Nationality of an Investor

Nationality is a key procedural component, for only aliens of the home State which itself signed the treaty may seek to file claims against the relevant signatory host State; thus, a corporation which, under the provisions of the relevant treaty, fails to meet the test of what would constitute an investor would necessarily fail on jurisdictional grounds.554

Article 25 of the ICSID Convention itself provides, preliminarily, that when it comes to corporations, a national of the other contracting State pertains to

any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes

of this Convention.555

552. It is important to note that ICSID decisions are generally issued in two stages: the first will be the jurisdictional stage, and only when this is validly passed will the merits based on the facts will be considered.

553. Loukas Mistelis, ICSID: Jurisdiction ratione materiae and ratione personae (A Presentation Prepared for the School of International Arbitration), available at https://qmplus.qmul.ac.uk/pluginfile.php/635371/mod_resource/content/1/QLLP036_Session_4_5.ppt.pdf (last accessed Nov. 30, 2019).

554. Aleksandrs Fillers, Corporate Nationality in International Investment Law, 1 EUR. SCIENTIFIC J. 50, 51 (2014).



The provision does not actually dictate the way by which corporate nationality is to be determined; instead, the definition of “investor” under the applicable treaty is what determines the nationality of a corporation.556

Different treaties will define investors in the context of nationality in different ways. 557 There are, however, three rules for determining the nationality of a corporation:

(1) its place of incorporation or the main seat of its business;558

(2) the extent by which a host State company is controlled by a foreign entity or individual;559 and

(3) the grant of an investment treaty, through its definition of the term “investment,” a right on the part of a shareholder-investor to submit a claim.560

i. Place of Incorporation Test as the Primary Test

The first rule reflects the general rule for determining corporate nationality under international law. In the classic ICJ case Barcelona Traction, corporate nationality under international law was said to be dependent on the incorporation test.561 An entity’s place of incorporation determines what is referred to as the formal nationality of a company.562 This rule has extended to determining corporate nationality under IIL. However, as an alternative, ICSID arbitral tribunals have also taken into consideration the “place of the


557. Some treaties will even provide separate definitions of corporate nationality — for example, the Austria-Philippines BIT provides a definition of what would constitute a corporate investor from the point of view of Austria, and a different one from the point of view of the Philippines. See Agreement between the Republic of Austria and the Republic of the Philippines for the Promotion and Reciprocal Protection of Investments, art. 1 (2) (b) & (c) [hereinafter Austria-Philippines BIT]

558. DOLZER & SCHREUER, supra note 72, at 49 (citing Autopista v. Venezuela, Decision on Jurisdiction, 27 Sep. 2001, 6 ICSID Reports 419, para. 107 & SOABI v. Senegal, Decision on Jurisdiction, 1 Aug. 1984, 2 ICSID Reports 175, para. 29)).


560. DOLZER & SCHREUER, supra note 72, at 56-57.

561. Case concerning the Barcelona Traction, ICJ Judgment, ¶¶ 42 & 48-50.



central administration or effective seat” of a corporation.563 These tests have “not, to date, been significantly qualified by the application of the ‘effective control’ test,”564 unless the relevant investment treaty makes reference to the use of the latter.565 As such, where the applicable IIA provides that the place of incorporation will serve as the only criterion for determining corporate nationality, tribunals have refused to “pierce the corporate veil and to look at the nationality of the company’s owners.”566

ii. Effective Control Test

Article 25 (2) (b) of the ICSID Convention provides that, aside from a juridical person with the nationality of a contracting State, another juridical person which may bring suit against the host State is that which “had the nationality of the Contracting State party to the dispute ... and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State.”567 The ICSID can, therefore, have jurisdiction based on the effective control test, in addition to the incorporation test, provided that the relevant investment treaty or other agreement so provides.

There have thus been instances in investment arbitration where a locally incorporated company, which is actually controlled by foreign entities, with the latter being protected by a particular investment treaty, makes the request to arbitrate before the ICSID.568 Control over the juridical entity, however, must be proven before the arbitral tribunal; as was opined in Vacuum Salt

563. Id. at 131-139. The seat of administration is also often referred to as the siège social of a corporation, and is the more common test used in Europe in the context of the classic rules of diplomatic protection, whereas the place of incorporation is more common in America. See E.M. BORCHARD, THE DIPLOMATIC

PROTECTION OF CITIZENS ABROAD OR THE LAW OF INTERNATIONAL CLAIMS

617-19 (1919).


565. Id.

566. DOLZER & SCHREUER, supra note 72, at 49-50. See, e.g., Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/18 (July 26, 2007). There, it was held that if an investment treaty provides only for the incorporation test, then no other test may be used to determine nationality. Id.

567. ICSID Convention, supra note 26, art. 25 (2) (b).

568. See, e.g., Klockner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Societe Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award (Oct. 21, 1983) & SOABI v. Senegal, ICSID Case No. ARB/82/1, ¶¶ 28-46.


Products Ltd. v. Republic of Ghana,569 an agreement to treat the investor-claimant as a foreign national because of foreign control “does not ipso facto confer jurisdiction.” 570 Foreign control would have to be factually established.571 How this is done is complicated, and as Christoph Schreuer points out, would require tribunals to take a look at “several factors such as equity participation, voting rights[,] and management.”572 This is one of the areas in investment treaty arbitration where no rules are firmly established.

Most tribunals turn to a bright line ownership test to determine whether or not a particular corporation is effectively controlled by a national of a contracting Party. Thus, in LETCO v. Liberia, 573 involving a Liberian company which was 100% owned and controlled by French nationals, the ICSID tribunal held that it had jurisdiction to rule over the dispute. This finding was further bolstered by the fact that, as found by the tribunal, “French nationals dominated the company decision making structure.”574

Some cases add some complications. In Aguas del Tunari S.A. (AdT) v. Republic of Bolivia,575 the claimant, AdT, was incorporated in Bolivia. It had entered into a concession agreement in September 1999 and claimed that through Bolivia’s acts and omissions regarding the concession, which had ended in 2000, Bolivia breached the Netherlands-Bolivia BIT.

When the concession contract was entered into, AdT’s shares were owned by a combination of Bolivian companies (20%), an Uruguay company (25%), and a Cayman Islands Company (55%). This latter company was 100% owned by Betchel, a US company. Prior to the termination of the concession contract, the shares of the Cayman Islands Company were sold to a company in the Netherlands, and it thus became 100% Dutch owned. The Netherlands-Bolivia BIT provided that investors not protected by its provisions would

569. Vacuum Salt Products Ltd. v. Republic of Ghana, ICSID Case No. ARB/92/1, Award, ¶ 36 (Feb. 16, 1994).

570. Id.

571. Id. ¶¶ 35-55.

572. Christoph H. Schreuer, Commentary on the ICSID Convention Articles 25 (cont), 26 and 27, 12 ICSID REV.—FOREIGN INV. L.J. 79, 79-80 (1997).

573. Liberian Eastern Timber Corporation (LETCO) v. Republic of Liberia, Civil Action No. 87-173, 2 ICSID REV.—FOREIGN INV. L.J. 161 (Apr. 16, 1987).

574. Id.

575. Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Jurisdiction (Oct. 21, 2005).


include those not “controlled directly or indirectly by nationals of the Netherlands.”576 Bolivia argued that the Dutch companies which owned the Cayman Islands Company were merely shells, created to allow AdT to avail of the provisions of the Netherlands-Bolivia Treaty.577

The question was whether or not AdT could be considered a Dutch company given the above facts. The tribunal resolved the matter by holding that the phrase “controlled directly or indirectly” referred to legal capacity rather than factual capacity — in other words, that control was a question of equity ownership. It ultimately held that AdT, given its majority ownership by a company incorporated in the Netherlands, was Dutch. As has been observed, the AdT tribunal’s approach was formal, and they essentially equated “effective control” with formal ownership (i.e., the ownership of a majority of the company’s shares).578 The dissenting opinion of one of the arbitrators in AdT, however, argued that a functional approach should have been taken by the majority “claimant has to prove that AdT received the effect of actions by Dutch companies.”579

Other tribunals have had opportunity to determine effective control using more functional ways. In Société Ouest Africaine des Bétons Industriels (SOABI) v. Senegal,580 for example, the investor-claimant was a Senegalese company, SOABI, which was 100% owned by Flexa, a Panamanian corporation. Panama was not a signatory to the ICSID Convention. However, Flexa was, in reality, under the control of Belgians, and had a Belgian national in its management. Considering these facts, it was held that SOABI could invoke the BLEU-Senegal treaty.

The above cases show that as a general rule, tribunals will determine effective control by looking at the ownership of the equity of the locally incorporated company. Where majority ownership by a foreign investor from a contracting Party is shown, tribunals will likely hold that it has ratione personae over the investor. Where, however, there are other indicators of control which are more functional, such as the existence of board members, or actual voting power, these may also be considered by tribunals.

576. Id. ¶¶ 470-475.

577. Id.

578. MCLACHLAN, ET AL., supra note 219, at 157-58.

579. Id. at 559-60.

580. Société Ouest Africaine des Bétons Industriels (SOABI) v. Senegal, ICSID Case No. ARB/82/1 (June 11, 1991).


iii. Capacity to Sue Arising from Provisions Defining “Investments”

An additional issue may arise as to whether or not a shareholder domiciled in one of the contracting Parties to an IIA will be able to sue the host State if it cannot be shown that it has effective control or if the relevant treaty only provides for the incorporation test when it defines an investor. For example, can a foreign shareholder of a company incorporated in the host State sue, even if it is a minority shareholder or not incorporated in the proper jurisdiction? The answer is in the affirmative — most investment treaties provide for a definition of what constitutes an “investment,” in addition to its definition of “investor.”581 And an investment is often defined to include “shares, stock, bonds and debentures[,] or any other form of equity participation in an enterprise or joint venture”582 which is owned by, directly or indirectly, by an investor of a contracting Party other than the host State.583

When an investor chooses to sue on the basis of an investment in a local company, “it is not the locally incorporated company that is treated as a foreign investor. Rather, the participation in the company becomes the investment.”584 Thus, though the local company itself would not be able to sue because it does not meet the incorporation test or effective control test, its foreign investor, holding some of its equity participation, would still be able to sue the host State.585

In CMS v. Argentina, 586 the investor claimant owned 29.42% of Argentinian company TGN. The investor based its claim on the US-Argentina BIT, which provided that the term “investment” included “a company or shares of stock or other interests in a company or interests in the

581. DOLZER & SCHREUER, supra note 72, at 57. See, e.g., Canada-Philippines BIT, supra note 91, art. 1 (f) & (g); Austria-Philippines BIT, supra note 557, art. 1 (1) & (2); & Philippines-Germany BIT, supra note 112, art. 1 (1) & (4).

582. See, e.g., Canada-Philippines BIT, supra note 91, art. 1 (f) (ii).

583. Id. art. 1 (f).


585. See, e.g., Antoine Goetz & Others and S.A. Affinage des Metaux v. Republic of Burundi, ICSID Case No. ARB/01/2, Award (June 21, 2012) & Emilio Agustin Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction (Jan. 25, 2000).

586. CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction (July 17, 2003).


assets thereof.”587 Argentina argued that CMS could not file a claim, on the ground that it was a mere minority shareholder of TGN.588 The tribunal, however, held that there is no bar to “allowing claims by shareholders independently from those of the corporation concerned, not even if those shareholders are minority or non-controlling shareholders.”589

In another case, IBM v. Ecuador, 590 IBM, incorporated in the US, established a local subsidiary in Ecuador. IBM initiated arbitration proceedings under the US-Ecuador BIT. Ecuador alleged that there was no agreement to treat the local subsidiary as domestic, in accordance with Rule 2 of the ICSID Arbitration Rules.591 As such, the claim should be dismissed on jurisdictional grounds. The tribunal rejected this argument, and, focusing on the definition of “investment” in the relevant BIT, held that the dispute was shown to have arisen from the investment of IBM.592 It then listed the reasons for why it made such a consideration:

(1) IBM owned 100% of the capital of the local entity;

(2) the contract concluded by the local entity with the Ecuadorian government constituted an investment of IBM, since the local entity was owned by the parent; and

(3) the right to collect money, capital, and interest was a right that also

inured to IBM as parent, for it was the indirect owner of that right.593

This same principle — of making the determination of the capacity of an investor to sue based on the definition of “investment,” rather than the investor’s own nationality — has been applied to indirect shareholdings through intermediate companies as well. This is because most treaties defining

587. Id. ¶ 57.

588. Id. ¶ 36.

589. Id. ¶ 48.

590. IBM World Trade Corp. v. Republic of Ecuador, Award, ICSID Case No. ARB/02/10) (Dec. 22, 2003).

591. Id. ¶ 30.

592. Id. ¶ 42.

593. Id. ¶ 41.


the term “investment” will also state that these assets may be directly or indirectly owned or controlled by the investor of a contracting Party.594

2. Consent

Consent is often referred to as the cornerstone of arbitration.595 The host State is only bound to grant the provided substantive rights to an investor on the ground that it signed the applicable investment treaty, thus consenting to its provisions.

