International Investment Law and History 1786439956, 9781786439956

Citation preview

International Investment Law and History

FRANKFURT INVESTMENT AND ECONOMIC LAW SERIES Series Editors: Rainer Hofmann, University of Frankfurt, Germany, Stephan W. Schill, University of Amsterdam, the Netherlands and Christian J. Tams, University of Glasgow, UK The Frankfurt Investment and Economic Law Series addresses a core field of international law whose importance is likely to increase further as globalization progresses: international economic law. Serving as a forum for dialogue and cutting-edge debate, its scope takes in the legal regime governing international economic relations at large with a particular focus on international investment law. Seeking to look beyond practical concerns raised in this field, the series addresses conceptual and foundational issues relating to the theory of international investment law – including questions of legitimacy and policy, the interaction with other fields of international and domestic law (both public and private), and interdisciplinary approaches to investment law and policy. Its intellectual foundations link to the workshops held in Frankfurt in connection with the annual Frankfurt Investment Arbitration Moot Court. Titles in the series include: International Investment Law and Development Bridging the Gap Edited by Stephan W. Schill, Christian J. Tams and Rainer Hofmann International Investment Law and the Global Financial Architecture Edited by Christian J. Tams, Stephan W. Schill and Rainer Hofmann International Investment Law and History Edited by Stephan W. Schill, Christian J. Tams and Rainer Hofmann

International Investment Law and History Edited by

Stephan W. Schill Professor of International and Economic Law and Governance, University of Amsterdam, the Netherlands

Christian J. Tams Professor of International Law, University of Glasgow, UK

Rainer Hofmann Professor of Public Law, Public International Law and European Law, University of Frankfurt, Germany

FRANKFURT INVESTMENT AND ECONOMIC LAW SERIES

Cheltenham, UK + Northampton, MA, USA

© The editors and contributors severally 2018 Cover image: ‘The Olive Branch’ (2017) by Heather L. Bray All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2017959428 This book is available electronically in the Law subject collection DOI 10.4337/9781786439963

ISBN 978 1 78643 995 6 (cased) ISBN 978 1 78643 996 3 (eBook) Typeset by Columns Design XML Ltd, Reading

Contents List of contributors Preface and acknowledgments PART I

vii x

INTRODUCTION

1. International investment law and history: An introduction Stephan W. Schill, Christian J. Tams and Rainer Hofmann PART II

OBJECTS AND OBJECTIVES OF HISTORY

2. Narrating narratives of international investment law: History and epistemic forces Andreas Kulick 3. The first investor-state arbitration? The Suez Canal dispute of 1864 and some reflections on the historiography of international investment law Jason Webb Yackee 4. Understanding change: Evolution from international claims commissions to investment treaty arbitration Heather L. Bray 5. History and international law: Method and mechanism – empire and ‘usual’ rupture Kate Miles 6. The challenges of history in international investment law: A view from legal theory Jörg Kammerhofer PART III

3

41

70

102

136

164

METHODOLOGY AND ITS CHALLENGES

7. Resolving challenges to historical research: Developing a project to define fair and equitable treatment Mona Pinchis-Paulsen

v

179

vi

International investment law and history

8. The evolution of contractual protection in international law: Accessing diplomatic archives, discovering diplomatic practice, and constructing diplomatic history Jean Ho 9. The gust of wind: The unknown role of Sir Elihu Lauterpacht in the drafting of the Abs-Shawcross Draft Convention Yuliya Chernykh 10. Enriching law with political history: A case study on the creation of the ICSID Convention Taylor St. John 11. A genealogy of censurable conduct: Antecedents for an international minimum standard of investor conduct Muin Boase Index

213

241

286

321

367

Contributors Muin Boase is a Senior Teaching Fellow at the School of Oriental and African Studies (SOAS) University of London, where he lectures in Public International Law and International Human Rights Law. He holds an LLM and a PhD from SOAS, a BSc from the London School of Economics, and has been called to the Bar of England and Wales. He worked for two years as a Research Assistant to Sir Bernard Rix of 20 Essex Street (2014–2016) and has carried out research on a number of public international law cases. Heather L. Bray is a PhD Researcher at the University of Amsterdam. Her PhD research is part of the Lex Mercatoria Publica Project directed by Professor Stephan Schill. She is a barrister and solicitor of the Law Society of Upper Canada. She holds an LLM in Business Law and Taxation from the University of Western Ontario, an LLB from the University of New Brunswick, and a BA in Justice Studies from Royal Roads University. Yuliya Chernykh (LLM (Stockholm)) is a PhD candidate at the University of Oslo where she is working on contractual interpretation in investment arbitration. Yuliya has extensive practical experience as an arbitrator, expert and counsel in international arbitration proceedings under a number of European and Asian arbitration rules. She is a Chartered Arbitrator and a Fellow of the Chartered Institute of Arbitrators. Yuliya is admitted to the Ukrainian bar. Jean Ho is Assistant Professor of Law at the National University of Singapore. A graduate of New York University, l’Université de Paris I (Panthéon-Sorbonne), and Cambridge University, she convenes a course on Arbitration of Investment Disputes and supervises undergraduate, graduate, and doctoral research on diverse aspects of international investment law. Prior to academia, she practised international investment law at Shearman & Sterling LLP. Her principal research areas are the law of state responsibility, the law of treaties, and state contracts. She is fluent in French and Mandarin and divides her time between Singapore, London, Paris, and Washington, DC. vii

viii

International investment law and history

Rainer Hofmann is Professor of Public Law, International Law, and European Law, and Co-Director of the Wilhelm Merton Centre for European Integration and International Economic Order at the University of Frankfurt/Main. He is Member of the Advisory Board on International Law of the German Ministry for Foreign Affairs and President of the German Branch of the International Law Association (ILA). He sits on the Executive and the Management Board of the European Union Agency for Fundamental Rights, representing the Council of Europe. Jörg Kammerhofer (Mag. iur., Dr. iur. (Vienna), LLM (Cantab)) is a Senior Research Fellow at the Faculty of Law, University of Freiburg, Germany, and a Visiting Lecturer at the University of Economics and Business, Vienna, Austria. He has written widely on international law and legal theory and is Chair of the European Society of International Law Interest Group on International Legal Theory and Philosophy. Andreas Kulick (Dr. iur. (Tübingen), LLM (NYU)) is Senior Research Fellow at the Eberhard Karls University Tübingen, Germany. His research focuses on public international law and on German and comparative constitutional law and theory. He has advised and represented states in various matters of public international law before international courts and tribunals, including the European Court of Human Rights and the International Tribunal for the Law of the Sea, and in ICSID proceedings, as well as before domestic courts. He is a Member of the ILA Study Group ‘Content and Evolution of the Rules of Interpretation in International Law’. Kate Miles is a Fellow and Lecturer in International Law at Gonville and Caius College, Cambridge. She is the author of a monograph, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press 2013). Mona Pinchis-Paulsen is a Senior Fellow for the California International Law Center and a Visiting Lecturer at the UC Davis School of Law for the 2017/2018 academic year. She is a Canadian lawyer (qualified in 2007) and holds a PhD in International Economic Law from The Dickson Poon School of Law, King’s College London, and an LLM in International Law from The George Washington University Law School. Her research focuses on international arbitration, international trade, and international investment law. She is Assistant to the Editor-inChief of the Journal of International Dispute Settlement.

Contributors

ix

Stephan W. Schill (Dr. iur. (Frankfurt), LLM (NYU), LLM (Augsburg)) is Professor of International and Economic Law and Governance at the University of Amsterdam, and Principal Investigator of the ERC-project on ‘Transnational Private–Public Arbitration as Global Regulatory Governance’. He is admitted to the Bar in Germany and New York and is a Member of the ICSID List of Conciliators. He serves as Editor-in-Chief of The Journal of World Investment & Trade. Taylor St. John is a Postdoctoral Research Fellow at the PluriCourts Center of Excellence, University of Oslo, and a Senior Research Associate at the Global Economic Governance Programme, University of Oxford. She holds an MSc and DPhil from the University of Oxford. Her book, The Rise of Investor-State Arbitration: Law, Politics, and Unexpected Consequences, will be published with Oxford University Press in 2018. Christian J. Tams is Professor of International Law at the University of Glasgow, where he directs the Law School’s LLM in international law. He is a German lawyer (qualified in 2005) and holds an LLM and a PhD from the University of Cambridge. He is an academic member of Matrix Chambers, and over the past decade has acted in cases before the International Court of Justice, the International Tribunal for the Law of the Sea, the Iran-United States Claims Tribunal, and arbitral tribunals. Jason Webb Yackee is Professor of Law at the University of WisconsinMadison (USA). He received his law degree from Duke University and his PhD in political science from the University of North Carolina at Chapel Hill. He has published a number of articles examining the relationship between investment flows and international investment law. His current research project is a historical examination of the protection of French investors in post-colonial Africa.

Preface and acknowledgments Historical arguments in international investment law are omnipresent. They play an important role in the current discourse, whether in interpreting investment treaties in a concrete dispute, in justifying or criticizing the current system of international investment protection and investment dispute settlement, or in debating its reform. Yet, for a long time, the discipline has had a largely instrumental relationship to its history. It has also shied away from addressing the many difficult challenges serious and methodologically reflective uses of history and historical research entail. More recently, however, scholarship in international investment law is starting to take a ‘turn to history’. This is illustrated by a number of book-length studies adopting a pronouncedly historical focus, dealing inter alia with specific standards of treatment, the content of customary international law, or the history of institutions, such as the International Centre for Settlement of Investment Disputes. At the same time, international investment law as a discipline is still short of reflections on the foundations for sound historical research, including theoretical questions about the reasons for, and methodological approaches to, history in the field. The present book brings together scholars for a reflection on some of the foundational questions relating to engaging in historical research and analysis in international investment law. It does not present to the reader ‘the’ history or even ‘a’ (more or less comprehensive) history of international investment law. Instead it invites readers to think about the conditions, methodological possibilities, benefits, and challenges of engaging in historical research and historical argument in the field. Consolidating the historiographical turn in the field, the book aims at stimulating further historical research in international investment law and perhaps even raising increased interest of international legal historiography in international economic law and international law’s economic foundations. *** x

Preface and acknowledgments

xi

In the preparation of this book we have been able to count on many helping hands. A group of dedicated authors has been willing to put up with deadlines and at times demanding editorial comments. In Frankfurt, Dr. Philipp B. Donath and Dr. Jakob Kadelbach, (then) both at Goethe University, provided vital assistance in organizing the meeting of authors in Frankfurt, where presentation and discussion of many of the arguments set out in the contributions to this book took place. At the Amsterdam Center for International Law, Vladislav Djanic, Heather L. Bray, Katrine R. Tvede and A. Devin Bray supported the editorial work and provided comments on the draft papers. At the Max Planck Institute of Comparative Public Law and International Law in Heidelberg, Violetta SefkowWerner was in charge of bringing the manuscripts into line with the style guide. Heather L. Bray has also been kind enough to let us use a photograph of two cases as the cover of this book: ‘The Ship Olive’, William Van Leuvenigh, Master and ‘The Olive Branch’, William Turner Provoost, Master. Taken in The National Archives in Kew, Richmond, UK, it shows the written record of two cases brought on appeal before the Lords Commissioners of Appeals in Prize Causes in London in 1798. These cases were subsequently brought before a mixed claims commission established under Article VII of the Treaty of Amity Commerce and Navigation between Britain and the United States (Jay Treaty) of 19 November 1794. In pointing us to archives and documents, it is perhaps a fitting visualization of the tasks that historically conscious investment lawyers are facing. We have also benefited from generous support by our host institutions, which we gratefully acknowledge. Stephan W. Schill would particularly like to acknowledge support in the preparation of this book and the research leading up to it by a European Research Council Starting Grant on ‘Transnational Private-Public Arbitration as Global Regulatory Governance: Charting and Codifying the Lex Mercatoria Publica’ (LexMercPub, Grant agreement no: 313355). Finally, our thanks are due to Edward Elgar Publishing whose continued cooperation we value. Ben Booth, Rebecca Stowell, and Amber Watts have helped see this book through to completion with unfailing patience. Mark McClellan has been a diligent copyeditor. We are grateful to all of them.

PART I

Introduction

1. International investment law and history: An introduction Stephan W. Schill, Christian J. Tams and Rainer Hofmann I. INTRODUCTION The relationship between international investment law and history is ambivalent. On the one hand, the past is very present in current debates, whether they concern standards of treatment, the rationale for international investment law and investor-state arbitration, or future changes and reform. History in that sense clearly matters for investment lawyers: contemporary investment law is the product of historical evolution and, like other fields of international law, is shaped by it. Textbooks (which almost inevitably deal with investment law’s history)1 reflect that fact, as do scholarly works and arbitral awards that reach back to cases and disputes preceding the emergence of the contemporary system.2 On the other hand, more than other fields of international law, investment law is dominated by the ‘here and now’. As a relevant discipline, it has emerged relatively recently; many aspects of it are said to be novel; and its every-day practice yields so much new material – treaties, disputes, awards – that it is easy to be all-presentialist.

1

These range from relatively brief tours d’horizon to longer, more comprehensive chapters. For the former see, for example, Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press 2012) 1–9; Krista Nadakavukaren Schefer, International Investment Law: Text, Cases and Materials (2nd edn, Edward Elgar Publishing 2016) 4–11. For the latter see, for example, Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties (Kluwer Law International 2009) 3–57; Kenneth J Vandevelde, Bilateral Investment Treaties (Oxford University Press 2010) 19–74; Jeswald W Salacuse, The Law of Investment Treaties (Oxford University Press 2010) 78–125. 2 For further discussion see below Sections II.A. and II.B. 3

4

International investment law and history

Both features – a measure of historical sensitivity, and the dominance of the here and now – may explain how investment lawyers have approached the history of their discipline. Historical arguments feature regularly, but for a long time they mostly seemed to be used instrumentally, and often ornamentally: succinct summaries of broader developments were no doubt useful for didactic purposes; references to age-old precedents helpful to shore up the preferred interpretation of a certain treaty provision (often in order to prevail in a concrete dispute); historical context, as construed, a means to influence the normative and political assessment of substantive and procedural rules included in existing or to-be-negotiated investment agreements. Yet, while commonplace and enriching, and reflecting an awareness of the past’s relevance for present debates, such recourse to history was often ‘a decidedly instrumental pursuit’,3 which had little to do with (and did not claim to be) historical scholarship proper. And of course, in their uses of history, investment lawyers as a group were, and are, not immune from the much-decried ‘“amateurism” of international lawyers’.4 Indeed, there is sufficient evidence in existing international investment law scholarship of what in the US-American context has been dismissed as ‘law office histories’5 or ‘history “lite”’ where lawyers ‘pick and choose facts and incidents ripped out of context that serve their purposes’.6 For some time, however, change has been underway. In a more recent, burgeoning body of investment law literature, history takes centre stage. The provenance of substantive standards, the background to important treaties, and the establishment of crucial institutions – all these have been studied in much detail, and have prompted book-length inquiries that could hardly be accused of pursuing ‘history “lite”’, or of ‘picking and choosing’ facts and incidents at will.7 What is more, perhaps reflecting greater awareness of this hitherto ‘exotic’ branch of international law,8 3 David J Bederman, ‘Foreign Office International Legal History’ in Matthew Craven, Malgosia Fitzmaurice and Maria Vogiatzi (eds), Time, History and International Law (Martinus Nijhoff 2007) 43, 44. 4 Randall Lesaffer, ‘International Law and Its History: The Story of an Unrequited Love’ in Craven et al (n 3) 33, 35. 5 For comment, see Bederman (n 3) 44. 6 Martin Flaherty, ‘History “Lite” in Modern American Constitutionalism’ (1995) 95 Columbia Law Review 523, 553. 7 For examples see below Section II.B. 8 For this qualification, see Martti Koskenniemi, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law’, Report of the Study Group of the International Law Commission, UN Doc A/CN.4/L.682, para 8.

An introduction

5

historians and social scientists are slowly beginning to enter the field.9 With little delay, international investment law now seems to be participating in the ‘turn to history’ that characterizes international legal scholarship at large since the beginning of the 21st century.10 The trend is at an early stage though, the turn just about to begin. Recent book-length analyses offer in-depth accounts, but they remain narrowly focused (in the grander scheme of things) on core themes of legal analysis – concepts, institutions and the like. What is more, while scholars have begun to focus on the past, the recent turn to history in international investment law has yet to yield serious reflections within the discipline as a whole on the benefits and challenges of historical research for the understanding of this field of law and practice. All this forms the background to the present book. Proceeding from the (generally shared) assumption that history matters and drawing on the recent trend towards a fuller engagement, it seeks to consolidate the turn 9

See, for example, Noel Maurer, The Empire Trap: The Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893–2013 (Princeton University Press 2013); Lauge N Skovgaard Poulsen, Bounded Rationality and Economic Diplomacy: The Politics of Investment Treaties in Developing Countries (Cambridge University Press 2015). 10 Significant works include Martti Koskenniemi, The Gentle Civilizer of Nations (Cambridge University Press 2001); Ram Prakash Anand, Studies in International Law and History: An Asian Perspective (Martinus Nijhoff 2004); Emmanuelle Jouannet, Le droit international libéral-providence: une histoire du droit international (Bruxelles 2011); Arnulf Becker Lorca, Mestizo International Law: A Global Intellectual History 1842–1933 (Cambridge University Press 2014); as well as the following edited volumes: Craven et al (n 3); Alexander Orakhelashvili (ed), Research Handbook on the Theory and History of International Law (Edward Elgar Publishing 2011); Bardo Fassbender and Anne Peters (eds), The Oxford Handbook of the History of International Law (Oxford University Press 2012); Pierre-Marie Dupuy and Vincent Chetail (eds), The Roots of International Law / Les fondements du droit international: Liber Amicorum Peter Haggenmacher (Brill 2014). For a fuller bibliographical survey, see Frederik Dhondt, ‘Recent Research in the History of International Law’ (2016) 84 Tijdschrift voor Rechtsgeschiedenis 313. For overarching perspectives see also George RB Galindo, ‘Martti Koskenniemi and the Historiographical Turn in International Law’ (2005) 16 European Journal of International Law 539; Matthew Craven, ‘Theorizing the Turn to History in International Law’ in Anne Orford and Florian Hoffmann (eds), The Oxford Handbook of the Theory of International Law (Oxford University Press 2016) 21; and Valentina Vadi, ‘International Law and Its Histories: Methodological Risks and Opportunities’ (2017) 58 Harvard International Law Journal (forthcoming) accessed 30 August 2017.

6

International investment law and history

to history in international investment law. To that end, it brings together a broad range of historical inquiries, which not only seek to advance our understanding of historical developments, but also to reflect on the potential contribution of historical research to a better understanding of international investment law itself. The book does not present to the reader ‘the’ history, or even ‘a’ (more of less comprehensive) history, of international investment law. Instead, through a series of studies, it analyses the preconditions, methodological possibilities, benefits, and challenges of engaging in historical research and historical argument in the field. What it offers, in other words, is an ouverture that illustrates how a consolidated turn to history could enrich the discipline of international investment law. This introductory chapter sets the stage. Part II describes the status quo. It illustrates the openness of investment lawyers to historical argument and retraces the beginning of the turn to history in recent writings. As this trend remains tentative and cautious, Part III sketches out potential avenues for future research and indicates how international investment law could benefit from a fuller engagement with history. Part IV illustrates the benefits of such a fuller approach by situating the contributions to the present book. Part V concludes by suggesting that historical approaches to international investment law could not only enrich this specialized field of international law. Instead, a ‘turn to history’ in international investment law could also stimulate the interest of international legal historiography in international economic law and the economic foundations of international law.

II. INVESTMENT LAW AND HISTORY: THE STATUS QUO The turn to history, that is, a more reflective engagement with history, that we observe as of recent in international investment law has not developed from scratch. It builds on a long-standing sensitivity in practice and scholarship of the history of the field. The subsequent sections assess this status quo by identifying uses of history in contemporary investment law. The treatment is selective, but it hopefully succeeds in portraying a discipline that has been historically sensitive for a long time, and is now beginning to view its past as a subject of in-depth study. Reflecting the dominance of investment dispute settlement, the section begins by surveying historical argumentations in arbitral awards (A.). It then situates significant academic contributions that mark the start of the recent turn to history in investment law scholarship (B.).

An introduction

7

A. Historical Arguments in Investor-State Dispute Settlement Of the various features making up contemporary investment law, investor-state dispute settlement has the most obvious claim to novelty. In the words of one commentator, ‘it was only in 1990 that the defining feature of FIL [that is, foreign investment law] – private standing to invoke treaty breach – materialized’.11 Even this fledgling branch of arbitration is sensitive to its history though. Widely read newsletters now feature short entries, entitled ‘Looking Back’, which revisit ‘historic’ investment treaty arbitrations starting from 25 years back;12 the Institute for Transnational Arbitration seeks to preserve an ‘oral history’ of international arbitration, including investment arbitration, through interviews of present-day arbitration practitioners;13 and the International Council for Commercial Arbitration (ICCA) compiles ‘historic documents’ relating to international commercial and investment arbitrations.14 Beyond these initiatives, it is worth noting that historical arguments regularly play an important role in a significant number of investor-state arbitrations. Notably, tribunals recurringly rely on old case law as guidance, or persuasive precedent, for the interpretation and application of rules governing the dispute before them. As the subsequent survey suggests, this use of historical argument is extremely common and assists in the construction of substantive investment treaty standards as well as the solution of questions of jurisdiction and procedure.

11

Joost Pauwelyn, ‘At the Edge of Chaos? Foreign Investment Law as a Complex Adaptive System, How It Emerged and How It Can Be Reformed’ (2014) 29 ICSID Review 372, 400. See also Jan Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Review 232, 256 (describing investment arbitration as something ‘dramatically different from anything previously known in the international sphere’). 12 For the first such feature see Joel Dahlquist and Luke Eric Peterson, ‘Looking Back: In First Known Treaty-Based Investor-State Arbitration, AAPL v. Sri Lanka, Tribunal Saw a Failure to Protect Investment That Was Overrun During Counter-Insurgency’ IAReporter, 15 January 2017 accessed 30 August 2017. 13 See Institute for Transnational Arbitration, ‘Preserving Perspectives: International Arbitrators in Their Own Words’ accessed 30 August 2017. 14 See International Council for Commercial Arbitration, ‘Historic Documents in Arbitration’ accessed 30 August 2017.

8

International investment law and history

References to pre-World War II case law were prominent already in the first ever investment treaty arbitration in AAPL v. Sri Lanka. Here, the Tribunal made numerous references to historical cases, either directly or via the secondary literature digesting them.15 These references served several purposes. Thus, to determine the content of the rules of interpretation under Article 31 of the Vienna Convention on the Law of Treaties and its application to the United Kingdom-Sri Lanka Bilateral Investment Treaty (BIT), the Tribunal referred to awards of the early 20th century Mixed Claims Commission, including those established between Germany and Venezuela, the United States and Venezuela, the United States and Mexico, Bulgaria and Greece, Germany and the United States, and France and Mexico.16 Similarly, in order to interpret substantive standards of treatment, specifically the full protection and security clause in the United KingdomSri Lanka BIT, the Tribunal in AAPL v. Sri Lanka invoked, amongst others, cases decided by the Italy-Venezuela Mixed Claims Commission, the Netherlands-Venezuela Mixed Claims Commission, the GermanyVenezuela Mixed Claims Commission, and the Mexico-United States General Claims Commission rendered between 1900 and 1940.17 Furthermore, rules on evidence were expounded, inter alia, through reference to decisions of the Spain-Venezuela Mixed Claims Commission and the Mexico-United States General Claims Commission.18 Moreover, it is worth noting that, in addition to consulting historical cases, the Tribunal several times invoked Emer de Vattel as an authority on points of international (investment) law.19 The Tribunal in AAPL v. Sri Lanka therefore had a clear sense of being part of a long-held tradition of international dispute settlement that it was to carry forward. Although few subsequent investment treaty arbitrations have involved a comparable amount of historical references, pre-World War II cases appear in arbitral awards in a recurring fashion. The Neer award, decided in 1926 by the Mexico-United States General Claims Commission,20 is a particular case in point. In it, the Commission offered a formula to assess

15 Chief among them was Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals (Stevens 1953). 16 See AAPL v Sri Lanka, ICSID Case No ARB/87/3, Award (27 June 1990) paras 38–40. 17 ibid paras 47–48, 53, 63, 74, 75. 18 ibid para 56. 19 ibid paras 40 and 65. 20 LFH Neer and Pauline Neer (United States of America) v United Mexican States, Award (15 October 1926) (1926) 4 RIAA 60.

An introduction

9

violations of the customary international minimum standard in respect of the treatment of aliens. It held that the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.21

For years, tribunals (most notably, but not exclusively, in the context of the North American Free Trade Agreement (NAFTA)) have discussed whether this formula is still an accurate reflection of the state of customary international law, and, if so, how that customary standard relates to the fair and equitable treatment (FET) standard contained in modern investment treaties. While tribunals have adopted different views on these questions, discussions of the Neer case figure prominently in the parties’ pleadings and the tribunals’ decisions in numerous NAFTA Chapter 11 arbitrations.22 The approach of the Tribunal in Glamis Gold v. United States23 – though contested in subsequent cases24 – placed particular weight on this historical case for the interpretation of contemporary treaty standards, such as Article 1105 NAFTA: it concluded that the Neer case and the standard expressed therein remained the point of departure for determining the content of the customary international law minimum standard and that it was for the party invoking an evolution of that standard to prove it.25 As the Glamis tribunal itself recognized, such an approach ‘because of the difficulty in proving a change in custom, effectively freezes the protections provided for in this provision at the 1926 conception of egregiousness’.26

21

ibid 61–62. See Patrick Dumberry, The Fair and Equitable Treatment Standard (Kluwer Law International 2013) 16–19, 106–124 (discussing the pertinent case law under NAFTA). See also Bilcon of Delaware Inc et al v Canada, UNCITRAL, PCA Case No 2009-04, Award on Jurisdiction and Liability (17 March 2015) paras 427–445; Mesa Power Group LLC v Canada, UNCITRAL, PCA Case No 2012-17, Award (24 March 2016) paras 496–507. 23 See Glamis Gold Ltd v United States, UNCITRAL/NAFTA, Award (8 June 2009). 24 See in particular Merrill & Ring Forestry LP v Canada, UNCITRAL/ NAFTA, Award (31 March 2010) paras 195–213. 25 See Glamis Gold (n 23) paras 600–616. 26 ibid para 604. 22

10

International investment law and history

The approach in Glamis, and perhaps the debate under NAFTA more generally, is a particular form of doctrinal perspective. But the willingness of arbitral tribunals to engage with old case law is not. Whether established under NAFTA or another investment treaty, tribunals regularly turn to historical cases to support their construction of substantive standards of treatment.27 Tribunals also seek guidance from old case law in dealing with questions of arbitral procedure and jurisdiction. The ad hoc Committee in Soufraki v. United Arab Emirates, for example, invoked cases from the 19th and early 20th century Mixed Claims Commission between the United States and Costa Rica, Great Britain, Mexico, France, Spain and Venezuela, respectively, to support its view that international tribunals were empowered to assess questions of nationality, without being bound by certificates of nationality or naturalization.28 On the issue of jurisdiction, several tribunals relied on pre-World War II decisions to assess the effect of contractual forum selection clauses on claims for breaches of international law.29 27 See Adel A Hamadi Al Tamimi v Sultanate of Oman, ICSID Case No. ARB/11/33, Award (3 November 2015) para 383 (referencing the Neer case); Ol European Group BV v Venezuela, ICSID Case No ARB/11/25, Award (10 March 2015) paras 486–489 (referencing the 1926 Roberts case of the MexicoUnited States General Claims Commission as an expression of the minimum standard of treatment); Joseph C Lemire v Ukraine, ICSID Case No ARB/06/18, Decision on Jurisdiction and Liability (21 January 2010) paras 248–249 (likewise); Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No ARB/05/22, Award (24 July 2008) para 505 (invoking the 1930 Lena Goldfields arbitration as precedent on expropriation); Swisslion DOO Skopje v The Former Yugoslav Republic of Macedonia, ICSID Case No ARB/09/16, Award (6 July 2012) fn 328 (referencing the 1927 Chattin case of the MexicoUnited States General Claims Commission ‘[f]or an in depth analysis of the concept of denial of justice’). 28 Hussein Nuaman Soufraki v The United Arab Emirates, ICSID Case No. ARB/02/7, Decision of the Ad Hoc Committee on the Application for Annulment of Mr. Soufraki (5 June 2007) paras 66–70 (see also ibid paras 107–111 where the Committee relied, inter alia, on precedent by the Mexico-United States General Claims Commission to determine what law governed questions of procedure for determining nationality). See also Methanex Corporation v. United States of America, UNCITRAL, Decision of the Tribunal on Petitions from Third Persons to Intervene as ‘amici curiae’ (15 January 2001) para 44 (pointing to the publication of the arbitral award in the 1930 Lena Goldfields arbitration to suggest that English law on arbitration had not traditionally adopted a strict approach to confidentiality in earlier times). 29 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine Republic (formerly Compañía de Aguas del Aconquija, S.A. and

An introduction

11

These examples are illustrative only. They highlight the most prominent use of history in investment arbitration: tribunals turn to the past for guidance on the construction of contemporary investment law. As the preceding summary indicates, historical arguments are common, and at times determinative, in the present-day practice of investor-state dispute settlement. B. The Turn to History in Investment Law Literature Perhaps more than in awards, historical sensitivity comes to the fore in the writings on international investment law. This is not only the case, as noted in the introductory section, with many of the most widely used investment law textbooks.30 Also in more targeted analyses, the origins and evolution of issues of contemporary investment law remain a popular topic.31 In line with the discipline’s focus on disputes and cases, new perspectives on old landmark decisions remain a particularly prominent sub-genre of historically informed scholarship in international investment law.32 All this reflects an openness towards history, on which the more

Compagnie Générale des Eaux v Argentine Republic), ICSID Case No. ARB/ 97/3, Decision on Annulment (3 July 2002) paras 98–100; SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID Case No ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) paras 150–152. 30 See above n 1 and the sources listed therein. 31 See, for example, Tom Johnson and Jonathan Gimblett, ‘From Gunboats to BITs: The Evolution of Modern International Investment Law’ in Karl Sauvant (ed), Yearbook on International Investment Law and Policy 2010–2011 (Oxford University Press 2012) 649; Leon E Trakman and Nicola W Ranieri, ‘Foreign Direct Investment: A Historical Perspective’ in Leon E Trakman and Nicola W Ranieri (eds), Regionalism in International Investment Law (Oxford University Press 2013) 14; Ahmad Ali Ghouri, ‘The Evolution of Bilateral Investment Treaties, Investment Treaty Arbitration and International Investment Law’ (2011) 14(6) International Arbitration Law Review 189; Kenneth J Vandevelde, ‘A Brief History of International Investment Agreements’ (2005) 12 UC Davis Journal of International Law and Policy 157; Stephan W Schill, The Multilateralization of International Investment Law (Cambridge University Press 2009) 23–64; Santiago Montt, State Liability in Investment Treaty Arbitration (Hart 2009) 31–74. 32 See, for example, VV Veeder, ‘The Lena Goldfields Arbitration: The Historical Roots of Three Ideas’ (1998) 47 International & Comparative Law Quarterly 747; Stephen D Fitch, ‘The Harriman Manganese Concession in the Soviet Union: Lessons for Today’ (1991) 9 Berkeley Journal of International Law 209; Michael Reynolds, ‘The Jaffa Jerusalem Railway Company Arbitration 1922’ (1991) 6 Arab Law Quarterly 215; Shabtai Rosenne, ‘The Jaffa-Jerusalem

12

International investment law and history

recent literature that embraces historical arguments has built. Of particular note, in this context, are a number of recent book-length studies that draw on historical insights to elucidate the state of investment law as it currently stands and to understand the emergence of institutions, the role of specific states in the development of investment law, and the biases that have shaped, and are being shaped by the field’s history. The role of history and historical argument for the doctrine of investment law is explored in a number of studies. Jan Paulsson’s book Denial of Justice in International Law, published in 2005, analyses the concept of denial of justice as a present-day cause of action under international law, in particular as it relates to human rights and foreign investment law.33 Responding to the lack of doctrinal clarity in the application of the concept in modern investment treaty arbitration, Paulsson looks towards history as a source of international law. Thus, in order to construct the contours and contents of the denial-of-justice concept, he turns to an analysis of gunboat diplomacy and arbitral case law in the 19th and early 20th century, the emergence of the Calvo Doctrine, and the heated post-World War II debates about substantive and procedural protection of foreign investors.34 Yet, Paulsson’s analysis of history is not limited to doctrinal (re-)construction. Pointing to ‘hundreds of such cases in the nineteenth century,’ he also uses history as an argument to respond to critics of investment law and arbitration. After all, Railway Arbitration (1922)’ (1998) 28 Israel Yearbook on Human Rights 239; VV Veeder, ‘Lloyd George, Lenin and Cannibals: The Harriman Arbitration – The 1999 Freshfields Lecture’ (2000) 16 Arbitration International 115; VV Veeder, ‘The Historical Keystone to International Arbitration: The PartyAppointed Arbitrator – From Miami to Geneva’ in David D Caron et al (eds), Practising Virtue: Inside International Arbitration (Oxford University Press 2015) 127; Oscar Garibaldi, ‘Jurisdictional Errors: A Critique of the North American Dredging Company Case’ in Caron et al, ibid at 167; VV Veeder, ‘Chancellor Wirth and the Mologales Concession 1923–1927: The GermanSpeaking Origins of the 1965 ICSID Convention’ in Christina Binder et al (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Scheuer (Oxford University Press 2009) 377; Jason Webb Yackee, ‘The First Investor-State Arbitration: The Suez Canal Company v Egypt (1864)’ (2016) 17 The Journal of World Investment & Trade 401. See also the contributions in Ulf Franke et al (eds), Arbitrating for Peace (Kluwer Law International 2016). For a listing of investor-state arbitrations in the 19th and 20th centuries see also AM Stuyt (ed), Survey of International Arbitrations: 1794–1989 (Martinus Nijhoff 1990) 471–561. 33 Jan Paulsson, Denial of Justice in International Law (Cambridge University Press 2005). 34 Paulsson’s doctrinal argument is laid out in chs 2–8.

An introduction

13

‘[t]he proposition that states may be held accountable under international law by arbitral tribunals created by treaty is neither new nor radical’.35 An approach to develop doctrine for present-day investment law through recourse to historical analysis is also taken by Martins Paparinskis in his 2013 monograph The International Minimum Standard and Fair and Equitable Treatment.36 Seeking to clarify the meaning of the often tersely worded and ambiguous notion of FET, Paparinskis’ approach is to further our understanding of the treaty standard through an understanding of the customary international law minimum standard.37 This standard can, in turn, be reconstructed (as Paparinskis shows in a detailed and meticulous fashion) through historical analysis of, inter alia, the voluminous case law of the inter-war claims commissions, the inter-war debates on protection of property under international law, and the work of the International Law Commission on state responsibility after World War II.38 Paparinskis goes on to argue that, once the content of customary law is clarified through this (historical) method, it can and should influence the interpretation of treaty-based norms on FET.39 Through this source-based approach, historical analysis of diplomatic, dispute settlement, and scholarly practice, becomes directly relevant for the construction of the content of investment treaty standards. Historical analysis is also the principal focus of Todd Weiler’s 2013 study, The Interpretation of International Investment Law.40 Discussing a broader set of investment treaty standards than Paulsson and Paparinskis, including FET, full protection and security, and rules on nondiscrimination, Weiler sets out ‘to demonstrate how historical analysis can be applied in the construction of certain key international investment law obligations’.41 In his view, historical analysis is not only useful for the clarification of the vague treaty standards in question, it is also indispensable, since ‘anyone who attempts to interpret the provisions of

35

ibid 261. Martins Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (Oxford University Press 2013). 37 For a summary of his argument see ibid ‘Introduction’. 38 This is done mainly in ibid chs 1–3. 39 See ibid chs 5–6. 40 Todd Weiler, The Interpretation of International Investment Law: Equality, Discrimination and Minimum Standards of Treatment in Historical Context (Martinus Nijhoff 2013). 41 ibid xli. 36

14

International investment law and history

an investment treaty, without first establishing a proper historical grounding, risks embarking upon a rudderless excursion in subjective analysis’.42 From this point of departure, Weiler delves into demonstrating that a number of propositions in the contemporary construction of investment treaty standards are ‘historically unsound’43 and should either be corrected in light of their history or debunked as political agendas pursued by the respective advocate-interpreter. Unlike Paulsson and Paparinskis, Weiler’s principal focus is on the history of ideas, rather than diplomatic or dispute settlement practice, as it developed both in European and non-European thought on the international law governing the relations between foreigners and sovereigns.44 His key concern, however, is similar to that of the two other authors, namely to influence the present-day practice of investment law and dispute resolution. The role of actors and institutions in the history of international investment law is another topic that has attracted attention in recent book-length studies. In 2012, Antonio Parra presented a historical analysis of the creation of the International Centre for Settlement of Investment Disputes (ICSID) in The History of ICSID.45 Unlike the books discussed earlier, Parra does not focus on substantive investment law; instead, his aim is to write ‘an overall history of the institution and its constituent treaty’.46 His analysis, based on a detailed study of historical documents embedded ‘in their broader political, economic and, above all, institutional context’,47 explains how the idea for a dispute settlement institution was born at the World Bank and what steps were taken to successfully mold the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) in a politically difficult climate in the 1960s and put ICSID into operation.48 Yet, Parra’s study does not stop there; it continues to 42

ibid 1. ibid 17. 44 Weiler deals with, for example, the classical European thinkers on international law, such as Grotius, Gentilli, Suárez, Hobbes and Pufendorf, but also religious and philosophical texts from the Buddhist, Jewish and Islamic traditions, as well as the principles applicable to the treatment of foreigners throughout ancient and medieval history, the Age of Enlightenment, all the way through to the 19th and 20th centuries. See ibid 59–128. Furthermore, experiences outside Europe are addressed, such as those of Native American nations and China during the 19th century. See ibid 130–158. 45 Antonio R Parra, The History of ICSID (Oxford University Press 2012). 46 ibid 1. 47 ibid. 48 See ibid chs 2–6. 43

An introduction

15

trace ICSID’s institutional evolution over the next five decades, merging directly into the present debates about institutional adaptation and reform.49 His analysis therefore enhances our understanding of both the institution’s history and its current challenges. Not only the role of investment law’s institutions forms part of historical analysis; also, the role of specific states in the evolution of investment law and policy is starting to be explored from a historical perspective. Kenneth J Vandevelde’s 2017 book, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties,50 is part of this trend. It assesses how and why the United States, soon after World War II, developed its age-old friendship, commerce and navigation (FCN) treaty programme into an instrument that did not only concern the establishment of trade and maritime relations, but also granted constitution-like protections to foreign investors. Vandevelde’s study, which is based on an analysis of a great number of primary sources relating to the negotiation of US FCN treaties after World War II,51 offers important insights for the debate surrounding the origins and objectives of modern international investment law. Thus, Vandevelde argues that the renewed US FCN programme after World War II took the New Deal as a model to govern the global economy in order to create prosperity and lasting peace as an antidote to both the Great Depression and World War II, influencing not only US, but investment treaty practice globally.52 Furthermore, his study questions the prominent view that sees the origins of modern investment law in the BIT programmes of European states based on the 1959 Abs-Shawcross Draft Convention on Investments Abroad and instead presents the US FCN programme as the ‘birthing moment’53 of international investment law. Finally, Kate Miles’ study on The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital, published in

49

ibid chs 7–10. Kenneth J Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties (Oxford University Press 2017). 51 For an overview of the sources drawn on, see ibid 7–9. 52 For a concise summary of that argument, see ibid 1–5; for further elaboration on the underlying ideology of the US treaty programme see ibid 11–28. 53 ibid 1. 50

16

International investment law and history

2013, stands out for its critical perspective on the discipline and its history.54 Its focus is neither on doctrinal questions nor on institutional history. Instead, Miles presents an analysis of the history of international investment law as ‘deeply embedded within the global expansion of European trading and investment activities’55 in Africa, Latin America and Asia. Although committed on its face to universal and neutral principles, the law that emerged was, Miles argues, one-sided in favour of capital-exporting states, projecting and putting into operation imperial and hegemonic notions of international law.56 The historically developed one-sidedness, Miles shows by using the treatment of environmental concerns as an example, is still present in the law as it stands today,57 but could be overcome in the current reform debate.58 Miles’ historical analysis, which is focused on the emergence of the structures of contemporary law, stands in the tradition of critical legal studies and Third World Approaches to International Law (TWAIL). Historical analysis, in that context, serves not primarily as an instrument to clarify the doctrinal operations of the regime, but to expose the power structures underlying it in order to reach a more emancipated state of the law in the future. Like the brief survey of historically informed arbitral awards, so this review of recent literature is illustrative only. It suggests that historical inquiries are assuming a more prominent place in investment law scholarship, and highlights particularly common strands of the emerging turn to history.

III. WHERE TO GO FROM HERE? CONSOLIDATING THE TURN TO HISTORY The preceding survey reflects a considerable measure of awareness among investment lawyers that history matters to their discipline. At the same time, it suggests that, so far, only very selected aspects of this history have been explored – and by a very select group of writers: by and large, the history of investment law to date remains a scholarly 54 Kate Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press 2013). 55 ibid 2. 56 See ibid chs 1 and 2. 57 See ibid chs 3 and 4. 58 See ibid chs 5 and 6.

An introduction

17

pursuit of individual investment lawyers, often those with practical leanings. This in turn may explain the dominance of studies focusing on core legal concepts, their interpretation and application (Paparinskis, Paulsson, Weiler), institutions and actors (Parra, Vandevelde), and the spirit in which critical accounts (such as Miles’) are written. None of this is a bad thing; in fact, it may be only natural that, in technical and specialized fields, such as international investment law, disciplinary specialists lead the turn to history. What is more, their dominance, and the focus on core legal concepts and institutions, may be no more than a temporary phenomenon. If experience with public international law more generally is any guide, the turn to history there, once it has gathered momentum, is likely over time to result in a fuller, and more diverse, analysis, one that frees scholarship from doctrinal legal constraints and opens up new avenues of research. The preceding summary of historical studies suggests that this diversification has yet to reach investment law scholarship. However, investment lawyers could certainly benefit from the longstanding debates about the role of historical scholarship in public international law59 and the methodological challenges it entails: not because research in international investment law necessarily has to follow the trajectory of historical research conducted in other fields of international law, but because debates prompted by the historiographical turn yield crucial lessons about the potential impact, limits and preconditions of historical inquiries not only for general international law, but for any more specific area of international law as well. Three lessons, in our view, are particularly important and should guide future research into the history of international investment law. They include a broadening of historical inquiry (A.), attention to the sources of historical research (B.), and generally more reflection on the use and role of historical analysis in international investment law (C.). A. Broader Focus: Manifold Ways of Doing History A first lesson concerns the objects and trajectories of historical inquiries. As is clear from the preceding summary, much of the existing historical research in international investment law is driven by what is doctrinally relevant, and takes the form of a history of ideas (Ideengeschichte), notably focusing on ideas that have been translated into legal concepts, principles and rules. The history of legal concepts – a particular version

59

For references to works of significance see above n 10.

18

International investment law and history

of what German historical scholars might view as ‘conceptual history’ (Begriffsgeschichte)60 – no doubt remains crucial; it remains an important aspect of legal history simply because principles and rules of law tend to be based on concepts.61 But ‘history can be written in many modes or forms’;62 and historiographical turns in other fields of international law have prompted scholars to make use of a much broader range of inquiries. The ‘history of events’ is a well-established sub-genre that has resulted in influential studies evaluating key moments in the development of international law. These in turn can be studied in different ways, from the sweeping overall (macro-)account ‘seek[ing] out large, long-term trends’,63 to the most minutely detailed account (‘micro-history’).64 Whatever the scale, traditional inquiries often centered on major political developments – peace treaties, the setting up of international organizations, the landmark cases, etc. – and these have greatly advanced our understanding of how international law has been shaped.65

60

See Reinhard Koselleck, The Practice of Conceptual History: Timing History, Spacing Concepts (Stanford University Press 2002 – transl Todd Samuel Presler). 61 See Bardo Fassbender and Anne Peters, ‘Introduction: Towards a Global History of International Law’ in Fassbender and Peters (n 10) 1, 13. 62 ibid 11. 63 Vadi (n 10) 18. The early standard texts tended to be of such (macro-) character: see, for example, Wilhelm G Grewe, Epochen der Völkerrechtsgeschichte (Nomos 1984) (translated by Michael Byers as The Epochs of International Law (de Gruyter 2000)); Arthur Nussbaum, A Concise History of the Law of Nations (Macmillan 1947); and more recently Stephen C Neff, Justice Among Nations – A History of International Law (Harvard University Press 2014). 64 See Giovanni Levi, ‘On Microhistory’ in Peter Burke (ed), New Perspectives on Historical Writing (Polity 1991) 93–113; Carlo Ginzburg et al, ‘MicroHistory: Two or Three Things That I Know About It’ (1993) 20 Critical Inquiry 10. Cf Vadi (n 10) 18–19. 65 Pars pro toto see the abundant scholarship on the Peace of Westphalia (part of which has sought to question the mythical relevance accorded to the two treaties). See Bardo Fassbender, ‘Westphalia, Peace of’ in Rüdiger Wolfrum (ed), Max Planck Encyclopaedia of Public International Law (online edition) accessed 30 August 2017; Arthur Eyffinger, ‘Europe in the Balance: An Appraisal of the Westphalian System’ (1998) 45 Netherlands International Law Review 161; O Moorman van Kappen (ed), Renegotiating Westphalia: Essays and Commentary on the European and Conceptual Foundations of Modern International Law (Kluwer 1999); Stéphane Beaulac, ‘The Westphalian Legal Orthodoxy – Myth or Reality?’ (2000) 2 Journal of the

An introduction

19

While the gravitational pull of the major events remains strong, historically informed scholarship has moved beyond them, assessed ‘the force of international law’ in lesser ‘events’, and raised awareness of international law ‘stories’ beyond the limelight.66 Perhaps concomitantly, the grand narratives à la Grewe67 are complemented, and increasingly replaced, by micro-histories that ‘min[e] small episodes, often discovered serendipitously, for insights into major themes of international legal history’.68 While much work remains to be done, islands of in-depth knowledge have appeared in the sea of international legal history; and the historical context of international law begins to emerge more clearly. Beyond events, the historiographical turn in public international law has sparked interest in the role of protagonists. Biographical studies have clear limits (as they risk reducing developments to the ‘history of great men and women’),69 but have become a key feature of recent international legal scholarship and greatly deepened our understanding of the

History of International Law 148; Derek Croxton, ‘The Peace of Westphalia of 1648 and the Origins of Sovereignty’ (1999) 21 The International History Review 569; Randall Lesaffer, ‘The Westphalian Peace Treaties and the Development of the Tradition of Great European Peace Settlements Prior to 1648’ (1997) 18 Grotiana 71; Andreas Osiander, ‘Sovereignty, International Relations and the Westphalian Myth’ (2001) 55 International Organization 251; Karl-Heinz Ziegler, ‘Die Bedeutung des Westfälischen Friedens von 1648 für das europäische Völkerrecht’ (1999) 37 Archiv des Völkerrechts 129. 66 Cf Fleur Johns et al (eds), Events: The Force of International Law (Routledge 2011); John E Noyes et al (eds), International Law Stories (Foundation Press 2007). For select examples see, for example, Genevieve Renard Painter, ‘A Letter from the Haudenosaunee Confederacy to King George V: Writing and Reading Jurisdictions in International Legal History’ (2017) 5 London Review of International Law 7; Richard P Boast, ‘The Waitangi Tribunal in the Context of New Zealand’s Political Culture and Historiography’ (2016) 18 Journal of the History of International Law 339; Nathaniel Berman, Passion and Ambivalence: Colonialism, Nationalism and International Law (Brill 2011). 67 See Grewe (n 63). 68 Vadi (n 10) 18. 69 See Galindo (n 10) 543 (discussing Koskenniemi’s concern that ‘biographical research on international lawyers [might] … emphasiz[e] the role of a handful of great minds without giving due attention to the external factors which invariably influenced the work of those authors’). Nevertheless, the basic claim remains that ‘we cannot fully understand the nature and functioning of any human group without knowing about the individuals who compose it. This knowledge must come from biographies’; see JE Neale, ‘The Biographical Approach to History’ (October 1951) 36:128 History 194, 196.

20

International investment law and history

personal dimension of the history of international law.70 The alleged ‘fathers’ of the discipline continue to command attention, including by biographers; but recent scholarship emphasizes the need to look beyond Grotius and Vattel; for example, by underlining the influence of LatinAmerican or Asian scholars71 and focusing attention on scholars straddling jurisdictional and cultural divides.72 And of course, the most successful studies combine elements of the different approaches; for example, by ‘intertwin[ing] biographical and contextual (epochal) elements as part of a narrative history of the profession and its ideas’.73 Relatively little of this has so far been reflected in investment law scholarship. As noted above, landmark disputes remain a popular subgenre. But even with respect to the major turning points, much remains clouded in mystery, and no systematic attempt so far has been made to understand the history of investment law through smaller, local events, such as specific investment projects, singular investment treaties, or more obscure episodes of investment dispute settlement. As for biographical scholarship, mainstream texts regularly note the formative role of individual figures, whether as drafters, negotiators or arbitrators – including the main drafter of the ICSID Convention and founding SecretaryGeneral of ICSID, Aron Broches, the American Commissioner on the

70

For influential examples see the Studien zur Geschichte des Völkerrechts published, since 2001, by Nomos (and offering biographical accounts of, amongst others, von Liszt, Schwarzenberger, Bluntschli, and Strupp); Jochen von Bernstorff, The Public International Law Theory of Hans Kelsen: Believing in Universal Law (Cambridge University Press 2010); Felix Lange, Praxisorientierung und Gemeinschaftskonzeption: Hermann Mosler als Wegbereiter der westdeutschen Völkerrechtswissenschaft nach 1945 (Springer 2017); and journal symposia, notably in the European Journal of International Law, offering biographical re-engagements with thinkers such as Lauterpacht, Kelsen, Scelle, and Schücking. 71 The Leiden Journal of International Law’s decision to launch a ‘periphery series’ (assessing the work of, amongst others, Taslim O Elias and Alejandro Álvarez) is indicative: see the Editors’ Introduction in (2006) 19 Leiden Journal of International Law 875. See further Becker Lorca (n 10). 72 Intriguing examples include Shynia Murase, ‘Thomas Baty in Japan: Seeing Through the Twilight’ (2003) 73 British Yearbook of International Law 315; or Katharina Rietzler, ‘Counter-Imperial Orientalism: Friedrich Berber and the Politics of International Law in Germany and India, 1920s–1960s’ (2016) 11 Journal of Global History 113. 73 Cf Matthew Craven’s description of Koskenniemi’s approach adopted in The Gentle Civilizer of Nations: Matthew Craven, ‘Introduction: International Law and Its Histories’ in Craven et al (n 3) 1, 12.

An introduction

21

United States-Mexico Claims Commissions, Fred K Nielsen, the founding fathers of the Abs-Shawcross Draft Convention, Hermann Joseph Abs and Lord Hartley Shawcross, or professor of international law and sole arbitrator in the Texaco oil concessions arbitration, René-Jean Dupuy, to name but a few.74 But authoritative biographies assessing their influence on international investment law remain scarce. To state as much does not mean that historically informed scholarship in international investment law would have to become biographical, or focus more fully on (a broader range of) events. But it points to potential future directions and suggests that the turn to history may result in a more diverse, less predictable, and less doctrinally constrained, range of inquiries. B. History as Method: The Role of Primary Sources in Particular In another respect, the turn to history may require international investment lawyers to ‘up their game’. In order to withstand the scrutiny of professional historians, research (whether looking at ideas, events or people, and whether working the broad canvas or zooming in on the minutiae) has to be done according to protocols that lawyers may not always be accustomed to. At a basic level, this requires a commitment to objectivity75 – which may sit at odds with the almost naïve frankness of some legal scholars who ‘plead guilty’ to speculation about what might have occurred.76 At a

74 For comment on their influence see, for example, Christoph Schreuer et al, The ICSID Convention. A Commentary (2nd edn, Cambridge University Press 2009) 2 (‘A. Broches … as the ICSID Convention’s principal architect’); Dolzer and Schreuer (n 1) 8 (underlining the initiatives of Herman Josef Abs); Julien Cantegreil, ‘The Audacity of the Texaco/Calasiatic Award: René-Jean Dupuy and the Internationalization of Foreign Investment Law’ (2011) 22 European Journal of International Law 441. 75 This is not to suggest that historical inquiries would reveal ‘absolute, unchanging truths’. As Marc Trachtenberg, The Craft of International History: A Guide to Method (Princeton University Press 2006) 23 notes, while the Goddess History ‘may be in possession of the truth … to the historian she will at best “vouchsafe a glimpse. Never will she surrender the whole of her treasure. The most that we can hope for is a partial rendering, an approximation, of the real truth about the past”’ (citing Pieter Geyl, The Use and Abuse of History (Yale University Press 1955) 62 et seq). 76 Pars pro toto, see Thomas W Wälde, ‘The Specific Nature of Investment Arbitration’ in Philippe Kahn and Thomas W Wälde (eds), Les aspects nouveaux du droit des investissements internationaux – New Aspects of International

22

International investment law and history

more operational level, a careful choice of sources and evidence becomes determinative. As Jason Yackee points out in his contribution to the present volume, ‘[o]ne of the defining features of the historical method is the use of “primary” sources, typically written documents housed in public or private archives’.77 Primary sources and their interpretation is what historians consider to be the most reliable evidence of past practices, events and ideas.78 Conversely, the failure sufficiently to study primary sources is one of the chief criticisms directed against lawyers engaging in ‘history lite’, which is said either to rely solely on secondary sources or to ‘make a fetish of one or two famous primary sources, and consider [its] historical case made’.79 The existing historical scholarship in investment law is too diverse to be so classified, but Jason Yackee may have a point when noting ‘the IIL community’s unwillingness to engage in archival research’.80 Detailed work with primary sources comes with significant costs, in terms of accessibility, language, the need for travel, and the amount of time required to work in and with archives. Still, judging from the experience in other fields of international law, it is a worthwhile Investment Law (Martinus Nijhoff 2007) 43, 67 (noting that his historical account of international investment law ‘does … not pretend to factual accuracy, but rather suggests a conceptual framework for a thorough review of the history of international investment law’, that seeks to recount ‘[w]hat is likely to have occurred’). 77 Jason W Yackee, ‘The First Investor-State Arbitration? The Suez Canal Dispute of 1864 and Some Reflections on the Historiography of International Investment Law’ (in this volume) 70, 78. 78 Hence Howell and Prevenier’s reference to ‘[t]he archive … [as] the historian’s principal source of information’: Martha Howell and Walter Prevenier, From Reliable Sources: An Introduction to Historical Methods (Cornell University Press 2001) 34. 79 Cf. Flaherty’s general critique of historical scholarship written by lawyers (Flaherty (n 6) 553). For similar observations see Vadi (n 10) 9 (referring to the ‘[l]ack of consultation of primary sources’ as one of the factors that ‘make some of the histories of international law, as narrated by international lawyers, fundamentally flawed’); and Bederman (n 3) 46 (citing five ‘key attributes of “law office history” [viz.] (1) a lack of analytic rigour in historical investigations, (2) selective use of historical materials, (3) sloppy or strategic methodologies in the review of historic sources, (4) overt or implicit instrumentalism in the selection of historic data and/or the conclusions drawn from such material, and (5) an unwillingness or inability to reconcile conflicting sources, or an inability to accept ambiguity or incompleteness in the historic record’). 80 Yackee (n 77) 80.

An introduction

23

endeavour. If the turn to history has advanced our understanding of international law, then this to a significant extent is due to a greater willingness to work with primary sources – and to look more carefully at archives, at personal papers and the like. To give just two examples, patient work in the archives is behind the ‘rediscovery’ of the League of Nations in recent legal and historical scholarship,81 and a keen eye for de-classified documents has resulted in new insights on the role of international law in British foreign policy after World War II.82 It is very likely that the primary sources of investment law will yield similar insights: judging from the limited exploratory studies undertaken so far, government and company archives, or private papers of key actors are treasure troves of information about the evolution of investment law. But they need to be sought, and explored according to sound historical research methods. And indeed several of the chapters in the present book are based on an analysis of hitherto untapped historical sources.83 C. Beyond Pragmatism: Reflective Uses of History Finally, a fuller engagement should lead investment lawyers to reflect consciously and critically on the uses of history. For the most part, existing investment law scholarship looks into the past to understand the present – and it seems to assume that this is the key reason for ‘looking back’. This is particularly clear from much of the doctrinal work, such as

81 See, for example, Susan Pedersen, ‘Back to the League of Nations’ (2007) 112 The American Historical Review 1091, 1092 (suggesting that ‘[i]n contrast to a postwar historiography inclined to view the League from the standpoint of 1933 or 1939, the relevant question [in contemporary research, benefiting, inter alia, from access to hitherto closed archives] is not “why the League failed” but rather the more properly historical question of what it did and meant over its twenty-five-year existence’); and further Susan Pedersen, The Guardians. The League of Nations and the Crisis of Empire (Oxford University Press 2015); Carole Fink, Defending the Rights of Others: The Great Powers, the Jews, and International Minority Protection (Cambridge University Press 2004). 82 See, for example, Anthony Carty, ‘The Corfu Channel Case and the Missing Admiralty Orders’ (2004) 3 The Law and Practice of International Courts and Tribunals 1; Anthony Carty, ‘Distance and Contemporaneity in Exploring the Practice of States: The British Archives in Relation to the 1957 Oman and Muscat Incident’ in Craven et al (n 3) 231; Charlotte Peevers, The Politics of Justifying Force: The Suez Crisis, the Iraq War, and International Law (Oxford University Press 2013). 83 See references below nn 100, 104–106 and accompanying text.

24

International investment law and history

that of Paulsson, Paparinskis and Weiler;84 their explicit or implicit premise is that the proper understanding of history points towards the correct understanding of contemporary standards of investment law. Such a ‘pragmatic interest’85 in legal history is a common feature of much historical scholarship in international law. According to Lesaffer, ‘for most international lawyers their relation to history is a purely functional one. They look at history because they need it to better understand current issues and trends.’86 But over time, this pragmatism may come under pressure.87 A fundamental concern is that to approach the past with a view to addressing contemporary concerns risks contorting the historical analysis and to fall prey to anachronism.88 It tends to invent linkages and to see the past ‘not in terms of what it was’ but ‘in terms of similarities with or differences from the present’.89 In this perspective, ‘genealogical’ or ‘evolutional’ histories are criticized for ‘sin[ning] against the most basic rules of historical methodology,’ namely to study ‘history’ first and foremost ‘in its own right’: ‘let the past be past – at least as far as this is humanly possible’.90

84

See above nn 33–44 and accompanying text. Lesaffer (n 4) 33. 86 ibid. 87 Lesaffer, ibid 34, dismisses the ‘“amateurism” of international lawyers’, but warns ‘professional legal historians … not [to] gloat over [it]’, as they themselves had ‘disdained to plough the field’. Vadi (n 10) 8–9 sees the history of international law as a ‘battlefield’ and suggests that ‘a turf war has erupted between “historians” and “lawyers” on what kind of history of international law we could and/or should have’. Both statements imply neat disciplinary distinctions, which may not reflect the diversity of approaches adopted by international lawyers, legal historians, and professional historians. 88 This echoes the concerns of Quentin Skinner, ‘Meaning and Understanding in the History of Ideas’ (1969) 8 History and Theory 3 about ‘tracing’ and causality in the history of ideas. To Skinner, it was misplaced to ‘stud[y] the history of ideas in the attempt to learn directly from the classic authors by focusing on their attempted answers to supposedly timeless questions’ (ibid 51); instead, in Skinner’s view, the historian should only focus on what the author of a text ‘in writing at the time he did write for the audience he intended to address, could in practice have been intending to communicate by the utterance of this utterance’ (ibid 49). 89 Lesaffer (n 4) 35. 90 ibid 34 and 37–38. Vadi (n 10) makes a similar point: according to her, many ‘legal historians consider that the past should not be read as a mere precursor of the present and are wary of genealogical frameworks’ (ibid 10). 85

An introduction

25

Most international lawyers engaging with the past have not accepted such a constraint. The bulk of historically informed international legal scholarship copes with the problem of anachronism and views ‘law and history as necessarily entangled’.91 Even so, the historiographical turn in public international law has prompted reflection on the proper uses of history, and may have forced international lawyers to avoid the facile claims of continuity.92 Some scholars have justified the ‘functional’ use of history by pointing to the particular nature of law. Hence, Anne Orford sees law as a discipline ‘in which judges, advocates, scholars and students all look to past texts precisely to discover the nature of the present obligations’ and where ‘law relies upon precedent, customs and patterns of argument stretching back, at least in the common law tradition, from as recently as yesterday to “time immemorial.”’93 At the same time, historical scholarship arguably has been most influential as an instrument of critique, a critique that, in Martti Koskenniemi’s words, can make ‘the voice of the past’ heard, but also seek to ‘attain a better understanding of the nature of the present’.94 Such critical approaches, almost inevitably drawing on historical inquiries, have enriched our understanding of concepts, events and protagonists of international law, but above all laid bare its biases. To name but a few,

91 Vadi (n 10) 17 (distinguishing between ‘diachronic’ approaches that ‘stud[y] legal phenomena as they change in the long term’ and ‘synchronic’ scholarship that ‘investigates legal issues as they exist at one point in time without reference to their evolution’). 92 See, for example, George Rodrigo Bandeira Galindo, ‘Force Field: On History and Theory of International Law’ [2012] Rechtsgeschichte – Legal History 86, 93 (pointing out that ‘[w]hat is necessary, however, is that any international lawyer – practitioner or theorist alike – approach history more carefully, avoiding seeing in the past what is not there at all: the present’). 93 Anne Orford, ‘On International Legal Method’ (2013) 1 London Review of International Law 174. Reviewing recent writings on the history of international human rights law, Philip Alston makes a similar point when referencing the ‘strong genealogical or ancestral component’ in the language of international law and noting that ‘one generation has provided the foundation or the impetus for the emergence and shaping of the next generation’s usage’; Philip Alston, ‘Does the Past Matter? On the Origins of Human Rights’ (2012) 126 Harvard Law Review 2043, 2052. 94 Martti Koskenniemi, ‘Histories of International Law: Significance and Problems for a Critical View’ (2012) 27 Temple International & Comparative Law Journal 215, 230.

26

International investment law and history

historical research has informed criticism of international law’s Eurocentric and imperial legacies95 (just as much as it may pose questions ‘to those who seek to disparage international law as a purely Eurocentric imperialist project’96). By the same token, critical approaches questioning the assumption that international law is a force for good draw on historical inquiries undermining the all-too-facile progress narratives.97 All of these concerns apply to international investment law as much (if not more) than to any other branch of public international law. And yet few of the questions and concerns just summarized are reflected in the existing investment law literature. The debate about anachronism, for example, has not seriously been taken up in the discipline. Similarly, with few exceptions (Kate Miles’ study prominent among them),98 the critical potential of historical research has yet to be realized. Again, just as with respect to the focus and method of historical scholarship, international

95

Influential accounts include Anthony Anghie, Imperialism, Sovereignty and the Making of International Law (Cambridge University Press 2004); Anand (n 10); Chittharanjan F Amerasinghe, ‘The Historical Development of International Law – Universal Aspects’ (2001) 39 Archiv des Völkerrechts 367; Berman (n 66). For clear analyses, see Arnulf Becker Lorca, ‘Eurocentrism in the History of International Law’ in Fassbender and Peters (n 10) 1034–1056; and Emmanuelle Jouannet, ‘Des origines coloniales du droit international: A propos du droit des gens moderne au XVIIème siècle’ in Dupuy and Chetail (n 10) 649. In their introduction to the Oxford Handbook, Fassbender and Peters (n 61) 2 state laconically: ‘The Eurocentric story of international law has proven wrong because it is incomplete’. 96 Marcus M Payk, ‘The History of International Law – or International Law in History? A Reply to Alexandra Kemmerer and Jochen von Bernstorff’ EJIL:Talk!, 8 January 2015 accessed 30 August 2017. 97 See Tilmann Altwicker and Oliver Diggelmann, ‘How Is Progress Constructed in International Legal Scholarship?’ (2014) 25 European Journal of International Law 425 (observing that ‘[t]he idea of progress is omnipresent in international legal discourse’). Similarly, Alston (n 93) 2063 (observing that ‘international law scholars have long been accused of portraying their discipline as an intrinsically or inexorably progressive one’). For a particularly influential example see Manley O Hudson, Progress in International Organization (Stanford University Press 1932). For a critical analysis see Thomas Skouteris, The Notion of Progress in International Law (TMC Asser Press 2011); Payk (n 96) pointedly observes that ‘those who see international law as a force for good per se and who are interested only in tracing the success story of its development will have little appreciation for detailed contextualisation’. 98 See above nn 54–58 and accompanying text.

An introduction

27

investment law would greatly benefit if it opened up towards the broader debates triggered by the historiographical turn in public international law.

IV. THE DIVERSITY OF HISTORICAL INQUIRIES: THE CONTRIBUTIONS TO THIS BOOK The preceding overview illustrates the ubiquity of historical arguments in investment law and practice, but also suggests that the discipline’s turn to history is at an early stage. Above all, it has outlined implications and consequences of seriously engaging with history, and identified potential avenues for future research. The contributions to the present book do not explore all these avenues: as noted above, this book is an ouverture, not a definitive treatment. But they offer reflections on the conditions, methodological possibilities, benefits, and challenges of engaging in historical research and historical argument. Heterogeneity of approaches is intended, as international investment law scholarship stands to gain from greater diversity. As a consequence, the book purposefully features a wide range of inquiries. Biographical studies feature alongside histories of key events and institutions; both macro- and micro-studies are presented. Seeking to avoid the charge of ‘history lite’, many chapters heavily rely on primary sources – which offer new perspectives on, for example, the settlement of individual historical disputes, the influence of individuals on the shaping of contemporary investment law, and the practice of states in negotiating treaties and defending economic interests of their nationals. As importantly, the contributions go beyond the pragmatism characteristic of much of the existing scholarship and reflect on the proper uses of history: unsurprisingly, contributors adopt diverging approaches, but crucially, all appreciate the need for reflecting on the use and function of historical approaches, on methodology and its challenges. Given the diversity of approaches taken and the breadth of issues addressed in the contributions to the present book, providing a structure to the presentation is difficult and necessarily somewhat arbitrary. But choices have to be made: what seemed best is to group the contributions to the present book according to two major themes they address. The first theme, presented in Part II of the book, relates to the different objects and objectives of historical analysis in international investment law. This Part groups contributions whose principal focus is on the question of what it means when engaging in historical analysis in international investment law, what to look at, and why, for which purposes, we engage in

28

International investment law and history

historical endeavours. These questions are central to understanding history as a method and reflecting critically on it (A.). The second set of contributions, which are included in Part III of the book, tends to focus on questions of methodology and their challenges. The contributions in that Part exemplify different methodological approaches to historical analysis, such as studies of state practice, biographical studies and studies in political history, and address both the benefits of and the challenges to such studies. Approaching methodology in the set-up of historical research is key for giving way to a truly historiographical turn in international investment law (B.). A. Objects and Objectives of History Part II opens with a chapter by Andreas Kulick, who discusses the impact of the linguistic turn on historical analysis.99 It shows that history is, at its core, a social construction of the historian in the form of a narrative about historical events and ideas; a product of the historian’s presentation of what she conceives as the result of her historical research. Her conception, in turn, is influenced not only by the methodological approach and the object analysed, but also by the epistemic context, the professional socialization, and the political preferences of the historian concerned. As Kulick shows, a scholar socialized in public international law who is supportive of the present investment regime will likely construct quite a different historical narrative about international investment law than a domestic public lawyer who is critical of the regime. Similarly, the choice of historical method, object of study and research question may depend on the professional, epistemic and ideological stance of the historian in question. What flows from Kulick’s analysis is that every historical inquiry has to be viewed in the context of the hermeneutic, ideological, or other preconceptions of the historian and the objective(s) she pursues. This, in turn, is one important aspect of approaching historical analysis in international investment law in a reflective fashion. Reflections on the purposes of engaging in historical analysis are also central to the contributions that follow in Part II of the book. They bring out that historical analysis can have multiple purposes, depending on the context in which history is used as a method and depending on the approach the historian is taking. An important distinction is introduced

99 Andreas Kulick, ‘Narrating Narratives of International Investment Law: History and Epistemic Forces’ (in this volume) 41.

An introduction

29

by Jason Yackee who distinguishes between two types of historical studies with different objectives: one, which he calls ‘origins studies’, seeks to establish where a specific rule, principle, institution, or idea about the law comes from; the other, which he terms ‘understanding studies’, aims at understanding a historical text or fact in its historical context.100 With respect to both, Yackee argues that investment law scholars can ‘do’ history better than they currently do. Above all, historically minded investment law scholars should, Yackee argues, have a better sense of the issues, both epistemological and practical, that professional historians wrestle with, and need to be more comfortable with engaging in primary-source-based, rather than secondary-sourcebased, analysis. To illustrate how such research can be conducted in the context of an origin’s study, Yackee draws on his research into an investor-state dispute from 1864 involving the Suez Canal Company and Egypt that was resolved through a process we would today classify as investor-state arbitration. Heather Bray focuses on another objective of history. Rather than trying to locate the origins of a particular legal rule, principle or idea, she argues that historical analysis can have the purposes of describing and understanding legal change over time.101 Analysing the change in investment dispute settlement from institutionalized international claims commissions, beginning in 1794 with the signing of the Jay Treaty, to modern investor-state arbitration, she contests that investment law’s history can be rooted in one concrete event that, comparable to a big bang, has brought about the present-day system. Instead, every component that is characteristic for modern investment law, she argues, builds on some earlier experience or idea. Historical analysis can therefore only ever present parts of a continuum of events and should thus be looked at through the prism of evolution, in order to understand change and the role of human agency in that change. At the same time, Bray insists that the observance of change has to be separated strictly from its normative assessment as positive (that is, ‘progress’) or negative (that is, ‘regression’). Such an assessment, she points out, is the product not of historical, but of normative analysis. This distinction between historical assessment and normative assessment is key for a reflective use of history – and those making use of historical arguments should conceptually distinguish both dimensions.

100

Yackee (n 77) 70. Heather L Bray, ‘Understanding Change: Evolution from International Claims Commissions to Investment Treaty Arbitration’ (in this volume) 102. 101

30

International investment law and history

Kate Miles’ chapter turns to yet another use of history, namely to serve as an instrument of criticism of the present state of the law, its institutions and practices.102 She adopts a historical approach to international investment law as an instrument of critique and argues that the value of such an approach consists in creating new understandings of historical periods, in illuminating the condition of modern international law, and in opening up room for critique of the law as it stands. Building on the tradition of TWAIL, Miles’ chapter argues that international investment law has colonial origins and has served and continues to serve as an instrument of hegemony. Yet, rather than focusing on historical facts, she unveils the colonial, imperial and hegemonic character of international investment law, both past and present, through the prism of concepts and language. For this purpose, she examines notions of property, control, the law of nations, warfare, violence, and ‘lawlessness’ in the writings of early scholars such as Vitoria, Grotius, and Vattel, and their echoes in international law in subsequent centuries. It is against this backdrop, that Miles reflects upon the language that surrounds the modern framework for the protection of foreign investment, the language that emerges in the discourse and in the justification of investment treaties in place, and the assumptions that lie at the core of international investment law in the 21st century. In her view, modern practices continue to be influenced by historical ideas and should be changed if investment law is to fully emancipate itself from what Miles views as a problematic history. In the final chapter of Part II, Jörg Kammerhofer presents a critical view vis-à-vis the use of historical analysis as a tool of criticism.103 Addressing the relationship between legal history and the nature of international investment law as positive law from a legal theory perspective, he fears that the use of history for criticizing the present state of the law may undermine the ‘autonomy of legal scholarship’, which he sees as being built on legal doctrine, not politics. In Kammerhofer’s view, the history of law may be an important reservoir of doctrinal argument and may even be able to serve as a critical tool in understanding doctrinal concepts and ideas. But historical arguments should not, in his view, be used for purely political purposes. For him, this would be an abuse of history and historiography in legal argumentation.

102 Kate Miles, ‘History and International Law: Method and Mechanism – Empire and “Usual” Rupture’ (in this volume) 136. 103 Jörg Kammerhofer, ‘The Challenges of History in International Investment Law: A View from Legal Theory’ (in this volume) 164.

An introduction

31

As the contributions in Part II show, a more reflective approach to historical analysis will inevitably lead to the need of those who use historical arguments and embark on historical research in international investment law to query and lay open the purposes of that endeavour and to reflect on the interaction between history and politics. While entirely objective historical inquiries may face great difficulties, reflection on these issues illustrates that attention needs to be paid to the hermeneutic, ideological, political and other preconceptions of the historian and to the purposes of her historical analysis. This is an important part of reflecting critically on the use of historical inquiries and its objectives and going beyond pragmatism as outlined above. B. Diversity of Methodological Approaches and Methodological Challenges Part III of the book then turns its focus to different methodological approaches to doing historical research. The contributions in this part illustrate not only the manifold ways of doing history we call on above, they also show the value of and need for critical reflection on questions of methodology and research design, particularly regarding the use of primary sources. Part III opens with Mona Pinchis-Paulsen’s investigation, based on in-depth archival research, of the meaning and development of FET clauses in post-war US commercial treaties.104 This research shows how the archival material uncovered can help to shed light on the thinking of one of the most influential treaty-making powers on a central, but also controversial investment treaty standard. Furthermore, Pinchis-Paulsen uses her historical research as a case study to illustrate three methodological challenges that any researcher must address when investigating the history of international investment law. First, Pinchis-Paulsen addresses the challenge of periodization; that is, whether historical research can and should be divided into explicit time periods. Periodization may present a dilemma: while helpful, perhaps even indispensable, as a device to structure historiographical work, periodization entails the risk of creating artificial constructions. Second, Pinchis-Paulsen addresses the challenge of embedding historical facts in their social, economic and political context. This not only helps to provide the necessary backdrop for the functioning of law as a 104

Mona Pinchis-Paulsen, ‘Resolving Challenges to Historical Research: Developing a Project to Define Fair and Equitable Treatment’ (in this volume) 179.

32

International investment law and history

social institution, but also increases the scope of historical research. Finally, Pinchis-Paulsen offers practical advice on how to deal with the problem of anachronism, namely by organizing historical inquiries into two stages: first, by analysing the past as past, without any reference to the present, and second, by putting historical evidence into a wider comparative context that may include the present state of the law. That way, Pinchis-Paulsen opines, learning from the past about the present is possible. Jean Ho turns to a different aspect that illustrates how in-depth studies of archival material can help us to better understand and theorize about the state of present-day international investment law, namely when it comes to the protection of contractual obligations under investment treaties.105 She points out that, while it is often acknowledged that the modern regime of investment protection evolved from the state-directed regime of diplomatic protection, little attention has been paid to the diplomatic history of contractual protection. Yet, this history can help, Ho argues, to shed light on why contemporary arbitral tribunals are resistant to equating simple breaches of investor-State contracts with the violations of investment treaty standards, such as an umbrella clause or the FET standards. While not satisfactorily explained by treaty language, this resistance can, Ho argues, be linked to the restrictive practice of states to exercise diplomatic protection for breaches of contract. Drawing on extensive research in the diplomatic archives of France and the United Kingdom to substantiate that claim, Ho also provides reflection on the methodological choices she made. Given the fact that archival research is labour-intensive and may yield little innovative insights if the archives in question do not contain sufficient relevant material, Ho urges that considerations of effectiveness must be taken into account in research design. Similarly, the language abilities of the researcher and the accessibility of archives housing diplomatic documents are important factors to weigh. In light of limited time to spend on researching a specific historical question, the research question and methodology should, in her view, be limited to documents whose language the researcher is able to understand and to archives that are accessible without undue difficulty. While a more comprehensive approach both in terms of language and in terms of archival material

105

Jean Ho, ‘The Evolution of Contractual Protection in International Law: Accessing Diplomatic Archives, Discovering Diplomatic Practice, and Constructing Diplomatic History’ (in this volume) 213.

An introduction

33

would be desirable, limitations are methodologically defensible, but have to be acknowledged explicitly. Yuliya Chernykh’s chapter illustrates another methodological approach available to researchers of the history of international investment law.106 Making use of his personal archives, she traces the influence of Sir Elihu Lauterpacht in the 1950s on shaping core elements of international investment law through his activities as counsel in settlement negotiations concerning the Anglo-Iranian Oil Company case in 1953–1954 and his involvement in the drafting of the 1959 Abs-Shawcross Draft Convention on Investment Abroad. Through this biographical approach, Chernykh shows that Sir Elihu was responsible for bringing the idea that individual investors have access to dispute settlement under international law directly against the state into the Abs-Shawcross Draft Convention. While never hardening into binding treaty law, the Draft Convention nevertheless influenced the development of model investment treaties and thereby influenced modern investment law. Chernykh’s method allows us to develop a better understanding of investment law through the eyes of an important participant in the policy process during the field’s foundational period. Going further, she even suggests that certain individuals, rather than institutions, were at the forefront of developing the legal principles that govern international investment relations and investment dispute settlement today. The key to this conclusion lay in the unpublished archives of the late Sir Elihu Lauterpacht that Chernykh analysed and molded into a convincing historical argument. Taylor St John’s chapter that follows demonstrates how historical approaches to investment law not only improve our ability to interpret international investment treaties and to better understand how their content emerged, they also provide invaluable insights into the functions of law and institutions in the field of international investment law.107 Her chapter focuses on political history, and in particular on how historical approaches help to shed light on the political context in which a particular treaty (or law) was made, or an international institution established. Using the creation of ICSID as an example, St John shows that the drafting of a treaty and the creation of an international organization for the settlement of investment disputes requires more than 106 Yuliya Chernykh, ‘The Gust of Wind: The Unknown Role of Sir Elihu Lauterpacht in the Drafting of the Abs-Shawcross Draft Convention’ (in this volume) 241. 107 Taylor St John, ‘Enriching Law with Political History: A Case Study on the Creation of the ICSID Convention’ (in this volume) 286.

34

International investment law and history

simply technical expertise. Instead, having visions that can gather state support and strategies for the successful implementation of the resulting texts are key. The ICSID Convention perfectly illustrates how the visions of certain individuals at the World Bank – notably that of Aron Broches and his idea to focus only on the settlement of disputes – rather than on drafting a convention encompassing substantive standards of treatment, laid the basis for one of investment law’s foundational treaties. Moreover, the strategies Broches and the World Bank developed for the Convention’s successful adoption – principally by using a consultative, organizationdriven, rather than a deliberative, state-driven procedure for drafting – were crucial for securing broad consensus among states in the politically heavily contested field of foreign investment law. St John’s political history of the emergence of the ICSID Convention brings these historical facts to life, and reasserts the benefits to be gained from a thick contextualization of primary sources. In the final chapter, Muin Boase addresses, from a historical perspective, blindspots in the current system of international investment protection, by focusing on investor duties.108 Drawing on Foucault’s genealogical approach, he addresses how previous generations of lawyers and law-makers conceived of the scope of duties of foreign merchants under international law. Boase, inter alia, analyses the conditions under which home states could be held responsible for injuries caused by their nationals under customary international law during the 18th and 19th centuries, and how they were required to prevent harmful activities of their merchants abroad, such as corruption, and punish them in case of breach. Boase also analyses the practice of states of refusing to exercise diplomatic protection if their nationals engaged in ‘censurable conduct’ abroad. All of these instances, Boase argues, were based on the idea that states not only had the responsibility to protect foreigners, but could also incur responsibility for the actions of their citizens abroad. Yet, when modern investment treaty law was created, through the conclusion of bilateral investment treaties and of the ICSID Convention, the responsibility of host states for the treatment of foreign citizens was vested as rights of foreign investors, but the responsibility of home states for the conduct of their nationals abroad was not internationalized as duties of foreign investors. Criticizing this one-sided state of investment law, Boase

108 Muin Boase, ‘A Genealogy of Censurable Conduct: Antecedents for an International Minimum Standard of Investor Conduct’ (in this volume) 321.

An introduction

35

concludes by suggesting that based on his historical analysis the idea could be developed that customary international law contains not only a minimum standard of treatment of aliens, but also a minimum standard of conduct foreign investors have to abide by, namely not to engage in ‘censurable conduct’. Boase’s chapter is therefore not only an example of how historical analysis can be used as a source of critique of the present state of investment law. He goes further and makes use of the recognized sources of international law in order to suggest that historical precedent can be used to argue for the existence of duties of foreign investors as part of customary international law and thereby change the current state of the law from within. While far from exhaustive, the contributions in Part III of the book address various historical methods for dealing with primary sources; some even deal with so far entirely unstudied documents. The contributions illustrate the great methodological diversity that is possible in historical research in international investment law and deal with a number of challenges and pitfalls. They should provide inspiration to uncover the many other untapped archival sources and to draw up, step-by-step, a more comprehensive and deeper appreciation of investment law’s history.

V. CONCLUSION AND OUTLOOK The history of international investment law still has many blindspots. This is all the more reason to engage with it, to take it seriously, and to unlock it. The present book can be no more than a start in this endeavour: As an appetizer, it hopes to offer a taste of what reflective uses of history can offer; as an ouverture, it seeks to generate sensitivity for the difficulties reflective approaches to historical argument in international investment law entail. Yet, as the present introduction has shown, a serious engagement with the history of international investment law does not need to start from scratch, as historical arguments are already widespread. Still, there is an urgent need for a deeper reflection on how investment lawyers ‘should “do” history’,109 and for a debate about ‘“best practices” for structuring and conducting the production of historical research’.110 This debate will require investment lawyers to be prepared to learn from professional historians and in many instances to move out

109 110

See Bederman (n 3) 44. Yackee (n 77) 78.

36

International investment law and history

of their methodological comfort zone. What is needed, in short, is a real turn to history in the field. The contributions to the present book aim to help lay the groundwork for such a real turn. They illustrate different methodological approaches towards solid and innovative historical research that avoid the pitfalls of nonreflective historical analysis. They shed light on, and elucidate, legal rules and principles of present-day investment law – which for most investment lawyers is likely to remain the primary reason for turning to historical analysis – just as they will allow us to critically assess the current state of the law and imagine alternatives. And they can also be used as examples when tackling other research questions in international investment law from a historical perspective. As editors, we hope that this groundwork will inspire other authors – lawyers, historians, and social scientists, of diverse disciplinary backgrounds – to engage with the history of international investment law in their research, and to do so based on well-reflected methodological premises. As the contributions to the present book illustrate, methodologically sound historical research has considerable potential for enriching and deepening our understanding of international investment law. What is more, methodologically sound historical research into international investment law could also help fill what so far remains a surprising gap in the historical analysis of public international law more generally. Notwithstanding its richness and diversity, too much of the historically informed scholarship in public international law remains focused on the great questions of war and peace, on statehood and empire, on treaties and sources.111 The contributions to this book suggest that there is much to find in, and much to learn from, the history of international economic law, from studying commercial relations and commercial treaty-making between states and other actors.112 For this 111 As an example, the history of commercial treaties is mentioned briefly in Fassbender and Peters (n 61) 12 (stating that ‘international legal historiography treated wars and treaties as the most significant “event”. The treaties attracting particular interest were treaties of alliance, seeking to forestall war, on the one hand, and peace treaties, on the other hand. As a third group, treaties of commerce can be mentioned’), but does not reappear in the Oxford Handbook as a point of in-depth analysis. 112 For studies in this direction see Martti Koskenniemi, ‘The Political Theology of Trade Law: The Scholastic Contribution’ in Ulrich Fastenrath et al (eds), From Bilateralism to Community Interest: Essays in Honour of Bruno Simma (Oxford University Press 2011) 90; Martii Koskenniemi, ‘Empire and International Law: The Real Spanish Contribution’ (2011) 61 University of Toronto Law Journal 1.

An introduction

37

reason, we hope not only that the history of international investment law can serve to enrich our understanding of the history of international economic law and commercial-treaty making. Much more: we hope it can contribute to the development of a more comprehensive economic history of international law, thus moving the analysis of international economic law from the periphery towards the centre of international legal historiography.

PART II

Objects and objectives of history

2. Narrating narratives of international investment law: History and epistemic forces Andreas Kulick I. INTRODUCTION Why should we study the history of international investment law? An intuitive, first reaction answer may well be: to learn something from the past for the present and future of the field. And of course, this is at least what might get most non-historian scholars and practitioners of international (investment) law interested in the historical development of the field. However, approaching the benefits of historical inquiries into international investment law this way inheres the danger of a rather uncritical take on the matter. This is because telling the history of something requires choosing a perspective. This perspective is the lens through which we look at a specific topic or field. The picture that thereupon emerges is necessarily shaped by the perspective chosen. Strictly speaking, we cannot tell ‘the’ history of X, only attempt to approach a historical account of one or several aspects of X by way of the perspective or perspectives we employ to look at X. Discussing, thus, the history of international investment law equally and inevitably requires a choice of perspectives and, consequently, if we share these perspectives, of narratives; and by choosing such narrative(s) the ‘narrator’ influences the audience’s grasp of the field whose ‘history’ she presents.1 A narrative, for the purposes of this study, is thus a constructive account of certain events, documents or other factual material that hence presents this account to a third party from the perspective

1 For accounts of the constructivist approach in historiography see, for instance, Erhard Wiersing, Geschichte des Historischen Denkens – Zugleich eine Einführung in die Theorie der Geschichte (Schöningh 2007) 19 et seq and in particular 723 et seq; see also generally the influential essay by Michael Stolleis,

41

42

International investment law and history

of the narrator.2 Such construction may be inadvertent, as a person tends to assume certain perspectives as natural and objective, whereas they necessarily depend on the viewpoint, which may vary significantly. On the other hand, the choice of a certain perspective in order to construct a certain narrative may also be deliberate. Deliberately constructing a narrative, however, does not necessarily mean that it serves as an instrument of bias and exploitation. A narrator may very well present a narrative in a transparent way, as one of many possible ways to interpret an event, text, behaviour, etc. Only if she conceals the constructive element and if the audience, whom the narrative is addressed to, does not identify the narrative for what it is, but takes it as an objective and hence authoritative take on ‘the’ history of X, the narrative becomes a political instrument. In this chapter, I seek to illustrate how the investment community presents certain narratives of the history of international investment law, asserting – sometimes deliberately, sometimes inadvertently – their objectivity and thereby shaping certain perceptions of the history according to its view on the present and future of the field. This requires a brief glance at historiography and the theory of language to reveal how the exercise of narration hinges on the interpretation of historical events and documents and thereby inevitably depends on the inherent ambiguity of language. Consequently, insights from modern linguistics ought to be considered in order to understand how a historical narrative is being constructed – deliberately or inadvertently – and how a claim as to a certain narrative representing ‘the’ history of a field may serve as an instrument to exercise authority (Part II). Hence, my primary task is to present, by way of examples, how certain epistemic communities employ such narratives and thereby to enhance investment law scholars’ and practitioners’ awareness vis-à-vis the constructive character of these narratives (Part III). However, as I will further develop in the conclusion, this is not at all to say that the study of history and telling certain narratives is a futile exercise for international investment law to undertake. What is central, instead, is making transparent the constructive nature of the narrative in order for the audience that is told this specific historical account to be aware that this is just one of many Rechtsgeschichte schreiben: Rekonstruktion, Erzählung, Fiktion? (Schwabe Verlag 2008); for further elaboration on the constructivist approach see below Section II.A. 2 See also Matthew Windsor, ‘Narrative Kill or Capture: Unreliable Narration in International Law’ (2015) 28 Leiden Journal of International Law 743, 744 et seq.

Narrating narratives of international investment law

43

possible perspectives the authority of which hinges exclusively on its plausibility (Part IV).

II. THE CONSTRUCTION OF NARRATIVES IN HISTORIOGRAPHY, THE THEORY OF LANGUAGE, AND INTERNATIONAL LAW Before zooming in to analyse the narratives of the history of international investment law and how they are being employed, this section will lay the theoretical groundwork in three steps. First, it will explain how the exercise of interpretation, which history is a part of, is a constructive one (Section A). Second, it will identify how the actors of the construction, the ‘narrators’, emerge through epistemic communities (Section B). Finally, it will elaborate how history, by way of narratives, may serve as a means to exercise authority through projected objectivity (Section C). A. Constructing Meaning – Constructing History According to Hayden White, one of the most radical proponents of the constructivist approach in historiography, ‘any historical object can sustain a number of equally plausible descriptions or narratives of its processes’.3 In other words, an entirely objective account of ‘the history’ of international investment law – or any other field or topic – is not possible. This is mainly due to the fact that any account of history can only be given through specific narratives told by one or several specific narrators interpreting historical events, facts and documents and presenting this account by way of language.4 Yet, language and interpretation are far from being objective. As international lawyers, we know this very well from the hermeneutical challenge the basic rules of treaty interpretation, enshrined in Article 31(1) of the Vienna Convention on the Law of Treaties (VCLT), pose to us. Article 31(1) VCLT speaks of the ‘ordinary meaning’ to be looked at in light of its ‘context’ and ‘object and purpose’ in order to interpret a clause in an international treaty. Postulating the ‘ordinary’ meaning of a text as the point of departure, the VCLT nonetheless seemingly puts a 3 Hayden White, The Content of the Form: Narrative Discourse and Historical Representation (Johns Hopkins University Press 1987) 76. 4 Cf also David Carr, Time, Narrative and History (Indiana University Press 1991) 65: ‘[N]arrative form is … the structure inherent in human experience and action.’

44

International investment law and history

limit to what can be ascribed to it through the means of state will, which used to be the classical point of departure of treaty interpretation.5 However, as we know from insights of modern linguistics, language is inherently ambiguous and thus many linguists contest that any such thing as an ‘ordinary meaning’ actually exists because words lack any inherent meaning but can mean practically anything the speaker may wish.6 Certain meanings are being traditionally ascribed to specific words by way of tradition or convention, but this does not mean that there is any linguistic limit to changing such ascribed meaning. For example, as Stanley Fish tells us, a dictionary is no more than ‘a statistical report, not a normative one; it tell[s us] about the usage most people employ (in ordinary situations), not the usage demanded by some linguistic essence’.7 Therefore, absent any ‘plain’ or ‘ordinary’ meaning, intention, according to Fish, determines the meaning of a word or text. ‘The instant I try to construe … words, the instant that I hear the sounds as words, the instant I treat them as language, I will have put in place some purpose … in light of which those sounds become words and acquire sense.’8 Hence, the exercise of interpretation, which is required in history as much as in law, is not an objective undertaking, but riddled with pre-existing – often inadvertent – choices of perspective. Consequently, Fish’s insights indicate that the speaker’s intention must be processed by the audience in order to give a meaning to a word or sentence. The audience, in turn, brings myriad preconceptions to the table and the interpretive process itself, in which the audience necessarily has to engage, ‘is deeply embedded in a societal context where different

5

See only, for a classical positivist account, Gerald Fitzmaurice, ‘The Law and Procedure of the International Court of Justice: Treaty Interpretation’ (1951) 28 British Yearbook of International Law 1, 3–4: ‘[T]he aim of treaty interpretation is to give effect to the intentions of the parties.’ On the history of thought pertaining to states’ will as the main source of legitimacy of international law see Martti Koskenniemi, The Gentle Civilizer of Nations (Cambridge University Press 2001) 188–193. 6 Stanley Fish, ‘There Is No Textualist Position’ (2005) 42 San Diego Law Review 629, 632–633: ‘Words alone, without an animating intention, do not have power, do not have semantic shape, and are not yet language … My point is that if you do not want to know about intention, you do not want to know about meaning. … [T]hey are inseparable from one another.’ 7 Stanley Fish, ‘Intention Is All There Is: A Critical Analysis of Aharon Barak’s Purposive Interpretation in Law’ (2008) 29 Cardozo Law Review 1109, 1123. 8 Fish (n 6) 632 (italics in the original).

Narrating narratives of international investment law

45

actors interact with one another’.9 On this account, meaning is a social construct10 that changes according to the ‘interpretative community’11 the audience interpreting the words spoken or written is placed in. In a similar vein, hermeneutics teaches us that interpretation, as the act of seeking to understand the meaning of a text, is inevitably constructive. For Hans-Georg Gadamer, understanding ‘is not understanding of language, but understanding through language’.12 As Richard Shapcott describes one of the premises of Gadamerian hermeneutics, ‘[a]ll knowledge is interpretation because all knowledge is constituted linguistically’.13 Every person approaches an interpretation with her specific preconception (Vorverständnis), presupposition and situated-ness in societal, cultural etc. contexts that make up the ‘horizon’ with which she looks at things.14 Therefore, and in other words, every word and every assembly of words forming a text inheres ambiguity and hence the outcome of its interpretation hinges on the author’s intention as much as it does on the audience’s understanding that, by way of its specific way of looking at the text, inevitably also becomes the author of its own interpretation. Equally, history, meaning here accounts of historical events by way of interpreting documents, acts and societal developments, thus inevitably is a construction, consisting of one or several specific narratives that –

9

Andrea Bianchi, ‘Textual Interpretation (International) Law Reading: The Myth of (In)determinacy and the Genealogy of Meaning’ in Pieter Bekker et al (eds), Making Transnational Law Work in the Global Economy – Essays in Honour of Detlev Vagts (Cambridge University Press 2010) 34, 35. 10 ibid 51. 11 According to Stanley Fish, an interpretive community is ‘made up of those who share interpretive strategies not for reading (in the conventional sense) but for writing texts, for constituting their properties and assigning their intentions. In other words, these strategies exist prior to the act of reading and therefore determine the shape of what is read rather than, as is usually assumed, the other way around.’ See Stanley Fish, Is There a Text in This Class? (Harvard University Press 1980) 171. 12 Hans-Georg Gadamer, Truth and Method (2nd rev edn, Sheed & Ward 1989) 139. 13 Richard Shapcott, Justice, Community and Dialogue in International Relations (Cambridge University Press 2001) 135. 14 Cf Gadamer (n 12) 299, 300–307; see also Ronald Dworkin, Law’s Empire (Harvard University Press 1986) 52. However, note that the eventual goal of Gadamerian hermeneutics is still the unearthing of ‘truth’.

46

International investment law and history

deliberately or inadvertently – are rooted in certain perceptions of the world seen through the ‘narrator’s’ lens.15 B. Who Narrates and How? Epistemic Communities and Epistemic Forces Now, who are the actors of a narrative, the ‘narrators’, and how do they create a narrative? A narrative, if it is to gain traction in academic or even general public discourse, usually is not an individual, but rather a collective enterprise, or at least the project of a group of people.16 Considering the almost indefinite multitude of possible ways to look at international law, it is shaped and constantly being reshaped by its actors, approaching every matter with their different professional, educational, traditional and cultural preconceptions.17 The aforementioned ‘horizons’ that the interpreters of international law and history bring to the table often display common patterns. This becomes pertinent in the emergence of distinct and separate ‘epistemic communities’,18 who share common professional, educational, traditional and/or cultural backgrounds and thereby shape specific sub-fields of international law because they view this sub-field, or even international law as a whole,19 through their specific lens. Human rights law is an example of such a closely-knit epistemic community.20 The impact of different epistemic forces becomes most visible where two or more of

15

See also Carr (n 4) 65–72. ibid 122 et seq. 17 See Jean d’Aspremont, Epistemic Forces in International Law (Edward Elgar Publishing 2015) viii. 18 On the related but partly different concept of ‘interpretive communities’ see Fish (n 11) 147–173 and Stanley Fish, Doing What Comes Naturally: Change, Rhetoric, and the Practice of Theory in Literary and Legal Studies (Duke University Press 1990) 141; see also Michael Waibel, ‘Interpretive Communities in International Law’ in Andrea Bianchi et al (eds), Interpretation in International Law (Oxford University Press 2015) 147, 151: ‘Epistemic communities emphasize the character of consensual, technocratic knowledge. The episteme is a group of transnational experts who share specific ideas about a particular substantive issue area. By contrast, the term interpretive community refers to those who share a common approach to interpretation’ (footnotes omitted, italics in the original). 19 If, indeed, they do not hold the view that there is no such thing as ‘international law as a whole’. 20 See Waibel (n 18) 155. 16

Narrating narratives of international investment law

47

these epistemic forces clash before a forum dominated by proponents of one specific epistemic force. For example, the approach of the European Court of Human Rights (ECtHR) towards general public international law questions, such as state responsibility for conduct of state-owned enterprises in Ališic´ and Others v Bosnia and Herzegovina and Others is instructive.21 When discussing the admissibility ratione personae of an individual complaint against the respondent states – the impugned acts were undertaken by state-owned banks – the Court ignored the customary rules on attribution of acts of non-state organs, in particular the work of the International Law Commission (ILC) culminating in the 2001 Articles on the Responsibility of States for Internationally Wrongful Acts.22 Instead, it resorted to its own case law on the admissibility ratione personae of a state-owned entity as applicant and applied its finding in these cases mutatis mutandis to the issue of admissibility ratione personae of the respondent states.23 Thus, the ECtHR preferred a dubious application mutatis mutandis of its own case law on the reverse situation (admissibility ratione personae of state-owned entities as applicant) over the customary rules of general public international law, which it did not even consider in this instance. In other words, it preferred to remain within the confines of its own epistemic context, rather applying its case law mutatis mutandis than resorting to established customary rules of general public international law. What about epistemic forces in international investment law? Arguably, international investment law constitutes one of the prime examples of such ‘closely-knit’ epistemic communities.24 For example, Alex Mills recently noted that:

21

See Case of Ališic´ and Others v Bosnia and Herzegovina and Others, App No 60642/08 (ECHR, 16 July 2014). 22 ILC, ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts, with Commentaries’ (2001) II-2 YILC 26 as corrected. 23 See Ališic´ (n 21) para 114, citing to Case of Mykhaylenky and Others v Ukraine, App No 35091/02 (ECHR, 20 November 2004) para 44, which in turn cites to Case of Radio France and Others v France, App No 53984/00 (ECHR, 23 September 2003) para 26. 24 See Stephan W Schill, ‘Ordering Paradigms in International Investment Law: Bilateralism-Multilateralism-Multilateralization’ in Zachary Douglas et al (eds), The Foundations of International Investment Law: Bringing Theory Into Practice (Oxford University Press 2014) 109, 123; see also Anthea Roberts, ‘Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’ (2013) 107 American Journal of International Law 45, 54.

48

International investment law and history

Investment arbitrators … have a professional interest in perceptions of IIL [that is, international investment law] and dispute resolution as a functional system. An important part of the history of IIL is the technical sociological process of its establishment as its own distinct professional specialization, a new ‘field’ of study and work. It has emerged in recent years as not merely a particular application of general rules of public international law or procedures for commercial dispute settlement, but as a new discipline requiring specialist (and expensive) knowledge and expertise, provided and supported by an ‘epistemic community’ with its own networks, conferences, and journals.25

Indeed, scholars and practitioners of international investment law increasingly consider it to constitute a distinct field of international law, fueled by often similar social, educational and political backgrounds. However, as Stephan Schill has noted, it would be an incomplete picture to paint of international investment law if one understood it as only one consistent epistemic community. Instead, there are a number of epistemic forces at play, having quite diverse origins and pulling in opposite directions.26 Scholars such as Anthea Roberts and Martins Paparinskis have identified such epistemic forces with regard to the interpretation of international investment law, in particular in the context of analogies being drawn between international investment law and arbitration and other fields of public (and private) international law and international dispute settlement.27 In Part III below, I will seek to demonstrate alongside two arguably competing epistemic forces how the history of international investment law is being shaped into different narratives according to the particular preconceptions and understandings of these epistemic forces. C. Narrating History as a Means of Projecting Objectivity and Authority As elaborated before, history, inevitably, is a construction, shaped by the narrative employed – deliberately or inadvertently – by its narrators. To those for whom the aforesaid seems a truism that hardly needs explanation I submit, however, that the narratives we tell ourselves and others

25 Alex Mills, ‘The Balancing (and Unbalancing?) of Interests in International Investment Law and Arbitration’ in Douglas et al (n 24) 437, 454. 26 See Stephan W Schill, ‘W(h)ither Fragmentation? On the Literature and Sociology of International Investment Law’ (2011) 22 European Journal of International Law 875. 27 See Roberts (n 24); Martins Paparinskis, ‘Analogies and Other Regimes of International Law’ in Douglas et al (n 24) 73.

