1 Introduction
This chapter examines the story of how the concept of the ‘Minimum Standard of Treatment’ (MST) first emerged, its subsequent decline and also its recent ‘resurrection’.
The concept of MST crystallised as a rule of custom in the mid-twentieth century,Footnote 1 but in the 1960s and 1970s, Newly Independent States (NIS) began to challenge its existence. While the Standard ultimately survived these events, this opposition had another more subtle consequence: both developing and developed States now perceived the MST as ineffective in providing basic legal protection to foreign investors.Footnote 2 It is in this historical context that these States began frenetically signing bilateral investment treaties (BITs) for the promotion and protection of investments, which provided clearer rules on investment protection. I will argue in this chapter that States started to use the expression ‘fair and equitable treatment’ (FET) in their BITs because of the ambiguities surrounding the concept of the MST and the fact that many States had contested its legitimacy in the past. By the end of the 1990s, only a very small minority of BITs actually referred to the MST. By then, the concept had clearly lost its once prevailing importance as a source of investment protection for foreign investors. The MST’s glory days were long gone.
The dynamics suddenly changed, however, when arbitral tribunals started to give a broader interpretation to FET clauses, thereby providing foreign investors with treatment protections above and beyond the traditional MST.Footnote 3 It was only then that States started to explicitly mention in their new BITs that the treatment offered to investors under the FET clause was, in fact, the same that was extended to all foreign investors under the MST under custom. The concept of the MST, which had almost been forgotten by States in the 1990s, was now centre stage in their quest to limit investors’ rights under investment treaties. States’ objectives were now to prevent future tribunals from developing their own idiosyncratic interpretations of the FET standard. In this respect, the most interesting and innovative FET clause is certainly Article 8.10 of the Canada–European Union Comprehensive Economic and Trade Agreement (CETA), which contains a closed list of elements that are considered by the parties to embody the standard.Footnote 4 States have thus somewhat ‘rediscovered’ the usefulness of the MST. The concept has now regained the prevalence that it had lost in the past decades as an important source of investment protection.
2 The Emergence of MST as a Rule of Customary International Law
Section 2.1 will define the concept of MST and examine its historical foundation. Section 2.2 will analyse the subsequent challenges to the MST’s customary status, which was led by developing States in the 1960s and 1970s and eventually resulted, in the 1990s, in the new phenomenon of ‘treatification’.
2.1 The Historical Foundation of the Minimum Standard of Treatment
Despite some disagreement between States on the existence of the MST in the last few decades (a point further examined below), the concept is now well recognised by States, tribunals and scholars as a rule of customary international law.Footnote 5 What is more controversial is determining the actual content of the standard. The MST is an umbrella concept that in itself incorporates different elements.Footnote 6 Based on an analysis of case law and reports by the Organisation for Economic Co-operation and Development (OECD) and United Nations Conference on Trade and Development (UNCTAD),Footnote 7 it may be observed that the MST encompasses (at the very least) an obligation for host States to prevent denial of justice and arbitrary conduct and also to provide investors with due process and ‘full protection and security’.Footnote 8
The historical aspects surrounding the emergence of the MST have already been the subject of substantial scholarship.Footnote 9 Suffice it to note that its origin is grounded in the international law doctrine of State responsibility for injuries to aliens.Footnote 10 It is rooted in a due diligence obligation for States to respect the rights of foreigners within their country. Before the twentieth century, there was a prevailing view that individuals conducting business in another State should be subject to the law of that State.Footnote 11 Several States, especially in Latin America, adopted this position to counter the so-called gunboat diplomacy and other types of interferences by Western States in their internal affairs that were often made under the pretext of protecting the interests of their nationals abroad.Footnote 12 It is in this context that many States rejected the idea of the existence of any obligation under international law to accord a ‘minimum’ level of protection to foreigners.
Despite this opposition, the MST gradually emerged in the early twentieth century.Footnote 13 The development of this standard of treatment stemmed from capital-exporting States’ concern that many host States receiving investments lacked the most basic measures of protection for aliens and their property.Footnote 14 They argued that all governments were bound under international law to treat foreigners with at least a minimum standard of protection,Footnote 15 because the existing standard in many countries was considered too low.Footnote 16 The reasons for establishing such a standard were explained by the US Secretary of State, Mr Elihu Root, in an article published in 1910Footnote 17 and were reiterated some ninety years later by the North American Free Trade Agreement (NAFTA) SD Myers Tribunal.Footnote 18 International jurisprudence slowly developed the concept of a minimum standard of protection. While a number of cases have had a significant impact on the emergence of this standard, the best known is certainly the Neer case of 1926.Footnote 19
The question of whether or not any customary rule in the field of investment arbitration had firmly crystallised after the Second World War is controversial.Footnote 20 However, it is safe to say that the MST was an established rule of custom at the time.Footnote 21 Section 2.2 examines a number of dramatic developments that occurred in the decades following the Second World War.
2.2 Newly Independent States Challenging the MST
In the 1960s and 1970s, NIS revived opposition towards the existence of any customary rules in the field of investment law. They openly contested the legitimacy of the existing CIL and demanded a revision of these ‘outdated’ rules that did not take into account the fundamental changes that had occurred in the international community since the end of the colonisation period.Footnote 22 According to Abi-Saab, these States ‘[did] not easily forget that the same body of international law that they [were] now asked to abide by, sanctioned their previous subjugation and exploitation and stood as a bar to their emancipation’.Footnote 23
Specifically, these States rejected having the obligation to provide any minimum standard of protection to foreign investors under CIL.Footnote 24 They insisted that they were bound to provide foreign investors only with the level of treatment existing under their domestic law.Footnote 25 They also contested the existence of any international law norms requiring compensation for expropriated foreign properties and supported a less stringent compensation requirement than the Hull formula.Footnote 26 At the time, developing States took the debate to the United Nations General Assembly where they represented the majority of States.Footnote 27 They used their status within the international body to advance their interests by way of resolutions and declarations,Footnote 28 which included Resolution 3171 adopted in 1973Footnote 29 and the 1974 Charter of Economic Rights and Duties of States.Footnote 30 Given the division between the developed and the developing States, the Charter of Economic Rights and Duties of States could hardly be considered a reflection of existing international law at the time.Footnote 31 Another question is whether or not the effect of the attack by new States was to destroy the few rules of custom that existed after the Second World War. A number of writers believe this was the case.Footnote 32 Without specifically taking a position on the impact that the contestation may have had on custom, the International Court of Justice (ICJ) in the famous Barcelona Traction case of 1970 simply noted that no rule of customary international law existed in the field of international investment law.Footnote 33
The more established position is that some customary rules (including the MST) already existed at the time the developing States started opposing them.Footnote 34 In the 1990 Elettronica Sicula S.p.A. (ELSI) case, the ICJ indeed referred explicitly to the existence of a ‘minimum international standard’.Footnote 35 In fact, while it seems that the MST survived the assault by the developing States, it did not do so without some casualties. Thus, as noted by one writer, the strong contestation of a large segment of States has ‘served to undermine the solidity of the traditional international legal framework for foreign investment’.Footnote 36 Thus, while the developed States held the view that customary rules existed, they also acknowledged that their effectiveness was limited as a result of the vehement opposition of a large number of States.Footnote 37 In fact, both the developed and the developing States perceived these rules as ineffective in providing basic legal protection to foreign investors.
It is in this historical context that, in the 1990s, States began signing numerous BITs providing clearer rules on investment protection (a new phenomenon referred to as ‘treatification’). At the time, a new consensus emerged regarding the necessity to offer better legal protections to foreign investments in order to accelerate economic development. Yet, there was still great uncertainty surrounding the types of legal protections that existed for foreign investors under custom. As explained by two scholars, Dolzer and von Walter, it is due to the fact that ‘customary law was deemed be too amorphous and not be able to provide sufficient guidance and protection’ to foreign investors that capital-exporting and developing States started frenetically concluding ad hoc BITs.Footnote 38 According to both Schreuer and Dolzer, as a result of the new climate of international economic relations of the 1990s, ‘the fight of previous decades against customary rules protecting foreign investment had abruptly become anachronistic and obsolete’.Footnote 39 Consequently, by the 1990s, ‘the tide had turned’, and developing States were no longer opposed to the application of a minimum standard of protection under custom. Instead, they granted ‘more protection to foreign investment than traditional customary law did, now on the basis of treaties negotiated to attract additional foreign investment’.Footnote 40
Section 3 examines how this new phenomenon of ‘treatification’ was marked by the emergence of the FET standard and the decline of the MST as a source of investment protection for foreign investors.
3 The Emergence of the FET Standard in Investment Treaties
From the 1990s and onwards, States have included the FET standard in an overwhelming majority of BITs. I have explained elsewhere that less than 5% of the BITs which I have examined do not include any formal and binding FET obligation for the host State of investments.Footnote 41 One of the most controversial questions discussed in scholarship is why States first began including the term FET in their BITs throughout the 1960s and 1970s, and why they have continued to do so (almost) uniformly thereafter in the 1990s.Footnote 42
According to one view, Western States incorporated the concept of FET in their BITs to simply reflect the MST that existed under international law.Footnote 43 This approach has been endorsed by a number of writers.Footnote 44 These writers typically refer to the 1967 OECD Draft ConventionFootnote 45 as representative of the position of developed States at the time on matters of protection of foreign investments.Footnote 46 This is because the OECD’s Commentary to the 1967 Draft Convention indicated that the concept of FET flowed from the ‘well established general principle of international law that a State is bound to respect and protect the property of nationals of other States’.Footnote 47 The Drafting Committee also added that the phrase FET refers to ‘the standard set by international law for the treatment due by each State with regard to the property of foreign nationals’ and that ‘the standard required conforms in effect to the minimum standard which forms part of customary international law’.Footnote 48 The same position was also taken by OECD member States in 1984Footnote 49 and is confirmed by the practice of some Western States.Footnote 50 This narrative has, however, been subject to dissent by many scholars.Footnote 51 While it is possible that the OECD commentary reflected what their member States (all developed States) themselves viewed to be the CIL at the time, they were certainly not representative of what the developing States believed were their legal obligations in the 1960s.Footnote 52 In any event, as explained by two scholars, Newcombe and Paradell, the use of a ‘different and more politically neutral term [FET] might be explained by the historical political sensitivities regarding the minimum standard of treatment’, which was ‘historically viewed with suspicion because of the legacy of gun-boat diplomacy and imperialism’.Footnote 53 This is also the position endorsed by Judge Nikken in his separate opinion in the AWG Group v Argentina case.Footnote 54 In sum, for these writers the concept of the FET ‘may simply have been viewed as a convenient, neutral and acceptable reference’ to the MST.Footnote 55
A more convincing approach has been adopted by a number of other writers who suggest that the growing use of the term FET by Western States in their BITs was intended to counter the assertion made by developing States about the inexistence of any MST under international law.Footnote 56 Thus, Western States started including references to the FET standard because of the ambiguities surrounding the concept of the MST.Footnote 57 They started using this term as a result of the challenge mounted by developing States against the MST. Weiler provides a detailed account explaining how the United States started using the expression FET after the War and concluded that US negotiators embraced the term in the 1960s because the MST ‘controversy had otherwise poisoned the well for treaty drafters’.Footnote 58
The actual drafting language used by States in their BITs supports this approach. As pointed out by two authors, ‘if the parties to a treaty want to refer to customary international law, one would assume that they will refer to it as such rather than using a different expression’.Footnote 59 For the vast majority of BITs that contain an FET clause that does not make any reference to international law, the standard should not be considered as an implicit reference to the MST.Footnote 60 As pointed out by Schreuer and Dolzer, ‘[a]s a matter of textual interpretation, it seems implausible that a treaty would refer to a well-known concept like the “minimum standard of treatment in customary international law” by using the expression “fair and equitable treatment”’.Footnote 61 This is especially the case considering the (above-mentioned) contentious debates between the developed and the developing States as to the very existence of an MST.Footnote 62 The FET standard should therefore generally be considered as an independent treaty standard with an autonomous meaning from the MST. This is the position adopted by a majority of writers.Footnote 63 It should be noted, however, that a number of scholars have rejected this interpretation.Footnote 64 Yet, as logical and sound as it may be, this interpretation is not convincing in certain particular cases where a treaty explicitly links the FET to the standard existing under ‘international law’.Footnote 65 The same is true whenever the FET clause is entitled ‘MST’ (such as NAFTA Article 1105) or when the parties to a treaty have expressly stated that their intention was in fact for the FET standard to make reference to the MST under custom.Footnote 66
4 The ‘Return’ of the MST
By the year 2000, the concept of the MST had clearly lost its once prevailing importance as a source of investment protection for foreign investors. One could have assumed at the time that the MST’s role would become limited to the traditional function played by customary rules under international law in the context of the proliferation of treaty norms.Footnote 67 It seemed at the time that the MST’s glory days were long gone. That impression did not last very long.
When arbitral tribunals actually started to interpret FET clauses that had systematically been included in BITs for decades, States were considerably surprised by the outcome. The controversy began in the year 2000 when three Tribunals rendered awards that defined different aspects of the scope of the FET clause (Article 1105) contained in the NAFTA.Footnote 68 These three NAFTA Tribunals interpreted the FET clause as providing investors with treatment protections above and beyond the MST.Footnote 69 In other words, under this approach, the level of the standard of treatment imposed on the host State would be higher than that existing under custom; foreign investors would be given more rights. Most importantly, these three Tribunals adopted this approach notwithstanding the important fact that under Article 1105 (entitled ‘MST’) the FET is clearly linked to the standard existing under ‘international law’.