On the part of the host State, as a general rule, consent to be bound by the provisions of an IIA is shown by its ratification, acceptance, approval, or accession to the treaty, and will need no further act.596 Thus, so long as the investor who invokes the provisions of the investment treaty is a national of a State that is party to the treaty, then jurisdiction over the host State is obtained.597

On the part of the investor, on the other hand, it is the general rule that consent to the arbitration is manifested by its initiation of the arbitration.598 A claimant thus consents to the ICSID Centre’s jurisdiction when it files its Notice of Arbitration. 599 The only exception would be if the relevant

594. See, e.g., Agreement Between Japan and the Republic of the Philippines for an Economic Partnership (Jap.-Phil.), art. 88 (b), available at https://www.mofa.go.jp/region/asia-paci/philippine/epa0609/main.pdf (last accessed Nov. 30, 2019) [hereinafter Japan-Philippine Economic Partnership Agreement].

595. ANDREA M. STEINGRUBER, CONSENT IN INTERNATIONAL ARBITRATION 1 (2012).

596. Vienna Convention on the Law of Treaties, supra note 164, art. 11. The provision states that “[t]he consent of a State to be bound by a treaty may be expressed by signature, exchange of instruments constituting a treaty, ratification, acceptance, approval or accession, or by any other means if so agreed.” Id.

597. DOLZER & SCHREUER, supra note 72, at 47. As an exception, where the investment treaty in question provides that the investor must first exhaust local remedies before resorting to filing a claim before the ICSID, then the investor must follow this stipulation. Mistelis, supra note 553.

598. Generation Ukraine v. Ukraine, 10 ICSID Rep. 240, Award, ¶¶ 12.2-12.3 (Sep. 16, 2003).

599. Id.


investment treaty requires some other form of communication on the part of the investor to demonstrate its consent.600

As to the scope of the consent of an investor and host State and what matters would be subject to the jurisdiction of the ICSID Centre, this largely depends on the provisions of the applicable investment treaty. Where a treaty broadly states that the dispute will cover “all disputes concerning an investment” or a similar formulation, ICSID tribunals often hold that even concerns outside the investment treaty may be addressed.601

Article 26 of the ICSID Convention provides the baseline rule for consent — “Consent of the parties to arbitration ... shall, unless otherwise stated, be deemed consent to arbitration to the exclusion of any other remedy.”602 Thus, while the applicable investment treaty may require exhaustion of local remedies, such a requisite must be explicitly provided for; otherwise, it is not necessary.603

B. Considerations Ratione Materiae

Ratione materiae refers to subject matter jurisdiction and answers the question of whether or not the issue involved is an investment dispute.604 The prima facie test for establishing jurisdiction ratione materiae in investment treaty cases is ask whether, “if the facts alleged by the claimant ultimately prove true, they would be capable of falling within (or coming within) (or constituting a

600. Id.

601. Christoph Schreuer, Consent to Arbitration 9-10, available at http://www.univie.ac.at/intlaw/con_arbitr_89.pdf (last accessed Nov. 30, 2019) (citing Salini Costruttori SpA et Italstrade SpA v. Royaume du Maroc, ICSID Case No. ARB/00/46, 42 ILM 609, Decision on Jurisdiction (July 23, 2001)

[hereinafter Salini v. Morocco, ICSID Case No. ARB/00/46]; Compañía de Aguas del Aconquija, S.A. & Vivendi Universal (formerly Compagnie Générale des Eaux) v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 6 ICSID Rep. 340 (July 3, 2002); & SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/68, Decision on Jurisdiction, 8 ICSID Rep. 518 (Jan. 29, 2004). The cited cases all have held that general terms such as that provided would include non-treaty based claims of investors, in particular, those that arose from the investment contract, rather than just the applicable investment treaty.


603. Id.

604. Id.


violation of) the provisions of the investment treaty.” 605 Answering the question necessarily involves determining: (1) whether or not there is an investment involved, based on the definition of “investment” in the applicable investment treaty, and (2) whether or not the investment involved is to be considered protected.

1. Defining an “Investment”

Article 25 of the ICSID Convention provides that the ICSID Centre has jurisdiction only over legal disputes “arising directly out of an investment.”606 Again, in this context, the ICSID Convention was drafted to allow States a wide leeway to determine what would constitute an investment in their IIAs.607 ICSID tribunals, however, employ a two-fold test which takes into consideration the term “investment” as found in the ICSID Convention as well as the term “investment” as found in investment treaties entered into by the parties. As described in Malaysian Historical Salvors v. Malaysia,608 the test requires an answer to two questions: (1) whether the dispute arises out of an investment within the meaning of Article 25 of the ICSID Convention; and (2) if so, whether the dispute “relates to an investment as defined in the Parties’ consent to ICSID arbitration, in their reference to the BIT and pertinent definitions contained in Article 1 of the BIT.”609

For the first test, ICSID jurisprudence has developed and applied four criteria developed by Christoph Schreuer: (1) the contribution of the investor, (2) certain duration of the project, (3) existence of operational risk, and (4) contribution to the host [S]tate’s development.610

605. KJOS, supra note 206, at 110 n. 32.



608. Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, ICSID Case No. ARB/05/10, Award on Jurisdiction (May 17, 2007).

609. CSOB v. Slovakia, Case No. ARB/97/4, Decision on Jurisdiction, 14 ICSID

REV.—FOREIGN INV. L.J. 251 (May 24, 1999).

610. CHRISTOPH SCHREUER, THE ICSID CONVENTION: A COMMENTARY 140 (2001). Thus, for example, in Malaysian Historical Salvors, the tribunal found that a maritime salvage contract with the government could not be considered to have contributed to the host [S]tate’s development, and was therefore not an investment. Without even examining the second test, the claim of the alleged


For the second test, IIAs typically define the term investment as all kinds of assets, and then providing for set of illustrative categories.611

Some treaties will also include a requisite link to long-term economic relations. The ASEAN Comprehensive Investment Agreement (ACIA) provides for this, in footnote form: “Where an asset lacks the characteristics of an investment, that asset is not an investment regardless of the form it may take. The characteristics of an investment include the commitment of capital, the expectation of gain or profit, or the assumption of risk.”612 This required link is connected to the first test providing for ICSID jurisdiction.

2. Determining Whether an Investment is “Protected”

Most definitions of investment also require not only that they are able to meet the criteria or are found on the list; they also must be defined, in “accordance with the laws and regulations of the Contracting Party in whose territory the investment is made.”613 Some commentators refer to this as the concept of a protected investment. The term “protected investment” does not contemplate the inclusion of investments that were illegally obtained, or those which violate domestic laws. 614 An illustration of this is found in Fraport v. Philippines,615 where the BIT between Germany and the Philippines contained a provision that investments, to be admissible in the territory of the host State, had to comply with domestic laws.616 In the decision, it was found that Fraport circumvented Philippine laws when it executed secret shareholder agreements to circumvent the 60-40 Filipino-foreign ownership rule to be able to run a

investor was dismissed. See also Malaysian Historical Salvors v. Malaysia, ICSID Case No. ARB/05/10, Award on Jurisdiction (May 17, 2007).

611. Id.

612. Association of Southeast Asian Nations Comprehensive Investment Agreement, art. 11 (2) (b), Feb. 26, 2009, art. 4 (c) n. 2, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/3095 (last accessed Nov. 30, 2019).

613. National Grid plc v. Argentina, UNCITRAL, Award, (Nov. 3, 2008) (citing Argentina-U.K. BIT, art. 1 (a)). See also Robert Azinian v. United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, (Nov. 1, 1999).

614. International Arbitration, supra note 591.

615. Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, Award, ICSID Case No. ARB/03/25 (Aug. 16, 2007).

616. Id. ¶ 286.


public utility.617 As such, the tribunal found it had no jurisdiction ratione materiae over the claim.618

However, the general rule is that investments that become illegal or that violate domestic law subsequent to the creation of the investment in the foreign territory are still considered “protected investments,” as the illegality of the investment must be established at the time of the investment’s creation.619 Thus, as held in Fraport v. Philippines, the failure to establish that the investment was protected was routed back to the question of the investor’s compliance with the Philippine’s laws on ownership, which the investor was required to have complied with prior to even establishing its investment.

C. Summary of the Jurisdictional Requirements for an Investor’s Claim

For ease of reading, for the ICSID to have jurisdiction over the investor’s claim, the investor must establish the following:

Components Specific Tests

Personal Jurisdiction

Nationality The “place of incorporation” test is the primary test.

If allowed by the treaty, tribunals may apply the “effective control” test. tribunals will either use —

(1) Bright line test: If there is majority equity, there is effective control.

(2) Functional test: The tribunal will look at management.

As an alternative to the first two, the investor may invoke its ownership of an investment as defined by the applicable IIA, and use the “investments” test.

Consent On the part of the host State

617. Id. ¶ 296.

618. Id. ¶ 306.

619. Mistelis, supra note 553 (emphasis supplied).


General Rule: Manifested by its signing of the IIA

Exceptions: The IIA otherwise provide

On the part of the Investor

General Rule: Its filing of the claim before the ICSID

Exceptions: The IIA otherwise provides

Subject Matter

Jurisdiction

Definition of “Investment”

Investors must satisfy a two-fold test, which consists of:

First, proving that its investment satisfactorily shows the following criteria —

(1) The contribution of the investor

(2) Certain duration of the project

(3) Existence of operational risk

(4) Contribution to the host State’s development

Second, and only if the first test is satisfied, proving that the investment subject of the dispute is part of the list provided in the applicable IIA.

Status as “Protected Investment”

Investors must show that the investment was legally made, based on the time the investment was first entered into.


D. Counterclaims in Investment Arbitration

Article 46 of the ICSID Convention provides that counterclaims are possible in investment arbitration. The provision states —

Except as the parties otherwise agree, the tribunal shall, if requested by a party, determine any incidental or additional claims or counterclaims arising directly out of the subject matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the

jurisdiction of the Centre.620

The above provision gives the test for when a tribunal may be said to have jurisdiction over a counterclaim. As culled from the Article, a particular counterclaim must satisfy the following requisites:

(1) The counterclaim must arise directly out of the subject matter of the dispute;

(2) The relevant party (i.e., the investor) must have consented to be the subject of a counterclaim; and

(3) The counterclaim must be within the jurisdiction of the Centre.621

Alternatively, however, the parties may simply agree to proceed on the merits of the counterclaim. Thus, an investor may choose to invoke no jurisdictional objection and, in effect, agree to proceed to ruling on the merits of the counterclaim.622 This was what happened in Burlington Resources v. Ecuador. In this case, Ecuador filed an environmental law based counterclaim against the investor, based on domestic law. 623 Applying the factual connection test, Burlington Resources was found to have negligently managed its oil extraction sites in Ecuador, resulting in environmental damage for which Burlington should be accountable.624 It is of note that in this case, Burlington Resources was the parent company and foreign investor, rather than the subsidiary that was actually operating in Ecuador.625 However, the parties in


621. Lalive & Halonen, supra note 198, at 141.

622. See, e.g., Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision, (Feb. 17, 2017).

623. Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision, ¶ 79 (Feb. 17, 2017).

624. Id. ¶ 889.

625. Id.


the dispute chose to waive jurisdictional issues and proceed to the merits of the counterclaim.626 Thus, the issues of piercing the veil and the separate juridical personalities of the parent and subsidiary, the nexus of the claims, and consent were never raised.627

Below, the Note will discuss the above-listed jurisdictional requirements for a counterclaim to prosper. It will no longer, however, go into a discussion of the third requisite, as this is merely a reiteration of the previous Section of this Note.