Narrating narratives of international investment law

49

and that we base historical assumptions on are nonetheless very often ascribed objectivity. In turn, such (seeming) objectivity asserts authority by setting a standard against which everything else needs to be measured. In order to unfold its full thrust, any construction disguised as objectivity requires a Rawlsian ‘veil of ignorance’28 on either the side of the audience of interpretation, or both the author and her audience. In other words, either the person being told ‘the’ history or both the history-teller and her audience must be unaware that ‘the’ history is just a possible construction of historical events, documents, etc. Otherwise, there is no belief in objectivity and hence no authority. The narrative must pretend to discover clarity, ‘as in a hunt for buried treasure’.29 If it fails to project that image, it risks losing its authority.30 Gadamer, in his magnum opus Truth and Method, famously provides the example of ‘the classical’, which evolved from describing merely a certain period in history to an aesthetic category and eventually a normative benchmark against which both the present and other historical periods were contrasted.31 Ascribing objectivity to a certain era or a certain narrative of the history of a certain field, such as international investment law, implicates – even if done inadvertently – an exercise of authority and thus power: In this respect, historical objectivism resembles statistics, which are such excellent means of propaganda because they let the ‘facts’ speak and hence simulate an objectivity that in reality depends on the legitimacy of the questions asked.32

Similarly, Michel Foucault observed that ‘we cannot exercise power except through the production of truth’.33 If we thus enter the interpretation of a text, or a historical event, with certain preconceptions, looking at it through the lens of our societal,

28 John Rawls, A Theory of Justice (revised edn, Harvard University Press 1999) 11, 118–123. 29 Joseph Raz, Between Authority and Interpretation (Oxford University Press 2009) 241. 30 Cf also Martti Koskenniemi, From Apology to Utopia (Reissue with New Epilogue, Cambridge University Press 2005) 530–531; Daniel Peat and Matthew Windsor, ‘Playing the Game of Interpretation: Meaning and Metaphor in International Law’ in Bianchi et al (n 18) 3, 12–13. 31 Gadamer (n 12) 285–290. 32 ibid 301. 33 Michel Foucault, Power/Knowledge – Selected Interviews and Other Writings 1972–1977 (Colin Gordon ed/tr, Pantheon 1980) 93.

50

International investment law and history

cultural, etc. situated-ness, we inevitably will adapt the meaning to our worldview, as meaning exists only within our ‘horizon’ – which is also shaped by our political conception of the world. From Friedrich Nietzsche34 to Lewis Carroll’s Humpty-Dumpty35 we have many illustrations of how language and its inherent vagueness and ambiguity can be employed as a tool in the hand of the powerful. Drawing again a parallel to legal interpretation, as Martti Koskenniemi reminds us, it is not so much the fact that a meaning can be twisted in whatever direction but rather that classical legal thought has shrouded such subjectivity in a language and demeanour of objectivity that makes interpretation, including the interpretation of historical events and facts, such a powerful tool.36 However, once a narrative is identified as such, it loses its authority and becomes ‘suspicious’.37 It ceases to be ‘the’ history of X and becomes a construction of the ‘narrator’s’ – seemingly biased – view on X. Therefore, deconstructing narratives may prove as powerful a tool as constructing them. It is fuelled by what Duncan Kennedy called the ‘hermeneutics of suspicion’, a technique by which lawyers and in particular legal academics ‘work to uncover hidden ideological motives behind the “wrong” legal arguments of their opponents, while affirming

34

On his famous notion of the ‘will to power’ see in particular Friedrich Nietzsche, On the Genealogy of Morality (Cambridge University Press 2006) 12, 112. 35 Cf Humpty-Dumpty’s famous – and not entirely serious – point about how constructing the meaning of words depends on the authority of the speaker, see Lewis Carroll, ‘Through the Looking-Glass and What Alice Found There’ in Martin Gardner (ed), The Annotated Alice – The Definitive Edition (WW Norton & Company 2000) 224: ‘“I don’t know what you mean by ‘glory’,” Alice said. Humpty Dumpty smiled contemptuously. “Of course you don’t – till I tell you. I meant ‘there’s a nice knock-down argument for you!’” “But ‘glory’ doesn’t mean ‘a nice knock-down argument’,” Alice objected. “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean – neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master – that’s all.”’ 36 See Martti Koskenniemi, ‘International Law and Hegemony: A Reconfiguration’ (2004) 17 Cambridge Review of International Affairs 197, 199: ‘[T]he objective of the contestants is to make their partial view of that meaning appear as the total view, their preferences seem like the universal preference’ (italics in the original); see also Koskenniemi (n 30) 530–532. See also Part II above. 37 See Duncan Kennedy, ‘The Hermeneutic of Suspicion in Contemporary American Legal Thought’ (2014) 25 Law Critique 91, 98 et seq.

Narrating narratives of international investment law

51

their own right answers allegedly innocent of ideology’.38 Hence, this technique equally seeks to assert authority, in this case by ‘unmasking’ the opposing narrative as a narrative and thus ‘biased’ and offering an alternative ‘correct’/‘objective’ account of the object of study.

III. A TALE OF TWO NARRATIVES (AND ONE NON-NARRATIVE) If history thus is a construction that inevitably consists of one or several narratives, shaped by the epistemic forces that make up its ‘narrators’ and inhering the potential as a powerful tool to exercise authority, how does all of this play out vis-à-vis the history of the specific field of international investment law? This section approaches this question by presenting what I identify as the two dominant narratives of the history of international investment law. The first of them overall paints the historical development in a favourable light as it presents a progressive account of international investment. I will call the narrators of this first narrative the ‘Friends of Investment’ (Section B). The second narrative is more critical of the overall development of international investment law and presents its history as a struggle. The narrators of this second narrative will be dubbed ‘Backlashers’ (Section C). A. Narrative, Story-Line and Non-Narrative The two narratives presented hereinafter necessarily constitute simplifications – some may even argue over-simplifications.39 Also, given the limited space of this contribution, I cannot address the enormous variety of nuances and side-narratives that exist in historical accounts of international investment law, nor do I claim that there are no other strands that are worth pursuing. Rather, and this leads me back to the aforesaid,40 the ensuing analysis again inevitably is a construction; that is, a narrative of narratives: I cannot possibly claim that this is an objective account of historical narratives of international investment law. What I can and will attempt to do in the following, however, is to present the most plausible

38

ibid 91. I may further add that I do not contend that every single author I cite in the following two sub-sections necessarily is a strong proponent of the respective narrative, unless so specified. 40 See Part II.A. above. 39

52

International investment law and history

case for choosing this narrative of narratives and for how it does or may inform our understanding of international investment law and its history. The two narratives are – as a good narrative of narratives goes – in opposition to each other. I will try to illustrate how the first narrative presents the history of international investment law from the perspective of economic liberalism. Here, the ‘Friends of Investment’41 speak to us. The second narrative, told by the ‘Backlashers’42 seeks to dress the history of international investment law as the emergence and affirmation of a (neo)-colonialist, (neo)-liberalist system biased towards the promotion of capital(ism). Of note, both narratives underlie a distinct story-line. What I call ‘story-line’ is different from the overall narrative in that the narrative sets the political agenda while the story-line is supportive of conveying such agenda but in itself is rather politically neutral.43 The story-line the ‘Friends of Investment’ tell us is – as will be demonstrated subsequently – a progress and success story44 where (and, of course, I simplify for the purposes of illustration) international investment law and investor-state dispute settlement rose from the ashes of diplomatic protection and capital-importing countries’ assault on the customary international law of the protection of property of aliens. The story-line of the ‘Backlashers’ also tells the history of a dynamic. However, it is not the story of a progress but rather of a back-and-forth with a static undertone: The corruption of the entire regime is exhibited by its corrupt, that is, colonial, roots, the modern equivalent to which is neoliberal capitalism that enforces its policies on (developing) states by way of claims by predominantly multinational enterprises. In a struggle of ‘resistance and change’45 the pendulum has swung and is continuing to swing back and forth between capital-exporting countries imposing their (neo)-colonial, (neo)-liberal agenda and capital-importing countries pushing back. 41

Name in reference to the ‘Friends of Investment’ Roundtables on the EU

level. 42

Name in reference to Michael Waibel et al (eds), Backlash Against Investment Arbitration (Kluwer Law International 2010). 43 Cf the distinction between ‘story’ and ‘discourse’ or ‘narrative’ in literary theory, see Jonathan Culler, The Pursuit of Signs: Semiotics, Literature, Deconstruction (Cornell University Press 2001) 189. 44 For accounts of progress and success stories of international law as a whole see Martti Koskenniemi, ‘A History of International Law Histories’ in Bardo Fassbender and Anne Peters (eds), The Oxford Handbook of the History of International Law (Oxford University Press 2012) 943. 45 Muthucumuraswamy Sornarajah, Resistance and Change in International Law on Foreign Investment (Cambridge University Press 2015).

Narrating narratives of international investment law

53

Before discussing the two narratives in more detail, let me point out a consequence of the antagonism of the narratives of the ‘Friends of Investment’ and the ‘Backlashers’ that at first glance may appear as a third narrative: a narrative, or to be more precise, non-narrative that displays the lack of references to the historical development of the discipline and substantive and procedural framework. However, on closer inspection, such non-narratives46 do not constitute distinct narratives in their own right; but rather are corollaries of the two other narratives presented. Indeed, both the ‘Friends of Investment’ and the ‘Backlashers’ may deliberately or inadvertently employ non-narratives. One example of a non-narrative is the omission or under-emphasis of specific historical periods such as the early colonial era or the most recent past, which I will explain in more detail below. To be fair, in many instances, a specific issue of international investment law may not be placed in its historical context simply because the focus of the article, book, decision, etc. is not on the historical development of that issue due to its perceived limited informative potential and there is nothing illegitimate about this at all. However, even not dealing with history inevitably tells a certain historical narrative in that it puts emphasis on the (seemingly) exceptional and new character of the subject of inquiry or omits context that would modify people’s point of view. For example, the absence of a historical account that places international investment law in the broader context of the development of international law and international adjudication in general supports neo-liberal claims as to the sui generis nature of international investment law. Hence, it is rather unsurprising that two of the most important contributions promoting such view share a relative47 or even total48 lack of historical context. On the other side of the ideological spectrum, critical accounts of the current investment arbitration regime, both from academia as well as in mainstream media, similarly fail to mention crucial historical traditions. For example, the notion that ad hoc arbitration by private individuals has been a main characteristic of international adjudication for the most part of the late 19th and 20th centuries and that such arbitration actually

46 Cf the similar concept of ‘unreliable narration’ from literary theory and adapted by Matthew Windsor to international legal theory, see Windsor (n 2) 752 et seq. 47 Roberts (n 24). 48 Jan Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Review 232.

54

International investment law and history

originates in state-state dispute settlement is strikingly absent from such narratives.49 B. The ‘Friends of Investment’: International Investment Law as Enhancement of Economic Development and the Rule of Law The ‘Friends of Investment’-narrative50 goes as follows: The story of international investment law begins with the age of diplomatic protection in the second half of the 19th century. Aliens seeking protection, on the international level, for seizure of their property abroad and other mistreatment needed to appeal to their governments to take up the matter on their behalf. Hence, the individual whose assets were seized abroad found herself in a position of double arbitrariness. First, she was subject to the host state’s arbitrariness – by way of often intransparent administrative or legislative measures defying the rule of law and also by way of asserting considerable influence over the domestic judiciary, which the alien had to turn to for exhaustion of local remedies in order to be even eligible for diplomatic protection.51 In addition, the second kind of arbitrariness the alien was subject to was the arbitrariness of her home state. One corollary of the then still prevalent Vattelian paradigm52 meant that the home state, as any exclusive bearer of rights, enjoyed full discretion whether to pursue the claim – or not.53 This constituted a considerable ‘politicization’ of the dispute at 49 See only, for a representative voice from academia, Matthias Kumm, ‘An Empire of Capital? Transatlantic Investment Protection as the Institutionalization of Unjustified Privilege’ (2015) 4(3) ESIL Reflections 3 accessed 9 February 2017. For examples from mass media see ‘A Better Way to Arbitrate’ The Economist, 11 October 2014 accessed 9 February 2017 and ‘The Arbitration Game’ The Economist, 11 October 2014 accessed 9 February 2017. 50 Note that I am not claiming that everyone cited in this sub-section necessarily is a proponent of the ‘Friends of Investment’-narrative of some sort. 51 See generally Christopher Dugan et al, Investor-State Arbitration (Oxford University Press 2008) 11–45. 52 See generally Emeric de Vattel, Le droit des gens ou principes de la loi naturelle appliqués à la conduite et aux affaires des nations et des souverains (first published 1758, Carnegie Institution of Washington tr/ed, 1916) vol II, 295 et seq. 53 See Alfred Verdross and Bruno Simma, Universelles Völkerrecht (3rd edn, Duncker und Humblot 1984) 818.

Narrating narratives of international investment law

55

issue, because espousing the investor’s claim for the home state meant engaging in diplomatic and sometimes even armed battle with the host state where myriad political interests were at stake that oftentimes were entirely unrelated to the treatment of the investor.54 It took until 1965 for this paradigm finally to shift, when the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention) enabled the investor to introduce its claims directly against the host state, leaving the home state – and its political relation to the host state – out of the picture. The progress on the procedural side was flanked by progress on the substantive side: The old Friendship, Commerce and Navigation Treaties, as well as the rather contested customary law standards, were incrementally replaced or supplemented by solid treaty provisions, enshrined usually in bilateral investment treaties (BITs), which guaranteed certain relative and absolute protection standards and provided for compensation and damages as the primary or even exclusive remedy. Particularly over the last 25 years the web of international investment agreements (IIAs) grew ever tighter, providing for the host states’ general consent to investor-state arbitration and creating a regime that displayed a considerable substantive coherence despite the prevalent bilateralism.55 The substantive requirements enshrined in the treaties did not merely promote investment. They enhanced economic development by establishing, on an international level, standards of treatment promoting the rule of law, such as non-discrimination, procedural and judicial fairness, protection of legitimate expectations, etc.56 The final result of this progress and success story is thus, in the words of the CME tribunal, a ‘truly universal’57 regime for the enhancement of economic development and the promotion of the rule of law. 54

See, for example, Aron Broches, ‘The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States’ (1972) 136 Recueil des Cours 331, 344; see also Nigel Blackaby and Constantine Partasides, Redfern and Hunter on International Arbitration (5th edn, Oxford University Press 2009) 465–467; Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties – Standards of Treatment (Kluwer Law International 2009) 8–10. 55 See, generally, Stephan W Schill, The Multilateralization of International Investment Law (Cambridge University Press 2009) 15 et seq, 65 et seq, 121 et seq. 56 See Kenneth Vandevelde, Bilateral Investment Treaties: History, Policy, and Interpretation (Oxford University Press 2010) 2–4. 57 CME v Czech Republic, UNCITRAL, Final Award (4 March 2003) para 497.

56

International investment law and history

Who are the ‘Friends of Investment’ presenting this narrative of progress? Here, we come back to my earlier observation about the ‘closely knit’ character of the epistemic community of international investment lawyers.58 Many practitioners publish extensively on international investment law and arbitration, and many academics increasingly become involved as arbitrators or counsel in investment arbitrations. Not surprisingly, this ‘insider’ view produces a certain kind of narrative, based on shared background understandings and experiences, shared preferences and similar world views that tend to gravitate towards a rather favourable view on the emergence of the regime they themselves contributed shaping.59 There are three sub-narratives underlying the ‘Friends of Investment’narrative. First, and most prominently, according to the first subnarrative, international investment law has progressed from a highly politicized field in the days of diplomatic protection to the ‘depoliticized’ current regime bypassing the home state-host state relationship and endowing the investor with the ability to directly bring claims against the host state before an international tribunal.60 As Andreas Lowenfeld put it in his Separate Opinion in CPI v Mexico: ‘The essence of [the ICSID Convention, BITs and NAFTA] is that controversies between foreign investors and host states are insulated from political and diplomatic relations between states.’61 However, as Martins Paparinskis reminds us, already Hersch Lauterpacht in his seminal The Function of Law in the International Community noted that seeking to detach legal disputes from their political undercurrent is a fictitious exercise:62 ‘it has to be taken as a given that every international law dispute is political, and

58 For an empirical study on the persons sitting as arbitrators in international investment arbitration see Sergio Puig, ‘Social Capital in the Arbitration Market’ (2014) 25 European Journal of International Law 387. 59 Waibel (n 18) 149, 159–160. 60 See only Ibrahim Shihata, The World Bank in a Changing World – Selected Essays (Martinus Nijhoff 1991) 309; Aron Broches, Selected Essays: World Bank, ICSID and Other Subjects of Public and Private International Law (Martinus Nijhoff 1995) 447, 457; Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press 2012) 9. 61 Corn Products International, Inc v Mexico, ICSID Case No ARB/(AF)/ 04/1, Decision on Responsibility, Separate Opinion of Andreas Lowenfeld (15 January 2008) para 1. 62 Hersch Lauterpacht, The Function of Law in the International Community (Clarendon Press 1933) 153–160.

Narrating narratives of international investment law

57

therefore depoliticization of disputes by means of an international legal argument is ab initio problematic’.63 Nonetheless, the ‘depoliticization’ sub-narrative has been a prominent feature of telling the history of international investment law from a (neo-)liberal perspective because it ties in so well with the progress storyline. A ‘depoliticized’ regime exudes neutrality and hence objectivity, which makes a good basis for a hidden teleological claim asserting this narrative as the prevalent one. Naturally, it is to be welcomed that states do not go to war with each other over quarrels about the protection of foreign property. However, to claim political neutrality or even objectivity with regard to disputes such as Abaclat (regarding the aftermath of the Argentine financial crisis of 2001–2002),64 Poštová banka (regarding the Greek financial crisis since 2010),65 Philip Morris (regarding the Australia plain-packaging legislation for cigarettes)66 or Yukos (regarding the takings of Yukos Oil Company’s assets by the Russian government linked to the political struggle between President Vladimir Putin and Yukos founder and former main shareholder Mikhail Khodorkovsky)67 is far from reality – and arguably, following Lauterpacht’s line of reasoning, actually not possible. Similarly, dressing the investment regime set up in the 1990s and early 2000s as promoting a ‘non-ideological approach towards foreign investment’68 as opposed to the ‘ideological’ approaches taken by developing countries from the 1960s to the 1980s69 is an example of the pattern of

63

Martins Paparinskis, ‘The Limits of Depoliticisation in Contemporary Investor-State Arbitration’ in James Crawford and Sarah Nouwen (eds), Select Proceedings of the European Society of International Law (Hart 2010) vol III, 271, 275 (italics in the original). 64 Abaclat and Others (formerly Giovanna a Beccara and Others) v Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility (4 August 2011). 65 Poštová banka, as and ISTROKAPITAL SE v Hellenic Republic, ICSID Case No ARB/13/8, Award (9 April 2015). 66 Philip Morris Asia Limited v Commonwealth of Australia, PCA Case No 2012-12, Award on Jurisdiction and Admissibility (17 December 2015). 67 Hulley Enterprises Limited (Cyprus) v Russian Federation, PCA Case No AA 226; Yukos Universal Limited (Isle of Man) v Russian Federation, PCA Case No AA 227; Veteran Petroleum Limited (Cyprus) v Russian Federation, PCA Case No AA 228, Final Awards (18 July 2014). 68 Steffen Hindelang, ‘Bilateral Investment Treaties, Custom and a Healthy Investment Climate’ (2004) 5 The Journal of World Investment & Trade 789, 801. 69 See, for example, Charter of Economic Rights and Freedoms of States, UNGA Res 3281 (XXIX) (12 December 1974). See also Part III.C. below.

58

International investment law and history

alleged objectivity and neutrality that the ‘Friends of Investment’ seek to project in this regard. The aforementioned deep involvement of some of the main narrators in the jurisprudence of investment tribunals further contributes to the epistemic community’s own perception of the ‘Friends of Investment’-narrative as an objective, non-ideological account of the development of the regime. The second sub-narrative pertains to the enhancement of the rule of law through international investment law and arbitration. The – on the progress story-line – incremental development of investment treaty provisions into quasi or actual direct rights70 the individual (investor) may claim against its host state in international proceedings before an arbitral tribunal does not only evoke rule of law argumentation71 but equally has been used to draw parallels to the development of international human rights.72 The interconnection of rule of law promotion and human rights is most obvious in guarantees such as the prohibition of denial of justice and rights to fair trial, to life and liberty, and so forth.73 Similar claims can be made for the evolution of the investment law regime, only look at the interpretation of the fair and equitable treatment by many investment tribunals, sanctioning arbitrary treatment, exhaustion of ‘legitimate expectations’, etc.74 And indeed, both human rights and international investment law share the same historical roots in the law of state responsibility for injuries to aliens.75 Hence, several authors have argued for IIAs conferring direct rights on investors thus turning them into (partial) subjects of international law in

70 See, for a presentation of the different views, Kate Parlett, The Individual in International Law (Cambridge University Press 2011) 103–119. 71 Note a related line of thought drawing conclusions from claims as to international investment law constituting a prime example of the constitutionalization of international law: Santiago Montt, State Liability in Investment Treaty Arbitration – Global Constitutional and Administrative Law in the BIT Generation (Hart 2009) 369–373; see also Schill (n 55) 372–377; Andreas Kulick, Global Public Interest in International Investment Law (Cambridge University Press 2012) 85–97. 72 For an overview of such analogy see generally Paparinskis (n 27) 79–81. 73 See only Christian Tomuschat, Human Rights Law – Between Idealism and Realism (3rd edn, Oxford University Press 2014) 91–94. 74 See Dolzer and Schreuer (n 60) 25; Vandevelde (n 56) 2–4. 75 On the shared historical origins see only Francisco V García Amador, ‘First Report on International Responsibility’ (1956) II Yearbook of the International Law Commission 173, 199–203; for further literature see also Moshe Hirsch, ‘The Sociology of International Investment Law’ in Douglas et al (n 24) 143, 149–150; Parlett (n 70) 62–65, 86–89.

Narrating narratives of international investment law

59

the same vein as human rights treaties do with regard to individuals.76 However, the rationale of contemporary human rights law fundamentally differs from that of international investment law. The former roots in the dignity of the human person while the latter is based on utilitarian considerations. Thus, the one places obligations on states premised on the inherent quality of being human,77 while the other extends rights based on the rational choice to become a foreign investor in the particular host state.78 The third sub-narrative is characterized by the relative under-emphasis of the history of international investment law before the conclusion of the ICSID Convention and a relative over-emphasis of the developments of the past five decades.79 I have referred to this phenomenon as a ‘non-narrative’ in Section III.A. above. Here, let me just state the observation that proponents of the (neo-)liberal narrative tend to be rather curt when addressing the earlier history of international investment law, particularly its relations to colonialism. This is not to suggest that these narrators necessarily seek to hush away an alleged dark colonial past; rather this makes perfect sense on the account of the progress story-line: International investment law has overcome its problematic past and has become a depoliticized, rule of law and development-enhancing regime providing for investors’ direct access to international adjudication. C. The Backlashers: International Investment Law as Biased Towards the Rich and Powerful The ‘Backlashers’-narrative, told rather by the academic and professional ‘outsiders’ of the mainstream discourse on international investment law, 76 See, for example, Tillmann Braun, ‘Globalization-Driven Innovation: The Investor as a Partial Subject in Public International Law – An Inquiry into the Nature and Limits of Investor Rights’ (2014) 15 The Journal of World Investment & Trade 73, 102–103, 108–111. 77 Hence the jus cogens character of the most fundamental human rights that is markedly absent in international investment law; see Moshe Hirsch, ‘Investment Tribunals and Human Rights’ in Pierre-Marie Dupuy et al (eds), Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) 97, 110. 78 Cf Paparinskis (n 27) 80–81. 79 See, for example, Dolzer and Schreuer (n 60) 1–12; Campbell McLachlan et al, International Investment Arbitration: Substantive Principles (1st edn, Oxford University Press 2007) 212–221; Kenneth Vandevelde, ‘A Brief History of International Investment Agreements’ (2005–2006) 12 UC Davis Journal of International Law & Policy 157.

60

International investment law and history

paints a markedly different picture of the history of investment law and arbitration. It goes much further back in the past, often starting with the early colonial endeavours of the Western European Powers in the 17th century.80 The establishment of the Dutch East India Company in 1602 marks the beginning. The Dutch and other Trading Companies being founded in the first half of the 17th century were private entities – thus lacking international subjectivity – that however became the main vehicles for their sovereigns to drive colonial expansion. They acquired territory, commanded armies and established the principle of extraterritoriality that exempted the company and its officials from domestic jurisdiction. Kate Miles identifies here an: [a]lignment of state interests with those of private investors at the inception of international rules on foreign investment protection … . Inevitably, such conditions contributed to the creation of ‘otherness’ within the international investment law that emerged, manifesting most visibly in the exclusion of the host state from the protection of its [that is, international investment law’s] principles.81

In a similar vein, for Muthucumuraswamy Sornarajah, trading companies, such as the British East India Company, constituted examples of ‘an early multinational corporation’ that shares many defining features already with the ‘modern multinational corporation’ of our days.82 According to the ‘Backlashers’-narrative, from the 19th century onwards, first push-backs to these colonial usurpations by way of ‘private’ actors were suffered by Latin American countries in particular; which had stripped colonial rule but were still subject to severe imperial influence by Western European countries and increasingly the United States. Latin American countries sought to establish an alignment between domestic and international standards of treatment. Carlos Calvo, an Argentine jurist and historian, developed a doctrine in the mid-19th century, immediately endorsed by Latin American governments, which determined that, as a consequence of state sovereignty, (a) states may not intervene in the affairs of another, neither diplomatically nor militarily and (b) aliens may not claim any better than national treatment.83 80 See, for example, Kate Miles, The Origins of International Investment Law (Cambridge University Press 2013) 20 et seq, 33 et seq; Sornarajah (n 45) 19 et seq. 81 See Miles (n 80) 42. 82 Sornarajah (n 45) 20–21. 83 See Donald Shea, The Calvo Clause: A Problem of Inter-American and International Law and Diplomacy (University of Minnesota Press 1955) 19; Nico

Narrating narratives of international investment law

61

However, the predominant view held in both literature and state practice remained that host states must grant ‘just compensation’84 in cases of expropriation of foreign property, even if a lesser standard was provided for under domestic law, and capital-exporting states did not shy away from imposing such view by way of force, through so-called ‘gunboat diplomacy’.85 The 20th century saw further resistance to capital-friendly positions on the (then mainly customary) international law on foreign investment, with the Mexican land reform and the Russian Revolution as two early landmarks.86 After World War II, the decolonization movement enabled capital-importing states to use the United Nations General Assembly as the stage for an attempt of a veritable sea change in the substantive international investment law, culminating in the declaration of a New International Economic Order (NIEO)87 by General Assembly Resolution 3281, postulating, inter alia that: Each State has the right: … (c) To nationalize, expropriate or transfer ownership of foreign property in which case appropriate compensation should be paid by the State adopting such measures … . In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing State … .88

However, capital-exporting states reacted by pushing for the conclusion of the ICSID Convention that created the procedural framework the substantive void of which was filled mostly by the adoption of BITs, Schrijver, Sovereignty Over Natural Resources: Balancing Rights and Duties of States (Cambridge University Press 1997) 178–179. 84 See, for instance, Norwegian Shipowners’ Claims (Norway v USA) 1 RIAA 307, 338: ‘No State can exercise towards the citizens of another civilized State the power of “eminent domain” without … paying just compensation.’ 85 See Charles Lipson, Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (Cambridge University Press 1985) 14–15; for an overview of pre-World War I incidents see also Miles (n 80) 55–69. 86 See only Andreas Lowenfeld, International Economic Law (2nd edn, Oxford University Press 2008) 470. 87 For a representative academic publication of this period see Mohammed Bedjaoui, Towards a New International Economic Order (Unesco and Holmes & Meier 1979). 88 Charter of Economic Rights and Freedoms of States, UNGA Res 3281 (XXIX) (12 December 1974).

62

International investment law and history

starting with the Germany-Pakistan BIT in 1959 and proliferating from the late 1980s onwards. The current investment arbitration regime that resulted from this combination of investor-state dispute settlement and investment-friendly substantive provisions exhibits a bias towards investors as illustrated by arbitration awards decided predominantly by commercial arbitration lawyers from major Anglo-American law firms.89 In the narrative of the ‘Backlashers’, presenting the story-line of ‘assertions of power and responses to power,’90 I again identify three sub-narratives. First, the basso continuo of this narrative of the history of international investment law is that ‘the context in which [the] principles [of international investment law] were developed was one of exploitation and imperialism’,91 which testifies for the inherent corruption of the entire regime. For example, and as mentioned before, M. Sornarajah draws direct parallels between the trading companies of the 17th and 18th centuries and modern-day multinational corporations introducing claims in investor-state disputes as an example of how states are made subject to (economic) coercion in favour of capital.92 Indeed, there are striking similarities between, say, the principle of extra-territoriality established in the colonial age and the international adjudication system set up by investor-state arbitration, which does not require exhaustion of local remedies and permits investors to submit claims based on international rules before an international arbitral tribunal. However, what is lacking in this sub-narrative is that such reproach of a colonial heritage can equally be made vis-à-vis public international law in general. Authors, such as Martti Koskenniemi93 and Antony Anghie,94 have demonstrated the involvement of international law and international lawyers in colonialist and imperialist apology. Similar arguments could be made with regard to almost any international law regime, from ius ad bellum to state succession and recognition. Even human rights law could be discredited in the same way, since it shares 89 See, for example, Sornarajah (n 45) 27. For an elaborate critique of the current system see Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford University Press 2007) 152–184. 90 Miles (n 80) 386, quoting Lauren Benton, Law and Colonial Cultures: Legal Regimes in World History, 1400–1900 (Cambridge University Press 2002) 11. 91 Miles (n 80) 32. 92 Sornarajah (n 45) 20–21. 93 Koskenniemi (n 5), in particular 11-352; see also Koskenniemi (n 30) 71–157. 94 Antony Anghie, Imperialism, Sovereignty and the Making of International Law (Cambridge University Press 2005) particularly 13–195.

Narrating narratives of international investment law

63

with international investment law the same roots in the law of aliens95 and the protection of property is widely considered to constitute a fundamental human right.96 This leads me to the second and third sub-narratives; that is, the relative over-emphasis of the colonial past and the struggle of capitalimporting countries against capital-exporting countries’ imperialism (second sub-narrative) and the neglect of changes in recent investment arbitration case law and investment treaties as well as the personnel of the arbitrators coupled with an over-emphasis on the case law and treaty practice of the 1990s and early 2000s (third sub-narrative). As for the second sub-narrative, authors appear to stress the colonial heritage of international investment law in order to sustain an argument with regard to the current investment regime – which only carries so far, as previously demonstrated. This neglects, despite all awareness of historical development, the veritable paradigm change that the regime has undertaken over the course of the past five decades and that it arguably is undertaking at the moment.97 In particular, the capital-importing/capitalexporting country dichotomy of interests that these narrators project appears severely blurred over the course of the last 25 years. I only refer to the increasing dual role of most contracting parties to IIAs that are simultaneously capital exporters and capital importers, such as the likes of China, the United States and the European Union,98 which is being reflected in a steep increase of investment disputes brought against high-income countries.99 Furthermore, there seems to exist a trend to portray the recent past of international investment law as its present (third sub-narrative). According to an author, ‘[a]rbitrators … are predisposed towards solutions that 95

See Part III.B. above. Only cf Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights, as amended) Protocol 1, art 1. 97 See Part IV below. 98 See for the figure of these three regarding incoming and outgoing investment flows UNCTAD, World Investment Report 2016: Investor Nationality: Policy Challenges (United Nations 2016) 5, 6, figures I.4 and I.6 accessed 9 February 2017. 99 For example, according to the UNCTAD World Investment Report 2016, ‘the relative share of cases against developed countries remained at about 40 per cent’, see UNCTAD (n 98) 105; see also the UNCTAD, World Investment Report 2015: Reforming International Investment Governance (United Nations 2015) 112 accessed 9 February 2017. 96

64

International investment law and history

favour commercial stability as they come from the background of commercial arbitration’.100 However, with current and former judges at the International Court of Justice or eminent public international law scholars increasingly sitting on investment tribunals, such allegation is no longer fully accurate – if it ever was. Moreover, there is increasing evidence in investment arbitration case law that testifies against an all-pervasive proinvestor bias. To name but two examples, decisions such as Electrabel v Hungary101 and Paushok v Mongolia,102 of 2012 and 2011 respectively, emphasized that the inherent political and hence more volatile nature of democratic decision-making in itself cannot serve as an indicator that the host states frustrated the investor’s legitimate expectations.103 Further, in the 2015 award in Poštová banka and Istrokapital v Hellenic Republic, pertaining to the Greek financial crisis, the tribunal adopted an interpretation of what constituted an investment under the respective BITs that was much more restrictive104 than interpretations of similar clauses by tribunals dealing with Argentina’s sovereign default of 2001–2002.105 An outside observer comparing the ‘Friends of Investment’ narrative with the ‘Backlashers’ narrative might be baffled to find that the object of narration is in fact identical. However, it has been my intention in Section III to illustrate how the story can look differently – and can be made to look differently – from the one or the other perspective and who narrates how. Recognizing that what is being presented as ‘the’ history of international investment law is merely a particular way of looking at it, may either entail confusion and/or leave the reader wondering what to make of such observations. The final Section will seek to respond to those concerns and present a narrative for the future of international investment law. 100

Sornarajah (n 45) 27. The case pertains to the withdrawal of subsidies in the Hungarian energy sector as required by European Union (EU) law following Hungary’s accession to the EU. 102 The case deals with windfall tax and employment measures in the Mongolian mining sector. 103 Electrabel SA v Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November 2012) para 8.23; Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Government of Mongolia, Award on Jurisdiction and Liability (28 April 2011) para 299. See, for further references, Andreas Kulick, ‘Investment Arbitration, Investment Treaty Interpretation, and Democracy’ (2015) 4 Cambridge International Law Journal 441. 104 See Poštová banka (n 65) paras 228 et seq and 248 et seq. 105 See, for example, Abaclat (n 64) paras 352, 354–357. 101

Narrating narratives of international investment law

65

IV. CONCLUSION: NARRATING THE HISTORY AND NARRATING THE FUTURE OF INTERNATIONAL INVESTMENT LAW How can a turn to history instruct scholarship on international investment law and why is it important to dissect the different historical narratives (and non-narratives)? I submit that an increased interest in the history of international investment law, to which this present volume testifies, coincides with – or, indeed, is fueled by – a particularly formative period of the field. International investment law is in the limelight, not only in international law scholarship but also in mainstream public opinion, mainly thanks to discussions pertaining to investment chapters in megaregional free trade agreements such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA), the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). I contend that we are currently witnessing a paradigm shift of international investment law and arbitration that exhibits a reassertion of control by the Contracting Parties to IIAs. After three decades of proliferation of investor-friendly IIAs enfranchising investors to bring international claims on their own behalf against their host states and, accordingly, proliferation of investor-state disputes, public opinion is changing from indifference or ignorance towards international investment law and arbitration to predominantly skepticism or even fierce opposition.106 In such a formative period where the future of international investment law is constantly being debated – and, indeed, whether it should have a future at all – narratives of the history of the field blossom particularly well. How one views the history of international investment law may very well determine how decision-makers shape its future. If the narrative of its history is a progress and success story, one may be inclined to continue on this path – maybe with some improvements. If the historical narrative is one of a struggle between capital and power, on the one hand, and disenfranchised countries and people, on the other hand, there may be support for abandoning altogether a regime perceived as ‘biased’. The aforementioned paradigm shift is spurred by the fact107 that over the course of the past ten to fifteen years, the old capital-exporting countries of the West are realizing that BITs are no one-way streets, but 106

Note that even The Economist, in 2015, published pieces doubting the added value of investor-state dispute settlement, see the references above n 49. 107 See also Part III.C above.

66

International investment law and history

indeed bilateral and hence bidirectional. Originally intended to guarantee investors from wealthy, predominantly Western countries a certain standard of protection, IIAs, so the old proponents of investment protection realize, can be targeted as much at their policies as they have been targeted at the policies of their treaty partners from the so-called developing world. Regulatory states with complex regimes for protection and conciliation of myriad different interests existing in a modern civil society, so it is submitted by many, are particularly prone to fall prey to a system of international investment law and arbitration that is not designed to make the careful balancing choices required of judicial decision-making in complex societal structures.108 To name but a few examples from recent years, Germany has been seized to pay damages for its decision to phase out nuclear energy,109 Australia faced a claim by Philip Morris against its plain packaging legislation110 and Spain is subject to numerous claims for withdrawal of subsidies in the solar energy sector.111 Contracting Parties are increasingly considering to introduce inter-state arbitrations, such as the Ecuador v United States arbitration;112 they

108 I only refer to the numerous submissions by non-governmental organizations to the consultations by the European Commission on investor protection in TTIP, which in the vast majority expressed general concerns with regard to investor-state dispute settlement and investment law in general (see Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP) accessed 9 February 2017); on the issue of legitimate regulatory interests in international investment law and arbitration see generally Kulick (n 71) 77–167. 109 Vattenfall AB and others v Federal Republic of Germany, ICSID Case No ARB/12/12 (registered 31 May 2012) (pending). 110 However, jurisdiction in this case has been recently declined, see Philip Morris (n 66) paras 585 et seq. 111 See, for example, RREEF Infrastructure (GP) Limited and RREEF Pan-European Infrastructure Two Lux S.à.r.l. v Kingdom of Spain, ICSID Case No ARB/13/30, Decision on Jurisdiction (6 June 2016) (granting jurisdiction to most of the claimants’ claims); Charanne BV and Construction Investments SARL v Kingdom of Spain, SCC Case No 062/2012, Award (21 January 2016) (rejecting the claims on the merits). Cf also Mesa Power Group, LLC v Government of Canada, PCA Case No 2012-17, Award (26 March 2016) (where the Tribunal dismissed by majority claims by an American energy fund against the Province of Ontario’s renewable energy programme). 112 Republic of Ecuador v United States of America, PCA Case No 2012-5, Award (29 September 2012) (where the tribunal dismissed by majority Ecuador’s claims on jurisdiction).

Narrating narratives of international investment law

67

make use of, or are seriously considering making use of, joint interpretations of specific treaty provisions;113 they terminate their IIAs and/or membership in the ICSID Convention or launch a general overhaul of their BIT regime;114 they resort to mechanisms for early dismissals of claims such as Rule 41(5) of the ICSID Arbitration Rules or consider introducing similar mechanisms into IIAs;115 they include definitions of standards such as fair and equitable treatment or indirect expropriation into their (model) IIAs;116 they have introduced appeals mechanisms and have concluded treaties establishing an investment court system instead of arbitration mechanisms;117 and on the EU level, the European Commission is contemplating a regime for extra-EU BITs that foresees a number of control mechanisms for the Contracting Parties over investment disputes and the interpretation of the agreement – and is pushing for termination of all intra-EU BITs altogether.118 Consequently, it appears that the interests of Contracting Parties to agreements regulating foreign investment, increasingly are becoming aligned or at least approximated regardless of whether those Contracting

113 See on this issue generally Romesh Weeramantry, Treaty Interpretation in Investment Arbitration (Oxford University Press 2012) 2.39–2.51 and also Article 31(3)(a) and (b) of the Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980) 1155 UNTS 331. 114 See UNCTAD (n 98) 114; see also UNCTAD, ‘Denunciation of the ICSID Convention and BITs: Impact on Investor-State Claims’ IIA Issues Note No 2 (December 2010). 115 ICSID Arbitration Rule 41(5) has been introduced in April 2006, see Dolzer and Schreuer (n 60) 282–283. See also Articles 10.20.4 and 10.20.5 of the CAFTA and the EU Commission’s proposal for an investment chapter in the TTIP accessed 9 February 2017. 116 See European Commission, DG Trade, ‘Investment Provisions in the EU-Canada Free Trade Agreement (CETA)’ (26 September 2014) accessed 9 February 2017. 117 Cf CETA, Chapter 8, Section F accessed 9 February 2017; see generally in appeals mechanisms in international investment arbitration Karl Sauvant (ed), Appeals Mechanism in International Investment Disputes (Oxford University Press 2008). 118 See European Commission, DG Trade, ‘Factsheet on Investor-State Dispute Settlement’ (3 October 2013) accessed 9 February 2017; European Commission, ‘Towards a comprehensive European international investment policy’ COM(2010)343 final.

68

International investment law and history

Parties are predominantly capital exporters, predominantly capital importers, or both. This includes Contracting Parties with a traditionally very liberal IIA policy that used to be the frontrunners of investment protection, such as Germany119 and the Netherlands.120 For all these reasons, under this narrative of the future of international investment law, the field will arguably witness – and arguably is already witnessing – a growing trend of Contracting Parties’ reassertion of control that will shape and considerably alter its current form that we have familiarized ourselves with. In my opinion this trend will not be a short phase, but rather will persist, at least as long as Contracting Parties continue to have similar interests in retaining control over the investment treaty regime. The field of international investment law – and in particular investment arbitration practitioners – must adapt to this paradigm shift. It remains for a more detailed study to inquire into its theoretical and doctrinal implications.121 However, this paradigm shift, having shifted attention to international investment law way beyond the small community of international lawyers and academics, has fueled the competing narratives of the history of international investment law. These narratives are being employed as justifications to maintain, reform, or abandon the current investment treaty regime. To conclude, where do all these narratives leave us? Does this mean, to paraphrase Churchill, do not trust a history you have not forged yourself? My response to this question is an unequivocal yes and no. History is inevitably a construction of the person telling it for we are incapable of regarding history in an objective vacuum, completely outside its context,

119

See, for example, the official position of the German government as stated on the website of the German Ministry for Economic Affairs and Energy: accessed 9 February 2017: ‘It should only be possible to initiate investor-to-state dispute settlement as a last resort after exhausting the legal process before the national courts. … The German government takes the view that special investment protection provisions are not required in an agreement between the EU and the US as both parties provide sufficient legal protection through their national courts.’ 120 See Christian Tietje and Freya Baetens, ‘The Impact of Investor-StateDispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership’ Study prepared for the Minister for Foreign Trade and Development Cooperation, Ministry of Foreign Affairs, The Netherlands (24 June 2014) accessed 9 February 2017. 121 Cf Andreas Kulick (ed), Reassertion of Control over the Investment Treaty Regime (Cambridge University Press 2016).

Narrating narratives of international investment law

69

the context of the history-teller and our own.122 However, does this make it futile to inquire into the history of international investment law in order to inform its past, present and future application? Not at all, and this mainly for two reasons. First, if we are aware of the inevitably constructive nature of history due to the inevitably constructive nature of our way of interpreting it, we are able to disentangle and deconstruct claims as to ‘the’ objective history of international investment law.123 The myriad of possible narratives enables a plurality of different views of the past, current and future development of the field of international investment law that can compete with one another without one of them being capable of claiming exclusive authoritative status based on an alleged objectivity. Secondly and consequently, we are thus empowered to choose from this plurality of narratives the one most convincing to us with regard to the specific question that we are pursuing in our inquiry – aware, however, that what is convincing in turn again depends on our situated-ness and the question asked for the purpose of the specific inquiry undertaken.

122

See Part II above. In a similar vein, with regard to narratives in international law in general, see Windsor (n 2) 768. 123

3. The first investor-state arbitration? The Suez Canal dispute of 1864 and some reflections on the historiography of international investment law Jason Webb Yackee The use of history in international investment law (IIL) scholarship is a work in progress. IIL scholarship already relies on history to a significant extent, but IIL scholarship can also ‘do’ history better than it currently does. IIL scholarship’s use of history sometimes seems methodologically unselfconscious and incomplete. To improve, historically-minded IIL scholars need to have a better sense of the issues, both epistemological and practical, that professional historians wrestle with, and they need to be more comfortable engaging in the sine qua non of the modern historical method – the use of primary-source (and typically archival) materials to illuminate both how IIL was understood and experienced in earlier eras and how those earlier conceptions and applications of IIL may or may not remain relevant today. The chapter proceeds as follows. In the first section, I present some selective examples of the ways in which current IIL scholarship ‘does’ history, even if in an informal sense. My review of the literature is meant to be illustrative and not comprehensive. In the second section of the chapter, I explore the ways in which IIL scholarship might develop a better awareness of professional norms and understandings of how legal history should be done and what its point should be. In the third section, I briefly describe a recent historical project that I engaged in: an examination of an investor-state dispute from 1864 involving the Suez Canal Company and Egypt that was resolved by something like (but not identical to) what we would today call investor-state arbitration. I use the discussion of this incident to shed light on the mechanics of historical IIL research and some of the challenges that it poses, with specific reference 70

The Suez Canal dispute of 1864

71

to the debates about the proper methods and aims of history. I also intend the discussion to illustrate my belief in the potential intellectual and practical value of in-depth historical case studies of IIL. To summarize my conclusions: using primary source documents to gain a deep awareness of the context and content of historical investorstate disputes, and of their methods of resolution, we can identify not just differences between IIL then and now, but also certain similarities and even continuities. Dialogue between the eras of IIL is possible. It may even be useful, and not just to criticize modern IIL as imperial or neo-colonial. Past episodes of the generation and application of IIL principles can provide inspiration for thinking about how the modern system might be adapted and improved.

I. IIL HISTORY IN RECENT SCHOLARSHIP The conference upon which this book is based was premised in part on the perception that there has been a notable lack of historical research on IIL, along with a need for more of it. It seems true that very few IIL scholars are self-consciously producing what we might call ‘real’ historical studies of IIL. By ‘real’, I mean historical studies that would be recognized as meeting the methodological and intellectual standards of professionally trained historians. On the other hand, the situation was, at least until quite recently, perhaps not all that different to international law scholarship more generally.1 And despite the so-called ‘turn to history’ in that larger field of inquiry, true international legal history, performed by professional historians, remains something of a rare commodity. As Thomas Skouteris has recently argued, there is an ‘intimate relationship between international legal writing and history’.2 For Skouteris, ‘[i]nternational lawyers prefer to do history rather than talk about it. Historical narrative entwines legal writing so seamlessly that it almost passes unnoticed’.3 Indeed, he

1 In the last decade or so, historical studies of international law have become much more common than they used to be. As an example of the growth of this important subfield of legal history, note the recent appearance of an Oxford ‘Handbook’ on the subject: Bardo Fassbender and Anne Peters (eds), The Oxford Handbook of the History of International Law (Oxford University Press 2012). 2 Thomas Skouteris, ‘Engaging History in International Law’ in José M Beneyeto and David Kennedy (eds), New Approaches to International Law (Springer 2012) 99. 3 ibid 100.

72

International investment law and history

says, ‘international law discourse is awash with historical analysis’,4 even if participants in that discourse fail to acknowledge or even recognize that they are ‘doing’ history in some meaningful sense. Skouteris’ observations are almost certainly valid as to the increasingly massive academic legal literature on IIL. It is difficult to write about IIL from a legal perspective without in some way engaging with the past – by examining the historical record for evidence of ‘facts’ which are analysed and interpreted, often with a concern for describing their relevance for the present. For example, it is standard practice in traditional IIL scholarship to identify past articulations or understandings of a particular rule of IIL with the aim of establishing the rule’s modern status. If that is what qualifies as ‘doing’ history, then IIL scholars already do a lot of it. At the same time, there remains significant room to do more historical work, to do it with more self-awareness, and perhaps to do it better. The ubiquity of history in IIL scholarship may seem surprising given the apparent newness of IIL as an active field of legal practice. The most visible aspect of that practice is investor-state arbitration, and as every IIL scholar knows (or should know), investor-state arbitration was exceedingly rare until the 1990s. Figure 3.1 (below) shows the number of investor-state disputes registered at and resolved by the International Centre for Settlement of Investment Disputes (ICSID) since ICSID’s founding in 1966. As the reader can readily see, at least when it comes to ICSID arbitrations there was very little obvious IIL ‘past’ to talk about until quite recently. The recentness of the emergence of substantial arbitral activity means that many IIL scholars are often operating primarily in the present, or in what we might call the ‘near past’. IIL events of legal interest happen nearly every day, and IIL scholars spend a lot of time digesting the flood of current events. In doing so, they may play a role more apparently like that of a journalist than an actual historian, recording, analysing, and interpreting events roughly as they happen, and not trying to reconstruct and give meaning to events from the incomplete paper record of a murky past. But even in dealing primarily with the present, IIL scholars will frequently and often by necessity use claims about the past to support arguments about why a particular current event has happened, or about the event’s normative value (that is, whether a particular decision is ‘correct’ or otherwise normatively appropriate). This is true because IIL, even if largely new, is still ‘law’, and shares with it a Burkean 4

ibid.

The Suez Canal dispute of 1864

73

50 45 40 35 30 25 20 15 10 5 0 1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

Source: Data from ICSID Caseload Statistics, available at .

Figure 3.1 Annual Count of Registered ICSID Disputes preoccupation with order and continuity. IIL, even if largely treaty-based, remains firmly tied to notions of custom and precedent,5 and the IIL of today is supposed to reflect, in large part, the IIL of yesterday.6 This means that to assess the ‘correctness’ of a modern award dealing with, say, the question of whether an investor was treated ‘fairly and equitably’, the IIL scholar, like an arbitral tribunal itself, will often need to grapple with how the concept was conceived in the past.

5

While IIL awards are not formally precedential, IIL lawyers and arbitrators frequently cite and rely upon past decisions as support, to the point that some scholars have identified a nascent, precedent-like ‘jurisprudence constante’. Andrea K Bjorklund, ‘Investment Treaty Arbitral Decisions as Jurisprudence Constante’ in Colin B Picker et al (eds), International Economic Law: The State and Future of the Discipline (Hart 2008) 265. 6 For an extended discussion of this point, see Todd Weiler, The Interpretation of International Investment Law: Equality, Discrimination and Minimum Standards of Treatment in Historical Context (Martinus Nijhoff 2013). Weiler argues that ‘[h]istorical analysis can and should be employed by practitioners of IIL, both as an aid to the inductive process of identifying the field’s Grundnorm of equality of treatment and non-discrimination, and as a means of ascertaining what was likely in the minds of the drafters of particular IIL treaty provisions’ (ibid 47). Weiler’s study is one of the few recent works of historical IIL scholarship to expressly engage with epistemological and methodological debates in the professional historiographical literature.

74

International investment law and history

Jan Paulsson, the prominent IIL advocate and arbitrator, provides an excellent example of the ways in which someone operating largely in the IIL present nonetheless ‘does’ history. Paulsson’s book-length study of the IIL concept of ‘denial of justice’ traces the origins of the doctrine to ‘the medieval rule of private reprisals’.7 From that starting point he traces out the ‘difficult emergence of an international standard’, examining the evolution of arbitral jurisprudence on the subject as it developed into the ‘modern definition’. He then uses this historical analysis to argue that commentators are mistaken when they claim that the modern definition recognizes procedural and substantive categories of denial of justice. In fact, he claims, ‘numerous international awards’, properly understood, demonstrate that denial of justice is recognized under international law only for procedural shortcomings; furthermore, the historical case law demonstrates that the counterfactual (the recognition of a substantive form of denial of justice) would be ‘unworkable’.8 Paulsson uses history to pursue a traditional aim of doctrinal legal scholarship – to elucidate a correct understanding of the law. We find history deeply enmeshed in more theoretical examinations of IIL as well. Andrew Guzman’s well-known account of the rise of bilateral investment treaties (BITs) is not explicitly historical, and Guzman is a trained economist, not a professional historian, but his influential explanation of BITs depends critically on essentially historical claims.9 By ‘essentially historical claims’, I mean claims about how the world actually was at key points in the past. As Skouteris argues, modern understandings of historiography assume that historical accounts aim to provide ‘true’ understandings of the past, however incomplete and uncertain: ‘a historical account … should never be fictional’.10 And Guzman presents his version of the past as a true one, and not merely a ‘stylized fact’. Guzman’s argument relies on at least two essentially historical claims. First, he sets up his article by defining a historical paradox: developing 7 Jan Paulsson, Denial of Justice in International Law (Cambridge University Press 2005) 13. 8 ibid 82. 9 Andrew T Guzman, ‘Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties’ (1998) 38 Virginia Journal of International Law 639. 10 Skouteris (n 2) 107. The alternative view, accepted by some professional historians, is that ‘there is no clear-cut difference between historiography and fiction’, and that what historians engage in is ‘narrative’ rather than the articulation of objectively true facts. Bardo Fassbender and Anne Peters, ‘Towards A Global History of International Law’ in Fassbender and Peters (n 1) 1, 15.

The Suez Canal dispute of 1864

75

countries simultaneously advocated for weak rules of IIL in multilateral settings, such as the United Nations (UN), while accepting strong rules of IIL in bilateral negotiations with capital-exporting states in BITs. The paradox serves as the puzzle that Guzman’s article is meant to answer; it is what makes Guzman’s article worth writing and interesting to read. Second, Guzman claims that the developing countries’ multilateral efforts succeeded in establishing an IIL rule that state promises to investors can be breached with impunity. Specifically, a series of actions in the UN General Assembly destroyed the principle of pacta sunt servanda as to state contracts. This claim is important for providing support for Guzman’s game-theoretical ‘prisoner’s dilemma’ explanation of the paradox. Once the rule of pacta sunt servanda was destroyed, developing states faced prisoner’s dilemma-incentives to renege on the collective regime by re-establishing the enforceability of contracts on a bilateral basis, a move that would allow them to individually capture a larger share of available foreign investment than they otherwise would. The result was a race, or ‘competition’, as he calls it in a later article, of developing countries to sign BITs.11 Guzman’s argument is important not just because it serves to cleverly explain BITs, but also because (intentionally or not on his part) it serves to justify them. The logic of the prisoner’s dilemma game suggests that BITs are inevitable. And the claim that state promises to investors are non-binding in the absence of BITs makes these treaties seem necessary, at least for states that want to attract foreign investment – as all or nearly all of them do. But because Guzman’s argument relies on historical claims, his argument is subject to challenge on historical grounds. That is, the challenger can examine, more rigorously than Guzman does, the claim that developing countries were actually simultaneously fighting against and agreeing to strong IIL rules, and the claim that absent BITs, state promises to investors are unenforceable under IIL. That was my approach in an article that sought to put Guzman’s historical claims to a sort of test.12 I am not a trained historian, and my engagement with the historical method was largely unconscious, but I nonetheless ‘did’ history in a way that, I think, usefully undermines the implication that BITs were inevitable or are necessary. My approach was to examine whether developing country actions in the UN were actually 11 Zachary Elkins et al, ‘Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960–2000’ (2008) 1 University of Illinois Law Review 265. 12 Jason Webb Yackee, ‘Pacta Sunt Servanda in the Era Before Bilateral Investment Treaties: Myth & Reality’ (2009) 32 Fordham International Law Journal 1550.

76

International investment law and history

simultaneous with their turn toward BITs, and whether there was convincing evidence – in the form of international arbitral awards or academic commentary – supporting the view that state promises to investors could, historically speaking, be breached with impunity. On the first point, I found that most developing states did not embrace BIT-based investor-state arbitration until the late 1980s or early 1990s, and not simultaneously with anti-investor activities in the UN. I suggested that the turn to BITs was more plausibly a reaction to important changes in ideas about the value of foreign investment, rather than to ‘cheating’ on a collective agreement to maintain a weak system of IIL.13 More importantly, I found a consistent line of non-BIT international arbitral awards robustly asserting the continuous vitality of the principle of pacta sunt servanda as applied to state contracts. Moreover, there was little to no serious scholarship supporting the view that pacta sunt servanda had ever died. As a historical ‘fact’, the evidence suggested that state contracts remained enforceable (at least as interpreted by arbitral tribunals exercising jurisdiction under contractbased arbitration clauses) throughout the 1970s and on. The implication of this finding is of some importance in the ongoing debate about the value of including investor-state dispute settlement in international treaties, such as the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), as it suggests that, as a matter of long-established law and practice, states can enter into enforceable, contract-based promises with investors without the need to enter into a broader investment-protection treaty. One of the main rationalizations of BITs thus collapses. My conclusion need not be the end of the story though. Further, and probably deeper, historical research might uncover that while the law on the books that I identified supported the principle of pacta sunt servanda, the law in action did not. That is, perhaps states routinely and with impunity breached contracts with investors, and got away with it as long as the aggrieved investor did not have access to international arbitration. In that case, historical research on IIL might identify and explore a ‘gap’ between formal IIL and the actual experiences of people (foreign investors) who live under it.14 Or perhaps further research would uncover 13

On those changing ideas, see Jason Webb Yackee, ‘Are BITs Such a Bright Idea? Exploring the Ideational Basis of Investment Treaty Enthusiasm’ (2005) 12 University of California Davis Journal of International Law & Politics 195. 14 ‘Gap’ research was common in the field of sociology of law in the 1970s and 1980s. For a critical discussion, see Austin Sarat, ‘Legal Effectiveness and Social Studies of Law: On the Unfortunate Persistence of A Research Tradition’

The Suez Canal dispute of 1864

77

historically forgotten cases in which tribunals held that state promises were not enforceable, cases that my own research missed. The important point is that historical claims frequently appear in the IIL literature, and that those historical claims themselves can be subject to historical examination, even by amateur historians (as most of those interested in IIL will be). The examples discussed above qualify as no more than anecdotes, but I think it likely to be quite easy for the reader to find many other examples of the meaningful use of history in past and present IIL scholarship, some dating back many years.15 And in an increasing number of cases, the uses of history will be relatively extensive: for example, John Coyne’s study of the decline into irrelevance of US Friendship, Commerce, and Navigation treaties (an important precursor to BITs);16 or Kate Miles’ examination of the ‘imperial origins’ of IIL.17 (I discuss Miles’ work in more detail further below.)

II. HOW CAN WE IMPROVE HISTORICAL IIL SCHOLARSHIP? Despite the ubiquity of history in IIL scholarship, most of that history might be characterized as methodologically amateurish and epistemologically naïve. By the first I mean that IIL scholars typically do not make much attempt to follow an informed and modern methodology of historical research. By the second I mean that IIL scholars do not seem to spend much time overtly justifying their turn to history; they seem to ignore important debates in the professional historiographical literature about what the point (or appropriate use) of legal history is.

(1985) 9 Legal Studies Forum 23. Most discussions of IIL seem to take the view that IIL is very effective at preventing or discouraging states from acting against investor interests, at least once investors have access to treaty-based investor-state arbitration. 15 To cite just one older example, see Frank G Dawson and Burns H Weston, ‘“Prompt, Adequate and Effective”: A Universal Standard of Compensation’ (1962) 30 Fordham Law Review 727, 733–734 (tracing the history of the IIL rule of prompt, adequate and effective compensation for expropriation with the aim of understanding its modern relevance). 16 John F Coyle, ‘The Treaty of Friendship, Commerce and Navigation in the Modern Era’ (2013) 51 Columbia Journal of Transnational Law 302. 17 Kate Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press 2013).

78

International investment law and history

A. Recognizing History as a Method On the first claim, it may be surprising to non-historians to consider the profession of history as possessing a methodology. That methodology may not be as complex (or certainly as mathematical) as the methodology of modern economics or political science, but it is a methodology nonetheless. By methodology, I mean a set of procedures widely considered by professional historians as ‘best practices’ for structuring and conducting the production of historical research. Those practices involve such things as issues relating to the definition and identification of sources; approaches for gauging the reliability of sources, or for dealing with contradictory sources; and techniques for interpreting sources. Historical methodology also addresses more theoretical matters, such as how to estimate the comparative significance of multiple causal factors.18 One of the defining features of the historical method is the use of ‘primary’ sources, typically written documents housed in public or private archives.19 Indeed, the primary source has been described as ‘the core concept of the historical method’.20 While the distinction between primary and non-primary sources is conceptually complex and contested, Susan Grigg offers a useful definition: ‘a primary source for a segment of historical activity is any surviving material that is generated or altered in the course or as an outcome of that activity or provides a context for its occurrence’.21 In terms of historical IIL research, we can consider published awards as ‘primary’. But it should also be clear that published awards are not the only potentially important primary sources that the IIL historian may want to consult, especially if, as suggested further below, the ‘context’ of an award is relevant to the historical questions the scholar wishes to explore. Access to diplomatic correspondence may be essential for understanding the role that the investor’s home state played in pressuring for a settlement, or for understanding the host state’s reaction to it and strategy for resolving it. The parties’ pleadings will be essential 18 For useful introductory guides to these and other methodological issues, see Martha Howell and Walter Prevenier, From Reliable Sources: An Introduction to Historical Methods (Cornell University Press 2001); C Behan McCullagh, Justifying Historical Descriptions (Cambridge University Press 1984); Robert J Shafer, A Guide to Historical Method (Dorsey Press 1974). 19 See, for example, Howell and Prevenier (n 18) 34 (‘The archive is often considered the historian’s principal source of information.’). 20 Susan Grigg, ‘Archival Practice and the Foundations of Historical Method’ (1991) 78 Journal of American History 228, 229. 21 ibid 232 (emphasis in original).

The Suez Canal dispute of 1864

79

for understanding how the dispute was presented to the tribunal. The parties’ private correspondence may be needed to answer questions about how the parties subjectively perceived the dispute, about how they tried to avoid or to resolve their dispute through non-legal means, and about why such efforts might have failed. Conducting primary source (or ‘archive’) research is typically much more time-consuming and difficult than conducting secondary source (or ‘library’) research. Library research can increasingly be conducted remotely via the Internet; and most good-quality Western universities have on-site libraries that contain well-organized, large collections of the most important secondary sources. Library research can be conducted without the expense of travel, and without the frustrations of learning the bespoke (and often antiquated) organizational systems of various archives. Library research can be conducted at all hours of the day, and on the weekends; archival institutions often have relatively short working hours and allow researchers to view only limited numbers of documents per visit. Internet-based library research often allows electronic searching of vast amounts of text. Archival research often requires painstaking examination of large amounts of difficult-to-read documents stuffed in an unorganized manner into bound cartons, without the help of finding aids. Professional historians emphasize and understand primary sources as the most reliable evidence of historical truth,22 even if interpreting those sources reliably can pose difficulties.23 IIL history, to date at least, does not rely much on archival research. Even excellent and overtly historical 22 And most historians assume that it is possible for historical research to uncover the truth, even if objective truth inevitably remains uncertain. As McCullagh puts it, ‘Most historians … see themselves as trying to discover what actually happened in the past. … If the pursuit of truth were abandoned as the goal of historical inquiry, then the main reason for insisting upon present standards of historical criticism would disappear. It would then be difficult to resist the pressure to relax those standards and produce history for the purpose of propaganda’ (McCullagh (n 18) 2). In contrast, practising IIL lawyers undoubtedly face significant professional and even ethical pressure to engage in history-as-propaganda, as their goal in presenting historical research to a tribunal is to convince the tribunal that history dictates a legal outcome favourable to their client. 23 It is beyond my intended scope to address in detail what those difficulties might entail, or how they might be addressed. Interested readers can readily find relevant discussions in the books cited in note 18, or even in online ‘how-to’ guides, such as that produced by Carleton College’s undergraduate history department at accessed 14 February 2017. One basic point, firmly established in the historical-method

80

International investment law and history

IIL scholarship, such as Miles’ book on the imperial origins of IIL, or Paulsson’s study of denial of justice, rely almost exclusively on secondary sources. For example, in Miles’ book, the main historical chapter (Chapter 1) relies heavily on Charles Lipson’s 1985 book Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries,24 which itself relies almost exclusively on secondary sources. Paulsson, for his part, supports his claim that ‘the origin of the international law of denial of justice may be traced to the rule of private reprisals’ by citing just a single secondary source, a treatise from the 1930s.25 The lack of primary research in IIL scholarship is not inherently problematic; it is still possible to say interesting and new things by relying exclusively on secondary sources, as Miles’ and Paulsson’s books demonstrate.26 But the IIL community’s unwillingness to engage in archival research arguably limits the questions that the community is capable of convincingly answering, and certainly limits the degree to which professional historians will be willing to treat IIL history as ‘real’ history. It also risks, as Todd Weiler has suggested, embedding into modern discourse about what the law should be, ‘mythical’ visions of how the law once was.27 B. Recognizing the Aims of History Would-be amateur historians of IIL should also be aware that professional historians actually debate, and debate quite vigorously, what the appropriate aim of deeper engagement with the historical record should actually be. While the typical IIL scholar interested in doing IIL history will not be equipped to engage at a high level in these kinds of meta-level debates about the theory of historical inquiry (debates which are often literature, is that reliable interpretation will often depend upon a solid understanding of the context in which the document was produced, rather than relying solely on the face of the text itself. 24 Charles Lipson, Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (University of California Press 1985). 25 Paulsson (n 7) 13 fn 9 (citing Alwyn Freeman, The International Responsibility of States for Denial of Justice (Longmans, Green & Co. 1938)). 26 Indeed, in a useful ‘how-to’ book designed to encourage political scientists to engage in historical research, the author argues that researchers in that field can usefully engage with history relying exclusively on the close analysis of secondary sources. Marc Trachtenberg, The Craft of International History: A Guide to Method (Princeton University Press 2006) 51. 27 Weiler (n 6) 12–16. For Weiler, the problem with IIL myths is that they lead to incorrect modern interpretations of IIL.

The Suez Canal dispute of 1864

81

quite philosophical and probably unwinnable), awareness of the basic contours of the debates will better position the IIL researcher to design and implement a high-quality historically engaged project. Thinking about the point of the historical project will also help the IIL researcher avoid feeling overwhelmed by the enormous amount of historical ‘facts’ that primary research is likely to uncover. A well-thought-out purpose to historical research on IIL helps to guide the identification of appropriate sources, the culling of useful from non-useful material, and the interpretation and organization of the material into a coherent and convincing narrative. Amateur IIL historians are probably most likely to envision the point of their historical research as uncovering the ‘origins’ of a particular IIL doctrine or practice. We have seen examples of this approach in the works by Paulsson and Miles, discussed above. Origins research seeks to identify an early articulation of an IIL principle, and to trace how that early articulation influenced the development of IIL. For example, in studying the origins of the IIL doctrine of prompt, adequate, and effective compensation for the expropriation of investor property, the IIL scholar will naturally start with Cordell Hull’s famous 1938 Note to the Mexican government setting out the rule.28 From that starting point, the researcher will notice Hull’s claim that the rule he articulates is ancient and universal, and further historical research might aim to identify even earlier articulations, perhaps leading us to the ‘first’ such articulation. Once the articulations are identified, the researcher can attempt to trace out the processes through which those articulations became ‘the’ law of IIL. That analysis will almost certainly be causal, even if implicitly so.29 In other words, the main purpose of identifying the ‘first’ articulation of a rule in the past is at least in part to explain how that articulation caused (or influenced) understandings of the rule in some future time. We might care about the origins of the rule of IIL because we think the origins help to explain why IIL developed in a particular way. Identifying 28 For a historical discussion of the so-called ‘Hull Rule’, see Dawson and Weston (n 15) 733–734. 29 As Howell and Prevenier put it, ‘Whether they acknowledge it or not, historians … presume cause when they write history, for to produce a chronology of any kind is in some way to locate causality in chronology. That is, historians select information and order it chronologically precisely to demonstrate … the causal relationships between the events described’ (Howell and Prevenier (n 18) 128). By ‘causal’, I mean that a given articulation of an IIL principle would not have occurred but for the IIL actor’s knowledge of the earlier articulation. For an introductory discussion of the problem of causation in history, see ibid 127–143.

82

International investment law and history

the origins might also help us to justify the rule’s binding force in the here-and-now by appealing to the rule’s historical pedigree as evidence of the rule’s correctness and/or revealed wisdom. We see this use of history by Paulsson; he closes his study of the origins of denial of justice with a justification for the modern institution of investor-state arbitration that relies upon the historical claim that the ‘mechanism of holding states accountable by international tribunals [for denial of justice claims] is not a new invention. It was much used in the nineteenth century’.30 That claim of long historical pedigree leads Paulsson to the conclusion that the ‘decisions [of arbitral institutions] should be respected’ no matter how much those decisions ‘irritate’ state-respondents, as it is through respect of long-settled rules, through long-settled processes, that states ‘achieve the long-term benefits of the rule of law’.31 Paulsson’s understanding of the purpose of legal history is quite traditional. Indeed, it reflects what William Nelson identifies as the disciplinary ‘consensus’ as to purpose that, he claims, existed intact until the 1960s. Under that traditional approach, as Nelson puts it (quoting distinguished American legal scholar Roscoe Pound), ‘legal history [is] a practical discipline in which researchers could find ‘principles tried by experience’ to ‘give stability to the legal order’ and ‘principles of legal growth’ to ‘help us chart the orbit of legal change’.32 It is an inherently common-law tradition that somewhat paradoxically recognizes the authority of the judge (or arbitrator) to articulate and develop the law, while at the same time tying the judge’s law-making discretion to a historical understanding of what the law was. History serves, then, both to justify the judge’s role in pronouncing the law, while also making it difficult for the judge to radically reshape the law according to his own vision of what the law should be.33 But origins claims need not aim to support the status quo; indeed, in the past decade or so a growing number of historically minded international law scholars have made origins-type claims that expressly seek to undermine support for international legal rules and institutions. Miles’ work on the history of IIL is of this critical genre.34 By identifying IIL’s 30

Paulsson (n 7) 265. ibid. 32 William E Nelson, ‘Standards of Criticism’ (1982) 60 Texas Law Review 447, 453. 33 ibid 454. 34 Miles’ study is heavily influenced by Antony Anghie’s studies of the colonial origins of general international law. See, for example, Antony Anghie, ‘“The Heart of My Home”: Colonialism, Environmental Damage, and the Nauru 31

The Suez Canal dispute of 1864

83

origins as ‘imperial’, she discredits IIL as a product of abusive colonial relationships. IIL is not rendered more worthy of our respect because it has survived the test of time (Paulsson’s point), but is rendered less worthy because it reflects outdated values of oppression, domination, and colonial mastery that are not reflective of modern sensibilities. While an origins approach to legal history (whether for supportive or critical aims) may be the natural default for many historically minded IIL researchers, it is important to recognize that some historians view origins claims with tremendous disdain. Randall Lesaffer makes the criticism with special vehemence in regard to the historiography of public international law: Much of what is generally accepted among international lawyers is the fruit of evolutional history. While there is no problem with evolutional history in itself, the problem is that it often concerns ‘evolutional history of the worst kind’. It is history to which the famous dictum by T.S. Eliot ‘the end is where we start from’ would apply. With this kind of historiography, the researcher tries to find the historical origins of a present-day phenomenon by tracing its genealogy. A prime illustration of this genealogical concern with history is what can be called the famous yet infamous ‘first-timers’. … This genealogic history from present to past leads to anachronistic interpretations of historical Case’ (1993) 34 Harvard International Law Journal 445; Antony Anghie, ‘Finding the Peripheries: Sovereignty and Colonialism in Nineteenth-Century International Law’ (1999) 40 Harvard International Law Journal 1. Both of these works, influential and overtly historical, also rely almost exclusively on secondary sources. James T Gathii has also produced important entries in this genre. See, for example, James T Gathii, ‘War’s Legacy in International Investment Law’ (2009) 11 International Community Law Review 353; James T Gathii, ‘Imperialism, Colonialism, and International Law’ (2007) 54 Buffalo Law Review 1013. The first, as its title suggests, deals expressly with IIL; Gathii argues that the modern system of investment treaty arbitration represents a ‘repackaging’ of coercive practices that systematically disadvantage developing states. These kinds of critical historical studies of international law are part of the larger Third World Approaches to International Law (TWAIL) school, which in its most extreme form, paints existing international law as a ‘predatory system that legitimizes, reproduces and sustains the plunder and subordination of the Third World by the West’. John D Haskell, ‘TRAIL-ing TWAIL: Arguments and Blind Spots in Third World Approaches to International Law’ (2014) 27 Canadian Journal of Law & Jurisprudence 383. While TWAIL-type of studies are increasingly fashionable (perhaps because of their easy fit with the leftist politics of the legal academy), there also seems to be an increasing recognition of the limits or even contradictions of an approach to legal history that characterizes international law both as a tool of Western oppression and, as Haskell puts it, as a ‘source of future emancipation’.

84

International investment law and history

phenomena, clouds historical realities that bear no fruit in our own times, and gives no information about the historical context of the phenomenon one claims to recognise. It describes history in terms of similarities with or differences from the present, and not in terms of what it was. It tries to understand the past for what it brought about and not for what it meant to the people living it.35

Lesaffer is critiquing ‘presentism’ or ‘anachronism’ in international law scholarship, and such critiques as to legal history generally are longstanding.36 In Lesaffer’s view, the purpose of legal history research is instead to emphasize ‘the ways in which the past differed from the present—history as an account of the pastness of the past’.37 It is pointless, then, and perhaps even misleading and dangerous, to claim, as Paulsson does, that the origins of the IIL doctrine of denial of justice date to the Middle Ages. How that concept was understood and experienced 500 years ago was necessarily radically different from how the concept is or should be understood and experienced today, and the fact that something superficially similar to the modern doctrine of denial of justice can be located in medieval texts provides no reason to accept Paulsson’s understanding of the modern doctrine as authoritative, correct, or good in the here and now. Lesaffer’s position harkens back to Quentin Skinner’s equally aggressive argument in favour of a ‘contextualist’ approach to the historiography of ideas. Skinner attacked historical studies whose point was to uncover ‘timeless questions and answers’, ‘fundamental concepts … of perennial interest’.38 He also excoriated those who would try to trace the influence of past thinkers on the ideas of later ones,39 or who would 35

Randall Lesaffer, ‘International Law and Its History: The Story of an Unrequited Love’ in Matthew Craven et al (eds), Time, History & International Law (Martinus Nijhoff 2007) 26, 34–35. 36 As Jonathan Rose has said, ‘the criticism of lawyers’ and forensic history, the use of history for present legal purposes, is commonplace’ (Jonathan Rose, ‘Musing on Clio and Legal History: Why Study the Past, History, and Legal History’ (2009) University of Texas Law School, Tarlton Library Legal History Series 23 accessed 14 February 2017). Nelson traces such critiques to the breakdown of the traditional consensus and the ‘birth of a countertradition’ in the 1950s and 1960s (Nelson (n 32) 461). 37 Stuart Banner, ‘Legal History and Legal Scholarship’ (1998) 76 Washington University Law Quarterly 37. 38 Quentin Skinner, ‘Meaning and Understanding in the History of Ideas’ (1969) 8 History & Theory 3, 5. 39 ibid 25.

The Suez Canal dispute of 1864

85

impose exegetical coherence and completeness on the often messy, inconsistent, or incomplete writings of great thinkers.40 Skinner extracted from his various criticisms an approach to doing history correctly. The historian of ideas, he says, should focus only on understanding what the author of a text ‘in writing at the time he did write for the audience he intended to address, could in practice have been intending to communicate by the utterance of this utterance’.41 For Skinner, the methodological key to understanding authorial intent is deep appreciation for the context in which the text was written. That context was not to be used to make causal claims, of the type that an author’s social milieu, for example, ‘caused’ him to espouse certain ideas. Rather, the point of appreciating context is solely to illuminate plausible authorial intents. The implication that Skinner draws from that point is a limiting one: classic texts cannot be concerned with our questions and answers, but only with their own … there simply are no perennial problems … there are only individual answers to individual questions with as many different answers as there are questions, and as many different questions as there are questioners. There is in consequence simply no hope of seeking the point of studying the history of ideas in the attempt to learn directly from the classic authors by focusing on their attempted answers to supposedly timeless questions.42

While Skinner’s ideas are, as indicated, primarily concerned with the history of ideas, it is easy to extend them to the field of legal history, as laws may be viewed as essentially ideational. But if the past is irrelevant to modern understandings of what the law of today is or should be, then why should we care about what it once was? Is history more than just amusing stories, subsidized by undergraduate tuition? From a pure ‘understanding’ perspective, the practical value of legal history indeed risks becoming abstract and slight – its value is said to be ‘intrinsic’ or ‘inherent’ because it produces ‘knowledge’ and ‘more knowledge is by definition valuable to society’.43 The basic problem is that lawyers – and, 40

ibid 17. ibid 49. 42 ibid 51. 43 Rose (n 36) 36. As Nelson puts it, ‘A historian makes a contribution to knowledge if he reports upon previously unexamined source materials or if he examines familiar material from a new perspective. His contribution to knowledge will stand even though some readers may find it to be of little use’ (Nelson (n 32) 449). 41

86

International investment law and history

by extension, legal scholars – are often not interested in simple ‘knowledge’. They are looking for arguments or ideas about what the law of today should be. A Skinnerian emphasis on the inherent remoteness of the past risks making legal history irrelevant to much of the legal world.44 C. Section Summary: History as a Contested Discipline We can extract two basic points from the above discussion, both offered in an attempt to provide a useful answer to the question posed in this sub-section’s heading: ‘how can we improve historical IIL scholarship?’ The first point is to recognize that history is a discipline, with at least some widely shared, reasonably well-thought-out understandings of what it means to perform historical research. At the core of that shared understanding lies the historical method, with its emphasis on primary sources as, typically, the first best evidence of the past. Of course, accessing primary sources can pose practical problems, and interpreting them can pose hermeneutical ones, but advice and techniques for dealing with those problems are readily accessible in numerous guides to the historical craft. Historical IIL research to date (and even some quite influential works on the history of international law more generally) not only fails to engage much in primary source research, it also fails to explain or to justify why it has avoided it. As a result, historical IIL research can tend to look more like the reshuffling of existing historiography into new normative arguments rather than either the production of new historical knowledge or the verification of received historical wisdom. While not every historical IIL study needs to engage in significant primary source research to make a valuable intellectual or practical contribution, the existing secondary sources on IIL are relatively few, and the value added from additional reshuffling may be rather limited.

44 As Banner puts it, ‘If the lesson is that the past offers no guidance as to what the law should be today, and if the primary purpose of legal scholarship is to generate normative legal arguments, the ultimate outcome will be to assure law professors that there is no need to consult history before they write. History becomes neither destabilizing nor comforting. It simply disappears from view’ (Banner (n 37) 40). Orford has recently made a similar point: ‘To refuse to think about the ways in which a concept or text from the remote past might be recovered to do new work in the present is to refuse an overt engagement with contemporary politics’ (Anne Orford, ‘On International Legal Method’ (2013) 1 London Review of International Law 166, 174).

The Suez Canal dispute of 1864

87

The second point is to be aware that historians actively debate how history should be done, and what it should be done for. The amateur legal historians who will often be doing IIL research do not need to resolve (and are probably incapable of resolving) the debate about how best to justify historical legal inquiry, or about the best way to do it. As Nelson observed in the early 1980s – and as remains true today – professional legal historians remain highly divided as to what the purpose of their efforts is, and as a result the discipline is fragmented and pluralistic.45 The diversity of approaches is reflected in Koskenniemi’s recent call for international legal scholars to recognize that there is not just one possible ‘history’ of international law, but multiple possible ‘histories’.46 His observation is both liberating and burdensome. Not everyone has to do IIL history as Skinner or Lesaffer would insist it be done; but those who choose to do IIL history should, in my view, consciously choose how they wish to do it and what they wish to accomplish with it.47 Being aware of the larger disciplinary debates about method and purpose can help the IIL scholar produce historical work, for whatever purpose, which more successfully or convincingly achieves that purpose.48 If the IIL scholar intends to write an origins study, an understanding of what such studies are typically (if often implicitly) intended to accomplish will push the IIL scholar to attempt to uncover and convey historical material that helps convince the reader that the past event in 45

Nelson (n 32) 447. For a more recent claim of legal history scholarship’s modern diversity of purpose, see Rose (n 36). In contrast, other intellectual disciplines that rely on history may be relatively unified in their understanding of what the point of historical inquiry is. For example, in sociology, it is widely accepted that the proper (sociological) use of history is to help construct nuanced causal accounts of the development of institutions, movements, and the like. Edwin Amenta, ‘Making the Most of an Historical Case Study: Configuration, Sequence, Casing, and the US Old-age Pension Movement’ in David Byrne and Charles C Ragin (eds), The SAGE Handbook of Case-Based Methods (Sage 2009) 351. 46 Martii Koskenniemi, ‘Histories of International Law: Significance and Problems for a Critical View’ (2013) 27 Temple International & Comparative Law Journal 215. 47 I offer this advice to myself as well. My previous scholarly engagements with legal history were undertaken with little overt appreciation of the points that I make in this chapter. 48 More practically, understanding the contours of modern debates about legal history’s purpose may also help the IIL scholar to preemptively respond to or avoid predictable challenges to the IIL scholar’s approach. For example, an IIL scholar producing an ‘origins’ study would do well to avoid suggesting Lesaffer as a potential reviewer.

88

International investment law and history

fact ‘caused’ later articulations or applications of legal rules. At the least, an awareness of the causal nature of the origins claim should spur the IIL historian to attempt to actually trace the intellectual movement of the ‘first’ statement of the rule of interest, by tracking patterns of citation in subsequent cases and scholarly studies.49 A recognition of the causal nature of an origins story in fact pushes the historical IIL scholar not just into the role of the historian, but into the role of social scientist, whose intellectual raison d’être is to produce causal stories that have the potential to offer generalizable, empirically supported theoretical models of how the world works.50 Alternatively, if we conceive the purpose of IIL research as promoting the ‘understanding’ of how IIL was experienced, recognizing that purpose should push the IIL scholar to construct his research questions or to structure his archive activities so as to better facilitate such an understanding. For example, if the goal is to understand IIL as an ‘imperial’ construct, then the IIL scholar’s research might focus less on analysing arbitral awards (the ‘law on the books’) and more on how colonial subjects or foreign investors subjectively experienced imperial legal doctrines in their everyday lives (the ‘law in action’). Such a focus will probably mean privileging sources that reveal the everyday experiences of the actual human subjects of IIL (on John the foreign investor whose property was seized by the state; on Jane the indigenous farmer whose property was polluted by John’s investment activities) and much less on what IIL tribunals and scholars have declared IIL to be. He or she might also focus on showing that the ‘intent’ of the authors of ‘imperial’ legal rules was to further the imperial project. Such a focus might push the scholar to analyse the private correspondence and memoirs of rule drafters. 49 Citations are imperfect evidence of causation, of course. An arbitrator may cite an earlier award, or historical scholarship, in order to justify a decision that he would have made even in the absence of knowledge of the source or scholarship. And an arbitrator may make a decision based upon his understanding of the past without citing anything evidencing that understanding. In other words, a citation to the past may not indicate causation, and the absence of citation to the past may not indicate a lack of causation. But citations are better evidence than nothing, at least as an indicator of whether a contemporary law-pronouncer was actually aware of the past pronouncements. Historical causation, in the but-for sense, is possible without knowledge of the past, but knowledge will often help demonstrate causation. 50 See generally Amenta (n 45) who describes the use of history by sociologists to produce causal theories of institutions.

The Suez Canal dispute of 1864

89

And if the purpose is really to argue that a particular understanding (in force or proposed) of IIL is normatively desirable or undesirable, then the IIL scholar should probably devote some portion of his efforts to demonstrating the good or bad consequences of such a rule, and of wrestling with the question of whether a rule or principle that had demonstrably bad consequences in the past might be likely to have similarly bad consequences in the present. In that case, the IIL scholar begins to look more like a policy analyst than a historian, though good historical work can certainly help to support the normative (or instrumental) claim.51

III. AN ILLUSTRATIVE EXAMPLE OF IIL HISTORIOGRAPHY: THE SUEZ CANAL COMPANY EGYPT (1864)

V

My own attempt to engage in historical IIL research involves a historical examination of an 1864 arbitration between Ferdinand de Lesseps’ Compagnie de Suez and Egypt over the digging of the Suez Canal.52 The core of the dispute was Egypt’s decision to end corvée (forced) labour, upon which the financial equilibrium (and eventual success) of the grand project depended. The dispute has obvious facial parallels to modern ‘regulatory takings’ cases, including, in a remarkable coincidence, an 51 By policy analysis I mean the ‘study of the nature and effects of alternative public policies’, where ‘public policies’ means specific legal rules and institutions. The definition is taken from Stuart Nagel, ‘Some Statistical Considerations in Legal Policy Analysis’ (1980) 13 Connecticut Law Review 17, 18. The legal scholar as policy analyst is thus interested in a very different set of questions than is the traditional doctrinal legal scholar. As Rubin puts it, such scholars attempt ‘to answer a new set of questions: Which rules work best in general? Which work best for particular purposes? Under what circumstances is specificity desirable, and under what circumstances is it counterproductive? What is the best mechanism for enforcing various provisions? How important is public participation for achieving the purpose and how can such participation be secured? These inquiries suggest an approach to law whose components are not doctrinal arguments, nor translations of public policy into doctrine, but legislative and administrative techniques, and the translation of policy into those instrumentalities’ (Edward L Rubin, ‘The Concept of Law and the New Public Law Scholarship’ (1991) 89 Michigan Law Review 792, 815). Such work will typically require training in statistics and other modern social science tools. 52 Jason Webb Yackee, ‘The First Investor-State Arbitration: The Suez Canal Company v Egypt (1864)’ (2016) 17 The Journal of World Investment & Trade 401.

90

International investment law and history

ongoing dispute between a French concessionaire and Egypt over changes in Egypt’s minimum-wage law that appears to raise similar tensions between the right to regulate for the benefit of workers and contractual stability.53 My interest in the 1864 Suez dispute arose out of my past work documenting arbitral awards supporting the enforceability of state contracts with foreign investors in the pre-investment treaty era.54 My most basic research question, at least initially, was something like the following: ‘what is the earliest episode that we can identify in the historical record of something like a modern international arbitral tribunal, in which the tribunal adjudicates something like a modern investor-state dispute through a ruling which might be fairly interpreted as reflecting or supporting a principle of pacta sunt servanda?’ My follow-on question was, ‘can that earliest episode be said to provide the origins of the principle?’ It should be obvious that this way of understanding what I was trying to accomplish through historical research puts me squarely opposed to Skinnerian or Lesafferian ideals, although, as I discuss more fully below, I agree with them on the importance of context. I also did not find much support for my initial origins thesis. A. Identifying the Case and Primary Sources International law scholars interested in identifying historical episodes of the application and generation of international law in need of further study might usefully turn to the various compendia of international law decisions. That was my strategy, and in browsing La Fontaine’s classic Pasicrisie Internationale 1794–1900: Histoire Documentaire des Arbitrages Internationaux, I noticed an intriguing possibility. Among his summaries of numerous state-to-state arbitrations was a reference to what seemed to be something like a modern investor-state arbitration, the Suez dispute, the earliest such dispute that I had yet seen. The reference was striking because La Fontaine, like most other international law scholars of his era, viewed ‘international arbitration’ as a concept that comprised only the resolution of interstate disputes. As La Fontaine noted in his one-paragraph introduction to the text of the Suez award: ‘This arbitration is remarkable because of the direct intervention, in the proceedings, of a financial company. In various arbitrations, where 53

Veolia Propreté v Arab Republic of Egypt, ICSID Case No ARB/12/15, Notice of Arbitration (25 June 2012) (not public). 54 See, for example, Yackee (n 12).

The Suez Canal dispute of 1864

91

private interests are in play, only the governments, of which the interested parties are subject, intervene.’55 Few secondary sources seemed to discuss the Suez dispute in much historical detail, but a handful of sources contained references to primary documents that eventually led me to collections in three French national archives. The archival collections covered not just the arbitration itself, but also the events leading up to it. Much of the material consisted of diplomatic correspondence between France’s agents in Egypt and Constantinople and the French Foreign Minister. But the material also included various factual and legal materials submitted by the parties to the arbitral tribunal (memoranda presenting factual and legal arguments, rebuttals and responses from the opposite party, maps illustrating the scope of the works and of the concession, expert testimony by engineers), private correspondence between Ferdinand de Lesseps, the founder of the Company and the project’s indefatigable champion, and various other parties, official company documents and reports, and even a marked-up draft of the ultimate award. Working with primary sources like these poses obvious challenges of understanding and of interpretation, both at a superficial and at a deeper level. As to the first, the documents, like many others upon which I relied, were hand-written in antique French script, causing me some difficulties of comprehension until I managed to learn the orthographic and stylistic conventions of the era. At a deeper level, and as the contextualists emphasize, I found it critical to try to understand and interpret the documents in light of the authors’ own aims and interests and in light of the documents’ place in the larger dispute. For example, the Company produced and archived reports in which health experts detailed the allegedly favourable conditions in which the workers toiled. The reports must be understood within the context of the Company’s interest in preemptively addressing criticisms of the concession that focused on the workers’ plight. Egypt’s documented ambivalence toward the concession – declaring both its support for the project and undermining it – must be understood within the context of Egypt’s ambivalent

55 Henri La Fontaine, Pasicrisie internationale 1794–1900: Histoire documentaire des arbitrages internationaux (Martinus Nijhoff 1997) 122. We can take La Fontaine’s comment as illustrating the potential interpretative dangers that a Leseffarian approach to legal history highlights: what a given set of words meant then (‘international arbitration’) may not mean what those words mean today.

92

International investment law and history

place within the Ottoman Empire.56 And Egypt’s reliance on the purported abolition of the corvée as a justification for its apparent breach of its contractual obligation to provide workers must be understood within the context of England’s self-interested opposition to the canal project, and its influence over Egyptian affairs, as it was England – and not Egypt or the Ottoman Empire – that first effectively raised the corvée issue against Lesseps, in the court of public opinion and in private discussions with the Egyptian khedive (or viceroy). More generally, understanding why the final award addressed the arguments that it did – and understanding why the award ruled the way that it did – required understanding the factual evidence and legal arguments presented to the commission. In that sense, one of the most important benefits of in-depth historical case research is that it allows us to trace the origins of a formal statement and application of ‘the law’ by identifying the factual and legal materials that were available and offered up to the award-writer for consideration. In most cases, the pre-award material – evidence and arguments – will give us a much fuller and complete picture of the dispute and of the legal concepts available for potential use. B. The Historical Narrative The basic outlines of the narrative that I was able to construct can be briefly recounted. Ferdinand de Lesseps, an ex-French diplomat and old friend of the khedive of Egypt, Säid, convinced the viceroy in 1854 to enter into an oral agreement allowing Lesseps to form a company that would construct and operate a maritime canal cutting across the Isthmus of Suez, an audacious project of engineering at the time. That oral agreement was later memorialized in a firman, or vice-regal decree, and was followed by another formal concession in 1856. Article 2 of the concession charged the Company with executing the necessary works, but also included what we would today call a ‘local content’ or ‘performance’ requirement. In executing the works, the Company was required to ensure that ‘at least’ four-fifths of the labourers were Egyptian. Säid’s motivation in insisting on this provision was, it appears, 56

Egypt in the era of the Suez Canal was, in theory, a province of the Ottoman Empire, ruled by a viceroy (later, a khedive) and reporting to the Sublime Porte – the seat of Ottoman government – in Constantinople. Despite Egypt’s formally subordinate position, in the first half of the 1800s, Mohammed Ali, the founder of modern Egypt, had wrested a good deal of autonomy from the Ottoman Empire, and indeed, nearly defeated it in war.

The Suez Canal dispute of 1864

93

to avoid a massive influx of foreign workers and the prospect of de facto colonization that such an influx might imply. The 1856 concession failed to provide any detail as to how the Company was to obtain its Egyptian workforce, or how much it was to pay them. Those matters were addressed in a subsequent vice-regal decree (titled a ‘regulation’) of July 20, 1856. The contents of the decree were, according to the decree’s preamble, ‘established in concert’ with Lesseps. The decree served two critical functions. First, it set the price that the Company would pay its Egyptian labour. The wage rate – roughly one franc per day – was, the regulation said, intended to reflect the ‘average price’ of labour in Egypt. Second, it established the government’s obligation to ‘furnish the workers … in accordance with the requests of the chief engineers and their needs’. While the regulation was silent on the question of how the government would supply the labourers, it was almost certainly understood that they would be supplied via something akin to the traditional corvée. Egypt’s rulers had relied on temporary forced labour by peasants (fellahs) for public works projects, including canal construction and maintenance, since the time of the pyramids, and the practice remained alive well into the 1800s. In a sense, the Company’s arrangement may not have entailed the corvée pure and simple, as the Company was obligated to pay, shelter, and feed the workers. Under the traditional corvée, the peasants’ work was unpaid. On the other hand, the Canal workers were in most cases compelled to provide their services for the given rate. Despite ongoing uncertainty and arguments about whether the formal approval of the Ottoman Empire was necessary for Lesseps to begin working on the Canal, Lesseps, with the acquiescence of Egypt, formed the Company and began digging. But by 1863 (after substantial progress had been made), Egypt’s new viceroy, Ismael, was feeling intense pressure from the English who, for geo-political reasons, opposed the Canal, and from the Ottomans, who had renewed their claim to a right to weigh in on whether the project should proceed. In response to that pressure, Ismael demanded the right to stop supplying labour to the project (under the guise of a supposed ban on the corvée, justified on humanitarian grounds) and the right to expropriate the significant amount of real property bordering the Canal that had been ceded to the Company as part of the original deal. Egypt’s demands, and its refusal to provide the necessary workers, threatened the Suez Company with financial ruin. They also sparked in an intense and multifaceted public relations and legal battle, complete with personal attacks in European newspapers, a nasty libel lawsuit in France, and, in early 1864, an offer by the Emperor of France to settle

94

International investment law and history

the dispute via arbitration. Egypt and Lesseps eventually accepted the offer, and a Commission of five French diplomatic and legal luminaries, headed by Edouard Thouvenel, a widely respected, retired French diplomat, held a series of hearings in which both parties submitted extensive legal arguments and factual evidence. The pleadings raised a number of interesting legal issues. Was the ‘regulation’ (decree) of 1856 simply a non-binding, unilateral pronouncement, or part of a binding, bilateral contractual relationship? Could a contract prevent a state from enacting an important change in public policy? If the abolishment of the corvée were indeed a breach of contract, what remedies were available and how should they be calculated? The arbitral Commission produced a relatively thorough, reasoned report deciding the dispute largely but not entirely in the Company’s favour, awarding it substantial compensation for the loss of conceded territory and for the increased costs necessary to replace forced labour with free labour and machines. The report was then transformed by Thouvenel into the formal and abbreviated style of classic French jurisprudence, and was signed by Napoleon III as his decision, legally binding on the parties and with no opportunity for appeal. After some further post-award wrangling, involving the Ottoman Empire’s remaining demands, Egypt paid the award in full, and Lesseps – having replaced the workers with dredging machines – completed the Canal to worldwide fanfare in 1869. C. The Suez Arbitration as a Story of ‘Imperial’ Domination? We can briefly summarize the tentative arguments that the historical evidence seems to support, as well as those that it does not. I think it is natural to assume that an arbitration whose titular head is the sovereign ruler of the corporate claimant is likely to entail, and to be decided on the basis of, politics more than law, especially where the respondent state is highly dependent on the home state for protection and support, as was Egypt on France at the time. Indeed, on the surface the Suez episode would seem tailor-made for a Third World Approaches to International Law-type critique of the origins of international law. Is not the Suez award, and the process leading up to it, a nearly perfect illustration of the ways in which international legal rules are generated and applied in order to further the subordination of the Third World to Western political and economic interests? In my view, only on the surface. While the Suez dispute undoubtedly involved matters of very high politics between France, England, Turkey, and Egypt, and while Napoleon III was not exactly an uninterested

The Suez Canal dispute of 1864

95

party,57 my historical research suggests that the arbitration and the underlying dispute had been consistently framed, argued, and even perhaps decided, on a substantially legal plane. Lesseps had sought to portray his Company’s relationship with Egypt as a legally binding ‘contract’ for many years, and the dispute was expressly presented by both sides, in the press and before the arbitral tribunal, on legal/ contractual terms. Both the Company and Egypt had hired high-profile lawyers to produce legal ‘consultations’ that were widely distributed in the public relations battle that preceded the arbitration. And both had access to skilled and powerful legal and political advocates during the arbitral proceedings themselves; one of Egypt’s main advisers was the Duc de Morny, Napoleon III’s half-brother, and their lead legal counsel leading up to the arbitration was Odile Barrot, a famed advocate. The arguments placed before the arbitral Commission were framed as legal and factual ones, and there was even a discovery process of sorts, in which Egypt forced the Company to provide it with documents. The Emperor’s Commission produced a reasoned award that addressed the parties’ submissions, and which contained meaningful analysis of contract-law and other principles. The award, which was mostly in the Company’s favour, was, in my estimation, quite defensible in light of the legal arguments and factual evidence presented to the Commission. Moreover, the episode also illustrates that the contestation over the relevant legal principles and of their appropriate application do not always break down neatly as between ‘the West’ and the ‘Third World’. For example, the dispute was as much between England and France as it was between France (or the Company) and Egypt. England wanted – at least in this case – a legal rule that would allow states to escape from formal contractual obligations in order to pursue public policies of great humanitarian interest. France (or, really, the Company) did not dispute the right to change public policies, but insisted on compensation where the change upset settled, legitimate expectations. It also is not clear that Egypt’s actual interest in the outcome was all that different from the Company’s. Egypt owned half the shares in the Company, and stood to 57

France had deep political interests in seeing the Canal built, as it promised to help counter England’s Cape-route monopoly on trade with India. Moreover, the vast bulk of shareholders in the Suez Company, who were faced with the destruction of the value of their shares, were French citizens. On the other hand, Napoleon III also seemed at times concerned with the possibility that the Canal would harm French-English relations. His ‘objective’ interest in the affair was thus at least somewhat ambivalent, and he was careful not to publicly take sides one way or the other in the run-up to the arbitration.

96

International investment law and history

profit enormously if the Canal should prove a success.58 Moreover, Egypt’s continuing development would depend essentially on foreign capital, and an international legal regime in which the state could break formal promises with impunity was not obviously in Egypt’s long-term interest, as it would, one suspects, discourage investors from lending and investing. And while it is easy to sympathize with the poor fellahs forced to work on the project, it also seems clear from the historical record that Egypt’s evocation, like England’s, of a humanitarian interest in escaping from the concession’s obligations was strategic and rather insincere.59 In the end, then, I view the Suez commission’s award, and the process leading up to it, as a rather poor fit with an imperial-domination model of international law. Egypt was well represented in the proceedings; it was provided with a more or less fair opportunity to make its case; and the arbitral commission seriously considered and responded to Egypt’s arguments; the outcome was plausible, and perhaps even rather convincing, given the legal arguments made and the factual evidence presented. That Egypt more or less ‘lost’ the case is not surprising. But, at least in my analysis, it is not clear at all that Egypt deserved to win. Nor is it clear that the outcome really represented a loss. Instead, I suggest that we might view the Suez case as illustrating a successful invocation of law and legal process to enable estranged parties to overcome their temporary differences and to continue to work collaboratively for their common benefit. D. The Suez Arbitration as an ‘Origins’ Story? What does the Suez dispute have to contribute to the debate between the ‘understanding’ and ‘origins’ schools of historiography? Here I think the lessons are a bit more complex. For example, and as I have already mentioned above, my experience in researching the Suez dispute confirmed the high desirability of diving into the context of an award in 58

In fact, the Canal would take much longer to become profitable than expected, and Egypt would eventually sell its shares to England in response to fiscal crisis. As I argue in the fuller version of the story, though, it would be unfair to place responsibility for this unfortunate outcome on the arbitral commission. 59 Egypt was unable to present the Commission with any evidence that it had actually formally abolished forced labour. Moreover, in the months after the award, the viceroy appears to have relied upon the corvée to complete a portion of the maritime canal’s fresh-water counterpart. And England relied on forced labour for Egyptian projects in the years prior to the award and, apparently, in some years after.