This NAFTA debate highlights the importance of the actual drafting of the FET clause. Arbitral tribunals (outside the NAFTA context) have given different interpretations to the scope of FET clauses depending on their actual drafting.Footnote 70 A 2012 UNCTAD report indicated that the drafting variations in FET clauses have in fact been interpreted as meaning different content as well as different thresholds.Footnote 71 Many arbitral tribunals have thus interpreted an unqualified (or ‘stand-alone’) FET clause as ‘delinked from customary international law’ and have, therefore, ‘focused on the plain-meaning of the terms “fair” and “equitable,”’ which ‘may result in a low liability threshold and brings with it a risk for State regulatory action to be found in breach of it’.Footnote 72 This phenomenon has been recognised by many scholars.Footnote 73 The vast majority of tribunals have, in fact, interpreted an unqualified FET clause as having an autonomous character, which therefore, provides a higher level of protection than the MST.Footnote 74 Only a limited number of tribunals have interpreted an unqualified FET standard as an implicit reference to international law.Footnote 75 This situation contrasts with the rather confusing approach adopted by tribunals faced with an FET clause containing an explicit reference to ‘international law’.Footnote 76 Tribunals have overall been divided on the proper interpretation and use of these words. While some tribunals have held that the term ‘international law’ found in an FET clause was a reference to the minimum standard under custom,Footnote 77 others have interpreted such an express reference in much the same way as an unqualified FET standard.Footnote 78 Others have simply decided not to take position on the issue.Footnote 79
The broad interpretations of FET clauses adopted by some tribunals led many States to take concrete measures to effectively reduce tribunals’ margin of appreciation when assessing the conformity of States’ conduct with the FET standard. The most virulent and comprehensive reaction came from NAFTA parties. Under the aegis of the Free Trade Commission (‘FTC’), they responded by issuing a ‘Note of Interpretation’, which interpreted the FET standard restrictively by expressly limiting the level of protection to be accorded to foreign investors to that existing under the MST under custom.Footnote 80 The Note itself rapidly became the centre of an important controversy amongst parties to NAFTA arbitration proceedings, arbitrators and scholars.Footnote 81
Around the same time, States also started explicitly mentioning in their BITs that the FET standard was not only linked to ‘international law’, but that it was in fact a reference to the MST under customary international law.Footnote 82 Again, two of the NAFTA Parties (United States and Canada) started this trend when they adopted their respective Model BITs in 2004. For instance, Article 5(1) of the US Model BIT provides that ‘[e]ach Party shall accord to covered investments treatment in accordance with customary international law, including FET and full protection and security’.Footnote 83 Clearly, Canada and the United States decided to adopt such language to refute the expanding interpretation applied by some NAFTA tribunals and to incorporate the clarification made in the NAFTA FTC Note of 2001.Footnote 84 The two BITs that the United States entered into after 2004 with Uruguay and Rwanda also contain the same clause referring specifically to the MST under custom.Footnote 85 Recent investment treaties of the United States, Canada and Mexico also contain the same FET clause.Footnote 86 While such specific language is clearly the result of the NAFTA experience, the phenomenon is not limited to the North American context as many States elsewhere have recently adopted the same types of FET clauses referring to the MST.Footnote 87
Another recent and closely related phenomenon is States becoming ‘more precise about the content of the FET obligation and more predictable in its implementation and subsequent interpretation’.Footnote 88 One example is the 2004 US Model BIT that clarifies that the obligation to provide FET under Article 5(1) ‘includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world’. This addition is also featured in the United States’ most recent BITs and FTAs as well as some of Canada’s investment treaties.Footnote 89 The same approach was adopted in the recently signed Canada–United States–Mexico Agreement (CUSMA, which has replaced NAFTA)Footnote 90 as well as by other States in the context of ASEAN,Footnote 91 COMESA,Footnote 92 CAFTA-DRFootnote 93 and the new Transpacific Partnership agreement (without the United States).Footnote 94
The efforts by many States to clarify the content of the FET standard in the last two decades have also had an impact on the solidification of the meaning of the MST. The next section further examines this phenomenon.
5 CETA: The Ultimate Detailed FET Clause
The most interesting and innovative recent FET clause is Article 8.10 of the CETA entered into by Canada and the member States of the European Union.Footnote 95 That provision is the first FET clause contained in an IIA that specifically enumerates a closed list of the different situations resulting in a breach of the obligation.Footnote 96 The content of Article 8.10 is to a very large extent based on how NAFTA tribunals have interpreted Article 1105 over the last 25 years. Thus, NAFTA tribunals have recognised that the FET standard contains only a limited number of specific elements of protection and that it requires proof of a high threshold of severity and gravity in order to conclude that the host State has committed a breach.Footnote 97 Article 8.10 CETA seems to be the natural and logical outcome of States’ willingness to ever increase the degree of specificity of the content of the FET clause in order to narrow its scope and to circumscribe its interpretation by tribunals.Footnote 98
One of the most notable features of Article 8.10 CETA is the fact that it does not refer to ‘international law’, the MST or to custom. The parties certainly believed that there was no need to expressly link the FET to the standard existing under the MST precisely because the clause contains a comprehensive enumeration of the elements they considered to be comprised in the FET ‘box’. In any event, the elements listed at Article 8.10 CETA are those which are generally considered to be existing under the concept of the MST. As such, the omission of a reference to the MST should not be interpreted as a possible setback to the contemporary importance of that standard. One writer has recently correctly referred to Article 8.10 CETA as an MST clause with another name.Footnote 99
6 Conclusion
This chapter has argued that States have started to use the expression FET in their investment treaties because of the ambiguities surrounding the concept of the MST and because of the fact that many States had heavily contested it in the past. By the end of the 1990s, the importance of the MST as a source of investment protection for foreign investors seems to be in sharp decline. Yet, soon after, States began to refer explicitly to the MST in FET clauses contained in their investment treaties. Their clear aim was to limit the scope of investors’ rights under said clauses. The clearest illustration of this willingness is the CETA FET clause.
In my view, the degree of specificity of the CETA FET clause is a welcome development. The reference to the MST in IIAs has not been entirely successful at harmonising the interpretation of the standard and limiting its scope.Footnote 100 Thus, faced with the binding FTC Note that links the FET to the MST, several NAFTA tribunals (Pope & Talbot, Mondev, ADF, Merrill & Ring and Bilcon) have simply ‘moved the goal post’.Footnote 101 They have thus interpreted CIL broadly by emphasising its evolutionary character. Under the CETA FET clause, a tribunal would no longer have the freedom to do that. In the CETA, the ‘evolution’ has effectively been stopped with the specific enumeration of elements contained in the FET clause.Footnote 102 In theory, one could argue that it is still possible for a tribunal to give a wide interpretation to any of the specific elements contained in the enumeration set out in Article 8.10 CETA. As such, even a closed list of what constitutes a FET breach would not prevent a Tribunal like Merrill & Ring to interpret the concept of arbitrariness or due process in a very broad manner.Footnote 103 The likelihood of such a possibility is somewhat diminished by the use of qualifiers in Article 8.10 CETA (‘manifest’ arbitrariness, ‘fundamental’ breach of due process’) and, most importantly, the establishment of a permanent tribunal of first instance and an appellate tribunal.Footnote 104 This will ensure that the same adjudicators decide on every case, thereby allowing for a more consistent and coherent jurisprudence with regards to the FET standard.Footnote 105 This is ultimately the best safeguard against any future attempts by arbitral tribunals to adopt a broad interpretation of the FET standard.Footnote 106
Ultimately, the CETA FET clause is emblematic of the fact that in this new century the pendulum is clearly swinging in the direction of States increasingly trying to regain control of investor-State arbitration.Footnote 107 For Stephan Schill, changes that have occurred in the last decade are ‘aimed at shifting power back from arbitral tribunals to the contracting parties in order to regain control over the interpretation of the obligations’ under investment treaties.Footnote 108 José Alvarez calls this recent phenomenon the ‘Return of the State’.Footnote 109 The approach adopted by Canada and the EU in CETA is arguably the most vivid demonstration of States narrowly defining the FET clause in their treaties and leaving arbitrators with a limited margin of appreciation. The same closed list approach has been adopted by the EU in agreements subsequently concluded with three other StatesFootnote 110 and has also been followed by Belgium–Luxembourg and the Netherlands in their respective Model BITs.Footnote 111 The latest Indian Model BIT (which, notably, does not use the terms FET or MST, but instead refers to the expression ‘violation of customary international law’) also contains a similar explicit list of FET elements.Footnote 112 There are good reasons to believe that the CETA FET clause will increasingly be used by other States in the future. The most interesting feature of such clauses is that they reflect the content of the MST as defined by tribunals in the last 25 years. The concept of the MST, which had almost been forgotten by States in the 1990s, is now centre stage in their quest to limit investors’ rights under investment treaties. Its ‘resurrection’ is one of the most interesting developments of the last two decades.
1 Introduction
This chapter will scrutinise the recourse to legal witnesses on points of international law through the lens of specific texture of customary international law. A general question raised is that of the legal basis and legitimacy of the recourse to international law expert witnesses in investment arbitration, but answering it requires distinguishing between different sources of international law and paying a specific attention to customary rules. Indeed, the formal justification and legitimacy of the practice of expert witnesses on issues of international law may well depend on the type of norms involved. The recourse to legal expertise may be more justified – and thus more legitimate – for the establishment or interpretation of customary norms than for the interpretation of treaty norms. This entails a secondary question to which little attention has been paid other than in passing in international law: whether customary international law is a matter of fact that must be pleaded before investment tribunals or a matter of law that must be raised in argument by the parties in their submissions is a central question. To answer the question, a close look will be paid to the way international customary law is proved before investment tribunals. The question relates more generally to the issue of custom determination or custom interpretation.
The lack of scholarly attention on the dichotomy may be due to the absence of procedural consequences attached to the distinction between points of law and points of fact in general international litigation.Footnote 1 The distinction, however, takes on a particular significance in the face of a rising practice to plead and prove points of international law before investment tribunals through party-appointed legal expertise.Footnote 2 Instead of being scrutinised to assess its consequences on the system, this well-established practice is taken notice of, matter of factly, without much questioning of its legal basis or legitimacy, at most noticing its ‘oddness’ or ‘strangeness’.Footnote 3 And yet, especially in a civil lawyer’s eyes, the trend does not seem consistent with the ancient adage iura novit curia according to which the judge ‘knows’ the applicable law while the parties have to prove, including through expert witnesses, the facts of the case.Footnote 4 Legal experts, acting as party-appointed witnesses, whether they testify before the tribunal or simply provide a written statement, become, from a procedural point of view, a means of evidence of the applicable law. Even within common law systems which tend to be more adversarial and in which the iura novit curia is not applied systematically, it is commonly admitted that ‘expert testimony is used […] to demonstrate facts that could not be demonstrated to a factfinder without some special skill or discipline’.Footnote 5 But international law, even in its customary form, is not a fact that must be proved but a law that must be applied to given facts.
The maxim iura novit curia produces most of its effects in the context of due process of law requirements as it answers the question whether the adjudicator can raise on her own motion legal arguments that have not been put forward by the parties.Footnote 6 It thus regulates the powers of the adjudicator as to the determination of the law. But it can also be relevant to determine whether the parties must only argue the applicable law in their submissions, or whether they can go as far as to plead and prove it through recourse to legal expert witnesses. It must however be conceded that the difference between proving and arguing, which is applicable in some legal systems,Footnote 7 is based on the existence of rules of admissibility of evidence. International law does not impose limitations on admissibility of evidence: ‘International tribunals … have generally had the power to decide for themselves what is admissible as evidence and have taken a liberal approach to the matter’.Footnote 8 Therefore, the question whether a customary rule must be treated as fact or law for evidentiary purposes is more an issue of legitimacy than of legality.
This chapter will retain a formalist approach of that source of law which will then be completed by a more realist appraisal of the practice allowing to encompass sociological justifications, which may better account for the increase in the recourse to legal experts on international law issues in investment arbitration. Part 2 will present and comparatively assess the abundance of the recourse in investment arbitration to legal witnesses on issues of international law; Part 3 will then proceed to a theoretical analysis which will test the hypothesis according to which recourse to international law witnesses in investment arbitration could be justified when dealing with customary international law; it will appear that, at most, customary norms may have been the Trojan horse of the recourse to international law experts in investment arbitration because international law witnesses are seldom relied on for the purposes of ascertaining the contents or even the meaning of customary international law. Since the theoretical hypothesis does not pass the empirical test, Part 4 will offer an alternative justification that has more to do with the sociology of investment law and with its constant search for legitimacy than with any formal analysis of the sources of law.
2 The Puzzling Practice of Extensive Use of International Law Expert Witnesses in Investment Arbitration
2.1 A Well-Established Practice of Legal Opinions in Investment Arbitration
There is a growing recourse to legal experts, generally party-appointed expert witnesses, for the purposes of establishing the contents or the meaning of a given international law norm in investment arbitration. Far from receding, the practice is so frequent that a database on international investment arbitration provides the possibility to search for cases by the names of experts who provided a legal opinion,Footnote 9 notwithstanding the fact that the contents of many of the opinions have not been made public and can only be used to the extent that they are cited within the award. These legal ‘witnesses’ are either general authorities recognised in international law or experts of international investment law who may act as counsel or even arbitrators in other cases.Footnote 10 Their identification in the awards is not always consistent: they are oftentimes simply presented as authors of ‘legal opinions’ and, as such, they may be distinguished, in the same award, from ‘witnesses’ and ‘expert opinions’.Footnote 11 In other cases, among experts on international law, a difference is established, mainly for fees and expenses purposes, between ‘consulting experts’ and ‘testifying experts’.Footnote 12 In the same case, the individual contribution of experts of international law can be labelled ‘opinion’, ‘legal opinion’ or ‘expert opinion’, which are all introduced under a general heading of ‘witnesses’ testimony’. The latter, thus, conflates all types of witnesses, whether they are experts in international law, domestic law or of technical matters.Footnote 13 They can more generally be included in a wider category of expert witnesses which includes three types of experts: international law experts, national law experts and quantum/industry experts.Footnote 14
The battle of legal experts on issues of international law started with the Loewen case, in which Christopher Greenwood and Sir Ian Sinclair, besides other legal experts, wrote legal opinions for the two parties.Footnote 15 But the Yukos arbitration case is one of the most salient examples of a battle of experts on international law issues, even though many of the opinions by international law experts also related to aspects of comparative constitutional law, on the conclusion of treaties, or on the comparative law of foreign relations.Footnote 16 Overall, many legal opinions deal with issues of domestic law which the members of the tribunal may not be familiar with and which are, at least formally, applied as mere facts in the disputeFootnote 17 or as issues of financial assessment.Footnote 18 But a great number tackle issues of international law for which it could be expected that the tribunal has the required expertise.Footnote 19
This practice is quite unique and specific to investment arbitration. It is inexistent before international courts and tribunals.Footnote 20 It must be stressed, however, that this scarcity of the practice is not the result of an exclusionary rule since the admissibility of evidence in international law is as liberal before investment tribunals as before any other international court or tribunal.Footnote 21 Nothing precludes the parties from presenting expert witnesses on international law before the International Court of Justice (ICJ), for instance, except for a sense of impropriety in front of a court which is composed of at least 15 highly reputed experts of international law. Articles 50 and 51 of the ICJ Statute refer to the recourse to experts without distinguishing between the types of experts or the issues on which they can be called upon. Rule 57 of the ICJ relates the presentation of witnesses and experts to ‘any evidence’ that a party wishes to produce, thus linking evidence – and factual matters – to the appointment and approval by the Court of expert witnesses. However, the relationship is implicit and the appointment of experts is not limited by an objective of evidence production. Equally, if not even more clearly, nothing in the ICSID rules seems to limit the appointment – by the parties or the tribunal – of experts.Footnote 22 In fact, the rules tackle the situation of witnesses and that of experts in the same provisions, thus suggesting that there is no procedural difference between the two categories. The 2013 United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules provide a more detailed regime for the expert witnesses appointed by the parties. Encompassed in a section on ‘evidence’, Article 27 refers to ‘witnesses, including expert witnesses who are presented by the parties to testify … on any issue of fact or expertise’.Footnote 23 The formulation suggests that an expert contribution could be on issues other than of fact. Nothing in the applicable procedural rules seem to limit the appointment by the parties of international law experts as expert witnesses.
