THE AUTHOR:
Pierre Nosewicz, Associate at ArbBoutique
On 25 September 2024, the Latin American Arbitration Practitioners EU (“LATAP EU”) organised its second Annual Conference in Paris, France, which was hosted by Freshfields. The conference program included a keynote speech by Patricio Grané Labat and discussions on four different topics related to Latin America (“LATAM”), with the first panel considering the impact of investment treaties on human rights and climate change.
The panel featured Monica Feria-Tinta (Twenty Essex), Álvaro Nistal (Arnold & Porter Kaye Scholer LLP), Patricia Nacimiento (Herbert Smith Freehills) and Esperanza Barrón-Baratech (de Gaulle Fleurance & Associés) as panelists, and Guillermina Huber as moderator.
The Interaction of Human Rights and Environmental Law with International Investment Law and Agreements
Ms. Feria-Tinta considered different approaches through which human rights and environmental protection are reflected in Investor-State Dispute Settlement (“ISDS”).
She pointed out that originally public international law (of which human rights is a part) and international investment law were seen as having “structural differences” (M. Hirsch, “Interactions between Investment and Non-Investment Obligations” in Muchlinski, Ortino & Schreuer (eds), The Oxford Handbook of International Investment Law (2008) at p. 179) which led investment tribunals to grant precedence to the contractual rules that have been agreed upon by host states and investors (M. Hirsch, Ibid.). This led to the view that human rights, are “a marginal issue in investment law” (B. Simma, “Foreign Investment Arbitration: A Place for Human Rights?” ICLQ vol 60, July 2011 pp. 573-596, at p. 578), “peripheral at best” (C. Reiner & C. Schreuer, “Human Rights and International Investment Arbitration” in PM Dupuy, F Francioni & EU Petersmann (eds), Human Rights in International Investment Law and Arbitration, p. 83), to fulfil “no more than an ancillary role in the settlement of investor-state disputes” (B. Simma, “Foreign Investment Arbitration: A Place for Human Rights?” ICLQ vol 60, July 2011 573-596, at p. 578).
Arbitrators (mostly from a pure commercial background), historically, did not deal with that ‘other law’ alleging not to have jurisdiction to do so, which Feria-Tinta points out reflected a wrong approach. As the International Law Commission (“ILC”) has noted, issues of treaty interpretation and ‘other law’, are not a jurisdictional matter, but an interpretative matter.
She also noted an evolution in the new generation of treaty law in revamped Bilateral Investment Treaties (“BITs”). She stated that there are at least three ways in which human rights, environmental protection and other public law areas are being brought into the realm of investment law via this new generation of treaties. By way of:
- Preambular dispositions;
- Protecting the “right to regulate” using general exception clauses; and
- Carving out these areas.
In relation to treaty interpretation, she explained that the principle of “systemic integration” enshrined in Article 31(3)(c) of the Vienna Convention on the Law of Treaties (1969) (“VCLT”) is available to litigants when elements of human rights and environmental norms are contemplated in disputes. The principle’s rationale can be traced to the International Court of Justice (“ICJ”)’s Oil Platform case, and is an important feature of public international law’s unity.
She referred to Prof. Mclachlan’s article to advocate that international law is, in essence, a system, and systemic integration enables the interpreter of the law to integrate different systems of law. In ISDS, a tribunal will have jurisdiction to interpret the law in the normative context of obligations binding on States. She referred to case law where this was successfully advocated, in particular NAFTA cases (e.g., Glamis Gold v. USA). Useful precedents showcase the entanglement of human rights and investment norms, i.e. Phillip Morris v. Australia, Urbaser v. Argentina or La Oroya v. Peru. This will be a turning point of investment disputes in LATAM, in particular when discussing investors’ accountability for human rights and environmental violations.
When asked about systemic integration in the context of recent developments around ISDS and the Energy Charter Treaty (1994) (“ECT”), and the work of ILC working group, Ms. Feria-Tinta underlined a rearrangement of international law, notably on climate change and the role of Environmental Impact Assessment (“EIA”, a recent illustration being Cortec Mining v. Kenya), referring to recent cases brought before ITLOS and the ICJ.
State Defences, Climate Change and Human Rights
Mr. Nistal focused on Customary International Law (“CIL”)-based defences that States may invoke to justify regulatory measures regarding climate change and human rights. He made six general remarks.
- First, any analysis concerning the lawfulness of State measures designed to tackle climate change must acknowledge the urgent need for drastic reforms to reduce emissions of greenhouse gases.
- Second, ISDS and investment law are not necessarily incompatible with such drastic reforms.
- Third, investment treaties should not be interpreted in a way that effectively prevents States from fighting climate change or its consequences on human rights.
- Fourth, there are broadly two types of defences available to States in response to investment arbitration claims related to climate change measures: those based on treaty clauses (carveouts, exceptions), and CIL defences. Both have an important role to play.
- Fifth, of the various CIL defences, the police powers doctrine is probably the most appropriate legal tool to defend or determine the lawfulness of climate change and human rights State measures. By contrast, the defences codified in the Articles on Responsibility of States for Internationally Wrongful Acts (“ARSIWA”) seem less fit purpose, including because:
- They were not conceived to address wide-ranging, permanent, and/or indefinite transformations of national legal systems;
- The stringent requirements to invoke these defences do not seem appropriate to address the kind of reforms required to tackle climate change;
- They seek to preclude the wrongfulness of conduct that is contrary State’s international law obligations, but bona fide State measures aimed at tackling climate change or protecting human rights generally should not be deemed to violate investment treaties in the first place.