The Suez Canal dispute of 1864

97

order to be in a position to understand the meaning and significance of what has taken place. The face of the formal award reveals only a portion of what was at stake, of what was argued, or what has transpired, either objectively or subjectively from the point of view of the historical participants. The formal award is the obvious starting point for historical analysis, but, if it can be helped, it should not be the last. On the other hand, and despite the initial framing of my research, I found no real evidence to support an ‘origins’ narrative for the principle of the enforceability of state contracts. Origins claims necessarily involve claims of causality, but I found no evidence that the Suez award was ever cited as support for future authoritative statements of IIL. While citations are not necessarily proof that an earlier statement ‘caused’ a tribunal to decide the way it does, it is better evidence than nothing, and my failure to locate any future use of the award was problematic. The question then became, ‘why was the award forgotten?’ rather than ‘why was it so doctrinally influential?’ I do not have a full-fledged answer, except to suggest that the award’s success lies at the root of its disappearance. That is, by allowing Egypt and Lesseps to get on with the task at hand, the fact and significance of the award was very soon eclipsed by the opening of the Canal, and, later, by Egypt’s descent into financial receivership and formal subjugation to British rule. Given all that Egypt and the Canal experienced in the intervening years, it was easy to forget this otherwise curious legal detour. But I also do not think that the failure of an origins story to pan out here means that we need to agree with Lesaffer or Skinner that origins stories are necessarily a fool’s errand. Skinner’s main objection to them seems to be a combination of two observations: proving causality is difficult; and most purveyors of origins stories make little concerted effort to prove it. Lesaffer likewise seems to admit that ‘evolutional’ history is possible, though is almost always poorly done. But causal theories are common in other disciplines (political science, sociology, economics, among others), and those disciplines both recognize the difficulty, if not impossibility, of literally proving causation, while also developing a set of methods and procedures for inferring causation with a certain degree of confidence.60 Skinner, in suggesting that the bar for an acceptable origins story is absolute proof of causality, sets the bar too high. 60

For an accessible discussion of common social scientific rules of causal inference, see Lee Epstein and Gary King, ‘The Rules of Inference’ (2002) 69 University of Chicago Law Review 1.

98

International investment law and history

E. The Suez Arbitration as an ‘Understanding’ Story? Finally, what does my project have to say about the proposition at the core of a hardline ‘understanding’ approach that the ‘past is past’, a remote and foreign land with little to offer present reality? It is important to admit that there are certainly any number of differences between the then of the Suez dispute and the now of modern investment treaty arbitration. For one, the Suez dispute did not involve a pre-dispute arbitration clause; it also did not involve an investment treaty; nor was the Commission expressly charged with applying international law as such. The procedure employed would probably not meet modern standards of arbitral due process; the titular arbitrator was the head of a deeply interested government;61 the actual arbitrators (or ‘commissioners’) were not chosen by the parties, and they were all of the investor’s nationality. While today forced labour and slavery are universally condemned, in the mid-1800s they were not reliably so.62 The Egypt of 1864, unlike modern developing countries, faced the real threat of military force should it too gravely mistreat foreign investors. And, because it was not quite legally ‘sovereign’, Egypt might not have even been a ‘state’ in our modern sense of the word. Despite these various differences between then and now, between the Suez arbitration (or whatever one might call it) and the investor-state arbitrations with which we are familiar today, I think it is possible to identify a similarity of problems and of legal solutions sufficient to enable meaningful dialogue across the years. While it may be the case

61

Though it is important to note that the French government’s interest was not necessarily coextensive with the Company’s. France had to balance not just the economic and financial interests of the Company, but also the geopolitical consequences of allowing the Canal project to proceed. As I mention in the longer version of the narrative, French government support for Lesseps and the Company was somewhat ambivalent. 62 Indeed, given the dispute’s close association with forced labour, a modern investor-state tribunal might refuse to decide the case in the Company’s favour, on the grounds of ‘clean hands’ or similar avoidance doctrines. On the other hand, it is interesting to note that the Suez Commission itself consciously considered, and rhetorically avoided, this very possibility by finding that the Canal concession, by its own terms, did not require Egypt to use forced labour to provide the necessary workers. Had the concession explicitly required forced labour, the Commission suggested that it would have declined to enforce it.

The Suez Canal dispute of 1864

99

that certain concepts, such as ‘power’, are inherently (or perhaps ‘contingently’)63 contestable, I tend to agree with Stuart Banner that ‘[m]any of the issues faced by lawmakers haven’t changed all that much over the years, and much of what is argued today was argued in identical terms by people with identical motives in the past’.64 Banner makes this observation in calling for ‘changes in either legal history or legal scholarship’ that ‘could bring the two closer together’ by recognizing ‘the presentness of the past’.65 I think the Suez case illustrates significant ‘presentness’. Foreign investors have long sought to embed their commercial relationships with foreign states – who often participate in the relationship both as sovereign and as business partner – in formal contracts that seek to spell out each side’s rights and obligations with reasonable coherence and completeness (though, of course, gaps in the legal structure are sure to remain, and to provide fertile ground for contestation when trouble arises). That desire is undoubtedly motivated in part by the investor’s recognition that he is otherwise being asked to expend large amounts of capital in advance of future rewards with no guarantee that the state will not change its mind about the terms of the deal after irreversible investment has been made, a risk that makes investing much less attractive than it otherwise might be. And so, supported by contract, the investor invests. When the investor thinks that the state has breached its set of formally articulated (and freely accepted) obligations, and if the investor sees little utility in accepting a rebalancing of the relationship, the formal document becomes a rhetorically powerful basis for claims resting on the legal principle, easily accessible from a long tradition of private law, that solemn promises should usually be kept, and that, if they are not, damages are owed. The Suez dispute raised a number of more subtle doctrinal points, but those points too seem, for the most part, easily capable of traveling intact across the ages. For example, a key point in the Suez commission’s reasoning was that the Company had reasonably relied on Egypt’s encouragement to begin construction, and that the Company’s reasonable reliance thus precluded Egypt from wriggling out of its obligations on the ground, otherwise quite plausible, that the original contract did not give the Company the right to begin construction until the Porte had given its 63 Terence Ball, ‘Must Political Theory Be Historical?’ (2006) 2 Contributions to the History of Concepts 7 (arguing that certain concepts in political theory, such as ‘power’, are ‘contingently contestable’). 64 Banner (n 37) 43. 65 ibid.

100

International investment law and history

formal approval, which it never had. The logic here is little different from the logic of ‘reliance’ theories of domestic contract, or theories of implicit contract modification, familiar to contemporary contract lawyers and scholars. Even the public policy angle – should Egypt be allowed to ban the corvée as a matter of humanitarian public policy, and without liability for breach of contract? – was argued and addressed in ways easily recognizable to today’s investment lawyers. And beyond these doctrinal similarities, the deeper story shows contracts that look like contracts, lawyers acting as lawyers, putative arbitrators doing things that true arbitrators routinely do, aggrieved investors acting like aggrieved investors, and host states trying to escape contractual obligations, as they continue to sometimes do today. The entire episode, in short, is recognizable as something very much like investor-state arbitration in the modern era. But the ‘so what’ question that bedevils ‘understanding’ accounts of legal history remains a vulnerability.66 I am not sure that I have a definitive (as opposed to a tentative) response. Banner suggests that one useful aspect of presentist legal-historical accounts is that they promote humility in those of us operating in the here and now who otherwise would claim, mistakenly, to have invented legal novelties.67 More seriously, he suggests that an examination of the legal past may reveal legal arguments and strategies that have been forgotten but that might be usefully revived and redeployed to achieve modern society’s normative aspirations. We can extend this justification to my own efforts. Perhaps the Suez episode can be used to call into question suggestions in the modern IIL literature that treaty-based arbitration, founded on pre-dispute arbitration clauses and structurally divorced from diplomatic and political considerations, is necessary to adequately protect foreign investors from opportunistic or otherwise shoddy treatment by the host state. The Suez arbitration might be read to show that an ad hoc arbitral structure, one that leaves significantly more room for legal, political, and diplomatic considerations to comingle than does modern investor-state arbitration, can succeed – and may be more likely to succeed – at resolving high-stakes, multifaceted investor-state disputes in a way that saves the parties’ relationship and allows them to continue to cooperate for mutual benefit. 66 This is the soft underbelly of historical research – the suspicion that it is capable of producing nothing more than amusing stories, subsidized by student tuition. 67 Banner (n 37) 43.

The Suez Canal dispute of 1864

101

IV. CONCLUDING THOUGHTS To very briefly conclude: The field of IIL history is almost entirely open, and much work remains to be done. Scholars have only just begun to engage with that history in a meaningful way, and the opportunities to make a meaningful contribution are enormous. The overriding point of my contribution to this volume was to give the reader a sense of what it meant, for me, to delve into the IIL past, and to suggest ways in which historical IIL research might be improved going forward. My advice is essentially two-fold. IIL scholars should become more willing to engage in primary research; and they should conduct their research and construct their histories with an awareness of debates in the professional historical literature about the appropriate methods and aims of legal history, while also not being scared off or intellectually constrained by the dogmatic nature of much of that debate. In-depth case studies of specific disputes, of the kind that I provide in my Suez project, offer the promise of uncovering both similarities and differences between modern IIL and the something-like IIL of another era. Other such studies could also be used to support claims that certain legal principles are long-standing and for that reason deserve respect today (à la Paulsson), or that legal principles should be discarded as reflecting different times, different contexts, and different values (à la Miles). They can be used to construct ‘origins’ stories, or simply to ‘understand’. There is a diversity of ‘histories’ that future research might produce. My own efforts at engaging in the history of IIL have been of the learning-by-doing type. I hope that this chapter might enable budding IIL historians to begin their own projects with a better sense of the promises and challenges that the historical study of IIL offers.

4. Understanding change: Evolution from international claims commissions to investment treaty arbitration Heather L. Bray I. IT ALL STARTED WITH A BIG BANG The history of investment treaty arbitration is often depicted in a way analogous to the big bang theory.1 Like the universe, investment treaty arbitration is often theorized as emerging at a single point in time resulting in its ongoing expansion or evolution, although the actual date the ‘big bang’ occurred is contested.2 For some, the birth of modern investment treaty arbitration occurred post-World War II alongside the asymmetrical construction of international investment agreements by capital-exporting states.3 For others, the first bilateral investment treaty

1

Barton Legum, ‘Investment Treaty Arbitration: The Big Bang’ (2005) 99 ASIL Proceedings 93. 2 Julie Maupin for instance describes the establishment of the investment law regime in the mid-20th century as something unexpected or something that nobody saw coming. See Julie A Maupin, ‘Public and Private in International Investment Law: An Integrated Systems Approach’ (2014) 54 Virginia Journal of International Law 367, 374. 3 See, for example, Jeswald W Salacuse, The Law of Investment Treaties (Oxford University Press 2010) 1 (situating the inception of modern investment law shortly after World War II with the conclusion of asymmetrical investment agreements that were largely constructed by capital-exporting states to protect their nationals abroad); Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International 2009) 41 (pinpointing the origins of international investment agreements to the efforts by capital exporting states to conclude BITs post-World War II); Asha Kaushal, ‘Revisiting History: How the Past Matters for the Present Backlash Against 102

Evolution from international claims commissions

103

(BIT) between Germany and Pakistan in 19594 or the signing of the Convention on the Settlement of Investment Disputes between states and Nationals of other states (ICSID Convention) in 19655 mark the beginning of an emerging investment order. Still others point to the advent of arbitration without privity and the resulting explosion of arbitration cases,6 starting with the first registered BIT case in 1987,7 as the roots of investment treaty arbitration.8 Alternatively, some search for the origin of the present investment treaty arbitration system through a multiplicity of entrances. Here, investment treaty arbitration is viewed as incrementally emerging through various portals including rules on diplomatic Foreign Investment Regime’ (2009) 50 Harvard International Law Journal 491, 499 (roots the history of the foreign investment regime to the post-World War II era). 4 See, for example, Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press 2012) 6 (the ‘era of modern investment treaties began in 1959 when Germany and Pakistan adopted a bilateral agreement which entered into force in 1962’). 5 See, for example, Sergio Puig, ‘Emergence and Dynamism in International Organizations: ICSID, Investor-State Arbitration and International Investment Law’ (2013) 44 Georgetown Journal of International Law 531 (addresses the role ICSID played in the development of international investment law). 6 Gus Van Harten, ‘Private Authority and Transnational Governance: The Contours of the International System of Investor Protection’ (2005) 12 Review of International Political Economy 600, 602 (stating that the ‘widespread proliferation of general consents in investment treaties during the 1990s marks the emergence of the international system of investor protection’); Campbell McLachlan et al, International Investment Arbitration: Substantive Principles (Oxford University Press 2008) paras 1.06–1.07 (observing that arbitration without privity ‘transformed the landscape of modern investment protection’). 7 Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No ARB/87/3, Final Award (27 June 1990). See Joost Pauwelyn, ‘Rational Design or Accidental Evolution? The Emergence of International Investment Law’ in Zachary Douglas et al (eds), The Foundations of International Investment Law: Bringing Theory into Practice (Oxford University Press 2014) 14 (emphasizing the revolutionary aspects of the AAPL v Sri Lanka case). 8 For some scholars there is no big bang that marks the beginning of investment law. Instead, the history of investment treaty arbitration is situated in the long, continuing historical struggle of competing interests (for example, capitalimporting and capital-exporting countries). See, for example, Muthucumuraswamy Sornarajah, The International Law on Foreign Investment (3rd edn, Cambridge University Press 2010); Kate Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press 2015).

104

International investment law and history

protection and treatment of aliens, treaties on friendship, commerce and navigation (FCN), various codification efforts, decisions of international claims commissions, United Nations General Assembly resolutions, failed attempts to establish a multilateral legal framework for investment, or the proliferation of BITs and investment treaty arbitration, to name only a few.9 Despite the differences about the origins of investment treaty arbitration, what unites many of these historical accounts is their designation of the system of investment treaty arbitration as a modern or ‘exotic’ development. Jan Paulsson famously described investment treaty arbitration ‘not as a subgenre of an existing discipline’ but as something ‘dramatically different from anything previously known in the international sphere’.10 Anthea Roberts argued that the ‘system as a whole is new and undertheorized’ and cleverly likened the system to a platypus – a sui generis creature of public international law.11 Santiago Montt similarly designates investment treaty arbitration as a ‘new development in international law’, which leads him to the argument that ‘older precedents, doctrine, and modes of thought’ are of no, or limited, value to disputes arising under an investment treaty.12 Using a periodization method,13 Montt distinguishes the BIT generation (the modern era) – where the object of arbitral scrutiny is regulatory action or inaction – from the denial of justice age (the nightwatchman era) – where arbitral tribunals were concerned with the proper administration of justice and adequate maintenance of ordre publique.14 Gus Van Harten goes so far as to describe investment treaty arbitration as ‘a revolutionary development in international adjudication’.15 For Van Harten, the reason the system 9 10

See, for example, Pauwelyn (n 7) 15; Newcombe and Paradell (n 3) 1–74. Jan Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Review 232,

256. 11 Anthea Roberts, ‘Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’ (2013) 107 American Journal of International Law 45, 46. 12 Santiago Montt, State Liability in Investment Treaty Arbitration: Global Constitutional and Administrative Law in the BIT Generation (Hart Publishing 2009) 3. 13 For more on the periodization method in international law see Oliver Diggelmann, ‘The Periodization of the History of International Law’ in Bardo Fassbender and Anne Peters (eds), The Oxford Handbook of the History of International Law (Oxford University Press 2012) 997. 14 Montt (n 12) 7. 15 Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford University Press 2007) 95.

Evolution from international claims commissions

105

cannot be considered a mere continuation of traditional arbitration in international law, is due to the system’s implementation of innovative adjudicative features – including, for example, the investors’ right to bring an international claim directly against the state without the need to exhaust local remedies and the state’s prospective consent to arbitrate.16 What is misleading about these designations of investment treaty arbitration, is their common desire to pinpoint the exact starting point of the system (the ‘big bang’) and the need to place investment treaty arbitration on a relatively recent timeline, making it seem both new and different from all other forms of international dispute settlement models. In this chapter, I take a different approach to the history of investment treaty arbitration, one that moves away from envisaging investment treaty arbitration as a modern or sui generis system in international law that came about through a recent big bang. My argument is that investment treaty arbitration is not a radical departure from earlier mechanisms for resolving international claims against states for mistreatment of foreign investors but rather is a natural continuation or evolution from earlier models. Institutionalized international claims commissions offer an important historical precedent to analyse the history of investment treaty arbitration. It is important to note, however, that I am not challenging the big bang theory per se but rather the narrative that investment treaty arbitration is a post-World War II phenomenon. I thus offer international claims commissions, not as the ‘big bang’ that led to the creation of investment treaty arbitration, but instead as an example to debunk this post-World War II narrative. International claims commissions themselves were most likely built on earlier experiences or models, thus, probably constituting a form of evolution from an earlier time. In this way, historical analysis should be viewed on a continuum and historical account should be seen as a mere snapshot on this timeline. In order to show continuity and connectedness between international claims commissions and investment treaty arbitration, this chapter will be organized as follows. In setting the stage for this chapter, the first part will examine two common methodological problems with using an evolutionary method to analyse history (Part II). These include the narrative of progress and the dangers of anachronism. With these two methodological problems in mind, next, the chapter will look at five criteria of international claims commissions (Part III), which will be used in the subsequent parts to chart an evolutionary pathway between international claims commissions and investment treaty arbitration. To do 16

ibid.

106

International investment law and history

this, I will first compare four of the five criterions of international claims commissions with investment treaty arbitration looking specifically at the origin of the dispute, the status of the individual, the role of peace, and the quantity and method for processing claims (Part IV). These four criteria show an organic transformation between early international claims commissions and investment treaty arbitration, while still emphasizing the commonalities between the two dispute settlement methods. Subsequently, I will compare the fifth criterion – the composition of the decision-makers – in more detail, focusing on the structures and models used for decision-making in international claims commissions and investment treaty arbitration (Part V). This section will present four separate international dispute settlement models: the Jay Treaty, the Alabama Claims Commission, the umpire model, and investment treaty arbitration. It is in this fifth criterion where the greatest number of differences can be witnessed between international claims commissions and investment treaty arbitration, warranting a separate, more detailed, analysis. Yet, even here, the transformation from earlier models to investment treaty arbitration demonstrates the gradual evolution in history and the incremental movement towards increasing independence of the decision-makers over time. Through this analysis, an evolution between international claims commissions and investment treaty arbitration can be uncovered and the post-World War II narrative, which situates investment treaty arbitration as a relatively new species of international law, challenged.

II. THE METHODOLOGICAL PROBLEMS OF THE NARRATIVE OF PROGRESS AND THE DANGERS OF ANACHRONISM This chapter utilizes an evolutionary analysis that will trace possible pathways between institutionalized international claims commissions, beginning in 1794 with the signing of the Jay Treaty, and modern investment treaty arbitration. I use the term ‘evolution’ as a metaphor but I also employ it as a method to approach change of investment treaty arbitration over time. There are of course inevitable challenges to using an evolutionary approach to examining legal history, the most aggressive risks being the construction of a progress narrative and the trap of anachronism.

Evolution from international claims commissions

107

A. The Progress Narrative The first methodological trap one may fall into when using an evolutionary theory is the one of telling a story of progress.17 Using an evolutionary method, often involves cutting history into blocks of time and labelling the most recent period the most favourable, or most advanced.18 As we move from ape to man or international claims commissions to investment treaty arbitration, our assessments of the past and present tend to be linear and value-based. Investment treaty arbitration, for example, is often understood as being in a higher stage of evolution than the past. Scholars in the field tend to juxtapose the current state of investment treaty arbitration against the early abuses of diplomatic protection in the era of colonialism and imperialism.19 As one scholar notes, the ‘development of investment law was primarily a response to the uncertainties and inadequacies of the customary international law of state responsibility for injuries to aliens and their property’.20 The current system depoliticized the settlement of investment disputes, moving away from the political gunboat diplomacy era, and provided investors with direct access to a neutral and impartial forum to resolve investment treaty disputes.21 However, evolution, as Darwin himself pointed out, is not progressive: ‘We are apt to look at progress as the normal rule in human society; but history refutes this.’22 Evolution is not a neat, seamless, continuous process but is a process of shifts, accidents, mutations, and stagnation. In 17

For a discussion of ‘narratives of progress’ in international law generally see Tilmann Altwicker and Oliver Diggelmann, ‘How Is Progress Constructed in International Legal Scholarship?’ (2014) 25 European Journal of International Law 425. 18 Diggelmann (n 13) 1008 (remarking that the progress narration is the norm in the discipline of international law). 19 See, for example, Newcombe and Paradell (n 3) 8; Jan Paulsson, Confronting Global Challenges: From Gunboat Diplomacy to Investor-State Arbitration (PCA Peace Palace Centenary Seminar 11 October 2013); O Thomas Johnson and Jonathan Gimblett, ‘From Gunboats to BITs: The Evolution of Modern International Investment Law’ (2001) Yearbook on International Investment Law & Policy 649; Charles N Brower and Stephan W Schill ‘Is Arbitration a Threat or a Boon to the Legitimacy of International Investment Law?’ (2009) 9 Chicago Journal of International Law 471. 20 Newcombe and Paradell (n 3) 41. 21 Ibrahim FI Shihata, ‘Towards a Greater Depoliticization of Investment Disputes’ (1986) 1 ICSID Review 1. 22 Charles Darwin, Origin of Species: Abridged and with an Introduction by Michael Ghiselin (Dover Publications 2010) 101.

108

International investment law and history

this chapter, I use certain criteria to analyse commonalities between international claims commissions and investment treaty arbitration. In this way, I engage in a comparative approach to show evolution between these two models of international dispute settlement. However, in focusing on these commonalities between international claims commissions and investment treaty arbitration, I am not arguing that this is the main trajectory or the only trajectory of evolution. In fact, other models of international dispute settlement, such as international commercial arbitration or interstate arbitration, can also be shown to have commonalities with investment treaty arbitration. Bardo Fassbender and Anne Peters made this point when speaking about global history of international law: ‘Global history thus focuses on transfers, networks, connections, and cooperation between different actors and regions, while trying to avoid the temptation to draw straight lines from one time and place to another.’23 Therefore, as I compare international claims commissions and investment treaty arbitration, certain changes, movements or transformations can be discerned – the strengthening role of the individual, the adherence to law instead of diplomacy, the increased independence of arbitrators – but such changes do not signify movement towards a superior state of development in international dispute settlement. Rather, these changes merely indicate the emergence of a new species, investment treaty arbitration, which is sufficiently adapted to its environment to survive. Whether or not such changes are indeed progressive cannot be objectively measured, as the standard according to which progress is measured is inherently valueladen.24 Additionally, in this chapter, I am not concerned with the question whether there is progress or not nor will I attempt to prove or deny the existence of progress. My concern merely lies in providing a purely descriptive comparison between international claims commissions and international investment law and, in drawing on their similarities, exposing continuity between these two models of dispute settlement. B. The Risk of Anachronism The second potential methodological problem with using an evolutionary approach is the risk of anachronism. Quentin Skinner, who provided a methodology for the history of ideas by interpreting a given text within 23 Bardo Fassbender and Anne Peters, ‘Introduction: Towards a Global History of International Law’ in Fassbender and Peters (n 13) 9. 24 Timothy Shanahan, ‘Evolutionary Progress?’ (2000) 50 BioScience 451, 453.

Evolution from international claims commissions

109

its context, accused historians that review text with a modern perspective not only commit ‘merely a methodological fallacy, but something like a moral error’.25 Thus, Skinner argues, ‘classic texts cannot be concerned with our questions and answers, but only with their own’.26 In showing the risks of anachronism, Skinner argues that there is a danger in tracing ‘the morphology of some given doctrine “through all the provinces of history in which it appears”’.27 Anachronism is not a danger that Skinner alone feared. In fact, Constantin Fasolt somewhat dramatically describes anachronism as ‘the sin against the holy spirit of history’.28 He describes the contextual approach to history as a methodological commandment: ‘thou shalt place everything in the context of its time’.29 Randall Lesaffer likewise warns against the use of evolutionary history where ‘the researcher tries to find the historical origins of a present-day phenomenon by tracing back its genealogy’30 and where history is described ‘not in terms of what it was’ but ‘in terms of similarities with or differences from the present’.31 Lesaffer offers a strong stance against this type of historical method: This kind of historiography sins against the most basic rules of historical methodology, and the results are deplorable. This genealogic history from present to past leads to anachronistic interpretations of historical phenomena, clouds historical realities that bear no fruit in our own times and gives no information about the historical context of the phenomenon one claims to recognize.32

While I appreciate the dangers involved in evolutionary history, I nonetheless disagree that such a clear demarcation between past and present can be sustained. In order to provide an accurate history of investment treaty arbitration, one necessarily enters the past with a 25

Quentin Skinner, Visions of Politics (Cambridge University Press 2002) vol 1, 89. 26 ibid 88. 27 Quentin Skinner, ‘Meaning and Understanding in the History of Ideas’ (1969) 8 History and Theory 3, 10. See also Arthur O Lovejoy, The Great Chain of Being: A Study of the History of an Idea (Harvard University Press 1936). 28 Constantin Fasolt, The Limits of History (University of Chicago Press 2004) 6. 29 ibid. 30 Randall Lesaffer, ‘International Law and Its History: The Story of an Unrequited Love’ in Matthew Craven et al (eds), Time, History and International Law (Brill 2006) 34. 31 ibid 35. 32 ibid 33.

110

International investment law and history

contemporary perspective, especially one trained in the common law legal system where past cases are either put forward as binding precedent or distinguished from the present case. Anne Orford recognizes the rigidity of the contextualist treatment of anachronism and questions whether a different historical method (or one offering more flexibility) is more suitable to a legal discipline ‘in which judges, advocates, scholars and students all look to past texts precisely to discover the nature of the present obligations’ and where ‘law relies upon precedent, customs and patterns of argument stretching back, at least in the common law tradition, from as recently as yesterday to “time immemorial”’.33 Additionally, in normative sciences, such as law, we view the past not just as a reiteration of bare historical facts but also view the past as actively exercising normative authority over the present. While such exercises are inconceivable from the perspective of the historian, for the legal practitioner, especially one trained in the common law, this is both a natural and necessary exercise. In the history of international law, pathways of evolution help legal researchers, practitioners, and decisionmakers trace an idea, principle, or rule from the past to the present. It contextualizes the law at a particular point in time, identifies recurring themes, provides a logical trajectory of the life of the law, delivers renewed ideas, and grounds future behaviour. The theory of evolution gives us the necessary tools to prevent problems of the past from occurring over and over again and it offers a portrait of what legal principles or international governing bodies have survived and which have perished. While my aim in this chapter is to provide a description of change, not a normative analysis of change, I remain cautious in my analysis of the continuity and connectedness between international claims commissions and investment treaty arbitration, which in and of itself is inherently anachronistic and risks telling a story of progress, and acutely aware of both these methodological problems. In order to minimize the anachronism, the chapter will utilize a two-step process advocated for by Randall Lesaffer. First, he proposes that the ‘rudiments of classical historical methodology should be respected’34 to which he encourages textual and contextual analysis of written sources. This includes ensuring that sources are authentic, that these sources are read in light of the authors’ 33

Anne Orford, ‘On International Legal Method’ (2013) 1 London Review of International Law 174. 34 Lesaffer (n 30) 38.

Evolution from international claims commissions

111

time period, and that the sources should be analysed against their contexts and concerns of the authors. The next part of the chapter (Part III) will engage in this first step by analysing international claims commissions on their own terms and within their unique historical context. It is only once the criteria of international claims commissions are explained that I will move to the second part of Lesaffer’s historical process, which is to use the historical data from step one and compare it to a wider framework, such as investment treaty arbitration.35 This two-step historical methodology allows me to first describe five criteria of international claims commissions and second to use those criteria in a comparative analysis to show a transformation from international claims commissions to investment treaty arbitration.

III. INTERNATIONAL CLAIMS COMMISSIONS Before a comparative analysis can be conducted between international claims commissions and investment treaty arbitration, factors for comparison need to be identified. For the purpose of this chapter, five criteria of international claims commissions will be developed. These criteria will be later used in Part IV to prove the evolution from international claims commissions to investment treaty arbitration. I have identified five features of international claims commissions that, on the one hand, make them distinguishable from other forms of international dispute settlement bodies (for example, mass claims) while, on the other hand, act as possible markers that indicate evolution from these commissions to investment treaty arbitration. A. Origin of the Dispute The first criterion of an international claims commission that differentiates it from other mechanisms of international dispute resolution is that they are established, usually through peace treaties, to settle claims made by one state against another state for injuries to the person or property of its nationals that arise out of international conflict or major domestic

35

ibid.

112

International investment law and history

unrest. As David Bederman aptly stated, international claims commissions are ‘stepchildren of war and rebellion’.36 In the aftermath of riots, revolution, social upheaval, or hostilities, foreigners sometimes sustained injuries including personal injuries, seizure and damage of property, unlawful arrest and imprisonment, arbitrary expulsion, and the cancellation of contracts and concessions. Subsequently, aggrieved states (and sometimes the individuals themselves) would seek compensation for the harm caused by these events to their nationals. International claims commissions were then established to address these particular disputes or group of disputes. For instance, the Alabama Claims Arbitration of 1872 was established to deal with an alleged breach of neutrality by Great Britain during the American Civil War. Similarly, various claims commissions were established against Mexico in 1920–193037 and Venezuela in 190338 to deal with disputes arising out of injuries inflicted on foreign nationals during revolutionary events in these respective countries. Mixed arbitral tribunals and claims commissions also followed World War I to address claims by nationals of Allied and Associated powers against Germany,39 and the Iran-United States 36 David Bederman, ‘The United Nations Compensation Commission and the Tradition of International Claims Settlement’ (1994–95) 27 New York University Journal of International Law and Politics 1. 37 Mexico has a long history of riots and revolutions. In fact, Mexico was a party to ten out of the 67 claims settlements instruments adopted after 1794 due to the reoccurring revolutionary upheaval and civil unrest in that country. See David Bederman, ‘The Glorious Past and Uncertain Future of International Claims Tribunals’ in Mark W Janis (ed), International Courts for the TwentyFirst Century (Brill Nijhoff 1992) 164. 38 Ten mixed claims commissions were established in 1903 against Venezuela due to the civil war in Venezuela from 1898 to 1902. These included the following commissions: United States-Venezuela; Belgium-Venezuela; United Kingdom-Venezuela; France-Venezuela; Germany-Venezuela; Italy-Venezuela; Mexico-Venezuela; Netherlands-Venezuela; Spain-Venezuela; Sweden and Norway-Venezuela. 39 After World War I, the Treaty of Versailles established mixed commissions between Germany and each allied power who became a party to the treaty. The Peace Treaties include the Treaty of Versailles (28 June 1919) UKTS 4 (Cmd 153); the Treaty of St Germain-en-Laye (10 September 1919) UKTS 11 (Cmd 400); the Treaty of Neuilly (27 November 1919) UKTS 5 (Cmd 522); the Treaty of Trianon (4 June 1920) UKTS 10 (Cmd 896); and the Treaty of Lausanne (24 July 1923) UKTS 16 (Cmd 1929). The United States was not a party to the Treaty of Versailles. Instead the United States and Germany established a Mixed Commission under a separate agreement called the ‘Berlin Agreement’ of 10 August 1922; see Agreement between the United States and

Evolution from international claims commissions

113

Claims Tribunal came into existence after the Islamic revolution in Iran.40 Thus, international claims commissions all follow some international conflict or civil unrest. B. Status of the Individual Second, unlike traditional inter-state arbitration, which focuses exclusively on the interests of states, international claims commissions also protect the interests of the injured individuals. Traditionally, states were the sole actors and principal subjects of international law.41 The individual was at the mercy of the state to espouse a claim on its behalf. Consequently, if a state decided not to espouse a claim, the injured national traditionally had no recourse under international law.42 While earlier models of international claims commissions followed this general position in international law whereby individuals had to rely on their home states exercising diplomatic protection, exceptions to this rule began to surface post-World War I with the establishment of various mixed arbitral tribunals.43 The Peace Treaties, for example, provided private parties with direct access to mixed arbitral tribunals established to deal with claims by nationals of the Allied and Associated Powers against Germany resulting from the war.44 The Treaty of Versailles, for instance, permitted nationals of the Allied and Associated Powers to bring actions against Germany before mixed arbitral tribunals without the interposition of their home

Germany Providing for the Determination of the Amount of the Claims Against Germany (10 August 1922) (1922) 16 AJIL Supplement 171–172. 40 See the Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran, 19 January 1981 (1983) 1 Iran-US Claims Tribunal Rep 9. 41 See generally Simone Gorski, ‘Individuals in International Law’ in Rüdiger Wolfrum (ed), The Max Planck Encyclopedia of Public International Law (Oxford University Press 2012) vol V, 147. 42 Louis B Sohn, ‘The New International Law: Protection of the Rights of Individuals Rather than States’ (1982) 32 American University Law Review 1, 9. 43 Leo J Bouchez, ‘The Prospects for International Arbitration: Disputes between States and Private Enterprises’ in Alfred HA Soons (ed), International Arbitration: Past and Prospects: A Symposium to Commemorate the Centenary of the Birth of Professor J.H.W. Verzijl (1888–1987) (Martinus Nijhoff 1990) 109, 152–153. 44 For references of the Peace Treaties see above n 39.

114

International investment law and history

state.45 In fact, ‘the most important contribution rendered by the mixed arbitral tribunals’ arguably could be ‘the granting of individuals of direct access to the tribunals’.46 International claims commissions can therefore be seen as important precedents for the extension of individual access to international tribunals, a trend that would continue with investment treaty arbitration. C. Goal of Peace Third, the very nature of international claims commissions, which are created in the aftermath of conflict, can be viewed as an integral part of the peace movement. Seen in this light, international claims commissions became viewed as important instruments of preventing war and a means to contain ongoing conflict. The idea of replacing war by arbitration was a theme that saturated 19th and 20th century legal scholarship. The inspiration for such rhetoric is usually credited to the Alabama Claims Commission,47 which settled a dispute between the United Kingdom and the United States peacefully. As stated by Mary Ellen O’Connell and Lenore Vanderzee: This award – and, indeed, the arbitral process itself – energized the peace movement and motivated states to engage in arbitration to settle more disputes. The single most important fact about the Alabama Claims was the example of a great power voluntarily entering into arbitration with a weaker state over an important issue and abiding by the result.48

Importantly, however, international claims commissions do not prevent war per se; rather they provide remedies for war claims and facilitate amicable relations between the two countries in order to prevent the continuance of war. Using legal measures rather than bloodshed, the Alabama Claims Commission successfully diffused a conflict between a 45

See Treaty of Versailles (n 39) art 297. See also Sigwald Charles v Germany (France v Germany) (1926) 4 ILR 227, where the tribunal held that the right granted under art 297(2) of the Treaty of Versailles was an individual right belonging to the national of the Allied Powers. 46 Norbert Wühler, ‘Mixed Arbitral Tribunals’ in Rudolf Bernhardt (ed), Encyclopedia of Public International Law (North Holland 1981) vol I, 145–146. 47 David D Caron, ‘War and International Adjudication: Reflections on the 1899 Peace Conference’ (2000) 94 American Journal of International Law 4, 9. 48 Mary Ellen O’Connell and Lenore Vanderzee, ‘The History of International Adjudication’ in Cesare Romano et al (eds), The Oxford Handbook of International Adjudication (Oxford University Press 2014) 40, 45.

Evolution from international claims commissions

115

powerful nation, Britain, and a then-weaker nation, the United States.49 The idea that arbitration could act as an instrument in the maintenance of peace50 was arguably implanted with the Alabama Claims arbitration, it was made explicit by Czar Nicholas II’s rescript issued in 1898 proposing a conference to be held in The Hague,51 gained momentum with the two Hague Peace Conferences in 1899 and 1907 and was strengthened with the establishment of the Permanent Court of Arbitration by the Convention for the Pacific Settlement of International Disputes, concluded at The Hague in 1899 at the first Hague Peace Conference. With the onset of World War I, however, the idea of arbitration as a means of attaining peace became somewhat illusory.52 D. Quantity and Method for Processing Claims Fourth, international claims commissions involve a large number of claims that arise out of a particular event or string of events. This quality of an international claims commission makes it similar to a mass claims process. Although the source of the dispute is similar between international claims commissions and mass claims commissions, and both bodies have jurisdiction that address existing rather than future claims,53 the processing of the claims is quite different. Mass claims commissions are quasi-judicial, administrative compensation bodies that rely on mass processing methods to settle disputes efficiently (for example, dealing with claims with similar factual and legal issues in large batches, relaxing evidentiary standards, applying fixed amount of damages, etc).54 Due to 49 Mary E O’Connell, ‘Arbitration and Avoidance of War: The NineteenthCentury American Vision’ in Cesare Romano (ed), The Sword and the Scales: The United States and International Courts and Tribunals (Cambridge University Press 2009) 30. 50 John Westlake, ‘International Arbitration’ 7 (1896) International Journal of Ethics 2. 51 A conference in The Hague was proposed ‘with the object of seeking the most effective means of ensuring to all peoples the benefits of a real and lasting peace, and, above all, of limiting the progressive development of existing armaments’. 52 Cecil B Hurst, ‘Wanted! An International Court of Pie Powder’ (1925) 6 British Yearbook of International Law 61, 81. 53 David D Caron, ‘International Claims and Compensation Bodies’ in Romano et al (n 48) 286. 54 For an analysis of the various processing techniques utilized by mass claims, see Veijo Heiskanen, ‘Arbitrating Mass Investor Claims: Lessons of International Claims Commissions’ in Permanent Court of Arbitration (ed),

116

International investment law and history

the large number of claims, the method of decision-making changes to one ‘valuing practical justice, as opposed to perfect justice’.55 Consequently, the treatment of claims is not necessarily individual, the process is non-adversarial, the liability is often pre-established, and the remedy is usually awarded in terms of flat-rate compensation.56 International claims commissions alternatively examine claims on an individual basis and in an adversarial manner and both liability and quantum need to be established,57 despite the fact that they too address a large number of claims.58 E. The Composition of the Decision-Makers Fifth, decision-makers of international claims commissions are composed exclusively or predominantly of the nationals of the disputant states. At least one arbitrator sitting on an international claims commission has the same nationality as one of the parties. In this way, international claims commissions ‘stand at the intersection of diplomatic and judicial methods of dispute settlement’.59 In explaining the history of judicial dispute settlement, Hersch Lauterpacht offers a narrative of ‘compromise’ between, on the one hand, an opponent state willing to submit a dispute to a judicial body and, on the other hand, the unwillingness of the sovereign state to surrender to a judicial body external to itself: ‘This compromise was effected through mixed commissions.’60 The mixture of Multiple Party Actions in International Arbitration (Oxford University Press 2009) 303. 55 Caron (n 53) 290. 56 See Dissenting Opinion of Georges Abi-Saab in Abaclat v Argentina for more on the distinguishing characteristics between mass claims processes in international law and investment treaty arbitration. Abaclat and Others v Argentina, ICSID Case No ARB/07/5, Dissenting Opinion to Decision on Jurisdiction and Admissibility (4 August 2011) paras 176–189. 57 There are certain international claims commissions, however, that acted in a more quasi-judicial capacity. For example, the Germany-Venezuela Mixed Claims Commission did not have jurisdiction to decide the question of liability ‘but only whether the injury to or the seizure of property’ was wrongful and warranted compensation. See Article III of the Mixed Claims Commission Germany-Venezuela Constituted under the Protocols of 13 February and 7 May 1903. 58 Heiskanen (n 54) 303–304. 59 Michael Waibel, Sovereign Defaults Before International Courts and Tribunals (Cambridge University Press 2011) 172. 60 Hersch Lauterpacht, The Function of Law in the International Community (first published 1933, Oxford University Press 2011) 228.

Evolution from international claims commissions

117

national and neutral arbitrators, and the corresponding judicial and diplomatic functions of these bodies, was arguably ‘necessary and justified as a transition stage from the refusal of Sovereign states to recognize a judge over themselves to a more advanced stage of legal organization’.61 F. Summary International claims commissions are dispute settlement bodies instituted to deal with a package of largely parallel disputes arising out of an international conflict or major domestic disturbance. They deal, on an individualized basis, with a large number of claims that present common or similar factual and legal questions leading to a body of substantial jurisprudence that deals with injury to the person or property of an alien. Considered integral to the peace movement, international claims commissions are an important method of post-conflict dispute resolution.62 Owing to the composition of the tribunal and the function of the arbitrators, this method offers the state a means to resolve disputes amicably, while still giving the perception (whether real or perceived) that their national interests are represented in a body external to the state. With these five basic criteria of international claims commissions, it is now possible to show evolution between international claims commissions and investment treaty arbitration.

61

ibid 232. International claims commissions are only one method of post-war dispute resolution. Other methods include lump sum agreements and private international commercial arbitration. A lump sum agreement, however, is only useful when the relations between states are strained and where only one state has claims to make against the other state. In cases where there are mutual claims, lump sum settlements are impractical as the claims merely cancel each other out (see Bederman (n 37) 170). Commercial arbitration is another option, but this method depends on the presence of an arbitration clause being included in the contract or concession agreement (Bederman (n 36) 27). Thus, an international claims commission may be the most viable option when there is (1) an absence of an arbitration clause included in the contract, (2) there is mutual confidence between the two states, and (3) nationals of both states have claims (Bederman (n 37) 178). 62

118

International investment law and history

IV. COMPARATIVE ANALYSIS BETWEEN INTERNATIONAL CLAIMS COMMISSIONS AND INVESTMENT TREATY ARBITRATION This section will engage in a comparison between these two systems, confining itself to four of the five defining features of international claims commissions identified in the preceding section: the origin of the dispute, the role of the individual, the quantity and method for processing claims, and the goal of peace. By looking at these elements, we can track an evolutionary development from international claims commissions to investment treaty arbitration. The fifth criterion – the composition of the decision-makers – will be done separately because it arguably shows the greatest differences or change from international claims commissions to investment treaty arbitration, while still showing that investment treaty arbitration has its seeds in international claims commissions. This comparative approach departs from historical research that engages in a search for origins or the ‘big bang’ and instead shows institutional change in international dispute settlement. A. The Origin of the Dispute Both international claims commissions and investment treaty arbitration address claims arising from a post-conflict situation but investment treaty arbitration is not limited to such circumstances. Investment treaty arbitration has occasionally been called upon to deal with situations where foreign investors and their investments suffered due to armed conflict or internal disorder within the host country. For example, the AAPL v Sri Lanka case dealt with the destruction of a shrimp farm and the killing of several staff members of that farm in the course of a military operation between Sri Lankan Security Forces and Tamil rebels63 and the AMT v Zaire case dealt with an investment that was subject to looting by certain members of the Zairian Security Forces.64 Claims, however, that arise out of war and civil unrest are only one of many situations that a foreign investor can make a claim against a host state under an investment treaty.65 63 64

See AAPL v Sri Lanka (n 7). AMT v Republic of Zaire, ICISD Case No ARB/93/1, Award (21 February

1997). 65 See generally Christoph Schreuer, ‘Protection of Investments in Armed Conflicts’ (2012) 9(3) Transatlantic Dispute Management.

Evolution from international claims commissions

119

B. The Role of the Individual The individual plays an important role in both international claims commissions and investment treaty arbitration; however, it is more pronounced in investment treaty arbitration. As noted above, early international claims commissions followed the Westphalian premise, whereby only states were endowed with rights and obligations at the international level. It was not until after World War I when a gradual strengthening of the individual’s role in international law could be discerned. Many of the peace treaties, for example, provided individuals with standing to make claims directly against a state. The Iran-United States Claims Tribunal is another example where individuals can present claims against a foreign state separate and apart from any espousal by their own government. International claims commissions can thus be seen as starting a trend in international dispute settlement that provides individual claimants the right of access to international tribunals; a trend which becomes more evident in investment treaty arbitration where the individual is granted private standing and pursuant to generalized or comprehensive subject matter jurisdiction and, in many cases, without the need to exhaust local remedies.66 C. The Goal of Peace International claims commissions and investment treaty arbitration can both be viewed as instruments of war-prevention, but investment treaty arbitration also has many other functions, including governance and law-making abilities. International claims commissions, which reemerged as a method of dispute settlement at the end of the 18th century with the Jay Treaty of 1794 and experienced a so-called renaissance in the 19th century starting with the Alabama Claims arbitration, were very much considered part of the peace movement. As part of this movement, international claims commissions, and arbitration more generally, were considered instrumental in ensuring the attainment of world peace and their main function was to resolve international conflicts.67 International claims commissions are established after war and are used as a means to contain further conflict and avoid war. These bodies, however, are very individualized in that they are specific to the parties and to the particular 66 67

Pauwelyn (n 7) 18. Caron (n 47) 5.

120

International investment law and history

dispute. They are not concerned with preventing future wars generally but rather future wars between the two disputing countries. By contrast, investment treaty arbitration arguably attempts to achieve peace prospectively by addressing the inadequacies of the former system, which was marked by gunboat diplomacy and other forms of violence. Like international claims commissions, investment treaty arbitration contributes to peaceful relations between states but has a more diverse mandate which goes beyond a mere instrument of war-prevention. In addition to preventing future disputes, investment treaty arbitration provides a mechanism to enforce substantive standards of investment protection independently of states. It provides a method of examining the legality of state action vis-à-vis foreign investors and offers a mechanism of judicial review. Consequently, investment treaty arbitration has become an important method of implementing domestic law, offering law-making capabilities, and providing a more varied function than its predecessor. The function of war-prevention is but one of investment treaty arbitration’s many functions.68 D. The Quantity and Method for Processing Claims International claims commissions and investment treaty arbitration both have the ability to address a large number of claims; however, this is less popular in investment treaty arbitration. Investment treaty arbitration has dealt with mass claims, such as the Abaclat v Argentina case where a divided tribunal concluded it had jurisdiction to deal with a mass claim brought by 60,000 bondholders arising out of Argentina’s 2001 sovereign debt default, but investment cases typically do not involve claims of this nature.69 In addition to addressing a large number of claims, both international claims commissions and investment treaty arbitration examine cases on an individualized decision-making basis. Unlike mass proceedings, which are often quasi-judicial administrative bodies that relax due process requirements (for example with modified rules of procedure, adapted standards of proof and evidentiary rules, and using mass processing techniques), international claims commissions and

68 See Stephan W Schill, ‘International Investment Law and Comparative Public Law – An Introduction’ in Stephan W Schill (ed), International Investment Law and Comparative Public Law (Oxford University Press 2010) 3. 69 See, for example, Abaclat v Argentina (n 56). Recently, there has been a wave of mass claims against Spain and Italy as a result of cuts in solar subsidies.

Evolution from international claims commissions

121

investment treaty arbitration abide by due process requirements and conduct adversarial proceedings.70 Where the two systems diverge, however, is in the timing of when consent by the state is given and on the type of tribunal constituted. In international claims commissions, consent is often retrospective and contained in a special agreement. It is only after a dispute has arisen that states agree to submit it to arbitration. Subsequently, a standing tribunal is established and the claims are processed, liability established, and damages awarded. In comparison, in investment treaty arbitration consent is given prospectively. In this system, states consent in advance to submit any dispute arising out of myriad existing bilateral investment treaties (BITs). Unlike the standing tribunal established in international claims commissions, investment treaty arbitration is established ad hoc. For each new case, an entirely new tribunal is constituted. E. Summary Investment treaty arbitration did not somehow come about through a metaphorical Big Bang. One cannot point to the first BIT between Germany and Pakistan in 1959, or to the signing of the ICSID Convention in 1965, or even to the first registered BIT case in 1987,71 and proclaim the birth of modern investment treaty arbitration. Although sui generis in some respects, most notably the inclusion of a significant procedural innovation that allows investors to bring an arbitral claim directly against the host state without the intervention of the home state, there are strong parallels to be made between modern investment treaty arbitration and international claims commissions, including the fact that both can deal with disputes arising out of conflict, they both challenge the Westphalian model and provide the individual with a role in international law, they both act as instruments of peace, and they both have the ability to process a large number of claims. Investment treaty arbitration, however, has made certain modifications, which offers evidence of evolution from earlier models of international dispute settlement, namely international claims commissions. One such modification is that the scope of investment disputes is much broader than international claims commissions, covering disputes beyond war and civil unrest. The comprehensive subject-matter jurisdiction of a BIT 70 Sandrine Giroud and Sam Moss, ‘Mass Claims Processes Under Public International Law’ in Eva Lein et al (eds), Collective Redress in Europe: Why and How? (BIICL 2015) 481, 494–498. 71 AAPL v Sri Lanka (n 7).

122

International investment law and history

permits foreign investors to bring a claim against any level of government in respect of any BIT breach that is attributable to the host country.72 Additionally, the type of consent has become more invasive in investment treaty arbitration, where states consent prospectively to arbitration with foreign investors. There has also been a general deepening of the individual’s role in investment treaty arbitration, where the foreign investor can make a claim directly against the host state without the need to rely on diplomatic protection and without the need to exhaust local remedies. Moreover, investment treaty arbitration’s commitment to peace is arguably wider in breadth and is only one of its many functions. It not only attempts to prevent future controversies such as gunboat diplomacy, but in giving teeth to substantive standards of protection, it also functions as a governance mechanism that influences the behaviour of foreign investors and states. In addition to these four elements of comparison, there is a fifth criterion – the composition of the decision-makers – that provides the greatest number of differences between international claims commissions and investment treaty arbitration. While the composition of the decisionmakers has drastically changed from international claims commissions to investment treaty arbitration, this analysis still shows evolution between the two models of international dispute settlement. This evolution is apparent in the incremental movement towards increasing independence of the decision-makers over time.

V. THE COMPOSITION OF THE DECISION-MAKERS: A GRADUAL MOVEMENT TOWARDS INDEPENDENCE This section will deal with the fifth criterion of comparison between international claims commissions and investment treaty arbitration, namely the composition of the decision-makers. This comparison will show that over time there has been a gradual strengthening of independence of arbitrators and a movement towards judicial, rather than diplomatic, bodies. In looking at the gradual evolution of the nature of decision-making from international claims commissions to investment treaty arbitration, this section offers strong support for the argument that investment treaty arbitration is not a modern system of international law 72

Pauwelyn (n 7) 36.

Evolution from international claims commissions

123

that recently came about through a ‘big bang’ but rather is a natural evolution from international claims commissions. A. The Jay Treaty Commissions A natural starting point to evaluate the evolution in the composition of the decision-makers is with the Jay Treaty Commissions. Not only is the Jay Treaty considered the avant-garde of modern arbitration,73 but it also marks an important turning point in the composition of arbitral panels and the method of decision-making. The Jay Treaty established three mixed claims commissions to deal with disputes over boundaries (Article V of the Treaty), compensation due to British creditors for obligations incurred by Americans before the Revolution (Article VI of the Treaty), and compensation for claims arising from the seizure of American ships and cargoes during the then-war between Great Britain and France (Article VII of the Treaty). The character of the Commissions, which were comprised exclusively of nationals of the disputant states, by their very nature made the body more diplomatic than judicial in that ‘commissioners often acted like advocates for the appointing party rather than as independent adjudicators’.74 This, however, as noted above, was a necessary ‘compromise’ for states uneasy about submitting a dispute to a body entirely external to the state.75 Under Articles VI and VII of the Jay Treaty, two Commissioners were to be appointed by each side, and the fifth by unanimous agreement of the other four. In the event of disagreement, the fifth Commissioner was to be drawn by lot from a list proposed by the Commissioners.76 The Jay Treaty contained no requirement regarding neutrality and consequently

73 See, for example, Dudley B Bonsal, ‘International Claims: A Lawyer’s View on a Diplomat’s Nightmare’ (1955) 49 ASIL Proceedings 62; Hazel Fox, ‘States and the Undertaking to Arbitrate’ (1988) 37 International & Comparative Law Quarterly 1, 18; Jackson H Ralston, ‘A Brief History of International Disputes’ (1926) 88 Advocate of Peace through Justice 487, 488; Cornelis Van Vollenhoven, ‘International Arbitration, Past and Present’ (1926) 88 Advocate of Peace Through Justice 542, 543. 74 Waibel (n 59) 172–173. 75 Lauterpacht (n 60) 228. 76 Under Article V of the Jay Treaty, each Party was to name one Commissioner, and the two Commissioners were to agree on the third Commissioner. If they failed to agree, each was to propose one name, and one of these was to be drawn by lot.

124

International investment law and history

all the Commissioners were either American or British subjects.77 Because the Commissions under Articles VI and VII consisted exclusively of nationals of the two disputing parties, the commissioners ‘to some extent saw their task as the extension of diplomacy’.78 The Jay Treaty also set out the voting rules for the Commissioners. It provided that the quorum necessary for making a decision was ‘a board of three members, consisting of one of the original Commissioners on each side and the fifth member’.79 This voting requirement, coupled with a partisan composition of arbitrators, had the unfortunate effect of being abused. The Commissioners of either party were in a strategic position to frustrate or stall a decision80 and in fact the quorum problem arose under both Article VI and Article VII with ‘no definite solution [being] given to it’.81 In one situation, under Article VI of the Jay Treaty, disagreement regarding the scope of the Commission’s jurisdiction arose between the three British Commissioners on one side and the two American Commissioners on the other side. Specifically, differences arose on several key issues concerning the construction of Article VI, including the question of interest (that is, whether the word ‘debts’ in Article VI contemplated full interest), the question of solvency (that is, whether the claimants had to prove the solvency of their debtors as a condition to recovery), the question of exhaustion of local remedies (that is, whether the claimants had to pursue a remedy in American courts first), and the question of eligibility (that is,

77

Manley O Hudson, International Tribunals: Past and Future (Rumford Press 1944) 193. The British Debts Commission established under art VI of the Jay Treaty comprised three British subjects – Thomas Macdonald, Henry Pye Rich, and John Guillemard – and two American subjects – Thomas Fitzsimons and James Innes. The Maritime Claims Commission established under art VII of the Jay Treaty comprised three American subjects – Christopher Gore, William Pinkney, and Colonel Trumbull – and two British subjects – John Nicholl and John Anstey. In November 1978, Nicholl resigned and was replaced by Maurice Swabey. 78 See Charles H Brower II, ‘Arbitration’ in Wolfrum (n 41) vol I, 531, 535. See also David Bederman (n 36) 11 (noting that despite the fact that the Commission made its decision based on a majority vote, there was a high degree of consensus-seeking among members). 79 Jay Treaty, arts VI and VII. 80 Lauterpacht (n 60) 229. 81 Hudson (n 77) 53.

Evolution from international claims commissions

125

whether natural-born British subjects who had first sided with the colonists and later switched to the British were eligible).82 When the British Commissioners wanted to settle these issues by majority vote (that is, contending that full interest should be paid for the detention and delay of payment during the war, that claimants should not have to prove the solvency of their debtors as a condition of recovery, that the commission should hear all claims despite the fact that the claimant had made no effort to exhaust local remedies, and that all natural-born British subjects who had debts confiscated and were on the side of England at the time of the peace were eligible), the American members opted instead to withdraw from the Commission, which brought the Commission’s work to an abrupt end.83 Subsequently, the United States agreed to pay a lump sum regarding the British claims under Article VI, which then established a national commission to distribute the money. A similar difference of opinion arose under Article VII of the Jay Treaty. The issue arose in the case of the Betsey, the first case to come before the Article VII Commission. The difference of opinion dealt with the question whether a decision of the Lords Commissioners of Appeal in Prize Causes, the highest English prize court, which had affirmed the sentence of condemnation of a lower prize court, was to be regarded as final and conclusive. On the one side, the three American Commissioners – the two original Commissioners and the fifth chosen by lot – argued that while the decision of the Lords in respect to the title of the property concerned was final, the Commission still had jurisdiction to consider the merits of the claim and could award compensation. On the other side, the two British Commissioners argued that the Commission had no jurisdiction to reverse the Lords’ decisions and they withdrew from the Commission in order to prevent a decision.84 To resolve the deadlock, the Commission, on the advice of the American and British governments, consulted an outside expert, Lord Chancellor Loughborough, who had been consulted in the negotiations of the Jay Treaty, who answered that the Commission ‘was competent to examine questions decided by the high court of appeals, as well as all other cases described in the treaty, and they could give redress, not by reversing the decrees already passed and restoring the identical property, 82 For an explanation of these issues see Richard B Lillich, ‘The Jay Treaty Commissions’ (2013) 37 St. John’s Law Review 260, 272–273. 83 Georg Schwarzenberger, ‘Present-Day Relevance of the Jay Treaty Arbitrations’ (1977–78) 53 Notre Dame Lawyer 715, 720. 84 Lillich (n 82) 277.

126

International investment law and history

but by awarding compensation’.85 Furthermore, to prevent future disruptions like this from occurring in the future, the Lord Chancellor stated that ‘the doubt respecting the authority of the commissioners to settle their own jurisdiction was absurd, and that they must necessarily decide upon cases being within, or without their competency’.86 In this finding, the Jay Treaty has been credited with being the first arbitration body to establish the competence of tribunals to rule on their own jurisdiction.87 Beyond this procedural finding, the Commission’s reliance on a disinterested third party to help resolve a dispute can be seen as an important beginning to the recognition of outside experts. The presence of the Lord Chancellor can be seen as a predecessor of neutral members on arbitral bodies and can be seen as enhancing the independence of the Commission. This would later become an important, mandatory condition in investment treaty arbitration. B. The Alabama Claims Commission Moving away from the partisan Jay Treaty Commissions, the Alabama Claims Commission marks the next stage in the evolutionary pathway from international claims commissions to investment treaty arbitration. The claims dealt with by the Commission arose out of the alleged violations of neutrality by Great Britain during the American Civil War in permitting the Alabama and her supply ship, the Georgia, to be built in British shipyards for the use of the Southern states. Great Britain originally refused to arbitrate the Alabama claims on the grounds that the British government were ‘sole guardians of their own honor’88 but later agreed to submit questions involving maritime law of considerable importance to the majority vote of an international tribunal. The Alabama Claims Commission consisted of five individual arbitrators. Each state party was to appoint one of the arbitrators, and the King of Italy, the President of the Swiss Confederation and the Emperor of Brazil were to appoint the remaining three members. The five arbitrators included Charles Francis Adams, of the United States; Sir Alexander 85

John B Moore, International Adjudications: Compensation for Losses and Damages Caused by the Violation of Neutral Rights, and by the Failure to Perform Neutral Duties (Oxford University Press 1931) vol IV, 85. 86 Jackson H Ralston, International Arbitration From Athens to Locarno (Stanford University Press 1929) 193. 87 Brower (n 78) 535. 88 Charles C Hyde, International Law Chiefly as Interpreted and Applied by the United States (Little, Brown, and Company 1922) vol 2, 120.

Evolution from international claims commissions

127

Cockburn, of Britain; Count Frederick Sclopis, of Italy; Jacob Stampfli, of Switzerland, and Vicomte d’Itajuba, of Brazil. With the majority of commissioners having neutral nationalities, the Alabama Claims Commission is often heralded as the first ‘collegiate international tribunal’.89 Although the Alabama Claims Commission minimized the role of party-appointed arbitrators, making them a minority, it did not require that the party-appointed arbitrators remain independent and impartial. In some respects, the British arbitrator, Sir Alexander Cockburn, viewed his role as a representative of Great Britain90 and ‘regarded himself as an advocate rather than a judge’.91 In disagreeing with the majority, Sir Alexander Cockburn refused to sign the award and instead filed a long dissenting opinion in regards to the retrospective effect of the three rules on neutrality laid down in the Treaty of Washington.92 While the dissenting opinion has been criticized, and even irritated the British government, which thought Cockburn should have ‘simply sign[ed] the

89 John Liddle Simpson and Hazel Fox, International Arbitration: Law and Practice (Frederick A Praeger 1959) 2. 90 Hudson (n 77). 91 Lauterpacht (n 60) 226. 92 The Treaty provided in art 6 that ‘in deciding the matters submitted to the arbitrators they shall be governed by the following three rules, which are agreed upon by the high contracting parties as rules to be taken as appliable to the case, and by such principles of international law, not inconsistent therewith, as the arbitrators shall determine to have been applicable to the case’. The rules in art 6 provided that: A neutral Government is bound First, to use due diligence to prevent the fitting out, arming, or equiping, within its jurisdiction, of any vessel which it has reasonable grounds to believe is intended to cruise or to carry on war against a power with which it is at peace; and also to use like diligence to prevent the deparature from its jurisdiction of any vessel intended to cruise or carry on war as above, such vessel having been specially adapted, in whole or in part, within jurisdiction to wark-like use. Secondly, not to permit or suffer either belligerent to make use of its ports or waters as the base of naval operations against the other, or for the purpose of the renewal or augmentation of military supplies or arms, or the recruitment of men. Thirdly, to exercise due diligence in its own ports and waters, and, as to all persons within its jurisdiction, to prevent any violation of the foregoing obligations and duties.

128

International investment law and history

award with the other arbitrators,’93 it interestingly established the right of arbitrators to state separate or dissenting opinions in future arbitrations.94 Beyond establishing a collegiate international tribunal and permitting the use of separate or dissenting opinions, the adverse party, Great Britain, subsequently complied with the award that dealt with questions involving her national honour. The compliance with the award offers proof of the peacekeeping function of international claims commissions. The arbitral history of the Alabama Claims Commission offers important historical precedent for investment treaty arbitration, which still retains a system of party-appointed arbitrators with the right to give dissenting opinions, although the party-appointed arbitrator in investment treaty arbitration maintains an independent and impartial character. C. The Umpire Approach Another method of decision-making that was utilized by international claims commissions was the umpire approach. In the umpire model, the party-appointed commissioners first attempted to agree on the disposition of the claims. In the event they could not reach an agreement, the claim would be referred to the decision of an umpire. Acting like advocates, the two commissioners would submit their respective arguments, and the umpire would make a decision.95 The Venezuela Mixed Claims Commissions of 1903 provided for the appointment of umpires. The umpire was allowed to be present during the meetings of the commission and preside over the commission’s deliberations; however, the umpire ‘did not vote nor exercise any control over the questions arising or claims presented before the commission, except upon differences of opinions existing between the commissioners’.96 Introducing an umpire into the decision-making process added an element of neutrality, as the umpire was not a national of either party. Additionally, while this model was more judicial in nature compared to 93 VV Veeder, ‘The Historical Keystone to International Arbitration: The Party-Appointed Arbitrator: From Miami to Geneva’ (2013) 107 ASIL Proceedings 387, 401. 94 Brower (n 78) 535. Although arguably this ‘right’ to state a dissenting opinion occurred early with the Jay Treaty Commissions. 95 Bederman (n 37) 165. 96 Jackson H Ralston, The Law and Procedure of International Tribunals: Being a Résumé of the Views of Arbitrators Upon Questions Arising Under the Law of Nations and the Procedure and Practice of International Courts (Stanford University Press 1926) 33.

Evolution from international claims commissions

129

the mixed diplomatic commissions such as the Jay Treaty, it was still closer to conciliation than to arbitration.97 Today, we can see an evolution from the umpire model utilized by international claims commissions, whereby an umpire or referee was appointed to adjudicate when the other two arbitrators could not agree, to a panel with a chairman and two party-appointed arbitrators. Unlike the umpire, however, the chairman on an investment treaty arbitral tribunal is involved in all stages of the decision-making process and makes a decision together with the two party-appointed arbitrators. D. Charting the Evolutionary Pathway to Investment Treaty Arbitration Investment treaty arbitration offers another method of decision-making. While different from international claims commissions in some respects, it can still be seen as a natural continuation from earlier models. As a possible response to the lack of impartiality of arbitrators, or as Hersch Lauterpacht had predicted, a transition to a more advanced stage of legal organization,98 investment treaty arbitration provides an international forum that is comprised of neutral decision-makers guided by institutional or ad hoc arbitral rules. Instead of relying on political, diplomatic or conciliatory reasoning, such as that found in the early international claims commissions, investment treaty arbitration offers an adjudicative process that is based on objective legal principles and standardized procedural rules. The appointment of arbitrators in some respects is similar to the appointment of arbitrators in international claims commissions. For example, the ICSID Convention provides that the arbitral tribunal ‘shall consist of three arbitrators, one arbitrator appointed by each party and the third, who shall be the president of the Tribunal, appointed by agreement of the parties’.99 In order to address the problem of judicial nationalism, the ICSID Convention includes certain restrictions on nationality, including the requirement that the majority of the tribunal must be ‘nationals of states other than the Contracting state party to the dispute and the Contracting state whose national is a party to the

97 Bederman (n 37) 166. The last time that an umpire was used was in the Germany-United States Claims Commission established after World War I. 98 Lauterpacht (n 60) 232. 99 Article 37 of the UNCITRAL Rules provides a similar provision: ‘If three arbitrators are to be appointed, each party shall appoint one arbitrator.’

130

International investment law and history

dispute’.100 The ICSID Arbitration Rules further provide that a national of either party ‘may not be appointed as an arbitrator by a party without the agreement of the other party to the dispute’.101 While the practice of party-appointed arbitrators has not been abandoned in investment treaty arbitration,102 the system has attempted to establish the independent character of such arbitrators.103 In addition to the restrictions on nationality, the Arbitration Rules require arbitrators to be impartial and independent generally. This requirement extends to all members of the arbitral panel, including party-appointed arbitrators.104 The investment treaty arbitration system also introduces a device for challenging arbitrators that lack independence and impartiality, giving teeth to the neutrality requirements.105 Unfortunately, even within the investment treaty arbitration adjudication model, there are criticisms that party-appointed arbitrators are

100

ICSID Convention, art 39. The UNCITRAL Rules include a similar provision. See Article 7, which requires the appointing to take into account the ‘advisability of appointing an arbitrator of a nationality other than the nationalities of the parties’. The WTO also has such restrictions. The WTO Agreement provides in Article 8(3) that ‘[c]itizens of Members whose governments are parties to the dispute … shall not serve on a panel concerned with that dispute, unless the parties to the dispute agree otherwise …’. 101 ICSID Arbitration Rules, rule 1(3). 102 The United Nations Compensation Commission (UNCC) abandoned the practice of party-appointed arbitrators altogether and instead chose to adopt a model where all the decision-makers are appointed by the UNCC Governing Council upon nomination by the United Nations Secretary General. 103 A similar approach has been adopted by the Iran-US Claims Tribunal where Iran and US each appoint three members and those six members appoint the remaining three third-country members, designating one of them as President of the Tribunal. If they fail to agree on the three other Members and the President, they shall be named by the appointing authority designated by the Secretary-General of the PCA at The Hague. The Iran-US Claims Tribunal maintains the party-appointed arbitrator but like investment treaty arbitration mandates that all members maintain independence. Even though the Tribunal operates under the UNCITRAL Rules, which require arbitrators to be impartial and independent, there have been suggestions that the partisan elements are not wholly absent from the Iran-US Claims Tribunal and that some of the members have ‘had in reality a different conception of the relationship between partyappointed arbitrators and their governments’. See Richard M Mosk, ‘The Role of Party-Appointed Arbitrators in International Arbitration: The Experience of the Iran-United States Claims Tribunal’ (1988) 1 Transnational Law 253, 268–269. 104 See, for example, ICSID Convention, art 14(1). 105 See ibid art 57; UNCITRAL Rules, art 12.

Evolution from international claims commissions

131

biased.106 Like the party-appointed arbitrator in international claims commissions, there are accusations that such arbitrators in investment treaty arbitration are partial. The bias, however, is not linked to the nationality of the arbitrator but rather it is based on the arbitrator’s tendency to make decisions that are either state-friendly or investorfriendly. This kind of polarization did not exist in international claims commissions. Thus, the debate regarding arbitrators’ partiality towards their appointing party still exists but instead of the debate being focused on the nationality of the arbitrator it is now centered on whether the arbitrator is state- or investor-friendly. E. Summary From the inception of modern international arbitration in the Jay Treaty to its renaissance in investment treaty arbitration, the role of the arbitrator has changed from one that relies on conciliatory or diplomacy practices to a system based on adjudicatory practices. To begin with, the Jay Treaty Commissions were partisan bodies composed entirely of nationals of both parties. From here, international arbitration inserted a neutral third party into the panel. This occurred either as an umpire, who made a decision only when the other arbitrators could not, or neutral third-party decision-makers, who made the decision alongside the party-appointed arbitrators. Today, investment treaty arbitration includes one or three-person panels where all the arbitrators, whether party-appointed or whether they are the chairperson, are required to be neutral. If the neutrality of the arbitrator is questioned, the challenging party has the right to seek disqualification of the arbitrator. The introduction of a challenge mechanism is another step in the strengthening of the judicial character of international arbitration. The evolution of the composition of the arbitral tribunal in international claims commissions to investment treaty arbitration is one that is gradual and occurred incrementally over time. In tracing the composition of the commission from the Jay Treaty and Alabama Claims Commissions, to the umpire model, all the way to investment treaty arbitration, there is proof not only of a relationship between international claims commission and investment treaty arbitration but also strong evidence 106 See, for example, Jan Paulsson, ‘Moral Hazard in International Dispute Resolution’ (2010) 25 ICSID Review 339. Albert Jan van den Berg, ‘Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration’ in Mahnoush H Arsanjani et al (eds), Looking to the Future: Essays on International Law in Honor of W. Michael Riesman (Brill Nijhoff 2010) 821.

132

International investment law and history

that investment treaty arbitration is not a post-World War II creation but instead is an evolution from earlier dispute settlement models.

VI. DESCENT WITH MODIFICATION English naturalist Charles Darwin proposed that evolution is descent with modification from a common ancestor. In response to changing environments, descendants mutate. The surviving mutations are then passed forward to the next generation to encounter new environments. This process of adaptation is known as natural selection.107 Darwin proposed that instances of natural selection were to be found throughout history. His study of the natural development of finches living on the Galápagos archipelago is perhaps the best-known example of his theory of evolution. The Galápagos finches downsized their beak in order to get small nuts and seeds more efficiently, after a larger finch species arrived on the islands and began competing for food. Likewise, after the Industrial Revolution, the peppered moth changed from a light, mottled colouring to a dark variation as a result of the airborne pollution in industrial areas that blackened the birch tree, the natural home of the moth. Similarly, the blue mussels responded to the Asian shore crab by developing a thicker shell to protect against its new pesky predator. Like the Galápagos finches, the peppered moth, and the blue mussels, international claims commissions have evolved over time in response to a changing environment and, through various mutations, resulted in the origin of a new species: investment treaty arbitration. Although it has similarities with its common ancestor, investment treaty arbitration has made important modifications in order to ensure its own survival. Broadly speaking, investment treaty arbitration has made four important mutations. First, the claims that come within the scope of an investment treaty arbitration are much wider. It not only covers claims arising out of war and civil unrest but also deals with claims involving alleged breaches of contracts, revocation of licences or permits, alleged direct or indirect expropriation, changes to domestic regulatory frameworks, tax measures, and others. Second, the status of the individual in investment treaty arbitration is strengthened. The foreign investor has the procedural right to bring a 107

Francisco J Ayala, ‘Darwin and the Scientific Method’ (2009) 106 Proceedings of the National Academy of Sciences of the United States of America 10037.

Evolution from international claims commissions

133

claim directly against a state in an international forum, obviating the need to rely on diplomatic channels. Third, investment treaty arbitration can be considered an instrument of war prevention, but it has many other functions. In moving away from a system of resolving disputes based on power – whether through gunboat diplomacy or other methods of violence – to a system based on law, investment treaty arbitration allows states and foreign investors to resolve disputes in a peaceful manner and maintain an economic relationship. Additionally, as a structure of global governance, arbitral tribunals by resolving disputes, influence future conduct by the respondent state as well as other states within the international investment law system. Fourth, unlike international claims commissions that dealt with the solution of disputes that had already occurred, investment treaty arbitration charts new, unforeseeable ground by granting investors standing prospectively, for events that may occur, or measures that may be enacted, in the future. States consequently must be more proactive than before. This may account for the movement towards more elaborate investment agreements with greater specificity, clarifications, exceptions, and carve-outs, and the gradual refinement of substantive investment protection standards. Investment treaty arbitration has also evolved substantially in respect to the composition of the decision-makers. It is on this point where the most radical evolution can be detected. Over time, there has been a strengthening in the independence and impartiality of arbitrators. This has occurred gradually with the reliance on neutral, third party decisionmakers – whether as consulting experts, umpires, or full-fledged arbitrators – and the changing character of party-appointed arbitrators from national representatives to neutral parties. The addition of a challenge mechanism to investment treaty arbitration can be seen as the next step in the gradual strengthening of independence and impartiality of arbitrators. Alongside this evolution, there has also been a judicialization of international arbitration. Traditionally, arbitrators sat as representatives of the two countries to the dispute and they functioned as negotiators, advocates and diplomats. Today, the judicial element is more prominent. Arbitrators are guided by standardized procedural rules and engage in sophisticated methods of decision-making. Arbitrators rely on their predecessor’s rulings, promote transparency of arbitral proceedings and arbitral awards, and offer an international forum for the resolution of international disputes by neutral, third-parties based on the rule of law. But even with the gradual strengthening of neutrality of arbitrators and a judicialization of international arbitration, there are certain problem

134

International investment law and history

areas that have been merely rebranded. The debate surrounding partyappointed arbitrators, for example, has shifted from bias based on nationality to bias based on an arbitrator’s friendliness towards investors or states. Further investigation into the practice of rebranding ‘old controversies’ may elucidate certain regressions, rather than evolutions, in investment treaty arbitration, which would be entirely consistent with the progress-evolution dichotomy discussed at the beginning.108 The Galápagos finches grew smaller beaks, the peppered moth changed colour, and the blue mussels thickened their shells. International dispute settlement has also changed over time. This chapter has shown one evolutionary pathway between international claims commissions and investment treaty arbitration. In showing a historical connection between these two dispute settlement bodies, this chapter challenges the idea that international investment law is a new area of law that suddenly came about post-World War II. Instead it has shown that investment treaty arbitration maintains strong remnants of the past. This does not mean, however, that international claims commissions are inferior to investment treaty arbitration nor does it infer that international claims commissions are dead. In fact, the Eritrea-Ethiopia Claims Commission, created in 2000, is a recent example of the use of international claims commissions in modern times. This Commission was established to decide claims for loss, damage and injury resulting from the border conflict between the two countries. Even though the popularity of international claims commissions has diminished, while the use of investment treaty arbitration has flourished, there is still a need, in certain environments (for example, post-conflict situations), to rely on earlier models. Historical research on international dispute settlement bodies is important as a way to understand and explain change over time, rather than to engage in a search for origins or the ‘big bang’. The comparison in this chapter between international claims 108 The idea that the history of private-public arbitration shares a circular trajectory with present-day private-public arbitration is one that needs further development and research. Instead of narratives of progress or decline, I posit that there is continuity between private-public arbitration as a historical phenomenon and present-day practice in regard to a likeness of problems and likeness in suggested reforms. For example, the problems in the present (for example, independence and impartiality of arbitrators, inconsistent and incoherent decisions, transparency and confidentiality, vulnerable government policy space) and the call for reform (for example, establishment of permanent arbitration institutions, tenured arbitrators, third party participation, and the need for the exhaustion of local remedies rule) are merely recycled (or rebranded) ideas from the past.

Evolution from international claims commissions

135

commissions and investment treaty arbitration is an example of using historical research to help understand institutional change in international dispute settlement.

5. History and international law: Method and mechanism – empire and ‘usual’ rupture Kate Miles The histories of international investment law are many and varied and, just as with historical research into international law more generally, there are innumerable aspects with which to engage. Explorations into those possibilities for international investment law have, however, been somewhat limited. Until relatively recently, in-depth analysis into the history of the law on foreign investment protection has tended to concentrate on the post-1959 era of bilateral investment treaties (BITs).1 Within international law, of course, there have been well-established areas of historical research for some time,2 but, even then, there has, of late, been an energetic 1 1959 being the year in which the first BIT was signed, that is, the Treaty between the Federal Republic of Germany and Pakistan for the Promotion and Protection of Investments (signed 25 November 1959, entered into force 28 April 1962) (1963) 457 UNTS 23; exceptions include Charles Lipson, Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (University of California Press 1985); discussion of pre-1959 is included in M Sornarajah, The International Law on Foreign Investment (3rd edn, Cambridge University Press 2010); and Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International 2009). Recent exceptions include Kenneth J Vandevelde, Bilateral Investment Treaties: History, Policy, and Interpretation (Oxford University Press 2010); Michael Waibel, Sovereign Defaults Before International Courts and Tribunals (Cambridge University Press 2011) and Kate Miles, The Origins of International Investment Law; Empire, Environment and the Safeguarding of Capital (Cambridge University Press 2013). 2 See, for example, Arthur Nussbaum, A Concise History of the Law of Nations (The Macmillan Company 1954); JHW Verjijl, International Law in Historical Perspective (Sijthoff 1968–1998) vols I–XI; James Brown Scott, The Spanish Origins of International Law: Francisco de Vitoria and His Law of Nations (Clarendon Press 1934); William Grewe, Epochs of International Law

136

Method and mechanism – empire and ‘usual’ rupture

137

resurgence of interest in its history, leading to the so-called contemporary ‘turn to history’ within international law.3 This volume contributes to the redressing of that imbalance, seeking to bring international investment law into those wider discussions on history and international law. It is within that context that this chapter considers methodological questions on the role of historical research in international law and addresses recent controversy surrounding the greater engagement of legal scholars with the history of international law.4 In particular, I examine the adoption of a historical approach as an instrument of critique and argue for its value in both creating new understandings of historical periods and in illuminating the condition of modern international law. In applying this approach to investment law, I was asked to explore the role of imperial conceptualizations and practices in the emergence of foreign investment protection law. And, for me, it is clear that historical enquiry of this nature not only has a presence and importance in and of itself, illuminating a particular era, but, in this instance, also in drawing attention to the profound impacts of the past on the law we have today. It is a question I have explored elsewhere in depth5 and is one that draws on the work of scholars who identify with the Third World Approaches to International Law (TWAIL) mode of critique.6 The (first publ 1984, Michael Byers tr/ed, Walter de Gruyter 2000); Martti Koskenniemi, The Gentle Civilizer of Nations: The Rise and Fall of International Law 1870–1960 (Cambridge University Press 2001); David Kennedy, ‘International Law and the Nineteenth Century: History of an Illusion’ (1997) 17 Quinnipiac Law Review 99; David Bederman, International Law in Antiquity (Cambridge University Press 2001). 3 See the term ‘turn to history’ used in Alexandra Kemmerer, ‘Völkerrechtsgeschichten – Histories of International Law’ EJIL:Talk!, 6 January 2015 accessed 22 February 2015; see the use of this specific term also in Arnulf Becker Lorca, Mestizo International Law: A Global Intellectual History 1842–1933 (Cambridge University Press 2015) 17. 4 See the discussion in Kemmerer (n 3); see also Marcus M Payk, ‘The History of International Law – or International Law in History? A Reply to Alexandra Kemmerer and Jochen von Bernstoff’ EJIL:Talk!, 8 January 2015 accessed 22 February 2015. 5 Miles (n 1). 6 See, for example, Antony Anghie, Imperialism, Sovereignty and the Making of International Law (Cambridge University Press 2004); Sundhya Pahuja, Decolonising International Law: Development, Economic Growth and the Politics of Universality (Cambridge University Press 2011); see Karin Mickelson, ‘Rhetoric and Rage: Third World Voices in International Legal Discourse’ (1998) 16 Wisconsin International Law Journal 353; see also James T

138

International investment law and history

argument that the emergence of modern international law is intricately bound up with colonialism and the practices of ‘informal empire’ is a controversial one;7 even more so, is the notion that that past still resonates within international law in the 21st century.8 In this chapter, I examine those debates. In my view, not only are the foundations of modern international law deeply entwined with the processes of European commercial and political expansionism that occurred from the 16th to 19th centuries, but those imperial roots have also influenced international law in ways with which we are only just beginning to engage. One aspect of this is the use of mechanisms of international law in the protection of property, such as principles, treaties, arbitration, and, indeed, the use of language as a mechanism. In exploring this as a repeated process, I examine the intellectual legacy of imperialism for international investment law. It is a nuanced relationship and one that engages the intellectual origins of core concepts underpinning modern foreign investment protection law and the conceptual links between the writings of Vitoria,9 Grotius,10 Vattel11 and the principles of international law that found form in the 18th and 19th centuries. Gathii, ‘Third World Approaches to International Economic Governance’ in Richard Falk et al (eds), International Law and the Third World: Reshaping Justice (Routledge 2008) 255. 7 See for a post-colonial critique of international law, James T Gathii, ‘Neoliberalism, Colonialism and International Governance: Decentering the International Law of Governmental Legitimacy’ (2000) 98 Michigan Law Review 1996; see for the contrasting view, Georg Cavallar, ‘Vitoria, Grotius, Pufendorf, Wolff and Vattel: Accomplices of European Colonialism and Exploitation or True Cosmopolitans?’ (2008) 10 Journal of the History of International Law 181. 8 For views contrary to the post-colonial critique embodied in the work of Anghie, Pahuja and Gathii, see Cavallar (n 7); see also Brad R Roth, ‘Governmental Illegitimacy and Neocolonialism: Response to Review by James Thuo Gathii’ (2000) 98 Michigan Law Review 2056; Pablo Zapatero, ‘Legal Imagination in Vitoria: The Power of Ideas’ (2009) 11 Journal of the History of International Law 221. 9 Francisco de Vitoria, ‘On the American Indians’ (lecture delivered in 1539) in Anthony Pagden and Jeremy Lawrence (trs/eds), Vitoria: Political Writings (Cambridge University Press 1991) 231. 10 See, for example, Hugo Grotius, Commentary on the Law of Prize and Booty (1604) (Gwladys L Williams tr, Martine Julia van Ittersum ed, Liberty Fund 2006). Grotius’ manuscript, De Jure Praedae, written in 1604, remained unpublished until 1868, when it was first published in Latin, translated by Hendrik G Hamaker, then published in English in 1950 translated by Gwladys Williams. 11 Emer de Vattel, The Law of Nations or Principles of the Law of Nature Applied to the Conduct and Affairs of Nations and Sovereigns (1758) (English tr Anon 1797, Béla Kapossy and Richard Whatmore eds, Liberty Fund 2008).

Method and mechanism – empire and ‘usual’ rupture

139

In this chapter then, I consider the questions of the colonial or imperial pedigree of international investment law through the prism of mechanism, structure, concept, and language both past and present. In particular, I draw attention to the currently pervasive view that the introduction of BITs and investor-state arbitration was so different structurally from what had gone before as to separate 1959 onwards from previous centuries. I argue instead that, when the long history of changing mechanisms protecting foreign investment is appreciated, the advent of investor-state arbitration was not, in fact, a major change, but a ‘usual’ change. Rather than causing a rupture disconnecting current international investment law from its history, the introduction of investorstate arbitration, in fact, brought it closer – the vocabulary of private rights and the privileging of commerce and property embedded within that branch of international law was further entrenched when the means of enforcement shifted from state to private investor. In this first section, however, I address questions on the nature of historical research in international law, an aspect essential for an understanding of the broader intellectual task undertaken in this volume.

I. HISTORIES OF INTERNATIONAL LAW Even the very act of researching into the history of international law has recently generated controversy. The ‘turn to history’ has, at times, sparked discord as between scholars originating from the legal sphere and those from history, highlighting a difference in approach. I have in mind, in particular, criticisms aired on EJIL: Talk! in the exchange between Alexandra Kemmerer, Jochen von Bernstorff and Marcus Payk.12 For me, the notable aspect was the somewhat disparaging tone that came through in Payk’s comments, in essence, that, for lawyers, there is too little concern for the context or the ‘story’ that needs to be told in historical research; that there is too much attention given to the technicalities of the law; and that ‘lawyers, even when working on historical topics, are predominantly interested in understanding the law itself. This, of course, is a legitimate source of scholarly interest for jurists – but historians might find something lacking.’13 12 See Kemmerer (n 3); Payk (n 4); Jochen von Bernstorff, ‘German International Law Scholarship and the Postcolonial Turn’ EJIL:Talk!, 7 January 2015 accessed 22 February 2015. 13 Payk (n 4).

140

International investment law and history

Rather oddly, Payk goes on to advocate that a historian’s lack of legal training is actually an advantage in researching the history of international law as ‘legal terms, thought patterns and actions are looked at unburdened by the usual disciplinary filter’.14 On this, I take a very different view. Without the lawyer’s eye for the technicalities, without that understanding of the internal workings of the law, the significance of the law can be diminished or even lost. It can lead to misunderstandings and fanciful re-interpretation. On the other hand, the conventional lawyer’s preoccupation with ascertaining and presenting merely what the law is at a particular time, without a social, political, and economic context and without its surrounding ‘story’, can leave a disparate series of laws and no understanding of their wider significance. It is interesting, however, that, whilst Payk seems to locate the disconnect between historians and international law scholars in their different reasons for undertaking research into the subject, he does not express concerns at their methodological approaches to historical research. In fact, he states that: Lawyers of a historical bent are just as familiar with, and adept at, the methodological standards of the historiographical approach, encompassing proximity to and critique of sources, transparency in terms of approach and the assumptions made, insight into the historian’s own subjectivity and into the construed nature of all narratives.15

A contrary view is taken by Randall Lesaffer. Lesaffer comes at these issues not from the perspective of a different discipline, but from that of a different branch of law, identifying with the contextualist school and comparing the scholarship of ‘professional legal historians’ with the ‘amateurism’ of international lawyers, which is said to be evident in their concern for what the past means for the present.16 Criticism of this nature levied at international lawyers stems from the Quentin Skinner mode of contextualism that has dominated historical enquiry for decades.17 It has at its core an abhorrence of anachronism,18 emphasizing instead the need 14

ibid. ibid. 16 Randall Lesaffer, ‘International Law and Its History: The Story of an Unrequited Love’ in Matthew Craven et al (eds), Time, History and International Law (Martinus Nijhoff 2007) 27, 35. 17 See his seminal article, Quentin Skinner, ‘Meaning and Understanding in the History of Ideas’ (1969) 8 History and Theory 3. 18 ‘Anachronism’, as used by historians, is a term indicating that a thing, idea, or thought is understood and presented not in its correct historical setting. 15

Method and mechanism – empire and ‘usual’ rupture

141

for exacting historical methodology through which texts, events, and actors are examined in their context; texts are read ‘as the contemporaries of the authors would’.19 In this way, it is said, an authentic understanding of the subjects can emerge. To do otherwise, is to produce a history ‘of the worst kind’,20 one that is deeply imbued with modern day concerns and unrepresentative of the subject era as it actually was. Despite historians’ insistence on context and the suggestion that this creates a pathway to understanding objective truths about the past, to a certain degree, the particular history told can only ever reflect the historian and their choices – those questions asked, those left out, the assumptions, pre-understandings, objectives, and particular lens through which the subject is viewed.21 The need to appreciate the significance of discontinuities as well as continuities has also been identified as a part of this process; an acknowledging of the absences and exclusions, as well as the inclusions, in the historical research produced to date and the narratives that have emerged, remain dominant, or are now challenged.22 For this reason, Thomas Skouteris argues that methodological criticisms from advocates of absolute forms of contextualism and their ‘truthclaims’ are misconceived and can, in fact, perpetuate historical accounts operating as the ‘handmaiden to power’.23 Instead, he discusses schools of thought that frame history as a series of discourses, stating: Truth, or rather a truth-claim, is a discursive construction. The past, the object of enquiry of the science of history, has already occurred, it is gone, and it is brought to us not as actual events but as historiography, i.e., the work of historians. History and the past are therefore two different things. The same historical fact can be read differently by different discourses (e.g. law, history, sociology, economics, art history), while within each discourse there are different readings over space and time, none of which are decisive.24 For example, it is an error of anachronism to attribute 21st century concerns to individuals living in earlier centuries. 19 Lesaffer (n 16) 38. 20 ibid 33–35. 21 Martti Koskenniemi, ‘Histories of International Law: Significance and Problems for a Critical View’ (2013) 27 Temple International & Comparative Law Journal 215, 230–232. 22 ibid; see also the discussion on methodology in Koskenniemi (n 2) 8–10; see also Thomas Skouteris, ‘Engaging History in International Law’ in José María Beneyto and David Kennedy (eds), New Approaches to International Law: The European and the American Experiences (TMC Asser Press 2012) 99, 100–101. 23 Skouteris (n 22) 100–101, 112. 24 ibid 112.

142

International investment law and history

Such approaches are, in my view, particularly pertinent for the relatively recent explorations into the history of international investment law, the challenges to the traditional narrative that this has brought, and the negative responses such challenges have engendered. But I will come back to these connections in later sections. For the moment, the focus is on historians and lawyers and the discord that has at times arisen within the disciplines. Contextualism may, however, simply have a different manifestation for international lawyers. Engaging with history should, indeed, ensure that ‘the voice of the past’ is heard through a consideration of actors and events on their terms, in their contexts, but, as Martti Koskenniemi suggests, it should also involve attempts to gain deeper understandings of the present.25 This reflects that, for lawyers, there is another ‘story’ to tell. Layered on to the story with which contextualist historians are concerned, international lawyers also need to examine how those concepts and norms have shaped the law and whether they continue to do so. Anne Orford encapsulates this distinction, arguing that: The self-imposed task of today’s contextualist historians is to think about concepts in their proper time and place – the task of international lawyers is to think about how concepts move across time and space. The past, in other words, may be a source of present obligations.26

This additional concern does not signal an inherent disregard for the historical setting, nor an indifference to understanding what happened in the past, but rather seeks to add a further layer of analysis, another dimension to our understanding. This, perhaps, is the root of historians’ scepticism at the approach of international lawyers engaging in historical research – a lack of appreciation of the additional task of lawyers. Because law is not an entity located solely in the past, far from committing ‘sins’ of historical research, research into the history of international law requires a consideration of how those concepts, principles, and norms have evolved and shaped the ‘now’ of the law. International law is a living, breathing thing and research into its history needs to reflect that nature.27 25

Koskenniemi (n 21) 226–227, 230–232. Anne Orford, ‘The Past as Law or History? The Relevance of Imperialism for Modern International Law’ (2012) IILJ Working Paper 2012/2, History and Theory of International Law Series, 9 accessed 10 June 2015. 27 ibid. 26

Method and mechanism – empire and ‘usual’ rupture

143

This is not to say that events or doctrines should be labelled artificially with current terminology and swathed in modern conceptualizations, such as the example Koskenniemi gives of Vitoria being hailed as a ‘human rights activist’ when he clearly was not.28 But a re-evaluation of our understanding of historical events or a consideration of how concepts and principles have evolved or shaped contemporary law is not, in itself, anachronism, but rather fulfils an equally important objective for those examining the history of international law. For this reason, in drawing on the approaches of Koskenniemi and Orford, in particular, I have sought, in this chapter, to bring the historian’s desire to tell a story into international investment law, an area that has traditionally been very much the domain of practising commercial lawyers, to contextualize the writings, events, and actors that informed the emergence of this field, and to delve into that crucial ‘second layer’ for international lawyers and consider the relevance of the past for international investment law in the 21st century.

II. INTERNATIONAL LAW AND IMPERIALISM Much as the contemporary fragmentation of, and specialization within, international law continues to be emphasized,29 historically, this was not a disparate field. Indeed, the emergence of international investment law is not, in fact, a separate story from that of international law more generally. Nor for that matter is the early development of modern international law governing warfare, trade or territory. Rather, the current international law framework and its constituent parts have a shared history in evolving out of the creation, and then practice, of modern states, the theorizing of scholars in the 16th to 19th centuries, the language of international law, and the commercial and political expansionism embodied in formal colonial acquisition of territory and the more informal approach of imperialism. A. International Law, Investment Law: One History With respect to investment law, the shift in structural direction seen in the mid-20th century has been treated somewhat within the field as a 28

Koskenniemi (n 21) 226–227. See, for example, ILC, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law’ (13 April 2006) UN Doc A/CN.4/L.682. 29

144

International investment law and history

substantive break with this past. It is as if the adoption of BITs and the later introduction of a new procedural dispute settlement mechanism, investor-state arbitration, marks a rupture of such a fundamental nature that the evolutionary history of the field is erased and has no part to play in the 20th and 21st century manifestation of foreign investment protection. A clean, bright, shiny, new start. Except that was not, and is not, the case. The legal framework governing foreign investment in the 21st century is constructed through more than 3,000 BITs and free trade agreements with investment provisions.30 Although the BIT format came into being in the late 1950s and 1960s, it is, perhaps, unsurprising that core principles contained in those agreements have a significantly longer history – the BIT and International Centre for Settlement of Investment Disputes (ICSID)31 treaty regimes were developed in response to the postcolonial decolonizations of the mid-20th century and were designed to maintain traditional levels of protection for foreign investment enjoyed in the 19th and early 20th centuries.32 Accordingly, whilst there certainly were new elements in such treaties, it is also clear that their substantive principles were not conjured out of thin air. Rather, BITs represented a development on previous mechanisms for the protection of foreign investors and their capital, namely the friendship, commerce and navigation (FCN) treaties of the 17th, 18th, and 19th centuries33 and customary international law principles on the

30 UNCTAD, Investment Policy Hub accessed 8 June 2016. 31 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) (signed 18 March 1965, entered into force 14 October 1966) (1966) 575 UNTS 159. 32 Newcombe and Paradell (n 1) 19–22, 41–43; Anghie (n 6) 236–237; see the discussion in Ibironke T Odumosu, ‘The Law and Politics of Engaging Resistance in Investment Dispute Settlement’ (2007) 26 Penn State International Law Review 251, 255; see also the discussion in Ibrahim FI Shihata, Towards a Greater Depoliticization of Investment Disputes: The Roles of ICSID and MIGA (ICSID 1993); see the justifications for ICSID in Aron Broches, ‘Settlement of Investment Disputes’ (1963 Address to the World Conference on World Peace through Law) in Aron Broches, Selected Essays: World Bank, ICSID, and Other Subjects of Public and Private International Law (Martinus Nijhoff 1995) 161. 33 See, for example, The Treaty of Peace and Commerce between Great Britain and Denmark (signed 13 February 1661) 1901 ATS 24; see also, The Treaty of Amity and Commerce between the United States and France (signed 6 February 1778, entered into force 17 September 1778); Treaty of Friendship,

Method and mechanism – empire and ‘usual’ rupture

145

diplomatic protection of alien person and property. In other words, the move to BITs in the mid-20th century does not constitute an intellectual break with 19th century principles of foreign investment protection, but, rather, it embodies a continuation of them, albeit in a different form. In reflecting upon this, the importance of understanding those intellectual origins becomes clear. And the role of imperialism in the development of core principles of foreign investment protection law also becomes inescapable. There have, of course, been numerous inter-nation trading systems, practices, and treaties throughout the centuries, in many parts of the world, some dating back thousands of years.34 The emergence of modern international law as a system, however, is derived from the application of intra-European reciprocal arrangements to nonEuropean territories. It was not, of course, an orderly or methodical process of extension of concepts and law, and nor was it the inexorable outcome as professed by positivist accounts of the emergence and universalizing of European legal arrangements into international law.35 Rather, it was an uneven, multi-layered process; one that was intricately bound up with the violence, brutality and subjugation of colonialism.36 On another level, the development of international law was also a more nuanced experience than that generally acknowledged, with scholars such as Arnulf Becker Lorca recently drawing out the complex legal relationships of intellectual exchange that, in fact, imbued the interaction between non-European and imperial nations.37 That said, however, the emergence of modern international law did also, crucially, entail the projection of particular European discourses and understandings of Commerce and Navigation between the United States of America and the Republic of Paraguay (signed 4 February 1859, entered into force 12 March 1860). 34 See, generally, Bederman (n 2); see also Lauren Benton, Law and Colonial Cultures: Legal Regimes in World History 1400–1900 (Cambridge University Press 2002); see Charles H Alexandrowicz, An Introduction to the History of the Law of Nations in the East Indies: 16th, 17th and 18th Centuries (Clarendon Press 1967) 97–99; Om Prakash, ‘Trade in a Culturally Hostile Environment: Europeans in the Japan Trade, 1500–1700’ in Om Prakash (ed), European Commercial Expansion in Early Modern Asia (Ashgate 1997) 117. 35 See the discussion in Anghie (n 6) 3–6. 36 ibid 211–216; Lipson (n 1) 12–16; James T Gathii. ‘Imperialism, Colonialism, and International Law’ (2007) 54 Buffalo Law Review 1013. 37 Arnulf Becker Lorca, ‘Universal International Law: Nineteenth Century Histories of Imposition and Appropriation’ (2010) 51 Harvard International Law Journal 475.

146

International investment law and history

property and law in what was, effectively, a jurisdictional contest of legal systems as well as a political and commercial one.38 From this base, the law of nations grew out of a complex set of circumstances spanning the 16th to 20th centuries and, at its inception, was used to advocate for universally applicable rules on sovereignty, warfare, territory, property, acquisition, trade, and investment protection.39 And the rules that ultimately crystallized into law primarily arose out of that engagement between non-European and European nations and the consequential competition between European states for the territorial and commercial benefits of that engagement.40 I have argued elsewhere,41 that it is the conceptualizations that informed the development of those rules, together with the processes themselves of imposition, assertion, and creation that continue to find form not only within modern international law, but also within contemporary international investment law. In this chapter, I explore further the nature of those concepts and processes and the mechanisms through which they manifested in the 16th to 19th centuries. B. Postcolonial Critical Theory and Controversy The work of postcolonial critical theorists such as Antony Anghie, James T Gathii, Sundhya Pahuja, and Balakrishnan Rajagopal explores the role of colonialism and the more informal imperialism in the shaping of fundamental doctrines of international law.42 In particular, such scholarship has drawn attention to the ways in which, in the context of

38

Benton (n 34) 10–11; Anghie (n 6) 32–33, 115; Miles (n 1) 21–22; Lipson (n 1) 16, 20–21; Andrew Fitzmaurice, Sovereignty, Property and Empire, 1500–2000 (Cambridge University Press 2014) 15–18. 39 See the discussion in Martti Koskenniemi, ‘International Law in Europe: Between Tradition and Renewal’ (2005) 16 European Journal of International Law 113. 40 Anghie (n 6) 2–8; Koskenniemi (n 2) 70–75, 126–130; Antony Anghie, ‘The Evolution of International Law: Colonial and Postcolonial Realities’ (2006) 27 Third World Quarterly 739, 741–742, 745; Peter Fitzpatrick, ‘Terminal Legality: Imperialism and the (De)composition of Law’ in Diane Kirby and Catherine Colebourne (eds), Law, History, Colonialism: The Reach of Empire (Manchester University Press 2001) 9. 41 Miles (n 1). 42 See Anghie (n 6); Gathii (n 7); Pahuja (n 6); Balakrishnan Rajagopal, International Law from Below: Development, Social Movements and Third World Resistance (Cambridge University Press 2003).

Method and mechanism – empire and ‘usual’ rupture

147

imperialism, the development and application of the doctrine of sovereignty, the expanded doctrine of terra nullius, and the ‘standard of civilization’ within international law served to further the commercial and political objectives of expansionist European nations.43 Such enquiries have involved not only an examination of the colonialism and ‘civilizing mission’ of the 19th century, but also the exploration of the 16th century writings of the School of Salamanca, the Spanish conquest of the Americas, the 17th century treatises of Grotius, the practices of the Dutch East India Company, and their role in the development of international law.44 This form of postcolonial work has engendered controversy. Georg Cavallar, for example, puts forward a rather sweeping dismissal of Anghie’s theories, stating that his ‘thesis of a Western civilizing “project” or “mission” looks like a retrospective construction’.45 Taking a contrary view, he, instead, attributes a ‘moral cosmopolitanism’ to the Salamancans, emphasizing aspects that reflect modern ideas on human rights.46 He also argues that critics of Anghie’s ilk fail to make out the connections between the 18th and 19th centuries and, in some instances, engage in a misleading linear projection of international law moving from ‘good’ to ‘bad’ law, from the ‘cosmopolitan’ to the ‘Eurocentric’.47 On a number of levels, however, this would seem to be a misreading of the postcolonial critique. It is not, as Cavallar suggests, a flattening of very different historical periods and writings under a ‘meta-narrative’ and the creation of false continuities. Rather, it is inviting a re-evaluation of key treatises, prevailing doctrines, and traditional narratives; a reacquainting of international law with its origins in the practices and principles of colonialism; and an exploration of the purposes to which international law was put in different periods and different contexts. Within Cavallar, 43

See Anghie (n 6); Fitzpatrick (n 40); Pahuja (n 6); Koskenniemi (n 2), 126–130; Antony Anghie, ‘Finding the Peripheries: Sovereignty and Colonialism in Nineteenth-Century International Law’ (1999) 40 Harvard International Law Journal 1; Christopher Weeramantry and Nathanial Berman, ‘The Grotius Lecture Series’ (1999) 14 American University International Law Review 1515, 1555–1569. 44 See, for example, Anghie (n 6); see also Brett Bowden, ‘The Colonial Origins of International Law: European Expansion and the Classical Standard of Civilization’ (2005) 7 Journal of the History of International Law 1; Robert A Williams, The American Indian in Western Legal Thought: The Discourses of Conquest (Oxford University Press 1990). 45 Cavallar (n 7) 183. 46 ibid 191. 47 ibid 183–184.