The scarcity of legal experts before international tribunals is thus the result of parties’ self-restraint, rather than of any regulation by international tribunals. Before the ICJ, the instances in which the parties have introduced expert witnesses on issues of law are very rare. Most of the legal testimonies deal with issues of domestic law which are seen by international judges as issues of fact that can be proved by recourse to expert witnesses.Footnote 24 That analysis is applicable to other international tribunals, including the WTO dispute settlement in which, however adversarial the proceedings,Footnote 25 the parties do not appoint legal expert witnesses on issues of international law, as they would appoint expert witnesses on issues of domestic law or on technical matters. The only way through which a legal opinion can be taken into account is through the amicus curiae brief.Footnote 26
That the practice of appointing as expert witnesses international law scholars has not emerged does not mean, however, that parties before the ICJ or any other international tribunal do not rely on expert opinions of highly recognised international law experts. They do so by taking into consideration the parties’ submissions and pleadings: highly recognised and respected authorities in international law are incorporated within the counsel team of each party, and are not introduced by the parties as ‘objective’ expert witnesses.
2.2 The Influence of Commercial Arbitration and of Domestic Courts
The trend towards legal testimonies on international law issues may well stem from a conflation of litigation methods by actors involved both in commercial and investment arbitration: in the former, a handful of arbitrators are not expected to know the dozens of applicable domestic legal systems that may be involved in the disputes to which they are appointed. The American Law Institute/International Institute for the Unification of Private Law (ALI/UNIDROIT) principles provide for instance that ‘the court may appoint an expert to give evidence on any relevant issue for which expert testimony is appropriate, including foreign law’,Footnote 27 thus extending the scope of the expertise beyond factual matters.Footnote 28 That is consistent with the predominant common law conception of foreign law as a matter of fact, even when it is the applicable law.Footnote 29 As such, it can be submitted to a legal expert. That conception is not bluntly incompatible with the way things stand in civil law systems: foreign law is considered as law if it is the applicable law, but it can still be proved through recourse to party-appointed experts.Footnote 30 Thus, in commercial arbitration, the practice of party-appointed experts is widespread and justified as a means to prove domestic law with which the arbitral tribunal is not familiar.Footnote 31 However, there is less basis for an investment tribunal to rely on expert witnesses on issues of law when the applicable law is public international law.
The practice of appointing legal experts to establish international law rules may also result from the influence exerted by some domestic legal systems on investment arbitration. The use of legal experts to elucidate the contents of domestic law is inexistent or very rare before domestic jurisdictions, even in common law systems in which the adage iura novit curia is generally inapplicable, at least in civil proceedings.Footnote 32 In the United States, for instance, the recourse to legal expert witnesses to establish the meaning of domestic law is harshly criticised in the rare occasions where it has appeared.Footnote 33 In civil law systems, legal expertise on domestic law is not even conceivable anywhere else than in the parties’ submissions.Footnote 34 However, some legal systems have seen the emergence of ‘law expertise’ within the judicial experts category for the purposes of establishing the specific and technical legal rules applicable to a profession,Footnote 35 while others use the amicus curiae proceeding as a means to provide legal expertise on domestic law.Footnote 36 But these developments confirm that issues of domestic law are not expected to be ‘proved’ through expertise. On the contrary, party-appointed legal experts on issues of foreign law are frequent, especially in common law systems in which foreign law is considered as a matter of fact even when it is the applicable law chosen by the parties.Footnote 37 However, it seems that even for the establishment of foreign law purposes, national judges aim at limiting their reliance on party-appointed legal experts for the establishment of points of law, even foreign law. They do so through the development of cooperation procedures between their respective institutions.Footnote 38
The situation seems different when it comes to the recourse, before domestic tribunals, to legal experts to establish points of international law, even when the latter is part of the applicable law. There seems, however, to exist a sharp contrast between civil law and common law systems. On the one hand, the practice of expert witnesses on international law issues has not developed in civil law systems: the only way that ‘law expertise’ can be provided to the judge is through the amicus curiae mechanism.Footnote 39 The specific category of ‘law expertise’ that exists in some European countries does not seem to apply to general questions of law such as issues of international law. On the other hand, common law tribunals admit legal expertise for the purposes of establishing the content of customary international law.Footnote 40 In the United States, for instance, a combination of domestic US rules of civil procedure and of the law of evidence has led to the conclusion that ‘the court can receive expert testimony [on international law] but need not do so’.Footnote 41 This is related to a tradition of strong reliance on international law scholarship for the proof of customary norms.Footnote 42 Thus, expert affidavits are generally admitted by domestic courts for purposes of ascertaining customary international law.Footnote 43 They may, however, be deemed to ‘lack the evidentiary value as proof of a [given] customary international law’ rule.Footnote 44 That practice of relying on expert affidavits to determine the content of international law rules has also been recently observed as rising in Canadian case law, notwithstanding controversy as to the admissibility of legal expertise on issues of international law and as to the consequences at the appellate level of treating international law as a fact that is proved through expertise.Footnote 45
It seems that it is under the influence of both this common law practice relating to international law and the commercial arbitration practice relating to foreign law that the recourse to legal experts on international law has emerged in investment arbitration: in the Loewen case, for example, both the government of the United States as the respondent and the Canadian investor may have found it natural to provide legal opinions from eminent international law experts for the purposes of ascertaining the content of a customary rule. But, it is not so much the mere emergence of the practice in regard to customary law, rather the generalisation beyond customary law that is puzzling.
3 The Specificity of Customary Norms as a Possible Justification
The question that needs to be answered is whether recourse to legal experts on issues of international law is justified when it is used for the discussion of the constitutive elements of a customary norm. Indeed, from a formalist perspective, before the establishment of the norm, the latter are factual elements that must be proved by the parties.
3.1 The Formalist Analysis: The Constitutive Elements of Custom as Facts That Must Be Proved
The specific nature of customary norms as regards the distinction of fact and law may thus provide a possible formalist explanation for the development of the practice of expert witnesses on international law issues. Customary rules are legal elements once they have been established through adjudication. But while in the process of being ascertained, their constitutive elements are nothing more than facts that have to be proved before the judge. Both practice and opinio juris are facts as long as they have not been recognised as being constitutive of a legal rule;Footnote 46 opinio juris is specific only in that it is an immaterial and psychological fact as opposed to practice, which is material. That the constitutive elements of customary rules are factual elements that must be proved can be drawn from the language of the ICJ as well as of the International Law Commission (ILC), which both use the language of fact-finding and evidence.Footnote 47 According to the ICJ, ‘the Party which relies on a custom […] must prove that this custom is established […]’.Footnote 48 In its Conclusions and Commentaries on Identification of Customary International Law, the ILC underlines that the word ‘evidence’ is used as a ‘broad concept relating to all the materials that may be considered as a basis for the identification of customary international law’, and not in a ‘technical sense’.Footnote 49 Such a cautious approach aims at setting aside any exclusionary rules that would derive from other legal systems, but the reference to ‘evidence’ as well as the use of the word ‘prove’ point nevertheless to the factual nature of the constitutive elements which are submitted to the burden of proof.Footnote 50
Relying on expert testimony for the purposes of ascertaining practice and opinio juris can be accounted for in that [a]ccess to the norms of traditional customary international law is supposed to require that the facts of national practice and decision be discovered, interpreted and described in much the same manner as a sociologist or anthropologist collects and characterizes other facts of human activity.Footnote 51 The distinction that is made in the US law between adjudicative and legislative facts may well be relevant for the analysis of customary international law: the constitutive elements of a customary norm could be compared to ‘legislative facts’ that may, but must not, be proved through recourse to legal expert witnesses.Footnote 52 Even in this latter case, it may be argued that expert witnesses may not need to be legal experts, at least not international law experts, but experts of the field in which the alleged customary norm emerges. Thus, in the South West Africa cases, the ICJ heard several expert testimonies of renowned scholars provided by South Africa as evidence. Among them, Professor ST Possony, from Stanford University, provided expertise in political history for the purposes of discarding the existence of a customary rule on racial discrimination.Footnote 53 Since the expert testimony deals with the facts on which a customary rule would be based, it need not be a legal expertise. The constitutive elements in that case were to search in the general practice of international relations rather than in a legal practice.Footnote 54 But the recourse to the expertise was justified in that it could, by providing elements of practice within international relations, help the adjudicator determine what the applicable rule is. When it comes to investment arbitration, even the cases which could be expected to give rise to a genuine expert opinion on the contents of a given customary norm prove to go well beyond that assessment of the contents of the law.Footnote 55 No example was found in which an expert legal opinion was used for the purposes of the determination or the interpretation of a customary rule. That may well be due to the fact that the recourse to customary law in international investment law remains mostly ancillary and is not seen as a decisive factor.
Moreover, in most investment arbitration cases, the customary rules that are invoked do not lie simply in the practice of international relations, but rather in treaty rules or rules which exist in other legal systems. Thus, because the constitutive elements of the customary norms invoked in investment law are other norms of international law – bilateral investment treaties, multilateral treaties – the testimony of experts on issues of international law may appear justified. Experts in political history, international relations or geography could certainly not bring a useful testimony as to the correct understanding of the rule of denial of justice, for example.
This could seem consistent with the ILC’s approach which has established in Conclusion 14 of its Draft Conclusions on the Identification of International Law that ‘teachings of the mostly highly qualified publicists of the various nations may serve as a subsidiary means for the determination of rules of customary international law’.Footnote 56 If legal expert testimonies are considered as live or ad hoc testimonies of the ‘most highly qualified publicists’, then their contribution would be accounted for by Conclusion 14 of the ILC Draft Conclusions. While the provision does not deal with the procedural status of expert testimonies, they could well be considered as subsidiary means to establish a customary rule. To come to that conclusion, the ILC relied not only on ICJ case lawFootnote 57 but also on the American Supreme Court which had considered since its very first recognition of customary international law that the work of ‘jurists and commentators …provide trustworthy evidence of what the law really is’.Footnote 58 The ILC does not, however, distinguish the specific situation where the ‘highly qualified publicists’ are introduced in the proceedings as expert witnesses from the general situation in which the teachings of those experts would be relied on in the written proceedings. It seems that the reference to the ‘highly qualified publicists’ in Conclusion 14 is redundant with Article 38(1)(d) of the ICJ Statute: the opinion of ‘highly recognized publicists’ is not more useful to establish customary rules than it is to determine any other rule of international law. In other words, it is not the specificity of customary rules which accounts for the reference by the ILC to this subsidiary means of establishing international law. At no point does the ILC mention that the specific nature of customary law makes the contribution of ‘highly recognized publicists’ especially relevant or more relevant than for treaty law for instance. Thus, if the recourse to legal expert testimonies were to be analysed as a subsidiary means for the determination of customary international law, it would be on the basis of Article 38(1)(d) of the ICJ Statute. This may explain the discussion of legal doctrine in the parties’ and tribunals’ reasoning on the substance, but it does not provide a clear basis for the procedural status – as expert witnesses – of that legal doctrine in the proceedings.
As to the interpretation of customary international law, the recourse to expert witnesses would be justified if it were to be admitted that interpreting amounts to establishing new constitutive elements.Footnote 59 If, on the contrary, interpretation of customary law is considered as a different cognitive process based not on the establishment of constitutive elements but on teleological and systemic reasoning,Footnote 60 then there would not be any need to rely on the live or ad hoc testimony of a legal expert to establish the meaning of a customary rule. The adjudicating authority as well as the parties’ counsel are expected to be self-sufficient in teleological and systemic legal reasoning. While ‘highly recognized publicists’ could still be relied on as subsidiary means of establishing international law, that would have nothing to do with the specific need of establishing the constitutive elements of a customary rule. In other words, legal expertise as a means of proving the existence of an international rule would apply to the establishment of customary rules but not to their interpretation, which is not to be treated differently from the interpretation of any other rule of international law.
3.2 Testing the Hypothesis in Investment Arbitration Practice: The Proof of Customary Norms as the Trojan Horse of Legal Expertise on International Law
Taking customary international law seriously would entail presenting evidence of its constitutive elements when its contents or its interpretation are discussed among the parties. One could intuitively, and naively, expect that many international law expert opinions in investment arbitration deal with contested customary rules of investment law. That expectation stems from the observation of what happens elsewhere: while the practice of expert testimonies on issues of customary law has not been developed before the ICJ,Footnote 61 the case law of the world court shows that there is room for improvement when it comes to providing ‘evidence’ of the existence of customary rules since it ‘rarely presents a documented examination of a broad cross-section of the international community’s members’.Footnote 62 That usually results in scholarly discussions following statements of the ICJ on the existence or the inexistence of customary norms.Footnote 63 The ICJ is thus regularly criticised for not providing sufficient proof of the practice or opinio juris it relies on to declare the existence or inexistence of customary rules.Footnote 64 Thus, one could expect that if expert witnesses on issues of law were – in an unforeseeable future – to become common practice before the ICJ, that would certainly have to be on elusive and moving aspects of customary law, rather than on issues of treaty interpretation, for example. In that regard, investment arbitration could be expected to be the laboratory for innovative examination of evidence of difficult customary law questions. Could investment arbitration succeed where the ICJ seems to fail?
