Jurisdiction, legitimacy & international investment

Following on the heels of Bolivia and Ecuador, Venezuela denounced ICSID, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, in late January. Venezuelan President Hugo Chávez characterized the withdrawal as a refusal to

'bow down to imperialism and its tentacles.'

Meanwhile, Venezuela issued a press release arguing that ICSID tribunals were biased in favor of investors, having decided against states in 232 out of 234 cases. (credit for above 2005 photo of Chávez)
Those statistics are flat wrong—ICSID tribunals have found for investors in less than half of cases.
But Venezuela’s argument is a reminder that investment tribunal decisions are scrutinized for signs of bias that:
► Undermine the legitimacy of those decisions; or, at least,
► Offer justification to states looking to withdraw from their international obligations.
Critics of the investment protection regime have argued vociferously that tribunals have expanded their jurisdiction by interpreting treaties in implausible ways.
My article, “State Consent, Temporal Jurisdiction, and the Importation of Continuing Circumstances Analysis into International Investment Arbitration,” recently published in the Washington University Global Studies Law Review, examines one aspect of jurisdictional decisions to assess whether they respect the limits that states have placed on their consent to arbitrate disputes with investors.
The paper analyzes decisions on temporal jurisdiction in cases in which the alleged treaty breaches continued over an extended time period. Such continuing treaty breaches raise two distinct jurisdictional questions:
► Can a tribunal hear disputes that arose before the treaty entered into force or involving conduct that began before the treaty entered into force?
► Does the period of limitations bar claims for breaches that began outside the period of limitations but continued within the period?
In addressing those questions, investment tribunals have understandably looked to jurisprudence from other areas of international law. Most controversially, they have borrowed principles from cases in which the European Court of Human Rights and the Inter-American Court of Human Rights construed temporal jurisdiction broadly. That has caused some scholars to ask whether it is appropriate to use human rights decisions, which address violations of peremptory norms, to expand jurisdiction over states for less fundamental treaty breaches.
It turns out that human rights courts generally have not based their broad construction of temporal jurisdiction on the uniqueness of the rights concerned. In fact, these courts' reasoning on the issue often begins with early decisions that the International Court of Justice and the Permanent Court of International Justice issued in disputes between states—cases that did not involve peremptory norms. So, there is no apparent reason to reject wholesale human rights case law on this issue.
What is troubling, however, is that some investment tribunals have borrowed “precedent” carelessly.
When looking to prior decisions for guidance, investment tribunals must always take into account:
► The type of temporal limitation at issue (pre-treaty conduct or a period of limitations),
► Differences in the language of the underlying treaties, and
► The facts on which the prior decision was based.
Those factors have to be considered regardless of whether the prior decision comes from a previous investment tribunal or from the UN Human Rights Committee, for the reason that each court’s and tribunal’s authority is defined by the treaty granting its jurisdiction, and few treaties are identical.
Unfortunately, some tribunals have ignored meaningful differences, and appear to have simply copy-pasted parts of prior decisions in an effort to support poorly reasoned conclusions.
A couple of examples:
► One tribunal convened pursuant to NAFTA, the North American Free Trade Agreement, agreed with the claimant investor’s contention that, as a general rule of international law, continuing courses of conduct are continuing breaches that renew the period of limitations. (image credit) The claimant’s argument rested completely on a handful of decisions of the European and Inter-American human rights courts—decisions involving particular factual circumstances. While the principle is well founded in those precise circumstances, the NAFTA tribunal’s sweeping declaration erased all nuance and eviscerated the NAFTA period of limitations. There are compelling reasons to doubt that such a rule has a place in investment disputes involving sophisticated investors with unimpeded access to arbitration.
► Another tribunal, hearing claims under the U.S.-Ecuador Bilateral Investment Treaty, held that the investor’s claims were time-barred because the dispute involved some acts that occurred before the treaty entered into force. (flag credit) That decision was based a line of analysis originating in an early PCIJ case, which had interpreted a very restrictive jurisdiction clause. There was no valid basis for applying that analysis to the U.S.-Ecuador treaty, which included no parallel restrictions.
It is worth noting that sloppily applied precedent has led tribunals to decide jurisdiction in states’ favor as often as investors’; therefore, this phenomenon does not support the theory of systemic bias toward claimants. Still, in order to bolster the perceived fairness and authority of their decisions, tribunals should be vigilant about:
► Explicitly grounding their jurisdictional decisions in the relevant treaty; and
► Clearly explaining their reasoning.
This is especially critical in the current, hostile climate.