148

International investment law and history

however, there also seems to be a degree of contradiction – somewhat oddly, given his view on postcolonial scholarship and Anghie’s linking of international law and colonialism, he concludes with an assertion that: At the end of the day, it is obvious that debunking Grotius and Vattel as accomplices of European expansion and colonialism is justified. However, we can also discover strong cosmopolitan traditions in some of the international lawyers. Vitoria’s moral cosmopolitanism is incomplete, but still an impressive feat, whereas Pufendorf’s and Wolff’s moral and legal cosmopolitanisms belong to the great intellectual achievements of modern European legal theory.48

Grotius and Vattel bad; Vitoria, Pufendorf and Wolff good? It seems rather simplistic. The veneration of Wolff and Pufendorf in this way also perpetuates a questionable view of history and international law as comprised of great ‘ideas’ enduring over time.49 Furthermore, in projecting a human rights reading onto Vitoria’s texts, Cavallar falls into a version of anachronism – Vitoria could not possibly have intended to convey such a meaning as he was giving his lectures.50 That is not to suggest that strands of thought useful for current human rights theorizing cannot be located within Vitoria, but rather that his lectures were not at the time intended, were not given, and were not used, as a ‘human rights’ treatise. In fact, both Vitoria’s writings and Anghie’s theories are more nuanced than Cavallar’s article suggests. And what is particularly interesting in the exploration of both the writings of theorists and the practices of states during the 16th to 19th centuries is the ascertaining of concepts that emerge and re-emerge, the contexts in which they materialize, and the uses to which those concepts are put in different eras. The enquiry in this chapter does not, however, follow what has been described as a ‘unit-idea’ approach, which assesses a single, stable concept suggesting a false ‘timeless wisdom’, but rather explores concepts as arguments within specific contexts and the particular uses to which those ideas were put.51 Critics of the Quentin Skinner mode of contextualism argue that his approach, when applied in its most narrow 48

ibid 209 (emphasis added). See Koskenniemi (n 28) 219–220. 50 ibid, see Koskenniemi’s discussion of anachronistic framings of Vitoria ibid 226–227; Cavallar (n 7) 191 discusses Vitoria’s ‘ideal of an international society’ and his ‘concept of human rights’. 51 See the discussion on ‘unit-ideas’ in Fitzmaurice (n 38) 19; see also Quentin Skinner, Visions of Politics: Regarding Method (Cambridge University Press 2001) 84–88. 49

Method and mechanism – empire and ‘usual’ rupture

149

form, leaves each context adrift in its own silo, is prone to overlooking dimensions and depths of temporality, and imposes artificial interpretative limitations on the subjects of research.52 To which David Armitage suggests constructing ‘corridors’ so as to connect each context and, in so doing, creates his model of ‘serial contextualism’, establishing provable connections for studies across time.53 As Andrew Fitzmaurice contends, effective ‘transtemporal’ intellectual history asks ‘who was arguing about [a specific concept] and what their circumstances were’.54 But much like the critics of strict contextualism, Fitzmaurice also points to the pitfalls of remaining artificially within constructed boundaries and advocates a combination of the synchronic and diachronic.55 For international lawyers, this is, perhaps, a useful methodological place to begin. As discussed earlier, working with the history of international law is a dual-pronged exercise, requiring an additional layer of analysis to its historical situating. With this in mind, it is particularly valuable to recall again Orford’s words and to emphasise her comments regarding the potential relevance of empire for the present day: The self-imposed task of today’s contextualist historians is to think about concepts in their proper time and place – the task of international lawyers is to think about how concepts move across time and space. The past, in other words, may be a source of present obligations. Similarly, legal concepts and practices that were developed in the age of formal empire may continue to shape international law in the post-colonial era.56

All of which forms the backdrop against which any consideration of international investment law and imperialism must take place. This linking of international law more generally with imperialism has, in my view, particular significance for its investment field – not only in its early concepts, but also in its purpose, practices, vocabulary and mechanisms. And it is this assertion that leads into the exploration in the next section, examining those relationships and the intellectual legacy of imperialism for international investment law.

52 See, for example, Herbert F Tucker, ‘Introduction: Context?’ (2011) 42 New Literary History vii. 53 David Armitage, ‘What’s the Big Idea? Intellectual History and the Longue Durée’ (2012) 38 History of European Ideas 493, 498. 54 Fitzmaurice (n 38) 19 (emphasis in the original). 55 ibid 19–20. 56 Orford (n 26) 2 (emphasis added).

150

International investment law and history

III. PRIVATE RIGHTS AND COMMERCE: CONNECTING THE CENTURIES This section points to the connections between the 17th, 18th, and 19th centuries in the emergence of principles of international law. In particular, I allude to the way in which ideas were taken up and re-modelled depending on their usefulness for interested parties, whether scholar, state or commercial entity. Such an approach situates key theorists within their own contexts, appreciating the particular concerns that drove the development of theories and positions. But this approach also argues that the resurfacing of fundamental ideas about international law at crucial junctures is a process that, in itself, links each of these key centuries in their own way to the modern manifestation of international law – and on into 21st century international investment law. In essence, my argument is that because the story of international investment law is the story of international law, central ideas articulated at key moments in the history of international law were also critical for the formation of investment rules. Of particular significance is the early development of a private rights vocabulary for international law with private property, trade, commerce, and contract at its centre.57 Another is the welding of state and citizen within the structure of the law itself. I argue that the channels through which such key concepts found form are visible in the 16th century School of Salamanca,58 the treatises of Grotius,59 the practices of the 17th and 18th century trading companies, the writings of Vattel,60 the FCN treaties of the 17th, 18th, and 19th centuries,61 and on into the 19th century articulation of the doctrine of diplomatic protection of alien property.62 All of which was also bound up 57 Martti Koskenniemi, ‘Empire and International Law: The Real Spanish Contribution’ (2011) 61 University of Toronto Law Journal 1. 58 Vitoria (n 9) 231. 59 Grotius (n 10). 60 Vattel (n 11). 61 See, for example, US-France Treaty of Amity and Commerce (n 33); Great Britain-Denmark Treaty of Peace and Commerce (n 33); USA-Paraguay Treaty of Friendship, Commerce and Navigation (n 33); The Treaty of Peace and Commerce between the King of Great Britain and the Emperor of Morocco (signed 28 July 1760). 62 See, for example, the writings of Edwin M Borchard, The Diplomatic Protection of Citizens Abroad (The Banks Law Publishing Company 1919); John Westlake, International Law (2nd edn, Cambridge University Press 1910) 327–334; Clyde Eagleton, The Responsibility of States in International Law (The Banks Law Publishing Company 1928) 3, 6, 22; see the arbitral award in The

Method and mechanism – empire and ‘usual’ rupture

151

with the commercial and political expansionism of certain European states from the 16th to early 20th centuries. And, in my view, a recalibration within international law of those central concepts protecting international commerce and property occurred to meet the needs and purposes of each century and its particular actors; a process that continues on into the 21st, most visibly within international investment law. Within that context, it is interesting to note the broader consideration that is already being given to key figures in the historical development of public international law, particularly to the less well-emphasized aspects of their treatises, including, most recently, the private rights character of their work.63 Explorations into the writings of Vitoria, Grotius, and Vattel have led to their re-evaluation, including debunking myths of ‘fathers’ of international law, bringing to light the partial nature of their research, and examining the connections with imperialism.64 Of particular interest for both international law and its sub-set international investment law, however, is the private rights nature of certain theories embedded within their writings. Delagoa Bay Railroad Arbitration in John Bassett Moore, A History and Digest of the International Arbitrations to which the United States has been a Party (Government Printing Office1898) vol II, 1865; see also the views expressed in diplomatic correspondence concerning Britain (Finlay) v Greece in Viscount Palmerston to Sir Edmund Lyons, British Envoy at Athens (7 August 1846) in (1849–50) 39 British and Foreign State Papers 431–432; see also the correspondence between Secretary of State Baynard and Connery (1 November 1887) in Compilation of Reports of Committee on Foreign Relations, U.S. Senate, 1887 (Government Printing Office 1887) 751, 753; see Claims of Mr Pacifico upon the Portuguese Government (Great Britain v Greece) (1798-1855) 1 Recueil des arbitrages internationaux 580; Jackson H Ralston, Venezuelan Arbitrations of 1903 (Government Printing Office 1904); see also correspondence concerning the Sicilian Sulphur Monopoly Case, Britain v The Kingdom of the Two Sicilies in (1839–40) 28 British and Foreign State Papers 1163. 63 Koskenniemi (n 57); Ileana M Porras, ‘Constructing International Law in the East Indian Seas: Property, Sovereignty, Commerce and War in Hugo Grotius’ De Iure Praede—The Law of Prize and Booty, or “On How to Distinguish Merchants from Pirates”’ (2006) 31 Brooklyn Journal of International Law 741, 742–743, 744–747; Kate Miles, ‘International Investment Law and Universality: Histories of Shape-Shifting’ (2014) 3 Cambridge Journal of International Commercial Law 986, 995–997. 64 Anghie (n 6); Porras (n 63); Koskenniemi (n 57); Miles (n 63); Martine Julia van Ittersum, Profit and Principle: Hugo Grotius, Natural Rights Theories and the Rise of Dutch Power in the East Indies (1595–1615) (Martinus Nijhoff 2006).

152

International investment law and history

A. Vitoria, Grotius and Vattel: Conceptual Foundations 1. Vitoria Core aspects of Vitoria’s theories on rules of international law linked trade, warfare, and acquisition of property. Trade was not only regarded as lawful, but a right, the corollary of which was that a refusal to trade with the Spaniards was a legitimate justification for warfare.65 Fusing private commercial interests and state interests within the structure of the law in this way was combined by Vitoria with a theory of individual rights grounded in the concepts of dominium and ius gentium, which effectively established that indigenous peoples possessed territorial and property rights, of which they could, in turn, be dispossessed on a refusal to trade.66 Vitoria sought to rationalize colonial conquest, the seizure of gold and other resources, and the establishing of sophisticated global trading systems through the mechanism of universally applicable rules of law. In so doing, he created a structure for an international law grounded in the protection of property, trade, commerce, and warfare.67 And whether by design or not, the structure set in train a discourse that would not only place private rights at the centre of international law, inexorably connecting its emergence with colonialism, but would also provide the conceptual basis for one of the most explicitly articulated modern manifestations of this private rights foundation—the international rules on the protection of foreign investment. With that point in mind, it should be noted that although the analysis in this chapter is not dependent on substantive links between treatises produced against a background of imperialism and 21st century international investment law, there are, in fact, direct references in Vitoria if investment lawyers look. It would be interesting for 21st century investment lawyers interpreting BITs today to reflect upon the fact that their core treaty principles did not materialize with the advent of BITs in 1959,

65

Vitoria (n 9) 231, 252–264, 278–282; see the discussion in Koskenniemi (n 57); Koskenniemi (n 21); Antony Anghie, ‘Francisco de Vitoria and the Colonial Origins of International Law’ (1996) 5 Social & Legal Studies 321, 322. 66 Vitoria (n 9) 231, 242–246; Francisco de Vitoria, ‘On Civil Power’ (lecture delivered in 1528) in Pagden and Lawrence (n 9) 1, 40; see the discussion in Koskenniemi (n 57) 14–17. 67 Vitoria, ‘On Civil Power’ (n 66) 40; see the discussion in Koskenniemi (n 57).

Method and mechanism – empire and ‘usual’ rupture

153

but rather are articulated quite clearly in a 16th century Spanish exposition on rights and obligations under international law during colonial incursions: MY THIRD PROPOSITION is that if there are any things among the barbarians which are held in common both by their own people and by strangers, it is not lawful for the barbarians to prohibit the Spaniards from sharing and enjoying them. For example, if travellers are allowed to dig for gold in common land or in rivers or to fish for pearls in the sea or in rivers, the barbarians may not prohibit Spaniards from doing so. But the latter are only allowed to do this kind of thing on the same terms as the former, namely without causing offence to the native inhabitants and citizens. The proof of this follows from the first and second propositions. If the Spaniards are allowed to travel and trade among the barbarians, they are allowed to make use of the legal privileges and advantages conceded to all travellers.68

Somewhat reminiscent of the national treatment and most-favourednation treatment standards, no? 2. Grotius Working in the 17th century, Grotius is, of course, known for his treatises De Jure Praedae (the law of prize and booty),69 De Mare Liberum (freedom of the high seas),70 and De Jure Belli ac Pacis (the law of war and peace).71 Such works set out his theories for a universally applicable international law and were designed to provide a comprehensive legal framework for the system of states emerging at the time.72 However, it is also quite clear that a significant amount of Grotius’ work was driven by direct engagements from the Dutch East India Company (VOC).73 His 68

Vitoria (n 9) 231, 280. Grotius (n 10). 70 Hugo Grotius, The Free Sea (first published 1609, Richard Hakluyt tr, David Armitage ed, Liberty Fund 2004). 71 Hugo Grotius, The Rights of War and Peace ((first published 1625), Jean Barbeyrac French tr (1724), on which the 1738 John Morrice English translation was based, Richard Tuck ed, Liberty 2005). 72 ibid, ‘Prolegomena’ 75. 73 In Dutch, the Company’s name was the ‘Verenigde Oostindische Compagnie’, or ‘the United East India Company’, hence it being known as the VOC; see Die Staten Generael der Vereenichde Nederlanden, Octrooi van de Generale Vereenichde Geoctroyeerde Compagnie (Charter of the VOC, Granted by the States-General of the United Netherlands) (20 March 1602). See the letter of Jan ten Grootenhuys, merchant and VOC shareholder, younger brother of the VOC 69

154

International investment law and history

law on prize and booty, in particular, was written in a political and commercial context of brewing competitive colonialism, intense trading rivalries, and military conflict between the Dutch, Portuguese, Spanish, French, and English. It is Grotius’ defence of the VOC, however, that seems to fuel its focus on private rights.74 Koskenniemi points to Vitoria and other Salamancan scholars, such as Suárez, for the conceptual foundations of Grotius’ private rights-based theories.75 In the School of Salamanca, Grotius found an approach, similarly responding to the political and commercial demands of the day, that was specifically relevant for the needs of his client, the VOC. Relying on Vitoria’s construction of a right to trade, Grotius simultaneously asserted and created propositions as rules of international law and used those purported rules to establish an international framework for the protection of private property, commercial interests, and imperial incursions. In particular, his treatises were a mechanism to bring about the protection of trading routes and the direct VOC trading posts established in non-European territories; they were about ensuring the VOC remained in control of those territories and commercial interests vis-à-vis its European rivals; they provided a legal framework entwining commerce and colonialism; and they had the effect of establishing international rules that placed private rights at the heart of public international law. 3. Vattel But the story did not end in the 17th century with Grotius. Although his views were undoubtedly shaped by his immediate surroundings and the politically precarious circumstances of the Swiss in the 18th century, just as with his predecessors, Vattel also developed his understandings of international law in the context of rationalizing the overseas empires of European states, at this time particularly that of North America.76 Seeking to delineate legal rules to regulate the conduct of states, he did, director Arent ten Grootenhuys, and liaison between Grotius and the VOC (15 October 1604), commissioning the formal defence of Van Heemskerck’s seizure of the Santa Catarina, translation in Grotius (n 10) 545–547. 74 Grotius (n 10) 388; see also the discussion in Martine Julia van Ittersum, ‘Hugo Grotius in Context: Van Heemskerck’s Capture of the Santa Catarina and its Justification in De Jure Praedae (1604–1606)’ (2003) 31 Asian Journal of Social Science 511. 75 Koskenniemi (n 57) 32–35. 76 Fitzmaurice (n 38) 140–144.

Method and mechanism – empire and ‘usual’ rupture

155

of course, take the notion further than earlier theorists, devising a systemic approach and conceiving of international law as a ‘system’ for all states.77 Notably, for the enquiry in this chapter, Vattel also replicates the uses to which the asserted rules on international law had been put by Vitoria and Grotius – supportive of European territorial expansion and commercial engagement with non-European nations, his theories on international law also privileged commerce and private rights, seeking to foster trade and the protection of private property.78 In this regard, one of Vattel’s most enduring principles went on to form the basis of the 19th century doctrine of diplomatic protection of alien person and property – an injury to a citizen is an injury to the state, enlivening a right of response. Vattel articulated this notion as: Whoever uses a citizen ill, indirectly offends the state, which is bound to protect this citizen; and the sovereign of the latter should avenge his wrongs, punish the aggressor, and, if possible, oblige him to make full reparation.79

Such an approach explicitly tied the private interests of the individual to the state; the injured was one and the same, although the offence gave rise solely to rights of intervention held by the home state. The mode of retaliation was at the discretion of the state, so it did, in fact, provide governments with opportunities to engage in military intervention whenever their commercial and political objectives coincided with the commercial or personal injury suffered by their citizens. In this way, Vattel’s theories continued building the framework established two centuries earlier for the interaction between international law, commerce, and imperialism. The articulation of principles was clearly not identical to that of Vitoria or Grotius, but the centrality of commerce remained embedded within the rules of international law. Engaging in the exploration of an international legal system that spoke to the European needs of the 18th century, Vattel found in his ‘citizen/state offence’ model a channel through which injury to commerce could be rectified militarily. It was out of this concept that the doctrine of diplomatic protection of alien person and property evolved and within which core principles of modern 77 Jean d’Aspremont, Formalism and the Sources of International Law: A Theory of the Ascertainment of Legal Rules (Oxford University Press 2011) 64. 78 Vattel (n 11) bk I, ch VIII, §§83–94; see Fitzmaurice (n 38) 140–141; see also the discussion in Martti Koskenniemi, ‘“International Community” from Dante to Vattel’ in Vincent Chetail and Peter Haggenmacher (eds), Vattel’s International Law from a XXIst Century Perspective (Martinus Nijhoff 2011) 1. 79 Vattel (n 11) bk II, ch VII, §71.

156

International investment law and history

international investment law developed.80 First appearing as an asserted rule of international law in the 18th century and crystallizing in the 19th century, the concept had, however, also found form in FCN treaties, versions of which can be seen as early as the 17th century.81 And these are, of course, said to be the forerunners of the 20th century’s BITs,82 forming part of a history of seeking methods of protecting foreign-owned property and a mechanism that is also explored in the next section. B. State and Citizen Entwined: Trading Companies, Treaties and Doctrine The work of legal scholars was not the only method of rule construction in the development of a private rights-oriented international law. Whilst the School of Salamanca had introduced notions of refusal to trade and commerce-related offences into international law as legitimate grounds for initiating military intervention, the creation of trading companies in the 17th century took this intermingling of private and public still further, rendering the link explicit within their very structure. The form adopted by the VOC, the East India Company, and the French East India Company, amongst others, was that of an entirely new legal entity, pursuing both commercial and political objectives.83 Ostensibly private with profit-driven goals, these companies were, in fact, also imbued with delegated sovereign powers authorizing them to engage in military operations, enter treaties, acquire territory, establish settlements, appoint 80

Borchard (n 62) 25–29, 39–42; Eagleton (n 62) 3, 6, 22; see the discussion in James Crawford, Brownlie’s Principles of Public International Law (8th edn, Oxford University Press 2012) 611. 81 See, for example, Great Britain-Denmark Treaty of Peace and Commerce (n 33); see also Treaty of Peace and Commerce between Great Britain and Sweden (signed 11 April 1654); see the discussion in Kate Parlett, The Individual in the International Legal System: Continuity and Change in International Law (Cambridge University Press 2010) 47–51. 82 Sornarajah (n 1) 180; Vandevelde (n 1) 21–23. 83 For the VOC, see above n 73; the ‘Compagnie Française des Indes Orientales’ was founded in 1664, chartered by Louis XIV (28 May 1664). With respect to the East India Company, see Charter Granted by Queen Elizabeth to the Governor and Company of Merchants of London, Trading into the EastIndies (31 December 1600); Letters Patent Granted to the Governor and Company of Merchants of London, Trading into the East-Indies (3 April 1661); the formal name of the East India Company from 1600–1708 was the ‘Governor and Company of Merchants of London, Trading into the East-Indies’, and from 1708–1873, the ‘United Company of Merchants of England Trading to the East Indies’.

Method and mechanism – empire and ‘usual’ rupture

157

governors, and install judiciary.84 Such powers were control mechanisms of a particular kind, being designed to create legal and governance orders within other nations that would protect the political gains, commercial benefits, and acquired property of expansionist European states and their companies. And the international law that was being constructed around these companies also promoted their interests and those of their states. As discussed above, this was particularly so in the case of the VOC and Grotius. The manifestation of ideas correlating the state with private entity was not, however, limited to the structure of the 17th century trading companies and the treatises of the 16th and 17th centuries, but was also translated into wider treaty practice. In this vein, it became increasingly common in the 17th century for states to adopt a particular mechanism to protect private traders and investors – entering into treaties in which commercial privileges were granted, trade and investment facilitated, navigation rights conferred, and versions of most-favoured-nation provisions appeared. For example, the 1675 Treaty of Commerce between Great Britain and the Sultan of the Turks included the following clause: All the particular Privileges and Stipulations, which have in time past been granted to the French, the Venetians, or any other Christian Nation whatever, whose King was in Peace and Friendship with the Porte, are hereby given and granted in the same manner to the English Nation …85

Similar sentiments were also prevalent in the 18th and 19th century FCNs, which together with the guarantees of commercial benefits, also contained express protections for individuals, their property, freedom of movement, and worship.86 In an interesting shift, linking the rights of states to the private commercial injuries of their nationals also became associated with resolution through inter-state arbitration. Addressing the specific commercial and political circumstances of the era, such a 84

See instruments above n 83. Treaty of Commerce between Great-Britain and the Sultan of the Turks: Wherein the antient Conventions made in the Reigns of Queen Elizabeth, King James, and Charles I are recited and confirmed, concluded at Adrianople, in September 1675; Or rather, A Grant and Confirmation of Privileges then made by the Sultan to the English Nation, art XVIII, A Complete Collection of the Marine Treaties subsisting between Great-Britain and France et al (D Steel and J Millan 1779) 172. 86 See, for example, US-France Treaty of Amity and Commerce (n 33); Great Britain-Morocco Treaty of Peace and Commerce (n 61); US-Paraguay Treaty of Friendship, Commerce and Navigation (n 33). 85

158

International investment law and history

mechanism was developed in the 1794 Treaty of Amity, Commerce and Navigation between his Britannic Majesty and the United States of America, commonly known as the Jay Treaty, in which the claims of individuals for seizure of property were determined through tailor-made arbitration commissions.87 By the 19th century, the assertion of an international minimum standard and the practice of protecting the property and private commercial interests of individuals through the expressly articulated doctrine of diplomatic protection had become commonplace.88 The principles of Vattel, the provisions contained in FCNs, and the practices of states were pointed to, picked up, and dusted off in the 19th century for very specific purposes. Within the international law of the 19th century, the centrality of commerce was assumed; the language of private rights was ingrained; the combining of state and citizen, again, given form; and all these elements manifested, in particular, in the doctrine of diplomatic protection of alien property. This mechanism was also a practice and doctrine deeply implicated in the colonial project of the 19th century. As with the wider contextual settings for the work of Vitoria, Grotius, and Vattel, the context in which the doctrine of diplomatic protection emerged was also one of colonialism and commercial expansionism. And, in this instance, the protection of private rights was particularly visible. The 19th century version of international rules for the treatment of foreign citizens and companies was expressed as an ‘international minimum standard’, a breach of which enlivened a right of response by the citizen’s state.89 As a constructed mechanism, it reflected Vattel’s notion, and fiction, that the injury to the individual was actually an injury to their state. Appeals to the doctrine and the international minimum standard can be seen throughout this period in diplomatic correspondence,90 arbitral 87

Treaty of Amity, Commerce and Navigation between his Britannic Majesty and the United States of America (signed 19 November 1794, entered into force 29 February 1796). 88 See generally Borchard (n 62); see also, for example, the many arbitral awards reported in Moore (n 62) vols I–VI. 89 Borchard (n 62) 25–29, 39–42; Eagleton (n 62) 3, 6, 22. 90 See, for example, the correspondence between Secretary of State Baynard and Connery (n 62): If a Government could set up its own municipal laws as the final test of its international rights and obligations, then the rules of international law would be but the shadow of a name, and would afford no protection either to states or to individuals. It has been constantly maintained and also admitted by the Government of the United States that a Government cannot appeal to its

Method and mechanism – empire and ‘usual’ rupture

159

awards and disputes,91 the writings of theorists,92 and the conduct of states.93 In practice, it meant that, if the home state so chose, the expropriation of an individual’s property was a basis for military intervention in the host state. When it suited the broader political objectives of the home state, righting the dual wrong to the state/commercial interests of its citizen was a useful way in which to achieve those political ends. The doctrine was regularly used improperly to support imperialist policies in the 19th century;94 alarmist rhetoric was often engaged to assert a need for the rules and to counter any alternative approach, such as the Calvo Doctrine;95 and as an imposed system of control, along with the resolution of property disputes through colonial administrations, the doctrine of diplomatic protection remained central to the protection of foreign investment well into the 20th century. That system of investment protection was replaced by the advent of BITs and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention).96

municipal regulations as an answer to demands for the fulfilment of international duties. 91 See, for example, Britain (Finlay) v Greece (1849–50) 39 British and State Papers 410; see also correspondence concerning the Sicilian Sulphur Monopoly Case (n 62). 92 Borchard (n 62) 39. 93 See, for example, the actions of Germany and Britain in bombarding Caracas in 1902 in response to Venezuela’s refusal to consent to international arbitration to settle claims arising out of civil unrest during 1898–1902. 94 Lipson (n 1) 11–12, 53; Sornarajah (n 1) 36–39; Frank Griffith Dawson and Ivan L Head, International Law, National Tribunals, and the Rights of Aliens (Syracuse University Press 1971) 5; Nico Schrijver, Sovereignty Over Natural Resources: Balancing Rights and Duties (Cambridge University Press 1997) 177–178; Miriam Hood, Gunboat Diplomacy 1895–1905: Great Power Pressure in Venezuela (Allen & Unwin 1975) 189–192. 95 The doctrine was named after the Argentinian lawyer and legal scholar, Carlos Calvo. He completed a six-volume treatise, Le Droit International Théorique et Pratique, first published in 1868, and then, in its final form in 1896. The Calvo Doctrine contends that ‘aliens should be afforded no more than the same treatment as nationals and must limit themselves to filing claims in the local judicial system’; see the discussion in Donald Shea, The Calvo Clause: A Problem of Inter-American and International Law and Diplomacy (University of Minnesota Press 1955); see the correspondence between Secretary of State Baynard and Connery (n 62) as an example of the standard rejection of the Calvo Doctrine; see also Borchard (n 62) 39. 96 See reference above n 31.

160

International investment law and history

Responding to the changing political conditions of the mid-20th century, the World Bank and capital-exporting states initiated these treaty regimes to reassert investor protection levels enjoyed under the doctrine of diplomatic protection, but which were crumbling in the wake of decolonization.97 Much as in previous centuries, at the centre of the mechanisms designed for the protection of foreign investment were notions of control and order from the perspective of investors and their home states, together with the privileging of private rights. In particular, along with the need for high-level standards of substantive protection, the rationale for these treaty regimes was also framed as serving the need for the ‘depoliticization’ of investment disputes and for the imposition of the rule of law in host states.98 The result was the introduction of a reinvented foreign investment protection treaty in the form of the BIT and a new dispute resolution mechanism – investor-state arbitration. In my view, there are shared conceptual approaches in the conjoining of trade and warfare in the School of Salamanca, the merging in the early 17th century of state and private citizen within the trading companies, the defence of the VOC in Grotius, the FCN-type treaty-making from the 17th century onwards, and the core principles of Vattel’s 18th century international law, which, in turn, formed the basis for the 19th century doctrine of diplomatic protection of aliens and their property. These are not neat trajectories in which principles moved smoothly from one century to the next; they are, however, traceable concepts that fermented and found form in their own contexts and for their own purposes in each century. Its manifestation in the 20th century continued the application of the doctrine of diplomatic protection until it found a new shape in the design of BITs from 1959 onwards. And far from being a break with the past, BITs are very much a part of this story.

97

Newcombe and Paradell (n 1) 19–22, 41–42; see Miles (n 63) for a discussion of the specific environment in which ICSID was conceived and the purposes for which the treaty was drafted; see Aron Broches, ‘Settlement of Investment Disputes’ (1963 Address to the World Conference on World Peace through Law) in Broches (n 32) 161. 98 ibid 163; see also Aron Broches, ‘Development of International Law by the International Bank for Reconstruction and Development’ (1965) 59 ASIL Proceedings 33.

Method and mechanism – empire and ‘usual’ rupture

161

IV. CONCLUDING REMARKS: INTERNATIONAL INVESTMENT LAW AND IMPERIALISM I have reiterated throughout this chapter that, in my view, it is a flawed approach to look for uninterrupted conceptual continuities in which ideas flow easily from one century into the next. Just as it is also flawed to point to ‘gaps’ in the historical development of international law and allege that foundational connections are ‘retrospective constructions’ or that they fail to make out the intellectual links between the centuries. The ruptures are, in fact, part of the process of intellectual engagement and concept evolution. And appreciating this is particularly important in the context of international investment law’s relationship with imperialism and its own origins. Pinpointing 1959 as the ‘beginning’ of modern international investment law and disassociating itself from the broader history of international law is a part of denial and myth-making within the field. In this sense, it has been convenient for the dominant narrative to frame the BIT rupture of the mid-20th century as a break of such magnitude that it created an entirely new creature rather than as just one rupture amongst several over the last 400–500 years of international investment protection. Recent arguments have also been made that the past is not relevant and that imperialism does not impact on the investment field because all states enter into, or terminate, BITs freely and states are not clearly delineated into capital-exporting and capital-importing states anymore.99 In earlier work, I have argued not that the 19th century manifestation of imperialism still operates in an identical form so that states have treaties imposed upon them in the 21st century in the same way as in the 19th – this is not the case – but, rather, that the rules themselves are the product of imperialism, that this is an inescapable component, inherent within the modern rules; that opportunities for more balanced rules along the way were quashed, and that the processes and language developed during imperialism continue to be utilized for purposes of maintaining the status quo.100 In essence, I argued that a more subtle form of imperialism is in operation within international investment law. Arguments have also been made by commentators, such as Cavallar, that the links between imperialism, the emergence of international law, 99 See, for example, Jeanrique Fahner, ‘The Contested History of International Investment Law: From a Problematic Past to Current Controversies’ (2015) 17 International Community Law Review 373, 388. 100 Miles (n 1); Miles (n 63).

162

International investment law and history

and its 21st century manifestation are tenuous. It is clear from the discussion in this chapter that I take a different view. I have argued that it is misplaced to claim the intellectual links are absent. Rather, I suggest there are, in fact, a number of ways in which to make the leap from the 16th and 17th century ideas about international law to those of the 18th, 19th, and on into the 20th. A significant one of which is a processoriented approach. On one level, it is the process itself that connects these centuries. A process of recalibration of the ideas; the process of taking up ideas afresh to find form for each century. Foundational concepts of international law bound up commerce, control, the language of private rights, property, and the fusing of state and commercial interests all within the structure of the law itself. And it was done at each point within a context of colonialism and commercial expansionism. Although the form it took in each century was not identical, in my view, the core approach was reflected in various ways in the theories of Vitoria, Grotius, and Vattel, and also in FCN treaty-making and the construction of the doctrine of diplomatic protection. The focus in this chapter has been on the way in which those ideas were used by theorists, states, and actors in different eras, asking the question, ‘what were those ideas intended to do?’ What emerged from that enquiry was seeing the processes replicated – using specific ideas about property, law, commerce, and private rights to further the political and commercial purposes of the day. Of course, Western political thought fractured and divided; there is no question that there were individuals or sectors of society who were appalled at the violence and abuses that were carried out in the course of colonial conquest. Such difference, however, does not eradicate the act of engaging in the discourse, the contributing to the evolution of concepts within international law, the dismissal of alternative views, the process of reaffirming the place of private rights within international law, and the fact of the eventual crystallization of those propositions into rules of international law. And it is international investment law that is, perhaps, the sub-set of modern international law in which that private rights vocabulary is most explicitly seen. Understanding the history of the ideas on investment protection, trade, property, and commerce within international law is central to recognizing that the shift from diplomatic protection to BIT is not a major change, but a ‘usual’ change. Within the traditional international investment law story, FCNs are considered forerunners of BITs, but that the introduction of investor-state arbitration was so different structurally as to separate 1959 onwards from the previous centuries. Far from disconnecting current international investment law from its history, however, investorstate arbitration, in fact, takes it closer – the protection of private rights

Method and mechanism – empire and ‘usual’ rupture

163

and the privileging of commerce received a deeply significant boost. As claims no longer proceed through the checks and balances of the home state’s diplomatic protection assessment, it is the commercial actor alone who decides whether a claim is to be pursued. In transferring the means of enforcement from state to investor, the mechanism continues centuries-old patterns of promoting private rights within international law; it fuses substance and procedure, cementing control within the private actor; and, in adding procedural control to substantive rights, investor-state arbitration contributes, perhaps completes, a process of evermore pronounced private rights principles within international law. As discussed above, the development of BITs and investor-state arbitration were responses to the specific political conditions of the mid-20th century and were shaped directly by decolonization. However, in taking a step back and adopting a Fitzmaurice synchronic and diachronic duality to historical contextualism,101 it can be seen that these developments were also part of a series of practices, concepts, and mechanisms with a longer history. They were not, in fact, a break with the past. But, rather, constituted a ‘usual’ rupture, a recalibration of ideas finding form relevant for the particular circumstances of the next century. In other words, the links between imperialism, commerce, and private rights within modern international investment law are, perhaps, more deeply embedded and more pervasive than is generally appreciated.

101

Fitzmaurice (n 38) 19–20.

6. The challenges of history in international investment law: A view from legal theory Jörg Kammerhofer I. INTRODUCTION Legal theory is not legal history and neither one nor the other is the doctrinal study of international investment law. There are good reasons why these are separate fields of academic study with their own vocabularies and methods. Yet no legal theorist can do without legal history just as no legal historian can do without legal theory. And investment law scholars could do much worse than to increase their awareness of the theoretical foundations and historical bases of the field they are studying. If that is so, why are they separate, yet why is knowledge nonetheless beneficial? Apart from pragmatic and personal reasons, there are theoretical arguments, for it is legal theory’s job to structure the interaction between branches of knowledge in the academic study of law. That last statement is surprising and seems rather arrogant. Legal theory is about asking the most important philosophical question: how (using which methods and in how far) can we gain knowledge of ‘the law’ in a ‘scholarly’ manner? In other words, legal theory is largely a tool to structure our argument; it is legal epistemology and it can show us the methods and limits of legal cognition. Thus, if anything, it seems to be directed at the doctrinal study of law: theory tells us how to cognize the law. Hence, the knowledge of specific legal rules – the object of doctrinal scholarship – is predicated on keeping to the methods and strictures, as defined by legal theory. But if we put it in this manner, we can see how theory also has a controlling function vis-à-vis non-doctrinal legal scholarship, that is, those sub-fields not concerned with cognizing law as rules (norms, Ought), such as historiography or social sciences – when they impinge on ‘the law’. Legal theory, by positing a theory of legal 164

Challenges of history: A view from legal theory

165

knowledge, can analyse what the historical method, what legal historiography as knowledge of historical facts connected to ‘law’ as well as of legal rules in their historical context, can say as to the validity of norms of a legal order and what it cannot. Making this point more constructively, legal theory can serve us by showing how the history of law may be an important reservoir of argument in international investment law and may be able to ‘ground’ arguments in a certain sense. However, we need to take care not to fall into the trap of abusing history and historiography in legal argumentation. In this short chapter, both the risks and the potential benefits will be highlighted for the study of international investment law. While we will look at international investment law, the theoretical issues are not special to this field of law (and study): international investment law is an example of a general problematique, not a unique set of problems. Another caveat, or rather a declaration of faith, is necessary here, for legal theory is perhaps the most fundamentally divisive subject for debate; that is, one touching the very foundations of our conceptions of law. Applying legal theories in an eclectic manner may be popular, but inevitably leads to inconsistency and thus triviality of results; hence, we will have to choose one such approach. While on a philosophical level the choice of theory is arbitrary and not justifiable, it is argued here that the normativist-positivist approach of Hans Kelsen’s Pure Theory of Law is best able to describe law if we continue to insist on speaking of it as prescription of behaviour; that is, as ‘Ought’, as norms. Its coherent and consistent theory of legal knowledge provides the best basis for legal doctrinal work while being able to delineate legal vis-à-vis other methods of scholarship.1 In the following, we will first discuss the dangers of instrumentalizing history, using the ideologization of investment law by critical legal historians as an example (Part II). We will contrast this with the potential usefulness of (one form of) historical research – the histories of legal 1 See the present author’s previous descriptions of the theory of knowledge utilized here, for example: Jörg Kammerhofer, Uncertainty in International Law: A Kelsenian Perspective (Routledge 2010); Jörg Kammerhofer, ‘Hans Kelsen’s Place in the Theory of International Law’ in Alexander Orakhelashvili (ed), Research Handbook on the Theory and History of International Law (Edward Elgar Publishing 2011) 143–167; Jörg Kammerhofer, ‘Hans Kelsen in Today’s International Legal Scholarship’ in Jörg Kammerhofer and Jean d’Aspremont (eds), International Legal Positivism in a Post-Modern World (Cambridge University Press 2014) 81–113.

166

International investment law and history

doctrines – for the study of investment law, which puts the historical lineage of customary investment law in considerable doubt (Part III).

II. A DANGEROUS TURN TO HISTORY Legal historiography is on the rise in international legal scholarship and no-one, least of all legal theorists, would see a danger in gaining more knowledge about our (law-related) past. However, instrumental uses of history are on the rise as well. While it is sometimes possible to unlock knowledge in sub-field A by using sub-field B as a tool, such ‘use’ carries with it the immediate and significant danger of ‘abuse’. One of the abuses of history which critical scholars do right to condemn is the ‘progress narrative’: the idea that the development of law through time is somehow a progress from less to more and from primitive to sophisticated. It may seem that such a claim is no more than a straw-man, more a delayed reaction to seemingly naïve 19th century ideals, than a timely response to 21st century scholarship. However, it is not, and we can find ‘progress’ everywhere in current writings on international investment law. This narrative is a mostly subconscious subtext, not expressed as such. For example, some argue that the ‘bad old days’ of arbitrary diplomatic protection, burdened as it is with considerations of expedience by home states, are now largely over, replaced with an – admittedly still imperfect – treaty-based system which we are further improving.2 Or someone else, from a different ideological perspective, might see the development of the law governing the protection of aliens from colonial oppression to the assertion, by newly independent states, of the sovereignty over their own resources to a neo-colonial aberration with early investment treaties, which is now being remedied by greater respect for human rights law and environmental standards. Both these narratives have a trajectory, a trajectory only present because ideological convictions guide scholars in their use of historical material. History and historiography serve as tools for a political goal. Incidentally, this trend also causes us to abuse history in a different way. As Randall Lesaffer notes, this cannot be called historiography. This genealogic history from present to past leads to anachronistic interpretations of historical phenomena, clouds historical realities … and gives no 2 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University Press 2012) 1–12 could be read that way.

Challenges of history: A view from legal theory

167

information about the historical context of the phenomenon one claims to recognise. … It tries to understand the past for what it brought about and not for what it meant to the people living it.3

Those who provide cogent arguments against this progress narrative are themselves trapped by the lure of instrumentalism. Over the past 15 years, critical legal scholars have begun to write extensively on the history of international law. It is a very peculiar form of historicising, though, and one which is consciously instrumental: Memory, for post-modern doctrines, has the sole purpose of allowing caustic criticisms of the Enlightenment or of providing an instrument by which to view history as literature. … making use of historiography became inherent to the critical project.4

Historiography of the critical bent is at least partly concerned to show historical contingency and fragmentation. Martti Koskenniemi recently encouraged ‘the study of an increasingly wide field of legal vocabularies, and taking a perspective that would move between the political and the biographical, contextual and the conceptual’.5 In the sub-field at issue here, scholars such as Kate Miles in The Origins of International Investment Law have combined the aim of increasing legal-historical scholarship with a political argument, clothed in historical terms. Again, while this is hidden amongst unobjectionable statements, the vector is different. In defiance of Lesaffer’s warning, she ‘came to the view that … the social, commercial, and political context in which its rules emerged, in fact, determined its core character’.6 While it is possible to argue that ‘the political context in which the rules emerged shaped international investment law in fundamental ways’7 – unsurprisingly, on a sociopolitical view, all law is a product of what came before its entry-intoforce – the problems start when Miles argues that investment law 3

Randall Lesaffer, ‘International Law and Its History: The Story of an Unrequited Love’ in Matthew Craven et al (eds), Time, History and International Law (Martinus Nijhoff 2007) 27, 35. 4 George RB Galindo, ‘Martti Koskenniemi and the Historiographical Turn in International Law’ (2005) 16 European Journal of International Law 539, 558. 5 Martti Koskenniemi, ‘A History of International Law Histories’ in Bardo Fassbender and Anne Peters (eds), The Oxford Handbook of the History of International Law (Oxford University Press 2012) 943, 970. 6 Kate Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press 2013) 1. 7 ibid 3.

168

International investment law and history

‘continue[s] to this day to reflect those origins’ and draws the conclusion that this field’s history alone means that ‘a re-evaluation … will be needed’.8 History – a negative political history of post-colonial forbears – is instrumentalized to paint a picture of the law that draws on this negative. It is then linked to a global critique of current investment law – the ‘sole focus on investor protection, its lack of responsiveness to the impact of investor activity on the local communities and environment of the host state [etc.]’9 – to transcend the idea that ‘through an historical analysis of its evolution, new light could be shed on the current form of foreign investment protection law’.10 When ‘conceptualisations and dynamics derived from its origins in imperialism … remai[n] imbued within modern international investment law’,11 the step from the analysis of historical developments and origins of the law to the identification of those historicopolitical forces with the (current) content of the law seems small, even though we are on a categorically different plane of argumentation. The other step – that from tracing ‘patterns of “assertion of power and responses to power”’ to the question ‘can those patterns be broken, and, if so, what form would a reconceptualised international investment law take?’12 – is yet another categorical one. The first of Miles’ arguments cannot succeed without depriving international legal scholarship of its autonomy; the second takes away its status as scholarship. Why is that so? Law is the sum-totality of norms of a legal order, connected by validity-relationships made possible through empowerment norms.13 These norms, positus as they are (created by human acts of will), certainly have a ‘history’ and ‘causes’ and are the product of socio-political forces. This applies even to judgments as individual norms. However, this statement is the product of scholarly cognition using a non-normativist (non-legal) method. Rather, an empirical (even if not quantitative) method, such as that employed by sociologists and political scientists, will result in our seeing law (the norms) as product of forces in the realm of ‘facts’. There is nothing wrong with analysing the 8

ibid 1. ibid 3. 10 ibid 5–6. 11 ibid 6. 12 ibid. 13 On this conception, see Jörg Kammerhofer, ‘Sources in Legal Positivist Theories: The Pure Theory’s Structural Analysis of the Law’ in Samantha Besson and Jean d’Aspremont (eds), The Oxford Handbook of the Sources of International Law (Oxford University Press 2017) 343, 346–349. 9

Challenges of history: A view from legal theory

169

historical (factual) origins of the law or with arguing that law is shaped by its historical origins. But if we make the almost imperceptible shift from arguing that the law is ‘shaped by’ history to arguing that the law is nothing but (that is, is dependent in its legal existence on) the sum-total of its factual ‘sources’, this shift is categorical and seeks to eliminate legal scholarship as cognition of norms. (In more traditional terms, this could be called confusing the material and the formal sources of law.) But why is this shift so grave? Is this not merely the result of a much-needed expansion of methods, of interdisciplinarity? Parts of international legal theory subconsciously assume as part of their metatheory that there is one overarching meta-method which is, broadly speaking, ‘empirical’. This is more common in the Anglo-Saxon world than on the European continent and it is shared (with different emphases) by Hartian approaches, legal realists, critical scholars and many others. On that meta-theory, the normativist method (that of cognizing norms as Ought) must subordinate and integrate in what one could polemically call the ‘hodge-podge’ or, a little more graciously, the ‘theory-of-everything’ approach. This is the belief that we can explain everything connected to the law using one method. Just as a stew inevitably turns brown, such an all-encompassing theory inevitably turns into something that most closely resembles sociology or political science. In the end, the critical ‘turn to history’ is no different. If it is shown that law is diachronically contingent in terms of thinkers as well as agents, then one of the critical core theses is also more plausible. For at least parts of critical scholarship, the law itself is no more than a historically or sociologically contingent series of claims of what it is: a particular form of speaking. There are, thus, as many laws as there are actors and opinions – or, even if there is a dominant argumentative structure, there is no law ‘out there’, merely the sociologically observable structure of arguing, using the label ‘law’. The ‘turn to history’ is actually a theoretical/ideological tool to destroy the idea of a law. The sociopolitico-empirical method is strengthened by the contingency of history. As the claim for this to be the one true meta-narrative is strengthened, the traditional idea of a specifically legal method is denied. The hodge-podge tradition does not consider valid Kelsen’s exhortation to keep methods and scholarly enterprises apart.14 It does not agree with the insight that method in a specific sense creates its object of cognition, that data are to a large degree constituted, processed, by the approach chosen. However, we are able to cognize the man in a wig saying 14

Hans Kelsen, Reine Rechtslehre (2nd edn, Deuticke 1960) 1.

170

International investment law and history

something as a judgment of a criminal court only if we presuppose the possibility of norms and the validity of a legal order. Only if we process raw-sense data in a certain manner can we start to see a ‘society’. The data do not verify the approach – to a large extent, the approach decides what the data are. Kelsen’s theory of scholarship is predicated on the view that there are several methods of scholarship, that these methods cannot be combined without more, and that no one method is in control. If we do make that shift from gathering historical background to arguing that law is nothing but its own history, we fetishize one viewpoint and destroy the idea of legal scholarship. Why is it important to keep these methods apart, to hold on to the autonomy of the legal (the normativist) approach? Because not doing so falsifies the result of legal scholarship; in other words: we would no longer be able to cognize law, we would impose something on it that is not part of the sum-totality of positive norms of the legal order under consideration. Instrumentalizing history might, for example, mean that we would change the set of possible interpretations (the frame of meanings)15 of an expropriation clause in an international investment agreement (IIA), because we believe that this is in keeping with a certain historical trajectory or socio-political forces. And this would mean that the second shift mentioned above is not far away: such historical narratives are indistinguishable from ideological norms. In the example above, changes could be ‘cognized’ (rather: imposed) from both ends of the ideological spectrum. ‘History’ (read: ideology) can easily support a reading of IIAs that only benefits investors just as it can be read to broadly support (developing) host states. Both instrumentalize history to undermine legal cognition; neither is scholarship, for this is political activism in a scholar’s garb. We are, however, not condemned by fate to politicize legal scholarship.16 The inevitable cognitive biases which we all have still allow us to exclude personal value-judgements to a much larger extent than assumed by the critical approach; the inevitability of bias does not mean that we should cease to endeavour to minimize it.

15

ibid 348–349. See, for example, Jörg Kammerhofer, ‘Law-Making by Scholarship? The Dark Side of 21st Century International Legal “Methodology”’ in James Crawford and Sarah Nouwen (eds), Select Proceedings of the European Society of International Law: Third Volume: International Law 1989–2010: A Performance Appraisal. Cambridge, 2–4 September 2010 (Hart 2012) 115–126. 16

Challenges of history: A view from legal theory

171

III. USEFUL HISTORY It may thus seem that instrumentalizing history is inevitably dangerous, but that is not necessarily the case. We can utilize history in a less destructive manner, but we will have to take great care how it is done. Legal historiography can be useful for research on international investment law both as historical doctrinal work and more indirectly as Dogmengeschichte. The first method is so straightforward that it borders on the banal to point it out. Imagine a scholar researching the question whether there is a general customary international law norm on expropriation valid in international law today and, if so, what its exact content is.17 In order to find state practice and opinio iuris, this scholar will inevitably be engaged in a form of historical research.18 The influence of treatymaking in the second half of the 20th century (and perhaps even of investment jurisprudence) on the state of customary law will be relevant, but research needs to start earlier. Not only does that researcher have to find out whether a customary law norm on expropriation was valid post-1945, but the influence of the New International Economic Order (NIEO) movement will also be decisive. If there was no general norm in 1945, or if the NIEO meant that such a norm fell into desuetude,19 a newly-to-be-established customary norm (from IIAs for example) will face a very high – and possibly insurmountable – hurdle. If, however, the NIEO did not succeed in influencing an older customary international law norm,20 smaller changes vis-à-vis for example the actus reus of ‘indirect expropriation’ would possibly face a lower hurdle. Another, more indirect form is to make use of the history of legalscholarly ideas. The much-maligned Lassa Oppenheim once wrote: [T]he exposition of the existing recognized rules of international law is often to a certain extent impossible without a knowledge of the history of the rules 17

Some of the arguments, sources and text in this section are drawn from the manuscript of the author’s current monograph project, entitled, Expropriation in International Investment Law: General Law from Fragmented Sources?, which is scheduled for completion by 2018. 18 Matt Craven, ‘Introduction: International Law and Its Histories’ in Craven et al (n 3) 1, 16. 19 Muthucumaraswamy Sornarajah, The International Law on Foreign Investment (3rd edn, Cambridge University Press 2010) 84. 20 See, for example, the differing analyses in Rudolf Dolzer, Eigentum, Enteignung und Entschädigung im geltenden Völkerrecht (Springer 1986) 18–34 and Miles (n 6) 93–100.

172

International investment law and history

concerned. … What is particularly wanted is what the Germans call a ‘Dogmengeschichte’. We require to know of each rule of international law how it originated and developed, who first established it, and how it gradually became recognized in practice.21

This method is instrumentalist too: we are using history and historiography to find out something, to test hypotheses. Theorists are frequently confronted with other scholars basing arguments on concepts with long historical lineage. Tracing back such a lineage through history can mean that we can establish a sort of ‘etymology’ of a concept, a clearer sense of what content a dogmatic argument originally had and has had in its development over the centuries. It will also serve a critical function, uncovering, perhaps, that a concept is not as well-received as argued or not as uncontroversial as assumed. This applies, as the name Dogmengeschichte says, more to legal scholars’ arguments than to the specific content of the positive law. However, this method is not free of problems and the major danger is of a progressivism of a specific kind. Randall Lesaffer’s critique is representative: This kind of historiography sins against the most basic rules of historical methodology, and the results are deplorable. This genealogic history from present to past leads to anachronistic interpretations of historical phenomena … and gives no information about the historical context of the phenomenon one claims to recognise.22

Of course, some of the critique can be defused right away, as the use described very often is not historiographical, but doctrinal and/or legaltheoretical. What we need, then, is theoretical and legal-doctrinal argument that uses historiography, rather than making its own – what Lesaffer calls a ‘second phase’, where history and historical arguments are ‘first studied in their own right and for their own sake’23 and only then instrumentalized, for example to critique the unquestioning adoption of Latin maxims in legal argumentation. 21

Lassa Oppenheim, ‘The Science of International Law: Its Task and Method’ (1908) 2 American Journal of International Law 313, 315–16. 22 Lesaffer (n 3) 34; see also: Craven (n 18) 16; Peter Oestmann, ‘Normengeschichte, Wissenschaftsgeschichte und Praxisgeschichte: Drei Blickwinkel auf das Recht der Vergangenheit’ (2014) Max Planck Institute for European Legal History Research Paper Series 2014-06, 6 accessed 3 February 2017. 23 Lesaffer (n 3) 40.

Challenges of history: A view from legal theory

173

International legal scholarship has borrowed heavily from private law, and in particular from civil and Roman law. Hersch Lauterpacht’s 1927 book Private Law Sources and Analogies of International Law is a celebration of that fact. But it is not a matter of simply applying Roman law to international law. As Arthur Nussbaum put it: The real significance of Roman law to the history of international law is indirect only, but in this respect it is far-reaching indeed. … the Corpus Juris [Civilis] … offered clear legal conceptions and excellent juristic method.24

The more diligently we research the civilian origins of well-worn maxims, the more differentiated and fragmented the picture becomes – this may result in the weakening of the use of a certain argument by today’s scholar, but perhaps also a ‘bloodline’25 may be traced back to the Corpus – and with it, perhaps, the likelihood of this being part of positive international law increases. How does this historical research on the civilian tradition help research on international investment law? The problem, described above, whether the ‘BIT revolution’ has resulted in a change to customary international law so that it now includes a norm equivalent in content to the expropriation clauses in IIAs, can benefit from a historical-theoretical dimension. The question of the development of customary international law through treaties – and thus of customary investment law through IIAs – is made complicated by the problem of ius dispositivum. If most customary norms of international law are dispositive in character, why should we regard treaty-making at all as building blocks for new customary law, rather than as emphatic contracting-out? So far so good, but what about the statement, to be found in myriad textbooks, that most of international law is ius dispositivum?26 True, intelligent textbooks also point to Nicaragua: [T]here are no grounds for holding that when customary international law is comprised of rules identical to those of treaty law, the latter ‘supervenes’ the former, so that the customary international law has no further existence of its own. … It will therefore be clear that customary international law continues 24 Arthur Nussbaum, ‘The Significance of Roman Law in the History of International Law’ (1952) 100 University of Pennsylvania Law Review 678, 681. 25 Randall Lesaffer, ‘Argument from Roman Law in Current International Law: Occupation and Acquisitive Prescription’ (2005) 16 European Journal of International Law 25, 26. 26 Robert Y Jennings and Arthur Watts (eds), Oppenheim’s International Law, Volume I: Peace (9th edn, Longman 1992) 7.

174

International investment law and history

to exist and to apply, separately from international treaty law, even where the two categories of law have an identical content.27

Perhaps textbook authors see this as reorientation of the jurisprudence of the International Court of Justice, but this does not solve the basic problem. Is the character of most of customary international law dispositive? What are the origins of the venerable Latin term ius dispositivum? Someone raised on that textbook fare may be shocked to hear that it is a decidedly un-Roman concept.28 The term does not appear in classical sources; indeed, it was invented, legal historians have shown, by the German 19th century Pandectist tradition. This tradition, led by people such as Friedrich Carl von Savigny and Bernhard Windscheid,29 is an instrumentalist re-constructive effort, rather than historiography. It mis-reads passages in the Corpus such as ‘[i]us publicum privatorum pactis mutari non potest’.30 There are other traditions of private law which have similar concepts – for example ‘default rules’ – but these ideas are based even less on classical and post-classical Roman sources. It is unclear how the Pandectist notion of ius dispositivum found its way into international legal orthodoxy. Late 19th and early 20th century general works proceeded from very different foundations, the typical situation of a treaty providing for inter partes regulation could not even arise on these31 and it seems that it did not influence this scholarship to any degree.32 Yet by the mid-20th century, the view of customary international law as ius dispositivum is common,33 perhaps due to the 27

Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v United States of America) (Merits) [1986] ICJ Rep 14, 95, 96, paras 177, 179. 28 Max Kaser, ‘“Ius publicum” und “ius privatum”’ (1986) 103 Zeitschrift der Savigny-Stiftung für Rechtsgeschichte Romanistische Abteilung 1, 77. 29 Friedrich Carl von Savigny, System des heutigen Römischen Rechts (Veit 1840) vol 1, 57–58; Bernhard Windscheid, Lehrbuch des Pandektenrechts (Julius Buddeus 1862) vol 1, 65. 30 D.2.14.38. 31 Lassa Oppenheim, International Law: A Treatise, Volume I: Peace (Longmans, Green 1905) 20–24. 32 See, for example, Georg Jellinek, Die rechtliche Natur der Staatenverträge: Ein Beitrag zur juristischen Construction des Völkerrechts (Alfred Hölder 1880) 64–65; Franz von Holtzendorff, ‘Die Quellen des Völkerrechts’ in Franz von Holtzendorff (ed), Handbuch des Völkerrechts: Auf Grundlage Europäischer Staatenpraxis (Carl Habel 1885) vol 1, 67, 147–149. 33 See, for example, Günther Jaenicke, ‘Völkerrechtsquellen’ in Hans-Jürgen Schlochauer (ed), Wörterbuch des Völkerrechts, Band 3: Rapallo-Vertrag bis Zypern (2nd edn, Walter de Gruyter 1960) 766, 773–774; James L Brierly, The Law of Nations: An Introduction to the International Law of Peace (Clarendon

Challenges of history: A view from legal theory

175

ordering of the sources in Article 38 of the Statute of the Permanent Court of International Justice.34 However, there are reasons why international legal doctrine did not adopt the Pandectist doctrine on ius dispositivum. Only one will be highlighted here. The re-importation of ius dispositivum into mid-20th century international legal scholarship may be a misunderstanding connected to the rise of the idea of ius cogens. The term was introduced into the discussions at the International Law Commission tentatively; Sir Humphrey Waldock even suggested that ‘[f]or lack of a better, he had used the term jus cogens’.35 The idea of ‘peremptory norms’ originates in radically different conceptions,36 such as treaties prohibited because they violate natural law. Therefore, the Pandectist content of ius cogens, that abrogation inter partes is not permitted, is contained only incidentally in the internationalist notion. What might thus have happened is that the use of the term ius cogens triggered a knee-jerk reaction with civilian-trained international lawyers: ‘if there is ius cogens in international law, then certainly other parts are ius dispostivium’. However, this reasoning is not reversible as a matter of norm-structural analysis. It does not follow from the idea that certain parts of customary international law do not permit abrogation that all other parts do. This error also explains why, in mid-20th century writings, ius dispositivum is mentioned without any historical-doctrinal embedding or references to literature. Thus, the ius dispositivum model of the inter-relation of custom and treaty never did exist on the terms one might imagine. Because the ius dispositivum model is not (historically) inevitable, the relationship between custom and treaty is not necessarily determined by inter se abrogation. Therefore, also, it is more than doubtful whether the existence of IIAs is a negative indicator for a change or creation of a customary investment law with similar content to the treaties. (For Press 1955) 58; Jean L’Hullier, Éléments de droit international public (Rousseau 1950) 226. 34 Permanent Court of International Justice, Advisory Committee of Jurists, Procès-Verbaux of the Proceedings of the Committee June 16th–July 24th 1920 with Annexes (Van Langenhuysen 1920) 323–327. 35 International Law Commission, ‘Summary Records of the Fifteenth Session’ (6 May–12 July 1963) (UN Doc A/CN.4/SER.A/1963) 62. 36 See, for example, Heinrich B Reimann, Ius cogens im Völkerrecht: Eine quellenkritische Untersuchung (Schulthess 1971) 1–60; Stefan Kadelbach, Zwingendes Völkerrecht (Duncker & Humblot 1992) 26–68; Alexander Orakhelashvili, Peremptory Norms in International Law (Oxford University Press 2006).

176

International investment law and history

different reasons, there is also doubt whether IIAs can be a positive indicator.) Historical research of a special kind – Dogmengeschichte indeed – was thus able to deconstruct false necessities upheld by orthodox scholarship.

IV. CONCLUSION In a nutshell, then, we must guard against the unquestioning adoption of historically grounded narratives which are used to supplant theoretical argument. What we need is a scholarly and non-teleological critique of the supposed, but unproven historicity of legal concepts. If the alleged tradition is unmasked as never having existed in this form, the strength of such arguments is significantly reduced and relativized. One might query, as a theorist, whether the opposite can be true as well; after all, historical priority does not necessarily give legal authority. That is true, but in a field such as ours, where much depends on customs and these depend on historicity, it might sometimes help. We may just have to face the fact that on this, critical legal scholars are right and the beneficial effect is pragmatic, rather than a matter of legal theory.

PART III

Methodology and its challenges

7. Resolving challenges to historical research: Developing a project to define fair and equitable treatment Mona Pinchis-Paulsen* I. INTRODUCTION This chapter provides an examination into issues of method relating to archival research in international investment law. It stems from my legal historical research into the ‘fair and equitable treatment’/‘equitable treatment’ language (FET/ET), as found in most contemporary international investment agreements (IIAs).1 The chapter presents three methodological challenges that any researcher must address when establishing archival research into the history of law. To understand these challenges, the chapter uses examples from my examination into the development of the FET/ET within some of the first bilateral investment

* Sections of this book chapter were presented at the Frankfurt Investment Law Workshop 2015 and the Investment Law & Policy University of London discussion group. I thank Federico Ortino and Stephan W Schill for their helpful comments. All errors are my own. 1 The fair and equitable treatment (FET) concept is generally understood today as regulating relationships between private actors and host governments; a treaty standard that protects foreign investors from unfair or inequitable treatment by host states. A typical unqualified FET clause provides ‘Investments and returns of investors of each Contracting Party shall at all times be accorded fair and equitable treatment in the territory of the other Contracting Party’. See Agreement between the Government of the Republic of India and the Government of the Republic of Latvia for the Promotion and Protection of Investments (signed 18 February 2010) art 3(2) accessed 3 March 2017. For information as to the nature and function of FET clauses, see Christoph Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 The Journal of World Investment & Trade 357. 179

180

International investment law and history

treaties – American friendship, commerce, and navigation treaties (hereinafter ‘commercial treaties’).2 Let me begin with a brief explanation as to my historical inquiry. As it is likely that the United States was the first to use FET/ET in the context of investment promotion and protection,3 I was interested in examining how and why the US government introduced the concept of FET/ET in this context, and how the US government developed methods to use and apply it. My preliminary question was, why did the US State Department choose to include the FET/ET concept in US investment-focused, postwar commercial treaties? To this end, I examined the development and drafting of FET/ET from the negotiations of investment-focused, postwar US commercial treaties over an approximately ten-year period, from 1946 to 1956. These ten years marked an active time where the United States was developing a legal framework for international investment, seeking to finalize economic cooperation through a multilateral trade agreements programme, and modernizing its commercial treaties to address certain protections and procedures for private foreign capital.4 To explain why I looked at American post-war commercial treaties, it is helpful to briefly reflect on the broader project that this chapter fits into. As states consider reforming their IIAs, a crucial issue is whether the benefits of including a broad FET clause in IIAs outweighs the unpredictable and potentially contrasting approaches used by arbitral

2 This particular inquiry forms one part of my doctoral research project into the legal historical development of FET/ET, see Mona Pinchis-Paulsen, ‘Fair and Equitable Treatment in International Trade and Investment Law: 1918–1956’ (Ph.D., King’s College London 2017). The term ‘commercial treaty’ refers to post-Second World War treaties that contain provisions relating to establishment, investment and navigation. The United States’ bilateral efforts were commonly called treaties of ‘friendship, commerce and navigation’ (FCN); as some of the treaties were named differently, for example, treaties of ‘friendship, commerce and economic development’, the term ‘commercial treaties’ will be used throughout this chapter, but is synonymous with FCN treaties. 3 The United States was also in the strongest economic position after the Second World War, granting the US government strong influence in presenting its desired treaty language for bilateral and multilateral negotiations at this time. For further information, see below n 49. 4 See Kenneth Vandevelde, ‘The First Bilateral Investment Treaties: U.S. Friendship, Commerce and Navigation Treaties in the Truman Administration’ (PhD thesis (History), USC 2012) 7 accessed 28 July 2015.

Resolving challenges to historical research

181

tribunals and scholars as to determine its scope and meaning.5 To contribute, my overall project aims to understand the making of the clause in international investment law; by looking at whether and, if so, how and why FET/ET was vital to its design.6 One hypothesis of the broader project was that the function and scope of contemporary FET clauses in IIAs developed from (or was transplanted from) international trade agreements that aimed to foster economic cooperation and growth after each World War. This initiated a review of historical texts, institutions, and policy to place the legal concept’s role amongst other trade-related provisions, as well as initial efforts to draft protections for private foreign investment. As explained in this chapter, this also required emphasis on the social, economic, and political developments at the time the law was made, and the personal histories of those actors that shaped the law. For my historical study, I examined over 5,000 primary documents from the US National Archives and Records Administration in College Park, Maryland.7 My investigation involved primary source research on both governmental and non-governmental discussions for the US standard draft treaty, and internal negotiations that the Americans conducted

5 For an effort to resolve this issue from a law and economics perspective, see Jonathan Bonnitcha, Substantive Protection under Investment Treaties (Cambridge University Press 2014) ch 4. 6 The goal of the chapter is not to define the concept of FET/ET, as the results of my doctoral historical inquiry are not the subject of this book chapter. Nevertheless, the chapter inevitably sheds light on the concept, filling in some of the incompleteness as to its origins in IIAs. 7 This work was undertaken in the United States National Archives and Records Administration (USNA) in College Park, Maryland, in 2014. The Central Files pre-1974 and Decentralized (Lot) files were consulted. Short forms later used in this chapter to signal the correct USNA record group include: Central Decimal Files (CDF); General Records of the Department of State (RG 59); and, Records of International Conferences, Commissions and Expositions (RG 43). The following negotiations were available and reviewed: China (1946); Italian Republic (1948); Uruguay (1949); Ireland (1950); Greece (1951); Colombia (1951); Israel (1951); Ethiopia (1951); Denmark (1951); Japan (1953); Federal Republic of Germany (1954); Iran (1955); and the Netherlands (1956). Some materials are available through the State Department’s Foreign Relations of the United States (FRUS), which runs from 1861 to 1976. For historical research, it serves as an excellent starting point, but represents only a small sampling of the available documentation. Therefore, while used for this paper, FRUS did not form the main part of my archival work. Further information is available at accessed 3 March 2017.

182

International investment law and history

with other governments.8 I tried to get at what the basic thinking was, look at the treaties through the eyes of those writing them, and understand who played a key role in deciding what the purposes of an FET/ET clause should be. To develop as thorough an understanding as I could, I did not limit myself to sources by those who played leading roles, though I took care in identifying the key people involved. I was careful to study published reports and state-authored materials, as well as private documents, such as diaries, drafts, or correspondence. In addition, I reviewed the testimony given at US congressional hearings on the approval of the treaties to display the internal debates over the current interpretation of certain principles.9 I also reviewed the proposals presented by the business community, especially the correspondence with the US government. While interviews of the relevant US players were not conducted, I performed biographical research, focusing on Secretaries of State George Marshall, Dean Acheson, and John Foster Dulles, alongside key treaty architects Herman Walker, Jr, Robert Wilson, Stanley Metzger, and Charles Sullivan, and have attempted to include their academic writings within the study. There are great benefits to archival research when analysing the meaning and purpose of FET/ET in investment-focused treaties. Such research enables lawyers to examine state practice first hand, instead of relying on a description of what international legal scholars wrote in the past.10 This is particularly useful as there is continued debate as to the veracity of ‘historical arguments’ to justify a decision about the interpretation of FET/ET.11 Even more fundamentally, international investment

8 I acknowledge that my review of historical sources was dependent on what I found, and this chapter should not be interpreted as covering all possible documents related to the US commercial treaty programme. 9 The State Department is the US federal executive department responsible for international relations of the US. The treaty making process begins with the executive level of government, with the President or the Secretary of State authorizing negotiations. Thereafter, US representatives negotiate terms of the treaty, and upon agreement, the Secretary of State will authorize the final text. The President will submit the treaty to the Senate, where the Senate Foreign Relations Committee will consider the treaty and report it to the Senate. If the Senate considers and approves by two-thirds majority, the President ratifies the treaty and will proclaim entry into force. 10 See Randall Lesaffer, ‘International Law and Its History: The Story of an Unrequited Love’ in Matthew Craven et al (eds), Time, History and International Law (Martinus Nijhoff 2011) 27, 36. 11 Roland Kläger, ‘Fair and Equitable Treatment’ in International Investment Law (Cambridge University Press 2011) 48. In this regard, see the

Resolving challenges to historical research

183

lawyers assume that FET/ET was always a treaty rule that provided certain elements of protection to private investors abroad, without ever questioning if this was always the case, or why such a development is worth paying attention to. Yet, legal history derived from primary sources enables any lawyer to understand how and why the FET/ET provision developed, as well as challenge pre-existing scholarship as to its role and development.12 Moreover, legal history can raise interesting questions about society, international relations, politics, and economics, and can bring together these disciplines for advanced study. In effect, it presents a different way to look at international investment law, which is useful when examining the vaguely worded FET/ET legal language. All of these benefits are important when law-makers develop FET/ET clauses for future IIAs:13 history offers the opportunity to move forward from a well-informed base. However, if legal history is important, then the study of it should be done right. As such, this chapter will reflect upon three key methodological challenges that any lawyer would encounter when conducting historical research. I will present each challenge and explain how I resolved it, with examples provided from my research into FET/ET. The chapter proceeds in four parts. Part one discusses the first challenge, which refers to whether historical research can or should be

long-debated issue of whether FET/ET is synonymous with a test for international standards for the treatment of an alien. See Todd Weiler, The Interpretation of International Investment Law: Equality, Discrimination and Minimum Standards of Treatment in Historical Context (Martinus Nijhoff 2013) ch 4; Jan Paulsson and Georgios Petrchilos, ‘Neer-ly Misled?’ (2007) 22 ICSID Review 242. See also Stephen M Schwebel, ‘Is Neer Far From Fair and Equitable? Remarks of Judge Stephen M. Schwebel’ (International Arbitration Club, London, 5 May 2011) accessed 3 March 2017. 12 Compare very different assessments of FET/ET, see Martins Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (Oxford University Press 2013); Patrick Dumberry, The Fair and Equitable Treatment: A Guide to NAFTA Case Law on Article 1105 (Kluwer Law International 2013); Weiler (n 11); Alexandra Diehl, The Core Standard of International Investment Protection: Fair and Equitable Treatment (Kluwer Law International 2012). 13 Compare the different approaches of Article 8.10 Comprehensive Economic and Trade Agreement (CETA) (signed 30 October 2016) accessed 4 March 2017 and the absence of an FET provision in the draft Indian Model Bilateral Investment Treaty Text

accessed 6 April 2015.

184

International investment law and history

divided into explicit time periods, also known as periodization.14 Part two examines the second challenge: defining the subject matter of the historical research, and deciding whether international legal history should exclusively focus on law by studying the history of rules and concepts, or whether to look at law in context, studying its practice, and at how legal institutions work.15 Part three examines the issue of anachronism in legal historical methodology, meaning whether to read the past with knowledge of the present.16 Part four concludes.

II. PART ONE: THE PROBLEM OF PERIODIZATION The first methodological challenge, as in any historical project, is deciding the appropriate timeframe of research. Namely, the first challenge is deciding whether to study a particular time period or problem.17 In this case, I had to decide whether to constrain the time period to the US commercial treaty programme when working with the archived documents. I began with an established time period of 1946 to 1956 to organize my research. I chose this particular time period for two reasons. First, following the conclusion of the Second World War, the US government engaged in several multilateral and bilateral negotiations, and completed most of its modernization of its standard draft commercial

14

See Ingo J Hueck, ‘The Discipline of the History of International Law’ (2001) 3 Journal of the History of International Law Hist 194, 197. For a great discussion on periodization, see Oliver Diggelmann, ‘The Periodization of the History of International Law’ in Bardo Fassbender and Anne Peters (eds), The Oxford Handbook of the History of International Law (Oxford University Press 2012) 998. 15 This challenge draws from the debate in legal history as to whether to study the law from an ‘internal’ perspective, ‘a history of lawyers’ law’, or an ‘external’ perspective, acknowledging that rules do not exist in a vacuum and, as such, legal history should examine how law operates in social, political, and economic life. David Ibbetson, ‘Historical Research in Law’ 2012 Oxford Handbooks Online 863, 864 accessed 4 March 2017. 16 In other words, a project that finds facts that speak to the present, but perhaps meant very little at the time. 17 Robin G Collingwood, The Idea of History: With Lectures 1926–1928 (Jan Van Der Dussen ed, Oxford University Press 2005) 281 (noting Lord Acton’s precept, ‘Study problems, not periods’).

Resolving challenges to historical research

185

treaty model to protect and promote private investment in the decade following the war. Second, I found that the study of FET/ET in this time period had been only briefly mentioned as a precursor to the more substantial discussion of FET/ET found in states’ bilateral investment treaties.18 Therefore, it was a promising area for undertaking archival research to gain insights into why Americans chose these terms for international law protection of investors. Although I defined a starting point (at the close of the Second World War where the Americans began drafting treaties and policy regarding international investment), it remained difficult to know how to compartmentalize the archival materials, and ignore that which came before and after this time period. The time period selected for archival research was relatively arbitrary, and would inevitably exclude certain events and influences that followed and preceded it. As Oliver Diggelmann noted, ‘any period is an abstraction from the historical process;’ it will inevitably appear as ‘inadequate to some extent’.19 Thus, the important focus was the US government’s development of investment-focused commercial treaties and not a particular time period per se. Yet, it was only after first completing my narrow investigation that I came to realize that a broadening of the timeframe was necessary.20 ‘[T]he choice of the place and the moment cannot be uninfluenced by what we know of the general context’, Martti Koskienniemi remarked, ‘[t]he narrative moves back and forth between a wider and a narrower scale in order to gradually come to a clearer view of its object’.21

18 See, for example, United Nations Conference on Trade and Development (UNCTAD), ‘Fair and Equitable Treatment’ UNCTAD Series on Issues in International Investment Agreements II (United Nations, New York and Geneva 2012) 5 accessed 4 March 2017. 19 Diggelmann (n 14) 1002, 1003. 20 Martti Koskenniemi, ‘Vitoria and Us, Thoughts on Critical Histories of International Law’ (2014) 22 Rechtsgeschichte – Legal History 119, 132 (noting that ‘[i]t seems likely that we can choose the appropriate wide lens only once we have grasped [the topic] in a narrow focus, writing in a specific place at a specific moment’). 21 ibid 132.

186

International investment law and history

Although it appears that the Americans were the first to connect FET/ET to investment promotion and protection, the US government had not invented the concept of FET/ET from scratch.22 Following the Second World War, the US government relied on its trade agreement model for post-war economic development and investment abroad.23 In light of the failure to achieve satisfactory multilateral agreement on investment protections under the International Trade Organization (ITO), the Americans elected to rely on a bilateral approach and retooled their inter-war trade and navigation-focused commercial treaties to address the new need for investment promotion.24 Therefore, I moved ahead on two fronts – to study the development of FET/ET in the context of investment protection, and to understand whether there were connections to the purposes of FET/ET in the context of international trade regulation in the early part of the 20th century. A. FET/ET in the International Trade Context25 Throughout the first half of the 20th century, the concept of FET/ET and its corresponding treaty language served several roles within the international trade context, including (but not limited to) a new approach to 22 The terms FET/ET, or similar terms, had been stipulated in various areas of international law and international dispute settlement mechanisms prior to the 20th and 21st centuries. See Paparinskis (n 12) 86–88; see Weiler (n 11) 184–190. While outside the scope of this chapter, Dr Kate Miles provides an excellent review of the history of foreign trade and investment systems during the 17th to early 19th centuries, noting how closely these rules were connected to the methods of commercial expansion adopted by European and North American powers, see generally, Kate Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press 2013) 17–123. 23 See Herman Walker Jr, ‘Treaties for the Encouragement and Protection of Foreign Investment: Present United States Practice’ (1956) 5 American Journal of Comparative Law 229, 230–231. Regarding the regulation of trade, the US post-war policy was largely concentrated upon the multilateral General Agreement on Tariffs and Trade (GATT). See General Agreement on Tariffs and Trade (30 October 1947) 61 Stat A-11, TIAS 1700, 55 UNTS 194. 24 Walker (n 23) 231; see Department of State to HICOG, Outgoing Airgram A-164 (28 July 1953) file 611.62a4/6-2653, 1950-54 CDF, RG 59, USNA 2; see ABA Section of International Law and Practice Committee on International Trade, Part V – Committee Reports on International Trade and Investment Division: Report of Committee on Commercial Treaties (ABA 1965) 215. 25 This section draws from Mona Pinchis, ‘The Ancestry of “Equitable Treatment” in Trade’ (2014) 15 The Journal of World Investment & Trade 13.

Resolving challenges to historical research

187

maintaining non-discrimination and ‘proportionate equality’ as between trading nations on a most-favoured-nation basis;26 flexible terminology where more precise rules could not be agreed upon, such as state planning27 and indirect forms of protectionism;28 a solution in cases in which currency disequilibrium or changes in the structure of national economies forced states to adopt measures of quantitative restriction of imports;29 and, synonymous with an inter-state method to find balance between governmental public interest and the needs of private business interests abroad.30

26 It appears that in the trade context, Professor Schwarzenberger equated the standard of ET with ‘equality of treatment’ as achieved ‘on a footing of proportional equality’. This is evidenced by Georg Schwarzenberger’s comment that ‘this standard provides the only means of operating the most-favoured nation standard and of achieving an at least proportionate equality between foreign States’. Georg Schwarzenberger, ‘The Province and Standards of International Economic Law’ (1948) 2 International Law Quarterly 402, 411, 416; see Edward A Laing, ‘Equal International Economic Access and Its Antidote: National Welfare as Legitimate Discrimination’ (1993) 7 Emory International Law Review 337, 355. 27 Department of State to USPOLAD, Outgoing Airgram A-439 (31 December 1951) file 611.944/12-751, 1950-54 CDF, RG 59, USNA; Schwarzenberger (n 26) 411. 28 Pinchis (n 25). 29 Schwarzenberger (n 26) 411; see Friendship, Commerce, and Navigation between the United States of America and the Republic of China (entered into force 30 November 1948) 63 Stat 1299, TIS 1871, art XIX. 30 For example, note the US government’s approach to expropriation from a press statement on 14 August 1939 from the Acting Secretary of State Welles: ‘In the decree of expropriation itself, and on numerous occasions subsequently, the Mexican Government recognized its liability to make compensation and stated its willingness to discuss terms with the petroleum companies concerned. Since that time there have been discussions between representatives of the Mexican Government and of the petroleum companies in an endeavor to come to some fair and equitable treatment. This Government has continuously and consistently sought to facilitate and to further these negotiations by conferring with both sides, first with one and then with the other.’ Green H Hackworth, Digest of International Law (US Govt Printing Office 1942) vol III, 661 (emphasis added).

188

International investment law and history

In 1919, participating states agreed to ‘make provision to secure and maintain … equitable treatment for the commerce of other Members of the League’ within the Covenant of the League of Nations.31 This concept was applied during the League of Nations’ economic conferences to develop multilateral recommendations for restoring global trade, and in particular, rules respecting indirect protectionism.32 Indirect protectionism referred to all indirect and direct regulations designed to modify the conditions of trade; such measures were ‘highly detrimental to the normal and equitable development of international trade’.33 Finding it difficult to develop an exhaustive list of such measures, a subCommission within the League’s economic branch opted to introduce a flexibly written so-called ET clause to address indirect protectionist measures that were otherwise unregulated by the more specific rules in a trade treaty.34 Early iterations of the clause triggered inter-state consultation with respect to ‘any [Member State’s] measure whatever, even of an internal nature, which is liable materially to modify the de facto situation created by the said treaty’.35 While titled the ‘Equitable Treatment’ clause, the final version of the clause did not contain the term ‘equitable treatment’ (although previous drafts did). The sub-Commission on indirect protectionism submitted the following clause to the League of Nations’ Final Report and Recommendations:

31 Covenant of the League of Nations, art 23(e) (signed 28 June 1919) accessed 11 June 2016. Reflection between the contemporary FET investment law clause and the concept of ET as devised by the League of Nations has been raised previously, see Theodore Kill, ‘Don’t Cross the Streams: Past and Present Overstatement of Customary International Law in Connection with Conventional Fair and Equitable Treatment Obligations’ (2007–2008) 106 Michigan Law Review 853; see also Paparinskis (n 12) 88. 32 Pinchis (n 25). 33 Henry J Tasca, The Reciprocal Trade Policy of the States: A Study in Trade Philosophy (University of Pennsylvania Press 1938) 246–247. 34 See Pinchis (n 25) 15. The ET clause was designed to protect and empower states in all forms of domestic action (or inaction), irrespective of whether the treaty terms were breached or not. 35 Pinchis (n 25), citing to League of Nations Secretariat, Note by the Secretariat on the Question of Indirect Protection, League of Nations, Monetary and Economic Conference, Economic Commission, Sub-commission IIIb, London, Doc Conf. M.E/C.E.28 (26 June 1933).

Resolving challenges to historical research

189

If, subsequent to the conclusion of the treaty, one of the Contracting Parties introduces any measure, which even though it does not result in an infringement of terms of the treaty, is considered by the other party to be of such a nature as to have the effect of nullifying or impairing any object of the treaty, the former shall not refuse to enter into negotiations with the purpose either of an examination of proposals made by the latter or of the friendly adjustment of any complaint preferred by it.36

The clause afforded inter-state consideration for any complaints regarding any measures, whether or not there was a conflict with the agreement, but had the effect of nullifying or impairing an object of the agreement.37 The key was that although the delegates were unsure of what types of measures to regulate, they viewed it as wise to include treaty language that would address harmful effects. While the League’s recommendations did not lead to a multilateral agreement at the time, the Americans adopted the aforementioned ET clause to enable ‘consultation in the event of nullification or impairment of the agreement by the acts of other parties or by other circumstances’ within their bilateral trade agreements.38 Moreover, the US encouraged the inclusion and expansion of this concept in the negotiations for an ITO.39 The language from the sub-Commission’s final ET clause, with the emphasis on evaluating a measure based on its ‘effect of nullifying or impairing any object of the treaty’, became the crucial language in the so-called ‘non-violation nullification or impairment complaint’ (NVNI) 36 United States Delegation, Suggestion Submitted by the Delegate of U.S.A. Concerning Doc. Conf. M.E./C.E./86 (Indirect protectionism), Economic Commission, Sub-Commission IIIB, London (18 July 1933) (emphasis added); see League of Nations, Reports Approved by the Conference on 27 July 1933, and Resolutions Adopted by the Bureau, UNR 107, Doc C.435.M.220.1933.II (Geneva, 1933). 37 Pinchis (n 25) 53. 38 William A Brown, The United States and the Restoration of World Trade: An Analysis and Appraisal of the ITO Charter and the General Agreement on Tariffs and Trade (Brookings Institution 1950) 21; see Simon Lester and James P Durling, ‘Original Meanings and the Film Dispute: The Drafting History, Textual Evolution, and Application of the Non-Violation Nullification or Impairment Remedy’ (1999) 32 George Washington Journal of International Law and Economics 213, 225. 39 Department of State, ‘Suggested Charter for an International Trade Organization of the United Nations’ Publication No 2598 (September 1946) 23, art 30 ‘Consultation – Nullification or Impairment’. See Robert E Hudec, ‘The GATT Legal System: A Diplomat’s Jurisprudence’ in Robert E Hudec (ed), Essays on the Nature of International Trade Law (Cameron May 1999) 20–22 (originally published in (1970) 4 Journal of World Trade 615–665).

190

International investment law and history

that then became Article XXIII:1(b) of the General Agreement on Tariffs and Trade of 1947 (GATT):40 1.

If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of … (b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, … the contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or proposals to the other contracting party or parties which it considers to be concerned. … .41

Today, though rarely used, the NVNI still serves a valuable role in GATT/World Trade Organization (WTO) practice.42 B. The Connection Between FET/ET and NVNI Finding the connection between FET/ET and NVNI under-explored in the history of the FET/ET clause, I studied how the drafting of the GATT’s NVNI could clarify why the Americans focused on the concept of ET in the context of investment promotion, and, indeed, whether they proposed a similarly purposed clause for their investment treaties. Based upon the historical materials reviewed, I did not locate documentation that connected the GATT’s NVNI to the investment-focused FET/ET

40 Hudec (n 39) 20–22. For more information on the NVNI under Article XXIII:1b of the GATT and how it developed since, see Lester and Durling (n 38); see Robert W Staiger and Alan O Sykes, ‘Non-Violations’ (2013) 16 Journal of International Economic Law 741; see Ernst-Ulrich Petersmann, The GATT/ WTO Dispute Settlement System: International Law, International Organizations, and Dispute Settlement (Kluwer Law International 1997) 143; see Thomas Cottier and Krista Nadakavukaren Schefer, ‘Non-Violation Complaints in WTO/ GATT Dispute Settlement: Past, Present and Future’ in Ernst-Ulrich Petersmann (ed), International Trade Law and the GATT/WTO Dispute Settlement System; Studies in Transnational Economic Law (Kluwer Law International 1997) 149; see WTO Secretariat, ‘Non-Violation Complaints Under GATT Art. XXIII:2’ (Negotiating Group on Dispute Settlement, MTN.GNG/NG13/W/31, WTO, 14 July 1989); see also Sungjoon Cho, ‘Non-Violation Issues in the WTO Framework: Are They the Achilles’ Heel of the Dispute Settlement Process?’ (1998) 29 Harvard International Law Journal 311. 41 GATT, art XXIII:1(b) (n 23). 42 Staiger and Sykes (n 40) 743.

Resolving challenges to historical research

191

clause in US commercial treaties. Nevertheless, from a functional perspective, these provisions share a common purpose: a mechanism to address the ‘incomplete contract’43 between treaty parties, as it was accepted that the other treaty provisions could not completely realize all of the objectives of the treaty.44 Recognizing that it was not feasible to proscribe all harmful acts, the Americans opted for a flexible provision in lieu of a more precise rule.45 This spoke to the ‘fragility of the agreements’ in the post-war period.46 As international trade scholar Robert Hudec remarked: ‘If one wished to keep the agreement afloat, a way had to be found to bend the legal obligations to a mutually acceptable solution.’47 Such flexibility also fed into the State Department’s belief that a ‘constitution-like’ agreement could offer better protections for American investment abroad.48 Particularly due to its strength and economic position following the Second World War, the US sought a legal system for private investment abroad with the construction of constitution-like agreements; agreements that relied on simple and broad language so ‘fundamentals [were] so framed as to preserve their validity over the

43 In contract theory, the use of ‘incomplete contracts’ arises because contracting parties cannot foresee every contingency, which in turn means that it is impossible for the parties to write a complete contract ex ante. For a full discussion of incomplete contracting, see Simon AB Schropp, Trade Policy Flexibility and Enforcement in the World Trade Organization: A Law and Economics Analysis (Cambridge University Press 2009). 44 Contemporary scholars have both raised ‘gap-filling’ as important functions of the GATT’s NVNI and the FET investment clause. Frieder Roessler, ‘Should Principles of Competition Policy Be Incorporated into WTO Law through Non-Violation Complaints?’ (1999) 2 Journal of International Economic Law 413, 416; note similar discussions of FET serving as a ‘gap-filler’, see Rudolf Dolzer, ‘Fair and Equitable Treatment: A Key Standard in Investment Treaties’ (2005) 39 The International Lawyer 87. Both sought to address internal, often de facto, measures where the agreement did not impose direct obligations but could still cause discriminatory effects. 45 Pinchis (n 25) 48; for the GATT, see Hudec (n 39) 19. 46 Hudec (n 39) 20. It also was a political strategy to conceal different views as to what an exhaustive list of harmful state measures should look like. 47 ibid. 48 Herman Walker Jr, ‘The Post-War Commercial Treaty Program of the United States’ (1958) 73 Political Science Quarterly 57, 74 (observing that the treaties ‘deal with subjects within their purview in language of simple elementary principle, of a constitution-like character’).

192

International investment law and history

vicissitudes and changing conditions of an indefinite future’.49 Similar to the inter-war rationale for the ET clause, which sought to regulate harm with broad treaty language that focused on ‘nullifying or impairing effects’, the State Department promoted a ‘general principle of fair treatment’ for situations not otherwise covered by the treaty.50 Another comparison is that both the inter-war trade agreements and post-war investment-focused treaties promoted ‘a good faith approach,’ which included circumstances that escaped the normal treaty commitments.51 As the State Department explained to the Senate Foreign Relations Committee in 1952: ‘[US commercial treaties’] worth rests as much on their equity and reasonableness as on the number and scope of the privileges they specify; and their spirit, which goes beyond the limits and wording of the treaties themselves, is in every way as important as the letter of the undertakings they actually make.’52 Returning to the methodological challenge, the problem with periodization is that history never fits neatly into isolated timeframes. In analysing the historical texts, the rationale for FET/ET stretched outside the confines of the 1946 to 1956-time period I had initially set, and even the confines of traditionally understood investment laws. There is much to learn about the US approach to international treaties when studying FET/ET in investment-focused treaties, even if it runs counter to what for many years has been understood only as a primary, substantive obligation owed to investors. Even though the contemporary FET/ET clause may

49

ibid. For a discussion on the United States’ economic position in the global economy, see Department of State, ‘Commercial Treaty Program of the United States’ Department of Commercial Treaties, Washington, DC No 6565 (1965) 4; see Robert R Wilson, ‘A Decade of New Commercial Treaties’ (1956) 50 American Journal of International Law 927, 928; see Eric V Youngquist, ‘United States Commercial Treaties: Their Role in Foreign Economic Policy’ (1967–68) 2 Studies in Law & Economic Development 72, 79. 50 ‘Summary of the Provisions of the United States-Uruguay Treaty of Friendship, Commerce and Economic Development signed November 23, 1949’ in Hearing Before a Sub. Comm. of the S. Comm. on For. Relns. for Executive D, Executive H: Consideration of Proposed Commercial Treaties with Uruguay and Ireland, 81st cong 2nd sess (4 May 1950) 70. 51 Lester and Durling (n 38) 222; Testimony of Harold F Linder, then Deputy Assistant Secretary of State for Economic Affairs, and later Assistant Secretary in Hearing before a Sub. Comm. for the S. Comm. For. Relns. on Treaties of Friendship, Commerce, and Navigation between the United States and Colombia, Israel, Ethiopia, Italy, Denmark and Greece, 82nd cong 2nd sess (9 May 1952) 6. 52 Testimony of Harold F Linder (n 51) 6 (emphasis added).

Resolving challenges to historical research

193

offer different remedies than the NVNI under GATT/WTO law, there is a shared history. Studying the trade-driven NVNI can help to explain how the American negotiators in the post-war era were mindful of using open-ended provisions to provide a broad and flexible way to ensure that the balance of a negotiated treaty would not be upset by unforeseen circumstances.

III. PART TWO: FINDING THE SUBJECT MATTER OF HISTORICAL RESEARCH Whereas the first challenge related to time, the second challenge relates to subject matter. By subject matter I mean the people, ideas, and events connected with the negotiations of US commercial treaties from 1946 to 1956. The second challenge is about determining whether the history of ‘law’ should go beyond the history of legal rules, principles, and concepts. At first glance, it is difficult to understand whether (and if so, how) to digest all the economic, political, geographic, moral or cultural forces that form the history of ‘law’. As Martii Koskenniemi pointed out ‘what the “law” is that will determine the scope of the study’.53 If the researcher accepts, as I do, that law is more than legal texts, then ‘law is also, and perhaps above all, a social practice involving the operation of powerful public institutions’.54 In this case, historical ‘context’ for FET/ET includes economic interactions, diplomacy, the approaches of those drafters that designed the law, and the development of international financial, monetary, and trade institutions. The second challenge is made more difficult when the audience are lawyers, who may only want to read history for justifying current decisions and are uninterested in extra details.55 In this case, it may appear pointless to engage with non-legal factors; risking the label of ‘descriptive’ and perhaps justifying the strongest criticism for legal history – that history cannot provide normative answers.56 Yet, in my experience, there never was a clean break between legal historical narrative and questions posed about the world of international relations, 53 Martti Koskenniemi, ‘Histories of International Law: Significance and Problems for a Critical View’ 27 Temple International & Comparative Law Journal 215, 234. 54 ibid 218. 55 See Jim Phillips, ‘Why Legal History Matters’ (2010) 41 Victoria University of Wellington Law Review 293, 306. 56 ibid 307.

194

International investment law and history

politics, economics or culture.57 Indeed, Jeremy Webber argued that descriptive historical narrative is necessary ‘to develop the law in a manner sensitive to its actual social impact’.58 Much of this challenge stems from the fact that reviewing thousands of documents can be an overwhelming undertaking. The legal historian is left with thousands of facts and details that all provide information of the time and space where people and their projects developed an understanding of law. A core part of understanding scope is knowing how to present depth without rambling, something which would certainly alienate a lawyer or law-maker. Therefore, legal historical methodology must operate like any scientific empirical analysis. It must be grounded in a clear plan. As Marc Trachtenberg noted, ‘it does not make sense to simply gather up a mass of facts “like pebbles on the beach”’.59 The second challenge is thus resolved by recognizing that ‘the art of doing historical work consists in large part of knowing how to strike the right balance between the conceptual and the empirical sides of the analysis’.60 This includes restraining oneself from providing documentation (of an ‘everything but the kitchen sink’ quality) for a particular course of events. Descriptive legal history still centres on a question, or a set of questions. Furthermore, while there may be no agreed approach to determining the relationship between different contexts, Koskenniemi stated that it ‘remains for the historian to weigh and to choose’.61 Thus, the legal historian must recognize that the telling of history will also be shaped by

57 Koskenniemi (n 20) 124; see Anne Orford, ‘The Past as Law or History? The Relevance of Imperialism for Modern International Law’ (IILJ Working Paper 2012/2, History and Theory of International Law Series) 9 accessed 4 March 2017, quoting Judge Ammoun in his Separate Opinion in Barcelona Traction, Light and Power Company, Limited (Belgium v Spain (Second Phase)) [1970] ICJ Rep 3, 286. 58 Jeremy Webber, ‘The Past and Foreign Countries’ (2006) 10 Legal History 1, 10. 59 Marc Trachtenberg, The Craft of International History, A Guide to Method (Princeton University Press 2006) 33. 60 ibid 189. This balancing act stresses the importance of understanding that the concept of FET/ET did not develop in a linear narrative This reflects ‘new stream’ approaches to international law, which challenges the view of history of international law as a ‘narrative of inevitable progress’. Deborah Z Cass, ‘Navigating the Newstream: Recent Critical Scholarship in International Law’ (1996) 65 Nordic Journal of International Law 341, 354. 61 Koskenniemi (n 20) 125.

Resolving challenges to historical research

195

their own context and priorities guiding the narrative.62 In making certain choices about which facts are significant, the legal historian must ‘consciously reflect about the choices they make, and are explicit and transparent about them’.63 In this way, the ‘context’ reflects the historian’s choice.64 Accordingly, my choices will necessarily shape the telling of FET/ET. To explain this challenge, I will provide a brief discussion of the historical record that at first appears extraneous, but is in fact necessary for exploring the complex circumstances that shaped the American understanding of the FET/ET concept. I will explain one aspect of the Americans’ concerns with improving post-war political and economic conditions at home and abroad, and how this laid the groundwork for a legal principle that would be broad enough to capture US priorities, and permit the US government to revisit issues not explicitly governed by treaty language. Before understanding why the State Department included the FET/ET clause within its investment-focused commercial treaties, the first task is to understand a bit more about why the US government sought to focus on investment promotion and protection after the Second World War at all.65 By the conclusion of the war, America was the strongest economy in the world; the most important creditor nation.66 The ‘spotlight was on American business abroad, American lending, and American foreign aid’.67 With this importance on the global stage, American policymakers had ‘a rare and heady opportunity to reshape the guidelines of the international economic order’.68

62

ibid. Bardo Fassbender and Anne Peters, ‘Introduction: Towards a Global History of International Law’ in Fassbender and Peters (n 14) 15. 64 Koskenniemi (n 53) 232. 65 Kenneth Vandevelde has also stressed the importance of studying the US foreign investment policy in the post-war period for understanding the future American bilateral investment treaty programme. See Vandevelde (n 4). 66 See references above n 49. A ‘creditor nation’ can be defined as a country whose accumulated foreign investments exceed its foreign obligations. 67 Mira Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (The President and Fellows of Harvard College 1974) 611; see Wilhelm G Grewe, The Epochs of International Law (Michael Byers tr, Walter de Gruyter 2000) 640. 68 Charles S Maier, ‘The Politics of Productivity: Foundations of American International Economic Policy After World War II’ (1977) 31 International Organization 607, 608. 63

196

International investment law and history

A. The Interaction Between American Foreign Investment and Economic Development At the end of the Second World War, Americans strove to rebuild peace and reconstruct an open, international economy. William Fowler, then Chief of the Division of Commercial Policy in the Office of Economic Affairs for the State Department, emphasized the importance of international trade to expand the material welfare of the United States and to strengthen an economic foundation for sustainable peace.69 Concerned about repeating the mistaken economic policies from the inter-war period, the US government took steps to serve the country’s economic interests with post-war programmes in the fields of currency stabilization, investment for reconstruction, commercial policy, and restoring trade.70 The American business community supported these policies, explaining that US foreign economic policy must ‘embrace the responsibility for promoting and safeguarding the interests of American foreign traders’ and foster ‘the maximum flow of international commerce,’ recognizing the ‘mutuality of benefit inherent in all international trade’.71 By the late 1940s, American negotiators saw international development as an important goal – not only to promote the economic interests of the United States, but also connected with the belief that providing economic security to individuals was a key part of political stability.72 In July 1944, meetings were held at Bretton Woods, New Hampshire, to address international monetary problems and plan for the revival of world 69

‘Commercial Policy Objectives: Address by William A. Fowler’ (1944) 11 Department of State Bulletin 317. 70 Brown (n 38) 47–51. 71 National Foreign Trade Council, ‘Final Declaration of the Thirty-Third National Foreign Trade Convention, New York City, November 11, 12, 13, 1946’ (National Foreign Trade Council 1946) 8, 12 (The Council also stated that the ‘economic well-being of the United States is bound up inextricably with the economic well-being of the world as a whole’.). See also International Chamber of Commerce, ‘Report of the Committee on the Flow of Capital for Consideration by the Executive Committee of the United States Associates’ (New York, 29 October 1946) pt 1. For a discussion of the influence of the business community on the US government’s actions at this time, see Vandevelde (n 4) 106–114. 72 Eric Helleiner, Forgotten Foundations of Bretton Woods (Cornell University Press 2014) 12 (explaining that ‘American support for international development also grew out of some values of Roosevelt’s New Deal’); see Cordell Hull to President Roosevelt, Letter and enclosed Memorandum (20 November 1943) ITO Subject File, 1933-50, Entry A1-698, RG 43, USNA 3 (‘[I]nternational political stability cannot be hoped for except against a background of reasonably good economic conditions.’).

Resolving challenges to historical research

197

commerce, leading to the eventual construction of the International Monetary Fund and the International Bank for Reconstruction and Development.73 The purpose of the Bretton Woods meetings was to chart the creation of a new, cooperative, international monetary order and a plan for international development, which would help foster new export markets and facilitate foreign investment.74 In January 1949, President Harry S Truman proposed a ‘bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of under-developed areas’.75 The fourth point of Truman’s address provided the following course of action: I believe that we should make available to peace-loving peoples the benefits of our store of technical knowledge in order to help them realize their

73

The stated purposes of the Fund were ‘to facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment … to promote exchange stability … and to avoid competitive exchange depreciation’; the purpose of the International Bank was ‘to promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investments for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living and conditions of labor …’. ‘Dumbarton Oaks Proposals’ (1944) 11 Department of State Bulletin 594; see Wilkins (n 67) 555; see also Charles Lipson, Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (University of California Press 1985) 86–87. For an excellent discussion on the history of the Bretton Woods accords, see Helleiner (n 72); see Benn Steil, The Battle of Bretton Woods John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton University Press 2013). 74 Dean Acheson, ‘The Bretton Woods Proposals as Part of Post-War Organization’ (1945) 12 Department of State Bulletin 319, 352–353; Helleiner (n 72) 9–12. See also Michael French, US Economic History Since 1945 (Manchester University Press 1997) 197; but see Wilkins (n 67) 555 (observing that ‘[f]oreign investment in the United States was barely at the margin in the deliberations; it only sneaked in the side door when the British balance of payments was discussed, when inter-Allied obligations were pondered, and when there was the ongoing dialogue about the treatment of “looted” property – property that Germans had spirited (or might spirit) out of Germany or had accumulated in occupied and neutral lands’). 75 President Harry S Truman’s Inaugural Address (Washington, DC, 20 January 1949) accessed 20 July 2015; see also Gertrude Samuels, ‘Plans Are Underway to Implement Point 4’, New York Times (New York, 10 April 1949) 1.

