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International Investment Law Notes

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International Investment Law - Summary

International Investment Law (Honors)
Revision Note

Table of Contents
Seminar 1: Introduction to International Investment Law: Legal framework ........................... 2
Seminar 2: The History of Investment Protection........................................................................ 6
Seminar 3: Most favored nation and national treatment .......................................................... 16
Seminar 4: Expropriation .............................................................................................................. 23
Seminar 5: Fair and equitable treatment .................................................................................... 30
Seminar 6: Contract claims and Umbrella Clause ..................................................................... 38
Seminar 7: Dispute Settlement I.................................................................................................. 40
Seminar 8: Dispute Settlement II ................................................................................................ 49
Seminar 9: State defenses and excuses to treaty claims ........................................................ 62
Seminar 10: Reform to international investment law & arbitration ......................................... 67

SYIP @ 2019

1 International Investment Law - Summary
Seminar 1: Introduction to International Investment Law: Legal Framework

1. Protections of Investment projects
- State government brings disputes into WTO under WTO Laws (e.g. Most favoured nation treatment, discrimination, revenue treatment)
- Arbitrations (Who are the arbitrators and awards under challenging)
- International investment law - protection of investors from various forms of state action may interfere with their investment.

2. Definition of Investment
- Look int the BITs
Common example: License of Extraction / Concession type of contract / license to operate a business / Construction permission

3. Risk
- Such as political unrest, government change, policy change, or simply state fails to protect investment.
- Recouping period for investment is long while projects / situations could change.
E.g. same rules may not be consistent in long terms and government could change their mind.
—> IIAs only protects investors.

4. Difference between ICSIC and IIAs
BITs: Agreement between two states promising to protect alien investors.

5. Source of international investment law
Article 38 - Statue of the International Court of Justice
For court whose function is to decide disputes by international law, it should apply a. International conventions establishing rules expressly recognised by the contesting state.
b. Customary International law c. General principles of law d. Judicial decisions and the teaching of the most highly qualified publicists
Customary international law
- Many treaties refers to CIL, as a general rule that protection not more than CIL, but there would be exception.
- Never Claim 1926 - Existence of international minimum standard of treatment for aliens
Relevance of CIL: When state brings claim under DP or incorporated into BITs.
ICSID (Convention of the Settlement of Investment Dispute)
- Procedural framework for dispute settlement but not substantive standards of protection
- Participation =/= consent to arbitration.
- Sign by one state to another state.
Unilateral statements
- Could be binding if circumstances and wording of statement re such that the audience could rely on.

6. Method of treaty interpretation
Vienna Convention on the Law of Treaties
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2 International Investment Law - Summary
Article 31 - Ordinary meaning, context, objective and purposes and subsequent agreement
Interpreted in good faith in accordance with ordinary meaning given to terms in their context and in light of object and purposes, including preamble and annexes, and any agreement or instrument concluded by the treaty parties, considering any subsequent agreement or practise between the parties in applying the treaty.
Article 31(3)(c) - Systemic integration
Interpretation shall take account of context together with any relevant rules of international law applicable between the party.
Article 32 - Supplementary means of interpretation
Additional materials, including preparatory work could be used if the application of 31 leading to ambiguous, obscure or unreasonable or manifestly absurd result.
Methanex v US
Held: Only the text of treaty deemed to be authentic expression of parties' intention is the proper objective of interpretation.
Plama v Bylgaria:
Held: Subsequent negotiation of BITs can hew light on the original meaning of BITs
Expressio unius et exclusion alterius:
- The clause intended to operate in all other areas are not excluded.
Interpretative statements adopted by parties to an IIAs.
- Both sides could decide and give authoritative interpretation that arbitrations must follow
- Unilateral interpretative statements are usually of no use.
E.g. NAFTA provides consultation mechanisms concerning their interpretation or application.
- Efficient but state may influence proceedings which potentially incompatible with the principles of fair procedure and undesirable.