An examination of the opinions requested from legal expert witnesses shows that there is no reason for such hope. The necessity to prove the existence of a customary rules may appear, at best, as the Trojan horse of the recourse to legal experts for the purposes of adjudicating an issue of international law. Indeed, the recourse to legal experts on issues of international law goes well beyond the proof of customary rules, and in fact is seldom justified by the needs of ascertainment or interpretation of the latter. There is no correlation between the recourse to legal expert witnesses and the need to prove the existence of a customary rule of international law. No expert opinion on international law seems to have been required with the purpose of helping the tribunal assess the existence of a customary rule. That is mainly due to the fact that investment tribunals very seldom, if ever,Footnote 65 assess by themselves the existence of a customary rule. Pope and Talbot v Canada is a case in which the reliance by the parties and the Tribunal on international law expert opinions could have been useful. It could have balanced the rather egregious reasoning of the Tribunal which discarded the requirement of opinio juris to conclude whether a new customary rule existed.Footnote 66 But the practice of resorting to international law experts had not developed then and no expert opinions on international law were presented by the parties. But even since the emergence of the expert legal opinions, it seems that the rare cases in which there is discussion by the tribunal of the content of a given customary norm, be it for its determination or for its interpretation, are not the ones for which the parties deem it necessary to present expert witnesses on international law. For purposes of determination of content of a given customary rule, investment tribunals thus rely exclusively on principles formerly set by other international courts or the legal doctrine. In ADC v Hungary, international law expert witnesses could have been deemed necessary to help the Tribunal determine the standard of compensation for an unlawful expropriation as a customary norm the limits of which could have been discussed. Instead, in order to determine the standard of damages, the Tribunal simply relied on a wide amount of documentary authorities – ie established case law of the ICJ and highly recognised legal doctrine, rather than on expert witnesses, which had not been produced by the parties otherwise than in their legal submissions.Footnote 67 Mondev is one of the rare investment cases which explicitly discusses, for interpretive and not ascertainment purposes, the constitutive elements of custom, and especially opinio juris.Footnote 68 And yet, no international law expert witnesses were presented by the parties on that matter,Footnote 69 possibly due to the authority and reputation of the highly recognised expertise of the three arbitrators.Footnote 70 Similarly, in Sempra v Argentina, the opinions of international law witnesses could have been deemed necessary because what was involved was a general rule of international law, ie, the state of necessity. The establishment of the conditions and limits of such a rule could well have called for the objective, if not independent, opinion of international law expert witnesses to assess the State practice and opinio juris on that matter, independently from the facts of the case.Footnote 71 However, and because the debate on the contents on the state of necessity rule is considered to have been settled in a final manner by the ILC, what was expected from legal experts’ opinions was a more general view on the way the treaty rule should be articulated with the customary rule to determine which of the two should prevail, the customary norm setting a higher threshold for the state of necessity to be successfully invoked by the State. In other words, the expert opinions did not deal with the factual question of the contents of the customary rule of state of necessity, but rather with a purely legal question of interpretation of a treaty provision in light of a similar customary rule and of legal characterisation of the financial crisis in Argentina in that regard.Footnote 72 As to the Yukos series in which a great number of eminent international law expert witnesses appeared, none of the issues involved by the opinions covered customary international law. Most of the substance of the opinions dealt with comparative constitutional law applied to the law of treaties.Footnote 73 Once more, the extensive resort to legal experts in that case does not seem justified by the need to prove the existence nor the interpretation of a given customary norm.
The preliminary conclusion that can be drawn from these observations is that customary international law in investment arbitration has not yet reached the point where the parties would see it as the issue that is worth investing on several costly testimonies by international law experts. Despite the wishes of reputed scholars which have not been confirmed by the ICJ,Footnote 74 the potentialities of customary law have not yet been fully realised in investment arbitration. Its scope remains mainly interpretative when it comes to the settlement of disputes, which are almost exclusively based on treaty rules.
4 The Realist Appraisal: The Paradox of the Struggle for Legitimacy
The paradox of the struggle for legitimacy lies in the following: on the one hand, expert witnesses on international law issues are appointed to give more moral weight to the decision of arbitral tribunals whose legitimacy has often been discussed. The conclusion that can be drawn from the above analysis on the recourse to international law experts for the purposes of establishing or interpreting customary rules is that the search for more legitimacy is the rationale of that practice, rather than a genuine need of technical expertise. The practice could have been justified by procedural or technical reasons regarding customary rules. On the other hand, the abundance of the recourse to expert witnesses, the uniqueness of which sets apart investment arbitration from other international dispute settlement systems, may contribute to enhancing the legitimacy crisis. Presenting expert witnesses on issues of international law aims at weighing on the tribunal’s decision-making process through authoritative opinions. But that adds further complexity and cost to proceedings for which the costs are one of the controversial aspects.Footnote 75 In that regard, it would be interesting to see if the practice of legal expert testimonies would be as abundant with a quasi-permanent court of investment disputes as set out in the EU-Canada CETA or in the hypothetical multilateral investment court that is being discussed at UNCITRAL since 2017.
Given that it is not justified by the nature of the norms invoked, ie by customary nature of the involved norms, the frequent recourse to expert witnesses in investment arbitration has to be accounted for by other considerations. The fact that this trend is unique in international litigation and exclusive to investment arbitration raises the question of the features of that field that have led to its development. The experts are party appointed but, unlike parties’ counsels, they are presented as objective observers.Footnote 76 The appointment of legal experts on international law issues by the parties may aim at more authority of the point of view that is defended, as if the authority of the arbitrators, as opposed to that of other ‘institutionalized’ members of international tribunals, were deemed insufficient and needed to be buttressed by opinions of other legal experts, whatever the expertise in international law of the arbitrators. The ‘orator-like role’ of these specific witnesses has been pointed out as being ‘part of a symbolic strategy’Footnote 77 which aims at bringing more legitimacy to the process. This can be compared with the role of amicus curiae before some domestic tribunals who do not otherwise admit expert witnesses on issues of domestic law: they have been described as ‘experts of prestige’,Footnote 78 the difference being here that these expert opinions are paid for.
It is somehow ironic that the efforts towards more legitimacy could result in exactly the opposite situation where the legitimacy could be more fragile with the extensive recourse to party appointed legal experts on international law. According to the above distinction between issues of fact, subject to expertise, and issues of law, reserved to the tribunal, relying on expert witnesses for the purposes of clarifying issues of international law amounts for the arbitral tribunal to acting as a mere umpire between the parties, rather than as a proactive adjudicative authority, to a degree that is not encountered even in common law systems. It has already been pointed out in another context that relying heavily on party appointed legal experts ‘adds an adversarial spin to the proceedings’.Footnote 79 It makes the system appear as an inherently adversarial system in which even the applicable law is subject to assessment by the parties and their appointed expert testimonies.
The trend ultimately raises the question of the type of legal expertise that is required from investment arbitrators. It has been stated, in the context of commercial arbitration and in relation with foreign law, that the iura novit arbiter principle raises the question of the ‘burden of education’ to determine ‘how the arbitrators are to gain the necessary expertise in the applicable material law to fulfil their mission to resolve the dispute in accordance with it’.Footnote 80 Since investment arbitration is deeply embedded in public international law, members of arbitral tribunals are expected to have enough knowledge of international law for the recourse to legal experts as objective experts on international law issues not to be necessary. It is, however, striking that legal experts on points of international law are used even before arbitrators whose expertise in international law is not to be doubted, such as highly recognised public international law academics or former judges, and until recently, currentFootnote 81 judges of the ICJ. The added value of such expertise is yet to be proven given that it is easy for the ‘experts’ sitting on the arbitral tribunal to discard it using the same type of legal reasoning but with a more authoritative position. This is what happened for instance in the CME Czech Republic BV where the Tribunal considered that the opinion of Professor Schreuer is ‘inconsistent with the general principles of international law found by the Tribunal’.Footnote 82 Thus, the international adjudicator, even in investment arbitration, whether judge or arbitrator, should be ‘the sole authority on the law and its interpretation’.Footnote 83 But that cannot, however, be more than a matter of impropriety since there exist no exclusionary rules of evidence.
What adds to the legitimacy crisis relating to expert witnesses on international law is not only the fact that they are ‘interrogated’ on issues of international law, which the tribunal should be familiar with, but also the extent and scope of their opinion. While we have seen that these expert witnesses do not fit in any given procedural category, one cannot ignore the limitation that is usually imposed on expert opinions before tribunals, be they international or national; the expert is usually not expected to apply the law to the facts of the case but only to bring clarifications on some – usually factual – aspects of the dispute. Expert witnesses do not fulfil the same function as counsels whose mission is to provide a convincing legal characterisation of facts. In investment arbitration, on the contrary, it appears in some cases that there is no substantive difference between expert witnesses and the counsel of the parties, except for the pretence to objectivity of individuals, whatever their eminence and integrity, who are paid by the parties to support their point of view.Footnote 84 In many cases, the questions that are asked to the legal expert amount to the very same ones that the Tribunal is expected to settle in the award. What is often asked of the legal experts is not an exposition or a clarification on the content of a given rule of international customary law, or even of treaty law, but rather the application of a given rule to the particular facts of the case. This has been observed in cases in which the international law expert witnesses in investment arbitration intervened on ‘pedestrian’ pointsFootnote 85 that did not require for a clarification of a well-established rule but rather for the application of the rule to the facts of the case. Thus, in Chevron v Ecuador, the legal expert Jan Paulsson is asked ‘by counsel for Chevron to opine on whether the Lago Agrio litigation has rendered Ecuador responsible for a denial of justice under public international law’.Footnote 86 The same exhaustive opinion on all legal and factual aspects of the case was given by Bilder in his opinion on Loewen: instead of simply interpreting the North American Free Trade Agreement (NAFTA) provisions which were discussed, or simply clarifying the contents of the denial of justice principle from a customary law perspective, as could be expected from a genuine legal expert testimony, the expert opinion dwells on the legal characterisation of each fact of the case so as to come to the conclusion that the principle had not been violated by the American judges. In other words, the expert witness is asked to do the same legal characterisation of facts that the counsel and the tribunal must do, instead of being simply called to clarify the content of a norm, as expert witnesses are usually expected to do without interfering with the adjudicatory function of the tribunal, at least, as conceived in systems in which experts are judge-appointed.Footnote 87 The request of opinion may not concern the whole dispute but nevertheless the expert witness is systematically asked to assess the facts of the case in light of their legal expertise, ie to adjudicate the situation in lieu of the tribunal, even though the latter is not bound by the opinions.Footnote 88 And yet, even in common law systems, the expert testimony is inadmissible according to the rules of evidence if it goes as far as applying the disputed international law rule to the facts of the case.Footnote 89
5 Conclusion
At a time where there is concern about ISDS and reform proposals, it is doubtful that the practice of party appointed experts on international law issues meets the legitimacy requirements that many States and civil society have voiced over the last years. One hypothesis that could justify such a practice is where such expert witnesses would intervene exclusively on issues of customary international law which may call for international legal expertise for the ascertainment of the legal rules. Since the ascertainment requires an assessment of practice and opinio juris as constitutive factual elements, it could be reasonably expected that the parties and the tribunal rely on the objective opinions of expert witnesses. While such a hypothesis remains a desirable evolution in investment arbitration, which would make the assessment of customary rules more accurate than that of the ICJ, the role of customary international law within investment arbitration remains for now limited in that regard. That does not mean, however, that the role of custom in investment law has become irrelevant as was suggested by the Organisation for Economic Cooperation and Development (OECD) a few years ago,Footnote 90 but rather that it is not seen by the parties as decisive enough as to call for the appointment of one or several expert witnesses for the purposes of establishing its contents. The recourse to expert witnesses on issues of international law could thus become in the future an indicator of the importance of customary rules: if the tribunal were to examine the application of a customary norm that is not only of interpretative value, chances are that parties would provide expert witnesses discussing that point.
1 Introduction
State practice in support of general rules governing the identification of customary international law (CIL), a subset of secondary rules of general international law epitomised by the so-called ‘two-element approach’ to CIL identification, is often neglected. Nevertheless, its nature and significance raise important issues. As with other secondary rules, decisions of international courts and tribunals are often uncritically assumed to be a sufficient basis for rules governing CIL identification. Yet, despite their varying degrees of authoritativeness, such decisions are not a sufficient, let alone a necessary, condition for establishing general rules on CIL identification. By contrast, State practice remains a necessary condition to establish the existence and content of that subset of rules, as with any other international law rules.Footnote 1
These issues not only arise as a matter of general international law, but also where sub-systems of particular international law are applied. Paramount among those sub-systems is international investment law. Insofar as international arbitration remains the preferred method for the settlement of foreign investment disputes, post-award proceedings commenced before domestic courts afford an important, though heretofore insufficiently explored, opportunity to enquire into actual general practice on CIL identification, attributable to State organs from different branches of government, participating in such proceedings in various capacities.
This chapter, based on a survey of selected State practice in connection with post-award proceedings, examines how the interplay between general international law and international investment law may have a bearing on the understanding of major general rules governing CIL identification. The body of practice on which the chapter focuses is not only confined to practice of judicial organs in the form of decisions by domestic courts hearing post-award proceedings, but also of executive organs, in the form of pleadings by States appearing in post-award proceedings. The aforementioned surveyed State practice is analysed through the prism of selected literature, decisions of international courts and tribunals, including those of the International Court of Justice (ICJ), and, in particular, to an extensive extent, the work of the International Law Commission (ILC) on CIL Identification,Footnote 2 including the reports of the ILC Special Rapporteur on this subject, notably as discussed by States.
The remainder of this chapter is divided into four parts. Part 2 examines the nature and significance of State practice in connection with proceedings before domestic courts, with a particular reference to post-award proceedings in the field of international investment law and arbitration. It discusses, in greater detail, various general issues concerning the primacy of State practice over decisions of international courts and tribunals, despite the latter’s often prevailing role in analyses of CIL, and the various roles State practice may play, in the form of domestic court decisions or conduct in connection with domestic court proceedings. Part 3 proceeds in two sections. The first section provides an overview of uses of ICJ Statute Article 38(1) by investor-State arbitral tribunals and, more importantly, by States in connection with those proceedings. The second section analyses actual instances of State practice in connection with post-award proceedings. It shows how that practice may have an impact on the overarching question of whether secondary rules on CIL identification have a basis in actual State practice. This is also raised in the practice discussed in the first section. Part 4 concludes with some suggestions for further research.
2 State Practice in Connection with Proceedings Before Domestic Courts: Nature and Significance
This part examines the nature of State practice in the form of judicial decisions, addressing, among others, the questions of whether and to what extent a decision by a domestic court may be seen separately or concurrently regarded as a constitutive element of custom, be it practice and/or acceptance as law, under ICJ Statute Article 38(1)(b), and/or as a subsidiary means, under ICJ Statute Article 38(1)(d),Footnote 3 respectively. This part further examines the nature of other State practice in connection with proceedings before domestic courts.
