Permutations of Responsibility in International Law [1 ed.] 9789004390485, 9789004372726

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Permutations of Responsibility in International Law

Queen Mary Studies in International Law Edited by Malgosia Fitzmaurice Sarah Singer

volume 36

The titles published in this series are listed at brill.com/qmil

Permutations of Responsibility in International Law Edited by

Photini Pazartzis Panos Merkouris

leiden | boston

The Library of Congress Cataloging-in-Publication Data is available online at http://catalog.loc.gov

Typeface for the Latin, Greek, and Cyrillic scripts: “Brill”. See and download: brill.com/brill-typeface. ISSN 1877-4822 ISBN 978-90-04-37272-6 (hardback) ISBN 978-90-04-39048-5 (e-book) Copyright 2019 by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Brill Hes & De Graaf, Brill Nijhoff, Brill Rodopi, Brill Sense, Hotei Publishing, mentis Verlag, Verlag Ferdinand Schöningh and Wilhelm Fink Verlag. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. This book is printed on acid-free paper and produced in a sustainable manner.

In memory of Professor Arghyrios Fatouros

∵

Contents Abbreviations  ix Notes on Contributors  xiv

Introduction 1

Introductory Reflections  3 Malgosia Fitzmaurice

Part 1 Subjects of Responsibility: from States to Non-State Actors and Beyond 2

State Responsibility for Acts of Non-State Actors  11 Constantine Antonopoulos

3

The Responsibility of the International Monetary Fund for the Economic Impact of the Application of Conditionality  30 Antonis Bredimas

4

Corporations and Responsibility under International Law  43 Markos Karavias

Part 2 The Multiple Manifestations of Responsibility in Different Legal Regimes 5

The Limits of Responsibility: Liability for Damage in the Deep Seabed?  69 Ilias Plakokefalos

6

Fisheries and State Responsibility: Lessons to be Learned from Recent Case-Law  90 Efthymios Papastavridis

viii

Contents

7

A Little Less Conversation and a Little More Action (Property and Liability Rules in the DSU Review of the WTO)  120 Petros C. Mavroidis

8

The Right to Regulate in International Investment Law and the Law of State Responsibility: a Hohfeldian Approach  148 Charalampos Giannakopoulos

9

Shareholders’ Injury and Compensation in Investor-State Arbitration  185 Panayotis M. Protopsaltis

10

Establishing International Responsibility in Rendition Cases before the European Court of Human Rights  217 Nikolaos Voulgaris Table of Cases  235 Table of Treaties  244 Bibliography  248

Abbreviations AB Appellate Body Add. Addendum/a AFDI Annuaire français de droit international AFJICL African Journal of International and Comparative Law AJIL American Journal of International Law ALI American Law Institute ANPA Gabonese Fisheries Enforcement Agency Arb Intl Arbitration International ario 2011 ilc Articles on the Responsibility of International Organizations ARSIWA 2001 ILC Articles on Responsibility of States for Internationally Wrongful Acts ASIL American Society of International Law ATCA Alien Tort Claims Act ATS Alien Tort Statute AUILR American University International Law Review AULR American University Law Review Berkeley J Intl L Berkeley Journal of International Law BIICL British Institute of International and Comparative Law BIT/s Bilateral Investment Treaty/Treaties BJIL Berkeley Journal of International Law BYBIL British Yearbook of International Law CARU Administrative Commission of the River Uruguay CETA Comprehensive Economic and Trade Agreement CIA Central Intelligence Agency CJEU Court of Justice of the European Union CJICL Cambridge Journal of International and Comparative Law CLCs Contingent Liberalization Commitments CLR Columbia Law Review Co. Company COMESA Common Market for Eastern and Southern Africa Corp. Corporation Corr. Corrigendum/a DCF Discounted Cash Flow DDG Deputy Director General DSB Dispute Settlement Body e.g. exempli gratia EC European Community

x

Abbreviations

ECHR European Convention on Human Rights ECtHR European Court of Human Rights ed./eds. editor/s edn. edition EEZ Exclusive Economic Zone EJIL European Journal of International Law Emory ILR Emory International Law Review EPA Economic Partnership Agreement et al. et alii et seq. et sequentia EU European Union FAO Food and Agriculture Organization FET Fair and Equitable Treatment FMV Fair Market Value FSC Foreign Sales Corporations FTA Free Trade Agreement FYROM Former Yugoslav Republic of Macedonia GATT General Agreement on Tariffs and Trade GC Grand Chamber GMOs Genetically Modified Organisms GVCs Global Value Chains GYBIL German Yearbook of International Law HILJ Harvard International Law Journal HJIL Harvard Journal of International Law HLR Harvard Law Review HNS Hazardous and Noxious Substances HRC UN Human Rights Committee i.e. id est IACtHR Inter-American Court of Human Rights Ibid. Ibidem ICC International Criminal Court ICJ International Court of Justice ICJ Rep. International Court of Justice Reports ICLQ International and Comparative Law Quarterly ICSID International Centre for Settlement of Investment Disputes ICTR International Criminal Tribunal for Rwanda ICTY International Criminal Tribunal for the former Yugoslavia IIA/s International Investment Agreement/s ILA International Law Association ILC International Law Commission

Abbreviations ILM IMF IMLI IMT ipa IPOA-IUU

xi

International Legal Materials International Monetary Fund International Maritime Law Institute International Military Tribunal Investment Protection Agreement International Plan of Action to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing ISA International Seabed Authority ITLOS International Tribunal for the Law of the Sea itlos Rep. itlos Reports IUU Illegal, Unreported and Unregulated IYBIL Italian Yearbook of International Law JDI Journal du droit international JENRL Journal of Energy and Natural Resources Law JICJ Journal of International Criminal Justice JIDS Journal of International Dispute Settlement JIEL Journal of International Economic Law JILP New York University Journal of International Law and Politics JLS Journal of Legal Studies JWIT Journal of World Investment and Trade JWT Journal of World Trade LGDJ Librairie générale de droit et de jurisprudence LJIL Leiden Journal of International Law LLC Limited Liability Company LOSC 1982 United Nations Convention on the Law of the Sea MAS Mutually Agreed Solution Melbourne jil Melbourne Journal of International Law MERCOSUR El Mercado Común del Sur MFN Most Favored Nation MJIL Michigan Journal of International Law MPA Marine Protected Area NAFTA North American Free Trade Agreement NGOs Non-Governmental Organizations NILR Netherlands International Law Review No./Nos. Number/s Nord J Intl L Nordic Journal of International Law NYBIL Netherlands Yearbook of International Law OECD Organisation for Economic Co-operation and Development OJ Official Journal of the European Communities para./paras. paragraph/s

xii PCA PPI PSCs PSM Agreement PTA RBDI RCADI RCDIP RGDIP RIAA RQDI SAYIL SCC SCJIL SCS SDGs SDRs SFPA SRFC SSCS TBT TDM TRIPs TTIP Tulane MLJ ucla jelp uclr UK UN UNCITRAL UNCTAD UNEP UNGA UNGA UNPROFOR unts US/USA USMT

Abbreviations Permanent Court of Arbitration Producer Price Index Private Security Companies 2009 Agreement on Port State Measures to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing Preferential Trade Agreement Revue belge de droit international Recueil des cours de l’ Académie de la Haye Revue critique de droit international privé Revue générale de droit international public Review of International Arbitral Awards Revue québécoise de droit international South African Yearbook of International Law Stockholm Chamber of Commerce Santa Clara Journal of International Law Southern Cross Security Sustainable Development Goals Special Drawing Rights Sustainable Fisheries Partnership Agreement Sub-Regional Fisheries Commission Sea Shepherd Conservation Society Technical Barriers to Trade Transnational Dispute Management Trade-Related Intellectual Property Rights Transatlantic Trade and Investment Partnership Tulane Maritime Law Journal University of California, Los Angeles Journal of Environmental Law and Policy University of Cincinnati Law Review United Kingdom United Nations United Nations Commission on International Trade Law United Nations Conference on Trade and Development United Nations Environment Programme United Nations General Assembly United Nations General Assembly United Nations Protection Force United Nations Treaty Series United States of America United States Military Tribunal

Abbreviations v. VCLT VCLT-II

xiii

versus 1969 Vienna Convention on the Law of Treaties 1986 Vienna Convention on the Law of Treaties between States and International Organizations VirgJIL Virginia Journal of International Law VJIL Vanderbilt Journal of International Law Vol. Volume WTO World Trade Organization WTO DSU WTO Dispute Settlement Understanding WTR World Trade Review YBIEL Yearbook of International Environmental Law YILC Yearbook of the International Law Commission YJIL Yale Journal of International Law YLJ Yale Law Journal ZaöRV Zeitschrift für ausländisches öffentliches Recht und Völkerrecht

Notes on Contributors Constantine Antonopoulos Associate Professor of International Law, Democritus University of Thrace. Antonis Bredimas Emeritus Professor of Public International Law, Faculty of Law, National and Kapodistrian University of Athens. Malgosia Fitzmaurice Professor of Public International Law at the Department of Law, Queen Mary University of London (QMUL). Charalampos Giannakopoulos PhD Candidate, Graduate Institute of International and Development Studies (IHEID). Markos Karavias Director, Asylum Service, Ministry of Migration Policy, Hellenic Republic. Petros C. Mavroidis Edwin B. Parker Professor of Law at Columbia Law School, and University of Neuchâtel (Switzerland). Panos Merkouris Tenure-track Professor and Chair on Interpretation and Dispute Settlement in International Law, University of Groningen. Efthymios Papastavridis Postdoctoral Researcher in International Law of the Sea and Guest Lecturer at the Faculty of Law of Oxford University; Research Fellow at the Academy of Athens and Fellow of the Athens Public International Law Center, University of Athens. Photini Pazartzis Professor of International Law, Faculty of Law, National and Kapodistrian University of Athens; Member of the UN Human Rights Committee.

Notes on Contributors

xv

Ilias Plakokefalos Special Adviser to the Minister of State, Office of the Prime Minister, Government of Greece. Panayotis M. Protopsaltis Research Fellow, Centre for American Legal Studies, Birmingham City University, UK. Nikolaos Voulgaris Fellow at the Athens Public International Law Centre, and Teaching Assistant, Faculty of Law, National and Kapodistrian University of Athens.

Introduction

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Chapter 1

Introductory Reflections Malgosia Fitzmaurice This book of essays stemmed from a Regional Conference organized by the ila-Hellenic Branch in memory of Professor Arghyrios Fatouros, to whom this book is devoted. The chapters included herein address one of the most widely written about topics of international law, which remains, however, mysterious and, as this volume evidences, not yet fully explored.1 This book investigates the variety of the permutations of responsibility, which in many cases cannot be analysed within the strict confines of the 2001 Articles on the Responsibility of States for Internationally Wrongful Acts (arsiwa).2 The present volume provides an extensive analysis of legal questions which are linked to responsibility. It investigates in Part 1 subjects of responsibility (States to non-State actors and beyond) and in Part 2 multiple manifestations of responsibility in different legal regimes are examined (such as law of the sea; human rights; trade law). The 2001 arsiwa have been further developed by the rich, in this respect, practice of international judicial bodies and as is analysed in the Chapter of Professor Antonopoulos, not always in a consistent fashion. There are still many areas of responsibility, which await further analysis and which despite the continuous efforts of international judicial bodies, are not satisfactorily analysed, explained and solved. In view of the author of these introductory reflections, such an unresolved question remains the complex and at times vexing relationship between material breach and countermeasures. Despite a sizeable case-law in this respect, the intricacies of this troubled relationship

1 See e.g. J. Crawford, The International Law Commission’s Articles on State Responsibility: Introduction, Text and Commentaries (Cambridge: Cambridge University Press, 2002); J. Crawford et al. (eds.), The Law of International Responsibility, (Oxford: Oxford University Press, 2010). 2 2001 ilc Articles on Responsibility of States for Internationally Wrongful Acts in: ilc, “Report of the International Law Commission Covering its 53rd Session”, A/56/10 (2011) ­reproduced in: yilc [2001/II Part Two]: 1.

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are not fully understood, both by scholars in academic writings and also by States, pleading before various judicial bodies.3 The Chapter which illustrates extensively the intricacies and unexplored areas regarding State responsibility is the one on “Fisheries and State Responsibility: Lessons to be Learned from Recent Case-Law” by Dr. Efthymios Papastavridis. Despite a sizeable and very important case-law (2015 Fisheries Advisory Opinion; 2016 South China Arbitration; 2015 Chagos Marine Protected Areas Arbitration) throwing some light on the question of State responsibility and clarifying many pertinent questions, there is still a whole host of issues requiring further investigation. The obligations of flag States in respect of ­fisheries are due diligence obligations. It is a very ill—defined concept and as it was stated by itlos also a fluid one, which further complicates the matter. As Papastavridis has observed there are further complex issues muddying the concept of State responsibility in relation to fisheries: the attribution of State responsibility to non-State actors; the invocation of circumstances precluding wrongfulness; and consequences arising from a wrongful act (cessation and reparation). Therefore, as it was stated above, all these problems requiring extensive research and analysis evidence the unlimited permutations of application of classical principles of State responsibility. The extended period of time which was required by the International Law Commission (ilc) in order to complete its work on the arsiwa is due to the complexity of the nature of State responsibility. The fairly straightforward definition of what constitutes a wrongful act in international law, i.e. that “[t]here is an internationally wrongful act of a State when conduct consisting of an action or omission: (a) is attributable to the State under international law; and (b) constitutes a breach of an international obligation of the State”,4 is challenged in more complex situations where there is no direct link between the act and the State and where the fundamental questions of attribution arise. In such a scenario, international courts and tribunals have to render a judgment on each and every individual case, leading at times to diametrically o­ pposing 3 See e.g. Gabcíkovo-Nagymaros Case (Hungary/Slovakia), Judgment of 25 September 1997, [2007] icj Rep. 7; Application of the Interim Accord of 13 September 1995 (the former Yugoslav Republic of Macedonia v. Greece), Judgment of 5 December 2011, [2011] icj Rep. 644; Air Service Agreement of 27 March 1946 between the United States of America and France, Arbitral tribunal, Award of 9 December 1978, riaa 18 (1978): 417–493; Case Concerning the Difference between New Zealand and France Concerning the Interpretation or Application of Two Agreements, Concluded on 9 July 1986 between the Two States and which Related to the Problems Arising from the Rainbow Warrior Affair, Arbitral tribunal, Award of 30 April 1990, riaa 20 (1990): 215–284. 4 Article 2 arsiwa.

Introductory Reflections

5

findings.5 The question of indirect responsibility is raised by Dr. Voulgaris in his very interesting Chapter on establishing international responsibility in rendition cases before the European Court of Human Rights (ECtHR). He analyses in-depth the El-Masri v. the Former Yugoslav Republic of Macedonia, as well as a string of other relevant cases before the ECtHR.6 On the basis of his analysis he draws the following conclusions: “The application of international ­responsibility rules by the Strasbourg Court in rendition cases, to the extent that it questions the dominant asr responsibility paradigm certainly raises some eyebrows as it does not contribute to this cause. The relevant upcoming cases before the Court will demonstrate whether the ECtHR will fully align with the asr reaffirming thus their authority or it will further an alternative approach with the ramifications that this may imply”. Such a varied approach adopted by various courts and tribunals leads to a very fragmented legal regime and is a contributory factor to the lack of certainty for States. The strict fundamental principle underlying the arsiwa construct that was adopted by the ilc, i.e. the division into primary and secondary norms, might be quite confusing in relation to obligations based on due diligence (which is an obligation of conduct not result) as a primary norm, as in these instances, compliance with this obligation assessed on the basis of the circumstances of each case and the ability of a State in these circumstances to observe it (Antonopoulos). The present publication challenges the precepts of State responsibility from the theoretical and practical points of view. It introduces a fascinating theoretical approach to State responsibility, drawing upon the theory of Hohfeld. The aim of this contribution by Giannakopoulos is “to theorise the concept of a right to regulate in international law and international investment law and … to assess the ways in which the right to regulate may be employed in the process of legal argumentation and to ascertain the implications that the invocation of that right has for the State’s international responsibility. Because there exists no single idea or concept of the right to regulate, the primary analytical tool that will be used to conceptualise it is Wesley Newcomb Hohfeld’s seminal analysis of the web of jural relations that arise by the use of the single term ‘right’”. 5 See e.g., Case Concerning Military and Paramilitary Activities in and against Nicaragua (­Nicaragua v. usa) (Merits), Judgment of 27 June 1986, [1986] icj Rep. 14; Prosecutor v. Dusko Tadić, icty, Appeals Chamber, Judgment of 15 July 1999, Case No. IT-94-1-A, para. 145. See also Loizidou v. Turkey, ECtHR, Judgment of 18 December 1996, Application No. 15318/89, para. 56. 6 El-Masri v. The Former Yugoslav Republic of fyrom, ECtHR [GC], Judgment of 13 December 2012, Application No. 39630/09.

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Other chapters in this volume also focus on exploring the intricacies of different regimes. For example the regime of the World Trade Organisation (wto) is analysed from the point of view of discussing enforcement of wto obligations (Chapter by Professor Mavroidis). The regime of the wto is elusive and as stated by the author of the Chapter “the very notion of ‘compliance’ or ‘implementation’ is elusive. One can ask different questions under this heading and come up with different responses, as I will attempt to show infra. If by compliance we understand the manner in which remedies endogenous in the dsu have promoted implementation of adverse rulings by the wto judiciary, then, beyond information regarding implementation, we would also need to know whether implementation was the result of the wto remedies”. Equally fascinating is the question of corporate responsibility, giving rise to a fundamental question whether the conduct of natural and legal persons can be considered an “act of the State”, and thus give rise to State responsibility, i.e. whether such conduct can be attributed to the State (Professor Karavias). This comprehensive Chapter investigates and analyses the following issues: “…the traditional ambit of responsibility under international law, namely responsibility of States and the extent to which the conduct of corporations can result in a State being held responsible … international criminal responsibility, and assess the extent to which it is the corporation or the individuals acting on behalf of the corporation to which responsibility attaches under international criminal law … the possibility of the corporation being per se held responsible under international law for internationally wrongful acts perpetrated by that corporation … the shape-shifting nature of the corporation and the implications this has in terms of the synergies between corporations and responsibility under international law”. Dr. Protopsaltis, in turn, deals with a related issue of shareholders’ injury and compensation in investor – State. The question may be posed whether the arsiwa are applicable in such a context or whether perhaps international investment law is a self-contained regime. There other very complex and pertinent questions which relate to the distinguishing between shareholders and the company itself. The concluding comments of this Chapter are not very encouraging, evidencing the immense difficulties that the arbitral tribunals are faced with: “Despite the identity of solutions adopted in relation to the scope of shareholders’ injury and compensation, important inconsistencies in the definition of the quantum of shareholders’ compensation and the failure to address successfully the risk of allocation of double compensation show the inadequacy of the current methods of enterprise valuation and the consequent need for further development of the law in this area while offering an argument to those contesting the legitimacy of investor – State arbitration”.

Introductory Reflections

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The 2011 ilc Articles on the Responsibility of International Organisations, (ario) are analysed by Professor Bredimas in the context of the responsibility of the International Monetary Fund (imf) for the economic impact of the application of conditionality. As in the previous Chapters, there are no straightforward conclusions and there are many questions unanswered. Professor Bredimas concludes that “one should conclude that the landscape of the imf’s international responsibility towards the debtor States, in the event of their bankruptcy, is not entirely clear. While, at the theoretical level, the requirements set by international law for the existence of international responsibility are met, the imf counters that these rules do not apply to it because there is no legal obligation on either side. This is not surprising, as this position of the imf is beneficial to it, since it wins either way; either by being shielded from the effects that its policies may have on the debtor-States, or by the debtor-State paying eventually in full the loan that it has received from the imf. This approach of the imf, which corresponds neither to the real nor to the legal state of affairs, follows a perception that was essentially imposed on the borrowing States, which did not exactly dare to object, mainly due to the implied imf sanctions”. Professor Bredimas further states that there are numerous pertinent questions still awaiting answers: “who is competent to decide on the imf’s alleged responsibility? Certainly not the imf itself through its ability to interpret its Statute. In simple terms, the situation remains in a deadlock, which is in favour of the imf”. Finally, Dr. Plakofefalos analyses the limits of responsibility: liability for damage in the deep seabed. The renewed interest in the legal position of the deep seabed was ignited by the 2011 Advisory Opinion of Seabed Dispute Chamber of the International Tribunal for the Law of Sea (itlos) on Responsibilities and Obligations of States sponsoring persons and entities with respect to activities in the Area.7 The author of this Chapter analyses, in the context of the Area, the regimes of State responsibility and liability, which from its inception has been a very controversial topic. Eventually the ilc opted for a division into a set of Articles adopted by the ilc in 2001, which dealt with the issue of prevention of Transboundary Harm from Hazardous Activities, and the 2006 Principles on Allocation of Loss in the Case of Transboundary Harm. Plakofefalos also investigates the suitability of pure civil liability regimes in the context of damage in the seabed, such as for oil pollution. The not very satisfactory set of Principles that the ilc has adopted on the subject of liability, has led to a difficulty in 7 Responsibilities and Obligations of States Sponsoring Persons and Entities with respect to Activities in the Area, itlos, Seabed Disputes Chamber, Advisory Opinion of 1 February 2011, [2011] itlos Rep. 10.

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identifying the rules that are applicable in cases that go beyond the limits of responsibility. Plakokefalos opines that “[t]he conclusion that should be drawn from this analysis is that instead of searching for ad hoc solutions every time a problem goes beyond responsibility, it would be better if more general rules were developed by the States so as to address these issues. These rules could be based on the Principles of the ilc but they could also go further. Unless such rules are established the problem will persist and will re-appear in a different context each time”. The present book is a unique study of the very important questions, both in theory and in practice, of the application and suitability of rules of responsibility in various legal regimes. In some instances, there is a very visible lack of uniform application; in some the classical rules on State responsibility are perhaps unsuitable. The interesting question is whether there is a necessity or even possibility of strict implementation of the arsiwa and ario and if not, are such deviations unjustified or simply signify the development of rules of responsibility, as they are a living instrument. It may be that certain divergent decisions of courts and tribunals (although contributing to the fragmentation of the norms on responsibility), are unavoidable in a rich and diversified international legal environment.

Part 1 Subjects of Responsibility: from States to Non-State Actors and Beyond

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Chapter 2

State Responsibility for Acts of Non-State Actors Constantine Antonopoulos I

Introduction

The concept of “non-State actors” is very wide and comprises a variety of entities: individuals (i.e. natural persons), groups of individuals, transnational corporations, inter-governmental international organizations and nongovernmental organizations (ngos). All these entities share a common ­feature: they are not institutionally part of the apparatus of a State. At the same time inter-governmental international organizations enjoy international legal personality; individuals also enjoy a measure of international legal personality (for instance, they are criminally liable for perpetrating crimes under international law and are beneficiaries of the protection of human rights on the international plane). Transnational corporations have their foreign investment protected and their claims may be enforceable by way of institutionalized arbitration in which they are litigants instead of a State exercising d­ iplomatic protection on their behalf (see icsid). Finally, ngos, though active and ubiquitous participants in international life, have an uncertain status in terms of legal personality under international law. In the context of the law of responsibility for internationally wrongful acts, namely, violations of international law, intergovernmental organizations as subjects of the law have the capacity to incur responsibility directly upon attribution of a breach to them.1 Individuals or groups of individuals have the capacity to bear only criminal responsibility under international law while it is a matter of controversy whether transnational corporations have the capacity to incur either criminal or civil responsibility on the international plane.2 1 See ilc Articles on the Responsibility of International Organizations in: unga, “Report of the International Law Commission to the General Assembly”, A/66/10 (2011), Chapter v, para. 87 (hereinafter ario). 2 J. Crawford and S. Olleson, “The Nature and Forms of International Responsibility”, in: M. ­Evans (ed.), International Law (Oxford: Oxford University Press, 2010, 3rd edn.), Chapter xv, 441, at 445. See Flomo v. Firestone Natural Rubber Co. llc, Court of Appeals, 7th Circuit, ­Decision of 11 July 2011, 43 F. 3d 1013; Doe v. Exxon Mobil Corp., Court of Appeals, District of Columbia Circuit, Decision of 8 July 2011, 654 F. 3d 11; Bauman v. Daimler-Chrysler, Court of

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But in the particular context of State responsibility, the term “non-State actors” appears to be limited largely to the question of whether and under what conditions the acts of natural persons may give rise to the international responsibility of a State. Article 1 of the 2001 International Law Commission (ilc) Articles on the Responsibility of States for Internationally Wrongful Acts (arsiwa)3 stipulates that “[e]very internationally wrongful act of a State entails the international responsibility of that State”.4 Moreover, under Article 2 of the arsiwa an internationally wrongful act consists in a violation (by way of an act or omission) of an international legal obligation of the State (under a treaty or customary law) which is attributable to this State. Therefore, the responsibility of States for internationally wrongful acts is governed by the basic principle that a State is liable only for its own acts. Consequently, the attribution of an act or omission to a State is premised on its own conduct and, as a matter of principle, a State has responsibility only for acts of its own organs or agents5 and not for acts of private individuals or non-State actors or entities.6 The arsiwa do not introduce a normative framework of shared responsibility in the sense of apportioning responsibility among a plurality of States for the commission of a single internationally wrongful act. Even though the arsiwa address factual contingencies in which a State may incur responsibility even though it itself has not perpetrated the wrongful act (in cases of aid or assistance, direction and control and coercion of another State) this responsibility appears to be

3 4 5

6

Appeals, 9th Circuit, Decision of 18 May 2011, 644 F.3d 909. In all these cases before the US courts, the liability of transnational corporations for violations of international law under the Alien Tort Statute (ats) was admitted; reported in J. Crook, “Contemporary Practice of the United States Relating to International Law: US Courts of Appeals Uphold Corporate Alien Tort Statute Liability”, ajil 105/4 (2011): 775, at 799. See also J. Crook, “Contemporary Practice of the United States Relating to International Law: US Government Supreme Court Brief Backs Corporate ats Liability”, ajil 106/2 (2012): 360, at 382. See ilc Articles on the Responsibility of States for Internationally Wrongful Acts in: unga, “Report of the International Law Commission to the General Assembly”, A/56/10 (2001), Chapter iv, para. 76 (hereinafter arsiwa). See also Factory at Chorzów (Germany v. Poland) (Jurisdiction), Judgment of 26 July 1927, pcij Series A No. 9, at 21. A classical example of State organ the acts of which are attributable to the State are its armed forces. See Case Concerning Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda) (Merits), Judgment of 19 December 2005, [2005] icj Rep. 168, at 242, para. 213: “The conduct of the updf as a whole is clearly attributable to Uganda, being the conduct of a State organ”. See also J. Crawford (ed.), Brownlie’s Principles of Public International Law (Oxford: Oxford University Press, 2012, 8th edn.), at 543. Crawford and Olleson, supra note 2, at 455.

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“individualized” by reference to the hypothesis that the act would be wrongful if perpetrated by the State not actually committing the act.7 Be that as it may, the current discussion of shared responsibility confines this type of State responsibility among subjects of international law recognized as such by the law. This appears to exclude groups of natural persons, restricting their responsibility under international law only to the context of criminal responsibility.8 The responsibility of States for acts of non-State actors is admissible in specific contingencies, in which a particular line of conduct of a State towards the ­activities of these persons or entities results to its attribution to the State. II

The Legal Framework

The rules governing the responsibility of States for acts of non-State actors are provided in customary international law and the content of the law is found in the arsiwa and the jurisprudence of the International Court of Justice (icj) and arbitral tribunals. Under the law in force, a State bears responsibility for the acts of non-State actors in the following situations: 1 De Facto State Organs Non-State actors or entities have been “upgraded” or “elevated” to de facto State agents or organs because they are under the absolute dependence and control of a State. In this contingency the acts of such persons or entities are attributed to the State in the same manner as the acts of de jure State organs or agents.9 In the Nicaragua case10 the icj dealt with the relationship between the usa and the contras guerrilla force by formulating the issue in these terms: “What the Court has to determine … is whether or not the relationship of the contras to the United States Government was so much one of dependence on the one side and control on the other that it would be right to equate the contras, for 7

8 9 10

Articles 16–18 of the arsiwa, supra note 3; by contrast, Articles 15–17 of the ario, supra note 1, appear closer to introducing a shared responsibility normative framework. See generally A. Nollkaemper and D. Jacobs, “Shared Responsibility in International Law: A Conceptual Framework”, mjil 34/2 (2013): 359, at 389–393; A. Nollkaemper, “Dual Attribution: Liability of the Netherlands for Conduct of Dutchbat in Srebrenica”, jicj 9/5 (2011): 1143. See J. Hessbruegge, “The Historical Development of the Doctrines of Attribution and Due Diligence in International Law”, jilp 36/4 (2004): 265. Article 4 of the arsiwa, supra note 3. Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. usa) (Merits), Judgment of 27 June 1986, [1986] icj Rep. 14 (hereinafter Nicaragua case).

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legal purposes, with an organ of the United States Government, or as acting on behalf of that Government”.11 It went on to rule on the basis of the evidence available that “…the various forms of assistance provided to the contras by the United States have been crucial to the pursuit of their activities, but it is insufficient to demonstrate their complete dependence on United States aid … It is a fortiori unable to demonstrate that the contra force may be equated for legal purposes with the forces of the United States”.12 Moreover, in the Bosnian Genocide case the Court expressly drew a distinction between non-State actors acting as de facto State organs and non-State actors acting under the instructions, direction or control of a State. The issue before the Court was whether the atrocities perpetrated by the Bosnian Serbs in Srebrenica in July 1995, which the Court ruled as amounting to commission of genocide under the 1948 Genocide Convention, could be attributed to Serbia. It stated the law in force in the following terms: This question has in fact two aspects, which the Court must consider ­separately. First, it should be ascertained whether the acts committed in Srebrenica were perpetrated by organs of the Respondent [namely, Serbia], i.e., by persons or entities whose conduct is necessarily attributable to it, because they are in fact instruments of its action. Next, if the preceding question is answered in the negative, it should be ascertained whether the acts in question were committed by persons who, while not organs of the Respondent, did nevertheless act on the instruments of, or under the direction or control of, the Respondent.13 The Court then proceeded to identify de facto States organs as “…persons, groups of persons or entities [that], may for purposes of international responsibility, be equated with State organs even if that status does not follow from internal law, provided that in fact the persons, groups or entities act in ‘complete dependence’ on the State of which they are ultimately the instrument”.14 11 12 13

14

Ibid., at 69, para. 109. Ibid., at 62–63, para. 110. Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro) (Merits), Judgment of 26 February 2007, [2007] icj Rep. 43, at 201, para. 384 (hereinafter Application of the Genocide Convention case). Ibid., at 201, para. 392 (emphasis added); the Iran–US Claims Tribunal appears to have adopted a similar approach towards attributing acts of non-government actors to Iran on the basis of the de facto links of these actors to the government by evaluating the legal status of the actors and the existence of actual supervision by the Iranian government. See

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Instructions, Direction and Control of a State over Acts of Private Persons15 In the jurisprudence of the icj this control must be “effective control” in order to give rise to the responsibility of the State. The Court reached this finding in Nicaragua where it ruled that the US assistance to the contras and its general control over them were not sufficient in default of further evidence to attribute their acts violating human rights and humanitarian law to the US government. By contrast “[f]or this conduct to give rise to legal responsibility of the ­United States, it would in principle have to be proved that that State had effective control of the military and paramilitary operations in the course of which the alleged violations were committed”.16 Moreover, in the Bosnian Genocide case the Court, having found that the Bosnian Serbs did not constitute a de facto organ of Serbia proceeded to determine whether Serbia exercised effective control over them. The Court explained that the 2

test thus formulated differs in two respects from the test … to determine whether a person or entity may be equated with a State organ even if not having that status under internal law. First, in this context it is not necessary to show that the persons who performed the acts alleged to have violated international law were in general in a relationship of “complete dependence” on the respondent State; it has to be proved that they acted in accordance with the State’s instructions or under its “effective control”. It must however be shown that this “effective control” was exercised, or that the State’s instructions were given, in respect of each operation in which the alleged violations occurred, not generally in respect of the overall actions taken by the persons or groups of persons having committed the violations.17 In this respect, the Court declined to uphold the ruling of the icty Appeals Chamber in the Tadić case where the ad hoc Tribunal applied the test of “overall control” that dispenses with the need to evaluate control of a State over

15 16 17

Schering Corporation v. The Islamic Republic of Iran, Iran–US Claims Tribunal, Award of 16 April 1984, Award No. 122-38-3, Iran–US Claims Tribunal Reports5/I (1984): 361, at 361–370. Article 8 of the arsiwa, supra note 3. Nicaragua case, supra note 10, at 64–65, para. 115; see also ibid., at 65, para. 116, where the Court found that the acts of the contras were not attributable to the usa. Application of the Genocide Convention case, supra note 13, at 208, para. 400; see also ibid., at 211–215, paras. 408–415 where the Court ruled that the acts of the Bosnian Serbs were not attributable to Serbia on the basis of “effective control”.

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each specific operation of a non-State actor;18 the Court took the view that the determination of State responsibility on the part of Serbia did not constitute an indispensable finding to determine individual criminal responsibility by an international criminal tribunal.19 The position of the icj on “control” being “effective control”, namely, something more substantial, directly effectual and influential than general control is in line with a similar approach adopted by the Iran–US Claims Tribunal. Even though the constituent instrument of the Tribunal (the 1981 Iran–US Settlement Declaration) identified in Article vii (3) “Iran” for the purposes of exercising its jurisdiction, inter alia, “any agency, instrumentality or entity controlled by the Government of Iran” it declined to uphold automatically ­attribution to Iran of any act of such an entity occurring in the context of general control by the government of Iran.20 Approval and Adoption by a State of Acts of Private Persons or Entities In the US Diplomatic and Consular Staff in Tehran case the Court ruled that the act of overrunning of the US Embassy in Tehran by demonstrators and the seizure as hostages of the US diplomatic staff could not be as such attributed to the Iranian government because the demonstrators were neither State organs nor did they carry out a specific government act on behalf of the State.21 3

18

19 20

21

Prosecutor v. Dusko Tadić, icty, Appeals Chamber, Judgment of 15 July 1999, Case No. IT94-1-A, para. 145. A similar approach appears to be adopted by the ECtHR; in Loizidou v. Turkey, ECtHR, Judgment of 18 December 1996, Application No. 15318/89, para. 56, where the Court appears to have taken the view that the effective control exercised by Turkey over northern Cyprus would entail both that every person in this area was subject to the jurisdiction of Turkey and that the acts of the “Turkish Republic of Northern Cyprus” would be attributed to Turkey as acts of a de facto State organ. Moreover, in Ilascu and Others v. Moldova and Russia, ECtHR [GC], Judgment of 8 July 2004, Application No. 48787/99, paras. 392–394, the Court though not expressly addressing the question of attribution of the “Trans-Dniestria” separatist authorities to Russia, ruled that the fact of effective authority or decisive influence by Russia would engage its responsibility for breaches of the echr. Application of the Genocide Convention case, supra note 13, at 209–210, paras. 403–404. Tippetts, Abbett, McCarthy, Stratton v. tamms-affa Consulting Engineers of Iran, Iran–US Claims Tribunal, Award of 22 June 1984, Award No. 141-7-2, Iran–US Claims Tribunal Reports 6/II (1984): 219, at 225; Flexi-Van Leasing, Inc. v. The Islamic Republic of Iran, Iran–US Claims Tribunal, Award of 13 October 1986, Award No. 259-36-1, Iran–US Claims Tribunal Reports 12/ iii (1986): 335; Ch. Brower and J. Brueschke, The Iran-United States Claims Tribunal (The Hague: Martinus Nijhoff, 1998), at 448–450. Case Concerning US Diplomatic and Consular Staff in Tehran (usa v. Iran), Judgment of 24 May 1980, [1980] icj Rep. 3, at 29–30, paras. 57–60 (hereinafter Tehran Hostages case).

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However, the responsibility of Iran for the acts of the demonstrators was established at a later stage when the Iranian government approved of and adopted the occupation of the Embassy premises and the captivity of the US diplomatic staff as its own.22 The position of the icj is reflected in Article 11 of the arsiwa. Exercise of Elements of Government Authority in the Absence of or Inadequate Function of State Authorities and in Circumstances That Warrant the Exercise of This Authority23 In Yeager v. Iran the Iran–US Claims Tribunal ruled that the immigration, customs and other similar acts that had been carried out by the Revolutionary Guards at the Tehran airport in the immediate aftermath of the Islamic revolution were attributable to Iran. The Tribunal reasoned that even though these functions were not authorized by the Iranian government they objectively consisted in the exercise of elements of governmental authority in the absence of official authorities of the State “in operations of which the new Government must have had knowledge and to which it did not specifically object”.24 4

5 Delegation of Government Authority Article 5 of the arsiwa provides that the conduct of a non-State actor (i.e. “a person or entity which is not the organ of the State”) is to be considered as an act of the State if the non-State actor “is empowered by the law of that State to exercise elements of governmental authority” and it “is acting in that capacity in the particular instance”. In the Commentary to Article 5 arsiwa, the ilc refers to Hyatt International Corporation v. Iran in which the Iran–US Claims Tribunal dealt with an autonomous foundation established by the State that held property for purposes of charity and had the power to identify property to be expropriated. The Tribunal ruled that this foundation was a public and not a private entity for the purposes of its jurisdiction, but as the Commission has stated “with respect to its administration of allegedly expropriated property, it would in any event have been covered by article 5”.25

22 23 24 25

Ibid., at 33–36, paras. 69–75, especially para. 73. Article 9 of the arsiwa, supra note 3. Kenneth P. Yeager v. The Islamic Republic of Iran, Iran–US Claims Tribunal, Award of 2 November 1987, Award No. 324-10199-1, Iran–US Claims Tribunal Reports 17/IV (1987): 104, para. 135. Hyatt International Corporation v. The Islamic Republic of Iran, Iran–US Claims Tribunal, Interlocutory Award of 17 September 1985, Award No. 54-134-1, Iran–US Claims Tribunal Reports 9/ ii (1985): 72, at 88–94 cited in the ario, supra note 1, at 43.

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A State Violates the Obligation of “Due Diligence” with Respect to Activities of Non-State Actors That Emanate from Its Territory or Territory under Its Jurisdiction This obligation arises from the principle that no State may knowingly allow its territory to be used or be the source of acts injurious to other States.26 The proof of attribution in this contingency is made redundant because it concerns an omission to act in accordance with a primary obligation and it may be established on the fact that a State possesses the requisite infrastructure operated by its agents or de facto agents or private parties to which government authority was delegated by law in order to prevent such injurious acts. Thus, due diligence is the primary obligation the breach of which (failure to act or omission) ensures the observance of other primary obligations (either based on treaty or customary law). The precise content and extent of due diligence varies in conjunction with specific obligations. The ilc deliberately refrained from including due diligence in the arsiwa because this would entail examination of the content of primary rules; nevertheless, it did point out that there is a presumption that any primary rule contains a qualification of due diligence.27 In the context of transboundary harm from hazardous activities the ilc has adopted the view that the duty of due diligence involved does not extend to guaranteeing that significant harm is to be totally prevented if it is impossible to do so. Furthermore the ilc stated that the standard of due diligence to assess the conduct of a State would be that which would be deemed “appropriate and proportional to the degree of risk of transboundary harm in the particular instance”.28 Moreover, the Seabed Disputes Chamber of the International Tribunal of the Law of the Sea (itlos) ruled in its Advisory Opinion in the Responsibilities and Obligations of States with respect to Activities in the Area that due diligence is a “variable concept” and the standard it may set may change as a result of scientific and technological developments as well as the risks involved in a particular activity.29 6

26 27 28 29

Corfu Channel case (UK v. Albania) (Merits), Judgment of 9 April 1949, [1949] icj Rep. 4, at 22. unga, “Report of the International Law Commission on the Work of its 51st Session”, A/54/10 (1999), at 86; Hessbruegge, supra note 8, at 275. ilc Draft Articles on the Prevention of Transboundary Harm from Hazardous Activities, in: unga, “Report of the International Law Commission to the General Assembly”, A/56/10 (2001), Chapter v, para. 97. Responsibilities and Obligations of States Sponsoring Persons and Entities with respect to Activities in the Area, itlos, Seabed Disputes Chamber, Advisory Opinion of 1 February 2011, [2011] itlos Rep. 10, paras. 111–117.

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In human rights field the duty of due diligence has been upheld in Velasquez-Rodriguez in which the Inter-American Court of Human Rights interpreted the obligation introduced in Article 1(1) of the American Convention of Human Rights to respect and ensure the exercise of the rights enshrined in the Convention. The Court ruled that the obligation to “ensure” the exercise of these rights gave rise to the duty of contracting States to organize the governmental infrastructure in such a way so as to ensure “free and full enjoyment” of the rights and prevent, investigate and punish their violation; this obligation to “ensure” is not fulfilled solely by the existence of “a legal system designed to make it possible to comply with this obligation – it also requires the government to conduct itself so as to effectively ensure the free and full exercise of human rights”.30 The icj has dealt with the duty of diligence in a number of disputes involving alleged breaches of international obligations in a variety of contexts. In Corfu Channel the Court ruled at the outset that the mere existence of the source of an injurious act (in this case the mines) in the territory of Albania was not sufficient to attribute this act to the State, for the control exercised by a State over its territory as a result of sovereignty does not establish prima facie knowledge of every activity taking place therein.31 After establishing knowledge by Albania of the laying of mines in its territorial sea,32 the Court ruled that the responsibility of Albania lay in its failure to notify the existence of a minefield in its territorial sea to third-State shipping. In the opinion of the Court, this obligation rested on three general principles, namely, elementary considerations of humanity, the freedom of maritime communication and “every State’s obligation not to allow knowingly its territory to be used for acts contrary to the rights of other States”.33 But the Court also took account of the particular factual circumstances of the case in order to confirm its legal finding. It acknowledged that if the mines had been laid at the last possible moment, namely less than twenty-four hours before the UK warships struck them, it would have been difficult or even impossible to issue a general notification to third-State shipping. But, as the incident took place at a time by which the Albanian authorities could have had knowledge of the existence of the mines as a result of their close surveillance of the Corfu Strait, Albania did not observe its duty of due diligence.34 In US Diplomatic and Consular Staff in 30 31 32 33 34

Velasquez-Rodriguez v. Honduras, IACtHR, Judgment of 29 July 1988, Series C No. 4, paras. 166–167. Corfu Channel case, supra note 26, at 18. Ibid., at 18–22. Ibid., at 22. Ibid., at 22–23.

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Tehran the Court ruled that the acts of the demonstrators who took over the premises of the US embassy and held its staff hostage could not be imputed per se to the government of Iran. However, Iran bore responsibility because of its failure to observe its obligation under the Vienna Convention on Diplomatic Relations (1961) to protect the inviolability of the persons and premises of another State’s diplomatic mission.35 In Congo v. Uganda the Court dealt in the context of the first counterclaim of Uganda with the allegation that the Congo had violated its obligation of due diligence (or duty of vigilance) by failing to prevent the action of dissident armed bands against Uganda from its territory. The Court ruled that the existence and toleration of armed groups on Congolese territory could not be assimilated with active support to these groups. In addition, the Court took into account the inimical geographical terrain where the groups operated and the material inability of the Congolese (as well as the former Zairian) government to effectively control that part of the territory of the State. Thus, the Court concluded that it could not uphold the allegation of breach of the duty of vigilance on the part of the Congo.36 Moreover, in Bosnian Genocide the Court dealt with the obligation to prevent genocide which is enunciated in the 1948 Genocide Convention.37 In the course of its reasoning the Court made some statements of principle regarding the duty to prevent (due diligence) even though it made it clear that it did not intend introduce a general framework of universal application on the duty of due diligence; it observed that “the content of duty to prevent varies from one instrument to another, according to the wording of the relevant provisions, and depending on the nature of the acts to be prevented”.38 Then the Court analyzed the content of the duty to prevent in relation to the crime of genocide. It stated at the outset that this duty was an obligation of conduct and not of result; hence, a State did not have the obligation to succeed in preventing genocide “whatever the circumstances” but was under the obligation to “employ all means reasonably available” to it to prevent the commission of the crime.39 Thus, failure to achieve the desired result does not give rise to responsibility; by contrast, responsibility arises in case of manifest failure to take all steps within its power that would contribute to preventing genocide because “in this area the notion

35 36 37 38 39

Tehran Hostages case, supra note 21, at 30–33. Case Concerning Armed Activities on the Territory of the Congo, supra note 5, at 268. Article 1 of the 1948 Convention on the Prevention and Punishment of the Crime of Genocide (adopted 9 December 1948, entered into force 12 January 1951), 78 unts 277. Application of the Genocide Convention case, supra note 13, at 220–221. Ibid., at 221.

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of ‘due diligence’, which calls for an assessment in concreto, is of critical importance. Various parameters operate when assessing whether a State has duly discharged the obligation concerned”.40 The Court proceeded to identify those parameters in relation to the specific obligation to prevent genocide and found of particular importance the capacity to influence (within the limits of the law) the perpetrators on the basis of (a) the geographical distance between the State concerned and the scene of the crime and (b) the strength of political or other links between the State and the perpetrators.41 The essence of due diligence lies, therefore, in the application of all means at the disposal of the State even though such application may be proved on the basis of evidence to be futile; in other words a State must not be inert even in the knowledge that its measures will in all probability be ineffective to prevent the injurious act.42 Even though the Court found that the duty to prevent genocide would give rise to responsibility only when the crime was actually committed (see Article 14(3) of the arsiwa) it recognized that a State was not absolved from responsibility if it remains inactive until commission of the crime commences where there is a serious risk of its commission. In such a contingency the State is under the obligation to employ the means available to it to prevent the crime, otherwise the substance of the obligation would be negated.43 Finally, in Pulp Mills the Court ruled that both litigants (Argentina and Uruguay) were under an obligation of due diligence to act through the Administrative Commission of the River Uruguay (caru) with respect to adopting measures to preserve the ecological balance of the river by virtue of Article 36 of the Statute of the River Uruguay of 1975.44 The rationale underlying this legal framework is to avoid as a matter of principle the facile attribution of responsibility to States for acts of non-State actors by introducing a high threshold of burden of proof with respect to the substance of the conduct of States towards the acts of non-State actors. This framework has been the subject of criticism with respect to the direction or control of the State over the acts of non-State actors, the gist of which is the extreme difficulty that approaches the bounds of impossibility to attribute responsibility for acts of private actors to a State. The issues arising from the existing framework of attribution concern the determination (or designation) 40 41 42 43 44

Ibid. Ibid. Ibid. Ibid., at 222. Case Concerning Pulp Mills on the River Uruguay (Argentina v. Uruguay), Judgment of 20 April 2010, [2010] icj Rep. 14, at 77.

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of private individuals as de facto State organs, the content and the scope of effective control, the propriety of distinguishing between de facto State organs and effective control, the authorised exercise (or outsourcing) of government functions and the extent of due diligence. III

De Facto State Organs

The concept of a de facto State organ aims at establishing the responsibility of a State on the identity of the actors. Their assimilation to State organs results in the automatic attribution of their acts to the State. The possibility of non-State actors being classified as de facto agents of a State is not expressly provided as a distinct class of persons in Article 4 of the arsiwa. The ilc Commentary to Article 4(2) of the Articles is implicit of this category by stating that a State cannot escape responsibility for the acts of an entity that acts as its agent by denying this status in its municipal law. Neither did the Court in the Nicaragua case state explicitly the distinction of non-State actors in de facto organs of the State and private individuals over which the State exercised effective control.45 Be that as it may, the Court has subsequently in the Bosnian Genocide case expressly and emphatically introduced de facto State organs as a distinct category. It comprises individuals or organizations that are not formally State organs according to municipal law, but acquire the status of de facto State organs as a result of the absolute dependence on and control of the State. This requires an extremely high burden of proof in factual circumstances involving the activities of guerrillas (the Nicaragua or the Congo v. Uganda settings) or a de facto entity such as the Bosnian Serb Republic. The Judgment of the Court in Nicaragua appears to introduce as criterion that the existence and activities of a group of private actors is completely depended upon the support of a State, whereas, the Bosnian Genocide Judgment requires “absolute control”. By contrast the acts of an organized resistance movement that “belongs to a party” to an international armed conflict in the sense of Article 4A of the 1949 Third Geneva Convention would be attributable to a State only on the basis of allegiance manifested towards it without evidence of “complete dependence” being necessary.46 Thus, the high burden of proof for a specific group 45 46

This distinction does not become immediately apparent in the Judgment on the Merits. See Nicaragua case, supra note 10, at 62–63, para. 110, and 64–65, para. 115. See International Committee of the Red Cross, “Commentary to Article 4 Geneva Convention iii”, (icrc, 2018), available at: (last accessed on 1 March 2018).

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of n ­ on-State actors to be assimilated to State organs appears to be the rule that is mitigated only with respect to particular non-State actors by way of express stipulation that has the position of lex specialis. Moreover, the determination of non-State actors as de facto organs of a State presupposes the exclusion of their being de jure organs, a matter that it is established by reference to express provision in the municipal law of the State in question.47 In Bosnian Genocide the Court found that the establishment of de facto organ status is an “exceptional” status and requires evidence of complete dependence in particular circumstances (“the reality of the relationship between the person taking action, and the State to which he is so closely attached so as to appear nothing more than its agent”) and the criterion suggested is whether non-State actors possess a margin of independence of action, however narrow this might be; in other words, if the slightest independence of action is established then a non-State actor fails to qualify as a de facto organ of the State.48 IV

Effective Control

The instructions, direction and effective control of a State over the acts of nonState actors was considered for a long time to be identical with their position as de facto State organs. Their treatment as two distinct categories in the dissenting opinion of Judge McDonald to the Interlocutory Decision of the Trial Chamber of the icty in Tadić was a minority view49 – apparently, a minority of one at the time. It was the Judgment of the icj in Bosnian Genocide that insisted upon this distinction as having been established in law.50 Instructions, direction and effective control over the activities of non-State actors concern private individuals or entities that do not constitute either de jure or de facto State organs. State responsibility is established by way of attribution as a result of the acts of instructing, directing and effectively controlling specific acts of non-State actors on the part of the State and not the entirety of their activities. In other words, the responsibility of a State is premised not on the identity of the private actors and the attribution of the totality of their acts but on the direction and control over certain of these acts and these acts alone that are ultimately attributed to the State. 47 48 49 50

Application of the Genocide Convention case, supra note 13, at 202–204, paras. 385–389. Ibid., at 205–206 paras. 392–394; M. Milanović, “State Responsibility for Acts of Non-state Actors: A Comment on Griebel and Plücken”, ljil 22/2 (2009): 307, at 315–319. Prosecutor v. Dusko Tadić, icty, Trial Chamber, Judgment of 7 May 1999, Case No. IT-94-1-T, paras. 288 et seq. Application of the Genocide Convention case, supra note 13, at 207, para. 397.

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But what constitutes “effective control”? The answer to the question requires a high threshold of burden of proof as may be deduced from the position adopted by the icj towards the very close connection of the Nicaraguan contras and the Bosnian Serbs to, respectively, the usa and Serbia. An indication may be the Judgment of the icj in the Congo v. Uganda case, in which the Court ruled that the activities of the mlc guerrilla group were under the exclusive control of its leadership and not Uganda and that the use of the material ­assistance by the latter was not under its control.51 A more interesting position as to what constitutes “effective control” was advanced by the Hague Court of Appeal in the Nuhanović and Mustafić – Mujić et al. cases concerning the events at Srebrenica in 1995. The relevant criterion of “effective control” was not only the issuing of orders to non-State actors but the competence (and capacity) to prevent the commission of an internationally wrongful act. Even though the specific judgment concerned the exercise of control by the government of The Netherlands over the Dutch contingent (the Dutchbat) of the unprofor in Bosnia, the criterion it has introduced may be generally applied in cases of control by a State over specific acts of a non-State entity.52 The concept of “effective control” as was articulated by the icj has been the object of criticism.53 Critics express the view that it is nearly impossible to establish the responsibility of a State on the basis of the formula expressed in the Court’s Judgments and suggest either the attribution of acts of non-State actors to a State on the basis of any link of them to it or the adoption of the concept of “overall control” which was introduced by the icty in the Tadić case. In spite of the difficulties surrounding the concept of “effective control” as a result of the high burden of proof required by the icj it is submitted that the position of the Court is sound. First, it is in conformity with the basic principle that a State bears responsibility only for its own acts, something that the concept of “overall control” approaches with a degree of flexibility in that it seeks to establish attribution 51 52

53

Case Concerning Armed Activities on the Territory of the Congo, supra note 5, at 226, para. 160. T. Dannenbaum, “The Hague Court of Appeal on Dutchbat at Srebrenica Part 2: Attribution, Effective Control and the Power to Prevent”, (EJILTalk!, 10 November 2011), available at: (last accessed on 1 March 2018). See, for instance, A. Cassese, “The Nicaragua and Tadić Tests Revisited in Light of the icj Judgment on Genocide in Bosnia”, ejil 18/4 (2007): 694; J. Griebel and M. Plücken, “New Developments Regarding the Rules of Attribution? The International Court of Justice’s Decision in Bosnia v. Serbia”, ljil 21/3 (2008): 601.

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of acts of non-State actors to a State on the basis of the overall relationship between them rather than to the specific circumstances of the performance of each particular act. Even though this may appear as an exercise in legalistic pedantry, the apparent result of adopting “overall control” as the test of attribution would appear to be the wholesale imputation of every act of non-State actors to a State. Such generalization of control leading to blanket attribution and establishing of State responsibility is unlikely to avoid the evaluation of particular circumstances of each alleged breach of the law; thus, even in the context of an “overall control” position of a State its particular involvement in a particular act by non-State actors cannot be escaped. Secondly, the insistence of attributing responsibility to a State “at all cost” appears to be motivated by a desire to transform the primary rules by broadening the secondary rules of State responsibility which are activated as a result of the breach of the former. The aim of this effort appears to be the broadening of the normative scope of a primary rule and the possibility of lawful reaction of a State victim of the acts of non-State actors. This trend is particularly manifested in the field of the jus ad bellum in the proposition to treat the use of force by non-State actors as an autonomous violation of Article 2(4) of the UN Charter and the broadening of the right of self-defence to justify the use of force against the territory of other States on the basis of the sole ground of the presence of armed groups or their transit there-from.54 Thirdly, the deviation from a strict application of the effective control requirement and a relaxing of the rules of attribution as a result of the special nature of an internationally wrongful act (such as genocide) would be admissible provided that this were expressly allowed by a rule of law that has the position of a lex specialis.55 Fourthly, as a matter of judicial policy there is a choice between rigid attribution of responsibility at all costs, resulting in the presentation of claims to redress injury, and their likely disproportionate effects on the economy and internal political situation of the allegedly responsible State. What would be the consequences to the economy and domestic political situation of Serbia the adjudication of a vast amount of compensation if the Court had ruled that that State had responsibility for the acts of genocide committed by the Bosnian Serbs? The experience of inter-war Germany should not be forgotten. Finally,

54 55

See generally N. Lubell, Extraterritorial Use of Force against Non-State Actors (Oxford: Oxford University Press, 2010); contra C. Antonopoulos, “Force by Armed Groups as Armed Attack and the Broadening of the Self-Defence”, nilr 55/2 (2008): 159. Application of the Genocide Convention case, supra note 13, at 220, paras. 429 et seq.

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the responsibility of a State may alternatively be established on a breach of the obligation of due diligence. V

Exercise of Government Authority Authorised by Law

Article 5 of the arsiwa addresses the authorisation of the exercise of government authority by the municipal law of a State to non-State actors. The acts of private individuals, corporate entities or organisations which are performed under such authorisation are attributed to the authorising State. The delegation or outsourcing of governmental functions to private parties has been standard practice over the past thirty years, especially after free market economy has become the dominant economic model. There are two basic issues that arise from this reality. First, what is “government authority”? Secondly, when a State authorises government authority is it an instance of delegation of or abdication from this authority? The ilc commentary to Article 5 states that what constitutes government authority varies from society to society. But it stresses as criteria for its determination the content of the powers, the manner they are delegated to a non-State entity, the purpose of their exercise and the extent of accountability for their exercise to the authorising government. Moreover, the ilc lays great emphasis on the form of authorisation: It must be granted by law. However, the terms of Article 5 may be applied flexibly and by analogy beyond express delegation of governmental function by State legislation.56 As the wto Appellate Body held57 the exercise of governmental authority by a private party is a matter of evidence and what is important is whether such authority has been vested and not how this has been realized. Thus, the sustained and systematic exercise of governmental functions by a private entity may be conclusive that it has been vested with governmental authority. Even though in a number of sectors such as health, education, social welfare, there has been for a long time general social consensus that these fields could be abandoned, partially or entirely, to the private sector, the recent practice of outsourcing to private entities the traditionally State power of security or military operations raises pertinent questions of State responsibility. In the not too distant past, a wide range of activities of military nature (including the conduct 56 Crawford, supra note 5, at 544. 57 United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, wto, Appellate Body Report adopted on 11 March 2011, WT/DS379/AB/R, para. 318.

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of hostilities) has been undertaken by Private Military Firms or Private Security Firms, which have been employed by States in conflict areas, such as the usa in Kosovo, Iraq and Afghanistan.58 The training of the military forces of Croatia which was instrumental in allowing it to regain the areas in the country controlled by the Serbs was outsourced to a Private Military Firm. In 1995 the government of Sierra Leone employed Executive Outcomes that conducted a successful military campaign against the ruf guerrilla organisation relying exclusively on its own resources. Thus, is it possible to talk about an authorised exercise of government powers to a corporation such as this or the employment by a consumer of services which a State accepts that they may be provided by a private party and confines itself to regulate and control their export? For the existence and function of Private Military Firms is not a case of classical mercenaries that are recruited and deployed in secrecy. They are entities that are lawfully incorporated, exercise commercial activities and are openly employed to provide their services not on behalf of the State but in its stead. The entire framework and operation of these firms is not based on enabling legislation concerning government authority but in accepting the provision of military services as a commercial commodity which everyone may employ. And this is realised by way of private law contract that allows States to circumvent responsibility as a result of the requirements of Article 5 of the arsiwa. Furthermore, the question arises of which State shall bear responsibility for their acts: the exporting State, the employer-State or the State on the territory of which they operate? The answer to this question is a combination of the purpose for which these corporations are employed, the legal framework governing their function and licensing and the accountability for and control of their operations by the licensing States or the States they employ them or on whose territory they operate by virtue of consent.59 It is in this context that the more pragmatic approach of the wto Appellate Body appears relevant and might be warranted. VI

Due Diligence

Due diligence or the obligation of “vigilance” constitutes a primary rule the violation of which establishes the international responsibility of a State. In the 58 59

See generally, P. Singer, Corporate Warriors. The Rise of the Privatized Military Industry (Cornell: Cornell University Press, 2003); S. Chesterman and Ch. Lehnardt (eds.), From Mercenaries to Market (Oxford: Oxford University Press, 2007). Ch. Lehnardt, “Private Military Companies and State Responsibility”, in: S. Chesterman and Ch. Lehnardt (eds.), From Mercenaries to Market (Oxford: Oxford University Press, 2007), 139, at 148 et seq.

28

Antonopoulos

Corfu Channel case the icj ruled that a State must not allow knowingly its territory to be used for the infliction of harm to other States.60 It constitutes an obligation of conduct (not of result) and the responsibility of the State is established on its failure to prevent the injurious conduct of non-State actors and not on their particular acts. Moreover, compliance with the obligation of due diligence is evaluated on the basis of the circumstances of each case and the ability of a State in these circumstances to observe it. In the Congo v. Uganda case the Court rejected the part of Uganda’s first counter-claim alleging a breach by the Congo of its duty of vigilance by allowing or tolerating the use of its territory by anti-Ugandan guerrillas that used force against Uganda. The Court ruled that the absence of action by the Congolese authorities against the rebels was not due to “tolerating or acquiescing in their activities” but a result of an objective inability to deal with the situation because of the geography of the region and the absence of any central government presence therein.61 Furthermore, in the Bosnian Genocide case the Court ruled that due diligence requires evaluation of concrete circumstances by examining the “capacity to influence effectively the action of persons likely to commit genocide or already committing genocide … geographical distance … strength of political links or links of other kinds”; moreover, a “State’s capacity to influence must also be assessed by legal criteria, since it is clear that every State may only act within the limits permitted by international law”.62 VII

Conclusion

As a matter of principle States have international responsibility only for their own acts or omissions, namely, internationally wrongful acts that are attributed to them. These are acts performed by State agents or organs. Acts by individuals or entities that are totally unrelated to a State do not give rise to its international responsibility unless certain conditions are met that establish the attribution of these acts to a State. Thus, State responsibility for acts of non-State actors has the position of an exceptional circumstance rather that the rule and, as such, requires evidence of the relationship between a State and the activities of private parties.

60 61 62

Corfu Channel case, supra note 26, at 22. Case Concerning Armed Activities on the Territory of the Congo, supra note 5, at 268, paras. 300–301. Application of the Genocide Convention case, supra note 13, at 221, para. 430.

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The juridical framework of attribution has been mainly formulated through the jurisprudence of international tribunals, especially the International Court of Justice. It is, moreover, stated in the arsiwa and constitutes part of customary law. Under this scheme the acts of non-State actors may be attributed to a State in three contingencies. First, on the basis of their identity, namely, the determination that specific non-State actors act as de facto organs of a State. This requires a high standard of evidence that these private parties are under the complete dependence of the State and results in the attribution of the totality of their acts to the State. Secondly, on the basis of their acts; namely, the proof that specific acts are attributed to a State because they were performed under the instructions, direction or effective control of the State. Again, this involves a high burden of proof, while the concept of overall control that would dispense with the need to prove the attribution of every single act separately, does not appear to have been established as basis of attribution in customary law. Thirdly, on the basis of performance of acts of governmental functions either by way of delegation under municipal law or in circumstances of ­objective ­absence of governmental authority. Of the above contingencies the first two are extremely difficult to establish on the basis of evidence whereas the third allows for more flexibility especially in view of the practice of “privatizing” wide sections of hitherto governmental functions. Finally, the duty of due diligence offers an autonomous basis of international responsibility at least for acts emanating from the territory of a State as it constitutes a self-contained State obligation. However, its observance or not is dependent on the particular circumstances of each case.

Chapter 3

The Responsibility of the International Monetary Fund for the Economic Impact of the Application of Conditionality Antonis Bredimas I

Introduction

The imf was set up in 1944 with the objective of maintaining the exchange rate of the currencies of the Member States, exercising on the one hand “disciplinary” control, but also providing technical and, above all, financial assistance through the mechanism of “Special Drawing Rights”.1 Several developing States, as early as the 1960s, faced grave challenges to their respective economies. These challenges forced them to turn to the imf in search of immediate financial assistance to deal, in particular, with fiscal imbalances.2 It is in this period, i.e. after the 1960s, that one can trace the foundations for the emergence and gradual development of the imf’s principle of “conditionality”, namely the granting of aid under the condition that States would take a series of measures that would restore their economic balance, so that in turn they could repay their debt.3 This guarantee of repayment of the “loans” is, moreover, required by the imf Statute itself,4 as this is an indispensable

1 See in more detail J. Gold, “sdrs, Currencies and Gold: Seventh Survey of New Legal Developments”, imf Pamphlet Series 44 (1987): 1, at 1 et seq.; D. Carreau and P. Juillard, Droit international économique (Paris: lgdj, 2010, 4th edn.), at 647 et seq. 2 “For developing countries … stand-by arrangements have become fairly common, and for some countries, the imf has become the only source of external finance”, A. Lowenfeld, ­International Economic Law (Oxford: Oxford University Press, 2008, 2nd edn.), at 640. 3 On the principle of conditionality within the context of the imf, see J. Gold, “Guidelines on Conditionality, Decision No. 6056 (79/38) (2 March 1979)”, in: imf (ed.), Selected Decisions of the International Monetary Fund, 25th Issue (Washington, DC: imf, 2000), at 128. See also J. Gold, “Conditionality”, imf Pamphlet Series 31 (1979): 1; F. Vreeland, The International Monetary Fund: Politics of Conditional Lending (London: Routledge, 2007); R. Stone, “The Scope of imf Conditionality”, International Organization 62/4 (2008): 589–620. 4 Article 5(5): “Whenever the Fund is of the opinion that any member is using the general resources of the Fund in a manure contrary to the purpose of the Fund … [it] may limit

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condition in order for the imf to be able, in turn, to borrow on favorable terms on the international market. The crises of the 1980s and 1990s,5 and in particular the crises of the p ­ eriod 2000–2010, “upgraded”6 in some way the role of the imf. This manifested itself through the proliferation of the imf’s interventions, the increase in the amounts granted, both at the individual level as well as overall, and the “deepening” and interventionist nature of its policy relating to the principle of conditionality.7 It is well known that these imf operations had, as a general rule,8 unpleasant and catastrophic consequences for the economies of debtor States and, in particular, for the social and economic rights of their citizens.9 While the main objective of fiscal balance was often achieved, this came at significant cost in the form of severe cuts in key social sectors such as education, health and insurance, to name but a few.10 In terms of the economy in general, the 5 6 7 8

9

10

the use of its general resources by the member”. See also J. Gold, “The Legal Character of the Fund’s Stand-by Arrangements and Why it Matters”, imf Pamphlet Series 35 (1983): 23. See Lowenfeld, supra note 2, at 669 et seq. and 699 et seq. Carreau and Juillard, supra note 1, pp. 657–658. J.-M. Sorel, “Sur quelques aspects juridiques de la conditionnalité du fmi et leurs conséquences”, ejil 7/1 (1996): 42, at 43–44. imf interventions in the Southeast-Asian States are considered to have been successful. See B. Brown, “imf Governance, the Asian Financial Crisis and the New International Financial Architecture”, in: S. Yee and W. Tieya (eds.), International Law in the Post-cold War (London: Routledge, 2001), 131, at 135–136. See also Lowenfeld, supra note 2, at 698–699. On the contrary, for the Latin American countries, at least for the 1960s and 1980s, the views lean to the opposite direction, see E. Garrasco and M. Ayhan Case, “Income Distribution and the Brettow Wood Institutions: Promoting and Enabling Environment for Social Development”, Transnational Law and Contemporary Problems 6/1 (1996): 1, at 1 et seq. and 31 et seq. It should be noted that the imf’s conditionality policies are not a novelty of this Organization, as several States apply them as a consequence of the neo-liberal economic concept u ­ nder the so-called Washington Consensus. The Consensus consists of a list of ten recommendations for economic reform (in Latin American countries) which reflected the ­positions of the usa and of international financial institutions. See J. Williamson, “A Short History of the Washington Consensus”, in: N. Serra and J.E. Stiglitz, The Washington Consensus Reconsidered: Towards a New Global Governance (Oxford: Oxford University Press, 2008), 15. More generally see, L. Fraile, “Lessons from Latin America’s Neo-liberal Experiment: An Overview of Labour and Social Policies since the 1980”, International ­Labour Review 148/3 (2009): 215–233. See in general, J. Stiglitz, Globalization and its Discontents (New York, NY: W.W. Norton and Company, 2002). For an analysis of specific examples see: E. Sidiropoulos, “Bulgaria: an imf Success Story, a Social Crisis”, South African Journal of International Affairs 9 (2002): 95–109; J. Morgan-Foster, “The Relationship of imf Structural Adjustment Programs to

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i­nefficiency of the imf’s policies made it necessary to refinance the debtor State in order for the latter to be able to repay the earlier debt. It is a vicious circle that involves borrower States in a long-term relationship, spanning in many instances several decades, with the imf.11 The aforementioned situation inexorably raises the question of what the imf’s responsibility towards the debtor States for the negative effects of its programs on their economy. II

The Responsibility of the imf towards the Debtor State

The General Legal Framework of the Responsibility of International Organisations It is not merely States that are responsible for their actions but international organizations as well. The latter’s activities – and hence their responsibility – have multiplied over the past decades, with the imf being one of the most typical examples. The rules on the international responsibility of international organizations for wrongful acts do not differ substantially from those on States, although by necessity some adjustments need to be made. This issue has already been dealt with by the United Nations International Law Commission (ilc), which appointed Gaja as Special Rapporteur.12 The ilc’s deliberations resulted in the 2011 Articles on the Responsibility of International Organisations (ario),13 which on several issues runs on a course parallel to that of the 2001 Articles on State Responsibility (arsiwa),14 with some variations, especially as to what pertains to the principle of speciality.15 This is not surprising as a similar approach was adopted when negotiating the 1986 Vienna Convention 1

Economic, Social and Cultural Rights: the Argentina Case Revisited”, Michigan jil 24/2 (2003): 577–646; F. Μanship, “Collateral Damage of the imf’s Global Economic Relief: A Case Study of Zimbabwe”, Emory ilr 24/2 (2010): 821–871. 11 Sorel, supra note 7, at 53. 12 See ilc, “First Report on Responsibility of International Organizations of the Special Rapporteur, Giorgio Gaja”, A/CN 4/532 (26 March 2003). 13 2001 Draft Articles on the Responsibility of International Organizations, with commentaries, in: unga, “Report of the International Law Commission to the General Assembly”, A/66/10 (2011), Chapter v, 50–170. 14 See more generally, J. Crawford, The International Law Commission’s Articles on State ­Responsibility (Cambridge: Cambridge University Press, 2002). 15 K. Boon, “The Role of lex specialis in the Articles of the Responsibility of International Organizations”, in: M. Ragazzi (ed.), Responsibility of International Organizations: Essays in Memory of Sir Ian Brownlie (Leiden: Brill/Martinus Nijhoff, 2013), at 135–145.

