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Protecting concessionary rights: General principles and the making of international investment law

Published online by Cambridge University Press:  26 November 2021

Andrea Leiter Open the ORCID record for Andrea Leiter [Opens in a new window]
Andrea Leiter*
Affiliation:
Amsterdam Center for International Law, University of Amsterdam Law School, Nieuwe Achtergracht 166, 1018 WV Amsterdam Email: [email protected]
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Abstract

This article engages with the history of international investment law in the first half of the twentieth century. It traces how international lawyers inscribed their vision of an international legal order protecting private property of Western companies against attempts at nationalization in the wake of socialist revolutions and the decolonization of large parts of the world. The article focuses on the role of ‘general principles of law as recognized by civilized nations’ as building blocks for an international legal order today called international investment law. Rather than describing a direct line between contemporary standards of protection and the invocation of general principles, the article develops conditions of possibility for the emergent field of international investment law. These conditions are located both in arbitral practice, as well as in international legal scholarship of the early twentieth century. Based on the analysis of such arbitrations over disputes resulting from concession agreements and scholarly writings in the interwar period, the contribution draws out the modes of authorization upon which the legal claims advanced by international lawyers rested. At the heart of the vision were ideas of ‘modernity’, ‘civilization’, ‘equity’, and ‘justice’ that enabled a hierarchization of difference, locating Western claims to legality above rivalling claims of socialist and ‘newly independent’ states. These ideas ultimately constituted the paradox of a ‘modern law of nature’ that claimed timeless universality while authorizing the ordering of foreign property in line with Western conceptions of modernity.

Keywords

arbitrationcivilizationconcession agreementsdevelopmentgeneral principles
Type
ORIGINAL ARTICLE
Information
Leiden Journal of International Law , Volume 35 , Issue 1 , March 2022 , pp. 55 - 69
Copyright
© The Author(s), 2021. Published by Cambridge University Press

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Footnotes

*

Many colleagues and collaborators are to be acknowledged for the coming into being of this article and I would like to express my gratitude for your thoughts, provocations, and comments. In particular I would like to thank Lys Kulamadayil, Anna Saunders, Love Rönnelid, Josefin Natalie Engström, Sundhya Pahuja, Hilary Charlesworth, and Ursula Kriebaum. I also want to thank my colleagues and friends from the Institue of Global Law and Policy who I shared my world with in 2018/2019, the members of the KFG International Law – Rise or Decline, the participants of the International Economic Law and Policy research group, and my colleagues at the Amsterdam Center for International Law.

References

1 Permanent Court of International Justice: Advisory Committee of Jurists, Procès-Verbaux of the Proceedings of the Committee June 16th–July 24th 1920 with Annexes (1920).

2 J. d’Aspremont, ‘What Was Not Meant to Be: General Principles of Law as a Source of International Law’, in R. Pisillo Mazzeschi and P. De Sena (eds.), Global Justice, Human Rights and the Modernization of International Law (2018), 163.

3 Not many arbitrations that would be considered of an ‘international’ rather than a ‘commercial’ character in this period are recorded. However, the very transition from commercial arbitration to international investment arbitration is traced in this article. For a list of relevant arbitrations see infra note 15.

4 A. Verdroß, ‘Règles internationales concernant le traitement des étrangers’, (1931) 37 Recueil des cours de l’Académie de Droit International de la Haye 325.

5 See also D. Schneiderman, ‘The Global Regime of Investor Rights: Return to the Standards of Civilised Justice?’, (2014) 5(1) Transnational Legal Theory 60–80, at 62.

6 In the collection of records of 15 investor-state arbitrations before 1934, all were based on a dispute over a concession agreement.

7 Even after the ratification of the ICSID Convention in 1966, the 25 cases brought in the first 25 years of its existence were based on a breach of contract or concession. J. Pauwelyn, ‘Rational Design or Accidental Evolution? The Emergence of International Investment Law’, in Z. Douglas et al. (eds.), The Foundations of International Investment Law: Bringing Theory into Practice (2014), 30.