1. Nexus to the Subject Matter of the Claim Must be Established

The first requisite provides that the counterclaim must arise directly out of the subject matter of the dispute. According the Rule 40 of the ICSID Convention Rules, the counterclaim is an ancillary claim, dependent on the main claim for its validity.628 As such, the claim and counterclaim must be connected. The question as to whether a legal or factual connection would suffice is a subject of controversy, and different tribunals have ruled on the matter in different ways.

In Saluka v. The Czech Republic, 629 it was provided that a factual connection between the claim and counterclaim would not be enough for the counterclaim to prosper. The Saluka tribunal found there had to be “a common origin, identical sources, and an operational unity” or there must be “the accomplishment of a single goal, [so as to make the claim and counterclaim] interdependent.” 630 The connection that was a legal connection, for it held that the counterclaim should have the same legal basis as the primary claim. 631 In Saluka, the counterclaim was grounded on domestic law, rather than the BIT between the Netherlands and the Czech

626. Id. ¶ 6.

627. Id.

628. International Centre for Settlement of Investment Disputes, ICSID Convention, Regulations and Rules, Rule 40, available at https://icsid.worldbank.org/en/ Documents/resources/2006%20CRR_English-final.pdf (last accessed Nov. 30, 2019).

629. Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Decision on Jurisdiction over The Czech Republic’s Counterclaim, ¶ 79 (May 7, 2004), available at https://www.italaw.com/cases/961 (last accessed Nov. 30, 2019) [hereinafter Saluka v. Czech Republic].

630. Id.

631. Id.


Republic, and as a result, the tribunal found that the necessary connection was not established.632

The counterclaim for a human rights violation in Urbaser, however, was allowed on the basis of a factual connection between the claim and the counterclaim — the dispute arose out of the same investment — i.e., the water concession, but the legal basis of the claim was that its substantive right to FET under the BIT was violated; meanwhile, Argentina based its counterclaim on the violation of the human rights of its people.

Though the position of the Urbaser tribunal is contrary to that of the tribunal in Saluka, it is submitted that Urbaser ruling was correct. As has been opined by several scholars in critiques of Saluka, requiring that a legal nexus in necessary practically makes counterclaims impossible.633 And the VCLT provides that treaties, such as the ICSID Convention and the relevant investment treaty, which allow for counterclaims, must be interpreted in a way that gives all provisions effect.634 This view is further bolstered by the fact that the original notes attached to the ICSID Arbitration Rules actually provided that the question to answer as regards counterclaims and their connection to the main claim is “whether the factual connection between the original and the ancillary claim is so close as to require the adjudication of the latter in order to achieve the final settlement of the dispute.”635 The view was also supported by another tribunal — that of Goetz v. Burundi,636 in which the issue of the claim was “lawfulness of the suspension of the free enterprise zone certificate and the resulting closure of the bank as a result of breaches of its obligations,” which it claimed amounted to expropriation. The counterclaim, on the other hand, was grounded on the prejudices suffered by Burundi due to the investor’s failure to pay taxes, as it claimed that the manner in which the investor had conducted business in the country resulted in unfair

632. ZACHARY DOUGLAS, THE INTERNATIONAL LAW OF INVESTMENT CLAIMS 257 (2009) & Kelsey Brooke Farmer, The Best Defense is a Good Offence — State Counterclaims in Investment Treaty Arbitration, at *24 (unpublished LL.M. research paper, Victoria University of Wellington), available at https://researcharchive.vuw.ac.nz/xmlui/bitstream/handle/10063/5004/paper.pdf?sequence=1 (last accessed Nov. 30, 2019).

633. Lalive & Halonen, supra note 198, at 141.

634. Id.

635. Id. (citing Notes to the ICSID Arbitration Rules (1968), Note B (a) to Rule 40, reprinted in 1 ICSID Rep. 63, 100) (emphasis supplied).

636. Antoine Goetz & Others and S.A. Affinage des Metaux v. Republic of Burundi, ICSID Case No. ARB/01/2, Award (June 21, 2012).


competition within the free export zone. Though the legal basis of both claim and counterclaim were not connected, since both were grounded on the same certificate and its suspension, the tribunal found it had jurisdiction. The Note submits that Goetz and Urbaser espouse the better view, and should be the basis of allowing counterclaims vis-à-vis connection to the main claim in the future.

2. Consent to Counterclaim on the Part of the Investor vis-à-vis Scope of the Dispute

Another matter of controversy as regards counterclaims is consent. As has been said, consent is the cornerstone of arbitration, and the ICSID Convention provides that a counterclaim has to be “within the scope of the consent of the parties.” As such, it becomes a question as to how consent to a counterclaim is to be established.

Where there is an arbitration agreement governing the dispute between the host State and the investor, the scope as provided therein will dictate what the tribunal may decide upon.637 Where the arbitration agreement is not explicit as to its terms, however, or where the parties to the dispute did not actually come to an agreement as to what would constitute the scope of the arbitration, tribunals differ as to how to determine if a counterclaim would be possible.

In Spyridon Roussalis v. Romania (Roussalis),638 the majority found that, to file a successful counterclaim, it is not enough that the investor consented to the filing of the claim before the ICSID Centre. There must be an external source of consent to the counterclaim — i.e., an agreement to that effect entered into between the host State and the investor.639 The tribunal in this case based its decision on the terms of the BIT, which provided that the tribunal would have jurisdiction over “[d]isputes between an investor of a Contracting Party and the other Contracting Party concerning an obligation of the latter under this Agreement.”640 The Roussalis decision came with a dissenting opinion by arbitrator W. Michael Reisman, who opined that, in his view, when the investor consents to the jurisdiction of the ICSID Centre by filing a notice of arbitration pursuant to a BIT, they necessarily also consent

637. Lalive & Halonen, supra note 198, at 141 (citing Notes to the ICSID Arbitration Rules (1968), Note B (a) to Rule 40, reprinted in 1 ICSID Rep. 63, 100).

638. Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (Dec. 7, 2011).

639. Id. ¶ 759.

640. Id. ¶ 868.


to the possibility of counterclaims filed by the host State.641 “When the States Parties to a BIT contingently consent, inter alia, to ICSID jurisdiction, the consent component of Article 46 of the Washington Convention is ipso facto imported into any ICSID arbitration which an investor then elects to pursue.”642 To Reisman, this fulfills the intent of Article 46, which was supposed to work “to the benefit of both respondent [S]tate and investor.643

In Goetz v. Burundi,644 on the other hand, echoing the dissent in Roussalis, the counterclaim of Burundi was accepted as to jurisdiction, and it was held therein that the investor’s consent, shown by its choice of arbitrating a treaty claim, is sufficient to show that there was consent to the counterclaims. To the mind of the Goetz tribunal, there would not be need to examine the provisions of the applicable treaty —

[B]y the very act of entering the Treaty, Burundi has accepted that any disputes which go to arbitration under the ICSID framework will be governed by the ... Washington Convention. In particular, it is accepted that incidental or additional claims or counterclaims brought during proceedings would be considered ... By accepting the offer made in the Treaty, the [Goetz] parties for their part accepted that this would be the case. This two-

fold consent gives the tribunal jurisdiction to hear counterclaims.645

Goetz and the Roussalis majority both directly clash as to how consent is to be determined vis-à-vis the scope of the dispute as agreed upon by the parties. On the one hand, Roussalis majority requires an external manifestation of consent to be subject to a counterclaim other than the BIT. On the other, the Goetz tribunal held that the mere invocation of a IIA which grants jurisdiction over a dispute to the ICSID Centre would trigger the application of Article 46 of the ICSID Convention, and would thus entail that a counterclaim is possible.

This Note, however, submits that a middle ground between these two approaches would be best, as has been used in Saluka and in Urbaser. The best

641. Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (Dec. 7, 2011) (Arb. W. Michael Reisman, dissenting opinion), available at https://www.italaw.com/sites/default/files/case-documents/ita0724.pdf (last accessed Nov. 30, 2019).

642. Id.

643. Id.

644. Antoine Goetz and others v. Republic of Burundi (II), Award, ICSID Case No. ARB/01/2) (June 21, 2012).

645. Id.


way to determine whether or not a counterclaim can prosper should be by looking into the provisions of the applicable IIA to determine whether the tribunal has jurisdiction over a counterclaim and using these terms to determine the scope of acceptance of the parties. Article 46 of the ICSID Convention requires party consent, as a separate element rather than just as an implicit result of the invocation of the Convention’s provisions; as such, the mere invocation of the ICSID Centre’s jurisdiction by an investor would not be sufficient to hold that consent to the counterclaim has been given.

However, at the same time, the IIA entered into between the host States, which the investor chooses to invoke, is in itself a substantive instrument containing provisions which dictate the scope of the dispute between the parties. Where, therefore, the wording of an investment treaty that the investor chooses to invoke as the basis of its rights in a dispute provides that the tribunal has jurisdiction over “any dispute concerning an investment,”646 that wording is broad enough to impliedly include jurisdiction over a counterclaim. This is to be juxtaposed to other treaties which provide that the disputes the tribunal can cover are only those “based on an investor’s claim that he has suffered losses or damage”647 or where the treaty provides an explicit list of what may be arbitrated before the ICSID Centre.648 For the latter two cases, a counterclaim would not be within the jurisdiction of the ICSID tribunal, because the plain text of the treaty would exclude a counterclaim. However, where the treaty provision is broad enough to include a counterclaim, then it must be understood that the investor and host State intended that a counterclaim would be possible, given Article 46 of the ICSID Convention; otherwise, they should have excluded it.

This was the holding of the Urbaser tribunal as regards the scope of the dispute and the question of consent. In Urbaser, CABB and Urbaser argued that, based on the offer to arbitrate that had been approved by their respective

646. See, e.g., Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperating Among the Governments of the Member Countries of the Association of Southeast Asian Nations and the Republic of Korea, ASEAN-Kor., art. 18 (1), Feb. 6, 2009, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/3339 (last accessed Nov. 30, 2019); Germany-Philippines BIT, supra note 112, art. 3 (1); & Austria-Philippines BIT, supra note, at 557, art. 1 (2), (b) & (c).

647. Canada-Philippines BIT, supra note 581, art. 2 (2).

648. See, e.g., Agreement on Investment Under the Framework Agreement on Comprehensive Economic Cooperation between the People’s Republic of China and the Member Countries of the Association of Southeast Asian Nations, art. 3 (4) (d).


boards, the tribunal would only have jurisdiction over “any dispute arising between this company and the Argentine Republic as a result of the damage caused to the company’s investments in that country.”649 The Urbaser tribunal found, however, that the investor-claimants and Argentina had never reached an agreement as to the scope of the arbitration, as Argentina’s offer to arbitrate provided that the scope would be “all disputes in connection with investments within the meaning of the BIT.”650 Since no agreement was ever reached by Argentina and the investor-claimants as to the true scope of the dispute, the provisions of the Spain-Argentina BIT would apply. The BIT provided the the scope would be “disputes arising between a Party and an investor of the other Party in connection with investments”651 which echoed, more or less, the scope as offered by Argentina. Given that the BIT itself was worded broadly enough to include counterclaims, the Urbaser tribunal therefore held that the parties had ultimately shown their consent to that scope.

The tribunal in Saluka v. Czech Republic arrived at the same conclusion.652

E. The Issue of Privity: Addressing Investor-Claimant Liability for Acts of Their Local Subsidiaries

Privity of contract is a basic proposition in law, understood to mean that only those who are parties to a particular contract are bound by its terms.653 This same concept is applicable in the investment treaty arbitration setting, as regards the relation of the host State, the investor, and the investor’s investment.

The issue of privity is not a concern where the company operating within the host State which is effectively controlled by a foreign investor is the one that files a claim before the ICSID Centre, if such is allowed by the IIA


650. Id. ¶ 1147.

651. Dogan Gültutan, Availability of Counterclaims to Host States for Moral Damages Sustained, 2 TURK. COMM. L. REV. 2, 220 (2017).

652. Saluka v. Czech Republic, supra note 622, ¶ 39.Although, as noted in the sub-Section previous to this, the same tribunal found that the legal connection of the counterclaim to the claim was not established.