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on the Law of Treaties between States and International Organizations or ­between International Organizations (vclt-ii),16 which followed very closely the text, structure and solutions adopted in the 1969 Vienna Convention on the Law of Treaties (vclt).17 Among the elements that make up the responsibility of international organizations – as is the case with the responsibility of States – is, above all, the violation of an international obligation.18 At this point, it should be noted that, firstly, the existence of a violation is determined by international law alone, that is, it is not taken into account if an act is classified as lawful in accordance with the internal law of the international organization;19 and secondly, this violation should concern a primary rule which establishes an obligation for the international organization under international law.20 Whether there is a specific international obligation is not the subject of the law of international responsibility but of the individual sources of international law.21 Consequently, if there is a violation of a treaty obligation, it is the law of treaties that will determine this. On the issue, that we are concerned with in the present Chapter, i.e. the responsibility of the imf, we will have to look into whether there is a possible – and so long as the other secondary rules of international responsibility are met – violation of a treaty relationship between the imf, on the one hand, and the debtor State, on the other hand. Such a violation may arise from an imf action or omission in relation to the relationship between itself and the debtor State. This brings us to an examination of the legal nature of this relationship, whether it is a treaty relationship between the two sides or whether it is something else. 16 17 18

19 20 21

1969 Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980) 1155 unts 331. 1986 Vienna Convention on the Law of Treaties between States and International Organizations or between International Organizations (adopted 21 March 1986, not yet in force) A/CONF.129/15 (18 February – 21 March 1986). See Article 10 “There is a breach of an international obligation by an international organization when an act of that international organization is not in conformity with what is required of it by that obligation regardless of its origin or character”. Article 13: “An act of an international organization does not constitute a breach of an international obligation unless the international organization is bound by the obligation in question at the time the act occurs”. See unga, supra note 13, at 99, para. 2. See more generally on this subject, A. Gourgourinis, “General/Particular International Law and Primary/Secondary Rules: Unitary Terminology of a Fragmented System”, ejil 22/4 (2011): 993–1026. Article 56 arsiwa: “The applicable rules of international law continue to govern question concerning the responsibility of a State for the internationally wrongful act to the extent that they are not regulated by these articles”. See also Crawford, supra note 14, at 309.

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The Dipole of “Stand-by Arrangement” and “Letter of Intent”: Legal Nature and Consequences Regarding the International Responsibility of the imf It is well known that imf allocations to the Member States for the financial difficulties they face are made in two stages: during the first stage, the State concerned sends to the Fund a “Letter of Intent” by which it outlines the measures it will take at the level of its domestic economy in order to meet the imf’s demands in the context of “conditionality”. These measures, although in general, vary from case to case, in practice they usually focus on cuts in public spending (wages and pensions, education, health), but also on measures aimed at economic liberalization, privatization, and so on.22 These are the measures included in the so-called “Memoranda” and they accompany the “Letter of Intent”. The question is whether these two unilateral declarations,23 i.e. the Letter of Intent sent by the State24 and the Stand-by Arrangement of the imf25 are jointly a binding text, i.e. an international treaty, as they govern the same subject, state funding, and include the same arrangements, i.e. the Memorandum measures.26 This issue of how to characterize the relationship is particularly important for both the borrowing State and the imf. If one is to conclude that no binding obligations are created in this fashion, then the State, if it fails to implement 2

22 23

24

25

26

See supra note 10. As has been noted by the icj: “It is well recognized that declarations made by way of unilateral acts, concerning legal or factual situations, may have the effect of creating legal obligations”; Nuclear Tests Cases (Australia v. France), Judgment of 20 December 1974, [1974] icj Rep. 253, at 267. See also A. Rubin, “The International Legal Effects of Unilateral Declarations”, ajil 71/1 (1977): 1–30. The “Letter of Intent” aims to reassure the imf that the Member State will use imf resources in accordance with the Articles of its Statute, the terms of the Stand-by A ­ rrangement and the relevant imf decisions. See R. Edwards, International Monetary Collaboration (Dobbs Ferry: Transnational Publishers Inc., 1985); J. Gold, Interpretation of the imf and International Law, Vol. 4 (The Hague/Boston: Kluwer Law International, 1996). The Stand-by Arrangement is the decision of the competent imf body (Executive Board) by which the imf considers that the State concerned fulfils the conditions for granting credits over a specified period of time and up to a certain amount, J. Gold, The Standby Arrangements of the imf (Washington, DC: imf, 1970), at 84 et seq.; Edwards, supra note 24, at 267. As has been noted: “The schizophrenic nature of relations is captured in the so-called ‘Letters of Intent’ which are drafted by and yet formally addressed to the imf”, and the imf also sometimes provides copies of these “Letters of Intent”. See Th. Canova, “Banking and Financial Reform at the Crossroads of the Neoliberal Contagion”, auilr 14/6 (1999): 1571, at 1613.

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the measures it unilaterally undertook to implement or deviates significantly from them, does not bear any responsibility towards the imf. And the latter cannot demand repayment of the borrowed funds. The only sanction that the imf may, on the basis of its Statute, impose is to discontinue either the approval of further loans, or the remainder of the existing loan.27 This action, of course, will also entail additional general economic consequences for the State concerned.28 On the imf’s side, the non-binding nature of the Stand-by Arrangement will mean that it does not bear, in the context of international cooperation, such as credit granting, any responsibility that may arise from this transaction.29 At the doctrinal level opinion son the matter are divided. For a significant portion of writers, the combination of Letter of Intent and Stand-by Arrangement is indeed a binding international agreement. According to renowned imf expert Carreau: Il est à noter la grande originalité à cet procédure des ‘accords de confirmation’ [stand-by arrangements] ; en effet, bien qu’ils ne prennent pas la forme normale d’une convention signée par deux parties contractantes, la lettre d’intention n’étant qu’un acte unilatéral du demandeur signé par son ministre des finances ou gouverneur de son institut d’émission, il s’agit néanmoins de véritables accords internationaux, dont les termes lient et le Fonds et l’Etat membre en cause.30 For the former imf legal adviser, Fawcett, Stand-by Arrangement are a creature of the imf’s Executive Directors and are not provided for in its Statute, 27 28

29

30

Supra note 4. The impact of the imf funding cutoff is not limited to its own funding, but has also spill-over effects to the private and public sector, which usually contributes most of the ­funding. Or, as is often said, the suspension of imf funding has the same consequences as excommunication in the Catholic Church. See also Sorel, supra note 7, at 64. “It should be noted that the procedure for ‘stand-by arrangements’ is very original; despite the fact that they do not take the normal form of an agreement signed by two contracting parties, the letter of intent being merely a unilateral act of the applicant signed by his/her Minister of Finance or the Governor of his/her issuing institution, they are nonetheless genuine international agreements, the terms of which are binding for the Fund and the Member State concerned” (author’s translation); Sorel, supra note 7, at 50. It should also be emphasized that another imf objective stemming from the Standby Arrangement’s non-binding nature is that it provides a great deal of flexibility in the negotiations on the implementation of the agreement. This is because if it were a binding agreement, any deviation from the state would be considered a breach of its obligations, see Sorel, supra note 7, at 50. D. Carreau, Le Fonds Monétaire International (Paris: Pedone, 1970), at 191.

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with the result that they are entirely governed by international law.31 Along similar lines, Alexandrowicz argues that, from a legal point of view, the imf is the vendor of a part of its capital reserve to the Member State and, at the same time, is the purchaser of the currency of that State, which exercises Special Drawing Rights. Such transactions are governed by contractual law and, since the two parties are subjects of international law, they are international treaties governed by international law.32,33 An additional argument in the same direction is that the position adopted by the imf Board of Governors in relation to the legal nature of Stand-by ­Arrangements – that is that they do not constitute international treaties – is not an interpretation of the Articles of the imf’s Statute on the basis of the interpretative power it is endowed with by virtue of Article xxx of the Statute.34 Therefore, the imf’s decision on the legal nature of the Stand-by Arrangements is an ultra vires act.35 Consequently, the issue of whether the aforementioned acts should be considered as an international treaty or not, should be decided on the basis of international law itself. Furthermore, the imf’s position on the matter is only one of the elements to be taken into account, but is by no means the sole determinative element.36 That is not to say that the opposite view does not have its proponents. Gold, a long time legal advisor of the imf, has argued in his writings that “[t]he two stand-by documents, the letters of intent and the stand-by arrangement, do not constitute an international agreement under which the member undertakes obligations to observe its objectives and policies”.37 He elaborates on this point further: 31 32

J. Fawcett, “Trade and Finance in International Law”, rcadi 123 (1968): 215, at 236. G. Alexandrowicz, The Law-making Functions of the Specialized Agencies of the United ­Nations (Sydney: Angus and Robertson, 1973), at 123. 33 Leaning in that direction, see D. Summers, A. Broches and G. Delaume, “Conflict Avoidance in International Loans and Monetary Agreements”, Law and Contemporary Problems 21 (1956): 463, at 478; I. Detter, Law-making by International Organizations (Stockholm: P.A. Norstedt and Söner, 1965), at 155; N. Kremmydas, “The Cross-conditionality Phenomenon: Some Legal Aspects”, The International Lawyer 23/3 (1989): 651–675. 34 On the ability of the imf, and more generally of international financial institutions, to interpret their constituent instruments, see E. Hexner, “Interpretation of Public International Organization of their Basic Instruments”, ajil 53/2 (1959): 341–370; T. Treves, “Les décisions d’interprétation des Statuts du du Fonds monetaire international”, rgdip 79 (1975): 5–24. 35 On “ultra vires acts”, see E. Osieke, “The Legal Validity of ultra vires Decisions of International Organizations”, ajil 77/2 (1983): 239–256. 36 Fawcett, supra note 31, at 236. 37 Gold, supra note 4, at 43.

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The Fund has made it clear that a letter of intent does not have contractual effect and the non-observance of a performance criterion, its access to the Fund’s resources under a stand-by arrangement will be interrupted not because it is breaking a contractual commitment, but because the Fund has decided in the stand-by arrangement than non-observance may result in an improper use of the Fund’s consultation, with the Fund to determine the circumstances in which further purchases may be made.38 Several other authors follow the same line of thought, such as Silard,39 Lauterpacht40 and Roessler.41 A number of elements support this latter view on the matter. Firstly, the imf, in its 1968 decision on Stand-By Arrangements,42 made it clear to the other organs of the Fund that “[i]n view of the character of stand-by arrangements, language having a contractual flavour will be avoided in stand-by documents”.43 Secondly, States seeking imf assistance, although not explicitly adopting the same position, seem to tacitly accept it, as none of them has o­ pposed it, and this practice involves hundreds of imf Stand-by ­Arrangements.44 If the two parties wanted the Stand-by Arrangements to be international treaties, they could of course agree so. The will of the parties – of both subjects of international law – would be decisive. In the same direction, it is argued that neither of the two parties has submitted the two documents (“Letter of Intent” and “Stand-by Arrangement”) to the UN Secretariat for p ­ ublication 38 39 40 41 42 43

44

J.K. Horsefiled (ed.), The International Monetary Fund 1945–1965: Twenty Years of International Monetary Cooperation, Vol. ii Analysis (Washington, DC: imf, 1969), at 535. S. Silard, “Legal Aspects of Development Financing in the 1980s: The Role of the imf”, aulr 32/1 (1982): 89, at 95. E. Lauterpacht, “Gentlemen’s Agreement”, in: W. Flumme et al. (eds.), International Law and Economic Order: Essays in Honour of P.A. Mann on the Occasion of his 70th Birthday (München: Beck, 1977), at 381–398. F. Roessler, “Law, de facto Agreements and Declarations of Principle in International Economic Relations”, gybil 21 (1978): 27–59. imf (ed.), Selected Decisions of the International Monetary Fund, 8th Issue (Washington, DC: imf, 1976), at 49. According to Gold, “The imf’s rejection of an animus contrahendi was made explicit in a decision as early as 1968: In view of the character of stand-by arrangements language having a contractual flavour will be avoidable in the stand-by documents”; J. Gold, Interpretation: the imf and International Law, Vol. 4 (The Hague/Boston: Kluwer Law ­International, 1996), at 61. On practice as a factor determining international responsibility, see Ε. Roucounas, “Practice as Relevant Factor for the Responsibility of International Organizations”, in: M. Ragazzi (ed.), Responsibility of International Organizations: Essays in Memory of Sir Ian Brownlie (Leiden: Brill/Martinus Nijhoff, 2013), at 159–171.

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in accordance with Article 102 of the Charter. The counterargument raised to this criticism is the fact that this failure to do so is due to the short duration of the Stand-by Arrangements.45 However, this is insufficient to the extent that even international treaties of limited duration are submitted to the UN Secretariat.46 Moreover, the willingness of the parties not to regard these texts as international treaties arises from the fact that parliamentary ­ratification procedures for international treaties are in no way followed.47 From a practical/political point of view, the imf’s choice to assume that Stand-by Arrangements are not contractual instruments, let alone international treaties, and, to some extent, to impose this view on the States that apply it for assistance, is due to the fact that the imf wishes to maintain the Stand-by Arrangement under its sole control, thus avoiding any recourse to international courts.48 This attitude of the imf has been heavily criticised, on the grounds that while the imf imposes on States policies that, through conditionality, ­restrict their sovereignty, it does not want to bear any kind of responsibility for the outcome of these policies. However, this suits States as well to some degree. As far as States are concerned, the non-designation of Stand-by Arrangements as international treaties allows governments to refrain from parliamentary ratification procedures, given the “hard” conditions imposed on the various social strata through the conditionality measures. This is what the imf’s Legal Advisor also seems to imply when he stated that “[t]he proper legal characterization of stand-by agreements has practical and political implications”.49 To summarize the above, one should admit that imf Stand-by Arrangements are not international treaties subject to ratification by the apposite legislative body. This is not due to any inherent legal weakness that characterizes them, but rather due to the fact that the imf’s basic concern – which is not 45 Fawcett, supra note 31, at 340. 46 U. Knapp and E. Martens, “Article 102”, in: B. Simma (ed.), The Charter of the United ­Nations: A Commentary (Oxford: Oxford University Press, 2002), 1277. 47 Gold, supra note 43, at 23. 48 D. Carreau, Le système monétaire international: aspects juridiques (Paris: A. Colin, 1972), at 190; C. Organ, “The Juridical Nature of the Stand-by Arrangements of the International Monetary Fund: Legal Taxonomy and Beyond”, afjicl 2/3 (1990): 423, at 437. 49 Gold, supra note 43, at 43. The same phenomenon of non-ratification of the Stand-by Arrangement of the imf is observed in relation to all Memoranda of Understanding of Greece with the imf after 2010, as opposed to the loan agreements of 2010 and 2015 that were agreed with subjects of international law (Member States of the Eurozone and the European Stability Mechanism). On this issue, see Α. Μπρεδήμα, “Μνημόνιο, Stand-by Arrangement (ΔΝΤ), και Συμφωνία Δανεισμού στα Κράτη Μέλη της Ευρωζώνης και η Σύναψή τους υπό το Πρίσμα του Διεθνούς και Συνταγματικού Δικαίου”, Το Σύνταγμα [2010]: 703, at 703 et seq.

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objected to by States – is to avoid creating international responsibility and to safeguard States from internal procedures that could cause political problems. If, as mentioned above, it appears that there is no international responsibility of the imf on the basis of a treaty relationship, since it is non-existent u ­ nder international law, one might look for another legal basis, for example in the area of customary international law, or of general principles of international law or, even, of general principles of law. With regard to the “general principles of international law”, which many identify with international customary law,50 one could invoke, in order to support the view that the imf can be held responsible, the violation of the principle of “sovereignty”, a fundamental principle of international law.51 Is there a violation of this principle, stemming from imf conditionality, to the extent that, in essence, the management of the borrowing State’s economic policy has passed into the hands of the imf? The answer seems to be easy: to the extent that the State has given its consent to the implementation of these measures, State sovereignty is not violated. Contrary to what may materialize in criminal law, illegality in international law does not automatically arise from objective situations.52 Subjects of international law may adopt exceptions to the rule, and that is precisely what the consent of the affected State means. Since there is a real risk of misuse of the consent argument, the Articles on International Responsibility, both for States (arsiwa) and for international organizations (ario), stipulate that in order for consent to be valid, it must have been given freely and in a clear manner.53 Regarding the clear nature of consent, under conditionality, no problem arises, to the extent that the State has expressly ­accepted – through Memoranda – the terms of conditionality. But as far as the issue of free State consent is concerned, doctrinal views are split on the matter: for some,54 consent is a necessary but sufficient condition not to impute 50

I. Brownlie, “International Law at the Fiftieth Anniversary of the United Nations”, rcadi 255 (1995): 9, at 83; contra, P.-M. Dupuy, Droit international public (Paris: Dalloz, 1998, 4th edn.), at 305 et seq. 51 On the nature and place of State sovereignty in international law, see R. Jennings, “Sovereignty and International Law”, in: G. Kreijen (ed.), State, Sovereignty, and International Governance (Oxford: Oxford University Press, 2002), at 27–44. 52 Crawford, supra note 14, at 81–82. 53 Article 20 ario: “Valid consent by a State or an international organization to the commission of a given act by another international organization preclude the wrongfulness of that act in relation to that State or international organization to the extent that the act remains within the limits of that consent”. 54 Only in the case of coercion or some other factor could consent be considered to have been violated. In relation to international responsibility of States; see Crawford, supra note 14, at 163.

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any damage; for others, however, one cannot and should not be so formalistic: the fact that a State can deny its “loan” and its terms may not, strictly speaking, restrict State sovereignty, but in practice such a denial is a theoretical exercise, since it would result in a radical deterioration of the State’s financial position and to disorderly bankruptcy.55 If conditionality extends to the point of expropriation of State sovereignty over the State’s natural resources, then the question of the application of the relevant rules of international law is also involved.56 In relation to general principles of law, the argument put forward by Carreau is, as he states, that: “We must not forget that the ‘banker’ who delivers frivolous credits to a client, or who intervenes very strongly in the management of his affairs, may see his own responsibility being involved in the event of [a client’s] disintegration. There is a certain risk here, to which the imf should never be exposed”.57 Although the exact legal basis of this argument is not defined in relation to the imf’s responsibility, it appears that a rule of domestic law is applied mutatis mutandis to the relevant issues.58 If one considers that similar rules exist in the laws of most States of the international community, could it be said that we are facing a general principle of law, in accordance with Article 38(1)(c) of the Statute of the icj? The problem with this argument is who will validly judge whether this is a generally recognized general principle of law? This would usually be a case for the icj, but the Court usually approaches with trepidation and a certain degree of mistrust the transposition of domestic rules and principles to the international legal system.59 And most importantly, the Court would not have the opportunity to comment on this issue, unless it is asked to give an Advisory 55 56

57 58 59

M.S.H. Mahmood, “Mondialisation et souveraineté de l’Etat”, jdi 3 (1996): 611, at 633. For the sovereign rights of States over their natural resources see generally: D. Rosenberg, Le principe de souverainete des Etats sur leurs ressources naturelles (Paris: lgdj, 1983), at 134 et seq. It should be noted, however, that the economic pressure from other States or international organizations to “expropriate” State sovereignty over natural resources does not appear to be a violation of international law, because the sphere of economic freedom of States is essentially a relative concept, see A. Tzanakopoulos, “The Right to be Free from Economic Coercion”, cjicl 4 (2015): 616–633. For a more critical appraisal of economic coercion, see O. Corten, “Article 52”, in: O. Corten and P. Klein (eds.), Les Conventions de Vienne sur le droit des traités. Commentaire article par article, Vol. iii (Bruxelles: Bruylant, 2006), 1867, at 1883. Carreau and Juillard, supra note 1, at 658 (author’s translation). Analogy consists of a mental endeavor between two or more legal acts or situations. See J. Salmon (ed.), Dictionnaire de droit international public (Bruxelles : Bruylant, 2001), at 63. “The Court itself has referred to Article 38, para. 1 (c) with an extreme parsimony … this provision has been expressly mentioned only four times in the entire case law of the Court since 1922, and each time, it has ruled out for are reason or another”, A. Pellet,

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Opinion, given that international organizations, including the imf, cannot be parties to the proceedings before it.60 In view of this, and also of the fact that the imf cannot be brought before domestic courts by virtue of the jurisdictional immunity it enjoys,61 one would reasonably wonder whether the above arguments are of any particular practical import. In the author’s personal view, they do indeed have some significance: on the one hand, although the imf may enjoy jurisdictional immunity, that is an entirely different matter from that of recognizing that it bears international responsibility on the matter. Jurisdictional immunity, as a secondary rule of international law, does not exclude the existence of the primary rule that would lead to international responsibility.62 It is simply that the primary rule cannot lead, for example, to compensation, as the Court has held in the Jurisdictional Immunities case.63 III

Conclusion

From the above, one should conclude that the landscape of the imf’s international responsibility towards the debtor States, in the event of their bankruptcy, is not entirely clear. While, at the theoretical level, the requirements set by international law for the existence of international responsibility are met, the imf counters that these rules do not apply to it because there is no legal obligation on either side. This is not surprising, as this position of the imf

60 61

62

63

“­Article 38”, in: A. Zimmerman et al. (eds.), The Statute of the International Court of Justice: A Commentary (Oxford: Oxford University Press, 2012, 2nd edn.), at 833. Article 65 of the icj Statute. See in more detail, J. Frowein and K. Oellers-Frahm, “Article 65”, in: A. Zimmerman et al. (eds.), The Statute of the International Court of Justice: A Commentary (Oxford: Oxford University Press, 2012, 2nd edn.), at 1605 et seq. Regarding the immunities of international organizations, see generally: C. Dominicé, “L’immunité de juridiction et d’exécution des organisations internationales”, rcadi 187 (1984): 145–238; A. Reinisch, “Privileges and Immunities”, in: J. Klabbers and A. Wallendahl (eds.), Research Handbook on the Law of International Organizations (Cheltenham: Edward Elgar, 2011), at 132–155. For the imf Article IX(3) of its Statute applies, according to which the imf “shall enjoy immunity from every form of judicial process”. This provision establishes an absolute jurisdictional immunity, A. Reinisch, International Organizations Before National Courts (Cambridge: Cambridge University Press, 2000), at 140. See Crawford, supra note 14, at 14–16. See also C. Amerasinghe, “An Assessment of the ilc’s Articles on the Responsibility of International Organizations”, in: M. Ragazzi (ed.), ­Responsibility of International Organizations: Essays in Memory of Sir Ian Brownlie (Leiden: Brill/Martinus Nijhoff, 2013), at 71–78. Jurisdictional Immunities of the State (Germany/Italy, Greece intervening), Judgment of 3 February 2012, [2012] icj Rep. 99.

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is beneficial to it, since it wins either way; either by being shielded from the effects that its policies may have on the debtor-States, or by the debtor-State paying eventually in full the loan that it has received from the imf. This approach of the imf, which corresponds neither to the real nor to the legal state of affairs, follows a perception that was essentially imposed on the borrowing States, which did not exactly dare to object, mainly due to the implied imf sanctions. The question is whether one can “unveil the veil” so that reality of the situation can be taken into account. But doing this on a political level will not suffice. It needs to be transmutated into legal rules. In this Chapter, we examined some tentative steps taken in that direction, through the general principles of international law and the general principles of law, but which do not provide clear answers. An additional question would also be: who is competent to decide on the imf’s alleged responsibility? Certainly not the imf itself through its ability to interpret its Statute. And certainly not the debtor State itself through its national courts because of the risk of adopting biased decisions. Ultimately, only an international “bankruptcy” court could judge on these matters. But this is not on the horizon, as earlier proposals for its establishment64 in the 2000s were not accepted.65 In simple terms, the situation remains in a deadlock, which is in favour of the imf. 64

65

See J. Stiglitz, “Odious Rulers, Odious Debts”, (Atlantic Monthly, November 2003), available at: (last accessed on 1 March 2018). For an alternative proposal by the imf, in the form of a debt restructuring mechanism, but within the framework of the Fund, see A. Krueger, A New Approach to Sovereign Debt Restructuring (Washington, DC: imf, 2002). As a consequence of the usa opposing them. See R. Εuliss, “The Feasibility of the imf’s Sovereign Debt Restructuring Mechanism: An Alternative Statutory Approach to Mollify American Reservations”, auilr 19/1 (2003): 107–151.

Chapter 4

Corporations and Responsibility under International Law Markos Karavias I

Introduction

Corporations are all too often presented as outliers in the system of public international law.1 This argumentative strategy practically stirs clear of the ­challenge of fitting private entities within the corsetry of essentially public rules aimed at constraining sovereign power. Still, corporations have in their history not been as far removed from sovereign power, as commonly perceived. Corporations – admittedly cloaked in a different legal mantle – have been interwoven with the international legal system since its inception. Suffice here to note that the Dutch and British trading companies operating in East India between the 17th and 19th century were bestowed with powers comparable to those of States, merging concerns of commerce with the prerogatives of governance.2 Nonetheless, the rise of legal positivism from the 19th onwards, and the representation of international law as an exclusively state-centric system3 resulted in corporations being relegated to the normative periphery of a legal order predominantly geared towards regulating the interactions between sovereigns.

1 Ian Brownlie treated the question of corporations as subjects of international law under the rubric of “controversial candidatures” in his treatise. See I. Brownlie, Principles of Public International Law (Oxford: Oxford University Press, 2008, 7th edn.), at 66–67. Interestingly, the term has been replaced with the moniker “special types of personality” in a more recent edition. See J. Crawford (ed.), Brownlie’s Principles of Public International Law (Oxford: Oxford University Press, 2012, 8th edn.), at 121–123. 2 Ph. Stern, “The English East India Company and the Modern Corporation: Legacies, Lessons and Limitations”, Seattle University Law Review 39 (2016): 424. 3 The state-centric conception of international law has been succinctly summarized in the revered work of Lassa Openheim, who in 1912 opined that “[s]ince the law of nations is based on the common consent of individual States, States solely and exclusively are subjects of international law”. L. Oppenheim, International Law: A Treatise, Vol. i (London: Longmans, Green and Company, 1912, 2nd edn.), at 19.

© koninklijke brill nv, leiden, ���9 | doi:10.1163/9789004390485_005

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The tides started changing in 1949, when the International Court of ­Justice (icj) handed down its ground-breaking Reparation for Injuries Suffered in the Service of the United Nations Advisory Opinion. The Opinion, turning on the international legal personality of the United Nations, delivered a blow to the state-centric perception of international law. The Court stressed that “[t]he subjects of law in any legal system are not necessarily identical in their n ­ ature or in the extent of their rights, and their nature depends upon the needs of the community”.4 Following an examination of the characteristics of the organization, it came to the conclusion that it was an international person, adding that “[t]hat is not the same as saying that it is a State, which it certainly is not, or that its legal personality and rights and duties are the same as those of a State”.5 Thus, the Court dissociated personality under international law from sovereignty, opening up the path towards the enlargement of the circle of subjects of international law.6 On its face, the Opinion paved the way towards conceiving private corporate entities as subjects of international law. Yet, this possibility was at the time anything but unambiguous. Sir Gerald Fitzmaurice appearing before the Court on behalf of the Government of the United Kingdom stated during the Oral Pleadings of the Reparation Opinion: At this point I feel it necessary to digress a little from the main course of my statement, in order to make clear something which was not fully brought out in the written statement of the United Kingdom but which is necessary for the purposes of my argument, namely that […] in the opinion of the United Kingdom Government, it is incorrect to regard individuals, or private companies, corporations or other such associations, as being subjects of international law or as having any direct international rights or obligations.7 A number of years later, the issue of corporations, and more specifically the question of their diplomatic protection, resurfaced in Barcelona Traction. ­During the Oral Pleadings the arguments persistently revolved around 4 Reparation for Injuries Suffered in the Service of the United Nations, Advisory Opinion of 11 April 1949, [1949] icj Rep. 174, at 178. 5 Ibid., at 179. 6 Reference is here made to a seminal contribution on international legal personality, namely H. Mosler, “Die Erweiterung des Kreises der Völkerrechtsubjekte”, ZaöRV 22 (1962): 1. 7 Statement of Sir Gerald Fitzmaurice (UK) in the oral statements relating to the Reparation for Injuries Suffered in the Service of the United Nations, Pleadings, Oral Arguments, Documents, 1949, 115, available at: (last accessed on 1 March 2018).

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q­ uestions of the structure and operation of the company. Yet, the icj simply noted, in a somewhat sibyllic manner, that “international law is called upon to recognize institutions of municipal law that have an important and extensive role in the international field. This does not necessarily imply drawing an analogy between its own institutions and those of municipal law”.8 Sir Gerald Fitzmaurice, this time in his capacity as a Judge of the Court, intimated in his separate opinion the view he had expressed during the course of the Reparation Oral Pleadings, namely that it “is above all necessary to have regard to the concept and structure of companies according to the systems of their origin, which are systems of private or domestic law”.9 The same issue arose time and again throughout the 1960s and 1970s in respect of the contracts entered into by private corporations and States, which came to be termed ‘state contracts’. Any suggestion, that such contracts were governed by international law proper was countered by criticisms relying on the lack of international personality by corporations. Rigaux often spoke of a vicious circle that can be summarized as follows: in order for international law to govern a contract between a State and a corporation, the corporation has to be clothed with international legal personality. Yet, the corporation derives its legal personality precisely from entering into such a contract.10 Ever since the end of the Cold War, the question of the relationship between corporations and international law resurfaced and jumped from the sidelines to the forefront. The renewed interest in corporations can be explained on account of two factors: (a) globalization, which has allowed private corporate groups to muster such economic power that eclipses that of certain sovereign States and (b) privatization, that has allowed corporations to enter what once was considered to be the exclusive domain of States. Thus, corporations are nowadays portrayed as a force antagonizing States not only on the level of economic leverage, but also on a functional level through the assumption of ­public functions.11 The submission of private corporations is then seen as a

8 9 10

11

Barcelona Traction Light & Power Company Ltd. (Belgium v. Spain) (Second phase), Judgment of 5 February 1970, [1970] icj Rep. 6, at 38 (hereinafter Barcelona Traction case). Barcelona Traction case, supra note 8, Separate Opinion of Judge Fitzmaurice, 64, at 66. Fr. Rigaux, “Des dieux et des héros. Réflexions sur une sentence arbitrale”, rcdip 67 (1978): 435. One should perhaps here add that a similar dilemma emerged in scholarship vis-à-vis the capacity of States to enter into international agreements as a criterion of statehood. The better view is that such capacity is not a criterion, but a consequence of statehood. See J. Crawford, The Creation of States in International Law (Oxford: Oxford University Press, 2007, 2nd edn.), at 61. See generally Ph. Alston (ed.), Non-State Actors and Human Rights (Oxford: Oxford University Press, 2005).

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means of curbing corporate conduct in contravention of fundamental international norms. Nowadays, the focus of the debate does not exclusively rest on the abstract question of the corporations’ international legal personality, but also on the extent to which the latter are recognized as addressees of international law norms, predominantly in the field of international human rights and criminal law.12 The current piece takes another approach and it focuses on the ways in which corporations are captured by international law rules on responsibility. Responsibility is not a unitary concept or set of rules for that matter. The diversification in the subjects of international law has given rise to a diversification of the systems of responsibility.13 The analysis will begin with the traditional ambit of responsibility under international law, namely responsibility of States and the extent to which the conduct of corporations can result in a State being held responsible. It will then turn to international criminal responsibility, and assess the extent to which it is the corporation or the individuals acting on behalf of the corporation to which responsibility attaches under international criminal law. Thirdly, the paper will address the possibility of the corporation being per se held responsible under international law for internationally wrongful acts perpetrated by that corporation. The paper will close with a few thoughts on the shape-shifting nature of the corporation and the implications this has in terms of the synergies between corporations and responsibility ­under international law. II

Corporate Conduct as a Trigger of State Responsibility

The corpus of State responsibility, as codified by the United Nations International Law Commission (ilc) in its Articles on the Responsibility of States for Internationally Wrongful Acts14 (arsiwa) rests on the fundamental ­conception 12

13 14

See generally Alston, supra note 11; A. Clapham, Human Rights Obligations of Non-State ­Actors (Oxford: Oxford University Press, 2006); J. Zerk, Multinationals and Corporate ­Social  Responsibility: Limitations and Opportunities in International Law (Cambridge: Cambridge University Press, 2011); A. de Jonge, Transnational Corporations and International Law: Accountability in the Global Business Environment (Cheltenham, UK and Northampton, MA: Edward Elgar Publishing, 2011); M. Karavias, Corporate Obligations under International Law (Oxford: Oxford University Press, 2013). A. Pellet, “The Definition of Responsibility in International Law”, in: J. Crawford, A. Pellet and S. Olleson (eds.), The Law of International Responsibility (Oxford: Oxford University Press, 2010), at 6–8. See ilc, “Report of the International Law Commission Covering its 53rd Session”, A/56/10 (2011) reproduced in: yilc [2001/II Part Two]: 1, at 26, para. 76 (hereinafter arsiwa Commentaries).

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of States’ independent responsibility, namely that each State is responsible for its own wrongful conduct. Nonetheless, States are but fictions acting through intermediaries. What matters from an international law perspective is whether the conduct of natural and legal persons can be considered an ‘act of the State’ thus giving rise to State responsibility; in sum, whether such conduct can be attributed to the State. Attribution is rightly described by Crawford as a ‘basal concept of the law of state responsibility and an essential condition for its operation’.15 The legal process of attribution exercises a dual function: it serves both as an enabler of State responsibility, as well as a threshold thereof. Not all conduct taking place on the territory of a State is attributed to it. On the contrary, international law avoids such a ‘catch-all’ approach both with a view to limiting responsibility to conduct which engages the State as an organization, and also so as to recognize the autonomy of persons acting on their own account and not at the instigation of a public authority. Thus, the general rule is that the only conduct is attributed to the State at the international levels is that of its organs of government, or of others who have acted under the direction, instigation of control of these organs, i.e. as agents of the State.16 In the light of this proposition, the conduct of corporations is neither a priori excluded from the ambit of State responsibility nor automatically attributed to the State. Still, once attributed to a State, corporate conduct may trigger the latter’s responsibility under international law. The justification for such an attribution lies in the existence of a link between corporation and State. This link can manifest itself in two ways: it can be either institutional or factual. The existence of an institutional link is the rationale for Article 5 arsiwa, which provides that the conduct of an entity which is not an organ of the State “but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person is acting in that capacity in the particular instance”. According to the ilc Commentary to Article 5, the term ‘entity’ “reflects the wide variety of bodies which, though not organs, may be empowered by the law of a State to exercise elements of governmental authority. They may

15 16

J. Crawford, State Responsibility – The General Part (Oxford: Oxford University Press, 2013), at 113. arsiwa Commentaries, supra note 14, at 38.

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include […] private companies”.17 For the purposes of Article 5 arsiwa, what matters is not the mode of creation of these entities, or the potential control exercised by the State, but whether the entity was empowered with and under the circumstances – exercising elements of ‘governmental authority’. As the Hamester v. Ghana tribunal noted, ‘it much be shown that the precise act in question was an exercise of such governmental authority and not merely an act that could be performed by a commercial entity’.18 Article 5 arsiwa has, following the adoption of the arsiwa, been discussed predominantly in investment arbitral awards, which are nonetheless mostly concerned with state entities, or alternatively corporate entities set up by the State.19 Exceptionally, the Inter-American Court of Human Rights (IACtHR) has relied upon Article 5 arsiwa in order to attribute to Brazil the conduct of the staff of a “private health institution engaged by the State to render mental health services [under Brazilian domestic law] and operating as a public health institution on behalf of the State”.20 The empowerment of private corporate entities on the basis of domestic law is not the only way of linking corporate conduct back to the State. The conduct of a corporation may be attributed to a State to the extent that the corporation is acting under the control of the latter. ‘Control’ as a criterion of attribution operates on two levels. Should the control of the State be ‘strict’, thus giving rise to a state of complete dependence of the corporation on the State, then that corporation may for the purposes of State responsibility be considered a de facto organ under Article 4(2) arsiwa. Besides, to the extent that the State is exercising effective control over specific corporate conduct, then such conduct may be attributed to the State under Article 8 arsiwa. In both these instances, what matters from the perspective of the law of state responsibility is the existence of a “specific factual relationship between the person or entity engaging in conduct and the State”.21 The ‘strict’ and ‘effective’ control tests allowing for attribution of conduct to the State were first spelled out in detail in Military and Paramilitary ­Activities 17 18 19

20 21

Ibid., at 143. Gustav FW Hamester GmbH & Co KG v. Republic of Ghana, icsid, Award of 18 June 2010, icsid Case No. ARB/07/24, para. 193. See e.g. Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, icsid, Award of 6 November 2008, icsid Case No. ARB/04/13, paras. 163–171, Helnan International Hotels A/S v. The Arab Republic of Egypt, icsid, Award of 3 July 2008, icsid Case No. ARB/05/19, paras. 91–95. Case of Ximenes-Lopes v. Brazil (Merits, Reparation and Costs), IACtHR, Judgment of 4 July 2006, Series C No.149, para. 100. arsiwa Commentaries, supra note 14, at 47 (emphasis added).

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in  Nicaragua, yet they emerged as somewhat of a normative cause celebre ­following the Bosnian Genocide judgment.22 Prima vista these tests have served the icj in relation to the attribution of the conduct of paramilitary or secessionist entities to an outside State. Following Bosnian Genocide, investment ­tribunals that increasingly engaged with ‘control’ as a means of establishing ­attribution. Thus, the Tulip Tribunal examined in detail whether Emlak, a ­private entity engaged in commercial transactions, was being “effectively controlled” by toki, a State organ of the Turkish Republic, in specifically administering and terminating the contract with the applicant investor. Whilst the tribunal dismissed the applicant’s argument refusing to find that the control exercised by toki over Emlak was sufficient for the purposes of attribution under international law, it did so squarely within the context of Article 8 arsiwa.23 One should here perhaps note that the criteria developed by the icj in Nicaragua and Bosnian Genocide are not automatically transposable or applicable to the investment context. As the Bayindir Tribunal noted the levels of control required for a finding of attribution under Article 8 in other factual contexts, such as foreign armed intervention or international criminal responsibility, may be different. [The Tribunal] believes, however, that the approach developed in such areas of international law is not always adapted to the realities of international economic law and that they should not prevent a finding of attribution if the specific facts of an investment dispute so warrant.24 Still, tribunals have increasingly made use of the arsiwa and the icj case-law in their findings on attribution, offering us a glimpse of the infinite variety of links developed between corporate entities and States. Concluding, the legal process of attribution highlights the relevance of corporations from the perspective of the law on international responsibility. Indeed, States should not be allowed to employ corporate entities to further their regulatory agendas without the possibility that the conduct of such entities may be attributed to those States. At the same time, through the operation

22 23 24

For the most detailed and legally accurate rendition of the modalities of the two ‘control’ tests in icj case-law see St. Talmon, “The Responsibility of Outside Powers for Acts of Secessionist Entities”, iclq 58 (2009): 493–517. Tulip Real Estate Investment and Development Netherlands B.V. v. Republic of Turkey, icsid, Award of 10 March 2014, icsid Case No. ARB/11/28, paras. 301–327. Bayindir Insaat Turizm Ticaret ve Sanayi A.S. v. Islamic Republic of Pakistan, icsid, Award of 27 August 2009, icsid Case No. ARB/03/29, para. 130.

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of attribution, corporate conduct transmutes into conduct of the State, and therefore is not sanctioned itself under international law. III

Corporate Conduct as a Trigger of International Criminal Responsibility

The idea that States may establish and use corporate entities as their ‘long arm’ in the global market is only part of the story. More prevalent is the idea that corporations, and especially multinational ones, are posing a challenge to the regulatory power of States. It was around the mid-1990s that this shift occurred in terms of the debate on human rights and corporations. Corporations were no longer seen as agents for development but as harbingers of human rights abuse, beyond the reach of any national regulation or international rule. Corporations have appeared “to be a power unto themselves”.25 In order to curb such power and combat corporate impunity, clarion calls have been made for the submission of corporations to international criminal law. Such calls have been facilitated by the re-emergence of international criminal law as an enforcement mechanism of the fundamental rules of the international legal order.26 Notably an effort took place during the negotiations of the Statute of the International Criminal Court to widen the jurisdiction ratione personae of the Court to include private legal entities. This effort was eventually dropped, since it proved divisive for States participating in the icc Statute negotiations.27 Still, the proposition that corporations should be woven into the fabric of international criminal law has, if anything, gained momentum following the adoption of the icc Statute. 25 26

27

P. Muchlinski, Multinational Enterprises and the Law (Oxford: Oxford University Press, 2007, 2nd edn.), at 3. See M. Cherif Bassiouni, “International Criminal Justice in Historical Perspective: The Tension between States Interests and the Pursuit of International Justice”, in: A. Cassese (ed.), The Oxford Companion to International Criminal Justice (Oxford: Oxford University Press, 2009), 131, at 141, where he notes that “[i]nternational criminal justice, which is the most important of all post-conflict justice mechanism is an idea whose time has come”. See P. Saland, “International Criminal Law Principles”, in: R. Lee (ed.), The International Criminal Court – The Making of the Rome Statute – Issues, Negotiations, Results (The Hague: Kluwer Law International, 1999), Chapter vii, 189; A. Clapham, “The Question of Jurisdiction under International Criminal Law over Legal Persons: Lessons from the Rome Conference on an International Criminal Court”, in: M. Kamminga and S. Zia-Zarifi (eds.), Liability of Multinational Corporations under International Law (The Hague: Kluwer Law International, 2000), 139; W. Schabas, The International Criminal Court: A Commentary on the Rome Statute (Oxford: Oxford University Press, 2010), at 425–427.

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Corporations may become implicated in the commission of international crimes in a myriad of ways. Private military/security corporations nowadays routinely participate in operations involving the use of force.28 Besides, companies enter into commercial transactions with States in respect of military equipment and armaments, as well as infrastructure that may be employed in relation to conduct proscribed by international human rights and humanitarian law.29 Corporations of course, like states, are legal fictions and they act through individuals. The key question in respect of corporations and international criminal responsibility is whether such responsibility should attach to an individual within the corporate structure, and if so under which conditions, or whether the corporation should itself be held criminally responsible under international law qua legal person. The first proposition is more attuned to the modalities of international criminal law considering that the fundamental cornerstone of international criminal law remains the principle of individual criminal responsibility, which has been characterized a general principle of law.30 As the Judgment of the International Military Tribunal at Nuremberg held: “[c]rimes against international law are committed by men, not by abstract entities, and only by punishing individuals who commit such crimes can the provisions of international law be enforced”.31 Still, it has been argued that individual criminal responsibility is not sufficient a deterrent, as it fails to capture the complexity of corporate management system. Thus, the acknowledgment of the c­ riminal responsibility of the corporation eo nomine under international law may induce the corporation as a principal to monitor its ­employees and agents. 28

29

30

31

See Ch. Lehnardt, “Individual Liability of Private Military Personnel under International Criminal Law”, ejil 19 (2008): 1015–1034; O. Quirico, “The Criminal Responsibility of Private Military and Security Company Personnle under International Humanitarian Law”, in: F. Francioni and N. Ronzitti (eds.), War by Contract: Human Rights, Humanitarian Law, and Private Contractors (Oxford: Oxford University Press, 2011), at 423–448. Thus, Human Rights Watch decried the sale by Caterpillar Inc. of its D9 bulldozer to the Israeli army, when it became known that this type of bulldozer was used to raze Palestinian homes and shred roads. See Human Rights Watch, “Israel: Caterpillar should Suspend Bulldozer Sales”, (Human Rights Watch, 21 November 2004), available at: (last accessed on 1 March 2018). A. Cassese, International Criminal Law (Oxford: Oxford University Press, 2003), at 136; M.  Cherif Bassiouni, “The Subjects of International Criminal Law: Ratione Personae”, in: M. Cherif Bassiouni (ed.), International Criminal Law, Vol. i (Leiden: Brill, 2008, 3rd edn.), 41. Judgment of the Nuremberg Tribunal, imt, Judgment of 1 October 1946, Trial of the Major War Criminals 1 (1947): 171, at 223.

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One is then called upon to re-think the link between international criminal responsibility and corporate conduct in the light of existing international and national case-law. First, one could perhaps envisage corporations as ‘criminal organizations’ in the sense of the Nuremberg case-law. Second, one could think of the individual criminal responsibility of the senior managerial staff of a corporation. Finally, one can envisage scenarios where the corporation is complicit in violations of international law by States. 1 Corporations as Criminal Organizations The establishment of the International Military Tribunal aimed p ­ redominantly at passing judgment on the criminal acts of high-ranking official of the Nazi apparatus. Still, the drafters of the Tribunal Charter were aware of the systemic nature of Nazi criminality. It was argued that the “[p]unishment of war criminals necessarily involved more than the trial of a handful of Nazi leaders … organization trials offered the only effective means for punishing thousands of Nazi collaborators who might otherwise have escaped justice”.32 With this in mind, the decision was made to include in the International Military Tribunal Charter a provision on ‘criminal organizations’ with the purpose of prosecuting second-tier members of the Nazi apparatus. Article 9 of the imt Charter provided that “[a]t the trial of any individual member of any group or organization the Tribunal may declare (in connection with any act of which the individual may be convicted) that the group or organization of which the individual was a member was a criminal organization”. Article 10 of the imt Charter stated that “[i]n cases where a group or organization is declared criminal by the Tribunal, the competent national authority of any Signatory shall have the right to bring individuals to trial for membership therein before national, military or occupation courts”. Of course, Article 9 of the imt Charter did neither provide a clear-cut definition of the term ‘criminal organization’ nor clarify the conditions of membership. Therefore, the task fell upon the imt to provide guidance as to the ­application of the above provision, which went forth to flesh out in its Judgment a theory of the concept. It held that [t]here must be a group bound together and organized for a common purpose. The group must be formed or used in connection with the commission of crimes denounced by the Charter. Since the declaration with respect to the organization and groups will … fix the criminality of its members, that definition should exclude persons who had no knowledge 32

H. Leventhal et al., “The Nuremberg Verdict”, hlr 60/6 (1947): 857, at 901.

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of the criminal purposes or acts of the organization and those who were drafted by the State for membership … Membership alone is not enough to come within the scope of those declarations.33 One could argue that the concept of the ‘criminal organization’ and more specifically the power of the Tribunal to declare an organization criminal did not sit comfortably with the principle of individual criminal responsibility. Yet, the Tribunal never shied away from this principle. It expressly held in the Judgment that its power to declare an organization criminal “should be exercised in accordance with well-settled legal principles, one of the most important of which is that criminal guilt is personal, and that mass punishments should be avoided”.34 Membership alone was not sufficient a ground for the prosecution of a person. On the contrary, that person should at least be also aware of the criminal purposes or acts of the organization. It thus becomes obvious that the operation of the concept of ‘criminal organizations’ highlighted the significance of personal culpability as the bedrock of individual criminal responsibility. One could therefore speak of an organizational criminality, in the sense that the individuals forming part of an organization are susceptible to punishment, as opposed to the organization qua collectivity.35 The Tribunal did not have the power to impose a criminal sanction on a collectivity, as its jurisdiction only extended over natural persons. Besides, its members were disinclined to do so.36 Based on the above, the notion of ‘criminal organizations’, as employed in the imt Judgment, does not easily square with the criminal responsibility of corporations qua legal entities. First, the organizations declared criminal in Nuremberg were not themselves held responsible under international criminal law. No punishment or sanction was imposed on them. Second, a ‘criminal organization’ was a group organized for the common purpose of perpetrating crimes under international law. It is hard to conceive of a private corporation today satisfying this criterion. It is without doubt that private corporate conduct may result in hampering the enjoyment of human rights or in nefarious consequences for the environment, yet to treat is a ‘criminal organization’ in the Nuremberg sense would be ‘watering down’ the normative content of the 33 34 35 36

imt Judgment, supra note 31, at 256. Ibid. On organisational criminality, see N. Jørgensen, The Responsibility of States for International Crimes (Oxford: Oxford University Press, 2003), at 69. G. Dahm, Völkerrecht, Vol. iii (Stuttgard: Kohlhammer, 1961), at 308.

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concept as fleshed out by the imt. Finally, one has to contemplate the normative status of the concept of ‘criminal organizations’ in positive international criminal law. It appears that post-Nuremberg it did not achieve the status of a customary rule.37 Spiropoulos, the ilc Special Rapporteur on the Formulation of the Nuremberg Principles, noted that Articles 9 and 10 of the imt Charter “did not contain a true principle … the proclamation of the criminal character of certain German groups or organizations had had no consequences of a penal nature”.38 Therefore, the ilc decided to omit any reference to the concept of ‘criminal organizations’ in its Nuremberg Principles. When the debate on ‘criminal organizations’ resurfaced during the drafting of the icty Statute, there were objections as to the use of the concept and thus any reference thereto was omitted.39 The concept of ‘criminal organizations’ returned to the table during the drafting of the Statute of the International Criminal Court, when France proposed that the Statute should not refer to the criminal responsibility of ‘legal persons’ but instead to ‘criminal organizations’. A small number of States agreed, other delegations were skeptical and some were outright critical. It is interesting here to note the position of China, which stated inter alia that “[i]n references to the Nuremberg Charter and Tribunal … the specific historical background and the special characteristics of the trials should be taken into account … It should also be borne in mind that the trials had been conducted by victorious over defeated countries. The Court under discussions would be established against the background of a complex international political situation that differed sharply from the situation prevailing in 1945”.40 The practice of States as well as of the ilc seems to vindicate the view that the concept of ‘criminal organizations’ was peculiar to the Nuremberg process, and therefore is not automatically transponsable to modern international criminal law. In any case, as stressed above, ‘criminal organizations’ were not found responsible under international law qua legal entities. To this extent, the 37 38 39 40

Cassese speaks of an “exception” to the principle of individual criminal responsibility. Cassese, supra note 30, at 137. See Statement by Spiropoulos, in: ilc, “Summary Record of the 28th Meeting”, A/CN. 4/SR.28 (26 May 1949), reproduced in: yilc [1949/I]: 200, at 204, para. 55. See V. Morris and M. Scharf, An Insider’s Guide to the International Criminal Tribunal for the Former Yugoslavia: Documentary History and Analysis, Vol. i (New York, NY: Transnational Publishers, 1995), at 94–95. United Nations, “United Nations Diplomatic Conference of Plenipotentiaries on the ­Establishment of an International Criminal Court – Summary Records of the Meetings of the Committee of the Whole – 1st Meeting”, A/CONF.183/C.1/SR.1 (16 June 1998), para. 36 as quoted in Schabas, supra note 27, (Oxford: Oxford University Press, 2010), at 426.

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concept cannot serve as a precedent or as a analytical tool with which to probe the responsibility of corporations under international criminal law. 2 The Industrialists Cases One of the points heatedly debated during the Nuremberg trial was whether crimes against international law were committed solely by individuals who acted in an official capacity or whether the reach of international criminal law extended to private conduct amounting to a crime against international law. This question emerged as the Military Tribunals sitting in occupied Germany by virtue of Allied Control Council Law No. 10 indicted – amongst others – ­German industrialists on account of their participation in and support of the Nazi operations. This series of cases have come to be known as the Industrialists cases. In Flick the Defense submitted that “the accused were private individuals holding no public official positions within the State, and that as they did not represent the State in any capacity, they could not be criminally liable for violations of international law”.41 This submission was rejected by the US Military Tribunal (usmt) which held that “[a]cts adjudged when done by an officer of the Government are criminal also when done by a private individual”.42 Equally, in Krupp it was held that “[t]he laws and customs of war are binding no less upon private individuals than upon government officials and military personnel”.43 The above dicta suggested that international criminal law reaches beyond State agents in a strict sense to sanction the conduct of private individuals who have a factual link to the conflict. The same line of reasoning was espoused by the usmt in Krauch, yet the language of the judgment has allowed for various interpretations. The defendants in Krauch had been directors of IG Farben, a conglomerate of German chemical corporations. While discussing the Hague Regulations on the protection of private property during belligerent occupation, the usmt held that “where a private individual or a juristic person becomes a party to unlawful confiscation of public or private property by planning and executing a well-­ defined designed to acquire such property permanently, acquisition under such circumstances subsequent to the confiscation constitutes conduct in 41 42 43

In re Flick and Others, imt, Judgment of 22 December 1947, Annual Digest and Reports of Public International Law Cases 14 (1947): 266, at 267. Ibid., at 269. In re Alfried Felix Alwyn Krupp von Bohlen und Halbach and Eleven Others (The Krupp ­Trial), imt, Judgment of 30 June 1948, Annual Digest and Reports of Public International Law Cases 15 (1948): 620, at 627.

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violation of the Hague Regulations”.44 The Tribunal then went on to add that “such action on the part of Farben constituted a violation of the Hague Regulations. It was in violation of rights of private property, protected by the Laws and Customs of War”.45 It has been argued on the basis of the above dicta that the Tribunal “did in fact treat Farben as a legal entity ( juristic person) capable of violating the law of war”.46 This proposition is in a sense remarkable as it is in contrast with Nuremberg case-law, and more specifically the foundational principle of individual criminal responsibility. The Tribunal itself later on provides some guidance by positing that [i]t is appropriate here to mention that the corporate defendant, Farben, is not before the bar of this Tribunal and cannot be subjected to criminal penalties in these proceedings. We have used the term Farben as descriptive of the instrumentality of cohesion in the name of which the enumerated acts of spoliation were committed. But corporations act through individuals and, under the conception of personal guilt to which previous reference has been made, the Prosecution … must establish by competent proof beyond a reasonable doubt that an individual defendant was either a participant in the illegal act or that, being aware thereof, he authorised or approved it.47 Thus, it appears that the usmt did not distance itself from individual responsibility after all. On the contrary, as was the case with the treatment of ‘criminal organizations’ by the imt, it made reference to the group in the name of which the crimes were committed, with a view to then allocating responsibility for those crimes to individuals operating within the group’s organizational structure. The Nuremberg case-law constitutes an example of how system criminality can be addressed without straying away from criminal law conceptions based 44

In re Carl Krauch and Twenty-Two Others (The I.G. Farben Trial), Judgment of 29 July 1948, Annual Digest and Reports of Public International Law Cases 15 (1948): 668, at 673 (hereinafter In re Krauch). 45 Ibid., at 676. 46 Clapham, supra note 27, at 167. See also A. Wilson, “Beyond Unocal”, in: O. de Schutter (ed.), Transnational Corporations and Human Rights (Oxford: Hart Publishing, 2006), 43; O. de Schutter, “The Accountability of Multinationals for Human Rights Violations in ­European Law”, in: Ph. Alston (ed.), Non-State Actors and Human Rights (Oxford: Oxford University Press, 2005), 227, at 233. 47 In re Krauch, supra note 44, at 678.

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on an individualistic approach.48 A further, more recent example of dealing with system criminality in this manner is the ictr Trial Chamber Judgment in Musema.49 Musema was director of the Gisovu Tea Factory in Kibuye, Rwanda. He was accused of participating in a series of attacks against Tutsi. According to the facts of the case, Musema led attacks, arriving at the scenes in tea factory vehicles, accompanied inter alia by armed employees who would wear the factory uniforms. The Trial Chamber convicted the defendant of genocide and crimes against humanity for his own actions and for the crimes of his subordinates who were tea factory employees. The Trial Chamber assessed in detail the relationship between Musema as the owner of the factory and the employees and held that the superior responsibility doctrine, enshrined in Article 6(3) ictr Statute, applied to civilian superiors. More specifically, the Trial Chamber held first that Musema beyond reasonable doubt exercised de jure authority “over employees … while they were on Tea Factory premises and while they were engaged in the professional duties as employees of the Tea Factory, even if those duties were performed outside factory premises”.50 Furthermore, the Trial Chamber highlighted that Musema “exercised legal and financial control over these employees, particularly through his power to appoint and remove these employees from their positions at the Tea Factory”.51 Besides, the defendant was in a position to take reasonable measures to attempt to prevent or punish “the use of Tea Factory vehicles, uniforms or other Tea Factory property in the commission of … crimes”.52 On the basis of the above, the Trial Chamber concluded that Musema exercised de jure as well as de facto control over employees as well as factory resources. One might then argue that international criminal law does not necessarily turn a blind eye to the implication of corporations or legal entities in the commission of international crimes. At the same time, this should not be taken to mean that the corporation is elevated itself to the status of addressee of international criminal law proscriptions. 3 Corporate Complicity No analysis of the interactions between international criminal law and corporations would be complete without reference to the concept of ‘corporate 48 49 50 51 52

See in this respect the analysis and criticism by A. Nollkaemper, “Systemic Effects of International Responsbility for International Crimes”, scjil 8/1 (2010): 313, at 316–332. The Prosecutor v. Alfed Musema, ictr, Trial Chamber i, Judgment of 27 January 2000, Case No. ICTR-96-13-T. Ibid., para. 880. Ibid. Ibid.

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c­ omplicity’, which has emerged as a key tool in the fight against corporate impunity. Complicity on an abstract level speaks to the involvement of one party in the wrongdoing by another. Transposed to corporations, complicity speaks to the multitude of ways in which corporations become involved in the wrongdoing of States, or rebel groups or any other entity committing a violation of international law. Forcese in a study on corporate complicity has described such involvement by referring to “companies providing revenue to human rights abusing regimes or militaries … providing material support to a regime or a military that enhances its human rights-abusing capacity … [or calling upon] the services of human rights-abusing militaries for immediate security support”.53 Corporate complicit is instrumental in shifting the focus from the corporation as a principal to the corporation as an accomplice to wrongdoing by States. This is a welcome shift, as the excessive focus on corporations over the last twenty years has resulted in underplaying the predominant role of States in gross human rights violations. Nonetheless, the operation and application of conceptions of ‘corporate complicity’ present significant legal hurdles. The reason is that standards of complicity vary depending on whether we are within the realm of criminal law, whether national or international, the law of state responsibility or domestic tort law. Indeed, the Alien Tort Statute saga unfolding since the mid-1990s before US domestic courts has generated significant scholarship on the correct standard of ‘aiding and abetting’ a violation of the law of nations for the purposes of the aforementioned domestic Statute. Truth be told, no one has put a legal case for corporate complicity forward more cogently than Andrew Clapham. Clapham has argued that [w]here a corporation assists another entity … to commit an international crime, the rules for determining responsibility under international law will be the rules developed in international criminal law … Where a corporation is alleged to have assisted a government in violating customary international law rights in circumstances which do not amount to international crimes … the analogous rules for state responsibility [apply].54 By making this distinction, Clapham avoids the problem of identifying a single ‘corporate complicity’ standard. It is the nature of the responsibility of the principal, which colors the normative standard to be used. 53

Cr. Forcese “atca’s Achilles Heel: Corporate Complicity, International Law and the Alien Tort Claims Act”, yjil 26/2 (2001): 487. 54 Clapham, supra note 12, at 265–266.

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The analysis of the normative content of the various potential complicity standards applicable to corporations falls outside the purview of the present paper. Still, one fundamental dilemma needs to be raised at this juncture relating especially to the responsibility of the corporation as an accomplice under international criminal law. According to a traditional reading of international criminal law, the corporation qua legal entity cannot perpetrate a crime in its own name, since it is not an addressee of relevant rules Still, it is potentially recognized as an accomplice in the commission of such crime. In other words, the corporate entity can aid or abet another in committing a crime under ­international law, although it is not bound by the same rule in the first place. Yet, the fact that complicity in the form of aiding and abetting is a manifestation of accessorial criminality does not mean that it is a lesser form of criminality, and thus by implication that it is unproblematic to acknowledge the corporation as a potential accomplice, without at the same time recognizing it as a principal.55 Irrespective of its qualification, complicity remains a form of criminality. One should accept that in order for a person to be accused of aiding or abetting, this person should simultaneously be recognized as a potential addressee of the criminal proscription. The reason is that “the degree of criminal responsibility does not diminish as distance from the actual act increases; in fact, it frequently grows”.56 Facilitating the commission of a crime is often neither less nor different from the perpetration of the crime itself. IV

Corporate Conduct as a Trigger of the International Responsibility of the Corporation

The failure of any subject of international law to comply with what is demanded of it by an international obligation amounts to an internationally wrongful act engaging the responsibility of that entity under international law. The justification of this fundamental principle is the legal nature of the obligations that international law imposes on those obligations’ addressees. After all, the system of international responsibility operates with a view to safeguarding the

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A same line of reasoning and problematique would apply to drawing a parallel to corporate complicity and aiding or assisting under the law of state responsibility, as codified in Article 16 arsiwa. According, to Article 16 arsiwa, the aiding or assisting State has to be bound itself in the first place by the obligation violated by the acting State. G. Werle and Fl. Jessberger, Principles of International Criminal Law (Oxford: Oxford University Press, 2014, 3rd edn.), at 193, para. 509.

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performance of obligations.57 The principle forms the backbone of the codification of the law on the responsibility of States.58 Nonetheless, it appears to be “equally applicable by definition to all international legal persons”.59 Indeed, it has found its way into the ilc Articles on the Responsibility of International Organizations (dario).60 As regards corporations and their responsibility under international law, the situation is far from clear, the reason being that in principle they are not regarded as addressees of substantive or primary international law obligations. Therefore, it would be safe to subscribe to Crawford and Olleson’s proposition that in this respect “no general regime of responsibility has developed to cover them”.61 In other words, there is no codification of secondary rules that speak to the legal consequences of the violation on behalf of corporations of their obligations under international law. This of course does not negate the aforementioned principle, that the violation of an international law obligation binding directly upon a corporation by the latter generates its responsibility under international law. Besides, any codification of responsibility rules operate as a fall-back position not depriving States of the power to craft leges speciales, i.e. specific rules in relation to the legal consequences that flow from the breach of an international obligation. A striking example of a regime, which sets forth primary obligations binding directly under international law on corporations, as well as secondary rules regarding the breach is the deep seabed mining regime under the 1982 United Nations Convention on the Law of the Sea (losc).62 Whilst losc is naturally addressed to States, it envelops private corporations, when it comes to the exploration and exploitation of mineral resources in the ‘Area’, namely the seabed and ocean floor and subsoil thereof, beyond the limits of national jurisdiction.63 According to the system devised by the losc, exploration and exploitation activities in the Area shall be carried out inter alia by States or legal persons possessing the nationality of States Parties in a­ ssociation 57 58 59 60 61 62 63

See ilc, “Second Report on State Responsibility by the Special Rapporteur, Mr. R. Ago”, A/CN.4/233 (20 April 1970), reproduced in: yilc [1970/II]: 177, at 179. Ibid. J. Crawford and S. Olleson, “The Nature and Forms of International Responsibility”, in: M. Evans (ed.), International Law (Oxford: Oxford University Press, 2010, 3rd edn.), ­Chapter xv, 441, at 442. See in detail ilc, “First Report on Responsibility of International Organizations by the Special Rapporteur, Mr. G. Gaja”, A/CN.4/532 (26 March 2003), at 111, para. 19. Crawford and Olleson, supra note 59, at 444. 1982 United Conventions on the Law of the Sea (adopted 10 December 1982, entered into force 16 November 1994), 1833 unts 3. The definition of the Area is provided in Article 1(1) losc.

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with the International Seabed Authority (isa),64 an international organization established by virtue of the losc65 and entrusted with the control over ‘activities’ in the Area.66 The condition set by the losc for these activities to be carried out is that contractors, whether States or corporations, enter into a contract with the isa.67 The isa has in the course of its operation produced a set of Regulations on Prospecting and Exploration for Polymetallic Nodules,68 annexed to which are the Contract for Exploration and the Standard Clauses for the Exploration Contract. The creation of a standardised instrument aims at preventing fragmentation of the losc regime, which could result from the fact that the contractors may be States, or corporations or natural persons. The question that naturally emerges is that of the applicable law to the Contract for Exploration, a contract entered into by an international organization and a private corporation. The answer is expressly provided for in Annex iii, Article 21(1) losc, according to which “the contract shall be governed by the terms of the contract, the rules, regulations and procedures of the Authority, Part xi, and other rules of international law not incompatible with this Convention”. This provision has been transposed in Standard Clause 27.1 of the Contract for Exploration. This is a novel situation in the sense that an international organisation and a private corporation may conclude a contract expressly regulated by international law. Certain remarks are in order here. First, the submission of the Contract for Exploration to international law is not that curious, if one considers the fact that the instrument is standard for all contractors, whether States or corporations. Second, the submission of international law is provided for in the losc itself. Indeed, the losc via Annex iii, Article 21 losc validates this choice of law. Thus, the applicability of international law does not hinge on ‘party autonomy’. On the contrary, it flows from the consent of States, who have accepted that contractors shall conduct activities in the Area on the basis of a contract, to which international law applies. To reprise the words of Jennings, 64 65 66 67 68

Article 153(2) losc. Article 156 losc. According to Article 176 losc, “the Authority shall have international legal personality and such legal capacity as may be necessary of the exercise of its functions and fulfillment of its purposes”. Art 153(2) losc. Art 153(3) losc. International Seabed Authority, “Decision of the Assembly Relating to the Regulations on Prospecting and Exploration for Polymetallic Nodules in the Area”, ISBA/6/A/18 (4 October 2000). The Regulations were amended in 2013. See International Seabed Authority, “Decision of the Assembly of the International Seabed Authority Regarding the Amendments to the Regulations on Prospecting and Exploration for Polymetallic ­Nodules in the Area”, ISBA/19/A/9 (25 July 2013).

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there ­exists a “point of contact with international law whereby [the] choice of law [becomes] an obligation existing in and effective in international law”.69 Concluding, it becomes obvious that corporations entering a Contract for Exploration with the isa are granted rights and assume obligations deriving ­directly from international law. The existence of these contractual obligations binding on the contracting corporation ushers in the picture the question of the responsibility of that corporation in case of breach. Indeed, the contractual arrangement itself, read in tandem with losc, specifically regulates the breach of contract, as well as its consequences in the form of remedies. According to Standard Clause 16.1, the contractor shall be “liable for the actual amount of any damage … arising out of its acts or omissions and those of its employees, subcontractors, agents and all persons engaged in working or acting for them in the conduct of its operations under [the] contract”. Turning to Article iii, Article 22 losc, it provides that “the contractor shall have responsibility and liability for any damage arising out of wrongful acts while conducting activities in the Area”. The key to interpreting the above provision and to decoding the nature of the contractor’s responsibility is to keep in mind the fact that it applies to all contractors, irrespective of their nature.70 Actually, at no point during the negotiations of the losc was it argued that there should be a distinction between contractors as regards their responsibility under the contract depending on whether they are States, corporations or individuals. To argue otherwise, namely that only States parties to the Contract for Exploration assume responsibility under international law would fly in the face of the formulation of the above provisions, as well as the logic of the system established by the losc. Thus, one should accept that corporations in breach of their obligations under the Contract for Exploration incur responsibility under international law. The responsibility of contracting corporations is distinct from the responsibility of the sponsoring State. The sponsoring State is under an obligation to ensure that its contractors carry out activities in the Area in accordance with Part xi losc. This obligation does not extend to cover a contractor’s compliance with the actual Contract for Exploration. On the contrary, it is the isa itself which is entrusted with exercising control over activities in the Area. Thus, responsibility for a wrongful act in violation of the Contract for Exploration is not allocated ipso facto to the sponsoring State, but it resides with the ­contractor.71 Such a proposition is further supported by the Advisory Opinion 69 70 71

R. Jennings, “State Contracts in International Law”, bybil 37 (1961): 156, at 178. R. Wolfrum, Die Internationalisierung staatsfreier Raeume (London: Springer, 1984), at 521. See M. Nordquist (ed.), United Nations Convention on the Law of the Sea 1982: A Commentary, Vol. vi (Leiden: Martinus Nijhoff Publishers, 2002), at 127.