While, as mentioned in Part 1, decisions of international courts and tribunals tend to be the exclusive or, if not so, the preferable basis for CIL identification,Footnote 4 they may only constitute a subsidiary means for the determination of CIL rules, among other rules of international law.Footnote 5 By contrast, decisions of domestic courts may play a twofold roleFootnote 6 in two spheres: internally, with respect to a custom and any resulting CIL rule(s), they may constitute general practice and/or acceptance as law in support thereof (as constitutive elements of that custom, both at its formative stage and, once in force, as requirements to identify any resulting CIL rule(s), under the ‘two-element approach’); and externally, with respect to any existing CIL rule(s) to whose creation they did not contribute, they may constitute a subsidiary means for the determination of the existence, scope and/or content of any such other CIL rule(s).Footnote 7
Hence, in contrast to decisions of domestic courts, which may play up to three roles (ranging from the formation of either constitutive element of custom, to the identification of ensuing CIL rules and to other determinations), decisions of international courts and tribunals may only play the role of serving as a subsidiary means for the determination of CIL,Footnote 8 let alone their role, if any, as ‘material source’ for certain CIL rules, with whose creation they may be deemed to be so associated. And, even in their capacity as subsidiary means, there are limitations to the weight decisions of international courts and tribunals can have with respect to CIL determinations. The United States of America, for instance, points out in a commentary on the ILC’s work on CIL Identification, that ‘[e]ven the International Court of Justice does not offer interpretations of customary international law that are binding on all States’.Footnote 9 Furthermore, the United States observes, ‘a tribunal might accept without analysis that a rule is customary based on nothing more than the absence of a dispute between the parties’.Footnote 10 And, relatedly, the United States points to the fact that State practice in connection with proceedings before international courts and tribunals – as might also happen before domestic courts, may have to be weighed in view of ‘the context of litigation, [in which] States may choose to assert or decline to contest that rules are customary in nature for reasons of litigation strategy rather than out of a thorough assessment that such rules are customary in nature’.Footnote 11 In sum, this comparatively limited role of decisions of international courts and tribunals renders more incomprehensible the tendency to overlook decisions of domestic courts.
Decisions of courts of States, often interchangeably referred to as ‘domestic’, ‘internal’ or ‘national’, and the questions of whether and in what forms they constitute State practice for the purposes of custom formation, its evidence, and, latterly, the identification of resulting CIL rules, have given rise to various questions, addressed by States themselves,Footnote 12 international courts and tribunals, and the ILC.
Furthermore, decisions of domestic courts have been widely recognised as a form of State practice, as evidenced in decisions of both national and international courts and tribunals alike.Footnote 13 To the extent that decisions, like other similar forms of conduct, are verbal in nature, the question of their character as a form of State practice overlaps with the debate over whether practice can only consist in ‘physical’ acts or may also comprise ‘verbal acts’. While a detailed discussion of this problem exceeds the scope of this part, it suffices to observe that the ILC has concluded that there is sufficient support in State practice and decisions of international courts and tribunals to hold that verbal acts may constitute State practice. This proposition has found support among States, as evidenced in their comments, and elicited the interest of some of them. Israel, for instance, agrees with the inclusion of verbal acts as State practice, with some caveats,Footnote 14 and suggests that it be defined as ‘verbal conduct (whether written or oral) […] when such conduct itself is regulated by the alleged customary rule’.Footnote 15
Having observed this, the key factor for a domestic judicial decision to constitute an instance of state practice of a given State is that that decision emanate from a (judicial) organ of that State. Hence, attributability, as opposed to other properties of decisions often discussed, such as quality of reasoning or finality,Footnote 16 is essential. Some States have argued in favour of a more stringent criterion, requiring not only attributability to any judicial organ, but a certain (high) position in a given State’s judicial hierarchy. Israel, for instance, considers that ‘only high courts’ final and definitive decisions (ie, that cannot be further appealed) should be taken into account’.Footnote 17 Nevertheless, this proposed criterion may be an overstatement, if it concerns the necessary conditions for a decision to constitute State practice, and may be best portrayed as a criterion for attributing weight to the respective decision, without denying its character as a form of State practice, provided that it be attributable and remain in force (ie, if not final, at least not reversed on appeal or cassation).Footnote 18 In sum, as the ILC concludes, ‘[d]ecisions of national courts at all levels may count as State practice’, without prejudice, as discussed above, to recalling that ‘it is likely that greater weight will be given to the higher courts’.Footnote 19
Other factors which may be of relevance include the natureFootnote 20 and subject-matter of the alleged CIL rule at issue.Footnote 21 For example, Israel has suggested that ‘decisions of higher national courts […] would only constitute practice or opinio juris in and of themselves when the issue in question concerns the conduct or view of judicial bodies (such as the dismissal of a lawsuit by reason of immunity)’.Footnote 22 Israel’s suggested criterion of a concordance between a State organ’s scope of competence, in this case a judicial one, and the purported CIL rule’s subject-matter, appears reasonable. In particular, this criterion lends further support to the suitability of decisions of national courts as practice in support of secondary rules of CIL. In fact, secondary rules, such as those on immunity, tend to fall within the purview of judicial organs, thus paving the way for relying on their decisions in order to establish State practice in support of secondary rules on CIL identification.
Decisions of domestic courts may constitute a form of acceptance as law, as well, as seen in decisions of international and national courts and tribunals alike.Footnote 23 In its aforementioned work, the ILC had relied on domestic court decisions to establish the existence of acceptance as law.Footnote 24 Furthermore, not only may decisions of domestic courts constitute a form of evidence of acceptance as law in themselves, but they may also contain other separate forms of such evidence, such as ‘public statements made on behalf of States’.Footnote 25
The assessment of whether and to what extent domestic court’s decisions express (or evidence, as the case may be) the acceptance as law on the part of the respective State raises important and, to a certain extent, unresolved, issues. Latterly, among other criteria, ILC Special Rapporteur Wood calls for a cautious analysis as to whether, in the words of Moremen, whom he cites approvingly, acceptance as law presumably expressed in a given domestic court’s decision ‘derives from international law, from domestic law, or from domestic auto-interpretation of international law’.Footnote 26
The conduct of States in connection with proceedings commenced before domestic courts is also a form State practice, along other forms of ‘executive’ State practice, so-called since it emanates from organs belonging to the executive branch of a government, as opposed to its ‘legislative’ or ‘judicial’ branches (following Montesquieu’s tripartite model of governmental functions). The attributability of a conduct to a State organ, as opposed to that conduct’s connection with the proceedings, remains the key to the characterisation of that conduct as a form of State practice. This implies, among others, that conduct not attributable to a State, even if it is performed in connection with proceedings before domestic courts, and has an actual bearing on the questions of international law raised in those proceedings, does not constitute a form of State practice. As Special Rapporteur Wood aptly observes,
while individuals and non-governmental organizations can indeed ‘play important roles in the promotion of international law and in its observance’ (for example, by encouraging State practice by bringing international law claims in national courts or by being relevant when assessing such practice), their actions are not ‘practice’ for purposes of the formation or evidencing of customary international law.Footnote 27
This statement by the Special Rapporteur finds support among States commenting upon his work, as exemplified by Singapore’s comments to similar effects.Footnote 28 Singapore expressly confines ‘practice that contributes to the formation, or expression of rules of customary international law’ to that of States, to the explicit exclusion of that of ‘non-State actors’.Footnote 29
3 State Practice in Connection with Investor-State Dispute Settlement Proceedings and CIL Identification: The Interaction between Award and Post-Award Practice
This part provides a survey of practice of identification of CIL in connection with investor-State dispute settlement proceedings (ISDS) under a number of international investment agreements (IIAs). The practice surveyed not only studies that of ISDS arbitral tribunals, in the form of their decisions at various stages of the proceedings and, where applicable, of post-award proceedings before international law organs, such as International Centre for Settlement of Investment Disputes (ICSID) annulment committees, but also examines the practice of States in connection with those proceedings. The latter body of practice comprises not only submissions which are widely regarded as forms of State practice in connection with ISDS proceedings, epitomised by submissions pursuant Article 1128 of the North American Free Trade Agreement (NAFTA), but also practice of State pleadings before domestic courts, in post-award proceedings, where applicable. This part proceeds in two sections.
3.1 State Practice in Connection with CIL Identification in Investor–State Dispute Settlement Proceedings
This section examines the practice of ISDS arbitral tribunals and ICSID annulment committees, on one hand, and that of States, most prominently in the form of NAFTA Article 1128 submissions and submissions of a similar nature under other IIAs, on the other hand. A key criterion for the identification of this practice has been the reliance, whether explicit or implicit, on ICJ Statute Article 38(1), including its subparagraph (b), concerning CIL identification.
There is a set of instances of State practice questioning the widespread tendency towards CIL identification merely based on the findings of international courts and tribunals. Notably, these various instances of State practice place emphasis on the role of the two-element approach as a criterion for determining whether and to what extent CIL identification on the basis of decisions of international courts and tribunals is permissible. In her application for annulment of the award in CMS Gas Transmission Company v The Argentine Republic, Argentina invoked ICJ Statute Article 38(1)(d) to argue that ‘even if the cited references were correct and sufficiently supported, that would not cure the Tribunal’s failure to express its reasoning, since the authorities and the case law are secondary sources of international law’.Footnote 30 In its NAFTA Article 1128 submission in Eli Lilly and Company v Government of Canada, Canada specifically stated that ‘the NAFTA Parties have repeatedly asserted their agreement that the decisions of international investment tribunals are not a source of State practice or opinio juris for the purpose of establishing a new customary norm’.Footnote 31 As Canada noted more specifically in Bear Creek Mining Corporation v Republic of Peru,
[t]he decisions and awards of international courts and tribunals do not constitute instances of State practice for the purpose of proving the existence of a customary norm and are only relevant to the extent that they include an examination of State practice and opinio juris.Footnote 32
El Salvador, in its non-disputing party submission in Spence International Investments et al v The Republic of Costa Rica, having recalled the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) parties’ reliance on the two-element approach to CIL identification, further observed that, ‘while decisions of arbitral tribunals that discuss State practice might be useful as evidence of the State practice they discuss, arbitral decisions can never substitute for State practice as the source of customary international law’, adding that CIL identification claims so substantiated are even more tenuous where those decisions ‘themselves contain no analysis of State practice or opinio juris’.Footnote 33 Indeed, as Canada observed in a response to NAFTA Article 1128 submissions in Mesa Power Group LLC v Government of Canada, ‘the awards of investment tribunals do not qualify as state practice for the purposes of proving the existence of a rule of customary international law’.Footnote 34 In its observations regarding the Award on Jurisdiction and Merits issued by the Bilcon of Delaware v Canada Tribunal, Canada challenged that Tribunal’s assessment of CIL in connection with its interpretation of NAFTA Article 1105 on grounds that, as ‘all three NAFTA parties have consistently agreed, decisions of arbitral tribunals can describe and examine customary international law, but they are not themselves a source of customary international law’. More specifically, and like El Salvador, Canada argued that ‘[t]he decisions upon which the Bilcon majority relied, and in particular, the decision of the Tribunal in Merrill and Ring v Canada, do not conduct the required analysis of customary international law’.Footnote 35 Conducting a similar analysis of the soundness of an arbitral tribunal’s identification of CIL, the United States argued in ADF Group Inc v United States of America that
[c]ontrary to the Pope tribunal’s suggestion that the sheer number of BITs could evidence the existence of a rule of customary international law, all three NAFTA Parties agree that State practice alone – without a showing of opinio juris – cannot give rise to a rule of customary international law’.Footnote 36
In particular, the United States rejected the above mono-elemental approach, which satisfies itself with the proposition that the growing set of BITs amounts to CIL on foreign investment, as it specifically argued that, ‘[b]ecause the Pope tribunal made no effort to determine the existence of opinio juris, its reasoning as to the BITs and customary international law is faulty’.Footnote 37 This echoes Canada’s proposition to a similar effect.Footnote 38 Furthermore, this is consistent with the United States’ emphasis on the need for establishing ‘the twin requirements of State practice and opinio juris’, as discussed in the ILC’s Second Report on CIL Identification.Footnote 39 The aforementioned denials of, or qualifications of the limited relevance of, CIL identification solely based on decisions of international courts and tribunals is not without prejudice to their role in aid of treaty interpretation. In this vein, the Tribunals in Sempra Energy International v The Argentine Republic and Camuzzi International SA v The Argentine Republic noted that arbitral tribunals partake in treaty interpretation, which ‘is not the exclusive task of States’, contrary to what Argentina had argued, since interpretation ‘is precisely the role of judicial decisions as a source of international law in Article 38(1) of the Statute of the International Court of Justice, to which the Respondent refers’.Footnote 40
There are other instances of State practice which focus on the very question of the legal basis and content and scope of the two element approach to CIL identification as such. The following instances are notable for their implicit and explicit reliance on ICJ Statute Article 38(1), particularly its subparagraph (b).