653. This is to be distinguished from the concept of “arbitration without privity,” which refers to the “practice whereby a State in an investment treaty extends a generic offer of arbitration to foreign investors nationals of the other State Party or Parties to the treaty.” See J. Paulsson, Arbitration Without Privity, 10-2 ICSID

REV.—FOREIGN INV. L.J. 232 (1995).


invoked.654 This company would necessarily be charged with ensuring that its operations do not violate domestic laws, nor violate the human rights of citizens of the host State.

The matter complicates, however, when the foreign investor suing is a foreign company, and is thus not directly the operator in the host State. As has been observed, the broad definition of what constitutes protected investments under current investment treaties entails that there are a large number of protected investors, far more than those that actually operated in the host State’s territory655 — as regards multinational entities, investor-claimants may include the parent company of the local subsidiary or other corporate vehicles of the parent company. Often, given the terms of the applicable treaty, they will be able to bring a claim against the host State for acts done to their investments, rather than directly to themselves, so long as they are able to establish that they are nationals of the other contracting State party to the treaty. It is to be recalled that a typical form of investment, based on investment treaties, includes the entity doing business in the host State territory. 656 Granted these basic features of investment arbitration, one important issue arises as regards counterclaims — can the parent company or investment vehicle serving as investor-claimant be made liable for human rights violations allegedly committed by its local subsidiary, when it is the latter that actually operated in the host State?

The same issue was raised by the claimants CABB and Urbaser in Urbaser v. Argentina, but this was never addressed by the tribunal.657 Since Urbaser did

654. See, e.g., Austria-Philippines BIT, supra note 557, art. 1 (2) (c). This includes, in its definition of what constitutes an investor, “any juridical person, or partnership, constituted in accordance with the legislation of a Contracting Party or of a Third Party in which [a juridical investor constituted in Austria] to above exercises effective control. Id.

655. Gabriel Bottini, Extending Responsibilities in International Investment Law (E15 Task Force on Investment Policy) 1, available at http://e15initiative.org/wp-content/uploads/2015/09/E15-Investment-Bottini-Final.pdf (last accessed Nov. 30, 2019).

656. Andrea K. Bjorklund, The Role of Counterclaims in Rebalancing Investment Law, 17 LEWIS & CLARK L. REV. 461, 477-78. Furthermore, given the broad wording of Article 25 (2) (b) of the ICSID Convention, it is even possible “for a foreign-controlled investment itself to submit a claim.” Id. at 478 n. 76.

657. Id. at 1169. Urbaser and CABB argued that Argentina “failed to mention that it was AGBA, not Claimants, who undertook the obligations to make certain investments vis-à-vis the Grantor. Therefore, the Argentine Republic lacks


not grant the counterclaim on the merits, the decision to avoid resolving this conundrum may have been prudent, for here too, there are no clear rules.

As has been explained in Section III, the doctrines of limited liability and the separate legal existence and strong juridical personality entail that, usually, a parent corporation cannot be made financially liable to victims of human rights or other violations of a subsidiary.658 And commentators who have tackled counterclaims previously constantly make reference to the issue of a lack of privity. To their minds, this makes a counterclaim near impossible, or entail the necessity to apply the doctrine of piercing the veil of corporate fiction.

Piercing the veil of corporate fiction refers to the doctrine in corporate law, as applied in international economic law, which refers to “the disregarding of the separation between corporate entities and their shareholders.”659 Piercing the veil can only be done in limited contexts, and is traditionally done when the subsidiary is a mere alter ego of the parent and the parent uses the subsidiary for some wrongful purpose.660 It could also be used when a controlling shareholder sets up a corporation, often undercapitalized, which incurs obligations on the shareholder’s behalf.661

Ultimately, the question of whether or not piercing the veil can be done by ICSID tribunals in a counterclaim for acts or omissions of local subsidiaries must be resolved by looking into international law, rather than the domestic laws of the host State. 662 As such, tribunals will “rely on the ICSID Convention and applicable BITs, as well as on their own jurisprudence, to decide on the feasibility of piercing the corporate veil.”663

standing to claim for their violation against CABB and [Urbaser].” Id. It is of note that Urbaser held 27.4122% of the shares of AGBA, while CABB owned 20%. Urbaser v. Argentina, ICSID Case No. ARB/07/26, Award, ¶¶ 62 (Dec. 8, 2016).

658. Yaraslau Kryvoi, Piercing the Corporate Veil in International Arbitration, 1 GLOBAL

BUS. L. REV. 169, 173 (2011).

659. JORUN BAUMGARTNER, TREATY SHOPPING IN INTERNATIONAL INVESTMENT

LAW 295 (2016).

660. Gwynne Skinner, Rethinking Limited Liability of Parent Corporations for Foreign Subsidiaries’ Violations of International Human Rights Law, 72 WASH. & LEE L. REV. 1769, 1773 (2015) (citing United States v. Bestfoods, 524 U.S. 51, 62 (1998)).

661. Id. at 1773.

662. Id.

663. Id.


Though this Note deals with a treaty-based dispute, reference to contract Klöckner v. Cameroon, 664 the tribunal pierced the veil on the basis of interpretation of the concept of “investment” in accordance with the intent of parties to the arbitration agreement. In that case, the foreign investor, Klöckner, entered into management contracts with the government of Cameroon in order to set up a fertilizer company.665 The agreement contained an ICSID arbitration clause.666 In a 1977 Management Contract, Cameroon entered into an agreement with Klöckner and SOCAME, a joint venture company which was, at the time, under the majority control of Klöckner. When Klöckner filed claims against the government of Cameroon, the latter filed counterclaims against Klöckner, though it was the local subsidiary, SOCAME, which actually operated in Cameroon. The tribunal held that the relationship between SOCAME and Klöckner was sufficiently established, and thus it had jurisdiction over the counterclaim.667

The Klöckner case demonstrates what Dr. Yaraslau Kryvoi has observed as regards the issue of privity in investment arbitration vis-à-vis piercing of the corporate veil — essentially, while tribunals hesitate to pierce the veil altogether, they will do so if effective control by the parent company serving as investor in the dispute over its local subsidiary has been established668 — the test of what would constitute effective control, on the other hand, would depend based on the Schreuer test of analyzing “several factors such as equity participation, voting rights[,] and management[.]”669

Others, however, suggest that there is an alternative solution to having to pierce and determine the existence of all these situations. 670 That is by applying the group of companies doctrine, as used in international arbitration

664. Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award (Oct. 21, 1983).

665. Id. ¶ 5.

666. Id. ¶ 11.

667. Id. ¶ 176.

668. Yaraslau Kryvoi, Counterclaims in Investor-State Arbitration, 21 MIN. L. REV. 216,

232-33 (2012). 669. CHRISTOPH SCHREUER, THE ICSID CONVENTION: A COMMENTARY 140

(2001). See, e.g., Salini v. Morocco, ICSID Case No. ARB/00/46, Decision on Jurisdiction, 42 I.L.M. 609, ¶ 52 (July 23, 2001).

670. Id.


and international competition law.671 The group of companies doctrine first found its way into international law through the ICC case of Dow Chemical v. Isover Saint Gobain.672 Therein, the arbitral tribunal found that, where a group of companies operate as one economic reality, they may be considered to be one and the same for purposes of an arbitration. The tribunal expounded on this in the following terms —

[I]rrespective of the distinct juridical identity of each of its members, a group of companies constitutes one and the same economic reality[ ]. [T]he arbitration clause accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the contracts containing [the arbitration] clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they

may give rise.673

At least one arbitral tribunal in an investment treaty arbitration has had the opportunity apply the group of companies doctrine. The Saluka tribunal proceeded on the assumption that “the relationship between [the affiliated parties] is sufficiently close to enable the tribunal’s jurisdiction in proceedings instituted by [the local subsidiary] to extend its claims against [the parent company].”674 In that case, the group of corporations involved as the Nomura group, which, as described by the tribunal, is a “major Japanese merchant banking and financial services group of companies, which typically operates also through subsidiaries set up in various countries.”675 Saluka was one such subsidiary, constituted under the laws of the Netherlands. Given this evident connection, the tribunal accepted, without discussion as to piercing at all, that both could be considered one and the same entity for the purpose of the counterclaim.676

671. In international competition law, however, this is referred to as the single economic entity theory.

672. Dow Chemical France, The Dow Chemical Company and others v. Isover Saint Gobain, Zwischenschiedsspruch v. 23.09.1982, ICC Case No. 4131, 1984 Y. Comm. Arb. 131.

673. Dow Chemical France, 1984 Y. Comm. Arb. 131, 136.

674. Kryvoi, supra note 668, at 233.

675. Id.

676. Id.


Now that the procedural nuances have been accounted for, it is possible to discuss, the parameters to filing a host State counterclaim in ISDS based on violations by an investor of human rights.

V. RESOLVING THE CONUNDRUM: PARAMETERS FOR THE FILING OF

HOST STATE COUNTERCLAIMS BASED ON INVESTOR VIOLATIONS OF

HUMAN RIGHTS IN INVESTMENT TREATY ARBITRATION

Based on everything that has since been tackled, this Note will now endeavor to create the parameters that must be established for the filing of a successful human rights counterclaim against an investor. It then applies the parameters made to the Philippine setting.

A. Preliminary Considerations

Before the possibility of filing of a host State counterclaim can be fully threshed out, it must be affirmed that investor due process must form part and parcel of any framework established. Foreign investment is still largely a tool, and instances of individual misuse are not reflective of an inherent systemic flaw. In Section II, the reasons for the creation of the IIL regime were established, and it remains true that there are instances of government abuse which merit a resort to ISDS. In the making of these rules, therefore, the Author is mindful of the need to balance investor rights with any investor obligations established.

This Note now proceeds to resolve the first issue that arises — the extent to which “international law” may be used to create implied investor obligations borrowed from the larger universe of international law.

B. Harmonizing International Investment Law and International Human Rights Law Through the Principle of Systemic Integration

To recall, the first issue that arose was the extent to which human rights considerations may be made implied in ISDS where the relevant IIA provides for “international law” as the law applicable to the dispute, yet its plain text fails to mention human rights. In that case, can IHRL or other regimes of international law be considered in the regime of IIL, even where doing so will not favor investors? Two approaches are applied by scholars and tribunals. The first approach is the literal or teleological approach,677 and the second, a

677. See, e.g., Omar E. García-Bolivar, The Teleology of International Investment Law: The Role of the Purpose in the Interpretation of the International Investment Agreements, J. WORLD INV. & TRADE 751, 772 (2005). Here, García-Bolivar opines that when arbitrators construe IIAs, they should not go beyond the purpose of the particular IIA concerned, as found in the text’s preamble, provisions, and travaux préparatoires. Id.


harmonization approach, making use of the principle of systemic integration.678

The Author submits that the harmonization approach is the better rule.

The VCLT ultimately espouses systemic integration and the harmonization of regimes under international law, as reflected in Article 31 (3) (c). This is aligned with the International Law Commission’s (ILC) interpretation of the VCLT vis-à-vis systemic integration; the provision requires each treaty to be harmonized within the broader normative environment — that is, “the international legal order.” 679 The ILC has espoused the view that the VCLT is precisely applicable when a State who is party to two treaties finds that complying with a rule from one will result in its violation of a rule from the other, or when the goals of two treaties appear to compete.680

The Author submits that human rights and investor protection precisely represent two competing norms which seem to clash with one another under international law. As investor protection can, itself, be rooted in the right to property, including the right to not be subject to illegal and involuntary takings, it becomes possible to envision a situation where a host State may have to resolve which, between a right to be granted to its citizen or a group of citizens, and that to be granted to an investor, should be given primacy. This is even more true where the investor’s actions result in the violation of the human rights of citizens, as this would activate the State’s duty to protect its citizens as required by IHRL. In a situation, therefore, where a host State acts to protect its citizens, and an investor files a claim before the ICSID as a result, there is no reason why host State acts cannot be used to its defense. To this extent, therefore, the Note is one in mind with the Urbaser tribunal.

The next question, however, is harder to resolve: granted that applying a harmonization approach is legally correct, does IHRL and international law at large, at the current stage, directly obligate investor corporations to respect, protect, and fulfill the human rights of host State citizens, and in the communities in which they operate?