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handed down by the Seabed Disputes Chamber of the International Tribunal for the Law of the Sea (itlos) regarding Responsibilities and Obligations of States Sponsoring Persons and Entities with Respect to Activities in the Area. Therein the Chamber held: the main liability for a wrongful act committed in the conduct of the contractor’s operations or in the exercise of the Authority’s powers and functions rests with the contractor and the Authority, respectively, rather than with the sponsoring State … the liability of the sponsoring State and the liability of the contractor exist in parallel … The liability of the sponsored contractor arises from its failure to comply with its obligations ­under its contract and its undertakings thereunder.72 The Contract for Exploration constitutes an exceptional case, in the sense that it may be entered into by an international organization and a private corporation and, yet its conclusion, performance and breach, are governed by international law, thus giving rise to rights and obligations directly enforceable under international law. Yet, the drafters of the Convention did not create a deep seabed mining regime with an exclusive view to regulate the conduct of corporations. On the contrary, they decided to allow for activities in the Area on the basis of a contract with the isa, and then went on to spell out the potential contractors and their basic rights and obligations. The key aspect in this respect is not the character of the potential contractors as States or nonState actors, but the function that these contractors are called upon to fulfill. Thus, the responsibility of the private corporation for breach of the Contract for ­Exploration operates under international law not because corporations are seen as the nominal subjects of international law but mainly because of the corporation’s participation and operation in a given functional regime. V

The Function-Shifting Corporation and International Law

The preceding analysis allows for two key propositions. First, corporations are not far removed from the operation of the rules on responsibility under inter­ national law. On the contrary, the application of such rules is often triggered by corporate conduct. Second, corporations resist hard and fast classifications, thus blurring traditional boundaries between State responsibility and 72

Responsibilities and Obligations of States Sponsoring Persons and Entities with respect to Activities in the Area, itlos, Seabed Disputes Chamber, Advisory Opinion of 1 February 2011, [2011] itlos Rep. 10, at 64, paras. 202 and 204.

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international criminal responsibility. Such blurring should not come as a surprise, considering that thinking about the corporation in international law more generally is rife with analogical reasoning.73 Suffice here to recall the business-human rights conundrum. Some suggest that corporations should directly be bound by international human rights law rules,74 as a result of which they would incur international responsibility eo nomine for breaches thereof. In other words, corporations should be assimilated to the archetypal human rights obligors, namely the State and be held responsible under international law in a similar fashion. At the same time, others suggest an anthropomorphic approach, according to which corporations should be included, alongside individuals, in the circle of addressees of international criminal law,75 thus potentially incurring criminal responsibility. The prevalence of analogical reasoning in respect of corporations may be explained on the basis of an argument forwarded by Lowe, who noted that corporations “have some characteristics in common with State, the archetypal subjects of international law, and some characteristics in common with human beings, the archetypal ‘objects’ of international law; and they should be recognized as entities sui generis”.76 Indeed, to suggest that private corporations are subjects of international law or that they possess a measure of international legal personality does not reveal much about their potential i­ nternational obligations or responsibility. The crucial test then is to identify the yardstick on the basis of which corporations, and more generally entities other than States, assume obligations under international law and incur responsibility for a breach thereof. If one turns to the Reparation Advisory Opinion, one will realize that the Court itself stressed a single attribute of the United Nations as the cornerstone of its personality, namely function. Specifically, the Court stressed that the Members of the United Nations “by entrusting certain functions to it, with the attendant duties and responsibilities, have clothed it with the competence required to 73 74

75 76

See more generally Fl. Johns, “Theorizing the Corporation in International Law”, in: A. ­Orford and Fl. Hoffmann (eds.), The Oxford Handbook of the Theory of International Law (Oxford: Oxford University Press, 2016), 635–654. See J. Paust, “The Reality of Private Rights, Duties and Participation in the International Legal Process”, mjil 25/4 (2004): 1229, at 1242–1243; D. Kinley and J. Tadaki, “From Talk to Walk: The Emergence of Human Rights Responsibilities for Corporations at International Law”, vjil 44/4 (2004): 931, at 1021–1022; D. Weissbrodt, “Business and Human Rights”, uclr 74/1 (2005): 55, at 60–64. See A. Ramasastry, “Corporate Complicity: From Nuremberg to Rangoon: An Examination of Forced Labour Cases and their Impact on the Liability of Multinational Corporations”, bjil 20/1 (2002): 91, at 95–98. V. Lowe, “Corporations as International Actors and International Law Makers”, iybil 14 (2004): 23, at 24.

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enable those functions to be effectively discharged”. Jennings, taking cue from the above dictum, has opined that “the inquiry is now always into function; for once the theoretical possibility of international personality in entities other than States is conceded, there is no other useful approach”.77 Function is indeed a key aspect in thinking about how non-State entities fit within the international legal order. Yet, the measure of the function is not a free-standing indicator but it corresponds to the “needs of the community … Throughout its history, the development of international law has been influenced by the requirements of international life, and the progressive increase in the collective activities of States has already given rise to instances of action upon the international plane by certain entities which are not States”.78 In other words, the function of non-State entities is significant to the extent that it corresponds to social necessities. Again, this test does not always provide lucid answers to the envelopment of certain entities in the international legal order.79 Still, it is indispensable for the consideration of the position of corporations under international law. The reason is the function-shifting nature of the corporation. Pitted against other non-State entities, such as armed opposition groups, corporations may be called upon to discharge an infinite variety of functions, ranging from the provision of financial to security services. Corporations are “plainly hybrids … They are best approached by looking at the ways in which corporations function in particular contexts”.80 Therefore, an argument as to the recognition of corporations as addressees of international law in general, or correspondingly as bearers of international responsibility across the board, would fail to reflect the hybrid nature of the corporation. It appears that in certain instances the imposition of international law obligations upon corporations, on account of a specifically prescribed function they are called upon to undertake alongside States, is uncontroversial. Such is the case with deep seabed mining. On the contrary, the resistance of a number of States to the idea of a wholesale transposition of international human rights law to the corporate sphere, may reflect a sentiment that such a transposition is not necessary for the protection of the fundamental rules of the international legal order. 77

R. Jennings, “General Course on Principles of International Law”, rcadi 121 (1967): 323, at 348. 78 Reparation for Injuries Suffered in the Service of the United Nations, supra note 4, at 178. 79 See J. Klabbers, “(I Can’t Get No) Recognition: Subjects Doctrine and the Emergence of Non-State Actors”, in: J. Petman and J. Klabbers (eds.), Nordic Cosmopolitanism: Essays in International Law for Martti Koskenniemi (Leiden: Martinus Nijhoff Publishers, 2003), at 37. 80 Lowe, supra note 76, at 26 (emphasis added).

Part 2 The Multiple Manifestations of Responsibility in Different Legal Regimes

∵

Chapter 5

The Limits of Responsibility: Liability for Damage in the Deep Seabed? Ilias Plakokefalos* I

Introduction

The question of liability has puzzled doctrine and practice for the better half of the 20th century. The attempts to pin down its content and nature have produced a significant body of literature that has shown great diversity in the solutions offered.1 It was this fundamental question that prompted that International Law Commission (ilc) to take up the topic of liability. The ilc has managed to address and discuss most, if not all, the issues that might arise in the context of liability for injurious consequences arising out of acts not prohibited by international law. The work of the ilc culminated in the adoption of a set of Articles on the prevention of transboundary pollution and a set of Principles on allocation of loss,2 both sets concluded under the guidance of Special Rapporteur Rao. * I would like to thank the participants in the conference of the International Law Association (Hellenic Branch) for their input and André Nollkaemper for his useful comments on a draft of this chapter. The usual disclaimer applies. 1 The two most important monographs on the topic are the following: P.M. Dupuy, La responsabilité internationale des états pour les dommages d’origine technologique et industrielle (Paris: Pedone, 1977); R. Lefeber, Transboundary Environmental Interference and the Origin of State Liability (The Hague: Kluwer Law International, 1997). See also L.F.E. Goldie, “Liability for Damage and the Progressive Development of International Law”, iclq 14 (1965): 1189–1264; W. Jenks, “Liability for Ultra-hazardous Activities in International Law”, rcadi 177 (1966): 99–200; G. Handl, “State Liability for Accidental Transnational Environmental Damage by Private Persons”, ajil 74 (1980): 525–565; Μ.B. Akehurst, “International Liability for Injurious Consequences Arising Out of Acts Not Prohibited by International Law”, nybil 16 (1985): 3–16; D. Barstow Magraw, “Transboundary Harm: The International Law Commission’s Study of ‘International Liability’”, ajil 80 (1986): 305–330; A.E. Boyle, “State Responsibility and International Liability for Injurious Consequences of Acts Arising out of Acts not Prohibited by International Law: A Necessary Distinction?”, iclq 39 (1990): 1–27; J. Brunnée, “Of Sense and Sensibility: Reflections on International Liability Regimes as Tools for Environmental Protection”, iclq 53 ( 2004): 351–367. 2 ilc, “Articles on Prevention of Transboundary Harm from Hazardous Activities with Commentaries”, yilc [2001/II, Part Two]: 148; ilc, “International Liability for Injurious

© koninklijke brill nv, leiden, ���9 | doi:10.1163/9789004390485_006

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The Advisory Opinion handed down by the Deep Seabed Disputes Chamber of the International Tribunal on the Law of the Sea (itlos) highlighted the main problem surrounding the issue of liability: what does international law have to say about the cases where the State has fulfilled its international o­ bligations and yet damage occurs? The itlos Chamber engaged with this question after Nauru had transmitted a request to the International Seabed Authority (isa) for an Advisory Opinion that would set out the obligations of states that sponsor activities in the deep seabed.3 It is interesting that the Chamber concluded that international law does not provide for a solution to this problem.4 Nevertheless, the Advisory Opinion hinted that the solution might lie with the creation of a Fund, a solution promoted both by the ilc and by many civil liability regimes. The first step this chapter will take will be to discuss the treatment of the topic of liability by the ilc. The analysis will focus on the differences between the results of the ilc and the actual conventions that these results were modelled upon. An evaluation of the work of the ilc and of the status of international law on the subject of liability will serve as the closing section of the first part. The second part will seek to address the problem that the Deep Seabed Chamber brought to the fore. After briefly presenting the main features of the deep seabed regime and the findings of the Chamber, the second part will proceed with analysing and evaluating the solutions that might break the impasse caused by the lack of a clear liability rule. II

The Question of Liability

1 The Treatment by the ilc and the Relationship with Responsibility The first issue is whether liability in general should be seen as signifying one of the outer limits or responsibility. In other words, can liability seen as the point where responsibility stops? Despite the obvious desire to treat the topics as completely separate, the first Special Rapporteur, Quentin Q. Baxter, recognized that the topic of injurious consequences cannot exist independently ­ onsequences Arising out of Acts not Prohibited by International Law (International LiabilC ity in Case of Loss from Transboundary Harm Arising out of Hazardous Activities) with Commentaries”, yilc [2006/II, Part Two]: 56 (hereinafter Principles on Loss Allocation). 3 International Seabed Authority, “Proposal to Seek an Advisory Opinion from the Seabed Disputes Chamber of the International Tribunal for the Law of the Sea on Matters Regarding Sponsoring State Responsibility and Liability”, ISBA/16/C/6 (5 March 2010). 4 Responsibilities and Obligations of States Sponsoring Persons and Entities with respect to Activities in the Area, itlos, Seabed Disputes Chamber, Advisory Opinion of 1 February 2011, [2011] itlos Rep. 10, paras. 203–205 (hereinafter Seabed Mining Advisory Opinion).

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of that of responsibility.5 Special Rapporteur Ago felt the need to differentiate between the two regimes back in 1973.6 This differentiation was necessary in order to set two topics apart that are complementary and rather confusingly similar in some respects. The most fundamental difference is that between the secondary nature of the rules of responsibility as opposed to the primary nature of the rules of liability. Baxter devoted, in fact, a whole section of his preliminary report on that distinction. Baxter claims that “[…] the regime of liability in respect of acts not prohibited does not detract from the universality of the regime of responsibility for wrongful acts, because the two regimes exist upon different planes. Obligations arising in respect of acts not prohibited are the product of particular ‘primary’ rule: the violation of any of the ‘primary’ rules brings into play the ‘secondary’ rules of state responsibility for wrongful acts”.7 The view expressed here by the Special Rapporteur was not seen as self-evident at the time. The terms primary and secondary rules were, as the Special Rapporteur himself noted, two abstractions that “have only the validity one chooses to assign them as a method of clarifying issues”.8 The lack of the requirement of harm, for example, in the rules of state responsibility, was criticized, as was the presence of the requirement of attribution.9 These disagreements were also reflected in some views expressed in the ilc when during the initial discussions of the topic: the existence of the topic itself (independently of that or state responsibility) was even doubted.10 The criticism of the distinction between the two concepts (responsibility/liability) did not stop even after the topic of liability was well under way and it was, for the most part, directed against the basic distinction between primary and secondary rules.11 The relationship (and the distinction) between responsibility and liability becomes apparent if one takes into consideration the fact that the main topic the ilc focused on was that of transboundary environmental harm. The ilc worked towards a regime that sought to regulate the environmentally 5

6 7 8 9 10 11

ilc, “Preliminary Report on International Liability for Injurious Consequences Arising out of Acts not Prohibited by International Law of the Special Rapporteur, Mr. Robert Q. Quentin-Baxter”, A/CN.4/334, Add.1, Add.1/Corr.1, and Add.2 (24 and 27 June and 4 July 1980), reproduced in: yilc [1980/II, Part One]: 247, at 253, para. 20 (hereinafter Baxter – Preliminary Report). ilc, “Summary Record of the 1202nd Meeting”, A/CN.4/SR.1202 (9 May 1973), para. 6. Baxter – Preliminary Report, supra note 5, at 253, para. 21. Ibid. at 254, para. 24. Ibid. at 254, para. 25. Mr. Reuter congratulated the Special Rapporteur on “his courage in tackling a subject which perhaps did not exist-or at least not yet”; see ilc, “Summary Record of the 1632nd Meeting”, A/CN.4/SR.1632 (14 July 1980), para. 23. See I. Brownlie, System of the Law of Nations: State Responsibility (Oxford: Oxford University Press, 1983), at 50; Akehurst, supra note 1, at 8; Boyle, supra note 1, at 8–9.

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­ azardous activity from the moment of its conception to the moment where it h could actually cause transboundary harm.12 If this, very schematic, timeline is followed, the link with responsibility can be found at the point where prevention fails, the State has fulfilled its obligations and harm occurs. Therefore it can be argued that, in the context of international environmental law, liability becomes relevant when responsibility cannot help fulfil its remedial role. The limits of responsibility become central in this regard since, beyond responsibility the situation becomes rather blurry. The second issue that must be addressed is the relationship of liability with the concept of harm. Special Rapporteur Baxter, already in his preliminary report, acknowledged that liability is inextricable linked to the notion of harm,13 thus providing an antithetic aspect of the relationship between the two topics. Harm, which did not qualify as a criterion necessary in establishing a breach of international law,14 becomes central in the discussion on liability. Liability can only exist where harm occurs. Liability for injurious consequences arising out of acts not prohibited by international law was also, almost from the outset, connected with strict State liability.15 The literature that preceded the work of the ilc engaged in a discussion on the possible legal basis for such liability16 and, despite divergent opinions, the issue never ceased to resurface.17 The ilc on its part began contemplating the adoption of strict liability as the standard for liability in cases of transboundary harm.18 As it was becoming clear that the notion of strict ­liability was extremely unpopular among States,19 the ilc duly changed 12

This is what the move from prevention (which begins at the stage of planning an activity) to allocation of loss (which ends at the payment of compensation to the victims of the harm) indicates. 13 Baxter – Preliminary Report, supra note 5, at 264, para. 60. 14 Article 2 of the Articles on the Responsibility of States for Wrongful Acts (arsiwa); ilc, “Report of the International Law Commission Covering its 53rd Session”, A/56/10 (2011) reproduced in: yilc [2001/II Part Two]: 1, at 30, para.77 (hereinafter arsiwa Commentaries). 15 Goldie, supra note 1; Jenks, supra note 1, at 99. 16 See Jenks, supra note 1; Goldie supra note 1; Handl, supra note 1. 17 See Akehurst, supra note 1; Magraw, supra note 1; Boyle, supra note 1. 18 Special Rapporteur Barboza claimed that “[a]lthough private law remedies were useful in giving various choices to the parties, they failed to guarantee prompt and adequate ­compensation to innocent victims, who after suffering serious injury, had to take proceedings against foreign courts of other states”; ilc, “Summary Record of the 2023rd Meeting”, A/CN.4/SR.2023 (30 June 1987), para. 25. See also J.M. Kelson, “State Responsibility and the Abnormally Dangerous Activity”, hilj 13 (1972): 197, at 238. For the view that the type of liability should depend on the nature of the activity see X. Hanqin, Transboundary Damage in International Law (Cambridge: Cambridge University Press, 2003), at 77–81. 19 The discussions in the ilc reveal the level of hostility towards the idea of strict State ­liability: see ilc, “Summary Record of the 2183rd Meeting”, A/CN.4/SR.2183 (29 June

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course. After it decided to split the topic in two parts,20 the part that corresponded to the topic of injurious consequences moved towards the direction of the development of a civil liability regime. This idea had been introduced by Special Rapporteur Barboza in 199121 and was taken up by the next Special Rapporteur Rao. The split of the topic in two parts in 1996 was prompted both by a desire towards clarity and by the realisation that the project would have to produce results faster.22 The outcome of the split was successful. The set of Articles adopted by the ilc in 2001 dealt with the issue of prevention. The Articles on prevention do, for the most part, correspond to State practice and the obligations they include are accepted in international law.23 The second sub-topic, which corresponded to the initial title of the original topic, was completed in 2006. The title was changed to “Allocation of Loss” in order to reflect the move away from State liability and the more general treatment of injurious consequences. It is also noteworthy that the ilc adopted a set of principles and not articles. This choice emphasized the lack of consensus within the ilc in terms of the content’s normative status.24 What is most important, however, is that the Principles on allocation of loss provide essentially a roadmap for a generalized regime of international civil liability.

20 21

22 23 24

1990), paras. 56–59; ilc, “Summary Record of the 2184th Meeting”, A/CN.4/SR.2184 (2 July 1990), paras. 26–29; ilc, “Summary Record of the 2185th Meeting”, A/CN.4/SR.2185 (3 July 1990), para. 40; ilc, “Summary Record of the 2186th Meeting”, A/CN.4/SR.2186 (4 July 1990), paras 40–44. See ilc, “International Liability for Injurious Consequences Arising out of Acts not Prohibited by International Law, Report of the Working Group”, A/CN.4/L.536 (17 June 1997). ilc, “Seventh Report on International Liability for Injurious Consequences Arising out of Acts not Prohibited by International Law of the Special Rapporteur, Mr. Julio Barboza”, A/CN.4/437 and Corr.1 (16 April 1991), reproduced in: yilc [1991/II, Part One]: 71, at 84–89, paras. 47–68. The choice of civil liability as the most appropriate means to develop the work of the ilc became prominent in: ilc, “Tenth Report on International Liability for Injurious Consequences Arising out of Acts not Prohibited by International Law of the Special Rapporteur, Mr. Julio Barboza”, A/CN.4/459 (4 April 1994), reproduced in: yilc [1994/II, Part One]: 129. Supra note 14. I. Plakokefalos, Transboundary Pollution in Public International Law (Athens: Nomiki Bibliothiki Publishers, 2011) (in Greek), at 1–125; see also Ph. Okowa, “Procedural Obligations in International Environmental Agreements”, bybil 67 (1996): 275–336. ilc, “Second Report on International Liability for Injurious Consequences Arising out of Acts not Prohibited by International Law (International Liability in Case of Loss from Transboundary Harm Arising out of Hazardous Activities), by Mr. Pemmaraju Sreenivasa Rao, Special Rapporteur”, A/CN.4/540 (15 March 2004), reproduced in: yilc [2004/II, Part One]: 63, para. 36.

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2 Civil Liability: a Move Further Away from Responsibility The ilc started dealing with the topic of allocation of loss in 2002. A survey conducted by the Secretariat of the ilc provided insight as to the number, the structure and common elements of civil liability regimes.25 That survey formed the basis of the subsequent work of the Special Rapporteur Rao. It can be seen from the first reports of the ilc under Rao that the turn that had been contemplated by Barboza was in full swing. The regime that was emerging was clearly geared towards general civil liability. The Principles on the allocation of loss can be seen as summing up most characteristics of civil liability regimes. These are all set out in Principle 4. First of all, the Principles seek to attach liability to the operator of the activity or to an appropriate person or entity.26 Second, they impose the obligation on the operator to establish security.27 Third, they envisage the establishment of industry-wide funds where this is appropriate.28 Fourth, the Principles also provide for the participation of the State (this could be termed residual or supplementary State liability) whenever the resources available from the three previous tiers are not sufficient to cover the costs of adequate compensation.29 Nevertheless, a number of differences remain, between the Principles and the civil liability regimes. The main difference lies in the fact that the Principles impose an obligation on the State to ensure that the victims of transboundary harm will be awarded prompt and adequate compensation.30 The Principles posit that the State is the entity that will adopt laws, rules, administrative proceedings and regulations that will engage the liability of the ­operator of the ­activity.31 In civil liability the State has minimal or no role to play. The departure, if it may be called that, from the almost standard format of civil liability regimes lies with this general and other, more particular, obligations of the State. Besides the aforementioned general obligation the State does maintain a prominent role in the regime set out in the Principles. It is the State of o­ rigin 25 26

27 28 29 30 31

ilc, “Liability Regimes Relevant to the Topic ‘International Liability for Injurious Consequences Arising out of Acts not Prohibited by International Law’: Survey Prepared by the Secretariat”, A/CN.4/471 (23 June 1995), reproduced in yilc [1995/II, Part One]: 61. Principles on Loss Allocation, supra note 2, Principle 4(2). The insertion of the “appropriate person or entity” alternative reflects the imposition of liability to the ship-owner and not the operator in oil pollution civil liability regimes, see Commentary to Principle 4, in: ibid., at 155, para. 10. Principles on Loss Allocation, supra note 2, Principle 4(3). Ibid., Principle 4(4). Ibid., Principle 4(5). Ibid., Principle 3. Ibid., Principle 8.

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that must notify all possibly affected States in case of an emergency and take mitigation measures.32 The State also bears an obligation to provide their courts and administrative bodies with the requisite jurisdiction so as to decide on issues of transboundary damage.33 What is more, Principle 6(2) provides for an obligation of equal access to justice for the victims of transboundary harm. The importance of the role of the State in the Principles is nowhere to be found in civil liability regimes. Civil liability regimes impose strict liability on the operator of the activity34 while the liability of the operator is limited.35 This is a very important, as well as problematic feature of civil liability regimes. The limitation of liability has prevailed because civil liability is not used so as to provide restitutio in integrum.36 Moreover, in a number of cases the amount 32 33 34

35

36

Ibid., Principle 5. Ibid., Principle 6 (1). 1989 Convention on Civil Liability for Damage Caused during Carriage of Dangerous Goods by Road, Rail and Inland Navigation Vessels (adopted 10 October 1989, not yet in force), ECE/TRANS/79 (10 October 1989), Article 5; 1977 Convention on Civil Liability for Oil Pollution Damage Resulting from Exploration for and Exploitation of Seabed Mineral Resources (adopted 1 May 1977, not yet in force), 16 ilm 1450, Article 9; 1963 Vienna Convention on Civil Liability for Nuclear Damage (adopted 21 May 1963, entered into force 12 November 1977), 1063 unts 265, Article 4; 1996 International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (adopted 3 May 1996, not yet in force), 35 ilm 1406, Article 7; 1992 International Convention on Civil Liability for Oil Pollution Damage (adopted 29 November 1969, entered into force 19 June 1975), 973 unts 3, Article 3; 2001 International Convention on Civil Liability for Bunker Oil Pollution Damage (adopted 23 March 2001, entered into force 21 November 2008), available at: (last accessed on 1 March 2018), Article 3(1); 1999 Basel Protocol on Liability and Compensation for Damage Resulting from the Transboundary Movements of Hazardous Wastes and their Disposal (adopted 10 December 1999, not yet in force), UNEP/CHW.1/WG.1/9/2 (28 April 1999), Article 4; 2003 Protocol on Civil Liability and Compensation for Damage Caused by the Transboundary Effects of Industrial Accidents on Transboundary Waters (adopted 21 May 2003, not yet in force), ECE/MP.WAT/11ECE/CP.TEIA/9 (21 May 2003). See, for example, 1992 International Convention on Civil Liability for Oil Pollution Damage, supra note 34, Article v; 1999 Basel Protocol on Liability and Compensation for Damage Resulting from the Transboundary Movements of Hazardous Wastes and their ­Disposal, supra note 34, Article 12; 2001 International Convention on Civil Liability for Bunker Oil Pollution Damage, supra note 34, Article 6. ilc, “First Report on International Liability for Injurious Consequences Arising out of Acts not Prohibited by International Law, Relating to the Legal Regime for Allocation of Loss in Case of Transboundary Harm by Mr. Pemmaraju Sreenivasa Rao, Special Rapporteur”, A/CN.4/531 (21 March 2003), reproduced in: yilc [2003/II, Part One]: 71, para. 30.

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of full compensation would exceed the capabilities of the operator.37 A further argument in favour of limiting the liability of the operator is that the limitation would assist operators to insure against the risk of harm. An unlimited liability regime would make it impractical for companies to calculate the costs of insuring the operators. The paradox that emerges from limiting the liability of the operator is obvious: in the cases where the damage is most severe the victims have fewer chances to be compensated in full.38 It seems that the system would be better suited to compensate harm of small proportions. The limitation of liability in the civil liability regimes has proven to be problematic in almost all conventions. Proof for that can be found in the fact that conventions and protocols have been amended so as provide for higher liability caps.39 It is for this reason that the creation of funds was deemed necessary so as to provide for an extra tier of compensation. The funds that have been set up, besides serving the need for an extra source of compensation, also achieve a more equitable distribution of the burden to compensate. This is a point where the Principles accurately reflect the structure of liability regimes. The oil pollution civil liability regime, being the only one that has been tested in practice, has adopted the idea of setting up a Fund as early as 1971.40 Contributions to the Fund are payable by the recipients of the oil carried by the ship.41 The Fund Convention was superseded by a 1992 Protocol and a Supplementary Fund Protocol followed it in 2003.42 While the Supplementary fund 37

38 39

40 41 42

N.J.J. Gaskell, “The Amoco Cadiz: (i) Liability Issues”, jenrl 3 (1985): 169–194; R.E. Jenkins and J. Watry Kastner, “Running Aground in a Sea of Litigation: A Case Comment on the Exxon Valdez Litigation”, ucla jelp 18 (1999–2001): 151, at 159; V.J. Foley and C.R. Nolan, “The Erika Judgment-Environmental Liability and Places of Refuge: A Sea Change in Civil and Criminal Responsibility”, Tulane mlj 33 (2008): 41–78. R.R. Churchill, “Facilitating (Transnational) Civil Liability Litigation for Environmental Damage by Means of Treaties: Progress, Problems and Prospects’”, ybiel 12 (2001): 3, at 35. See, for example, the amendments regarding the oil pollution regime: 1992 Protocol to Amend the International Convention on Civil Liability for Oil Pollution Damage (adopted 27 November 1992, entered into force 30 May 1996), 1956 unts 255; see also the limitation amounts in the 1992 Protocol in: imo, “Adoption of Amendments of the Limitation Amounts in the Protocol of 1992 to Amend the International Convention on Civil Liability for Oil Pollution Damage”, imo Resolution leg.1(82) ( 18 October 2000). 1971 International Convention on the Establishment of an International Fund for ­Compensation for Oil Pollution Damage (adopted 18 December 1971, entered into force 16 October 1978), 1110 unts 57 (hereinafter Fund Convention). 1992 Protocol to Amend the International Convention on the Establishment of an International Fund for Oil Pollution Damage of 1971 (adopted 27 November 1992, entered into force 30 May 1996), 1953 unts 330, Article 10. 2003 Protocol to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (adopted 16 May 2003, entered into force 3 March 2005), LEG/CONF.14/20 (27 May 2003).

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has not been used so far, it indicates the need for extra resources. The Hazardous and Noxious Substances (hns) Liability Convention is another testimony as to the importance of the funds in civil liability regimes.43 Contrary to the oil pollution conventions the hns convention has incorporated the establishment of a fund in the main convention text.44 While the convention is not yet in force, it provides evidence of the practice of establishing funds in civil liability regimes. In the realm of nuclear energy, the States parties to the relevant conventions have concluded a convention on supplementary compensation.45 This convention, while not setting up a fund in the way the oil pollution regime does, requires States to make available public funds to be used as a supplementary resource in case of harm occurs.46 Another difference from the oil pollution liability regime is that the nuclear conventions usually demand a higher degree of involvement by the State.47 Despite the differences between the civil liability regimes and the ilc Principles it is accurate to state that the Principles do, indeed, reflect the basic features of these regimes. Nevertheless, it is also true that the move from State to civil liability, while it appeased States, it did not yield the desired results in terms of the reception of the final outcome of the ilc’s work. 3 The Aftermath of the Adoption of the Principles After the ilc adopted the principles for allocation of loss the progress of the efforts towards an answer to the issue of liability can be described as slow, if not non-existent. The General Assembly commended the principles to the

43

44 45 46 47

2010 International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (adopted 30 April 2010, not yet in force), available at: (last accessed on 1 March 2018). The hns Convention was first adopted in 3 May 1996. In order to overcome certain obstacles concerning its ratification it was amended by a protocol in 2010. Now the Convention is open for ratification along with the Protocol as a consolidated text. Ibid. 1997 Convention on Supplementary Compensation for Nuclear Damage (adopted 12 ­September 1997, entered into force 15 April 2015), 36 ilm 1473. Ibid., Article iii. See 1963 Convention Supplementary to the Paris Convention of 29 July as Amended by the Additional Protocol of 28 January 1964 and by the Protocol of 16 November 1982 (Brussels Supplementary Convention) (adopted 31 January 1963, entered into force 4 December 1974), 1041 unts 358, Article 3, as amended in 1991; 2004 Protocol to Amend the Convention of 31 January 1963 Supplementary to the Paris Convention of 29 July as Amended by the additional Protocol of 16 November 1982 (adopted 12 February 2004, not yet in force), 1650 unts 451.

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a­ ttention of the governments once more in 201648 but there has been no serious move towards elaborating on them or perfecting them through an international conference. In a previous resolution the General Assembly had ­requested the Secretary General to compile a list of decisions by courts, tribunals and other bodies that refer to the principles.49 unep on its part took the step of adopting a set of Guidelines on liability.50 The Guidelines are an extremely interesting document where unep seeks to streamline what seems to be a common approach towards the issue bearing resemblance to the work of the ilc. The Guidelines differ mainly because they are directed towards national law, thus offering a more grounded approach. As far as the impact of the ilc to the various civil liability regimes is concerned, it must be admitted that there was no significant rekindling of interest towards them. To be fair, an important protocol was concluded in the c­ ontext of the Convention on Biological Diversity. The Nagoya – Kuala Lumpur ­Protocol on Liability51 is an important document not only because it seeks to regulate liability problems that arise with respect to gmos but also because it offers a novel approach to the issue.52 The importance of the Protocol lies with the fact that it adopts a regulatory liability approach: states are under an obligation to take response measures in case damage occurs.53 This is an approach that is 48

49

50 51 52

53

unga, “Draft Resolution Consideration of Prevention of Transboundary Harm from Hazardous Activities and Allocation of Loss in the Case of such Harm”, A/C.6/71/L.20 (31 October 2016). It had first endorsed the Principles in 2006; unga, “Resolution 61/36: Allocation of Loss in the Case of Transboundary Harm Arising out of Hazardous Activities”, A/RES/61/36 (18 December 2006). unga, “ Resolution 65/28: Consideration of Prevention of Transboundary Harm from Hazardous Activities and Allocation of Loss in the Case of such Harm”, A/RES/65/28 (10 January 2011), para. 4. The compilation can be found in: unga, “Consideration of Prevention of Transboundary Harm from Hazardous Activities and Allocation of Loss in the Case of such Harm – Compilation of Decisions of International Courts, Tribunals and Other Bodies”, A/68/94 (13 June 2013) and unga, “Consideration of Prevention of Transboundary Harm from Hazardous Activities and Allocation of Loss in the Case of such Harm – Compilation of Decisions of International Courts, Tribunals and Other Bodies”, A/71/98 (23 June 2016). unep, “Draft Revised Guidelines for the Development of Domestic Legislation on Liability, Response Action and Compensation for Damage Caused by Activities Dangerous to the Environment”, UNEP/GCSS.XI/8/Add.1 (22 August 2017). 2010 Nagoya – Kuala Lumpur Supplementary Protocol on Liability and Redress to the Cartagena Protocol on Biosafety (adopted 15 October 2010, entered into force 5 March 2018), UNEP/CBD/BS/COP-MOP/5/17 (15 October 2010). R. Lefeber, “The Legal Significance of the Nagoya-Kuala Lumpur Supplementary Protocol: The Result of a Paradigm Evolution”, (2012) Amsterdam Law School Legal Studies Research Paper No. 2012-87, Centre for Environmental Law and Sustainability Research Paper No.2012-02. Nagoya-Kuala Lumpur Supplementary Protocol, supra note 51, Article 5; Lefeber, supra note 52, at 14–17.

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more comprehensive than the pure civil liability approach in that it imposes an extra layer of obligations on states: not only do states have to ensure that the operator of the activity will provide compensation but they also have to take response measures themselves should the polluter fails to do so.54 An overall assessment of the work of the ilc on the Principles would suggest that there are a number of problems arising in terms of their acceptance by States. Despite the fact that they are firmly rooted to the basic structure of civil liability regimes it is obvious that civil liability regimes themselves have not been exactly flourishing. Granted, there is a growing number of these regimes but it is only the oil pollution conventions that have been put to practice. On a less practical level, it must be noted that while the work of the ilc started with the aim to break the impasse created in cases where the State would not be responsible yet damage would occur, the results towards this direction are questionable. State liability did not prove to be acceptable by the States, yet the turn the ilc took towards the generalized civil liability regime seems to fall onto the same impasse it was intended to break. The principles set up a primary obligation for the State (i.e. to ensure that the victims of pollution receive compensation), which, if discharged and damage occurs, does not lead to State responsibility. If, on the other hand, the obligation is breached then the system reverts back to the rules of responsibility. Therefore the story ends back where it began. Sure, it might be that the operator indeed covers the costs and that the victims of the damage may be able to recover. Nevertheless, none of this is certain and given the fact that the State can evade paying compensation the solution is not entirely satisfactory if one also takes into account the limits of the operator’s liability and the problems surrounding litigation.55 It is these shortcomings of the system that the itlos Deep Seabed Disputes Chamber brought to the fore. III

The Advisory Opinion and Liability

Having mapped out and analysed the efforts to develop a global liability regime and the contours of civil liability systems the Chapter will now turn to the deep seabed regime. A brief description of the regime in the Area will be followed by a discussion of the paragraphs of the itlos Deep Seabed Chamber Advisory Opinion that touch upon the issue of liability. This discussion will be 54 Lefeber, supra note 52, at 12. 55 See, for example, the long road the Erika case has taken at: iopc Funds, “Incidents”, (iopc Funds, 2018), available at: (last accessed on 1 March 2018).

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wrapped up by an analysis of the findings and the proposals of the Chamber and the regime of the Area as they might relate to the liability regimes. In the course of this analysis the first part of this chapter will be used so as to shed light to the relationship between the regime of the Area and the civil liability regimes. The conclusions of the Chamber as to the status of liability in international law and its proposals towards a solution within the deep seabed regime will bring to the fore the overall problems posed by instances where harm occurs and the relevant actors may not be held responsible. 1 The Advisory Opinion The questions posed to the itlos Disputes Chamber were meant to clarify a number of aspects of the regime of the Area pertaining to the obligations of sponsoring States. Before embarking upon discussing the Advisory Opinion issued by the Chamber, a few words on the deep seabed regime are required. First of all, the Area, according to the losc, is the common heritage of mankind.56 Therefore the protection of the environment in the Area is a concern of all States parties. Nevertheless, a number of more specific duties are being assigned to the States that sponsor activities in the Area (i.e. deep seabed mining), sponsored contractors and the isa.57 Therefore the losc creates a bundle of different duties directed towards upon all relevant parties that pertain to the protection of the environment. In order for an exploration contract to be concluded, an entity (private or public who is a national or controlled by nationals of a State party) must ­a plan for approval to the isa.58 A State party to the losc must sponsor the ­prospective contractor.59 If the plan is approved, the isa and the contractor conclude a contract, which contains standard clauses that – in addition to the regulations issued by the isa60 – outline the rights and obligations of the 56

57 58 59 60

1982 United Nations Convention on the Law of the Sea (adopted 10 December 1982, entered into force 16 November 1994), 1833 unts 3, Article 136 (hereinafter losc); see also R.-J. Dupuy, “The Area as the Common Heritage of Mankind”, in: R-.J. Dupuy and D. Vignes (eds.), A Handbook on the New Law of the Sea, Vol.1 (Leiden: Martinus Nijhoff, 1991), 579– 586; C. Joyner, “Legal Implications of the Concept of the Common Heritage of Mankind”, iclq 35 (1986): 190–199; E. Guntrip, “The Common Heritage of Mankind: An Adequate Regime for Managing the Deep Seabed?”, Melbourne jil 4 (2003): 376–405. losc, supra note 56, Articles 194(3)(c) and 209(2) concern States, Article 145 the isa and Article 22 of Annex iii the contractors. losc, supra note 56, Article 153(3), and Annex iii, Articles 3, 4 and 6. losc, supra note 56, Article 153(2)(b). International Seabed Authority, “Regulations on Prospecting and Exploration for Polymetallic Nodules in the Area”, ISBA/6/A/18 (4 October 2000) (hereinafter Nodules Regulations); International Seabed Authority, “Regulations on Prospecting and Exploration

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parties.61 The obligations of the sponsoring State are laid out in the losc.62 The question that arose was what was the precise scope and content of these obligations. The Chamber held that sponsoring States are under a due diligence obligation regarding activities in the Area.63 It affirmed that, besides the general due diligence obligation, the State is also under a set of direct obligations.64 It also held that the direct obligations informed the content of the due diligence obligation.65 This means that the obligation to conduct an Environmental Impact Assessment, for example, is both a direct obligation but its fulfilment was an indication as to the extent that the sponsoring State adopted a diligent behaviour. Inevitably so, the Chamber reached a point where it had to discuss the ­situation wherein a State had fulfilled its obligations and yet, damage to the Area occurred. The Chamber proceeded by noting that despite the efforts of the ilc on the topic of allocation of loss there is no rule of customary law proclaiming on the issue of liability.66 In other words, the Chamber admitted that there is a gap in liability.67 The next step was to conclude that a possible way out of this impasse would be the establishment of a Fund by the isa.68 It correctly noted that the losc provided support for this proposition.69 A few words on the conclusions of the Chamber are in order. The Chamber did not engage in an attempt to survey the practice of States so as to proclaim of the existence or absence of a customary rule on liability. It stated that such a rule does not exist in a rather axiomatic fashion. The fact that it is probably correct does not mean that its methodology is to be commended. More importantly, however, it made a proposal that comes straight out of the civil liability book without examining whether the deep seabed regime is amenable to such

61

62 63 64 65 66 67 68 69

for Polymetallic Sulphides in the Area”, ISBA/16/A/12/Rev.1 (7 May 2010) (hereinafter ­Sulphides Regulations); International Seabed Authority, “Draft Regulations on Prospecting and Exploration for Cobalt-rich Ferromanganese Crusts in the Area”, ISBA/17/C/CRP.1 (1 February 2011) (hereinafter Crusts Regulations). The Standard Clauses are available at: International Seabed Authority, “Decision of the Assembly Relating to the Regulations on Prospecting and Exploration for Polymetallic Nodules in the Area – Annex 4: Standard Clauses for Exploration Contract”, ISBA/6/A/18 (4 October 2000). See supra note 49. Seabed Mining Advisory Opinion, supra note 4, paras. 111–115. Ibid., paras. 121–140. Ibid., para. 123. Ibid., para. 203. Ibid. Ibid., para. 205. losc supra note 56, Article 235(3).

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a solution. Two preliminary points must be made. First, it seems that while the Chamber rejected the idea of a customary rule on liability, it took a stance on the issue by promoting a civil liability solution to a non-civil liability regime. Second, as will be shown in the next section, it did not discuss the nature of its proposal. It must be remembered that the Chamber was asked to answer questions relating to the obligations of sponsoring States. The solution offered however, has much wider implications in the deep seabed regime as a whole since the sponsored contractor and the isa are also active in the activities in the Area. Having made these observations, the next step would be to evaluate the findings of the Chamber against the backdrop of civil liability regimes and see how moving beyond the limits of responsibility severely complicates the situation in the Area. 2 Liability The Advisory Opinion’s conclusion can be evaluated under three different lines of thought. The first would accept that the Advisory Opinion is essentially correct in its main findings. Indeed, State practice does not indicate that States have accepted in any way an international rule on liability. Moreover, the work of the ilc has not led to the adoption of any major international instrument that would spearhead a re-assessment of the topic. At the same time, the existing civil liability regimes do not produce more results in terms of handling incidents than they had before the conclusion of the work of the ilc. A diametrically opposed view would hold that the Seabed Chamber did not treat the issue of liability adequately. Sure, it could not discern any clear pattern of State practice and opinio juris towards the emergence of a liability rule. On the other hand, however, the ilc never actually replied to the question asked by the Chamber. In other words, the work of the ilc took a sharp turn after the division of the “Injurious Consequences” topic. It stopped discussing issues of State liability70 and, as stated above, concentrated its efforts ­towards ­producing a general civil liability regime. Therefore the Chamber should have at least investigated the status of State liability and made an inquiry in the practice of States in that regard. The third, and more convincing, 70 The Special Rapporteur Rao included in his first report on allocation of loss a paragraph entitled “State liability: a case of misplaced emphasis?” where he set out the reasons why he believed that the topic should move away from State liability; see ilc, “First ­Report on the Legal Regime for Allocation of Loss in Case of Transboundary Harm Arising out of Hazardous Activities of the Special Rapporteur, Mr. Pemmaraju Sreenivasa Rao”, A/CN.4/531 (21 March 2003), paras. 16–20. The previous Special Rapporteur had already indicated that a choice between civil and State liability had to be made; see ilc, “Seventh Report by Barboza”, supra note 21, at 84–89.

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line of thought would accept the conclusions of the Chamber but would insist that a solution should be found for the problem posed, possibly through a convention or through a change in state practice. The Chamber, towards the end of the paragraph where it denied the existence of a rule on liability, hinted at a step that could be made despite the apparent impasse. The Chamber suggested that the isa should take steps towards the establishment of a Fund that would contribute to the reparation of the damage done to the Area.71 The question then becomes whether and under which circumstances such a solution could work. It is this third strand of thought that will be analysed in the following paragraphs. The idea of establishing a fund so as to provide for extra resources in order to repair the damage caused to the Area is certainly not novel. As it has been shown above, the idea of funds has been employed in most civil liability regimes. It is worth exploring the broader contours of this approach in the deep seabed context. There are considerable differences between the regime of the Area and the civil liability regimes or the ilc Principles that have adopted the idea of a Fund. In civil liability the actor that is called to provide for compensation is the operator of the activity and not the State that “sponsors”72 the activity. In the regime of the Area the obligations of the sponsoring State and the contractor run in parallel.73 The implications of this are twofold. First, the relationship between responsibility and liability breaks down. There is the responsibility of the sponsoring State (which has been the subject of the Advisory Opinion) and the responsibility of the contractor. The contractor bears international obligations – under a combined reading of the standard terms of the contract with the isa, the regulations of the isa and the losc.74 The question arises 71 72 73 74

Seabed Mining Advisory Opinion, supra note 4, para. 205. It is true that the concept of sponsorship does not exist in civil liability. In this context the sponsoring State corresponds to the State the activity originates from or, in the case of the oil pollution regime, of the flag State or the State of nationality of the ship owner. Seabed Mining Advisory Opinion, supra note 4, para. 204. Standard Clauses 1.2 and 3 transpose the Regulations of the isa and the relevant losc provisions in the contract. The isa Regulations and the Standard Clauses provide for an obligation of the contractor to protect the environment (Nodules Regulations, supra note 60, Regulation 31(3); Sulphides Regulations, supra note 60, Regulation 33(5); Crusts Regulations, supra note 60, Regulation 33(5); Standard Clause 5.1) while at the same time the losc provides for the contractor’s liability (losc Annex iii, Art.22). On the international nature of the obligations of the contractor see M. Karavias, Corporate Obligations under International Law (Oxford: Oxford University Press, 2013), at 137–138; I. Plakokefalos, “Shared Responsibility Aspects of the Dispute Settlement Procedures in the Law of the Sea Convention”, jids 4/2 (2013): 385–405.

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whether a breach of these obligations will trigger the rules of responsibility applicable to States, as envisaged by the ilc. In principle, there is no reason that they should not apply, by analogy, to a private actor, if this actor bears international obligations and his responsibility can be invoked before an international tribunal. Second, liability can appear at both the State and the private actor level. Besides the sponsoring State whose liability is discussed in this paper there is also the liability of the contractor. This merits some further elaboration. In the scenario discussed by the Dispute Chamber, the sponsoring State has fulfilled its due diligence obligations and yet damage occurs. The Chamber also envisaged a scenario wherein the State is not responsible – because it has fulfilled its obligations and at the same time the contractor cannot cover his liability in full.75 It did not contemplate the case where neither the State nor the contractor is responsible and yet damage occurs. To fully appreciate any proposed solution, the possible scenarios must be examined. First, it could be the contractor that has breached his/her obligations which means that if brought before a court or tribunal, national or international,76 s/he will be called upon to repair the damage. In civil liability regimes the liability of the operator is strict, hence not premised on the idea of negligence or fault. In the deep seabed regime the contractor is not under such strict liability. It is obvious that the nature of his obligation is one of due diligence. The contractor under the Regulations issued by the isa is under an obligation to take necessary measures to protect the environment77 pursuant to losc Article 145. It is clear that the language of the requisite provisions is commonly used to denote a due diligence obligation. Moreover, Section 16 of the Standard Clauses for exploration posits that the contractor shall be liable for the damage arising out of its wrongful acts or omissions. This would sit uncomfortably with any notion of strict liability. Consequently, according to a second scenario, there is the possibility that beside the sponsoring State, the contractor too can be in a position wherein he has fulfilled his due diligence obligation and still damage occurs. The Chamber was not called upon, and hence did not reply to the question of what happens if such a scenario materializes. It must be admitted however, that there is no reason why this situation would not materialize and therefore create a double impasse: one on the State liability and one on the contractor liability level. 75 76 77

Seabed Mining Advisory Opinion, supra note 4, paras. 203–205. See losc, supra note 56, Article 187. Nodules Regulations, supra note 60, Regulation 31(3); Sulphides Regulations, supra note 60, Regulation 33(5); Crusts Regulations, supra note 60, Regulation 33(5).

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Any agreement on a Fund would have to cover both instances (i.e. when either the State or the contractor have breached their obligations) in order to offer a complete solution to the problem. What is more, it would have to provide for resources that could cover the damage caused if both State and private entities had fulfilled their due diligence obligations. This is slightly different from the case examined by the Chamber where it was presumed that the contractor was liable and the problem was one of covering merely a part of the damage. In the scenario analysed above a Fund would have to cover the whole damage. This would have an impact on the resources that would have to become available through the Fund. If the role of the isa is added to the equation things become more complicated. The losc provides in Article 22 of Annex iii that the isa might also be held liable for damage in the Area. The isa’s liability may come about either directly, or through its negligent conduct that contributes to the damage.78 The isa bears a different, yet related, set of obligations of supervision and protection of the environment in the Area.79 These obligations are also due diligence obligations.80 The same impasse emerges: damage to the Area occurs and all of the entities involved (sponsoring State, contractor, isa) have fulfilled their obligations. Alternatively, the State and the contractor have fulfilled their obligations yet the isa, which has contributed to the damage,81 is not in a position to cover the full extent of the damage. The existence of liability on multiple levels poses novel challenges. In the civil liability regimes and the Principles of the ilc things are more straightforward. The State bears an obligation to ensure that the victims of the damage have access to compensation and the operator of the activity bears strict liability and is under an obligation to compensate. On top of that, the operator must carry mandatory insurance and in most cases a Fund is being established so as to provide for further resources. The ilc has not ruled out the possibility that a fourth layer of – residual – liability might rest with the State of origin.82 This scheme is not applicable in the Area. There, all the relevant actors bear due diligence obligations which, if fulfilled in any combination thereof, 78 79 80 81

82

losc, supra note 56, Annex iii, Article 22. losc, supra note 56, Articles 145 and 153(4). losc, supra note 56, Annex iii, Article 22. This can be envisaged in the scenario where the isa does not apply a precautionary ­approach or fails to keep under regular review the environmental rules applicable in the Area, see Nodules Regulations, supra note 60, Regulation 31(1) and (2); Sulphides Regulations, supra note 60, Regulation 33(1) and (2); Crusts Regulations, supra note 60, ­Regulation 33(1) and (2). Principles of Loss Allocation, supra note 2, Principle 3.

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e­ xonerate one or all of them. An external tier of compensation can only be found in Section 16.5 of the Standard Clauses. There it is made clear that the contractor is under an obligation to maintain insurance “[…] with internationally recognized carriers, in accordance with generally accepted maritime practice”. If this clause is read in conjunction with Section 16.1 which extends the liability of the contractor to include damage to the marine environment, it seems that an extra tier of compensation is indeed present in the deep seabed regime. The crucial difference however remains: the contractor will only be liable for his wrongful acts or omissions. It is questionable whether the insurance policy will cover any instances where the contractor will have fulfilled his due diligence obligation to prevent damage to the marine environment. In other words it is not known, given the practice of having insurance policies in the civil liability regimes where liability is strict, whether the insurance companies would pay compensation in cases where the liability of the contractor will not even be in question. A solution might be found in the Regulations of the isa or the Standard Clauses of the contract. When the isa proceeds to issue Regulations on exploitation of the deep seabed it might either provide for a stricter standard of l­iability or impose more stringent obligations on the contractor. In the first case it would create a regime that would be closer to strict liability. In the second case it would render it extremely hard for the contractor to discharge his due diligence obligation. This, in turn, would create a situation wherein it would be equally hard for the contractor to evade responsibility. While the development of such Regulations would bring the deep seabed regime closer to the familiar circumstances under which a fund is usually set up they would not detract from its usefulness under the current deep seabed regime. It remains true that the establishment of a Fund is probably the safest way so as not to allow damage to go uncompensated. The analysis however should not stop here. A further issue related to the establishment of a Fund is the question of who will pay contributions. The obvious option would be the beneficiaries of the operations. This would i­ nclude the industry that engages in deep seabed mining as a whole and the States that sponsor such activities. However, unlike the oil pollution regime, for example, where it is clearly stated that the recipients of the oil carried by the shipowner will contribute towards the fund, in the present context it is not clear who would contribute towards the Fund in the case of deep seabed mining. It seems that it would be the States or private entities that receive the product of the mining. Nevertheless, it is too early to identify the standards under which such a choice of contributors would function since activities in the Area are, for the time being, restricted to exploration. When exploitation becomes

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­ ossible then the isa and the States parties to the losc will have to come up p with a solution to this problem as well. Finally, the issue of the procedure should also be addressed. The ilc considered that it would be the national courts that should settle the disputes arising out of transboundary harm.83 This is the reason why it included in its Principles the requirement that the State of origin of the harm should accord equal access to justice to the victims of the harm.84 This means that the victims of the harm, irrespective of their nationality or citizenship, should have access to justice in the courts or administrative procedures of the State of origin of the harm on the same level as the nationals or citizens of that State. What is important to note in this connection, is that the right to equal access to justice is simply procedural. Despite the pleas of the literature85 and the Special Rapporteur himself,86 it does not seem to contain a substantive element that would impose upon the State of origin an obligation to offer a minimum standard of protection to the victims of environmental harm.87 This is important because equal access to justice might be proven to be an empty shell in case the protection offered by the State of origin in cases of environmental harm to its own citizens or nationals is of a very low level (either in terms of the level of compensation or in terms of the available heads of damages). The civil liability regimes also envisage slightly more complex proceedings. In order to examine the proceedings involved in civil liability regimes the oil pollution fund will serve as an example since it is the only one that is fully functional. In the oil pollution regime, the claimants will request compensation directly from the fund, which, in turn, is in close co-operation both with the government of the State where the damage has occurred as well as with

83 84 85

86 87

This is clear throughout the Principles on Allocation of Loss, see especially Principle 6(2). Ibid. P.M Dupuy, “La contribution du principe de non-discrimination a l’élaboration du droit international de l’environnement”, rqdi 7 (1991–2): 135–144 ; Dupuy has claimed that “[l]a protection accordée aux victimes de pollution transfrontalière par le bénéfice, dans le pays d’origine, des voies de droit offertes aux victimes de pollutions nationales équivalentes, ne présente de véritable intérêt que si le droit de ce pays est suffisamment protecteur des intérêts particuliers, en comparaison avec le régime assuré dans des situations équivalentes par le droit national de la victime transfrontalière de la même pollution”, ibid., at 141. ilc, “Third Report on the Legal Regime for Allocation of Loss in Case of Transboundary Harm Arising out of Hazardous Activities by Special Rapporteur, Mr. Pemmaraju ­Sreenivasa Rao”, A/CN.4/566 (7 May 2006), paras. 3–4 and 33–34. P. Birnie and A. Boyle, International Law and the Environment (Oxford: Oxford University Press, 2002, 2nd edn.), at 269–270.

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the Protection and Indemnity Club of the ship-owner.88 Compensation is usually awarded according to direct assessment by the fund itself. Nevertheless, the involvement of the fund in proceedings before national courts is also envisaged.89 The fund intervenes or participates in the proceedings before national courts either as a respondent or as a claimant in order to safeguard its interests.90 It is hard to see how the administration of a fund would function in the deep seabed regime. It seems that the isa would be the most appropriate body to manage the resources made available through the fund. Immediately, the problem of conflict of interests arises. The isa, however, is not an independent third party. It actively engages in activities in the Area through the approval of plans of work and the conclusion of contracts with public or private entities.91 It also has a general supervisory role and particular obligations.92 It can be seen how the isa would be able to administer compensation in the case where the sponsoring State, the contractor and the isa itself were not in breach of their obligations and yet damage occurred. It is hard to envisage, however, how the isa would be perceived as an impartial third party where any of the above-mentioned parties bear responsibility, yet the resources available are not a­ dequate and recourse must be had to the fund. Moreover, if one gets past this problem, the procedure of dispute settlement becomes problematic. The deep seabed regime features an elaborate dispute settlement procedure. A dispute might end up being handled by an international tribunal and a national court at the same time, depending on the claims and on the parties involved.93 There is no clarity as to how the isa would be engaged in or intervene. The procedural difficulties of administering a fund in the deep seabed could, of course, be resolved if the isa decided to adopt regulations that would delimit the scope and nature of the fund. It seems that a solution in which the administrator of the fund would have the power to intervene or even to be brought before a court or a tribunal as a respondent would be optimal. The losc itself, in the requisite provisions, does not pose any significant hurdles in this regard and the isa has standing before the Disputes Chamber. 88

89 90 91 92 93

Fund Convention, supra note 40, Article 4; see also iopc Funds, Claims Manual (London: iopc Funds, October 2016 edn.), at 17 et seq., available at: (last accessed on 1 March 2018). Fund Convention, supra note 40, Article 7. Ibid. See information at: International Seabed Authority, “International Seabed Authority” (isa, 2018), available at: (last accessed on 1 March 2018). Ibid. See losc, supra note 56, Article 187.

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Conclusions

This Chapter has attempted to show that when the outer limits of responsibility are reached, the law becomes rather unclear. Despite the efforts of the ilc the project on liability for injurious consequences arising out of acts not prohibited by international law did not have a smooth course. After the topic was split in two (prevention and allocation of loss) the project moved faster towards completion. The Articles on prevention and – more importantly for the purposes of this chapter – the Principles on allocation of loss did not have a strong outcome in terms of follow up to the work of the ilc. The fact that the Principles drew heavily from the civil liability regimes but also tried to move a step further probably did not help either. This result has led to a difficulty in identifying the rules that are applicable in cases that go beyond the limits of responsibility. The itlos Deep Seabed Disputes Chamber encountered that problem, albeit in a marginal fashion, in its Advisory Opinion on the obligations of sponsoring States in the Area. The question was what the status of the law was if a sponsoring State had fulfilled its obligations in the Area and yet damage occurred. The Chamber held that there was a gap in the law and that the best way to overcome this problem would be to set up a Fund through the isa that would provide for compensation in such cases. This chapter has shown that there are numerous difficulties, conceptual and practical, in the idea put forth by the Chamber. While it seems that the activities in the Area would be amenable to a solution of a Fund there are numerous questions that need to be taken into account. The conclusion that should be drawn from this analysis is that instead of searching for ad hoc solutions every time a problem goes beyond responsibility, it would be better if more general rules were developed by the States so as to address these issues. These rules could be based on the Principles of the ilc but they could also go further. ­Unless such rules are established the problem will persist and will re-appear in a different context each time.

Chapter 6

Fisheries and State Responsibility: Lessons to Be Learned from Recent Case-Law Efthymios Papastavridis* i

Introduction

The international responsibility of States in relation to fisheries has been invoked in many ways and before different fora,1 particularly since the entry into force of the United Nations Convention on the Law of the Sea (losc).2 Some

* The author would like to thank Professor Catherine Redgwell (University of Oxford), Professor Miles Jackson (University of Oxford), and Professor Panos Merkouris (University of Groningen) for having read and offered comments on previous drafts. The research leading to this article received funding from the Oxford Martin Programme for Sustainable Oceans, Oxford Martin School, Oxford University. 1 Examples include in the recent years the Shrimp-Turtle case at the wto, United States – Import Prohibition of Certain Shrimp and Shrimp Products, wto, Appellate Body Report adopted on 12 October 1998, WT/DS58/AB/R; The M/V ‘Saiga’ (No. 2) Case (Saint Vincent and the Grenadines v. Guinea), itlos, Judgment of 1 July 1999, [1999] itlos Rep. 10 (hereinafter The M/V ‘Saiga’ (No. 2) case); Case Concerning the Conservation and Sustainable Exploitation of Swordfish Stocks in the South-Eastern Pacific Ocean (Chile/European Union), itlos, Case No. 7 more generally see: (last accessed on 1 March 2018); Chile – Measures affecting the Transit and Importing of Swordfish, wto, Discontinuance by Agreement of the Parties on 28 May 2010, G/L/367/Add.1, more generally see: (last accessed on 1 March 2018); Southern Bluefin Tuna Case between Australia and Japan and between New Zealand and Japan, Arbitral tribunal established under Annex vii of the losc, Award on Jurisdiction and Admissibility of 4 August 2000, riaa 23 (2000): 1–57; The M/V ‘Virginia G’ Case (Panama/Guinea-Bissau), itlos, Judgment of 14 April 2014, [2014] itlos Rep. 4; Review Panel established under the Convention on the Conservation and Management of High Seas Fishery Resources in the South Pacific Ocean, pca, Findings and Recommendation of the Review Panel of 5 July 2013, available at: (last accessed on 1 March 2018); The Atlanto-Scandian Herring Arbitration (The Kingdom of Denmark in respect of the Faroe Islands v. The European Union), pca, available at: (last accessed on 1 March 2018); European Union – Measures on Atlanto-Scandian Herring, wto, Discontinuance due to Settlement of Dispute on 21 August 2014, G/L/1058/Add.1, more generally see: (last accessed on 1 March 2018). 2 1982 United Nations Convention on the Law of the Sea (adopted 10 December 1982, entered into force 16 November 1994), 1833 unts 3. © koninklijke brill nv, leiden, ���9 | doi:10.1163/9789004390485_007

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of these cases were concluded at the jurisdictional phase3 or suspended/terminated by the parties to the dispute,4 while the majority of cases decided in the merits phase involved the violation of fisheries laws and regulation in Exclusive Economic Zone (eez).5 What seems to be different in recent years is that international tribunals have been more active in developing the concept of flag State responsibility for such violations as well as the responsibility of international organizations, namely the European Union (EU), under certain circumstances. Also questions regarding coastal States’ obligations for the conservation and management of living resources were addressed.6 First, on 2 April 2015 the International Tribunal for the Law of the Sea (itlos) rendered its Advisory Opinion to the Request submitted by the SubRegional Fisheries Commission (srfc),7 holding, inter alia, that it is the coastal State which has the primary responsibility for taking the necessary measures to prevent, deter and eliminate illegal, unreported and unregulated fishing (iuu fishing) in its eez.8 Yet a flag State is under the obligation to take the necessary measures “to ensure” that vessels flying its flag and its nationals are not engaged in iuu fishing activities.9 The Tribunal interpreted this as being an obligation of “conduct”, which, by referring to the Seabed Advisory Opinion,10 3

4

5 6

7 8 9 10

See e.g. the Southern Bluefin Tuna case, supra note 1. For commentary see: D.A. Colson and P. Hoyle, “Satisfying the Procedural Prerequisites to the Compulsory Dispute Settlement Mechanisms of the 1982 Law of the Sea Convention: Did the Southern Bluefin Tuna Tribunal Get it Right?”, Ocean Development of International Law 34 (2003): 59–82. See the Swordfish and Antlanto-Scandian Herring cases, supra note 1. For commentary see M.A. Orellana, “The Swordfish Dispute between the EU and Chile at the itlos and the wto”, Nord J Intl L 71 (2002): 55–81 and Y. Ishikawa, “The EU-Faroe Islands Herring Stock Dispute at the wto: the Environmental Justification”, (asil Insights 18/4, 14 February 2014), available at: (last accessed on 1 March 2018). See e.g. The M/V ‘Saiga’ (No. 2) and The M/V ‘Virginia G’ cases, supra note 1. See on coastal State obligations in this regard C. Goodman, “Rights, Obligations, Prohibitions: A Practical Guide to Understanding Judicial Decisions on Coastal State Jurisdiction over Living Resources in the Exclusive Economic Zone”, International Journal of Marine and Coastal Law 32 (2017): 1–27. Request for an Advisory Opinion submitted by the Sub-Regional Fisheries Commission (srfc), itlos, Advisory Opinion of 2 April 2015, [2015] itlos Rep. 4. (hereinafter Fisheries Advisory Opinion). Ibid., para. 106. Ibid., para. 124. Responsibilities and Obligations of States Sponsoring Persons and Entities with respect to Activities in the Area, itlos, Seabed Disputes Chamber, Advisory Opinion of 1 February 2011, [2011] itlos Rep. 10, para. 108 (hereinafter Seabed Mining Advisory Opinion). For commentary see I. Plakokefalos, “Seabed Disputes Chamber of the International Tribunal for the Law of the Sea: Responsibilities and Obligations of States Sponsoring Persons and

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is an obligation of “due diligence”.11 This means that a particular standard of care is expected of a flag State, as opposed to an obligation to achieve a certain result (e.g. “no iuu fishing”). In addition to State responsibility, the Tribunal addressed the division of responsibility between the EU and its Member States holding that if a Sustainable Fisheries Partnership Agreement (sfpa) is in place between the EU and the coastal State,12 it is the EU, rather than the EU Member State, which bears responsibility for any ostensible violation of “due diligence” obligations.13 Second, in the very extensively-discussed South China Sea dispute between Philippines and China,14 one of the submissions of Philippines concerned China’s failure to prevent its nationals and vessels from exploiting the living resources in the Philippines’ eez, in particular around Mischief Reef and Second Thomas Shoal. Since 2013, the Philippines had repeatedly observed Chinese fishing vessels active in that area, accompanied by government vessels. The Arbitral Tribunal found that the obligation of due regard in Article 58(3) of losc, read in conjunction with the obligations directly imposed upon private parties, extends to a duty on the flag State to take the necessary measures to ensure that its nationals and vessels flying its flag do not fish unlawfully in the eez of another State.15 The Tribunal agreed with the Fisheries Advisory Opinion in the case at hand, stating that anything less than due diligence by a State to prevent its nationals from unlawfully fishing in the eez of another State would fall short of the regard due pursuant to Article 58(3) of losc.16

11 12

13 14

15 16

­ ntities with Respect to Activities in the Area Advisory Opinion”, Journal of EnvironmenE tal Law 24/1 (2012): 133–143. Fisheries Advisory Opinion, supra note 7, para. 128. By concluding these agreements, the EU gives financial and technical support in exchange for fishing rights, generally with southern partner countries; for more information see: (last accessed on 1 March 2018). Fisheries Advisory Opinion, supra note 7, para. 168. In the Matter of an Arbitration before an Arbitral Tribunal Constituted under Annex vii to the 1982 United Nations Convention on the Law of the Sea between the Republic of the Philippines and the People’s Republic of China, pca, Award on Merits of 12 July 2016, available at: (last accessed on 1 March 2018) (hereinafter South China Sea Award). On the case see among others V.P. Cogliati-Bantz, “Current Legal Developments The South China Sea Arbitration (The Republic of the Philippines v. The People’s Republic of China)”, International Journal of Marine and Coastal Law 31 (2016): 759–774; T. Davenport, “Legal Implications of the South China Sea Award for Maritime Southeast Asia”, Australian Yearbook of International Law 26 (2016): 65–86. South China Sea Award, supra note 14, para. 743. Ibid., para. 744.

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These judicial pronouncements come in a period where there is a rising awareness on the issue of iuu fishing.17 As it is reported by the Food and Agriculture Organization (fao), “[i]llicit fishing may account for up to 26 million tonnes of fish a year, or more than 15 percent of the world’s total annual capture fisheries output. Besides economic damage, such practices can threaten local biodiversity and food security in many countries”.18 Moreover, iuu fishing and its destructive fishing methods, such as bottom-trawling, is inextricably linked with the protection of the marine environment. In this regard, it comes as no surprise that several targets for the Sustainable Development Goals (sdgs) (“Conserve and sustainably use the oceans, seas and marine resources for sustainable development”) are explicitly fisheries-related.19 Against this background this chapter will explore the legal landscape of responsibility in relation to fisheries. It will address questions concerning coastal State and flag State responsibility respectively in the light of the above-­ mentioned judicial decisions. The chapter will discuss the above-mentioned findings of the international tribunals and will consider other situations, like the use of private actors in fisheries enforcement, that could give rise to State responsibility in this regard. The analysis will be focused on the question of State responsibility and will not address questions concerning the responsibility of international organizations, like the EU, as discussed in the Fisheries Advisory Opinion. As to the (primary) obligations of States in respect of the matter at hand, these are set out by international fisheries law as part of the international law of the sea. The cornerstone in the global jurisdictional framework is provided 17

18 19

For the definition of iuu fishing see fao, “International Plan of Action to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing” (adopted by the fao Committee on Fisheries on 2 March 2001 and endorsed by the fao Council on 23 June 2001), available at: (last accessed on 1 March 2018) (hereinafter ipoa-iuu). See also fao, “2005 Rome Declaration on Illegal, Unreported and Unregulated Fishing” (adopted by the fao Ministerial Meeting on Fisheries in Rome on 12 March 2005), available at: (last accessed on 1 March 2018). For a scholarly commentary see e.g. W. Edeson, “The International Plan of Action on Illegal Unreported and Unregulated Fishing: The Legal Context of a Non-Legally Binding Instrument”, International Journal of Marine and Coastal Law 16 (2001): 603–623. fao, The State of World Fisheries and Aquaculture 2016 (Rome: fao, 2016), iii. The Sustainable Development Goals (sdgs), officially known as Transforming our world: the 2030 Agenda for Sustainable Development is a set of 17 “Global Goals” with 169 targets between them, which were established in: unga, “Resolution 70/1: Transforming our World: the 2030 Agenda for Sustainable Development”, A/RES/70/1 (25 September 2015), para. 54. For more information, see: (last accessed on 1 March 2018).