8 C. Ohler, ‘Concessions’, Max Planck Encyclopedia of Public International Law (2013), 1. For a doctrinal characterization and list of concession agreements concluded between 1492 and 1973 see P. Fischer, Die internationale Konzession: Theorie und Praxis der Rechtsinstitute in den internationalen Wirtschaftsbeziehungen (1974).

9 For an account of the role of concession agreements in expanding colonial indirect rule see M. Craven, ‘Colonial Fragments: Decolonisation, Concessions and Acquired Rights’, in J. von Bernstorff and P. Dann (eds.), The Battle for International Law: South-North Perspectives on the Decolonization Era (2020), 101.

10 M. Sornarajah, The International Law on Foreign Investment (2010), 289.

11 A. Z. El-Chiati, ‘Protection of Investment in the Context of Petroleum Agreements’, (1987) 204 Recueil des cours de l’Académie de Droit International de la Haye 9–170, at 44. A discussion of a possible interpretation in accordance with Islamic law can be found in W. M. Ballantyne, Essays and Addresses on Arab Laws (2000), 85.

12 Sornarajah, supra note 10, at 228.

13 Payment of Various Serbian/Brazilian Federal Loans Issued in France, [1929] (Judgment) (ser A) Nos 20/21 PCIJ 4, at 41.

14 Some examples of cases referencing general principles in consideration of the applicable law are the Palestine Railway case (Société du Chemin de Fer Ottoman de Jaffa à Jerusalem et Prolongements v. Government of the United Kingdom, 1922); the Lena Goldfields case (Lena Goldfields Ltd. v. Soviet Union, 1930); the Watercourses in Katanga case (Compagnie du Katanga v. The Colony of the Belgian Congo, 1931); the Greek Telephone Company case (Greek Telephone Company v. Government of Greece, 1935); the Sheikh of Abu Dhabi case (Petroleum Development (Trucial Coast) Ltd v. the Sheikh of Abu Dhabi, 1951); the Ruler of Qatar case (Ruler of Qatar v. International Marine Oil Company, Ltd. 1953); the ARAMCO case (Saudi Arabia v. Arabian American Oil Company, 1963).

15 In the Matter of an Arbitration between Petroleum Development (Trucial Coast) Ltd and the Sheikh of Abu Dhabi (1951) (Award) reproduced in (1952) 1 Interntional & Comparative Law Quarterly 247–6, at 251. Other examples of such an invocation are the Lena Goldfields arbitration of 1930, and the proceedings in the Anglo-Iranian case in 1952 and the Ruler of Qatar arbitration of 1953.

16 Britain was the largest outward investor until 1945 with total overseas investments estimated at £3,545 million in 1938. This number included 46% foreign direct investment and 54% of portfolio investment. T. A. B. Corley, ‘Competitive Advantage and Foreign Direct Investment: Britain 1913–1938’, (1997) 26(2) Business and Economic History 599–608, at 601. The British share furthermore constituted about 41% of global FDI. I. Salavrakos, ‘Determinants of German Foreign Direct Investment: A Case of Failure?’, (2009) 12(2) European Research Studies 3–26, at 7.

17 A. D. McNair, ‘The General Principles of Law Recognized by Civilized Nations’, (1957) 33 British Yearbook of International Law 1–19, at 1.

18 A. Anghie, Imperialism, Sovereignty, and the Making of International Law (2008), 228.

19 P. C. Jessup, Transnational Law (1956).

20 See, eg., W. C. Jenks, ‘The Scope of International Law’, (1954) 31 British Yearbook of International Law 1; McNair, supra note 17; A. Verdroß, ‘Quasi-international Agreements and International Economic Transactions’, (1964) 18 The Yearbook of World Affairs 230–47; R. Jennings, ‘State Contracts in International Law’, (1961) 37 British Yearbook of International Law 156–82.