Unlike the ARSIWA defences, the police powers doctrine is not premised on the existence of otherwise unlawful conduct. Rather, such doctrine and the underlying right to regulate, concern and delimit the constituent elements of investment treaty obligations. In that sense, the ICJ recently confirmed that, pursuant to the police powers doctrine, the bona fide, non-discriminatory exercise of certain regulatory powers aimed at the protection of legitimate public welfare objectives does not constitute an internationally wrongful act (Certain Iranian Assets).
- Sixth, the police powers doctrine’s scope of application should not be unduly restricted. By way of example, there is no logical or legal basis to restrict the application of the doctrine exclusively to expropriation claims. Adopting such view would mean that the police powers doctrine would apply only to environmental measures that effectively destroy foreign investments but not to measures causing a lesser degree of interference.
Mr. Nistal concluded by noting that, given its public international law nature, international investment law is not and should not be an obstacle to States’ pursuit of legitimate public welfare objectives. Thus, the interpretation of investment treaties must take into account that drastic reforms are needed to reduce greenhouse gas emissions and address the very serious consequences that climate change is already having on human rights.
Counterclaims and Third-Party Submissions
Dr. Nacimiento introduced the topic by explaining that the idea of States acting as respondents only is slowly fading.
The early practice of counterclaims in ISDS reveals a systematic dismissal, but the trend is now evolving. Recently, tribunals have tweaked the “connection to principal claims” (as held in Saluka v. Czech Republic) prong of the test to admit counterclaims, and their admissibility when grounded on non-treaty sources (CIL and domestic law) is also contemplated.
On intervention of amicus curiae, Dr. Nacimiento warned against the risk of disrupting the proceedings if they are limited to throwing blanket statements to tribunals. She underlined a tendency of tribunals refining the scope of their intervention, to admit amicus curiae really assisting in the decision-making process.
Tribunals may use amicus curiae participation to hear the voice of third parties that could be affected by investments (e.g., Phillip Morris, where third party intervention brought health data that had an impact on the decision itself).
Dr. Nacimiento opined that standards for intervention of amicus curiae could be interpreted otherwise when a third-party seeking to intervene has environmental or human rights expertise, as those considerations are almost always of general interest (e.g., Odyssey Marine Exploration v. Mexico applied the Apotex v. USA test and refused intervention because of lack of significant interest).
Panelists also raised the issue of intervention costs, questioning whether amicus interventions or tribunal-appointed experts would be more efficient when human rights and environmental concerns were at stake.
Carveout Provisions and the Reform of International Investment Agreements
Ms. Barrón-Baratech remarked that ISDS is sometimes perceived as a threat undermining States’ efforts to mitigate climate change, referring to the phasing out of coal-fired power plants and the Uniper v. Netherlands case, or the ban implemented by Italy regarding offshore gas exploitation and claims by Rockhopper v. Italy that followed.
She started by defining carveouts, which consist of “reserving certain matters or applications of certain obligations perceived as sensible out of the scope of the treaty.”
Carveouts are gaining popularity in treaties, e.g. concerning taxation measures, or, after Phillip Morris, the carveout of tobacco-related issues from ISDS in Australian treaties.
Environmental carveouts in a treaty are tantamount to a total withdrawal of environmental questions from ISDS. In this scenario, ISDS is not perceived as being fit to address environmental questions. Ms. Barrón-Baratech questioned whether environmental carveouts would favour or not measures enacted for the preservation of the environment.
She exposed that two types of carveouts are found in practice: sector or industry-based carveouts (e.g., fossil fuels), or purpose-based carveouts.
Ms. Barrón-Baratech considered that sector-based carveouts are radical and maximalist, as States would escape accountability for a sector, regardless of the purpose of the measure. Not all regulatory measures are bona fide, and some can be discriminatory or arbitrary.
She mentioned an example of sector-based carve out in the context of the ECT reform negotiations, where the agreement between the UK and EU Member States excludes some fossil fuel investments.
Regarding purpose-based carveouts, it was opined that interpretation discrepancies make them difficult to implement.
Ms. Barrón-Baratech then drew a comparison of environmental carveouts with environmental exceptions. Present in approximatively 10% of investment agreements and originated in WTO practice, exceptions are affirmative defences not affecting jurisdiction, whereas carveouts limit the scope of the treaty. She cited examples such as Bear Creek Mining v. Peru or Eco Oro v. Colombia and considered that exceptions were more balanced than carveouts.
Conclusion: Sustainability and Suitability of ISDS to Address Human Rights Issues and Climate Change?
International courts and tribunals are yet to rule on this question, whilst the European Court of Human Rights touches upon States’ obligation to tackle climate change.
Panelists opined that negative aspects and shortcomings of ISDS were often exacerbated when talking about environment protection. They dismantled the very idea of ISDS protecting fossil fuel investors only, referring to investments in renewable energies. They agreed that bona fide measures damaging an investment should not lead to compensation, whilst investors should remain protected from States’ irrational decisions.
ABOUT THE AUTHOR
Pierre Nosewicz is an Associate at ArbBoutique. He specialises in international arbitration, with a practice focused on tribunal secretary, arbitrator and counsel work in commercial and investment disputes.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