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by losc, regulating the exercise of fishing rights in various maritime zones and setting out the respective obligations, including the obligation to adopt all necessary measures for the conservation and management of the living resources and to cooperate in relation to transboundary fish stocks.20 The provisions of losc concerning fisheries are complemented by a wide range of global legally binding as well as non-legally binding fisheries instruments adopted by fao or the United Nations General Assembly (unga). Suffice to mention, in particular, the UN Fish Stocks Agreement,21 the 1993 fao Compliance Agreement;22 the fao Port State Measures Agreement;23 and among the non-binding instruments, the fao Code of Conduct,24 the International Guidelines on Deep-sea Fisheries in the High Seas,25 and certain unga Resolutions,26 which have contributed to the phasing-out of large-scale pelagic driftnet fishing and imposed restrictions on bottom-fisheries on the high seas.27 20 21

22 23

24 25 26

27

See inter alia Articles 21 and 42 (territorial sea), Articles 61–73 (eez) and 116–119 (high seas). 1995 Agreement for the Implementation of the Provisions of the United Nations Convention of the Law of the Sea of 10 December 1982, Relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks (adopted 4 August 1995, entered into force 11 December 2011), 34/6 ilm 1542–1580. 1993 Agreement to Promote Compliance with International Conservation and Management Measures by Fishing Vessels on the High Seas (adopted 24 November 1993, entered into force 24 April 2003), 2221 unts 91. 2009 Agreement on Port State Measures to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing (adopted 22 November 2009, entered into force 5 June 2016), available at: (last accessed on 1 March 2018) (hereinafter Port States Measures Agreement or psm Agreement). fao, “Code of Conduct for Responsible Fisheries” (adopted at the 28th Session of the fao Conference in Rome on 31 October 1995), available at: (last accessed on 1 March 2018). fao, “fao International Guidelines on Deep-sea Fisheries in the High Seas” (2009), available at: (last accessed on 1 March 2018). See e.g. unga, “Resolution 61/105: Sustainable Fisheries, Including through the 1995 Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 Relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks, and Related Instruments” A/RES/61/105 (6 March 2007), paras. 80–89; unga, “Resolution 71/123: Sustainable Fisheries, Including through the 1995 Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks, and Related Instruments”, A/RES/71/123 (13 February 2017). See N. Liu and E. Kirk, “The European Union’s Potential Contribution to Protect Marine Biodiversity in the Changing Arctic: A Roadmap”, International Journal of Marine and Coastal Law 30 (2015): 255, at 269.

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On the other hand, the law of international responsibility has been developed and codified by the International Law Commission (ilc).28 The main text and point of reference is the ilc Articles on Responsibility of States for Internationally Wrongful Acts of 2001 (arsiwa).29 The arsiwa have not taken the form of a treaty, yet they are considered by courts and commentators to be wholly or in large part an accurate codification of the customary law of State responsibility.30 The arsiwa were followed in 2011 by the ilc Articles on the Responsibility of International Organizations (ario).31 Both arsiwa and ario are based on the notion of an “internationally wrongful act”, that is a breach of an international obligation which may be attributed to a particular State or organization and gives rise to its responsibility.32 Attribution is the necessary link between the State or organization and the conduct in question.33 Under the rules of State responsibility, for example, the conduct will be attributed to the State if the act or omission was done by State organs or other private persons and entities delegated by the State to exercise governmental powers or acting under the direction or control of the State.34 In the event of an internationally wrongful act that is not excused or justified by any circumstances precluding wrongfulness set out in both the arsiwa and ario,35 other States may be entitled to respond. This may be done by invoking the responsibility of the wrongdoer, seeking cessation and/or reparation, or possibly by taking counter-measures.36

28 29 30

31 32 33 34 35 36

See generally J. Crawford, State Responsibility – The General Part (Cambridge: Cambridge University Press, 2013). ilc, “Report of the International Law Commission Covering its 53rd Session”, A/56/10 (2011) reproduced in: yilc [2001/II Part Two]: 1 (hereinafter arsiwa and arsiwa Commentaries when referring to the commentaries of the respective articles). See e.g. Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), Judgment of 26 February 2007, [2007] icj Rep. 43, para. 401 (hereinafter Genocide Convention case) and Crawford, supra note 28, at 43. unga, “Report of the International Law Commission to the General Assembly”, A/66/10 (2011), Chapter v, 50–170 (hereinafter ario). See Articles 1 and 2 arsiwa and Articles 3 and 4 ario. On the issue of attribution see inter alia L. Condorelli, “The Rules of Attribution: General Considerations” in: J. Crawford et al. (eds.), The Law of International Responsibility (Oxford: Oxford University Press, 2010), 221. See Articles 4–11 arsiwa. See Articles 20–26 arsiwa and Articles 20–26 ario. On countermeasures see inter alia L.-A. Sicilianos, Les réactions décentralisées a l’illicite: Des contre-mesures a la légitime défense (Paris: Librairie générale de droit et de ­jurisprudence, 1990) and M. Dawidowicz, Third Party Countermeasures in International Law (Cambridge: Cambridge University Press, 2017).

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The Responsibility of Coastal States in Relation to Fisheries

The first port of call in examining issues of responsibility related to fisheries is the coastal State and its potential responsibility for violations of obligations under international fisheries law. Such obligations of coastal States were discussed in both the Fisheries Advisory Opinion and the Chagos Marine Protected Area Award37 and will be addressed accordingly in the ensuing paragraphs. Additionally, even though there has been no case-law in this regard yet, it is interesting to allude to the use of private security companies or Non-­ Governmental Organizations (ngos) by the coastal State for fisheries enforcement purposes. Such use certainly invites discussion in the context of the ­present enquiry, since it brings to the fore questions of attribution of conduct to the coastal States concerned. 1 Due Diligence Obligations of the Coastal State in Its eez The Fisheries Advisory Opinion afforded itlos an opportunity to clarify the interpretation of the basic rights and duties of coastal States under the losc with respect to living resources in the eez.38 Although the Request was directed principally to the obligations of flag States in relation to the conduct of iuu fishing, the Tribunal addressed issues relating to coastal States. Amongst others,39 the Tribunal confirmed that responsibility for the conservation and management of living resources in the eez rests with the coastal State,40 and that it is mandatory for coastal States to adopt conservation and management measures for all living resources in the eez.41 It is also responsible for setting 37

38

39

40 41

In the Matter of the Chagos Marine Protected Area Arbitration (Republic of Mauritius v. United Kingdom), pca, Award of 18 March 2015, available at: (last accessed on 1 March 2018) (hereinafter Chagos Marine Protected Area Arbitration). For scholarly commentary see inter alia D. Freestone, “International Tribunal for the Law of the Sea, Case 21”, Asia-Pacific Journal of Ocean Law and Policy 1 (2016): 131–138; J. Gao, “The itlos Advisory Opinion for the srfc”, Chinese Journal of International Law 14 (2015): 735–755; M.A. Becker, “Request for an Advisory Opinion Submitted by the Sub-Regional Fisheries Commission (srfc)”, ajil 109 (2015): 851–858; V. Schatz, “Fishing for Interpretation: The itlos Advisory Opinion on Flag State Responsibility for Illegal Fishing in the eez”, Ocean Development and International Law International Law 47 (2016): 327–345. The Tribunal was also asked to consider the rights and obligations of coastal States in ensuring the sustainable management of shared and highly migratory stocks; see Fisheries Advisory Opinion, supra note 7, paras. 207–210 and commentary in Goodman, supra note 6, at 6–7. See Fisheries Advisory Opinion, supra note 7, para. 104. Ibid., para. 96.

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the allowable catch for the living resources of the zone, and is required to give other States access to any surplus through agreements or arrangements.42 To meet all of these responsibilities, the coastal State is required to adopt the “necessary” laws and regulations, including enforcement procedures, which must be consistent with the losc.43 It is submitted that the adoption of laws and regulations by the coastal State simpliciter is an obligation of result of an institutional nature, i.e. it requires States to have certain laws in place (not subject to due diligence),44 whereas the obligation to ensure the conservation and management of the living resources therein is an obligation of conduct, involving a duty of due diligence on the part if the coastal State concerned.45 Indeed, as Goodman observes, “[c]uriously, the Tribunal made no reference to a due diligence standard in its discussion of the coastal State’s obligation to ensure that the maintenance of the living resources in the exclusive economic zone is not endangered by over-­exploitation. Nonetheless, as the fulfilment of this obligation involves the adoption and enforcement of regulatory or administrative measures, and the actions of a wide range of private persons and entities (including vessels flagged to third States), it must logically be an obligation of conduct and not result”.46

42 43 44

Ibid., para. 104. Ibid. See for this category of obligations R. Pisillo-Mazzeschi, “Responsabilité de d’état pour violations des obligations positives relatives aux droits de l’homme”, rcadi 333 (2009): 297. 45 The classification of obligations, for example between obligations of result and o­ bligations of conduct in international law, can be traced back to Roberto Ago’s term as a Special Rapporteur of the International Law Commission, on the topic of State Responsibility, see ilc, “Sixth Report on State Responsibility of the Special Rapporteur Mr. Roberto Ago”, A/CN.4/302 and Add.1–3 (15 April, 7 June, 5 and 14 July 1977), reproduced in: yilc [1977/II Part One]: 4, at 20. As summarized by Crawford, “obligations of result involve in some measures a guarantee of the outcome, whereas obligations of conduct are in the nature of best efforts obligations, obligations to do all in one’s power to achieve a result, but without ultimate commitment”; see ilc, “Second Report on State Responsibility of the Special Rapporteur Mr. James Crawford”, A/CN.4/498, Add.1–4 (17 March, 1 and 30 April, 19 July 1999), para. 67. See also relevant comments in P.-M. Dupuy, “Reviewing the Difficulties of Codification: On Ago’s Classification of Obligations of Means and Obligations of Result in Relation to State Responsibility”, ejil 10 (1999): 371, at 379 and generally J. Combacau, “Obligations de résultat et obligations de comportement: quelques questions et pas de réponse”, in: D. Bardonnet et al. (eds.), Mélanges offerts à Paul Reuter, Le droit international: unité et diversité (Paris: Pedone, 1981), 181–204. 46 Goodman, supra note 6, at 12.

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This position that “responsibility to ensure” gives rise to an obligation of due diligence finds support in the Seabed Advisory Opinion. The Chamber noted that an obligation “to ensure” is not an obligation to achieve, in each and every case, the prescribed result. Rather it is an obligation of due diligence, “an obligation to deploy adequate means, to exercise best possible efforts, to do the utmost, to obtain this result”.47 As noted by the International Law Association (ila) Study on Due Diligence in International Law, “at its heart, due diligence is concerned with supplying a standard of care against which fault can be assessed. It is a standard of reasonableness, of reasonable care, that seeks to take account of the consequences of wrongful conduct and the extent to which such consequences could feasibly have been avoided by the State or international organisation that either commissioned the relevant act or which omitted to prevent its occurrence”.48 In the present context, the due diligence obligation of the coastal State is exactly this: to ensure the maintenance of living resources in the eez pursuant to Article 61 of losc. At present, there is no jurisprudence on the specific content of such due diligence requirement; although as Goodman extrapolates by the corresponding flag States duties, “it could be expected to involve a requirement to adopt and enforce the necessary legislative and administrative measures to ensure this result, including through the effective exercise of jurisdiction and control over its own flagged vessels, effective sanctions to ensure compliance, and the necessary measures to prevent, deter and eliminate illegal fishing by foreign flagged vessels”.49 It is evident that the Fisheries Advisory Opinion marked the first significant step towards the elucidation of the coastal States’ obligations in respect of the conservation of living resources. Questions that may arise in this respect are whether there is any room for the common and differentiated responsibilities concept50 and whether the lack of resources, such as lack of coast guard 47 48

Seabed Mining Advisory Opinion, supra note 10, para. 110. ila Study Group on Due Diligence in International Law, “Second Report” (July 2016), available at: (last accessed on 1 March 2018), at 2. 49 Goodman, supra note 6, at 14. 50 It is well-established that developing States may not be able to control the activities in their territory or in their eez in a similar manner to developed States, and that this will affect the evaluation of whether they have breached their due diligence obligation. See ilc Draft Articles on the Prevention of Transboundary Harm from Hazardous Activities, in: unga, “Report of the International Law Commission to the General Assembly”, A/56/10 (2001), Chapter v, at 394 Commentary to Article 3, paras. 12–13, referring to Principle 11 of the Rio Declaration. See also P. Birnie, A. Boyle and C. Redgwell, International Law and the Environment (Oxford: Oxford University Press, 2009, 3rd edn.), at 132–133.

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v­ essels or other assets to patrol the eez, will be taken into account in measuring this due diligence. When speaking about flag States, the itlos did not contemplate the possibility of common but differentiated responsibilities in respect of their obligations “to ensure” that vessels flying their flag were not engaged in iuu fishing in light of their obligations to preserve and protect the marine environment under Part xii of losc.51 This would seem to support the interpretation that if the primary rule does not explicitly concede a lesser expectation of diligence from developing States, an objective, international standard is to be preferred. Whereas article 194 of losc requires states to take measures to prevent pollution of the marine environment “in accordance with their capabilities”, the losc does not explicitly differentiate States’ duties in relation to prevention of iuu fishing.52 Accordingly, the obligation for the conservation of living resources in the eez amounts to an obligation of due diligence for which the same standard is required of all States and no account is taken of the economic resources of a State, its degree of control over its territory or other special characteristics. Arguably, a coastal State could invoke that it did not perform the duties ­under Article 61 of losc, primarily, as this was the only way to safeguard an essential interest threatened by a grave and imminent peril for the State, e.g. starvation of the population (necessity).53 This would not be the first time that the plea of necessity finds its way into fisheries-related cases, as it was apparently an issue in the Fisheries Jurisdiction case.54 By the Coastal Fisheries Protection Act (1994), Canada declared that the straddling stocks of the Grand Banks were “threatened with extinction”, and asserted that the purpose of the Act and regulations was “to enable Canada to take urgent action necessary to prevent further destruction of those stocks and to permit their rebuilding”.55 Canadian officials subsequently boarded and seized a Spanish fishing ship, the Estai, on the high seas, leading to a conflict with the European Union and with 51 See Fisheries Advisory Opinion, supra note 7, paras. 130–140. 52 See ila Study Group Report, supra note 48, at 19 and Seabed Mining Advisory Opinion, supra note 10, para. 159. 53 According to Article 25(1) of arsiwa, “necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act: (a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and (b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole”. 54 Fisheries Jurisdiction (Spain v. Canada) (Jurisdiction), Judgment of 4 December 1998, [1998] icj Rep. 432. 55 Ibid., para. 20.

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Spain. Canada contended that “the arrest of the Estai was necessary in order to put a stop to the overfishing of Greenland halibut by Spanish fishermen”.56 However, the Court held that it had no jurisdiction over the case. Secondarily, the coastal State could put forth that the performance of its conservation obligations was materially impossible due to unforeseen events and contingencies, including physical catastrophes (force majeure).57 Without dwelling upon the pleas of necessity or – more unlikely in the present context – force majeure in the law of international responsibility, suffice it to say that the threshold posed by the international case-law is extremely high.58 Arguably, only in respect of certain procedural obligations or in respect of obligations vis-à-vis a third State, with which the coastal State has concluded a fishing agreement for the surplus under Article 62(2) of losc, a plea of necessity could exceptionally be sustained. With respect to the content of international responsibility, i.e. the legal consequences of the internationally wrongful acts of the coastal States, cessation of the unlawful act, as provided under Article 30 of the arsiwa, seems to be more appropriate in casu. Under the law of State responsibility, cessation is owed only if the internationally wrongful act is of a continuing character;59 appropriate assurances and guarantees of non-repetition must only be offered “if circumstances so require”;60 while the “obligation to make full reparation” arises under general international law only when an internationally wrongful act has caused an injury.61 Arguably, the circumstances do not call for “appropriate assurances of non-repetition”, while it seems difficult to establish “a sufficient direct and certain causal nexus”62 with the injury at stake, i.e. a causal link between the failure to take the requisite legislative measures to conserve living resources in the eez, and the ostensible depletion of a fish stock. M ­ oreover, as 56 57

58 59 60 61 62

Ibid. See Article 22 of arsiwa. A situation of force majeure precluding wrongfulness only arises where three elements are met: (a) the act in question must be brought about by an ­irresistible force or an unforeseen event; (b) which is beyond the control of the State concerned; and (c) which makes it materially impossible in the circumstances to perform the obligation. See arsiwa Commentaries, supra note 29, at 76. See further S. Szurek, “Circumstances Precluding Wrongfulness in the ilc Articles on State Responsibility: Force Majeure”, in: J. Crawford, A. Pellet and S. Olleson (eds.), The International Law of Responsibility (Oxford: Oxford University Press, 2010), 475–480. See inter alia Gabcíkovo-Nagymaros Case (Hungary/Slovakia), Judgment of 25 September 1997, [2007] icj Rep. 7, at 40–41, paras. 51–52. Article 30(a) arsiwa. Article 30(b) arsiwa. Article 31 arsiwa. See Genocide Convention case, supra note 30, para. 462.

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the icj stressed in the Pulp Mills case, the forms of reparation (whether restitution, compensation, or satisfaction) “must be appropriate to the injury suffered, taking into account the nature of the wrongful act having caused it”.63 In other words, the secondary obligation to make reparation will only be owed by the entity responsible for that breach to each entity actually injured, and not to the international community as a whole.64 In the present case, the obligations concerning the conservation of living resources are primarily for the collective interest.65 In addition, there is no nexus with a financially assessable damage of any State. Hence, it is doubtful that the obligation to make full reparation – in contrast to cessation – would be the appropriate remedy. In any case, if reparation is sought, it is submitted that the appropriate remedy for a breach of an erga omnes partes rule, such as the rule under scrutiny, would not be compensation,66 but either restitution or satisfaction. Indeed, the above measures might be conceived as a form of “juridical restitution” under Article 35 of the arsiwa,67 i.e. the enactment of legislation for the re-establishment of the situation which existed before the internationally wrongful act, that is the failure to meet the obligations of conduct in relation to conservation and management of fisheries. On the contrary, it appears that satisfaction in such cases does not correspond to current international law, as clearly illustrated by the 2012 Belgium v. Senegal case. The findings of the International Court of Justice, according to which Senegal was in breach of several of its obligations, were not made in 63 64

65

66

67

Case Concerning Pulp Mills on the River Uruguay (Argentina v. Uruguay), Judgment of 20 April 2010, [2010] icj Rep. 14, at 104, para. 274. See e.g. P. d’ Argent, “Reparation, Cessation, Assurances and Guarantees of Non-Repetition”, in A. Nollkaemper and I. Plakokefalos (eds.), Principles of Shared Responsibility in International Law: An Appraisal of the State of the Art (Cambridge: Cambridge University Press, 2014), 208–250. Since the conservation of living resources is inextricably linked with the protection of marine biodiversity and ergo the protection of the marine environment, it could be ­argued that the relevant obligations fall under the category of obligations erga omnes partes, i.e. for the collective interest, as framed by Article 48(1)(a) arsiwa; see arsiwa Commentaries, supra note 29, at 126. In view that Article 36(2) arsiwa provides that “the compensation shall cover any ­financially assessable damage including loss of profits insofar as it is established”, it is readily apparent that the breach in question does not call for compensation in any manner whatsoever. arsiwa Commentaries, supra note 29, at 97. On the use of cessation, rather than ­restitution, to rescind legal acts, see P. d’ Argent, “Compliance, Cessation, Reparation and Restitution in the Wall Advisory Opinion”, in: P.-M. Dupuy et al. (eds.), Völkerrecht als Wertordnung – Common values in International Law, Festschrift für/Essays in Honour of Christian Tomuschat (Kehl: N.P. Engel Verlag, 2006), 463–477.

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response to a claim by Belgium for reparation in the form of satisfaction.68 Although the Court ruled that Belgium had standing to invoke the responsibility of Senegal because of alleged breaches of erga omnes partes rules,69 and considered at the request of Belgium that the breaches by Senegal existed and had to cease, it never suggested that Belgium had suffered an injury that had to be made good.70 The findings of a continuing violation by Senegal were necessary to order cessation, but did not constitute a form of satisfaction. Consequently, the proper remedy is cessation, i.e. that the coastal State shall assume their obligation to ensure the conservation of living resources in their eez by taking the necessary measure. An additional layer of difficulty in such instances is patently that there is no directly injured or specially affected State, as envisaged by Article 42, to invoke the responsibility of the coastal State and thus inevitably this falls upon to third non-injured states that are parties to losc to invoke the responsibility of the State concerned under Article 48(1)(a) of the arsiwa, as arguably, the obligation un question is “established for the protection of a collective interest of the group”.71 2 Responsibility of Coastal States for Non-access to Fisheries Besides failing to discharge a duty of due diligence in conserving and managing its living resources in the eez, the coastal State may also incur responsibility for failing to give due regard to the rights of other States to have access to fisheries in violation of Articles 2(3) and 56(2) of losc. Article 2(3) sets forth that the sovereignty of the coastal State is subject to “other rules of international law”, while Article 56(2) provides that “in exercising its rights and performing its duties under this Convention in the exclusive economic zone, the coastal State shall have due regard to the rights and duties of other States…”. An equal due regard obligation is incumbent on the other States in exercising their recognised freedoms in the eez under Article 58 (3) losc. Both provisions have been the object of judicial scrutiny in two very recent cases. The first was the Chagos Marine Protected Area Arbitration between Mauritius and the United Kingdom, in which Mauritius claimed, inter alia, that the establishment of a Marine Protected Area (mpa) in the Chagos Archipelago was contrary to traditional fishing rights in the territorial sea and the eez surrounding the Chagos Archipelago.72 Mauritius’ claim that the United ­Kingdom 68 69 70 71 72

Questions relating to the Obligation to Prosecute or Extradite (Belgium v. Senegal), Judgment of 20 July 2012, [2012] icj Rep. 422, paras. 118–122. Ibid., para. 70. Ibid., para. 121. See also arsiwa Commentaries, supra note 29, at 126. See Chagos Marine Protected Area Arbitration, supra note 37.

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has violated Articles 2(3) and 56(2) of the Convention was upheld by the Arbitral Tribunal, since it found that Mauritius is entitled to fishing rights in the territorial sea and the eez pursuant to the United Kingdom’s unilateral undertakings, known as the Lancaster House Undertakings (1965). According to the Award, “[t]he Tribunal did not consider that the Lancaster House Undertakings represented part of the general rules of international law for which the Convention created an obligation of compliance. The Tribunal does, however, consider that general international law requires the United Kingdom to act in good faith in its relations with Mauritius, including with respect to undertakings”.73 This good faith obligation entailed for the Tribunal that the United Kingdom was under an obligation not to unilaterally extinguish Mauritius’ rights in the territorial sea, as they did by proclaiming an mpa.74 Also, the Tribunal considered “that the United Kingdom’s obligation to act in good faith and to have ‘due regard’ to Mauritius’ rights and interests arising out of the Lancaster House Undertakings [and under Article 56(2) of losc] […] entails, at least, both consultation and a balancing exercise with its own rights and interests”.75 The second case is the South China Sea Award, as one of the submissions of Philippines concerned China’s interference with the artisanal fishing rights76 of Filipinos at Scarborough Shoal in violation of Article 2(3) of losc. The Tribunal was in agreement with the finding in the Chagos Marine Protected Area Arbitration that traditional fishing rights constitute a vested right, and the Tribunal considered the rules of international law on the treatment of the vested rights of foreign nationals to fall squarely within the “other rules of international law” applicable in the territorial sea.77 The Tribunal, therefore, held that the complete prevention by China of Filipinos from traditional fishing over significant periods of time after May 2012 was in violation of Article 2(3) of losc.78 It should be observed that in the Chagos case the Tribunal approached this issue from different viewpoint than in the South China Sea case. In the former case, the Tribunal did not assert that there is an “autonomous” right of artisanal fishing in foreign territorial waters, but only an obligation of the coastal 73 74 75 76

77 78

Ibid., para. 517. Ibid., paras. 520–521. Ibid., para. 534. As noted by the Eritrea v. Yemen tribunal, “the term ‘artisanal’ is not to be understood as applying in the future only to a certain type of fishing exactly as it is practiced today. ‘Artisanal fishing’ is used in contrast to ‘industrial fishing’”; Eritrea v. Yemen, Arbitral tribunal, Award of 17 December 1999, riaa 22 (1999): 335, at 360, para. 106. South China Sea Award, supra note 14, para. 808. Ibid., para. 812.

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State concerned to respect such rights when vested through unilateral or other undertakings, whereas in the latter case, the Tribunal seems to hold that these “vested rights” of artisanal fishers in the territorial sea are “customary rights, acquired through long usage”.79 If this is so, the next question is who is the beneficiary of this vested rights: the State of nationality of the artisanal fishers or the fishers themselves? The Tribunal seems to assume the latter view: “importantly, artisanal fishing rights attach to the individuals and communities that have traditionally fished in an area”. These are not the historic rights of States, as in the case of historic titles, but private rights, as was recognised in Eritrea v. Yemen, where the tribunal declined to endorse “the western legal fiction … whereby all legal rights, even those in reality held by individuals, were deemed to be those of the State”.80 According to a commentator, “these may be considered to be hybrid rights belonging to the state for the benefit of its nationals but also to those nationals themselves”.81 These remarks have a close relevance to the issue at hand, i.e. the responsibility of the coastal States concerned and the potential remedies. Thus, while in the Chagos Marine Protected Area Award it readily appears that Mauritius is the injured State in the sense of Article 42(a) arsiwa,82 in the South China Sea case, it is not certain whether the beneficiary of the vested fishing rights is the Philippines or the fishers themselves. In any event, it could be claimed that it would be the State of nationality of the fishing vessel,83 most probably, the Philippines or Vietnam, and in the default position that the vessels concerned do not fly any flag, the State of the nationality of the fishers.84 As to the 79

Ibid., para. 806. Interestingly, the Tribunal takes the position that such traditional fishing rights may be sustained only in the territorial sea and not in the eez; ibid., paras. 801–803. This point is heavily criticized by S. Kopela, “Historic Titles and Historic Rights in the Law of the Sea in the Light of the South China Sea Arbitration”, Ocean Development and International Law 48 (2017): 181, at 194–196. 80 South China Sea Award, supra note 14, para. 798. 81 Kopela, supra note 79, at 193. 82 According to the arsiwa Commentaries, “pursuant to subparagraph (a) of article 42, a State is ‘injured’ if the obligation breached was owed to it individually. The expression ‘individually’ indicates that in the circumstances, performance of the obligation was owed to that State. This will necessarily be true of an obligation arising under a bilateral treaty between the two States parties to it, but it will also be true in other cases, e.g. of a unilateral commitment made by one State to another”; arsiwa Commentaries, at 118 (emphasis added). 83 On nationality of ships see D. Guilfoyle, “Article 91”, in: A. Proelss (ed.), United Convention on the Law of the Sea: A Commentary (Baden-Baden: Hart/Beck/Nomos, 2017), 692, at 692–699. 84 See Article 18 of the ilc, “Draft Articles on Diplomatic Protection”, yilc [2006/II Part Two]: 1–240.

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r­ emedies available, it is submitted that not only cessation of the internationally wrongful act, namely, access to fisheries to the beneficiaries concerned, is in order, but also compensation for the loss of profits seems appropriate here,85 since there is a clear financially assessable damage86 in the form of loss of profits of the fishers that were restricted access to the fisheries by the coastal State. Outsourcing Fisheries Enforcement and Questions of State Responsibility It goes without saying that fisheries law enforcement is a big challenge for coastal States, which often lack the necessary resources to properly police their maritime zones, namely their territorial seas and eezs. Inevitably, this inadequate enforcement capacity has led them to explore not only interState cooperation, but also public-private partnerships with non-profit, non-­ governmental organizations (ngos), or other private entities such as for-profit private security companies (pscs).87 Suffice to mention the partnership between Sierra Leone and the psc Southern Cross Security. Reportedly, in 1999, Southern Cross Security (scs) concluded an agreement with the government of Sierra Leone, which aimed at creating “a privatized coast guard and fisheries protection service that would involve scs boarding, detaining and fining trawlers suspected of fishing illegally within Sierra Leone’s nautical jurisdiction”.88 According to Cullen, the contract foresaw that scs would operate on a 100 percent commission basis. scs claimed for itself 75% of all fines levied against fishing vessels until the start-up costs, including the purchase of a patrol vessel, were covered; once the start-up costs were recouped, scs claimed 50 percent to cover operating costs.89 As reported, three Sierra Leonean police officers 3

85

86 87

88

89

Article 36(2) of arsiwa recognizes that in certain cases compensation for loss of profits may be appropriate. For cases in which international tribunals have included an award for loss of profits in assessing compensation see arsiwa Commentaries, supra note 29, at 104. According to the arsiwa Commentaries “financially assessable damage is any damage which is capable of being evaluated in financial terms”; arsiwa Commentaries, supra note 29, at 99 See on this issue V. Schatz, “Marine Fisheries Law Enforcement Partnerships in Waters under National Jurisdiction: The Legal Framework for Inter-State Cooperation and Public-Private Partnerships with Non-governmental Organizations and Private Security ­Companies”, Ocean Yearbook 32 (2018/forthcoming) (on file with the author). P. Cullen, “Privatized Maritime Security in Governance in War-torn Sierra Leone”, in: C. Berube and P. Cullen (eds.) Maritime Private Security: Market Responses to Piracy, Terrorism and Waterborne Security Risks in the 21st Century (London: Routledge, 2012), 101, at 103. Ibid., at 104.

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were allocated by the government to scs’s patrol vessel upon scs’s request, but remained “under the tactical command of […] scs security contractor personnel”.90 Cullen also reports that fines levied by scs fluctuated depending on the specific charges made, but averaged US$15,000 per arrested vessel. scs conducted its fisheries protection program between November 1999 and January 2002 (approximately fifteen months) and, according to government sources, fined fifty-four fishing vessels.91 In addition, the ngo Sea Shepherd Conservation Society (sscs) has launched several fisheries law enforcement partnerships with developing coastal States. The first partnership was set up in 2001 after sscs and the ­government of Ecuador entered into a contract concerning fisheries law enforcement against illegal fishing vessels in the Galápagos marine reserve. sscs dedicated the high-speed patrol vessel RV Sirenian to the operation, which was carrying both conservation officers of the Galápagos National Park and Ecuadorian navy officers who had the authority to board, search, and arrest offending fishing vessels. More recently, sscs has shifted its focus to West Africa. In 2014, sscs entered into a partnership with Senegal and sent the vessel MV Jairo Mora Sandoval (UK-flagged) to conduct fisheries law enforcement patrols “in Senegalese waters under the direction of the Government of Senegal to assist the Ministry of Fisheries”.92 Two years later, sscs sent its vessel MV Bob Barker (flying the flag of the Netherlands) in order to tackle illegal tuna fishing in a partnership with the government of Gabon from April to September 2016. According to sscs, the MV Bob Barker carried members of the Gabonese Marine Nationale and officers of the Gabonese Fisheries Enforcement Agency (anpa) on board. sscs reported that several arrests were made by the Gabonese authorities during these patrols, including three Congolese fishing trawlers.93 Government shipriders, i.e. law enforcement officers embarked on the

90 91 92

93

Ibid., at 106. Ibid., at 110. sscs, “Sea Shepherd Launches West Africa Anti-Poaching Campaign, ‘Operation Sunu Gaal’”, (Seasheperd, 27 March 2014), available at: (last accessed on 1 March 2018), cited also in: Schatz, supra note 87, at 10. sscs, “Three Illegal Fishing Trawlers Arrested Following Night Raid by Sea Shepherd and Gabonese Authorities”, (Seasheperd, 19 May 2016), available at: (last accessed on 1 March 2018).

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said vessel,94 had the central role in the actual boarding and arrest, while the role of sscs is portrayed as one of assistance only.95 Such public-private partnerships raise a host of interesting legal questions concerning the law of the sea, human rights law, criminal law and, of course, State responsibility.96 As regards the last, the crux of the matter is the question of attribution, i.e. which acts of the above-mentioned private partners are attributable to the coastal States under scrutiny, entailing their responsibility in case of breaches of their international obligations. Arguably, the most relevant obligations are those concerning the freedom of navigation or innocent passage of the vessels concerned as well as the laws and regulations governing enforcement jurisdiction at sea, including the use force against these vessels. In relation to attribution, it is a truism that the law of international responsibility operates on the basis of a presumption that the conduct of individuals and non-state actors is not attributable to a State.97 The responsibility of a State is thus “normally limited to acts of its organs and agents exercising public authority”.98 Consequently, there are only limited circumstances in which private conduct may be attributable to a State, for example, if a private actor operates as a de facto organ of the state (Article 4 of the arsiwa)99 or under 94

On shipriders and their potential responsibility see E. Papastavridis, “The Use of ‘ShipRiders’ to Assert Jurisdiction over Piracy and Armed Robbery Off Somalia: Is the Gulf of Aden the Caribbean?”, in: M. Mejia et al. (eds.), Piracy at Sea, wmu Studies in Maritime Affairs 2 (Berlin: Springer Verlag, 2013), 47–65. 95 Schatz, supra note 87, at 10. 96 As regards the use of private security companies in maritime context see Berube and Cullen, supra note 88, and E. Williams, “Private Armed Guards in the Fight against Piracy”, in: E. Papastavridis and K. Trapp (eds.), Crimes at Sea/Hague Academy of International Law (Leiden: Martinus Nijhoff, 2014), 339–371. 97 See as early as Finnish Shipowners (Finland/UK), Arbitral tribunal, Decision of 9 May 1934, riaa 3 (1934): 1479, at 1501: “These acts must be committed by the respondent Government or its officials since it has no direct responsibility under international law for the acts of private individuals”. 98 J. Crawford, supra note 29, at 141. See Certain Questions Relating to the Settlers of German Origin in the Territory Ceded by Germany to Poland, Advisory Opinion of 10 ­September 1923, pcij Series B, No. 6, at 22: “States can act only by and through their agents and representatives”. 99 According to the icj in the Genocide Convention case, “persons, groups of persons or entities may, for purposes of international responsibility, be equated with State organs even if that status does not follow from internal law, provided that in fact the persons, groups or entities act in ‘complete dependence’ on the State, of which they are ultimately merely the instrument. In such a case, it is appropriate to look beyond legal status alone, in order to grasp the reality of the relationship between the person taking action, and the State to which he is so closely attached as to appear to be nothing more than its agent…”; see Genocide Convention case, supra note 30, para. 392.

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the instructions, direction or control of that State (Article 8 of the arsiwa).100 The rationale for this exception is that, in acting on behalf of the State, the non-state actor becomes “the extended arm of the instructing State organ and therefore the attribution in the sense that the conduct is to be considered as State action is a matter of consequences”.101 Admittedly, the criterion of control is central for determining whether the conduct of private actors operating on behalf of the state could be attributed to the State for the purposes of responsibility,102 either under Article 4 (requiring that the private actors act in “complete dependence”103 on the State) or under Article 8 (requiring that the private actors are under the “effective control”104 of the State).105 In the context of the present enquiry, however, it seems more appropriate to refer to Article 5 of the arsiwa.106 This provision addresses entities empowered by the state and exercising elements of governmental authority, which is relevant in those cases where a non-state actor would have an express legal link to the state, usually pursuant to a contract or a specific mandate.107 As examples of such entities reference is usually made to airline companies exercising border control powers or private security firms contracted to act as prison guards or guards in immigration centres.108

100 See arsiwa Commentaries, supra note 29, Article 8, at 47 et seq. 101 R. Wolfrum, “State Responsibility for Private Actors: An Old Problem of Renewed Relevance”, in: M. Ragazzi (ed.), International Responsibility Today: Essays in Memory of Oscar Schachter (Leiden: Brill, 2005), 423, at 427. 102 See ilc, “Third Report on State Responsibility of the Special Rapporteur Mr. Roberto Ago”, A/CN.4/246 and Add 1–3 (5 March, 7 April, 28 April and 18 May 1971), reproduced in: yilc [1971/II Part One]: 199, at 264. 103 See Genocide Convention case, supra note 30, para. 392 104 See Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. usa) (Merits), Judgment of 27 June 1986, [1986] icj Rep. 14, para. 1115 and Genocide Convention case, supra note 30, paras. 399–407. 105 For a discussion of the relevant “control tests” see St. Talmon, “The Responsibility of Outside Powers for Acts of Secessionist Entities”, iclq 58 (2009): 493–517. 106 Under Article 5 of the arsiwa, “the conduct of a person or entity which is not an organ of the State under article 4 but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person or entity is acting in that capacity in the particular instance”. 107 See e.g. Hyatt International Corporation v. The Islamic Republic of Iran, Iran–US Claims Tribunal, Interlocutory Award of 17 September 1985, Award No. 54-134-1, Iran–US Claims Tribunal Reports 9/ ii (1985): 72; Dame Mossé (France v. Italy), Arbitral tribunal, Decision of 17 January and 6 October 1953, riaa 13 (1953): 486–500. 108 See arsiwa Commentaries, supra note 29, at 43. See also D. Momtaz, “State Organs and Entities Empowered to Exercise Elements of Governmental Authority”, in: J. Crawford

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In a similar vein, it is submitted that Article 5 of the arsiwa also covers private security companies or ngos involved in law-enforcement activities, including, for present purposes, fisheries enforcement. All the requisite criteria posed by Article 5 seem to be met in the cases of scs or sscs described above. Article 5 refers to “entities”, which according to the arsiwa Commentaries may include private security companies (and ergo also ngos), empowered by internal law to exercise governmental authority. In the present cases, as reported, there is no legislation authorising private actors to engage in fisheries enforcement, albeit a State contract, a partnership agreement, which, arguably, establishes a “legal link” with the State and thus does satisfy the requirement of “empowerment” by law.109 In addition, the functions exercised by the private entity must involve “elements of governmental authority”. Given that “[b]eyond a certain limit, what is regarded as ‘governmental’ depends on the particular society, its history and traditions”,110 any attempt at a clear definition of the term may prove futile.111 However, it is undisputed that the exercise of “core” police powers such as search, questioning, arrest, confiscation, and the issuing of fines are inherently “governmental”.112 Therefore, fisheries law enforcement operations fall into this category. Having established that the acts of the private actors under scrutiny may be attributed to the coastal State concerned, it follows that in case of a breach of an international obligation owed to the fishing vessel or the fishers, such as the freedom of navigation or innocent passage of the vessel concerned or other rules under human rights law, the coastal State would incur international responsibility. Besides, it must be noted that these private vessels assisting in the enforcement of fisheries regulation fall short, prima facie, of qualifying as duly authorised vessels clearly marked as being in government service and competent to exercise enforcement powers. In the words of itlos, “[g]eneral international law establishes clear requirements that must be complied with by all States during enforcement operations, including those carried out pursuant to

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et al. (eds), The Law of International Responsibility (Oxford: Oxford University Press, 2010), 237, at 244 et seq. See e.g. Hyatt International Corporation v. Government of the Islamic Republic of Iran, supra note 94. J. Crawford, The International Law Commission’s Articles on State Responsibility: Introduction, Text and Commentaries (Cambridge: Cambridge University Press, 2002), at 101. See also O.R. Jones, “Implausible Deniability: State Responsibility for the Actions of Private Military Firms”, Connecticut Journal of International Law 24 (2008): 239, at 265. Ibid.

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[Article 73(1) unclos]. These requirements provide, in particular, that enforcement activities can be exercised only by duly authorized identifiable officials of a coastal State and that their vessels must be clearly marked as being on government service”.113 Accordingly, fisheries law enforcement measures taken within the framework of public-private partnerships will have to comply with these requirements.114 However, it seems that the vessels engaged in such activities do not meet the above requirements, especially that of identifiability, which may give rise in itself to the responsibility of the coastal State for the violation of, inter alia, the freedom of navigation of third States in the eez pursuant to Article 58(1) losc. iii

The Responsibility of Flag States for Fisheries Violations

Decisions of international courts and tribunals regarding fisheries highlight the potential of flag State responsibility for the violation of fisheries laws and regulations. To reiterate, both the Fisheries Advisory Opinion and the South China Sea Award referred to a due diligence obligation of the flag State to ensure that the vessels flying their flag do not fish unlawfully in the eez of another State. This pronouncement aside, however, it is submitted that both Tribunals’ sweeping findings on the responsibility of flag States merit a closer scrutiny. In particular, it will be argued that in both cases the Tribunals failed to identify the proper legal bases for the responsibility of the flag States concerned. 1 The Fisheries Advisory Opinion In the Fisheries Advisory Opinion, the Tribunal examined the flag State obligations for the conservation and management of marine living resources pursuant to Arts. 91, 92, 94, 192 and 193 of losc, in so far that they set out general obligations on the flag state in all maritime areas; and Arts. 58(3) and 63(4) of losc, in so far they set out specific obligations on the flag state in the eez. Furthermore, in this case, the Tribunal pointed out that a flag state could be subject to more specific obligations flowing from a bilateral fisheries access

113 The M/V ‘Virginia G’ case, supra note 1, para. 345. For a similar statement, albeit in the context of legal representation in a State’s relations with other States, see The M/V ‘Norstar’ Case (Panama v. Italy) (Preliminary Objections), itlos, Judgment of 4 November 2016, Case No. 25, available at: (last accessed o 1 March 2018), para. 93. 114 See also Schatz, supra note 87, at 14.

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agreement in place, and from the 1993 Minimal Access Conditions Convention (mca Convention), applicable in the region.115 In particular, the Tribunal reasoned, on the basis of Article 94 of losc, that a flag State must effectively exercise its jurisdiction and control over ships flying its flag including, as far as fisheries are concerned, by adopting the necessary administrative measures “to ensure” that such vessels are not involved in activities which will undermine the flag State’s responsibilities in respect of the conservation and management of marine living resources. The Tribunal then identified flag State’s responsibilities in respect of the conservation and management of marine living resources. The Tribunal had previously concluded, in the Southern Bluefin Tuna Cases, that the conservation and management of living marine resources forms part of the duty to protect and preserve the marine environment which binds all parties to the losc (Article 192 of losc).116 Further, a State must observe this duty when exercising its right to exploit its natural resources (Article 193 of losc) and according to the Tribunal, a coastal State’s conservation measures for its eez are an integral element in this protection.117 This implies that, on the basis of Article 192 of losc, a flag State must ensure compliance by vessels flying its flag with the conservation measures concerning living resources adopted by the coastal State.118 For the itlos, a similar obligation to comply with the conservation measures established by the laws and regulations of a coastal State arises from the eez-specific provisions of the losc, namely Articles 58(3) and 62(4) of losc. On the one hand, Article 58(3) of losc provides that: “[I]n exercising their rights and performing their duties … in the exclusive economic zone, States shall have due regard to the rights and duties of the coastal State and shall comply with the laws and regulations adopted by the coastal State…”, while on the other Article 6(4) stipulate that “[n]ationals of other States fishing in the exclusive economic zone shall comply with the conservation measures and with the other terms and conditions established in the laws and regulations of the coastal State”. In the reading of the Tribunal, the latter provision “imposes an obligation on States to ensure that their nationals engaged in fishing activities within the exclusive economic zone of a coastal State comply with the conservation measures and with the other terms and conditions established in its laws and regulations”.119 The Tribunal therefore concluded that a flag State 115 See Fisheries Advisory Opinion, supra note 7, paras. 113 and 114. 116 Southern Bluefin Tuna (New Zealand v. Japan; Australia v. Japan) (Provisional Measures), itlos, Order of 27 August 1999, [1999] itlos Rep. 280, at 295, para. 70. 117 Fisheries Advisory Opinion, supra note 7, para. 120. 118 Ibid. 119 Ibid., para. 123.

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is under the obligation to take the necessary measures “to ensure” that vessels flying its flag and its nationals are not engaged in iuu fishing activities.120 And, as elaborated in the Introduction, this obligation is an obligation of due diligence.121 As a commentator notes, “it is not clear whether the Advisory Opinion sought to establish a single obligation based on a conjunctive reading of these provisions or several separate obligations. The wording of the Advisory Opinion is not consistent in this regard”.122 In any event, the present author does not take issue with the holdings of the Tribunal regarding the due diligence obligations of flag States arising from Articles 94, 192 and 193. Quite to the contrary, it is a very welcome development to see how “general obligations” as the itlos described Articles 94 and 192, the applicability of which is neither limited to the eez in its spatial scope, nor to fisheries in its ratione materiae scope, can play out in this context and give rise to the responsibility of the flag State.123 It is the obligations concerning specifically the eez, i.e. Articles 58(3) and 62(4), that warrant attention. Article 58(3) concerns the manner in which the freedoms enjoyed by other States in the eez should be exercised. Under Article 58(1), other States enjoy the freedom of navigation, overflight, the laying of submarine cables and pipelines, and “other internationally lawful uses of the sea related to these freedoms … and compatible with the other provisions of this Convention”. This list is exhaustive, even if the reference to other lawful uses makes it somewhat flexible.124 According to the Virginia Commentary, “the ‘other internationally lawful uses’, include, inter alia, ‘those associated with the operation of ships, 120 Ibid., para. 124. 121 Ibid., paras. 125–140. 122 See Schatz, supra note 38, at 329. Some authors seem to have accepted a conjunctive reading. See R. Rajesh Babu, “State Responsibility for Illegal, Unreported and Unrelated Fishing and Sustainable Fisheries in the eez: Some Reflections on the itlos Advisory Opinion of 2015”, Indian Journal of International Law 55 (2005): 239, at 258 and F. Ventura, “Tackling Illegal, Unregulated and Unreported Fishing: The itlos Advisory Opinion on Flag State Responsibility for iuu Fishing and the Principle of Due Diligence”, Brazilian Journal of International Law 12 (2015): 50, at 61. 123 The author has argued elsewhere that from the combined application of Articles 94 and 98 derives a similar due diligence obligation of the flag State to ensure that the vessels flying its flag rescue lives at sea. See E. Papastavridis, “Rescuing Migrants at Sea: The Responsibility of States under International Law”, in: G.S. Goodwin-Gill and Ph. Weckel (eds.), Migration and Refugee Protection in the 21st Century. International Aspects (Leiden: Martinus Nijhoff Publishers, 2015), 269, at 273–274. 124 U. Leanza and M.-C. Caracciolo, “Exclusive Economic Zone”, in: D. Attard, M. Fitzmaurice and N. Martinez (eds.), imli Manual on International Maritime Law: The Law of the Sea (Oxford: Oxford University Press, 2014), 178, at 193.

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aircraft and submarine cables and pipelines’. This does not include, for example, fishing, which is governed by Articles 61 to 73”.125 It follows that fishing activities, as patently not one of the freedoms or associated uses enjoyed by other States in a foreign eez, are not within the scope of Article 58 and thus not regulated by Article 58(3) of losc. On the contrary, such fishing activities are regulated by the specific fisheries access agreement concluded by the coastal State concerned and the flag State of the fishing vessel, in casu the Sustainable Fisheries Partnership Agreements between the EU, on behalf of its Member States, and the coastal States in the region. Any violation of the fishing laws and regulations of the latter States will be, first, a violation of this agreement and other relevant agreements, such as the mca Convention, and second, a violation of the exclusive rights of the coastal States concerning the exploration and the exploitation of its living resources pursuant to Article 56(1) (a) of losc. Article 58(3) comes into play when third States fishing vessels are exercising their freedom of navigation through the eez, but not engaged in fishing per se.126 Article 62 (4) was taken as imposing an obligation on flag states to ensure that “their nationals engaged in fishing activities within the [eez] of a coastal State comply with the conservation measures and with the other terms and conditions established in its laws and regulations”.127 As Schatz observes “perhaps the itlos was guided by the reasoning of the Court of Justice of the ­European Union (cjeu) in its judgment in the Venezuelan Fishers Case of November 2014,128 where the cjeu stipulated that unclos [losc] does generally not confer independent legal positions on individuals and concluded e contrario that it must be for the flag state to carry out the obligations addressed to

125 See S.N. Nandan and Sh. Rosenne (eds.), United Nations Convention on the Law of the Sea 1982: A Commentary, Vol. 2 (The Hague: Martinus Nijhoff Publishers, 1993), at 564 (emphasis added). 126 As conceded by the Virginia Commentary, “navigation by a fishing vessel in the zone is, as a matter of right, the same as navigation by a fishing vessel beyond the zone”; ibid., at 565. 127 Fisheries Advisory Opinion, supra note 7, para. 123. 128 See European Parliament and European Commission v. Council of the European Union, Joined Cases No. C-103/12 and No. C-165/12, cjeu [GC], Judgment of 26 November 2014, ECLI:EU:C:2014:2400, paras. 62–65. The Grand Chamber did not, however, consider that Articles. 58(3) and 192 of losc could possibly contain such an obligation. The Advocate General, on the other hand, apparently did not interpret Article 62(4) of losc as a flag State obligation at all. See the Opinion of Advocate General Sharpston in: European Parliament and European Commission v. Council of the European Union, Joined Cases No. C-103/12 and No. C-165/12, cjeu, Opinion of Advocate General Sharpston, Opinion of 15 May 2014, ECLI:EU:C:2014:334, para. 149.

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its nationals”.129 Surprisingly, the Arbitral Tribunal in the South China Sea case has taken the opposite view, namely, that Article 62(4) “imposes an obligation directly on private parties engaged in fishing […] and require[s] them to comply with the terms and conditions of the laws and regulations of the [coastal State]”.130 It is contested whether losc is capable of conferring a legal obligation upon individuals, with a majority of scholars as well as the cjeu denying this.131 In his dissenting Opinion, Judge Paik advocates a third option, namely, that Article 62(4) does not contain an obligation under international law, but merely concretizes the prescriptive jurisdiction of the coastal State.132 According to this view, the obligation is thus one of domestic law based on jurisdiction conferred upon the coastal State by Article 56(1)(a), and the first sentence of Article 62(4) is a declaratory statement without a separate legal meaning. “Therefore, the interpretation of Article 62(4) as a separate flag state obligation by the Tribunal is questionable”.133 This is in line with the previous assertion with respect to the proper reading of Article 58(3). It is submitted that the legal basis for the access of a third State to fisheries within the eez is solely the relevant agreement, expressing the requisite consent of the coastal State and setting out the modalities of this bilateral relationship, while Article 62 (4) delineates the contours of the prescriptive jurisdiction of the coastal State over the foreign fishing vessels that are given access to the surplus of the fish stocks pursuant to Article 62(2) of losc.134 Any violation of the rules adopted by Article 62(4) would trigger the application of Article 73 of losc and the corresponding assertion of the enforcement jurisdiction of the coastal State as well as the responsibility of the flag State, first, for the violation of the relevant agreement by its vessels and second, potentially for the subsequent failure to meet its due diligence obligations as described above. 129 Schatz, supra note 38, at 330. 130 South China Sea Award, supra note 14, para. 730. 131 See R. Churchill and V. Lowe, The Law of the Sea (Manchester: Manchester University Press, 1999, 3rd edn.), at 316 and E. Denza, “A Note on Intertanko”, elr 33 (2008): 870, at 875. For a different view see M. Mendez, “The Legal Effect of Community Agreements: Maximalist Treaty Enforcement and Judicial Avoidance Techniques”, ejil 21 (2010): 83, at 100. 132 The M/V ‘Virginia G’ case, supra note 1, Separate Opinion of Judge Paik, para. 15. See also ibid., paras. 212–213. 133 Schatz, supra note 38, at 330. 134 According to this provision, “[w]here the coastal State does not have the capacity to harvest the entire allowable catch, it shall, through agreements or other arrangements and pursuant to the terms, conditions, laws and regulations referred to in paragraph 4, give other States access to the surplus of the allowable catch…”.

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In concluding, it is submitted that the itlos failed to identify and analyse adequately the legal obligations, the breach of which would entail the responsibility of the flag State. This notwithstanding, its overall finding that the flag State holds a due diligence obligation is not only legally sound, but also very welcome as a matter of policy. As to the content of international responsibility and the appropriate remedies, recourse must be made first to the lex specialis, i.e. the relevant fisheries access agreement, and alternatively, to the relevant provisions of arsiwa. As far as the EU Sustainable Fisheries Partnership Agreements are concerned, they indeed set out provisions with respect to suspension or termination of the treaty, which include as a ground the failure to comply with undertakings with regard to iuu fishing, but they remain silent on any other “secondary” obligations arising from ostensible violations of the Agreement.135 It follows that cessation of the wrongful act by the flag State concerned, in casu, the EU,136 and alternatively, reparation in the form of satisfaction – as it is no evident how the breach of requirements under Article 62(4) of losc or the fisheries agreement in question, e.g. catch reporting arrangements,137 could be financially assessable – may be in order. In addition, the coastal State concerned may initiate the proceedings under the relevant agreement for its denunciation. 2 The South China Sea Case In the South China Sea Award, the Tribunal found that “China has, through the operation of its marine surveillance vessels in tolerating and failing to exercise due diligence to prevent fishing by Chinese flagged vessels at Mischief Reef and Second Thomas Shoal in May 2013, failed to exhibit due regard for the Philippines’ sovereign rights with respect to fisheries in its exclusive economic 135 See e.g. Articles 13 and 14 of the 2014 Agreement on a Sustainable Fisheries Partnership Agreement between the European Union and the Republic of Senegal, [2014] OJ L 304/3 (23 October 2014). 136 According to the Fisheries Advisory Opinion, “[t]he international organization, as the only contracting party to the fisheries access agreement with the srfc Member State, must therefore ensure that vessels flying the flag of a member State comply with the fisheries laws and regulations of the srfc Member State and do not conduct iuu fishing activities within the exclusive economic zone of that State […] Therefore, if the international organization does not meet its ‘due diligence’ obligations, the srfc Member States may hold the international organization liable for the violation of their fisheries laws and regulations by a vessel flying the flag of a member State of that organization and fishing in the exclusive economic zones of the srfc Member States within the framework of a fisheries access agreement between that organization and such Member States”; Fisheries Advisory Opinion, supra note 7, paras. 172–173. 137 See e.g. Chapter iv, Annex to the EU-Senegal Agreement, supra note 135.

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zone. Accordingly, China has breached its obligations under Article 58(3) of the Convention”.138 It is the contention of the author that the Tribunal, as itlos did in the Fisheries Advisory Opinion, misread Article 58(3) of losc and the duty of due regard, as applying to fishing activities per se, and held China responsible only on the basis of this provision, while, clearly, its conduct called, instead, for the application of Article 56(1) of losc. Surprisingly, even though the Philippines explicitly invoked Article 56 as the legal basis for their claim,139 the Tribunal approached the issue from the narrow viewpoint of Article 58 (3) and the due regard principle. Having established that Chinese vessels have been engaged in fishing at Mischief Reef and Second Thomas Shoal in May 2013, the Tribunal considered “that China has failed to show the due regard called for by Article 58(3) of the Convention to the Philippines’ sovereign rights with respect to fisheries within its exclusive economic zone”.140 However, the acts of China were actually interfering with the sovereign rights of the Philippines over its living resources. It was not only the fact that Chinese vessels were fishing in the areas under examination, found to be part of the Philippines’ eez, but as the Tribunal states “Chinese fishing vessels have in all reported instances been closely escorted by government cms [China Marine Surveillance] vessels. The actions of these ships constitute official acts of China and are all attributable to China as such. Indeed, the accounts of officially organised fishing fleets from Hainan at Subi Reef and the close coordination exhibited between fishing vessels and government ships at Scarborough Shoal support an inference that China’s fishing vessels are not simply escorted and protected, but organised and coordinated by the Government”.141 Arguably, this “organization and coordination” of fishing activities by the Chinese government suffices to attribute these fishing activities to China itself pursuant to Article 8 of the arsiwa, since Chinese fishers apparently were under the “direction or control” of their Government. Accordingly, it is questioned why the Tribunal did not find a direct violation of the sovereign rights of the Philippines in its eez, ergo, a violation of Article 56(1) of losc, as it did 138 South China Sea Award, supra note 14, para. 757. 139 “The Philippines argues that China has violated its obligations under Article 56 of the Convention to respect the sovereign rights and jurisdiction of the Philippines by failing to prevent its nationals and vessels from exploiting the living resources of the Philippines’ exclusive economic zone”; ibid., para. 723. 140 Ibid., para. 753. 141 Ibid., para. 755.

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find earlier in respect of the 2012 moratorium of fishing in the South China Sea. Indeed, the Tribunal found that China had, “by promulgating its 2012 moratorium on fishing in the South China Sea, without exception for areas of the South China Sea falling within the exclusive economic zone of the Philippines and without limiting the moratorium to Chinese flagged vessels, breached Article 56 of the Convention with respect to the Philippines”.142 The author fails to see why the assertion of regulatory powers on the part of China is – rightly – considered a violation of Article 56 (1), while at the same time acts of illegal fishing in the eez of the Philippines attributed to China are not. Instead of finding a direct breach of the former’s sovereign rights over living resources in the eez, as it did for non-living resources,143 the Tribunal used Article 58 and found a violation of the obligation to have due regard to the rights of the Philippines. However, as Schatz also notes, “the obligation [of due regard] applies to situations in which the flag state exercises its rights or performs its duties under unclos. Article 58(3) does not, however, apply to situations in which the rights of the coastal state are infringed by a state that does not exercise its rights or perform its duties under unclos”,144 as manifestly in the present case. It is submitted that the South China Sea Award is another instance of misapplication of Article 58 (3) of losc, which is not substantiated by the clear facts of the case. China should have been held responsible for the breach of Article 56 (1) of losc. In terms of State responsibility, the Philippines did not ask for any form of reparation for the violations under consideration, albeit, in general, requested a declaration that China shall respect its duties under the Convention and shall desist from further unlawful claims and activities.145 This can be interpreted under the law of State responsibility as a request for cessation and assurances of non-repetition. The Tribunal concluded that “both Parties are obliged to comply with the Convention, including its provisions regarding the resolution of disputes, and to respect the rights and freedoms of other States under the Convention”. Therefore, reparation, particularly in the form of compensation, was never sought and thus never 142 Ibid., para. 716. 143 The Tribunal held that China had, through the operation of its marine surveillance vessels with respect to M/V Veritas Voyager on 1 to 2 March 2011 breached Article 77 of the Convention with respect to the Philippines’ sovereign rights over the non-living resources of its continental shelf in the area of Reed Bank; see ibid., para. 716. 144 Schatz, supra note 38, at 331. 145 See South China Sea Award, supra note 14, Submission No. 15 of the Philippines, paras. 1182–1201.

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granted for all the internationally wrongful acts of China, including the fisheries violations. iv

Conclusion

iuu fishing is one of the most alarming problems not only for the legal order, but also for the future of the oceans.146 States and the international community seem to have realised that in order to meet several targets of the sdgs, including conserving and sustainably using the oceans, seas and marine resources, it is imperative to address the scourge of iuu fishing. In this context, it is particularly welcome that the international judiciary, especially the itlos in its 2015 Fisheries Advisory Opinion, has started seriously discussing questions of State responsibility for the failure to meet conservation and management measures for living marine resources. The 2015 Fisheries Advisory Opinion and the 2016 South China Sea Award have both addressed fisheries issues and highlighted the flag State responsibility in this regard, while issues of coastal State responsibility were also raised in the 2015 Chagos Marine Protected Area Arbitration. Against this background, the present chapter explored the findings of the above-mentioned Tribunals both in terms of the content of the relevant obligations for coastal and flag States and in terms of the law of State responsibility. First, with respect to coastal States, it discussed three situations that may give rise to their responsibility, namely, the failure of the coastal States to effectively conserve and manage living resources within their eezs; the prohibition of access of fishers of third States to their fisheries, notwithstanding obligations to the contrary; and lastly, the outsourcing of fisheries enforcement to private actors. Second, with respect to flag States, the chapter scrutinised the relevant pronouncements of itlos in the Fisheries Advisory Opinion and the Arbitral Tribunal in the South China Sea case. While in agreement with the overall finding of a due diligent obligation of the flag State, it took issue with both Tribunals’ interpretation and application of the relevant law, particularly, Article 58(3) of losc and the duty of due regard. Besides discussing the content of primary obligations of States in relation to fisheries in the light of the recent case-law, the chapter also examined the law of State responsibility applicable to these obligations. In particular, it considered issues of attribution of the conduct of non-state actors, be they fishers or private security companies, to the States concerned; the potential invocation 146 See fao, supra note 18.

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of circumstances precluding wrongfulness; and most importantly, the content of international responsibility, i.e. the legal consequences arising from the internationally wrongful acts in question (cessation and reparation). Such issues in relation to fisheries have scarcely been addressed either in judicial decisions or in scholarly writings and certainly warrant attention. It is submitted that the more fisheries violations are under judicial scrutiny, the more issues of international responsibility will come to the fore; this chapter was a humble first contribution to a discourse yet to come.

Chapter 7

A Little Less Conversation and a Little More Action (Property and Liability Rules in the dsu Review of the wto) Petros C. Mavroidis* i

Introduction

In this chapter, I discuss enforcement of wto obligations. I will be referring to  the key provisions of the wto Dispute Settlement Understanding (wto dsu), the body of law governing dispute adjudication at the wto and administered by the dsb (Dispute Settlement Body), a body comprising all wto Membership. Enforcement of obligations is of course, quintessential in a rules based system where it is exclusively through adjudication that disputes will be resolved. Adjudication of course, exhibits another property in that it “completes” the originally incomplete contract: for wto purposes this is a highly valued property since for good reasons the contract is highly incomplete, especially in its treatment of domestic instruments. In this chapter, I focus on the former feature and will be referring to the latter only to the extent necessary. At this stage, we lack a reliable study discussing beyond doubt the compliance record with wto obligations. Indeed, the very notion of “compliance” or “implementation” is elusive. One can ask different questions under this heading and come up with different responses, as I will attempt to show infra. If by compliance we understand the manner in which remedies endogenous in the dsu have promoted implementation of adverse rulings by the wto judiciary, then, beyond information regarding implementation, we would also need to know whether implementation was the result of the wto * The author would like to thank Edwin B. Parker Professor of Law at Columbia Law School, and University of Neuchâtel (Switzerland). For helpful comments, I am also indebted to Jagdish Bhagwati, Carlo Maria Cantore, Bernard Hoekman, Henrik Horn, Rob Howse, Luca Rubini, André Sapir, and Alan Sykes.

© koninklijke brill nv, leiden, ���9 | doi:10.1163/9789004390485_008

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remedies. Pronouncements thus, to the effect that “the system works”, which are not based on similar empirical evidence, should not given undue weight. Inadequate transparency (due to various reasons ranging from lacking incentives to a rather “sketchy” institutional multilateral monitoring arrangement) is the main reason why empirical studies have so far not addressed this key question. On the other hand, intuitively, one could point to reasons arguing in favour of ineffective enforcement of wto obligations. The absence of centralized system of enforcement (the wto being a self-executing contract), as well as asymmetric bargaining power of the various wto Members, point to this direction. A natural place to start discussing enforcement of wto obligations is the rules regarding enforcement. The wto regime is characterized by a statutory preference for property rules (defined as an obligation to perform the contract). Liability rules (defined as the possibility for wto Members to “buy their way out of the contract”) exist only as transitional mechanism, e.g. recourse is legitimate until compliance has been secured. In fact, Article 22 dsu makes it clear that recourse to liability rules is meant to compensate victims of illegalities until compliance occurs, if immediate implementation is not on the cards. In short, the current regime is not an improvement vis-à-vis customary international law (what happens unless there is contractual deviation) when it comes to enforcing obligations. It is in fact, one step back, as will be shown later, since remedies in wto are prospective (ex nunc) and not retroactive (ex tunc): the obligation to compensate kicks in from the end of the reasonable period of time at the disposal of authors of illegal act to bring their measures into compliance, and not from the moment when the illegality had been committed. It is nevertheless, an improvement when it comes to the process of resolving disputes, since the dsu is the first genuine, comprehensive compulsory third party adjudication regime in international relations. In Section ii, I briefly describe the dispute settlement process in the wto from beginning to the end; in Section iii, I discuss the compliance record and the various readings of it. In Section iv I focus on the enforcement rules in wto as an attempt to explain the current record. In Section v I briefly discuss the various proposals tabled during the dsu Review, which only marginally seek to redress the current situation and conclude that for this reason alone one should not expect any dramatic changes in this regard. Section vi concludes.

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The wto dsu1

1 The wto: Exclusive Forum for Adjudication of Trade Disputes Article 23 dsu reads:2 1. When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding. 2. In such cases, Members shall: (a) not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding, and shall make any such determination consistent with the findings contained in the panel or AB report adopted by the dsb or an arbitration award rendered under this Understanding.3 The Appellate Body (AB) provided its understanding of this obligation in USCertain EC Products: Article 23(1) of the dsu imposes a general obligation on Members to redress a violation of obligations or other nullification or impairment of benefits under the covered agreements only by recourse to the rules and procedures of the dsu, and not through unilateral action. Subparagraphs (a), (b) and (c) of Article 23(2) articulate specific and clearly-defined forms of prohibited unilateral action contrary to Article 23(1) of the dsu. There is a close relationship between the obligations set out in paragraphs 1 and 2 of Article 23. They all concern the obligation of Members of the wto not to have recourse to unilateral action.4 1 This section is based on H. Horn and P.C. Mavroidis, “International Trade: Dispute Settlement”, in: A. Guzman and A.O. Sykes (eds.), Handbook on International Trade (Cheltenham: Edward Elgar Publishing, 2007), 177–210. 2 On this issue, see J. Bourgeois, “Some Reflections on the wto Dispute Settlement System from a Practitioner’s Perspective”, in: J.H.J. Bourgeois (ed.), Trade Law Experienced: Pottering about in the gatt and the wto (London: Cameron May, 2005), 39–50. 3 Emphasis added. 4 United States – Import Measures on Certain Products from the European Communities, wto, Appellate Body Report circulated on 11 December 2000, WT/DS165/AB/R, para. 111 (USCertain EC Products).

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In its report on US-Suspended Concession, the AB added some detail, when holding that: …Article 23(1) lays down the fundamental obligation of wto Members to have recourse to the rules and procedures of the dsu when seeking redress of a violation of the covered agreements. Article 23 restricts wto Members’ conduct in two respects. First, Article 23(1) establishes the wto dispute settlement system as the exclusive forum for the resolution of such disputes and requires adherence to the rules of the dsu. Secondly, Article 23(2) prohibits certain unilateral action by a wto Member. Thus, a Member cannot unilaterally: (i) determine that a violation has occurred, benefits have been nullified or impaired, or that the attainment of any objective of the covered agreements has been impeded; (ii) determine the duration of the reasonable period of time for implementation; or (iii) decide to suspend concessions and determine the level thereof.5 De facto, the gatt as well, operated as compulsory third party adjudication forum. Article 23(2) dsu in a sense codified past practice. Hudec visits the dispute settlement record between 1948–1993 and concludes that with one documented exception6 all disputes were routinely submitted to a gatt Panel.7 The switch to compulsory third party adjudication has been hailed, and justifiably so, as monumental, even though, as Hudec’s study shows, it had been de facto practised for some time by the trading partners for some time within the confines of the gatt. The dsu thus, marks the passage to de jure compulsory third 5 United States – Continued Suspension of Obligations in the EC – Hormones Dispute, wto, Appellate Body Report circulated on 16 October 2008, WT/DS320/AB/R, para. 371. 6 The first hormones dispute between the European Union (EU) and the United States (US) is discussed by Meng (W.P. Meng, “The Hormone Conflict between the eec and the United States within the Context of gatt”, mjil 11 (1990): 819–839) in his excellent account: the US requested the establishment of a technical experts group under the Tokyo round Technical Barriers to Trade (tbt) agreement to examine the consistency of the ban imposed by the EU with the tbt rules. The EU refused the request and the US had subsequently had recourse to unilateral countermeasures. The EU then agreed to the establishment of a Panel but with a limited mandate, that is, to examine the consistency of the unilaterally imposed countermeasures with the multilateral rules. It is for cases like this (where a contracting party refused to concede the establishment of a Panel) that Hudec coined the term “justified disobedience”: this term denotes gatt-inconsistent behaviour which could nevertheless be justified because the trading nation behaving in this way is facing blatantly uncooperative attitude; R.E. Hudec, “Thinking About The New Section 301: Beyond Good and Evil”, in: J. Bhagwati and H. Patrick (eds.), Aggressive Unilateralism: America’s 301 Policy and The World Trading System (Ann Arbor, Michigan: Michigan University Press, 1990), 111–162. Throughout this chapter, I use the term “EU” to denote all prior forms of European integration as well. 7 R.E. Hudec, Enforcing International Trade Law (New Hampshire: Butterworths, 1993).