678. See, e.g., McLachlan, supra note 219, at 279.

679. Vassilis P. Tzevelekos, The Use of Article 31(3)(C) of the VCLT in the Case Law of the ECtHR: An Effective Anti-Fragmentation Tool or a Selective Loophole for the Reinforcement of Human Rights Teleology?, 31 MICH. J. INT’L L. 621, 624 n. 7 (2010).

680. Id. at 653-54.


C. The Grand Debacle: The Issue of Sourcing Corporate Obligations Under International Law

1. Hard Corporate Obligations Under International Law

The Author submits that, at the current stage, corporate investors owe no human rights obligations to corporate investors that can be sourced from IHRL. Thus, the Urbaser’s tribunal reliance on the principle of systemic integration, as well as the provisions of human rights treaties, to find legal bases for corporation obligations vis-à-vis IHRL, was incorrect.

The principle of systemic integration may resolve issues as to conflicting norms sourced from two different regimes of international law, and may also be used to interpret ambiguous terms found in treaties which have reference to other regimes. However, it cannot be used to impose an obligation where no such obligation exists under international law.

Among the IHRL treaties, it is clear that the direct addressees are States. There is no need to even explore beyond the instruments that form part of the International Bill of Rights to see this clearly — the ICCPR and the ICESCR both begin by stating that the parties to the Covenant are the “States Parties.”681 Already, this formulation indicates intent to bind directly only States.

Another provision, however, may be interpreted to imply that non-State actors are also obligated by the ICCPR and the ICESCR — that is, the common provision found in the UDHR, the ICCPR, and the ICESCR which states that nothing contained in the instruments may be interpreted “as implying for any State, group[,] or person any right to engage in any activity or perform any act aimed at the destruction of any of the rights and freedoms.”682 It may be argued that the word “group” includes MNEs. But even if this common provision is to be interpreted to include corporations, the Preamble and most other provisions in the treaties address States.

Even resort to supplementary means of interpreting this common provision does not support the imposition of direct legal obligations upon corporations. The travaux preparatoires of these provisions indicate only that

681. International Covenant on Civil and Political Rights, supra note 414, pmbl. & International Covenant on Economic, Social and Cultural Rights pmbl., opened for signature Dec. 19, 1966, 993 U.N.T.S. 3.

682. International Covenant on Civil and Political Rights, supra note 414, art. 5 (1); International Covenant on Economic, Social and Cultural Rights, supra note 141, art. 5 (1); & Universal Declaration of Human Rights, supra note 135, pmbl. (emphasis supplied).


they were supposed “to prevent newly formed fascist groups from relying on human rights as a justification for their activities.”683 True, fascist groups, in themselves, are non-State actors, and some may reach the conclusion that there was, perhaps, intent to apply this common provision to other non-State actors, such as corporations. The Author submits, however, that the correct interpretation of this common provision is that it creates only an indirect obligation on the part of non-State actors. As has been said, States must adhere to the tripartite typology as they strive to fully enforce IHRL — this entails that they must respect, protect, and fulfill human rights. The common provision only serves to trigger the State obligation to protect, and to regulate the private conduct of those in its jurisdiction. It does not have the function of directly imposing human rights obligations on non-State actors.

The Preamble of the UDHR also cannot be interpreted to mean that corporations have direct obligations under that instrument, nor under IHRL. A second look at how the Preamble is worded indicates doubt as to the intent to make it a source of hard law obligations; while one may interpret the provision as one that addresses “every individual and every organ of society,” it only requires them to “strive by teaching and education to promote respect for [its provided] rights and freedoms.”684 A good faith interpretation of this phrasing shows that, at most, the UDHR obligated all persons to strive to promote respect for its provided rights. The ordinary meaning of the term “striving” is trying. And ultimately, trying does not equate to requiring.

The Urbaser tribunal thus did not have legal basis to rely on the common provision found in the ICESCR and the UDHR to claim that investors could be made liable for their human rights obligations through host State counterclaims in ISDS.

Given that the provisions of the instruments constituting the International Bill of Rights cannot be interpreted to directly address corporations, the next possible candidate for sourcing obligations is custom. For there to be custom under international law, however, two elements must be established: (1) general consensus among States, and (2) opinio juris.685 Thus, to hold that corporations have customary obligations vis-à-vis human rights would require

683. See BEN SAUL, ET. AL., THE INTERNATIONAL COVENANT ON ECONOMIC

SOCIAL AND CULTURAL RIGHTS: COMMENTARY, CASES, AND MATERIALS 263

(2014).

684. Universal Declaration of Human Rights, supra note 135, pmbl. (emphases supplied).


LAW 8-9 (2006 ed.).


demonstrating clearly that corporations are seen to have direct legal obligations by States, under international law.

The Author submits that at present, only jus cogens norms can arguably be said to have a binding effect on corporations. The basis for imposing liability on corporations for violating jus cogens, however, would be by reason of the status of peremptory norms as lex superior under international law.686 This turns less on a recognition of the international legal personhood of a corporation, and more on the universal applicability of the norm. Furthermore, even if it is to be assumed that jus cogens norms also bind corporations, the current established prohibitions that arise by reason of peremptory norms are limited.687 And many of them are more likely to be violated by States than they are by corporations.

In fact, it appears that, at the present stage, the opposite sentiment is more apparent, and most States do not show willingness to impose direct hard law obligations upon corporations in relation to IHRL.

For example, the fact that international law currently relies on CSR initiatives, voluntary codes of conduct, and soft law instruments to govern corporate conduct, indicates that controversies still arise as to what extent corporations should be given direct human rights obligations. It does not escape the mind of the Author that the rejection of the Draft Norms, which in themselves, were only supposed to serve as basis for elaborating a future binding treaty, in favor of the Ruggie Framework, indicates that there is a tendency to regulate corporate behavior using soft law principles which do not impose direct liability under international law.

And while there are currently plans to create a binding UN treaty for business and human rights, disagreements as to its contents still include the question of whether or not companies should be given direct human rights obligations under international law.688 Those who oppose the idea argue that the imposition of direct IHRL obligations on corporations would shift liability for ensuring the protection, respect, and fulfillment of human rights from

686. Id.

687. Id.

688. Human Rights Council, Elaboration of an international legally binding instrument on transnational corporations and other business enterprises with respect to human rights, Twenty-sixth Session, U.N. Doc. A/HRC/26/L.22/Rev.1 (June 25, 2014).


States to enterprises, which would ultimately grant too much power and acknowledged authority to corporations.689

The above demonstrates that there is no general consensus to hold corporations liable under international law. Given the absence of this first requirement for formulating custom, establishing opinio juris becomes unnecessary.

So far, therefore, it has been established that IHRL does not currently directly obligate corporations to respect, protect, or fulfill human rights under international law. Given this, even if the principle of systemic integration is applied, and the competing rights of an investor and the aggrieved citizens can be used by host States to defend themselves from accusations of violations arising from IIAs, host States still cannot file a counterclaim relying on the provisions of human rights treaties that formed their defense and expect the claim to prosper. The “flaw” in the plan, so to speak, does not lie in IIL, but in IHRL, and the soft law approach to corporate governance under international law.

This conclusion seems disappointing, given the pronouncements of Urbaser. But the concerns of those who do not want corporate obligations vis-à-vis human rights to arise are also valid. Ruggie himself is of the view that reliance on a framework of principles will suffice; in fact, he has warned against the blanket extension of human rights obligations to corporations: “Corporations are not democratic public interest institutions and [ ] making them, in effect, co-equal duty bearers for the broad spectrum of human rights ... may undermine efforts to build indigenous social capacity and to make governments more responsible to their own citizenry.”690

The Author concedes that extending to corporations the direct obligation to respect, protect, and fulfill the human rights of persons they interact with can also give rise to real problems. Corporations do not exist to cater to the public welfare; that is the job of government, and government cannot be

689. Anil Yilmaz-Vastardis, Is international investment law moving the ball forward on IHRL obligations for business enterprises?, available at https://www.ejiltalk.org/is-international-investment-law-moving-the-ball-forward-on-ihrl-obligations-for-business-enterprises (last accessed Nov. 30, 2019). See also John G. Ruggie, The Past as Prologue? A Moment of Truth for U.N. Business and Human Rights Treaty, available at http://www.hks.harvard.edu/m-rcbg/CSRI/Treaty_Final.pdf (last accessed Nov. 30, 2019).

690. Clapham, supra note 287, at 563 (citing Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises, supra note 287, ¶ 68).


permitted to surrender these duties to private persons. Furthermore, corporations still exist primarily as vehicle for doing business, and thus, their primary aims of earning profits for their shareholders will always be their primordial consideration. What is more, in the context of a host State counterclaim in investment treaty arbitration, the Author submits that it is unfair to expect corporate investors to suddenly be informed of the fact that they have obligations grounded on IHRL. The IHRL framework has yet to fully develop to address them. And so, it may be conceded that a host State counterclaim based on human rights violations, which finds its grounding in IHRL, would likely fail in the ISDS setting.

2. The Presence of Real Gaps That Cannot be Reconciled

The Author has arrived at the preliminary conclusion that, even if “international law” is the applicable law to a particular investment dispute, and the harmonization approach is used, IHRL cannot be used directly against a corporate investor through a host State counterclaim. Despite this, however, the Author does not concede that errant investors can evade liability for human rights violations it commits in host State territory.

First, despite the fact that most IIAs are human rights blind and contain only an explicit list of investor rights, the ICSID Convention itself provides that counterclaims may be filed, to the extent that the jurisdictional requisites for a counterclaim are met. Furthermore, the ICSID Convention itself provides that its aim is “to promote economic development through the creation of a favorable investment climate.” 691 This broader objective, however, is to be achieved by maintaining “a careful balance between the interests of investors and those of host States.”692

Second, there are real instances of foreign investor violations of human rights.

Third, despite the perception that IIL and IHRL are at opposite sides of a spectrum, the two regimes still form part of the universe of international law. Is there no way to bridge IIL and IHRL, within the legal framework of current international law?

691. ICSID Convention, supra note 26, pmbl.

692. Report of the Executive Directors of the Convention, ¶ 13, available at https://icsid.worldbank.org/en/Pages/icsiddocs/REPORT-OF-THE-EXECUTIVE-DIRECTORS-ON-THE-ICSID-CONVENTION.aspx (last accessed Nov. 30, 2019).


D. Resolving the Corporate Obligation Debate through the Abuse of Rights Doctrine

This Note arrives at a proposition for reconciling the technical rule that corporations are not considered subjects under treaty or customary international law, and are thus not subject to liability for violations of the human rights of others, in the context of filing a host State counterclaim grounded on investor violations of human rights. This is by employing the abuse of rights doctrine as a general principle of law recognized by all civilized nations under Article 38 of the Statute of the ICJ.

Taking off from the discussion of the Urbaser tribunal, the struggle to frame the obligations of investors from the lens of IHRL is evident, precisely because that regime has not developed to directly obligate investor-corporations. One regime, though, has developed to elevate corporations to the status legal persons, who have direct rights to sue before an international tribunal — that is, the IIL regime itself. IIL has also developed mechanisms for liability for corporate investors, to the extent that they engage in practices like treaty shopping. Though the provisions of an IIA will not provide, explicitly, that such practices are not allowed, ICSID tribunals have still found a way to condemn the action by invoking one form of the abuse of rights doctrine — abuse of process. The practice of treaty shopping, however, is an abuse of only one form of right granted in an investment treaty — the procedural right of the investor to settle disputes before the ICSID.

In this Note, the Author submits that ICSID tribunals can legally expand their use of the abuse of rights doctrine, and apply it when investors abuse their substantive rights, as granted in IIAs. The substantive rights of investors include the right to the MST under international law, as well as proper treatment while they make their investments. The right is, therefore, linked inherently to their right to remain protected within the host State territory. To the extent that an investor has these rights and may enjoy them, it may not abuse them, to the detriment of host State citizens. This Note thus proposes that when an investor exercises its rights in an abusive way, and impedes on the enjoyment by host State citizens of their human rights, a human rights counterclaim can prosper on the ground of abuse of rights, balancing out the right of the alien to invest, on the one hand, and the right of the community at large.