7. Doctrine of precedent in arbitration tribunals?
Generally no - each tribunal is ad hoc.
- Even they really on previous award and adopt previous interpretation regularly, they are not bound by previous decisions.
- It is likely to develop a jurisprudence but note there are not binding authority.
AES v Argentina
Held: Decision is binding on the parties to the arbitration therefore there is no formal rule of precedent. The method of interpretation may show reasoning of real interest but the tribunal is free to adopt the same or another solution regarding the same facts.
Saipem v Bangladesh
Held: Even not bound by previous decisions, tribunal should pay due consideration to previous decision and adopt similar solution without compelling grounds. There is a duty to contribute harmonious development of IIL and meet the LE of community towards rule of law.

8. Possible reform
Consistency of ICSID, appeal mechanism (consistency / revise), preliminary rulings, investment courts?
**Appeal mechanism
- There should be unified appeal mechanism for all treaty, note it is not economically efficient
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3 International Investment Law - Summary and presupposes flaw in law but not to remedy.
**Preliminary rulings
- Primary ruling on established for that purpose and suspend the case

History of international law
Stage 1 - Early development
A. Local law applies and domestic protection provides sufficient guarantee to foreign investors.
View 1: Sovereignty-dominated (Marginal view)
Carlos Calvo - International law should not provide protection to aliens more than local and aliens have no avail to DP / international court.
Drago-Porter Convention - Prevention use of force for collection of debt.
View 2: Internationalist view (Dominant)
State bound by international law, in addition to national law.
Elihu Root: Each country is entitle to measure justice to an alien as well as the nationals, while confirming to the general standard, otherwise, foreign country is not compelled to accept.
Hull: Expropriation required prompt, adequate and effective compensation.
Stage 2 - Emergency of international minimum Standard
Alien is protected against unacceptable measures by rules of international law.
ECHR: Aliens are more prone to domestic legislation as played no part in election and could be considered of less public interest.
Definition of MS:
Never v Mexico: Treatment of an alien would be international delinquency if it amounts to an outrage, bad faith, wilful neglect of duty to an insufficient of government action short of international standards that every reasonable and impartial man would readily recognise its insufficiency.
Stage 3 - Developments after Second World War
GA Resolution 1903 - Appropriate compensation to be paid in expropriation - Not Hull / Calvo
- Foreign investment agreements must be observed in good faith.
GA Resolution 1974 - Abolition of international law governing expropriation of alien property and replaced by national rules
Washington Consensus - Role of private sector in development and positive view of foreign investment 1992 Preamble of World Bank's Guidelines to Treatment of FDI - Good in Long term
Capital importing ends up granting more protection than CIL.
Stage 4 - Evolution of investment treaties
- Emerging market now found themselves as apical exporters and hope to protect their investors by BITs and investors prefers protection going beyond rule of customary law.
- Difficult to have unified standard in substance, but in procedure unified —> ICSID
Nature of International Investment law
- Treaties on foreign investment have no reciprocity of obligations in foreign investors.
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4 International Investment Law - Summary
- Mutuality and reciprocity are not absence but not operate in classical agreement, they focus on the mutual benefits of host state and investors on complementary of interests flowing from long-term commitment of resources by foreign investors under territorial sovereign of host state.
- The accession of treaty shows policy judgment that state and interest is not subject to unilateral decisions.
- Investment treaty assumes both parties share joint purpose and the interest are not zero-sum game but mutually compatible and reinforcing.
— Investors' perspective
Minimum long term and substantial resources risk with expectation of acceptable return.
—> Nature of large investment is difference before and after it is made.
- Investors bear business risk but host should address political risk; but once investment made host get greater say.
- No hard rules but voluntary principles.
- Human rights / CSR may be addressed in the future.
- BITs cannot Enforcement against investors.
— Hosts' perspective
- Remove long term investment risk and provide stability and predictability
- Role as to IIL doubted, but depoliticised investment dispute avoid confrontation between states.
- BITs gives investors more protection than CIL
- International Law fused into domestic law and force national to improve in areas having foreign investment.
- Recognition of institutional effectiveness, rule of law, appropriate degree of stability and predictability of policies from government framework for domestic economic growth and for willingness of foreign investors to enter domestic market.
- IITs support value of good governance on domestic institutions and policies.