Some instances of State practice rely on ICJ Statute Article 38(1)(b) implicitly. In a submission pursuant to Article 10.20.2 of the CAFTA-DR in Michael Ballantine and Lisa Ballantine v The Dominican Republic, the United States noted that ‘Annex 10-B to the CAFTA-DR addresses the methodology for interpreting customary international law rules covered by the agreement’, and added that ‘[t]his two-element approach – State practice and opinio juris – is “widely endorsed in the literature” and “generally adopted in the practice of States and the decisions of international courts and tribunals, including the International Court of Justice”.Footnote 41
Other instances of State practice explicitly invoke ICJ Statute Article 38(1)(b). In Lone Pine Resources Inc v Government of Canada, Canada, referring to the NAFTA parties’ respective NAFTA Article 1128 submissions, specifically indicated that the NAFTA parties’ understanding as to the applicability of the two-element approach, including as to the burden of proving each constitutive element, ‘finds its source in Article 38 of the Statute of the International Court of Justice’.Footnote 42 Similarly, and more specifically, Canada argued in Eli Lilly and Company v Government of Canada that, ‘[p]ursuant to Article 38(1)(b) of the Statute of the International Court of Justice, customary international law has two constitutive elements: (1) extensive, uniform and consistent general practice by States; and (2) belief that such practice is required by law (opinio juris)’.Footnote 43 In its NAFTA Article 1128 submission in Loewen Group, Inc and Raymond L. Loewen v The United States of America, Mexico, quoting ICJ Statute Article 38(1)(b), started its analysis of CIL identification by stating that ‘Article 38 of the Statute of the International Court of Justice describes customary international law’.Footnote 44 More specifically, Canada submitted, ‘Article 38(1)(b) of the ICJ Statute identifies the two essential elements of custom: practice and opinio juris’.Footnote 45 Indeed, Canada argued, ‘the provisions at issue in this case contained in the more than 1800 BITs and in the ICSID Convention in existence have not been transformed into rules of customary international law consistent with Article 38(1)(b) of the ICJ Statute’.Footnote 46
The question of the significance of a proper determination of the relevant source of law, particularly where CIL rules are arguably involved, has also been addressed in the surveyed practice. The Annulment Committee in Venezuela Holdings, BV, and others v The Bolivarian Republic of Venezuela found that the BIT at issue, which contained an ‘explicit reference … to ‘the general principles of international law’ … is presumably to be understood as pointing in turn to one of the sources of law enumerated in Article 38(1) of the Statute of the International Court of Justice’. In that Annulment Committee’s view, ‘[i]t is the Tribunal which makes its own addition to the Treaty list by adding in a mention of customary international law’.Footnote 47 For this Annulment Committee,
the Tribunal gives no indication of where it derives the authority to make what looks like a modification – or indeed an expansion – of the source rules laid down in the Article, nor does the Tribunal state what criterion it has in mind to use in order to decide (when the case arises) whether or not to ‘include customary international law’.Footnote 48
Such an ‘expansion’, this Annulment Committee observed, can be evidenced by the fact that ‘[i]n Article 38(1) of the ICJ Statute, the sub-paragraph referring to “international custom” stands separate and distinct from the sub-paragraph referring to “general principles”.Footnote 49 Based on the above considerations, this Annulment Committee found that
[t]he Tribunal manifestly exceeded its powers to the extent that it held that general international law, and specifically customary international law, regulated the determination and assessment of the compensation due to the Mobil Parties for the expropriation of their investment in the Cerro Negro Project, in place of the application of the provisions of the BIT.Footnote 50
Indeed, this Annulment Committee emphasised that the aforementioned shortcomings were ‘so seriously deficient both in their reasoning and in the choice and application of the appropriate sources of law under the governing Bilateral Investment Treaty as to give rise to grounds for annulment under Article 52(1) of the ICSID Convention’.Footnote 51 In particular, this Annulment Committee concluded, ‘the “manifest” nature of this failure is shown by the inadequacies in the Tribunal’s reasoning for the choice of applicable law, in both its positive (the law chosen) and negative (the law rejected) aspects’.Footnote 52 The aforementioned conclusions led to this Annulment Committee’s decision to partly uphold ‘the request for the annulment of the portion of the Award dealing with compensation for the expropriation of the Cerro Negro Project’.Footnote 53 This Annulment Committee’s reasoning is notable not only for its materiality to the decision, but also for its reliance on the categories set out in ICJ Statute Article 38(1), and, in particular, the significance of specifically basing findings on custom as a source of law separate from general principles of law, even though CIL typically contains general principles.
The significance of not only finding State practice of reliance on ICJ Statute Article 38(1)(b), but also of establishing this practice is not engaged in by virtue of a conventional legal obligation under the ICJ Statute, is exemplified by the United States challenge of reliance on the ICJ Statute qua treaty. The United States, in ADF Group Inc v United States of America, stated that ‘there is no basis in international law for the Pope tribunal’s analysis of the phrase “international law” in Article 1105(1) based solely on the reference to that term in the Statute of the International Court of Justice, a treaty not related to the NAFTA’. In this vein, the United States submitted, ‘context includes the text of the treaty and certain related instruments, but does not include unrelated treaties’.Footnote 54 Indeed, the United States argued, ‘[c]ontrary to the Pope tribunal’s approach, Article 38 does not purport to define the term ‘international law’ in any event’.Footnote 55 While the United States focused on its understanding of the purpose of ICJ Statute Article 38(1), and did not place emphasis on the absence of an obligation to apply it qua treaty to CIL identification in connection with proceedings under NAFTA, the observation that the ICJ Statute is ‘unrelated’ to the NAFTA does raise the question of the legal basis for applying ICJ Statute Article 38(1) outside ICJ proceedings, an issue to which the following section turns.
3.2 State Practice in Connection with Post-Award Proceedings
This section provides an overview of selected features of the surveyed State practice. It shows how domestic courts and States that are parties to post-award proceedings before those courts approach CIL identification, relying on ICJ Statute Article 38(1)(b). As mentioned in the conclusion to the previous section, there is a genuine need for identifying the legal basis for applying ICJ Statute Article 38(1)(b) outside ICJ proceedings, including, if any, qua a statement reflecting any CIL rules on CIL identification.
The instances discussed in greater detail below happen to particularly relate to Argentina’s challenge of ISDS arbitral decisions before Belgian and German courts, and form the focus of this section. They add to domestic decisions adopted in various jurisdictions in connection with ISDS proceedings and, broadly, other international arbitrations involving States as respondents. Without entering into a fuller survey and discussion of such decisions, two cases are worthy of mention.
In Swissbourgh Diamond Mines (Pty) Limited & 8 ors v Kingdom of Lesotho, the Supreme Court of Singapore’s Court of Appeal made a number of observations concerning the nature of ISDS proceedings and the interplay of treaty and custom within international investment law’s hybrid framework. This judgment decided an appeal against a decision adjudicating on a setting aside application challenging an award made by an ad hoc international arbitration tribunal constituted under the auspices of the Permanent Court of Arbitration and seated in Singapore pursuant to Art 28 of Annex 1 to the Protocol on Finance and Investment of the Southern African Development Community.Footnote 56 The Court of Appeal made a number of relevant, general, propositions, namely, that ‘[i]nternational investment law is a hybrid legal construct uniquely placed at the crossroads of domestic and international law and of private and public law’, and that ‘[t]he dispute resolution mechanisms and substantive rules of investment protection provided for in the growing body of investment treaties enable such investors to bring proceedings against host States for alleged breaches of investment treaty obligations’.Footnote 57 Furthermore, and with particular reference to CIL’s place in ISDS proceedings, the Court of Appeal observed that
[w]hile these treaties are unusual in the sense that States party to them undertake obligations that may be enforced by private individuals, this is generally subject to the qualification that an investor would not be permitted to bring a claim against the State unless certain jurisdictional requirements provided for either under the treaty or as a matter of customary international law are first satisfied.Footnote 58
In Democratic Republic of the Congo and others v FG Hemisphere Associates LLC, the Court of Final Appeal of the Hong Kong Special Administrative Region considered the customary status of rules on absolute or restrictive immunity.Footnote 59 While the Court of Final Appeal found that ‘[w]hether the state immunity available in the courts of Hong Kong is absolute or restrictive is a question of common law’, and that ‘[t]he correct answer does not depend on it being a rule of customary international law’,Footnote 60 it made a number of findings concerning the nature of CIL. Paramount among those findings are the Court of Final Appeal’s propositions that ‘there may well be areas in which … international custom proves more important than treaties’,Footnote 61 and, crucially for this chapter’s purposes, that ‘a rule of domestic law in any given jurisdiction may happen to result from a rule of customary international law or it may happen to precede and contribute to the crystallisation of a custom into a rule of customary international law’.Footnote 62
Turning to the cases in post-award ISDS proceedings initiated by Argentina before Belgian and German courts, a more in depth analysis is warranted, particularly of Argentina’s arguments before the Belgian Court of Cassation.
In K v The Argentine Republic, the Third Chamber of Germany’s Federal Constitutional Court’s Second Senate adjudicated on two constitutional complaints initiated by the Republic of Argentina.Footnote 63 The Chamber made a number of observations concerning the nature of CIL, which are worthy of analysis. Among others, the Chamber observed, ‘[g]eneral rules of international law are rules of universally applicable customary international law, supplemented by the traditional general legal principles of national legal orders’, and, crucially, that ‘[w]hether a rule is one of customary international law, or whether it is a general legal principle, emerges from international law itself, which provides the criteria for the sources of international law’.Footnote 64 The latter proposition is notable for aptly emphasising the role of international law as legal regulation of the conditions for existence of a source of law, including as to CIL-identification.
Furthermore, the Chamber applied the two-element approach to its analysis of the customary status of the rules on state of necessity. Indeed, having stated that the ‘[i]nvocation of state necessity is recognised in customary international law in those legal relationships which are exclusively subject to international law’, the Chamber, however, found ‘there is no evidence for a state practice based on the necessary legal conviction (opinio juris sive necessitatis) to extend the legal justification for the invocation of state necessity to relationships under private law involving private creditors’.Footnote 65
The Chamber, more specifically, went on to address each of the elements of custom, making a number of relevant general propositions in its process of CIL-ascertainment.
As for State practice, the Chamber observed, ‘[a] general legal principle cannot be verified absent a corresponding embodiment in actual legal practice’.Footnote 66 This general observation was preceded by the Chamber’s discussion of the value of international decisions.
The Chamber noted that ‘[t]he practice of international courts does not constitute an adequate basis for the recognition of an objection of state necessity towards private individuals’.Footnote 67 The Chamber made this observation having acknowledged that ‘the rulings of international tribunals have always been used as indicators of the existence of customary international law’,Footnote 68 and, more specifically,
[t]he rulings of international courts are, as a rule, major indications that certain rules of international law are anchored in customary law because – frequently in contrast to rulings of national courts – they deal with the qualification and application of specific norms under international law.Footnote 69
The Chamber’s use of the words ‘indications’ and ‘indicators’ correctly characterises the role of international decisions in CIL-identification, importantly avoiding a conflation between law-making and law-ascertaining roles, insofar as international courts and tribunals are concerned. The Chamber added that
[w]hilst courts such as the International Court of Justice or the International Tribunal for the Law of the Sea are, as a rule, restricted by their charters to settling those international-law matters which relate to relations between two or more states or other subjects of international law, international tribunals may also deal with cases which relate to economic disputes between states and private individuals.Footnote 70
The Chamber further specified the conditions under which international decisions may be considered appropriate ‘indicia’. Indeed, the Chamber observed, ‘disputes, [in which] the ruling was consequently based on the international-law relationship between two states’ lead to international decisions which are unsuitable as indicia of State practice, since such ‘purely international proceedings cannot be used as indicia in the assessment of state practice concerning the direct defence of state necessity vis-à-vis private persons for the direct disputes in front of national courts that are customary today’.Footnote 71 Crucially for the Chamber’s final finding, it observed that ICSID decisions, despite involving ‘claimants … [which] were legal entities subject to private law … [n]onetheless, … do not provide any indications of the transferability of a plea of state necessity to private-law relations’.Footnote 72 The Chamber emphasised that this distinction followed, among others, from the legal position of investors under international investment agreements, which the Chamber characterised as comprising ‘an obligation … which is owed not directly to the private applicant, but to his or her home state, although the protective purpose of the agreement targets the interests of private investors’.Footnote 73
Having delimited the proper place of international decisions in CIL-identification, the Chamber did conduct ‘[a]n inspection of national case-law on the question of state necessity [which] also fails for lack of agreement to suggest that the recognition of state necessity impacting on private-law relationships is established in customary law’.Footnote 74 The Chamber also considered scholarship on the question of relevant State practice, concluding that, although
scholarly literature takes the view, in agreement with international and national case-law, that necessity is recognised by customary law … [t]he relevant literature also distinguishes, however, between recognition in relations between states on the one hand and recognition as a legal justification in relations with private individuals on the other.Footnote 75
In sum, ‘as the evaluation of state practice undertaken to verify customary law has revealed’,Footnote 76 the Chamber concluded, ‘there is no rule under international customary law which recognises the transferability of the defence of necessity from relationships under international law to relationships under private law’.Footnote 77
As for acceptance as law, the Chamber noted that, while
[t]he ILC Articles on State Responsibility [(ASR)] … [which] also [cover] state necessity under international law … [were] accepted by the United Nations General Assembly on 12 December 2001 [t]his, however, leads neither eo ipso to customary-law application, nor to legally binding application for another reason, but may serve as an indication of a legal conviction as is necessary to form customary law.Footnote 78
This observation, although not preventing the Chamber from otherwise recognising the character of the ASR as codificatory of customary international law,Footnote 79 is notable for confining the role of UN General Assembly resolutions to the role of evidence, and not in themselves constitutive, of opinio juris.
In Argentine Republic v NMC Capital, Argentina appeared before the Court of Cassation of Belgium.Footnote 80 Argentina claimed that the decision it impugned had violated the customary rule of ne impediatur legatio. In particular, Argentina argued, the impugned decision had breached the ‘rule of customary international law binding at the very least on the Argentine Republic and the Kingdom of Belgium by virtue of which the immunity from execution of which diplomatic missions of a foreign State benefit must be the object of a specific waiver’.Footnote 81 By failing to acknowledge the ‘autonomous character of the immunity from execution of bank accounts of foreign diplomatic missions’, Argentina concluded, the impugned decision had breached various treaty provisions including, specifically, ICJ Statute Article 38(1)(b).Footnote 82
Argentina elaborated on her view that ICJ Statute Article 38(1)(b) had been specifically breached. In order to make better sense of this part of Argentina’s argument, it is worth bearing in mind the distinction between primary and secondary rules.