1. Preliminary Objections to the Use of the Abuse of Rights Doctrine to Bridge Corporate Governance to Human Rights

i. As to the Lack of Corporate Obligations Under International Law

The first opposition to the use of the abuse of rights doctrine would come from those fixated by the issue of corporations not being subjects as a general rule under international law. There is the argument that corporations may be


granted rights by treaties, and still have no corresponding obligations. The Author, however, rebuts this objection by returning to the inherent characteristics of the abuse of rights doctrine.

It is conceded that as a general rule, under international law, the fact that a subject or object is granted rights does not mean that it has corresponding obligations. However, to the extent that a subject of international law, be it a State or non-State actor, has been granted rights by a treaty, and may exercise these rights in a way that can be detrimental to others, it has the obligation to ensure that it does not exercise its rights and privileges granted by international law in a way that equates to abuse.

The doctrine of abuse of rights is founded on this basic proposition, that a party may have a valid right which may be invoked as a matter of international law; but when it exercises such right in “an abnormal, excessive or abusive way,”693 causing injury to another, he forfeits his entitlement to rely upon it.694 The application of the abuse of rights doctrine, therefore, does not turn on the question of legal personhood. It instead is applicable in a situation where a party has a right, established under international law, which it abuses, to the injury of another. Whether or not the obligation to not abuse a right is explicit, therefore, the very existence of the right gives rise to the obligation, and need not be specified in the form of a provision in a treaty.

The use of the abuse of rights doctrine aligns with the Case concerning certain German interests in Polish Upper Silesia (The Merits), which, as mentioned above, stipulated only rights to Germany, without making mention of obligations. Despite this, the PCIJ opined that there could be a treaty breach based on the misuse of a given treaty right.

This perspective also aligns with arguments that legal scholars in international tax law use vis-à-vis the use of corporate structures in an abusive way to avoid paying taxes. In that field of law, scholars also argue that while tax treaties may provide only rights to taxpayers, those rights come with the corresponding obligation not to abuse the system by engaging in unacceptable schemes to pay lower taxes.695 This is true even if “abuse of rights” does not appear textually in a relevant tax treaty.696 It is to be noted that in the international tax treaty regime, as in IIL, non-State actors are necessarily the grantees of rights, through treaties entered into by contracting States. The use

693. Gaillard, supra 489, at 16.

694. Id.

695. LUC DE BROE, INTERNATIONAL TAX PLANNING AND PREVENTION OF ABUSE 304 (2008).

696. Id.


of the “abuse of right” doctrine in this other regime of international law that grants rights to non-State actors, therefore, further validates its application in the IIL regime, to the extent that investors in the latter paradigm are granted rights by treaty.

ii. As to the Unprecedented Use of the Abuse of Rights Doctrine to Regulate Substantive Investor Rights

Some may argue that the application of the doctrine of abuse of rights against investors, to the extent of their abuse of their substantive rights (rather than just their procedural rights), is unprecedented and would thus be subject to misapplication by arbitrators.

To rebut this argument, the Author first emphasizes that the abuse of rights doctrine deals with the extent to which any State or non-State actor may exercise a granted right under international law. These rights may be procedural, but they may also be substantive. This is shown in the larger use of the doctrine of abuse of rights under international law. It can be used to regulate substantive rights of States, and has been used, in fact, to determine the extent to which States can exercise their powers — thus, in the Turtle-Shells case, it was used as to the substantive right of States to legislate, and in Anglo-Norwegian Fisheries Case, it was used to determine the question of territorial rights of States.

In the procedural sense, there is abuse of right on the part of the investor when, taking advantage of the technical rules of the IIL regime, it engages in corporate restructuring to gain access to ISDS. The current application of abuse of rights in investment treaty arbitration thus rests on:

(1) the existence of the right to resort to arbitration;

(2) the abuse of this right; and

(3) the prejudice that ultimately results to the host State.

Turning to substantive rights as applied by this Note, an investor enjoys the right to protections granted by the applicable IIA. As such, once an investor is admitted as such to the host State territory, the investor has the right to invest in the host State territory, and the right to expect to be treated with consistency, under the MST provided by international law. Where the investor, however, engages in acts which violate the human rights of host State citizens, they abuse these granted protections, to the prejudice of the host State. Their subsequent resort to ISDS, after they abused their right to invest in host State territory, adds insult to injury and cements even further their abuse of the IIL system.

The extension of the abuse of rights doctrine to substantive rights of investors, as granted by the relevant IIA, is also of interest to the integrity of


the IIL regime. Article 31 of the VCLT provides that a treaty must be interpreted in light of its object and purpose.697 IIL was created not only to protect foreign investors as they engage in business in host State territory, but to ensure that host States, and by extension, their citizens, enjoy the benefits of greater economic development, and the many positives that are brought about by FDI. Where investors avail of their substantive right to enjoy protections vested by IIL to the detriment of host State citizens, they undermine the ultimate goals of the regime, which is to create a win—win scenario for both the home State (through the protections of its citizen, i.e., the investor) and the host State.

iii. As to the Use of the Abuse of Rights Doctrine to Claim Damages Against the Investor

The use of the abuse of rights doctrine under current ISDS practice extends to tribunals not admitting jurisdiction over the investor’s claim. While a tribunal may then choose to award costs to the host State, actually imputing liability to the investor under the abuse of rights doctrine in the form of a counterclaim, and by virtue of this, demanding damages from the investor arising from its act, may be seen as another question entirely.

Turning again to the characteristics of the abuse of rights doctrine, as understood by MHQPs, the abuse of rights can take on many forms. One form, abuse of process, does not manifest in the form of actual, physical damage. Thus, where an investor undertakes corporate restructuring to allow it access to investment treaty arbitration through the applicable IIA, no actual damages was done by the investor to the host State, except to force the host State to engage the services of counsel to resolve the matter.

But under the proposal of this Note, the abuse of rights doctrine is to be used to cure actual damage caused by an investor to the host State’s citizens. It is reiterated that under international law, the abuse of right doctrine can manifest not only as abuse of process, but also, in harmful effects that arise from the exercise of a right, where rights are exercised in a way that result in damage to others.698 Where abuse of right manifests in the way envisioned by the latter example, international law allows for the right to obtain compensation, in the form of damages.699

If a host State, through a counterclaim, successfully shows that the suing corporate investor committed human rights violations, and the host State


698. Id.

699. Id.


demonstrates this abuse of right and further is able to quantify the scope and extent of the damage, a tribunal can impute liability to the suing investor without issue.

iv. As to the Abuse of Rights Doctrine vis-à-vis Human Rights

There may also be objections as to the use of the abuse of rights doctrine to make non—State actors such as corporations liable for human rights violations. These will come from those who are for and those who are against the imposition of direct liability to corporations for their human rights violations under international law.

Those who are against imposing liability upon corporations under international law for human rights obligations would return to the preliminary issue that IHRL does not make corporations liable for human rights violations, and the abuse of rights doctrine is just a cover, so to speak, for direct liability for IHRL imputed to non-State actors.

To this argument, the Note proposes that the abuse of rights doctrine under general principles of law would serve as the ultimate cause of action in the counterclaim, rather than the violation of human rights itself. The investor’s use of its right to invest in host State territory is to serve, in turn, as its obligation to exercise its right in ways that do not constitute abuse, in relation to the host State and the host State’s citizens. The use of the abuse of rights doctrine, rather than IHRL, thus better equalizes the rights of both the investor and the host State — it protects investors from a direct application of IHRL norms to their conduct, but also ensures that international law does not allow them to freely make use of the investment arbitration system even when they commit human rights violations in the host State.

This Note thus stresses that it will not employ a blanket approach in the application of the abuse of rights doctrine against investors; it does not propose that investors have the same scope of power as States, nor that States, in themselves, do not abuse the rights of investors. The obligation of investors would necessarily be “limited scope compared to that of the respective obligation binding on a State,”700 particularly by the procedural rules that govern host State counterclaims. And the term “abuse of rights” under international law can serve to narrow the scope of human rights violations imputable to corporations, while at the same time, not limiting violations to just peremptory norms.

Those who hope to apply IHRL directly to corporations as non-State actors, on the other hand, may view the abuse of rights doctrine’s application as a farce, given that the doctrine necessarily comes with parameters. But it

700. See Karavias, supra note 413, at 30.


remains true that the majority view under international law is that corporations have no obligations which may be directly imputed against them. When corporations violate human rights, international law, strictly speaking, views this as a failure of State actors to regulate, whether these failures are attributable to the home or host State. Even those who hope to ensure corporate accountability have viewed the obiter pronouncements in Urbaser as “difficult to replicate”701 and apply in an actual case in the face of the current confines of IHRL, IIL, and corporate governance under international law. The abuse of rights doctrine can serve as the bridge that addresses the failure of some investors to operate responsibly in host States and the gap of the subjectivity of corporations under international law. The doctrine precisely applies where rights and obligations have not fully crystallized under international law. This is shown by the fact that the doctrine used to govern, formerly without aid of a treaty or established custom, the issue of transboundary harm, or the drawing of territorial limits in the sea by States. The abuse of rights doctrine also closely reflects the language of Urbaser, as when the tribunal referred to the duty to avoid violating the rights of others.702

While the field of business and human rights is still considered an “emerging,” tribunals may instead apply the doctrine of abuse of rights, already established as a general principle of law, to explore the metes and bounds of corporate liability vis-à-vis human rights. In this way, the abuse of rights doctrine can serve the vision espoused for it by Lauterpacht — that is, as an instrument to change and mold international law, and the way it governs relations within its framework.

The abuse of rights doctrine is generally invoked in cases where a system of law is still at the early stages of development, for where there is clear legal basis and clear rights to impute liability, then these clear provisions of law would prevail. 703 In this context — that of corporate obligations under international law vis-à-vis IHRL, as applied in the IIL regime — there is certainly still some room for growth in investment arbitration, for there exists genuine concerns as to the fairness of the current system, and how balance can be restored by application of already accepted legal principles.704 The abuse of

701. Id.

702. Id.

703. G.DS Taylor, The Content of the Rule Against Abuse of Rights in International Law, 46 BRIT. Y. B. INT’L L. 323, 341 (1972).

704. See, e.g., G.DS Taylor, The Content of the Rule Against Abuse of Rights in International Law, 46 BRIT. Y.B. INT’L L. 323, 341 (1972). There, the author opines “no one would accuse the international judicial process [—] that is of being developed[.]” Id.


rights doctrine can serve as the foundation for the elaboration of the extent by which investor-corporations given standing under international law may be obligated to exercise their rights responsibly.

2. Establishing the Elements of Abuse of Right Under International Law

For this Section of the Note, and for the purposes of creating parameters for a host State counterclaim to be filed against investors under the abuse of rights doctrine, the Author identifies proposed key elements of the abuse of rights doctrine, as culled from its current use. Mindful that, except for abuse of process, the broader doctrine of abuse of rights has only been used against States, necessary adjustments will be made by the Author to ensure due process on the part of the investor.

The first element of the abuse of rights doctrine under international law is the existence of a lawful right belonging to a State; this right may be sourced from treaty, as in demonstrated in the Shrimp-Turtle case vis-à-vis the GATT, or custom, as in the delineation of maritime territories prior to the passage of the UN Convention on the Law of the Sea (UNCLOS).705 In the context of a corporate investor in ISDS, it is granted procedural and substantive rights under the applicable IIA. Its procedural right is its right to resort to dispute settlement under the terms of the IIA, which, as a general rule, will include waivers of the exhaustion of local remedies, among others. On the other hand, its substantive rights are those which this Note has earlier expounded on, in Chapter II — the right to expect the FET standard, among others; the right to be compensated for regulatory takings; the right to be free from illegal expropriation; and whatever other substantive rights the treaty has vested.

The second element is the abuse of that lawful right. What constitutes “abuse” is itself another question, but based on current application, “abuse” has an inter-relational element, and is present, in the context of States: (1) when there is a malicious element to the exercise of a right, so as to cause an affront to another State, or to constitute bad faith; (2) when a right is used for a purpose different for that which it was intended; or (3) when it has the effect of impeding on the rights of another State or otherwise causing another State harm, although this may have not been the violating State’s intent. The first type is demonstrated by the sending of the criminal diplomat appointed by the sending State, which has some element of a malicious intent.706 The second is demonstrated by the misuse of a given treaty right, such as a State’s disposal of

705. Although this is now regulated by a treaty as well, at the time the ICJ and PCIJ decisions were released, this was not the case.