198

International investment law and history

aspiration for a better life. And, in cooperation with other nations, we should foster capital investment in areas needing development.76

The US government promoted a cooperative programme, one that was ‘based on the concepts of democratic fair dealing’.77 Secretary Dean Acheson recalled that Mr Henry Garland Bennett, then Administrator of the Technical Cooperation Administration, observed that this programme was a ‘simple, down-to-earth- self-help program designed primarily to assist other peoples in increasing their food production, bettering their health conditions, and improving their educational systems’.78 While there was greater emphasis on technical assistance in the inaugural address, President Truman’s message to Congress on 24 June 1949 paid even greater attention to the encouragement of private American capital and foreign investment abroad.79 These efforts stemmed from point four of Truman’s address, the so-called ‘Point Four’ programme, and were moved forward with the Act for International Development.80 The goal of the programme was to provide technical assistance for the less developed areas of the world, which became tied to fostering capital investment.81 Key methods for

76

ibid. Department of State, Memorandum for the President: Progress Report on Point IV from the Secretary of State Acheson to President Truman, with enclosure ‘Objectives and Nature of the Point IV Program’ file 800.50 T.A./31449, RG 59, USNA, 1949 FRUS vol I, National Security Affairs Foreign Economic (1976) 757, 782. 78 Dean Acheson, ‘What Is Point Four? Address by Secretary Acheson’ (1952) 26 Department of State Bulletin 158. 79 Thomas G Paterson, Meeting the Communist Threat: Truman to Reagan (Oxford University Press 1990) 153; see President Truman’s Special Message to the Congress Recommending Point 4 Legislation (24 June 1949) accessed 20 July 2015. 80 Title IV, Foreign Economic Assistance Act of 1950, Pub L 535, 81st cong 2nd sess (HR 7797), ch 220, 64 Stat 204 (5 June 1950) (FEAA); see Wilkins (n 67) 286. In 1949, the Point Four programme of technical assistance was known in Latin America as the ‘the IIAA program’ (Institute of Inter-American Affairs). See Willard L Thorp, ‘Accomplishments of Institute of Inter-American Affairs’ (1949) 20 Department of State Bulletin 795 (for statement by Willard L Thorp before the Senate Foreign Relations Committee on June 10 1949). Assistant Secretary Thorp was responsible for developing a programme of technical assistance based on President Truman’s fourth point. 81 ‘World Response to the Point-4 Program, Interview with Assistant Secretary Thorp over the Voice of America on June 9, 1949’ (1949) 20 Department of State Bulletin 774; Letter and enclosed Memorandum (20 November 1943) Entry 77

Resolving challenges to historical research

199

foreign investment included: private loans and equity investments, governmental loans and grants, and international loans and grants.82 As Point Four was translated from a statement of purpose into a solid programme, the US government recognized that ‘development can not take place without actual capital investment’.83 In addition to initiating lending through the Export-Import Bank and the International Bank, the United States recognized that one of the most valuable steps to ‘sharing knowledge and skills’ was encouraging a revival of private capital movements and US investment abroad.84 Thus, US foreign credits and private foreign investment were viewed as ‘integral’ to American foreign policies, as they were ‘designed to facilitate the expansion of production and trade, to raise standards of living, and to foster economic and social progress and development’.85 Despite the importance of promoting investment abroad, various political and economic obstacles concerned the US government, as well as the American business community.86 At the heart of these issues was the

A1-698, RG 43, USNA (n 72) 3 (explaining that foreign capital was necessary for improving conditions and raising living standards abroad). 82 UNESCO, ‘Economic Development of Underdeveloped Countries – Methods of Financing the Economic Development of Underdeveloped Countries’ UN Doc E/1333 (7 June 1949). 83 Editorial, ‘Point Four: A Re-Examination of Ends and Means’ (1949) 59 Yale Law Journal 1277, 1278. See also references above n 81. 84 Memorandum for the President (n 77) 774, 779. The business community also recognized that foreign investment was important for ‘speeding up the economic growth of the underdeveloped areas of the world’. Michael A Heilperin, rapporteur for the International Chamber of Commerce, ‘Foreign Investments and Economic Expansion: Resolution and Report of Committee prepared by Dr. Michael A Heilperin, Brochure no 107’ (March 1947) 11 (ICC Brochure No 107). 85 Policy Information Committee, Department of State, Current Economic Developments Issue No 154 (7 June 1948) Lot No 70D467, 1945–57 Master Files of ‘Current Economic Developments’ Entry A1 1579, RG 59, USNA 2. The US government viewed foreign investment policy as a way to ‘mitigate economic fluctuations’ and to ‘minimize barriers to international trade and to eliminate discriminatory restrictions’. Note, the Current Economic Developments (CED) was a weekly publication marked ‘secret’, and was developed by the Policy Information Committee of the State Department to detail developments in the economic divisions of the State Department. See also Special to The New York Times, ‘Investment Pacts for Point 4 Urged’ New York Times (1923–Current file) (New York, April 8 1949) 4; see also ‘World Response’ (n 81) 775. 86 See ICC Brochure No 107 (n 84); AL Kirkpatrick, Chamber of Commerce of the United States to Willard L Thorp, Department of State, Letter dated

200

International investment law and history

rising interference of the government in economic life. After the war, several countries sought strategies to insulate their economies and peoples from outside economic developments.87 While the US government accepted foreign state ownership of infrastructure, it was believed that the growth of economic nationalism,88 the increase of nationalizations,89 and unstable exchange relations between national currencies created unfavourable conditions for the promotion of American investment abroad.90

28 March 1952, file 611.944/3-2852, 1950-54 CDF, RG 59, USNA; see Statement by Mr Willard Thorp, Assistant Secretary of State for Economic Affairs (n 51) 25; see Kenneth W Dam, The GATT: Law and International Economic Organization (University of Chicago Press 1970) 13–14. 87 These measures were largely undertaken by war-torn European countries, Latin America and the Far East, but this period was marked with a fight over control of natural resources in many Asian, African and Latin American countries by European and North American powers. See Lipson (n 73) ch 4; see also ICC Brochure No 107 (n 84) pt 2. 88 Economic nationalism is perhaps best defined as ‘a body of economic policies aimed at the loosening of the organic links between economic processes taking place within the boundaries of a country and those taking place beyond these boundaries’. Michael A Heilperin, Studies in Economic Nationalism (Librairie E Droz 1960) 27. William Rappard defined economic nationalism as ‘policy of national self-sufficiency’. In this context, Rappard explained that economic nationalism, as defined by its underlying purpose, ‘was a doctrine destined to serve the nation by making it not richer, but freer, by promoting not its material welfare, but its independence of foreign influences’, William E Rappard, ‘Economic Nationalism’ in Harvard Tercentenary Conference of Arts and Science (ed), Authority and the Individual (Harvard University Press 1937) 74, 83–84. Economic nationalism also raised fears about greater restrictions on the freedom of international payment. For debtor countries, any restrictions on payments made the servicing of foreign debts and fostering other investments very difficult. ICC Brochure No 107 (n 84) 6, 14–16. See Kirkpatrick to Thorp (n 86). 89 See Bernard F Haley, ‘The Trade-Agreements Program in a System of World Cooperation’ (1945) 22 Department of State Bulletin 638; see Lipson (n 73) 100–101; see also HP Connell, ‘United States Protection of Private Foreign Investment Through Treaties of Friendship, Commerce and Navigation’ (1961) 9 Archiv des Völkerrechts 256, 258 (explaining that ‘[n]ationalization is a compulsory taking of private property into public ownership. When the taking is accompanied with the payment of adequate compensation, the taking is expropriation. When the taking is not accompanied with the payment of adequate compensation, the taking is a confiscation’). 90 Edward G Miller, ‘A Favorable Climate for Foreign Investment’ (1950) 22 Department of State Bulletin 231–234; see ICC Brochure No 107 (n 84) 6, 11.

Resolving challenges to historical research

201

Concerns with economic nationalism and collectivism91 heightened while the Americans faced a power struggle with the Soviet Union; this conflict encompassed several dimensions, as it was also very much ‘a fundamental intellectual and ideological confrontation: liberal democracy versus totalitarian dictatorship, free market economies versus command economies, intellectual and cultural freedom versus Marxist-Leninist dogma and party censorship’.92 By the late 1940s, debates regarding international development and the global economy turned with concerns of Soviet aggression and the worry of Communist influence spreading.93 With the onset of the ‘Cold War’, the United States acknowledged a new security situation, which impacted subsequent foreign economic policies and saw the emergence of ‘emergency-type’ activity, such as temporary foreign economic assistance programmes, and ‘economic defence’ strategies, such as with the acceleration of the United States defence programme under the Defense Production Act of 30 June 1950.94 91

Economic nationalism was bound up with collectivist philosophies and policies. Heilperin defined ‘collectivism’ as ‘a concept of society which places the collectivity at the head of all social values and subordinates to it all the individuals it comprises’, Heilperin (n 88) 30. 92 Grewe (n 67) 642. 93 Helleiner (n 72) 265; see Wilkins (n 66) 285–286; see Lipson (n 72) 101. Such concerns were a factor for the US government in supplementing economic and military assistance to the non-communist West. Efforts included the European Recovery Program (launched by the ‘Marshall Plan’) in June 1947 and the USD 11.5 billion of Marshall Aid between 1948 and 1951. The goal was for the reconstruction of Europe. Several ideas shaped the plan. First, the view that ‘the gravest threat to western interests in Europe was not the prospect of Soviet military intervention, but rather the risk that hunger, poverty, and despair might cause Europeans to vote their own communists into office, who would then obediently serve Moscow’s wishes’. Other efforts included the establishment of the North Atlantic Treaty Organization (NATO) in 1949, whereby the United States offered military equipment, materials and services pursuant to the 1949 Mutual Defense Assistance Act. For more information, see John Lewis Gaddis, The Cold War. The Deals. The Spies. The Lies. The Truth (Penguin Books 2005) 32. The Truman administration also supplied Marshall Aid to support European and Japanese reconstruction efforts. Such efforts were sustained by devaluations in Europe and Japan, tariff reductions, and the flow of US government lending and private investment; see French (n 74) 198. 94 ‘The Forms of United States Foreign Economic Policy: The Impact of the United States Defense Effort Upon United States International Economic Relationships’, Editorial Note, 1951 FRUS vol I, National Security Affairs Economic (1979) 1225; Defense Production Act, 64 Stat 798, Pub L 81-774; see Memorandum for the President (n 77) 776. The outbreak of the Korean War in June 1950 also shifted attention away from trade on to security, see Thomas W Zeiler,

202

International investment law and history

There were other obstacles to international development and the Point Four programme. Congress found that technical assistance and capital investment would maximize economic development, provided ‘there is confidence of fair and reasonable treatment and due respect for the legitimate interests of the peoples of the countries to which the assistance is given and in which the investment is made’.95 The US government viewed its role as leader ‘in a society of democratic nations’ such that an important element of a modern treaty programme was ‘helping our neighbors to help themselves’.96 Yet, it was unclear how Americans would dictate to other countries in helping their own nationals.97 Development driven by private capital also posed several concerns to the countries the US government sought to aid, as the goal of commercially profitable investment did not always align with the objectives of development and economic independence.98 Moreover, there were calls that ‘[a]mong the freedoms to which other nations are entitled is freedom from American arrogance concerning foreigners’ ways of doing things’.99 Particularly in Latin America, the Americans would need to properly understand the regional situation, internal politics and reforms needed to achieve cooperation.100 B. Seeking Fairness to Promote Private Foreign Investment To foster private investment, several strategies were discussed by the US government and the business community. To attract foreign capital for the

Free Trade, Free World: The Advent of GATT (University of North Carolina Press 1999) 160–161. 95 FEAA (n 80) sec 402(c). 96 Vernon G Setser, ‘Treaties to Aid American Business Abroad’ (1950) 40 Foreign Commerce Weekly 3, 38. 97 Theodore J Kreps, ‘Point Four and the Domestic Economy’ (1950) 268 The Annals of the American Academy of Political and Social Science 160, 168. 98 For example, two-thirds of direct investment since the war was in mineral resources and extractive industries, particularly oil. It was argued that the ‘fruits of development – higher real income and employment – are largely enjoyed elsewhere’; even if rewards were passed on to the foreign country, they were only enjoyed by a small segment of the population; and, natural resources were ‘often steadily depleted without any permanent addition to the country’s productive equipment’, Editorial, ‘Point Four’ (n 83) 1290–1291; see also Wilkins (n 67) 290. 99 Kreps (n 97) 168. 100 Simon G Hanson, ‘Latin America and the Point Four Program’ (1950) 268 The Annals of the American Academy of Political and Social Science 66.

Resolving challenges to historical research

203

development of a country, the US government observed that ‘conditions must exist for fair and equitable treatment of the investor’.101 Debated strategies included: the US government concentrating on making technical or financial assistance conditional upon the conclusion of commercial treaties, government guaranties, and special tax incentives to promote foreign investment.102 Due to the demise of the ITO and any hope for effective multilateral rules regarding foreign investment, the most substantial means of encouraging the participation of private capital in world reconstruction and development by the US government became the expansion and modernization of its network of bilateral commercial treaties.103 Equally, the business community advocated the idea of fair treatment for foreign investments abroad, and encouraged the use of bilateral investment-focused treaties.104 Another important aspect of offering security to Americans investing capital abroad was the US government’s emphasis that these treaties were essentially constitution-like in nature.105 The State Department explained that a US commercial treaty ‘aims at establishing the rule of law in our everyday relations with the country concerned’.106 The State Department also described these commercial 101

‘World Response’ (n 81) 775 (two instances cited: i) no unjust taxation, and ii) no excessive interference in local administration). 102 Joint NAC-ECEFP Committee on Foreign Investment Memorandum dated 1 April 1949, file FCN Treaties, International Trade Organization Subject Files, Entry A1 698, RG 43, USNA; Minutes of Meeting (No 123) of the National Advisory Council (Washington, DC, 14 April 1949) NAC files, Lot 605137, FRUS, 1949, vol 1 (1976) (n 77) 757, 784; see Michael A Heilperin, ‘Private Means of Implementing Point Four’ (1950) 268 The Annals of the American Academy of Political and Social Science 54, 62–63; see Editorial, ‘Point Four’ (n 83) 1293 et seq; see Kevin M Casey, Saving International Capitalism During the Early Truman Presidency: The National Advisory Council on International and Monetary Problems (Routledge 2001) 165. 103 Statement of Charles E Boehlen, Counselor, Department of State in Hearing before a Sub. Comm. of the S. Comm. on For. Relns. 80th Cong., 2nd Sess. on a Treaty of Friendship, Commerce and Navigation between the United States of America and the Republic of China, together with a protocol thereto, signed at Nanking on November 4, 1946, 80th cong 2nd sess. (26 April 1946) 4. 104 International Chamber of Commerce, International Code of Fair Treatment for Foreign Investments, Together with a Resolution of the I.C.C. and an Introductory Report by Its Committee on Foreign Investment, Brochure No 129 (Spring 1949) (ICC Brochure No 129). 105 Walker (n 48) 74. 106 S Comm For Relns, Hearing, re FCNs with Colombia, Israel, Ethiopia, Italy, Denmark and Greece (n 51) 3.

204

International investment law and history

treaties as ‘a charter of the American citizen’s rights when he is in a foreign country’.107 Returning to the methodological challenge, this brief discussion highlights the complexity of the American efforts for encouraging the world into an era of economic cooperation and development. In the eyes of Michael Heilperin, then economic advisor to the International Chamber of Commerce, the United States was the only state capable of effectively ‘slay[ing] the dragon of economic nationalism’.108 Yet, slaying such a dragon required a number of swords. While outside the scope of this chapter, flexible treaty language based on core concepts would prove to be one such sword, which was made apparent by the US intragovernmental and non-governmental efforts tasked with providing guidance for the satisfaction of America’s international goals. At face value, the second challenge is about organization – how to digest vast amounts of historical evidence. However, looking deeper, this second challenge is about acknowledging the many contributing factors that shape legal knowledge. It is resolved by considering the political, economic, moral, and cultural factors that have shaped the history of ‘law’; this helps place the ‘law’ in ‘context’ for the researcher, and highlights the point that the ‘law’ has a place in politics, economics, culture, and society as well.109 To use an analogy, the legal language FET/ET is just the tip of the iceberg to a large body of historical materials that tell a story about economic restoration, diplomacy, treaties, etc. As I mentioned from the start, there were many contributing factors that shaped how the US government turned its commercial treaties into investment-focused ones. While this description may not have canvassed every fact, this introduction sets the stage for future analysis of the treaty language chosen to fulfil these objectives.

107 ibid 1. In 1952, a Fact Sheet from the State Department noted: ‘When an American goes abroad, these treaties can be for him much the same sort of shield that the Constitution is at home. They serve as a charter of his rights when he is in a foreign country.’ See Department of State, Office of Public Affairs, Fact Sheet ‘Commercial Treaty Program of the United States’ (March 1952) file FCN treaties, Entry A1 3042, Country and Subject Files, 1939–58, RG 59, USNA 1. 108 Heilperin (n 88) 154. 109 See Jacob K Cogan, ‘Review of Bardo Fassbender and Anne Peters eds., The Oxford Handbook of the History of International Law (2012)’ (2014) 108 American Journal of International Law 371, 375. As Koskenniemi (n 20) explained, what a legal historian understands as ‘context’ is dependent upon their own knowledge. This point is picked up again in the third and final challenge.

Resolving challenges to historical research

205

IV. PART THREE: CONTEMPORARY KNOWLEDGE IN HISTORICAL WORK The primary objective of my historical research was to avoid relying on assumptions and claims about the past. The goal for my research was to offer an ‘analysis of history in its own right’.110 However, for many judges, lawyers and scholars, history is useful to discover the nature of present obligations.111 Randall Lesaffer offered a powerful criticism to such a ‘functional’ relationship to history, arguing that it ‘clouds historical realities’ by approaching the past only ‘in terms of similarities and differences from the present, and not in terms of what it was’.112 For several historians, historical method ‘begins by putting the past in its place’.113 The third challenge is whether to digest the historical record with an awareness of the law’s subsequent evolution. How would knowing the current debates about FET/ET affect my methods? In a way, this challenge also speaks to whether legal history is about resolving contemporary problems, or is history for its own sake. While there are different approaches to researching legal history, most legal historians agree that the past can be used in multiple ways. A. Developing a Strategy for Defining FET/ET Bearing in mind the benefits of approaching legal history from the perspective of a lawyer, I resolved to undertake my historical research in two stages.114 As Lesaffer described, ‘before one can learn something from the past other than what one knows from the present, one first has

110

Lesaffer (n 10) 27, 38. Anne Orford, ‘On International Legal Method’ (2013) 1 London Review of International Law 166, 171; Orford (n 57) 9 (‘Law is a site not only for the creation of new obligations but also for the transmission of inherited obligations.’). 112 Lesaffer (n 10) 27, 34; cf Harold J Berman, ‘The Historical Foundations of Law’ (2005) 54 Emory Law Journal 13, 19 (noting that ‘we must look back to the past and forward to the future, asking not only what has happened in the past and what the past tells us is likely to happen in the future but also what in the past we are bound by – what our tradition requires of us now’). 113 Christopher Tomlins and John Comaroff, ‘“Law As …”: Theory and Practice in Legal History’ (2011) 1 UC Irvine Law Review 1039, 1043; see also Christopher Tomlins, ‘The Strait Gate: The Past, History, and Legal Scholarship’ (2009) 5 Law, Culture and the Humanities 11, 22–23. 114 Lesaffer (n 10) 27, 37–38. 111

206

International investment law and history

to let the past be the past – at least as far as humanly possible’.115 In other words, the first step is ‘the analysis of history in its own right and on its own terms’.116 The second step is then examining how the historical evidence ‘can be used in a wider framework, like a long-term evolution’.117 If lawyers are the target audience, it is this second step that will interest them the most. However, this does not mean that an international legal researcher need bypass the first step. Indeed, there is much value to approaching this first step ‘responsibly’.118 Overall, the key approach to balancing the past and the present is to remain aware of blending one’s perceptions into an analysis of historical research, and explaining to the reader when such considerations are instructive.119 With regards to the second step, I discovered that there is opportunity to conduct what John Phillip Reid coined ‘forensic history’, which refers to the use of historical facts as evidence for legal ends.120 In this sense, legal scholars used history for wider inquiries; ‘[t]he purpose of the advocate, unlike that of the historian, is to use the past for the elucidation of the present, to solve some contemporary problem or, most often, to carry an argument’.121 Therefore, I acknowledge the method suggested by Anne Orford, who accepted the ‘legitimate role of anachronism in international legal method’.122 Embracing critique as the purpose of her 115

ibid 37. ibid 38. 117 ibid 38. 118 David J Bederman, ‘Foreign Office International Legal History’ in Craven et al (n 10) 43, 48 (‘[B]ecause history matters to international law, so must responsible historiography.’). 119 Koskenniemi (n 20) 22. 120 John P Reid, ‘Law and History’ (1993) 27 Loyola of Los Angeles Law Review 193, 205, 223. Reid set out to distinguish the lawyers’ work from that of historians. He noted that while ‘forensic history’ may not meet the ‘canons of historians’ history’, it may serve as a valuable ‘method of restraining judicial discretion’. That being said, Reid admitted that it is hard to distinguish this from the use of history as a ‘shield’ for ‘judicial activism’. 121 John P Reid, ‘The Jurisprudence of Liberty: The Ancient Constitution in the Legal Historiography of the Seventeenth and Eighteenth Centuries’ in Ellis Sandoz (ed), The Roots of Liberty: Magna Carta, Ancient Constitution, and the Anglo-American Tradition of Rule of Law (Liberty Fund 2008) 215. 122 Orford, ‘Legal Method’ (n 111) 171–175. Martti Koskenniemi and Anne Orford have identified ‘limits of contextualism’ and responded to concerns about placing history outside its proper temporal domain – ‘the sin of anachronism’ – by pointing out a major issue in the study of history: it is ‘unavoidably – and fruitfully – conditioned by the historian’s prejudices and pre-understandings, conceptual frames and interest of knowledge’. Koskenniemi (n 53) 219–230. 116

Resolving challenges to historical research

207

historical research, she explained that ‘in a sense lawyers are and must be sinners [of anachronism]’ because ‘the past persists in custom and precedent and legal tradition’.123 For international lawyers, an argument about a rule or principle is ‘almost always also an argument about history’.124 In this sense, it may be useful to think about how archived materials relate to ‘a conversation that may persist’.125 To Orford, the meaning of the law need ‘not necessarily heed the neatness of chronological progression’.126 Even accepting legal history as ‘something alive rather than dead’,127 resolving this third challenge requires a delicate balance between trying to understand the past and using it for some practical use. Orford understood that the development of law is comprised of complex phenomena, and that these causal relations deserve study. ‘Choice and evaluation are necessarily part of history as much as any other study’, Martti Koskenniemi opined, and these choices and evaluations ‘reflect an effort to attain a better understanding of the nature of the present’.128 Yet, I did not want to manipulate the historical evidence into a ‘retrospective fantasy’.129 In a way, there is a danger in searching for evidence of current non-historical interpretations of FET, as it may lead to looking to the past for evidence, instead of trying to see how the past differed from the present, or searching for continuity that may not exist. Thus, when analysing historical documents about how the FET/ET clause was understood by the people, times and places examined, I remained conscious and careful about my own pre-understandings and techniques when assessing the historical archival materials.130 Moreover, while I did

Orford observed that ‘[t]he study of international law requires attention to the movement of meaning. … [t]he past, far from being gone, is constantly being retrieved as a source or rationalization of present obligation’. Orford, ‘Legal Method’ (n 111) 175. 123 Orford (n 57) 9. 124 David Kennedy, ‘The Disciplines of International Law and Policy’ (1999) 12 Leiden Journal of International Law 9, 88. 125 Orford, ‘Legal Method’ (n 111) 176. 126 ibid 174. 127 Orford (n 57) 9. 128 Koskenniemi (n 53) 230. 129 Kennedy (n 124) 90 (‘a fantasy that there really is an international law which can be and has been comprehended similarly across time and space …’). 130 See reference above n 122. This includes my review of other historically focused works on FET/ET, which enabled me to shape the questions I had about the differences of opinion found in these works. See Weiler (n 11); see Paparinskis (n 12); see Stephen Vascianne, ‘The Fair and Equitable Treatment

208

International investment law and history

not restrict my use of historical materials, I accepted that the record may be incomplete, or that I may not have found all the working documents available. B. The Connection Between FET/ET and a Minimum Standard of Treatment This challenge became clear when trying to assess whether FET/ET was connected to FET/ET within a minimum standard of treatment of aliens (MST) or the approach taken in the Mixed Claims Commission’s approach in the famous Neer case.131 Let me provide an example as to the danger of reading the present into the past. One reference to a MST could have arisen from a State Department instruction during the negotiations with the Federal Republic of Germany. In these negotiations, the State Department instructed the US representatives that FET/ET, as a guiding principle to resolve circumstances where no treaty rule is ‘applicable’ or where no ‘adequate standard of treatment’ is available, may be relied on when a governmental measure ‘be so arbitrary and so burdensome in its impact on the foreigner as to be grossly unjust’.132 Isolating the Federal Republic of Germany negotiations for a moment, what did the State Department mean by ‘grossly unjust’ governmental measures? The resources I recovered were limited. One example of foreigner ‘harassment’ that did not breach the national treatment rule was provided: ‘A process of superficially objective “classification”.’133 If the State Department was unsure about what sorts of government measures may cause harm, then it makes sense to have a high burden of persuasion, as suggested by the term ‘grossly unjust’. Yet, while the terms ‘grossly unjust’ suggest a high threshold like that discussed in the 1926 Neer dispute, I could not evidence such a claim. Scholars have observed that ‘grossly unjust’ governmental measures

Standard in International Investment Law and Practice’ (1999) 70 British Yearbook of International Law 99. 131 In this decision, the Commission submitted that a governmental act against an alien amounted to an international delinquency when the measure ‘amount[s] to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency so far short of international standards’. LFH Neer and Pauline Neer (US v Mexico) 4 RIAA 60, 61–62. 132 Department of State to HICOG, Department of State Instruction A-544 (30 October 1953) file 611.62a4/10-653, 1950-54 CDF, RG 59, USNA 1. 133 ibid 1.

Resolving challenges to historical research

209

occur when a victim is denied justice.134 But, I did not locate any information that the FET/ET clause in US commercial treaties was derived from, or in support of this specific protection of persons.135 Treaty protections seeking to guarantee citizens a minimum standard to prevent denials of justice were addressed elsewhere in the US post-war standard model draft, notably the article regarding protection and security.136 Moreover, it is unlikely that the State Department’s example referred to a violation of the right of due process, only because due process was addressed in a separate part of the Federal Republic of Germany commercial treaty.137 While today, a connection between the FET clause and the conduct termed ‘grossly unjust’ appears natural, this may be because of the NAFTA award in Waste Management v Mexico.138 Finally, the State Department had the opportunity to support such a stance with a reference to the customary rules for the treatment of aliens, and this opportunity was never taken in the negotiations I reviewed.139 Solely focusing on this one aspect of the State Department’s instruction

134

See Edwin M Borchard, ‘The Diplomatic Protection of Citizens Abroad: Or, The Law of International Claims’ (Published in part as the author’s thesis (PhD) Columbia University, 1914, The Banks Law Pub Co, 1915) sec 130. 135 The absence of any discussion may have been a strategic decision by the State Department, but I did not locate a plan for this in the historical documents I reviewed. 136 See Charles H Sullivan, ‘Treaty of Friendship, Commerce and Navigation: Standard Draft: Evolution Through January 1, 1962’ Department of State, Washington, DC 87 (provided to the author by Todd Weiler, on file with the author). The argument that the concept of ‘denial of justice’ as serving a key element of the ‘protection and security’ standard for centuries is discussed in Weiler (n 11) 166–169; cf Paparinskis (n 12) sec I.3.I and I.3.III. 137 Treaty of Friendship, Commerce and Navigation between the United States of America and the Federal Republic of Germany (adopted 29 October 1954, entered into force 14 July 1956) 273 UNTS 4, art V(4). 138 Waste Management, Inc v United Mexican States, ICSID Case No ARB(AF)/00/3, Award (30 April 2004) para 98 (‘the minimum standard of … fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic …’). 139 This point resembles Christoph Schreuer’s argument that ‘as a matter of textual interpretation, it is inherently implausible that a treaty would use an expression such as “fair and equitable treatment” to denote a well-known concept such as the “minimum standard of treatment in customary international law”. If the parties to a treaty want to refer to customary international law, it must be presumed that they will refer to it as such rather than using a different expression’, Schreuer (n 1) 360.

210

International investment law and history

does not plainly demonstrate that the US government believed that FET/ET should assure a MST to private foreign investment. Such a conclusion would require evidence of a clear message to this effect in the commercial treaty negotiating documents.140 This suggests to me that despite my earlier remarks regarding examining a broad scope of historical evidence to form a fuller analysis of historical texts, there is a caveat for international legal researchers. Assumptions based on a foundation from the future can lead a lawyer to abuse time and space to craft an argument that will support his/her claims.141 This is what turns a sincere effort to evoke lessons from a narrative of the past into a skewed telling of history that force conclusions that lack evidentiary support. Professor David J Bederman chastised such strategies as ‘law office history’.142 That being said; thinking about these historical details ‘in context’ can include looking at ‘a conversation that may persist … across centuries’.143 In this sense, the State Department’s reflections on FET/ET in the negotiations with Germany demonstrate a developing awareness to its application ex post. This important development leads to broader discussion about how the Americans understood the goals of FET/ET and why decisions about investment promotion took shape the way they did. It is in this sense that a second phase of historical study may be better classified as a study of ‘the past as law’ instead of ‘the past as history’.144 In other words, ‘the past as law’ is about understanding the way legal knowledge evolves, where it is important to study how concepts came to be developed, and

140 A richer analysis of the connections between FET/ET and an international MST based upon the commercial treaty negotiating documents reviewed is found in Pinchis-Paulsen (n 2) ch 3. 141 Reid (n 120) 201 (noting the danger of ‘disguise[d] advocacy in the mantle of history’). 142 Bederman (n 118) 43, 46. As provided by Bederman, attributes of this sort of history are: (1) a lack of analytic rigour in historical investigations; (2) selective use of historical materials; (3) sloppy or strategic methodologies in the review of historical sources; (4) overt or implicit instrumentalism in the selection of historical data and/or the conclusions drawn from such materials; and (5) an unwillingness or inability to reconcile conflicting sources, or an inability to accept ambiguity or incompleteness in the historical record. See Reid (n 120) 202, citing to Alfred H Kelly, ‘Clio and the Court: An Illicit Love Affair’ (1965) The Supreme Court Review 119, 156 (noting a problem with ‘law office history’ is the danger of lawyers ‘ask[ing] questions of the past that the past cannot answer’). 143 Orford, ‘Legal Method’ (n 111) 176. 144 ibid 177.

Resolving challenges to historical research

211

‘how legal techniques have given such concepts … authority and meaning’.145

V. CONCLUSION In summary, the three challenges presented in this chapter all speak to how I began my research. For me, it all starts with having an aim for historical analysis – to have a strong idea of what you are looking for is critical for the working international legal researcher. A lot of effort must go into the early phases of historical research, and it all begins with finding the correct question.146 With a starting question, you can map out the historical landscape and avoid becoming lost in the archived materials. However, even in the best of times, it is easy to become confused or overwhelmed by the depth and breadth of materials available. Even a well-defined project can unravel very quickly, particularly as you begin to recognize the many participating actors, institutions and influences shaping even the most basic question. This was particularly true for my investigation of an international investment treaty provision that passed through many hands, and could have been transplanted from trade talks or domestic legislation. From my experience, there is no straightforward approach to historical research. As this chapter suggests, there are diverse and broad voices on the subject. More recently, international legal scholars Orford and Koskenniemi observed that ‘strictly chronological compartmentalizations are inappropriate for legal history’.147 Moreover, both argue that the study of history ‘is unavoidably – and fruitfully – conditioned by the historian’s prejudices and pre-understandings, conceptual frames and interest of knowledge’.148 In determining the relevant ‘context’ for study, both note that critical legal history can involve questions that speak to cultural, political and economic accounts that stretch beyond a specific moment in time, or a specific historical document. At the same time, there is great value in the cautions presented by other international legal historians. Specifically, the danger of Reid’s and Bederman’s so-called

145 Anne Orford, ‘Food Security, Free Trade, and the Battle for the State’ (2015) 11 Journal of International Law and International Relations 1, 24–25. 146 Collingwood (n 17) 269, 281 (championing ‘scientific history’ and noting that ‘[s]cientific historians study problems: they ask questions, and if they are good historians they ask questions which they see their way to answering’.). 147 Koskenniemi (n 20) 123; see also Orford, ‘Legal Method’ (n 111). 148 See reference above n 122.

212

International investment law and history

‘law office history’ and Lesaffer’s concern regarding international legal history that is based on ‘broad and vague assumptions that rather bear witness to present-day concerns than to historical reality’.149 The history of FET/ET I hope to draw attention to is one that looks beyond traditional legal sources – one that looks at the influence of individuals, economic mandates, social ideas, and matters of security or business.150 This is what drove my interest in the study of FET/ET, and which led to my looking even beyond straightforward treaty negotiation texts, as described in the introduction. Legal practitioners, Webber explained, speak in an ‘exhortative mode’ to argue normative outcomes, finding less interest in a ‘descriptive’ legal history that looks to ‘the law as it was lived and experienced’.151 Yet, Webber observed that law reform and legal arguments generally ‘depend on judgments about how the law operates in practice’.152 Jacob Katz Cogan makes a similar statement, noting that international legal history could benefit from studying how historians focus on ‘the social context of law’.153 In the end, there is great value in all of this guidance. A legal researcher studying history within international investment law will surely approach the research mindful of specific questions. There is nothing wrong with this, as it can help the researcher maintain a strong direction – something that is necessary when working with boxes of archived documents. At the same time, the purpose of legal history is not just to provide answers to contemporary problems. Historical material must first be understood on its own terms, with all its ‘complexities, ambivalence and ambiguity’.154 This aligns with the view that an international legal researcher must also be aware of the way their choices are affecting the historical research. These challenges play into cultivating skills for engaging with historical research.

149

Lesaffer (n 10) 27, 32; see n 142. See Webber (n 58); Cogan (n 109). 151 Webber (n 58) 6–7, 9. 152 ibid 10. 153 Cogan (n 109) 375. 154 Matthew Craven, ‘Introduction: International Law and its Histories’ in Craven et al (n 10) 1, 16. 150

8. The evolution of contractual protection in international law: Accessing diplomatic archives, discovering diplomatic practice, and constructing diplomatic history Jean Ho* I. INTRODUCTION Before investment treaties emerged as instruments of investment protection, investors sought diplomatic protection from their home states in contractual disputes with host states. As the exercise of diplomatic protection is discretionary, states rarely justified intervention or nonintervention in contract claims in legal terms.1 Characterizing contractual breaches by host states as violations of international law which warranted diplomatic protection was the exception, not the norm. In contrast,

* Independent research on French and UK diplomatic practice was conducted at the Centre des Archives Diplomatiques de la Courneuve in Paris, a building which serves as the official archive of the French Ministry of Foreign Affairs, and at the National Archives at Kew, a building which serves as the official archive of the UK government, from January to August 2013. Copies of all documents retrieved from the French and English archives and which are cited in this chapter are on file with the author. The references to the diplomatic documents cited follow the references supplied in the indexes at La Courneuve and Kew. For added clarity, references in this chapter to documents retrieved from La Courneueve are prefaced with ‘La Courneuve’ (for example, La Courneuve, 179CPCOM/412), while those retrieved from Kew are prefaced with ‘Kew’ (for example, Kew, FO 371/9983, C15708/15708/37). The usual disclaimers apply. 1 FA Mann, ‘The Law Governing State Contracts’ (1944) 21 British Yearbook of International Law 11, 14. 213

214

International investment law and history

characterizing contractual breaches by host states as violations of international law is de rigeur whenever investors seek treaty protection for their contractual rights. This is because the universe of investment treaties, with a few recent outliers,2 regulates investment protection without specific reference to contracts. The existence of treaty protection for contracts is often contingent upon a showing that a breach of contract has violated open-textured treaty thresholds such as observance of undertakings (better known as umbrella coverage) or fair and equitable treatment (FET).3 Therefore, in order for the investor to benefit from treaty protection, it becomes necessary to establish that a breach of contract is simultaneously a breach of treaty. At first glance, the shift from diplomatic protection to treaty protection in contractual disputes between investors and states, and the different considerations each entails, may discount the contemporary relevance of historical findings. After all, the scope of contractual protection under investment treaties should be a matter of treaty interpretation, and not historical exegesis. However, notwithstanding significant changes over time in the mode of securing contractual protection, reservation to the characterization of simple contractual breaches by states, like nonpayment, as violations of international law persists in investment treaty arbitration. It is manifested when arbitral tribunals favour a restrictive interpretation of treaty clauses that plausibly elevate simple contractual breaches to treaty violations. In particular, tribunals often dismiss the 2

One example is Article 9.4(5) of the 2015 Singapore-EU Free Trade Agreement, which regulates the protection of investors against state interference with ‘contractual written obligations’ (footnotes omitted): ‘Where a Party, itself or through any entity mentioned in paragraph 5 of Article 9.1 (Definitions), had given a specific and clearly spelt out commitment in a contractual written obligation towards a covered investor of the other Party with respect to the covered investor’s investment or towards such covered investment, that Party shall not frustrate or undermine the said commitment through the exercise of its governmental authority either: (a) deliberately; or (b) in a way which substantially alters the balance of rights and obligation in the contractual written obligation unless the Party provides reasonable compensation to restore the covered investor or investment to a position which it would have been in had the frustration or undermining not occurred’ (emphasis added). 3 Jean Ho, ‘Internationalisation and State Contracts: Are State Contracts the Future or the Past?’ in Chin L Lim (ed), Alternative Visions in the International Law on Foreign Investment (Cambridge University Press 2016) 377, 381–396. More detailed treatment of the topic is found at Jean Ho, State Responsibility for Breaches of Investment Contracts (PhD thesis, University of Cambridge 2015) 121–122 (forthcoming with Cambridge University Press).

Contractual protection in international law

215

possibility of non-payment amounting to a non-observance of undertakings or a denial of FET. This is not a result which recourse to canons of treaty interpretation, namely Articles 31 and 32 of the Vienna Convention on the Law of Treaties (VCLT),4 alone begets. If arbitral tribunals are prone to reject an outcome that treaty language permits, then a more cogent explanation for arbitral reticence to equate simple contractual breaches by states with investment treaty violations probably lies elsewhere. Unlike most existing legal literature which tends to isolate the study of modern international investment protection from its diplomatic origins,5 this chapter investigates the diplomatic history of contractual protection to test the following hypothesis: the skepticism that modern-day tribunals exhibit towards the capacity of open-textured investment treaty provisions, such as umbrella and FET clauses, to equate simple contractual breaches with violations of international law, can be traced back to the historical reluctance of states to endorse this equation. Absent express mandate for such an equation in treaty language, which evinces the desire of contracting states to depart from the status quo,6 it is inadvisable to infer a fundamental change in the historical position of states towards contractual protection. To demonstrate the explanatory value of a historical approach to contractual protection in international investment law, this chapter begins by presenting the method and selected content of archival research on diplomatic practice with respect to claims involving simple contractual breaches (Part II). From these findings, the chapter sketches the identity between the historical reluctance of states to characterize simple contractual breaches as violations of international law, and prevailing doctrine which leans firmly against the elevation of simple contractual breaches to violations of permissively worded umbrella and FET clauses (Part III). Given this long-standing reservation towards the equation of simple contractual breaches to violations of international law, the chapter then 4 Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980) 1155 UNTS 331. 5 One notable exception is Kate Miles, The Origins of International Investment Law (Cambridge University Press 2013) 21–47, where the author locates the birth of modern international investment law in the securing of trade, commercial, and investor interests by capital-exporting states through the most aggressive form of diplomacy – imperialism. 6 Richard R Baxter, ‘Treaties and Custom’ (1970) 129 Recueil des Cours 25, 96.

216

International investment law and history

projects that the future of contractual protection in international investment law lies in moderation (Part IV). Finally, the chapter concludes with an appeal for more archival research into state practice in investment protection. Where state practice is fairly consistent, such as in the case of contractual protection, its potential in shaping international investment law cannot be overlooked (Part V).

II. A BRIEF HISTORY OF CONTRACTUAL PROTECTION As any state whose nationals are engaged in some form of external commerce with foreign governments will, at one point or another, be asked to intervene in a contractual dispute between its national and a host state, there could be a vast amount of diplomatic correspondence emanating from numerous states that would shed light on the diplomatic history of contractual protection. Unless a researcher has the luxury of perusing diplomatic archives ad infinitum to locate correspondence on contractual protection, a balance has to be struck between the rigour of historical investigation and the representativeness of historical findings. This section discusses my considerations underlying archival research on diplomatic practice (A), and the principal findings from my archival research which narrate the diplomatic history on contractual protection (B). A. The Method Once I decided to undertake archival work as part of a broader research agenda on the contractual protection in international law,7 I based my initial research plan on three considerations. The first and foremost consideration was my language ability. As an English, French and Chinese speaker, I can read diplomatic correspondence in my three working languages. French turned out to be an especially useful working language for researching diplomatic history as external diplomatic correspondence, even those between nonfrancophone states, is often in French. However, internal correspondence and memoranda, which also form part of diplomatic history, are normally recorded in the native language which, in many cases, is not French. In order not to compromise the rate and quality of archival research, I 7 This broader research agenda culminated in the author’s doctoral thesis, see Ho, State Responsibility (n 3).

Contractual protection in international law

217

prioritized states whose external and internal diplomatic correspondence are rendered in one of my working languages. The second consideration was the accessibility of archives housing diplomatic documents. The French diplomatic archives at La Courneuve was only opened to the public in 2010. Prior to this, only French government officials could access the archives. Therefore, before deciding to research the diplomatic practice of any particular state, I verified that access to its diplomatic archives would be possible, whether through routine or special authorization. The third consideration was time effectiveness. Where the diplomatic practice of a state on contractual protection has already been studied, and the relevant diplomatic documents reproduced in extensive detail, there is no need to conduct independent, on-site archival research. This is the case for US diplomatic practice on contractual protection.8 The time- and labour-intensive nature of on-site archival research also calls for the identification of states whose diplomatic practice would most greatly facilitate the piecing together of the diplomatic history of contractual protection. As I had set aside eight to nine months for archival research, I narrowed the list down to states with vast overseas empires, and which counted many nationals engaged in commerce and trade with foreign nations. As their foreign offices are more likely to handle a sufficiently large number of claims from nationals seeking contractual protection, their composite diplomatic practice would be a representative sample of what the diplomatic history of contractual protection is. Leaving aside the already known US diplomatic practice on contractual protection, the 8 Edwin M Borchard, ‘Contractual Claims in International Law’ (1913) XIII-6 Columbia Law Review 457, 466–470; Edwin M Borchard, The Diplomatic Protection of Citizens Abroad or The Law of International Claims (Banks Law Publishing 1915) 280–295; Clyde Eagleton, The Responsibility of States in International Law (New York University Press 1928) ch VII; Charles C Hyde, International Law Chiefly as Interpreted and Applied by the United States (2nd rev edn, Little, Brown and Company 1945) vol I, 544–563. The existence of detailed studies on US diplomatic practice on contractual protection was most probably due to the periodic compilation and publication of US diplomatic correspondence. The leading digests that included sections on contractual protection were compiled by John B Moore, A Digest of International Law (Government Printing Press 1906) (in six volumes) and Francis Wharton, A Digest of The International Law of the United States (Government Printing Press 1886) (in three volumes) with extensive reproductions of and references to diplomatic documents published by the Department of State in yearly editions of Papers Relating to the Foreign Relations of the United States (Government Printing Office, Washington, DC 1861).

218

International investment law and history

diplomatic practice of the United Kingdom, France and the Netherlands on contractual protection, which to the best of my knowledge has never been assembled, appeared worthy of on-site archival research. In light of the foregoing considerations, I felt that it was more realistic to limit archival research into the diplomatic practice of the United Kingdom and France. In retrospect, this was a fortunate decision because neither the United Kingdom’s National Archives at Kew nor France’s Archives Diplomatiques at La Courneuve in Paris index contract claims separately from other types of claims. Claims were simply compiled by year and the relevant documents placed in a common folder or box. The bundling of contract, personal injury and miscellaneous claims together meant that a large amount of time had to be spent sifting out contract claims from other claims. The volume of documents that awaited perusal also made it overambitious to venture too far back into diplomatic history. Some of the staff working at the diplomatic archives are extremely experienced and can advise on the feasibility or otherwise of a research plan. That said, it is still important to begin archival research with a clear idea of what that research is supposed to achieve. For me, it was to learn what the diplomatic practice on contractual protection was and to see if there were any commonalities or differences that could be distilled from the approaches of different states to contractual protection. To keep things manageable, I decided to conduct archival research into United Kingdom and French diplomatic practice on contractual protection during the critical period that preceded the inaugural attempt at the 1930 Hague Conference to codify international law on contractual protection;9 that is, the early 1800s to the early 1900s. B. The Content Diplomatic correspondence from the United States, the United Kingdom and France dating from the early 1800s to the early 1900s, reveals reservation towards the characterization of simple contractual breaches as violations of international law in the age of diplomacy. This is observable from two phenomena – the general absence of any reference to international law in diplomatic correspondence (i), and the typically mild support given to nationals aggrieved by the non-payment of a contractual debt (ii). 9 Shabtai Rosenne (ed), League of Nations, Conference for the Codification of International Law [1930] (Oceana Publications 1975) vol II, 160–251.

Contractual protection in international law

219

1. The tone of diplomatic correspondence regarding contractual protection Diplomatic protection is currently defined as ‘the invocation by a state … of the responsibility of another state’, the exercise of which requires the existence of ‘an internationally wrongful act’ that injures a national.10 The exercise of diplomatic protection therefore registers a complaint that there has been a violation of international law, and carries legal significance. In contrast, the exercise of diplomatic protection in the past was ‘very largely discretionary and hardly len[t] itself to the rigour of legal principles’.11 States could choose whether or not to ground the exercise of diplomatic protection in law. The United States and the United Kingdom labelled diplomatic activity as diplomatic protection only when a claim disclosed the possible violation of international law. France, on the other hand, regarded diplomatic protection as a generic label for inter-state communications on behalf of nationals that did not have to be consequent upon a violation of international law.12 Unsurprisingly, there are virtually no references to international law in US and UK diplomatic correspondence on contractual protection when the basis of the claim is a simple breach of contract. The United States exercised diplomatic protection only for ‘matters of contract … [where] it is manifest that such gross misconduct has been committed as amounts to 10

ILC, ‘Draft Articles on Diplomatic Protection, with Commentaries’ (2006) II-2 Yearbook of the International Law Commission 24, arts 1, 15. The ILC preserved the locus classicus on diplomatic protection as laid down by the Permanent Court of International Justice in the Mavrommatis Palestine Concessions Case (Greece v United Kingdom) PCIJ Rep Series B No 3, para 21 (‘It is an elementary principle of international law that a state is entitled to protect its subjects, when injured by acts contrary to international law committed by another state, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a state is in reality asserting its own rights – its right to ensure, in the person of its subjects, respect for the rules of international law.’). 11 Mann (n 1) 14. At one point, the UK government viewed the exercise of diplomatic protection as ‘entirely a question of discretion [that] turns entirely upon British and domestic considerations’, Circular addressed by Viscount Palmerston to Her Majesty’s Representatives in Foreign States, respecting the Debts due by Foreign States to British Subjects (January 1848), reproduced in Desmond CM Platt, Finance, Trade, and Politics in British Foreign Policy 1815–1914 (Clarendon Press 1968) Appendix II. 12 Jean-Pierre Puissochet, ‘La pratique française de la protection diplomatique’ in Jean-Flavien Flauss (ed), La protection diplomatique: Mutations contemporaines et pratiques internationales (Bruylant 2003) 115, 117–118.

220

International investment law and history

a denial of justice’,13 or where ‘it should appear that the citizens holding [contract] claims were unduly discriminated against by the debtor government’.14 For claims that did not allege a ‘flagrant violation of international law,’ the use of ‘good offices’ sufficed.15 According to Edwin Borchard, who closely analysed US diplomatic practice on contract claims, ‘good offices’ involve ‘representations consisting of requests, recommendations and other personal efforts’ by a diplomatic agent.16 The difference between the exercise of diplomatic protection and the use of ‘good offices’ in US diplomatic practice lies in how the former embodies an allegation that the defaulting state has acted in violation of international law, while the latter does not. The United Kingdom took a similar view to the United States, and designed a set of internal rules to guide the formal presentation of a claim by the UK government ‘under international law’.17 Under these rules, which laid down the conditions to be satisfied before an international claim could be made, the United Kingdom distinguished between diplomatic representations, which merely expressed ‘disapproval about some action or inaction’, and diplomatic protection, which manifested ‘the right of the state … to claim for breaches of international law’.18 In other words, reliance on diplomatic representations in UK diplomatic practice does not embody an allegation that the defaulting state has acted in violation of international law. For the United States and the United Kingdom, therefore, simple contractual breaches warranted at best the use of good offices or diplomatic representations, which archival research confirms did not carry legal significance, but not the exercise of diplomatic protection, which did. US and UK diplomatic practice on contractual protection does not support the characterization of simple contractual breaches as violations of international law. 13

Letter from Mr Sickles to Mr Sagasta (8 January 1871) in Papers Relating to the Foreign Relations of the United States (Government Printing Office 1871–72) 754, 755. 14 Letter from Mr Bayard to Mr Hall (27 March 1888) in Papers Relating to the Foreign Relations of the United States (Government Printing Office 1888–90) 134, 136. 15 Borchard, Diplomatic Protection (n 8) 284. 16 ibid 439–441. 17 The latest version of the ‘Rules Applying to International Claims’ was published in 1985, reprinted in (1988) 37 International & Comparative Law Quarterly 1006. 18 Colin Warbrick and Dominic McGoldrick, ‘Diplomatic Representations and Diplomatic Protection’ (2002) 51 International & Comparative Law Quarterly 723, 724.

Contractual protection in international law

221

By contrast, France had a reputation for ‘extraordinary tenacity’ in the pursuit of contractual protection for its nationals.19 However, it rarely referred to international law in its diplomatic correspondence. On the one occasion when it did, a simple breach of contract was characterized as a violation of international law. In Réclamation Sabatier, a French barber asked the French consulate in Singapore to intervene in a contractual dispute with the Sultan of Riau. According to the Frenchman, the Sultan enjoyed his grooming services but did not pay for them. As the Sultanate of Riau was then a Dutch protectorate, the French ambassador addressed the claim to the Dutch government, asking it to indemnify M Sabatier on the basis that international law did not ‘permit a Prince to renege on obligations contracted in his capacity as a sovereign’.20 The French ambassador later confessed to the French Minister for Foreign Affairs that as he had drafted the claim without seeking any legal advice, he was unsure if his ‘theory’ was defensible.21 The Dutch government strongly disagreed with the French ambassador, declaring that a contractual dispute of a ‘purely private character’ could not give rise to diplomatic protection and did not fall within the purview of international law.22 The curt Dutch response appeared to bring the matter to an end. Available records do not show that France continued to press for the characterization of a simple breach of contract as a violation of international law. It is important, however, not to overstate the significance of Réclamation Sabatier to the French position on contractual protection. The paucity of references to law, much less international law, in French diplomatic correspondence, counsels against the deduction that French diplomatic practice as a whole favours the characterization of simple contractual breaches as violations of international law.

19 Lettre de la Légation du Pérou au Chile au Monsieur le Ministre des Affaires Etrangères (9 October 1886) (La Courneuve, 190CPCOM/20). Author’s translation from the original French. See also Note pour le Président du Conseil des Ministres (23 October 1912) (La Courneuve, 166CPCOM/39). 20 Lettre du Consul de France à Singapour au Consul Général des Pay-Bas à Singapour (28 March 1911) (La Courneuve, 138CPCOM/6). Author’s translation from the original French. 21 Lettre du Consul de France à Singapour à Son Excellence Monsieur le Ministre des Affaires Etrangères (6 June 1911) (La Courneuve, 138CPCOM/6). Author’s translation from the original French. 22 Lettre du Consul Général de Hollande à Singapore au Consul de France à Singapore (7 June 1911) (La Courneuve, 138CPCOM/6).

222

International investment law and history

2. The type of diplomatic support in contractual non-payment Diplomatic support for simple contractual breaches, such as nonpayment, is usually, as is the practice of the United States, limited to the exercise of good offices.23 For France and the United Kingdom, this may involve one or two written demands from the home state to the debtor state, regardless of whether payment is forthcoming or eventually received.24 Typically mild diplomatic support for non-payment claims signals a genuine prospect of some of these claims going unsatisfied. That said, instances of more enthusiastic diplomatic support which are more than likely to secure payment, although unusual, are not unheard of. In Réclamation Decauville, the French government sent two written demands for payment on behalf of a French supplier of railway construction materials to the Guatemalan government. There was no response to either demand. The French Consul in Guatemala then decided to seek an audience with President Estrada Cabrera to present the claim in person. He managed to secure two meetings, a month apart, with the President to discuss the claim and was assured by the President on both occasions that payment for the materials would be made. The French Consul did not stop there. He asked to speak with the Guatemalan Minister for Foreign Affairs as well and extracted further assurances that the claim would be

23

Borchard (n 15) 284. Réclamation Moktar (Maroc), Lettre de la Chambre des Députés à Monsieur le Ministre des Affaires Etrangères (4 March 1909) (La Courneuve, 179CPCOM/412); Réclamation Lanadis, Lettre du Ministre de France en Haïti à Monsieur le Ministre des Affaires Etrangères (8 May 1910) (La Courneuve, 166CPCOM/39); Réclamation Lefébure, Lettre du Ministre de France au Perou à Son Excellence Monsieur Pichon Ministre des Affaires Etrangères (5 December 1910) (La Courneuve, 190CPCOM/25); Réclamation Sibrie et Bertin, Lettre du Ministre de France en Haïti à Monsieur le Ministre des Affaires Etrangères (6 June 1911) (La Courneuve, 166CPCOM/39); Réclamation Rémant, Lettre du Ministre de France au Perou à Son Excellence Monsieur de Selves, Ministre des Affaires Etrangères (25 August 1911) (La Courneuve, 190CPCOM/25); Réclamation Fould, Lettre du Ministre de France en Haïti à Son Excellence Monsieur le Ministre des Affaires Etrangères (1 March 1913) (La Courneuve, 166CPCOM/ 40); Réclamation St Chamond, Lettre de la Légation de France au Mexique au Monsieur le Ministre des Affaires Etrangères (25 November 1913) (La Courneuve, 181CPCOM/57); Réclamation Guilhou, Lettre du Ministre de France en Haïti à Son Excellence Monsieur le Ministre des Affaires Etrangères (18 October 1916) (La Courneuve, 166CPCOM/41); Claim by Captain Fulton against the Government of Romania (1924) (Kew, FO 371/9983, C15708/15708/ 37). 24

Contractual protection in international law

223

satisfied as soon as possible.25 Within a matter of months, the French claimant received the outstanding payment from the Guatemalan government. Turning from France to the United Kingdom and to the Claim of AG Tyler against the Government of Austria/United States, where the UK Foreign Office pressed a claim for arrears in payment of salary pursuant to an employment contract, originally concluded between Mr Tyler and the Austrian government. The contract was later transferred to the US government. The arrears were precipitated by a ‘misunderstanding on the part of the United States accounting officers’.26 The then Foreign Secretary Austen Chamberlain brought the matter to the attention of the US Chargé d’Affaires, as well as the US Ambassador in London. The Foreign Office was very confident of obtaining a positive result through its repeated representations, both in writing and in person. It assured the claimant, Mr Tyler, that all he needed to do was wait for payment to be effected.27 As with the example of Réclamation Sabatier, it is important not to overstate the significance of feistier-than-normal diplomatic support for non-payment claims in Réclamation Decauville and the Claim of AG Tyler against the Government of Austria/United States. Foreign Offices were inundated with non-payment claims. While claims that received diplomatic support tended to experience the mild variety, it is probable that a vast majority of claims received no diplomatic support whatsoever.28 Diplomatic support, when given, is thus typically mild and atypically forceful. However, the intensity of diplomatic support is not 25 Lettre de la Légation de la République Française au Centre-Amérique à Son Excellence Monsieur Pichon, Ministre des Affaires Etrangères (23 January 1911) (La Courneuve, 163CPCOM/11). 26 Letter from the Foreign Office to L Sterling (14 September 1925) (1925) (Kew, FO 371/10662, C5707/5707/3, C11422/5707/3, C12515/5707/3). 27 Letter from CH Smith to AG Tyler (8 October 1925) (Kew, FO 371/10662, C5707/5707/3, C11422/5707/3, C12515/5707/3). 28 For example, the UK government has handled so many claims for contractual protection that not all records were considered of sufficient importance for preservation. Examples of contractual protection claims received by the Foreign Office but whose records were subsequently discarded include: Kew, FO 371/12738, A7606/7606/2 (Argentina); Kew, FO/371/4432, A1644/1644/6 (Brazil); Kew, FO 371/4445, A6211/2690/32 (Costa Rica); Kew, FO 371/11841, W1953/1953/17 (France); Kew, FO 371/12633, W2215/2215/17 (France); Kew, FO 371/6087, C347/347/19 (Greece); Kew, FO 371/9896, C12432/12432/19 (Greece); Kew, FO 371/9583, A3800/A5900/3800/35 (Peru); Kew, FO 371/9582, A3477/A3907/A6852/456/35 (Peru); Kew, FO 371/7106, W 647/W1678/647/36

224

International investment law and history

determined with reference to legal considerations, making it inadvisable to treat episodes of forceful diplomatic support as indicia of simple contractual breaches acquiring the status of international wrongs. It is more likely that the low intensity of diplomatic support for non-payment claims suggests the absence of a nexus between a simple breach of contract and a violation of international law. States either did not consider such genre of contractual breaches as internationally wrongful, or that possibility simply did not occur to them.

III. THE IDENTITY BETWEEN HISTORY AND MODERNITY IN THE PROTECTION OF CONTRACTS Serious reservation towards the characterization of simple contractual breaches as violations of international law which was already evident in 19th and 20th century diplomatic practice, persisted during private efforts to draft a multilateral convention for investment protection.29 These codification exercises merit inspection because they mark the transition from diplomacy-based to treaty-based protection for contracts between investors and states. They may provide some early indication of whether, in the breaking dawn of proactive investment protection, simple contractual breaches will be regarded as violations of international law. Some proposed conventions, such as the 1959 Abs-Shawcross Draft Convention on Investments Abroad,30 and the 1967 OECD Draft Convention on the Protection of Private Foreign Investment,31 contained observance of undertakings clauses which seemed to allude to the characterization of simple contractual breaches as violations of international law. However, the official commentary to these clauses did not expressly endorse the characterization of simple contractual breaches as (Portugal); Kew, FO 371/11935, W8662/8662/36 (Portugal); Kew, FO 371/ 12702, W10280/116/36 (Portugal). 29 A full list of private codification efforts up to 1970 can be found at Roberto Ago, ‘First Report on State Responsibility’ (7 May 1969 – 20 January 1970) UN Doc A/CN.4/217 101, 141–154. 30 UNCTAD, International Investment Instruments: A Compendium (United Nations 1996) vol 3 accessed 30 May 2016. 31 Signed 12 October 1967 (not in force) accessed 3 February 2017.

Contractual protection in international law

225

violations of a treaty obligation.32 Moreover, commentators were also divided on whether observance of undertakings clauses had the effect of transforming all contractual breaches into treaty violations.33 By contrast, the 1961 Harvard Draft Convention on the Responsibility of States for Injuries to the Economic Interests of Aliens referred specifically to contractual protection. Article 12(1) provides that ‘[t]he violation through an arbitrary action of the State of a contract or concession to which the central government of that State and an alien are parties is wrongful’. Rejecting the characterization of simple contractual breaches as treaty violations, the official commentary limited Article 12(1) infractions to ‘a “denial of justice” in litigation in the courts of the respondent State respecting an alleged breach of the contract and [in] cases in which the breach of the contract or concession has been characterized as “arbitrary” or “tortious”.’34 With the split in views among the drafters of and commentators on different multilateral conventions on the extent to which international law protects contracts, there was no consensus on the propriety of characterizing simple contractual breaches as violations of international law. In the aftermath of aborted codification exercises on contractual protection, states concluded a large number of bilateral investment treaties. As many investment treaties recognize rights arising from contracts as a species of protected investment,35 all substantive protection provisions in investment treaties could be invoked for the specific purpose of the protection of 32 Hermann Abs and Lord Hartley Shawcross, ‘The Proposed Convention to Protect Private Foreign Investment’ (1960) 9 Journal of Public Law 115, 119–120; UNCTAD (n 30) 14. 33 With respect to the observance of undertakings clause in the AbsShawcross Draft Convention, one commentator inferred that ‘[t]he purpose of [Article II] is to dispel whatever doubts may possibly exist as to whether a unilateral violation of a concession contract is an international wrong’, see Ignaz Seidl-Hohenveldern, ‘The Abs-Shawcross Draft Convention to Protect Private Foreign Investment: Comments on the Round Table’ (1961) 10 Journal of Public Law 100, 104. Another commentator expressed skepticism that Article II settled the issue of contractual protection under international law one way or the other because ‘if conditions were such that promulgation of the code would be possible, it could be said then that there would be no real need for it’, see Arthur S Miller, ‘Protection of Private Foreign Investment by Multilateral Convention’ (1959) 53 American Journal of International Law 371, 377. 34 Louis B Sohn and RR Baxter, ‘Responsibility of States for Injuries to the Economic Interests of Aliens’ (1961) 55 American Journal of International Law 545, 570. 35 Ursula Kriebaum and Christoph Schreuer, ‘The Concept of Property in Human Rights Law and International Investment Law’ in Stephan Breitenmoser

226

International investment law and history

contracts between investors and states. Two of the most commonly invoked substantive protection provisions by investors against host states in contractual disputes are umbrella clauses (A) and FET clauses (B). The rest of this section considers how reservation towards the characterization of simple contractual breaches as violations of international law, which first emerged in diplomatic practice, continues to find purchase in arbitral jurisprudence on umbrella clauses and FET clauses. A. Umbrella Clauses Notwithstanding some textual variation from treaty to treaty, umbrella clauses generally oblige host states to observe all obligations or commitments undertaken towards protected investors, without specifying what those obligations or commitments are or where they might be found.36 However, since an umbrella clause was first invoked, albeit unsuccessfully, in a contractual dispute between a Swiss investor and Pakistan,37 umbrella clauses have become synonymous with the protection of investor-state contracts.38 An archetypal umbrella clause, such as Article II(2)(c) of the US-Romania investment treaty reads:39 ‘Each Party shall observe any et al (eds), Human Rights, Democracy and the Rule of Law: Liber Amicorum Luzius Wildhaber (Nomos 2007) 1, 2. 36 Katia Yannaca-Small, ‘Interpretation of the Umbrella Clause in Investment Agreements’ in OECD (ed), International Investment Law: Understanding Concepts and Tracking Innovations (OECD Publishing 2008) 101, 103–135, 109– 115. See also Stephan W Schill, ‘Enabling Private Ordering: Function, Scope and Effect of Umbrella Clauses in International Investment Treaties’ (2009) 18 Minnesota Journal of International Law 1. 37 Société Générale de Surveillance v Pakistan, ICSID Case No ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (6 August 2003) paras 164, 166–174. 38 In a very recent award, the tribunal held that the presence of an archetypal umbrella clause that does not refer specifically to contractual obligations, namely art 2(2) of the United Kingdom-Uzbekistan investment treaty, entails the host state ‘assum[ing] on the international level contractual obligations it might have entered into with a foreign investor’, Oxus Gold v The Republic of Uzbekistan, UNCITRAL, Final Award (17 December 2015) para 365. 39 Treaty with Romania Concerning the Reciprocal Encouragement and Protection of Investment (Romania-US) (signed 28 May 1992, entered into force 15 January 1994). Identically worded umbrella clauses can be found in pre-2012 investment treaties concluded with the US, such as Article II(2)(c) of the 1991 US-Argentina investment treaty, and Article II(2)(c) of the US-Mongolia investment treaty. The 2012 US Model Bilateral Investment Treaty

Contractual protection in international law

227

obligation it may have entered into with regard to investments.’ Applying the ‘customary international law concerning treaty interpretation’, as codified in Articles 31 and 32 of the VCLT, the tribunal in Noble Ventures v Romania focused on the wording of Article II(2)(c) and reasoned that ‘[t]he employment of the notion “entered into” indicates that specific commitments are referred to and not general commitments, for example by way of legislative acts’.40 Adding that ‘Art. II(2)(c) would be very much an empty base unless understood as referring to contracts’,41 the tribunal concluded that when Article II(2)(c) is invoked, ‘any such breach [of contract] constitutes a breach of the BIT’.42 To paraphrase the holding of the tribunal in Noble Ventures v Romania, an archetypal umbrella clause permits the characterization of simple contractual breaches as violations of international law. Few tribunals share the view of the Noble Ventures tribunal.43 The arbitral jurisprudence on umbrella clauses, archetypal or not, as a whole lends little support to the characterization of simple contractual breaches as violations of international law. Such strong opposition to the characterization by tribunals, regardless of treaty language, recalls the reluctance of states to regard simple contractual breaches as international wrongs in the age of diplomacy. Reservation towards the interpretation given to an umbrella clause in Noble Ventures v Romania and its progeny has been manifested in one of three ways. First, the absence of more precise language in an umbrella clause underpinned the reservation of the tribunal in SGS v Pakistan towards the characterization of simple contractual breaches as violations of international law. The umbrella clause in this case, Article 11 of the Switzerland-Pakistan investment treaty, was not an archetypal umbrella clause. It provided that ‘[e]ither Contracting Party shall constantly ( accessed 30 May 2016) does not contain an umbrella clause. 40 Noble Ventures Inc v Romania, ICSID Case No ARB/01/11, Award (12 October 2005) para 51. 41 ibid paras 51 et seq. 42 ibid para 62. 43 To date, only the tribunals in BIVAC v Paraguay, ICSID Case No ARB/07/9, Decision of the Tribunal on Objections to Jurisdiction (29 May 2009) paras 141–142; Duke Energy v Ecuador, ICSID Case No ARB/04/19, Award (18 August 2008) para 325; SGS v Paraguay, ICSID Case No ARB/07/29, Decision on Jurisdiction (12 February 2010) paras 168–169; and Oxus Gold v Uzbekistan (n 38) paras 365–371, have followed in the footsteps of Noble Ventures v Romania and endorsed the characterization of simple contractual breaches as violations of international law in umbrella clause claims.

228

International investment law and history

guarantee the observance of the commitments it has entered into with respect to the investments of the investors of the other Contracting Party’. The tribunal, while accepting that the Contracting Parties could confer absolute contractual protection on investors if they so wished, found that the characterization of simple non-payment for customs inspection services as a violation of international law was a serious departure from: the widely accepted principle with which we started, namely, that under general international law, a violation of a contract entered into by a state with an investor of another state, is not, by itself, a violation of international law, and considering further that the legal consequences that the Claimant would have us attribute to Article 11 of the BIT are so far-reaching in scope, and so automatic and unqualified and sweeping in their operation, so burdensome in their potential impact upon a Contracting Party, we believe that clear and convincing evidence must be adduced by the Claimant. Clear and convincing evidence of what? Clear and convincing evidence that such was indeed the shared intent of the Contracting Parties to the Swiss-Pakistan Investment Protection Treaty in incorporating Article 11 in the BIT. We do not find such evidence in the text itself of Article 11. We have not been pointed to any other evidence of the putative common intent of the Contracting Parties by the Claimant.44

Second, the conviction that only contractual breaches committed in a state’s sovereign capacity can amount to a violation of international law, led a considerable number of tribunals to limit the scope of contractual protection offered by umbrella clauses. As simple contractual breaches, such as non-payment, are not contractual breaches that can only be carried out in a state’s sovereign capacity, simple contractual breaches cannot be characterized as violations of international law. Relying on a ‘review of jurisprudence’ conducted by Judge Stephen Schwebel, and who concluded that ‘the breach of such a contract by a state in ordinary commercial intercourse is not, in the predominant view, a violation of international law’, the tribunal in Impregilo v Pakistan held: [o]nly the state in the exercise of its sovereign authority (‘puissance publique’), and not as a contracting party, may breach the obligations assumed under the BIT. In other words, the investment protection treaty only provides a remedy to the investor where the investor proves that the alleged damages were a consequence of the behaviour of the Host state acting in breach of the obligations it had assumed under the treaty.45 44 SGS v Pakistan, ICSID Case No ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (6 August 2003) para 167. 45 Impregilio v Pakistan, ICSID Case No ARB/03/3, Decision on Jurisdiction (22 April 2005) para 260; also CMS Gas Transmission Company v Argentina,

Contractual protection in international law

229

Third, reservation towards the characterization of simple contractual breaches as violations of international law is noticeable when tribunals maintain a sharp distinction between contract claims, which should be governed by the proper law of the contract, and treaty claims, which are governed by international law.46 Therefore, contractual breaches, simple or otherwise, do not entail the engagement of a state’s responsibility under international law when an umbrella clause is invoked. Instead, what an umbrella clause offers investors is the protection of investor-state contracts by an international tribunal, in accordance with the contractual proper law. Only when a state fails to remedy a breach of contract as directed by the contractual proper law, can it be in breach of an umbrella clause. As carefully explained by the Tribunal in SGS v Philippines, which rejected the characterization of simple non-payment for customs inspection services as a violation of international law, the archetypal umbrella clause: does not convert non-binding domestic blandishments into binding international obligations. It does not convert questions of contract law into questions of treaty law. In particular it does not change the proper law of the CISS Agreement from the law of the Philippines to international law. Article X(2) addresses not the scope of the commitments entered into with regard to specific investments but the performance of these obligations, once they are ascertained. It is a conceivable function of a provision such as Article X(2) of the Swiss-Philippines BIT to provide assurances to foreign investors with regard to the performance of obligations assumed by the host state under its own law with regard to specific investments – in effect, to help secure the rule of law in relation to investment protection. In the Tribunal’s view, this is the proper interpretation of Article X(2).47 ICSID Case No ARB/01/8, Award (12 May 2005) para 299; El Paso Energy International Company v Argentina, ICSID Case No ARB/03/15, Decision on Jurisdiction (27 April 2006) paras 66–82; Pan American Energy & BP Argentina Exploration Company v Argentina, ICSID Case Nos ARB/03/13 and ARB/04/8, Decision on Preliminary Objections (27 July 2006) paras 97–110; Sempra Energy International v Argentina, ICSID Case No ARB/02/16, Award (28 September 2007) paras 310–11. 46 Compañia de Aguas del Aconquija SA and Vivendi Universal v Argentina, ICSID Case No ARB/97/3, Decision on Annulment (3 July 2002) para 96. 47 SGS v Philippines, ICSID Case No ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) paras 126–127 (original emphasis, footnotes omitted). Article X(2) of the Switzerland-Philippines investment treaty provides: ‘Each of the Contracting Parties shall observe all obligations entered into with respect to an investment in its territory made by an investor of the other Contracting Party’ (author’s translation from the original French).

230

International investment law and history

From the foregoing, objection to the characterization of simple contractual breaches as violations of international law appears to be the norm among tribunals interpreting the effect of umbrella clauses on contractual protection, while acceptance of the characterization appears to be the exception. Given how the wording of archetypal umbrella clauses lends textual support to, or at the very least does not prohibit, absolute contractual protection as reasoned by the tribunal in Noble Ventures v Romania, the direction in which arbitral jurisprudence has been steered is remarkable. This is because other tribunals interpreting archetypal umbrella clauses presumably in accordance with Articles 31 and 32 of the VCLT, should, but do not, arrive at the same conclusion as the tribunal in Noble Ventures v Romania on the scope of contractual protection conferred by umbrella clauses. Therefore, neither treaty language nor the canons of treaty interpretation offers a compelling reason for the disagreement. At this juncture, it is opportune to recall the diplomatic practice of states towards contract claims gleaned from archival research and recounted in Part II above. The reason why tribunals are reluctant to construe umbrella clauses as gateways to absolute contractual protection most probably lies in the absence of historical support for characterizing simple contractual breaches as violations of international law. Overcommitting states to contractual protection by interpreting umbrella clauses expansively may precipitate a backlash from states who become extremely vulnerable to investor claims. Yet, there is always the risk that an umbrella clause will be given expansive interpretation as demonstrated by the tribunal in Noble Ventures v Romania. Awareness of and the desire to eliminate this risk are the most likely motivations for states either omitting umbrella clauses from recent investment treaties,48 or drafting restrictive umbrella clauses which make it clear that simple contractual breaches cannot be characterized as violations of international law.49 B. FET Clauses The frequency with which investors plead that a breach of contract by a host state amounts to a violation of FET, makes the FET threshold 48

UNCTAD, ‘World Investment Report 2015 – Reforming International Investment Governance’ (25 June 2015) 113 accessed 30 May 2016; see also generally Raúl Pereira de Souza Fleury, ‘Umbrella Clauses: A Trend Towards Its Elimination’ (2015) 31 Arbitration International 679. 49 SG-EU FTA (n 2) art 9.4(5).

Contractual protection in international law

231

vis-à-vis contractual protection a recurring consideration for arbitral tribunals.50 In the broader context of investment protection, it is generally accepted that the components of FET are non-arbitrariness, nondiscrimination, administrative and judicial due process, transparency, even-handedness, stability, and respect for legitimate expectations.51 With the possible exception of the legitimate expectations component, which some tribunals reject as a stand-alone ground for FET violation,52 the breach of any single component of FET entails the violation of FET. In the narrower context of contractual protection, Christoph Schreuer proposes a test which signals reservation towards the assimilation of simple contractual breaches to FET violations: A more relevant test for the violation of the FET standard with respect to contracts would be whether the investor’s legitimate expectations regarding a secure and stable legal framework are affected. Not every violation of a contract would trigger a finding to this effect.53

When legitimate expectations have to be pegged to the security and stability of the legal framework within which the contract is performed, before it can be regarded as a stand-alone ground for FET violation, it is unlikely that bare expectations for contractual payment would qualify as legitimate expectations. Schreuer’s reservation towards the characterization of simple contractual breaches as FET violations, which other commentators share,54 resonates with arbitral jurisprudence on the matter. Contract-based FET claims furnish another illustration of the identity 50

Ho, State Responsibility (n 3) 199–214. Deutsche Bank v Sri Lanka, ICSID Case No ARB/09/02, Award (31 October 2012) paras 420–421. 52 Waste Management (No 2) v Mexico, ICSID Case No ARB(AF)/00/3, Award (30 April 2004) para 98. 53 Christoph Schreuer, ‘Fair and Equitable Treatment (FET): Interactions with Other Standards’ in Graham Coop and Clarisse Ribeiro (eds), Investment Protection and the Energy Charter Treaty (JurisNet 2008) 63, 93 (emphasis added). 54 Zachary Douglas, ‘Property, Investment and the Scope of Investment Protection Obligations’ in Zachary Douglas et al (eds), The Foundations of International Investment Law: Bringing Theory into Practice (Oxford University Press 2014) 363, 390; Marc Jacob and Stephan W Schill, ‘Fair and Equitable Treatment: Content, Practice, Method’ in Marc Bungenberg et al (eds), International Investment Law: A Handbook (CH Beck/Nomos/Hart 2015) 700, 718; see also Stephen Fietta, ‘Expropriation and the “Fair and Equitable” Standard: The Developing Role of Investors’ “Expectations” in International Investment Arbitration’ (2006) 23 Journal of International Arbitration 375, 389. 51

232

International investment law and history

between the historical reluctance of states to characterize simple contractual breaches as violations of international law, and the present reluctance of arbitral tribunals to elevate simple contractual breaches to violations of an open-textured treaty obligation to guarantee FET. The tribunals in BIVAC v Paraguay and SGS v Philippines did not rule out the possibility of a simple breach of contract, more specifically non-payment, amounting to an FET violation.55 However, neither tribunal proceeded to hear the merits of an FET claim founded on contractual non-payment.56 It is probable that even if the FET claims had been heard, neither tribunal would have found an FET violation on the facts. In BIVAC v Paraguay, which concerned unpaid invoices for customs inspection services rendered, the tribunal held that ‘Paraguay’s failure to challenge the level of indebtedness may amount to an acknowledgment of such indebtedness’.57 Yet, despite Paraguay’s ostensibly ‘unreasonable or unwarranted’ non-payment, the tribunal surmised that the claimant had at best an ‘arguable’ FET claim.58 Although there was no need for the tribunal to express a firm view on the merits of the FET claim at the jurisdictional stage of the proceedings, its palpable reservation towards ‘unreasonable or unwarranted’ non-payment amounting to an FET violation is notable. By contrast, there was ‘no acknowledgement of indebtedness’ by the state in SGS v Philippines, which also concerned non-payment under customs inspection services contracts.59 According to the Philippines, payment was withheld in light of ‘serious issues of fraud and overcharging’.60 Even if the Philippines was mistaken as to its entitlement to withhold payment, it is unclear if this would have amounted to an ‘unjustified refusal to pay’, which ‘raises arguable issues under Article

55

BIVAC v Paraguay (n 43) paras 125–126; SGS v Philippines (n 47) para

162. 56

Both BIVAC v Paraguay and SGS v Philippines involved unpaid invoices issued pursuant to customs inspection services rendered. The tribunal in BIVAC v Paraguay stayed proceedings after directing the investor to submit its claim for non-payment against Paraguay to the courts in Asunción. In a similar vein, the tribunal in SGS v Philippines stayed proceedings after directing the investor to comply with the exclusive jurisdiction clause in the contract, and submit its claim for non-payment against the Philippines to the Filipino courts. 57 BICAV v Paraguay (n 43) para 124. 58 ibid para 126. 59 SGS v Philippines (n 47) para 40. 60 ibid.

Contractual protection in international law

233

IV [FET]’.61 It is even less clear if an ‘unjustified refusal to pay’ will necessarily amount to an FET violation. The difficulty of showing how non-payment compromises one of the recognized FET components may have been the reason why the investor in SGS v Paraguay withdrew its FET claim founded on contractual non-payment at the merits phase. The investor contended at the jurisdictional stage of the proceedings that Paraguay had ‘acted in bad faith, capriciously, arbitrarily and in a non-transparent manner’ by defaulting on payment for customs inspection services provided.62 But by the merits phase, it dropped the FET claim and pursued only the umbrella clause claim. It is therefore difficult to read BIVAC v Paraguay and SGS v Philippines as being supportive of the characterization of simple contractual breaches as violations of international law. In the words of the SGS v Paraguay tribunal, simple contractual breaches have to be accompanied by conduct that ‘extend[ed] beyond non-payment in breach of the Contract’ to come within the boundaries of an FET violation.63 The approach of the tribunal in Biwater v Tanzania offers a glimpse of how Schreuer’s test for contractual protection under FET clauses, which aligns with historical objection to the characterization of simple contractual breaches as violations of international law, may translate in practice. The investor here brought an FET claim against Tanzania for outstanding payment for water distribution services rendered. The tribunal held that even if the investor had an expectation to be paid promptly for its contracted services, this expectation was not greater when the customer was a state than when it was an individual, because ‘… Government institutions were to be treated as any other customer’.64 An expectation to be paid promptly is not the sort of expectation that impacts the security and stability of the legal framework which houses the contract. Therefore, had Schreuer’s test been applied to the facts, the expectation in Biwater v Tanzania – to be paid promptly – would not have qualified as a legitimate expectation whose frustration amounts to FET violation. Moreover, the investor secured payment from some Tanzanian government institutions after cutting off their water supply. The tribunal concluded that non-payment ‘is not sufficient to establish a breach by [Tanzania] of the fair and equitable treatment principle’.65 61

ibid para 162. SGS v Paraguay (n 43) para 149. 63 ibid para 150. 64 Biwater v Tanzania, ICSID Case No ARB/05/22, Award (24 July 2008) para 635. 65 ibid para 636. 62

234

International investment law and history

From the foregoing, even if FET clauses are so open-textured as to lend themselves to expansionist interpretations by arbitral tribunals,66 their invocation in contract-based disputes has served to entrench rather than erode the long-standing reservation towards the characterization of simple contractual breaches as violations of international law. If tribunals have reservations viewing umbrella clauses (which, unlike FET clauses, do not articulate any particular standard of treatment) as enabling the characterization of simple contractual breaches as violations of international law, they are even less likely to be persuaded by FET claims arising from non-payment under a contract. Although the categories of state interference with contracts which may fall short of FET are not a closed list, the fact that existing arbitral jurisprudence leans against the characterization of simple contractual breaches as FET violations, dims the prospect of simple contractual breaches amounting in and of themselves to FET violations in the future.

IV. LOOKING BACK AT HISTORY IN ORDER TO LOOK FORWARD IN CONTRACTUAL PROTECTION What arbitral jurisprudence on umbrella and FET clauses shows is the inability of treaty language to fully capture or explain the reservation by tribunals towards the characterization of simple contractual breaches as violations of international law. Clarification clearly lies elsewhere. In the bygone age of diplomatic protection where international law was still at a nascent stage of development, the reservation that was rarely expressed or reasoned by states in legal terms, seemed instinctive. In the current age of treaty protection where the development of international investment law is driven by states through treaty practice as well as by non-state actors engaged in treaty interpretation, the reservation has taken on a more definite shape. The leap from instinct to illumination was not accidental. It was due to two investor-oriented attempts to secure absolute contractual protection under international law, and the ensuing, powerful backlash. The first is the invocation of pacta sunt servanda to transform contractual obligations owed by states to investors into international 66 Muthucumaraswamy Sornarajah, ‘Revolution or Evolution in International Investment Arbitration? The Descent into Normlessness’ in Chester Brown and Kate Miles (eds), Evolution in Investment Treaty Law and Arbitration (Cambridge University Press 2012) 631, 650–652.

Contractual protection in international law

235

obligations. As the principle pacta sunt servanda is equally applicable to treaties as it is to contracts, the ‘mere nonperformance of the contractual obligation’, so the argument goes, is tantamount to the nonperformance of a treaty obligation sanctionable by international law.67 The major fallacy in this argument is that reference to pacta sunt servanda alone cannot sustain an argument that a state has breached an international obligation by breaching a treaty obligation. The principle, which is found in Article 26 of the VCLT, encapsulates the idea that treaty obligations ought to be fulfilled. However, it is given more concrete expression in Article 60 of the VCLT, which sets out the consequences for violations of a state’s treaty obligations. Unsurprisingly, the argument that contractual breaches by states violate international law by virtue of pacta sunt servanda has been roundly rejected by states,68 as well as prominent scholars.69 As explained by FA Mann, the argument: 67 Francisco V García-Amador, ‘Fourth Report on State Responsibility’ (26 February 1959) (UN Doc/CN.4/119) 24; also Alfred Verdross, ‘QuasiInternational Agreements and International Economic Transactions’ (1964) Yearbook of World Affairs 230, 234; Wilhelm Wengler, ‘Les accords entre Etats et entreprises étrangères sont-ils des traités de droit international?’ (1972) 76 Revue Générale de Droit International Public 313, 343–345; Jean-Flavien Lalive, ‘Les contrats d’Etat: Développements récents et perspectives d’avenir’ (1983) 181 Recueil des Cours 163, 192. 68 Scattered resistance first surfaced in the responses given by states to a questionnaire distributed during the 1930 Hague Codification Conference, whereby a majority of states surveyed rejected the possibility that simple contractual breaches could engage a state’s international responsibility, see Rosenne (n 9) 160–253. Targeted resistance was subsequently articulated by Norway while defending bondholder claims espoused by France before the International Court of Justice in the Norwegian Loans Case (France v Norway) (Rejoinder of the Government of Norway) [1957] ICJ Rep 9, 486: ‘When the international responsibility of the state is admitted, it is due to the aggravating circumstances which confer a delictual character on the attitude of the debtor or because a “denial of justice” accompanies a “breach of contract”. In the latter case – the more common occurrence by far – it is not the “breach of contract” itself which constitutes the source of a state’s international responsibility; it is the “denial of justice”.’ (Author’s translation from the original French). 69 Hyde (n 8); FA Mann, ‘State Contracts and State Responsibility’ (1960) 54 American Journal of International Law 572, 574; Robert Y Jennings, ‘State Contracts in International Law’ (1961) 37 British Yearbook of International Law 156, 165–168; Chittharanjan F Amerasinghe, ‘State Breaches of Contracts with Aliens and International Law’ (1964) 58 American Journal of International Law 881, 897; Hûseyin Pazarci, ‘La responsabilite internationale des Etats a l’occasion des contrats conclus entre Etats et personnes privées étrangères’ (1975) 79 Revue Générale de Droit International Public 354, 371–372; Georges

236

International investment law and history

stems from a fundamental error which would not have arisen if public international lawyers had had due regard to the character and teachings of private international law: in the type of case where there is room for the problem at all under customary public international law, no breach of contract in fact occurs and, consequently, the principle of pacta sunt servanda is not infringed. Contracts are governed by the law determined by the private international law of the forum.70

The second is the replacement of the proper law of the contract, which in the case of investment contracts is by default host state law,71 with international law. Several reasons, all in the name of investor protection, have been proffered for the identification of international law as the de facto proper law of the contract. One is the crowning of international law as the best form of protection for investors since, unlike in the case of domestic law, no state can modify international law at will.72 Another is the supposed inadequacy of certain host states’ laws on investor protection.73 Yet another is the purported desire to respect the choice of contracting parties to remove their dispute from the purview of domestic law by submitting to international arbitration in a neutral forum.74 The blanket permission given to tribunals deciding contractual disputes between investors and states to casually wave away the default contractual proper law and welcome international law as the de facto proper law was alarming to both states and scholars. States, in particular developing states, registered their dislike for the ousting of domestic law in favour of R Delaume, ‘State Contracts and Transnational Arbitration’ (1981) 75 American Journal of International Law 784, 806; Giorgio Sacerdoti, ‘State Contracts and International Law: A Reappraisal’ (1986–87) 7 Italian Journal of International Law 26, 46; Stephen M Schwebel, ‘On Whether the Breach by a State of a Contract with an Alien Is a Breach of International Law’ in Stephen M Schwebel (ed), Justice in International Law: Selected Writings of Stephen M Schwebel (Cambridge University Press 1994) 425, 434. 70 Mann (n 69) 577. 71 Irmgard Marboe and August Reinisch, ‘Contracts Between States and Foreign Private Persons’ in Rüdiger Wolfrum (ed), The Max Planck Encyclopedia of Public International Law (online edition) accessed 30 May 2016. 72 Prosper Weil, ‘Problèmes relatifs aux contrats passés entre un Etat et un particulier’ (1969) 128-III Recueil des Cours 95, 122. 73 Lord McNair, ‘The General Principles of Law Recognised by Civilised Nations’ (1957) 33 British Yearbook of International Law 1, 4. 74 Texaco Overseas Petroleum Company/California Asiatic Oil Company v The Government of the Libyan Arab Republic, Award on the Merits (17 January 1977) (1978) 17 ILM 1, paras 41, 44–45.

Contractual protection in international law

237

international law by voting for a series of United Nations General Assembly Resolutions that preserved host state law as the contractual proper law.75 Scholars questioned the authoritativeness of arbitral awards and academic articles that categorically dismissed the capacity of host state law to regulate investor-state contractual disputes,76 and added that there is no doctrine of international law that recognizes absolute contractual protection.77 Sustained skepticism towards the characterization of all contractual breaches as violations of international law, be it through the incantation of pacta sunt servanda, or through the replacement of the contractual proper law with international law, supplements earlier instinct in diplomatic practice against the characterization. As latter-day proponents of the controversial characterization have not offered fresh responses to the sceptics, instinct matured into well-founded reservation towards the characterization. Even with open-textured treaty clauses, such as the previously discussed umbrella clauses and FET clauses, the reservation continued to hold sway. This is because the vast majority of states have never recognized absolute contractual protection, or lent support to the characterization of simple contractual breaches as violations of international law. While states were free to redefine the character of contractual protection through investment treaties, umbrella and FET clauses 75

A series of Resolutions adopted by the United Nations General Assembly confirmed that the vast majority of states were in favour of having the laws of the host state as the proper law of an investment contract, Permanent Sovereignty Over Natural Resources, UNGA Res 1803 (XVIII) (14 December 1962); Declaration on the Establishment of a New International Economic Order, UNGA Res 3201 (S-VI) (9 May 1974); Programme of Action on the Establishment of a New International Economic Order, UNGA Res 3202 (S-VI) (15 May 1974); United Nations General Assembly Resolution on a Charter of Economic Rights and Duties of States UNGA Res 3281 (XXIX) (12 December 1974), see especially Report of the Working Party of the Trade and Development Board, TD/B/AC.12/4 partially reproduced in Juha Kuusi, The Host State and the Transnational Corporation (Saxon House 1976) 131–135. The Charter was passed with 120 votes; the 16 nations that voted against the Charter or abstained were developed states, see (1975) 16 ILM 263 for the roll-call vote. 76 Argyros A Fatouros, ‘International Law and the Internationalized Contract’ (1980) 74 American Journal of International Law 134, 137; Muthucumaraswamy Sornarajah, ‘The Myth of International Contract Law’ (1981) 15 Journal of World Trade Law 187, 191; also Derek W Bowett, ‘State Contracts With Aliens: Contemporary Developments on Compensation for Termination or Breach’ (1988) 58 British Yearbook of International Law 49, 51–52. 77 Samuel KB Asante, ‘International Law and Foreign Investment: A Reappraisal’ (1988) 37 International & Comparative Law Quarterly 588, 612–613.

238

International investment law and history

were, in the view of most arbitral tribunals, too imprecise to lead them to the radical conclusion of absolute contractual protection. What repeated and reasoned reservations towards the characterization of simple contractual breaches as violations of international law beget is the continued qualified protection of contracts under international investment law. The backlash against absolute contractual protection through pacta sunt servanda incantation, proper law replacement, and umbrella and FET clause invocation, all point to the high likelihood of future attempts at reintroducing absolute contractual protection encountering strenuous objections. The idea of absolute contractual protection under international law has seen its fair share of advances and retreats. But given the current trend of states concluding more ‘balanced treaties’ that conserve regulatory space and hopefully reduce exposure to investor claims,78 the idea is unlikely to, if it ever has, experience a renaissance.

V. THE SIGNIFICANCE OF HISTORY TO THE PROTECTION OF INVESTOR-STATE CONTRACTS AND BEYOND Although, as the preceding sections show, independent archival research into the diplomatic practice of states yield a plausible explanation for ongoing resistance to the characterization of simple contractual breaches by states as violations of international law, this is arguably a modest yield. The engagement of a state’s responsibility under international law for wrongs committed against investors is determined by the application of rules governing the conduct of states with respect to investment protection. These rules, which are either found in investment treaties or in general international law, constitute international investment law. The rapid development of international investment law in the past two decades has been matched by the publication of numerous quality doctrinal treatises that place a premium on rule identification and rule articulation. For sub-fields of investment protection still lacking concrete rules and where the law remains unsettled,79 as is the case with 78 Muthucumaraswamy Sornarajah, Resistance and Change in the International Law on Foreign Investment (Cambridge University Press 2015) 348–365. 79 The absence of an international contract law was first pointed out by Sornarajah (n 76). Recent monographs continue to showcase the doctrinal and ideological disagreements regarding contractual protection under international law, see Ivar Alvik, Contracting with Sovereignty (Hart 2011) and Jan O Voss,

Contractual protection in international law

239

contractual protection, rule identification and rule articulation assumes greater priority and urgency. Therefore, when archival research into state practice does not lead to the discovery or construction of a concrete rule or rules, one may reasonably question if any useful purpose is served by adopting a historical approach to the study of international investment law. Yet, the chief lesson learnt from studying the diplomatic history of contractual protection is surely that even if the exercise does not enable the identification or articulation of common rules, it does at the very least inform and temper expectations and predictions of legal development. Where state practice on a matter is broadly consistent, and follows a distinct trend as in the case of contractual protection, one may reasonably expect that trend to continue. But until state practice is known; expectations and predictions remain purely speculative. Unless there is no state practice on a given aspect of investment protection (and even this has to be verified through archival research), diplomatic correspondence and documents often contain clues to current phenomena, controversies and uncertainties in international investment law. The pursuit of a more refined and thorough understanding of the genesis and evolution of international investment law is the strongest incentive to undertake archival research into state practice on diverse aspects of investment protection. Investment protection was not invented by the first ever bilateral investment treaty concluded between Germany and Pakistan in 1959. Other states have, through their respective diplomatic practice, been setting wheels of investment protection in motion for centuries.

VI. CONCLUSION The historical reluctance of states back in the days of diplomatic protection to regard simple contractual breaches as violations of international law has endured through the modern reluctance of tribunals to interpret umbrella and FET clauses as harbingers of absolute contractual protection. This chapter has sought to show, through the continuity in diplomatic and arbitral approaches towards contractual protection, that although the contours of international investment law may have been sharpened by increasing recourse by investors embroiled in disputes with states to investment treaty protection in the 2000s, they probably emerged a long time ago. The Impact of Investment Treaties on Contracts Between Host States and Foreign Investors (Brill 2011).

240

International investment law and history

The diplomatic history of contractual protection not only underscores but explains persistent reservation towards the characterization of simple contractual breaches as violations of international law. It reveals that diplomatic protection was rarely extended to contracts on legal grounds, thereby weakening the justification for using international law to sanction simple contractual breaches. It exposes the deliberate or deducible reservation of states towards the characterization of simple contractual breaches as violations of international law, thereby cautioning against an interpretation of umbrella and FET clauses that is fundamentally incompatible with this reservation. Finally, and perhaps most importantly, it set the stage for a recurring pattern where attempts to elevate simple contractual breaches into violations of international law always encounter strenuous objection, thereby permitting the inference that future attempts to do so will also be resisted. There is an unmistakable and indelible identity between the historical and modern position on characterizing simple contractual breaches as violations of international law. This identity is telling for the future outlook in international investment law for contractual protection The ability to confirm the absence of customary rules on contractual protection in state practice, and the discovery of a trend in relevant diplomatic history that has endured in modern arbitral practice, are the rewards of my concrete archival research. The comforts afforded by modern research facilities to the contemporary scholar do not come with the reminder that the story of international investment law does not begin in legal databases and in law libraries. It began in the art and in the archives of inter-state diplomacy.

9. The gust of wind: The unknown role of Sir Elihu Lauterpacht in the drafting of the Abs-Shawcross Draft Convention Yuliya Chernykh* I. INTRODUCTION Of the four natural elements, the most difficult to paint is the air. One cannot see it, one can only sense it. The ability of impressionist artists to convey the sense of ‘air’ makes observing their paintings mesmerising. Looking at Renoir’s The Gust of Wind (1872) in the Fitzwilliam Museum in Cambridge is like taking a deep revitalizing breath which brings immediate enlightenment. Similar enlightenment appeared when I had the opportunity, on 18 August 2014, to look at the personal archives of Sir Elihu Lauterpacht, professor at Cambridge University and founder of the Lauterpacht Research Centre for International Law. It was my second visit. The first meeting, a year before in 2013, was greatly inspired by an article by Anthony Sinclair1 dedicated to the origin of the umbrella clause in international investment law. In his article, Sinclair establishes the history behind the appearance of umbrella clauses, and while doing so, he refers to Sir Elihu’s legal opinions on the settlement negotiations regarding the Anglo-Iranian Oil Company dispute. These opinions were helpful for understanding the * This chapter was first presented for discussion at a workshop of PluriCourts – Centre for Study of the Legitimate Roles of the Judiciary in the Global Order of the University of Oslo, on 4 February 2016. Much of the research conducted for the chapter was undertaken while staying as a guest fellow at the Lauterpacht Research Centre for International Law and as a guest visitor at the University of Heidelberg. 1 Anthony C Sinclair, ‘Origins of the Umbrella Clause in the International Law of Investment Protection’ (2004) 20 Arbitration International 411. 241

242

International investment law and history

origin of the umbrella clause and the general need for a new compendium of codified international investment law. However, they did not provide sufficient evidence to conclude that Sir Elihu contributed to the development of international investment law during that particular time (that is, from the late 1950s to the beginning of the 1960s). Neither was Sir Elihu’s role in the drafting of the special dispute resolution mechanism of the Abs-Shawcross Draft Convention on Investments Abroad (the AbsShawcross Draft Convention) clear. Although Sinclair valuably traced the origin of the umbrella clause back to the Anglo-Iranian Oil Company dispute, he did not clarify how the umbrella clause made its way from Sir Elihu’s unpublished opinions to its subsequent codification in draft conventions on foreign investment and later in international investment treaties. The information I was able to retrieve from the personal archive of Sir Elihu sheds light on the unknown role he played in shaping the most valuable part of the Abs-Shawcross Draft Convention, namely its dispute resolution provisions. This discovery is significant because it explains the origin of the dispute resolution machinery that aimed to cover inter-state and investor-state disputes in the most efficient way. Most importantly, it explains the origin of the novel investor-state dispute settlement (ISDS) procedure that appeared for the first time in the Abs-Shawcross Draft Convention, a multiparty treaty, albeit only a draft one, and that attempted to grant individuals direct access to remedies beyond diplomatic protection. Although the state’s consent to arbitrate was still required by the Abs-Shawcross Draft Convention, it was nevertheless an important transitional step towards ISDS as we presently know it. What is crucial is that the Abs-Shawcross Draft Convention recognized at the international level the possibility to arbitrate disputes between an individual and the state in respect of violations of international law. Although the Abs-Shawcross Draft Convention never came into force, it was at the time of its drafting one of the most mature and influential attempts at codifying international investment law. The influence of the Abs-Shawcross Draft Convention spread to other important initiatives that aimed to develop a convention on the protection of private investment and even to the bilateral investment treaty (BIT) practice of states more generally. The Abs-Shawcross Draft Convention was presented to the Organisation of European Economic Co-operation (OEEC), later reorganized in what is now known as the Organisation of Economic Co-operation and Development (OECD), and subsequently influenced

The drafting of the Abs-Shawcross Draft Convention

243

international investment treaty practice worldwide.2 With time, ISDS in a more watertight form appeared in most BITs.3 Hence, the stimulating effect that the Abs-Shawcross Draft Convention had on international investment law and ISDS went beyond that of many international treaties that have actually come into force but have not impacted the further development of international investment law to the same degree. Every arc of the dispute resolution design proposed by the AbsShawcross Draft Convention for inter-state and investor-state dispute settlement becomes better understood if the knowledge, practical experience and drive of the person standing behind it are known. Sir Elihu’s archive offers exactly such an opportunity; the documents contained in it serve as more than travaux préparatoires of the Abs-Shawcross Draft Convention – they demonstrate the role that an individual, Sir Elihu, has played in influencing the development of international investment law.