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party adjudication exclusively under its procedures. It provides for three different adjudication avenues: “normal” Panel/AB proceedings; mediation, under Article 5 dsu; arbitration, under Article 25 dsu.8 Compulsory third party adjudication does not necessarily amount to exclusivity for a different forum could be chosen each time a dispute arises. Jackson notes that, although the possibility to submit trade-related disputes to the International Court of Justice (icj) was in principle open to gatt contracting parties, no use of it was ever made.9 On two occasions in the wto-era, Members opted for resolution of their disputes under an ad hoc procedure different to the three formal procedures described above.10 Formally, the procedures followed constituted a deviation from Article 23(2)(a) dsu. They are nevertheless in line with the spirit of this provision, since parties to the dispute respected third party adjudication. Questions might arise regarding disputes between partners in a preferential trade agreement (pta) that are simultaneously wto Members. Actually, as the study by Koremenos shows, only half more or less of all ptas contain dispute settlement rules, and it is this half we care about.11 The North Atlantic Free Trade Agreement (nafta), for example, provides that where certain kinds of 8

Mediation is a confidential process, the wto Director General being competent to act as mediator. Arbitration, under Article 25 dsu, is closer to the usual proceedings: parties will choose the Arbitrator, and the latter’s report will be published. It is supposed to be a rather expeditious process to be used when quick solutions are sought. 9 J.H. Jackson, World Trade and the Law of the gatt (Indianapolis, IA: Bobbs-Merril, 1969). 10 The Tuna dispute between Philippines, Thailand and the EU and the Bananas dispute between a host of bananas-exporting countries and the EU. The only official evidence for the Tuna dispute is in the request for mediation between Philippines, Thailand and the EU (wto, “Request for Mediation by the Philippines, Thailand and the European Communities – Communication from the Director-General”, WT/GC/66 (16 October 2002); wto, “Request for Mediation by the Philippines, Thailand and the European Communities – Joint Communication from the European Communities, Thailand and the P ­ hilippines”, WT/GC/71 (1 August 2003)). The final report was not made public. The Arbitrator was a wto Deputy Director General (ddg). The story of the Bananas arbitration is different. The parties to the dispute made it clear that the arbitration sought, to examine whether the EU proposals with respect to the import treatment of bananas would be wto-consistent, was not an Article 5 dsu mediation. Still the award of the Arbitrator was circulated as a wto Doc., albeit not in the DS series, as is usually the case with dispute settlement documents; European Communities – The acp-ec Partnership Agreement – Recourse to Arbitration Pursuant to the Decision of 14 November 2001, Award of the Arbitrator of 1 August 2015, WT/L/616. In an article (P.C. Mavroidis, “Dispute Settlement in the wto: Mind over Matter”, in: K. Bagwell and R.W. Staigers (eds.), Handbook of Commercial Policy (Amsterdam: Elsevier, 2016), 333–378) I explained why, in my view, Article 23(2) dsu should be viewed the quintessential provision of this agreement. Almost all negotiating positions aimed at curbing unilateralism. 11 B. Koremenos, “If Only Half of International Agreements Have Dispute Resolution Provisions, Which Half Needs Explaining?”, jls 36 (2007): 189–221.

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disputes (for instance, environmental disputes) between nafta parties could be subject to both nafta and wto proceedings, the complainant is required to use nafta facilities exclusively. So far, wto case-law has not had to address this issue head on: in one dispute so far, a wto Panel rejected the argument that a wto Member (which was also a mercosur12 member) was estopped from raising a legal challenge against a preferential partner, simply because a mercosur court was dealing with this issue. At any rate, a recent study by Mavroidis and Sapir confirms that there is no forum-diversion as a result of the advent of ptas. Although the overall number of disputes between wto Members is lower in the last years (2005–2015 compared to 1995–2004), trading nations have not substituted regional adjudicating fora for the wto. .

2 The Self-Enforcing Character of the Contract There is a fundamental difference between the circumstances under which a typical trade agreement operates, and those under which parties contract under domestic law. In the latter case courts can enforce contracts, and can even rely to police enforcement to this effect. In the case of a trade agreement like the gatt and the wto, there is no “exogenous” party that can ensure that the members to the agreement abide by their obligations. As a result, the only viable choice is for the agreement to be self-enforcing.13 The system is thus decentralized. Disputes cannot be initiated ex officio. There is no authority assigned to a supra-national entity (a watchdog) to initiate complaints against wto Members. Disputes are launched at the initiative of a wto Member. In a similar setting, bargaining power plays a quintessential role. One cannot of course, exclude the cases where recourse to dispute settlement is done on commitment grounds. The defendant prefers to lose and comply using the wto as an excuse for behaviour that it would not have otherwise adopted for domestic political economy reasons. To provide but an illustration, this is most likely what happened in the litigation between Mexico and the US, where Mexico did not appeal and used Panel findings to “tame” the local telecoms monopolist.14 Similar cases nevertheless are scarce simply because there is not much chance that there is alignment of incentives between complainant 12 13

14

mercosur stands for Mercado del Sur, the customs union concluded between Argentina, Brazil, Paraguay and Uruguay. I am not aware of any legal/economic analysis of the extent to which members to a trade agreement may contract third countries to help in the enforcement of the agreement, other than the collaborative effort between Bagwell, Mavroidis and Staiger and their proposal for tradable remedies; K. Bagwell, P.C. Mavroidis and R.W. Staiger, “Auctioning Countermeasures in the wto”, Journal of International Economics 73 (2008): 309–332. See the discussion in P.C. Mavroidis and D.J. Neven, “El Mess in Telmex: a Comment on Mexico – Measures Affecting Telecommunications Services”, wtr 5 (2006): 271–296.

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and defendant. One can safely assume that defendants in the majority of cases are not eager beavers that will rush into compliance. Ultimately, the relative ­bargaining power of the complainant to a dispute will weigh in, and might tile the balance towards one (compliance) or the other (noncompliance) direction. We will return to this point infra, when we discuss the empirical record and its probable explanations. 3 The Various Phases of the Dispute Settlement Process in a Nutshell The administration of disputes is entrusted to the dsb, which comprises representatives of all wto Members. Adjudication in the wto system, as in gatt, has two phases. One, in principle, bilateral, and one multilateral. The bilateral phase consists of consultations between the complainant and the defendant. Even when disputes are bilateral, other wto Members might have an interest in the interpretation of the rules pertinent to the particular transaction at hand, since, arguably, interpretations might be influential in construing their own commitments in the future. To this effect, when requesting consultations, the complainant has to notify the wto as to the subject-matter of the dispute. Other wto Members wishing to join as co-complainants can do so, provided that the defendant accepts their request (Article 4(11) dsu).15 If they want to participate albeit at a different intensity-level, they can do so by reserving third party rights. The subject-matter of a particular dispute can range from disagreement over a particular transaction and its consistency with the relevant wto law (e.g., Home believes that Foreign imposed antidumping duties without having demonstrated any injury resulting from dumped imports), to disagreements over the consistency of legislation with the wto rules (e.g., Home believes that Foreign, by enacting legislation which precludes its investigating authorities from conducting injury-analysis in the context of an antidumping investigation, is violating its obligations under the wto). The standard of review, however, is more demanding in the latter case. Assuming that the parties reach no solution during the consultations-stage, the complainant can request the establishment of a Panel to adjudicate the dispute. Similar requests lead to the second (multilateral) phase, which consists of two parts. The first involves Panel procedures. The Panel, a three person 15

Commentators often disregard this phase. It is, however, quite important in many ways. For lawyers this could be an invaluable source of wto practice. While it is true that settlements are not always notified in a user-friendly manner, this is not reason enough though to stop research in this area. Busch and Reinhardt are among the few authors with substantial work in this research area; M. Busch and E. Reinhardt, “Bargaining in the Shadow of the Law: Early Settlement in gatt/wto Disputes”, Fordham International Law Journal 24 (2001): 158–172; M. Busch and E. Reinhardt, “Developing Countries and gatt/wto Dispute Settlement”, jwt 37/4 (2003): 719–735.

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adjudicating body, is analogous to a first instance court. The second part is the procedure before the AB, the court of last resort. Whereas Panels are ad hoc adjudicating bodies, the composition of which depends, in principle, on the discretion of the parties to the dispute (and, in case of disagreement between them, Panelists will be appointed by the Director General of the wto),16 the AB is composed of seven judges appointed on four years terms, renewable once. Panels have competence to review the factual record and the legal issues before them, whereas the AB’s remit/purview is limited to the latter.17 Panels, and on occasion the AB as well, are assisted by members of the wto secretariat (usually lawyers, and occasionally economists as well). Assuming that the AB accepts the original complaint,18 the defendant will be requested to implement the (adverse) judgment. Implementation should, if possible, occur immediately, although this is hardly ever the case. Instead, defendants are granted a reasonable period of time to implement the findings that is either agreed bilaterally, or through recourse to binding arbitration (Article 21 dsu). Defendants do not always have sufficient guidance to implement a judgment against them. The lack of guidance is a direct consequence of the fact that Panel and AB reports merely recommend that the losing party bring its measures into compliance with its obligations. Even in the unusual instance where a report suggests ways to implement the final judgment, the addressees of suggestions still remain free to choose their way of complying, since suggestions are not legally binding. A few additional words are warranted here. The content of “recommendations” is identical across reports. The guilty party must bring its measures into compliance with its obligations. In addition to recommendations (which Panels must issue any time they find that a change is required for the defendant to implement its obligations), wto adjudicating bodies may also suggest ways to implement recommendations. The content of “suggestions” depends on what is being requested. Recommendations and suggestions are meant to help their addressee to implement the various findings in a report. Recommendations: – Are binding on their addressees; – Amount to an obligation of result, in the sense that they allow wto Members to choose the means (specific conduct) in order to reach the requested result (consistency with the wto). 16 17 18

See Horn, Johanneson and Mavroidis on statistics in this respect; H. Horn, L. Johannesson and P.C. Mavroidis, “The wto Dispute Settlement System (1995–2010): Some Descriptive Statistics”, jwt 45 (2011): 1107–1138. However, the distinction between a factual and a legal issue is often over-stated in legal literature, since many disagreements about facts can be formulated in terms of a legal issue. If the AB rejects the original complaint, the case will, of course, be closed.

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Suggestions: – Will be issued on Panels’ discretion. Panels enjoy discretion even if they have been requested to issue suggestion; – Are not binding on their addressees who might choose to ignore them; – Have flexible content, and Panels have discretion to shape it, provided that they observe the non ultra petita principle; – Amount to an obligation of specific conduct since they prejudge not only the result (consistency with the wto) but also the means that must be employed to this effect.19 As a result, disagreements as to whether implementation has truly occurred can easily arise. In this case, the dispute (whether implementation has indeed occurred) will be referred to a “compliance Panel” the task of which is to determine whether implementation occurred (Article 21(5) dsu). The compliance Panel’s report can be appealed. If the AB (eventually, at last resort) finds that no implementation has occurred, the complainant can request authorization to suspend concessions (typically, raise the level of tariffs on imports, or remove other concessions). If granted, the complainant will have the right to raise the level of tariffs to the level necessary to inflict on the defendant damage equal in value to the damage the complainant suffered as a result of the practice that was found to be illegal.20 Nothing prohibits wto Members from reaching a Mutually Agreed Solution (mas) at any stage of the process. An mas must be notified to the dsb, where other wto Members can raise questions as to its consistency with the wto rules. Finally, wto knows of three type of complaints, violation, nonviolation, and situation complaints Violation complaints constitute, anyway, the vast majority of litigation before the wto, and concern cases where complainant claims that defendant has violated a provision. Nonviolation complaints concern cases where, although defendant has not violated a provision, its actions still caused damage to complainant. Situation complaints finally, concern any 19

20

What matters nevertheless, is that in case a suggestion has been followed, there should be no doubt that implementation has occurred. Conversely, in case a suggestion has not been followed, it is not excluded that, following a challenge, the implementing measure falls short of the implementation-requirements; P.C. Mavroidis, “Remedies in the wto Legal System: Between a Rock and a Hard Place”, ejil 11 (2000): 763–813. Panels should be encouraged to allocate the burden of proof depending on whether a suggestion has been followed or not (if yes, the complainant should carry it, if not, the defendant). Complainants currently always carry the burden of proof. See on this score, R.Z. Lawrence, Crimes and Punishment: Retaliation Under the wto (Washington, DC: Institute for International Economics, 2003).

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other cases where complainants believe that their rights under the wto have been annihilated as a result of defendant’s actions.21 iii

The Record

1 What Is Compliance? The term “compliance” is quite elusive. One could ask for example whether compliance cover only cases where a defendant has agreed to change its policies because of the credibility of the threat presented by the other party? Does it cover cases where it occurs because of fear that it might incur reputation costs? Does it cover all cases where we observe a change in policy irrespective of the reasons behind the change? Most scholars who celebrate the wto compliance record privilege the latter approach. The problem though, is that, in this approach, compliance will depend on exogenous to the wto factors, which could be quite idiosyncratic and of no general relevance. We prefer some sort of “endogenous compliance”, that is, compliance due to remedies embedded in the regime. Only this approach provides a benchmark to judge the effectiveness of wto remedies. Nevertheless, this approach presents us with an informational problem, since we need to know the reason for complying. Defendants might themselves in a Prisoner’s Dilemma-type of situation, and have little incentive to reveal the truth. Under this approach thus, we lack a reliable compliance record. Records offered in literature look at whether compliance occurred, not at why compliance occurred. I will return to this question in Section iv. 2 Institutional Setting for Monitoring Compliance wto Members found to be in violation of their obligations must periodically report their implementation efforts to the dsb. Articles 21(6) and 22(8) dsu state that the dsb will keep all issues regarding implementation under surveillance. The obligation to report kicks in 6 months after the establishment of the reasonable period of time. As a matter of practice, however, assuming that a compliance Panel has been established, the obligation to report is suspended. It will resume only if the compliance Panel (and/or the AB, as the case may be) finds that implementation did not occur during the rpt. Implementation must be wto-consistent (Article 3(5) dsu), and wto Members can contest the wto-consistency of implemented measures during the dsb meeting (­ Article 21

See, for more detail, E-U Petersmann, “Non-violation Complaints in Public International Trade Law”, gybil 34 (1991): 175–231.

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3(6) dsu). Remarkably, the dsu does not contain any specific provisions dealing with the situation where, post-adoption of countermeasures, the wto Member concerned has implemented its wto obligations. In US-Suspended Concession, the AB held that, in similar cases, the party claiming that it has complied will carry the associated burden of proof that this has been the case before an Article 21(5) dsu panel (compliance panel). Lack of transparency is of course, a wider problem in the wto. CollinsWilliams and Wolfe should be credited with the first attempt to discuss ­transparency in comprehensive manner in the wto.22 A key point in their work is that the current regime does not address the often lacking incentives to be transparent. And indeed, dispute settlement is an area where incentives are often lacking. Assume collusion between two players whereby an advantage has been promised that might be eroded if provided to everyone else. What is the point in being transparent about it? This probably explains the abysmal record regarding notifications of mas that occur during the adjudication process. Time after time during the dsu review a plea has been raised to the effect that the content of mas be enriched only for similar claims to reach deadlock. 3 Does wto Enforcement Work? Guzman echoes many when arguing that the wto is the most effective system in international relations.23 Similar statements are usually the outcome of comparative analysis, where the compliance record before the wto is compared to that before other fora. Their value is thus, relative. It works better than that elsewhere. But is this the benchmark to decide whether the system works? There are various studies in specific fields (e.g. antidumping) but only two dealing with the system in its entirety. Davey comes up with the rosier picture. The system overall exhibits a rather satisfactory record since with a few exceptions where the complaining party did not request authorization to suspend concessions, the case was closed. The quintessential element in this study is a key assumption. If the complaining party does not insist on authorization to suspend concession, compliance must be deemed to have occurred.24 22

23 24

T. Collins-Williams and R. Wolfe, “Transparency as Trade Policy Tool: the wto’s Cloudy Windows”, wtr 9 (2010): 551–581. Mavroidis and Wolfe, building on this work, explain why a common agent is necessary to take care of deficient notifications; P.C. Mavroidis and R. Wolfe, “From Sunshine to a Common Agent: the Evolving Understanding of Transparency in the wto”, The Brown Journal of World Affairs 21 (2015): 117–130. A.T. Guzman, “Global Governance and the wto”, hjil 45 (2004): 303–336. W.J. Davey, “Evaluating wto Dispute Settlement: What Results Have Been Achieved Through Consultations and Implementation of Panel Reports ?”, in: Y. Taniguchi, A. Yanovich, and J. Bohanes (eds.), The wto in the 21st Century : Dispute Settlement, Negotiations, and Regionalism (Cambridge: Cambridge University Press, 2007), 98–140.

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Bagwell et al. have developed a record for the first ten years of dispute adjudication at the wto. In light of the fact that the system is 20 years old, and the majority of the disputes were handled the first ten years, one hardly accuse this work as suffering from sample bias. They divide wto Members into two groups: oecd (Organisation for Economic Cooperation and Development) and non-oecd to roughly capture the point regarding asymmetric bargaining power. They then establish the record regarding cases where the former is complainant and the latter defendant and vice-versa. In contrast to Davey, they do not presume compliance. Absent reliable information (the best proxy being that the wto has been notified to this effect) they classify the cases in a separate box. Their key insight though, has not much to do with the overall record, but with the question whether uneven players have equal opportunity to force compliance. They find no case where a developing country (non-oecd) faced with non-compliance has had recourse to countermeasures even when litigating against another non-oecd. They further find no case where a developed country (oecd) challenging a developing country’s practices has had to have recourse to countermeasures. They interpret their data in the following way. Suspending concessions is a costly option for the successful complainant and unless there is relative certainty that the expected profits (in case they lead to change of practices) will outweigh the original investment, there is no point in undertaking the investment in the first place.25 This is probably what persuaded, for example, Ecuador not to suspend concessions against the EU even though it has been authorized to do so in the EC-Bananas iii litigation. This study almost emulates verbatim Schelling’s ground-breaking study. In Schelling’s understanding, a threat is credible when it does not have to be exercised. Suspending concessions should ipso facto suggest that the threat was not credible.26 This probably explains why non-oecd, when facing challenges by oecd, changed their practices without the latter having to suspend concessions: the threat that they might do so sufficed. The only cases of reported recourse to suspension of concessions are between symmetric players (as shown in the table in pages 132–133 below). This record can be sliced and diced in different ways but the “eyeball test” would suggest that the dsu by being neutral vis-à-vis the relative bargaining power of the wto Members de facto keeps the privileges of the stronger players intact. 25

26

K. Bagwell, P.C. Mavroidis and R.W. Staiger, “The Case for Tradable Remedies in wto Dispute Settlement System”, in: S.J. Evenett and B.M. Hoekman (eds.), Economic Development and Multilateral Trade Cooperation (Washington, DC: Palgrave McMillan and The World Bank, 2005), 395–414. Th. Schelling, The Strategy of Conflict (Cambridge, MA: Harvard University Press, 1960).

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table 1 WT/Full title (Complainant)

Date of circulation Date of dsb Amount of of arbitration authorization authorization award

DS26 – US DS48 – ­Canada

European Communities – Measures Concerning Meat and Meat Products (Hormones)

12.7.1999 12.7.1999

26.7.1999 26.7.1999

US$116.8 million (annual) CAN$11.3 million (annual)

DS27 – USDS27 – ­Ecuador

European Communities – Regime for the ­Importation, Sale and Distribution of Bananas

9.4.1999 24.3.2000

19.4.1999 18.5.2000

US$191.4 million (annual) US$201.6 million (annual)

DS46 – ­Canada

Brazil – Export Financing Programme for Aircraft

28.8.2000

12.12.2000

CAN$344.2 million (annual)

DS108 – EC

United States – Tax Treatment for “Foreign Sales Corporations”

30.8.2002

7.5.2003

US$4.043 billion (annual)

DS136 – EC

United States – Anti-­ Dumping Act of 1916

24.2.2004

Not authorized yet

Arbitrators award provides for mirror image legislation

31.8.2004

26.11.2004 17.12.2004 (Chile only)

Arbitrators awards provide for additional duties on yearly value of trade equal to amount of Byrd duties distributed times 0.72

17.2.2003

18.3.2003

US$247.797 million

DS217 – Brazil, Chile, EC, India, Japan, KoreaDS234 – Canada, Mexico

United States – Continued Dumping and Subsidy Offset Act of 2000

Canada – Export Credits DS222 – Brazil and Loan Guarantees for Regional Aircraft

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table 1 (cont.) WT/Full title (Complainant)

Date of circulation Date of dsb Amount of of arbitration authorization authorization award

DS267 – Brazil (2 proceedings)

United States – Subsidies on Upland Cotton

31.8.2009

19.11.2009

Initially around US$400 million with cross retaliation possible above that amount, to be adjusted annually based on amount of previous year’s subsidy paid by US

DS285 – Antigua and Barbuda

United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services

21.12.2007

Not authorized yet

US$21 million (annual)

iv

Why the Emerging Picture?

Two conclusions emerge from the discussion so far. First, that one might legitimately disagree as to whether the record of compliance is satisfactory or not. The key reason why this can be the case has to do with the formulation of the question one asks in this realm: is it whether or why compliance occurs that matters? Second, there is undeniably correlation between bargaining power and effectiveness of the regime. Developing countries with small bargaining power might find it difficult to enforce favourable judgments. I propose to inquire into the reasons for this latter question in what follows. 1 Property and Liability Rules in the dsu Article 22(1) dsu explicitly reveals a preference for specific performance of the obligations assumed: Compensation and the suspension of concessions or other obligations are temporary measures available in the event that the recommendations and

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rulings are not implemented within a reasonable period of time. However, neither compensation nor the suspension of concessions or other obligations is preferred to full implementation of a recommendation to bring a measure into conformity with the covered agreements. Compensation is voluntary and, if granted, shall be consistent with the covered agreements. This paragraph makes it clear that the wto legislative preference is for property rules, liability rules being relegated to a transitional instrument only. Article 22(8) dsu exacerbates this point: The suspension of concessions or other obligations shall be temporary and shall only be applied until such time as the measure found to be inconsistent with a covered agreement has been removed, or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached. In accordance with paragraph 6 of Article 21, the dsb shall continue to keep under surveillance the implementation of adopted recommendations or rulings, including those cases where compensation has been provided or concessions or other obligations have been suspended but the recommendations to bring a measure into conformity with the covered agreements have not been implemented. Nevertheless, the importance of liability rules is crucial in securing enforcement. The Arbitrators in EC – Bananas III (Article 22(6) – US) echoing many prior reports held that the purpose of countermeasures, as stated in Article 22(1) dsu, is to induce compliance by the recalcitrant wto Member: Accordingly, the authorization to suspend concessions or other obligations is a temporary measure pending full implementation by the Member concerned. We agree with the United States that this temporary nature indicates that it is the purpose of countermeasures to induce compliance.27 Consequently, the key question is whether the system as described so far induces compliance with the wto obligations. It is difficult to provide a ­definitive response since the response touches upon issues of private information, and as we have stated above, unfortunately, the party possessing private information

27

European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Arbitration by the European Communities under Article 22(6) of the dsu, Decision by the Arbitrators of 9 April 1999, WT/DS27/ARB, para. 6.3 (emphasis in the original).

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might have an incentive to cheat.28 Take Mexico-Telecoms, the case briefly discussed supra. If the hypothesis that Mexico uses wto as an excuse is correct, Mexico has strong incentive to publicly state at the dsb meeting adopting the Panel report that it concedes to its adoption because it is a “good wto citizen” and enjoy the brownies associated with similar declarations. Irrespective of similar examples, the key question is whether the system above induces compliance, and whether it induces compliance for all. In my view, this is not the case, for both statutory reasons as well case-law developments. The statute has imposed a limit on permissible retaliation, which makes exit from contract attractive. And case-law has made exit even more attractive, by calculating the limit of permissible retaliation in conservative manner, and introducing two elements: first, that remedies should be retroactive, and second, by making cross-retaliation onerous. Alas, both points hit wto Members with little bargaining power harder. I take each point in turn in what follows. 2 Statutory Limits: Equivalence between Damage and Compensation Article 22(4) dsu calls for equivalence between the proposed level of suspension of concessions and the level of nullification and impairment suffered by the injured party: “[t]he level of the suspension of concessions or other obligations authorized by the dsb shall be equivalent to the level of the nullification or impairment”. This provision does not address the question of calculation of equivalence, an issue left to the discretion of panels, which we will discuss in the next section. More importantly, retaliation must go beyond effectuating restitution if it is to discourage future exploitation. It must leave the opportunist clearly worse off than before the act of opportunism. If the sanction makes the victim whole, then as long as the opportunist is undetected for some time, it pays to continue to engage in opportunistic exploitation. In wto this is not the case for the extra reason that remedies de facto are not retroactive. In wto thus, first- and second degree opportunism, as defined in Rose,29 are possible.30 28 29

30

O.E. Williamson, “Why Law, Economics and Organization?”, Annual Review of Law and Social Science 1 (2005): 369–396. D.C. Rose, The Moral Foundation of Economic Behavior (New York, NY: Oxford University Press, 2011). The former refers to a situation where opportunistic behaviour occurs because of imperfect enforcement which can result from information asymmetries, or asymmetries in bargaining power or other reasons. Both information- and bargaining power asymmetries are present in the wto regime. Second degree opportunism can occur because of contract incompleteness. This is imperfectly captured in the safeguard clause and the possibility to introduce non-violation complaints. At least for the reasons analysed in detail in: G.M. Grossman, H. Horn and P.C. Mavroidis, Principles of World Trade Law: National Treatment (Cambridge: Cambridge University Press, 2012).

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The discussion would be incomplete if we did not refer to compensation and suspension of concessions or other obligations. These are temporary means that can be used alternatively to suspension of concessions until ­specific performance (and thus, resolution of the dispute) has been secured. Compensation is voluntary. Its form is not prejudged in the dsu. Recourse to it has been very infrequent. In fact, compensation has only been agreed once. Following the condemnation of US copyright practices in US – Section 110(5) Copyright Act, the EU (complainant) and the US (defendant) agreed to submit to an Article 25 dsu arbitration, since, they could not agree on the amount of compensation to be paid.31 It has been sometimes argued that the reason why recourse to compensation is not more frequent has to do with the fact that it must respect mfn. The legal underpinnings for this opinion are in Article 22.1 dsu, which calls for wto-consistent compensation. Compensation does not necessarily have to respect mfn, however. It all depends on the nature of the violation. If Home has been found to have wrongfully imposed antidumping duties against imports from Foreign, and agrees to provisionally compensate Foreign until full implementation has occurred, Home cannot be requested to also compensate other wto Members, which have suffered no damage at all from Home’s illegality.32 Monetary compensation is a very attractive proposition, especially when compared to the alternative, suspension of concessions, which inherently comports negative external effects; compensation does not create the kind of distortions that suspension of concessions does. Nevertheless, it remains a rarity in wto practice. 3 Case-Law Developments A How to Calculate Equivalence? Case-law has contributed some precisions when it comes to calculating equivalence: – Remedies (suspension of concession and/or compensation) are de facto prospective; – Indirect benefits cannot be recouped; – Only value added matters; – Legal fees cannot be recouped. 31

32

See the discussion of the case in Grossman, Horn and Mavroidis; G.M. Grossman, H. Horn and P.C. Mavroidis, “Would’ve or Should’ve? Impaired Benefits Due to Copyright Infringement”, in: H. Horn and P.C. Mavroidis, (eds.), The American Law Institute Reporters’ Studies on wto Case-law (Cambridge: Cambridge University Press, 2003), 294–314. The authors note, inter alia, that it is questionable whether Article 25 dsu was meant to serve this purpose. It seems that the Arbitrator here assumed a role normally entrusted to an Article 22(6) dsu arbitration. At any rate, the compensation in this case was monetary. Indeed, they might have even benefited because of the ensuing trade deflection.

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We will discuss the first point separately, and for now focus on the other three. The Arbitrators in their report on EC – Bananas iii (Ecuador) (Article 22(6)– EC) faced inter alia, a US claim to the effect that it should be compensated for lost profits resulting from the EU bananas import regime. In their view, the EU, by blocking imports into its market of bananas originating in Mexico, was ipso facto blocking exports to the Mexican market of fertilizers originating in the US. The Arbitrators decided against the US claim in this respect. In their view, the EU could be held liable for trade in bananas lost by Mexican exporters, but not for trade in fertilizers lost by US exporters as a result of Mexico’s decision to reduce imports of the said commodity.33 Trade is so intertwined across countries nowadays with the rise of global value chains (gvcs) that opening the door to indirect benefits amounts to a quasi-impossibility to draw somewhere the line. What if, for example, fertilizers have some added value originating in Japan, which, in turn has added value originating in India and so on and so forth. On the other hand, this approach does not fully address the injury suffered. This is probably one case where, for reasons of administrative ease, sub-optimal compensation has been judged acceptable. A direct outcome of the discussion on indirect benefits is the decision to compute only value added when calculating the level of nullification and impairment. In other words, assuming that a good costs 10€/unit, 4€ of the total value being that of imported goods. In this case, the exporter of the good will lose 10€/unit in revenue when an illegal trade barrier has been erected against its exports. However, as a result of the trade measure it is now by facing, it will probably stop importing the input costing 4€. As a result, the actual nullification and impairment will not be 10€, but 6€/unit. The Arbitrators in their report on EC – Bananas iii (Ecuador) (Article 22(6) – EC) endorsed the view that only value added can be part of the calculation.34 For the reason mentioned above, the credibility of the threat will be reduced. Finally, the Arbitrators in their report on US – 1916 Act (EC) (Article 22(6) – US) made it clear that legal fees paid cannot form part of the calculation of nullification and impairment.35

33 34 35

European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Arbitration by the European Communities under Article 22(6) of the dsu, Decision by the Arbitrators of 24 March 2000, WT/DS27/ARB/ECU, paras. 6.1 et seq. Ibid. United States – Anti-Dumping Act of 1916 – (Original Complaint by the European ­Communities) – Recourse to Arbitration by the United States under Article 22(6) dsu, Decision by the Arbitrators of 24 February 2004, WT/DS136/ARB, para. 5.76.

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B (Re-)Introducing Prospective Remedies The gatt did not contain any provisions on this issue, and it was thus left to practice to decide it. In the gatt-era, there are five reported cases where gatt contracting parties recommended that gatt contracting parties that had ­illegally imposed antidumping or countervailing duties should reimburse all duties illegally collected from the date of the first initiation of such duties.36 These reports did not go down well with the United States, and the European Union that were called to reimburse illegally perceived duties. During the negotiation of the Uruguay round, they both submitted proposals aiming to reverse the tide and introduce language recommending prospective remedies. In Mavroidis (2016), I visited the negotiating record, and explained why, in my view, the issue was discussed and not decided, since there were opposing views submitted to this effect. On its face, Article 19 dsu does not prejudge this issue. In principle, Panels are free to suggest retroactive remedies. Customary international law certainly sides with retroactive remedies. Panels filled the gap left in Article 19 dsu, by siding with the view that remedies should be prospective. There is only one case in the wto-era where the door to retroactive remedies was opened (the Panel Report on Australia – Automotive Leather ii). For the rest, all wto Panels so far have opted for prospective remedies, whereby the injury is calculated not from the time when the illegality had been committed, but from the end of the reasonable period of time for implementation. Prospective remedies imply a smaller monetary burden/cost for the non-compliant party. What is the incentive for a wto Member to respect, the antidumping disciplines if it knows that, at worst, it risks seeing itself obliged to stop some four years down the road imposing duties that were illegally rendered in the first place? It will de facto have provided itself with a safeguard for its producers in the meantime, without having to comply with the safeguards (or the antidumping) provisions.37 36 All gatt cases are reported in E-U Petersmann, “International Competition Rules for the gatt—mto World Trade and Legal System”, jwt 27 (1993): 35–86; and P.C. Mavroidis, The Regulation of International Trade, Vol. 2: The wto Agreements on Trade in Goods (Cambridge, MA: mit Press, 2016), Chapter 2. 37 This argument is of course, short. It definitely makes good sense if violations of the contract are bad faith violations. There are, nevertheless, cases of genuine ambiguity, and we pointed to a number of them during the preceding Sections. Should losing wto Members be punished equally severely in such cases? The problem is that it is quite difficult to draw a clear dividing line between good- and bad-faith cases and, faute de mieux, a unique solution in case of violation is probably the most appropriate. The better arguments (inducement to comply) argue in favour of retroactive remedies, but see also some valid counter-arguments advanced by Lawrence, supra note 20.

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C Putting a Dent on Cross-retaliation The area where suspension of concessions (or compensation) will take place is largely a matter of discretion for the winning complainant. The possibility for cross-retaliation has been institutionalized (Article 22(3)(c) dsu): If that party considers that it is not practicable or effective to suspend concessions or other obligations with respect to other sectors under the same agreement, and that the circumstances are serious enough, it may seek to suspend concessions or other obligations under another covered agreement. This institution rests on strong foundations. The more weapons a party has at its disposal, the more effective (other things equal) its threat will be. This much is consistent with the prediction of Bernheim and Whinston.38 And indeed, the threat by Ecuador to cross-retaliate against the EU in the field of intellectual property (EC-Bananas iii) apparently raised some eyebrows in Brussels. There are both systemic implications (since if this becomes practice, protection of intellectual property rights, a hard fought acquis for industrialized countries, will be severely undermined), and there are important political economy considerations as well (since the domestic lobbies keen to preserve the integrity of intellectual property rights are quite influential in both sides of the Atlantic). In EC-Bananas iii, the Arbitration Panel requested from Members invoking this possibility to first explain why recourse to “normal” retaliation is not effective, and why recourse to cross-retaliation was necessary. Furthermore, Panels would have the right to review similar evaluations. But this is an odd statement, especially since the wording of Article 22 dsu makes it clear that it is the party threatening with imposition of cross-retaliation that will decide on the (relative) (in)effectiveness of “normal” retaliation. At any rate, recourse to a useful curtail has thus been undermined. 4 An Assessment Compared to customary international law, wto remedies are admittedly weaker. The choice for weak, rather than strong remedies is not paradoxical though. Ethier explains that a link between enforcement and trade liberalization is warranted. An optimal amount of liberalization will occur in a system based on commensurate re-balancing, when, ex ante, trading partners are unsure whether they might have to resort to violations in the future. The common 38

D.B. Bernheim and M. Whinston, “Multimarket Contact and Collusive Behavior”, rand Journal of Economics 21 (1990): 1–26.

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incentive of all trading partners is, when in doubt, to introduce weaker rather than stronger remedies. This is so for a number of reasons: uncertainty as to whether recourse to illegal measures will occur, who will commit illegalities, whether a dispute will be lodged, how the judge will interpret the contract, the institutional risks from wrong interpretations, etc. This is probably what explains the current state of affairs in the dsu.39 On this view, however, enforcement is equated to rebalancing that is bring reciprocal commitments to some sort of mutually acceptable equilibrium, and not enforcing existing obligations. Alternatively, one could view the trading game is a coordination game and countries are well aware of the merits of trade liberalization. Deviations will be temporary and will not detract from the common goal that they all have an interest (and thus an incentive) in achieving. This is not to reduce enforcement to redundancy: enforcement is one of the factors contributing to implementation of the obligations. Dispute settlement serves other functions as well, and chief among them it strives to “complete” the contract: through its case-law, wto adjudicating bodies have provided additional information that did not exist in the original contract.40 This does not mean that wto remedies are always weak: the identity of the players matters, a point to which we will return infra. The case-law developments discussed above do not distinguish between developed and developing countries. And yet, there are good reasons supporting the view that countries with less bargaining power are about to suffer more. Lack of retroactive remedies guarantees cheap exit for everybody. Countries relying on export income more though, are about to lose more. This is typically the case of developing countries. Case-law on cross retaliation is also likely to weigh in heavier on developing countries. For one, as Bown and Hoekman correctly point out, developing countries might not be in a position to meaningfully suspend concessions because they have not liberalized enough. Raising their bound duties might not capture trade equivalent to the damage suffered.41 Thus, to them “normal” retaliation might be a useless weapon anyway. Furthermore, the wto TradeRelated Intellectual Property Rights (trips) Agreement was a major achievement for developed nations with high symbolic value. Opening up the door 39 40 41

W. Ethier, Punishments and Dispute Settlement in Trade Agreements (Copenhagen: epru, 2001). See on this score, Grossman, Horn and Mavroidis, supra note 31. Ch.P. Bown and B. Hoekman, “wto Dispute Settlement and the Missing Developing Country Cases: Engaging the Private Sector”, jiel 8 (2005): 861–890.

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to its partial demolition is not welcome to them at all.42 How did developing countries react to all this during the ongoing dsu Review? I turn to this question in what now follows. v

Developing Countries’ Concerns in the dsu Review

1 The Stakeholders It should come as no surprise that, during the dsu review, a series of developing countries tabled proposals requesting changes in the current dsu to address their interests. This observation in and itself is testimony to the fact that the study by Bagwell et al. was in the right direction. Their discontent can be summarized in the belief that suspension of concessions is not a weapon equally effective of all wto Members, as its efficacy depends on the identity of the players involved. Their proposals typically take a developing country-view and argue for some sort of special and differential remedies when developing countries are implicated in the process. In this context, they have advanced proposals dealing with the length of the reasonable period of time when a developing country is complainant or defendant; the identity of Panelists when developing countries participate in the process; the obligation to suggest retroactive remedies when developing countries have prevailed before the wto; the impossibility for a developed country to bring forward a new dispute or participate in the decision making process if it has not implemented all adverse prior dispute rulings before.43 Except for the latter, all other proposals are not game changers for they do not respond to the key question: what if the developed country refuses to implement? The last proposal is different but so far is supported by a handful of developing countries only.44 Some developing countries had even flirted with the idea of developing countries jointly complaining any time a violation has been committed by an industrialized nation. This proposal has some attractive features in the sense that the “political” cost will be diffused among many wto Members. But it might run into all problems regarding collective action already identified in Olson,45 and it might not add much anyway since a the end of the day the total 42 43 44 45

In Mavroidis, supra note 10, I provide excerpts and quotes from highly placed officials in the US threatening Brazil with retaliation, in case it had had recourse to cross-retaliation. Bagwell, Mavroidis and Staiger, supra note 25. For an excellent discussion of the most important proposals, see E. Kessie, “The Early Harvest Negotiations in 2003”, in: F. Ortino and E-U Petersmann (eds.), The wto Dispute Settlement System 1995–2003 (The Hague: Kluwer Law International, 2004), 115–150. M. Olson, The Logic of Collective Action, (Cambridge, MA: Harvard University Press, 1965).

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amount of suspension of concessions will be the same irrespective who is taking action. 2 The Literature There are of course, papers (many of them), which have not been written with the wto in mind that provide some foundational thinking of how to think about remedies. Even a fast survey of this literature extends beyond the scope of this chapter. Suffice to mention here that Becker has inspired many authors when linking enforcement to the welfare implications in case of enforcement (or non-enforcement).46 Assuming certainty that violations will always be detected and pursued, tough punishments (e.g. “I will shoot you if you steal a chewing gum”) come very close to guaranteeing enforcement of contractual obligations. However, such punishments go against some basic legal principles, such as the proportionality principle.47 More importantly, it is simply not the case that all violations of the wto agreement are abusive in nature. The wto agreement is a sufficiently incomplete contract to make room for legitimate disagreements as to its precise scope.48 One should add that it is not always the case that a solution provided by a wto adjudicating body is the correct one: we run the risk of enforcing Type I errors and the ensuing (negative) external effects for the institution issuing similar decisions. Barfield has argued that the basic flaw in the wto edifice is between the wto consensus-plagued inefficient rule-making procedures and its highly efficient dispute settlement system – an imbalance that creates pressure to “legislate” new rules through adjudication. Barfield goes on to suggest two ways out of this flaw: the Director-General should be given the prerogative to remove controversial or “political” disputes from the docket; additionally, a ­blocking 46 47

48

G. Becker, “Crime and Punishment”, Journal of Political Economy 76 (1968): 169–217. The proportionality principle presupposes a benchmark, and agreement on the benchmark should not be taken for granted. Voicing their disagreement with the final ruling in the US – fsc dispute, Esserman and Howse have strongly recommended caution when calculating the amount of countermeasures. They suggest that Arbitrators should be well aware of the spillovers of their decisions and opening up the door to fsc-type of countermeasures (the worth of which was more or less $4 billion) is, in their view, in disregard of the proportionality principle. That is, in their view, using the amount of subsidy as benchmark to calculate the amount of countermeasures does not respect the proportionality principle. In more detail: S. Esserman and R. Howse, “Trade Disputes Require Fairer Arbitration”, (The Financial Times, 12 September 2004), available at: (last accessed on 1 March 2018). On this score, see Horn and Mavroidis, where the authors advance some thoughts while presenting a survey of the law and economics literature on dispute settlement; Horn and Mavroidis, supra note 1.

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minority of wto Members should be entitled to overrule a decision by the wto adjudicating bodies. The author thus supports strong enforcement of some, but critically not all, wto obligations.49 One of the problems with this approach is the difficulty in distinguishing between cases that should and should not go to wto adjudication. Schwarz and Sykes claim that victorious plaintiffs should be paid “expectation damages”: the promisee will thus be in as good a position as it would have been had the promisor delivered on their commitments. If the promisor is obliged to make the promisee no worse off than it would have been had the contract been fulfilled, by simply paying a monetary compensation, then the resulting breach is efficient and should be accepted.50 This sounds like a very coherent approach except that it presumes good faith behaviour by all players, hardly a given. Good arguments in favour of more frequent recourse to compensation have been advanced also by Bronckers and van den Broek, and Pauwelyn, calling for compulsory use of this mode of implementation.51 Simlarly, Schropp has argued in favour of tariff compensation, whereby the author of the illegal act compensates affected parties by reducing the level of bound duties in other tariff lines.52 These are very well drafted proposals but suffer from the same vice: there is no response (in these proposals at least) to the question as to what happens in the case when the wto Member concerned refuses to compensate? Lawrence tries to avoid similar shortcomings when proposing the introduction of contingent liberalization commitments (clcs) in the dsu as a means to secure enforcement.53 In part this proposal responds to the question as to what happens if the recalcitrant state refuses to pay assuming that clcs will be managed by an independent entity and administration problems will be solved by entrusting the whole operation to a third party. It will add of course to the negotiating costs, it is difficult to establish reciprocity here and ­ultimately the 49

Cl. Barnfield, Free Trade, Sovereignty, Democracy: The Future of the World Trade Organization (Washington, DC: American Enterprise Institute, 2001). 50 W. Schwarz and A.O. Sykes, “The Economic Structure of Renegotiation and Dispute Resolution in the wto/gatt System”, Journal of Legal Studies 31 (2002): 179–204. 51 M.C.E.J. Bronckers and N. van den Broek, “Financial Compensation in the wto: ­Improving Remedies in wto Dispute Settlement”, jiel 8 (2005): 101–126; J. Pauwelyn, “Enforcement and Countermeasures in the wto: Rules are Rules—Toward a More Collective A ­ pproach”, ajil 94 (2000): 335–347. 52 S. Schropp, “The Case for Tariff Compensation in wto Dispute Settlement”, Aussenwirtschaft 60 (2005): 485–528. 53 Lawrence, supra note 20.

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whole idea will be fruitful only if a third party administers all clcs. If it is wto Members administering their own clcs we are back to square one, that is what in case of refusal to cooperate?54 Bagwell at al tried to respond to this question by allowing for auctioning of the right to suspend concessions in case the victorious plaintiff estimates that suspending concessions is either too costly for it, or ineffective or (as usually is the case) both. In their extended model, the author of the illegal act should be allowed to bid and this extension reduces the risk for auction failure.55 Limão and Saggi added an interesting twist to this idea. In their model, the wto Member who is the author of an illegal act will be requested to pay monetary compensation. Assuming it refuses to do so, the wto Member affected by their behaviour will be entitled to auction its right to impose countermeasures. Recalcitrant states will thus suffer reputation costs twice. Once when they do not comply, and once when they refuse to pay monetary compensation.56 This is an attractive proposition but has not so far managed to gather any momentum behind it. Mexico did try to propose something along these lines and barely secured its own vote in favour of it. vi

In Lieu of Concluding Remarks

What is probably an often forgotten dimension of wto dispute settlement is that the dsu process matters, probably as much as its outcomes. D ­ issatisfaction with the current state of affairs in the realm of remedies should not detract 54

55 56

Ibid., at 87: “In this approach, wto Members would be given the option of offering a preauthorizing compensation mechanism during the Doha round negotiations. These offers would be included in the multilateral negotiations. If a country’s offer is accepted, in the event it is later found to have violated the agreement and failed to come into c­ ompliance, winning plaintiffs would be authorized to select an equivalent package of concessions from the defendant’s commitments. Countries could choose from several options in ­making their clcs. They could indicate a willingness to provide (selective) financial compensation, they could agree to provide across-the-board (most favoured nation) tariff cuts to generate additional trade equal to the value of the infraction, or they could agree to liberalize certain sectors on an mfn basis. Since the sectors to be covered would be negotiated, in the multilateral setting, countries specializing in particular exports (for example, textiles) could form alliances to ensure that products of interest to them would be included in the commitments of important trading partners”. Bagwell, Mavroidis and Staiger, supra note 13. N. Limão and K. Shaggi, “Tariff Retaliation versus Financial Compensation in the Enforcement of International Trade Agreements”, Journal of International Economics 76 (2008): 48–60.

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from the overall contribution of the wto dispute settlement process. Even when dealing with bad faith recourses to dispute settlement, wto adjudicating bodies will have the opportunity to re-visit past case-law, re-think its merits and confirm it if nothing has changed in between cases. Trading partners will submit their disputes, even the abusive cases, to third party adjudication. This is what Article 23(2)(a) dsu essentially amounts to. The process promotes a culture for peaceful resolution, a unique paradigm in international relations. While criticism of specific instances is always welcome, one should always be mindful of the broader picture as well. It is in this spirit that my recommendation that investment in the “persuasiveness” of the process is warranted. There are no easy and fast solutions. wto suffers from the vices that all selfenforcing contracts suffer from, whenever they have been contracted across players with asymmetric bargaining power. Proposals that dare to go beyond the veil of power asymmetries are consistently met by a refusal to adhere by those benefitting from the current regime. The current status quo has of course implications for the participation of the “weaker” players in the dispute settlement system, who rationally cherry pick their cases.57 As things stand, it is probably wiser for developing countries to invest in reforming the current agency design of dispute adjudication in order to improve the quality of the output, rather than invest time and effort in the discussion on remedies. The American Law Institute (ali) edited annual volumes are the only steady forum reviewing the wto output in dispute settlement:58 102 reports have already been published and discuss the case-law since 2000, and close to 60% of them criticize the output for incoherent or total absence of methodology. Indeed, case-law has found it impossible to adopt meaningful interpretations of even the most basic concepts. There are cases where Panels have expressed contradictory opinions, and there are quite a few (and we have discussed them in this volume): the cases regarding zeroing, the cases regarding likeness etc. As recently as 2011, three disputes were adjudicated under the tbt and reports were issued within two months from each other, and they do not see eye to eye on any of the issues discussed. If at all, they point to a problem of coordination and the question arises whether the AB as it now stands can solve similar problems. The answer, based on the record so far, is sometimes yes (e.g., the zeroing cases), sometimes no (e.g., the privatization cases), and sometimes we simply do not know since 57 58

Horn, Johanneson and Mavroidis, supra note 16. ali, “The American Law Institute”, (ali, 2018) available at: (last accessed 1 March 2018).

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the methodology for resolving an issue has not been revealed (e.g., the likeness cases). Since the judge has substantial discretion in light of the contract-­ incompleteness, it is time for the wto to re-think the agency design on priority terms. It is for example, unwarranted to assume that tough economic issues (like the causality-requirement; the definition of the relevant product market etc.) are entrusted to members of the wto Secretariat with no training at all in economics. It is surprising that, while economic analysis of law has managed to become so influential in antitrust, it still lags behind when it comes to trade law, the fact that the two fields of law share their quintessential elements notwithstanding. Or that the majority of appointed Panelists are delegates in ­Geneva who represent national interests (sometimes, in similar cases); or that the members of the Appellate Body dealing at last resort with issues such as the subsidization of Airbus and Boeing, the subsidization of the EU steel industry, and the consistency of anti-gmo (genetically modified organisms) legislation with the multilateral rules are part-timers who cannot (by reason of the agency design) spend the time needed to discuss similar issues with the attention they undeniably deserve. Alliances on similar grounds are feasible. Who could argue against proposals in favour of rationalizing the process even further? The EU, for example, did advance originally some far-fetching proposals like staffing Panels with permanent Panelists, only to withdraw them later. Actively supporting similar proposals is in the interests of smaller players who should be striving for levelling the field in the adjudication process (and the corresponding diminishing of bargaining power). Surprisingly, developing countries have remained silent on similar scores. And yet, there are reasons to believe that rationalizing the process will remove arguments from those obstructing compliance. It is one thing to oppose implementation of unreasonable reports; it is totally different to oppose reports that reflect common sense. Some will argue that no disaster has occurred and there is no problem to fix. Of course, it is all a matter of appreciation and if by “disaster” we understand a wto Member walking out in protest, or refusal to comply because of poor quality of reports, or collective action against a judgment,59 then disaster 59

We came close to this though, at the aftermath of the reports on the possibility for an amicus curiae to communicate its views to a wto adjudicating body; see P.C. Mavroidis, “Amicus Curiae Briefs Before the wto: Much Ado About Nothing”, in: A. von Bogdandy, P.C. Mavroidis and Y. Meny (eds.), European Integration and International Co-ordination: Studies in Transnational Economic Law in honour of Claus-Dieter Ehlermann (Leiden: Kluwer Law International, 2004), 317–330.

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has not happened as yet. But there is absolutely no need to wait for a disaster to happen to fix problems, for if it does happen then maybe it is too late to fix it anyway. There is still hope, at the moment of writing, that the agency design will find its way in the on-going Doha round. In this respect, the non-­ conclusion of the round is probably a blessing.

Chapter 8

The Right to Regulate in International Investment Law and the Law of State Responsibility: a Hohfeldian Approach Charalampos Giannakopoulos* i

Introduction

The importance of the right to regulate in international investment law has been increasing steadily over time. The right to regulate is often seen as a State response to expansive interpretations of international investment agreement (iia) provisions by arbitral tribunals and to an ever-growing number of investor claims filed even against traditionally capital exporting States.1 The most recent and perhaps most emphatic formal “recognition” of the right to regulate to-date, can be seen in the 2016 Comprehensive Economic and Trade Agreement (ceta) between the European Union (EU) and Canada. Yet, despite its increasing importance in the discourse of international investment law, the right to regulate is undertheorized and its nature remains somewhat of a mystery. Often, references to the right to regulate are limited to general statements that: there exists a domain of State regulation where compensation is not owed to the investor even if the latter suffers losses because of it; a balance must be found between the State’s need to regulate for the public interest and investment protection; strengthening the right to regulate will reduce arbitrary interpretations by tribunals, will foster legal certainty, and will lead to an overall more balanced regime. * I would like to thank the editors for the opportunity to contribute to this volume, and the anonymous reviewers for their comments. A substantial part of the research for this chapter was conducted while I was a Grotius Research Scholar at the University of Michigan. I would like to thank the law school, my fellow scholars, and in particular Professor Steven Ratner, for creating a hospitable and academically stimulating environment. The usual disclaimer applies. 1 unctad, “World Investment Report 2016 – Investor Nationality: Policy Challenges”, (unctad, 2016), available at: (last ­accessed on 1 March 2018), at 104 et seq.; unctad, “Investor-State Dispute Settlement: Review of Developments in 2015 – Issue Note No. 2”, (unctad, June 2016), available at: (last accessed on 1 March 2018), at 2 et seq. © koninklijke brill nv, leiden, ���9 | doi:10.1163/9789004390485_009

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In light of this, the aim of this contribution is two-fold. First, it seeks to theorise the concept of a right to regulate in international law and international investment law. Second, it seeks to assess the ways in which the right to regulate may be employed in the process of legal argumentation and to ascertain the implications that the invocation of that right has for the State’s international responsibility. Because there exists no single idea or concept of the right to ­regulate, the primary analytical tool that will be used to conceptualise it is Wesley Newcomb Hohfeld’s seminal analysis of the web of jural relations that arise by the use of the single term “right”. The chapter proceeds as follows. Section ii briefly introduces Hohfeld’s work on the various legal relations created by “rights” generally. Section iii conceptualises the right to regulate in general international law as a Hohfeldian legal power. The section argues that this is also the way in which the right to regulate is most commonly understood in iias and in arbitral decisions. At the same time, the section also identifies a conception of the right to regulate taking the form of a Hohfeldian immunity, existing in the non-precluded measures clauses of iias and in the defence of necessity under the law of State responsibility. Section iv identifies a “new narrative” of sorts regarding the right to regulate that conceptualises it as a Hohfeldian claim. Current approaches in literature and the recently adopted Canada-EU ceta (2016) will serve as the background, in order to put some flesh into that emerging and, so far, somewhat vague conception of the right to regulate. The same section also offers three arguments against a general understanding of the right to regulate as a claim. Section v concludes. ii

Hohfeld’s Schematisation of Legal Relations

Hohfeld’s fundamental insight regarding the study of legal relations is summarised in the following statement from his seminal 1913 article published in the Yale Law Journal: One of the greatest hindrances to the clear understanding, the incisive statement, and the true solution of legal problems frequently arises from the express or tacit assumption that all legal relations may be reduced to ‘rights’ and ‘duties’, and that these latter categories are therefore adequate for the purpose of analyzing even the most complex legal interests[.]2 2 W.N. Hohfeld, “Some Fundamental Legal Conceptions as Applied in Judicial Reasoning”, ylj 23 (1913): 16, at 28; see also W.N. Hohfeld, “Fundamental Legal Conceptions as Applied in Judicial Reasoning”, ylj 26 (1917): 710–770.

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Legal relations obtain in binaries; that is, between one party A and another party B.3 A “party” need not necessarily be an individual. Rather, the term “party” is used in a broad sense. A “party” may also include various collectivities, such as groups, juridical entities (e.g. corporations), and bodies (e.g. a corporation’s board of directors; a State’s legislature).4 The broadness of the term is meant to capture the multiplicity of legal relations arising in everyday life. Take, for instance, the State. In international law, the State is viewed as a single entity entering into legal relations with other States or private actors. This is made clear in the rules of State responsibility. Under Article 2 of the ilc Articles on Responsibility of States for Internationally Wrongful Acts (arsiwa), a State is responsible for its internationally wrongful acts, every time it engages in conduct (act or omission) that is attributable to it and constitutes a breach of its international obligations. The ilc’s Commentary to Article 2 also clarifies that, with respect to the question of attribution, “the State is treated as a unity, consistent with its recognition as a single person in international law”.5 Of course, in reality a State never acts of itself, but rather it does so through its various organs and agencies.6 As one moves down to the national level, therefore, the State breaks into multiple moving parts, each with its own rights and obligations under domestic law. For example, in many legal systems organs or other manifestations of the State may be sued directly by individuals and held responsible for their acts or omissions.7 Thus, in a contract between a State entity and an investor, it is normally the State entity itself that is primarily responsible in the event of a breach and not the State, because contractual rights and obligations exist only between the parties to the contract and are governed 3 R.W.M. Dias, Jurisprudence (London: Butterworths, 1985, 5th edn.), at 25 (“a jural relation between two parties should be considered only between them, even though the conduct of one may create another jural relation between him and someone else”). 4 M.H. Kramer, “Rights Without Trimmings”, in: M.H. Kramer, N.E. Simmonds and H. Steiner (eds.), A Debate Over Rights: Philosophical Enquiries (Oxford: Oxford University Press, 1998), 7, at 51. In particular, Kramer argues contra Hohfeld’s position that jural relations cannot produce impacts on groups “that would occur as anything more than the particular impacts on the groups’ members”. The general insight offered by Kramer, is that a group’s legal positions are not reducible to any set of individuals’ legal positions. As Kramer (ibid.) says: “the individuals’ legal positions can all exist even if the group’s positions do not, and the group’s basic positions can abide even if the individuals’ positions have all changed”. 5 ilc, “Report of the International Law Commission Covering its 53rd Session”, A/56/10 (2011) reproduced in: yilc [2001/ii Part Two]: 1, at 35, para. 6 (hereinafter arsiwa Commentaries). 6 Certain Questions Relating to the Settlers of German Origin in the Territory Ceded by Germany to Poland, Advisory Opinion of 10 September 1923, pcij Series B, No. 6, at 22 (“States can act only by and through their agents and representatives”). 7 In turn, State organs and State entities are themselves comprised of individuals who under the State’s domestic law are also the holders of rights and obligations, both among each other and with respect to the State’s citizens.

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by the proper law of the contract.8 It is a different matter altogether if, during an arbitral proceeding, the State is found liable under international law to pay compensation to the investor for the contract breach. That would be because of the international law rules of attribution which, as seen, treat the State as a unity and as a focal point when it comes to violations of international law.9 Seeking to provide some clarity in the use of the general term “right”, Hohfeld distinguished four different conceptions that often tend to be lumped under that term. When we speak of someone’s “right”, he said, we generally mean one of the following four things: – a claim-right (or a right stricto sensu) – a privilege (or a liberty) – a power – an immunity Briefly, a claim-right is an entitlement to certain treatment or conduct; it is a sign that a person ought to behave or not behave in a certain way.10 A privilege or liberty (hereinafter, liberty) is a person’s freedom to do or not do something.11 A power denotes the legal ability of a person to alter the existing legal condition of herself or of another by creating rights or imposing duties.12 Finally, an immunity denotes one’s freedom from the legal power of another; it is a claim that another may not alter one’s existing claim-rights or liberties except under the authority of the law.13 Each of the four conceptions can be a ‘right’ in the broad sense when it occurs in isolation. But, very often, these conceptions bond together, thus

8

J. Crawford, “Investment Arbitration and the ilc Articles on State Responsibility”, icsid Review 25 (2010): 127, at 134. 9 E.g. Bayindir Insaat Turizm Ticaret ve Sanayi A.S. v. Islamic Republic of Pakistan, icsid, Award of of 27 August 2009, icsid Case No. arb/03/29, paras. 111 et seq. Even when treaties allow for the “breaking-up” of the State, the question of attribution is generally not affected. For instance, under Article 25 of the icsid Convention, a State can designate any of its constituent subdivisions or agencies as a respondent during icsid proceedings. Yet, the fact that a State may have utilised this faculty does not prejudice the question of attribution of the acts of the designated subdivision or agency to the State itself. On this, see C. Schreuer et al., The icsid Convention: A Commentary (Cambridge: Cambridge University Press, 2009, 2nd edn.), at 150–152. 10 Hohfeld (1913), supra note 2, at 31–32; see also Dias, supra note 3, at 25. 11 Hohfeld (1913), supra note 2, at 32–33; see also Gl. Williams, “The Concept of Legal Liberty”, clr 56 (1956): 1129, at 1129 (“[a] liberty […], means any occasion on which an act or omission is not a breach of duty”). 12 Hohfeld (1913), supra note 2, at 44–45. 13 Ibid., at 55; see also S. Ratnapala, Jurisprudence (Cambridge: Cambridge University Press, 2009), at 310.

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forming complex – molecular – rights.14 For instance, one’s right to property ­comprises, among others: the right (liberty) to make use of one’s property; the right (claim) to exclude others from using one’s property; the right (immunity) that no-one lacking the legal power to do so divests one of the liberty to make use of one’s property or of the claim-right to exclude others; the right (power) to transfer one’s property to someone else. Accordingly, in most cases, these basic conceptions make sense only when we take account of their jural correlatives, opposites, and contradictories. 1 Jural Correlatives, Jural Opposites, and Jural Contradictories The main idea behind a jural correlative is that, in any legal relation between two parties concerning a single act or omission, the presence of one Hohfeldian conception in one party entails the presence of its correlative in the other party. Thus, if A has a claim-right to receive 10 euros from B, then B has a duty to pay 10 euros to A. If A is at liberty to walk on her property, then B has a noright (i.e. does not have a claim-right) that A does not walk on her property. If A, a police officer, is vested with the power to arrest B upon the commission of a criminal offence, then B is liable to have her legal status changed by being arrested.15 Finally, if A, a diplomat, enjoys immunity from the criminal jurisdiction of the receiving State, then this means the authorities of that State are at a disability to institute criminal proceedings against A. Each of the four basic conceptions also has a jural opposite. A jural opposite denotes the following relationship. In any legal relation between two parties concerning a single act or omission, the presence of one conception in one party means the absence of its jural opposite in the same party. Thus, if A has a claimright to receive 10 euros from B, then A does not have a no-right to be paid 10 euros. And B, who has a duty to pay 10 euros to A, is not at a liberty to pay. The police officer who has the power to arrest me if I break the law, is not at a disability to arrest me. Finally, the diplomat who enjoys immunity from criminal jurisdiction is not liable to be subjected to the criminal jurisdiction of the receiving State. Lastly, there are the jural contradictories. Hohfeld’s work nowhere mentions this type of jural connection. It is a category of legal relations identified 14 15

L. Wenar, “Rights”, in: E.N. Zalta (ed.), The Stanford Encyclopedia of Philosophy (Stanford Encyclopedia of Philosophy Archive, Fall 2015 edition), available at: (last accessed 1 March 2018). As Ratnapala, supra note 13, at 307 observes, a Hohfeldian liability need not necessarily refer to a legal penalty or some other kind of disadvantage. A person may also have a Hohfeldian liability to receive a benefit. For instance, a State has the legal power to grant investors a licence to extract mineral resources from its territory. Investors then have the liability to be granted such a licence (i.e. they are liable to have their legal position changed by the issuance of the licence).

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and developed by later scholars.16 The contradictories complete the picture of jural relations. A jural contradictory indicates that, in any legal relation between two parties concerning a single act or omission, the presence of one ­conception in one party means the absence of the contradictory conception in the other party. For example, if A has a claim-right to receive 10 euros from B, then B does not have a liberty to pay the 10 euros to A. By the same logic, because B has a duty to pay the money, A does not have a no-right to be paid. The police officer has the power to arrest me if I break the law, therefore I do not enjoy an immunity from being arrested for breaking the law.17 And, if I am thus liable to be arrested, it must mean that the police officer is not at a legal disability to arrest me. The Hohfeldian jural relations are presented below in tabular form. List of Hohfeldian jural relations Jural correlatives

Jural opposites

If A has a …

If A has a …

claim-right liberty power immunity

Then B has a… duty no-right liability disability

claim-right liberty power immunity

Jural contradictories Then A does not have a … no-right duty disability liability

If A has a …

Then B does not have a …

claim-right duty power liability

liberty no-right immunity disability

2 The Interconnectedness of Jural Relations Before proceeding with the application of the Hohfeldian insight to the right to regulate, it should be born in mind that all the jural relations identified are interconnected. The concepts of “claim-right”, “duty”, “liberty” and “no-right” are fundamentally connected with each other, in the sense that the existence of one brings about the existence of the others; and the same applies for the concepts of “power”, “liability”, “immunity” and “disability”.18 But these two groupings are also connected by the dimension of time. Dias introduced the temporal relation between the first grouping (i.e. “claim-right”, 16 17

E.g. Williams, supra note 11, at 1135 et seq. “Immunity” is here used in a broad understanding of the term. In Hohfeld’s understanding of the term, every disability of a person under the law creates an immunity in another (Ratnapala, supra note 13, at 309). This use of the term “immunity” is not meant to prejudice the more traditional understanding of the term “immunity” under international law as relating to the question of a court’s jurisdiction over an international actor. 18 Ratnapala, supra note 13, at 303.

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“duty”, “liberty” and “no-right”) and the second grouping (i.e. “power”, “liability”, “immunity” and “disability”), by pointing to the fact that the first grouping shows jural relations as they are found presently, whereas the second grouping shows how new claim-rights, duties, liberties and no-rights can be created in the future through the exercise of legal power.19 In this sense, the conceptions in the second grouping are special cases of the conceptions in the first grouping.20 Accordingly, the following relations apply: a legal power is one’s liberty to impose a duty on, or to confer a liberty to, oneself or another; a liability is the no-right that a duty not be imposed on, or a liberty not be conferred to, oneself; an immunity is one’s claim-right that a duty not be imposed on, or a liberty not be conferred to, oneself; and, a disability is one’s duty not to impose a duty on, or confer a liberty to, another.21 With these thoughts in mind, it is now time to theorise the nature of the right to regulate in international investment law. iii

Current Conceptions of the Right to Regulate in General International Law and International Investment Law

The aim of this section is to identify the two main conceptions that the right to regulate takes in international investment law. The first, is the conception of the Hohfeldian legal power. Such understanding of the right to regulate is found in general international law. The second, is the conception of the Hohfeldian immunity. Such understanding can be seen in those iias that contain non-precluded measures clauses in some form or another, as well as in the necessity defence as a circumstance precluding wrongfulness under the customary rules of State responsibility.

19 Dias, supra note 3, at 43–44. 20 Ratnapala, supra note 13, at 310. It seems that Hohfeld was aware of this connection too. See Hohdeld (1913), supra note 2, at 55: Perhaps it will also be plain, from the preliminary outline and from the discussion down to this point, that a power bears the same general contrast to an immunity that a right does to a privilege [i.e. liberty]. A right is one’s affirmative claim against another, and a privilege [i.e. liberty] is one’s freedom from the right or claim of another. Similarly, a power is one’s affirmative ‘control’ over a given legal relation as against another; whereas an immunity is one’s freedom from the legal power or ‘control’ of another as regards some legal relation. 21 Ratnapala, supra note 13, at 311.

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The Right to Regulate as a Legal Power under General International Law In general international law a State’s right to regulate is derived from the concept of jurisdiction.22 A State’s jurisdiction over its territory and over its people in turn derives from the fundamental concept (principle) of State sovereignty.23 The concept of sovereignty denotes a State’s freedom (Hohfeldian liberty) to act within its territory within the constrains prescribed by international law.24 This liberty is also accompanied by (but does not logically depend on) each State’s entitlement (claim-right) in principle that other States will not interfere with the exercise of its sovereignty, and a correlative duty attaching to these States not to interfere in any such way, with respect to matters not regulated by international law.25 So, for example, when the Charter of Economic Rights and Duties of States enshrines, in its Article 1, every State’s “sovereign and inalienable right to choose its economic system as well as its political, social and cultural systems in accordance with the will of its people, without outside interference, coercion or threat in any form whatsoever”,26 it in fact enshrines two logically distinct legal concepts subsumed under the term “right”, as opposed to a single one. On the one hand, it recognises every State’s liberty to choose its economic, political, social and cultural system in accordance with the will of its people and the correlative no-right of other States that the former State will not thus 1

22 23

24

25

26

L.W. Mouyal, International Investment Law and the Right to Regulate: A Human Rights Perspective (Abingdon: Routledge, 2016), at 31. D.W. Bowett, “Jurisdiction: Changing Patterns of Authority over Activities and Resources”, bybil 53 (1982): 1. See also Article 2 of the Charter of Economic Rights and Duties of States, directly linking the right to regulate with the concept of permanent sovereignty over natural resources, in: unga, “Charter of Economic Rights and Duties of States”, A/res/29/3281 (12 December 1974). F.A. Mann, “The Doctrine of Jurisdiction in International Law”, rcadi 111 (1964): 1, at 9: There is, of course, no doubt that, as a matter of internal law, a State is free to legislate in whatever manner and for whatever purpose it chooses. But like all other attributes of sovereignty this liberty is subject to the overriding question of entitlement. The existence in fact or in municipal law of the State’s power to do a particular act does not by any means imply its international right to do so. This principle of non-interference includes: the prohibition of the use of force against the territorial integrity or political independence of any State (Article 2(4) of the Charter of the United Nations, (adopted 26 June 1945, entered into force 24 October 1945), 1 unts xvi); the prohibition of intervention, in a dictatorial way, in the internal affairs of a State (see Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. usa) (Merits), Judgment of 27 June 1986, [1986] icj Rep. 14, para. 205). Charter of Economic Rights and Duties of States, supra note 23.