706. Byers, supra note 508, at 428 (citing PAUL GUGGENHEIM, VALIDITE ET LA

NULLITE DES ACTES JURIDIQUES INTEMATIONAUX 250-54 (1949)).


properties in a territory which, it is aware, will eventually have to be ceded to another State.707 The third is demonstrated by the exploitation of a riverbed by one State, which in turn causes damage to the downriver State; the exploiting State only exercises its right, but in doing so, violates the rights of the downriver State. 708 Where a corporate investor engages in treaty shopping, it essentially engages in the misuse of its granted procedural rights, thus falling under the second category. How does an investor, however, abuse its substantive rights to invest and expect all protections of the IIA, in relation to human rights?

The first way that a State abuse a given right may not be applicable to an investor in its exercise of its rights; an investor does not enter host State territory with a malicious intent to violate human rights. It thus may not be very useful in the context of a host State counterclaim. The second way, that of misuse, may apply to an investor, but its possible nexus to a human rights issue is difficult to surmise.

It is the third way that a State may abuse its right that shows the most promise vis-à-vis human rights — the use of its rights in a way that can cause others harm, though this harm was not intended. The Note thus proposes that this be the second element of the abuse of rights doctrine as applied to investors through a host State counterclaim.

The third element is that said abuse of right does not yet constitute a State obligation under treaty or custom. For where a State obligation has crystallized into legally binding law under international law, it is the hard law that will be applied. This is best demonstrated by the delineation of maritime territories, which is now governed by the UNCLOS. In the context of an investor, therefore, the abuse of right that it commits should not yet be considered a legal obligation under international law — otherwise, it is that legal obligation which is to be invoked, rather than abuse of rights. As has been established, under the current paradigm of IHRL and international law at large, corporations still owe no direct IHRL obligations. Given this, the abuse of rights doctrine can be applied.

Summarizing the three elements for when the abuse of rights doctrine may be applied to investors, in the exercise of their substantive rights, the following must be established:

(1) First, that the investor has a lawful right under an applicable IIA;

707. German Interests in Polish Upper Silesia (Ger. v. Pol.), 1926 P.C.I.J. (ser. A) No. 7 (1925).

708. Byers, supra note 508, at 428 (citing PAUL GUGGENHEIM, VALIDITE ET LA

NULLITE DES ACTES JURIDIQUES INTEMATIONAUX 250-54 (1949)).


(2) Second, that there is, on the investor’s part, the use of its rights to invest and enjoy standards of protection in a way that causes others harm, though this harm was not intended; and

(3) Third, that the abuse of right committed does not yet constitute a violation of an established treaty provision or custom.

3. Blending the Elements of the Abuse of Rights Doctrine with the Procedural Nuances of Filing a Counterclaim

Examining the elements of what may constitute a violation of the abuse of rights doctrine under international law, it may seem to cover a substantial amount of violations of alleged rights that can easily become abusive on the part of the investor. But when tied to the procedural nuances of filing a host State counterclaim, a narrower application of the above-stipulated elements begins to form, and a better balancing of host State and investor interests begins to take shape.

The three matters that must be established before a counterclaim may be filed is that: (1) the tribunal has jurisdiction over the claim; (2) the required factual nexus between the claim and the counterclaim; and (3) scope of the consent of the investor to be subjected to a counterclaim.

i. Jurisdiction Over the Claim

Since the counterclaim is merely ancillary to the claim, jurisdiction over the claim must first be established. Hence, consent of both Parties to be subject to the claim must be shown, as well as the proper nationality of the investor—claimant. These two will establish ratione personae of the tribunal.

Meanwhile, the matter must concern an “investment” as defined under the applicable IIA. At the same time, for an arbitral tribunal to have subject matter jurisdiction over the investment, the investment must have complied with domestic law as regards the admittance of the investment into host State territory. As has been said, whether or not an investment is “protected” is determined as of the time of its admission, rather than its subsequent implementation.

This first stage of establishing the claim meets goes hand in hand with the first element of the abuse of rights doctrine — the investor will invoke a lawful right, granted under the IIA.

ii. The Factual Nexus

As has been explained in Chapter IV of this Note, it is the factual nexus test that the Author submits should be applied in the context of host State


counterclaims. This factual nexus test entails that there must be a factual connection between the claim and the counterclaim.

It is in the determination of this factual nexus that there is a sufficient narrowing of the human rights violations that host States may invoke — for, given this limitation, a host State must be able to link the investor’s abuse of its right to the basis of the investor’s claim. An illustration of this is when, as in Metalclad v. Mexico,709 the host State forfeits the permit of an investor to operate a landfill in the host State territory, and the investor claims violations of its right against illegal expropriation. If the host State can establish that the forfeiture arose from acts of an investor which had the effect of violating the human rights of its citizens — as when the operator’s mismanagement of its landfill leads to the destruction of the homes of nearby communities, and it was for this reason that there was a forfeiture to begin with, then there is factual nexus enough for the counterclaim to prosper.

ii. Scope of Consent of the Investor to be Subject to the Counterclaim

The rule on investor consent to a counterclaim, as established in Chapter IV, is that a formulation in the IIA which allows the tribunal to hear a matter on “any dispute” is enough to establish the consent of the investor, absent agreements between the investor and the host State requiring the contrary.

E. Dealing With The Question of Privity

After having determined all the above matters, one issue remains to be hurdled. What is to be done of the issue of privity? First, this Note summarizes the instances when the issue of privity may arise in the context of counterclaims, vis-à-vis the rules on nationality —

Corporate Nationality Test

Ratione Personae vis-à-vis Corporate Nationality

Counterclaim

Incorporation Test

Only a foreign investor incorporated in the jurisdiction of a contracting Party other than the host State may sue.

The issue of privity will arise.

Where the applicable treaty so provides,

If the locally incorporated entity sues: Piercing the veil

709. Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1.


Effective Control Test

nationality may be determined by looking into which corporation has effective control.

is not necessary for a successful counterclaim.

If an entity from a non-contracting State sues: The issue of privity will arise.

Shareholder Suing Based on

“Investments” Test

Where the basis of the claim is the fact that the investment is protected under the IIA.

If the shareholder is a minority shareholder or has no effective control: The issue of privity will arise.

If the shareholder has effective control but invokes the “investment” provision: The issue of privity will arise.

From the above chart, it is evident that the issue of privity may be brought up a majority of the time in the counterclaim context, as the investor will make the claim that the local operator committed the alleged human rights violations, and not the investor suing. For this argument, the Author establishes no bright light tests, for this is a matter that is dealt with on a case-to-case basis. However, it is clear that international economic law, and ISDS, has developed tests and doctrines to answer to the issue.

The first is through the invocation of the group of companies doctrine, as in Saluka. This will tackle the issue of privity without needing to resort to piercing the veil. The doctrine applies where it is established that a group of companies actually operate as one and the same economic reality, determined by the facts of the case. Where, then, as in Saluka, a host State is able to show facts like (1) the representation of the investor’s interests by different branches of a multinational entity, (2) the interchanging use of the names of the various members of the group in pleadings, or (3) stipulations in an agreement entered into for the governing of the dispute, then the group of companies doctrine can be applied.

The second is by piercing the veil, which, as shown in Klöckner, may be done in investment arbitration where effective control by the parent company serving as investor in the dispute over its local subsidiary has been established.710 Effective control is established by examining (1) voting control, (2) ownership of equity, and (3) management. Based on the facts of Klöckner,

710. Kryvoi, supra note 668, 218,


the signing by the parent of the management contract which the local operator executes establishes the possibility of piercing.

Again, however, the Author establishes no bright—line tests for answering the issue of privity.

F. Testing the Parameters: Applications in the Philippine Context

The Note has so far explored the parameters to be met in the filing of a host State counterclaim for violations of human rights committed by the investor. In this next Section, the Note will make practical applications of the formulated parameters in the Philippine context.

1. Examining IIAs Signed by the Philippines with ICSID Arbitration Clauses

i. Definition of Investor and the Issue of Privity

IIAs which the Philippines has signed define what constitutes an “investor” in different ways. Many of the IIAs provide strictly for the incorporation test.711 In order for the Philippines to successfully file counterclaims against companies from these host States, the Philippines would have to prove, factually and functionally, that the suing investors from said countries effectively control their local counterparts.

On the other hand, the Austria-Philippine BIT provides that investors are to be defined either as (1) juridical persons or partnerships constituted in Austria which make an investment in the Philippines, or (2) juridical persons or partnerships which have been incorporated in the Philippines, Austria, or in a third State, over which the Austrian company described under the (1) has “effective control.” 712 The Austria-Philippine BIT therefore grants

711. Agreement between the Government of the Kingdom of Cambodia and the Government of the Republic of the Philippines Concerning the Promotion and Protection of Investments, Cambodia-Philippines, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/582. art. 1 (1) (b) & Canada-Philippines BIT, supra note 91, art. 1 (g) (ii).

712. Austria-Philippines BIT, supra note 557, art. 1 (2) (c). The exact provision provides that an investor is

any juridical person, or partnership, constituted in accordance with the legislation of the Republic of Austria, having its seat in the territory of the Republic of Austria and making an investment in the other Contracting Party’s territory and any juridical person, or partnership, constituted in accordance with the legislation of a Contracting Party or


opportunity for companies incorporated in the Philippines to file claims against the latter if they are able to show that Austrians effectively control the corporation. In that case, if it is the locally incorporated entity that sues, it will be possible for the Philippines to show the company has been involved in violations of human rights and other non-treaty provisions, and therefore have basis to file a counterclaim, without privity becoming an issue.

ii. Definition of “Investments” in Philippine IIAs

Philippine IIAs, following the template of model treaties, generally provide illustrative lists for what constitutes an investment.713 The treaties further define “investment” as assets which the investor may directly or indirectly own.714 As a result, situations where there are holding companies involved in between the investor and the actual assets it owns are also possible.

iii. Applicable Law, Dispute Settlement Provisions, and the Possibility of Filing Counterclaims for Violations of Human Rights

As has been discussed, the dispute settlement provisions determine whether or not counterclaims are possible in the context of the applicable investment treaty, by specifying what disputes may be brought before the ICSID Centre. Where the treaty allows “any dispute” to be subject to ISDS, counterclaims are possible. Meanwhile, the stated applicable law will determine whether or not international law be considered, and, in accordance with the principle of systemic integration, whether or not human rights and other principles of international law, such as abuse of rights, can serve as the basis of a claim.

Philippine IIAs vary as to which applicable law is invoked and as to whether or not the dispute settlement provisions are worded broadly enough for a counterclaim.

2. The Philippine Investment Landscape: Law and Practice in the Mining Industry

The above survey demonstrates the basic framework that the Philippines navigates in ISDS. This sub-Section of the Note will focus on the domestic framework of foreign investment, with a focus on one specific example in the

of a Third Party in which the investor referred to above exercises effective control[.]”

Id.

713. See, e.g., Japan-Philippine Economic Partnership Agreement, supra note 594, art. 88 (b).

714. Id.


mining industry, to allow understanding of the situations under which there may be friction with foreign investors.

The Mining Act of 1995 provides that foreign-owned corporations, defined as corporations where less than 50% of the shares are owned by Filipinos, may engage in large-scale mining in the Philippines as grantees of exploration permits, mineral processing permits, or financial or technical assistance agreements (FTAA). 715 The law thus “limits foreign-owned corporations to activities that require the commitment of massive financial resources.” 716 In addition, following the 60-40 rule set out by the Constitution, the Mining Act allows corporations where 40% or less of the stock belong to foreigners to enter into “mineral agreements,” which “include mineral production and sharing agreements (MPSA), co-roduction agreements, and joint venture agreements.”717 In this way, foreign investors can additionally participate in the mining industry without commit as much capital to the venture.

This was the legal framework for foreign participation in mining when in 2004, President Gloria Macapagal-Arroyo made it a national policy and goal to revitalize the mining industry, including attracting foreign investors to the Philippines.718 The effects of this push to invest in the industry are still felt today. In the Caraga region in Mindanao, for example, there are 48 large-scale

715. An Act Instituting A New System Of Mineral Resources Exploration, Development, Utilization And Conservation [Philippine Mining Act of 1995], Republic Act No. 7942, §§ 3 (t) & (aq) (1995).