First, Argentina had maintained that
the immunity from execution of which the bank accounts of a diplomatic mission benefit results from the international customary rule ne impediatur legatio which seeks to guarantee the efficient accomplishment of the functions of diplomatic missions, independently of the general immunity from execution of which foreign States benefit.Footnote 83
Secondly, Argentina argued, ‘the binding force of this international custom as source of international law is consecrated by article 38, § 1st, b), of the Statute of the International Court of Justice, annexed to the Charter of the United Nations of 26 June 1945’.Footnote 84 For Argentina, the violation of ICJ Statute Article 38(1)(b), resulted, more specifically, from the fact that ‘the judgement decides that there does not exist international custom by virtue of which the immunity of execution of which the bank accounts of diplomatic missions of a foreign State benefit should be the object of specific waiver’.Footnote 85 The judgment, Argentina maintained, had failed to acknowledge the specificity of the waiver since
it deducts that the general waiver of the claimant to her immunity from execution with regard to the defendant necessarily implies a waiver of her immunity from execution as it concerns to the bank accounts of her diplomatic mission in Belgium, notwithstanding that this latter immunity from execution had not been the object of a specific waiver.Footnote 86
In sum, Argentina concluded, by reason of its failure to require a specific waiver, ‘the judgement breaches the aforementioned international custom […] as well as of article 38, § 1st, b) of the Statute of the International Court of Justice’.Footnote 87
The Court of Cassation considered that Argentina’s ground for cassation, as formulated above, was ‘well-founded’.Footnote 88 The Court of Cassation considered that the judgment had not verified ‘that the sums seized were destined to aims other than the functioning of the diplomatic mission of the claimant’.Footnote 89 Furthermore, the Court of Cassation observed that the judgment in deciding
that the general waiver […] extends to properties of this diplomatic mission, including its bank accounts, without requiring an express and special waiver concerning these properties, violates Articles 22, 3, and 25 of the Vienna Convention of 18 April 1961 and the international customary rule of ne impediatur legatio.Footnote 90
While the Court of Cassation refrained from explicitly discussing Argentina’s claim of violation of ICJ Statute Article 38(1)(b), the Belgian Attorney General, in an opinion regarding Argentina’s request for cassation, agreed with Argentina’s claim as to the existence and content of the CIL rule of ne impediatur legatio.Footnote 91 In the opinion, the Belgian Attorney General, like Argentina, invoked ICJ Statute Article 38(1)(b), and referred generally to ‘the constitutive elements of custom: (1) repetition during a sufficient period of time and within the framework of certain acts or behaviours called precedents, and (2) the opinio juris sive necessitatis’.Footnote 92
That the Court of Cassation was silent on Argentina’s argument that ICJ Statute Article 38(1)(b) had itself been breached does not indicate a refusal to discuss that provision. In another decision also involving Argentina, the Court of Cassation analysed ICJ Statute Article 38(1)(b). In NML Capital v Argentine Republic,Footnote 93 the Court of Cassation stated that
[b]y virtue of article 38, § 1st, b), of the Statute of the International Court of Justice, annexed to the Charter of the United Nations of 26 June 1945, the International Court of Justice, the mission of which is to settle in accordance with international law the disputes which are submitted thereto, applies international custom as proof of a practice generally accepted as being law.Footnote 94
In particular, it rejected the fourth strand of the second ground for cassation in support of which NMC Capital alleged that the impugned decision had violated Article 38(1)(b), ICJ Statute,Footnote 95 for
it does not result from this provision that the state judge who identifies and interprets an international customary rule is obliged to verify, in his decision, the existence of a general practice, admitted by a majority of states, which would be the origin of this customary rule.Footnote 96
This statement, at first, appears to deny the applicability of the two-element approach, since the rule whose identification is at issue is expressly characterised as one of CIL. Yet, it might be construed as partially accurate, to the extent that ICJ Statute Article 38(1)(b) qua treaty provision is, indeed, only binding on the ICJ as such. Furthermore, as Belgium observed with respect to this particular decision, in the decision whose cassation was sought, ‘the Court of Appeals, notably invoking a jurisprudence of the Court of Cassation confirming the existence of an international custom, sufficiently responded to the question’.Footnote 97
In Partenreederei MS “Neptun” GmbH & Co KG v Arquimedes Lazaro R,Footnote 98 the Court of Cassation rejected the recourse of cassation, including in particular the third ground of cassation, whereby the applicant adduced that Article 38(1)(b), ICJ Statute, had been violated by the decision impugned,Footnote 99 for the claimant ‘wrongly assumed that the formula “international custom” employed by the appeals judges refers to an international custom as source of international law in the sense of Article 38 of the Statute of the International Court of Justice’.Footnote 100 This response not only did not address the content of ICJ Statute Article 38(1)(b), like the Court of Cassation’s observation in NML Capital v Argentine Republic, but also went on to deny that the custom at issue was an international custom at all, unlike the custom involved in NML Capital v Argentine Republic.
The above instances of practice add to cases, also before the Belgian Court of Cassation, in which ICJ Statute Article 38 is invoked by the parties, but not dealt with in the decision, as illustrated by JPA and consorts v Kingdom of the Netherlands and De Nederlandsche Bank,Footnote 101 where Article 38(1)(b) was relied upon by the claimant.Footnote 102
It is worth noting that the aforementioned instances of State practice are also in addition to a growing body of provisions in bilateral investment agreements in which general rules on CIL identification are expressly stated. While a discussion of the value of this practice is beyond the scope of this chapter, which has focused on practice in connection with post-award proceedings, it is worth bearing in mind that the following provisions in bilateral investment treaties specifically refer to the ‘two-element approach’: Article 5(2), China/Mexico BIT (2008); footnote 6 to Article 4(1), Singapore/Colombia BIT (2013); footnote 4 to Article 3(1), Burkina Faso/Singapore BIT (2014); footnote 1 to Article 4(2), Mexico/Singapore BIT (2009); footnote 6 to Article 4(1), Singapore/Colombia BIT (2013); and footnote 4 to Article 3(1), Burkina Faso/Singapore BIT (2014), among others.
To sum up, the aforementioned proceedings before the Belgian Court of Cassation are noteworthy. They involve practice in connection with national judicial proceedings by executive organs of both the Argentine and Belgian States. In particular, these forms of executive State practice are notable for their direct relevance to the content of the two-element approach, as a secondary rule treated distinctly from the CIL rule at issue (in this instance also secondary rule, on immunity from execution). Indeed, both the Argentine State in its pleadings, and the Belgian State through the Attorney General’s opinion, were in agreement as to the applicability and violation of the two-element approach, and both invoked ICJ Statute Article 38(1)(b), thus showing that, at the very least, this provision has a significance not qua treaty provision (the only issue actually explicitly touched upon in the Court of Cassation’s respective decision), but as a statement of the two-element approach. Therefore, these two instances of actual State practice lend support to the ILC’s statement of the two-element approach. And, together with the aforementioned, growing, instances of investment treaty practice, they show the potential of international investment law and arbitration as a sub-system of particular international law which contributes to the strengthening of key secondary rules of general international law, such as those governing CIL identification, including the two-element approach, which lies at the core of CIL identification.
4 Some Concluding Reflections
This chapter has investigated the significance of the surveyed State practice, with a particular focus on some of the wider implications it might have with respect to broader debates on CIL identification. Notably, it has shown that the very question of the applicability and content of ICJ Statute Article 38(1)(b), and the two-element approach to CIL identification, which is associated to this provision, have been raised and addressed with increasing sophistication by States in connection with ISDS proceedings.
This practice also shows that, to a certain extent, arguments about the applicability and scope of the two-element approach, the main basis for CIL identification, as opposed to the interpretation of previously identified CIL rules, has some hermeneutic dimensions. Such hermeneutic dimension raises questions calling for further research including the extent to which that dimension is a form of interpretation on an equal footing with CIL, let alone treaty, interpretation, in particular a form of ‘existential’ interpretation – blurring the distinction between identification and interpretation, or rather an exercise in ‘characterisation’ –in the same sense as private international law proceeds when categorising certain rules.
Furthermore, a bidirectional interaction between general international law and international investment law has been observed, insofar as State practice in connection with the latter sheds light on the former.Footnote 103 This departs from the common view that only general international law has an impact on sub-systems of particular international law. This interplay is highly significant, since it adds to the basis in actual State practice of general secondary rules. The potential for wider contributions of State practice in post-award proceedings with respect to secondary rules of general international law is thus worthy of further research.
1 Introduction
International Investment Agreements (IIAs)Footnote 1 regulate the basic treatment and protection of foreign investors and their investments in cases of expropriation where an adequate compensation based on the investment’s value has been provided.Footnote 2 They do not, however, regulate compensation for other substantive protections granted to investors. This includes, for instance, the fair and equitable treatment (FET), the minimum standard of treatment (MST) or the prohibition of discrimination. In the absence of a conventional standard of compensation in assessing the value of damages to be paid to an alien for international wrongful acts of States, today, there is a common understanding among arbitral tribunals that customary international law (CIL) is a valuable source to apply. Nevertheless, determining the amount to be paid for damages, through an application of the relevant CIL rules, is far from a simple task since tribunals are faced with assessing the evidence provided by the parties, if any, and taking a position on the existence and content of the CIL rule.Footnote 3 Thus, a myriad of important questions arise, both for the parties to argue and for the tribunals to determine the connection to such CIL rules in a concrete case. For instance, where should tribunals look for the existence of an invoked CIL rule and should it be identified? When did the rule emerge as a result of the practice of States and how can it be interpreted?
Despite recognising the Herculean task of establishing the generality of State practice and opinio juris of a CIL rule for damages in international investment law, some commentators maintain that for practical reasons international tribunals: (i) often find it in the International Law Commission’s (ILC) Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA) simply because there is no better legal source for guidance; (ii) oftentimes, they also turn to decisions of courts and other tribunals that, in their view, have established the content of these customary rules;Footnote 4 and, (iii) draw inspiration from UN General Assembly (UNGA) resolutions.Footnote 5 In the latter case, for example, some authors frame the discussion of the CIL rule for the standard of compensation as ‘appropriate compensation’ by utilising its articulation in the 1962 UNGA Resolution No 1803, relating to the ‘Permanent Sovereignty over Natural Resources’, to assert the existence of opinio juris,Footnote 6 which bears a resemblance to one of the elements of CIL. However, as ‘evidenced by the process of elaboration of this instrument … the classical doctrine [on compensation] does not represent the general consensus of States and consequently cannot be considered as a rule of customary law’.Footnote 7
The Chorzów Factory case has been widely commented on and is still referenced by international courtsFootnote 8 to follow the full reparation principle for reparations as in Chorzów and to expand on cases when there is ‘uncertainty about the extent of the damage caused’ to say that it should be taken into ‘account of equitable considerations’Footnote 9 and ‘to make reparation in and adequate form’ where ‘compensation should not, however, have a punitive or exemplary character.’Footnote 10 However, there is a persistent narrative perpetuated by some investment tribunals, after 2001, that some of the rules on the assessment of compensation interpreted in Chorzów are CIL, or that this case itself is CIL.Footnote 11 This is not necessarily an accurate reflection of the existing normative status quo, because the rules described in the case did not automatically achieve CIL status. Nevertheless, Chorzów is still being used as a jurisprudential golden standard for applying ‘recognised’ CIL rules when assessing damages, and is often invoked to assert that when expropriations do not follow the rules provided in the treaty,Footnote 12 ie when compensation to the investor is not promptly paid, it subsequently becomes an illegal expropriation.Footnote 13
However, a closer reading of Chorzów reveals that this judgment did not state that neither the rules of full compensation, nor the one applied for the illegal taking of German interests in Upper Silesia, provided in its decision to assess the quantum of damages were CIL. The famous passage in page 47 of the decision, which has been invariably quoted by tribunals and scholars, could not be considered an assertion of CIL.
2 The Chorzów Narrative
The lack of guidance from primary investment protection norms in assessing damages has led to discussions in the academiaFootnote 14 and international investment arbitral tribunals,Footnote 15 where it has been claimed that in the absence of a conventional norm to assess the amount of the reparation for the investor, CIL must be applied. Although this claim might be correct, there has been a lack of explanation in the realms of investment literature and arbitral decisions about the moment when the customary rule for the assessment of damages, and the standard of full reparation, were formed. Subsequently, the Chorzów case has emerged as an initial point of reference for many scholars and arbitral tribunals, who have created a storyline claiming that this case represents CIL in the assessment of damages.Footnote 16 The language of the often-cited passage states that
[T]he essential principle contained in the actual notion of an illegal act – a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals – is that reparation must, as far as possible, wipe-out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed.Footnote 17
Firstly, the language used in this passage did not explicitly say that it was interpreting or applying CIL rules. Secondly, if that passage is intended to be interpreted as a statement of the Permanent Court of International Justice (PCIJ) about the CIL in 1928, a closer look shows that contrary to what the judgment said, as will be seen further on, prior to the Chorzów case neither international practice nor arbitral tribunals have consistently applied the full reparation principle and its means to assess the damages suffered by an injured alien.
So, from where has this narrative – which considers Chorzów as the distillation of the CIL on the assessment of damages – been conceived? Looking at the doctrine and cases, from 1928 to present, one can find that the Chorzów case especially rose to prominence after the adoption of the 2001 ARSIWA.Footnote 18 Special Rapporteur James Crawford quoted it when commenting on Article 36 ARSIWA regarding compensation.Footnote 19 At that time, there was also the boom of Investor-State dispute settlement (ISDS) cases against Latin American countries, where many arbitrators that had no prior experience or knowledge in public international law were thrust onto the ISDS scene.Footnote 20 Such reasons may have facilitated the post-2001 diversion of arbitral decisions from the previously established doctrine and cases, where Chorzów has increasingly been featured prominently as a reference of a principle of law in assessing damages.Footnote 21 These same post-2001 international arbitral decisions also relied on Chorzów as a legal source, because of the prestige of the PCIJ. In essence, the invocation of the Chorzów ‘precedent’ functioned on two levels. One, by invoking it, investment tribunals hoped that this would by ‘association’ bestow, somehow, an authority, or gravitas, behind their reasoning on assessment of damages. Two, the Chorzów case was a focal point in their argument that, under international investment law, CIL perhaps provided the rules for assessment of damages for responding to the so-called “illegal” expropriations where a payment was not made promptly. As a result, this narrative needs to be questioned to demystify the Chorzów judgment as a custom-making moment, where supposedly custom was interpreted in the decision and the rules for illegal takingsFootnote 22 were created. Yet, in reality, CIL cannot be found nor identified in this decision.
This narrative implies that the decision was a custom-making moment,Footnote 23 where, back in 1928, the Court identified the already crystalised international custom to measure damages for international wrongs and that it interpreted the contended CIL with authority in the way it did so. However, no crystallised custom was revealed in the decision, but still, the Chorzów case has been utilised for different purposes by arbitral tribunals under the contour of that authoritative narrative. In order to cast a critical eye on whether this narrative stands up to scrutiny, three different periods with regards to damages in international law will be examined. The following sub-sections will seek to determine whether the CIL rules on assessing damages existed in these periods and whether a custom-making moment had emerged. These three periods are: (i) prior to the Chorzów judgment, ie prior to 1928; (ii) from 1928 to 2001, ie between Chorzów and the adoption of the ARSIWA; and (iii) from 2001 to present. A point that needs to be mentioned here, and to which we shall return, is that in these last two periods the Chorzów case was interpreted by arbitral tribunals and academia in a variety of different ways.
2.1 Damages before the Chorzów Decision in 1928
In 1929, Clyde Eagleton wrote that little attention was devoted by writers ‘to the measure of damages in international law; and the paucity of doctrine and precedent has embarrassed recent attempts to codify the law relating to the responsibility of states’.Footnote 24 Also, he saw that no consistent practice existed in these words.