2 Menno J van Emde Boas predicted in 1963 the influence of the OECD Draft Convention on the Protection of Foreign Property on bilateral treaty practice, see Menno J van Emde Boas, ‘The O.E.C.D. Draft Convention on the Protection of Foreign Property’ (1963) 1 Common Market Law Review 289. Analysing UK BITs in 1987, Eileen Denza and Shelagh Brooks, ‘Investment Protection Treaties: United Kingdom Experience’ (1987) 36 International & Comparative Law Quarterly 908, 910, emphasized that in ‘the formulation of the UK’s draft Agreement for the Promotion and Protection of Investments … careful regard was paid to the work done between 1959 and 1967 by the Organization for Economic Cooperation and Development, which led to the OECD Draft Convention on the Protection of Foreign Property’. The contemporary discourse shares the same understanding of the influence of the OECD texts. See Anna De Luca, ‘Umbrella Clauses and Transfer Provisions in the (Invisible) EU Model BIT’ (2014) The Journal of World Investment & Trade 506, 508 (suggesting that ‘the majority of the European models of BITs follow the template of the OECD Draft Convention on the protection of foreign property of 1967’). 3 As various attempts to create a multilateral instrument covering substantive and procedural aspects of international investment law failed, BITs constituted ‘a functional substitute for genuine multilateralism’, see Stephan W Schill, The Multilateralization of International Investment Law (Cambridge University Press 2009) 24. According to the UNCTAD Investment Policy Hub, only 88 out of the 1,958 BITs and other investment agreements contained in UNCTAD’s database do not have an ISDS mechanism; see accessed 14 February 2017.

244

International investment law and history

Legal biography as an approach to the history of international law features in many publications4 and in a number of ongoing projects.5 The nature of legal biography triggers both praise and disapproval. From one side, legal biography enables an individualized approach that contributes to a broader and deeper view of events and ideas; from another side, it may be seen as standing in opposition to systematic and objective studies. Indeed, the frequently dramatic and sensational character of biographical narrative reveals its value in ‘filling gaps’ or in correcting existing knowledge, but also ‘tarnishes’6 biography as an academic discipline. Given a high degree of scepticism and dismissiveness,7 it is therefore usually expected that an attempt to use biography in legal analysis will be explained and justified. This anticipation is traditionally met by discussing 4

While talking about legal biography it is important to note that Sir Elihu wrote one of the most informative, educational and deeply touching biographies of an international lawyer, namely that of his father, Sir Hersch. One can learn tremendously about the development of international law and much more from this book. See Elihu Lauterpacht, The Life of Hersch Lauterpacht (Cambridge University Press 2012). Furthermore, with 21 chapters, a substantial part of Bardo Fassbender and Anne Peters (eds), The Oxford Handbook of the History of International Law (Oxford University Press 2012) 1081–1185 is devoted to portrait-biographies of the philosophers and lawyers who influenced the development of international law the most. Felix Lange, ‘Conference Report – The Intellectual History of International Law as a Research Field – “Lauterpacht and Beyond: Jewish/German Authorship and the History of International Law”’ (2012) 13 German Law Journal 793, 794, refers to more than 30 publications on the lives and works of European international lawyers published in the European Journal of International Law between 1990 and 2003. After 2003, the European Journal of International Law continued to publish biographical articles, although half as frequently as before. 5 See, for example, the Legal Biography Project of the London School of Economics ; the Women’s Legal History Biography Project of Stanford University ; the Eminent Scholars Archive of the Squire Law Library of Cambridge University ; the Interview Project, ‘Exploring the Evolution of International Law: Conversations with Leading Judges’ of the University of Oslo all accessed 14 February 2017. 6 Lesley Dingle, ‘Legal Biography, Oral History and the Cambridge Eminent Scholars Archive’ (2014) 14 Legal Information Management 58, 62–63. 7 For a summary of the major ‘scholarly criticism’ of legal biography, see Richard Gwynedd Parry, ‘Is Legal Biography Really Legal Scholarship?’ (2010) 30 Legal Studies 208, 220–224. For critical views in respect of the value of legal biography and of its close counterpart, oral history, in historical, social and legal studies, see Dingle (n 6) 62–63.

The drafting of the Abs-Shawcross Draft Convention

245

the usefulness of biography. Indeed, it is not rare for works that take a biographical approach to have introductions which revisit the unknown or forgotten role of a person in order to fill the gaps in the history and to reconsider events.8 The more revolutionary the promised conclusions are, the more acceptable the biographical approach seems to be. Many other methods traditionally applied in legal reasoning (such as inductive, empirical, deconstructive, etc) do not raise the same degree of anticipation, and their application is usually performed against more modest expectations. A biographical approach has complexities that are inherent to the interlinking of history and law. Its tools range from analysis of interviews, archival documents, recollections and memoires, to the study of publications contemporaneous with the investigated period. The study of ideas, values, argumentative style and reasoning is complemented by empirical research into the relevant historical timeframe.9 Everything is blended together in order to contextualize the role of an individual as regards historical legal developments. Unavoidably, the enormous time spent in assembling and analysing biographical details may additionally discourage researchers, as such details are not necessarily reflected in the scope of published legal material. However, notwithstanding the vigilance required to ensure that any potential heroizing of the individual does not undermine objectivity, a deep admiration of a person’s life and writings is of assistance in understanding their true historical contribution.

8 For instance, Victor Kattan sheds light on the recusal of Judge Sir Muhammad Zafrulla Khan from the South West Africa cases using new information from the archives and unpublished manuscripts in Victor Kattan, ‘Decolonizing the International Court of Justice: The Experience of Judge Sir Muhammad Zafrulla Khan in the South West Africa Cases’ (2015) 5 Asian Journal of International Law 310. Felix Lange chose a biographical approach for revisiting the development of public international law in West Germany after 1945 in a paper on the role of Hermann Mosler in influencing the practical approach in the formation of public international law. See Felix Lange, ‘Geschichte, Recht und Rechtsgeschichte’ (Presentation, 28 November 2014) accessed 14 February 2017. See also Felix Lange, ‘Wider das “völkerrechtliche Geschwafel” – Hermann Mosler und die praxisorientierte Herangehensweise an das Völkerrecht im Rahmen des MaxPlanck-Instituts’ (2015) 75 Heidelberg Journal of International Law 307. 9 Parry (n 7) 220–224 emphasizes the tension between intellectual and empirical traditions in legal biography as an obstacle to its recognition as legal scholarship. Parry further points out that intellectual and empirical traditions are not mutually exclusive and that there is value in blending them together.

246

International investment law and history

Why is the biographical approach essential to uncovering the origins of the Abs-Shawcross Draft Convention? The answer is quite simple: to fill the gaps and to provide a new perspective to the existing discourse. The role of the Abs-Shawcross Draft Convention has been reassessed over time and it appears that the Draft Convention has been highly influential in the development of international investment law. The role of Sir Elihu in the drafting of the Abs-Shawcross Draft Convention, especially its most critical part, that of dispute resolution, has nonetheless remained unknown. In addition to filling the gaps, the biographical approach also assists when looking at both how the status of the individual in international law has changed and how an individual has influenced the development of international law. This provides a perspective on the history of international investment law that is different from the dominant focus on the history of ideas and events. It is a persuasive personal touch to legal studies and history.10 The present chapter applies a biographical approach to the history of international investment law and sheds light upon the unknown role of Sir Elihu in drafting one of the first and most influential attempts to codify international investment law in 1958–59. Part II starts by outlining the historical background from which the need for a new instrument for the protection of foreign investment arose, and the initial efforts led by Dr Abs and Lord Shawcross to develop such an instrument. Part III then addresses the content of the Abs-Shawcross Draft Convention. Part IV proceeds to analyse the role of Sir Elihu in the preparation of the Abs-Shawcross Draft Convention by reference to key documents found in his personal archive covering three distinct periods: his participation in the settlement negotiations concerning the Anglo-Iranian Oil Company case, his direct participation in the work on the Abs-Shawcross Draft Convention, and ultimately his explanation of the provisions to the OEEC and the OECD. The structure of the chapter allows for an appreciation of the role that Elihu Lauterpacht has played in the development of international investment law through his involvement in the elaboration of the Abs-Shawcross Draft Convention and the explanation of its underlying ideas.

10 See Jean D’Aspremont, Epistemic Forces in International Law: Foundational Doctrines and Techniques of International Legal Argumentation (Edward Elgar Publishing 2015) 191, who discusses the constant expectation for the renewal of methodological choices and the need for a rejuvenation of methods in international law.

The drafting of the Abs-Shawcross Draft Convention

247

II. THE HISTORICAL CONTEXT OF SIR ELIHU LAUTERPACHT’S INVOLVEMENT IN THE DRAFTING OF THE ABS-SHAWCROSS DRAFT CONVENTION History has always been a tool for understanding international law. This is especially true for international investment law, which emerged as a response to shortcomings in the treatment of foreign investors and their property abroad, most notably after the Second World War. At this time, owing to the slowing down of national economies and international trade, the world was in need of an efficient mechanism for the protection of foreign investment. The need became more apparent and urgent following various expropriations and violations of concession agreements in the 1950s, one of the most important of which triggered the Anglo-Iranian Oil Company case.11 The law in relation to private foreign investments had been at that time ‘relatively static since the middle of the nineteenth century’.12 The basic principles regarding the protection of foreign property abroad, such as fair and equitable treatment and the need for prompt and adequate compensation for expropriation, as well as some other standards of investment protection, were not new and were advanced in previous jurisprudence, such as in the frequently referenced Chorzów factory case.13 The law fell short of procedural mechanisms for the enforcement of existent principles, most importantly as regards direct recourse and remedies for private investors against the conduct of a foreign government. Indeed, the mere possibility for an individual to get direct access to remedies under international law only arose as part of the process of institutionalisation in the context of the protection of human rights with the Convention for the Protection of Human Rights and Fundamental Freedoms, adopted in 1950, and the European Court of Human Rights, created in 1959. While the introduction of individual standing in the human rights context met with serious opposition,14 no such possibility 11 Anglo-Iranian Oil Company Case (UK v Iran) (Preliminary Objection) [1952] ICJ Rep 93. 12 Elihu Lauterpacht, ‘International Law and Private Foreign Investment’ (1997) 4 Indiana Journal of Global Legal Studies 259, 262. 13 Case Concerning the Factory at Chorzów (Germany v Poland) PCIJ Rep Series A No 9. 14 On the position of the United Kingdom in respect of the subjects of international law see, for example, Elihu Lauterpacht, ‘The Contemporary Practice of the United Kingdom in the Field of International Law – Survey and

248

International investment law and history

existed for protecting private investments. Even though arbitration between individuals and sovereigns existed at the time,15 these mostly took place on the basis of individually negotiated arbitration agreements and were accompanied by much anxiety as to whether states would comply first with the arbitration agreement and afterwards with any resulting award. The international arbitration setting at the time was lacking the contemporary essentials, namely the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which was only opened for signature in 1958.16 Similarly, the UNCITRAL Arbitration Rules, which are widely used for investment arbitration nowadays, were adopted only 18 years later in 1976;17 and arbitration institutions were only starting to gain some weight at the time.18 Businesses accordingly wanted a concrete procedural remedy by which private entities could obtain redress against a state that went beyond diplomatic protection or unpredictable individual contractual arrangements.19 Such an explanation for the motives of the various groups attempting to codify the law on the protection of private investment as a Comment, V, July 1–December 31, 1957’ (1958) 7 International & Comparative Law Quarterly 92. 15 For illustration of earlier arbitration proceedings between states and private investors, see Ivar Alvik, Contracting with Sovereignty: State Contracts and International Arbitration (Hart 2011) 30–41. 16 In 1958, the New York Convention was signed by 24 countries; by 1960 it came into force only for nine countries. See accessed 14 February 2017. 17 UNGA Res 98 (XXXI) (15 December 1976). 18 This includes the Permanent Court of Arbitration, the Arbitration Institute of the Stockholm Chamber of Commerce, the London Court of International Arbitration (the successor of the London Court of Arbitration), and the International Chamber of Commerce International Court of Arbitration. 19 See Earl Snyder, ‘Protection of Private Foreign Investment’ (1961) 10 International & Comparative Law Quarterly 469, 472 (while surveying all contemporaneous initiatives, Snyder emphasized the fears of private businesses as follows: ‘[p]rivate investment must be integrated with the public investment sector. But, assuming adequate integration is possible, is there ample reason to believe that sufficient private foreign investment will be forthcoming in the next decade? Many economists say no; and the basic reason, they say, is the feeling, backed by incontrovertible historical fact, that sound, long-term investment in emerging, highly nationalistic, sensitively sovereign nations is subject to unusual political risks of discrimination and taking without prompt, adequate and effective compensation. This evokes an almost omnivorous desire for protection of his investment on the part of the private foreign investor.’).

The drafting of the Abs-Shawcross Draft Convention

249

result of a naturally brewed scholarly and practical debate is described in a number of publications.20 When explaining the emergence of international investment law, these publications see it either as ‘a reaction to the worldwide increase in expropriation’21 or as: a result of dissatisfaction with the ambiguous international law protection accorded to long-term investment contracts, particularly in light of the expropriations and contract revocations in the inter-war period, as well as failure of traditional public international law processes to provide protection.22

Not surprisingly, members of the international business community, mostly from Germany and the United Kingdom, became major supporters of the idea to create a convention for the protection of private investment.23 In the late 1950s, drafts of a multiparty instrument for the protection of investment were advanced more or less simultaneously by two influential groups.24 One of them was headed by the leading German banker Dr Hermann J Abs, Chairman of Deutsche Bank in Frankfurt,25 and the other by Lord Shawcross, former Attorney General for England and Wales and subsequently, from 1961 to 1972, Head of legal at Shell.26 The involvement of the banking and oil industry is understandable because these fields were most affected by expropriations and the premature termination of contracts concluded with a sovereign state. 20

See, for example, Jeswald Salacuse, The Law of Investment Treaties (Oxford University Press 2010) 90; Andrea K Bjorklund and August Reinisch (eds), International Investment Law and Soft Law (Edward Elgar Publishing 2012) 66; Antonio R Parra, The History of ICSID (Oxford University Press 2012) 15. 21 Schill (n 3) 35. 22 Andrew Newcombe and Lluís Paradell (eds), Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International 2009) 441. 23 See the introduction of the editors in ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (1960) 9 Journal of Public Law 115, and Hartley Shawcross, Life Sentence: The Memoirs of Lord Shawcross (Constable 1995) 308. 24 For a broad overview of initiatives in the period see, for instance, Parra (n 20) 12–18. 25 The Abs Draft received broad attention in the media at that time. Arthur S Miller, ‘Protection of Private Foreign Investment by Multilateral Convention’ (1959) 53 American Journal of International Law 375, fn 25 refers to publications in Time Magazine, Life Magazine, American Banker, New York Times, Journal of Commerce and Financial Times. 26 Shawcross (n 23) 308.

250

International investment law and history

Dr Abs was one of the most influential bankers and economists in Germany and, owing to his experience and reputation, was a board member of an impressive number of companies. In 1955, Dr Abs was involved in the post-war negotiations concerning the release and protection of German investments in the United States. Since that time, the protection of foreign property abroad became one of his foremost concerns and this became public in 1957 when the ‘Gesellschaft zur Förderung des Schutzes von Auslandsinvestitionen’ (Society to Advance the Protection of Foreign Investments), an organisation of businessmen in West Germany, published a draft code: the so-called Abs Draft.27 The Abs Draft was contemporaneously referred to as ‘the statement of banker’s terms sought to be elevated to the dignity of law’.28 The lengthy text took a pro-investor position, but had clear shortcomings in respect of dispute resolution. Article X read as follows: (1) Litigation arising from the Convention shall be decided by an International Court, the Charter of which is agreed upon in a separate Convention. Recourse may be had to the International Court either immediately or after the measures in question have been adjusted and reviewed by the courts or the High Contracting Party concerned. (2) An International Arbitration Committee shall decide in disputes concerning the adequacy, amount and form of compensation to be granted or substitution to be provided in accordance with Article VII of the Convention. A Charter is likewise agreed upon for the International Arbitration Committee.

As seen from the cited provision, the dispute resolution provision of the Abs Draft was not well elaborated. The international court was proposed for all types of disputes and the arbitration commission for the calculation of damages. No further details were given for either form of dispute resolution; instead, they were supposed to be set out in a separate document. The Commentary on the Abs Draft simply underlined the desirability of having a court specifically created under the Abs Draft as opposed to resorting to the International Court of Justice (ICJ) at The Hague. The Abs Draft recognized that it granted rights not only to states 27

Society to Advance the Protection of Foreign Investments, ‘International Convention for the Mutual Protection of Private Property Rights in Foreign Countries’ (Nuremberg 1957) 1–67. For more information on the Abs Draft, see Miller (n 25). 28 Paul O Proehl, ‘Private Investments Abroad’ (1960) 9 Journal of Public Law 363.

The drafting of the Abs-Shawcross Draft Convention

251

but also to states’ nationals (Article IX).29 However, due to the unclear dispute resolution provisions, it was difficult to see how exactly the rights granted to nationals could be enforced. The Abs Draft likewise did not contain any other details on dispute resolution in general, nor on the procedural standing of nationals in particular. Largely inspired by the Anglo-Iranian Oil Company dispute, Lord Shawcross advanced another initiative for the protection of foreign investments under a multilateral treaty.30 Lord Shawcross, a British barrister and the lead British prosecutor at the Nuremberg trials, immersed himself in the investment field largely because of his private consultancy work for oil companies, which subsequently turned into full-time employment.31 Similar to the Abs Draft, the Shawcross Draft of 1958 did not contain a clear mechanism enabling procedural standing for individuals. Instead, it provided that all disputes were to be submitted to the ICJ.32 The two gentlemen, Dr Abs and Lord Shawcross, met in 1958 and became good friends.33 Following their meeting the work of the two teams merged34 and Lord Shawcross described the resulting group as comprising ‘lawyers, diplomats and businessmen’.35 According to Lord Shawcross, specialists from five countries were involved.36 Such a composition of members with diverse backgrounds and from various 29 Article IX(2) of the Abs Draft states that ‘[b]oth the High Contracting Parties and their nationals are entitled to the rights under The Convention. Each of the High Contracting Parties and every one of the nationals may assert these rights before all courts and governmental authorities’. See Society to Advance the Protection of Foreign Investments (n 27). 30 As described below, Lord Shawcross, together with Sir Elihu, was involved in the settlement negotiations relating to the Anglo-Iranian Oil Company dispute. 31 Shawcross (n 23) 247, 306. 32 Arghyrios A Fatouros, ‘An International Code to Protect Private Investment – Proposals and Perspectives’ (1961) 14 University of Toronto Law Journal 77, 87. 33 Shawcross (n 23) 308. 34 Michael Brandon, ‘Recent Measures to Improve the International Investment Climate’ (1960) 9 Journal of Public Law 127. 35 Shawcross (n 23) 308. 36 Although Lord Shawcross does not name the countries exactly, from the available material these countries are most likely the United Kingdom, Germany, the Netherlands, Switzerland and France. The editors of the Journal of Public Law, which published the Abs-Shawcross Draft Convention in 1960, recognized that this Draft Convention was one of ‘the most important efforts’ brought ‘by groups of European businessmen and lawyers’. See ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (n 23) 115.

252

International investment law and history

jurisdictions (although still limited to Western Europe) was aimed at ensuring the quality of the text and the future success of a multiparty convention on the protection of foreign investment – ultimately resulting in the Abs-Shawcross Draft Convention.

III. THE CONTENT OF THE ABS-SHAWCROSS DRAFT CONVENTION While the Abs-Shawcross Draft Convention itself was released in April 1959, it was published with a Commentary by its authors in 1960.37 The text was presented as a restatement of existing principles and rules of customary international law and was said to be prompted by numerous violations ‘incompatible with the obligations which membership of the international community imposes upon states’.38 Apart from restating customary international law, the Abs-Shawcross Draft Convention contained an element of novelty by including, for the first time, the procedural standing of an individual at the international treaty level. The novelty of this idea was somewhat softened by an accompanying statement that it was ‘no real departure from the legal tradition’ and ‘entirely optional’.39 Overall, the Abs-Shawcross Draft Convention was not intended as such to interfere with the regulation of investments by host states. Its whole purpose was to protect investments made in accordance with local or other rules against undue government interference. The idea was to protect investments that had lawfully been made in a host state’s territory. The Abs-Shawcross Draft Convention was therefore not considered as a treaty of establishment; that is, establishing as such a right for aliens to invest in the economy of a foreign state. This was in remarkable contrast to the original Abs Draft, which aimed at eliminating differences in the treatment of foreigners and nationals in the acquisition and management of property, rights and interests in various fields (Article IV), with the exception of public services, transportation, nuclear energy and military technology (Article V).40 37 ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (n 23) 116. The authorship of Hermann Abs and Hartley Shawcross was contemporaneously added to the title by the commentators, while addressing the Abs-Shawcross Draft Convention on the pages of the same journal. 38 ibid 119. 39 ibid 123. 40 Society to Advance the Protection of Foreign Investments (n 27) 33–34.

The drafting of the Abs-Shawcross Draft Convention

253

Standards of investment protection that are omnipresent in modern BITs, such as fair and equitable treatment (Article I), protection against expropriation without compensation (Article III), and most favoured nation treatment (Article VI), were included in the Abs-Shawcross Draft Convention as restatements of fundamental principles of international law which have ‘a broad basis in the practice of civilized states and the findings of international tribunals’.41 Ten articles and an annex made the structure of the Abs-Shawcross Draft Convention simple and transparent. The Commentary attempted to group provisions in seven groups: Table 9.1 Title in the Commentary

Content of the covered provisions

1.

‘Introduction’

preamble

2.

‘Fair and Equitable Treatment, Protection and Security (Article I)’

fair and equitable treatment, full protection and security

3.

‘The Maintenance of the Pledged Word (Article II)’

umbrella clause

4.

‘Rights of Property (Article III)’

no right to expropriate without due process and adequate compensation without undue delay

5.

‘Breaches (Article IV)’

reparation for violation

6.

‘Settlement of Disputes (Article VII)’

dispute resolution provisions and annex on arbitral proceedings

7.

‘General and Final Provisions (Articles V, VI, VIII, IX, and X)’

– derogation from the application of the convention – most favoured nation treatment – measures taken by the states individually or collectively to ensure compliance with judgments and awards – definitions of the terms ‘nationals’ and ‘property’ – final clauses on ratification, entry into force, etc

41 ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (n 23) 119.

254

International investment law and history

Fair and equitable treatment in Article I was equivalent to the customary international law minimum standard of treatment concerning the treatment of aliens and their property. The authors made a connection between the provision’s origin and the US treaties of friendship, commerce and navigation concluded at that time with 17 countries, including Columbia, Ethiopia, Germany, Iran, Italy, Japan, the Netherlands and Uruguay.42 A slight modification of the wording as compared to US treaties of friendship, commerce and navigation was made to ensure that the provision was not understood as establishing certain substantive obligations regarding the regulation of foreign investments within a particular state, but rather as prohibiting ‘unreasonable’ and ‘discriminatory’ measures.43 Full protection and security was followed by the umbrella clause in Article II of the Abs-Shawcross Draft Convention, which focused on the observance of a state’s specific undertakings. Its wording was simple and unpretentious: ‘[e]ach Party shall at all times ensure the observance of any undertakings which it may have given in relation to investment made by nationals of any other Party’. The Commentary’s explanation behind the clause was equally modest. The Commentary, introduced under the heading ‘the maintenance of the pledged word’, emphasized that the clause reflected the ‘universally accepted’ principle to observe undertakings, namely pacta sunt servanda.44 The authors of the Abs-Shawcross Draft Convention did not envision much future controversy regarding the clause, and therefore discussed it only briefly. However, the jurisprudence that subsequently evolved on the basis of similar BIT provisions became full of contradictions.45 Article III of the Abs-Shawcross Draft Convention resembled the US treaties of friendship, commerce and navigation in specifying that the state’s right to expropriate property located in its territory was subject to

42

ibid 119–120. ibid 120. 44 ibid 120–121. 45 An overview of the contradictory practice may be seen from numerous publications, including Stephan W Schill, ‘Enabling Private Ordering: Function, Scope and Effect of Umbrella Clauses in International Investment Treaties’ (2009) 18 Minnesota Journal of International Law 1; Antony Jude, ‘Umbrella Clauses Since SGS v Pakistan and SGS v Philippines – A Developing Consensus’ (2013) 29 Arbitration International 607; Katia Yannaca-Small, ‘BIVAC BV v Paraguay versus SGS v Paraguay. The Umbrella Clause Still in Search of One Identity’ (2013) 28 ICSID Review 307. 43

The drafting of the Abs-Shawcross Draft Convention

255

the rules of due process and the payment of just and effective compensation without undue delay. A number of cases were discussed in the Commentary to explain the wording of the provision, including the reference to ‘without undue delay’, which attempted to strike a balance between ‘immediate’, ‘as quickly as possible’ and within a ‘reasonable period’.46 While Article III of the Abs-Shawcross Draft Convention provided for proper compensation in case of expropriation, Article IV provided for full reparation payable by a state in case of any violation of the AbsShawcross Draft Convention: The Parties shall not recognise or enforce within their territories any measures conflicting with the principles of this Convention and affecting the property of nationals of any of the Parties until reparation is made or secured.47

Article V of the Abs-Shawcross Draft Convention, in turn, established exceptions, so that measures that were inconsistent with the AbsShawcross Draft Convention could be applied in cases of war, hostilities or other life-threatening public emergencies. These exceptional measures were limited to the extent and duration of what was ‘strictly required by the exigencies of the situation’.48 The rule that the higher standard should prevail was inserted into Article VI of the Abs-Shawcross Draft Convention. The purpose of the provision was to ensure that if the nationals of any of the parties were entitled within any particular state to treatment more favourable than that laid down in the Abs-Shawcross Draft Convention, whether by virtue of a treaty or under national law, the Abs-Shawcross Draft Convention should not have the effect of excluding the entitlement to that higher standard of treatment. Article VII of the Abs-Shawcross Draft Convention then laid down provisions on the dispute resolution mechanism whose central importance was recognized as follows: There must, at the heart of any instrument dedicated to the creation of an atmosphere of confidence, always lie a provision for the effective adjudication by an impartial body of all disputes which may arise. Undertakings without

46 ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (n 23) 122. 47 ibid. 48 ibid 124.

256

International investment law and history

the machinery for determining their content and application cannot achieve the desired end.49

To ensure coverage of all possible disputes, the provision aimed to cover both inter-state and investor-state disputes. Disputes between states regarding the interpretation and application of the Abs-Shawcross Draft Convention would be resolved by an arbitral tribunal constituted under an annex to the Abs-Shawcross Draft Convention. In the absence of an agreement by a state to arbitrate, the disputes were to be resolved before the ICJ. The real novelty, albeit acknowledged with much care,50 was contained in paragraph 2 of Article VII of the Abs-Shawcross Draft Convention. This provision afforded a national of one of the parties the possibility to commence proceedings against a state for breach of the Abs-Shawcross Draft Convention before an arbitral tribunal constituted under the annex, provided that the state gave its specific consent to such an arbitration.51 Arbitration between a private entity and a state on the basis of a contractual arrangement was not new. It was novel, however, to recognize this right in an international treaty, thus ‘enabling the private investor himself to pursue an international remedy’.52 Making this right optional; that is, by subjecting it to an additional agreement of the state either at the time of the acceptance of the Abs-Shawcross Draft Convention or subsequently, did not affect the novelty of the changes. In case a state declared that it would accept the possibility to arbitrate with a private investor, the jurisdiction of the arbitral tribunal was to be based first and foremost on an instrument of international law – the Abs-Shawcross Draft Convention and not on contractual arrangements as was the case in early contract-based investor-state arbitrations. The annex provided the fundamentals for the constitution and functioning of the arbitral tribunal established under Article VII of the AbsShawcross Draft Convention, both for inter-state disputes and disputes between private parties and states. Utmost efforts were made to ensure that the provisions on the formation of an arbitral tribunal were watertight and did not allow for a deadlock similar to one that appeared in the context of the Anglo-Iranian Oil Company case, when Iran failed to 49

ibid 122. As ‘no real departure from the legal tradition’, see ibid 123. 51 The tone was somewhat softened in comparison to modern ISDS because arbitral proceedings were only possible with the state’s consent. 52 ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (n 23) 123. 50

The drafting of the Abs-Shawcross Draft Convention

257

appoint an arbitrator and the appointing authority was no longer in existence. This was achieved by having express provisions on default appointments. The tribunal was to be composed of three members. Each party had a right to appoint its arbitrator, whereas the third one (the ‘umpire’) had to be appointed jointly by the parties. If the parties did not jointly appoint the umpire, the ICJ President would do so, and if the latter did not, the appointment would be made by the Secretary-General of the United Nations. The wording of the whole annex was influenced by the Loan Regulations No 3 and No 4 of the International Bank for Reconstruction and Development (IBRD).53 Loan Regulation No 3 governed loans to states and Loan Regulation No 4 governed loans to other parties, including private companies. Both texts were chosen as a sample for the annex because they were known in the private investment field and widely used for agreements concluded between the IBRD and states, and between the IBRD and private companies, when such companies had a state guarantee.54 The annex provided that the arbitral tribunal should convene at such time and place as determined by the umpire. Except if parties agreed otherwise, the arbitral tribunal had jurisdiction to determine its own competence and arbitral procedure. The arbitral tribunal was under the duty to provide a fair hearing and to ensure that the award was rendered in writing. In fact, the duty of the arbitral tribunal to conduct a fair hearing was expressly mentioned in the annex. Resulting awards were supposed to be final and binding upon the parties and had to be published. The provision that followed dispute resolution, Article VIII of the Abs-Shawcross Draft Convention, contained rules on the possible steps the signatories could take, individually or jointly, to secure compliance with judgments and awards, should such need arise: If a Party against which a judgment or award is given fails to comply with the terms thereof, the other Parties shall be entitled, individually or collectively, to take such measures as are strictly required to give effect to the judgment or award.55

53

ibid 124. Finn Seyersted, ‘Applicable Law and Competent Courts in Relations Between Intergovernmental Organizations and Private Parties’ (1967) 122 Recueil des Cours 511. 55 ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (n 23) 117. 54

258

International investment law and history

In other words, the parties to the Abs-Shawcross Draft Convention who were not parties to a dispute were able to join the party in whose favour an award was given in taking measures to secure the effect of the award. The final articles of the Abs-Shawcross Draft Convention (Articles IX and X) contained definitions and provisions on the Convention’s entry into force. Article IX of the Abs-Shawcross Draft Convention contained progressive definitions. ‘Nationals’ were limited to the notion of companies both with legal personality and without (such as associations) falling under two sub-categories: (1) companies recognized as national companies under the municipal law of that Contracting Party, and (2) companies in which nationals of that Contracting Party had a direct or indirect controlling interest. ‘Property’ covered all types of property, rights and interests, whether held directly or indirectly by a national of a Contracting Party. Article X of the Abs-Shawcross Draft Convention contained provisions relating to ratification, entry into force, accession and deposit. Thus, in merely ten articles and a one-page annex, the Abs-Shawcross Draft Convention represented a comprehensive system of substantive and procedural rules aiming to ensure the protection of private investment. The substantive standards, except for the umbrella clause, were influenced by the US treaties of friendship, commerce and navigation and by principles of customary international law. Its procedural provisions innovatively combined elements of various practices existing at the time with a pioneer attempt to enable companies to arbitrate directly with a state without necessarily applying for diplomatic protection.

IV. THE ROLE OF SIR ELIHU LAUTERPACHT The thorough composition of procedural provisions of the AbsShawcross Draft Convention, which resulted in a watertight system with a highly innovative character, would not have been possible without knowledge of relevant international law, exceptional dispute resolution experience and innovative thinking. As this Section will show, Sir Elihu, who was responsible for devising the ISDS mechanism of the AbsShawcross Draft Convention, possessed all of these. Sir Elihu excelled both in academia and in practice. His scholarly activities were nourished by his international practice, and vice versa.56 56

Eminent Scholars Archive (n 5).

The drafting of the Abs-Shawcross Draft Convention

259

He was called to the bar in 1950, and twenty years later became a QC.57 In 1953, he became a fellow of Trinity College at Cambridge University.58 In 1983, in commemoration of his father, Sir Hersch Lauterpacht, an eminent professor at Cambridge University and ICJ Judge, Sir Elihu created the Research Centre for International Law, later renamed the Lauterpacht Research Centre for International Law.59 In 1994, Sir Elihu was appointed Honorary Professor of International Law at Cambridge.60 His extensive practice included appearances before various tribunals and in relation to a broad scope of issues, including a number of well-known ICJ cases, such as Nottebohm (1951–55), Barcelona Traction (1962–70), North Sea Continental Shelf (1967–69), Nuclear Tests (1973–74), and Continental Shelf (1981, 1982–85).61 Sir Elihu also acted as an arbitrator in ICSID62 and NAFTA proceedings and in international commercial arbitration.63 In 1998, he was knighted.64 Sir Elihu was Director Emeritus of the Lauterpacht Research Centre for International Law until his death on 8 February 2017. Successful combination of practice and academia required superb organization. The meetings in 2014 and 2015 I had with Sir Elihu, who was 86–87 years old at that time, showed that Sir Elihu not only had all papers, opinions and memoranda duly archived, but he remembered exactly what each volume contained. The unpublished archive material used in this chapter covers three distinct periods in the life and work of Sir Elihu. These three periods were significant in triggering and in shaping the idea of an ISDS mechanism in international law: 57 Biography at the official website of the Lauterpacht Research Centre for International Law accessed 14 February 2017. 58 Official website of Trinity College accessed 14 February 2017. 59 The Lauterpacht Research Centre for International Law (n 57). 60 Lesley Dingle and Daniel Bates carefully reconstructed a detailed biography of Sir Elihu in a series of interviews for the Eminent Scholars Archive of the Squire Law Library, which are relied on in this chapter, see Eminent Scholars Archive (n 5). 61 For a list of all ICJ cases in which Sir Elihu participated, see Eminent Scholars Archive (n 5). 62 UNCTAD Investment Policy Hub contains references to four ICSID cases where Sir Elihu sat as an arbitrator accessed 14 February 2017. 63 For a list of non-ICJ cases in which Sir Elihu participated, see Eminent Scholars Archive (n 5). 64 ibid.

260

1)

International investment law and history

the period of his involvement in the settlement negotiations concerning the Anglo-Iranian Oil Company case from 1953 to 1954; the period of working on the Abs-Shawcross Draft Convention from 1958 to 1959; the period when the Abs-Shawcross Draft Convention was considered by the OEEC/OECD from 1960 to 1965.

2) 3)

Each of these periods and their impact on ISDS will be addressed below in order to show that it was Sir Elihu who was responsible for devising the ISDS mechanism of the Abs-Shawcross Draft Convention and hence the idea of ISDS in modern investment treaty law. A. The Settlement Negotiations Concerning the Anglo-Iranian Oil Company Case: Creativity Born of Despair In 1953–54, Sir Elihu, together with lawyers representing UK and US oil companies, was involved in negotiating a settlement with Iran over the nationalisation of the Anglo-Iranian Oil Company. This was a period when Sir Elihu, at the age of 25, started lecturing on law at Cambridge University. Before moving from London to Cambridge, he was already receiving ‘work of [an] international law nature’ from solicitors, in particular from Linklaters & Paines, who were involved in representing the Anglo-Iranian Oil Company.65 The story of the Anglo-Iranian Oil Company dispute is a long one. The dispute arose out of a 1933 concession agreement, which was affected by Iran’s 1951 laws nationalising the oil industry. Following nationalisation and the premature termination of its concession, the Anglo-Iranian Oil Company was in search of legal redress. The Company turned to arbitration, but the arbitration clause was found to be defective because the Permanent Court of Justice (PCIJ), whose President was supposed to make the appointment of the arbitrator, had ceased to exist six years prior to the dispute, and the President of the ICJ refused to make the requested appointment.66 Turning to diplomatic protection, it had the UK government initiate a case before the ICJ, albeit with little success. Sir Elihu’s father, Sir Hersch, participated in drafting memorial submissions and

65

ibid. Lauterpacht, ‘International Law and Private Foreign Investment’ (n 12) 262, 272; Lauterpacht, The Life of Hersch Lauterpacht (n 4) 350–351. 66

The drafting of the Abs-Shawcross Draft Convention

261

appeared as counsel on behalf of the United Kingdom before the ICJ.67 The case, however, was ultimately dismissed for lack of jurisdiction in 1952.68 In 1953–54, following political changes in Iran, Western oil companies were tempted to return to the country. The Anglo-Iranian Oil Company, however, was not able to retain its exclusive role in the negotiations, and other American and European companies participated in the creation of a consortium, as well as in subsequent negotiations with Iran. The resulting consortium agreement was meant to bring an end to the nationalisation and make Iranian oil available on the international market. Five American and three European companies participated in the consortium. They assembled 14 lawyers, each of whom focused on specific provisions of the consortium agreement. Sir Elihu was asked to concentrate on the most sensitive area, that of dispute resolution. His task was to prepare opinions concerning methods which would ensure that the anticipated consortium agreement would be honoured by Iran and that any attempt to breach it would be regarded as a breach of international law.69 The documents in Sir Elihu’s personal archive from this period shed light on the precise nature of his work on the consortium agreement’s provisions, namely on dispute resolution, applicable law and noninterference of the state. Four opinions were rendered focusing mostly on the settlement of possible disputes between the Anglo-Iranian Oil Company and Iran. They were dated 20 January 1954 (Anglo-Iranian Oil Company Limited Persian Settlement – Opinion), 12 March 1954 (AngloIranian Oil Company Limited Persian Settlement – Note), 15 March 1954 (Anglo-Iranian Oil Company Limited – Supplementary Note) and 7 December 1955 (Anglo-Iranian Oil Company Limited Persian Settlement – Note). During this time, Sir Elihu was working closely with Lord Shawcross, who was at the time ‘the principal outside lawyer’ for the Anglo-Iranian Oil Company.70 At that point in time, it was extremely difficult, if not impossible, for the companies that were parties to the consortium agreement to ensure the availability of remedies against possible breaches of the settlement agreement by Iran. One must remember that no BIT was available at the time and there was great mistrust and concern that the state would not

67 68 69 70

Lauterpacht, The Life of Hersch Lauterpacht (n 4) 349–352. Anglo-Iranian Oil Company Case (n 11). Eminent Scholars Archive (n 5). ibid.

262

International investment law and history

honour its contractual arbitration agreement. Sir Elihu recognized the shortcomings of international law in terms of available remedies. Given that settlement negotiations were pending, he attempted to engineer specific and immediate redress at the international level in case of breaches of contractual undertakings by Iran. His attempts resulted in the proposal of an ‘umbrella treaty’ to be concluded between the United Kingdom and Iran. The function of the ‘umbrella treaty’ was twofold: to ensure the stability of the provisions of the consortium agreement and to provide an efficient dispute resolution mechanism in case of its breach. Sir Elihu’s proposal was that a breach of the consortium agreement would also qualify simultaneously as a breach of treaty obligations. The ‘umbrella treaty’ device, defined in Anglo-Iranian Oil Company Limited Persian Settlement – Opinion dated 20 January 1954, provided for compulsory jurisdiction of the ICJ for breaches that were not settled in arbitration as agreed in the consortium agreement. It stated: In case of dispute as to whether or not a point at issue has already been the subject of determination by the Arbitral Tribunal or as to whether the machinery of the Arbitral Tribunal has broken down, such dispute shall be decided by the International Court of Justice. Subject to the limitations expressed in the preceding paragraph, all disputes between Iran and the United Kingdom arising out of or in connection with the Treaty and the Consortium Agreement, shall be determined by the International Court of Justice. To this end, both States accept the jurisdiction of the Court as compulsory, ipso facto and without the need for further declaration.71

In other words, Sir Elihu’s proposal attempted to remedy the jurisdictional failures of the Anglo-Iranian Oil Company case before the ICJ in 1952 by providing for mandatory parallel jurisdiction of the ICJ based on an inter-state agreement that would accompany the contractual relationship between the consortium and Iran. At the same time, the device was not meant to provide remedies for any minor dispute (although ‘minor’ was not precisely defined) that might arise in relation to the consortium agreement. It was supposed to be used only if the parties to the consortium agreement were not able to reach ‘a satisfactory solution’ otherwise.

71

Elihu Lauterpacht, ‘Anglo-Iranian Oil Company Limited Persian Settlement – Opinion’ (20 January 1954) (file from Lauterpacht’s personal archive; on file with the author) 4.

The drafting of the Abs-Shawcross Draft Convention

263

The proposals made were novel, and Sir Elihu fully acknowledged the novelty of his approach in Anglo-Iranian Oil Company Limited Persian Settlement – Opinion dated 20 January 1954, by stating: For an ‘umbrella treaty’ of this character I regret that I have been unable to find any direct precedent. … Nevertheless, despite the apparent non-existence of previous examples of treaties guaranteeing the performance of obligations undertaken in an international settlement, it is important to emphasise that there is no reason why such treaties could not be concluded.72

Yet, apart from providing evidence on the origin of the umbrella clause, as discussed by Anthony Sinclair,73 Sir Elihu’s opinions demonstrate efforts in creating compulsory jurisdictional ties between states in relation to private investments. The ‘umbrella treaty’ device was meant to allow for an inter-state treaty which established obligations to observe the consortium agreement and to provide a compulsory remedy between states in relation to breach of such. Although investors were not afforded a right to sue states directly, the idea was close to that of the ISDS mechanism that was later included in BITs, namely to ensure international remedies for the protection of state undertakings given to private investors. Thus, a lack of available remedies triggered creativity, which resulted in the proposal of an inter-state treaty and in turn potentially turned violations of settlement agreements into violations of international law, enabling the ICJ to settle disputes arising out of these violations. Proposing a treaty between states covering violations arising out of a contractual arrangement with a sovereign state was a step towards ISDS. However, given that the ‘umbrella treaty’ device offered only inter-state dispute resolution, a further step enabling a private individual to arbitrate against the state was still necessary. B. Work on the Abs-Shawcross Draft Convention: Ensuring ‘Desideratum’ An opportunity to elaborate on a missing element for ISDS appeared four years later when Sir Elihu was directly involved in the preparation of the Abs-Shawcross Draft Convention. This direct involvement explains how

72 73

ibid 4. Sinclair (n 1) 415–418.

264

International investment law and history

ideas which emerged during the settlement negotiations for the AngloIranian Oil Company found their way into the draft of a multilateral investment protection treaty. By the time of his work on the Abs-Shawcross Draft Convention in 1958–59, Sir Elihu gained further practical experience as a member of Gray’s Inn74 and started to be seen in academia as a promising scholar: a fellow of Trinity College with publications on various aspects of international law in one of the leading United Kingdom’s international law journals, the International & Comparative Law Quarterly.75 In 1958, Lord Denning, Lord Diplock and Lord Wilberforce approached Sir Elihu and asked him to become the director of the newly established British Institute of International and Comparative Law. Sir Elihu refused, advising that the position should go to someone with more academic standing.76 In 1959, Sir Elihu became Director of Studies of the Research Centre of The Hague Academy of International Law where he supervised the English-speaking division of the centre and dealt with the law of treaties.77 It was this academic and practical background that made his voice heard in the preparation of the Abs-Shawcross Draft Convention.

74

This is a professional membership body for barristers of England and

Wales. 75

Elihu Lauterpacht, ‘The Contemporary Practice of the United Kingdom in the Field of International Law – Survey and Comment’ (1956) 5 International & Comparative Law Quarterly 405; Elihu Lauterpacht, ‘The Contemporary Practice of the United Kingdom in the Field of International Law – Survey and Comment, II, May 16–August 15, 1956’ (1956) 6 International & Comparative Law Quarterly 126; Elihu Lauterpacht, ‘The Contemporary Practice of the United Kingdom in the Field of International Law – Survey and Comment, III, August 16–December 31, 1956’ (1957) 6 International & Comparative Law Quarterly 301; Elihu Lauterpacht, ‘The Contemporary Practice of the United Kingdom in the Field of International Law – Survey and Comment, IV, January 1–June 30, 1957’ (1957) 6 International & Comparative Law Quarterly 506; Lauterpacht (n 14); Elihu Lauterpacht, ‘The Contemporary Practice of the United Kingdom in the Field of International Law – Survey and Comment, VI, January 1–June 30, 1958’ (1958) 7 International & Comparative Law Quarterly 514; Elihu Lauterpacht, ‘The Contemporary Practice of the United Kingdom in the Field of International Law – Survey and Comment, VII, July 1–December 31, 1958’ (1959) 8 International & Comparative Law Quarterly 146; Elihu Lauterpacht, ‘The Contemporary Practice of the United Kingdom in the Field of International Law – Survey and Comment, VIII, January 1–June 30, 1959’ (1960) 9 International & Comparative Law Quarterly 253. 76 Eminent Scholars Archive (n 5). 77 ibid.

The drafting of the Abs-Shawcross Draft Convention

265

As was the case with the settlement negotiations in relation to the Anglo-Iranian Oil Company case, during his work on the Abs-Shawcross Draft Convention, Sir Elihu was again particularly focused on dispute resolution provisions in order to ensure the availability and efficiency of a dispute resolution mechanism. As he expressed in a letter to DM Jacobs, one of the members of the drafting group, dated 31 January 1959, he perceived the procedural provisions as ‘vital’ and ‘an essential and integral part of the [Abs-Shawcross Draft] Convention, without which the instrument would become an empty and unconvincing shell’.78 Sir Elihu could not but strongly reject any proposition to exclude the provisions on dispute settlement from the Abs-Shawcross Draft Convention (such propositions appeared from time to time and were driven mostly by a desire to ensure the acceptability of the Abs-Shawcross Draft Convention, which risked being undermined by the novel procedural mechanisms). In Lauterpacht’s view, the acceptance of substantive principles without a compulsory dispute settlement mechanism would not be worth the efforts of putting the principles into the draft. However, Sir Elihu’s work on the Abs-Shawcross Draft Convention is largely unknown. It was not addressed in the interviews given by Sir Elihu to the Eminent Scholars Archive or elsewhere. Anthony Sinclair acknowledges Sir Elihu’s ‘close’ involvement with the Abs-Shawcross Draft Convention but provides no further details.79 The link between the private legal opinions of Sir Elihu in the Anglo-Iranian Oil Company case, some years prior to the Abs-Shawcross Draft Convention, and the efforts in the drafting of this multilateral instrument for the protection of foreign investment seems to be missing. There is a gap in explaining how the private and never published legal opinions of Sir Elihu relating to the first period of his involvement in the settlement negotiations concerning the Anglo-Iranian Oil Company case could lead, if at all, to the dispute resolution provisions contained in the Abs-Shawcross Draft Convention. Anthony Sinclair proposes the following explanation for the origin of the umbrella clause, which emphasizes Lord Shawcross’ awareness of the idea for an umbrella treaty owing to his broad engagement in private practice: Like Lauterpacht, it is most probable that Shawcross conceived of an umbrella treaty clause in the Shawcross Draft in part as a response to the nationalization of AIOC [the Anglo-Iranian Oil Company]. Shawcross had 78

Elihu Lauterpacht, ‘Letter to D.M. Jacobs’ (31 January 1959) (file from Lauterpacht’s personal archive; on file with the author). 79 Sinclair (n 1) 412.

266

International investment law and history

been in private practice at the time of the AIOC nationalization dispute and was certainly aware of the umbrella treaty proposal to internationalize the Consortium Agreement, and in his position at Shell, Shawcross had participated in discussion on the umbrella treaty conception in relation to the Middle Eastern Pipeline.80

However, Lord Shawcross was not just aware of Sir Elihu’s ‘umbrella treaty’ proposal because of his private practice. Instead, he was directly involved with Sir Elihu in the negotiations of the consortium agreement.81 In the interview for the Eminent Scholars Archive in relation to the negotiation of that agreement, Sir Elihu specified the role of Lord Shawcross: By the beginning of 1954, I was well in with Anglo-Iranian and I was constantly being asked for advice. Their principal outside lawyer was Sir Hartley Shawcross, who had been Attorney General in the Labour Government and by then had returned to private practice, so he and I worked together quite closely.82

Further, documents in Sir Elihu’s personal archive provide an opportunity to establish his exact role in contributing to the drafting of the AbsShawcross Draft Convention in 1958–59.83 Five documents and a letter are particularly crucial: 1)

a document entitled ‘Convention on Foreign Investments. Note’ dated 30 December 1958; a document entitled ‘Convention on Foreign Investments – Note on Composite Draft III’ dated 25 January 1959;

2)

80

ibid 420. The professional cooperation between Lord Shawcross and Sir Elihu also strengthened on the back of the broader ties between Lord Shawcross and the Lauterpacht family. Sir Elihu’s father, Sir Hersch, assisted Lord Shawcross in composing some of his influential speeches at the Nuremberg trials, including the famous final speech. Marti Koskenniemi, ‘Hersch Lauterpacht and the Development of International Criminal Law’ (2004) 2 Journal of International Criminal Justice 810, 810, summarizes the role of Sir Hersch as follows: ‘Prosecutor, Hartley (later Lord) Shawcross, came from his pen.’ 82 Eminent Scholars Archive (n 5). 83 Sinclair (n 1) 422 fn 60 expressly refers to only one document in Sir Elihu’s archive from this period regarding the drafting of the Abs-Shawcross Draft Convention, namely Elihu Lauterpacht, ‘Convention on Foreign Investment – Note on Composite Draft III’ (25 January 1959). 81

The drafting of the Abs-Shawcross Draft Convention

3)

267

a document entitled ‘Convention on Foreign Investments. Comment’ (from 1959 without specific date); a document entitled ‘Draft. Annex. Protocol Relating to the Arbitral Commission’ (from 1959 without specific date); a document entitled ‘Resumé of the observations made by Mr Lauterpacht on the Convention on Investments Abroad’ (from 1959 without specific date); the above-quoted letter to one of the members of the drafting group, D.M. Jacobs (31 January 1959).

4) 5)

6)

Given the uniqueness of the documents, brief summaries of their content are given below. The documents show that the Abs-Shawcross Draft Convention went through no fewer than three rounds of major drafts referred to as ‘Composite Draft I’, ‘Composite Draft II’ and ‘Composite Draft III’. Each draft was prepared following the meetings of the participants of the working group at The Hague. In ‘Convention on Foreign Investments. Note’ dated 30 December 1958, Sir Elihu discusses Composite Draft II. No material is available on Composite Draft I; nevertheless, its content, which was largely based on the Shawcross Draft, becomes obvious from the comparative observations available in ‘Convention on Foreign Investments. Note’. In fact, Composite Draft II retained many articles from the Shawcross Draft (including those on fair and equitable treatment and non-discrimination, etc). Even the very working title of the Abs-Shawcross Draft Convention at that stage reflected the one from the Shawcross Draft: ‘Convention on Foreign Investments’. However, an important element of departure from Composite Draft I and thus from the Shawcross Draft was the inclusion of the right of an individual to arbitrate directly with the state, which Sir Elihu advocated for, considering it to be ‘the principal element of novelty’84 of the Abs-Shawcross Draft Convention. ‘Convention on Foreign Investments. Note’ also shows that the working group was persuaded to include arbitration for inter-state disputes, rather than having recourse to the ICJ. At the same time, Sir Elihu did not believe that this was sufficient. He proposed restoring a reference to the ICJ for disputes between states, given that the ICJ was, in his view, ‘in many ways the most suitable tribunal and the one to which most people would expect reference to be made’.85 The document also demonstrates that the working group worked simultaneously on the text of the Abs-Shawcross 84

Elihu Lauterpacht, ‘Convention on Foreign Investments. Note’ (30 December 1958) (file from Lauterpacht’s personal archive; on file with the author) 2. 85 ibid 1.

268

International investment law and history

Draft Convention provisions and on its Commentary, which enabled discussion of how the development of international law influenced each provision. The next note, prepared a month later, on 25 January 1959, refers to the meeting of 23 January 1959 where Composite Draft II was discussed. At that meeting, the changes proposed by Sir Elihu while addressing Composite Draft II, were agreed to be included in Composite Draft III. In particular; the ICJ was restored as the default dispute settlement mechanism for inter-state disputes. Furthermore, an optional protocol on arbitration for ISDS and inter-state dispute settlement, describing the formation of the tribunal and other details of procedure, was inserted, although its content was still not fully satisfactory to Sir Elihu, who proposed further changes, which the working group later accepted. Composite Draft III thus reflected the central discussion on dispute resolution and the work on the rest of the provisions of the AbsShawcross Draft Convention (Articles V–VI, VIII–X). A letter sent by Elihu Lauterpacht to DM Jacobs, a member of the drafting group, a week after the note on Composite Draft III, reveals the discussion around dispute resolution and the possible ways to create a more efficient dispute settlement mechanism. The letter also addressed the concerns of others who were in correspondence with Lord Shawcross regarding the extent to which states may accept the substantive and procedural provisions. From the text of the letter, it becomes clear that the optional protocol and arbitration between individuals and states, reflected in Composite Draft III prepared by Sir Elihu, was a basis for the final drafting efforts. Another document, ‘Draft. Annex. Protocol Relating to the Arbitral Commission’, presents the final solution devized by Sir Elihu regarding the content of the optional protocol in the form of an annex, which was ultimately accepted by the working group. The document entitled ‘Resumé of the observations made by Mr Lauterpacht on the Convention on Investments Abroad’ contains Sir Elihu’s explanations on every provision of the Abs-Shawcross Draft Convention. It ultimately appeared in the published Commentary on the Abs-Shawcross Draft Convention. As seen from the Resumé, the final title of the Abs-Shawcross Draft Convention was somewhat amended from ‘Convention on Foreign Investments’ to ‘Convention on Investments Abroad’ in order to reflect the international focus of the project. All efforts on setting up an appropriate dispute resolution procedure in the Abs-Shawcross Draft Convention ultimately resulted in the following wording of Article VII:

The drafting of the Abs-Shawcross Draft Convention

269

1. Any dispute as to the interpretation or application of the present Convention may, with the consent of the interested Parties, be submitted to an Arbitral Tribunal set up in accordance with the provisions of the Annex to this Convention. Such consent may take the form of specific agreements or of unilateral declarations. In the absence of such consent or of agreement for settlement by other specific means, the dispute may be submitted by either Party to the International Court of Justice. 2. A national of one of the Parties claiming that he has been injured by measures in breach of this Convention may institute proceedings against the Party responsible for such measures before the Arbitral Tribunal referred to in paragraph 1 of this Article, provided that the Party against which the claim is made has declared that it accepts the jurisdiction of the said Arbitral Tribunal in respect of claims by nationals of one or more Parties, including the Parties concerned.

The provision offered arbitration for inter-state and investor-state disputes. For both scenarios, the consent of the state was essential. Interstate arbitration required either specific agreement or a unilateral declaration. For arbitration between a national and a state, acceptance of jurisdiction in the form of a declaration of the respondent state was deemed sufficient. By the words ‘agreement for settlement by other specific means’, Article VII(1) allowed for alternative means of dispute resolution which could be agreed upon between the parties and take the form of negotiations, settlement, ad hoc arrangements, etc. In the absence of consent or of any other form of specific agreement, Article VII(1) suggested recourse to the ICJ as the default method of settling inter-state disputes. Thus, the provision aimed to be watertight; that is, to exclude situations where states could block dispute settlement, by putting default rules in place. Based on the documents described above, Sir Elihu had a number of roles in the drafting of the Abs-Shawcross Draft Convention. First, he served as secretary during the working group’s meetings and summarized the content of the group’s discussions. Indeed, in ‘Convention on Foreign Investments. Note’ dated 30 December 1958, Sir Elihu highlighted that the content of Composite Draft II reflected the discussion on Composite Draft I: I have attempted in Composite Draft II to give effect to the discussions which took place on December 18, 1958, in relation to Draft I. I have not deliberately departed from any decision then taken. The following are the principal changes from Draft I.86 86

Lauterpacht, ‘Convention on Foreign Investments. Note’ (n 84) 1.

270

International investment law and history

Similarly, in ‘Convention on Foreign Investment – Note on Composite Draft III’ dated 25 January 1959, Sir Elihu emphasized that the changes to Composite Draft III followed the discussion of the working group: In the light of the conversations held at The Hague on Friday, January 23, I have made certain changes in the Texts and Comments of Composite Draft II. These changes are incorporated in Composite Draft III.

Second, Sir Elihu had the role of rapporteur concerning the status of international law in respect of all articles of the Abs-Shawcross Draft Convention. The draft was presented as a restatement of existing rules of customary international law, which required close attention to the content of customary international law at the time. The explanation behind the provisions and the Commentary, which was subsequently published together with the text of the Abs-Shawcross Draft Convention, provided a summary and clarification of the status of international law. In particular, for Article I of the Abs-Shawcross Draft Convention on full protection and security, Sir Elihu relied on US treaties of friendship, commerce and navigation: The words ‘protection and security’ are adopted from precedents of at least thirty years’ standing which are to be found in the United States treaties of Friendship and Commerce. The expression is a general one and reflects the obligation of States to exercise due diligence within their territory for the protection of the property of aliens.87

Further, for Article III of the Abs-Shawcross Draft Convention on expropriation, the right of a state to expropriate, as a general rule, was emphasized: The Article acknowledges the general right of a State to take the property of aliens, but makes the valid exercise of this right dependent on due process; the requirement of non-discrimination; the obligation to respect undertakings; and the payment of just and effective compensation.88

Similarly, in respect of Article IV of the Abs-Shawcross Draft Convention on full reparation, a general obligation to pay such reparation and the renowned Chorzów Factory case were referred to: 87 Elihu Lauterpacht, ‘Resumé of the Observations Made by Mr Lauterpacht on the Convention on Investments Abroad’ (from 1959 without specific date) (file from Lauterpacht’s personal archive; on file with the author) 4–5. 88 ibid 9.

The drafting of the Abs-Shawcross Draft Convention

271

[the article] restates the general obligation expressed, for example, in the Chorzow Factory case, that the breach of an international obligation entails the duty of reparation. There is nothing in this provision which affects the normal application of the rule relating to the exhaustion of the application of local remedies.89

Finally, for Article V of the Abs-Shawcross Draft Convention on nonderogation in times of emergency, Sir Elihu suggested an analogy with the European Convention on Human Rights: The terms of Article V resemble those of Article 28 of the European Convention on Establishment and Article 15 of the European Convention on Human Rights.90

Third, Sir Elihu was an active participant of the group in the final drafting of the dispute resolution provisions of the Abs-Shawcross Draft Convention. In this respect, his role in supporting the possibility for an individual to arbitrate directly with a state and in presenting the dispute resolution machinery as an important part of the Abs-Shawcross Draft Convention, is crucial. In fact, the procedure which allowed an individual to make claims against a state was the most novel and vital part of the Abs-Shawcross Draft Convention. It was drafted by Sir Elihu in Composite Draft II as a result of the discussion on Composite Draft I on 18 December 1958, and reflected the group’s agreement that an individual could make a claim against a state. In introducing the provision of Article VII(2), Sir Elihu specified that ‘[it] has been elaborated so as to deal with the circumstances in which the individual may make a claim and with the effect which such a claim may have on the rights of his State’.91 He also characterized the overall idea as the ‘principal element of novelty’.92 As seen from the table below, the idea of standing for private individuals, put forward by Sir Elihu in ‘Convention on Foreign Investment – Note on Composite Draft III’ dated 25 January 1959, influenced the final Commentary to the Abs-Shawcross Draft Convention, published in 1960,93 almost verbatim (two insignificant changes being highlighted): 89

ibid 12. Elihu Lauterpacht, ‘Convention on Foreign Investment – Note on Composite Draft III’ (25 January 1959) (file from Lauterpacht’s personal archive; on file with the author) section B (ii). 91 Eminent Scholars Archive (n 5). 92 ibid. 93 ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (n 23) 123. 90

272

International investment law and history

Table 9.2 ‘Convention on Foreign Investment – Note on Composite Draft III’ dated 25 January 1959 drafted by Sir Elihu

Commentary on the Abs-Shawcross Draft Convention

The idea that an individual may enjoy a right of access directly to an international tribunal is not new. Procedural capacity of this character was enjoyed by individuals in relation to the Central American Court of Justice and certain Mixed Arbitral Tribunals, and is enjoyed by them today in relation to such diverse bodies as the Court of the European Community, the European Court of Human Rights and the Administrative Tribunals of the international organizations. It is, therefore, no real departure from legal tradition to suggest that similar rights be conferred on individuals in connection with investment matters.

The notion that an individual may enjoy a right of access directly to an international tribunal is not new. Procedural capacity of this character was enjoyed by individuals in relation to the Central American Court of Justice and certain mixed arbitral tribunals, and is enjoyed by them today in relation to such diverse bodies as the Court of the European Community, the European Commission of Human Rights, and the administrative tribunals of the international organizations. It is, therefore, no real departure from legal tradition to suggest that similar rights be conferred on individuals in connection with investment matters.

Despite an attempt to present the standing of individuals as not being a departure from international law, the proposition nevertheless had to be ‘softened’ by the requirement that states consent to it. The optional character of arbitrating disputes between a private investor and a state was an attempt to avoid the criticism against the individual being recognized as a subject of international law, which had previously emerged in the human rights context.94 In case a state accepted the possibility to arbitrate with an individual, such proceedings had to be conducted in accordance with the specifically designed rules which focused on the formation of the tribunal, general conduct of the proceedings, situations of default by a party to the proceedings, adoption of the decision, publication of the issued award and some other aspects. Sir Elihu proposed to set out the procedure in an additional document that, following the discussion in The Hague on 23 January 1959, initially took the form of an optional protocol, and later on 94 While summarizing the practice of the United Kingdom in the field of international law, Sir Elihu cited the Foreign Secretary, who explained that the competence of the European Commission of Human Rights was not acceptable, as ‘the States are the proper subject of international law’; see Lauterpacht, ‘The Contemporary Practice of the UK’ (n 14) 92.

The drafting of the Abs-Shawcross Draft Convention

273

was substituted with an annex. Sir Elihu introduced the following explanation for the appearance of the optional protocol: the establishment of such rights [a right of an individual to access international remedies] within a framework of settlement employing the machinery of the International Court of Justice is confronted by procedural obstacles. The Court, by virtue of Article 34 of its Statute, is competent only in respect of disputes between States. Moreover, the probability is that it would not be entitled to accept an extra-statutory conferment of jurisdiction which involves a modification of this Article. Consequently, an Optional Protocol has been prepared, which will be annexed to the Convention and which will be open for signature by Parties to the Convention. The principal object of the Protocol is the creation of an international arbitral commission capable of exercising jurisdiction at the instance of individual investors.95

The optional protocol in Composite Draft III provided that the arbitral commission in respect of inter-state disputes had to be established by agreement of the parties. For disputes between a private investor and a state, the procedure was more detailed. The arbitral commission was supposed to consist of five members. Each party was to nominate two individuals of acknowledged competence in the field of international law. The nominated arbitrators were to choose a fifth member as an umpire. For each step (that is, for party nominations and for the choice of the umpire), two months were allocated. In case of a failure of a party to nominate or a failure of the four arbitrators to choose an umpire, the Secretary-General of the United Nations was to make a nomination and appoint. The rules of the arbitral commission were to be determined by the commission itself and were to be based, to the extent the arbitral commission considered appropriate, on the Model Rules of Arbitral Procedure adopted by the International Law Commission in 1958. Owing to proposals by Sir Elihu, the content of the optional protocol discussed in Composite Draft III was redrafted and turned into an annex which, save for some minor changes, ultimately appeared in the final draft of the Abs-Shawcross Draft Convention. Instead of five members, a three-member tribunal was proposed. The default appointment of the umpire was to be made by the President of the ICJ or the SecretaryGeneral of the United Nations (Sir Elihu proposed the President of IBRD instead of the Secretary-General of the United Nations, but that proposition was ultimately not accepted). 95 Lauterpacht, ‘Convention on Foreign Investment – Note on Composite Draft III’ (n 90) (iii).

274

International investment law and history

Thirty days, following the claimant’s notice, were allocated for the respondent to nominate an arbitrator. Following the commencement of proceedings, 60 days were allocated to the parties for choosing an umpire. The umpire was to nominate an arbitrator, if either of the parties failed to appoint, and to determine the procedure. The award was to be final and binding upon the parties and was to be published. In specifying the formation and function of an arbitral tribunal for inter-state arbitration and ISDS, it was Sir Elihu who suggested the use of wording found in the IBRD Loan Regulations. The document entitled ‘Draft. Annex. Protocol Relating to the Arbitral Commission’ (from 1959 without specific date) introduced these changes: In drafting the attached Annex 1 I have to a large extent abandoned the pattern of the earlier drafts prepared by the group on this aspect of the Convention. I would not have done this had I not considered that the alternative which I now propose has one special merit to commend it, namely, that it is almost an exact transcription of the relevant parts of Section 7.03 of the Loan Regulation No.3 of the International Bank for Reconstruction and Development … These Loan Regulations, it will be recalled, are incorporated into every Loan Agreement concluded by the I.B.R.D. They are, therefore, familiar to the majority of Governments and especially to those of the under-developed territories. It is therefore, my belief that by adopting this much used precedent, the group is more likely to avoid controversy on this aspect of the convention than if it were to adopt any other alternative.96

Ultimately, the wording of Loan Regulations Nos 3 and 4 appeared in the final Abs-Shawcross Draft Convention. The official Commentary on the Abs-Shawcross Draft Convention openly recognized this: An Annex to the Convention contains provisions for the establishment of the Arbitral Tribunal. The structure of this Tribunal does not differ in any significant detail from that of the Arbitral Tribunal referred to in Loan Regulations 3 and 4 of the International Bank for Reconstruction and Development.97

In departing from the proposal of the drafting group by using the content of the IBRD’s Loan Regulations, Sir Elihu stated: 96 Elihu Lauterpacht, ‘Draft. Annex. Protocol Relating to the Arbitral Commission’ (from 1959 without specific date) (file from Lauterpacht’s personal archive; on file with the author) 1. 97 ‘The Proposed Convention to Protect Foreign Investment: A Round Table’ (n 23) 123.

The drafting of the Abs-Shawcross Draft Convention

275

This suggestion carries with it consequences that a number of ideas which have already been canvassed at some length by the group have been abandoned. In particular, the draft contains no reference either to (i) the selection of arbitrators from a panel of names or to (ii) the use of the machinery of the Permanent Court of Arbitration. It would, of course, be possible to modify the I.B.R.D. precedent so as to take in both these points, but I see no advantage, in doing this. Such advantage, if any, as might be gained by including references to these two points is, in my view, so marginal that it does not outweigh the disadvantage of departing from the main lines of the I.B.R.D. text. These Regulations leave open a number of points which may call for further consideration, such as the establishment of a panel of arbitrators, the use of the facilities of the Permanent Court of Arbitration and the adoption of the Model Rules of Arbitral Procedure drawn up by the International Law Commission in 1958.98

Apart from focusing on ISDS and details of arbitral procedure, both for inter-state and investor-state dispute resolution, Sir Elihu was concerned with creating a watertight dispute resolution mechanism and ensuring that inter-state disputes would be efficiently settled. At a certain stage of the drafting efforts, it was proposed to exclude the ICJ from inter-state dispute resolution, even as a default method. In the document entitled ‘Convention on Foreign Investments. Note’ dated 30 December 1958, Sir Elihu disagreed with the exclusion of the ICJ as a possible avenue for resolving potential disputes between states, stating: ‘I would prefer to see the ICJ restored to the Convention.’99 The idea behind having a specific agreement on the ICJ as a default dispute settlement method was to have a secure provision for a scenario where no inter-state agreement to arbitrate existed. Moreover, the proposition extended the jurisdiction of the ICJ to investment disputes. The arguments advanced for the need of a specific agreement were: (1) desirability of confidence, which could be achieved only through a clear and comprehensive dispute settlement mechanism, and (2) appropriateness of the ICJ for inter-state disputes. Sir Elihu underlined that: it is probable that a general undertaking by States to accept the jurisdiction of the International Court of Justice, at least in relation to disputes connected

98

Lauterpacht, ‘Draft. Annex. Protocol Relating to the Arbitral Commission’ (n 96) para 2. 99 Lauterpacht, ‘Convention on Foreign Investments. Note’ (n 84) 1.

276

International investment law and history

with investment, would, by itself, do more to create a climate favourable to the provision of development of funds than would any other single act.100

Ultimately, the ICJ was restored as the forum which had residual compulsory jurisdiction. Later, Sir Elihu expressed satisfaction with the combination of arbitration and the ICJ for inter-state disputes in his letter to DM Jacobs from 31 January 1959: ‘[t]he latest draft with its references both to the International Court of Justice and the Arbitral Commission strikes a satisfactory balance between the old and the new’.101 The restoration of the ICJ in the dispute resolution machinery under the Abs-Shawcross Draft Convention is notorious as an attempt to create what Sir Elihu characterized on a number of occasions as ‘watertight’ dispute resolution provisions. Those provisions aimed to avoid jurisdictional failures, as had been experienced in the Anglo-Iranian Oil Company case. Here again the practical experience of Sir Elihu influenced not only his view on dispute resolution, but ultimately the view of the entire working group. It is interesting to note that Sir Hersch Lauterpacht, after taking on the position of a judge at the ICJ in 1955, proposed, on 104 pages, a number of amendments to the ICJ Statute, ranging from compulsory jurisdiction to the idea that individuals and international organisations could become parties before the ICJ.102 Thus, both father and son saw potential in the ICJ for resolving disputes in the private foreign investment field. Sir Elihu understood the danger of introducing a novel ISDS mechanism into the Abs-Shawcross Draft Convention. For these reasons, he suggested to put the provisions on ISDS at the end in an annex, as ‘placing a novel idea at the forefront of the scheme might well be prejudicial to its success’.103 Accordingly, the proposition was inserted at the end of Article VII of the Abs-Shawcross Draft Convention following the provisions on inter-state dispute resolution. Following the introduction of the requirement for additional consent and the placement of the provision on individual access at the very end,

100

Elihu Lauterpacht, ‘Convention on Foreign Investments. Comment’ (from 1959 without specific date) (file from Lauterpacht’s personal archive; on file with the author) 3. 101 Lauterpacht, ‘Letter to D.M. Jacobs’ (n 78) 4. 102 Lauterpacht, The Life of Hersch Lauterpacht (n 4) 4–5. 103 Lauterpacht, ‘Convention on Foreign Investments. Note’ (n 84) 2.

The drafting of the Abs-Shawcross Draft Convention

277

it is not surprising that only two articles104 published contemporaneously with the Abs-Shawcross Draft Convention addressed the envisaged procedural mechanism. Other than that, the novelty of the provision went largely unnoticed. Out of the two articles addressing dispute resolution provisions in the Abs-Shawcross Draft Convention, only one was critical of the proposed dispute resolution mechanism: Georg Schwarzenberger, while not challenging the idea of individual recourse as such, doubted the likelihood that states would accept the proposed option.105 Michael Brandon, by contrast, addressed the dispute resolution machinery in supportive fashion. He underlined that the importance of enabling private investors to pursue international remedies was recognized in contemporaneous (though still somewhat posterior to the finalization of the Abs-Shawcross Draft Convention by the working group) efforts of the Council of Europe in the context of a conference that was to be attended by European and African countries for the purpose of drafting an investment statute and establishing a guarantee fund, and those of the British Parliamentary Group for World Government’s Commission on a World Investment Convention in the context of drafting a multilateral investment code.106 The subsequent discussion of the Abs-Shawcross Draft Convention in the Journal of Public Law did not result in more debate on the Draft Convention’s dispute resolution provisions. Ignaz Seidl-Hohenveldern just gave brief praise in support of granting individuals standing in order to depoliticize disputes: ‘… yet the Draft Convention, especially Article VII (2), is designed supposedly to remove investment disputes from the political sphere’.107 And Stanley D Metzger referred to general nonacceptability of the Abs-Shawcross Draft Convention, including its dispute resolution provisions: ‘of course it [the Abs-Shawcross Draft Convention] would provide a remedy, but the point is that the “patient”

104 Brandon (n 34) 162 and Georg Schwarzenberger, ‘The Abs-Shawcross Draft Convention on Investments Abroad: A Critical Commentary’ (1960) 9 Journal of Public Law 162. 105 ibid 162–164. 106 Brandon (n 34) 131–132. 107 Ignaz Seidl-Hohenveldern, ‘The Abs-Shawcross Draft Convention to Protect Private Foreign Investment: Comments on the Round Table’ (1961) 10 Journal of Public Law 109; Stanley D Metzger, ‘The Abs-Shawcross Draft Convention to Protect Private Foreign Investment: Comments on the Round Table’ (1961) 10 Journal of Public Law 100.

278

International investment law and history

will not agree to the remedy, either because he disagrees with the diagnosis or he doesn’t like the taste’.108 The role of Sir Elihu in drafting the Abs-Shawcross Draft Convention and his particular focus on dispute resolution provisions can be better understood if placed in the context of not only his practical experience and involvement in the settlement negotiations in the Anglo-Iranian Oil Company case, but also that of his publications. Many of them encompassed the discussion of the dispute resolution provisions, of their ‘watertight character’ (the word continuously employed by Sir Elihu), and of the special role given to individuals under the Draft Convention. In an early 1962 publication on initiatives on multiparty treaties for the protection of private investments, he acknowledged that the idea of individual standing was attractive and became a ‘desideratum’: Although it is possible to identify many difficulties which can arise in connection with the attribution to the individual investor of a right of direct recourse to some international remedial processes, it must nevertheless be recognized that the existence of such a right is now regarded by many interested persons as an important desideratum in treaties of this kind. But whatever choice is made, the form in which the solution is expressed must be such that the obligation to accept impartial adjudication cannot be avoided by any act or omission of the wrongdoing party in connection with the remedial process.109

This view, supporting the right of individuals to obtain direct access to arbitration with a state, also featured in other publications by Sir Elihu. In 1968, in relation to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States,110 Sir Elihu

108

ibid 111. Elihu Lauterpacht‚ ‘The Drafting of Treaties for the Protection of Investment’ (1962) 3 International & Comparative Law Quarterly Supp Pub 18, 33. 110 Taylor St John suggests that Sir Elihu was also among those who drafted earlier versions of documents that led to the emergence of the ICSID Convention. She specifically refers to the Draft Convention on Conciliation and Arbitration of International Investment Disputes of 20 October 1961, prepared by the American Bar Association, which was taken into consideration by those involved in the drafting of the ICSID Convention. For more details, see Taylor St John, The Rise of Investor-State Arbitration: Politics, Law, and Unintended Consequences (Oxford University Press 2017) (forthcoming). 109

The drafting of the Abs-Shawcross Draft Convention

279

praised the position that the Convention gave to individuals in international law as ‘a significant step forward’.111 In his view, the impact of the Convention went beyond regional application or particular substantive rights and applied ‘to the whole field of state responsibility under customary and conventional international law in relation to investments’.112 In 1997, looking back at the development of international law, Sir Elihu again emphasized the importance of procedural standing for individuals under international law: All these developments are striking and significant because they put an end to the myth, so prevalent until the end of the Second World War, that only States are subjects of international law and that individuals cannot possess rights or bear duties directly under international law. We have in this respect moved into a new age …113

It is interesting to note that the idea of the individuals being the ultimate unit of international law was also central to the works of Sir Elihu’s father, Sir Hersch Lauterpacht.114 In his 1991 Aspects of International Administration of International Justice,115 Sir Elihu referred to the work of his father on International Law and Human Rights (published eight years prior to the Abs-Shawcross Draft Convention) to emphasize his father’s attempts at arguing that the provisions of the ICJ Statute, which restricted access to the ICJ to states, were limited to the peculiarities of both adjudication and the ICJ proceedings, and were not ‘a declaration of an immutable state of affairs in international adjudication’.116 Both Sir Hersch and Sir Elihu believed that ‘[i]f States were prepared to accord procedural capacity to individuals, that was a status which international law could readily absorb’.117 The Abs-Shawcross Draft Convention 111 Elihu Lauterpacht, ‘The World Bank Convention on the Settlement of International Investment Disputes’ in Pierre Lalive and Jacques Freymond (eds), Recueil d’études de droit international en hommage á Paul Guggenheim (Imprimerie de la Tribune de Geneve 1998) 664. 112 ibid. 113 Lauterpacht, ‘International Law and Private Foreign Investment’ (n 12) 274. 114 Ian Scobbie, ‘Hersch Lauterpacht (1897–1960)’ in Fassbender and Peters (n 4) 118. 115 Elihu Lauterpacht, Aspects of the Administration of International Justice (The Grotius Publications Limited 1991) XI-166. 116 ibid 3. 117 ibid.

280

International investment law and history

offered exactly this; and thousands of subsequently concluded BITs did in fact absorb this idea. C. The OEEC/OECD Draft Convention: Explaining and Supporting Not only did Sir Elihu participate in the drafting of the Abs-Shawcross Draft Convention, but his role also included promoting the draft with the OEEC, and later the OECD, when it started to work in 1960–1967 on a separate draft of a multiparty instrument protecting foreign property. At that time, Sir Elihu had developed an academic career and had quite a heavy workload at Trinity College,118 coupled with an intense private practice ultimately leading to ‘earned Silk’.119 By way of the German government,120 the Abs-Shawcross Draft Convention was presented to the OEEC in 1959 for consideration. The Abs-Shawcross Draft Convention was considered together with another draft proposed by the Swiss government as a basis for the draft convention of the OEEC.121 Unlike the Abs-Shawcross Draft Convention, the Swiss draft was not concerned with setting standards for investment protection and efficient dispute resolution, but was rather focused on the repatriation of capital and earnings, compensation payments, and currency convertibility.122 Despite all efforts, at that point in time, the OEEC was not ready to proceed with the Draft Convention. Dr Abs tied the reluctance of the OEEC to the restrictive position of the United States, whose law imposed restrictions on the use of international arbitration or foreign courts in 118

Eminent Scholars Archive (n 5). Sir Elihu explained: ‘[n]owadays it has become the practice to award honorary QC’s, honorary Silk to academics, a perfectly reasonable recognition of their distinguished position in the field, but in terms of an acknowledgement of their activity or prowess on the professional side it does not really convey very much. But in 1970 my Silk was what they call an “earned Silk” and was a reflection of the position that I had, by then, developed.’ See Eminent Scholars Archive (n 5). 120 The Abs-Shawcross Draft Convention was referred to by the OEEC as ‘the German Draft Convention on Investments Abroad’. See van Emde Boas (n 2) 269 and Elihu Lauterpacht ‘Questions Relating to the German Draft Convention on Investments Abroad’ (undated) (file from Lauterpacht’s personal archive; on file with the author) 1. 121 van Emde Boas (n 2) 268. 122 ibid. 119

The drafting of the Abs-Shawcross Draft Convention

281

relation to the state, on state sovereignty.123 Subsequent to the reorganization of the OEEC into the OECD, the OEEC’s work on a multiparty instrument for the protection of foreign investments was taken up by the newly established OECD. In 1967, the OECD presented its Draft Convention on the Protection of Foreign Property, which was approved by all member states except Spain and Turkey, which abstained.124 The dispute resolution mechanism of the OECD Draft Convention resembled the concept introduced by the Abs-Shawcross Draft Convention, in particular in offering an ISDS mechanism subject to state consent. The scope of application was broadened a bit and recognized as nationals who could potentially arbitrate with the state not only companies, but also natural persons.125 The documents from this period contained in Lauterpacht’s personal archive include communications by Sir Elihu with the OEEC Committee for Invisible Transactions and the OECD: 1)

2) 3)

a document directed to the OEEC Committee for Invisible Transactions under the title ‘Questions Relating to the German Draft Convention on Investments Abroad’, without a specific date, though not earlier than the date of the OEEC questions, given in the document as 2 June 1959; a letter addressed to the Legal Adviser of the OEEC dated 10 October 1960; a document addressed by Elihu Lauterpacht to the OECD under the heading ‘O.E.C.D. Draft Convention on the Protection of Foreign Property’ dated 14 June 1965.

The documents reveal that it was Sir Elihu who responded to the questions of the OEEC and the OECD in relation to the Abs-Shawcross 123 Hermann Josef Abs, Die rechtliche Problematik privater Auslandsinvestitionen (CF Müller 1969) 11. 124 OECD Draft Convention accessed 14 February 2017; reproduced also in Monique Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship Between International Law and Municipal Law (Kluwer Law International 2010) 233–260. 125 The OECD Draft Convention on the Protection of Foreign Property introduced an additional requirement for ISDS by requiring in Article 7(b)(ii) an elapse of six months for the espousal by the state of the claim of its own national. The corrected definition of what constituted a ‘national’ was provided for in the definitions in Article IX. See ibid.

282

International investment law and history

Draft Convention on behalf of its authors, and who tried to dispel concerns associated with the possibly low number of ratifications of the draft. The document addressed to the OEEC Committee for Invisible Transactions provides detailed and rather extensive answers to 31 questions by the OEEC. The questions were split in two: 11 general questions and 20 legal questions. The general questions related to reasons for the selection of ‘nationality’ that connected an individual with the state whose participation in the Abs-Shawcross Draft Convention would confer a benefit on the individual, to reasons for not making reference to the rate of exchange or the channel of transfer of compensation, to reasons for a reference to ‘prompt’ rather than ‘immediate’ compensation, to reasons for not setting out circumstances under which a national may call upon his state to protect him, etc. The legal questions ranged from the need to clarify specific expressions (‘protection and security’ in Article I, ‘deprivation’ in Article III, ‘the generally accepted laws of war’ in Article V, ‘settlement by other specific means’ in Article VII, ‘members’ instead of ‘shareholders’ in Article IX, etc.), to deeper questions going to the essence of the provisions of the Abs-Shawcross Draft Convention (what was the exact content of Article I, whether the Abs-Shawcross Draft Convention dealt with the establishment of investment, whether it excluded the application of the exhaustion of local remedies rule, etc). On behalf of the authors of the Abs-Shawcross Draft Convention, Sir Elihu emphasized the overall compatibility of the Abs-Shawcross Draft Convention with the foundations of international law: ‘it is believed that the positions adopted in the Convention represent a tenable view of the law which is supported by authority and is in full conformity with the principles and purposes of the relevant area of international law’.126 This observation on the conformity of the Abs-Shawcross Draft Convention with established principles of international law did not apply to the novel procedural provisions – the introduction of the ISDS mechanism in the Draft Convention. Despite the novelty, the right of an individual to arbitrate with a state did not raise much concern for the OEEC because of the clarification obtained from Sir Elihu on the necessity of state consent. The response given by Sir Elihu emphasized that if a state did not accept the jurisdiction of the arbitral tribunal, inter-state dispute settlement was the only option. In the same document, Sir Elihu also clarified that the reference in Article VII of the Abs-Shawcross Draft 126 Lauterpacht, ‘Questions Relating to the German Draft Convention’ (n 120) sub-sec ‘Legal Questions’ 1.

The drafting of the Abs-Shawcross Draft Convention

283

Convention to ‘settlement by other specific means’, referred to alternative means of dispute resolution to which the parties could agree (for example, ad hoc arbitration or negotiations recorded in the agreement), and that there was no intention to exclude the normal application of the local remedies rule. Apart from responding in writing, Sir Elihu also participated directly in the discussions of the OEEC Committee for Invisible Transactions, which worked on a draft Convention for protection of foreign investments.127 His letter to the Legal Adviser of the OEEC dated 10 October 1960 referred to a number of issues in relation to the consideration of the Abs-Shawcross Draft Convention by the OEEC. It starts with a reference to a meeting in Paris and to the discussion of the OEEC questions on the Abs-Shawcross Draft Convention that Sir Elihu had with a few representatives of the Abs-Shawcross working group, and continues to explain the ideas behind some of the provisions in the Abs-Shawcross Draft Convention. The involvement of Sir Elihu continued when the OECD took over the work of the OEEC. On 14 June 1965, Sir Elihu addressed the fear that insufficient state acceptance of the draft convention prepared by the OECD on the basis of the Abs-Shawcross Draft Convention would weaken customary international law relating to the treatment of foreign investments: I do not think concern about the effect of non-acceptance of the relevant rules of customary international law should be allowed to influence the decision whether or not to open the Convention for ratification. To my mind, considerations which are so theoretical or, if real, so marginal in their effect, should not be permitted to obscure the undoubted advantage of extending the network of compulsory jurisdictional links between States in matters affecting property. In my estimate, it would be a positive, even though slight, gain if the Convention were to become operative between even as few as two States.128 127

The archive of the European Union, which contains documents in relation to the OEEC Committee for Invisible Transactions accessed 14 February 2017, does not have much information regarding the discussions on international instruments concerning the protection of private investments. At the same time, the private archive of Sir Elihu demonstrates his attempts to amend minutes of the discussion at the OEEC Committee for Invisible Transactions so as to reflect his views more precisely. 128 Elihu Lauterpacht, ‘O.E.C.D. Draft Convention on the Protection of Foreign Property’ (14 June 1965) (file from Lauterpacht’s personal archive; on file with the author) 7.

284

International investment law and history

Taken together, the communications by Sir Elihu with the OEEC and the OECD on behalf of the authors of the Abs-Shawcross Draft Convention demonstrate his role in both the overall design of the draft and his particular involvement in the drafting of the dispute resolution provisions. The combination of inter-state arbitration with a default compulsory jurisdiction of the ICJ and ISDS was aimed to ensure efficiency, impartiality and maximal disengagement of dispute resolution from politics. These ideas ultimately penetrated the OECD Draft Convention on the Protection of Foreign Property. Such depolitization would not be fully possible without having the right of individuals to arbitrate directly with states recognized at the international level by treaty.

V. CONCLUSION Given the archival materials, as well as his concrete drafting efforts in respect of the provisions of the Abs-Shawcross Draft Convention, the influence of Sir Elihu’s ideas is beyond any doubt. Originating in his previous work for the Anglo-Iranian Oil Company, Sir Elihu’s major contribution was the elaboration of the treaty provisions which recognized an international remedy for private investors and ensured a watertight dispute resolution mechanism that addressed all kinds of disputes and prevented deadlocks. At a meeting I had with him in July 2014, when asked what his exact role in respect of the Abs-Shawcross Draft Convention was, Sir Elihu modestly noted that ‘[s]omebody had to draft’. Apart from his active involvement in various capacities, including that of secretary, rapporteur on international law, and being an active member of the working group, Sir Elihu assisted in the reception of the ideas encapsulated in the Abs-Shawcross Draft Convention by explaining its critical provisions to the OEEC and the OECD. His involvement in the preparation of the Abs-Shawcross Draft Convention is an example of an individual contributing to the development of international law. As such, Sir Elihu’s impact is valuable and should not be omitted. This background on the emergence of the ISDS mechanism fills the dispute resolution provisions with clarity, reasonableness and caution, which are sometimes missing in the contemporary discussion addressing the reform of international investment arbitration. ISDS was introduced to ensure an atmosphere of trust among private investors and to disengage investment disputes from politics. The value of these two aims is better understood through the perspective of an individual who had first, during the settlement of the Anglo-Iranian Oil Company case,

The drafting of the Abs-Shawcross Draft Convention

285

failed to find answers to a practical situation in existing international law, and who then employed his creativity, as well as his academic and practical experience, to develop an appropriate solution. The solution emerged in the form of the Abs-Shawcross Draft Convention where ISDS was not automatic but was subject to the specific consent/declaration of states. History assists in understanding contemporary international law. Even on known and well-traversed landscapes, there is always an opportunity to discover a gust of wind.

10. Enriching law with political history: A case study on the creation of the ICSID Convention Taylor St. John I. INTRODUCTION The work of practising lawyers and legal scholars involves more contact with history than many other disciplines, since history can be used to aid interpretation. History is directly relevant when the preparatory papers of a treaty or convention are used as a supplementary means of interpretation.1 History is relevant in a more diffuse way when legal texts and decisions elaborate previous landmark cases and legislation in order to interpret the law; the historical trajectories of key legal principles or clauses are told and re-told in this process of interpretation and application.2 History can enrich legal scholarship in a number of ways that go beyond aiding in interpretation, however. This chapter focuses on political history, and in particular, on scholarship that aims to understand the political context in which a particular treaty or law was drafted. Political history is not necessarily useful in elucidating the law or aiding interpretation. Instead, it is of interest because it helps illustrate the process by which certain legal ideas became reality. The technical task of drafting may be only a limited part of a broader process through which ideas are 1 Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980) 1155 UNTS 331, art 32. 2 See Vaughan Lowe, ‘The Politics of Law-Making: Are Method and Character of Norm Creation Changing?’ in Michael Byers (ed), The Role of Law in International Politics: Essays in International Relations and International Law (Oxford University Press 2000) 215 (describing ‘the gradual refinement of a consistent principle, tested in the crucible of a succession of concrete cases’, which makes possible ‘the distillation of the detailed, carefully considered analyses spread throughout the mass of individual decisions’).

286

A case study on the creation of the ICSID Convention

287

translated into treaties or laws. Focusing on the political aspects of this process generates insights for contemporary audiences interested in tasks such as treaty renegotiation or proposals for new investment court systems – tasks that likely require political acumen to succeed. The history of international investment law is developing rapidly, as more scholars undertake innovative historical research that brings to light new materials or focuses on new topics in investment law.3 This development follows a rebirth in international legal history more generally4 and will likely bring sustained engagement with the lively debates about what aims and methods constitute international legal history.5 In this chapter, I eschew prescriptive claims about what international legal history ought to be, in favour of a pragmatic discussion of research practices relevant to postwar international investment law. The first half of the chapter discusses the promise and methodological challenges associated with researching the political history of legal texts (Part II). It focuses on three practical challenges that researchers face: framing a research question, grappling with original documents, and relating theory to original documents. Then the chapter turns to a case study on the drafting of the Convention on the Settlement of Investment Disputes Between States and 3 This volume demonstrates the range of new historical work, as do dedicated histories, such as Kate Miles, The Origins of International Investment Law: Empire, Environment, and the Safeguarding of Capital (Cambridge University Press 2013) as well as historical volumes from former practitioners, including Kenneth Vandevelde, Bilateral Investment Treaties: History, Policy, and Interpretation (Oxford University Press 2010) and Antonio Parra, The ICSID Convention: A History (Oxford University Press 2012). Some earlier volumes included thoroughly researched historical sections, as prologue to a main section or argument. 4 Emmanuelle Tourme-Jouannet and Anne Peters, ‘The Journal of the History of International Law: A Forum for New Research’ (2014) 16 Journal of the History of International Law 1, 2. International investment law has not received much attention from scholars of international legal history more generally; one metric for this is that none of the 65 chapters in the recent Oxford Handbook of the History of International Law takes investment law as its subject. Bardo Fassbender and Anne Peters (eds), The Oxford Handbook of the History of International Law (Oxford University Press 2012). 5 Reflecting this methodological diversity, in the introduction to the recent Oxford Handbook of the History of International Law, Bardo Fassbender and Anne Peters note the contributing authors have different academic backgrounds: lawyers, historians, and political scientists, and use different historiographical methods. See Bardo Fassbender and Anne Peters, ‘Introduction: Towards a Global History of International Law’ in Fassbender and Peters (n 4) 1, 3.

288

International investment law and history

Nationals of Other States (ICSID Convention),6 which draws from my experience researching the political history of the International Centre for Settlement of Investment Disputes (ICSID).7 The key innovation of the ICSID Convention’s drafters was not the idea of investor-state arbitration. The idea itself was not necessarily new.8 The first innovation was framing the idea of investor-state arbitration in a way that was feasible; that is, in a way which could command support and eventual ratification from a wide range of governments. This is a political, rather than a legal, achievement. Part III focuses on the political context in which the Convention was framed. Part IV focuses on a second innovation, which was to structure the drafting in a way that made it difficult for potential opponents of investor-state arbitration to derail the proposal, including by sending controversial decisions to the World Bank. This too is a political characteristic. The case study suggests that these two ‘political’ characteristics are what enabled the ICSID Convention to succeed – that is, enabled investor-state arbitration to transform from an ad hoc system based on retrospective consent to a system supported by a permanent institution and based largely on prospective consent. The case study analysis begins with previous proposals for investorstate arbitration, identifying lessons that ICSID’s framers drew from these previous proposals. Original documents from national archives and international organizations demonstrate that the idea of investor-state 6

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. 7 This research produced Taylor St John, The Rise of Investor-State Arbitration: Politics, Law, and Unintended Consequences (Oxford University Press 2018) (forthcoming). 8 See below Section III.A. There was also considerably scholarly literature on investor-state arbitration and investment law before and during the ICSID Convention’s drafting, but contemporary scholarly literature is only incorporated in this chapter when it comments on the political accommodations of the ICSID Convention. For instance, Georg Schwarzenberger wrote of the Convention: ‘The crucial question is the extent to which the draftsmen of the Convention considered it prudent to commit the governments of capital-importing states, without unduly rousing their susceptibilities as sovereign and equal members of the United Nations. They have come as near as possible to the point of squaring this particular circle. With remarkable ingenuity, they have couched the minimum of legal commitments in a form which leaves everything on the level of optional undertakings, but attains as much as, in the present political climate, is likely to be attained for the protection of foreign investments through conciliation and arbitration.’ Georg Schwarzenberger, Foreign Investments and International Law (Stevens & Sons 1969) 142.

A case study on the creation of the ICSID Convention

289

arbitration was discussed by several organizations in the 1950s. By 1960, the idea of an investor-state arbitration convention untethered to substantive rules and drafted with an inclusive, global procedure was articulated in a United Nations (UN) report.9 The World Bank cautiously embraced this idea, while repeatedly rejecting requests to serve as secretariat for a substantive multilateral convention on investment. In August 1961, Aron Broches, the World Bank’s General Counsel, presented the Bank’s Executive Directors with a memo that outlined many tenets of the ICSID Convention.10 The World Bank embraced the idea of investor-state arbitration for several reasons, in particular because it built on the Bank’s earlier success mediating investment disputes and because it was a way to ensure that the World Bank’s lending would not be disrupted by unresolved expropriations.11 The World Bank’s management, and especially Broches, learned many lessons from previous proposals and the Bank’s experience – while some lessons were legal, many were political lessons, about what was feasible and how proposals could be shepherded into reality. Broches and the Bank’s management designed a novel procedure for the drafting of the ICSID Convention. The World Bank’s Legal Department produced a complete draft, which was then sent to governments. The draft was then discussed in regional consultations – not in a global or deliberative body. The attendees were ‘experts-designate’ not representatives of their countries, and were tasked with expressing quasi-personal views, in particular on the likelihood that their country’s government could agree to the Convention as a whole or to particular language in the Convention. Next, there was a three-week-long drafting committee that met in Washington, but this committee was tasked with drafting technical details considered to be non-controversial; the controversial elements were reserved for the World Bank to decide.12 The procedure used to draft the ICSID Convention was starkly different from the procedure used to draft previous arms of the World Bank. The procedure for ICSID was designed to appear representative but avoid disagreements from derailing the drafting. The procedure was a success; the idea of a permanent machinery for investor-state arbitration was enshrined in the ICSID Convention, which opened to states for signature in 1965. Scholarship that focuses on the political context in which legal instruments were drafted can make two types of contributions. First, it 9 10 11 12

See See See See

below below below below

Section III.A. Section III.C. Section III.B. Sections IV.A and B.

290

International investment law and history

can help elucidate why law has the content it does and if the law is silent on a particular issue because the drafters did not anticipate it, or because the drafters could not agree on text. Second, it can improve understandings of the process through which ideas become enshrined in laws. The technical task of drafting is of course vital, but may be only a small part of a larger process. Are any of the actions that ICSID’s framers took to prevent disagreements from derailing the Convention’s drafting advisable or even possible in today’s political climate or with contemporary norms of transparency? Research into the political aspects of drafting processes enables more informed questions and discussion about how instruments in international investment law actually emerge.

II. WHY STUDY THE POLITICAL HISTORY OF INVESTMENT LAW INSTRUMENTS? PROMISE AND METHODOLOGICAL CHALLENGES A. The Promise of Political History International investment law is often associated with a move away from politics. This move away from politics is a celebrated attribute: Aron Broches recommended ICSID arbitration because it could help ‘to remove investment disputes from the intergovernmental political sphere’.13 One of Broches’ successors as ICSID Secretary-General, Ibrahim Shihata, described ICSID as a forum that ‘attempts in particular to “depoliticize” the settlement of investment disputes’.14 Depoliticization 13 Aron Broches, ‘Settlement of Investment Disputes’ in Aron Broches (ed), Selected Essays: World Bank, ICSID and Other Subjects of Public and Private International Law (Martinus Nijhoff 1995) 161, 163. That said, Parra (n 3) 16–18 does not give depoliticization a prominent role in his institutional history of ICSID. 14 Ibrahim Shihata, ‘Towards a Greater Depoliticization of Investment Disputes: The Role of ICSID and MIGA’ (1986) 1 ICSID Review 4. He described ICSID as ‘a forum for conflict resolution in a framework which carefully balances the interests and requirements of all the parties involved, and attempts in particular to “depoliticize” the settlement of investment disputes’. Sergio Puig argues that ICSID’s connection with depoliticization became stronger during Shihata’s tenure as Secretary-General. Sergio Puig, ‘Emergence and Dynamism in International Organizations: ICSID, Investor-State Arbitration and International Investment Law’ (2013) 44 Georgetown Journal of International Law 531, 550–553.

A case study on the creation of the ICSID Convention

291

has both a specific legal meaning in the ICSID Convention15 and often a wider, looser connotation of replacing a political process with a legal one.16 The language of depoliticization at times blurs into investment law generally and creates a false impression that the instruments that constitute investment law – including the ICSID Convention – have no meaningful political history. This is misguided. The ICSID Convention may have had an aim of ‘depoliticization’ but it was created through the actions of governments and international organizations, navigating in a contentious political arena. These actions – how governments and other actors navigated in the case of ICSID, or more generally, the process by which legal ideas are transformed and made to ‘fit’ their political context – are worthwhile subjects for research. Examining the fit of certain legal ideas with the political needs of the moment and with existing configurations of power, interests, and resources is how I define political history in this chapter.17 This type of scholarship presumes that ideas ‘prevail not because they are the “best” ideas in a technical or professional sense but because they meet the social, organizational, and political needs of key actors’.18 Ideas may not naturally fit; in many cases, particular ideas are tailored and adjusted in order to fit the needs of key actors. Studying the process through which ideas are transformed into treaties can lead scholars to challenge existing historical accounts of those treaties. Two recent books draw out aspects of the drafting process thought to be minor and show how these ‘minor’ aspects decisively shaped the resulting organization. In his book on the UN, Mark Mazower adopts a biographical approach to illuminate the forgotten influence of 15 Article 27 of the ICSID Convention provides a limited suspension of diplomatic protection. Paparinskis elaborates the limits of depoliticization for all actors and challenges the usefulness of depoliticization to contemporary discussions. Martins Paparinskis ‘Limits of Depoliticisation in Contemporary InvestorState Arbitration’ in James Crawford and Sarah Nouwen (eds), Select Proceedings of the European Society of International Law (Hart 2010) 271. 16 For instance, Schreuer et al observe that under the ICSID Convention, ‘[t]he dispute settlement process is depoliticized and subjected to objective legal criteria’. Christoph Schreuer et al, The ICSID Convention: A Commentary (2nd edn, Oxford University Press 2009) 416. 17 This use of the term ‘political history’ is open to challenge, but serves a purpose here to distinguish my approach from other forms of scholarship on legal instruments. 18 Ngaire Woods, The Globalizers: The IMF, The World Bank, and Their Borrowers (Cornell University Press 2006) 69.