21 See a list of such early arbitrations, supra note 15.

22 Ruler of Qatar v. International Marine Oil Company, Ltd. (Award), (1953) 20 ILR 543.

23 The Rose Mary (Anglo-Iranian Oil Co Ltd v. Jaffrate) (Judgment), [1953] 1 WLR 246. The Rose Mary was a ship carrying oil cargo from the newly founded National Iranian Oil Company, which was forced into the port of Aden (then British protectorate). The Aden Supreme Court ruled that the cargo was the property of the Anglo-Iranian company and was unlawfully carried by the merchants. Lauterpacht commented on the Court’s decision to find Iranian domestic law in breach of international law with hesitant affirmation. H. Lauterpacht, ‘The Rose Mary Case’, International law: being the collected papers of Hersch Lauterpacht systematically arranged and edited by E. Lauterpacht (1970 (unpublished case note, originally 1953)) vol. 3, 242.

24 Anglo-Iranian Oil case (United Kindgom v. Iran) (Preliminary Objection of 22 July 1952), [1952] ICJ Rep. 93.

25 See Rose Mary case, supra note 23.

26 Shawcross, H. Lauterpacht and Waldock worked together in the Corfu Channel case before the ICJ from 1947–1949, Lauterpacht and Monckton collaborated on legal opinions for oil concessions in Kuwait and McNair acted as senior counsel in the Aramco Arbitration in 1963. See for these collaborations E. Lauterpacht, The Life of Sir Hersch Lauterpacht, QC, FBA, LLD (2010), at 324, plate 16.

27 This conclusion is grounded in the study of the wordings in the respective concession agreements and the almost identical phrasing. Cf. V. V. Veeder, ‘The Lena Goldfields Arbitration: The Historical Roots of Three Ideas’, (1998) 47 International and Comparative Law Quarterly 747, at 769.

28 A. Riles, ‘Is the Law Hopeful?’, in H. Miyazaki and R. Swedberg (eds.), The Economy of Hope (2016), 126–46, at 141.

29 See N. A., ‘Statements Regarding the Lena Goldfields Concession’, 5 (11) Economic Review of the Soviet Union 228, at 229. Cf. A. Leiter, ‘Contestations over Legal Authority: The Lena Goldfields Arbitration 1930’, in A. Orford et al. (eds.), Revolutions in International Law (2021), 315–38.

30 A. Nussbaum, ‘Arbitration Bewteen the Lena Goldfields Ltd. and the Soviet Government’, (1950) 36 Cornell Law Quarterly 31, at 31, 40.

31 S. Pahuja and C. Storr, ‘Rethinking Iran and International Law: The Anglo-Iranian Oil Company Case Revisited’, in J. Crawford et al. (eds), The International Legal Order: Current Needs and Possible Response: Essays in Honour of Djamchid Momtaz (2017), 53.

32 One example of British lawyers acting on both sides is the Sheikh of Abu Dhabi arbitration discussed below.

33 Y. Dezalay and B. G. Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order (1998).

34 Serbian/Brazilian Loans case, supra note 13. See also A. Nussbaum, supra note 30, at 36.

35 Sheikh of Abu Dhabi arbitration, supra note 15, at 250–1.

36 Agreement between [the] Ruler of Abu Dhabi and Petroleum Development (Trucial Coast) Ltd, signed 11 January 1939, British Library: India Office Records and Private Papers: Qatar Digital Library, 312–21.

37 Sheikh of Abu Dhabi arbitration, supra note 15, at 250–1.

38 Ibid. For affirmative commentary on the arbitration see McNair, supra note 17, at 12. W. Friedmann, ‘The Uses of “General Principles” in the Development of International Law’, (1963) 57 American Journal of International Law 279–99, at 283–5; Jessup, supra note 19, at 80; F. A. Mann, ‘The Proper Law of Contracts Concluded by International Persons’, (1959) 35 British Yearbook of International Law 34, at 52. For contemporary critical commentary see Sornarajah supra note 10, at 289–99. Anghie, supra note 18, at 226.

