THE AUTHOR:
Aboubacar Fall, Senior Partner at AF Legal Law Firm
“The theory that international law is fragmented into strictly separate fields (such as environmental law, investment law, human rights, etc.) is increasingly challenged by international practice. This is particularly true for international human rights law, which maintains close connections with various other fields, including international investment law. The objective of this article is therefore to illustrate how this paradigm shift has manifested in recent international legal doctrine, particularly in arbitral awards concerning investment disputes.”
Introduction
“It is worth noting that international law imposes a number of obligations on states, including the duty to protect the rights of their citizens.”
It is generally accepted that international law is undergoing upheavals, even a transformation, considering the expansion of its scope, the specialization of its subject matter, and the diversification of its practice, which tend inexorably toward its division, if not its fragmentation, into various specialized regimes. Without taking a position on the doctrinal question of whether this fragmentation is positive or negative, we will limit ourselves to observing, by way of illustration, that international human rights law was, until recently, considered as being strictly separate from international investment law. This view is entirely erroneous, as these two branches of international law have fruitful and mutually enriching relationships.
Indeed, when states assume obligations under Bilateral Investment Treaties (“BITs”), they often find themselves in a precarious balance, namely:
- Providing a certain degree of predictability and security to investors, who rightly seek stability and clear rules of the game, on the one hand, and
- Preserving the state’s public policy powers to manage investments and respond to evolving circumstances and the needs of the public interest and human rights, on the other. This tension often leads to disputes with investors, who may perceive changes in public policies as violations of the rights conferred upon them by BITs.
Thus, the challenge lies in striking a balance between the protection of investors and the state’s international obligation to protect the environment and human rights—that is, the public interest.
Before analysing the developments and progress made in this debate, particularly within the framework of second-generation BITs (II), we will review the justifications that have long legitimized the sole protection of investors and their consequences for public policies and dispute resolution (I).
Bilateral Investment Treaties (BITs) and the Protection of Investor Interests
International investment treaties— particularly bilateral treaties— are based on the principle of formally recognizing the role of foreign investment as a driver of economic development. For host states, investment is expected to contribute, among other things, to economic growth and job creation. For decades, this belief justified what are commonly referred to as first-generation BITs, which granted investors extensive protections without any corresponding legal obligations toward the host state. This situation has led to two major consequences:
- Difficulties for the host state in protecting human rights, i.e., the public interest; and
- The lack of genuine consideration of human rights by arbitral tribunals in resolving investment disputes.
Public Policies and the Protection of Human Rights
It is worth recalling that international law imposes certain obligations on states, including the duty to protect the rights of their citizens. This protection is achieved through public policies, such as the adoption of legislation and regulations aimed at promoting, among other things, a healthy environment, fair labor rights, and reasonable public health measures. However, these public policies for the protection of human rights have often led to liability claims by investors on the grounds that they allegedly violate the state’s obligations to protect investors under BITs.
For instance, several states were brought before arbitral tribunals for implementing lockdown measures to protect populations during the COVID-19 pandemic. Similarly, in the International Centre for Settlement of Investment Disputes (“ICSID”) case Foresti v. South Africa, Award, 4 August 2010, European investors argued that South Africa’s post-apartheid Black Economic Empowerment (“BEE”) mining regime violated the terms of investment protection treaties concluded between South Africa, Italy (1997), and Luxembourg (1998).
It thus appears that investors have often denied states the ability to protect their populations, even though such protection constitutes an international obligation under legal instruments such as the Universal Declaration of Human Rights (1948), referenced in the preambles of national constitutions. Furthermore, the positions adopted by arbitral tribunals are not without criticism.
Investment Arbitration and Human Rights
Arbitral awards involving the intersection of investment protection obligations and human rights have been interpreted differently by various arbitral tribunals. A few rare tribunals have reaffirmed the link between foreign investment and the economic development of the host state. For example, some rulings have specified that the objective of international investment agreements “was not to protect foreign investment per se, but as an aid to the development of the domestic economy” (Lemire v. Ukraine (II), Award, 28 March 2011). Furthermore, in interpreting Article 25(1) of the ICSID Convention (1965), in the Salini v. Morocco, Award, 23 July 2001), the arbitral tribunal held that an investment must meet four criteria:
- A contribution of money or assets;
- A certain duration;
- A certain degree of risk; and
- A contribution to the economic development of the host state.
However, this approach, which emphasizes the economic development of the host state, remains largely a minority view. The majority of arbitral awards prioritize the protection of investors’ interests alone, to the detriment of the public interest, human rights, and sustainable development goals. Indeed, in their analysis, arbitrators have often regarded arguments based on the protection of the environment and human rights as “non-economic issues” and consequently prioritized the protection of investors’ economic interests alone. This is evident in cases where rights such as the right to health, the right to water, and the right to a healthy environment were at stake.
For instance, see the awards in Biwater v. Tanzania (Award, 4 July 2008), Suez v. Argentina (Award, 30 July 2010), and Achmea v. Slovak Republic (I) (Final Award, 7 December 2012).
In response to this situation, host states have begun developing legal mechanisms to elevate the protection of human rights to a status as significant as the protection of investors’ interests. In essence, the protection of the environment and human rights should no longer be considered secondary but rather the primary objective of investment, which is to promote sustainable development. Second-generation BITs align with this perspective.
New Developments in the Promotion of Human Rights: Second-Generation BITs
“The protection of the environment and human rights must no longer be considered ancillary […].”