292

International investment law and history

British imperial thought on the UN’s drafting and early development.19 He does this through detailed studies of key actors, which enables him to document the influence of individuals such as Jan Smuts, the South African leader who envisioned the UN as an instrument for the continuance of ‘imperial internationalism’. Mazower contrasts Smuts’ proposals with the actions of Jawaharlal Nehru, the Indian independence leader, who sought to redirect the UN toward post-colonial ideas. Mazower’s work provides a sharper sense of the tensions present at the creation of the UN and during the drafting of UN texts. Another example is Eric Helleiner’s recent book on the Bretton Woods negotiations that founded the International Monetary Fund (IMF) and the World Bank. Here, Helleiner illuminates the forgotten influence of individuals concerned with the development of poor countries at the Bretton Woods negotiations.20 He focuses on the delegations from developing countries and previous negotiations between the United States and Latin American countries, which shaped the thinking of some US officials at Bretton Woods. The attention Helleiner pays to these peripheral actors and to the infrastructure of the drafting process challenges the conventional wisdom that Bretton Woods was dominated entirely by the interests of the United States and the United Kingdom.21 These two books trace the path that ideas travel in order to become treaties and emphasize that there are often multiple, contradictory ideas and visions present at the founding of an international organization. The case study in this chapter takes a similar approach to the ICSID Convention, illuminating a forgotten series of decisions taken by ICSID’s framers to adapt the idea of investor-state arbitration to their political circumstances and structure the drafting to prevent disagreements from derailing progress. While a large and high-quality literature exists on the ICSID Convention,22 none of this scholarship focuses on the politics of 19 Mark Mazower, No Enchanted Palace: The End of Empire and the Ideological Origins of the United Nations (Princeton University Press 2009). 20 Eric Helleiner, Forgotten Foundations of Bretton Woods: International Development and the Making of the Postwar Order (Cornell University Press 2014). 21 ibid 156–183. Helleiner’s account also dispels the widely held belief that the World Bank was created to fund Europe’s reconstruction, with development an afterthought. In fact, Helleiner argues that the US, in particular, listened to and leaned on Latin American countries (whose interest lay exclusively in development, not reconstruction) and believed the support of Latin American countries was vital to the success of the IMF and World Bank. 22 This literature includes definitive commentaries on the ICSID Convention (Schreuer et al (n 16)), hundreds of public decisions which discuss and apply the

A case study on the creation of the ICSID Convention

293

the ICSID Convention’s drafting. My disciplinary training as a political scientist and interest in the history of the World Bank led me to generate a series of new questions about why the World Bank got involved in investor-state arbitration and how the idea of ICSID was made palatable to the World Bank’s member states, given the divisive past of investment protection. The purpose of these questions was to illuminate, at a granular level, the political obstacles and manouevering that made the ICSID Convention possible. Scholars, understandably, often want to engage the big ideas that led to a treaty – Koskienniemi argues the lofty aims of international law have ‘made its historians too reluctant to bring it down to the human size’.23 In this chapter, the focus is on those human-size details and how they can enable the realization of lofty aims. Investigating the wider political context in which a legal instrument was drafted is a worthwhile scholarly endeavour, but one that can create challenges and choices for the researcher, as the next section explains. B. Methodological Challenges and Choices All scholars embarking on a historical project face choices and methodological challenges. Here, I focus on three practical challenges: defining a research question, grappling with original documents, and relating theory to original documents. The first choice is to decide which question or questions are worth asking. Formulating a good research question – that is, one that is novel, appropriate in scope, and answerable – takes time, with questions emerging as a researcher develops a sense of the historical event and existing literature.24 An additional dimension for researchers focusing on Convention, a dedicated institutional history from a long-serving high official of the ICSID Secretariat (Parra (n 3)), guides to conducting arbitrations at ICSID (for instance, Lucy Reed et al, Guide to ICSID Arbitration (Kluwer Law 2004)), and a growing number of scholarly articles, including some with explicitly historical focus (see Puig (n 14); Julian Davis Mortenson, ‘The Meaning of “Investment”: ICSID’s Travaux and the Domain of International Investment Law’ (2010) 51 Harvard International Law Journal 257; and Jason Webb Yackee, ‘Pacta Sunt Servanda and State Promises to Foreign Investors Before Bilateral Investment Treaties: Myth and Reality’ (2008) 32 Fordham International Law Journal 1550). 23 Martti Koskenniemi, ‘Histories of International Law: Significance and Problems for a Critical View’ (2013) 2 Temple International & Comparative Law Journal 226. 24 Formulating a research question is mentioned here because it is emphasized less in legal education than in related disciplines, and starting with

294

International investment law and history

the political context of legal instruments is to relate their questions to doctrinal analysis.25 Since most research on any legal instrument will be doctrinal analysis (and rightly so); the researcher must decide how to put their historical research in conversation with doctrinal analysis, while keeping it distinct in aims and approach. Another aspect of defining a research question is articulating the ‘unit of analysis’: is the research focused on an individual, or a country, or a treaty, or an epoch?26 Having a clearly articulated unit of analysis helps the researcher to decide which aspects of context they must integrate, or how widely to cast their net.27 The process of historical research is a series of such decisions, as Bardo Fassbender and Anne Peters observe: Writing history on a given subject depends on making innumerable choices. The historian constantly must decide which facts, developments, documents, persons, and so on, he or she considers significant to his or her research question. What is important is that authors consciously reflect about the choices they make, and are explicit and transparent about them.28

My background in political science and prior knowledge of the World Bank and its lending operations in the 1950s and 1960s informed my questions can create a research structure that is complementary to, but different from, the structure of legal argument. 25 This challenge relates to the traditional distinction between internal history and external history. Internal history is ‘the history of lawyers’ law, of legal rules and principles. Its sources are predominantly those that are thrown up by the legal process: principally statues and decided cases, supplemented where possible with lawyers’ literature expounding the rules and occasionally reflecting on them’. External history, by contrast, is the history of ‘legal institutions at work in society’ or the law in practice. David Ibbetson, ‘Historical Research in Law’ in Mark Tushnet and Peter Cane (eds), The Oxford Handbook of Legal Studies (Oxford University Press 2005) 864. 26 Koskenniemi discusses the appropriate scale for historical work, and observes that appropriate scope in some instances may be as small as an individual and their immediate context. Martti Koskenniemi, ‘Vitoria and Us: Thoughts on Critical Histories of International Law’ (2014) 22 Rechtsgeschichte – Legal History 119, 132. 27 While clearly delimitating boundaries is helpful, these boundaries will inevitably be fluid. Historical accounts of international law often involve shifts of perspective between macro-level and micro-level analysis. Koskienniemi describes the writing of legal history as an iterative process: ‘The narrative moves back and forth between a wider and a narrower scale in order to gradually come to a clearer view of its object.’ Koskenniemi (n 26) 132. 28 Fassbender and Peters, ‘Introduction: Towards a Global History of International Law’ in Fassbender and Peters (n 4) 15.

A case study on the creation of the ICSID Convention

295

research on the ICSID Convention. This background led me to formulate my research questions with a focus on the World Bank. Why did the World Bank sponsor the drafting of a convention related to investment when previous efforts to do so, notably by the Organisation for Economic Co-operation and Development (OECD), had failed? Furthermore, how did the World Bank succeed, given the antagonism among its member states over investment issues during the 1960s? These research questions made it clear that my research was external, not internal history, focused on illuminating relevant aspects of the external, political world from which the ICSID Convention emerged.29 This has implications for the type of documents needed. In an internal history, the researcher is likely to use legal texts, case law, and scholarly literature elucidating the relevant legal principle. In an external history, the researcher is likely to draw on a wider range of sources, including legislative deliberations, public speeches, interviews (where possible), and oral histories or personal reflections recorded in other ways. The second practical challenge facing researchers interested in the political context of legal instruments is how to find original documents and fit them together, while noticing topics on which the original documents are silent or voices that are missing. Accessing and using original documents may seem straightforward, but often raises profound questions – for instance about what to do with partial records and records that systematically underrepresent a certain population. Since my research questions centred on the World Bank, I first explored published histories of the World Bank. The two major institutional histories of the World Bank30 total over two thousand pages, but contain less than a page about ICSID.31 They were still essential points of departure because they provided a baseline against which to compare the 29

Traditionally, external histories look at how outside forces have shaped international law. Stephen Neff observes: ‘If there is one lesson that the history of international law teaches, it is that the world at large – the “outside world” if you will – has done far more to mould international law than vice versa.’ Stephen Neff, ‘A Short History of International Law’ in Malcolm Evans (ed), International Law (3rd edn, Oxford University Press 2010) 3, 27. Much of the recent scholarship in the history of international investment law has blended internal and external history. See Miles (n 3); Vandevelde (n 3) and Parra (n 3). 30 Edward Mason and Robert Asher, The World Bank Since Bretton Woods (Brookings Press 1973) and Devesh Kapur et al, The World Bank: Its First Half Century (Brookings Press 1997) vols I and II. 31 The institutional history of ICSID by Parra (n 3) is now mandatory reading for any historical work on ICSID; it was not available at the time I began this research.

296

International investment law and history

creation of ICSID32 and suggested factors that may have encouraged the World Bank to propose ICSID.33 Second, I reviewed the travaux préparatoires of the ICSID Convention.34 These preparatory papers are invaluable, but must be supplemented for this kind of research, because political tensions are rarely stated explicitly; they are often gently alluded to or left implicit. Making explicit the understandings shared among participants but left implicit can be an important contribution. Peters and Fassbender observe that legal concepts are never fully separated from their context, and suggest that, ‘the analysis of a legal concept should include a reflection about the political and social context of the concept, and the political agenda behind it, about the “speakers” and the “addressees”, and about the shifting meaning of a concept in the course of time’.35 While legal commentaries do provide this kind of analysis, scholars focusing on political context have more leeway to draw out tensions related to the concept in its contemporary political context. In order to bring out the understandings shared among participants and answer the two questions above, I sought original documents.36 The first archive I approached was the World Bank Group Archives, but neither the World Bank Archives nor ICSID were able to make accessible any records from the drafting of the ICSID Convention not already included in the ICSID Convention travaux.37 Rephrasing my request to search for the papers of key ICSID figures (who were also members of the World 32

They provided detailed accounts of how the World Bank created the International Finance Corporation (IFC) in 1956 and the International Development Association (IDA) in 1960, which provided a baseline for how the World Bank went about creating new organizations in this era. 33 Discussed below in Section III.B; factors ranging from the importance of facilitating private investment in the World Bank’s Articles of Agreement to the close working relationship with Hermann Abs. 34 ICSID, History of the Convention: Documents Concerning the Origin and the Formulation of the Convention in English (ICSID 1970) vols I and II, pts 1 and 2. 35 Fassbender and Peters, ‘Introduction: Towards a Global History of International Law’ in Fassbender and Peters (n 4) 13. 36 Historians of international law often seek new materials or seek to augment established authorities with additional materials. Describing recent historical work in international law, Tourme-Jouannet and Peters (n 4) 3 observe, ‘historians of international law today no longer settle for the classical content of earlier accounts, but look instead to re-work a domain which they deem highly fertile’. 37 In my experience, these papers fall somewhere between the Bank’s archives and ICSID. World Bank archivists direct researchers to ICSID (which does not have public archives), yet when requests are rephrased to see the papers

A case study on the creation of the ICSID Convention

297

Bank’s Legal Department) led to slightly more success,38 yet in general, these records had to be treated as hints or fragmentary information that might lead to more informed searches elsewhere. Next, I approached national archives for records relating to the drafting or domestic ratification of the ICSID Convention.39 While the documents in these national archives provided new insight into the process of drafting the Convention, they provided a limited perspective: I disproportionately read the views of capital-exporting governments, since New Zealand was the only capital-importing country whose records on ICSID I was able to access. Researchers can take steps to ameliorate the gaps or silences of archives, but the unavoidable reality is that the available records for the ICSID Convention, as for many conventions, are far from a complete set of records – and every researcher must grapple with this reality and its implications for their scholarship. The third practical challenge facing researchers is aligning original documents with their theoretical preconceptions. There is an intrinsic relationship between the researcher’s question and the document, since any document is constructed in part by the historian’s questioning.40 Scholars piece together material while relying on (and often refining) their own sense of how the drafting in question worked and what animated actors during the drafting process. Historical explanation is more than – and requires more than – a description of a sequence of

of particular individuals in their capacity as members of the Legal Department, documents may be forthcoming. 38 Particularly illuminating were oral histories given by Aron Broches and Georges Delaume, as well as collections of Aron Broches’ speeches between 1960 and 1965, discussed in Section III below. 39 Future researchers may access more, but I have only accessed declassified, substantive records in five countries: Germany, New Zealand, Switzerland, United Kingdom, and United States (while I was able to access related archival records in other countries, they did not discuss ICSID specifically). The United States Archives contain what is likely to be the most extensive internal government discussions, because of an inter-agency concern and the fact that I was able to locate the personal files of the Chair of Senate Foreign Relations Committee. The Securities and Exchange Commission (SEC) raised concerns that the ICSID Convention would enable foreign investors to challenge US securities law, and potentially require the US to alter its securities laws. This concern required a series of letters between the SEC, Senate Foreign Relations Committee, and the State Department. Letters discussed in St John (n 7). 40 Tourme-Jouannet and Peters (n 4) 5.

298

International investment law and history

events.41 Crafting an explanation is a subjective process, in which the researcher is guided by theory. As Marc Trachtenberg observes, ‘the facts never really “speak for themselves.” The historian thus has to make them “speak” by drawing on a kind of theory – by drawing, that is, on a certain sense for how things work.’42 My disciplinary training led me to view the drafting of the ICSID Convention as a case of institutional design, with my theoretical ‘priors’ provided by the international relations literature on legalization.43 The drafting of the ICSID Convention departs from my theoretical expectations in many ways, which are discussed in detail in the monograph that results from this research.44

III. THE POLITICAL CONTEXT OF THE ICSID CONVENTION’S DRAFTING This section illustrates my approach to the challenges described above and suggests the kind of insights that may be gained from examining political history, in this case from setting the framing of the ICSID Convention within its wider political context. The first subsection describes the proposals for investment protection that existed in the late 1950s and early 1960s. The second subsection discusses the World Bank’s pre-ICSID experience, as well as explaining why the World Bank became involved in resolving disputes between investors and states. The third subsection details how the World Bank’s management carefully

41 Clayton Roberts, The Logic of Historical Explanation (Princeton University Press 1996). Roberts notes that answering questions such as ‘How was this law created? Why was this law created?’ requires an underlying sense of how law emerges – and more specifically, of what ideas and political forces defined the possibilities for what could emerge or shape the contours of what did emerge. 42 Marc Trachtenberg, The Craft of International History: A Guide to Method (Princeton University Press 2006) 30. 43 A starting point for the well-developed research tradition on legalization is Kenneth Abbott et al, ‘The Concept of Legalization’ (2001) 54 International Organization 401. 44 St John (n 7). To summarize briefly, one of the core tenets of institutional design is that states are the primary actors in the formation of new international institutions, and they design institutions to suit their purposes and overcome cooperation problems. This expectation is only partially fulfilled in the case of ICSID; the World Bank, and particular individuals working as officials within the World Bank, played an outsize role facilitating the drafting of the ICSID Convention.

A case study on the creation of the ICSID Convention

299

drafted their initial proposal for ICSID to have broad appeal, and avoid contentious topics. A. Previous Post-War Proposals for Investor-State Arbitration As a practice, arbitration between investors and states occurred long before the drafting of the ICSID Convention;45 as a legal document, the ICSID Convention has many antecedents.46 Arbitration and analogous forms of dispute resolution, such as mixed claims commissions, were relatively common in the 19th century.47 In the early 20th century, the first permanent arbitral institutions were created and the role of arbitration in resolving investment disputes was further elucidated.48 The move toward permanent institutions for peaceful resolution of disputes, including investment disputes, became even stronger after the Second World War.49 This sentiment dovetailed with a push for global rules on 45

Like other elements of international investment law, many arbitrations from the 17th to 19th centuries largely reflected the political and commercial interests of capital-exporting states. Miles (n 3) 22–30. 46 Puig discusses antecedents and notes that individuals had standing and access to international tribunals before ICSID, providing the Central American Court of Justice as an example. Sergio Puig, ‘No Right Without A Remedy: Foundations of Investor-State Arbitration’ (2014) University of Pennsylvania Journal of International Law 829, 839. 47 Brownlie identifies at least 60 mixed claims commissions after 1840. Ian Brownlie, Principles of Public International Law (3rd edn, Clarendon Press 1979) 521. 48 The Permanent Court of Arbitration was created in 1899, and the Hague Peace Conferences, especially the 1907 Conference, were a turning point in recasting arbitration as a means of resolving investment disputes that could replace force. The Permanent Court of Arbitration, in particular, along with the Permanent Court of International Justice would provide influential models for the structure of ICSID, insofar as they were permanent dispute resolution machinery untethered to any particular set of rules. Aron Broches, ‘The Convention on the Settlement of Investment Disputes: Some Observations on Jurisdiction’ reprinted in Broches (n 13) 172. With respect to investment specifically, see Michael Waibel, Sovereign Defaults Before International Courts and Tribunals (Cambridge University Press 2011) 38 (observing that the resulting Drago-Porter Convention ‘represented a gradual yet significant step’ toward dispute settlement by peaceful means, a step on the journey toward the UN Charter). See also Donald Shea, The Calvo Clause: A Problem of Inter-American and International Law and Diplomacy (University of Minnesota Press 1955) 15–20, and Vandevelde (n 3) 30. 49 Most directly, as the use of force became illegal under international law with the adoption of the UN Charter in 1945. Maurer argues the post-war wave

300

International investment law and history

investment from commercial organizations, including the International Chamber of Commerce (ICC), in the immediate post-war years.50 The first proposals did not suggest investor-state arbitration; for instance, the ICC’s 1949 proposed code mentioned an ‘International Court of Arbitration’ but did not mention providing individuals with procedural standing against states.51 The first widely-circulated proposal that suggested individuals should have procedural standing was released in 1957: the ‘International Convention for the Mutual Protection of Private Property Rights in Foreign Countries,’ known as the ‘Abs Draft’ due to Hermann Abs’ leadership.52 The Abs Draft included both an international court for interpretation of the law and an international arbitration committee to decide the

of institution-building effectively removed force, and even power politics, from investment disputes. Noel Maurer, The Empire Trap: The Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893–2013 (Princeton University Press 2013). 50 The ICC drafted an ‘International Code of Fair Treatment for Foreign Investments’ (ICC International Code) in the late 1940s. In a resolution adopted by the ICC’s Quebec Congress in June 1949, the ICC ‘submits the Code together with the introductory report of its Committee on Foreign Investments to the earnest consideration of individual governments and of the Economic and Social Council of the United Nations and its specialized agencies as a basis for immediate action’. UK National Archives Box T 236/5430. 51 Article 13 ICC International Code states ‘The High Contracting Parties agree that any differences that may arise between them respecting the interpretation or application of this Convention shall, unless settled within a short and reasonable period by direct negotiation or by any other form of conciliation, be submitted for decision to the International Court of Arbitration in accordance with the procedure laid down in Article 14.’ Article 14 ICC International Code states: ‘This Article should contain detailed provisions for the composition and working of the International Court of Arbitration to which all disputes and differences are to be referred under Article 13. The details are, however, left to be worked out by the negotiating governments.’ 52 Hermann Abs was then Chairman of Deutsche Bank and Vice President of the Kreditanstalt für Wiederaufbau, and led the Society to Advance the Protection of Foreign Investments (Gesellschaft zur Förderung des Schutzes von Auslandsinvestitionen e.V.). The procedural standing of the individual is clear in Article IX(2): ‘Both the High Contracting Parties and their nationals are entitled to rights under The Convention. Each of the High Contracting Parties and every one of their nationals may assert these rights before all courts and government authorities.’ ‘International Convention for the Mutual Protection of Private Property Rights in Foreign Countries’ (Abs Draft) November 1957. UK National Archives Box T236/5429.

A case study on the creation of the ICSID Convention

301

adequacy, amount, and form of compensation.53 Subsequently, the Abs Draft was merged with a draft from a UK-based group led by Hartley Shawcross and informed by proceedings in other groups and international organizations.54 The principle of individuals having standing to bring claims against states spread quickly; by 1959, it was put forward in a Council of Europe report on an investment statute and guarantee fund for African development, and in a report from a British Parliamentary Group’s Commission on a World Investment Convention.55 The merging of the Abs Draft with other draft international investment instruments took place in a committee connected to the Organisation for European Economic Cooperation (which would become the Organisation for Economic Co-operation and Development (OECD) in 1961). A Draft Convention on the Protection of Investment was presented to the OECD Council in November 1962.56 The Draft contained an Annex that set out an Arbitral Tribunal, which had jurisdiction to hear disputes between state parties to the Convention as well as claims brought by a national of one party against a state party, provided the state had declared that it accepted such jurisdiction.57 53 Article X Abs Draft: ‘(1) Litigation arising from The Convention shall be decided by an International Court, the Charter of which is agreed upon in a separate Convention. Recourse may be had to the International Court either immediately or after the measures in question have been adjudged and reviewed by the courts or [sic] the High Contracting Party concerned. (2) An International Arbitration Committee shall decide in disputes concerning the adequacy, amount and form of compensation to be granted or substitution to be provided in accordance with Article VII of The Convention’ (ibid). For contemporary analysis of the provisions of art X, see Arthur Miller, ‘Protection of Private Foreign Investment by Multilateral Convention’ (1959) 53 American Journal of International Law 371, 372–374. 54 Michael Brandon, the Geneva Secretary of the Association for the Promotion and Protection of Private Foreign Investments, provides a contemporary summary of how the Abs-Shawcross drafting intersected with similar initiatives in the Council of Europe and other public and private organizations. See Michael Brandon, ‘Recent Measures to Improve the International Investment Climate’ (1960) 9 Journal of Public Law 125, 125–129. 55 Brandon (n 54) 131 summarizes how the principle appears in the three documents. 56 Timeline described in an internal memo for a US official. Background Paper for the OECD Ministerial Meeting (Paris, 2–3 December 1964), US National Archives, Record Group 59, Series: Records Relating to Economic Matters, 1953–75, Archives Identifier 595219, Box 2. 57 For analysis of the Draft’s dispute resolution provisions, see Schwarzenberger (n 8) 123–134.

302

International investment law and history

Despite having been discussed in multiple international organizations, the idea of individual investors having standing to bring claims directly against states was still far from reality in the early 1960s. There were at least two reasons why the idea of investor-state arbitration seemed unlikely to be realized; first, arbitration was usually connected to substantive rules and, second, capital-importing countries were not included in discussions. Both of these reasons stymied progress on the OECD Draft, but disagreements among capital-exporting countries were arguably the most immediate reason why the OECD Draft never became a binding treaty. The OECD Draft was discussed for nearly 10 years, from 1958 to 1968, but important capital-exporting governments were opposed or provided only lacklustre support in key moments. A 1958 internal memo from the British Treasury acknowledges the difficulty of finding consensus on substantive law: The United Kingdom have grave doubts whether a worthwhile international convention, (i.e. a multilateral convention between Governments) specifying the protection to be accorded to foreign investors could be negotiated, and think that the process of negotiation might do more harm than good.58

The same memo goes on to summarize the views of other governments, including drawing a distinction between a hesitant German government and an enthusiastic Hermann Abs, noting that, ‘German Government spokesmen, while expressing sympathy with the objects of the Abs Convention, have not committed themselves to supporting it’.59 Most importantly, the OECD Draft lacked the support of the United States. American support was considered sine qua non for the Convention, but the United States government was hesitant to support the OECD Draft and usually made US support conditional on the Draft receiving support from a wide group of least developed countries.60 The United 58

Confidential memo ‘I.M.F./I.B.R.D. – Thirteenth Annual Meeting: Protection of Foreign Investors, 1 October 1958’ UK National Archives Box T236/ 5430-1. 59 Confidential memo (n 58). 60 An internal memo of the US State Department states ‘U.S. Position: At the time the draft Convention was under consideration by the OEEC group, the US position was against support of the Convention. The Kennedy Administration later stated that such a Convention might be a useful device, but only on the condition that [sic] representative group of LDC’s [sic] – representative both in importance and geographically – would become signatories to the Convention. It is only by securing this kind of support that the Convention could become a

A case study on the creation of the ICSID Convention

303

States government even attempted to have the Draft Convention introduced to UNCTAD II,61 and made repeated requests to have the World Bank take it over.62 The OECD Secretary-General also requested that the World Bank take up the OECD Draft; the answer to this request was always a firm no.63 The World Bank’s General Counsel at the time, Aron Broches, recalled years later why the Bank refused: The code was a one-sided document limited to the protection of foreign property and the obligations of the host countries. If we [at the Bank] were to take it over, we would have to look at the other side, namely the obligations of investors. The developing countries would still feel that the Bank presented a proposal cooked up by their adversaries, and the industrialized countries would accuse us of watering down a wonderful document. We were liable to meaningful document. It should be noted that the IBRD is seeking an Arbitration and Conciliation Convention.’ Background Paper for the OECD Ministerial Meeting (n 56). 61 Relevant US government officials were prepared to make concessions in order to secure support for the Convention at UNCTAD II, but eventually came to the view that opening up discussions of the Draft at UNCTAD II would hurt the cause of investment protection. For instance, one internal memo states: ‘As for the OECD Property Convention, Stikker [high-ranking UNCTAD consultant] said there was no chance at all of getting UNCTAD II to endorse it. He doubted whether the Convention should even be discussed at the Conference.’ Memorandum of Conversation, Subject: Mr Stikker’s report for UNCTAD on the role of private investment in the developing countries (LDCs) (3 November 1967) US National Archives, Record Group 59, Series: Records Relating to Economic Matters, 1953–1975, Archives Identifier 595219, Box 13. 62 For instance, a telegram from Secretary of State Dean Rusk (Subject: OECD Draft Convention on the Protection of Foreign Property) in November 1967 states: ‘Concur with mission view para 1 reftel that it would be useful try again to interest IBRD in Draft Convention. … USG Officer together with US Exec. Dir. will discuss possibility informally with George Woods in near future.’ US National Archives, Record Group 59, Series: Records Relating to Economic Matters, 1953–1975; Archives Identifier 595219, Box 13. 63 An internal US Department of State ‘contingency talking paper’ drafted for the OECD Ministerial Meeting (Paris, 25–26 November 1965) observes ‘[t]he Secretary General of the OECD discussed the Convention with officials of the IBRD at the Bank and Fund meetings in Washington this year. It was made clear in these discussions that the Bank would be unwilling to negotiate on the Convention with the developing countries.’ US National Archives, Record Group 59, Series: Records Relating to Economic Matters, 1953–1975; Archives Identifier 595219, Box 13. British archival documents suggest the IBRD refused to get involved as early as 1958: ‘The International Bank and the I.F.C. are known to be most reluctant to co-operate in this.’ UK National Archives Box T236/5430-1.

304

International investment law and history

end up having everybody mad at us, or, possibly even worse, coming out with a meaningless document. So, we definitely said no to that.64

Broches makes clear that the Bank’s management understood the political sensitivity of investment protection and knew why previous proposals that combined substantive law with arbitration, like the OECD Draft, were non-starters. Broches and others, however, knew that the idea of investor-state arbitration could be separated from substantive law. The idea of separating dispute resolution from substantive law was first broached publicly in a 1960 United Nations Report.65 The Report provides several pages of astute analysis, observing that: limiting the agreement to arbitration would be more practical or politically feasible than the OECD Drafts;66 feasibility would be bolstered by building on existing instruments such as US investment guarantee agreements, which provide for arbitration of disputes ‘without formulating the governing rules of law’;67 and creating a new arbitral body ‘not identified with a commercial approach might be more readily acceptable to the governments of some capital-receiving countries’.68 Contemporary observers, such as Michael Brandon, agreed with the report, observing that the ‘establishment [of an arbitral system] could in some circumstances be facilitated from the political standpoint if it were considered separately [from a multilateral investment treaty]’.69 Brandon also agreed with the UN Report that the conclusion of a separate arbitration agreement would not hinder the conclusion of substantive agreements, and might facilitate their conclusion: as the UN Report 64 Robert E Asher, Interview with Aron Broches (23 May 1984, Transcript in the World Bank/IFC Archives, Oral History Program) 30. 65 The Promotion of the International Flow of Private Capital: Progress Report by the Secretary-General, United Nations Economic and Social Council, E/3325 (26 February 1960) 76–81. See also Antonio Parra, ‘“Black’s Bank” and the Settlement of Investment Disputes’ in David Caron et al (eds), Practising Virtue: Inside International Arbitration (Oxford University Press 2016) 155. 66 ‘The Promotion of the International Flow’ ibid 79: ‘In view of the doubts regarding the practicality of these charters, an alternative would be to limit the international agreement to the acceptance of international arbitration as a means for resolving disputes between foreign investors and governments of investment countries. Many among the persons consulted who were in favour of an investment charter expressed interest in an independent arbitration agreement, at least as an intermediary solution.’ 67 ibid. 68 ibid 81. 69 Brandon (n 54) 125.

A case study on the creation of the ICSID Convention

305

notes, ‘If such an agency were able to achieve a wide practice and prestige, it might in time become the natural fulcrum for the conclusion of bilateral, and possible multilateral, agreements between governments on foreign private investments.’70 When that Report came out in 1960, it was not clear that any international organization would be able and willing to take on that role. B. Why the World Bank Got Involved During the 1950s and 1960s, the World Bank was hesitant to wade into divisive issues, and officials at the Bank were well aware of the divisiveness on the subject of investment protection, as Broches’ comments on the OECD Draft above show. Yet several aspects of the World Bank’s Articles of Agreement led the Bank to become involved in mediating investment disputes and in proposals for investment insurance, and these experiences, in turn, helped convince Broches and others that the Bank could successfully sponsor a Convention to create arbitration machinery. The World Bank’s management was concerned about the ‘absence of appropriate machinery’ for resolving expropriation disputes during the 1950s and 1960s71 because outstanding expropriation claims threatened the Bank’s ability to lend. The World Bank’s Articles of Agreement create a Bank that has to borrow from private markets in order to lend.72 The Bank’s Articles meant that it could not, and did not, lend if a state had outstanding claims against it. Expropriation without adequate compensation arguably prevented Bank loans that otherwise would have been made to Algeria (after 1964), Indonesia (throughout the Sukarno regime, 1945–1967), Iraq (in the mid-1960s), Egypt (known as the United Arab Republic, through most of the 1960s), and the Democratic Republic of the Congo (1961–1969).73

70

‘The Promotion of the International Flow’ (n 65) 81. Robert Oliver, Interview with William Iliff (12 and 16 August 1961, Transcript in the Oral History Research Office, Columbia University) 43–45. 72 Kapur et al (n 30) vol 1, 1169. This meant the Bank’s first order of business was to prove its creditworthiness to investment banks, and during the 13 years it took for the Bank to earn a triple-A credit rating, every decision was affected by the Bank’s need to demonstrate to bond markets that it was a disciplined lender. The Articles also task the Bank with facilitating private investment. 73 Mason and Asher (n 30) 338. 71

306

International investment law and history

The Bank’s strict policies led its management to mediate settlements between states and bondholders. The Bank’s President during the 1950s, Eugene Black, had a personality conducive to mediation, and resolved several high-profile disputes.74 In each of these disputes, the President became involved because mediations were viewed as a way to restore investor confidence and restart investment flows.75 The inspiration for ICSID came from two relatively ‘routine’ mediations managed by President Black: the Suez Canal Company and the City of Tokyo Bonds compensation cases.76 In the Suez Canal Company case, President Black arranged for the Egyptian government to compensate foreign firms after the expropriation of equipment.77 This settlement ‘helped Egypt to international financial respectability’ and ‘opened the way for the Bank to lend the Suez Canal authority $56.6 million’.78 Black’s efforts were similarly successful in settling a long-running dispute between French bondholders and the City of Tokyo.79 Given the Bank’s – and Black’s personal – record in these mediations, it makes sense that he supported the idea of institutionalizing dispute resolution at the Bank.80 The support of World Bank officials for the idea of arbitration was also bolstered by the Bank’s involvement with proposals to create an investment insurance agency. Broches personally, as well as other officials in the Bank, studied the idea of a multilateral investment guarantee institution for many years.81 Internal memos on investment insurance identify 74

Including the long-running dispute between India and Pakistan brought to an end by the Indus Waters Treaty, a landmark settlement. Harold Graves, ‘The Bank as International Mediator’ in Mason and Asher (n 30) 595–643. See also Parra (n 65). 75 In some of these mediations, the President agreed to act ‘in his personal capacity’. This changed very little about the conduct of the mediation. As the most senior Vice President of the World Bank, William Iliff put it: ‘the President was acting in his personal capacity … if you go in for that sort of fiction’. Oliver (n 71) 64. 76 Asher, Interview with Broches (n 64) 29. 77 Oliver, Interview with Iliff (n 71) 30–45. 78 Mason and Asher (n 30) 642. 79 Waibel (n 48) 83–84 summarizes the dispute. 80 ‘Address by Eugene Black to the Annual Meeting of the Board of Governors, September 19, 1961’ reprinted in ICSID (n 34) vol II-1, 3. 81 In 1948, the Bank produced a ‘Proposed Plan for Guaranteeing Foreign Private Investments against Transfer Risks and Certain Other Risks’. Mason and Asher (n 30) 343. In 1962, the World Bank published a staff report ‘Multilateral Investment Insurance’, which analysed different national investment insurance

A case study on the creation of the ICSID Convention

307

two negative situations that Broches thought an arbitration convention could avoid. First, the memos emphasize that the Bank might find its relationship with borrowing countries unduly complicated by insurance, and second, that no suitable answer could be found to the ‘who pays’ question – that is, if capital-exporting or capital-importing countries bear the costs of insurance.82 Discussions on investment insurance within the World Bank’s Executive Directors likely gave Broches and other officials insight into disagreements between capital-importing and capitalexporting states. Officials within the World Bank also had long-standing relationships with proponents of investment law, notably Hermann Abs. The World Bank’s relationship with Abs was strengthened in 1959, when Abs launched a daring operation in support of the Bank’s first European bond issue. Abs’ Deutsche Bank eventually bought over 66 per cent of the World Bank’s bond issue, sustaining large losses in the process but earning Abs tremendous goodwill with the Bank’s management.83 When Hermann Abs spoke, the Bank listened – particularly since the Bank still viewed bond markets as its primary audience. World Bank officials, as noted in the previous section, seem to have viewed the Abs Draft as a non-starter politically, and did not at all see themselves as doing Abs’ bidding when they created ICSID, but Abs’ strong advocacy of individual standing may have helped encourage the Bank to take up the idea. programmes and the advantages and disadvantages of a multilateral programme. The idea was discussed within the Bank and within the OECD (‘OECD Ministerial Meeting: Background Paper, Multilateral Investment Guaranty System, November 24, 1964’) US National Archives (n 56). The idea of an ‘IBRD Multilateral Investment Guarantee Institution’ was still discussed seriously within the US government in 1967. (‘Multilateral Investment Guarantees’ undated, likely January 1967) US National Archives, Record Group 59, Series: Records Relating to Economic Matters, 1953–1975; Archives Identifier 595219, Box 13. 82 Mason and Asher (n 30) 344. They explain that on the first point, the Bank’s management was concerned about ‘a possibility, naturally appealing to investors who wanted to engage the Bank’s interest, that it might find itself using its lending power as a bargaining weapon when embroiled in pressing for the settlement of claims’. 83 In that year, the Bundesbank adopted a restrictive monetary policy, which caused bonds to fall below their issue price. If the World Bank bonds had been allowed to fall beneath their issue price it would have damaged the Bank’s standing. Abs decided that Deutsche Bank – alone among the German banks involved – would buy all the bonds necessary to keep the market price above the issue price. Hilmar Kopper, ‘The World Bank’s European Funding’ in Kapur et al (n 30) vol 2, 435, 456.

308

International investment law and history

C. World Bank’s Initial Proposals for ICSID The idea for ICSID was proposed in an August 1961 memorandum to the Bank’s Executive Directors, written by Broches and his team in the Legal Department. The Proposal deliberately played to capital-importing states, by acknowledging legitimate historical reasons for opposition to arbitration, and arguing the proposed machinery could be consistent with a requirement to exhaust local remedies.84 The Proposal emphasized a novel ‘double-consent requirement’, which meant that for a case to be registered, a government would have to consent twice, once to the proposed Convention and secondly to the arbitration itself or in advance.85 The Proposal’s language attempted to pre-empt potential concerns of capital-importing states. When the Proposal was introduced to the World Bank’s Executive Directors, many received it well, with representatives from both capitalimporting and capital-exporting states applauding its ‘modesty’.86 The Proposal’s key virtue was put bluntly by the US Executive Director: ‘Since the Bank’s Proposal did not attempt to establish some such substantive rules of law, his Government did not look at it with the same reservations as they had for a multilateral investment code.’87 US support for the Proposal was vital, but the Bank still had to surmount the divide between capital-importing and capital-exporting states. Comments from the Executive Directors for Germany and for India illustrate the seriousness of this divide. The Executive Director for Germany, Helmut Koinzer, applauded the Proposal and outlined the possibility of using the proposed Centre to enforce bilateral investment treaties (BITs).88 In response to the Proposal, Koinzer said, 84

Aron Broches, ‘Settlement of Disputes between Governments and Private Parties. Note transmitted to the Executive Directors. SecM 61-192. August 28, 1961’ reprinted in ICSID (n 34) vol II-1, point 4. 85 ibid. 86 The term appears repeatedly in notes from early meetings on ICSID. ‘Memorandum of Meeting of Executive Directors on the Subject of “Settlement of Investment Disputes”. SecM 62-68 (April 10, 1962)’ reprinted in ICSID (n 34) vol II-1, 13, 13. Parra also mentions modesty in his comprehensive discussion of the Committee’s proceedings (Parra (n 3) 37–42). 87 ‘Memorandum’ (n 86) point 17. 88 Parra notes that Koinzer’s comments reflect Germany’s ‘preoccupation with its investment treaty and [investment] insurance program’ (Parra (n 3) 41). Germany’s new treaties provided investment protection but did not offer any type of dispute resolution other than inter-state arbitration. For instance, Germany’s

A case study on the creation of the ICSID Convention

309

Questions of jurisdiction, procedure, and applicable law might be dealt with in bilateral agreements between interested countries … Germany had conducted a number of so-called promotion treaties with different countries, and … the Bank’s proposal might be a valuable supplement.89

Koinzer’s remark was made in 1962, before the ICSID Convention was made public, which makes clear that the link between ICSID and BITs was present from the start.90 Some Executive Directors from European capital-exporting states pushed for the proposed Centre to have a binding character, but Broches refused, and reiterated the importance of consent.91 Broches insisted on double-consent because he believed that the success of the Proposal depended on its acceptance by capital-importing states. The Executive Director for India, Krishna Moorthi, by contrast, displayed a scepticism shared by many other newly independent former colonies and by Latin American states. Moorthi tried to delay the Proposal: ‘his government asked for more time … they were considering many important aspects of the proposal’.92 The Indian government questioned if the Proposal was ‘necessarily expedient and proper for the encouragement of foreign private enterprise coming into developing areas’.93 No work had been done at the Bank to investigate if the proposed Centre could affect investment flows, nor is there any record of 1962 investment treaty with Cameroon. Article 10 provides for ad hoc inter-state arbitration or adjudication at the International Court of Justice. 89 ‘Memorandum’ (n 86) point 6. 90 While Broches, Koinzer, and possibly some other European representatives clearly already saw that bilateral treaties or multilateral treaties could provide the second consent to ICSID, the idea was not well known. For instance, an article published in a top American law journal in 1968 does not mention treaty consent in its list of methods by which consent to ICSID can be granted. Anonymous, ‘Comments: New Approach to US Enforcement of International Arbitration Awards’ (1968) 2 Duke Law Journal 258, 266. 91 Aron Broches, ‘Note by the General Counsel (A. Broches) transmitted to the Executive Directors: “Settlement of Investment Disputes”. SecM 62-17 (January 19, 1962)’ reprinted in ICSID (n 34) vol II-1, 6, point 20. Note: ICSID’s name is ‘the Centre for Settlement of Investment Disputes’ – the British spelling of Centre is correct. The Chair of the Drafting Committee was British and adopted British spellings. ‘Summary Proceedings of the Legal Committee meeting, November 25, morning’ reprinted in ICSID (n 34) vol II-2, 691, 691. Yet, the World Bank’s secretarial pool was American, or accustomed to American spellings, so many archival records refer to it as ‘the Center’. 92 ‘Memorandum’ (n 86) point 11. 93 ibid.

310

International investment law and history

any such work being proposed; ICSID was a creation of the Legal Department, and was not linked to the more statistically minded parts of the Bank.94 The Bank’s management was encouraged, but did not believe the Executive Directors had been able to give them a strong enough mandate to continue work on the proposal for ICSID. Creating ICSID posed legal questions, but the Executive Directors, and the people in government they consulted, were not lawyers. As Broches put it: Executive Directors report to Ministries of Finance, and while the purpose of the exercise was developmental, the technique was not only legal, but procedural. It was particularly difficult for people who are not lawyers, or who are lawyers but not interested in procedural matters.95

In a practical sense, the Bank’s management needed more feedback from experts in procedural law. In a political sense, the Bank’s management needed to find a way to familiarize governments with the Proposal, as familiarity was likely to build support for it. Broches and the Bank decided to ‘take the show on the road’ to introduce the idea of investor-state arbitration and receive feedback on its proposal.96

IV. THE ICSID CONVENTION’S UNIQUE DRAFTING PROCEDURE AND ITS IMPLICATIONS A. A Consultative, Not Deliberative, Procedure After introducing the idea for ICSID to the World Bank’s Executive Directors, the Bank’s management decided to convene a series of regional consultations. Between December 1963 and May 1964, the 94 Bank officials likely also realized that such an exercise was very difficult. Over 50 years later, the academic literature does not have an answer to this question. For a summary of the large literature on the relationship between investment treaties and investment flows, see UNCTAD, ‘The Impact of International Investment Agreements on Foreign Direct Investment: An Overview of Empirical Studies 1988–2014’ (IIA Issues Note, September 2014) accessed 10 May 2016. 95 Asher, Interview with Broches (n 64) 37. 96 As Broches explained later: ‘We hit on the idea of taking the show on the road to get comments from member countries, because we didn’t get them through the Directors’ (ibid 38).

A case study on the creation of the ICSID Convention

311

Bank’s Legal Department convened four conferences, in Geneva, Santiago, Bangkok, and Addis Ababa.97 The Bank paid for up to two experts from each country to attend, but, as Broches explained, ‘… [these] representatives of countries were not really representing these countries, they were experts-designate’.98 No expert-designate spoke on behalf of their government, and some were not even employed by the government that sent them. They were expressing quasi-personal views. The defining trait these experts-designate shared was legal training: states were asked to send procedural lawyers, not the individuals responsible for foreign investment policymaking. These experts-designate came from a mix of backgrounds: some were private lawyers, while others were professors or even cabinet members, and a handful were, like Broches, veterans of the Bretton Woods Conference held 20 years earlier.99 A typical representative was a legal counsel from a finance ministry or a central bank.100 These conferences were purely consultative, and not deliberative; that is, the World Bank was under no obligation to take what the experts-designate said into account, and no expertdesignate could formally change the Convention’s text: it was always the Chair’s decision whether or not to incorporate any feedback. As Broches remembered, ‘There was no voting at these meetings. In addition to comments, suggestions were advanced, and some compromises were reached but all in the framework of consultations.’101 This was a group of 97 ibid. Parra (n 3) 53–64 discusses the substance of these conferences in greater depth. 98 Asher, Interview with Broches (n 64) 38. 99 For instance, this is how attendance at the Santiago Conference was summarized for the Bank’s board: ‘Most of the delegates were lawyers, some of them of great distinction, like Mr [Guillermo] Sevilla Sacasa of Nicaragua [Ambassador to the US 1943–79, second in succession to the Presidency] and Mr Alfonso Espinoza of Venezuela [former Finance Minister, former President of the Central Bank, lawyer and economist by training] both veterans of Bretton Woods. Mr Roberto Ramirez, President of the Central Bank of Honduras and an old friend of the Bank, represented his country.’ ‘Statement of February 11, 1964, on the Santiago Meetings’ reprinted in ICSID (n 34) vol II-1, 365, 365. 100 For example, Australia sent: ‘Principal Legal Officer, Attorney General’s Department’; Israel sent: ‘Legal Adviser, Ministry of Finance’ and ‘Senior Economist, Bank of Israel’; Malaysia sent: ‘Principal Assistant Secretary, The Treasury’ and ‘Senior Federal Counsel, Attorney’s General Office’; Pakistan sent: ‘Joint Secretary, Ministry of Law’. ‘Summary Record of Proceedings, Bangkok Consultative Meetings of Legal Experts, April 27–May 1, 1964’ reprinted in ICSID (n 34) vol II-1, 458, 459. 101 Asher, Interview with Broches (n 64) 37.

312

International investment law and history

experts having a discussion in a cordial setting – it was not an adversarial negotiation. The experts-designate provided the Bank with valuable information: the likelihood that their country would join such an institution, if one were created. This was one of the most important functions of these experts. The way Broches spoke about it years later demonstrates the centrality of this function: The consultative meetings gave an enormous amount of useful information. After these four meetings, I wrote a report to the Board – and I didn’t do all these things alone, I had two or three people working with me – in which I said that on the basis of these reports of the consultative meetings, I was satisfied that it would be possible to work out something that would command wide support.102

Broches and his team used the consultative conferences to check that both capital-importing and capital-exporting states could support this proposal for arbitration machinery. The Bank’s management, likely guided by Broches, took several steps to avoid opposition uniting. The first was to structure the conferences regionally. The Bank’s management avoided having a global deliberative conference, despite repeated suggestions from delegates that such a conference be held.103 The consultative conferences were an opportunity for every member state to share their views, yet the regional structure kept resistance to the Convention fragmented. It enabled Broches and his team to present responses to the Convention along regional lines.104 The second step the Bank’s management took to avoid opposition uniting was the decision not to share information between the regions. The Bank’s management chose not to circulate summary records from the earlier consultative conferences to later consultative conferences.105 When asked during the later conferences about how states in other 102

ibid 37–38. For instance, one delegate ‘felt … that an instrument of such significance ought to be discussed in a wider forum than that offered by a regional meeting’. ‘Summary Record of Proceedings, Bangkok Consultative Meetings of Legal Experts’ (n 100) 543. 104 For instance, Paul Szasz, ‘The Investment Disputes Convention and Latin America’ (1970) 11 Virginia Journal of International Law 256. 105 Although never stated explicitly, it is clear in the records that the delegates, even at the final consultative conference, had not been sent any summaries or comments from previous consultative conferences. This can be clearly inferred from a comment Broches makes as chair. ‘Summary Record of Proceedings, Bangkok Consultative Meetings of Legal Experts’ (n 100) 547. 103

A case study on the creation of the ICSID Convention

313

regions had responded, Broches gave vague or selective indications.106 Broches and the Bank’s management were concerned that different strands of resistance would unite and the Convention would not be agreed.107 Given the lack of information-sharing, however, none of their delegates knew the positions of countries at other conferences. The non-official, regional structure of the conferences may also explain why the Non-Aligned Movement, then in its ascendancy, did not stake out a shared position on the proposal. The consultative conferences also spread the idea of ICSID: Broches and his team explained the idea to legal experts, who then spread it in each of their countries. This was particularly important in newly independent capital-importing countries with capacity-constrained ministries.108 These newly independent states were precisely the states whose support for ICSID mattered most: the key audience was policymakers in states where property rights were least secure – typically the newest states.

106

For example, when asked a question in the Bangkok Consultative Conference, Broches answered: ‘In Africa, no delegate had dissented from the view that it would be advantageous to remove disputes from the intergovernmental sphere. On the contrary, they had expressed a preference for the approach embodied in the Convention’ (ibid 541). By leaving the summary at that general level, Broches did not misrepresent the views of the experts-delegate to the African conference (as they had expressed support, in principle, for the idea of settling disputes through arbitration), but he did omit the substantive concerns and reservations expressed by the delegates (see ‘Summary Record of Proceedings, Addis Ababa Consultative Meetings of Legal Experts, December 16–20, 1963’ reprinted in ICSID (n 34) vol II-1, 236, 239–247). A more complete summary from Broches would have included some indication that the support of many African experts-designate was qualified. 107 As chair, Broches says the Bank did not circulate summaries in order to conserve resources. Yet, ensuring representativeness was taken so seriously during the drafting of ICSID that the Bank agree to pay (a) for over 100 experts to attend the regional consultative conferences, and then (b) for over 100 experts to fly to Washington from national capitals for the drafting committee, which required over three weeks of per diems for each expert. Given the considerable funds invested in the creation of ICSID, it is extremely unlikely that the reason for not circulating summaries was a financial or resource constraint. 108 Many of these states asked the Bank to teach or disseminate information about investment disputes. ‘Summary Record of Proceedings, Bangkok Consultative Meetings of Legal Experts’ (n 100) 544.

314

International investment law and history

B. A Drafting Committee Broches considered the consultative conferences a success. Although some representatives indicated their states would be unable to support the proposal, on balance, the consultative conferences suggested that there was sufficient support for the proposal. With this information, the Bank’s management decided to take the proposal for ICSID to a vote at its 1964 Annual Meeting. When the proposal for ICSID was put to a vote during the Bank’s 1964 Annual Meeting in Tokyo, enough states were opposed to leave a lasting ‘No de Tokio’ impression, but not to seriously threaten the proposal.109 The World Bank President introduced the proposal for ICSID by observing, ‘it is in the interest of the developing world to avail itself of the advantages offered by foreign investment’ and then presenting ICSID as one of many initiatives to facilitate foreign investment.110 The Chilean Governor, Felix Ruiz, also Vice President of the Banco Central de Chile, acted as a spokesman for a group of 21 states that opposed the proposal.111 This show of resistance was largely written off as the product of Latin America’s particular history with investment protection. The Board of Governors approved the Bank’s proposal to hold a drafting committee. This drafting committee was not to be a deliberative conference; its mandate was defined narrowly to include only technical tasks and governments were asked to send international lawyers with expertise in procedure as participants. Holding a drafting committee was an unprecedented step for the Bank, and it was taken to facilitate the Convention’s acceptance by investmentimporting states. This is clear from internal memos circulated before the Tokyo vote, which discuss the Bank’s decision to invite all member 109

The ‘No de Tokio’ was a vote by 21 World Bank member states (Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Iraq, Mexico, Nicaragua, Panama, Paraguay, Peru, Philippines, Uruguay, and Venezuela) against proceeding with the drafting of the ICSID Convention, when it was put to a vote at the 1964 meeting of the World Bank’s Board of Governors. ICSID (n 34) vol II-1, 1, 604–608. See also Parra (n 3) 66–67; Szasz (n 104). 110 George D Woods, ‘Annual Address by George D Woods, President of the Bank and its Affiliates (1964 Annual Meetings of the Boards of Governors. IBRD and IDA. Tokyo, September 7–11, 1964)’ accessed in the World Bank Group Archives, Series 4530: Information and Public Affairs – President George D Woods Speeches. 111 ‘Excerpt from the Statement by Felix Ruiz, Governor for Chile’ reprinted in ICSID (n 34) vol II-1, 606, 606.

A case study on the creation of the ICSID Convention

315

states.112 The extraordinary decision to fund a three-week-long drafting committee for 102 states (double the number that had attended the Bretton Woods Conference) was considered the only way to ensure adequate representation of all states.113 The Bank’s management explicitly invited those ‘who have had reservations or who, for whatever reason, do not now envisage joining any convention which may emerge’.114 The states that had voted no in Tokyo were invited to the drafting committee – and many attended.115 For ICSID, the Bank developed a more inclusive procedure than it had used to create its two other arms, the International Finance Corporation (IFC) and the International Development Association (IDA). The Articles for the IFC and IDA were drafted internally by the Bank, discussed by the Executive Directors – then only 17 in number – and submitted to states for ratification.116 This meant the proposals were discussed primarily by rich states.117 It was not considered unseemly that the main voices during the crafting of the IFC and IDA Articles were capital-exporting 112 ‘Note from the President to the Executive Directors Concerning the Legal Committee, R 64-105 (August 5, 1964)’ reprinted in ICSID (n 34) vol II-1, 604, 604. 113 102 states were invited to send representatives, but only 61 ended up doing so. The effort put into representation during ICSID’s drafting also reflects the ascendancy of UNCTAD and the voice that developing countries were exercising at the UN generally during this period. The World Bank’s President went out of his way to address the first UNCTAD. George D Woods, ‘Address to UNCTAD, Geneva, March 25, 1964’ accessed in the World Bank Group Archives, Series 4530: Information and Public Affairs – President George D Woods Speeches. The World Bank was prepared to listen to UNCTAD during this era. Robert Oliver, George Woods and the World Bank (Lynne Rienner Publishers 1995) 108. 114 ‘Summary Proceedings of the Legal Committee meeting, November 23, 1964’ reprinted in ICSID (n 34) vol II-2, 672, 673. 115 See, for instance, the opening statements and participation of Costa Rica, Ecuador, El Salvador, and Venezuela (ibid 674–676). Alternately, the submission of Peru asking for three articles of its constitution to be inserted into the record (with the intent of showing how the ICSID Convention was in contravention of its constitution) demonstrates that governments decided to participate while sustaining their opposition to the Convention (ibid 672). 116 Aron Broches, ‘International Legal Aspects of the Operations of the World Bank’ reprinted in Broches (n 13) 29. 117 The distinction between the Board of Governors (one country, one vote) and the Executive Directors (allocated according primarily to shares of Bank capital owned) is important. As the Bank’s membership grew rapidly in the late 1950s, the number of seats on the Board of Governors grew from 58 in 1959, to 102 in 1964. By contrast, the Executive Director seats did not change to reflect

316

International investment law and history

states.118 The IFC and IDA Articles were funding mechanisms, essentially agreements among rich countries about what arrangements they would use to channel capital to poor countries.119 ICSID, by contrast, was a legal mechanism. The main voices in its drafting could not be Executive Directors from capital-exporting states, because the proposal’s success rested upon the perceptions of capital-importing states. The Drafting Committee had excellent representation, but it was consultative, like the earlier conferences. Broches opened the Drafting Committee by closing off the possibility of deliberation, announcing ‘the present meeting was no longer concerned with the question of the desirability of creating machinery for facilitating the settlement of investment disputes since that question had already been decided in the affirmative’.120 Attendees were there for the technical task of drafting, and again their comments would only be suggestions: as during the consultative conferences, the formal power to change the document remained with the Chair, Broches.121 The operating procedures of the drafting committee were designed to prevent disagreements among states from derailing the proposal. When experts-designate agreed an issue was controversial, it was removed from the discussion.122 If representatives felt the issue was not particularly this growth. The Bank’s smallest shareholders tend to be the poorest and smallest states; their representation on the Executive Directors is least direct. 118 It should be noted that the proposal for IDA emerged from the Board of Governors. Yet IDA was very much an American proposal – put forward by the US Treasury Secretary at the Annual Meeting in 1958 – and key discussions did not extend beyond the Bank’s main shareholders. 119 In the case of the IFC it was funding for private enterprises, in the case of IDA it was concessionary loans or grants. 120 ‘Summary Proceedings of the Legal Committee Meeting, November 23, 1964’ (n 114) 674. Parra also discusses the role of experts-designate (Parra (n 3) 66). 121 The Rules for the Conduct of the Legal Committee state, ‘The General Counsel, as representative of the President of the Bank, will be Chairman of the Legal Committee.’ ‘Legal Committee on Settlement of Investment Disputes: Rules for the Conduct of Proceedings’ reprinted in ICSID (n 34) vol II-2, 647, 647. The Chair had a relatively broad remit ‘[i]n addition to exercising the powers conferred upon him elsewhere by these rules, the Chairman will direct the discussion at all meetings of the Legal Committee, accord the right to speak, ascertain the sense of the meeting or, if necessary, poll the members and announce results, and in general ensure the orderly progress of the proceedings of the Legal Committee’ (ibid 647). 122 The Rules for the Conduct of the Legal Committee state ‘[i]f no consensus can be reached in a working group on a provision referred to it the

A case study on the creation of the ICSID Convention

317

essential, they would resolve it then and there with a show of hands.123 If the issue was felt to be important,124 it was removed from discussion, and often sent to a working group or the Secretariat or reported to the Executive Directors.125 Broches, who chaired the committee, later termed it a ‘voting/non-voting system’ and noted that it ‘was pretty innovative’ and ‘worked pretty well’.126 The system prevented stalemate, but equally, may have cut short discussions on issues that were considered to be important by some attendees. C. Implications of the Drafting Procedure The Legal Committee began work on 23 November 1964, and concluded its work on 11 December 1964. Before 1964 was over, Broches was able to submit a Revised Draft Convention to the World Bank’s Executive

matter will be reported to the Legal Committee, and in the discretion of the Chairman, to the Executive Directors for their direction’ (ibid 649). 123 For instance, ‘Mr. Broches (Chairman) considering the discussion closed on this point requested a show of hands to determine whether the responsibility for adopting the rules of procedure should be transferred from the Administrative Council either to the Panels or to the Conciliation Commissions or Arbitral Tribunals’. ‘Summary Proceedings of the Legal Committee Meeting, November 25, Morning’ reprinted in ICSID (n 34) vol II-2, 691, 695. 124 In addition to the formal voting discussed in the next footnote, Broches tactfully paused discussion on controversial topics or removed issues from plenary discussion. For example, at one point when discussions seem animated, and possibly heated, with experts-designate expressing concerns about a definition of investment, Broches brings discussions to a close, with a long intervention reminding attendees that steps had already been taken to limit access (‘an attempt had been made to narrow this by making it impossible to put into motion the machinery of the Centre without the existence of a written consent’) and said sub-committees would consider the issue and that ‘when the meeting reassembled the following Monday it would have some more concrete suggestions to discuss’. ‘Summary Proceedings of the Legal Committee Meeting, November 27, Morning’ reprinted in ICSID (n 34) vol II-2, 710–711. 125 For instance, after a vote on the issue related to the definition of foreign control, ‘Mr. Broches (Chairman) then announced that as of the moment 24 voted in favor, 20 against and 3 abstained, and that both possibilities would be reported to the Executive Directors who would then take a decision on the exact text which would be proposed to governments’. ‘Summary Proceedings of the Legal Committee Meeting, December 10, Morning’ reprinted in ICSID (n 34) vol II-2, 868, 871. 126 Asher, Interview with Broches (n 64) 38–39.

318

International investment law and history

Directors.127 The drafting procedure had effectively prevented disagreements or political obstacles from derailing the drafting. It had efficiently generated a final text, and done so with much wider participation than the Bank used to create the IFC and IDA. This novel procedure ensured a high level of participation by capital-importing states, yet this participation was consultative in both the ‘roadshow’ and the Drafting Committee. Should these characteristics of the drafting alter interpretations of the substance of the ICSID Convention? Not necessarily, but they provide a sense of the political context in which the ICSID Convention was written and why certain issues, such as a public policy exemption, were left vague or unresolved – even when they were raised during the drafting.128 Analysing the drafting procedure in depth also illustrates the remarkable situations it produced: for instance, the expert-designate from Brazil contributed multiple long amendments to the Convention129 and participated fully in the Drafting Committee, despite knowing that his country was extremely unlikely to ratify the ICSID Convention.130 The Brazilian expert’s participation highlights a duality of the drafting process: on the one hand, invitations to the Drafting Committee, like all aspects of the Convention’s drafting, were framed as apolitical, technical exercises (to which the Brazilian expert could helpfully contribute). Yet at the same time, Broches and other framers were guided throughout the entire process by their sense of what political circumstances would permit.

V. CONCLUSION: POLITICAL HISTORY AND ITS POTENTIAL INSIGHTS This chapter illustrates that political history can enrich our understanding of how law emerges. By asking questions about the political context in which treaties or laws were drafted, we can gain new insight into the treaty or law itself as well as the broader process by which particular legal ideas become reality. The technical task of drafting is vital for any 127 ‘Chairman’s Letter to the President’ reprinted in ICSID (n 34) vol II-2, 941, 941. 128 Public policy concerns, for instance, were raised by India (‘Summary Record of Proceedings’ (n 100) 470) and by Thailand (‘Summary Record of Proceedings’ (n 100) 466). 129 ICSID (n 34) vol II-2, 647, 690, 818, 837. 130 Contrast the statements of the Brazilian expert-designate in the Drafting Committee with the opening statement of his colleague from Brazil in the Santiago Consultative Conference (‘Statement of February 11, 1964’ (n 99) 306).

A case study on the creation of the ICSID Convention

319

legal instrument, and the deliberations recorded in travaux are invaluable for interpretation. These deliberations are embedded in a wider context and part of a broader process. Drawing out some of the ‘human-size’ aspects of this broader process, including the institutional mandate of the secretariat, relationships between individuals, rules that structured the drafting, and other details that might not warrant inclusion in a commentary, can provide a clearer sense of how and why a Convention emerged. The first part of the chapter discussed the promise and methodological challenges associated with studying the political history of legal texts. To inquire into the politics behind treaties is not to tarnish the legacy of those treaties or the international lawyers involved. In many ways, grounding individuals and their actions amid the political obstacles that they faced allows us to better appreciate their visions and what it took to make those visions into reality. Drawing out salient aspects of political context is not the same as arguing that these individuals were entirely bound by their context. International lawyers often seek to transcend their immediate context, sometimes in an explicit search for universal principles or for better procedure. Understanding how individuals manage the high ideals alongside or amid everyday political realities gives us a fuller picture of their skills and a richer sense of how law emerges. In the case study on the ICSID Convention, the chapter evaluates the reasons why the World Bank attempted to draft a Convention related to investment dispute settlement, and examines how Broches and his team succeeded at bringing the Convention into force. This sort of analysis provides reasons why the World Bank gradually became involved with resolving disputes between investors and states. The World Bank’s Articles of Agreement structured the Bank so that it needed to borrow from capital markets in order to lend. This structure meant the Bank set out tough policies on expropriation and default: the Bank could not lend to states with an outstanding expropriation claim or loan default. This policy, in turn, led the Bank, and specifically the Bank’s President during the 1950s, Eugene Black, to become involved in mediating disputes, in order for the Bank to be able to lend. After several successful mediations, Black and Broches were in a strong position and had many reasons to take over the idea of permanent institutional machinery for investor-state arbitration. The key innovation of Broches, Black, and others at the World Bank was to make the idea of permanent institutional machinery for investorstate arbitration feasible – which is, above all, a political achievement. Broches, in particular, deserves tremendous credit for translating the idea of investor-state arbitration into reality, and to call his achievement a political one as well as a legal one is only to add to his accomplishment.

320

International investment law and history

The extent to which he was able to articulate a vision and then bring that vision into reality by proceeding carefully, excluding divisive content, and assuaging political tensions is remarkable. This drafting structure was particularly innovative, and unlike many of the other innovations related to the ICSID Convention, has largely been forgotten. Research that probes drafting structure and other overlooked political aspects of the process by which ideas emerge in international investment law holds great promise.

11. A genealogy of censurable conduct: Antecedents for an international minimum standard of investor conduct Muin Boase* I. INTRODUCTION In 1910, in a speech to the Annual Meeting of the American Society of International Law, the American lawyer Elihu Root famously declared that: ‘There is a standard of justice, very simple, very fundamental, and of such general acceptance by all civilized countries as to form part of the international law of the world.’1 The international minimum standard referred to by Root was a standard of justice which a foreigner could claim as a right when equal treatment to the local was insufficient. International investment law has elevated the protection of investors and vested them directly with such rights. The purpose of this chapter is to draw on history to consider to what extent foreign investors also have obligations. Just as Root claimed that there is a minimum ‘standard of justice’ in how a state treats foreign citizens, I shall argue that there is a strong case for a standard of conduct under customary international law which places limits on the behaviour of the foreign investor. * I wish to thank Professor Georges Abi-Saab and Professor Stephan W Schill for their insightful comments on earlier drafts of this chapter. All errors and omissions of course remain my own. I also wish to express my thanks to the staff of the Library and Archives of the Organisation for Economic Co-operation and Development (OECD) in Paris, the UK National Archives, BP Archive in the University of Warwick and the British Library in London. FO and FCO refers to records created by the Foreign Office, which became the Foreign and Commonwealth Office in 1968; T refers to Her Majesty’s Treasury. 1 Elihu Root, ‘The Basis of Protection to Citizens Residing Abroad’ (1910) 4 ASIL Proceedings 21. 321

322

International investment law and history

At least since Emmerich de Vattel’s famous book The Law of Nations, a citizen’s misconduct abroad could engage the responsibility of the home state under the law of nations as part of the obligations owed by states to one another. I shall explore the link between an individual’s misconduct abroad and the duty of his or her home state in Section III and in Sections IV–VI under three different regimes of ‘protection’ (extraterritoriality, diplomatic protection, and international investment law) to discover how states have exercised responsibility for the conduct of their citizens abroad. In Section IV, I look at how the state exercised responsibility for the misconduct of its nationals in the 19th century through the regime of ‘extraterritoriality’ and the shift away from merchant self-regulation of the 18th century. Interestingly, certain offences under domestic law appeared to be a translation of offences against the law of nations. In Section V, I will explore how in the early 20th century, states refused to exercise diplomatic protection on behalf of nationals who had engaged in ‘censurable conduct’ abroad. In Section VI, I examine how international investment law, through the drafting of treaty texts in the second half of the 20th century, codified the responsibilities of the host state to protect the rights and interests of the foreign investor, but failed to articulate any corresponding reciprocity of ‘investor duties’. Whereas previously the home state’s protection of its citizens abroad necessitated a degree of oversight over their actions, prompting the investor to feel a corresponding duty to the protecting state, international investment law de-links the investor from all but the bare affiliation to their home state. As a result, there is neither oversight from the institution of the consul in the case of extraterritoriality nor a filter through the refusal of the home state to exercise diplomatic protection on behalf of citizens who have engaged in ‘censurable conduct’. The absence of language censuring the investor for misconduct has created a bias in the law. The resulting imbalance is one of the reasons why international investment law has come under increasing criticism as being undemocratic, against the public interest and unsustainable, prompting calls for reform.2 Suggestions for reform have included

2 Michael Waibel et al (eds), The Backlash Against Investment Arbitration: Perceptions and Reality (Kluwer Law International 2010); UNCTAD, World Investment Report 2015: Reforming International Investment Governance (United Nations 2015) ch 4 accessed 23 March 2017.

An international minimum standard of investor conduct

323

updating bilateral investment treaties (BITs),3 interpreting the ‘fair and equitable treatment’ clause as including a duty on investors to refrain from unconscionable conduct,4 incorporating ‘human rights’5 or ‘public law’ concerns into the decision-making process,6 reforming procedure to make arbitration more open and accountable,7 or even overhauling the system completely and starting afresh.8 I examine the dynamic of law in response to these concerns in Sections VII and VIII and in Section IX make the case for the existence of an ‘international minimum standard’ of investor conduct in customary international law, which requires investors to refrain from engaging in ‘censurable conduct’. The content of this standard has varied historically, as has the means of its application. I claim that, in contemporary international law, at a minimum the standard obliges investors to refrain from engaging in certain actions, such as bribery, serious environmental pollution, organizing coups, carrying out forced labour, and international crimes, all of which are recognized by almost all states as being 3

Howard Mann et al, IISD Model International Agreement on Investment for Sustainable Development (2005) accessed 23 March 2017; Howard Mann, ‘The IISD Model International Agreement on Investment for Sustainable Development: An Introductory Note’ (2005) 20 ICSID Review 84. For further proposals, see Patrick Dumberry and Gabrielle Dumas-Aubin, ‘How to Impose Human Rights Obligations on Corporations Under Investment Treaties?’ in Karl P Sauvant (ed), Yearbook on International Investment Law & Policy 2011–2012 (Oxford University Press 2013) 569. 4 Peter Muchlinski, ‘“Caveat Investor”? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’ (2006) 55 International & Comparative Law Quarterly 527. 5 Stephen J Kobrin, ‘Private Political Authority and Public Responsibility: Transnational Politics, Transnational Firms and Human Rights’ in Dirk Matten and Jeremy Moon (eds), Corporate Citizenship (Edward Elgar Publishing 2013) 696. 6 Stephan W Schill, ‘The Sixth Path: Reforming Investment Law from Within’ in Jean E Kalicki and Anna Joubin-Bret (eds), Reshaping the InvestorState Dispute Settlement System (Brill 2015) 621. 7 On the proposal to create an investment court see Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford University Press 2007) ch 7; Howard Mann et al, ‘Possible Improvements of the Framework for ICSID Arbitration’ (2004) accessed 9 April 2017. 8 Muthucumaraswamy Sornarajah, ‘Starting Anew in International Investment Law’ (2012) 74 Columbia FDI Perspectives accessed 9 April 2017.

324

International investment law and history

unlawful. My argument is concerned solely with the existence of such a standard and not with how its content will continue to be defined and operationalized.

II. HISTORICAL METHOD A. The Task of Legal History International investment law has until recently paid remarkably little attention to its history.9 This, I suggest, is symptomatic of a pragmatic subject that is rooted in, and subservient to, the contemporary practice of arbitral tribunals. The function of much mainstream academic scholarship is to provide order and coherence to arbitral decisions, often with a faith-like ideological commitment to arbitration as the best means for resolving disputes. Historical accounts at the beginning of textbooks on international investment law typically tell a narrative of progress that affirms the present.10 Moments of contestation are discounted as temporary interruptions which belong to the past and have now been resolved. Narratives of what textbooks disparagingly preface, with quotation marks, as the ‘so-called’ Calvo doctrine,11 or the ‘so-called’ New International Economic Order,12 are safely consigned to history as hysterical reactions or failures. 9

There are signs that this is changing as part of a broader ‘turn to history’. See Martti Koskenniemi, ‘Why History of International Law Today’ (2004) 4 Rechtsgeschichte – Legal History 61. For recent examples see Antonio Parra, The History of ICSID (Oxford University Press 2012); Kate Miles, The Origins of International Investment Law (Cambridge University Press 2013); Todd Weiler, The Interpretation of International Investment Law (Martinus Nijhoff 2013). However, the leading text prior to this historical turn remains Charles Lipson, Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (University of California Press 1985). 10 Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Wolters Kluwer 2009) 1–57; Andreas Lowenfeld, International Economic Law (2nd edn, Oxford University Press 2008) 465–592. For a recent example of a narrative of progress see Thomas Johnson and Jonathan Gimblett, ‘From Gunboats to BIT: The Evolution of Modern International Investment Law’ in Karl P Sauvant (ed), Yearbook on International Investment Law & Policy 2010–2011 (Oxford University Press 2012) 649. 11 Christoph Schreuer et al, The ICSID Convention (2nd edn, Cambridge University Press 2009) 415. 12 Lowenfeld (n 10) 492.

An international minimum standard of investor conduct

325

Law is founded on a pre-conceived unity, which it both establishes and from which it derives its authority; yet it emerges historically out of a contestation of interests and ideas. It is these moments of uncertainty, formation and reformulation of legal principles that are significant in explaining the biases that continue to haunt the law. B. Archaeology of Censurable Conduct The research question I set out to answer in this chapter is how, if at all, nationals were held to account for misconduct in international law under the disciplines of ‘extraterritoriality’ and ‘diplomatic protection’. The emergence of each of these legal disciplines was accompanied by the proliferation of legal texts on the subject.13 The historical method I use to excavate the standards against censurable conduct, which were set forth under each of these regimes of protection, is archaeology. This forms part of a genealogical method which dislocates us from our current perspective and gives us a point of comparison that allows us to question assumptions that are taken for granted.14 My purpose here is primarily to examine the structures, ideas and thinking behind changes in the law, the way these changes were legally articulated and to bring to light continuities and discontinuities in the ideas and problems in each period. C. Genealogy Turning to the way investor duties were overlooked in the creation of international investment law, I shall be using a more detailed genealogical approach. I compared the negotiation and treaty documents leading up to the Draft OECD Convention on the Protection of Foreign Property (1959–1967), the first United Kingdom Model BIT (1971–1973) and the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention) (1962–1965),15 the combined effect of which was to elevate the foreign investor as a subject of international law. In Section VI the drafting history of treaty texts of international investment law were treated as a site of excavation to study the relationship between power and the production of the subject of the 13

For example, legal monographs about a new subject. Michel Foucault, The Archaeology of Knowledge (Gallimard 1969). 15 Convention on the Settlement of Investment Disputes between States and Nationals of other States (signed 18 March 1965, entered into force 14 October 1966) (1966) 575 UNTS 160. 14

326

International investment law and history

investor. This allows us to examine at a micro-level what is repressed and unmentioned in the final text, while also revealing alternative routes that the law might have taken, but which were excluded during the drafting process, or areas of the law that have fallen into desuetude. This takes inspiration from the way in which Foucault, in his genealogical approach to history, juxtaposed present discourse regarding the construction of subjects such as ‘the prisoner’ or ‘the insane’ with discourse from the past in order to trace back knowledge to its multiple contingencies, showing disreputable origins that have been silenced by orthodox accounts.16 My history does this both at a theoretical and a macro-level, by working backwards comparing how ‘alien misconduct’ was conceived by previous generations of lawyers and lawmakers in Sections III on state responsibility, Section IV on extraterritoriality and Section V on diplomatic protection.

III. STATE RESPONSIBILITY FOR MISCONDUCT OF ALIENS ABROAD The right of the state to ‘protect’ the foreigner from suffering any unjust injury is often traced back to Emmerich de Vattel who maintained that a wrong done to a citizen is a wrong done to the home state, so that ‘[w]hoever uses a citizen ill, indirectly offends the State, which is bound to protect this citizen …’.17 What is interesting to note is that the right to protect comes within the context of an entire chapter entitled: ‘Of the concern a nation may have in the actions of her citizens’, in which Vattel is speaking primarily, although not necessarily exclusively, of the state’s responsibility for the actions of its citizens abroad. Despite this, international lawyers have often taken this quotation out of context.18 The paragraph in full reads: 16 Michel Foucault, ‘Society Must Be Defended’: Lectures at the Collège de France, 1975–76 (Mauro Bertani and Alessandro Fontana eds, David Macey tr, Picador 2003) 7. 17 Emmerich de Vattel, The Law of Nations or Principles of the Law of Nature Applied to the Conduct and Affairs of Nations and Sovereigns (1st edn 1758, Joseph Chitty tr, T & JW Johnson 1852) bk 2, ch 6, para 71. 18 A recent example of a reading of Vattel which completely omits this is Kate Parlett, The Individual and the International Legal System (Cambridge University Press 2016) 49–50. Also see Zachary Douglas, The International Law of Investment Claims (Cambridge University Press 2009) 12; First ILC Special Rapporteur on Diplomatic Protection Mohammed Bennouna, ‘Preliminary Report on Diplomatic Protection’ (4 February 1998) UN Doc A/CN.4/484 para 6.

An international minimum standard of investor conduct

327

Whoever offends the state, injures its rights, disturbs its tranquillity, or does it a prejudice in any manner whatsoever, declares himself its enemy, and exposes himself to be justly punished for it. Whoever uses a citizen ill, indirectly offends the state, which is bound to protect this citizen; and the sovereign of the latter should avenge his wrongs, punish the aggressor, and, if possible, oblige him to make full reparation; since otherwise the citizen would not obtain the great end of the civil association, which is, safety.19

This statement makes it clear that a foreign citizen who breaks the law of nature and ‘disturbs the tranquillity’ of the host state is liable to be punished. Vattel goes on to express an obligation of the home state to prevent such situations from arising as far as it is able to do so. The paragraph immediately following the above sentence provides: But, on the other hand, the nation or the sovereign ought not to suffer the citizens to do an injury to the subjects of another state, much less offend that state itself: and this, not only because no sovereign ought to permit those who are under his command to violate the precepts of the law of nature, which forbids injuries – but also because nations ought mutually to respect each other, to abstain from all offence from all wrong – in a word, from every thing that may be prejudice to others. If a sovereign, who might keep his subject within the rules of justice and peace, suffers them to injure a foreign nation either in its body or its members, he does no less injury to that nation than if he injured it himself. In short, the safety of the state, and that of human society, requires this attention from every sovereign. If you let loose the reins to your subjects against foreign nations, these will behave in the same manner to you; and, instead of that friendly intercourse which nature has established between all men, we shall see nothing but one vast and dreadful scene of plunder between nation and nation.20

As can be seen from these quotations, Vattel took care not to neglect a state’s responsibility for the actions of its citizens abroad. He outlines four situations in which a state’s responsibility could be engaged by the actions of its nationals: sufferance, approval or ratification, failure to punish, and piratical nations that accustom and authorize their citizens to commit crimes against foreign nationals and nations. 19

Vattel (n 17). ibid para 72. This is similar to what Grotius articulated a century earlier: ‘Nor do the so much talked of rights of suppliants, and inviolable nature of asylums at all weaken the argument that has been advanced. For the advantages of such protection are designed only for those, who are victims of unmerited persecution, not for those who have committed crimes injurious to mankind, and destructive to society.’ See Hugo Grotius, The Rights of War and Peace (first published 1646, Archibald C Campbell tr, M Walter Dunne 1901) bk 2, 256–258. 20

328

International investment law and history

The first is the general obligation not to ‘suffer’ one’s citizens to do wrong to another state or to its citizens. This is similar to an obligation to exercise due diligence to prevent or check the actions of one’s citizens.21 Vattel is explicit that this is not an absolute obligation because it is impossible for a sovereign to ‘watch’ over all of his citizens or to ‘confine them on every occasion to the most exact obedience’; it would consequently be ‘unjust to impute to the nation or the sovereign every fault committed by the citizens’.22 In other words, such an obligation depends on the degree of knowledge of the misconduct and whether it is in the state’s power to prevent a violation. Secondly, after a citizen has committed an injury, his or her home state may be responsible if it ‘approves or ratifies’ the actions of the individual, thereby making them a ‘public concern’.23 Thirdly, a state can become responsible after the event if it fails to hold to account an individual who has committed an injury. The sovereign ‘who refuses to cause reparation to be made for the damage done by his subject, or to punish the offender, or, finally, to deliver him up, renders himself in some measure an accomplice in the injury, and becomes responsible for it’.24 Vattel points out that this duty is generally observed with regard to ‘great crimes’,25 thus making a link between the severity of the crime and the punishment. The fourth way that responsibility can be engaged is when a state ‘accustoms and authorizes its citizens indiscriminately to plunder and maltreat foreigners, to make inroads into the neighbouring countries’.26 Vattel gave the example of ‘piratical nations’ such as the ‘Uzbecks’ and the ‘Barbary Nations’ of North Africa, which he maintained were a safe haven for state sanctioned robbery or piracy. Contemporary readings of Vattel highlight the duty of states to protect foreign nationals, but frequently ignore the ‘obligation’ of a state for the 21 Alabama Arbitration Award (14 September 1872) in John Bassett Moore (ed), History and Digest of the Arbitrations to Which the United States Has Been a Party (Government Printing Office 1898) vol 1, 653, 656, where Britain violated its obligations of neutrality in allowing the construction and sailing of warships in a British shipyard used by the Confederacy in the American Civil War; Trail Smelter Arbitration (US v Canada) (11 March 1941) 3 RIAA 1938, 1962–1966, which articulated the ‘no harm principle’. 22 Vattel (n 17) para 73. 23 ibid para 74. 24 ibid para 77. 25 ibid para 76. 26 ibid para 78.

An international minimum standard of investor conduct

329

wrongdoings of its nationals abroad.27 Vattel’s four situations, however, have to some limited extent been translated into the Articles on State Responsibility. These start from the general premise that a state is not generally responsible for the actions of non-state actors abroad, unless they act under the ‘direction, instigation or control’ of the state.28 However, a state can become responsible for the actions of a non-state actor when such conduct is ‘acknowledged and adopted’ as its own.29 This is a more stringent test than Vattel’s ‘approves or ratifies’.30 The fact that the conduct of a national could engage the responsibility of his or her home state indicates that certain misconduct by the alien could give rise to the liability of the home state. Extraterritorial responsibility of the home state for its citizens abroad remains part of customary international law. Whilst international investment law codified and elevated the responsibility of the host state towards the foreign investor, it did not codify the obligations of the home state, which remain in the background.

IV. SEPARATING COMMERCIAL ENTERPRISE FROM PUBLIC POWER In this section, I discuss, in historical context, the regulation of merchant misconduct in the late 18th century. I begin with an analysis of how a concern about bribery in the East India Company arose and the shift 27 Chittharanjan Felix Amerasinghe, State Responsibility for Injuries to Aliens (Clarendon 1967). 28 See ILC, ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts, with Commentaries’ (2001) II-2 YILC 26, 38, ch II para 2; See also ibid 47, art 8: Conduct directed and controlled by a State: ‘The conduct of a person or group of persons shall be considered an act of a State under international law if the person or group of persons is in fact acting on the instructions of, or under the direction or control of, that State in carrying out the conduct.’ 29 ibid 52, art 11: Conduct acknowledged and adopted by a State as its own: ‘Conduct which is not attributable to a State under the preceding articles shall nevertheless be considered an act of that State under international law if and to the extent that the State acknowledges and adopts the conduct in question as its own.’ Note that state conduct includes ‘omissions’ as well as ‘acts’ under art 2 of the ILC Articles on State Responsibility. 30 ibid 53, art 11 para 6. In his Commentary to the Articles, James Crawford explicitly rejects that ‘approval’ is sufficient, since he argues that ‘support or endorsement’ do not engage state responsibility.

330

International investment law and history

away from merchant sovereignty to state regulation of bribery. Linked to this decline in merchant sovereignty, I discuss how the regime of ‘extraterritoriality’, secured through treaties of commerce, resulted in the expansion of the public power abroad to regulate the misconduct of merchants through the domestic law of the home state. What is significant as an early antecedent for the content of such an international minimum standard is the way in which nationals seem to have been held to account under domestic law for violations of the law of nations. A. Bribery and the East India Company Chartered companies, such as the British East India Company and the Levant Company, set up ‘factories’ or trading posts along the coast. Although acting under Royal Charters, they exhibited many of the attributes of sovereignty, engaging in wars, signing treaties, and administering justice over merchants.31 As Lord Stowell explained in The Indian Chief (1801), it was a rule of the Law of Nations, applying peculiarly to countries in the East, that ‘an immiscible character has been kept up; foreigners are not admitted into the general body and mass of the society; they continue strangers’.32 Consequently: wherever even a mere factory is founded in the eastern parts of the world, European persons trading under the shelter and protection of those establishments are conceived to take their national character from that association under which they live and carry on their commerce.33

An interesting example of this expansion of jurisdiction can be seen in the regulation of bribery. As early as 1621, the internal by-laws of the East India Company prohibited servants of the Company from accepting ‘presents’ and ‘emoluments’, presumably from native Princes and their agents, in order to supplement their meagre salaries. By-Law 30 of the East India Company stated that: If any man in Office, or otherwise a member of the Company, be found through Bribery or corrupt Reward, directly or indirectly receiued, to preferre a Suter, performe a Bargaine, make a motion in Court, or doe any other thing, tending to the hurt or damage of the Company, he shall forthwith be made 31 Cecil Carr, Select Charters of Trading Companies. AD 1530–1707 (Barnard Quaritch 1913). 32 The ‘Indian Chief’ (1801) 3 C Rob 12, (1801) 165 ER 367. 33 ibid 373.

An international minimum standard of investor conduct

331

vncapeable of any Office in the Company, and also be fined as the Court shall see cause.34

By-laws are a form of delegated legislation made by private companies that exercise public or semi-public functions. In addition, members of the Company were required by the Directors to sign covenants renouncing the practice of giving or receiving bribes.35 The Company itself was authorized by the Charter granted by Charles II in 1661 through its Governors and Officers to ‘exercise civil and criminal Jurisdiction in the said Factories … according to the Laws of England’.36 Judgments took place in the Company Courts. Adam Smith was scathing in his criticism of the East India Company, which, in his view, had a monopoly over trade that benefited the few at the expense of the free competition of the multitude and placed profit before national interest.37 The self-regulation of merchants acting under Royal Charters was increasingly replaced by direct government regulation after the East India Company became mired in debt and an increased perception of corruption following the impeachment trial of the Company’s Governor-General of Bengal, Warren Hastings. Increasing governmental intervention led to the Regulating Act of 1773, which introduced rules, this time under British law, prohibiting those holding civil or military office under the East India Company from taking ‘any Present, Gift, Donation or Gratuity, or Reward’.38 One of the charges levelled against the Company’s Governor, General Warren Hastings, was that he had unlawfully accepted presents.39 Edmund Burke, opening proceedings for the prosecution before a joint gathering of both

34 East India Company, The Lawes or Standing Orders of the East India Company (E Allde 1621) 7. Also note By-Laws 281–284 on the distribution of ‘Gratifications’ by the Company ibid 63. 35 Peter Marshall, The Impeachment of Warren Hastings (Oxford University Press 1965) 130–131. 36 A Collection of Charters and Statutes Relating to the East India Company (George Eyre and Andrew Strahan 1817) third charter, iii. 37 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776 (Random House 1937) bk 4, ch 7 (part 1) and ch 3 (part 1). 38 Regulating Act 1773, s 24 (13 Geo 3 c 63). 39 Hastings was, amongst other things, accused of acting in breach of s 23 of the 1773 Regulating Act. The impeachment proceedings opened in Westminster Hall before a joint gathering of the two Houses of Parliament and ran between 1788 and 1795 in the form of a trial. Hastings was ultimately acquitted of all charges.

332

International investment law and history

the House of Commons and the House of Lords, stressed the existence of a universal standard: the laws of morality are the same everywhere … and that there is no action, which would pass for an act of extortion, of peculation, of bribery, and of oppression in England, that is not an act of extortion, of peculation, of bribery, and oppression in Europe, Asia, Africa and all the world over.40

Hastings ultimately defended himself that he had not broken any law because he had not received the presents on his own account, but on that of the Company. This loophole was closed by Section 45 of William Pitt’s East India Act of 1784, which also created a Board of Control as an arm of the British government in charge of managing the government’s interest in British India. Its function was to supervise the Company and, in effect, separate its civil and commercial branches in an effort to rein in corruption. The self-regulation of merchants acting under Royal Charters was increasingly replaced by direct government regulation under statute.41 The failures of merchant sovereignty were interpreted as a failure to separate commerce and governance. The Company had to navigate a line between two moral systems: one appropriate for private commercial agreements and merchants, the other orientated towards public virtue and officials.42 As Lord Cromer would later argue in the 19th century, some of the most flagrant violations in Turkey, Egypt, Congo and India arose from a failure to separate public power and pursuit of profit. As he put it: State officials may err, but they have no interests to serve but those of good government, whereas commercial agents must almost of necessity at times neglect the welfare of the subject race in the real or presumed pecuniary interests of their employers.43

There was a growing concern in London that the Company was not only corrupt but also corrupting British politics, as ‘nabobs’ made wealthy through dubious financial transactions in India sought to purchase

40 Edmund Burke, ‘Speech on Opening Second Day of the Hastings Impeachment, 16 February 1788’ in Paul J Marshall and William B Todd (eds), The Writings and Speeches of Edmund Burke (Clarendon Press 1991) vol 6, 346. 41 East India Act 1784 (24 Geo 3 sess 2 c 25). 42 Frederick Whelan, Edmund Burke and India: Political Morality and Empire (University of Pittsburgh Press 1996) 71. 43 Lord Cromer, Ancient and Modern Imperialism (Longmans 1910) 69–70.

An international minimum standard of investor conduct

333

positions in Parliament.44 The East India Company was finally wound up in 1858 following the Indian mutiny.45 B. Extraterritoriality On 7 July 1839, British and American sailors started a riot, which resulted in the death of a Chinese man, Lin Weixi, in what became known as the Kowloon incident. The Chinese Imperial Commissioner, Lin Zexu, demanded that either the accused, or any other sailors in their place, be handed over for trial.46 Commissioner Lin obtained a copy of Vattel’s Law of Nations and had certain passages translated.47 Vattel’s book made it clear that under the ‘law of nations’, a foreigner entered a foreign country under the tacit condition that ‘he be subject to the laws’ of that nation.48 However, Captain Charles Elliot, the Chief Superintendent of British trade in China, refused to accede to Commissioner Lin’s demand and instead tried the accused on board a ship in the harbour of Hong Kong himself, with merchants acting as the jury. When the Law Officers of the Crown in London were asked to review the legality of Captain Elliot’s actions, they advised that he had not exercised jurisdiction lawfully because the Order in Council, an order of the Crown on the advice of the Privy Council, empowering Superintendents of British Trade to exercise jurisdiction under the 1833 Act to Regulate

44 Nicholas Dirk, The Scandal of Empire: India and the Creation of Imperial Britain (Harvard University Press 2006) 9. 45 Government of India 1858 (21 & 22 Vict c 106). 46 Susanna Hoe and Derek Roebuck, The Taking of Hong Kong: Charles and Clara Elliot in China Waters (Curzon Press 1999) 91. Commissioner Lin was a high ranking imperial commissioner placed in charge of the Canton (Guangzhou). 47 Commissioner Lin had obtained translations from the American missionary, Peter Parker, as well as from Yuan Dehui. See Lydia Liu, The Clash of Empires: The Invention of China in Modern World Making (Harvard University Press 2009) 118. 48 Vattel (n 17) ch 8, paras 101–103: ‘Foreigners who commit faults are to be punished according to the laws of the country. The object of punishment is to cause the law to be respected, and to maintain order and safety. For the same reason, disputes that may arise between foreigners, or between a foreigner and a citizen, are to be determined by the judge of the place, and according to the laws of the place.’

334

International investment law and history

Trade to China and India, was limited to Canton and did not include Hong Kong.49 Central to the Kowloon incident was the uncertainty surrounding the exercise of jurisdiction over British nationals in foreign territories. Like other European countries, Britain resolved this dilemma through the regime of ‘extraterritoriality’. The term derived from ‘ex-territoriality’, referring to the rights of legation given to ambassadors.50 In this respect, Grotius refers to the legal fiction of the ambassador being placed outside his territory of residence: ‘quasi extra territorium’.51 In the 19th century, the regime of ‘extraterritoriality’ or ‘consular jurisdiction’ referred to the removal or partial removal of European or American nationals outside the jurisdiction of foreign territories and subjecting them, typically, to the domestic law of their home state.52 This was achieved through bilateral treaties of commerce with what Europeans came to perceive as less than civilized nations, such as the Chinese Empire, Siam, Cochin China, Japan, Korea, the Indian Princely States, Persia, Niger, the Ottoman Empire and Morocco. Pursuant to these treaties, the consuls of European nations had jurisdiction over their nationals, with powers of arrest and deportation. This system of extraterritoriality was established in order to bring nationals to justice, since impunity threatened to destabilize diplomatic relations and free trade.53 Such treaties were often one-sided in favour of Western nations and secured as part of treaties of capitulation. They imposed few duties on European nationals save perhaps to carry a pass, to report to the consul, to pay customs duties, to not engage in smuggling, and, in times of famine, not to export essential grain needed by the local population. Under this system, the sanctioning of nationals for misconduct came from domestic, not international, law exercised through the powers of the 49 Law Officers Report on Trial of the Hong Kong Rioters by Captain Elliot, 12 August 1840, in Clive Parry (ed), Law Officers’ Opinions to the Foreign Office 1793–1860 (Gregg International 1970–73) vol 19, 87. Act to Regulate Trade to China and India 1833 (3 and 4 Will IV c 93). This gap in the law was remedied by the Act for the Better Government of Her Majesty’s Subjects in China 1843 (6 and 7 Vict c 79). 50 Francis Piggott, Extraterritoriality: The Law Relating to Consular Jurisdiction and to Residence in Oriental Countries (Butterworth & Co 1907) 2. 51 Grotius (n 20) bk 2, ch 18, s 4, 338. 52 Treaty clauses were formulated in different ways, and the forum depended on the distinction between criminal and civil disputes, as well as the nationality of the parties (whether British, European or Native). 53 See The Foreign Jurisdiction Act of 1843 (6 and 7 Vict c 94).

An international minimum standard of investor conduct

335

consul. Orders in Council54 created a specific set of crimes applicable to British subjects abroad, as well as the means for their prompt and effective punishment. What is interesting though is that amongst these crimes, for example with China, were laws that were distinctly linked to violations of the law of nations for which a British subject could be punished, which included: (1) (2) (3) (4) (5) (6) (7) (8)

levying war; violations of treaties; smuggling; piracy; insults to religion or religious institutions; seditious conduct; breach of international regulations; and extortion.

Although these were obligations under British domestic law, I argue nevertheless that they represented international standards of conduct for nationals. The rationale behind them was to prevent British nationals from disrupting Britain’s relations with China. The rise in extraterritoriality was linked to the decline in merchant sovereignty and there was a shift away from the idea that companies could be legitimate exercisers of sovereign authority. This shift was motivated, first, by the idea that only states could be subjects of the law of nations, and, secondly, by misgivings about abuses of merchant power contrary to the interests of the parent state.

V. CENSURABLE CONDUCT AS A LIMITATION ON THE EXERCISE OF DIPLOMATIC PROTECTION Another antecedent for an international minimum standard regulating the conduct of aliens was the refusal of states, in the early 20th century, to exercise diplomatic protection on behalf of citizens who had engaged in ‘censurable conduct’. Concerns about the possible misuse of diplomatic protection to shield criminal behaviour gave rise to a doctrine, formulated explicitly by American jurists, not to take up a claim for diplomatic protection if a national did not have ‘clean hands’. While there was no uniform definition of what ‘censurable conduct’ was, its meaning was 54 Edmund Harrison, ‘Order in Council for the Exercise of Jurisdiction in China and Japan’ 9 March 1865 (HMSO 1865); Piggott (n 50) 134–138.

336

International investment law and history

perhaps best expressed by the American Commissioner, Frederick Hassaurek who, in the La Constancia case, which concerned a US citizen who had breached the laws of neutrality by seizing ships, defined the principle in the following way: A party who asks for redress must present himself with clean hands. His cause of action must not be based on an offense against the very authority to whom he appeals for redress. It would be against all public morality and against the policy of all legislation, if the United States should uphold or endeavour to enforce a claim founded on a violation of their own laws and treaties, and on the perpetration of outrages committed by an American against the subjects and commerce of friendly nations.55

In an era of ‘gunboat diplomacy’, diplomatic protection was often used or abused as a pretext for intervention. As Edwin Borchard put it, the ‘exploiting countries, often taking advantage of their superior power, have compelled these weaker countries to innumerable foreign claims, not always founded upon strict justice’.56 Whilst many of the examples that Borchard gives for the application of this principle were drawn from mixed commissions and diplomatic relations between the United States and Latin-American states, the principle was also recognized by other jurists outside the Americas. For example, the British lawyer of German origin, Lassa Oppenheim, writes that one of the factors that a state will take into consideration in exercising its discretion is whether the behaviour of the foreign national has been ‘provocative’.57 Writing in 1896, the Swiss jurist, Edmond Pittard, similarly makes a three-fold division of misconduct: (1) against mankind (such as piracy), (2) against the host state (such as smuggling), and (3) against the home state (such as anarchism), with the first two kinds of misconduct in particular creating ‘unworthiness’ (indignité) for protection under international law: We are here concerned with those individuals who have committed quite serious offences against the public order of the foreign state or against international law so that the state of origin cannot exercise its protection without either personally engaging its responsibility or rendering itself in some sense a participant in the offence. Indeed, the state that would protect its 55

See Moore (n 21) vol 3, 2739. Edwin Borchard, The Diplomatic Protection of Citizens Abroad (The Banks Law Publishing Co 1916) 836. 57 Lassa Oppenheim, International Law. A Treatise. Volume I – Peace (Longmans Green & Co 1905) 375, para 319. 56

An international minimum standard of investor conduct

337

subjects from and against all would itself be guilty of a violation of international law from the point of view of the foreign state.58

The principle of ‘censurable conduct’ was an offshoot of diplomatic protection, which acted as a limitation designed to stop the home state from overreaching by protecting citizens who had engaged in wrongdoing. Examples of such conduct carried out by a national included:59 (1) (2) (3)

provocation (for example, incitement of a mob);60 concealing citizenship (for example, passing oneself off as a native citizen);61 making fraudulent or exorbitant claims (attempting to influence proceedings);62

58 Edmond Pittard, La protection des nationaux à l’étranger (Kündig 1890) 290 (author’s translation). 59 See in particular Borchard (n 56) 716–752; see also: Francis Wharton (ed), A Digest of the International Law of the United States (Government Printing Office 1887) vol 2, s 243, 700; John Moore (ed), A Digest of International Law (Government Printing Office 1906) vol 6, 622; Moore (n 21) vol 3, 2729–2857; Charles Hyde, International Law Chiefly as Interpreted and Applied by the United States (Little Brown & Co 1922) s 274, 477–479. 60 ‘A person whose negligence is the immediate cause of the negligent injury to himself cannot recover from another damages for such injury’, Mr Seward, Sec of State to Mr Whitney (24 July 1868), MSS Dom Let, in Wharton (n 59) ch 9, para 243; see ‘Basis of Discussion No 19’ in ‘First Report Submitted to the Council by the Preparatory Committee of the Conference for the Codification of International Law’ (1930) 23 American Journal of International Law 1, 23. 61 The duty of allegiance was linked to the right to seek protection. See Consular Regulations of the US 1874 para 110: referred to by Borchard (n 56) 720; ‘Persons who conceal their American nationality and represent themselves to be Ottoman subjects are not entitled to call upon this Government for protection.’ Mr Hill Act, Secretary of State, to Mr Griscom, chargé No 345 (16 February 1901) MS Inst Turkey VII 513. See generally Moore, Digest (n 59) vol 6, s 979, 629. 62 Mr Seward, Sec of State, to Lord Lyons, Br Min to the US (30 May 1862) MS Notes to Gr Brit IX 187, in Moore, Digest (n 59) vol 6, s 976, 622, which stated that it was ‘usage’ that a deception practised by a claimant upon his government to enhance a claim or influence proceedings would forfeit that citizen’s protection from his government; in La Abra Silver Mining Co v United States (1899) 175 US 423, Mexico submitted new evidence that a mining company was fictitious and fraudulent after an arbitration had awarded damages against Mexico in which it was said that the presentation by a citizen of a

338

(4) (5) (6)

International investment law and history

evasion of national duties (for example, avoiding military service to the protecting state);63 un-neutral conduct (for example, treason, engaging in an unlawful expedition);64 and illegal or immoral conduct (breach of local law, international law or the law of the home state).65

To what extent did the refusal by home states to exercise diplomatic protection over citizens that had engaged in censurable conduct reflect an obligation of customary international law? Whether or not citizens would enjoy protection was of course subject to the discretion of their home state. This discretion might cast doubt over whether states were indeed following any international legal standard by failing to press a claim, indicating a lack of opinio juris for the existence of such a standard. Yet it could equally be argued that the way in which this discretion was being exercised was indicative of a belief that states should not protect their citizens when they had engaged in certain forms of serious misconduct. fraudulent or false claim could make a state ‘an instrument of wrong’ creating a duty on that state to ‘repudiate the act and make reparation’. 63 According to Borchard (n 56) 731–733, the US government would decline to protect those who have deserted from the army or seek to use foreign nationality as a pretext for avoiding military service. 64 Young v United States (1877) 97 US 39 (concerning whether cotton found during the rebellion in Confederate territory was a legitimate subject of capture and seizure because it was in breach of a blockade). 65 In Lawrence (United States-Great Britain Mixed Commission) 4 January 1855, in Moore (n 21) vol 3, 2824, it was held by Umpire Bates that, since the slave trade was prohibited by all civilized nations, including the United States, the owners of the Lawrence could not claim the protection of their own government. See also the opinion of Mr Hassaurek in a case decided by the United States and Ecuadorian Commission (1865) in Moore (n 21) vol 3, 2739, that: ‘It would be against all public morality, and against the policy of all legislation if the United States should uphold or endeavor to enforce a claim founded on a violation of their own laws and treaties and on the perpetration of outrages committed by an American citizen against the subjects and commerce of friendly nations.’ Another ground for refusing protection was when a citizen had intervened politically in another nation. See the 1925 project of the American Institute of International Law on ‘Diplomatic Protection’, Project No 16 cited in the annex to ILC Special Rapporteur Francisco V Garcia Amador, ‘First Report on International Responsibility’ (20 January 1956) UN Doc A/CN.4/96 – art 6 states that an American republic may decline to receive a claim made on behalf of a person who has interfered in its internal, foreign political affairs or committed acts of hostility.

An international minimum standard of investor conduct

339

The shortcomings of the system of diplomatic protection are well rehearsed. The decision whether to convert a private claim into a public one at a state-to-state level was a highly political act. Refusal to take up a claim left a national with no remedy and, even if a state successfully pursued a claim and received compensation, it was under no obligation to pass this on to its national that had been wronged. However, one of the merits of the system of diplomatic protection was that the home state could filter out unwarranted claims where the foreigner had engaged in unconscionable conduct. Such a filter was by no means perfect because diplomatic protection was often abused by stronger nations as a pretext for intervention, but it existed nonetheless.66 The task of overseeing investor behaviour had first been that of the consul and then, as we have seen in this section, that of the state through the limitation of its exercise of diplomatic protection. One of the features of the current system of international investment law is the absence of the need for the capital-exporting state to espouse the claims of its investors, resulting in the failure of the international system to provide any oversight over investor conduct. The next section explores in detail how this came about.