39 Sheikh of Abu Dhabi arbitration, supra note 15, at 250–1.

40 Ibid.

41 S. Pahuja, Decolonising International Law Development, Economic Growth and the Politics of Universality (2013), 99.

42 Schneiderman, supra note 5, at 63.

43 M. Dordeska, General Principles of Law Recognized by Civilized Nations (1922-2018): The Evolution of the Third Source of International Law Through the Jurisprudence of the Permanent Court of International Justice and the International Court of Justice (2019).

44 M. Koskenniemi, The Gentle Civilizer of Nations: the Rise and Fall of International Law 1870–1960 (2001); B. Simma, ‘The Contribution of Alfred Verdoss to the Theory of International Law’, (1995) 6(1) European Journal of International Law 33–54, at 47.

45 H. Lauterpacht, The Function of Law in the International Community (2011), 65.

46 Ibid.

47 H. Lauterpacht, ‘Règles générales du droit de la paix’, (1937) 62 Recueil des cours de l’Académie de Droit International de la Haye 100–206, at 164.

48 Koskenniemi describes Lauterpacht’s approach as follows: ‘That the legal order is unable to recognize the existence of gaps results from its inability to limit their scope. In particular, there is no method to distinguish between “essentially” important (political) and non-important (legal) issues.’ Koskenniemi supra note 44, at 367.

49 H. Lauterpacht, ‘Succession of States with Respect to Private Law Obligations’, International law: Being the Collected Papers of Hersch Lauterpacht Systematically Arranged and Edited by E. Lauterpacht (1970), vol. 3, 126.

50 Lauterpacht, supra note 47, at 165.

51 H. Lauterpacht, Private Law Sources and Analogies of International Law (1927), 298–9.

52 Ibid., at 63–71.

53 McNair, supra note 17, at fn. 3.

54 Lauterpacht, supra note 51, at 130.

55 Ibid., at 92.

56 For an analysis of the doctrine of state succession and its relationship to decolonization see M. Craven, The Decolonization of International Law: State Succession and the Law of Treaties (2009).

57 Lauterpacht, supra note 49, at 127.

58 Lauterpacht, supra note 51, at 125.

59 Lauterpacht, supra note 49, at 126.

60 Lauterpacht, supra note 51, at 126.

61 Lauterpacht, supra note 49, at 127.

62 H. Lauterpacht, Recognition in International Law (1947).

63 Koskenniemi, supra note 44, at 383.

64 Lauterpacht, supra note 51, at 129.

65 W. W. Buckland and A. McNair, Roman Law and Common Law: a Comparison in Outline (1936); A. McNair, ‘The Effects of Peace Treaties upon Private Rights’, (1941) 7 Cambridge Law Journal 379; A. McNair, The Law of Treaties (1961).

66 McNair, ibid., at 381.

67 A. Verdroß, supra note 4, at 325.

68 Ibid., at 389.

69 Q. Slobodian, Globalists: The End of Empire and the Birth of Neoliberalism (2018), 30.

70 Verdroß, supra note 4, at 396.

71 German Settlers in Poland, [1923] (Advisory Opinion) PCIJ (ser B) No 6.

72 McNair, supra note 65, at 384.

73 For a detailed account of the proceedings see G. Kaeckenbeeck, ‘The Character and Work of the Arbitral Tribunal of Upper Silesia’, (1935) 21 Transactions of the Grotius Society 27–44.

74 G. Kaeckenbeeck, ‘The Protection of Vested Rights in International Law’, (1936) 17 British Yearbook of International Law 1–18, at 15.

75 Ibid., at 15–16.

76 In 1961 Shawcross defended the proposition that acquired rights of foreigners were always protected under the standard of compensation of the ‘Hull formula’. H Shawcross, ‘The Problems of Foreign Investment in International Law’, (1961) 102 Recueil des cours de l’Académie de Droit International de la Haye 335–93, at 351.