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5 International Investment Law - Summary
Seminar 2: History of Investment Protection
Main Objective:
- Origins of investment protection regime and reasons for setting up.
- Influences of different period and events, esp, colonial period and subsequent independence,
Gunboat diplomacy, development of international minimum standard, Drago and Calvo
Doctrines and Hull formula.
Part I: History of International Investment Treaty Law

1. Historical Background
IIAs supplemented general rules of international law.
- Powerful and dynamic method of enforcement - investor-state arbitration to promote/protect foreign investment.
- Divide of LDC/MDC
- Block of actions and reasons why LDC/MDC enter into BITs
- Considers LDC/MDC signed BITs and note CES is not always MDC, even US could get sued.
a. Early History
Victoria: Foreigners have right to travel, establish and trade in foreign lands.
Vattel - Law of Nation
- foreign has right to travel, establish and trade in foreign land.
- State has right to control and set condition for entry, once admitted they subject to local laws and state need to treat them as local.
- Property owned by foreigners are part of wealth of their nation, some harm to them is harm to another state.
Grotius: Non-discrimination to foreigners (Preferential treatment over foreign investment potentially a discrimination)

2. Diplomatic protection
Traditional theory: Injury to state's national is injury to state where it could claim reparation from responsible state. State espouses the claim of its national.

• Requirements of DP
a. National requirement.
- State must bring claim in accordance within the rules of international claims, including nationality. Eligibility of persons as whom state could espouse a claim and whether continuous nationality is required.
- Have to be national of that country for the whole process. Property of foreigners is the extension of that state and injury to them too.
b. Exhaustive domestic remedies
- State responsibility for injury to aliens cannot be invoked if rule of exhaustion of local remedies applies and effective and available local remedy has not been exhausted.
- Seek redress in host legal system before DP.
àReasonable reasons would exempt from exhausting local remedies still bar, protection under
BITs would be greater.
c. Discretion of that state to bring DP.
- State could decide with any consideration. Without treaty, aliens have no control over the claim making process.
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6 International Investment Law - Summary
WTO - state sue state, for DP.
- For Diplomacy, State's consideration for DP is always politically related.

• Dispute settlement by claims commission and arbitration
In additional to DP, state could establish ad hoc commissions and arbitral tribunals to adjudicate specific claims.
Even leading to jurisprudence, note it is still relying on DP.
n Use and abuse of DP
- Concern about national/property leading to vigorous assertion of DP. Arbitration under pressure.

• Gunboat diplomacy
- Use of force to settle claim or back up DP, most acutely common in Latin America for bonds collection
At that time the use of force in exercise of DP was consistent to international law, despite 1907
Hague Convention for Pacific Settlement of International Disputes provided for state parties to use their best efforts to ensure peaceful settlement of international differences.
Some claims based on limited/erroneous evidence and frequently led to reprisals out of proportion to injury suffered.
1902 Drago Doctrine - Hague Convention II 1907 - Respective the limitations of the employment of force for the recovery of contract debts
(Drago-Porter Convention)

- Bonds are not reason for military intervention, but only when the state refuse arbitration/award
- Note force still remains legal mean of DP if state fail accept arbitration/award.
Briand-Kellogg Pact: Use of force for economic compliance should be outlawed and resolves disputes by peaceful means.
Implication: Early emergence of International law on state responsibility on treating of aliens/minimum standard of treatment.
What is Customary international law and minimum standard of treatment?
- Vague / only relate to internal and domestic affairs
- Foreigners has no representation (Consent to current law =/= future law)
- Potential discrimination for giving them preferential treatment.
- Different conception of justice / standard of treatment
- Certainty to investors

3. Minimum standard of treatment
Early MST: standard of justice and treatment accepted by civilized state. CES believes foreign nationals and property protected under MST.
Elihu Root: Each country is bound to give nationals of another country the benefit of the same protection which it gives to its own citizen, provided it confirms with the established standard of civilization. Otherwise, even local people are compelled to accept, no other country would be compelled to accept it is satisfactory treatment to its citizen.
Standard of justice are fundamental and general accepted by all civilized countries to form part of international law.
SYIP @ 2019


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