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choose its economic, political, social and cultural governance. On the other hand, it recognises that every State has a claim-right, and other States a correlative duty, not to be coerced, threatened, or interfered with, in the exercise of the aforementioned liberty. To note, however, that upon closer inspection the liberties just identified as emanating from State sovereignty are also Hohfeldian legal powers. Recall that, in Hohfeld’s scheme, a power is a special case of a liberty denoting one’s legal ability to alter the existing legal condition of others by creating rights, imposing duties, or conferring liberties or powers. That is precisely what the principle of sovereignty does through the concept of jurisdiction in its various types (i.e. prescriptive, adjudicative, enforcement27). The right to regulate is but a manifestation of the State’s jurisdictional powers,28 meaning that the commonplace understanding of the right to regulate under international law is one that conceptualises it as a Hohfeldian legal power. Since international investment law is a sub-field of international law, it follows that the commonplace understanding of the right to regulate therein should likewise be one of a legal power. It is possible to identify at least three places where a default conceptualisation of the right to regulate as a legal power can be seen in iias. These are: in treaty preambles; in provisions protecting investors from expropriatory measures; and, in the fair and equitable treatment standard (and in the concept of the investor’s legitimate expectations in particular). A Treaty Preambles It is not uncommon for States to include references to the right to regulate in the preambles of their iias. Such references vary. At times, they may be direct and explicit in mentioning this right. The Australia-China Free Trade Agreement (fta) (2015) is a good example. Its preamble explicitly refers to the “rights of [the] governments to regulate in order to meet national policy objectives, and to preserve their flexibility to safeguard public welfare”. Other times, the references may be indirect, mentioning certain facets or manifestations of the right to regulate. For instance, nafta’s preamble refers to the contracting Parties’ resolve to “preserve their flexibility to safeguard the public welfare”, whereas the preamble of the bleu-Republic of Korea Bilateral Investment Treaty (bit) (2006) focuses specifically on the contracting Parties’ right to determine their own policies with respect to the protection of labour and the environment.29 27 A. Mills, “Rethinking Jurisdiction in International Law”, bybil 84 (2014): 187, at 194–195. 28 Mann, supra note 24, at 13. To note, J.R. Morss, “The Legal Relations of Collectives: Belated Insights from Hohfeld”, ljil 22 (2009): 289, at 299, has argued similarly for the related international law State “right” to self-determination. 29 In the French original: “Reconnaissant que chaque Partie contractante a le droit de fixer son propre niveau de protection de l’environnement, de définir ses politiques et priorités

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By incorporating this and similar language to the preambles of their iias, States indicate that they have multiple goals in mind when signing such agreements. They send a clear message to arbitral tribunals that investment protection is not the sole or even the primary goal of the treaty, but rather that ­investment policy objectives ought to be achieved in a manner that is compatible with other public policy objectives. Under the general rule of interpretation enshrined in Article 31(1) of the ­Vienna Convention on the Law of Treaties (vclt),30 “a treaty shall be interpreted in good faith in accordance to the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”. The usefulness of the preamble is two-fold in light of this rule. First, it forms part of a treaty’s context which the vclt makes relevant for purposes of interpretation.31 Second, a treaty’s preamble is the place where adjudicators would often search for the treaty’s object and purpose.32 The object and purpose of a treaty is often used to pinpoint the ordinary meaning that should be given to the terms of the treaty in instances of textual ambiguity or normative disagreement.33 In short, recognising the right to regulate in a treaty’s preamble should give the decision-maker a principled interpretive stance when ascertaining the legal rights and obligations of the disputing parties in hard cases.34 That notwithstanding, because treaty preambles do not create binding substantive obligations but merely offer interpretive guidance to decision-makers, the impact in practice of the recognition of the legal power to regulate in treaty preambles is bound to be somewhat limited.

en matière de développement et ses propres normes de protection du travail, ainsi que d’adopter ou de modifier en conséquence sa législation en matière d’environnement et de travail”. 30 Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980), 1155 unts 331 (hereinafter vclt). 31 Article 31(2) vclt. 32 E.g. Gabcíkovo-Nagymaros Case (Hungary/Slovakia), Judgment of 25 September 1997, [2007] icj Rep. 7, para. 15; Dispute Regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Judgment of 13 July 2009, [2009] icj Rep. 213, paras. 68 and 79. In the investment context, see sgs Société Générale de Surveillance S.A. v. Philippines, icsid, Decision on Jurisdiction of 29 January 2004, icsid Case No. arb/02/6, para. 116; Joseph Charles Lemire v. Ukraine, icsid, Decision on Jurisdiction and Liability of 14 January 2010, icsid Case No. arb/06/18, para. 272. 33 For instance, see the use of object and purpose by the icj in determining the meaning and scope of the term “comercio” in Dispute Regarding Navigational and Related Rights, supra note 32, paras. 66–71. 34 E.g. Joseph Charles Lemire v. Ukraine, supra note 32, paras. 272–273.

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B Protection from Expropriation Provisions Expropriation provisions are often viewed as guarantees put in place for the benefit of the investor. These provisions typically protect investors from undue State interference by providing that private property may not be subjected to expropriation or to measures tantamount to an expropriation, unless such measures are taken by the State for the public interest, under due process of law, and are accompanied by the payment of compensation. This is, by and large, an accurate understanding of expropriation provisions in iias. But, it should not detract from the fact that, in their current form, provisions protecting investors from expropriation are also indicative of the host State’s right to regulate. Indeed, international law has long recognised in some form or another the State’s legal power to expropriate private property for reasons of public interest or public utility.35 In the Norwegian Shipowners’ Claims case the arbitral tribunal made direct reference to: the power of a sovereign state to expropriate, take or authorize the taking of any property within its jurisdiction which may be required for the ‘public good’ or for the ‘general welfare’.36 The power to expropriate is regarded as a fundamental one, having been linked by Bin Cheng to the general principle of the self-preservation of the State.37 Certainly, the scope of the State’s power to expropriate has not been entirely consistent throughout the history of international law. It has been more or less constrained depending on the worldview of each particular State or group of States. One has but to compare Article 2(c) of the Charter of Economic Rights and Duties of States, which mandates that expropriation must be accompanied by the payment of “appropriate” compensation and makes no reference to any guarantees pertaining to due process and non-discrimination that ought to be afforded to foreign investors;38 with Article 6 of the US Model bit (2012), which mandates the payment of “prompt, adequate, and effective” compensation, and makes explicit reference to non-discrimination and due process 35 36 37 38

E.g. R. Higgins, “The Taking of Property by the State: Recent Developments in International Law”, rcadi 176 (1982): 259, at 298; R. Dolzer and Chr. Schreuer, Principles of International Investment Law (Oxford: Oxford University Press, 2012, 2nd edn.), at 98 et seq. Norwegian Shipowners’ Claims (Norway v. usa), Arbitral tribunal, Award of 13 October 1922, riaa 1 (1922): 307, at 332 (emphasis added). B. Cheng, General Principles of Law as Applied by International Courts and Tribunals (London: Stevens and Sons Ltd., 1953), Chapter 1. Charter of Economic Rights and Duties of States, supra note 23.

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guarantees to be afforded to foreign investors, as conditions for the lawfulness of the expropriation. Yet, those differences of scope do not affect the character of the power to expropriate as such and as a direct manifestation of what is now commonly referred to as the State’s general right to regulate, emanating from the latter’s sovereignty. Applying Hohfeld’s scheme, a typical expropriation provision brings about the following jural relations. It recognises, first and foremost, the investor’s international law claim-right that her property will not be taken unless certain specific conditions are met by the expropriating State. The State therefore has the correlative duty not to expropriate the investor’s property unless those conditions are fulfilled. Secondly, the provision is an indirect recognition of the State’s power to expropriate, albeit prima facie limited by its aforementioned duty to fulfil certain conditions. Provided that the State exercises its power to expropriate lawfully, the investor is liable to have her property alienated and has no claim-right (no-right) available to her as a matter of principle to challenge the expropriatory measure (in other words, the investor does not enjoy an immunity against having her property taken). More complex questions arise when the expropriation is indirect rather than direct. An indirect expropriation does not involve a formal transfer of title or an outright seizure of assets. A typical claim for indirect expropriation will involve the investor’s allegation that, through some general legislative measure or administrative decree, the host State has in fact brought about a state of affairs to the investment that is tantamount to an expropriation. Due to their nature, indirect expropriations bring into particular focus the tension between the two values at issue, namely the State’s power to regulate and the investor’s claim-rights under the iia not to be subjected to unfair treatment or disguised arbitrary takings. The question thus becomes how to best balance these two competing “rights”, in the broad sense. Tribunals have used several tests to strike that balance in each case.39 These include: the effect of the State measure to the specific rights that the investor held, or to the value and economic benefit of the investment;40 the extent to which the investor’s legitimate and reasonable expectations have been 39 For an overview of these, see Dolzer and Schreuer, supra note 35, at 101 et seq. 40 E.g., see: Tokios Tokelés v. Ukraine, icsid, Award of 26 July 2007, icsid Case No. arb/02/18, para. 120; Consortium rfcc v. Royaume du Maroc, icsid, Award of 22 December 2003, icsid Case No. arb/00/6, para. 69; cms Gas Transmission Company v. Argentina, Award of 12 May 2005, icsid Case No. arb/01/8, paras. 262–263; Telenor Mobile Communications A.S. v. Hungary, icsid, Award of 13 September 2006, icsid Case No. arb/04/15, paras. 63–67; Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, icsid, Award of 29 May 2003, icsid Case No. arb (AF)/00/2, para. 116.

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t­ rampled by the State measure;41 the level of control that the investor retains over the investment following State action;42 the duration of the State measure and the extent to which it has caused a lasting interference with the rights of the investor;43 though, most tribunals seem to have adopted a combination of all the above. In most recent iias, States have sought to offer arbitral tribunals relevant interpretive guidance for this type of situations. Such interpretive guidance has principally taken the form of a strong reaffirmation of the State’s power to regulate, though, again, this has taken various forms in practice. Some iias simply provide that such factors as the economic effect of the State’s measures on the investment, the investor’s expectations, the character of the State’s action (e.g. whether it is non-discriminatory), or its objective (for instance, whether it is taken for the protection of the public welfare, safety, health, or the environment), shall be relevant considerations for the tribunal to take into account in balancing the competing values at issue.44 Conversely, other iias have been 41

Though the degree to which the investor’s expectations may be dispositive varies significantly. For instance, compare: Metalclad Corporation v. The United Mexican States, icsid, Award of 30 August 2000, icsid Case No. arb (AF)/00/2, para. 103: Thus, expropriation under nafta includes not only open, deliberate and acknowledged takings of property, such as outright seizure or formal or obligatory transfer of title in favour of the host State, but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host State; with the much more deferential and precise, Methanex Corporation v. United States of America, uncitral, Final Award on Jurisdiction and Merits of 3 August 2005, reproduced in: ilm 44 (2005): 1345, Part iv, Chapter D, para. 7: But as a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation. 42 E.g. see: Azurix Corp. v. Argentina, icsid, Award of 14 July 2006, icsid Case No. arb/01/12, para. 322; LG&E v. Argentina, icsid, Decision on Liability of 3 October 2006, icsid Case No. arb/02/1, paras. 188 and 191. 43 E.g. see: S.D. Myers, Inc. v. Canada, uncitral, Partial Award of 13 November 2000, paras. 283–284, finding against the investor on the basis that an expropriation usually amounts to a lasting removal of the owner’s ability to make use of its economic rights, whereas the closing of the Canadian border in that case was temporary; Cargill, Incorporated v. United Mexican States, icsid, Award of 18 September 2009, icsid Case No. arb(AF)/05/2, paras. 370–377. 44 E.g., Annex 10 of the 2011 Comprehensive Economic Partnership Agreement between Japan and the Republic of India (India-Japan cepa) (adopted 16 February 2011, entered

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more explicit in clarifying that, as a matter of principle, non-discriminatory measures taken by the State in good faith and for a legitimate public welfare objective cannot constitute an indirect expropriation.45 In both variations, the State’s Hohfeldian power to regulate is affirmed, though in each case it is conditioned upon the fulfilment of certain duties by the State (i.e. taking into account the investor’s expectations and the economic effect of the measures to the investment; acting out of a concern for the public interest and in a non-discriminatory way). These duties simultaneously act as potential defences for the investor during arbitral proceedings, since they must be thought to correlate to the investor’s claim-right that they be fulfilled at all times and to a sufficient degree. That notwithstanding, the two variations of the indirect expropriation clause mentioned above differ in that the latter type of treaty formulations is more deferential to the State and thus more restrictive of a tribunal’s discretion in balancing the relevant factors. C fet and the Protection of the Investor’s Legitimate Expectations Moving on to the third way in which the right to regulate manifests as a Hohfeldian legal power in international investment law, we come across the fair and equitable treatment (fet) obligation; and, in particular, the concept or principle of the protection of the investor’s reasonable and legitimate expectations. The protection of the investor’s reasonable and legitimate expectations is now generally regarded as inherent to this standard of treatment. Though fet is quite clearly framed as a duty owed to the foreign investor, the principle of legitimate expectations, as interpreted by arbitral tribunals, does incorporate some version of the State’s right to regulate. The basic idea is expressed in two ways. The first, is that the foreign investor must be assumed to have been prudent in her choice to invest in a country.46 The investor is taken to have carefully examined the host State’s legal framework, and to have into force 1 August 2011), available at: (last accessed on 1 March 2018). 45 E.g., Annex 12-B of the 2015 People’s Republic of China-Republic of Korea Free Trade Agreement (China-Republic of Korea fta) (adopted 1 June 2015, entered into force 20 December 2015), available at: (last accessed on 1 March 2018); Annex 8-B of the 2014 Free Trade Agreement between Canada and the Republic of Korea (Canada-Republic of Korea fta) (adopted 22 September 2014, entered into force 1 January 2015), available at: (last accessed on 1 March 2018). 46 E.g. mtd Equity Sdn. Bhd. and mtd Chile S.A. v. Chile, icsid, Award of 25 May 2004, icsid Case No. arb/01/7, paras. 167 and 178; in the past, see Oscar Chinn Case (UK v. Belgium), Judgment of 12 December 1934, pcij Series A/B, No. 63, at 84.

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a­ ccepted it, as it stood at the time the investment was acquired.47 The second, is that the investor cannot legitimately claim that the legal framework of the host State, or that the conditions of competition in the host State, will forever remain unchanged or that they will never affect her interests in a negative way.48 The following quoted statement from Parkerings v Lithuania ideally summarises these two positions as a statement of general principle: It is each State’s undeniable right and privilege to exercise its sovereign legislative power. A State has the right to enact, modify or cancel a law at its own discretion. Save for the existence of an agreement, in the form of a stabilisation clause or otherwise, there is nothing objectionable about the amendment brought to the regulatory framework existing at the time an investor made its investment. As a matter of fact, any businessman or investor knows that laws will evolve over time. What is prohibited is for a State to act unfairly, unreasonably or inequitably in the exercise of its legislative power.49 Seeking to flesh out a similar principled position, the tribunal in El Paso v ­Argentina took the view that measures would not exceed the normal regulatory powers of a State, and therefore would not violate the legitimate expectations of the investor, when they fall within an “acceptable margin of change”.50 This statement introduces into the fet standard an implicit benchmark of acceptable host State regulation, and a balancing exercise between the interests of the State or the community and those of the foreign investor as the test to identify that benchmark. The tribunal in Total v Argentina made the existence of such a test quite explicit, when saying that:

47 48 49

50

Mondev International Ltd. v. United States of America, icsid, Award of 11 October 2002, icsid Case No. arb(AF)/99/2, para. 156; Joseph Charles Lemire v. Ukraine, supra note 32, paras. 265 et seq. and 285. Oscar Chinn Case, supra note 46, at 84. Parkerings-Compagniet AS v. Lithuania, icsid, Award of 11 September 2007, icsid Case No. arb/05/8, para. 332 (emphasis in original). Later in the judgment (ibid., para. 333), the tribunal adds: “The investor will have a right of protection of its legitimate expectations provided it exercised due diligence and that its legitimate expectations were reasonable in light of the circumstances”. For similar approaches, see also: BG Group Plc. v. Argentina, uncitral, Final Award of 24 December 2007, para. 298; awg Group Ltd. v. Argentina, uncitral, Decision on Liability of 30 July 2010, paras. 236–238. El Paso Energy International Company v. Argentina, icsid, Award of 31 October 2011, icsid Case No. arb/03/15, para. 402.

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[T]he host State’s right to regulate domestic matters in the public interest has to be taken into consideration as well. The circumstances and reasons (importance and urgency of the public need pursued) for carrying out a change impacting negatively on a foreign ­investor’s operations on the one hand, and the seriousness of the prejudice caused on the other hand, compared in the light of a standard of reasonableness and proportionality are relevant. The determination of a breach of the [fet] standard requires, therefore, ‘a weighing of the Claimant’s reasonable and legitimate expectations on the one hand and the Respondent’s legitimate regulatory interest on the other’.51 Determining where the exact line is to be drawn in each case between legitimate regulation and a frustration of legitimate expectations is of course a difficult question to be answered in the abstract. That is because a good deal of the final determination may depend on context. States take regulatory measures for various reasons; it may be, for instance, because immediate action must be taken in a time of crisis or emergency. In that case, the State’s margin of regulation will be wider, but may end up being more restricted again when the state of emergency has passed.52 The State’s margin may also be cast wide even in more mundane areas of State regulation, for instance in situations where: it is common knowledge that frequent policy changes occur;53 it is common knowledge that States tend to regulate heavily in a particular area;54 it is reasonable for the investor to expect progressively heavier regulation in her business sector.55 51

Total S.A. v. Argentina, icsid, Decision on Liability of 27 December 2010, icsid Case No. arb/04/01, para. 123 (emphases added and footnotes omitted); see also ibid., para. 164. 52 E.g. edf International S.A., saur International S.A. and León Participaciones Argentinas S.A. v. Argentina, icsid, Award of 11 June 2012, icsid Case No. arb/03/23, paras. 1004– 1005; awg Group Ltd. v. Argentina, supra note 49, paras. 237–238. 53 Marvin Roy Feldman Karpa v. United Mexican States, icsid, Award of 16 December 2002, icsid Case No. arb(AF)/99/1, para. 113: Unfortunately, tax authorities in most countries do not always act in a consistent and predictable way. […] As in most tax regimes, the tax laws are used as instruments of public policy as well as fiscal policy, and certain taxpayers are inevitably favored, with other less favored or even disadvantaged. 54 E.g. Joseph Charles Lemire v. Ukraine, supra note 32, paras. 505–506, reasoning that the desire to protect Ukrainian music culture was not unique to Ukraine; Plama Consortium Limited v. Bulgaria, icsid, Award of 27 August 2008, icsid Case No. arb/03/24, para. 269, more generally expressing the view that a State’s law cannot be found contrary to fet if it is consistent with what other States do. 55 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay ( formerly ftr Holding SA, Philip Morris Products S.A. and Abal

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Thus, certain limitations are placed on the State when exercising its legal power to regulate. These limitations can be translated in the language of concrete legal duties, stemming from the State’s duty not to frustrate legitimate expectations, which in turn comes under the more general international legal duty to accord fet to covered investors. These limitations/duties come about in practice not as a result of logical necessity, but rather follow from an, often implicit, moral interpretation of the concept of legitimate expectations. Similarly, the latter concept is a duty not because of logical necessity either, but rather because of a certain moral understanding of the principle of fairness – under the fet standard – that attaches a degree of normative significance to the realisation that preventable harm should as far as possible be avoided, or to the values of predictability and legal certainty which mandate that individuals should be able to plan their life.56 In other words, characterising a legal concept as a (Hohfeldian) claim-right, duty, or power, and so on, does not also determine the question of that concept’s scope of application. The extent to which, say, a legal power ought to be properly seen as completely unrestricted, or rather as restricted by way of attached duties or disabilities of the power-holder, is largely a matter of interpretation and not of Hohfeldian logic.57 The same applies with respect to the balance between the State right (power) to regulate and the State duty not to frustrate the investor’s expectations. That notwithstanding, a modicum of commonality can be discerned, for several tribunals have accepted that not all types of investor expectations and not all sorts of investor interests will suffice. Rather, there seems to be ­agreement that, at the very minimum, protected expectations must be ­reasonable and

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­ ermanos S.A. v. Oriental Republic of Uruguay), icsid, Award of 8 July 2016, icsid Case H No. arb/10/7, paras. 429–430: Manufacturers and distributors of harmful products such as cigarettes can have no expectation that new and more onerous regulations will not be imposed, and certainly no commitments of any kind were given by Uruguay to the Claimants or (as far as the record shows) to anyone else. On the contrary, in light of widely accepted articulations of international concern for the harmful effect of tobacco, the expectation could only have been of progressively more stringent regulation of the sale and use of tobacco products. See S. Schønberg, Legitimate Expectations in Administrative Law (Oxford: Oxford University Press, 2000, reprint 2003), Chapter 1, describing the theories behind these two considerations as, respectively, the (detrimental) reliance and the rule of law theory of legitimate expectations. Hohdeld (1913), supra note 2, at 36: [A] privilege or liberty to deal with others at will might very conceivably exist without any peculiar concomitant rights against ‘third parties’ as regards certain kinds of interference. Whether there should be such concomitant rights (or claims) is ultimately a ­question of justice and policy; and it should be considered, as such, on its merits.

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legitimate. Thus, for instance: protected expectations are more likely to be created when concrete rights of the investor under the law of the host State are taken away, as opposed to when mere interests of the investor are affected;58 and assurances given by the host State create protected expectations when they are specific and concrete rather than general and abstract, and when they have been instrumental in inducing the investor to invest in the State.59 More generally, protected expectations may also be created by the belief that the State will utilize its regulatory machinery in a principled manner, so that expectations would be trampled by treatment that is grossly arbitrary and in contravention to the rule of law, or constitutes a denial of justice.60 These, and similar, considerations have gradually made their way into iias, thus constituting formal treaty law. Recent iias are more likely to qualify the extent of their fet obligations and, in the process, to qualify the extent of the investors’ reasonable and legitimate expectations that may be the subject of protection. The State duties in this respect may be qualified in terms of their content (specifying what the fet standard includes: e.g. not to deny justice),61 or in terms of their scope (clarifying what the fet standard does not include: e.g. a duty akin to a stabilisation clause for the State’s entire regulatory framework).62 Other iias go a step further and include an exhaustive list 58 E.g. Glamis Gold, Ltd. v. The United States of America, uncitral, Award of 8 June 2009, paras. 620–621; mtd Equity Sdn. Bhd. and mtd Chile S.A. v. Chile, icsid, Decision on Annulment of 21 March 2007, icsid Case No. arb/01/7, paras. 66–67; see also Z. Douglas, “Property, Investment, and the Scope of Investment Protection Obligations”, in: Z. Douglas, J. Pauwelyn and J.E. Viñuales (eds.), The Foundations of International Investment Law: Bringing Theory into Practice (Oxford: Oxford University Press, 2014), 363, at 398 et seq. 59 E.g. Glamis Gold, Ltd. v. The United States of America, supra note 58, paras. 620–621; International Thunderbird Gaming Corporation v. The United Mexican States, uncitral, Award of 26 January 2006, paras. 147–148; Total S.A. v. Argentina, supra note 51, para. 121; see also Oscar Chinn Case, supra note 46, Dissenting Opinion of Sir Cecil Hurst, at 119: “[…] if a State is subject to engagement to do or not to do a certain thing, there cannot be read into it a provision that for short periods there shall be liberty to violate the engagement”. 60 E.g. Waste Management, Inc. v. United Mexican States, icsid, Award of 30 April 2004, icsid Case No. arb(AF)/00/3, para. 98; Mondev International Ltd. v. United States of America, supra note 47, para. 127; Elettronica Sicula S.p.A. (elsi) (usa v. Italy), Judgment of 20 July 1989, [1989] icj Rep. 15, para. 128. 61 E.g. Article 11.5 of the 2014 Free Trade Agreement between Australia and the Republic of Korea (Australia-Republic of Korea fta) (adopted 8 April 2014, entered into force 12 December 2014), available at: (last accessed on 1 March 2018); Article 14 of the 2007 Investment Agreement for the comesa Common Investment Area (comesa Investment Agreement) (adopted 23 May 2007, not yet in force), available at: (last accessed on 1 March 2018). 62 E.g. Article 4 of the 2014 Agreement for the Reciprocal Promotion and Protection of Investments between Colombia and France (Colombia-France bit) (adopted 10 July 2014,

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of specific duties assumed by the contracting Parties under the umbrella of the fet standard.63 The Canada-EU ceta (2016) also follows this trend and combines an exhaustive listing with a strong reaffirmation of the contracting Parties’ right to regulate in order to achieve legitimate policy objectives.64 The Right to Regulate as an Immunity: Non-precluded Measures Clauses and the Necessity Defence There is another form that the right to regulate takes in international investment law. That is the form of the Hohfeldian immunity. Before going any further, however, it should be clarified that the two instances of the right to regulate qua immunity described below do not affect the general nature of the right as a legal power. The two Hohfeldian conceptions can coexist in the same person (here, the State). The inconsistency is only between a power and a disability, and between an immunity and a liability (see, Hohfeldian jural opposites). 2

A Non-precluded Measures Clauses in iias The first way in which the right to regulate operates as an immunity in international investment law is through a series of exceptions to the substantive obligations that the contracting Parties have assumed under iias. Such exceptions cover a variety of issues, ranging from the State’s essential security interests,65 to matters pertaining to culture,66 public order,67 public health,68

63 64

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not yet in force), available at: (last accessed on 1 March 2018). E.g. Article 2.4 of the 2018 EU-Singapore Investment Protection Agreement (ipa) (adopted 19 October 2018, not yet in force), available at: (last accessed on 1 December 2018). See, Articles 8.9 and 8.10 of the 2016 EU-Canada Comprehensive Economic and Trade Agreement (Canada-EU ceta) (adopted 30 October 2016, entered into force provisionally 21 September 2017), available at: (last accessed on 1 March 2018). E.g. Article 201 of the 2008 Free Trade Agreement between the Government of New Zealand and the Government of the People’s Republic of China (China-New Zealand fta) (adopted 7 April 2008, entered into force 1 October 2008), available at: (last accessed on 1 March 2018). E.g. Article 1(6) of the 2003 Agreement between France and Uganda on the Reciprocal Promotion and Protection of Investments (France-Uganda bit) (adopted 3 January 2003, entered into force 20 December 2014), available at: (last accessed on 1 March 2018). E.g. Article xi of the 1991 Treaty between United States of America and Argentina Concerning the Reciprocal Encouragement and Protection of Investment (Argentina-US bit)) (adopted 14 November 1991, entered into force 20 October 1994), available at: (last accessed on 1 March 2018). E.g. Article 28.3 of the 2016 Canada-EU ceta, supra note 64.

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or the environment.69 I aim to examine them all here under the umbrella label of “non-precluded measures clauses”. This particular manifestation of the State’s power to regulate ought to be properly described as a Hohfeldian immunity. As discussed in this section, the immunity acts as an exception from the force of a general rule and it is a special case of a claim-right – in this instance, the claim-right is vested in the State. An immunity denotes one’s freedom from the legal power of another. In the case of non-precluded measures clauses, the freedom attaches to the State and exists against the legal power of investment tribunals to hold the State liable under international law. With a degree of generalisation and without prejudice to the particular terms used in each iia, the practical effect of these clauses is to give priority to the State’s power to regulate for certain matters, during the balancing of interests test to which a tribunal often resorts in such cases. That is, if a series of measures are properly interpreted to fall within the scope of application of these clauses, then it means that the host State would not be committing an internationally wrongful act in adopting them.70 In other words, the principal function of non-precluded measures clauses is to provide States with a valid justificatory reason, in the form of an exception or defence, during the arbitration of investment claims. As Burke-White and von Staden have argued, when viewed in relation to the substantive claim-rights enjoyed by investors (in particular, the claim-rights to fet and legitimate expectations, but also to the prohibition of indirect expropriation), the practical effect of non-precluded measures clauses is to delineate the contours of these rights, at least in their outer edges.71 Once again, it should be born in mind that affixing a Hohfeldian label to a legal concept, though helpful in terms of illuminating the web of legal relationships that arise under it, does not prejudge the question of interpretation. The fact that a non-precluded measures clause is a Hohfeldian immunity merely tells us that, if the clause is found applicable, a tribunal has no discretion to decide the case either way. Rather, the tribunal has no choice but to reject the investor’s claim because the State was justified in acting the way it did. But, the 69

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E.g. Article 9.8 of the 2015 Free Trade Agreement between the Government of Australia and the Government of the People’s Republic of China (Australia-China fta) (adopted 17 June 2015, entered into force 20 December 2015), available at: (last accessed on 1 March 2018). Continental Casualty Company v. Argentina, icsid, Award of 5 September 2008, icsid Case No. arb/03/9, para. 164; see also W.W. Burke-White and A. von Staden, “Investment Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties”, Virgjil 48 (2008): 307, at 386–389. Burke-White and von Staden, supra note 70, at 406–407.

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Hohfeldian label has nothing to say on the matter of the tribunal’s interpretive discretion in determining whether, in the first place, the non-precluded measures clause ought to be found applicable. For instance, it cannot tell us how much deference a tribunal should accord to the State’s own expressed motives behind the measures at issue, or to the State’s own determinations regarding the necessity or suitability of the measures vis-à-vis their purpose. The latter type of questions would instead require a normative argument about the purpose of the iia regime taken as a whole,72 and about the role of arbitral tribunals vis-à-vis other decision-makers within their overall legal-­ political environment.73 In the absence of any specific guidance, such normative argument is left to the decision-maker herself to articulate. It is thus for this reason that often-times non-precluded measures clauses take care to limit tribunals’ interpretive discretion in scrutinising the State’s actions. This again is done in various ways; for instance, drafting the clause in self-judging language will effectively limit a tribunal’s level of scrutiny to a good faith review;74 an alternative is to provide that the State shall not be prevented from adopting or enforcing measures falling within the permissible categories, when those measures are both necessary and do not constitute an arbitrary or unjustifiable discrimination between investments or investors, or a disguised restriction on international trade and investment.75

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G. Letsas, “Strasbourg’s Interpretive Ethic: Lessons for the International Lawyer”, ejil 21 (2010): 509, at 532 et seq. C. Henckels, “Indirect Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and the Standard of Review in Investor-State Arbitration”, jiel 15 (2012): 223, at 241. LG&E v. Argentina, supra note 42, para. 214; Enron Corporation and Ponderosa Assets, L.P. v. Argentina, icsid, Award of 22 May 2007, icsid Case No. arb/01/3, para. 339 (also known as: Enron Creditors Recovery Corp. and Ponderosa Assets, L.P. v. Argentina). For an example of a treaty clause with clear self-judging language, see, Article 18 of the 2005 Treaty between United States of America and Uruguay Concerning the Encouragement and Reciprocal Protection of Investment (US-Uruguay bit) (adopted 4 November 2005, entered into force 31 October 2006), available at: (last accessed on 1 March 2018). See also K.P. Sauvant et al., “The Rise of Self-Judging Essential Security Interest Clauses in International Investment Agreements”, (Columbia fdi Perspectives No.188, 5 December 2016), available at: (last accessed on 1 March 2018), noticing a clear upward trend in recent years in the inclusion of self-judging language in essential security exceptions clauses. E.g. Article 9.8 of the 2015 Australia-China fta, supra note 69.

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B The Defence of Necessity under Customary International Law A special yet limited category of an implicit manifestation of the State’s right to regulate in the form of an immunity is derived not from any particular iia, but rather from customary international law, and from the rules of State ­responsibility in particular. The arsiwa codify the secondary rules of responsibility attaching to a State that has flouted one or several of its international obligations.76 Of relevance for our purposes is the defence of necessity contained in Article 25 of the ilc’s work. Paragraph 1 of Article 25 states the general rule: Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act: (a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and (b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole.77 What the rule denotes is that in situations of necessity the right to regulate can take priority over other obligations. The relevance of the customary law defence of necessity to international investment law has been litigated extensively in a series of cases filed against Argentina following the latter’s financial crisis, leading to a variety of interpretive approaches and to diverging outcomes.78 Issues have arisen in particular regarding the interaction between non-precluded measures clauses in iias and the customary law defence, to the

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arsiwa Commentaries, supra note 5, at 31, para. 1. The remainder of the rule reads thus: 2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if: (a) the international obligation in question excludes the possibility of invoking necessity; or (b) the State has contributed to the situation of necessity. 78 Generally, see J. Kurtz, “Adjudging the Exceptional at International Investment Law: Security, Public Order and Financial Crisis”, iclq 59 (2010): 325; Chr. Binder, “Changed Circumstances in Investment Law: Interfaces between the Law of Treaties and the Law of State Responsibility with a Special Focus on the Argentine Crisis”, in: Chr. Binder et al. (eds.), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford: Oxford University Press, 2009), 608.

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extent that both types of norms make reference to a standard of “necessity” among the conditions for successfully invoking the exception in each case. There have been three rival approaches in arbitral case-law with regards to this issue. These can be summarily stated as: the confluence approach; the lex specialis approach; and, the primary/secondary norms approach.79 Briefly, the confluence approach states that treaty-based necessity defences are tautological to the customary law defence, so that the conditions for successfully invoking the former are essentially the same as those for invoking the latter;80 the lex specialis approach states that the treaty-based defences are special instances of the general defence of necessity under customary law so that, even though primacy should be given to the former in terms of application, the latter still has relevance by retaining some residual scope for application and for providing interpretive guidance;81 finally, the primary/secondary norms approach states that the two defences are different creatures, perform different functions, and are thus in principle unrelated to each other.82 It is not my purpose here to retrace the arguments for or against each of these approaches. Rather, I take the view that it has already been convincingly argued that the primary/secondary norms approach is to be preferred,83 for it is the one that better coheres with our understanding of iia norms as primary norms that delineate the rights and duties of States and investors, as well as with our understanding of the arsiwa as secondary norms governing the modalities of State liability for violating those primary norms.

79 80

81 82

83

For the use of these labels to describe the three approaches, see Kurtz, supra note 78. See Sempra Energy International v. Argentina, icsid, Award of 28 September 2007, icsid Case No. arb/02/16, paras. 375–378; Enron Corporation and Ponderosa Assets, L.P. v. Argentina, supra note 74, paras. 333 and 339; cms Gas Transmission Company v. Argentina, supra note 40, paras. 315–331 (reviewing the defence of necessity under the arsiwa), and 353–378 (reviewing the provision of the Argentina-US bit), with the final analysis on the bit drawing heavily from the elements of the customary law rule on necessity. See LG&E Energy v. Argentina, supra note 42, para. 206; El Paso Energy International Company v. Argentina, supra note 50, para. 613. See cms Gas Transmission Company v. Argentina, icsid, Annulment Decision of 25 ­September 2007, icsid Case No. arb/01/8, paras. 129–136; Sempra Energy International v. Argentina, icsid, Annulment Decision of 29 June 2010, icsid Case No. arb/02/16, paras. 195–208; Continental Casualty Company v. Argentina, supra note 70, paras. 164–167. For instance, Kurtz, supra note 78; Binder, supra note 78; A. Reinisch, “Necessity in Investment Arbitration”, nybil 41 (2010): 137; A.K. Bjorklund, “Emergency Exceptions: State of Necessity and Force Majeure”, in: P. Muchlinski, F. Ortino, and Chr. Schreuer (eds.), The Oxford Handbook of International Investment Law (Oxford: Oxford University Press, 2008), 459, at 498, not taking a clear stance but referring to the cms annulment decision with some approval.

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Thus, the manifestation of the right to regulate in the form of the necessity defence under customary law also constitutes a Hohfeldian immunity. Yet, it differs substantially from its equivalent under iias; it does so, moreover, not only in content but in practical function too. The purpose of the customary law defence is again to provide a valid reason in the form of an exception that gives primacy to the State’s power to regulate when the conditions of Article 25 are fulfilled. But, this time, the reason is not a justification of the fact that the State measure was not internationally wrongful in the first place, but rather it is something akin to an excuse available to the State for having acted in an internationally wrongful way.84 Treating the necessity defence as an excuse is also consistent with the fact that, under Article 27 of the arsiwa, all the permissible defences listed are temporary pleas and do not affect any rights that other States may have under international law to request compensation from the violating State for material loss suffered because of the latter’s acts.85 The above notwithstanding, the practical relevance of the customary law defence of necessity to a host State seeking to defend its regulatory choices would seem to be rather limited. Its nature as a secondary norm whose application is triggered only after a violation of a primary legal obligation has been found, the very strict conditions imposed on the violating State in order to successfully invoke the defence, and the fact that the emphasis is placed by Article 25 on inter-State obligations only, all mean that the customary law defence will not be of practical use to host States for the vast majority of instances of ordinary regulation that may affect foreign investors. Rather, the latter are

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arsiwa Commentaries, supra note 5, at 80, para. 1: The term ‘necessity’ (état de nécessité) is used to denote those exceptional cases where the only way a State can safeguard an essential interest threatened by a grave and imminent peril is, for the time being, not to perform some other international obligation of lesser weight or urgency. Similarly, Oscar Chinn Case, supra note 46, Separate Opinion of M. Anzilotti, at 113 (“[N]ecessity may excuse the non-observance of international obligations”), at 114 (“[N]ecessity […], by definition, implies the impossibility of proceeding by any other method than the one contrary to law”). Generally, on the difference between properly justifying something and simply excusing something see J. Gardner, “Justifications and Reasons”, in: J. Gardner, Offences and Defences: Selected Essays in the Philosophy of Criminal Law (Oxford: Oxford University Press, 2007), 91, at 109–110 (“[T]he need to claim an excuse from one’s actions arises only if one fails to establish a full justification. A fully justified action needs no excuse. So the point cannot be that those who act with excuse act for undefeated reasons, i.e. that it is alright for them to act for those reasons”). V. Lowe, “Precluding Wrongfulness or Responsibility: A Plea for Excuses”, ejil 10 (1999): 405, at 409–411.

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properly addressed by the primary obligations contained in the multitude of iias currently in existence and by other primary norms of international law.86 iv

The (Gradual) Emergence of a New Conception? The Right to Regulate as a Claim-Right

In response to expansive interpretations by arbitral tribunals, and to an evergrowing number of investor claims filed even against traditionally capital exporting countries, many States have in recent years sought to reform the iia regime by various means, including by strengthening the international recognition of their right to regulate. The recently signed Canada-EU ceta (2016) is an instance of States seeking to do exactly that. Alongside States, commentators and civil society representatives have likewise argued in favour of a reinforced right to regulate. There is an argument to be made that, because of this general trend, the right to regulate may be in the process of being gradually reconceptualised and turned into a Hohfeldian claim-right. The aim of this section is to point to some of the shortcomings of such a reconceptualisation. To do this, one would typically have to first discern a more or less common understanding, in State policies, civil society or the investment law literature, about what the right to regulate is supposed to do, so as to see whether such an understanding fits the claim-right reconceptualisation argument. Given that there are no authoritative pronouncements to be found on this issue, this is not a simple task to perform. What I will instead attempt to do here, is to develop a working – and inevitably partial – understanding of what the reinforced right to regulate is hoped to achieve. To do that, the Canada-EU ceta (2016) and recent literature on the right to regulate will be primarily used. Once this task is achieved, and the claim-right reconceptualisation argument rests on firmer ground, I will offer three possible arguments against such a reconceptualisation. 1 The Case of the Canada-EU ceta The Canada-EU ceta was signed at the EU-Canada Summit of 30 October 2016.87 ceta has been characterised as a mixed agreement, meaning that it must go through a series of ratification processes in all EU member States to 86 87

See also arsiwa Commentaries, supra note 5, at 84, para. 21 (“As embodied in article 25, the plea of necessity is not intended to cover conduct which is in principle regulated by the primary obligations”). European Commission, “Press-Release: EU-Canada Summit: Newly Signed Trade Agreement Sets High Standards for Global Trade”, (EU, 30 October 2016), available at: (last accessed on 1 March 2018).

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enter into force. However, following the decision by the European Council and the vote in favour by the European Parliament, the Agreement entered into force provisionally on 21 September 2017, meaning that the majority of it now applies.88 The signing of ceta has been hailed by all contracting Parties as a milestone with respect to a variety of investment-related issues, including with respect to preserving States’ right to regulate. Indeed, there are multiple direct and indirect references in ceta to such a right. To begin with, ceta’s Preamble already contains three direct references to it. It is made clear: first, that ceta’s provisions are designed to preserve the right to regulate; second, that the Parties have the right to regulate in matters of cultural policy; and third, that investment protection under ceta is not meant to undermine the right to regulate in the public interest. Moving on to ceta’s operative part, there are several direct and indirect mentions to the right to regulate in addition to its more common manifestations in the fet,89 expropriation,90 and non-precluded measures provisions.91 Additional references are made, among others, with respect to the use of natural water resources,92 to the interplay between investment and labour standards,93 as well as to investment and environmental standards.94 But the most prominent reference to the right to regulate in terms of investment-related matters comes in Article 8.9 of ceta. In what reads as an umbrella obligation covering the entire investment chapter, paragraph 1 of Article 8.9 states: “For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity” (emphasis added). 88

89 90 91 92 93 94

Council of the European Union, “Council Decision No.2016/2118 of 28 October 2016 of 28 October 2016 on the Signing, on behalf of the Union, and Provisional Application of the Strategic Partnership Agreement between the European Union and its Member States, of the one Part, and Canada, of the Other Part”, [2016] OJ L 329/43 (28 October 2016); European Commission, “Press Release: ceta – A Trade Deal That Sets a New Standard for Global Trade”, (EU, 15 February 2017), available at: (last accessed on 1 March 2018). To note, among the parts of the Agreement that are excluded from provisional application are some substantive investment protections (notably, fet and protection against expropriation), as well as the controversial Investment Court System. Article 8.10 of the 2016 Canada-EU ceta, supra note 64. Ibid., Article 8.12 and Annex 8-A. Ibid., Article 28.3(2). Ibid., Article 1.9. Ibid., Articles 23.2 and 23.4. Ibid., Articles 24.3 and 24.5.

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The second paragraph of Article 8.9, continues: “For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section”. The subsequent two paragraphs seek to further clarify that a State’s decision not to issue, renew or maintain a subsidy may not be regarded in principle as violative of ceta’s investment protection provisions, in particular when the decision is mandated by an international legal obligation of the State or ordered by a competent court, administrative tribunal or other competent authority. The inclusion of the operative provision of Article 8.9 specifically addressing the right to regulate is in line with the EU’s investment policy objectives as expressed in a 2015 EC concept paper addressing the results of a public consultation regarding the, at the time ongoing, EU–US ttip negotiations.95 According to that concept paper, the purpose of the operative provision is to stand in “recognition of the right of domestic authorities to regulate matters within their own borders which exists already under international law” and to set “the right context in which investment protection standards are applied”.96 The inclusion of the right to regulate as a standing principle seems therefore to stem from a more general policy objective to rebalance investment protection policies and to limit the interpretive discretion of arbitral tribunals.97 The question that now arises is what the practical effect, or added value, of this provision is. One needs to tread carefully here to avoid creating a strawman. On the one hand, the text of Article 8.9 merely speaks about “reaffirm[ing]” the right to regulate. In a similar fashion, in the joint interpretive statement of Canada and the EU accompanying the signing of ceta, it is said that ceta “preserves” the ability of governments to regulate.98 This can be taken to sug-

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European Commission, “Concept Paper: Investment in ttip and Beyond – The Path for Reform”, (EU, May 2015), available at: (last accessed on 1 March 2018), at 6. Ibid. E.g. European Commission, “Fact Sheet: Investment Protection and Investor-to-State Dispute Settlement in EU Agreements”, (EU, November 2013), available at: (last accessed on 1 March 2018), at 6. Generally, see C. Titi, “International Investment Law and the European Union: Towards a New Generation of International Investment Agreements”, ejil 26 (2015): 639, at 654 et seq. Council of the European Union, “Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (ceta) between Canada and the European Union and its Member States”, [2017] OJ L 11/3 (14 January 2017).

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gest that ceta does not seek to break away from the power conception of the right to regulate. On the other hand, one also finds, in the Council minutes, statements by EU member-States claiming that ceta “gives to its Parties the right to impose regulations within their territory to achieve legitimate policy objectives”.99 It would seem that this statement regards Article 8.9 of ceta as introducing a previously non-existent right.100 It is therefore at least arguable that the above statement conceptualises the right to regulate in ceta not necessarily as a legal power but rather as akin to a claim-right. This is not a completely unreasonable position to take, since it is quite clear that the EU’s intention has always been for the standalone provision of Article 8.9 to be operative, rather than merely declaratory or interpretive (i.e. as if it were a preambular clause). Thus, it is arguable that at least some international actors may see a strengthened right to regulate as a claim.101 Statements like the above are of course quite clearly linked to a political decision made by a political organ of the EU to sign a treaty and, as such, may not be immediately relevant under the vclt rule for the interpretation of ceta’s provisions. That said, I believe it would be unwise to outright dismiss their potential relevance. For one, they are telling of the way in which the political

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Council of the European Union, “Comprehensive Economic and Trade Agreement (ceta) between Canada, of the one Part, and the European Union and its Member States, of the other Part – Statements to the Council Minutes”, Council Document 13463/1/16 (27 October 2016), available at: (last accessed on 1 March 2018), at 18 (Statement by Poland) (emphasis added). Similarly, in the context of the EU-US ttip negotiations, see European Economic and Social Committee, “The Position of the eesc on Specific Key Issues of the Transatlantic Trade and Investment Partnership (ttip) Negotiations (Own-initiative Opinion)”, [2016] OJ C 487/30 (21 September 2016), paras. 8.2–8.3, making the case that the final ttip text “should guarantee the right of the state to maintain and introduce high standards, in particular for social, environmental and consumer protection while guaranteeing an adequate and legitimate protection of investors from protectionism and discrimination” (emphasis added). 100 See also H. Mann, “The Right of States to Regulate and International Investment Law: A Comment”, in: unctad (ed.), The Development Dimension of fdi: Policy and Rule-Making Perspectives (New York, NY and Geneva: UN, 2003), unctad/ite/iia/2003/4, 211, at 216, 223, arguing that there are trends in trade law that see the right to regulate not as inherent in the concept of State sovereignty, but rather as granted under trade and investment treaties and as something to be exercised only in limited and exceptional circumstances. 101 For an exception, see Swedish National Board of Trade, “‘The Right to Regulate’ in the Trade Agreement between the EU and Canada – and its Implications for the Agreement with the usa” (National Board of Trade of Sweden, 18 August 2015), available at: (last accessed on 1 March 2018), at 9–10.

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and legal discourse on this issue might be framed in the future.102 Secondly, if widespread, they could potentially act as evidence of the Parties’ subsequent agreement regarding the interpretation of the treaty or the application of its provisions, as per Article 31(3)(a) of the vclt. In civil society and in literature, too, the idea that a right to regulate should be recognised to host States,103 or the idea that the new EU iias create a legal right to regulate that takes the form of a claim-right,104 is likewise getting traction. By way of example, in a recently published monograph offering an impressive and nearly exhaustive analysis of current trends in iias and arbitral jurisprudence, Dr Catharine Titi defends the existence of precisely such a claim-right to regulate.105 Titi distinguishes as a matter of principle between the general freedom of a State to regulate (described as the right to regulate lato sensu), and what we may here call for convenience the right to regulate stricto sensu, or the right to regulate proper.106 For Titi, the latter is a “technical term, one that is much narrower in meaning and which should not be 102 For some brief preliminary thoughts on this point, see subsection iv.2.C, below. 103 E.g. G. Becker, “Policies to Promote the Development Dimension of fdi”, in: unctad (ed.), The Development Dimension of fdi: Policy and Rule-Making Perspectives (New York, NY and Geneva: UN, 2003), unctad/ite/iia/2003/4, 141, at 147 (“The right to regulate should be recognized in the interest of both host and home countries, and traders and investors”). But, see S. Lester, “The ‘Right to Regulate’”, (International Economic Law and Policy Blog, 21 July 2015), available at: (last accessed on 1 March 2018); S. Lester, “Talk of a ‘Right to Regulate’ Is Hurting the Trade Debate”, (The Huffington Post, 21 July 2016), available at: (last accessed on 1 March 2018). 104 E.g. C. Titi, “The European Commission’s Approach to the Transatlantic Trade and Investment Partnership (ttip): Investment Standards and International Investment Court System – An Overview of the European Commission’s Draft ttip Text of 16 September 2015” tdm 12(6) (2015): 1. Assessing a proposed operative provision enshrining the right to regulate that is nearly identical to Article 8.9 of ceta, Titi argues (ibid., at 4): This provision is novel for several reasons. Both EU and US investment treaties have addressed concerns for legitimate public policy objectives, such as by including relevant considerations in the preamble or by introducing standard specific exceptions, e.g. clarifying that general regulatory measures taken in order to protect public welfare objectives do not constitute indirect expropriations. However, the scope and function of [this provision] is considerably broader. It is different from a provision in the preamble in that it is not a mere interpretive statement but a provision that sets out a concrete legal right. And it is also different from an exception clause, since this is the rule, not an exception (emphases in original). 105 A. Titi, The Right to Regulate in International Investment Law (Baden-Baden: Nomos and Hart Publishing, 2014). 106 Ibid., at 33.

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confused with the general regulatory capacity [of States]”.107 Accordingly, what the right to regulate proper denotes is, “the legal right exceptionally permitting the host State to regulate in derogation of international commitments it has undertaken by means of an investment agreement without incurring a duty to compensate”.108 If my reading of Titi’s work is correct, then she has conceptualised the right to regulate in its proper sense as primarily a claim coupled with an immunity. Specifically, she takes the view that the right’s purpose is to give a “boost” to the host State’s policy space by entitling it to a certain conduct (i.e. acting contrary to international commitments), which other parties are compelled to accept (i.e. no duty to compensate). Admittedly, this description of the right to regulate proper does sound a lot like an immunity from wrongfulness or liability, similar to the non-precluded measures clauses or to the defences of the arsiwa examined above. But it would be a mistake, I think, to regard Titi’s conception of the right to regulate proper as being exclusively an immunity. An immunity denotes one’s freedom from the legal power of another; in this case, a State’s freedom from the power of tribunals to pronounce the State internationally liable and order the payment of compensation. To be effective, this freedom must be thought to attach to the State’s claim that the legal duty to pay compensation not be imposed on it under certain conditions (hence, the description of the Hohfeldian immunity as a special case of a claim-right). That being so, moreover, the very existence of such an immunity from liability cannot but depend on the logically prior existence of the State’s entitlement at times to act in contravention to its iia commitments. The latter, which forms the core of Titi’s understanding of the right to regulate, is a claim. To conclude, this brief survey has produced the following working understanding of what a reinforced right to regulate is expected to achieve. First, it seeks to safeguard the State’s regulatory space, including by possibly authorising conduct that derogates from other iia commitments. Second, it also seems that the ratio of the reinforced right to regulate is to act as a general knock-down argument in favour of host States during arbitration proceedings. Thus, the right to regulate is conceptualised as being in principle a claim rather 107 Ibid. (footnote omitted). 108 Ibid. (emphases added). This leads Titi later in the book to deny that an act of direct expropriation is an act emanating from the State’s right to regulate, because even a lawful direct expropriation needs to be compensated (ibid., at 149–150). Similarly, see also C. Titi, “Le ‘droit de règlementer’ et les nouveaux accords de l’Union européenne sur l’investissement”, jdi 142 (2015): 39, at 43.

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than a legal power. There are doubts, however, as to whether these are realistic goals to have. The following subsection seeks to offer three arguments in this direction. Three Possible Arguments against a Claim-Right Conception of the Right to Regulate Let us begin with an example from arbitral practice. The investment dispute adc v. Hungary concerned a contract to renovate, construct, and operate two terminals at Budapest’s international airport.109 The investor had successfully finished the necessary constructions and renovations, and was operating the terminal, when a decree issued by the Ministry of Transport resulted in the take-over of all activities related to the operation of the airport. Rebutting the investor’s claim of expropriation, Hungary began by arguing that the claim was “misconceived” as a matter of principle, because it denied its “inherent and essential international law right to ‘regulate its own economy, to enact and modify laws, to secure the proper application of law and to accede to international organizations’”.110 Hungary then went on to also argue that the investor must be assumed to have accepted the risk of being regulated by the host State as part of doing business there.111 The tribunal rejected this argument of principle. Its reply merits a full quotation: 2

The Tribunal cannot accept the Respondent’s position that the actions taken by it against the Claimants were merely an exercise of its rights under international law to regulate its domestic economic and legal affairs. It is the Tribunal’s understanding of the basic international law principles that while a sovereign State possesses the inherent right to regulate its domestic affairs, the exercise of such right is not unlimited and must have its boundaries. […] [T]he rule of law, which includes treaty obligations, provides such boundaries. Therefore, when a State enters into a bilateral investment treaty like the one in this case, it becomes bound by it and the investment-protection obligations it undertook therein must be honoured rather than be ignored by a later argument of the State’s right to regulate.

109 adc Affiliate Limited and adc & admc Management Limited v. Hungary, icsid, Award of 2 October 2006, icsid Case No. arb/03/16. 110 Ibid., para. 384 (emphasis in original). 111 Ibid.

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The related point made by the Respondent that by investing in a host State, the investor assumes the ‘risk’ associated with the State’s regulatory regime is equally unacceptable to the Tribunal. It is one thing to say that an investor shall conduct its business in compliance with the host State’s domestic laws and regulations. It is quite another to imply that the investor must also be ready to accept whatever the host State decides to do to it. […] [H]ad the Claimants ever envisaged the risk of any possible depriving measures, the Tribunal believes that they took that risk with the legitimate and reasonable expectation that they would receive fair treatment and just compensation and not otherwise.112 Hungary’s way of asserting its right to regulate resembles the description of the right as a claim coupled with an immunity. Conversely, the tribunal’s rejection points more to a conception of the right as a Hohfeldian legal power. Filling-in the blanks in the tribunal’s reply, I believe it is possible to discern three types of closely interrelated arguments against an understanding of the right to regulate as a claim-right. I should clarify, however, that I do not mean to suggest in this analysis that the right to regulate in international investment law can never become a claim-right. Rather, I am only arguing that it does not seem to be one in its default understanding and that, if it is ever to become one, there are three principal arguments or concerns that it will have to address. These arguments we may call: the Hohfeldian argument; the doctrinal argument; and the morally oriented argument. A The Hohfeldian Argument: No Right/Duty Correlation The first argument against a general conception of the right to regulate as a claim pertains to the absence of a claim-right/duty correlation. As seen, the most fundamental jural relation is that between one’s claim that certain conduct ought to be, or not be, performed, and another’s correlative duty to perform or not perform it. There are two problems with making the case that there is such a claim-right/duty correlation in a State’s right to regulate under international law. One problem is the identity of the duty-holder. In a triangular relationship – between host State, home State, and investor – created by an iia,113 there can be two possible duty-holders to the host State’s right to regulate: the other Contracting State-Party (home State of investor) or the foreign investor. To be 112 Ibid., paras. 423–424 (emphasis in original). 113 A. Roberts, “Triangular Treaties: The Extent and Limits of Investment Treaty Rights”, hilj 56 (2015): 353.

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of any practical importance, however, the host State’s right cannot correlate to a duty of the other Contracting State-Party to the iia. A host State cannot possibly have a claim against a home State that the former’s right to regulate ought to be respected. The depoliticization of investment disputes, through the r­ emoval of the home State “middle-man”, is after all one of the goals of the iia regime. That leaves only the investor as the potential duty-holder. Regarding the legal relations between an investor and a State, these arise in two levels. First-order relations arise from the fact that an investor has invested in a State, and are governed by that State’s domestic law. Second-order relations arise when the investor makes use of the faculty given by iias to invoke the State’s international responsibility before an arbitral tribunal, and are governed by international law. The right to regulate which is relevant for our purposes exists at the latter level. Moreover, current approaches in literature with respect to the rights and obligations created by iias would seem to indicate that iia provisions create primarily inter-State obligations, with foreign investors being a kind of third-party beneficiaries.114 It is not the case, therefore, that any claim-right granted by an iia to the State will automatically correlate to a duty of the investor. This is not to say that an investor cannot be under a duty to perform certain conduct. But, such a duty would likely be based on the host State’s domestic law and exist as a consequence of the State’s legitimate political authority and general regulatory power. One can imagine for instance a situation where a new law imposes a higher tax rate on a certain category of investors. Hohfeld’s analysis indicates that the affected investors would be liable to pay taxes in the future according to the new rate because the State has exercised a legal power in passing the tax law. A claim-right/duty relation would arise if affected investor A refuses to pay the higher tax, and the State engages its institutional machinery to ensure that the tax be paid by A. A second problem has to do with the specificity of the proposed claim-right to regulate. For a claim-right/duty relation to exist, a sufficiently specific claim must be discerned so that a precise and clearly identifiable duty can also be

114 E.g. Roberts, supra note 113; J.J. Losari and M. Ewing-Chow, “A Clash of Treaties: The Lawfulness of Countermeasures in International Trade Law and International Investment Law”, jwit 16 (2015): 274, at 301–302; M. Paparinskis, “Investment Treaty Arbitration and the (New) Law of State Responsibility”, ejil 24 (2013): 617, at 624–625; similarly, Z. Douglas, The International Law of Investment Claims (Cambridge: Cambridge University Press, 2009), at 32 et seq., though primarily addressing the question of the nature of investor rights (i.e. whether they are derivative, direct-substantive, or direct-procedural).

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discerned.115 As it currently stands, however, the proposed claim-right to regulate is worded in very general terms, simply reiterating the general position of principle that a State has the right to adopt measures for the public interest, and that bona fide regulation for the public interest, without more, ought not be considered as a violation of the investor protective provisions of an iia.116 Several questions are left open when one tries to apply such general statements to specific cases. For example, if the government adopts a general measure in good faith that is contrary to a prior specific commitment given to the investor, is this measure covered by the right to regulate? In this case, the need for an interpretation by a tribunal, or for a clarification by the treaty itself,117 is not avoided. To the extent, therefore, that the right to regulate is meant to lead to increased legal certainty, through the circumscription of judicial discretion, there are good reasons to doubt whether that would be the case. B The Doctrinal Argument: the Law of State Responsibility Related to the first, is a second – doctrinal – argument against the claim-right conception of the right to regulate. Recall for a moment that in its most expansive description the right to regulate is “the legal right exceptionally permitting the host State to regulate in derogation of international commitments it has undertaken by means of an investment agreement without incurring a duty to compensate”.118 Following Hohfeld’s scheme, however, there exists no logical relation between one’s claim-right to certain conduct and the absence of a duty in the same person regarding that exact same conduct. Rather, the jural opposite to one’s claim-right to a certain conduct is the absence of a no-right in the same person regarding that conduct. Likewise, what is logically implied by the absence in someone of a duty to do something (say, pay compensation) is that he or she is at a liberty to do it. The point I am trying to make is not that the right to regulate and the absence of a duty to pay compensation can never coexist in the same actor. Rather, my point is that the existence, or lack of, of a State’s duty to pay compensation 115 Morss, supra note 28, at 296 (“In Hohfeld’s framework an entitlement that is described as a right by its bearers or others, yet fails to correspond precisely to an identifiable duty, is no right (although it may turn out on inspection to be an immunity, a liberty, or a power, for example)”). 116 E.g. Article 8.9 of the 2016 Canada-EU ceta, supra note 64; European Commission, supra note 95; Council of the European Union, supra note 98; European Economic and Social Committee, supra note 99; Titi, supra note 105. 117 E.g. Article 8.9(3) of the 2016 Canada-EU ceta, supra note 64; Article 2.2(2) of the 2018 EU-Singapore ipa, supra note 63. 118 E.g. Titi, supra note 105, at 33.

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cannot come about as a direct logical consequence of that State’s proposed claim-right to regulate. Stating the content and consequences of the right to regulate in this way risks the danger of confusing the distinction between primary norms of obligation and secondary norms of responsibility. The payment of compensation is governed by the secondary rules of State responsibility as codified in the arsiwa, whereas the right to regulate itself forms part of the primary rules of obligation. The secondary duty is properly triggered only once liability is found. In the field of international investment law, the latter presupposes that a determination has been made by a duly constituted arbitral tribunal that the host State had violated an international obligation. There would seem to be two ways in which the invocation of the right to regulate can lead to an award denying the investor the payment of compensation by the State. The first way rests on the primary/secondary norms distinction just described. Provided that a tribunal has ruled that some State m ­ easure or State conduct does not rise to the level of violating international law, it must follow that the rules of State responsibility may not be triggered. The second way is to generally reconceptualise the right to regulate as an Hohfeldian immunity (e.g. an exception from wrongfulness). The benefit of generally describing the right to regulate in that way is that the right can now logically attach to the absence of a duty to pay compensation. However, there are at least two issues with such a general understanding of the right to regulate. For one, there seems to be no evidence in current treaty or arbitral practice that that is indeed the way to conceptualise the right to regulate. The investigation at the outset of this chapter would rather seem to indicate that the general international law understanding of the right to regulate is that of a Hohfeldian legal power.119 Secondly, the manifestation of the right to regulate as an immunity in the various non-precluded measures clauses, is the exception rather than the norm.120 Non-precluded measures clauses are strictly treaty-based standards not originating from general international law. What is more, not every iia contains such clauses, and the immunity conception of the right to regulate in them is clear from an ordinary understanding of the terms of the clauses themselves. 119 More to the point, the requested conceptual clarity is also lacking in the language used in current iias, like ceta. 120 See subsection iii.2.A. See also Article 23(2) of the 2016 Morocco-Nigeria bit (adopted 3 December 2016, not yet in force), available at: (last accessed on 1 March 2018), offering the following understanding of the Parties’ right to regulate: “[e]xcept where the rights of [the] Host State are expressly stated as an exception to the obligation [sic] of this Agreement, a Host State’s pursuit of its rights to regulate shall be understood as embodied within a balance of the rights and obligations of Investors and Investments and Host States, as set out in the Agreement”.

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C The Morally Oriented Argument: the Critique of Rights Language A third type of argument against the proposed claim-right conception of the right to regulate may come from the general philosophical critique of rights language. Without going into too much detail, it has been argued that for all the benefits that come from the existence of rights, rights talk can nonetheless have certain drawbacks too.121 Specifically, rights talk may encourage the mere assertion of entitlements over reason-giving for one’s course of action.122 That is particularly the case if one adopts a conception of claim-rights as trumps or conclusive reasons for action. Framing every controversy in terms of a clash of rights may end up impeding compromise, mutual understanding, and the discovery of common ground.123 It is arguable that a claim-right conception of the right to regulate may end up having similar results. Hungary’s argument of principle in the adc v Hungary dispute quoted above is an example to this effect. It is at least conceivable that the tribunal in that case was trying to ward off the dangers foretold by the critique of rights language when saying that the exercise of the right to regulate is not unlimited but has boundaries provided by the concept of the rule of law; or, when saying that it cannot be merely assumed that an investor must accept “whatever the host State decides to do to it”, as part of the risk of doing business there.124 In short, what this third argument indicates is that, even if the proposed claim-right to regulate manages to surmount the Hohfeldian and the doctrinal arguments above, it would still face the added burden of convincing that it is a morally superior option than the current power conception. v

Conclusion

There is no denying that States have a right to regulate in their domestic affairs. That is the uncontroversial position in international investment law, but there is little agreement beyond that. Despite increasing in importance, the right to regulate is generally undertheorized. Accordingly, the aim of this contribution was to offer some thoughts about the nature of the right to regulate, and about 121 E.g. M.A. Glendon, “Rights Talk: The Impoverishment of Political Discourse”, Social Contract Journal 2 (1991): 62. 122 Wenar, supra note 14. 123 Glendon, supra note 121, at 63. 124 The caveat, of course, is that Hungary’s argument was made in the context of litigation, where the parties are expected to defend their respective positions vigorously. Parties may adopt positions during litigation that they do not necessarily believe. Yet, even with that caveat in mind, the validity of the morally oriented argument is not affected.

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the consequences from invoking it for the State’s international responsibility. Hohfeld’s seminal work on the legal relations that arise out of “rights” formed the cornerstone of the analysis. The right to regulate itself was examined from the standpoint of a legal argument available to the State during the course of an arbitration. The primary insight that this contribution sought to offer was that the right to regulate should be conceptualised as a Hohfeldian legal power. Several examples of such a conception of the right to regulate were found, including in the preambles of iias, in the fet standard, in expropriation provisions, and in arbitral case-law. The second form that the right to regulate often takes in international investment law is that of a Hohfeldian immunity. This conception can be seen in the various non-precluded measures clauses found in iias, and in the necessity defence of the arsiwa. This does not mean however that the right to regulate cannot take other conceptions as well. Thus, at the final stage, an emerging conception of the right to regulate as a Hohfeldian claim-right was examined. There are signs in investment law literature, and in international investment law-making, that that ought to be the proper way to conceptualise the right to regulate. The reason behind the claim-right conception seems to be the belief that the right to regulate can act as a general knock-down argument for the State during arbitration and that it can serve as a guarantee against the State’s duty to pay compensation to investors for its policy choices. The chapter ended by offering three possible arguments against such an understanding of the right to regulate, pointing to: a lack of clearly discernible duties and duty-holders; complications with the law of State responsibility; and, dangers for international investment law discourse generally.

Chapter 9

Shareholders’ Injury and Compensation in Investor-State Arbitration Panayotis M. Protopsaltis* I Introduction Customary international law holds that the municipal law distinction between the company and its shareholders and the consequent distinction between the injury of the company and that of its shareholders raises an obstacle to diplomatic protection of the shareholders for State measures affecting the company.1 Yet, in the Barcelona Traction case, the International Court of Justice (icj) acknowledged that “notwithstanding the separate corporate personality, a wrong done to the company frequently causes prejudice to its shareholders”.2 In fact, a measure taken against the company may terminate its legal existence or harm only its property, leaving the corporate entity intact. It may thus deprive shareholders of their rights or simply reduce the value of their equity participation.3 Most Bilateral Investment Treaties (bits) and a number of International Investment Agreements (iias) have recognised autonomous rights to * The author wishes to thank Prof. A. Bredimas for his guidance during this research, Prof. M. Gavouneli and Prof. F. Pazartzis for their invitation to par­ticipate in the conference on State responsibility, J. Thieffry for his com­ments on the first draft, Prof. P. Merkouris for his comments on the final draft, C. Michalis, MPhil and K. Gompertz for reviewing the final draft, and the Hellenic Schol­arships Foundation for its financial assistance. Unless otherwise specified, all decisions and awards mentioned are available at: . 1 Barcelona Traction Light & Power Company Ltd. (Belgium v. Spain) (Second phase), Judgment of 5 February 1970, [1970] icj Rep. 6, paras. 37–84 (hereinafter Barcelona Traction case); Ahmadou Sadio Diallo (Guinea v. Congo) (Preliminary Objections), Judgment of 24 May 2007, [2007] icj Rep. 582, paras. 49–96 (hereinafter Diallo case (Preliminary Objections)); ilc, “Draft Articles on Diplomatic Protection”, in: ilc, “Report of the International Law Commission Covering its 58th Session”, A/61/10 (2006) reproduced in: yilc [2006/ii, Part Two]: 24, Article 11 (hereinafter Draft Articles on Diplomatic Protection); see also St.W. Schill, The Multilateralization of International Investment Law (Cambridge: Cambridge University Press, 2009), at 211. 2 Barcelona Traction case, supra note 1, para. 44. 3 See G. White, Nationalisation of Foreign Property (London: Stevens and Sons, 1961), at 70–81.