77 R. Dolzer and C. Schreuer, Principles of International Investment Law (2012), 2.

78 Ibid., at 1–2.

79 For an account of the relationship of state succession and unjust enrichment see Lauterpacht, supra note 51, at 133.

80 D. P. O’Connell, ‘Economic Concessions in the Law of State Succession’, (1950) 27 British Yearbook of International Law 93–124, at 121.

81 C. Schreuer, ‘Unjustified Enrichment in International Law’, (1974) 22(2) American Journal of Comparative Law 281–301, at 285.

82 D. P. O’Connell, ‘Unjust Enrichment’, (1956) 5(1) American Journal of Comparative Law 2–16, at 2.

83 Ibid., at 4.

84 Lauterpacht, supra note 49, at 133.

85 Verdroß, supra note 4, at 364.

86 The Lena Goldfields arbitration, Annual Digest of Public International Law Cases - Years 1929 and 1930, starting pages 3 and 426 (case nos 1 and 258).

87 Sornarajah, supra note 10, at 289–99.

88 L. Rönnelid, ‘The Emergence of Routine Enforcement of International Investment Law - Effects on Investment Protection and Development’ (Dissertation Thesis, Uppsala University, 2018) 83. Verdroß also turned his attention to concession agreements and argued in a similar vein as McNair, see Verdroß, supra note 20, at 230.

89 McNair, supra note 17, at 15–16.

90 Ibid. See also Friedmann, supra note 38, at 295–9.

91 N. Perrone, Investment Treaties and the Legal Imagination: How Foreign Investors Play By Their Own Rules (2021).

92 McNair, supra note 17, at 7.

93 Lauterpacht, supra note 51, at 289–99. ‘Law is not a spiritless and self-sufficient mechanism.’ Lauterpacht, supra note 49, at 128. For an account of a positivist conception of the notion ‘civilized’ and its consequences for the binding character of international law see J. Kunz, ‘Zum Begriff der “nation civilisée” im modernen Völkerrecht’, (1927) 7(1) Zeitschrift für Öffentliches Recht 86–99.

94 Lauterpacht, supra note 49, at 128.

95 Koskenniemi, supra note 44, at 357.

96 McNair, supra note 17, at 1.

97 Ibid.

98 For a concurring account of the prevailing legacy of the ‘standard of civilisation’ in international investment law see Schneiderman, supra note 5.

99 Ibid., at 2.

100 For a detailed account of the transformation of the notion of ‘civilisation’ to economic development in international law see Pahuja, supra note 41.

101 McNair, supra note 17, at 4.

102 Ibid., at 1 (emphasis added).

103 Anghie, supra note 18, at 234.

104 Ibid. Confirming this point and on the role of corporations in the history of international law generally see F. Johns, ‘Theorizing the Corporation in International Law’, in A. Orford et al. (eds.), The Oxford Handbook of the Theory of International Law (2016), 635, 639.

105 Verdroß, supra note 4, at 393.

106 Ibid., at 394.

107 M. Bedjaoui, ‘First Report on Succession of States in Respect of Rights and Duties Resulting From Sources Other than Treaties’, Yearbook of the International Law Commission, vol. II, 1968 Comm, 20 sess, UN Doc. A/CN.4/204 (5 April 1968) 115–17.

108 Pahuja, supra note 41, at 54.

109 Ibid., at 65.

110 N. Tzouvala, Capitalism as Civilisation: A History of International Law (2020).

111 H. Truman, ‘Inaugural Address’, US Department of State, 20 January 1949.

112 McNair, supra note 17, at 2.

113 Anghie, supra note 18, at 226. Charles Brower reflects on the arbitration as follows: ‘To Islamic eyes, the entire experience no doubt was redolent, if not an extension, of the old “Capitulations” system of extraterritorial courts administered by European powers.’ C. N. Brower and J. K. Sharpe, ‘International Arbitration and the Islamic World: The Third Phase’, (2003) 97(3) American Journal of International Law 643–56, at 644.