716. José U. Cochingyan, III, Foreign Investments: The Elephant in the Room, 62 ATENEO

L.J. 32, 3 (2017).

717. Id. (citing Philippine Mining Act, § 3 (aq) & § 26 & Department of Environment and Natural Resources, Revised Implementing Rules and Regulations of Republic Act No. 7942, Otherwise Known as the “Philippine Mining Act of 1995” [DENR Administrative Order No. 40-96], § 32 (b) (Dec. 19, 1996)). As summarized by Atty. Cochingyan, “[t]he MPSA grants these corporations the exclusive rights to conduct mining operations. The co-production agreement is where the government provides inputs other than the mineral resources, while the joint venture agreement is where the government and contractor have equity shares.” Cochingyan, supra note 716, at 38.

718. PHILIPPINE NETWORK OF FOOD SECURITY PROGRAMMES, INC., LAND

GRABBING CASES IN THE PHILIPPINES: GREED, HUNGER & RESISTANCE 63

(2017 ed.) & Cochingyan, supra note 716, at 50. (citing Office of the President, National Policy Agenda on Revitalizing Mining in the Philippines, Executive Order No. 270, Series of 2009 [E.O. No. 270, s. 2009] (Jan. 16, 2009)).


mines in operation, with seven foreign corporations in the area, either through directly operations or in partnership with domestic firms.719 At the same time, these areas with high concentrations of minerals are also the ancestral domains of various indigenous peoples of the Philippines.720 In areas such as Surigao del Norte, as a result of the mining operations and failure to follow the necessary protocols, CSOs report that industrial waste and mine tailings are being dumped indiscriminately from open pits of gold mining operations in the area;721 this in turn has affected the right of those living in the area to food, clean water, and health.

3. The Possible Triggers and Concomitant Counterclaims

The Note depart from the above factual scenario by bringing its initial basic premise back full circle — by applying the events following President Duterte’s appointment, and Acting DENR Secretary Gina Lopez’ suspension of a FTAA granted to a locally-incorporated company, 100% owned by a foreign investor who enjoys the protections of an IIA.

The investor, however, may argue that its right to due process under international standards for the protection of alien property have not been met; it could thus initiate an arbitration before the ICSID Centre on the basis of a violation of the FET clause typically found in a BIT. The FET clause, as mentioned in Chapter II, protects aliens from arbitrary treatment in administrative and judicial cases. The alleged lack of due process of the suspension of their operations could be argued as a violation of this standard. It could also be argued that the acts of the Philippines, if it would lead ultimately to suspension and the local company’s closure, constitute expropriation, or nationalization. And while the Philippines could argue that the mining firm has violated domestic law, the mining firm did not violate a Philippine law at the time it entered into the investment; rather it violated the law after, during its operations. This would mean that the arbitral tribunal would have jurisdiction to examine the factual circumstances of the case, given that the investment was admitted into the Philippines. The claim of the investor would therefore likely be accepted on jurisdictional grounds.

The Philippine could, in this case, defend itself by invoking the government’s proper exercise of its powers, and proving so factually. But the Philippines further has an additional option — this would be to file a

719. PHILIPPINE NETWORK OF FOOD SECURITY PROGRAMMES, INC., supra note 718, at 63.

720. Id.

721. Id. at 69.


counterclaim against the mining firm, if the reason for the suspension is the violation by the investor of the parameters for its abuse of its rights to invest locally and enjoy the protections of the IIA it invokes. Since the test is for abuse is determined by its effects, the Philippines can demonstrate the violations committed by the foreign investors, and link this back to the cause of the suspension of their operations. Borrowing from real examples of mining firms in the Philippines, some firms have been issued cease and desist orders for their misdeeds but have still continued to operate, and have essentially made use of their privileges and rights as foreign investors in the country in ways that have affected the rights of local communities to a safe and clean environment, and to access to food and water.722 These are clear examples of matters that the country could raise as a counterclaim.

The Philippine claim, however, to prosper from a procedural perspective, would have to make to ensure the following as regards the relevant IIA:

(1) The treaty invoked by the mining firm in turn invokes international law as applicable law, or otherwise, does not provide for an applicable law at all, in which case international law would still apply under the default rules of the ICSID Convention;

(2) The treaty must give leeway for a counterclaim to be filed in the first place, so that the investor, in invoking the treaty, can be said to have given its consent to the counterclaim.

The question of privity will also have to be addressed by the Philippines. Most international mining firms, however, operate as one entity; 723 furthermore, when mining firms enter into FTAAs with the Philippine government, they often offer management expertise as well as technical and other forms of assistance,724 which substantially adds to the idea that they have

722. Brenda Jocson Gaudia, Golden Summit defies govt order to stop mining operations in Isabela, MANILA STANDARD, Jan. 22, 2015, available at http://manilastandard.net/ news/-provinces/168744/golden-summit-defies-govt-order-to-stop-mining-operations-in-isabela.html (last accessed Nov. 30, 2019).

723. See, e.g., Oceana Gold’s international website, which explicitly provides that they own the Dipidio mines operated by Oceana Gold’s local subsidiary. Oceana Gold, Our Business, available at http://www.oceanagold.com/our-business/philippines (last accessed Nov. 30, 2019).

724. BERNAS, supra note 74, at 1184 (citing La Bugal-B’Laan Tribal Association, Inc. v. Ramos, 445 SCRA 1, 238-39 (2004)). In the case, the Supreme Court upheld the constitutionality of FTAAs provided in the Mining Act of 1995, and hence also allowed foreign companies to manage and provide technical assistance in the field of mining. La Bugal-B’Laan Tribal Association, Inc., 445 SCRA at 238.


effective control over local operations and any failures on the part of their local counterparts to exercise due diligence.

VI. CONCLUSION AND RECOMMENDATIONS

A. Conclusion

The Author began this Note with the aim of tracing the trajectory of Urbaser v. Argentina. After having examined the nexus between IIL and IHRL, and how these two regimes clash in ISDS, the Note explored the veracity of Urbaser’s suggestion: the possibility, given the current development in the fields of international law and corporate governance, of filing a counterclaim grounded on IHRL against an investor in investment treaty arbitration.

The Author concludes that, at the present stage, the IHRL regime cannot be used to make an investor liable for violating the human rights of host State citizens, for business and human rights norms under international law have yet to evolve enough clear mechanisms for direct corporate obligations under that regime.

The Author, however, has submitted and shown how the abuse of rights doctrine can be used within the ISDS setting to make investor-corporations liable for human rights violations committed against host State citizens, through the mechanism of a host State counterclaim. The possibility of doing this, however, depends greatly on the technical nuances found within investment treaties.

This Note thus proposes, as recommendation, that the Philippines draft its own bilateral model treaty for future negotiations, which will grant it leeway to invoke human rights considerations as defenses, and make use of the abuse of right doctrine to make corporations liable for human rights violations, where the stated applicable law is international law.

B. Recommendation: Philippine Model Bilateral Treaty

Current Philippine IIAs reflect the asymmetrical nature of most investment treaties in the IIL regime. To counter the possibility that human rights-related issues will not be considered by investment tribunals, owing to them taking a teleological or literal approach to determining treaty language, the Philippines should draft a model treaty for future negotiations, which manages to balance investor, home State, and host State interests. The model treaty can make use of traditional elements of investment treaties that grant substantive rights to investors, while adding new provisions which ensure that investors and their investments commit to respect human rights while in the Philippines.

There are various treaties, such as the model treaty of the International Institute for Sustainable Development , which would provide ideal templates


for bilateral treaties between host and home States.725 However, the Author would like to propose a simpler list of provisions which must necessarily be included in any investment treaty the Philippines signs, in order to comply with the parameters for filing host State counterclaims based on human rights violations that are provided in this Note.

1. Preamble

[xxx]

AFFIRMING the progressive development of international law and policy on the relationships between multinational enterprises and host governments as seen in such international instruments as the ILO Tripartite Declaration on Multinational Enterprises and Social Policy; the OECD Guidelines for Multinational Enterprises; the United Nations’ Norms and Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights; and the United Nations Guiding Principles on Business and Human Rights;

SEEKING an overall balance of rights and obligations in international investment between investors, host countries and home countries;

REAFFIRMING their commitment to democracy, the rule of law, human rights and fundamental freedoms in accordance with their obligations under international law, including the principles set out in the United Nations Charter and the Universal Declaration of Human Rights; [ ]

Preambles are often used as interpretative tools by investment tribunals, to

determine ambiguities in other provisions found in the treaty. 726 Thus,

725. See International Institute for Sustainable Development, IISD Model International Agreement on Investment for Sustainable Development, available at https://www.iisd.org/pdf/2005/investment_model_int_agreement.pdf (last accessed Nov. 30, 2019)

726. Ian Brownlie made use of the preamble in his separate opinion in the CME v. Czech Republic arbitration to balance investor protection vis-à-vis the legitimate aims of the host State concerned. He remarked: “One of the objects [of the Dutch-Czech BIT] is the stimulation of the economic development of the parties, as indicated in the preamble. In this connection, the context includes the Cold War and the promotion of market economy in the region.” See CME Czech Republic B.V. v. Czech Republic, U.N.CITRAL, Separate Opinion on the issues at the quantum phases of CME v. Czech Republic by Ian Brownlie, C.B.E., Q.C., 9 ICSID Rep. 412, 431 (Mar. 13, 2003). Note that the Dutch-


Preamble should emphasize that, while foreign investment is to be protected, international law also requires an overall balance between the rights and obligations of all the host State, home State, and investor.

The Preamble should state the soft law instruments that the Philippines hopes investors will adhere to when they enter the country. Though soft law is not binding law and does not create direct legal obligations, it still serves as an interpretative tool. Making mention of them with reference to MNEs grants leeway for their provisions to be considered, to the extent that they can be used to interpret the rest of the treaty.

It should also state that the contracting States adhere and affirm their commitment to promote respect for universally-recognized human rights obligations, setting out the human rights instruments which they seek to emphasize are relevant. This will remove all hesitation on the part of tribunals to make use of the mentioned treaty instruments to balance host State and investor interests in the event of ISDS.

2. Applicable Law

Article 29

Investor-State Disputes

(B) The Arbitral tribunal shall be established as follows:

c) The decisions shall be taken in conformity within the provisions of this Agreement, the national law of the Host Party, and international law, including the list of human rights instruments mentioned under Article 13 (A) of this Agreement.

As the Author states, applicable law in the model treaty should include international law to be able to invoke obligations that are sourced from that law, including the application of the abuse of rights doctrine as espoused in this Note. Requiring tribunals to consider national law as well, however, will grant more leeway for the sourcing of obligations on the part of the host State.

Article 13 (A) of the treaty pertains to post-establishment obligations which the Philippines may choose to require of investors, to ensure that their obligations as regards human rights are provided in express terms. However, as has been noted and advocated within this Note, the abuse of rights doctrine

Czech BIT was concluded in 1991, hence the referral of Brownlie to the Cold War. See CHRISTOPHER DUGAN, ET AL., INVESTOR-STATE ARBITRATION 10 (2008).


may be invoked by host State to achieve the same effect. Depending, therefore, on the willingness of the other Contracting Party to make this explicit on the part of investors, this part may not be necessary. For easy reference, the provision is provided below.

Article 13

Post-establishment Obligations

(A) Investors and investments should uphold human rights in the workplace and in the State and community in which they are located. Furthermore, and in accordance with the United Nations Guiding Principles on Business and Human Rights, investors must respect human rights. Investors have a negative obligation not undertake or cause to be undertaken, acts that infringe on the human rights of others. Investors and investments shall not by complicit with, or assist in, the violation of the human rights by others in the host State, including public authorities or during civil strife. The Parties shall, at their first meeting, adopt a list of international human rights and human rights instruments to assist investors in complying with this Provision.

Consent to Arbitrate

Article 29

Investor-State Disputes

(C) When initiating an arbitration under this Agreement, both the investor and the host State irrevocably and unconditionally consent in advance to submit their disputes to international arbitration.

As the Author has submitted, a scope of consent to arbitrate which is very

broadly worded will give leeway for the host State to file a counterclaim. The one provided in the model treaty leaves no doubt as to the possibility of filing a counterclaim.