© koninklijke brill nv, leiden, ���9 | doi:10.1163/9789004390485_010

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s­ hareholders in an effort to address this very gap in their protection.4 Indeed, most of them contain broad definitions of investments falling within their scope of coverage that include, amongst others, shares, stock, and other forms of equity participation in an enterprise.5 By virtue of such provisions, equity participation in a company of the host State or of a third State is an investment protected under the agreement. As a result, even when the company is not protected in its own right, as Schreuer points out, a “shareholder may … pursue claims for adverse action by the host State against the local company that affects its value and profitability”.6 Moreover, the said provisions allow shareholders to avoid the restrictions of the Washington Convention with respect to corporate nationality.7 Protection is granted to both majority and minority shareholders of the investment enterprise, as well as to indirect shareholders, namely shareholders of corporate shareholders of the investment enterprise.8 In addition, the relevant shareholders’ rights are independent from the rights of the company.9 Interestingly enough, in the cms case, in relation to the right of the shareholders to bring claims independently of the corporation concerned, the Tribunal 4 T.G. Nelson, “When the Lights Went Out: The Strange Death and Stranger Afterlife of the ­Barcelona Traction Case” Les Cahiers de l’Arbitrage 4 (2011): 939, at 963; M. Sornarajah, The Settlement of Foreign Investment Disputes (The Hague/Boston: Kluwer Law International, 2000), at 36. 5 unctad, Scope and Definition (New York, NY: UN, 1999), 15–23; A.R. Parra, “The Scope of New Investment Laws and International Instruments”, Transnational Corporations 4 (1995): 37, at 43; R. Dolzer and M. Stevens, Bilateral Investment Treaties (Leiden: Martinus Nijhoff Publishers, 1995), at 28; 1993 North American Free Trade Agreement (adopted 17 December 1992, entered into force 1 January 1994), 32 ilm 289, Article 1139; 1994 Energy Charter Treaty (adopted 17 December 1994, entered into force 16 April 1998), 2080 unts 95, Article 1(6); 1998 Multilateral Agreement on Investment, Draft Consolidated Text, available at: (last accessed on 1 March 2018), Article 2. 6 Chr. Schreuer, “Shareholder Protection in International Investment Law”, tdm 2/3 (2005): 1, at 6. 7 The Washington Convention excludes from icsid jurisdiction companies having the nationality of the host country the majority of capital of which is held by nationals of the host country or of a third country (1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (adopted 18 March 1965, entered into force 14 October 1966), 575 unts 159, Article 25(1) and (2)(b)). This restriction is lifted by the provisions of bits and iias that allow shareholders to initiate directly arbitration proceedings before the tribunals of the Centre. 8 On the use of intermediary corporate structures in international business, see Schill, supra note 1, 204–209. 9 St.A. Alexandrov, “The ‘Baby Boom’ of Treaty Based Arbitrations and the Jurisdiction of icsid Tribunals: Shareholders as ‘Investors’ and Jurisdiction Ratione Temporis”, Law and Practice of International Courts and Tribunals 4 (2005): 19, at 28–29 and 57; P. Dumberry, “The Legal Standing of Shareholders before Arbitral Tribunals: Has any Rule of Customary International Law Crystallised?”, Journal of International Law and Practice 18 (2010): 353, at 357–358; Schreuer, supra note 6, at 7, 11–15; Schill, supra note 1, at 202; see C. Yannaca-Small, “Definition

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found that “[a]lthough it is true, … that this is mostly the result of lex specialis and specific treaty arrangements that have so allowed, the fact is that lex specialis in this respect is so prevalent that it can now be considered the g­ eneral rule, certainly in respect of foreign investments and increasingly in respect of other matters”. The Tribunal therefore concluded that “[t]o the extent that customary international law or generally the traditional law of international claims might have followed a different approach – a proposition that is open to debate – then that approach can be considered the exception”.10 The density of the existing bits and iias’ networks as well as the increased number of shareholders in listed companies and the autonomy of their rights allow the introduction of multiple and parallel proceedings and, along with them, give rise to the risks of inconsistent or even conflicting awards as well as of allocation of double compensation leading to the unjust enrichment of the claimants.11 In the absence of other procedural law mechanisms restricting parallel claims,12 as the Nykomb award observed, “clearly the Treaty based right to arbitration is not excluded or limited in cases where there is a possible risk of double payment”. This latter risk, the award continued, “is only likely to be resolved through the further development of the law in this area, such as by the means of new judgements, decisions, guidance or other relevant developments”.13 In the same award, the Tribunal held that the question of remedies to compensate for loss or damage caused by the State’s violation of its obligations under the applicable bit “must primarily find its solution in accordance with established principles of customary international law” and referred to that end to the “principles … authoritatively … restated” in the Articles on State Responsibility (arsiwa) of the International Law Commission (ilc).14 10 11 12

13 14

of Investor and Investment in International Investment Agreements”, in: oecd, International Investment Law: Understanding Concepts and Tracking Innovations (Paris: oecd, 2008), 7, at 42–46. cms Gas Transmission Company v. Argentina, icsid, Decision on Objections to Jurisdiction of 17 July 2003, icsid Case No. arb/01/8, para. 48 (footnotes omitted). See oecd, “Improving the System of Investor – State Dispute Settlement”, (Working Papers on International Investment No. 2006/1, February 2006), at 17–21. On the shortcomings of the existing procedural law mechanisms restricting jurisdiction and on the consolidation of parallel claims see B.M. Cremades and I. Madalena, “Parallel Proceedings in International Arbitration”, Arb Intl 24/4 (2008): 507–539; oecd, supra note 11, at 21–25; Y. Shany, “Jurisdictional Competition between National and International Courts”, nybil 37 (2006): 3–56; G. Cuniberti, “Parallel Litigation and Foreign Investment Dispute Settlement”, icsid Review 21 (2006): 381–426; A. Crivellaro, “Consolidation of Arbitral and Court Proceedings in Investment Disputes”, Law and Practice of International Courts and Tribunals 4 (2005): 371–420. Nykomb Synergetics Technology Holding AB v. Latvia, scc, Award of 16 December 2003, para. 2.4(a), in fine. Ibid., para. 5.1.

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There are, however, some limits in the application of arsiwa in relation to shareholders’ injury and compensation in investor-State arbitration. Firstly, the arsiwa apply to “obligations of the responsible State … owed to another State, to several States, or to the international community as a whole … without prejudice to any right, arising from the international responsibility of a State, which may accrue directly to any person or entity other than a State”.15 In addition to their lex specialis reservation,16 their Commentary explicitly excludes rights of persons or entities “under bilateral or regional investment protection agreements”.17 Admittedly, however, no regime is completely isolated from general law.18 Numerous international courts and tribunals’ rulings, as well as relevant literature, explicitly recognise the applicability of the general rules on State responsibility in the relations of States with individuals, ­including foreign investors,19 while numerous arbitral tribunals unquestionably ­applied the arsiwa in relation to investor-State disputes.20 As a result, much to the disappointment of those who see international investment law as

15 16 17

18

19

20

ilc Articles on Responsibility of States for Internationally Wrongful Acts, in: ilc, “Report of the International Law Commission Covering its 53rd Session”, A/56/10 (2011) reproduced in: yilc [2001/ii Part Two]: 26, Article 33 (hereinafter arsiwa). Ibid., Article 55; see also Z. Douglas, “Other Specific Regimes of Responsibility: Investment Treaty Arbitration and icsid”, in: J. Crawford, A. Pellet and S. Olleson (eds.), The Law of International Responsibility (Oxford: Oxford University Press, 2010), 815, at 819. ilc, “Draft Articles on Responsibility of States for Internationally Wrongful Acts with Commentaries” in: ilc, ‘Report of the International Law Commission Covering its 53rd Session’, A/56/10 (2011), reproduced in: yilc [2001/ii Part Two]: 30, at 95 (hereinafter arsiwa with Commentaries). According to the ilc, general law “provides the normative background that comes in to fulfil aspects of its operation not specifically provided by it” or comes to operate “if the special regime fails to function properly”; ilc, “Fragmentation of International Law: Difficulties arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law Commission”, A/CN.4/L.682 (13 April 2006), paras. 159 and 192. See, S. Ripinsky and K. Williams, Damages in International Investment Law (London: biicl, 2008) 30–32. On investor – State relations, in particular, see also mtd Equity Sdn. Bhd. & mtd Chile S.A. v. Chile, icsid, Decision on Annulment of 21 March 2007, icsid Case No. arb/01/7, para. 99 (ruling in relation to the application of Article 39 of the arsiwa that “[t]here is no reason not to apply the same principle of contribution to claims for breach of treaty brought by individuals”). Ripinsky and Williams, supra note 19, at 31; St. Jagusch and N. Duclos, “Compensation for the Breach of Relative Standards of Treaty Protection”, jwit 10 (2009): 515, at 526; LG&E v. Argentina, icsid, Award of 25 July 2007, icsid Case No. arb/02/1, para. 31 (ruling that “the appropriate standard for reparation under international law is ‘full’ reparation as set out by the Permanent Court of International Justice in the Factory at Chorzów case and codified in Article 31 of the International Law Commission Draft Articles on Responsibility of States for Internationally Wrongful Acts”).

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a self-contained regime, to quote Kurtz, the arsiwa “have shaped the jurisprudence of investor-State arbitral tribunals”.21 Secondly, the general references of the arsiwa to damage offer little guidance on the definition of the scope of shareholders’ injury, a precondition for the definition of shareholders compensation and for the avoidance of double compensation. For, the definition of the scope shareholders’ injury inevitably presupposes the distinction between the company and its shareholders and the recognition of their right to claim only for their respective injury, established under customary international law in relation to diplomatic protection.22 Diplomatic protection, however, is seen as “a subset of the field of State responsibility”,23 implying that the general rules on State responsibility may complement the special rules on diplomatic protection but not vice versa.24 Some arguments may point to the applicability of the Barcelona Traction rule in the context of State responsibility,25 particularly in the absence of other specific rules. Yet, in investor-State disputes, even though some tribunals in the past relied on the Barcelona Traction case,26 most have held that the 21 22

23 24

25

26

J. Kurtz, “The Paradoxical Treatment of the ilc Articles on State Responsibility in Investor-­State Arbitration”, icsid Review 25 (2010): 200–217. Despite the criticism of the work of the ilc (see, for example, D.D. Caron, “The ilc Articles on State Responsibility: The Paradoxical Relationship between Form and Authority”, ajil 96 (2002): 857, at 867), the distinction between the company and its shareholders and the right of the State to bring a diplomatic protection claim in respect of injury to the shareholders’ own rights, codified in article 12 of the Draft Articles on Diplomatic Protection, have encountered no objections; see J. Crawford, “The ilc’s Articles of Diplomatic Protection”, sayil 31 (2006): 19, at 38. J. Crawford, “State Responsibility”, in: Max Planck Encyclopedia of Public International Law, available at: (last accessed on 1 March 2018). This one-way relation is confirmed on several occasions by both the arsiwa and the Draft Articles on Diplomatic Protection. See, for example, ilc, “Draft Articles on ­Diplomatic Protection with Commentaries”, in: ilc, “Report of the International Law Commission Covering its 58th Session”, A/61/10 (2006) reproduced in: yilc [2006/ii, Part Two]: 26, at 26 (hereinafter Draft Articles on Diplomatic Protection with Commentaries) and arsiwa with Commentaries, supra note 17, at 101. Amongst others, it stems from the very essence of diplomatic protection, premised on the principle that an injury to a national is an injury to the State itself (Draft Articles on Diplomatic Protection with Commentaries, supra note 24, at 24), that the rules on ­diplomatic protection define the scope of injury of the individual not only the purposes of diplomatic protection but also, albeit indirectly, for the purposes of State responsibility. Even if we admitted that the State exercises diplomatic protection in its own right, it would be inconceivable for the scope of State responsibility in relation to the same wrongful act to differ, depending on whether the claim is filed by the individual or by the State. See, for example, Tokios Tokelés v. Ukraine, icsid, Decision on Jurisdiction of 29 April 2009, icsid Case No. arb/02/18, paras. 54–56.

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Barcelona Traction rule must not be extended beyond the issue of diplomatic protection.27 Pellet explains that “with regard to the protection of shareholders, icsid tribunals … hide behind the lex specialis dogma to faithfully follow the jurisprudence, constante on this point, of investment tribunals”.28 Arbitral tribunals have dealt extensively with the issues of investors’ injury and compensation but had little opportunity to explore the relations between the scope of injury of the majority shareholders, the minority shareholders and the company as well as the consequent distribution of compensation in proportion to the damage of each one of them. The limited number of relevant decisions and awards, however, relied on both the distinction between the company and its shareholders and the rules on State responsibility to define the scope of injury of the majority shareholders, the minority shareholders and the company and the quantum of each claimant’s compensation. With respect to the scope of injury, despite rejecting the relevance of the Barcelona Traction rule, tribunals have consistently recognised the distinction between majority shareholders, minority shareholders and the company and have allowed claims only for their respective direct injury. In contrast, with respect to the definition of the quantum of compensation, they have consistently relied on the rules on State responsibility but have often compensated shareholders for damage suffered by the company. II

The Problem of Shareholders’ Injury

In the Barcelona Traction case, the icj distinguished between the injury to the rights of the company and the injury to the interests of the shareholders and concluded that “whenever a shareholder’s interests are harmed by an act done to the company, it is to the latter that he must look to institute appropriate action; for although two separate entities may have suffered from the same wrong, it is only one entity whose rights have been infringed”. Shareholders are therefore protected only in the case of direct infringement of their rights and not for difficulties or financial losses to which they may be exposed as a result of the situation of the company,29 in other words, for any indirect or reflective loss. Learning the lesson from the Barcelona Traction case, elsi’s shareholders 27 28 29

See, for example, Camuzzi International S.A. v. Argentina, icsid, Decision on Objection to Jurisdiction of 11 May 2005, icsid Case No. arb/03/2, paras. 141–142. A. Pellet, “2013 Lalive Lecture: The Case Law of the icj in Investment Arbitration”, icsid Review 28 (2013): 223, at 234. Barcelona Traction case, supra note 1, paras. 44–45; see also O. de Frouville, “Affaire Ahmadou Sadio Diallo c. République démocratique du Congo. Exceptions préliminaires: Le roman inachevé de la protection diplomatique”, afdi 53 (2007) : 291, at 314.

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based their claim on the direct infringement to their rights and not on an injury to the company.30 In its judgement of 24 May 2007 in the Diallo case, the icj confirmed the relevance of the distinction between the company and its shareholders for the purpose of definition of the State authorised to exercise diplomatic protection. Drawing up on the Barcelona Traction judgement, the Court authorised Guinea to exercise its diplomatic protection for the sole shareholder possessing its nationality for the measures taken against him by Congo.31 In contrast, it rejected the request for diplomatic protection of the companies by substitution for the injuries suffered by them.32 Yet by distinguishing between actions directed against the shareholder and actions directed against the company, the Court distinguished also between the injury of the former and the injury of the latter. Subsequently, in its judgement of 30 November 2010, the Court relied again on the municipal law distinction between the legal personality of the company and that of its shareholders to rule that Mr. Diallo’s other direct rights, in respect of his parts sociales, must be clearly distinguished from the rights of the sprls, in particular in respect of the property rights belonging to the companies. The Court recalls in this connection that, together with its other assets, … the capital is part of the company’s property, whereas the parts sociales are owned by the associés.33 The Court, therefore, confirmed the distinction between the infringement of the rights of the company and that of the rights of the shareholder and, consequently, between the injury suffered by the company and that suffered by its shareholders. Relying primarily on the Barcelona Traction case, the Draft Articles on Diplomatic Protection explicitly recognise the distinction between the injury of the company and that of its shareholders and authorise the exercise of diplomatic protection of shareholders for the “direct injury to the rights of shareholders as such, as distinct from those of the corporation itself”34 and only in exceptional cases “in the case of an injury to the corporation”.35 30 31 32 33 34 35

Elettronica Sicula S.p.A. (elsi) (usa v. Italy), Judgment of 20 July 1989, [1989] icj Rep. 15, paras. 56, 77 and 135. Diallo case (Preliminary Objections), supra note 1, paras. 60–67. Ibid., paras. 86–89. Ahmadou Sadio Diallo (Guinea v. Congo) (Merits), Judgment of 30 November 2010, [2010] icj Rep. 639, para. 157 (hereinafter Diallo case (Merits)). Draft Articles on Diplomatic Protection with Commentaries, supra note 24, Article 12. The Draft Articles refer to cases where “(a) the corporation has ceased to exist according to the law of the State of incorporation for a reason unrelated to the injury; or (b) the

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1 The Distinction between the Company and Its Shareholders In the context of investor-State arbitration, numerous States invoked the Barcelona Traction case to argue that shareholders have the right to claim only in respect of State measures affecting directly their shareholding (direct damage) and are not protected against measures that reduce the economic value of the company,36 even though such reduction is normally reflected in the value of shareholders’ participation (indirect or reflective damage). Schreuer claims that “[t]hese arguments have been rejected consistently by the tribunals”.37 Similarly, according to Alexandrov, tribunals “considered it to be beyond doubt that a shareholder’s interest in a company includes an interest in the assets of that company … and that in finding jurisdiction they based their reasoning on the broad definition of investment in the applicable bit’s”.38 However, the comparative analysis of the relevant arbitral awards does not entirely support these conclusions. Despite consistently rejecting the applicability of the Barcelona Traction rule, all arbitral tribunals subscribed to the distinction between the company and its shareholders and consistently allowed shareholders to file claims only with respect to their own injury. The issue of shareholders’ injury was raised for the first time in the aapl case. The case involved a claim of a minority shareholder (aapl) of a Sri Lankan joint venture company (Serendib) for loss suffered as a result of the destruction of the company’s main production centre by the security forces of Sri Lanka. The icsid Tribunal ruled that “aapl is entitled ... to claim compensation under the Sri Lanka/UK Bilateral Investment Treaty … due to the fact that the Claimant’s ‘investments’ in Sri Lanka ‘suffered losses’ owing to events falling under one or more of the circumstances enumerated by Article 4(1) of the Treaty”. Yet in the Tribunal’s view, corporation had, at the date of injury, the nationality of the State alleged to be responsible for causing the injury, and incorporation in that State was required by it as a precondition for doing business there” (Draft Articles on Diplomatic Protection with Commentaries, supra note 24, Article 11). 36 See, for example, Mondev International Ltd v. United States of America, icsid, Award of 11 October 2002, icsid Case No. arb(AF)/99/02, para. 82; cms Gas Transmission Company v. Argentina, supra note 10, at 793, para. 36 and at 797, para. 59; Enron Corporation and Ponderosa Assets L.P. v. Argentina, icsid, Decision on Jurisdiction of 14 January 2004, icsid Case No. arb/01/3, para. 35; Enron Corporation and Ponderosa Assets L.P. v. Argentina, icsid, Annulment Decision of 30 July 2010, icsid Case No. arb/01/3, para. 108; El Paso Energy International Company v. Argentina, icsid, Award of 31 October 2011, icsid Case No. arb/03/15, para. 170. 37 Schreuer, supra note 6, at 18. 38 Alexandrov, supra note 9, at 45 (relying on cms Gas, Enron, Siemens, Azurix and Generation Ukraine awards); see also Schreuer, supra note 6, at 19–20.

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[t]he undisputed ‘investments’ effected ... by aapl in Sri Lanka were in the form of acquiring shares in Serendib Company, which has been ­incorporated in Sri Lanka under the domestic Companies Law. Accordingly, the Treaty protection provides no direct coverage with regard to Serendib’s physical assets as such, … or to the intangible assets of Serendib if any … The scope of the international law protection granted to the foreign investor in the present case is limited to a single item: the value of his share-holding in the joint-venture entity (Serendib Company).39 Similarly, in the Compañía de Aguas case, the icsid Tribunal found that the rights of the company caa “were rendered worthless by the Province’s actions ... Vivendi suffered direct harm in its capacity as caa’s principal shareholder, with the value of its shareholding being eradicated”.40 Arbitral tribunals relied on the distinction between the company and its shareholders particularly in the Argentinian cases. The cases involved claims of foreign shareholders of Argentinian companies, mostly public utilities operators, against Argentina on the basis of bits concluded between Argentina and their home countries for violation of their rights by the measures enacted by Argentina during the economic crisis of 1999–2002 (pesification of contracts, devaluation of the peso and renegotiation of the concessions) against the companies in which they held shares.41 In the cms case, for example, an icsid Tribunal, ruling on its jurisdiction, wondered “whether a shareholder can claim for its rights in a foreign company independently from the latter’s rights and, if so whether these rights refer only to its status as shareholder or also to substantive rights connected with the legal and economic performance of its investment”.42 Despite explicitly declining the direct relevance of the 39 40 41

42

Asian Agricultural Products Ltd (aapl) v. Sri Lanka, icsid, Award of 27 June 1990, icsid Case No. arb/87/3, para. 95; see also M. Sornarajah, The International Law on Foreign Investment (Cambridge: Cambridge University Press, 2004), at 246. Compañiá de Aguas del Aconquija S.A. and Vivendi Universal v. Argentina, icsid, Award of 20 August 2007, icsid Case No. arb/97/3, para. 7.5.33. On the Argentinian cases see K. Khamsi, “Compensation for Non-expropriatory Investment Treaty Breaches in the Argentine Gas Sector Cases: Issues and Implications”, in: M. Waibel et al. (eds.), The Backlash Against Investment Arbitration: Perceptions and Reality (The Hague/Boston: Kluwer Law International, 2010), 165, at 166–168; J.E. Alvarez and K. Khamsi, “The Argentine Crisis and Foreign Investors: A Glimpse into the Heart of the Investment Regime”, Yearbook on International Investment Law and Policy [2009]: 379, at 388–391; E. Kentin, “Economic Crisis and Investment Arbitration: The Argentina Cases”, in: Ph. Kahn and Th. Wälde (eds.), New Aspects of International Investment Law (Leiden: Brill/Martinus Nijhoff Publishers, 2007), at 629–637. cms Gas Transmission Company v. Argentina, supra note 10, at 794, para. 41.

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Barcelona Traction case, the Tribunal found “no bar in current international law to the concept of allowing claims by shareholders independently from those of the corporation concerned, not even if those shareholders are minority or non-controlling shareholders”.43 However, the Tribunal did not address the question of the scope of shareholders’ rights. In the Enron case, another icsid Tribunal acknowledged that the shareholders were “not claiming for or on behalf of tgs, but in their own right as United States investors with investments qualifying under the Treaty”44 and allowed them to file a claim for violation of their rights independently from the company,45 albeit avoiding again to discuss the issue of the scope of the shareholders’ rights. In the Sempra case, finally, the Annulment Committee distinguished between the right of the minority shareholder to bring a claim in respect of damage to its investment under the Washington Convention and the applicable bit, an issue of jurisdiction admitted by the Committee, and the question of “whether acts or omissions on the part of Argentina with respect to cgp and cgs have in fact caused damage to Sempra’s investment”, namely to its minority participation in the companies cgp and cgs.46 Some awards went even further to exclude shareholders’ claims for injury suffered by the company. In the gami case, although the uncitral Tribunal rejected the applicability of the Barcelona Traction rule beyond the issue  of diplomatic protection, it distinguished between the de jure expropriation of the sugar mills of gam and the de facto expropriation of the shares of gam, of which gami was the owner. The Tribunal allowed the minority shareholder’s claim for expropriation while observing that “[a] serious jurisdictional impediment would loom if gami’s claim for breach of article 1105 had been based solely on the allegedly ‘arbitrary and discriminatory expropriation of gam’s sugar mills’. gami cannot plead for gam. But gami’s Article 1105 claim has another distinct factual basis … gami is entitled to raise it”.47 In the El Paso case, an icsid Tribunal not only distinguished between the injury of the shareholders and that of the company but also observed that investors

43 44 45 46 47

Ibid., 794–795, paras. 43–48. Enron Corporation and Ponderosa Assets L.P. v. Argentina (Annulment), supra note 36, para. 109. Enron Corporation and Ponderosa Assets L.P. v. Argentina (Jurisdiction), supra note 36, paras. 44 and 49. Sempra Energy International v. Argentina icsid, Annulment Decision of 29 June 2010, icsid Case No. arb/02/16, paras. 103–104. gami Investments Inc. v. Mexico, uncitral (nafta), Award of 15 November 2004, para. 42.

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cannot have their cake and eat it. The loss of value of El Paso’s shares is due, to a large extent, to the measures taken against the legal and ­contractual rights of the Argentinian companies. To allow claims of El Paso on both counts, for the loss of value of its shares in the company and for the prejudice suffered by the latter, would amount to compensating the Claimant twice.48 Finally, in the BG Group case, the uncitral Tribunal admitted jurisdiction “over BG’s claims for breach of the Argentina-UK bit relating to its shareholding interest in gasa and MetroGAS”. However, it explicitly denied the right of the shareholder to bring a claim on the basis of the licence contract concluded by the company while observing that the rights of the company “are not an obstacle to the jurisdiction of this Tribunal over the claims of BG”.49 In other words, the shareholder may claim compensation for his/her own injury and not for the injury suffered by the company while, on the other hand, there is no obstacle to the company claiming compensation for its own injury. 2 The Scope of Shareholders’ Injury In addition to the distinction between the company and its shareholders, the icj has defined the scope of shareholders’ injury. In the elsi case, the Court admitted that “the direct impact of the requisition” of elsi’s property “was only on control of the property requisitioned”. It observed however that “this requisition … was issued to avoid … the probable dispersal of the assets” of elsi and had, therefore, “the design of preventing” the shareholder “from exercising what was at that time a most important part of its right to control and manage” the company.50 In the Diallo case, the State measures affected directly the shareholder and not the company. The Court distinguished again between “the rights and assets of a company” and those of the shareholder51 in order to examine whether the measures violated the rights of the sole shareholder. The Court attributed two sets of rights to the shareholder, functional and patrimonial. The first included the shareholder’s “direct right as associé to take part and vote in general meetings of the companies … his right to be appointed or to remain gérant, … his right to oversee and monitor the management” whereas the second included the “rights in the operation of the company and also a right 48 49 50 51

El Paso Energy International Company v. Argentina, supra note 36, para. 204. BG Group Plc. v. Argentina, uncitral, Final Award of 24 December 2007, paras. 216–218 and 242–243. Elettronica Sicula S.p.A. (elsi), supra note 30, para. 70. Diallo case (Merits), supra note 33, para. 155.

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to receive any dividends or any monies payable in the event of the company being liquidated”.52 The approach of investor-State arbitral tribunals with respect to the scope of shareholders’ injury has substantially evolved in the course of time. At the beginning, trapped in the distinction between the shareholder and the company drawn by the icj, arbitral tribunals identified the rights of the investor with the rights of the shareholder in order to award compensation only for the direct damage suffered by the shareholders. However, they progressively rejected the approach of the icj and applied – albeit implicitly – what the late Professor Wälde called the doctrine of economic unity of the investor and the investment.53 Focusing on the injury of the investor, they ignored the distinction between the shareholders and the company and, by doing so, managed to extend the protection of the former. Indeed, in the aalp case, the Tribunal ruled that the scope of protection granted to the foreign investor was limited to the value of his shareholding.54 Similarly, in the Compañía de Aguas case, the Tribunal ruled that the direct harm suffered by the investor/principal shareholder was the eradication of the value of his shareholding.55 Yet, it was in the Pope case where a uncitral Tribunal first analysed extensively the scope of shareholders’ rights. The Tribunal rejected a claim of creeping expropriation on the grounds that although the Canadian restrictions on softwood lumber export affected the operations of the company thus reducing its benefits, the investor remains in control of the Investment, it directs the day-to-day operations of the Investment, and no officers or employees of the Investment have been detained…. Canada does not supervise the work of the officers or employees of the Investment, does not take any proceeds of the company sales (apart from taxation), does not interfere with the management or shareholders’ activities, does not prevent the Investment from paying dividends to its shareholders, does not interfere with the appointment of directors or management and does not take any other actions ousting the Investor from full ownership and control of the Investment. The Tribunal acknowledged that interference with the operations of the company could amount to expropriation but found that “the degree of interference 52 53 54 55

Ibid., para. 157; see also de Frouville, supra note 29, at 312. Th. Wälde and H. Kaj, “The First Energy Charter Treaty Arbitral Award”, Journal of International Arbitration 22 (2005): 84, at 99. Asian Agricultural Products Ltd (aapl) v. Sri Lanka, supra note 39, para. 95. Compañiá de Aguas del Aconquija S.A. and Vivendi Universal v. Argentina, supra note 40, para. 7.5.33.

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with the Investment’s operations … does not rise to an expropriation” within the meaning of the North American Free Trade Agreement (nafta).56 Similarly, in the Nykomb case, another uncitral Tribunal rejected the creeping expropriation contentions of the shareholder on the grounds that there was “no interference with the shareholder’s rights or with the management’s control over and running of the enterprise”.57 Subsequently, on the occasion of claims for compensation brought against Argentina by foreign shareholders for the reduction of the value of their equity participation and their dividends as a result of measures taken against the local company, icsid Tribunals found also that the claimants were in control of their investment, that the Government did not manage the day-to-day operations of the company and that the investors had full ownership and control of their investment. They thus concluded that no direct or indirect expropriation had taken place.58 In the LG&E case, the Tribunal observed, in addition, that the claimants had not lost control over their shares even though the value of the shares may have fluctuated during the economic crisis, or that they were unable to direct the day-to-day operations of the licensees in a manner different than before the measures were implemented … Thus, the effect of the Argentine State’s actions has not been permanent on the value of the Claimants’ shares’, and Claimants’ investment has not ceased to exist. Without a permanent, severe deprivation of LG&E’s rights with regard to its investment, or almost complete deprivation of the value of LG&E’s investment, … these circumstances do not constitute expropriation.59 In the El Paso case, the Tribunal relied on previous awards to hold that bits “protect the rights of foreign shareholders in domestic companies, more precisely their own rights as shareholders (right to the shares, right to a dividend, participation in stockholders’ meeting, etc.), including the right to 56 57 58

59

Pope & Talbot Inc. v. Canada, uncitral (nafta), Interim Award of 26 June 2000, paras. 100 and 102. Nykomb Synergetics Technology Holding AB v. Latvia, supra note 13, para. 4.3.1. cms Gas Transmission Company v. Argentina, icsid, Award of 12 May 2005, icsid Case No. arb/01/8, paras. 263–264; LG&E v. Argentina, icsid, Decision on Liability of 3 October 2006, icsid Case No. arb/02/1, para. 199; Enron Corporation and Ponderosa Assets L.P. v. Argentina, icsid, Award of 22 May 2007, icsid Case No. arb/01/3, para. 245; Sempra Energy International v. Argentina, icsid, Award of 28 September 2007, icsid Case No. arb/02/16, paras. 284–285; El Paso Energy International Company v. Argentina, supra note 36, paras. 278 and 299. LG&E v. Argentina, supra note 58, paras. 199–200.

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c­ ompensation for loss of value of stocks imputable to measures taken by the host State”. As a result, “the overall conclusion related to the definition of the protected investment could be: what is protected are ‘the shares, all the shares, but only the shares’”.60 icsid Tribunals ruled instead that Argentina violated the fair and equitable treatment standard as well as its contractual obligations towards the investors. As an illustration, in the cms case, the Tribunal ruled that the Argentinian measures violated the fair and equitable treatment since they “entirely transformed and altered the legal and the business environment under which the investment was decided and made”.61 Similarly, in the LG&E case, the Tribunal found that Argentina, “[h]aving created specific expectations among investors, … was bound by its obligations concerning the investment guarantees vis-à-vis public utility licensees … The abrogation of these specific guarantees violates the stability and predictability underlying the standard of fair and equitable treatment”.62 In the Enron case, finally, the Tribunal held that the measures of Argentina violated the fair and equitable treatment since “the ‘stable legal framework’ that induced the investment is no longer in place and that a definitive framework has not been made available for almost five years”.63 Reasoning in terms of investors rather than of shareholders, arbitral tribunals in the Argentinian cases ingeniously recognised a violation of treatment in order to compensate shareholders for an injury to their patrimonial rights that they could not have compensated as a violation of protection. As Schill has rightly explained, “[d]espite the broad substantive protection granted to shareholder-investors under fair and equitable treatment, the cause of action is independent from any interference with rights and interests of the company and the damages that can be claimed on its basis are those incurred by the shareholder, not damage sustained by the company”.64 Indeed, in reality, the tribunals did not abandon the Barcelona Traction distinction between the injury of the shareholders and that of the company and allowed shareholders to file claims only in respect of their own injury, thus excluding derivative claims, a trend confirming the relevance of the Barcelona Traction rule in investorState disputes. Of course, by doing so, tribunals implicitly, and at times explicitly, allowed claims of the company for its own injury. By way of illustration, in the cms case, as previously mentioned, the Tribunal found no bar in current international 60 61 62 63

El Paso Energy International Company v. Argentina, supra note 36, paras. 206 and 214. cms Gas Transmission Company v. Argentina, supra note 58, paras. 275 and 281. LG&E v. Argentina, supra note 58, para. 133. Enron Corporation and Ponderosa Assets L.P. v. Argentina (Award), supra note 58, para. 267; see also Sempra Energy International v. Argentina, supra note 58, paras. 302–303. 64 Schill, supra note 1, at 217.

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law to allowing claims by shareholders, including minority or non-­controlling shareholders, independently from those of the corporation concerned.65 In the Total case, the Tribunal ruled that “Total asserts its own treaty rights for their protection, regardless of any right, contractual or non-contractual that the various companies (tgn, Total Austral, Central Puerto, hpda) might assert in respect of such assets and rights under local law before the courts of other authorities of Argentina, in order to seek redress or indemnification for ­damages suffered as a consequence of actions taken by those authorities”.66 It goes without saying that the distinction between the company and its shareholders penalises companies incorporated in the host country that have no right of recourse to arbitration,67 a risk that the theory of economic unity of investor and investment tries to avoid. The drafters of nafta solved this problem by authorising derivative claims, “by an Investor of a Party on Behalf of an Enterprise”.68 Concern over the limits of the scope of shareholders’ rights may explain also why the drafters of the Energy Charter Treaty stressed that “[e]xpropriation shall include situations where a Contracting Party expropriates the assets of a company or enterprise in its Area in which the Investor of any other Contracting Party has an Investment, including through the ownership of shares”.69

65 66 67 68

69

cms Gas Transmission Company v. Argentina, supra note 10, at 795, para. 48. Total S.A. v. Argentina, icsid, Decision on Objections to Jurisdiction of 25 August 2006, icsid Case No. arb/04/01, para. 80. P.M. Protopsaltis, “The Challenge of the Barcelona Traction Hypothesis: Barcelona Traction Clauses and Denial of Benefits Clauses in bits and iias”, jwit 11 (2010): 561, at 565– 566 and 578. Article 1117 of the 1992 North American Free Trade Agreement (adopted 17 December 1992, entered into force 1 January 1994), 32 ilm 289. In relation to the rationale of this article see, International Thunderbird Gaming Corporation v. United States of America, uncitral (nafta), Submission of the United States of America, 21 May 2004, paras. 7–8 (ruling that “[t]he drafters of the nafta were aware of the difference between direct injury to an investor and injury to an investment. The drafters also recognized that investors often choose to carry out their investment activities in a State through a locally incorporated entity. However, because of the customary international law principle of non-responsibility, customary international law remedies were not available to remedy injuries to such locally incorporated entities … To address this situation, the drafters of Chapter Eleven created a derivative right of action under Article 1117 that derogates from customary international law. The language of the article provides that it can be exercised only in cases where “the enterprise [not the investor] has incurred loss or damage by reason of, or arising out of, the breach”.4 Article 1117 thus addresses the situation where the alleged violation of Chapter Eleven causes loss or damage to a locally organized enterprise”. (footnotes omitted)). Energy Charter Treaty, supra note 5, Article 13, para. 3; see also P.M. Norton, “Back to the Future: Expropriation and the Energy Charter Treaty”, in: Th. Wälde (ed.), The Energy

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Furthermore, if, as the Tribunals ruled in the aapl and in the Compañía de Aguas cases, investors’ protection is limited to the value of their shareholding,70 majority and minority shareholders’ injury must then be proportional to their equity participation. Indeed, all arbitral awards have calculated shareholders’ compensation on the basis of the percentage of their equity participation in the company.71 However, the references made in the Diallo case by the icj and by arbitral tribunals in numerous cases to the control and management of the company72 imply a further distinction between the injury of minority and majority shareholders. This is because, in principle, it is the majority shareholders who exercise control over and manage the company. As a result, the majority shareholders’ injury shall also include injury to their rights of control and management of the company and should not be limited to the percentage of their equity participation as is the case with the minority shareholders’ injury. Criticizing the cms award for allowing claims by minority or non-­controlling shareholders independently from those of the majority shareholders and of the corporation concerned, Douglas claims that “the converse must also be true  – there cannot be a comprehensive eligibility either, for otherwise the state might be exposed to an almost infinite number of claims by minority shareholders in a single multinational corporation in respect of a single injury”.73 Indeed, if the distinction between the company and its shareholders restricts the risk of allocation of double compensation and the unjust enrichment of the claimants, it still allows the introduction of multiple and parallel proceedings. This side-effect should be addressed through procedural rules rather than through the substantive rules on injury and compensation for the latter may not do so without restricting shareholders’ rights. III

The Problem of Shareholders’ Compensation

Reiterating the Chorzów Factory principle, the provisions of the arsiwa recognise a State’s obligation for full reparation of “the injury caused by the

70 71 72 73

Charter Treaty: An East-West Gateway for Investment & Trade (The Hague/Boston: Kluwer Law International, 1996), 365, at 368; Wälde and Kaj, supra note 53, at 99. Asian Agricultural Products Ltd (aapl) v. Sri Lanka, supra note 39, para. 95; Compañiá de Aguas del Aconquija S.A. and Vivendi Universal v. Argentina, supra note 40, para. 7.5.33. See, for example, infra notes 126 and 131. See supra notes 52, 55–57, and sources contained therein. Z. Douglas, The International Law of Investment Claims (Cambridge: Cambridge University Press 2009), at 433.

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i­nternationally wrongful act”.74 The State is required to compensate for any financially assessable damage that is not made good by restitution including loss of profits insofar as it is established.75 The Commentary to the arsiwa adds that compensation should be limited to the damage actually suffered excluding all indirect or remote damage76 and should “ensure full reparation for damage suffered”, in other words, quoting the Lusitania award, “should be commensurate with the loss”.77 Finally, according to the arsiwa, international law “does not permit any injured State to recover, by way of compensation, more than the damage it has suffered”.78 The Commentary adds that “[t]his provision is designed to protect the responsible States, whose obligation to compensate is limited by the damage suffered. The principle is only concerned to ensure against the actual recovery of more than the amount of the damage”,79 in other words, to avoid double compensation. Consequently, the definition of the scope of shareholders’ compensation is in reality mainly a problem of quantification of the damage that they have actually suffered. Compensation remains a central and controversial issue in the debate on violation of investor’s treatment and protection standards. Although the debate on the standards of compensation has overshadowed the problem of quantification of damage,80 the latter presents particular difficulties that investor-State arbitral tribunals have yet to resolve. 1 The Methods of Quantification of Shareholders’ Damage The Commentary to the arsiwa observes that “[c]ompensation reflecting the capital value of property taken or destroyed as the result of an internationally wrongful act is generally assessed on the basis of the ‘fair market value’ of the property lost”.81 Following the approach of bits and iias as well as of numerous arbitral awards, the World Bank Guidelines on the Treatment of Foreign Direct Investment to which the Commentary to the arsiwa itself refers, recommend adequate compensation in case of expropriation, “based on the fair market value of the taken asset as such value is determined immediately before the time at which the taking occurred or the decision to take the asset 74 75 76 77 78 79 80 81

arsiwa, supra note 15, Article 34. Ibid., Article 36. arsiwa with Commentaries supra note 17, at 96. Ibid., at 99. arsiwa, supra note 15, Article 47(2)(a). arsiwa with Commentaries, supra note 17, at 125. On the relevant issues see, for example, D. Carreau and P. Juillard, Droit international économique (Paris: Dalloz, 2007), at 538–544; Sornarajah, supra note 39, at 435–488. arsiwa with Commentaries, supra note 17, at 102.

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became publicly known”.82 The Guidelines define fair market value (fmv) as “an amount that a willing buyer would normally pay to a willing seller after taking into account the nature of the investment, the circumstances in which it would operate in the future and its specific characteristics”.83 As the Commentary to the arsiwa explains, the method to assess the fmv “depends on the nature of the asset concerned”.84 The value of equity participation is in principle the value of the company’s shares. In the case of a company listed on a stock exchange, the shares’ value is the stock market value. In contrast, when the company is not listed or when the stock market value is not credible,85 tribunals will have to revert to the methods of enterprise valuation. The enterprise valuation theory developed income-based, market-based and asset-based methods.86 Unlike the Commentary to the arsiwa, which seems to favour asset-based methods, namely, asset value and net book value,87 the Guidelines propose an income-based method, the discounted cash flow (dcf) method of valuation of an enterprise consisting of income-producing assets with a proven record of profitability (going concern). This method involves calculation of the cash receipts realistically expected from the enterprise for each future year of its economic life as reasonably projected minus that year’s expected cash expenditure, after discounting this net cash flow for each year by a factor which reflects the time value of money, expected inflation, and the risk associated with such cash flow under realistic circumstances.88 The value of shares may be found by computing cash flow to the company (indirect equity value) or cash flow to the equity (direct equity value).89 However, the dcf method relies on future profits and has been heavily criticised, amongst others 82

83 84 85 86 87 88

89

World Bank, “Guidelines on the Treatment of Foreign Direct Investment”, in: World Bank (ed.), Legal Framework for the Treatment of Foreign Investment: Report to the Development Committee and Guidelines on the Treatment of Foreign Direct Investment, Vol. ii (Washington, DC: World Bank, 1992), 33, Guideline iv, Section 3 (hereinafter World Bank Guidelines). Ibid., Guideline iv, Section 5. arsiwa with Commentaries, supra note 17, at 103. On the lack of credibility of the stock market value see Enron Corporation and Ponderosa Assets L.P. v. Argentina (Award), supra note 58, paras. 163, 381 and 383. Ripinsky and Williams, supra note 19, 193. The Commentary stresses the advantages of the asset value and the net book value and the shortcomings of the dcf method (arsiwa with Commentaries, supra note 17, at 103–104). World Bank Guidelines, supra note 82, Guideline iv, Section 6. For an analysis of the dcf method see Ripinsky and Williams, supra note 19, at 195–212; Ch. Chatterjee, “The Use of the Discounted Cash Flow Method in the Assessment of Compensation”, Journal of International Arbitration 10 (1993): 19–27; O. Waelbroeck, “La réparation des atteintes aux investissements étrangers: Le Discounted-Cash-Flow”, rbdi 23 (1990): 464–475. cms Gas Transmission Company v. Argentina, supra note 58, para. 430.

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by the Commentary to the arsiwa, for “analysing a wide range of inherently speculative elements” and for leading to double counting.90 In contrast, in the case of an enterprise demonstrating lack of profitability, both the Commentary to the arsiwa and the Guidelines recommend the liquidation value.91 The division of this value by the number of shares gives the value per share. Finally, the arsiwa recognise “that in certain cases compensation for loss of profits may be appropriate”. The Commentary to the arsiwa distinguishes between three categories of such loss: first, lost profits from income-producing property during a period when there has been no interference with title as distinct from temporary loss of use; secondly, lost profits from income-producing property between the date of taking of title and adjudication; and thirdly, lost future profits in which profits anticipated after the date of adjudication are awarded.92 In contrast, neither the Commentary to the arsiwa nor the Guidelines seem to overtly subscribe to market-based method, namely, comparable transactions method. This is perhaps because, as Ripinsky and Williams explain, “[d]espite its popularity in the business community, the market-based method has not found favour with arbitral tribunals”.93 Unlike expropriation, international law contains no rules and there is also little precedent on the standard of compensation for failure to observe other investment treatment and protection standards.94 The absence of provisions on compensation for violation of the fair and equitable treatment in the nafta was interpreted as an indication of the intention of the parties “to leave it open to tribunals to determine a measure of compensation appropriate to the specific circumstances of the case, taking into account the principles of both international law and the provisions of the nafta”.95 The consequent d­ iscretion

90

91 92 93 94 95

arsiwa with Commentaries, supra note 17, at 103; J.B. Simmons, “Valuation in InvestorState Arbitration: Toward A More Exact Science”, Berkeley J Intl L 30 (2012): 196, at 232–233; Ripinsky and W ­ illiams, supra note 19, at 210–211; H. Perezcano Diaz, “Damages in Investorstate ­Arbitration”, in: Y. Derains and R. Kreindler (eds.), Evaluation of Damages in International Arbitration (Paris: icc, 2006), 113, at 126–128, passim; Chatterjee, supra note 88, at 27. World Bank Guidelines, supra note 82, Guideline iv, Section 6; arsiwa with Commentaries, supra note 17, at 103. arsiwa with Commentaries, supra note 17, at 104. Ripinsky and Williams, supra note 19, at 215. Perescano Diaz, supra note 90, at 118; Ripinsky and Williams, supra note 19, at 25; Jagusch and Duclos, supra note 20, at 522 and 524. S.D. Myers Inc. v. Canada, uncitral, Award of 21 October 2002, para. 94; Marvin Feldman v. Mexico, icsid, Award of 16 December 2002, icsid Case No. arb/99/1, para. 195; LG &

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of arbitral tribunals explains the inconsistencies of the solutions adopted with respect to violation of the fair and equitable treatment standard in the Argentinian cases. Ripinsky and Williams point out also that the complexity of the valuation problems has led tribunals to turn to “valuation experts schooled in finance and accounting”. Arbitrators have been rightly criticised because “on a number of occasions … appear to have simply ‘split the baby’, taking the mean between alternative valuations produced by the parties, or were otherwise opaque about how they arrived at the amount of compensation”.96 Brower and Ottolenghi attribute this laxity to the fact that arbitrators calculate damages based on the facts of the case that do “not always fit neatly into the traditional methods of valuation”.97 In addition to the abovementioned, the distinction between the injury of the shareholders and that of the company implies a corresponding distinction in terms of compensation. Although, as the BG Group award puts it, “any damage on MetroGAS will reflect on the value of BG’s equity ownership in gasa and MetroGAS”,98 shareholders’ damage is not necessarily identical to the damage suffered by the company. The Sempra award explains that if the shareholders “were to be found entitled to reparation for damage to its investment, the measure of damages would not necessarily be directly proportionate to any pecuniary loss or deficit suffered by [the company]”.99 In the Impregilo case, an icsid Tribunal found, “an established principle of international law that a shareholder of a company … may not claim for the entire loss suffered by the corporate entity or group”.100 Finally, if the prejudice of the majority shareholder was to be increased in proportion to that of the minority ­shareholder E v. Argentina, supra note 20, para. 40; Khamsi, supra note 41, at 176; Jagusch and Duclos, supra note 20, at 524 and 540. 96 Ripinsky and Williams, supra note 19, 190–191; Simmons, supra note 90, at 208–218. 97 C.N. Brower and M. Ottolenghi, “Damages in Investor State Arbitration”, (2007) 6 tdm 6 (2007): 1, at 16. 98 BG Group Plc. v. Argentina, supra note 49, para. 215. 99 Sempra Energy International v. Argentina, supra note 46, para. 104. Expressing similar concerns, in the Nykomb case, the Tribunal held that “the reduced flow of income into Windau obviously does not cause an identical loss for Nykomb as an investor … it is clear that the higher payments for electric power would not have flowed fully and directly through to Nykomb. The money would have been subject to Latvian taxes etc., would have been used to cover Windau’s costs and down payments on Windau’s loans etc., and disbursements to the shareholder would be subject to restrictions in Latvian company law on payment of dividends. An assessment of the Claimant’s loss on or damage to its investment based directly on the reduced income flow into Windau is unfounded and must be rejected” (Nykomb Synergetics Technology Holding AB v. Latvia, supra note 13, para. 5.2(a)). 100 Impregilo S.p.a. v. Pakistan, icsid, Award of 22 April 2005, icsid Case No. arb/03/03, para. 154, referring to the amt award (American Manufacturing & Trading Inc. v. Zaire, icsid,

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due to his loss of control and management of the company, then his compensation should also be proportionately increased. 2 The Solutions of Arbitral Tribunals Arbitral tribunals have not thus far had the opportunity to rule on the quantum of shareholders’ compensation for expropriation. They have done so though in cases of breach of the other treatment and protection standards. As Ripinsky and Williams rightly observe, in quantifying shareholders’ loss, tribunals referred either to the loss of dividends or to the decrease of equity value.101 This distinction corresponds to that of the shareholders’ patrimonial rights, i.e. the right to receive dividends and the right to receive a part of the company’s assets upon its liquidation. For Ripinsky and Williams, the first approach is characteristic of cases “of destruction, or impact coming close to destruction of the underlying business” whereas the second “is characteristic of cases involving impairment to the underlying business”.102 However, this latter claim is not supported by the case-law. In contrast, tribunals have never compensated shareholders for the loss of their functional rights, namely the value of control and management of the company. In the aapl case, the icsid Tribunal relied on the rule formulated by Max Huber – the president of the pcij in the Chorzów Factory case – in the MelillaZiat Ben Kirm case to search for “the amount of compensation that adequately reflects the full value of the investment lost”103 on the basis of the “reasonable price a willing purchaser would have offered to aapl to acquire its share holding in Serendib”,104 in other words for the fmv of the shares before the loss. In the absence of a stock market price for Serendib’s shares, the Tribunal turned to the value of the company. According to the Tribunal, “the relevant factor is to establish a comprehensive balance sheet which reflects the result of assessing the global assets of Serendib in comparison with all outstanding indebtedness thereof at the relevant time”.105 The Tribunal examined also if Serendib “have had by then developed a ‘good will’ and a standard of ‘profitability’ that renders a prospective purchaser prepared to pay a certain premium over the value of the tangible assets for the benefit of the Company’s ‘intangible’ assets” that would have required the application of the dcf method. However,

101 102 103 104 105

Award of 21 February 1997, icsid Case No. arb/93/1) and to the Iran – US Claims Tribunal case law. Ripinsky and Williams, supra note 19, at 157. Ibid. Asian Agricultural Products Ltd (aapl) v. Sri Lanka, supra note 39, para. 88. Ibid., para. 96. Ibid., para. 98.

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it found that “neither the ‘goodwill’ nor the ‘future profitability’ of Serendib could be reasonably established with a sufficient degree of certainty”.106 Finally, the Tribunal apparently determined the exact amount of compensation of the minority shareholder by dividing the value of the company by the percentage of the shareholder’s equity participation. In the Argentinian cases, icsid Tribunals noted the absence of relevant provisions on compensation for violation of the fair and equitable treatment standard. They all relied on the pcij judgement in the Chorzów Factory case and on the arsiwa in order to recognise the shareholders’ right to full reparation of their equity damage.107 However, they used two different methods of quantification of the shareholders’ damage. While most of them applied the expropriation standard of compensation, namely, the fmv of the shareholders’ equity participation, in the LG&E case the Tribunal relied on the principle of full reparation to compensate only the actual loss of the shareholders.108 In the majority of cases, albeit on different grounds, the tribunals calculated shareholders’ compensation on the basis of the fmv of their investments.109 In the cms case, for example, the Tribunal relied on the cumulative character of the violations and on the fact that the fmv “might also be appropriate for breaches different from expropriation if their effect results in important longterm losses”.110 In the Enron case, the Tribunal observed that the line separating indirect expropriation from the breach of the fair and equitable treatment can be rather thin and in those circumstances the standard of compensation can also be similar on one or the other side of the line. Given the cumulative nature of the breaches that have resulted in a finding of liability, the Tribunal believes that in this case

106 Ibid., paras. 102 and 106. 107 cms Gas Transmission Company v. Argentina, supra note 58, paras. 400–402 and 409; Enron Corporation and Ponderosa Assets L.P. v. Argentina (Award), supra note 58, paras. 359 and 379; Sempra Energy International v. Argentina, supra note 58, paras. 400–403; BG Group Plc. v. Argentina, supra note 49, paras. 422–429; National Grid P.L.C. v. Argentina, uncitral, Award of 3 November 2008, paras. 269–270; El Paso Energy International Company v. Argentina, supra note 36, paras. 700–701; LG&E v. Argentina, supra note 20, para. 31; see also Khamsi, supra note 41, at 170; Alvarez and Khamsi, supra note 41, at 404–405. 108 Jagusch and Duclos, supra note 20, at 527–529 and 533. 109 Khamsi, supra note 41, at 171–172; Alvarez and Khamsi, supra note 41, at 405; see also Ripinsky and Williams, supra note 19, at 202. 110 cms Gas Transmission Company v. Argentina, supra note 58, para. 410; see also cms Gas Transmission Company v. Argentina, icsid, Annulment Decision of 25 September 2007, icsid Case No. arb/01/8, para. 154.

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it is appropriate to apply the fair market value to the determination of compensation.111 In the BG Group case, the Tribunal observed that bit provisions on expropriation do not automatically apply with respect to violations of the fair and equitable treatment but still ruled that the fmv “standard of compensation is n ­ onetheless available by reference to customary international law”.112 In contrast, in the El Paso case, the Tribunal relied on previous awards to adopt the fmv standard.113 Khamsi rightly criticises the reference to the cumulative nature of the violations on the grounds that it implies an increased liability whereas in reality the standards of protection and treatment overlap and ­compensation is in fact limited to full compensation excluding any double counting. In addition, reliance on the similarity of losses ignores the distinction between permanent loss occasioned by expropriation and temporary loss arising from violations of the standards of treatment.114 However, the tribunals did not apply the fmv measure used in expropriation cases but deduced the amount of compensation from the comparison between the value of the shareholders’ equity participation before and after the introduction of the Argentinian measures.115 According to the Enron award, “[t]he equity damages correspond to the loss in value of Claimants’ investment in tgs derived from the measures, … the Tribunal considers that it needs to compare the value of Claimants’ investment before the measures were adopted and its value at present”.116 All other awards followed similar methods.117 In contrast, the tribunals did not compensate shareholders for the entire value of their investment; in the Enron and the El Paso cases on the grounds that the claimants had already sold their equity in the local companies and had

111 Enron Corporation and Ponderosa Assets L.P. v. Argentina (Award), supra note 58, paras. 361 and 379–380. In the Sempra case, the Tribunal based its decision on similar grounds (Sempra Energy International v. Argentina, supra note 58, paras. 402–404). 112 BG Group Plc. v. Argentina, supra note 49, paras. 421–422. 113 El Paso Energy International Company v. Argentina, supra note 36, para. 703. 114 Khamsi, supra note 41, at 178–179. 115 Ibid., at 179. 116 Enron Corporation and Ponderosa Assets L.P. v. Argentina (Award), supra note 58, paras. 379–380. 117 cms Gas Transmission Company v. Argentina, supra note 58, para. 422; Sempra Energy International v. Argentina, supra note 58, paras. 411–412 and 416; BG Group Plc. v. Argentina, supra note 49, paras. 438 and 443; El Paso Energy International Company v. Argentina, supra note 36, para. 703.

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received the relevant consideration whereas in the remaining cases on the grounds that they still maintained it.118 Furthermore, with the exception of the BG Group award, all aforementioned awards applied the dcf method to evaluate the shareholders’ equity participation.119 In the cms and the El Passo cases, the Tribunals based their calculations on the direct value of shares. In the cms case, the Tribunal observed, amongst others, that “the shares of tgn are not publicly traded on a stock exchange” and that the asset value approach would be inappropriate since “cms is a minority shareholder in tgn which is an ongoing company with a record showing profits” and chose instead the dcf method as the most appropriate for the occasion.120 It assessed compensation on the basis of a three-step calculation: “compute first the cash flows to equity (cash flows from operations, minus interest and debt repayments), discount them at the cost of equity … and add the discounted cash flows to equity”. Thus, it established the direct value of the shares before and after the enactment of Argentina’s measures.121 In the El Paso case, the Tribunal also applied the dcf method.122 Yet, its analysis of the valuation is less precise. It assessed shareholders’ compensation by comparing “the fair market value of El Paso’s investment”, in other words, apparently, its equity participation, “with and without the … measures” taken by Argentina.123 In the Enron and the Sempra cases, the Tribunals looked for the indirect value of the shares. In the Enron case, tgs shares were publicly traded but the Tribunal observed the lack of credibility of the stock market value “when the markets are illiquid or the volume of transactions is limited” although it admitted that is always possible “to rely on this approach if longer periods of time are taken into consideration so as to determine relevant averages”. The Tribunal found, “[i]n view of the fact that tgs is a ‘going concern’”, “that its fair market value should include the measure of its future prospects”.124 The dcf method “reflects the companies’ capacity to generate positive returns in the future” and, therefore, “appears as the appropriate method to value a ‘going concern’ as tgs”.125 The Tribunal applied this method to assess the value of the 118 Enron Corporation and Ponderosa Assets L.P. v. Argentina (Award), supra note 58, para. 394; El Paso Energy International Company v. Argentina, supra note 36, paras. 114–116. 119 Khamsi, supra note 41, at 173; Alvarez and Khamsi, supra note 41, at 405. 120 cms Gas Transmission Company v. Argentina, supra note 58, paras. 411–413. 121 Ibid., paras. 422–469. 122 El Paso Energy International Company v. Argentina, supra note 36, paras. 711–712. 123 Ibid., para. 703. 124 Enron Corporation and Ponderosa Assets L.P. v. Argentina (Award), supra note 58, paras. 383–384 and 425. 125 Ibid., paras. 385–386.

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company before the enactment of the measures which it subsequently divided by the percentage of equity participation of the minority shareholder to obtain the value of his shares.126 It finally verified this result in the light of the fluctuations of the stock exchange value of the shares.127 Yet, since the majority of tgs’ shares were sold after the adoption of the measures, the Tribunal used the shares’ purchase price to assess their actual direct value.128 In the Sempra case, finally, the experts of the claimant proposed a threestep valuation method. First, they assessed historical damage suffered by each of the two companies “as a consequence of the non-application of the US ppi adjustments to the tariffs, the non-payment of subsidies owing to them under the License, and the reduction of income they suffered from the implementation of taxes which were not translated into tariff increases”. Then, they calculated dcf “value of the companies in the context of the pesification scenario following the adoption by Argentina of the measures complained of”. Finally, they established the value of the companies “in the context where the spirit of the original contractual conditions would have been maintained for the duration of the License (‘the but-for scenario’)”, using the dcf and the book value. They assessed the damage suffered “by first stating the value of the firms under the but-for scenario, from which the value under the pesification scenario is subtracted and the value of the historical damages is added”.129 The Tribunal however adjusted the proposed valuation taking into account the Memorandum of Understanding for the Adjustment of the License Agreement for Distribution of Natural Gas signed between the companies and Argentina after the introduction of the measures.130 Through this calculation, the Tribunal found the amount of total equity value loss suffered by each company which it subsequently divided by the percentage of the shareholders’ stake.131 Khamsi rightly observes that by deducting the “with breach” from the “without breach” fmv for assets without market for what was lost, the tribunals applied in fact “a diminution in value measure” to evaluate the loss of value of shareholders’ participation.132 However, the tribunals did not entirely ignore the speculative character of the dcf method133 and used additional­

126 Ibid., paras. 420–421. 127 Ibid., para. 426. 128 Ibid., para. 430. 129 Sempra Energy International v. Argentina, supra note 58, paras. 411–413. 130 Ibid., paras. 417–459. 131 Ibid., paras. 460–461. 132 Khamsi, supra note 41, at 179. 133 Ibid., 182.

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criteria of valuation to readjust experts’ calculations.134 In the BG Group case, for instance, the Tribunal rejected the dcf method and applied instead a ­comparable transactions valuation model. It defined damage as the difference between the value of “BG’s 45.1% investment in MetroGAS immediately before and after the promulgation of the Emergency Law”,135 calculated on the basis of a sale of a minority percentage concluded before and a debt restructuring transaction concluded after the enactment of the measures.136 Finally, the tribunals did not disregard the effect of the economic crisis on the value of the enterprises.137 Unlike the previous cases, the LG&E award applied a business interruption model to compensate shareholders for their loss of profit. The Tribunal observed that the fmv method “is appropriate in cases of expropriation in which the claimants have lost the title to their investment or when interference with property rights has led to a loss equivalent to the total loss of investment”.138 It found that the value of LG&E investment has “rebounded” since the economic crisis and that the effect of the measures has not been permanent on the value of the Claimants’ shares. In fact, the loss of the capital value has not crystallized. Had LG&E sold its investment, as did other foreign investors, for a depressed value resulting from the measures, capital value would become a practicable basis for determining compensation. It therefore concluded that the claim for loss in capital value was premature and rejected it as basis for compensation.139 Looking for the actual loss suffered as a result of Argentina’s conduct, it held instead that Argentinian measures had led to a substantial reduction of the company’s revenues and therefore to a reduction of shareholders’ dividends. It therefore searched for the amount of dividends that the shareholders would have received had Argentina not taken the measures, in order to put the investor in the position that he would have been had the injury not taken place.140 The Tribunal distinguished between 134 Alvarez and Khamsi, supra note 41, at 406–407; Khamsi, supra note 41, at 174 and 176; Ripinsky and Williams, supra note 19, at 203. 135 BG Group Plc. v. Argentina, supra note 49, para. 438. 136 Ibid., paras. 440–441. 137 Alvarez and Khamsi, supra note 41, at 406; see also El Paso Energy International Company v. Argentina, supra note 36, paras. 685 and 712; National Grid P.L.C. v. Argentina, supra note 107, para. 274. 138 LG&E v. Argentina, supra note 20, para. 35. 139 Ibid., para. 47. 140 Ibid., paras. 48, 58 and 60.

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the certain accrued losses and the uncertain future profits and, relying on the requirement of the arsiwa to compensate future profits in so far as it is established, compensated only historical dividends that shareholders would have received from the date Argentina adopted the measures until the 28th of February 2005 -date of submission of the pre-hearing briefs of the parties.141 Notwithstanding the differences between the amounts of compensation awarded in the LG&E case on the one hand and in all other cases on the other,142 all awards share a number of common traits. In fact, although arbitral tribunals aimed at compensating investors for their injury, they only compensated shareholders for injury suffered in their patrimonial rights. In addition, with the exception of the BG Group award, they all compensated shareholders for their actual loss of profits, in other words their damnum emergens.143 The cms, the Enron, the Sempra and the El Paso awards applied the dcf method which capitalises future profits of the enterprise and therefore calculates only the loss of profits,144 in order to compensate shareholders for the actual reduction of the market value of their equity participation. The LG&E award compensated shareholders for the actual decrease of their historical dividends. In contrast, none of the awards compensated shareholders for the value of their equity after the enactment of the measures, namely, for their lucrum cessans, on the grounds that they either had subsequently sold145 or still maintained their equity. However, in the El Paso case, the Tribunal did not deduct from the amount of compensation the consideration that the shareholders had already received from the sale of their participation on the grounds that the dcf method assumes that the claimant continues to keep his shareholding in the company.146 Interestingly enough, in the cms case, in order to avoid the problem of continuing ownership of the shares, the Tribunal granted Argentina an option to purchase the shares at a reduced price after deduction of dividends and any amounts received by the shareholders subsequent to the adoption of the measures, in order to avoid double compensation.147 Saldarriaga and Kantor 141 Ibid., paras. 51, 60, and 88–90. 142 Alvarez and Khamsi, supra note 41, at 406–407; Khamsi, supra note 41, at 174 and 176. 143 On the distinction between damnum emergens and lucrum cessans under the dcf method, see Simmons, supra note 90, at 222–223. 144 See Chatterjee, supra note 88, at 27; Amoco International Finance Corporation v. Iran, Iran – US Claims Tribunal, Award of 14 July 1987, Award No. 310-56-3, Iran-US Claims Tribunal Reports 15 (1987): 189, at 189 et seq.; contra, H. Weisburg and Chr. Ryan, “Means to be Made Whole: Damages in the Context of International Investment Arbitration”, in: Y. Derains and R. Kreindler (eds.), Evaluation of Damages in International Arbitration (Paris: icc, 2006), 165, at 174. 145 Supra note 115. 146 El Paso Energy International Company v. Argentina, supra note 36, para. 740. 147 cms Gas Transmission Company v. Argentina, supra note 58, paras. 466 and 469.

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explain that “[i]f Argentina later chose to rescind its unlawful acts and, as a result, the share value rose, Argentina would have made a choice by exercising (or not exercising) the share option as to whether cms or Argentina would capture that future change in value”.148 Finally, by calculating compensation on the basis of the percentage of shareholder’s equity participation, all awards apportioned compensation amongst majority and minority shareholders in accordance with the scope of their respective injury, thus ignoring the value of control and management normally reserved to the majority shareholder. However, by quantifying damage through the dcf method which is based on the value of the enterprise, the tribunals compensated, in reality, the shareholders for damage suffered by the company. They thus ignored the distinction between direct and indirect damage as well as the underlying ­distinction between the injury of the company and that of its shareholders. Departing from the arsiwa, tribunals accepted through a side door what they had already rejected in the context of definition of the scope of shareholders’ injury: they compensated shareholders for damage suffered by the company, in other words, for their indirect damage. Yet, compensation of the shareholder for damage suffered by the company without simultaneous exclusion of the right of the company to file a claim for its own damage may lead to double compensation or, to use the wording of the El Paso award, shareholders can have their cake and eat it too.149 Those were perhaps the main reasons behind the quest for alternative methods of calculation of compensation. The BG Group award avoided the application of the dcf method thus maintaining the distinction between the injury of the company and that of the shareholder in order to compensate shareholders for their direct damage. By awarding compensation only for the decrease of historical dividends, the LG&E award followed the approach of the Commentary to the arsiwa on the appropriateness of compensation for loss of profits and ingeniously avoided the shortcomings of compensation for the reduction of the market value of equity. The Tribunal rightly observed the temporary character of both the reduction to the value of equity and the consequent damage of the shareholder in the absence of transfer of the shares after the enactment of the measures. Indeed, a subsequent appreciation of the equity value would offset shareholders’ loss. Shareholders would have been even better off, having benefited from both compensation and appreciation of their share value. On the other hand, 148 A. Saldarriaga and M. Kantor, “Calculating Damages: Arbitrators, Counsel, and Experts Can Do Better Than They Have in the Past”, in: K.W. Lu, G. Verheyen and Sr. Perera (eds.), Investing with Confidence: Understanding Political Risk Management in the 21st Century (Washington, DC: The World Bank Group, 2009), 196, at 201. 149 See El Paso Energy International Company v. Argentina, supra note 36, para. 204.

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Saldarriaga and Kantor point out that “if a portion of the company’s earnings is reinvested in the company to grow the enterprise, rather than being paid to the shareholders as dividends”, the calculation would “result in zero compensation if the company was in a negative cash flow situation because it was in the midst of development or construction, even if the company was nevertheless acknowledged to be very valuable”.150 Hence, the Tribunal authorised the claim of the company for the direct damage it has suffered while implicitly allowing future claims of shareholders who would maintain their shares until the end of the concession period.151 IV Conclusion On the basis of the municipal law distinction between the company and its shareholders, customary international law excludes diplomatic protection of shareholders for injury that they have suffered by measures of the host country taken against the company. This restriction was lifted through provisions of bits and iias that include, amongst others, equity participation in their definition of investments covered, allowing foreign majority and minority investors to benefit from their protection. Arbitral tribunals have recognised shareholders’ protection and their consequent right to file claims against the host country and that independently from the corresponding right of the company. However, the absence of restrictive mechanisms in procedural law and the autonomy of the rights of majority shareholders, minority shareholders and of the company allow parallel procedures and, consequently, the plurality of decisions and awards that may be contradictory or even lead to double compensation and to the unjust enrichment of the claimants. Even if the arsiwa may apply in relation to investor-State disputes, they fail to directly address the issue of shareholders’ scope of injury. Read in conjunction with the distinction between the company and its shareholders recognised in relation to diplomatic protection, they provide a guideline for the definition of the scope of injury of the minority and majority shareholders and of the company and for the consequent distribution of compensation amongst them in proportion to their respective damage for the avoidance of double compensation. Arbitral tribunals, indeed, recognised the right of shareholders to file a claim independently from the company, and despite rejecting the relevance 150 Saldarriaga and Kantor, supra note 148, at 202. 151 LG&E v. Argentina, supra note 20, paras. 88–90 and 96–97.