Several legal mechanisms have been developed to broadly incorporate human rights into the new so-called “second-generation” BITs.
Inclusion of a Clause by Reference
The provision for the protection of human rights and the environment is expressed through reference or incorporation. This is exemplified in the preamble of the BIT concluded between Cape Verde and Hungary, which states that the agreement aims “to ensure that investment is consistent with the promotion and protection of internationally and domestically recognized human rights.”
Some BITs explicitly prohibit the host state “to lower human rights standards to encourage investment.” This serves as a reminder to the state not to relinquish its obligation to implement human rights protection measures in pursuit of the public interest. Other BITs include very specific exemptions, such as in the case of the BIT between Egypt and Mauritius, which states that “nothing in the Agreement shall prevent the State parties from taking measures to fulfill its obligations to protect public health.”
Although these provisions may lack real binding force, they remain useful in guiding arbitrators in their interpretation of BITs.
Obligations Imposed on the Investor
“Some states have included provisions in their BITs or model agreements that compel the investor to fulfill their obligations regarding the protection of human rights.”
- A first approach was developed to impose obligations on the investor regarding the protection of the environment and human rights. This approach differs from the previous one as it may take the form of a mere recommendation, where the host state encourages the investor to voluntarily commit to respecting human rights. Some states have included provisions in their BITs or model agreements that compel investors to fulfill their obligations regarding human rights protection.
- A slightly more binding approach has been initiated to encourage the investor to make every possible effort to respect human rights in the course of their operations. In this case, the investor is left to choose the means and methods by which they intend to respect and protect human rights.
- A much more binding approach has emerged within the framework of second-generation BITs. This is the case with the Morocco-Nigeria BIT, which imposes on the investor “to uphold human rights in the host state, act in accordance with core labor standards, and not manage or operate investments in a manner that circumvents international environmental, labor and human rights obligations.” It is noteworthy that this same approach has been adopted by the Additional Protocol to the Investment Code of the Economic Community of West African States (“ECOWAS”). However, these provisions will only be effective if they are enforced by the investor.
Means to Compel the Investor to Fulfill Their Obligations
Several means have been developed, particularly in arbitration proceedings, to compel the investor to respect and protect the right to a healthy environment and human rights. One such means is the use of counterclaims by the host state. In the famous Urbaser v. Argentina, Award, 8 December 2016, the arbitral tribunal accepted Argentina’s counterclaim based on the violation by the investor Urbaser of its obligation to ensure the right to water for the Argentine population. The tribunal confirmed that the right to water is a human right under international law. Other decisions have also favorably received counterclaims from the host state, such as in Aven and others v. Costa Rica, Award, 18 September 2018, Burlington v. Ecuador and Perenco v. Ecuador, Award, 27 September 2019.
In addition to counterclaims, some states have included provisions in their BITs or model agreements that compel investors to fulfill their obligations concerning the protection of human rights.
Here are some examples of such clauses:
“The contracting parties must take appropriate steps to ensure, through judicial, administrative, legislative, or other appropriate means, that when such abuses occur within their territory and/or jurisdiction, those affected have access to an effective remedy.” (Netherlands Model BIT (2019))
“If the host state suffers from a loss, destruction, or damages concerning its public health or life, then the foreign investor must provide the host state with adequate and effective compensation.” (Bangladesh – Denmark BIT (2009))
“The right of each Party to legislate within its territory to achieve legitimate political objectives, including the protection of the environment, combating climate change, consumer protection, or the protection of health, safety, the rights of indigenous peoples, gender equality, and cultural diversity.” (Canada Model BIT (2021))
Conclusion
Finding a fair and necessary balance between predictability for investors and the preservation of the state’s right, and even its obligation, to legislate and regulate in the public interest is a major challenge that, as one author indicates, “will continue to shape the landscape of investment treaty arbitration in the future, given the complexity and diversity of modern investment relationships.” (I. Knoll-Tudor, M. Perkams, F. Dörfelt, PAW 2024: Evolving Perspectives on the Right to Regulate: Shaping Investment Treaty Arbitration, Kluwer Arbitration Blog, 25 March 2024,)
While second-generation BITs have devised legal solutions and means to compel arbitrators to fully integrate the protection of human rights into their interpretation of these legal instruments, it is, however, important, in the interest of balance and fairness, to place the burden of proof on the host state regarding the relevance of the human rights protection measures it has adopted. On the other hand, these measures should be assessed against the principle of proportionality. It is essential to verify that these measures are justified and balanced.
The issue of a fair and necessary balance between protecting the investor’s interests and human rights undoubtedly calls for a uniform approach and solution. Will the actors and professionals of international investment law make the necessary efforts to achieve this?
ABOUT THE AUTHOR
Aboubacar Fall is a Senior Partner at AF Legal Law Firm in Dakar (Senegal). He is a member of the Senegalese Bar and a former member of the Paris Bar. He holds a PhD in international business law from University of Rouen ( France) and an LL.M. from the University of Washington in Seattle (USA) . He has served as Principal Legal Counsel to the African Development Bank (“ADB”) Group and as Chairman of the Management Board of the African Legal Support Facility (“ALSF”). Dr. Fall is the President of the Senegalese Branch of the International Law Association. He practices and teaches, in particular, investment arbitration, maritime arbitration and the legal aspects of sovereign debt . He has published widely in these fields.
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