[B]ecause of the divergencies of theory which underlie the measuring of damages, which, indeed, lie at the foundation of international responsibility, it is contended, however, that, because of contrariety of opinion, and the difficulties of statement, no effort should be made to state rules as to the measure of damages.Footnote 25
A closer look at the arbitral and mixed claims commissions’ practice before 1928 confirms Eagleton’s assertions, ie, that the Chorzów decision was not the alleged custom-making moment and that the PCIJ could not have relied on earlier cases in identifying CIL rules for the assessment of damages, for the simple reason that prior practice was vastly inconsistent in the means and methods employed in determining the amount of reparation. This simple verification contradicts the narrative that a full reparation standard was customarily applied before 1928 to determine the amount of compensation in international claims; least of all, in expropriations to ‘wipe-out all the consequences of the wrongful act and re-establish the situation which would, in all probability, have existed if that act had not been committed’.Footnote 26
The pleadings of States before mixed commissions and arbitral tribunals is a veritable treasure trove of variety for the proposed means of reparations for different kinds of breaches of international obligations. Sometimes, discussions were on the different ways to provide reparations, such as in the Delagoa case (1900),Footnote 27 where Portugal proposed two different means that could be acceptable. The compromis, which granted the tribunal its jurisdiction and determined its scope, was concerned exclusively with the form and measure of the compensation for a cancelled railway concession. At no time was there any question raised on the validity of the act of expropriation itself, as to verify whether this was legal or not.Footnote 28
In the Spanish Treaty Claims Commission of 1901, Rule 9 required proof to sustain an award.Footnote 29 Consequently, injuries were assessed by the value of the property, ie, the market price of the houses, machinery, furniture, and buildings with affidavits, which would include further explanation.Footnote 30 In this commission, the method for calculation of damages was not a debated issue, but only the property subject to reparation.
In the Janes Claim (1926), the Claims Commission awarded damages, not because the amount ‘corresponded to the injury’ caused by the original harm, but because the respondent Government had been guilty of an ‘international delinquency’ in failing to measure up to ‘its duty of diligently prosecuting and properly punishing the offender’.Footnote 31
In the Lorenzo A Oliva case, large damages were claimed for future profits that could have been achieved during the concession granted to the claimant for the construction of a pantheon in Caracas cemetery because the claimant’s wrongful expulsion from Venezuela. In awarding damages for the claimant’s expulsion, and for the loss sustained on account of the interference with his concession, ‘Umpire Ralston disallowed the claim for estimated profits’.Footnote 32 Other cases, such as the Alabama, Montijo or Cotesworth, also merit mention, as they demonstrate the multifarious approaches used in assessing damages.Footnote 33
Thus, upon reviewing the case-law preceding the 1928 Chorzów judgment, it is clear that in some of the most well-known cases, arbitral tribunals did not consistently follow the full reparation principle, unlike what the Chorzów judgment may lead one to believe, nor did they state that any breach of an engagement would transform an expropriation into an illegal one.Footnote 34 This makes both the claims that there was a constant line of international precedents applying the principle of full reparation, and that a CIL rule was applied by the PCIJ to decide Chorzów, baseless or shaky at best.
A similar lack of evidence exists with respect to the assertion of arbitral tribunals that the principle of full reparation forms part of the applicable international law in cases where no prompt payment by the State has occurred. This principle was infrequently applied, and a contextual reading of Chorzów lends no real support to this assertion. More specifically, in Chorzów, the PCIJ interpreted Article 6 of the Geneva ConventionFootnote 35 as providing a clear prohibition of the liquidation of German interests in Upper Silesia.Footnote 36 Commenting on the case, Manley O Hudson observed that the Court stated that Poland’s action was not an expropriation to render which lawful only the payment of fair compensation would have been wanting, ‘but a seizure of property which could not be lawfully expropriated even against compensation’.Footnote 37 So, the result of the seizure in this case was to create an ‘obligation to restore the undertaking and, if this be not possible, to pay its value at the time of indemnification’.Footnote 38 Thus, because Poland seized German interests it behaved contrary to international law, since the legal course of action was to expropriate, not seize, property, according to Chorzów’s interpretation of the Geneva Convention. From this, many arbitral tribunals have extrapolated that expropriating with no prompt compensations is illegal,Footnote 39 ie, in direct violation of an obligation enshrined in an international treaty. However, this may be an oversimplification. As Herz correctly noted as early as 1941, even if the compensation was provided with a delay, this does not render an expropriation automatically illegal because ‘in practice deferred payments have frequently been accepted or agreed upon, the fact that interest has usually been paid for the delay seems to corroborate this rule’.Footnote 40
2.2 Damages after Chorzów and until 2001
After the Chorzów decision, there remained a lack of consensus among scholars and tribunals about the assessment of damages. For example, on the problem of compensation of expropriations and requisitions, Bin Cheng asserted that, according to the Upton case, compensation was indispensable and that the duty to compensate has been ‘either based upon respect for private property’Footnote 41 or, as the Norwegian Ships case provided, ‘upon enrichment of the community at the expense of isolated individuals’.Footnote 42
In 1938, LH Woolsey recognised that ‘international commissions have not followed definite rules’ in assessing indemnity, because they have ‘treated each case according to its peculiar circumstances and considered several standards of value in reaching the final result’.Footnote 43 He also made a distinction between just compensation related to lawful expropriations and damages for tortious actions, where ‘[i]t is clear that damages might be more comprehensive than just compensation for property taken’.Footnote 44 For Woolsey, ‘the distinction between lawful and unlawful dispossession is commented upon by the Permanent Court of International Justice in the Chorzów Factory case’.Footnote 45 Other authors have claimed that the PCIJ held the principle of full compensation, but such decisions were regarding the interpretation of a specific treaty, thus it was not a dictum where a general rule was identified.Footnote 46 Given the different views between various authors and tribunals, it cannot reasonably be argued that there was a consensus on the assessment of damages.Footnote 47
This is buttressed by the jurisprudence of the period. During this, there were different kinds of cases, such as those before the Iran-U.S. Claims Tribunal (IUSCT), contractual cases, and some (although not too many) ISDS cases, which dealt with assessing damages. A common theme in all of these was that the tribunals involved did not consider Chorzów as either reflecting CIL or providing guidance on how to identify the relevant CIL rules. In furtherance to this, out of 28 public cases reviewed for this piece, not even one held that there were illegal expropriations in play.Footnote 48 Eight cases did not make an analysis on damages,Footnote 49 13 cases did not even mention CIL or Chorzów,Footnote 50 three mentioned Chorzów on the assessment,Footnote 51 and three (with Metalclad falling under both these last categories) mentioned CIL within the context of damages’ assessment.Footnote 52
In 1992, in the Southern Pacific Properties v Egypt case, no reference was made to CIL, and Chorzów was referred to in regard to the application of the Discounted Cash Flow (DCF) method to assess the damages. Following the Amoco case, the Tribunal considered that DCF method was not appropriate for determining fair compensation in this case, because of the lack of operational time that would result from awarding ‘possible but contingent and undeterminate damage which, in accordance with the jurisprudence of arbitral tribunals, cannot be taken into account’,Footnote 53 and then held that ‘no reparation for speculative or uncertain damage can be awarded’.Footnote 54
From the above, one can see that none of these cases said that Chorzów was CIL, but there was some rudimentary consistency among certain arbitral tribunals, which held in broad strokes that the Chorzów case contained some principles. The tribunals understood such principles in varying ways: as a principle without qualification to award the costs of the investment, such as in Metalclad v Mexico;Footnote 55 or stated as a principle of international law as Myers v Canada held;Footnote 56 or, as Amoco v Indonesia stated, full compensation is a general principle of law ‘which may be considered as a source of international law’, with Chorzów functioning as ‘the basic precedent in this respect’.Footnote 57 However, in other cases, a different line was followed, as for instance in Mobil Oil Corporation, where the Tribunal was of the view that the investor was ‘entitled under the principles of customary international to appropriate compensation’.Footnote 58
2.3 Damages from 2001 until Present
Examining the cases relating to assessment of damages post-adoption of the ARSIWA, it seems that the Chorzów case has served as a means for tribunals and scholars to make different kinds of claims regarding the standard of compensation, and its assessment and application under CIL. So much so, in fact, that the Chorzów standard has been seen by some not only as a reflection of CIL, but ‘as a static set of uncontested rules that can be applied automatically and deductively in granting redress whenever an international wrongful act takes place’.Footnote 59 Despite this, what is striking is that such statements are not supported by delving deeper into the matter or providing any further evidence other than merely quoting the Chorzów judgment. Several scholars have fallen in line with this view, assenting to this conception of the narrative.Footnote 60 Some also claim, in relation to the so-called illegal expropriations, that ‘the standard of compensation is found, not in the applicable … BIT, but rather in customary international law under the rubric of the widely reputed Chorzów Factory rule’.Footnote 61
However, more established authors currently recognise in Chorzów a general principle of law as opposed to a CIL rule, expressing that ‘the guiding principle is that reparation must, as far as possible, restore the situation that would have existed had the illegal act not been committed, expressed in the Chorzów Factory case’Footnote 62 and that ‘[u]nder this principle, damages for a violation of international law have to reflect the damage actually suffered by the victim’.Footnote 63 As a source of international law, general principles of law have been recognised as a legal basis for international legal principles relating to foreign investment. As Sornarajah notes, ‘[t]he principle that compensation must be paid is itself said to be a general principle of law’.Footnote 64
As already mentioned, cases after 2001 show that many arbitral tribunals have resorted to, and argued that the Chorzów judgment reflects CILFootnote 65 without giving reasons why this is so while others do not even mention it at all.Footnote 66 For example, in some tribunals when the IIAs do not provide a rule for illegal takings, the tribunal is required to apply the default standard contained in ‘[t]he customary international law standard for the assessment of damages resulting from an unlawful act is set out in the decision of the PCIJ in the Chorzόw Factory case …’.Footnote 67 Similarly, ‘for purposes of determining the compensation’ the tribunal must assess this, ‘which is governed by customary international law as reflected in Factory at Chorzów’.Footnote 68 For others, ‘it is appropriate for the Tribunal to apply the standard of reparation found in customary international law. The claimants correctly cite, and the respondent does not dispute, the full reparation standard articulated in Chorzów’.Footnote 69 Or, when tribunals conflate two sources of international law, principles and CIL, by interpreting them as being the same, they quote Chorzów, where ‘[i]t is these well-established principles that represent customary international law, including for breaches of international obligations under BITs, that the Tribunal is bound to apply’.Footnote 70
Most of the cases that state Chorzów is CIL have ignored the basic requisites for custom, State practice and opinio juris, distilled from Article 38(1)(b) 1920 Statute of the PCIJ.Footnote 71 Additionally, and perhaps most importantly, these cases have ignored that according to Article 59 of the PCIJ Statute, decisions ‘of the Court [have had] no binding force except between the parties and in respect of that particular case’.Footnote 72 So, its jurisprudence did not create international law nor was it a source of law in 1928; contemporarily, it is likewise not the case as the 1945 ICJ Statute basically replicates the same rules of 1920 PCIJ Statute.Footnote 73
3 Concluding Remarks
The different and flexible interpretations given to Chorzów might be explained because it was written by way of general statements, which referred to the principles of law and international law that had supposedly been constantly applied in the international cases preceding it. So, despite the fact that the Court did not explicitly mention any of these previous cases that established such rules, subsequent cases have blindly trusted those general statements, thus ignoring that the principles of reparation in Chorzów were already enshrined in the Geneva Convention.Footnote 74 Further, as has been demonstrated, the principle of full reparation was not previously provided for nor consistently applied in prior arbitral practice as Chorzów had claimed. However, being a sound judgment, after Chorzów, the principle of full reparation was used more frequently by arbitral tribunals.
Thus, tribunals and commentators assembled the story of Chorzów by conflating rules that were intended to serve different purposes. For example, those rules for the determination of the amount of compensation as provided in Chorzów, being simultaneously placed together with the principle of international responsibilityFootnote 75 and the obligation of reparation for wrongful acts, which were considered in the judgment to be principles of international law.Footnote 76 A close look at the judgment shows that these are rules that need to be applied in different times; first, when finding whether the State is responsible for breaching an international obligation and, second, at the time of assessing the amount for reparation.Footnote 77
At present, many arbitral tribunals do not explain why Chorzów is CIL, nor if it is being applied as a general principle of law. Mostly, the technique used by these tribunals has consisted of merely quoting the passages of Chorzów that contain such assertions.Footnote 78 In other cases, tribunals will occasionally interpret the rules regarding international responsibility contained in Chorzów to assert that they are CIL in order to apply them when determining the amount of compensation in a case.Footnote 79 By 1928, it is arguable that there was constant international practice in the application of the principle of full reparation or that the method to determine the amount of compensation, as stated by Chorzów, had been well developed.
Reasons for the lack of contemporary explanation could be attributed to the recognition of the authority of the World Court, or perhaps because the ARSIWA cites the dicta of the case. Also, such confidence in the narrative, that the Chorzów case established the rules for assessing the damage in a case, may have surged because this judgment had explicitly asserted that these rules were internationally recognised.Footnote 80
Following this line of argument, the principle of full reparation and the distinction between legal and illegal expropriation emerges where some tribunals and case laws claim that these would form part of CIL.Footnote 81 This claim has had important effects on matters pertaining to the applicable law, especially when discussing the date for the assessment of damages and the standard of reparation.
To summarise, the narrative built around Chorzów has some inconsistencies, mostly (i) because the decision has been taken out of context by some in academia, and by investment arbitration tribunals alike, when assessing damages;Footnote 82 (ii) because the Chorzów ruling does not cite the legal sources that, without doubt, would allow them to affirm that the full reparation principle was applied consistently by claims commissions and arbitral tribunals before 1928, and that the counterfactual method to assess damages were CIL;Footnote 83 (iii) the ruling did not categorically say, neither show, that CIL had been applied to the case as a legal source,Footnote 84 but this has not prevented many investment arbitral awards after 2001 from claiming that Chorzów is CIL;Footnote 85 and (iv) the context in which the judgment ruled upon the international illegal act, ie by breach of the Geneva Convention, is overlooked by those who argue that in the context of Bilateral Investment Treaty (BIT) claims, there are illegal expropriationsFootnote 86 to justify awarding damages with a different date that that provided by the BIT.Footnote 87
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