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of the Barcelona Traction rule, they never abandoned the distinction between the injury of the company and that of its shareholders. At the beginning, they identified the rights of investors with those of the shareholders in order to award compensation only for the direct damage of the shareholders. However, they subsequently applied the doctrine of economic unity of the investor and the investment in order to extend shareholders’ protection. In the Argentinian cases, arbitral tribunals distinguished between the injury to the investors’ property, namely to the rights of the shareholders, that constitutes an expropriation, and the injury to the investors’ treatment, namely to the enjoyment of a stable business environment under which the investment was decided and made, that amounts to a breach of the fair and equitable treatment. Referring to investors rather than to shareholders, they found a violation of treatment in order to recognise an injury to shareholders’ patrimonial rights that could not be compensated as a violation of protection. Consequently, they maintained the distinction between the injury of the company and that of its shareholders authorising shareholders to file claims only for their own injury while implicitly allowing the company to claim for its own injury. References to the right of control and management of the company in arbitral awards imply a further distinction between the injury suffered by the minority shareholder, limited to the percentage of his equity participation, and that suffered by the majority shareholder that includes injury in both his equity participation and his right of control and management. The arsiwa provide for compensation for direct damage excluding recovery of more than the damage suffered, making the problem of definition of shareholders’ compensation a problem of quantification of their damage. Both the arsiwa and the World Bank Guidelines determine the amount of compensation for expropriation on the basis of the fmv of the property. In  the case of  listed companies the value of shares is their stock market value. In the case of non-listed companies, the value of shares depends on the value of the company. Enterprises consisting of income-producing assets with a proven record of profitability (going concerns) may be evaluated through the dcf method whereas non-profitable enterprises may be evaluated through their liquidation value. The absence of relevant rules on compensation for the violation of the other protection and treatment law standards has given arbitral tribunals a certain discretionary power. In addition, arbitral tribunals have often avoided to present details of their calculation and have occasionally adopted arbitrary solutions. Yet, they have always held that shareholders’ damage is not identical to damage suffered by the company. Arbitral tribunals have not had the chance to rule on shareholders’ compensation for expropriation. They compensated shareholders for the reduction of

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the value of their equity or the amount of their dividends in cases of violation of the other investors’ treatment and protection standards. Although aiming at compensating investors’ injury, they in fact compensated shareholders for their injury quantified on the basis of the percentage of their equity participation in the company. As a result, they apportioned compensation amongst majority and minority shareholders without taking into account the value of control and management normally reserved for the majority shareholder. Finally, on the grounds that shareholders had previously sold or maintained their equity participation in the company, they did not compensate them for the value of their shareholding after the introduction of the measures. The majority of awards compensated shareholders for the reduction of the fmv of their investments. Arbitral tribunals not only compensated shareholders for a temporary damage but also applied the dcf method to establish the value of the shares before and after the introduction of the measures. However, the dcf method defines shareholders’ loss on the basis of the value of the enterprise and therefore leads to compensation of the shareholders for damage suffered by the company. Hence, tribunals departed from the direct damage restriction of the arsiwa to authorise through the method of definition of compensation what they had rejected in the context of the definition of the scope of injury, namely to compensate shareholders for their indirect damage. In addition, they authorised the company to claim for its own damage, thus risking compensation for damage already included in the compensation of the shareholders. In other words, tribunals reintroduced at the level of the scope of compensation the risk of double compensation that they had restricted at the level of scope of injury. The definition of the shareholders’ compensation on the basis of the difference between the amount of dividends that they had actually received and the amount that they would have received had the harmful measure not being taken follows the approach the arsiwa on loss of profits established with certainty and avoids the shortcomings of compensation for the reduction of the fmv of shareholders’ equity participation. Yet, at the same time, it authorises the claim of the company for the damage it has suffered as well as future claims of shareholders that maintain their participation until expiration of their concession. The solutions adopted by the arbitral tribunals, particularly in relation to the identical problem of definition of shareholders’ compensation for violation of the fair and equitable treatment standard in the Argentinian cases, illustrate both the difficulties of the definition of shareholders’ injury and compensation, the limits of the general guidance offered by the rules on State responsibility and the relevance of the Barcelona Traction rule. Despite the identity of solutions adopted in relation to the scope of shareholders’ injury

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and compensation, important inconsistencies in the definition of the quantum of shareholders’ compensation and the failure to address successfully the risk of allocation of double compensation show the inadequacy of the current methods of enterprise valuation and the consequent need for further development of the law in this area while offering an argument to those contesting the legitimacy of investor-State arbitration.

Chapter 10

Establishing International Responsibility in Rendition Cases before the European Court of Human Rights Nikolaos Voulgaris I Introduction On 13 December 2012, the European Court of Human Rights (ECtHR or the Court) delivered its judgment in its first extraordinary rendition case: El-Masri v. the Former Yugoslav Republic of Macedonia.1 The applicant was subjected by fyrom and US agents to a secret operation that took place in the territory of fyrom and Afghanistan and finally ended in the border between fyrom and Albania in May 2004. The judgment of the Court was therefore a long anticipated one. For the applicant, who suffered a five-month humiliation and subsequently embarked upon a ten-year quest for justice, the favourable ruling of the ECtHR was indisputably a solace. For the international human rights community, the first condemnation by the Court of the extraordinary rendition practice was a development welcomed with enthusiasm. This chapter, however, does not fully share these emotions. On the contrary, it stresses that the Strasbourg Court missed the opportunity to deliver a judgment that could serve as a precedent for future cases on a controversial aspect of the law of State responsibility. The focus is on the complicated matter of State responsibility for the act of another, otherwise called indirect responsibility.2 Specifically, the Strasbourg Court held fyrom responsible, inter alia under Articles 3 and 5 of the European Convention on Human Rights (echr) not only for own conduct, but also – and here lies the perplexing part of the judgment – for conduct performed by US agents.3 The respondent State then 1 El-Masri v. The Former Yugoslav Republic of fyrom, ECtHR [GC], Judgment of 13 December 2012, Application No. 39630/09 (hereinafter El-Masri). 2 The latter term was introduced by: ilc, “Eighth Report on State Responsibility of the Special Rapporteur, Mr. Roberto Ago”, A/CN.4/318 and Add.1-4 (24 January, 5 February and 15 June 1979), reproduced in: yilc [1979/ii, Part One]: 3, at 4, para. 2. 3 The Court also held that fyrom was responsible under Articles 8 and 13 of the echr, but this aspect of the judgment is not pertinent to the present analysis.

© koninklijke brill nv, leiden, ���9 | doi:10.1163/9789004390485_011

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was, according to the Court, internationally responsible for the applicant’s illtreatment and detention by cia agents. In order to arrive at this conclusion, the Court sidestepped Article 16 of the International Law Commission’s Articles on State Responsibility (arsiwa) that regulates complicity,4 leaving thus the normative underpinnings of its judgment unclear.5 The judicial application of Article 16 has proven problematic especially in the string of cases regarding rendition operations before the ECtHR. The relevant case-law of the Strasbourg Court is not that extensive, but it highlights in an exemplary way the misconceptions surrounding this aspect of international responsibility. In fact, the most recent relevant cases before the Court have attempted a fine-tuning of the El-Masri responsibility approach. The similar twin cases Al-Nashiri v. Poland and Husayn (Abu Zubaydah) v. Poland,6 but also the Nasr and Ghali v. Italy case,7 demonstrate a timid distancing from the ElMasri precedent and an alignment with the ilc international responsibility framework. The present chapter argues that the change of heart effectuated with the Court’s latest case-law must be welcomed, since it puts to rest any discussion around fragmentation in the law of international responsibility and at the same time proves that the law of international responsibility possesses the necessary tools to tackle scenarios of complex interaction between international subjects, such as the practice of extraordinary rendition. To this end, the analysis will be divided in four parts. In the first, the Court’s approach to responsibility for the act of another in El-Masri will be scrutinized. In the second, the aforementioned approach will be juxtaposed to that of the ilc and the main points of divergence will be highlighted. The following section will assess the ramifications deriving from this divergence, in order to demonstrate that the case at hand has set a foul precedent for future ­rendition cases. The chapter will finally discuss how the Court has fine-tuned its ­approach to international responsibility in the rendition cases that were 4 ilc, “Report of the International Law Commission Covering its 53rd Session”, A/56/10 (2001) reproduced in: yilc [2001/ii Part Two]: 1, at 65–67 (hereinafter arsiwa Commentaries). 5 Main point of criticism in: A. Nollkaemper, “The ECtHR Finds Macedonia Responsible in Connection with Torture by the cia, but on What Basis?”, (EJILTalk!, 24 December 2012), available at: (last accessed on 1 March 2018). 6 Al-Nashiri v. Poland, ECtHR, Judgment of 24 July 2014, Application No. 28761/11 (hereinafter Al-Nashiri); Husayn (Abu Zubaydah) v. Poland, ECtHR, Judgment of 24 July 2014, Application No. 7511/13. Because the cases have identical facts and reasonings, reference will be made only to Al-Nashiri. 7 Nasr and Ghali v. Italy, ECtHR, Judgment of 23 February 2016, Application No. 44883/09 (hereinafter Nasr and Ghali).

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decided after El-Masri in order to align with the framework provided by the arsiwa. II

El-Masri: a New Approach to Conceptualising State Responsibility

Before turning to the analysis of the legal issues, it is fitting to outline the facts of the El-Masri case.8 Khaled El-Masri, a German national, travelled by bus to fyrom in 2003 where he was detained at the border and held in a hotel in Skopje for 23 days. During this period, fyrom agents were constantly guarding him, threatening him with a gun and interrogating him in a foreign language about his suspected links with Al-Qaeda. He was then driven to Skopje airport and handed over to cia agents who subjected him to the standard “capture shock” treatment: handcuffing, blindfolding, undressing and sodomising. The agents then forcefully placed him in a cia aircraft, and flew him out of fyrom to the secret “Salt Pit” prison in Kabul, Afghanistan. There he was ill-treated for over four months. He was subjected to torture and repeated interrogation about his alleged involvement in terrorism. He was then flown back to Europe, abandoned near the Albanian border where he was arrested by the Albanian authorities and finally sent back to Germany. While in the hands of the fyrom and US officials, El-Masri did not have access to any legal process, was not officially charged, nor was he allowed any contact with the outside world, despite his repeated requests to contact his wife, a lawyer, or German consular officials. El-Masri’s subsequent search for justice has repeatedly been thwarted by domestic authorities in Germany, the US and fyrom. Eight and a half years after his ill-treatment, the Court finally held that fyrom has violated its obligations under the echr, delivering thus some justice to the applicant.9 The Court, in holding that fyrom was internationally responsible under the echr for a violation of, inter alia, Articles 3 and 5, utilised particularly obfuscatory reasoning that rendered the judgment somewhat problematic. The applicant’s complaints against fyrom with respect to the substantive aspects of Articles 3 and 5 concerned the whole period of his enforced disappearance. The engagement of the respondent State’s responsibility for his ill-treatment and detention during his stay in the hotel was unproblematic for 8 For a detailed account of the facts of the case see El-Masri, supra note 1, paras. 15–77. 9 In fact, the applicant was awarded in toto 60,000 Euros, a high figure for the standards of the Court.

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the Court. The primary norm violated was clear – the prohibition of torture or of detention without charge- and the conduct that violated the norm was clearly performed by agents of the respondent State. Equally unproblematic was the establishment of fyrom’s responsibility for the transfer of the applicant into US custody. The Soering10 and the Abu Qatada11 cases provided precedents that could not be ignored by the Court. In light of these, fyrom was in breach of the standards provided by Articles 3 and 5 by handing the applicant into the mouth of the wolf, i.e. where substantial grounds have been shown for believing that the person would face a real risk of being subjected to treatment contrary to these Articles.12 Again, fyrom’s responsibility is engaged for the breach of a norm that occurs through the conduct of its own agents. So far, so good. The Court however did not stop there. According to the judgment, the respondent State was also responsible for the torture that occurred at Skopje airport and the detention in Afghanistan.13 It struggled very hard to go beyond the above-mentioned case-law and fit into the traditional responsibility scheme the events that followed the removal of the applicant to cia custody. It may be that Strasbourg wished to send member-States a message of zero tolerance vis-à-vis extraordinary rendition cases or that the case at hand was indeed the right one for such a new turn of its jurisprudence. Leaving the political background aside, it will be shown that the Court’s reasoning, to the extent that it attributes to fyrom the conduct of US agents, is based on a problematic normative construction. The troubling aspect of the reasoning does not lie in the foundations per se of fyrom’s responsibility; the Court had in mind that international responsibility is comprised of two pillars, attribution and breach of a primary norm and the analysis follows this model.14 It is rather the Court’s analysis of questions of attribution and breach of primary norms that is mind-boggling, if not baffling. Being blended altogether in a melange of thoughts, it is a clarification exercise to extract the legal rule hiding behind the Court’s reasoning. The judgment had to establish that conduct performed by US agents was attributable to fyrom and subsequently that this conduct violated Articles 3 10 11 12 13 14

Soering v. United Kingdom, ECtHR [GC], Judgment of 7 July 1989, Application No. 14038/88 (hereinafter Soering). Othman (Abu Qatada) v. the United Kingdom, ECtHR, Judgment of 17 January 2012, Application No. 8139/09, para. 233. For the violation of Article 3, see El-Masri, supra note 1, paras. 200–204; while for the violation of Article 5, ibid., paras. 236–237. For Article 3, see El-Masri, supra note 1, paras. 205–222; for Article 5, ibid., paras. 238–239. See Article 2 of the arsiwa.

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and 5 of the Convention. And while under the law of international responsibility the legal exercise of attribution is attached to notions of control or State affiliation, in the particular instance the Court muddied conceptual waters by putting other notions on the table. The attribution question in the analysis of Article 3 was approached as follows: The Court must first assess whether the treatment suffered by the applicant at Skopje Airport at the hands of the special cia rendition team is imputable to the respondent State. In this connection it emphasises that the acts complained of were carried out in the presence of officials of the respondent State and within its jurisdiction. Consequently, the respondent State must be regarded as responsible under the Convention for acts performed by foreign officials on its territory with the acquiescence or connivance of its authorities (see Ilascu and Others v. Moldova and Russia [GC], no. 48787/99, § 318, echr 2004-vii).15 In other words, a member-State that has the positive obligation to take reasonable steps to avoid a risk of torture/ill-treatment within its territory, will be responsible for the torture/ill-treatment itself as long as it acquiesces or connives to such action.16 In this way, attribution of conduct in a territorial context is dependent upon two distinct elements: acquiescence plus the presence of a particular positive primary obligation. The reasoning of the Court suggests that it understood the scenario as one of indirect responsibility or responsibility for the act of another. First, within fyrom’s jurisdiction, the Strasbourg Court explained that the respondent State is responsible under the echr for acts of torture performed by foreign officials on its territory with the acquiescence or connivance of its authorities, “since its agents actively facilitated the treatment”.17 The ECtHR clearly held in paragraph 206 of the judgment that “the treatment suffered by the applicant at Skopje Airport at the hands of the special cia rendition team is imputable to the respondent State”. Had the Court opted to attribute to the respondent State its own agents’ inactivity and failure to act, and thus find a violation of an obligation to prevent the occurrence of the harm, the Court’s reasoning would have made perfect 15 16 17

El-Masri, supra note 1, para. 206. The terms connivance and acquiescence will be used interchangeably throughout this chapter. El-Masri, supra note 1, para. 211.

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sense: fyrom would have been directly and independently responsible under Article 3 of the echr for the violation of a primary norm incumbent upon its own organs, and for the conduct of its own organs.18 That, however, is not what the Court had in mind. For reasons of consistency, the Court applied the same principle with respect to the applicant’s complaints regarding his detention by US agents in the infamous Salt Pit prison in Afghanistan. In particular the Strasbourg court held that: “the Macedonian authorities not only failed to comply with their positive obligation to protect the applicant from being detained in contravention of Article 5 of the Convention, but they actively facilitated his subsequent detention”.19 On the basis that the fyrom authorities “actively facilitated his subsequent detention”, the ECtHR attributes US conduct in Kabul to fyrom. In this way, the Court inevitably concludes that fyrom is to be held responsible for violating the applicant’s rights under Article 5 during the entire period of his captivity. The extraterritorial aspect of the Article 5 claim was not significant for attribution purposes and hence connivance and the existence of a primary obligation to prevent the violation that finally occurred, are sufficient conditions for the establishment of attribution, irrespective of the territory where the violation takes place. Consequently, the acts of US agents in Afghanistan are attributable to the respondent State, which in its turn is responsible for the applicant’s illegal detention. When it comes to Article 5 though, the absurdity of the attribution rule invented by the Court is more apparent given that no clear link exists between the respondent State and the violation of the applicant’s rights. fyrom will have to redeem the applicant for an injustice done not only by organs of another State, but also outside its jurisdiction. III

The Distortion of the arsiwa

It has to be noted from the outset that the Ilascu precedent used by the ECtHR to support the engagement of fyrom’s responsibility is stretched, if not distorted in El-Masri. The relevant passage from Ilascu goes as follows: “In addition, the acquiescence or connivance of the authorities of a Contracting 18

19

This is also Jackson’s suggestion: “A better solution would be to interpret the rights guaranteed by human rights instruments as imposing a correlative duty of non-participation in violations of human rights carried out by other actors. In this way, states would be held responsible for their own contribution to wrongdoing”; M. Jackson, Complicity in International Law (Oxford: Oxford University Press, 2015), at 200. El-Masri, supra note 1, para. 239.

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State in the acts of private individuals which violate the Convention rights of other individuals within its jurisdiction may engage the State’s responsibility under the Convention”.20 It is evident from the wording of the text that the Court was then referring to the acts of private individuals, not public officials, operating within the jurisdiction of the territorial State. This distinction may seem a legal nicety given the obligation of “States to take measures designed to ensure that individuals within their jurisdiction are not subjected to torture or inhuman or degrading treatment” upon which the Court bases its attribution argument.21 For present purposes of attribution to fyrom of US conduct, the capacity of private or public agent is significant as acts of the latter are automatically attributed to the US as per Article 4 arsiwa while conduct of private parties is not prima facie attributable to any State. One would then expect that the threshold for attribution would be different in each case and hence the “self-evident” equation put forward by the Court without any explanation whatsoever cannot be easily upheld. Even if the equation referred to above is upheld, the link between attribution and acquiescence established by the Court is totally untenable from a State responsibility perspective. In Chapter 2 of the arsiwa the ilc exhaustively lists the criteria for attribution of conduct22 and, unsurprisingly, connivance is not one of them. To the contrary, acquiescence that amounts to facilitation clearly falls under the ambit of complicity under Article 16 of the arsiwa.23 According to the Commentaries to this provision, situations “where a State voluntarily assists or aids another State in carrying out conduct which violates the international obligations of the latter”, fall into the provision’s scope of application.24 According to the ilc, the rubric “aid or assistance”, covers all instances of international responsibility for help or support given in the commission of a wrongful act. It is the interrelationship between the aid provided and the wrongful act committed that puts the complicity model in operation. Aid or assistance then is assimilated with facilitation linked to the subsequent wrongful conduct.25 The “active facilitation” provided by fyrom to the acts of torture 20 21 22 23 24 25

Ilascu and Others v. Moldova and Russia, ECtHR [GC], Judgment of 8 July 2004, Application No. 48787/99, para. 318. El-Masri, supra note 1, para. 198. arsiwa Commentaries, supra note 4, at 39, para. 9. Milanovic, uses a similar example to describe a scenario of “territorial complicity”; M Milanovic, Extraterritorial Application of Human Rights Treaties: Law, Principles, and Policy (Oxford: Oxford University Press, 2011), at 124. arsiwa Commentaries, supra note 4, at 66. Ibid.

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committed by US agents, renders thus the respondent State responsible in connection with US conduct according to the complicity model.26 In these scenarios however, “the assisting State is responsible for its own act in deliberately assisting another State to breach an international obligation … It is not responsible, as such, for the act of the assisted State”.27 The underlying assumption of the provision is that the facilitator is responsible autonomously for the aiding/assisting itself and not for the main act.28 The facilitation per se is the accomplice’s wrongful act. Since Article 16 prescribes certain conduct as internationally wrongful it deviates from the secondary focus of all international responsibility norms.29 It is safe to assume that it incorporates a primary norm of international law that prohibits the facilitation of the main wrongful act.30 Consequently, acquiescence is not part of the attribution question but rather part of a latent primary norm within Article 16 that prohibits any form of assistance to the perpetrator of the main act. The approach of the Court in Ilascu is aligned with the analysis of Article 16 arsiwa. In contrast with its “reiteration” in El-Masri, the Ilascu quote does not stress that the responsibility engaged pertains to the act of another; it was 26 27

28 29

30

El-Masri, supra note 1, para. 211. arsiwa Commentaries, supra note 4, at 67. The icj validated such a statement in its 2007 Genocide judgment and held obiter that Article 16 is customary law; Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), Judgment of 26 February 2007, [2007] icj Rep. 43, para. 380. The wording of Article 16 arsiwa is unequivocal. The accomplice is responsible “for doing so”; B. Graefrath, “Complicity in the Law of International Responsibility”, rbdi 29 (1996): 370, at 374–375. arsiwa Commentaries, supra note 4, at 31. It has been argued lately that the use of the primary/secondary distinction in the international responsibility framework does not reflect a purely Hartian analysis and was “designed solely as a methodological vehicle”; A. Gourgourinis, “General/Particular International Law and Primary/Secondary Rules: Unitary Terminology of a Fragmented System”, ejil 22 (2011): 993, at 1018. Boyle has advocated for this approach: “The designation of obligations as either primary or secondary is not itself important, for it is merely a helpful way of expressing a distinction between the content of rules of law and the results of their breach”; Boyle, A.E., “State Responsibility and International Liability for Injurious Consequences of Acts Arising out of Acts not Prohibited by International Law: A Necessary Distinction?”, iclq 39 (1990): 1, at 10–11. I believe that the provision is of a mixed nature, but the disentanglement of the two subnorms latent within the wording of the rule is possible. The primary sub-norm incumbent upon the facilitator would be: “do not facilitate the commission of an internationally wrongful act”. The secondary sub-norm in its turn pertains to the consequences flowing from the breach of the aforementioned norm, i.e. the incurring of responsibility; see N. Voulgaris, Allocating International Responsibility between International Organizations and Member States (London: Hart Publishing, forthcoming 2019), at Chapter 4.

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rather evoked by the Court in order to establish Russia’s responsibility for conduct already attributed to its own authorities. The Court thus never implied that acquiescence or connivance is indeed a criterion for attribution of conduct of private parties to the territorial State. On the contrary, acquiescence or connivance was rather the conduct through which the territorial State violated its aforementioned positive primary obligation of adopting appropriate measures. In the Court’s construction then, complicity is reduced to a scenario of attribution of conduct. One the one hand, it clearly articulates intentional facilitation as the element that triggers fyrom’s international responsibility (complicity), but it suggests that fyrom is legally responsible for the physical conduct performed by US agents. In other words, complicity is conceptualised by the Court as a criterion of attribution of State conduct.31 And while such an argument can be made with respect to private conduct,32 it is contra legem when it comes to inter-State co-operation. And this does not strike as absurd to the extent that US conduct is committed within fyrom’s jurisdiction, but it is far-fetched with respect to extra-territorial acts that lie beyond the jurisdictional reach of the respondent State. Equally unprecedented is the connection between attribution and the presence of a primary norm. The apparent result of this innovative reasoning is a mix-up of the primary obligations in play. In El-Masri, fyrom is held responsible solely for the commitment of torture while in Ilascu the Russian Federation was responsible for not preventing torture from happening. The Court seems to imply that because fyrom violates so provocatively its obligation to prevent US conduct, this ipso facto transposes every primary norm incumbent upon the US towards fyrom. This logical leap however nullifies the operation of the non-prevention norm, while at the same time it suggests that the gravity of the breach affects the content of the applicable primary norm. Thus, the word “consequently” in the third sentence of paragraph 206 is nothing but a lead-up to a non sequitur, since it is based on three unproven assumptions: (a) that acts performed by public authorities are equated with those performed by private entities (b) that connivance or acquiescence is a criterion for attribution of conduct and (c) that a grave violation of primary norms is sufficient condition for a transposition of such norms. It is this furtive pseudo-recapitulation of its earlier case-law and the mix-up of primary 31 Jackson supra note 18, 194. 32 D. Amoroso, “Moving Towards Complicity as a Criterion of Attribution of Private Conducts: Imputation to States of Corporate Abuses in the US Case-law”, ljil 24 (2011): 989–1007.

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obligations incumbent upon the territorial State that the Court used to restate things that it had actually never said before. The only plausible exegesis of the attribution conundrum created, is that the judges themselves did not have this aspect clear in their mind. This must be kept in mind as it is the main source of confusion in the Court’s reasoning. IV

Ramifications of Judicial Activism

The disassociation between the general rules on State responsibility and the Court’s reasoning in El-Masri is not in itself a cause for concern. As has been argued elsewhere: “the fact that the Court does not feel compelled to follow the ilc’s conceptual straightjacket is in many respects refreshing”.33 The ramifications of this approach are alas important and as will be argued below they are the reason why analogous future cases have been dealt with differently. It is submitted here that Article 16 arsiwa should have been applicable given the circumstances of the case and fyrom’s responsibility should arise in connection with US conduct, not for it. Under the analysis of the provision, the respondent State should be held responsible for the facilitation itself and this makes the main wrongful conduct (the ill-treatment itself when it comes to Article 3 or the detention itself when it comes to Article 5) attributable to the US. In this way, two separate independent responsibilities with respect to two distinct acts can arise. Nevertheless, the Court’s approach excludes such possibility. If facilitation, which is the trademark of complicity, amounts to indirect responsibility, then responsibility for complicity becomes all of a sudden impossible. Again, the eradication of complicity as envisaged by Article 16 arsiwa is not a matter of concern, so long as such scenarios are adequately addressed by an alternative normative construction. And the alternative put forward in El-Masri has two unintended consequences: on the one hand it conflates complicity with responsibility for the act of another and on the other it brings to the forefront issues of joint responsibility. With respect to this latter point, it will be interesting to see how the Court will tackle a future case in which the facilitated State is bound by the echr.34 If the Court were to follow the El-Masri precedent, then it is bound to attribute the main wrongful conduct (the ill-treatment/detention itself in this case) to 33 Nollkaemper, supra note 5. 34 All rendition cases before the ECtHR pertain to a Council of Europe member State facilitating the United States and not the former being the principal authors of such an operation.

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both States; to fyrom because of the facilitation and to US because it is the author of the act. This outcome of joint attribution and hence joint responsibility in complicity cases for the commission of the main wrongful act,35 does not find support among commentators36 and is in flat contrast with the wording of Article 16 arsiwa. Despite the fact that the complicity model was the applicable responsibility model in this case from a doctrinal point of view, the ECtHR could not have affirmed fyrom’s responsibility on that basis due to jurisdictional limitations. The nature of the Court’s jurisdiction prevents applications when the principal issue requires a determination of the legal position of a State that is not a party to the proceedings.37 The so-called Monetary Gold (or indispensable third parties) principle reflects the well-established principle that a Court cannot exercise jurisdiction over a State without its consent.38 It may be that the ECtHR has applied the indispensable parties rule rather practicably,39 nevertheless it has endorsed this principle in all but name.40 In El-Masri the lawfulness of fyrom’s complicit conduct rests upon the determination of the legal position of the US. This does not mean that fyrom’s responsibility for this conduct does not arise, it only means that fyrom’s responsibility for this conduct cannot be implemented before this Court.41 This is a practical reason why the Court should have dealt with the matter in the context of direct responsibility by focusing on primary norms. There exists I believe another practical reason why the Strasbourg court should have engaged in a more thorough analysis of the responsibility model it applied. The El-Masri case despite its complexities had a factor that helped significantly the court reach its conclusion; US is not a State-party to the 35 36 37 38 39 40

41

Article 47 arsiwa. See for example H.-A. Aust, Complicity and the Law of State Responsibility (Cambridge: Cambridge University Press, 2011), at 280–281 and the authorities cited therein. Monetary Gold Removed from Rome in 1943 (Italy v. France, UK and usa) (Preliminary Objections), Judgment of 1954, [1954] icj Rep. 19, at 32; N.S. Klein, “Multilateral Disputes and the Doctrine of Necessary Parties in the East Timor Case”, yjil 21 (1996): 305, at 315–316. icj Statute, Article 36. M. den Heijer, “Procedural Aspects of Shared Responsibility in the European Court of Human Rights”, jids 4 (2013): 361, at 373–378. Soering, supra note 10, para. 86; Cruz Varas and Others v. Sweden, ECtHR, Judgment of 20 March 1991, Application No. 15576/89, para. 60; Mamatkulov and Askarov v. Turkey, ECtHR, Judgment of 4 February 2005, Application Nos. 46827/99 and 46951/99, para. 67; Saadi v. Italy ECtHR, Judgment of 28 February 2008, Application No. 37201/06, para. 126. Standard phrasing in these cases: “the Convention does not govern the actions of States not Parties to it, nor does it purport to be a means of requiring the Contracting States to impose Convention standards on other States”. On the relationship between the Monetary Gold principle and Article 16 arsiwa, see arsiwa Commentaries, supra note 4, at 67 para. 11.

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echr. Since joint responsibility was not in play it had no importance whether fyrom would be responsible for or in connection with the acts of US agents. The outcome would be the same; fyrom’s responsibility under Articles 3 and 5 would have been triggered either way. What the Strasbourg Court did then was not only to conflate, but to equate complicity with responsibility for the act of another. It is of little importance if this was a result of oversight or too much of a refined distinction for the court to make. Of great importance though is the statement that underlies this assimilation. This assimilation of complicity and responsibility for the act of another suggests that reparation-wise the triggering of either model does not make a difference. Nevertheless, compensation for damage is awarded on an equitable basis and thus it should matter which primary norm fyrom’s conduct violates.42 It is one thing then to violate the prohibition against torture, and quite another to violate the prohibition against the facilitation of torture.43 Effectively, the Court suggests that the violation of two different primary rules has identical practical ramifications. Such a proposition though does not find support in the preceding analysis and this was of itself a good reason for keeping the two responsibility models apart. In a case with a comparable set of facts, the UN Human Rights Committee (hrc) adopted a somehow different approach. The Alzery case considered a suspected terrorist who had been ill-treated by US and Egyptian agents in the Swedish airport of Bromma.44 The Committee found the act attributable to Sweden and as in the El-Masri case it did not have jurisdiction to rule against Egypt and the US. Nevertheless, the hrc ruled obiter that the act is attributable to these States too, thereby implying that joint attribution (and therefore joint responsibility) is in play. The fact that the ill-treatment is attributable to Egypt and the US as perpetrators of the main wrongful act is not disputed. What is problematic though is on what basis was Sweden responsible for the same act. The reasoning of the hrc calls for a careful analysis. The Committee stated as a general principle that “a State party is responsible for acts of foreign 42 43

44

Tsirlis and Kouloumpas v. Greece, ECtHR, Judgment of 29 May 1997, Application Nos. 19233/91 and 19234/91, paras. 66 and 80. As the violation of torture or inhuman treatment may affect the amount of compensation awarded under Article 41 echr, it is argued here that the violation of torture or complicity to torture should entail in principle different legal consequences. See M. Addo and N. Grief, “Does Article 3 of the European Convention on Human Rights Enshrine Absolute Rights?”, ejil 9/3 (1998): 510, at 511–512. Mohammed Alzery v. Sweden, Human Rights Committee, Decision of 10 November 2006, Communication No. 1416/2005, ccpr/C/88/D/1416/2005.

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o­ fficials exercising acts of sovereign authority on its territory”.45 The committee did not justify this approach in terms of the law on State responsibility and one can only speculate as to the basis of attribution it had in mind.46 There are two arsiwa provisions that could provide the basis of attribution in this case and they will be examined right under. The hrc maybe intended to say that Sweden has “acknowledged and adopted” the ill-treatment as its own, by consenting to it. The Article 11 arsiwa attribution rule would explain joint attribution – as the judgment suggests – but it is submitted that the application of this provision is far-fetched given the circumstances of the present case. This norm is only applicable when “the State identifies the conduct in question and makes it its own”.47 Mere acquiescence in the committing of the wrongful conduct does not have this effect. Sweden merely acknowledged that the US and Egypt are acting in its territory. Nothing less, nothing more. Common sense demands that this argument cannot go further. Therefore, the Committee did not have this provision in mind. The reasoning of the judgment then seems to suggest that by consenting to the ill-treatment Sweden de facto placed US and Egyptian agents at its disposal as per Article 6 arsiwa. This argument is a long-shot too, because two requirements of the provision are hardly present. First that of “dual allegiance”,48 and second the threshold of “placing at the disposal” is not crossed, because US and Egyptian agents did not act “under the authority of and for the purposes of the receiving State”.49 Let us assume arguendo that both requirements have been met and the provision is applicable. This would explain why the act is attributable to Sweden but would automatically exclude attribution to Egypt and the US making a priori joint responsibility impossible. The hrc most likely did not have in mind Article 6, for it does not explain the obiter dictum of the judgment and results in exculpating the US and Egypt which is unjustifiable in the present case. The analysis demonstrated that no matter which provision one decides to adopt as the basis of attribution, he will result in impossible outcomes. Despite the dictum in the Alzery judgment if one follows the arsiwa attribution provisions, joint attribution for the main wrongful act is clearly not an option in such scenarios. 45 46 47 48 49

Ibid, para. 11.6. Note the provoking general reference to the arsiwa in the same paragraph. arsiwa Commentaries, supra note 4, at 53. See A. Tzanakopoulos, Disobeying the Security Council. Countermeasures against Wrongful Sanctions (Oxford: Oxford University Press, 2011), at 38. arsiwa Commentaries, supra note 4, at 44.

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V Subsequent ECtHR Case-Law: Alignment with the arsiwa Paradigm In the twin cases Al-Nashiri v. Poland and Husayn (Abu Zubaydah) v. Poland, decided on the same day (24 July 2014) and with the same reasoning by the Court, the ECtHR has fine-tuned its understanding of complicity.50 The applicants were the subjects of two separate rendition operations as both were classified by the cia as “High Value Detainees”.51 They were captured in Asia and before ending up in Guantanamo they were held exclusively by cia agents in different secret detention centres around the globe, one of them being Stare Kiejkuty in Poland.52 Poland was only an intermediate stop in the applicants’ journey. The aspect that differentiates these cases from El-Masri is that Poland did not facilitate actively the treatment of the applicants but kept a passive attitude by allowing US organs to operate within its jurisdiction. Resting on the El-Masri precedent, the applicants asked the Court to declare that: “[si]nce Poland had actively facilitated the applicant[s] detention and transfer, it was also responsible for [their] ill-treatment and unlawful, secret detention for the period following [their] transfer from Poland”.53 The Court omits any reference to facilitation as a ground for attribution and reiterates its dictum from the Soering case; namely that a State will be responsible for own conduct to the extent that it exposed the applicant to a serious risk of further ill-treatment and conditions of detention.54 On this basis, the Court carefully concludes that Poland is responsible “in respect of both [their] detention on its territory and [their] transfer from Poland”.55 It may have been that Poland’s stance did not surpass the El-Masri “active facilitation” threshold and this is why it was not responsible for the applicants’ extraterritorial treatment. As the 50 51

52

53 54 55

Al-Nashiri and Husayn (Abu Zubaydah), supra note 6. For more on cia’s “High Value Detainees Program”, see Office of the Director of National Intelligence, “Summary of the High Value Detainees Program”, (US Department of Defence Archive, 2018), available at: (last accessed on 1 March 2018); see also the relevant report of the Human Rights Council (hrc); hrc, “Joint Study on Global Practices in Relation to Secret Detention in the Context of Countering Terrorism”, A/hrc/13/42 (20 May 2010), at 45–59. Both applicants have filed applications before the ECtHR against other Council of Europe member States that are currently pending; Al Nashiri v. Romania, ECtHR, Application No. 33234/12 (communicated to the Romanian Government on 18 September 2012) and Abu Zubaydah v. Lithuania, ECtHR, Application No. 46454/11 (communicated to the Lithuanian Government on 14 December 2012). Al-Nashiri, supra note 6, para. 445. Ibid. para. 531; Soering, supra note 10, paras. 90, 91 and 113. Al-Nashiri, supra note 6, para. 531.

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distinction between active and passive facilitation is irrelevant as to the establishment of international responsibility, it would have been helpful for the ECtHR to clarify whether it has abandoned the criterion of “active facilitation” altogether. In its latest case regarding extraordinary rendition Nasr and Ghali v. Italy, the Strasbourg court was presented with a set of facts that undoubtedly qualified as “active facilitation”, nevertheless the ECtHR has shied away from the El-Masri precedent.56 The events of the case concerned the abduction and the subsequent detention of Osama Mustafa Hassan Nasr in the context of the cia “High Value Detainees” program.57 Also known as Abu Omar, Mr. Nasr is an Egyptian national, imam and member of an Islamist group who was residing in Italy with his wife Ms. Ghali since he was granted political asylum status in that State. After his abduction in Milan in 2003, he was flown from the Aviano US base through Germany to Cairo. There he was ill-treated and detained without charge for approximately four years in unhygienic conditions. The Milan public prosecutor’s office immediately after the abduction started a judicial investigation. The information obtained both in the investigation and during the ensuing judicial procedure before Italian courts confirmed first that 26 US citizens -cia members and diplomats-and one Italian policeman had been involved in the operation, and second, that six senior officials of the Italian military intelligence agency had been aware of the cia’s plan to abduct Mr. Nasr. The Court found Italy responsible for the violation of Articles 3 and 5 of the echr by fine-tuning the approach to responsibility adopted in El-Masri. The defendant alleged that the facts of the case, irrespective of whether they happened intra or extra territorially, are not attributable to it since the entire operation was planned, organized and executed by the US government through its agents and an Italian policeman who was involved in the abduction was acting in his personal capacity.58 The reasoning of the judgment does not engage with attribution but rather attaches importance to Italy’s knowledge or intentional participation in the events. Being aware of the operation, necessarily means that Italian authorities knew the potential dangers posed to the applicant by virtue of it. Since the Italian courts had affirmed that the defendant had full knowledge of the operation and its nature, the Court shared their findings. Regarding the events that occurred in Milan then, the subjective element was not used by the Court to infer Italy’s responsibility for the treatment he suffered in the hands of cia agents, but for its failure to prevent it from happening and 56 57 58

Nasr and Ghali, supra note 7. For a detailed account of the events see ibid., paras. 6–151. Ibid., para. 229.

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thus exposing the applicant to a real risk of suffering treatment contrary to Article 3 of the Convention.59 In this way, no indirect responsibility model is implicated and Italy is directly responsible for its own wrongdoing. The Court tried to adopt an analogous approach with respect to the applicant’s extraterritorial detention in Egypt. Paragraph 302 of the Court’s judgment provides the reasoning and it is worth quoting it in full here: Dans le cadre de l’examen du grief du requérant sous l’aspect matériel de l’article 3, la Cour a déjà jugé que l’Italie savait que le requérant avait été transféré hors de son territoire dans le cadre d’une « remise extraordinaire » et que les autorités italiennes, en permettant à la cia d’enlever le requérant sur le territoire italien, l’ont sciemment exposé à un risque réel de traitements contraires à l’article 3 (paragraphe 290 ci-dessus). Elle estime que ces conclusions sont également valables dans le contexte du grief tiré par le requérant de l’article 5 de la Convention et que la responsabilité de l’Italie est engagée eu égard tant à son en-lèvement qu’à l’ensemble de la détention consécutive à sa remise aux autorités américaines (El‑Masri, précité, § 239 et Al Nashiri, précité, § 531). It is not clear which primary norm Italy has violated in the context of Article 5 and whether indirect responsibility is in play according to this reasoning. I believe that since the Court draws parallels between the violation of Article 3 and the applicant’s extraterritorial detention, it has in mind the violation of a concomitant “due diligence” obligation. Apparently, the Court does not intend to attribute the detention in Cairo to Italy and render the latter responsible for the detention itself as it did in El-Masri. Nevertheless, the open-ended last sentence of paragraph 302 and the reference to El-Masri’s paragraph 239 could support the opposite interpretation. In any case, a more elaborate analysis that would not leave us to speculate would certainly be welcome. If the Court wishes to abandon the “active facilitation” criterion altogether and establish responsibility for own conduct in both a territorial and an extraterritorial context it should explicitly say so. This will hopefully be clarified by future caselaw, however the latest approach of the Strasbourg court must be welcomed

59

Ibid., para. 289. Note the reference to El-Masri, supra note 1, para. 211, as a supporting authority for this statement, where the Court used “acquiescence or connivance” by the territorial State as an attribution criterion. The Court is struggling to demonstrate consistency in its case-law where there is none.

Establishing International Responsibility in Rendition Cases

233

for it demonstrates a clear tendency to align with the ilc international responsibility framework. vi

Concluding Remarks

The first extraordinary rendition case decided by the ECtHR dealt with a complex array of issues. Given the facts of the case, the engagement of the respondent’s responsibility was a just conclusion. The content of ­responsibility ­however varies and this is evident from the reparation afforded to the applicant. The Court in El-Masri did its best to exhaust every margin of strictness against fyrom, showing in this way minimum tolerance towards rendition practices. It may be that such cases of gross human rights violations can only be treated with severity as it is the only “deterrence card” that tribunals can ­resort to. The article argues that the discomforting aspect of the case is that such a bold statement was not backed with a soundproof legal analysis. Hence, the Strasbourg Court missed the opportunity to provide a foundational case that could serve as a point of reference in situations where a State is held ­responsible for or in connection with the act of another State. And this in turn, has impacted relevant future case-law. The reasoning of the ECtHR in all three subsequent rendition cases attempts to shy away from the El-Masri responsibility approach and gradually align with the dominant arsiwa responsibility framework. Nevertheless, the Court’s effort lacks conceptual clarity. As it intends to demonstrate that its case-law forms a coherent whole, the ECtHR invokes El-Masri as supporting authority of dicta that directly contradict this case.60 Interactions between States are becoming all the more frequent nowadays, especially in the context of combating problems that transcend national borders such as terrorism.61 Legal clarity and certainty in the regulation of such problems constitute virtues that cannot be overemphasised. International law then should be equipped with an effective toolbox; a framework of rules 60 61

This further perplexes things, in the same way that the infamous Bankovic and Others v. Belgium and 16 other Contracting States is invoked as an authority supporting the extraterritorial application of the echr; see Milanovic, supra note 23, at 204. According to a report produced by the ngo Open Society Justice Initiative: “54 foreign governments reportedly participated in” cia rendition operations; Open Society Justice Initiative, “Globalizing Torture: cia Secret Detention and Extraordinary Rendition”, (Open Society Foundations, 2013), available at: (last accessed on 1 March 2018), at 6.

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Voulgaris

a­ daptable and at the same time clear enough in order to address an array of complex scenarios. The application of international responsibility rules by the Strasbourg Court in rendition cases, to the extent that it questions the dominant arsiwa responsibility paradigm certainly raises some eyebrows as it does not contribute to this cause. The relevant upcoming cases before the Court will demonstrate whether the ECtHR will fully align with the arsiwa reaffirming thus their authority or it will further an alternative approach with the ramifications that this may imply.

Table of Cases

Permanent Court of International Justice (pcij)

Certain Questions Relating to the Settlers of German Origin in the Territory Ceded by Germany to Poland, Advisory Opinion of 10 September 1923, pcij Series B, No. 6. Factory at Chorzów (Germany v. Poland) (Jurisdiction), Judgment of 26 July 1927, pcij Series A No. 9. Oscar Chinn Case (UK v. Belgium), Judgment of 12 December 1934, pcij Series A/B, No. 63. – Judgment of 12 December 1934. – Separate Opinion of M. Anzilotti.



International Court of Justice (icj)

Ahmadou Sadio Diallo (Guinea v. Congo) (Merits), Judgment of 30 November 2010, [2010] icj Rep. 639. Ahmadou Sadio Diallo (Guinea v. Congo) (Preliminary Objections), Judgment of 24 May 2007, [2007] icj Rep. 582. Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), Judgment of 26 February 2007, [2007] icj Rep. 43. Barcelona Traction Light & Power Company Ltd. (Belgium v. Spain) (Second phase), Judgment of 5 February 1970, [1970] icj Rep. 6. – Separate Opinion of Judge Fitzmaurice, 64. Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro) (Merits), Judgment of 26 February 2007, [2007] icj Rep. 43. Case Concerning Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda) (Merits), Judgment of 19 December 2005, [2005] icj Rep. 168. Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. usa) (Merits), Judgment of 27 June 1986, [1986] icj Rep. 14. Case Concerning Pulp Mills on the River Uruguay (Argentina v. Uruguay), Judgment of 20 April 2010, [2010] icj Rep. 14. Case Concerning US Diplomatic and Consular Staff in Tehran (usa v. Iran), Judgment of 24 May 1980, [1980] icj Rep. 3. Corfu Channel case (UK v. Albania) (Merits), Judgment of 9 April 1949, [1949] icj Rep. 4.

236

Table of Cases

Dispute Regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Judgment of 13 July 2009, [2009] icj Rep. 213. Elettronica Sicula S.p.A. (elsi) (usa v. Italy), Judgment of 20 July 1989, [1989] icj Rep. 15. Fisheries Jurisdiction (Spain v. Canada) (Jurisdiction), Judgment of 4 December 1998, [1998] icj Rep. 432. Gabcíkovo-Nagymaros Case (Hungary/Slovakia), Judgment of 25 September 1997, [2007] icj Rep. 7. Jurisdictional Immunities of the State (Germany/Italy, Greece intervening), Judgment of 3 February 2012, [2012] icj Rep. 99. Monetary Gold Removed from Rome in 1943 (Italy v. France, UK and usa) (Preliminary Objections), Judgment of 1954, [1954] icj Rep. 19. Nuclear Tests Cases (Australia v. France), Judgment of 20 December 1974, [1974] icj Rep. 253. Questions relating to the Obligation to Prosecute or Extradite (Belgium v. Senegal), Judgment of 20 July 2012, [2012] icj Rep. 422. Reparation for Injuries Suffered in the Service of the United Nations, Advisory Opinion of 11 April 1949, [1949] icj Rep. 174.



European Court of Human Rights (ECtHR)

Abu Zubaydah v. Lithuania, ECtHR, Application No. 46454/11 (communicated to the Lithuanian Government on 14 December 2012). Al Nashiri v. Romania, ECtHR, Application No. 33234/12 (communicated to the Romanian Government on 18 September 2012). Al-Nashiri v. Poland, ECtHR, Judgment of 24 July 2014, Application No. 28761/11. Cruz Varas and Others. v. Sweden, ECtHR, Judgment of 20 March 1991, Application No. 15576/89. El-Masri v. The Former Yugoslav Republic of fyrom, ECtHR [GC], Judgment of 13 December 2012, Application No. 39630/09. Husayn (Abu Zubaydah) v. Poland, ECtHR, Judgment of 24 July 2014, Application No. 7511/13. Ilascu and Others v. Moldova and Russia, ECtHR [GC], Judgment of 8 July 2004, Application No. 48787/99. Loizidou v. Turkey, ECtHR, Judgment of 18 December 1996, Application No. 15318/89. Mamatkulov and Askarov v. Turkey, ECtHR, Judgment of 4 February 2005, Application Nos. 46827/99 and 46951/99. Nasr and Ghali v. Italy, ECtHR, Judgment of 23 February 2016, Application No. 44883/09. Othman (Abu Qatada) v. the United Kingdom, ECtHR, Judgment of 17 January 2012,

Table of Cases

237

Application No. 8139/09. Saadi v. Italy ECtHR, Judgment of 28 February 2008, Application No. 37201/06. Soering v. United Kingdom, ECtHR [GC], Judgment of 7 July 1989, Application No. 14038/88. Tsirlis and Kouloumpas v. Greece, ECtHR, Judgment of 29 May 1997, Application Nos. 19233/91 and 19234/91.



Inter-American Court of Human Rights (IACtHR)

Case of Ximenes-Lopes v. Brazil (Merits, Reparation and Costs), IACtHR, Judgment of 4 July 2006, Series C No. 149. Velasquez-Rodriguez v. Honduras, IACtHR, Judgment of 29 July 1988, Series C No. 4.



Human Rights Committee (hrc)

Mohammed Alzery v. Sweden, Human Rights Committee, Decision of 10 November 2006, Communication No. 1416/2005, CCPR/C/88/D/1416/2005.



International Criminal Tribunal for the Former Yugoslavia (icty)

Prosecutor v. Dusko Tadić, icty, Appeals Chamber, Judgment of 15 July 1999, Case No. IT-94-1-A. Prosecutor v. Dusko Tadić, icty, Trial Chamber, Judgment of 7 May 1999, Case No. IT-94-1-T.



International Criminal Tribunal for Rwanda (ictr)

The Prosecutor v. Alfed Musema, ictr, Trial Chamber I, Judgment of 27 January 2000, Case No. ICTR-96-13-T.



International Military Tribunal (imt)

In re Alfried Felix Alwyn Krupp von Bohlen und Halbach and Eleven Others (The Krupp Trial), imt, Judgment of 30 June 1948, Annual Digest and Reports of Public International Law Cases 15 (1948): 620.

238

Table of Cases

In re Carl Krauch and Twenty-Two Others (The I.G. Farben Trial), Judgment of 29 July 1948, Annual Digest and Reports of Public International Law Cases 15 (1948): 668. In re Flick and Others, imt, Judgment of 22 December 1947, Annual Digest and Reports of Public International Law Cases 14 (1947): 266. Judgment of the Nuremberg Tribunal, imt, Judgment of 1 October 1946, Trial of the Major War Criminals 1 (1947): 171.



cjeu

European Parliament and European Commission v. Council of the European Union, Joined Cases No. C-103/12 and No. C-165/12, cjeu [GC], Judgment of 26 November 2014, ECLI:EU:C:2014:2400. European Parliament and European Commission v. Council of the European Union, Joined Cases No. C-103/12 and No. C-165/12, cjeu, Opinion of Advocate General Sharpston, Opinion of 15 May 2014, ECLI:EU:C:2014:334.



International Tribunal for the Law of the Sea (itlos)

Case Concerning the Conservation and Sustainable Exploitation of Swordfish Stocks in the South-Eastern Pacific Ocean (Chile/European Union), itlos, Case No. 7. Request for an Advisory Opinion submitted by the Sub-Regional Fisheries Commission (SRFC), ITLOS, Advisory Opinion of 2 April 2015, [2015] itlos Rep. 4. Responsibilities and Obligations of States Sponsoring Persons and Entities with respect to Activities in the Area, ITLOS, Seabed Disputes Chamber, Advisory Opinion of 1 February 2011, [2011] ITLOS Rep. 10. Southern Bluefin Tuna (New Zealand v. Japan; Australia v. Japan) (Provisional Measures), ITLOS, Order of 27 August 1999, [1999] ITLOS Rep. 280. The M/V ‘Norstar’ Case (Panama v. Italy) (Preliminary Objections), ITLOS, Judgment of 4 November 2016, Case No. 25, available at: . The M/V ‘Saiga’ (No. 2) Case (Saint Vincent and the Grenadines v. Guinea), ITLOS, Judgment of 1 July 1999, [1999] ITLOS Rep. 10. The M/V ‘Virginia G’ Case (Panama/Guinea-Bissau), ITLOS, Judgment of 14 April 2014, [2014] ITLOS Rep. 4. – Judgment of 14 April 2014. – Separate Opinion of Judge Paik.

Table of Cases



239

WTO Dispute Settlement Body (WTO DSB)

Chile – Measures affecting the Transit and Importing of Swordfish, WTO, Discontinuance by Agreement of the Parties on 28 May 2010, G/L/367/Add.1. European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Arbitration by the European Communities under Article 22(6) of the DSU, Decision by the Arbitrators of 9 April 1999, WT/DS27/ARB. European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Arbitration by the European Communities under Article 22(6) of the DSU, Decision by the Arbitrators of 24 March 2000, WT/DS27/ARB/ECU. European Communities – The ACP-EC Partnership Agreement – Recourse to Arbitration Pursuant to the Decision of 14 November 2001, Award of the Arbitrator of 1 August 2015, WT/L/616. European Union – Measures on Atlanto-Scandian Herring, WTO, Discontinuance due to Settlement of Dispute on 21 August 2014, G/L/1058/Add.1. United States – Anti-Dumping Act of 1916 – (Original Complaint by the European Communities) – Recourse to Arbitration by the United States under Article 22(6) DSU, Decision by the Arbitrators of 24 February 2004, WT/DS136/ARB. United States – Continued Suspension of Obligations in the EC – Hormones Dispute, WTO, Appellate Body Report circulated on 16 October 2008, WT/DS320/AB/R. United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WTO, Appellate Body Report adopted on 11 March 2011, WT/DS379/ AB/R. United States – Import Measures on Certain Products from the European Communities, WTO, Appellate Body Report circulated on 11 December 2000, WT/DS165/AB/R. United States – Import Prohibition of Certain Shrimp and Shrimp Products, WTO, Appellate Body Report adopted on 12 October 1998, WT/DS58/AB/R.

Iran–US Claims Tribunal Amoco International Finance Corporation v. Iran, Iran – US Claims Tribunal, Award of 14 July 1987, Award No. 310-56-3, Iran-US Claims Tribunal Reports 15 (1987): 189. Flexi-Van Leasing, Inc. v. The Islamic Republic of Iran, Iran – US Claims Tribunal, Award of 13 October 1986, Award No. 259-36-1, Iran-US Claims Tribunal Reports 12/ III (1986): 335. Hyatt International Corporation v. The Islamic Republic of Iran, Iran – US Claims Tribunal, Interlocutory Award of 17 September 1985, Award No. 54-134-1, Iran-US Claims Tribunal Reports 9/ II (1985): 72.

240

Table of Cases

Kenneth P. Yeager v. The Islamic Republic of Iran, Iran – US Claims Tribunal, Award of 2 November 1987, Award No. 324-10199-1, Iran-US Claims Tribunal Reports 17/IV (1987): 104. Schering Corporation v. The Islamic Republic of Iran, Iran – US Claims Tribunal, Award of 16 April 1984, Award No. 122-38-3, Iran-US Claims Tribunal Reports5/I (1984): 361. Tippetts, Abbett, McCarthy, Stratton v. tamms-affa Consulting Engineers of Iran, Iran – US Claims Tribunal, Award of 22 June 1984, Award No. 141-7-2, Iran-US Claims Tribunal Reports 6/II (1984): 219.

Arbitration ADC Affiliate Limited and ADC & ADMC Management Limited v. Hungary, ICSID, Award of 2 October 2006, ICSID Case No. ARB/03/16. American Manufacturing & Trading Inc. v. Zaire, ICSID, Award of 21 February 1997, icsid Case No. ARB/93/1. Asian Agricultural Products Ltd (AAPL) v. Sri Lanka, ICSID, Award of 27 June 1990, icsid Case No. ARB/87/3. AWG Group Ltd. v. Argentina, UNCITRAL, Decision on Liability of 30 July 2010. Azurix Corp. v. Argentina, ICSID, Award of 14 July 2006, ICSID Case No. ARB/01/12. Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID, Award of of 27 August 2009, ICSID Case No. ARB/03/29. BG Group Plc. v. Argentina, UNCITRAL, Final Award of 24 December 2007. Camuzzi International S.A. v. Argentina, ICSID, Decision on Objection to Jurisdiction of 11 May 2005, ICSID Case No. ARB/03/2. Cargill, Incorporated v. United Mexican States, ICSID, Award of 18 September 2009, ICSID Case No. ARB(AF)/05/2. CMS Gas Transmission Company v. Argentina, ICSID, Annulment Decision of 25 September 2007, ICSID Case No. ARB/01/8. CMS Gas Transmission Company v. Argentina, ICSID, Award of 12 May 2005, ICSID Case No. ARB/01/8. CMS Gas Transmission Company v. Argentina, ICSID, Decision on Objections to Jurisdiction of 17 July 2003, ICSID Case No. ARB/01/8. Compañiá de Aguas del Aconquija S.A. and Vivendi Universal v. Argentina, ICSID, Award of 20 August 2007, ICSID Case No. ARB/97/3. Consortium RFCC v. Royaume du Maroc, ICSID, Award of 22 December 2003, ICSID Case No. ARB/00/6. Continental Casualty Company v. Argentina, ICSID, Award of 5 September 2008, ICSID Case No. ARB/03/9.

Table of Cases

241

Dame Mossé (France v. Italy), Arbitral tribunal, Decision of 17 January and 6 October 1953, RIAA 13 (1953): 486. EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentina, ICSID, Award of 11 June 2012, ICSID Case No. ARB/03/23. El Paso Energy International Company v. Argentina, ICSID, Award of 31 October 2011, ICSID Case No. ARB/03/15. Enron Corporation and Ponderosa Assets L.P. v. Argentina, ICSID, Decision on Jurisdiction of 14 January 2004, ICSID Case No. ARB/01/3. Enron Corporation and Ponderosa Assets L.P. v. Argentina, ICSID, Annulment Decision of 30 July 2010, ICSID Case No. ARB/01/3. Enron Corporation and Ponderosa Assets L.P. v. Argentina, ICSID, Award of 22 May 2007, ICSID Case No. ARB/01/3. Eritrea v. Yemen, Arbitral tribunal, Award of 17 December 1999, RIAA 22 (1999): 335. Finnish Shipowners (Finland/UK), Arbitral tribunal, Decision of 9 May 1934, RIAA 3 (1934): 1479. GAMI Investments Inc. v. Mexico, UNCITRAL (NAFTA), Award of 15 November 2004. Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award of 8 June 2009. Gustav FW Hamester GmbH & Co KG v. Republic of Ghana, ICSID, Award of 18 June 2010, ICSID Case No. ARB/07/24. Helnan International Hotels A/S v. The Arab Republic of Egypt, ICSID, Award of 3 July 2008, ICSID Case No. ARB/05/19. Impregilo S.p.a. v. Pakistan, ICSID, Award of 22 April 2005, ICSID Case No. ARB/03/03. In the Matter of an Arbitration before an Arbitral Tribunal Constituted under Annex VII to the 1982 United Nations Convention on the Law of the Sea between the Republic of the Philippines and the People’s Republic of China, PCA, Award on Merits of 12 July 2016, available at: . In the Matter of the Chagos Marine Protected Area Arbitration (Republic of Mauritius v. United Kingdom), PCA, Award of 18 March 2015, available at: . International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Award of 26 January 2006. International Thunderbird Gaming Corporation v. United States of America, UNCITRAL (NAFTA), Submission of the United States of America, 21 May 2004. Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID, Award of 6 November 2008, ICSID Case No. ARB/04/13. Joseph Charles Lemire v. Ukraine, ICSID, Decision on Jurisdiction and Liability of 14 January 2010, ICSID Case No. ARB/06/18. LG&E v. Argentina, ICSID, Award of 25 July 2007, ICSID Case No. ARB/02/1.

242

Table of Cases

LG&E v. Argentina, ICSID, Decision on Liability of 3 October 2006, ICSID Case No. ARB/02/1. Marvin Feldman v. Mexico, ICSID, Award of 16 December 2002, ICSID Case No. ARB/99/1. Marvin Roy Feldman Karpa v. United Mexican States, ICSID, Award of 16 December 2002, ICSID Case No. ARB(AF)/99/1. Metalclad Corporation v. The United Mexican States, icsid, Award of 30 August 2000, icsid Case No. ARB (AF)/00/2. Methanex Corporation v. United States of America, UNCITRAL, Final Award on Jurisdiction and Merits of 3 August 2005, reproduced in: ILM 44 (2005): 1345. Mondev International Ltd. v. United States of America, ICSID, Award of 11 October 2002, ICSID Case No. ARB(AF)/99/2. MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile, ICSID, Decision on Annulment of 21 March 2007, ICSID Case No. ARB/01/7. MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID, Award of 25 May 2004, ICSID Case No. ARB/01/7. MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID, Decision on Annulment of 21 March 2007, ICSID Case No. ARB/01/7. National Grid P.L.C. v. Argentina, UNCITRAL, Award of 3 November 2008. Norwegian Shipowners’ Claims (Norway v. USA), Arbitral tribunal, Award of 13 October 1922, RIAA 1 (1922): 307. Nykomb Synergetics Technology Holding AB v. Latvia, SCC, Award of 16 December 2003. Parkerings-Compagniet AS v. Lithuania, ICSID, Award of 11 September 2007, ICSID Case No. ARB/05/8. Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay ( formerly FTR Holding SA, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay), ICSID, Award of 8 July 2016, ICSID Case No. ARB/10/7. Plama Consortium Limited v. Bulgaria, ICSID, Award of 27 August 2008, ICSID Case No. ARB/03/24. Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA), Interim Award of 26 June 2000. Review Panel established under the Convention on the Conservation and Management of High Seas Fishery Resources in the South Pacific Ocean, PCA, Findings and Recommendation of the Review Panel of 5 July 2013, available at: . S.D. Myers Inc. v. Canada, UNCITRAL, Award of 21 October 2002. S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award of 13 November 2000. Sempra Energy International v. Argentina, ICSID, Annulment Decision of 29 June 2010, ICSID Case No. ARB/02/16.

Table of Cases

243

Sempra Energy International v. Argentina, icsid, Award of 28 September 2007, icsid Case No. ARB/02/16. SGS Société Générale de Surveillance S.A. v. Philippines, icsid, Decision on Jurisdiction of 29 January 2004, icsid Case No. ARB/02/6. Southern Bluefin Tuna Case between Australia and Japan and between New Zealand and Japan, Arbitral tribunal established under Annex vii of the losc, Award on Jurisdiction and Admissibility of 4 August 2000, riaa 23 (2000): 1. Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, icsid, Award of 29 May 2003, icsid Case No. ARB (AF)/00/2. Telenor Mobile Communications A.S. v. Hungary, ICSID, Award of 13 September 2006, icsid Case No. ARB/04/15. The Atlanto-Scandian Herring Arbitration (The Kingdom of Denmark in respect of the Faroe Islands v. The European Union), pca, available at: . Tokios Tokelés v. Ukraine, icsid, Award of 26 July 2007, icsid Case No. ARB/02/18. Tokios Tokelés v. Ukraine, icsid, Decision on Jurisdiction of 29 April 2009, icsid Case No. ARB/02/18. Total S.A. v. Argentina, icsid, Decision on Objections to Jurisdiction of 25 August 2006, icsid Case No. ARB/04/01. Total S.A. v. Argentina, icsid, Decision on Liability of 27 December 2010, icsid Case No. ARB/04/01. Tulip Real Estate Investment and Development Netherlands B.V. v. Republic of Turkey, icsid, Award of 10 March 2014, icsid Case No. ARB/11/28. Waste Management, Inc. v. United Mexican States, icsid, Award of 30 April 2004, icsid Case No. ARB(AF)/00/3.



Domestic Case-Law

Bauman v. Daimler-Chrysler, Court of Appeals, 9th Circuit, Decision of 18 May 2011, 644 F.3d 909. Doe v. Exxon Mobil Corp., Court of Appeals, District of Columbia Circuit, Decision of 8 July 2011, 654 F. 3d 11. Flomo v. Firestone Natural Rubber Co. llc, Court of Appeals, 7th Circuit, Decision of 11 July 2011, 43 F. 3d 1013.

Table of Treaties 1945 1948 1963

1963 1965

1969 1971

1977

1982 1986

1989

1991

1992 1992

Charter of the United Nations, (adopted 26 June 1945, entered into force 24 October 1945), 1 unts xvi. Convention on the Prevention and Punishment of the Crime of Genocide (adopted 9 December 1948, entered into force 12 January 1951), 78 unts 277. Convention Supplementary to the Paris Convention of 29 July as Amended by the Additional Protocol of 28 January 1964 and by the Protocol of 16 ­November 1982 (Brussels Supplementary Convention) (adopted 31 January 1963, entered into force 4 December 1974), 1041 unts 358. Vienna Convention on Civil Liability for Nuclear Damage (adopted 21 May 1963, entered into force 12 November 1977), 1063 unts 265. Convention on the Settlement of Investment Disputes between States and Nationals of Other States (adopted 18 March 1965, entered into force 14 ­October 1966), 575 unts 159. Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980), 1155 unts 331. International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (adopted 18 December 1971, entered into force 16 October 1978), 1110 unts 57. Convention on Civil Liability for Oil Pollution Damage Resulting from ­Exploration for and Exploitation of Seabed Mineral Resources (adopted 1 May 1977, not yet in force), 16 ilm 1450. United Nations Convention on the Law of the Sea (adopted 10 December 1982, entered into force 16 November 1994), 1833 unts 3. Vienna Convention on the Law of Treaties between States and International Organizations or between International Organizations (adopted 21 March 1986, not yet in force) A/CONF.129/15 (18 February – 21 March 1986). Convention on Civil Liability for Damage Caused during Carriage of Dangerous Goods by Road, Rail and Inland Navigation Vessels (adopted 10 October 1989, not yet in force), ECE/TRANS/79 (10 October 1989). Treaty between United States of America and Argentina Concerning the Reciprocal Encouragement and Protection of Investment (Argentina-US bit) (adopted 14 November 1991, entered into force 20 October 1994), available at: http://investmentpolicyhub.unctad.org/IIA/mostRecent/treaty/162. International Convention on Civil Liability for Oil Pollution Damage (adopted 29 November 1969, entered into force 19 June 1975), 973 unts 3. North American Free Trade Agreement (adopted 17 December 1992, entered into force 1 January 1994), 32 ilm 289.

Table of Treaties 1992

1992

1993

1993 1994 1995

1996

1997 1998 1999

2001

2003

2003

245

Protocol to Amend the International Convention on Civil Liability for Oil Pollution Damage (adopted 27 November 1992, entered into force 30 May 1996), 1956 unts 255. Protocol to Amend the International Convention on the Establishment of an International Fund for Oil Pollution Damage of 1971 (adopted 27 November 1992, entered into force 30 May 1996), 1953 unts 330. Agreement to Promote Compliance with International Conservation and Management Measures by Fishing Vessels on the High Seas (adopted 24 ­November 1993, entered into force 24 April 2003), 2221 unts 91. North American Free Trade Agreement (adopted 17 December 1992, entered into force 1 January 1994), 32 ilm 289. Energy Charter Treaty (adopted 17 December 1994, entered into force 16 April 1998), 2080 unts 95. Agreement for the Implementation of the Provisions of the United Nations Convention of the Law of the Sea of 10 December 1982, Relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks (adopted 4 August 1995, entered into force 11 December 2011), 34/6 ilm 1542. International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (adopted 3 May 1996, not yet in force), 35 ilm 1406. Convention on Supplementary Compensation for Nuclear Damage (adopted 12 September 1997, entered into force 15 Aril 2015), 36 ilm 1473. Multilateral Agreement on Investment, Draft Consolidated Text, available at: . Basel Protocol on Liability and Compensation for Damage Resulting from the Transboundary Movements of Hazardous Wastes and their Disposal (­adopted 10 December 1999, not yet in force), UNEP/CHW.1/WG.1/9/2 (28 April 1999). International Convention on Civil Liability for Bunker Oil Pollution Damage (adopted 23 March 2001, entered into force 21 November 2008), available at: . Agreement between France and Uganda on the Reciprocal Promotion and Protection of Investments (France-Uganda bit) (adopted 3 January 2003, entered into force 20 ­December 2014), available at: . Protocol on Civil Liability and Compensation for Damage Caused by the Transboundary Effects of Industrial Accidents on Transboundary Waters

246

2003

2004

2005

2007

2008

2009

2010

2010

2011

2014

Table of Treaties (adopted 21 May 2003, not yet in force), ECE/MP.WAT/11-ECE/CP.TEIA/9 (21 May 2003). Protocol to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (adopted 16 May 2003, entered into force 3 March 2005), LEG/CONF.14/20 (27 May 2003). Protocol to Amend the Convention of 31 January 1963 Supplementary to the Paris Convention of 29 July as Amended by the additional Protocol of 16 ­November 1982 (adopted 12 February 2004, not yet in force), 1650 unts 451. Treaty between United States of America and Uruguay Concerning the Encouragement and Reciprocal Protection of Investment (US-Uruguay bit) (adopted 4 November 2005, entered into force 31 October 2006), available at: . Investment Agreement for the comesa Common Investment Area (comesa Investment Agreement) (adopted 23 May 2007, not yet in force), available at: . Free Trade Agreement between the Government of New Zealand and the Government of the People’s Republic of China (China-New Zealand fta) (adopted 7 April 2008, entered into force 1 October 2008), available at: . Agreement on Port State Measures to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing (adopted 22 November 2009, entered into force 5 June 2016), available at: . International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (adopted 30 April 2010, not yet in force), available at: . Nagoya – Kuala Lumpur Supplementary Protocol on Liability and Redress to the Cartagena Protocol on Biosafety (adopted 15 October 2010, entered into force 5 March 2018), UNEP/CBD/BS/COP-MOP/5/17 (15 October 2010). Comprehensive Economic Partnership Agreement between Japan and the Republic of India (India-Japan cepa) (adopted 16 February 2011, entered into force 1 August 2011), available at: . Agreement for the Reciprocal Promotion and Protection of Investments between Colombia and France (Colombia-France bit) (adopted 10 July 2014, not yet in force), available at: .

Table of Treaties 2014

247

Agreement on a Sustainable Fisheries Partnership Agreement between the European Union and the Republic of Senegal, [2014] OJ L 304/3 (23 October 2014). 2014 Free Trade Agreement between Australia and the Republic of Korea (Australia-Republic of Korea fta) (adopted 8 April 2014, entered into force 12 December 2014), available at: . 2014 Free Trade Agreement between Canada and the Republic of Korea (Canada-Republic of Korea fta) (adopted 22 September 2014, entered into force 1 January 2015), available at: . 2015 Free Trade Agreement between the Government of Australia and the Government of the People’s Republic of China (Australia-China fta) (adopted 17 June 2015, entered into force 20 December 2015), available at: . 2015 People’s Republic of China-Republic of Korea Free Trade Agreement (China-­Republic of Korea fta) (adopted 1 June 2015, entered into force 20 ­December 2015), available at: . 2016 EU-Canada Comprehensive Economic and Trade Agreement (CanadaEU ceta) (adopted 30 October 2016, entered into force provisionally 21 September 2017), available at: . 2016 Morocco-Nigeria bit (adopted 3 December 2016, not yet in force), available at: . 2018 EU-Singapore Investment Protection Agreement (adopted 19 October 2018, not yet in force), available at: .

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