VI. THE ABSENCE OF INVESTOR OBLIGATIONS IN INTERNATIONAL INVESTMENT LAW This section argues that international investment law codified the responsibilities of the host state for the protection of foreign property and persons, but did not do so with regard to the responsibilities of home states. It narrates the story of how between 1955 and 1965, in the wake of decolonization, the protection of the investor was ‘problematized’ because diplomatic protection was no longer an adequate mechanism to serve the interests of powerful nations. I argue that the framing of the 1967 OECD Draft Convention, which would become the basis for many BITs from the 1970s onwards, failed to codify either investor obligations or the responsibility of the protecting state for actions of its investors, and the balance of the ICSID Convention 1965 was substantially altered in practice by BITs.

66 The Drago Doctrine was an attempt to restrain the use of force to recover debts. For a brief history, see Garcia Amador ibid 216–218.

340

International investment law and history

I will examine four stages to this process. First, I discuss the way in which investor protection became a problem, which arose as a consequence of decolonization and the emergence of ‘newly’ independent states, which jealously guarded their newly acquired sovereignty. Arbitration was conceived of as an alternative to the domestic courts of ‘newly’ independent states. Second, I look at the missed opportunities to articulate rights of what were at the time termed ‘borrower’ states, which would have entailed responsibilities of ‘lender’ or capital-exporting states and imposed corresponding obligations on foreign investors to respect these rights. Third, I examine the role of ICSID in giving equal legal status to the investor and the state. Fourth, I discuss the role of BITs in altering that balance. I argue that whilst contemporary international investment law provides the language to censure the misbehaviour of states, it does not provide an adequate basis to censure the conduct of private investors. A. Problematization of Protecting the Investor from the Decolonized State On 26 July 1956, Abdul Nasser announced the nationalization of the Suez Canal in response to the American refusal to approve a World Bank loan for the Aswan Dam. For Nasser, nationalization was an anti-colonial act motivated by the desire to recover national sovereignty and Arab dignity.67 This decision reflected the new climate of opinion among the African and Asian states, many of which were newly independent, who had met for the first time at a conference in Indonesia on 18–24 April 1955 (known as the Bandung Conference). Here, they resolved to resist the attempt of the imperial European powers to maintain their privileged position in Africa and Asia and united to form a third, non-aligned, movement in addition to the two existing opposed power blocs of the Cold War era.68 By contrast, the authors of the 1959 Abs-Shawcross Convention for the protection of investments believed that the Suez crisis, like the Iranian nationalization of the Anglo-Iranian Oil Company (now ‘BP’) of 1951

67 Gamal A Nasser, ‘Discours le 26 juillet 1956, Alexandrie’ in Écrits et discours du colonel Nasser (La Documentation française 1956). 68 Ali Dessouki, ‘Nasser and the Struggle for Independence’ in Roger Louis and Roger Owen (eds), Suez 1956: The Crisis and Its Consequences (Clarendon 1989) 33–34.

An international minimum standard of investor conduct

341

which preceded it, signalled a dangerous precedent.69 For Hermann Abs, the Suez incident ‘revealed the abyss of moral and legal disintegration on the brink of which we are now standing’.70 He therefore argued that it was the ‘duty of Europe to oppose by its own force developments which threaten the bases of its existence and that of all free peoples’.71 Similarly, Sir Hartley Shawcross saw a danger in the practice of states repudiating international contracts and concessions, saying that ‘[w]hat happens in Egypt today, if not successfully challenged, will happen elsewhere tomorrow’.72 At a more general level, international law faced a challenge with the emergence of ‘newly’ independent states as its subjects. It was widely acknowledged that an acceptance of ‘new’ states and their adherence to international law’s basic principles was necessary in order to secure its universal application.73 However, many Third World jurists during this period rejected aspects of international law that had facilitated or perpetuated colonialism and imperialism and questioned whether the customary international law that had formed before their states’ coming into existence, truly reflected their concerns.74 This led to a reexamination of the international law that had preceded decolonization. The Nyerere doctrine affirmed the right of newly independent states to

69

Hermann Abs and Hartley Shawcross, ‘Draft Convention on Investments Abroad’ (1960) 9 Journal of Public Law 116. 70 Hermann Abs, ‘The Protection of Duly Acquired Rights in International Dealings as a European Duty: Reflections on the Development of the Suez Crisis’ (Anglo-German Economic Committee Meeting, 29 November 1956) 1. 71 ibid 19. 72 Hartley W Shawcross speaking at ‘The Grotius Dinner’ (1956) 42 Transactions of the Grotius Society 50, 51; in this speech he advocated ‘umbrella treaties’ as a response. 73 It is interesting how much of the literature during this period is an attempt to stress the universality of international law. See for example: Philip Jessup, Transnational Law (Yale University Press 1956); Wilfred Jenks, The Common Law of Mankind (Stevens & Sons 1958). 74 Ram P Anand, ‘Attitude of the Asian-African States Toward Certain Problems of International Law’ (1960) 15 International & Comparative Law Quarterly 55; Jorge Castañeda, ‘The Underdeveloped Nations and the Development of International Law’ (1961) 15 International Organization 38; Guha Roy, ‘Is the Law of Responsibility of a State for Injuries to Aliens a Part of Universal International Law?’ (1961) 55 American Journal of International Law 863, 889; Georges Abi-Saab, ‘The Newly Independent States and the Rules of International Law: An Outline’ (1962) 8 Howard Law Journal 95.

342

International investment law and history

accept or reject succession to treaties.75 Third World jurists campaigned for the inclusion of new issues in international law, often reflecting the interests of their ‘newly’ independent nations. This was in particular the case with respect to the right to ‘economic self-determination’, which was developed based on the belief that political sovereignty without economic sovereignty was meaningless.76 The project of reforming international law in order to ensure the protection of foreign property was a response to decolonization and an alternative to the foreigner being subjected to the domestic courts of ‘newly’ independent states. Georg Schwarzenberger, in his characteristically frank style, was explicit about this – that the end of colonialism necessitated the ‘internationalization’ of the protection of property rights since nations no longer under colonial rule would be able to change domestic law as it suited them.77 Whilst nominally being a project of ‘European’ and ‘developed countries’, the real objective of the OECD Draft Convention on the Protection of Foreign Property was, in the words of one UK Board of Trade official, ‘to catch under-developeds’.78 The Chairman to the Organisation for European Economic Cooperation (OEEC, the forerunner to the OECD), in one of the early meetings of the Committee for Invisible Transactions, stated that the ‘Committee’s work would lose its purpose if they were not looking towards the application of the Convention to the (non-OEEC) under-developed countries’.79

75 On state succession in respect of treaties, see the Nyerere Doctrine that is based on an opinion drafted by Elihu Lauterpacht. See Leslie Dingle, Transcript of ‘Conversations with Professor Sir Elihu Lauterpacht, Third Interview: The Sixties’, Eminent Scholars Archive, Squire Law Library, 13 March 2008. 76 Mohammed Bedjaoui, Towards a New International Economic Order (Holmes & Meier 1979) 81–85. 77 Georg Schwarzenberger, ‘Decolonisation and the Protection of Foreign Investments’ (1967) 20 Current Legal Problems 213. 78 Letter from RW Gray (Board of Trade) to L Pliatzky (Treasury) entitled ‘Protection of Foreign Investments’ (21 July 1959) FO 371/127207, 76. 79 Note of a Meeting of the Committee for Invisible Transactions (OEEC) (23 June 1959) FO 371/127207 pt 67. In May 1958, Herman Abs successfully persuaded the German government to submit his draft, produced in collaboration with a German business organization, before the European Payments Union of the OEEC. In 1959, after subsequent collaboration with Hartley Shawcross, a joint, more modest, Convention (Abs-Shawcross) was re-submitted by Germany, replacing an earlier version of the Abs Convention to the Invisible Transactions Committee (Invisibles) of the OEEC.

An international minimum standard of investor conduct

343

Despite this motivation, the Draft OECD Convention made no explicit mention that investments in developing countries were its main target.80 The Preamble merely recognized ‘the importance of promoting the flow of capital for economic activity and development’ and was ‘desirous that other States will join them in this endeavour by acceding to this Convention’.81 The Preamble to the ICSID Convention is similarly anodyne.82 This demonstrated a desire on the part of its drafters to break away from the past in a self-conscious attempt to at least give the appearance of impartiality and reciprocity. Indeed, in the case of the ICSID Convention, Aron Broches, the general counsel of the World Bank, was keen to emphasise that the Convention was not a one-sided attempt to create a new sort of extraterritoriality for foreign investment.83 B. The Rights of Borrowing States and Corresponding Investor Obligations This section considers three proposals put forward in the 1950s, which were missed opportunities to formulate the rights of capital-importing states. In 1959, the British politician Arthur Creech Jones wrote in a letter to British economist Nicholas Kaldor regarding the feasibility of making some kind of investment code operational: it is ‘important that it should serve to protect the interests of the borrowing countries as well as the interests of the lending countries’.84 Such interests were not necessarily at odds with one another.85 Similarly, Martin Domke, the President of the American Arbitration Association, recognized the need to balance 80 Draft OECD 1962 Convention on the Protection of Foreign Property, reproduced in (1963) 2 ILM 241, Preamble, para 2. 81 Draft OECD 1967 Convention on the Protection of Foreign Property, reproduced in (1968) 7 ILM 117. It is true that, upon adopting the 1967 Draft Convention, the Council stated: ‘Having Regard to the provisions of the Convention on the Organisation for Economic Co-operation and Development concerning economic expansion and assistance to developing countries.’ 82 ICSID Convention, Preamble, para 1: ‘Considering the need for international cooperation for economic development, and the role of private international investment therein.’ 83 ‘Memorandum of the Meeting of the Committee of the Whole’ (18 December 1962) in ICSID, History of the ICSID Convention (ICSID 1968) vol II-1, 58, para 33. 84 British Parliamentarians’ Commission on a World Investment Code (1959), Draft Final Report in the Kaldor file available from the King’s College Archives, Cambridge University NK/3/30/216/25-42. 85 ibid.

344

International investment law and history

the interests of the investor with those of states through a mutuality of rights and obligations. In 1956, he wrote that ‘[i]nternational life is a two-way street, and so is international investment. Investment should be regarded in all its phases, from the investor’s side and from the side of the capital importing country.’86 If ‘borrowing states’ had had a greater role in the formulation of the standards of investment protection, it is likely that the content of international investment law would have better reflected the interests of host states and their peoples. The first proposal, which took into account the rights of the host state, was a 1959 Report by The Parliamentary Group for World Government, a cross-bench association of British parliamentarians founded in 1945 by Henry Usborne, which argued for the negotiation of a Convention that was ‘agreeable to both lending and borrowing countries’.87 In producing the Report, the Group had sought the views of the former finance minister of India, as well as that of many leading minds in the British economic and political establishment on the articulation of borrowers’ and lenders’ rights. Looking back at the Report, which never progressed to the point of a draft convention, it is interesting to note some of the suggestions made on what rights were of special concern to borrowing states, in order to make such a convention palatable. They included the:88 (1) freedom to determine economic policies, including the freedom to determine minimum wages; (2) freedom to determine taxation policy, provided it was nondiscriminatory; (3) freedom to determine the financial conditions under which investments may be made; (4) right to guide investment into export-earning or import-saving industries; (5) non-interference of investors in politics or economic policy; (6) right to nationalize, subject to fair compensation; (7) right to legislate for compulsory employment for a percentage of nationals; (8) right to require a proportion of directors to be nationals; 86 Martin Domke, ‘The Settlement of International Investment Disputes’ (1956) 12 The Business Lawyer 264, 271. 87 Parliamentary Group for World Government, ‘A World Investment Code?’ (AJ Crisp 1959) 16 (British Library). 88 In particular, many of these suggestions came from the correspondence of Chintaman Deshmukh, India’s former finance minister, with the Committee in 1959. See Kaldor file (n 84).

An international minimum standard of investor conduct

345

(9) restriction on foreign payments in times of a foreign exchange crisis; (10) avoidance of a situation of ‘perpetual mortgage’ in cases of equity investments; and (11) studying of the possibility of a ‘fair return’. The proposal to draft a ‘World Investment Code’ envisaged the creation of an Arbitral Tribunal to which ‘private individuals and companies as well as states should have access’, whose permanent seat would be in ‘Asia, Africa or Latin America … New Delhi say rather than New York’ and ‘ready to hear cases at places to be selected in any region of the world’ which would publish non-binding findings.89 A second proposal, initially put forward in 1958 by the Prime Minister of Malaysia, Tunku Abdul Rahman, would have again taken into consideration the interests of both groups of states. He suggested the negotiation within the UN of an ‘Investment Charter’ that would balance the interests of both the ‘lenders’ and ‘borrowers’ of private capital, including foreign direct investment.90 Initially put forward in the UN Economic and Social Commission for Asia and the Far East (ECAFE), Abdul Rahman’s proposal received support from the International Chamber of Commerce (ICC), but faced strong opposition from the United States,91 which considered the UN to be the wrong forum, and one that risked producing standards embodying the lowest common denominator.92 The final General Assembly Resolution on foreign private investment drafted by Malaysia made no mention of the proposed Investment Charter, but simply instructed the Secretary General to study and produce a report on the ‘fields of activity in which foreign private investment is 89

Parliamentary Group for World Government (n 87) paras 51, 72, 75–78. UN ECAFE, Official Records 14th Session, Tunku’s speech (5 March 1958) UN Doc E/CN 11/483 (1958). ‘Lenders’ and ‘Borrowers’ simply referred to states that are net importers or exporters of foreign capital. 91 Letter from AJ Brown (Office of the High Commissioner for the United Kingdom in Kuala Lumpur) (30 October 1958) T 236/5431; Michael Brandon, ‘International Developments in 1959 in the Field of the Protection of Private Foreign Investment with Particular Respect of Arbitration between States and Aliens’ (28 September 1959) BP 28770. 92 Letter from DWG Wass to Mr Wilson, ‘Multilateral Convention of Foreign Investment’ (24 April 1957) T 236/5428, summarizing the US position and attaching a memorandum produced by the US at a meeting with the US Minister for Economic Affairs entitled ‘The Practicability of a Multilateral Investment Convention’. 90

346

International investment law and history

needed and sought by under-developed countries’.93 The proponents of an investment convention in the West were happy to seek advice from developing nations, but clearly wanted to maintain control of its drafting. A third proposal from the OEEC (later the OECD), also from 1958, was to create a Draft Protocol on Counter-Assurances during the drafting of the Draft OECD Convention.94 The proposed Protocol was a collection of non-binding promises that capital-exporting states would make to encourage developing states to sign the Draft OECD Convention. The Abs-Shawcross Draft Convention, which had been submitted by Germany to the OEEC and formed the starting point for negotiations, had been criticized for its lack of reciprocity.95 The suggestion for the Protocol arose when the British government approached certain developing countries. The British High Commissioner in Ghana, SJ Gross, asked AK Kwateng, the Minister for Finance of Ghana, whether they were prepared to sign the Convention. Mr Kwateng’s reaction was to complain about the lack of reciprocity in the Draft OECD Convention: It seems … that all the obligations specified in the draft convention are binding on the developing countries but no such obligations are set out for the developed countries to follow.96

Kwateng’s suggestion was that developed countries should give a nonbinding assurance that their investors would endeavour to: (1) (2) (3)

associate with local capital; provide training; invest in productive sectors of the economy not likely to attract local capital; and

93 UNGA Res 1318 (XIII) ‘Promotion of the International Flow of Private Capital’ (12 December 1958). 94 ‘Suggestion for a Draft Protocol to the OECD Convention’ drafted by E Lauterpacht on the basis of a letter from AK Kwateng (Ghana Ministry of Finance) (6 September 1963) FO 371/172288. A copy of this was handed over by the UK delegate to Mr Elkin, the legal officer for the OECD. 95 Arthur Larson, ‘Recipients’ Rights Under an International Investment Code’ (1960) 9 Journal of Public Law 172, Earl Snyder, ‘Protection of Private Foreign Investment’ (1961) 10 International & Comparative Law Quarterly 469, 488, and others made this point. The German draft revised Convention TIR (59) 1 (1st Rev) was placed before the 34th Session of the TIC, 4–6 May 1959, replacing an earlier version of the Abs Convention (nn 70 and 79). 96 Letter from AK Kwateng (Ghana Ministry of Finance) to Solomon J Gross (UK High Commission), ‘Draft Convention on the Protection of Foreign Property’ (20 April 1963) FO 371/172288, para 2.

An international minimum standard of investor conduct

(4)

347

regulate financial and pricing policy so as not to run counter to economic and financial policies of the host country.

The late Sir Elihu Lauterpacht was asked to produce a non-binding Protocol based on Kwateng’s letter, which eventually became known as the Draft Protocol on Counter-Assurances to the OECD Convention.97 The Protocol is drafted along very similar lines to the letter from the Ghanaian Ministry of Finance. The language of the Protocol and its use of the word ‘policies’ in the Preamble to describe the assurances which follow makes it clear that it was not intended to be a legally binding document. It was phrased in this way to avoid opening up a discussion about revising the text of the Convention itself. Despite this endeavour, the Protocol, which went through several drafts, was ultimately not pursued.98 It was presumably too controversial because of its potential to undermine the position of the foreign investor. The Protocol illustrated an awareness, even by many of the foremost advocates of international investment law, that the standards in the Draft OECD Convention were one-sided. The failure to draft a genuinely multilateral agreement beyond the OECD was a missed opportunity to produce more balanced standards. Discussion within international investment law about ‘borrowers’ rights’ and the ‘duties of capital-exporting nations’ was simply not taken further. Efforts to regulate transnational corporations continued in other fora. Intervention by the ITT Corporation in Chilean politics, by offering USD 1 million to the US government and to the Central Intelligence Agency (CIA) in order to fund a coalition to block Salvador Allende from coming to power in the 1970 Chilean election and then plotting to provoke economic chaos in the hope of triggering a coup once he was elected, prompted the United Nations Economic and Social Council (ECOSOC) in 1972 to establish a study group on the impact of multinational corporations on the development process and on international relations.99 97 Suggestion for a Draft Protocol to the OECD Convention drafted by E Lauterpacht on the basis of a letter from AK Kwateng (6 September 1963) FO 371/172288 (possibly with some input from John Blair). 98 There is insufficient information on the reasons behind this proposal being abandoned. 99 On the role of the ITT in Chile see: ‘Report to the Committee on Foreign Relations United States Senate by the Subcommittee on Multinational Corporations’ (21 June 1973), published in The International Telephone and Telegraph Company and Chile 1970–71 (US Government Printing Office 1973) 16; Peter

348

International investment law and history

In a speech addressed to the United Nations Conference for Trade and Development (UNCTAD), President Allende himself summarized the problem: We spend our time at international meetings discussing the visible features of the Third World’s structure of dependence, while its deep lying determinants slip by us unseen, like the submerged three-quarters of an iceberg … This flagrant intervention in the internal affairs of States is more serious, more subtle and more dangerous than that of governments themselves, which is condemned in the Charter of the United Nations.100

These efforts resulted in the establishment, in 1974, of the UN Centre on Transnational Corporations, which produced a Code of Conduct on Transnational Corporations in 1983.101 The OECD, in turn, produced in 1976 its own guidelines on responsible business conduct in the form of the Declaration on International Investment and Multinational Enterprises.102 In 1977, the International Labour Organization (ILO) also produced its own code of conduct in the form of a Tripartite Declaration Concerning Multinational Enterprises and Social Policy.103 However, Kornbluh, The Pinochet File: A Declassified Dossier on Atrocity and Accountability (New Press 2003) 98–103. According to Lubna Qureshi, Nixon, Kissinger, and Allende: U.S. Involvement in the 1973 Coup in Chile (Lexington Books 2009) 70, ITT paid out at least USD 400,000 during the Chilean election to those opposing Allende. Chile made a complaint to ECOSOC concerning ITT in 1972, UN Doc E/SR.1822 (1972); ECOSOC Res 1721, UN Doc E/5209 (1972) directed the UN Secretary General to appoint a group of eminent persons to study the impact of multinational corporations on economic development and international relations. The outcome of this was the Report of the Group of Eminent Persons, ‘The Impact of Multinational Corporations on Development and on International Relations’ (24 May 1974) UN Doc E/5500/Rev 1, ST/ESA/6 (1974). 100 Salvador Allende, ‘Address to the Third UN Conference on Trade and Development’ (UNCTAD, Santiago, 13 April 1972) in James Cockcroft (ed), Salvador Allende Reader: Chile’s Voice of Democracy (Ocean Press 2000) 162. 101 The United Nations Centre on Transnational Corporations (UNCTC) was established by ECOSOC Resolution 1908 (LVII) (2 August 1974) under the supervision of the Commission on Transnational Corporations created by ECOSOC Resolution 1913 (LVII) (5 December 1974). See Karl P Sauvant, ‘The Negotiations of the United Nations Code of Conduct on Transnational Corporations: Experience and Lessons Learned’ (2015) 16 The Journal of World Investment & Trade 11. 102 The Declaration is reproduced in (1976) 15 ILM 967; the Guidelines are reproduced in (1976) 15 ILM 969. 103 (1978) 17 ILM 422.

An international minimum standard of investor conduct

349

these and subsequent principles, guidelines and norms have remained in the realm of soft law and are yet to crystallize into hard law.104 C. The Idea of an Arbitral Institution Between Investors and States In order to protect investors from the domestic courts of ‘newly’ independent states, a number of lawyers advanced the project for the creation of a permanent body for investor-state dispute settlement. Their proposals generally took three directions: the amendment of the Statute of the International Court of Justice (ICJ),105 use of the Permanent Court of Arbitration (PCA), or the creation of a new arbitration forum for investors and states. This section looks at the decision to create an arbitral institution under the auspices of the World Bank, a lenders’ institution, and the way in which the ICSID Convention placed the investor on the same plane as the state. One might question whether a lenders’ institution was the most appropriate place to define borrowers’ rights or to situate such an institution.106 This apprehension was expressed by the 1959 report of the Parliamentary Group for World Government, which acknowledged that, whilst the World Bank was an ‘attractive home’, ‘the Bank itself may feel that it is wrong for a professional lender to become a professional arbitrator … although a loose form of association could perhaps be found’.107 So indeed it turned out: the International Centre for the Settlement of Investment Disputes (ICSID) was founded by the World Bank, but with its own separate international legal personality.108 However, as Aron Broches put it, in response to a comment made by an official of the FCO that the ICSID Convention lacked teeth, the ICSID Convention did have teeth because ‘[i]n the last resort there was the possibility of sanctions by the World Bank, though ICSID obviously

104 UNHRC, ‘Guiding Principles on Business and Human Rights, Report of the Special Representative of the Secretary-General’ (‘Ruggie Principles’) (21 March 2011) UN Doc A/HRC/17/31. 105 Richard Cummins, ‘Protection of Foreign Investments: A Role for the International Court of Justice’ (1963) 38 New York University Law Review 918. 106 The Parliamentary Group for World Government (n 87) raises this point at 16. 107 ibid. 108 ICSID Convention (n 15) art 18.

350

International investment law and history

could not mention this’.109 Locating the arbitration tribunal in the World Bank therefore ensured that developing countries would take such an institution seriously. Looking at the terms of the ICSID Convention, it omits any requirement to weigh up the mutuality of rights and obligations of both investors and states, which had featured in the proposals discussed in the previous sub-section. The Commentary to the Preliminary Draft, which refers to jurisdiction being available ‘with a view to ensuring reciprocal performance of obligations which arise out of the application of the Convention’, was later removed.110 The Preamble to both the Preliminary and the First Drafts had referred to the settlement of disputes ‘with due respect for the principle of equal rights of States in the exercise of their sovereignty’.111 The reference to sovereignty, however, was removed from the Preamble of the final Convention. This was probably because, under international law existing at the time, sovereign prerogatives were thought to override and trump the individual rights of foreigners and the alien was considered an object rather than a subject of international law.112 The lack of reference to sovereignty reduces the scope for arbitrators to distinguish between sovereign prerogatives exercised for legitimate aims, such as ‘public health’, as opposed to illegitimate ones, such as seizing foreign investments for self-enrichment. 109

Note of an Interdepartmental Meeting with Mr Aron Broches (14 September 1971) FCO 59/633, para 5. Mr Broches also pointed out that consent once given could not be withdrawn, decisions of the Tribunal would be binding and that if a state refused to comply with a decision, it would be detrimental to the image of the host government. On the relationship between the two, see Julien Fouret, ‘The World Bank and ICSID: Family or Incestuous Ties?’ (2007) 4 International Organizations Law Review 121. 110 Preliminary Draft, ‘The Parties to the Dispute’ (15 October 1963) in ICSID (n 83) 184, commentary to art 2(1). 111 See ‘Settlement of Investment Disputes. First Preliminary Draft of a Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. Annotated Text’ (9 August 1963) in ICSID (n 83) 133, 134 para 2; and ‘Draft Convention on the Settlement of Investment Disputes Between States and Nationals of Other States’ (11 September 1964) in ICSID (n 83) 610, para 2. 112 Before the First World War, arbitration treaties frequently contained a reservation excluding matters that affected the ‘vital interests, the independence or the honour’ of a State. See, for example, Agreement Providing for the Settlement by Arbitration of Certain Class of Questions Which May Arise Between the Two Governments (UK-France) (signed 14 October 1903) art 1 UKTS 018/1903. See Oppenheim (n 57) 344 para 290.

An international minimum standard of investor conduct

351

The ICSID Convention gave equal legal status to both the investor and the state, creating an equivalence between the two. While appearing to be a symmetric relationship, the flow of investments was primarily onesided. While the ICSID Convention appeared to be balanced, considering that any arbitration would require the consent of both the state and the investor, BITs, as we shall see in the next sub-section, altered that balance by securing generalized state consent. D. Bilateral Investment Treaties: Altering the Balance Whatever balance was struck by the ICSID Convention, it was altered by the first generation of BITs. While the purpose of the ICSID Convention was to create a system that was available to both investors and states, this objective largely remains unfulfilled since, to date, states have only registered a claim against investors at ICSID on three occasions.113 However, once a state has given its consent to arbitration in a BIT, it is up to the investor to decide whether or not to take up the offer to arbitrate, resulting in what Jan Paulsson has termed ‘arbitration without privity’.114 Whilst it is true that states can sometimes make a counterclaim, the terms of many dispute settlement clauses often make this impossible, restricting the scope of the arbitration to the primary claim.115 Obligations of the investor are therefore usually not internationalized due to a lack of investor consent, and so remain largely within the domestic sphere. It is not only the structure of BITs that provides for automatic state consent, but also their content, which has historically been very onesided, dealing only with the protection of the investor. By way of illustration, I will take the example of the drafting of the first UK model BIT, agreed in 1972, which is the basis for the current 2008 UK Model Investment Promotion and Protection Agreement (IPPA).116 113 This is out of the 579 registered cases according to the ICSID website accessed 2 July 2016. This number excludes counterclaims. 114 Jan Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Review 232; AAPL v Sri Lanka (1997) 4 ICSID Rep 250 was the first case in which jurisdiction was based exclusively on a BIT. 115 According to Stephen M Schwebel, as of 2008, states had registered eight counterclaims against investors. See Stephen M Schwebel, ‘A BIT About ICSID’ (2008) 23 ICSID Review 1, 6. 116 The Financial Policy and Aid Department of the Foreign and Commonwealth Office (FCO) had primary responsibility for drawing up and negotiating the treaties. By 7 July 1972, the UK had produced a Model Agreement approved

352

International investment law and history

The Preamble to the UK Model IPPA sets out the aim of the treaty as the ‘encouragement and reciprocal protection’ of investors and investments. The reference to ‘reciprocity’ was inserted at the suggestion of John Blair, the representative of the Confederation of British Industry (CBI), who felt that it would appeal to developing countries if the agreement were of a mutual nature.117 However, F.A. Mann referred to ‘reciprocity’ as largely ‘a matter of prestige rather than reality’, given that investment at the time was only flowing in one direction.118 The notion of ‘development’ was initially mentioned in the first draft, but was later removed.119 Stating investor obligations linked to a state’s right to development could have proved problematic because arbitrators interpreting the treaty might then have had to take into consideration, as part of the context of a dispute, whether or not an investment contributed to the economic development of a country.120 The so-called rights of ‘borrower’ states were essentially reduced to the right of the state to appropriate property on condition that ‘prompt

by all Whitehall Departments. A further draft of the UK Model Treaty was produced on 17 May 1973, which was relied upon in negotiations. See Model Investment Protection Agreement for Use with Associated States, Draft (15 May 1973) FCO 59/948. The UK’s first signed treaty was with Egypt on 11 June 1975, ‘Agreement for the Promotion and Protection of Investments’ (UK-Egypt) (11 June 1975) UKTS 97/1976. See Chester Brown and Audley Sheppard, ‘United Kingdom’ in Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford University Press 2013) 697. 117 Memorandum of a meeting between DM Kerr (FCO) and J Blair (CBI) Investment Protection Agreement, Note (23 February 1972) FCO 59/698, 38. 118 Francis A Mann, ‘British Treaties for the Promotion and Protection of Investments’ (1981) 52 British Yearbook of International Law 241. 119 The first attempt at a draft included the following in the Preamble: ‘Intending to play their part in the Second United Nations Development Decade’, LG Faulkner’s First Shot Drafting Model (29 April 1971) FCO 59/630 para a. 120 The ICSID Convention contains just a generic reference to ‘economic development’. Tribunals have made reference to the Preamble to interpret the object and purpose of treaties. For example, in SGS v Philippines, ICSID Case No ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para 116, the tribunal said the following on the Swiss-Pakistan BIT: ‘According to the preamble, it is intended “to create and maintain favourable conditions for investments by investors of one Contracting Party in the territory of the other”. It is legitimate to resolve uncertainties in its interpretation so as to favour the protection of covered investments.’

An international minimum standard of investor conduct

353

adequate and effective’ compensation was paid.121 The right to regulate and subject foreign investment to domestic law did not add anything to the pre-existing law since states already possessed this right.122 On the other hand, BITs essentially articulated the standards of protection that ‘lender states’ had wished to see established as law, but vesting the associated rights directly in the investor.123 The inducement to sign BITs was of course the non-binding promise of future capital. The ‘soft’ promise of future capital was linked to the ‘hard’ promise of security of investment for the foreign investor. The first generation of BITs restricted the ability of states to internationalize claims against foreign investors for misconduct because, while state consent to arbitration is automatic, investor consent is not. Meanwhile, the one-sided nature of the standards of protection, which flow from the state to the foreign investor, provide little in terms of a cause of action for the state against the investor. The cumulative effect of successive arbitrations, in which it is almost always the investor who is the claimant and the state which is the respondent, has distorted the legal jurisprudence expounded through such unidirectional arbitral case law. In addition, arbitrators as a group have a collective interest in expanding their jurisdiction and the scope of international investment law, which in turn affects the development of the law. This would not in itself be problematic were it not for the lack of balance that is inherent in such an expansion.124 All of this has undermined the supposed balance achieved by the ICSID Convention. The vesting of the right to arbitration directly in the investor takes away the ability of the investor’s state to filter out claims because of investor misconduct, as the state had been able to do in exercising its right to diplomatic protection in the early 20th century. Furthermore, the restriction imposed on the ability to exercise diplomatic protection for 121 The distinction between nationalization and expropriation is collapsed. On the distinction, see Hersch Lauterpacht, Oppenheim’s International Law (D McKay 1955) vol 1, 378. 122 2008 Model IPPA, art 2. 123 ibid. 124 As an example of this specific kind of bias, see Abaclat and Others (formerly Giovanna A Beccara and Others) v Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility (4 August 2011) (allowing 60,000 bondholders to bring a class action against Argentina on the basis of a BIT between Italy and Argentina). For a similar critique, see Muthucumaraswamy Sornarajah, Resistance and Change in the International Law on Foreign Investment (Cambridge University Press 2015) 61. For another perspective, see William Park, ‘Arbitrator Integrity’ in Waibel et al (n 2) 207.

354

International investment law and history

any dispute referred to ICSID prevents the investor’s home state from bringing up issues of misconduct once arbitration has commenced.125 This results in the weakening of the responsibility of states for the actions of their citizens abroad. Similarly, the role of the domestic courts of the host state in checking investor misconduct can be impeded by the internationalization of investment disputes. Consent to arbitrate, unless otherwise stated, is ‘deemed consent to such arbitration to the exclusion of any other remedy’.126 To summarize, there is considerable dependence on the discretion of international arbitrators to make an assessment about investor misconduct and to investigate it with regard to the applicable law.127 This is the case despite the lack of explicit standards to censure the investor under international law, and the lack of access to the state institutions that could provide the necessary oversight of this conduct that existed in earlier periods. Furthermore, the possibility of producing more balanced standards is undermined by the procedural setup which makes it almost impossible for a state to bring an action for misconduct in the same way as an investor, because the state has already given consent under a BIT whereas the investor has not. E. Appraisal of the Sanctioning of Investor Misconduct in Contemporary International Investment Law It might be argued that, despite this imbalance, tribunals have found means of sanctioning investor misconduct by declining jurisdiction, declaring claims inadmissible, dealing with misconduct as part of the merits or linking it to the amount of damages awarded. I will first set out the current state of the law and then discuss why, in my view, the absence of an explicit standard sanctioning investor misconduct, makes the law inadequate. Although the majority of BITs fail to prescribe standards of investor conduct, some of them do require that an investment be made ‘in accordance with the host state law’ and such a requirement has been

125

ICSID Convention (n 15) art 27. ibid art 26. Although a state may require ‘the exhaustion of local remedies as a condition of its consent to arbitration,’ almost all BITs circumvent this. 127 ibid art 42. 126

An international minimum standard of investor conduct

355

implied even in the absence of such a clause. Where illegality affects the consent to arbitrate, tribunals have sometimes declined jurisdiction.128 Even in the absence of a legality clause, tribunals regularly declare claims inadmissible following the principle of nemo auditur propriam turpitudinem allegans (no one alleging his own turpitude is to be heard), which applies in the case of fraudulent misrepresentation aimed at acquiring an investment and in case of behaviour contrary to international public policy.129 The associated doctrine of ‘clean hands’, which was relevant in the context of diplomatic protection, is controversial in contemporary international law because it can effectively leave the individual without a remedy.130 Investment tribunals, such as Yukos and Niko, have cast doubt on whether the doctrine forms part of customary international law or is a

128

Inceysa Vallisoletana SL v Republic of El Salvador, ICSID Case No ARB/03/26, Award (2 August 2006) paras 204–207, 335, involved the investor committing fraud and misrepresentation in order to win a contract; Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (4 October 2013) paras 164–166, 372–373, in which payments of USD 4 million were made to ‘consultants’ to lobby the government; see more generally Stephan W Schill, ‘Illegal Investments in Investment Treaty Arbitration’ (2012) 11 The Law & Practice of International Courts and Tribunals 281, 288. 129 See in particular Plama Consortium v Bulgaria, ICSID Case No ARB/03/ 24, Award (27 August 2008) paras 138–146. Also see obiter in Phoenix Action Ltd v The Czech Republic, ICSID Case No ARB/06/5, Award (15 April 2009) paras 100–101 though in this case there was a legality clause. This approach was also confirmed in obiter in Yukos Universal Ltd (Isle of Man) v Russian Federation, PCA Case No AA 227, Award (18 July 2014) paras 1349–1353. The difference between jurisdiction and admissibility is that whilst the former deals with the tribunal’s adjudicative power the latter goes to the nature of the claim being heard by a properly constituted tribunal once jurisdiction is established. 130 The doctrine was not included in the Draft Articles on Diplomatic Protection 2006. The Special Rapporteur for State Responsibility concluded: ‘it is not possible to consider the “clean hands” theory as an institution of general customary international law’. See ILC Special Rapporteur James Crawford, ‘Second Report on State Responsibility’ (30 April 1999) UN Doc A/CN.498/ Add.2 para 336. In the context of diplomatic protection, see Jean Salmon, ‘Des “Main Propres” comme condition de recevabilité des réclamations internationales’ (1964) 10 Annuaire Français de Droit International 225, 225–66. For a recent assessment, see Rahim Moloo, ‘A Comment on the Clean Hands Doctrine in International Law’ (2010) 1 InterAlia 39.

356

International investment law and history

general principle of international law.131 However, one interpretation of the doctrine is that investor misconduct is to be considered as part of the merits.132 In a contract-based arbitration, the tribunal in World Duty Free Company v Republic of Kenya refused to enforce a contract concerning duty-free services in two airports because they had been obtained through a bribe of the President of Kenya. The tribunal found that bribery is contrary to the international public policy of most, if not all, States or, to use another formula, to transnational public policy. Thus, claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by this Arbitral Tribunal.133

However, despite corruption being insinuated in numerous cases, it rarely determines the outcome of a case.134 This may be for a number of reasons, including the difficulty in proving bribery, the reluctance of states to bring up allegations that implicate their own public officials or the obvious unwillingness of investors to disclose such evidence. An alternative to the ‘clean hands’ doctrine is tribunals taking into consideration investor conduct when quantifying damages.135 A recent example of this approach was the Yukos et al v Russian Federation case, in which the tribunal found that a coordinated set of actions by the Russian government amounted to an indirect expropriation under Article 13(1) of the Energy Charter Treaty (ECT), but also reduced the award and costs by 131 Niko Resources v Bangladesh et al, ICSID Case Nos ARB/10/11 and ARB/10/18, Decision on Jurisdiction (19 August 2013) paras 476–485; Yukos (n 129) paras 1357–1361, rejecting clean hands as a general principle of civilized nations. 132 This is what is advocated by Adolfo Miaja de la Muela, ‘Le rôle de la condition des mains propres de la personne lésée dans les reclamations devant les tribunaux internationaux’ in Vladimir Ibler (ed), Essays in International Law in Honour of Juraj Andrassy (Martinus Nijhoff 1968) 189. 133 World Duty Free Company v Republic of Kenya, ICSID Case No ARB/00/7, Award (4 October 2006) para 157. 134 Aloysius Llamzon, Corruption in International Investment Arbitration (Oxford University Press 2014) ch 7.03; Cecily Rose, ‘Questioning the Role of International Arbitration in the Fight Against Corruption’ (2014) 31 Journal of International Arbitration 183. For a recent discussion of the problem see Yves Fortier, ‘Arbitrators, Corruption, and the Poetic Experience: “When Power Corrupts, Poetry Cleanses”’ (2015) 31 Journal of International Arbitration 367. 135 In MTD Equity Sdn Bhd & MTD Chile SA v Chile, ICSID Case No ARB/01/7, Award (25 May 2004) paras 178 and 242–243, the tribunal found the investor responsible for 50 per cent of the damages for failing to behave in a prudent manner and exercise business acumen or due diligence.

An international minimum standard of investor conduct

357

25 per cent to account for contributory negligence in light of the claimants’ abuse of the tax regime.136 Even when this is not done openly, as Andreas Kulick convincingly argues, arbitrators often do take into consideration public interest clandestinely when assessing damages.137 In summary, tribunals have sometimes refused jurisdiction in the absence of a better alternative, but this has been criticized because it could leave the investor without remedy. It has been argued that, in cases of ‘abuses of process or other serious forms of misconduct’, such issues should be treated as grounds for inadmissibility rather than entailing a lack of jurisdiction.138 Others contend that investor misconduct should be dealt with as part of the merits or as part of damages.139 Nevertheless, the law as it presently stands is inadequate in dealing with investor misconduct for a number of reasons.140 First, to take the example of bribery, refusing jurisdiction appears to penalize the investor, whilst allowing states to get off the hook for the same crime.141 There is no reason why a state should be allowed to rely on its own wrongdoing in order to evade an international obligation.142 Secondly, jurisdictional decisions are only concerned with impropriety regarding the acquisition of an investment and do not encompass the subsequent conduct of an investor. 136

Yukos (n 129) paras 1633–1637 and 1885. Andreas Kulick, ‘Sneaking Through the Backdoor – Reflections on Public Interest in International Investment Arbitration’ (2013) 29 Arbitration International 435. 138 The ICSID Convention does not expressly refer to admissibility. See Andrew Newcombe, ‘Investor Misconduct: Jurisdiction, Admissibility or Merits?’ in Chester Brown and Kate Miles (eds), Evolution in Investment Treaty Arbitration (Cambridge University Press 2011) 187. 139 See Fraport AG Frankfurt Airport Services Worldwide v Philippines, ICSID Case No ARB/03/25, Separate Dissenting Opinion of Bernardo Cremades to the Award (16 August 2007), paras 14, 37–41, where the tribunal refused jurisdiction on grounds that the investment had not been made in accordance with domestic law. The decision was subsequently annulled. 140 For the contrary view that the present system does not need reforming, see Andrew Newcombe, ‘Investor Misconduct’ in Armand Mestral and Céline Lévesque (eds), Improving International Investment Agreements (Routledge 2013) 195. 141 In Metal-Tech (n 128) para 389, the tribunal noted that it was ‘sensitive to the ongoing debate that findings on corruption often come down heavily on claimants’. 142 Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980) 1155 UNTS 331 art 27. 137

358

International investment law and history

Thirdly, whilst tribunals undoubtedly already take into consideration investor conduct, they do not have an explicit international legal standard within most BITs to rely upon.143 Fourthly, despite investment arbitration having greater transparency than other forms of arbitration in that awards frequently become public, the cloak of confidentiality that is nonetheless often present during proceedings offers both parties a convenient way of avoiding both public scrutiny and participation once a dispute has become internationalized.144 Fifthly, the capacity of arbitration tribunals to define the scope of a dispute, in the absence of jurisdiction over investor misconduct, can have the effect of occluding forms of conduct which fall outside of these limits. Finally, investor misconduct is primarily used as a ‘shield’ against investor claims, rather than as a cause of action at the international level. This is because, as explained above, states are rarely claimants, which means that investor misconduct is only brought up as a defence to an investor’s claim or as a counterclaim. Such counterclaims, however, are frequently made impossible by restrictive dispute settlement clauses in BITs. When a state suspects investor misconduct that violates international standards, it should be able to sue the investor in an international forum as was anticipated by the ICSID Convention. The general reluctance on the part of most arbitration tribunals to explicitly sanction investor misconduct due to the absence of a clear treaty standard has stunted the development of jurisprudence and the creation of international legal standards on investor misconduct.

143 Muchlinski (n 4) attempts to import a ‘duty to refrain from unconscionable conduct’ into the ‘fair and equitable treatment standard’. 144 ICSID Arbitration Rule 32(2) gives either party a veto over the tribunal opening up proceedings. David Shenton and Gordon Toland, ‘London as a Venue for International Arbitration: The Arbitration Act, 1979’ (1980) 12 Law and Policy in International Business 643, 651, discuss why arbitration was more attractive to states than litigation in another country’s court. Similarly, confidentiality is one of the main attractions to users of international commercial arbitration. For example, in the 2010 QMUL White & Case Survey, entitled ‘Choices in International Arbitration’, 62 per cent of users considered confidentiality to be ‘very important’ and 24 per cent to be ‘quite important’ accessed 19 May 2015.

An international minimum standard of investor conduct

359

VII. REINTEGRATING THE PUBLIC INTEREST International investment law is currently unbalanced in that most BITs do not explicitly deal with standards of ‘investor conduct’. The failure to discuss the rights of states beyond their ability to nationalize foreign property was a missed opportunity for defining investor misconduct. The ICSID Convention creates a dichotomy between the host state and the investor, which implies that the public interests of the former are capable of being quantified and balanced with the interests of the latter. However, whatever balance was created through the ICSID Convention has been altered by BITs, which create one-sided obligations owed by the state to the investor without imposing any reciprocal investor duties. Furthermore, giving investors rights on the individual plane involves a delinking of the responsibility of the capital-exporting nation for the actions of their citizens abroad, even when such actions become detrimental to their own country’s public interest or foreign relations. Today a strong movement has developed in investment arbitration that seeks to incorporate public law as a means of rebalancing international investment law.145 Such an approach is not dissimilar from the manner in which extraterritoriality arose in the 19th century in order to manage the negative externalities caused by free trade and the need to tame merchant sovereignty.146 Similarly, ‘censurable conduct’ developed as a device to avoid private claims being converted into public international law claims where they offended the public interest of the capital-exporting nation. So too, the desire to introduce ‘public law’ into international investment law arises from a wish to minimize the negative consequences of laissez-faire capitalism, such as harm to the environment, human rights violations and corruption. Ignoring these public law concerns threatens to

145 On the problem, see ‘Public Statement on the International Investment Regime’ by a group of international lawyers (31 August 2010) accessed 16 March 2017. On the adoption of the ‘public law’ approach as a proposed solution, see Stephan W Schill, ‘Enhancing International Investment Law’s Legitimacy: Conceptual and Methodological Foundations of a New Public Approach’ (2011) 52 Virginia Journal of International Law 57; Stephan W Schill (ed), International Investment Law and Comparative Public Law (Oxford University Press 2010). 146 Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Beacon Press 2001) 136–157; David Schneiderman, Resisting Economic Globalisation: Critical Theory (Palgrave Macmillan 2013) 8–19.

360

International investment law and history

undermine the legitimacy of international investment law.147 I discuss two variants of this proposal to reform international investment law and their shortcomings. One suggestion, proposed by Stephan Schill, is that arbitrators balance the interests of states and investors based on concepts that are imported from ‘public law’, such as ‘proportionality’ analysis.148 This could also be a useful mechanism to combat state-sanctioned corporate crime. Whilst this would accomplish the objective of protecting both the rights of the state and its people, as well as those of the investor, it arguably leaves too much discretion for arbitrators to define whether public policy is compliant with international investment law and consequently undermines the state’s right to self-determination. Although international investment law as it stands already impinges on ‘public policy’, it does so indirectly and without general legitimacy to do so. Another suggestion is that arbitrators should incorporate ‘human rights’ into international investment law.149 This risks falling into the trap of universalizing a particular Eurocentric conception of ‘human rights’.150 The very critique of human rights by the first generation of Third World jurists was that political rights were emphasized at the expense of economic ones, and that rights were defined in individualistic terms with the tendency to ignore people’s ‘collective’ rights. Different cultures have different conceptions of human rights and those conceptions cannot always be fully reconciled with one another.151 Both of these suggestions for reform risk widening the authority of arbitrators well beyond their mandate, leaving too much discretion to arbitral tribunals. Whilst increasing the regulatory power of these bodies would treat the symptoms of the problem and reduce some of the negative fallout from an unsatisfactory system, it fails to address the 147

Stephan W Schill, ‘International Investment Law and Comparative Public Law – An Introduction’ in Schill (n 145) 3, 6. 148 Benedict Kingsbury and Stephan W Schill, ‘Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest – the Concept of Proportionality’ in Schill (n 145) 75. 149 Bruno Simma, ‘Foreign Investment Arbitration: A Place for Human Rights?’ (2011) 60 International & Comparative Law Quarterly 573. See also the citations above n 2. 150 Dumberry and Dumas-Aubin (n 3); Mann et al (n 3). 151 The spiritual connection to land is inherent in indigenous law. The emphasis on the family in addition to the individual and on obligations as well as rights, can be found in the African Charter on Human and Peoples’ Rights (adopted 27 June 1981, entered into force 21 October 1986) (1982) 21 ILM 58 (Banjul Charter) and in ‘Asian’ approaches to human rights law.

An international minimum standard of investor conduct

361

structural bias that has caused the problem in the first place – the lack of international standards of conduct for the investor. What is needed is to place some kind of limit on international investment law’s field of application so as to ensure that the protection of investors is not abused, not the further expansion of the discretionary powers afforded to arbitrators.

VIII. HISTORICAL CONTINUITIES: FORMATION OF LAW AND THE DYNAMIC OF DIFFERENCE There is a continuity between the rationale for extraterritoriality in the 19th century, the espousal of diplomatic protection at the beginning of the 20th century, and the elevation of the foreign investor as a protected subject in contemporary international investment law. In all three cases, purported defective cultural conditions necessitated the removal of the foreigner from domestic courts and, conversely, limits were imposed on the host state to ensure that its public law did not infringe upon the legal rights of the foreign merchant or investor. In the case of extraterritoriality, as the US Supreme Court put it in Ross v McIntyre (1891), the ‘barbarous and cruel punishments inflicted in those countries, and the frequent use of torture to enforce confession’ was the rationale for ‘Christian governments to withdraw the trial of their subjects’ from the ‘arbitrary and despotic action’ of local officials.152 Likewise, in the early 20th century, the attitude of what Edwin Borchard termed ‘exploiting countries’ was that ‘the political organisation of many Latin American countries is so weak, that judges depend so thoroughly upon executive favour … that their citizens cannot secure from the courts that impartiality to which they are entitled, and that they cannot leave the rights of their citizens unreservedly to the determination of the local courts’.153 Similarly, the need for international investment law arises 152 In Ross v McIntyre (1891) 140 US 453, 463, Justice Field referred especially to ‘the intense hostility of the people of Moslem faith to all other sects’ to justify the widespread application of extraterritorial adjudication more generally. 153 Edwin Borchard, The Diplomatic Protection of Citizens Abroad or The Law of International Claims (The Banks Law Publishing Co 1925) s 390, 837; see also comments by Elihu Root (n 1) 25, namely that judges do ‘not afford to the foreigner the same degree of impartiality which is accorded to citizens of the country, or which is required by the common standard of justice obtaining throughout the civilized world’.

362

International investment law and history

from the fact that, as the late Thomas Wälde put it, ‘the courts of most developing countries are not seen to be independent from government or immune from political pressure and even corruption’.154 The manner in which ‘protection’ has been defined is founded on cultural difference, which both includes and excludes. This is similar to what Antony Anghie terms the ‘dynamic of difference’ in his historical work on ‘sovereignty’.155 This is the ‘endless process of creating a gap between two cultures, demarcating one as “universal” and “civilised” and the other as “particular” and “uncivilised”, and seeking to bridge that gap by developing techniques to normalise the aberrant society’.156 The branding of the ‘other’ as uncivilized and particular does not emerge from universals, but rather animates their formation. Language and meaning are not stable, but shift to define what is included and excluded. Aside from the paternalism that is inherent in the ‘dynamic of difference’, when it comes to protecting the investor, there is also an implicit double standard that is present. If the need for international investment law arises from the inadequacy of national legal systems to protect foreign investors, then surely it is equally true that those national legal systems are also inadequate in ensuring that foreign investments are acquired lawfully in the first place, for example without bribery. It is assumed that national law is capable of sanctioning corporate misconduct but incapable of providing adequate investor protection. Whilst the ‘protection’ of the investor has to some extent been universalized by the regime of international investment law, the obligations of the investor in international law, however, have not. Both ‘extraterritoriality’ and ‘diplomatic protection’, when exercised without limits, could become extremely oppressive. For example, extraterritoriality, which was supposed to punish criminals, became a means whereby some merchants were able to evade domestic law through the abuse of the protégé system. Meanwhile, diplomatic protection safeguarded exorbitant claims or was used as a cover for military intervention. Similarly, with international investment law, it is necessary to articulate limits to the law to ensure that it does not protect investments that may be internationally recognized to be illegal, harmful or hostile to the interests of the host state. I would argue, therefore, that what is 154

Thomas W Wälde, ‘The “Umbrella” Clause in Investment Arbitration: A Comment on Original Intentions and Recent Cases’ (2005) 6 The Journal of World Investment & Trade 183, 188–189. 155 Antony Anghie, Imperialism, Sovereignty and the Making of International Law (Cambridge University Press 2005) 4. 156 ibid.

An international minimum standard of investor conduct

363

required is not the introduction of ‘public law’ concepts that would give arbitrators greater power to balance competing interests, but a rebalancing of the law through the introduction of an explicit standard to sanction investor misconduct and defining the limits of investor protection.

IX. CENSURABLE CONDUCT: AN INTERNATIONAL MINIMUM STANDARD Just as Root argued that there is an international minimum standard for the behaviour of states, I argue that there is an international minimum standard of conduct for the foreign investor and that this standard might be used to reform international investment law.157 Our historical survey has shown that there existed, at least since the time of Vattel, the idea that an individual’s misconduct abroad could give rise to the responsibility of his or her state on the international plane. Similarly, the category of ‘censurable conduct’ from the early 20th century supports the existence of such a standard in that states did not pursue claims on behalf of their citizens when they had engaged in certain types of proscribed behaviour. These antecedents suggest the existence of an international minimum standard of investor behaviour even if historically such a standard was not directly applicable to the individual, but only to the state. There is already widespread consensus about what might constitute investor misconduct under such an international minimum standard. The prohibition by the East India Company of bribery by its own internal rules shows that corporate recognition of prohibited behaviour is hardly new, nor is the idea that corporations can have duties under the law of nations. Previous attempts to define such conduct during the era of the New International Economic Order were too aspirational in attempting to define in positive terms the commitments that developed nations or transnational corporations should undertake and therefore they have remained as ‘soft law’. Rather than setting out such a standard in positive terms, the focus should be on defining the minimum standard of conduct that the investor should not engage in and framed in negative/prohibitory language. Such an autonomous standard, providing that ‘investors shall not engage in censurable conduct’, should be incorporated into international investment law through the recognition of the standard by arbitral tribunals. This would cover gross investor misconduct detrimental to the 157

Root (n 1).

364

International investment law and history

public interest. While the content of such a standard could be left for arbitral tribunals to define, there are arguably already examples of misconduct that have reached the threshold of hard law, such as, but not limited to:158 (1) (2) (3) (4) (5) (6) … 158

bribery;159 causing environmental damage;160 violations of labour standards;161 political interference;162 actions seriously detrimental to public health;163 and depriving indigenous groups of their means of subsistence.164

The classic book in this area is Peter Muchlinski, Multinational Enterprises and the Law (Oxford University Press 2007); see also Jennifer Zerk, Multinational and Corporate Social Responsibility: Limitations and Opportunities (Cambridge University Press 2006). 159 The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (signed 18 December 1997, entered into force 15 February 1999) (1998) 37 ILM 1 requires parties to criminalize the offence of bribing foreign public officials in domestic law. Article 1 provides a definition of bribery. See also the UN Convention Against Corruption (adopted 31 October 2003, entered into force 14 December 2005) 2359 UNTS 41 generally and specifically art 15. 160 Union Carbide’s leak of 40 tons of poisonous gas from a fertilizer plant in Bhopal India in December 1984, which resulted in at least 3,000 deaths, 50,000 people being permanently disabled and 15,000 subsequent deaths, would be an illustration of such conduct. For a summary of the litigation, see accessed 15 October 2016. The case was subsequently settled in the Indian Supreme Court on 4 May 1989 for USD 470 million, although much of the compensation took years to distribute. See 1990 AIR 273, 1989 SCC (2) 540. 161 ILO, C155 Occupational Safety and Health Convention (No 155) (adopted 22 June 1981, entered into force 11 August 1983); ILO, CO29 Forced Labour Convention (No 29) (adopted 28 June 1930, entered into force 1 May 1932). 162 Examples of this include collusion to overthrow a government in a coup such as the ITT intervention in Chile (n 99) or plotting to assassinate a leader, such as the Canstatt Case in 1859, where a Uruguayan national was accused of conspiracy against the life of the President of Paraguay. See Carlos Calvo, Una Página de Derecho International, o la América del Sur ante la Ciencia del Derecho de Gentes Moderno (A Durand 1864) 153. 163 A historic example of this was the sale of imported opium. 164 Yakye Axa Indigenous Community v Paraguay, Merits, Reparations and Costs, Inter-American Court of Human Rights Series C No 125 (17 June 2005).

An international minimum standard of investor conduct

365

These actions are not only harmful to the public interest of capitalimporting nations, but are also detrimental to the long-term interests of capital-exporting nations, whose reputation is affected by the actions of their investors. Investor misconduct can evidently breach domestic law, but it can also breach international law: first, because such misconduct is prohibited in many domestic legal systems, it can be thought of as a general principle of law; second, because investor misconduct can in certain circumstances indirectly engage the responsibility of the home state at an international level; third, because such misconduct is contrary to international and transnational public policy.165 Where a foreign investor’s misconduct is so bad that it causes widespread harm to a large number of people, it is ripe for internationalization. I do not claim this to be an exhaustive remedy, but rather merely a minimum standard. There may be other kinds of investor behaviour that do not cross the threshold of ‘censurable’ conduct, but may still be contrary to the public interest of the host state. Whereas the doctrine of clean hands, as presently understood, is generally used as a defence by states when taken to arbitration,166 what is proposed here is an autonomous standard of ‘censurable conduct’ that would not act as a bar to jurisdiction or admissibility, but would instead be a cause of action in its own right. This is consistent with both the express language and context, and the object and purpose of the ICSID Convention, which was designed to allow states to initiate claims against investors. Such claims would be brought when the state perceives that an investor has done something wrong, including in instances of investor misconduct. Disputes involving serious investor misconduct are especially well suited for internationalization. The question remains to what extent the obligations of customary international law can be directly vested in the investor. The recent case of Al Warraq v Indonesia has interpreted the ‘legality clause’ as imposing a 165

International public policy encompasses erga omnes obligations, including the prohibition of aggression, genocide, slavery, and discrimination. See Barcelona Traction, Light and Power Company Ltd (Belgium v Spain) [1970] ICJ Rep 4, paras 33–34. On transnational public policy see Pierre Lalive, ‘Transnational (or Truly International) Public Policy and International Arbitration’ in Pieter Sanders (ed), Comparative Arbitration Practice and Public Policy in Arbitration (ICCA Congress Series No 3) (Springer 1986) 258, which gives by way of example: protection of cultural goods, sale and traffic of drugs, bribery and corruption, slavery and economic sanctions. 166 Jason Yackee, ‘Investment Treaties and Investor Corruption: An Emerging Defence for Host States?’ (2011) 52 Virginia Journal of International Law 723.

366

International investment law and history

direct treaty obligation on the investor in international law.167 The field of international criminal law imposes direct obligations on individuals in customary international law,168 whilst international humanitarian law imposes direct obligations on armed groups.169 The numerous BITs in existence are a recognition that individuals and corporations hold rights in the international sphere directly and so have a degree of international legal personality. There is therefore no theoretical obstacle for them to also have obligations in customary international law. If we accept that the rights of the protecting state have been vested directly in the investor, then it might well be argued that the obligations of the protecting state have been as well.170

167

Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organisation of the Islamic Conference (adopted 5 June 1981, entered into force 23 September 1986) art 9: ‘The investor shall be bound by the laws and regulations in force in the host state and shall refrain from all acts that may disturb public order or morals or that be prejudicial to the public interest. He is also to refrain from exercising restrictive practices and from trying to achieve gains through unlawful means.’ See Andrew Newcombe and JeanMichel Marcoux, ‘Hesham Talaat M Al-Warraq v Republic of Indonesia: Imposing International Obligations on Foreign Investors’ (2015) 30 ICSID Review 525, 531. 168 Rome Statute of the International Criminal Court (adopted 17 July 1998, entered into force 1 July 2002) (1998) 37 ILM 999. The crimes of genocide, crimes against humanity, war crimes and the crime of aggression, proscribed in art 5, are accepted as crimes in customary international law. 169 See generally Liesbeth Zegveld, Accountability of Armed Opposition Groups in International Law (Cambridge University Press 2002) 134; Nicaragua v US (Merits) [1986] ICJ Rep 14 para 119. 170 Many lawyers would dispute the idea that investors have international legal personality. Whilst an investor clearly does not have the same personality as a state, it can be argued that they nevertheless have a limited personality in international law.

Index Abs-Shawcross Draft Convention 15, 241–85, 300–301, 302, 307 arbitration between a private entity and a state 256–7, 268–9, 271–3, 278–9, 282 arbitration for inter-state and investor-state disputes 269, 271–3, 275–6 banking and oil industry involvement 249–50 and bilateral investment treaty (BIT) practice 242 content 252–8 Convention on Foreign Investments 267–8, 270, 271–2 definitions and provisions on Convention’s entry into force 258 dispute resolution mechanism 250–51, 255–6, 257–8, 261–3 exceptional measures 255 expropriation 270 fair and equitable treatment (FET) 253, 254 full protection and security 270 historical context of Sir Elihu Lauterpacht’s involvement 247–52 and International Bank for Reconstruction and Development (IBRD), Loan Regulations 257, 274–5 international investment treaty practice, influence on 242–3 and international law status 270, 279, 282, 283–4 investor protection standards 252–4

investor-state dispute settlement (ISDS) procedure origin 242, 259–60, 263–80, 281–2 Lauterpacht, Sir Elihu, role of 258–84, 342, 347 legal biography use 244–6 most favoured nation treatment 253, 255 non-derogation in times of emergency 271 OEEC Committee for Invisible Transactions 283 OEEC/OECD Draft Convention on the Protection of Foreign Property and Sir Elihu Lauterpacht involvement 280–84 private foreign investment legislation 247–52 protection against expropriation without compensation 253, 254–5 reparation obligations 270–71 requirement for additional consent 276–7 restoration of ICJ in dispute resolution machinery 275–6 settlement negotiations re Anglo-Iranian Oil Company case 260–63, 264, 265, 278, see also Anglo-Iranian Oil Company (UK v Iran) and Suez Canal nationalization 340–41 and umbrella clause 241–2, 254, 262–3, 265–6 Alabama Claims Commission 106, 112, 114–15, 119, 126–8 367

368

International investment law and history

aliens diplomatic protection of alien person and property 155–6, 158, 162 Harvard Draft Convention … on Economic Interests of Aliens 225 state responsibility for misconduct of aliens abroad 326–9 anachronism concerns 24–5, 26, 108–11, 142–3, 148 Anghie, A 26, 62, 82–3, 137, 145, 146, 147, 148, 151, 152, 362 Anglo-Iranian Oil Company (UK v Iran) 247, 251, 256–7 Anglo-Iranian Oil Company nationalization 340–41 settlement negotiations 260–63, 264, 265, 278 arbitral institution between investors and states, consideration of, international minimum standard of investor conduct 349–51 arbitral jurisprudence, evolution of 74 see also historiography of international investment arbitral reticence to reject an outcome that treaty language permits 215 see also contractual protection in international law and diplomatic protection arbitrariness and diplomatic protection 54–5, 56 arbitration between private entity and state 256–7, 268–9, 271–3, 278–9, 282 inter-state and investor-state disputes 66–7, 269, 271–3, 275–6 as story of imperial domination 94–6 see also dispute resolution archaeology of censurable conduct 325 see also international minimum standard of investor conduct archives

accessibility considerations 217 library research advantages 79 research benefits and primary sources 182–3, 185, 193–4 research methodology and history of contractual protection 216–18 see also origins research; primary sources; research Armitage, D 149 Asante, S 237 authorial intent, understanding 84–5, 88, 91–2, 98–100 see also historiography of international investment law banking and oil industry involvement, Abs-Shawcross Draft Convention 249–50 Banner, S 84, 86, 99, 100 Becker Lorca, A 5, 20, 26 Bederman, D 4, 22, 35, 112, 117, 124, 128, 129, 137, 145, 206, 210, 211–12 big bang comparison, international investment agreements’ origins 102–6 bilateral investment treaties (BITs) and Abs-Shawcross Draft Convention 242 history and international law, method and mechanism 144–5, 152–3, 156, 159–60, 161, 162–3 and International Centre for Settlement of Investment Disputes (ICSID) Convention creation 308–9 international claims commissions to investment treaty arbitration change 102–4, 121–2 international minimum standard of investor conduct see international minimum standard of investor conduct, bilateral investment treaties (BITs)

Index

narratives of history of international investment law 55, 61–2, 64, 65–6, 67 rise of 74–7 bilateral treaties of commerce and consular jurisdiction 334–5 Black, E 306 Borchard, E 150, 156, 158, 159, 208, 217, 220, 222, 336, 337, 338, 361 borrower states, rights of 352–3 and corresponding investor obligations, international minimum standard of investor conduct 343–9 see also international minimum standard of investor conduct Brandon, M 251, 277, 301, 304–5, 345 breach of contract, fair and equitable treatment (FET) clauses 230–34, 237–8 Bretton Woods negotiations 196–7, 292 bribery and East India Company 330–33, 363 see also East India Company; international minimum standard of investor conduct Broches, A 55, 56, 160, 290, 297, 299, 303–4, 305, 306–7, 308, 310, 311, 312, 313, 314, 315, 316, 317–18, 343, 350 Burke, E 331–2 Calvo Doctrine 12, 60–61, 159, 324, 364 capital-importing/capital-exporting country dichotomy of interests 63, 67–8 see also narratives of history of international investment law Carroll, L 50 Cavallar, G 138, 147–8, 161–2 censurable conduct archaeology of 325

369

diplomatic protection and customary international law 338–9 international minimum standard 363–6 as limitation on exercise of diplomatic protection 335–9 see also international minimum standard of investor conduct China, Kowloon incident 333–4 ‘clean hands’ doctrine and customary international law 355–6, 365–6 see also international minimum standard of investor conduct Cogan, J 204, 212 colonialism decolonization movement effects 61 and neoliberal capitalism 52–3, 57, 59–64 postcolonial critical theory and controversy 146–9, 162 and practices of ‘informal empire’ 138 see also imperialism commerce commercial enterprise and public power separation 329–35 commercial stability solutions focus 63–4 see also trade common law and judicial authority 82 and past exercising normative authority over present 110 compensation, protection against expropriation without compensation, Abs-Shawcross Draft Convention 253, 254–5 consent, requirement for additional, Abs-Shawcross Draft Convention 276–7 consultative procedure, International Centre for Settlement of Investment Disputes (ICSID) 310–13 contemporary knowledge in historical work, and fair and equitable treatment (FET) 204–11

370

International investment law and history

see also modernity contemporary law, sanctioning of investor misconduct in 354–8 contextualism concerns 140–41, 142, 148–9 see also history and international law, method and mechanism; language contractual protection in international law and diplomatic protection 213–40 arbitral reticence to reject an outcome that treaty language permits 215 archive accessibility considerations 217 contract claims and treaty claims, distinction between 229, 232–4 contractual non-payment breaches and type of diplomatic support 222–4, 233 contractual protection of aliens 225 diplomatic correspondence content 218–24 diplomatic correspondence tone 219–21 diplomatic protection to treaty protection shift 214–15 fair and equitable treatment (FET) clauses and breach of contract 230–34, 237–8 history of contractual protection 216–24 history of contractual protection, archival research methodology 216–18 history and modernity, identity between 224–34 investor-state contract protection and significance of history 238–9 pacta sunt servanda principle and contractual obligations 234–6 replacement of proper law of contract 236–7 research time effectiveness considerations 217–18 umbrella clauses 226–30, 237–8

Convention on Foreign Investments 267–8, 270, 271–2 Convention on the Recognition and Enforcement of Foreign Arbitral Awards 248 Cromer, Lord 332 cultural differences, effects of 360, 361, 362–3 see also international minimum standard of investor conduct customary law censurable conduct as limitation on exercise of diplomatic protection 338–9 and ‘clean hands’ doctrine 355–6, 365–6 norms and legal theory 171, 173–4 damages, investor conduct when quantifying 356–7 Darwin, C 107, 132 decolonization movement effects 61 see also colonialism depoliticization aim, International Centre for Settlement of Investment Disputes (ICSID) 290–91 Diggelman, O 26, 104, 107, 184, 185 diplomatic protection alien person and property 155–6, 158, 162 and arbitrariness law 54–5, 56 contractual see contractual protection in international law and diplomatic protection restrictions, bilateral investment treaties (BITs) 353–4 dispute resolution arbitration for inter-state and investor-state disputes, Abs-Shawcross Draft Convention 269, 271–3, 275–6 dispute origin, international claims commissions 111–13, 118 ICSID see International Centre for Settlement of Investment Disputes (ICSID)

Index

investor-state dispute settlement (ISDS) 52, 54–8, 62–5 investor-state dispute settlement (ISDS) procedure origin, Abs-Shawcross Draft Convention 242, 259–60, 263–80, 281–2 mechanism, Abs-Shawcross Draft Convention 250–51, 255–6, 257–8, 261–3 political nature of disputes 56–7 restoration of ICJ in dispute resolution machinery 275–6 see also arbitration Drago doctrine 299, 339 Dupuy, R-J 21 East India Company 60, 153–4, 156 bribery 330–33, 363 economic development and rule of law enhancement 54–9 economic liberalism 52–3 economic self-determination and political sovereignty 342 emergency, non-derogation in times of, Abs-Shawcross Draft Convention 271 Energy Charter Treaty (ECT) 356–7 epistemic communities and epistemic forces 46–8, 56, 57–8 EU, extra-EU BITs consideration 67 European Court of Human Rights (ECtHR) Ališic´ v Bosnia and Herzegovina 47 Mykhaylenky v Ukraine 47 Radio France v France 47 European trading and investment activities, global expansion 16 evidence conclusions lacking evidentiary support, fair and equitable treatment (FET) 210–11 factual evidence and legal arguments, understanding, Suez Canal Company v Egypt 92

371

historical facts as evidence for legal ends, fair and equitable treatment (FET) 206–7 evolutionary theory problems 107–11, 132–5 expropriation, Abs-Shawcross Draft Convention 270 protection against, without compensation 253, 254–5 extraterritoriality regime, UK 333–5, 361–3 fair and equitable treatment (FET) Abs-Shawcross Draft Convention 253, 254 clauses and breach of contract 230–34, 237–8 standards 9, 13, 67 fair and equitable treatment (FET) definition and challenges to historical research 179–212 archival research benefits and primary sources 182–3, 185, 193–4 conclusions lacking evidentiary support 210–11 contemporary knowledge in historical work 204–11 descriptive historical narrative, need for 193, 194 ‘grossly unjust’ treatment and FET, relationship between 208–9 historical facts as evidence for legal ends 206–7 indirect protectionism 188–9 international trade context 186–90 minimum standard of treatment (MST) of aliens and FET, relationship between 208–11 periodization problem (timeframe of research) 184–92 research plan, need for 194 strategy for defining FET 205–7 subject matter search 192–204 US economic nationalism and collectivism concerns 200–201

372

International investment law and history

US foreign investment and economic development, relationship between 195–202 US ‘Point Four’ programme 198–9, 201–2 US private foreign investment promotion 202–4 US use and development of FET 180–82, 185–6, 189, 190–92 and WTO GATT ‘non-violation nullification or impairment complaint’ (NVNI), connection between 189–92 Fasolt, C 109 Fassbender, B 5, 18, 26, 36, 71, 74, 108, 194, 244, 287, 294, 296 Fish, S 44, 45, 46 Fitzmaurice, A 146, 148, 149, 154, 155, 163 Foreign Arbitral Awards, Convention on the Recognition and Enforcement of 248 Foreign Investments Convention 267–8, 270, 271–2 Foucault, M 49, 325, 326 France contractual protection see under contractual protection in international law and diplomatic protection Réclamation Decauville 222–3 Réclamation Sabatier 221 French-German Mixed Arbitral Tribunal, Sigwald Charles v Germany (France v Germany) 114 friendship, commerce and navigation (FCN) treaties 144–5, 150, 156, 157–8, 160, 162 Gadamer, H-G 45, 49 Gathii, J 83, 137–8, 145, 146 genealogical approach, international minimum standard of investor conduct 325–6 Grewe, W 18, 19, 136–7, 195, 200 Grigg, S 78

‘grossly unjust’ treatment and fair and equitable treatment (FET), relationship between 208–9 Grotius, H 138, 147, 148, 150, 151, 152–3, 158, 160, 162, 327, 334 ‘gunboat diplomacy’ 60–61, 336–7 Guzman, A 74–5 Hague Peace Conferences 115, 299 Harvard Draft Convention … on Economic Interests of Aliens 225 Heilperin, M 200, 203–4 Helleiner, E 196, 197, 201, 292 historical continuities, international minimum standard of investor conduct 361–3 historical research challenges, and fair and equitable treatment see fair and equitable treatment (FET) definition and challenges to historical research historiography, legal theory and challenges of history in international investment law 164–5, 166–7, 171–2 historiography of international investment law 70–101 authorial intent, understanding 84–5, 88, 91–2, 98–100 bilateral investment treaties (BITs), rise of 74–7 evolution of arbitral jurisprudence 74 future research 76–7 investor-state arbitration and order and continuity 72–3, 75–7 library research advantages 79 medieval rule of private reprisals 74 origins research 81–5, 87–9 origins research, criticism of 83–5 primary sources, use of 78–80 recent scholarship 71–7 recognizing aims of history 80–86 recognizing history as method 78–80, 86–7 scholarship improvement suggestions 77–89

Index

state contracts and pacta sunt servanda and prisoner’s dilemma 75–7 theoretical examinations 74 historiography of international investment law, Suez Canal Company v Egypt 89–100, 306 arbitration as story of imperial domination 94–6 authorial intent, understanding 91–2, 98–100 case identification and primary sources 90–92 factual evidence and legal arguments, understanding 92 historical narrative and background 92–4 investor-state arbitration similarities 99–100 legal principles, contestation and application 95–6 and origins research 96–7 and presentness of the past 99–100 secondary sources 91 history, investor-state contract protection and significance of history, contractual protection in international law and diplomatic protection 238–9 history aims, recognizing aims of history, historiography of international investment law 80–86 history challenges, and legal theory see legal theory and challenges of history in international investment law history of international investment law 3–27 actors and institutions, role of 14–15 anachronism concerns 24–5, 26 fair and equitable treatment (FET) standard 9, 13 and global expansion of European trading and investment activities 16 historical arguments, use of 4

373

history of events 18–19 human rights and denial of justice 12–13 instrument of critique, historical scholarship as 25–6 investor-state dispute settlement 7–11 and legal scholarship 4–6, 20–21, 111–16 objects and trajectories of historical inquiries 17–19 primary sources’ role 21–3 protagonists’ role 19–20 reflective uses of history 23–7 states’ role in evolution of investment law and policy 15 status quo 6–16 substantive standards of treaties, interpretation of 8–10, 13–14 history and international law, method and mechanism 136–63 anachronism concerns 142–3, 148 bilateral investment treaties (BITs) 144–5, 152–3, 156, 159–60, 161, 162–3 colonialism and practices of ‘informal empire’ 138 contextualism concerns 140–41, 142, 148–9 diplomatic protection of alien person and property 155–6, 158, 162 friendship, commerce and navigation (FCN) treaties 144–5, 150, 156, 157–8, 160, 162 Grotius’s theories 138, 147, 148, 150, 151, 152–3, 158, 160, 162, 327, 334 histories of international law 139–43 imperialism and international law 143–9, 161–3 international lawyers, criticism of 140–41, 142, 149 investment law 143–6 legal training, significance of 140–41

374

International investment law and history

postcolonial critical theory and controversy 146–9, 162 private rights and commerce 150–60, 162–3 researchers’ choices and discontinuities, effects of 141–2 Third World Approaches to International Law (TWAIL) mode of critique 137–8 trading companies, treaties and doctrine 156–60 ‘turn to history’ controversy 5, 6, 71, 137, 139 Vattel’s theories 54, 138, 148, 150, 151, 154–6, 158, 162, 322, 326–9, 333, 363 Vitoria’s theories 138, 143, 148, 150, 151, 152–3, 158, 162 history and modernity, identity between 224–34 Hudec, R 189, 191 human rights and denial of justice 12–13 incorporation into international investment law 360, 366 and state responsibility 58–9, 62–3 ideological convictions, concerns over 166–7 Iliff, W 305, 306 imperialism arbitration as story of imperial domination, historiography of international investment law, Suez Canal Company v Egypt 94–6 exploitation and imperialism, narratives of history of international investment law 62 and international law, history and international law, method and mechanism 143–9, 161–3 and post-colonial origins, effects of, legal theory and challenges of history in international investment law 168

see also colonialism India, Union Carbide 364 indirect protectionism, fair and equitable treatment (FET) 188–9 individuals having standing to bring claims against states, principle of 301, 307 status and role 113–14, 119, 132–3 Institute for Transnational Arbitration 7 Inter-American Court of Human Rights, Yakye Axa Indigenous Community v Paraguay 364 inter-state arbitration 66–7 Abs-Shawcross Draft Convention 269, 271–3, 275–6 International Bank for Reconstruction and Development (IBRD) Loan Regulations 257, 274–5 MTD Equity v Chile 356 International Centre for Settlement of Investment Disputes (ICSID) 14–15, 55, 61–2, 67, 144, 159–60, 278, 349–51, 359 AAPL v Sri Lanka 8, 103, 118, 351 Abaclat v Argentina 57, 64, 116, 120, 353 Adel A Hamadi Al Tamimi v Sultanate of Oman 10 Al Warraq v Indonesia 365–6 AMT v Zaire 118 Asian Agricultural Products Ltd v Republic of Sri Lanka 103 BIVAC v Paraguay 227, 232, 233 Biwater v Tanzania 10, 233 Charanne BV and Construction Investments SARL v Kingdom of Spain 66 CMS Gas Transmission Company v Argentina 228–9 Compañiá de Aguas del Aconquija and Vivendi Universal v Argentine Republic 10–11, 229 Corn Products International v Mexico 56 decision-makers, composition of 129–31

Index

Deutsche Bank v Sri Lanka 231 Duke Energy v Ecuador 227 El Paso Energy v Argentina 229 Electrabel v Hungary 64 Fraport Frankfurt Airport Services Worldwide v Philippines 357 Impregilo v Pakistan 228 Inceysa Vallisoletana v El Salvador 355 investor-state disputes registered at and resolved 72, 73 Lemire v Ukraine 10 Metal-Tech v Uzbekistan 355, 357 Niko Resources v Bangladesh 355–6 Noble Ventures v Romania 227, 230 Ol European Group v Venezuela 10 Pan American Energy & BP Argentina v Argentina 229 Phoenix Action v The Czech Republic 355 Plama Consortium v Bulgaria 355 Poštová banka and ISTROKAPITAL v Hellenic republic 57, 64 RREEF Infrastructure v Kingdom of Spain 66 Sempra Energy v Argentina 229 SGS v Pakistan 226, 227–8 SGS v Paraguay 227 SGS v Philippines 11, 229, 232–3, 352 Soufraki v United Arab Emirates 10 Swisslion DOO Skopje v The Former Yugoslav Republic of Macedonia 10 Vattenfall v Federal Republic of Germany 66 Veolia Propreté v Arab Republic of Egypt 90 Waste Management v Mexico 209, 231 World Duty Free Company v Kenya 356 International Centre for Settlement of Investment Disputes (ICSID) Convention creation 286–320

375

and bilateral investment treaties (BITs) 308–9 consultative procedure 310–13 depoliticization aim 290–91 and dispute resolution separation from substantive law 304–5 Drafting Committee 314–17 drafting procedure and implications 310–18 individuals having standing to bring claims against states, principle of 301, 307 investment insurance policy 306–7 investor-state arbitration idea 288, 292–3 investor-state arbitration, previous post-war proposals 299–305 legal concept analysis considerations 296 legal training of experts-designate 311–12 methodological choices 293–8 political context of drafting 298–310 political history, promise of study of 290–93 primary document use 295–7 primary document use, aligning with theoretical preconceptions 297–8 research question, defining, and doctrinal analysis 293–5 World Bank involvement 295–6, 303–4, 305–7, 310–18 World Bank involvement, ‘double-consent requirement’ 308–9 World Bank involvement, initial proposals 308–10 see also dispute resolution International Chamber of Commerce (ICC) 300 international claims commissions to investment treaty arbitration 102–35 anachronism risk 108–11

376

International investment law and history

and bilateral investment treaties (BITs) 102–4, 121–2 common law and past exercising normative authority over present 110 comparative analysis 118–22 comparative analysis, claims processing, quantity and method 120–21 comparative analysis, dispute origin 111–13, 118 comparative analysis, goal of peace 114–15, 119–20, 133 comparative analysis, role of individual 119, 132–3 evolutionary theory problems 107–11, 132–5 international investment agreements, origins and big bang comparison 102–6 investment treaty arbitration as ‘new development in international law’ 104–5 judicialization of international arbitration, concerns over 133–4 methodological problems of narrative of progress 106–11 mixed arbitral tribunals and claims commissions 112–14 private-public arbitration 134 progress narrative 107–8 source authenticity, importance of 110–11 international claims commissions to investment treaty arbitration, decision-makers, composition of 122–32, 133 Alabama Claims Commission 106, 112, 114–15, 119, 126–8 evolution to investment treaty arbitration 129–31 Jay Treaty Commissions 123–6 Jay Treaty Commissions, Betsey case 125–6 party-appointed arbitrators 130–31 umpire approach 128–9

international claims commissions to investment treaty arbitration, international claims commissions claims processing 115–17 decision-makers, composition of 116–17 and goal of peace 114–15 mass claims commissions 115–16 and origins of dispute 111–13 and status of individual 113–14 International Council for Commercial Arbitration (ICCA) 7 International Court of Justice (ICJ) Anglo-Iranian Oil Company see Anglo-Iranian Oil Company (UK v Iran) Barcelona Traction, Light and Power Company (Belgium v Spain) 193, 259, 365 Continental Shelf 259 Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v United States of America) 174 Nicaragua v US 366 North Sea Continental Shelf 259 Norwegian Loans Case (France v Norway) 235 Nottebohm 259 Nuclear Tests 259 restoration of ICJ in dispute resolution machinery, Abs-Shawcross Draft Convention 275–6 Texaco/California Asiatic Oil v Libya 236 international investment agreements, origins and big bang comparison 102–6 international investment treaty practice, influence on, Abs-Shawcross Draft Convention 242–3 International Labour Organization (ILO), Tripartite Declaration Concerning Multinational Enterprises and Social Policy 348–9

Index

International Law Commission (ILC) 13 Responsibility of States for Internationally Wrongful Acts 47 international lawyers, criticism of 140–41, 142, 149 international minimum standard of investor conduct 321–66 arbitral institution between investors and states, consideration of 349–51 archaeology of censurable conduct 325 bilateral treaties of commerce and consular jurisdiction 334–5 bribery and East India Company 330–33, 363 censurable conduct as limitation on exercise of diplomatic protection 335–9 censurable conduct as limitation on exercise of diplomatic protection, and customary international law 338–9 ‘clean hands’ doctrine and customary international law 355–6, 365–6 commercial enterprise and public power separation 329–35 cultural differences, effects of 360, 361, 362–3 Drago doctrine 299, 339 extraterritoriality regime, UK (consular jurisdiction) 333–5, 361–3 genealogical approach 325–6 ‘gunboat diplomacy’ 336–7 historical continuities 361–3 human rights incorporation into international investment law 360, 366 International Labour Organization (ILO), Tripartite Declaration Concerning Multinational Enterprises and Social Policy 348–9

377

international minimum standard for censurable conduct 363–6 investor conduct when quantifying damages 356–7 Kowloon incident 333–4 language censuring the investor for misconduct, absence of 322–3 legal history task 324–5 lenders’ institution consideration 349–50 and New International Economic Order 324, 363 Nyerere doctrine 341–2 OECD Declaration on International Investment and Multinational Enterprises 348 OECD, Draft Convention on the Protection of Foreign Property 342–3 OECD Draft Protocol on Counter-Assurances proposal 346–7 political sovereignty and economic self-determination 342 proportionality analysis and public law 360 public interest reintegration 359–61, 362–5 rights of ‘borrower’ states 352–3 rights of borrowing states and corresponding investor obligations 343–9 state responsibility for misconduct of aliens abroad 326–9 transnational corporations, regulation issues and UN Centre on Transnational Corporations 347–8 UK, Parliamentary Group for World Government Report 344–5, 349 UN Investment Charter suggestion 345–6 international minimum standard of investor conduct, bilateral investment treaties (BITs) 351–4, 358, 359 diplomatic protection restrictions 353–4

378

International investment law and history

first generation 353–4 sanctioning of investor misconduct in contemporary international investment law 354–8 international minimum standard of investor conduct, investor obligations in international investment law 339–58 confidentiality issues 358 inadequacies 357–8 problematization of protecting investor from decolonized state 340–43 international trade context, fair and equitable treatment (FET) 186–90 investment insurance policy, International Centre for Settlement of Investment Disputes (ICSID) 306–7 investment treaty arbitration, from international claims commissions see international claims commissions to investment treaty arbitration investor conduct, minimum standard see international minimum standard of investor conduct investor protection standards, Abs-Shawcross Draft Convention 252–4 investor-state arbitration Abs-Shawcross Draft Convention 269, 271–3, 275–6 International Centre for Settlement of Investment Disputes (ICSID) 288, 292–3 International Centre for Settlement of Investment Disputes (ICSID), previous post-war proposals 299–305 and order and continuity 72–3, 75–7 Suez Canal Company v Egypt similarities 99–100 investor-state contract protection and significance of history, contractual protection in

international law and diplomatic protection 238–9 investor-state dispute settlement (ISDS) history of international investment law 7–11 and narratives of history of international investment law 52, 54–8, 62–5 procedure origin, Abs-Shawcross Draft Convention 242, 259–60, 263–80, 281–2 investor-state disputes registered and resolved, International Centre for Settlement of Investment Disputes (ICSID) 72, 73 ius dispositivum history 174–6 see also legal theory and challenges of history in international investment law Jay Treaty Commissions 123–6 judicial authority, and common law 82 judicialization of international arbitration, concerns over 133–4 Kelsen, H 169–70 Kemmerer, A 137, 139 Kennedy, D 50–51, 137, 207 Koinzer, H 308–9 Kopper, H 307 Koskenniemi, M 4, 5, 19, 20, 25, 36, 44, 49, 50, 52, 62, 87, 137, 141, 142, 143, 146, 147, 148, 150, 151, 152, 154, 155, 167, 185, 193, 194, 204, 206, 207, 211, 266, 293, 294, 324 Kowloon incident 333–4 Kulick, A 28, 41–69, 357 La Fontaine, H 90–91 language arbitral reticence to reject an outcome that treaty language permits 215 censuring the investor for misconduct, absence of 322–3

Index

and interpretation 43–5, 49–51 see also contextualism concerns Latin America, Calvo Doctrine 12, 60–61, 159, 324, 364 Lauterpacht, E see under Abs-Shawcross Draft Convention Lauterpacht, H 56, 57, 116, 123, 124, 127, 129, 173, 276, 279, 353 legal biography use, Abs-Shawcross Draft Convention 244–6 legal concept analysis considerations, International Centre for Settlement of Investment Disputes (ICSID) 296 legal ends, historical facts as evidence for 206–7 legal historiography, legal theory and challenges of history in international investment law 164–5, 166–7, 171–2 legal history task, international minimum standard of investor conduct 324–5 legal principles, contestation and application, Suez Canal Company v Egypt 95–6 legal scholarship, and history of international investment law 4–6, 20–21, 111–16 legal theory and challenges of history in international investment law 164–76 customary international law norms 171, 173–4 dangers inherent in 166–70 and grounding of arguments 165 historical contingency and fragmentation 167–8 ideological convictions, concerns over 166–7 imperialism and post-colonial origins, effects of 168 and ius cogens 175 ius dispositivum history 174–6 legal historiography 164–5, 166–7, 171–2 legal-scholarly ideas, use of history of 171–2

379

meta-theory and empirical studies 169–70 and private law 173–4 progress narrative concerns 166–7 treaty-making 173–4 utilization of history 171–6 validity-relationships and empowerment norms 168–9 legal training experts-designate, International Centre for Settlement of Investment Disputes (ICSID) 311–12 significance of 140–41 lenders’ institution consideration, international minimum standard of investor conduct 349–50 Lesaffer, R 4, 19, 24, 83–4, 87, 97, 109, 110, 140–41, 166–7, 172, 173, 182, 204, 205, 212 library research advantages 79 see also archives Lipson, C 61, 136, 145, 159, 196–7, 199, 201, 324 Lowenfeld, A 56, 61, 324 Mann, FA 213, 219, 235–6, 352 Mazower, M 291–2 medieval rule of private reprisals 74 see also historiography of international investment law methodological problems of narrative of progress 106–11 Metzger, S 277–8 Miles, K 15–16, 30, 60, 61, 62, 77, 80, 81, 82–3, 101, 103, 136–63, 167–8, 185–6, 215, 287, 295, 299, 324 Mills, A 47–8 minimum standard of investor conduct see international minimum standard of investor conduct mixed arbitral tribunals and claims commissions 112–14 French-German Mixed Arbitral Tribunal, Sigwald Charles v Germany (France v Germany) 114

380

International investment law and history

modernity history and modernity, identity between 224–34 see also ‘contemporary’ headings Montt, S 11, 58, 104 Moorthi, K 309 most favoured nation treatment, Abs-Shawcross Draft Convention 253, 255 multinational corporations 52, 60, 62 narrative descriptive historical narrative, need for 193, 194 progress narrative concerns 107–8, 166–7 narratives of history of international investment law 41–69 arbitrariness and diplomatic protection 54–5, 56 bilateral investment treaties (BITs) 55, 61–2, 64, 65–6, 67 capital-importing/capital-exporting country dichotomy of interests 63, 67–8 commercial stability solutions focus 63–4 construction of narratives 43–6 decolonization movement effects 61 economic development and rule of law enhancement 54–9 and economic liberalism 52–3 epistemic communities and epistemic forces 46–8, 56, 57–8 exploitation and imperialism 62 fair and equitable treatment standards 67 future debates 65–9 ‘gunboat diplomacy’ 60–61, 336–7 historical events as construction 45–6 human rights and state responsibility 58–9, 62–3 inter-state arbitrations 66–7 and investor-state dispute settlement 52, 54–8, 62–5

lack of historical context, effects of 53–4 language and interpretation 43–5, 49–51 meaning as social construct 44–5, 49–51 multinational corporations 52, 60, 62 narrative, story-line and non-narrative progression 51–4, 57, 58, 59 neoliberal capitalism and colonialism 52–3, 57, 59–64 New International Economic Order (NIEO) declaration 61 objectivity and authority projection 48–51, 57 political nature of disputes 56–7 rich and powerful, claims of bias towards 59–64 Nasser, G 340 Nelson, W 82, 85, 87 neoliberal capitalism and colonialism 52–3, 57, 59–64 see also colonialism New International Economic Order (NIEO) 61, 324, 363 Nietzsche, F 50 non-derogation in times of emergency, Abs-Shawcross Draft Convention 271 non-payment, contractual non-payment breaches and type of diplomatic support 222–4, 233 North American Free Trade Agreement (NAFTA) 9–10 Nussbaum, A 18, 136, 173 Nyerere doctrine 341–2 O’Connell, M 114, 115 OECD 242–3, 301–4, 305 Declaration on International Investment and Multinational Enterprises 348 Draft Convention on the Protection of Foreign Property 280–84, 342–3

Index

Draft Convention on the Protection of Private Foreign Investment 224 Draft Protocol on Counter-Assurances proposal 346–7 OEEC Committee for Invisible Transactions, Abs-Shawcross Draft Convention 283 oil industry and banking industry involvement, Abs-Shawcross Draft Convention 249–50 Oppenheim, L 171–2, 174, 336 Orford, A 25, 86, 110, 142, 143, 149, 193, 205, 206–7, 210, 211 origins research 81–5, 87–9, 96–7 see also archives; primary sources; research pacta sunt servanda principle 75–7, 234–6 Pahuja, S 137, 146, 147 Paparinskis, M 13, 24, 48, 56, 57, 58, 59, 183, 185, 207, 209, 291 Parra, A 14–15, 249, 287, 290, 295, 304, 306, 308, 311, 314, 324 Paulsson, J 7, 12–13, 24, 53, 74, 80, 81, 82, 83, 84, 101, 104, 107, 131, 183, 351 Payk, M 26, 137, 139, 140 peace goal 114–15, 119–20, 133 see also international claims commissions to investment treaty arbitration periodization problem (timeframe of research) 184–92 Permanent Court of Arbitration (PCA) 115, 299 Ecuador v United States 66–7 Hulley Enterprises (Cyprus) v Russian Federation 57 Mesa Power Group v Government of Canada 66 Philip Morris v Commonwealth of Australia 57, 66 Veteran Petroleum (Cyprus) v Russian Federation 57

381

Yukos Universal (Isle of Man) v Russian Federation 57, 355–7 Permanent Court of International Justice (PCIJ) Chorzów Factory (Germany v Poland) 247, 270–71 Mavrommatis Palestine Concessions Case (Greece v United Kingdom) 219 Peters, A 5, 18, 26, 36, 71, 74, 108, 194, 244, 287, 294, 296, 297 Pittard, E 336–7 political context of drafting, International Centre for Settlement of Investment Disputes (ICSID) 298–310 political corruption concerns 332–3 political history, promise of study of 290–93 political nature of disputes 56–7 postcolonial critical theory and controversy 146–9, 162 see also colonialism presentness of the past, Suez Canal Company v Egypt 99–100 primary sources archival research benefits and 182–3, 185, 193–4 case identification and 90–92 International Centre for Settlement of Investment Disputes (ICSID) Convention creation 295–7 role 21–3 source authenticity, importance of 110–11 use, historiography of international investment law 78–80 see also archives; origins research; research private entity and state, arbitration between, Abs-Shawcross Draft Convention 256–7, 268–9, 271–3, 278–9, 282 private foreign investment legislation, Abs-Shawcross Draft Convention 247–52 private law, and legal scholarship 173–4

382

International investment law and history

private reprisals, medieval rule of 74 private rights and commerce 150–60, 162–3 private-public arbitration 134 progress narrative concerns 107–8, 166–7 proportionality analysis and public law 360 protectionism Abs-Shawcross Draft Convention 252–5, 270 indirect, and fair and equitable treatment (FET) 188–9 public interest reintegration 359–61, 362–5 see also international minimum standard of investor conduct public law and proportionality analysis 360 public power, commercial enterprise and public power separation 329–35 Rajagopal, B 146 Rawls, J 49 reflective uses of history 23–7 Reid, J 206, 210, 211–12 reparation obligations, Abs-Shawcross Draft Convention 270–71 replacement of proper law of contract 236–7 see also contractual protection in international law and diplomatic protection Reports of International Arbitral Awards (RIAA) Neer (US v Mexico) award 8–9, 10, 208 Norwegian Shipowners’ Claims (Norway v USA) 61 Trail Smelter Arbitration (US v Canada) 328 research choices and discontinuities, effects of 141–2 library research advantages 79 origins research 81–5, 87–9, 96–7

periodization problem (timeframe of research) 184–92 plan, need for 194 question, defining, and doctrinal analysis 293–5 time effectiveness considerations 217–18 see also archives; origins research; primary sources rich and powerful, claims of bias towards 59–64 see also narratives of history of international investment law Roberts, A 47, 48, 53, 104 Root, E 321, 361, 363 Rubin, E 89 sanctioning of investor misconduct in contemporary international investment law 354–8 Schill, S 3–37, 47, 48, 55, 58, 107, 120, 226, 231, 243, 249, 254, 323, 355, 359, 360 Schreuer, C 3, 21, 56, 58, 59, 103, 118, 166, 179, 209, 225–6, 231, 291, 292, 324 Schwarzenberger, G 125, 186–7, 277, 288, 301, 342 Schwebel, S 183, 236, 351 Seidl-Hohenveldern, I 225, 277 Shapcott, R 45 Shawcross, H see Abs-Shawcross Draft Convention Shihata, I 56, 107, 290 Sinclair, A 241–2, 263, 265–6 Skinner, Q 24, 84–5, 108–9, 140, 148–9 Skouteris, T 26, 71–2, 74, 141 Smith, A 331 social construct, meaning as 44–5, 49–51 Sornarajah, M 52, 60, 62, 64, 103, 136, 156, 159, 171, 234, 237, 238, 323, 353 sources, primary see primary sources state contracts and pacta sunt servanda 75–7

Index

state responsibility and human rights 58–9, 62–3 see also human rights state responsibility for misconduct of aliens abroad 326–9 see also international minimum standard of investor conduct substantive law, dispute resolution separation from 304–5 substantive standards of treaties, interpretation of 8–10, 13–14 Suez Canal Company v Egypt see historiography of international investment law, Suez Canal Company v Egypt Suez Canal nationalization, and Abs-Shawcross Draft Convention 340–41 Sullivan, C 182, 209 Third World Approaches to International Law (TWAIL) 16, 137–8 Thorp, W 198, 199, 200 timeframe of research 184–92 see also research Trachtenberg, M 21, 80, 194, 298 trade commercial enterprise and public power separation 329–35 commercial stability solutions focus 63–4 fair and equitable treatment (FET) and international trade context 186–90 trading companies, treaties and doctrine 156–60 UNCITRAL see UNCITRAL Trans-Pacific Partnership (TPP) 76, 77 Transatlantic Trade and Investment Partnership Agreement (TTIP) 66, 76, 77 transnational corporations, regulation issues 347–8 treaty claims, contract claims and treaty claims, distinction between 229, 232–4

383

treaty protection, diplomatic protection to treaty protection shift 214–15 ‘turn to history’ controversy 5, 6, 71, 137, 139 UK Alabama Claims Commission 106, 112, 114–15, 119, 126–8 Britain (Finlay) v Greece 151, 159 Claims of Mr Pacifico upon the Portuguese Government (Great Britain v Greece) 151 contractual protection see under contractual protection in international law and diplomatic protection East India Act 332 extraterritoriality regime 333–5, 361–3 Jay Treaty Commissions 123–6 Model Investment Promotion and Protection Agreement (IPPA) 351–2 Parliamentary Group for World Government Report 344–5, 349 Regulating Act 331–2 Sicilian Sulphur Monopoly Case, Britain v The Kingdom of the Two Sicilies 151, 159 Tyler against the Government of Austria/United States 223 umbrella clauses 226–30, 237–8, 241–2, 254, 262–3, 265–6 UN Centre on Transnational Corporations 347–8 UN Investment Charter suggestion 345–6 UNCITRAL 248 Bilcon of Delaware v Canada 9 CME v Czech Republic 55 decision-makers, composition of 130 Glamis Gold v United States 9–10 Merrill & Ring Forestry v Canada 9 Mesa Power Group v Canada 9

384

International investment law and history

Methanex Corporation v United States of America 10 Oxus Gold v The Republic of Uzbekistan 226, 227 Paushok v Mongolia 64 US Alabama Claims Commission 106, 112, 114–15, 119, 126–8 censurable conduct and diplomatic protection 336–8 contractual protection see under contractual protection in international law and diplomatic protection diplomatic protection history 335–6 economic nationalism and collectivism concerns 200–201 fair and equitable treatment (FET) 180–82, 185–6, 189, 190–92, 195–204, 208–11 foreign investment and economic development, relationship between 195–202 friendship, commerce and navigation (FCN) treaty programme 15 ‘gunboat diplomacy’ 336–7 Jay Treaty Commissions 123–6 La Abra Silver Mining Co v United States 337–8 La Constancia 336 Lawrence 338 minimum standard of treatment (MST) of aliens 208–11 ‘Point Four’ programme 198–9, 201–2 private foreign investment promotion 202–4 Ross v McIntyre 361 Young v United States 338 validity-relationships and empowerment norms 168–9 see also legal theory and challenges of history in international investment law

Van Harten, G 62, 103, 104–5, 323 Vanderzee, L 114 Vandevelde, K 3, 11, 15, 55, 58, 59, 136, 156, 180, 195, 196, 287, 295, 299 Vattel, E de 54, 138, 148, 150, 151, 154–6, 158, 162, 322, 326–9, 333, 363 Venezuela Mixed Claims Commissions 128 Vienna Convention on the Law of Treaties (VCLT) 8, 43–4, 215, 230, 235 Vitoria, F de 138, 143, 148, 150, 151, 152–3, 158, 162 von Bernstorff, J 20, 139 von Savigny, F 174 Wälde, T 21–2, 362 Walker, H 186, 191, 203 Webber, J 193, 212 Weiler, T 13–14, 24, 73, 80, 183, 185, 207, 209, 324 White, H 43 Wilson, R 182, 191 Windscheid, B 174 Woods, G 303, 314, 315 World Bank and Bretton Woods negotiations 196–7, 292 and investor-state arbitration 289 World Bank involvement, International Centre for Settlement of Investment Disputes (ICSID) Convention creation 295–6, 303–4, 305–7, 310–18 ‘double-consent requirement’ 308–9 initial proposals 308–10 World Trade Organization (WTO), GATT ‘non-violation nullification or impairment complaint’ (NVNI) 189–92 Yackee, J 12, 22, 29, 35, 70–101, 293, 365