Download Subedi, Surya - International Investiment Law - Reconciling Policy and Principle PDF

TitleSubedi, Surya - International Investiment Law - Reconciling Policy and Principle
Tags Government Information Virtue International Politics International Relations
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Page 126

the Contracting State party to the dispute (including its rules on the conflict of laws)
and such rules of international law as may be applicable’.36


The time limitation of a claim also depends on what the BIT provides. Obviously, no
claim can be filed until after the BIT has entered into force. Some BITs leave the ques-
tion open as to the time by which the claim has to be filed after the alleged breach of
the BIT has taken place. Several BITs, such as those concluded by the US with other
states in the recent past, specify a three-year time limit.

Co ntractua l Character o f BIT s

Basically, BITs are contractual treaties in character (hence, binding only on the parties

concerned) rather than law-making treaties. Of course, BITs are evidence of statepractice and are thus capable of contributing to the formation of rules of customary
international law on the subject-matter, but they themselves are contractual, regu-
lating relations between the contracting parties alone. This is one reason why those
very states that seem reluctant to conclude international agreements on investment
are prepared to conclude a BIT or an FTA with similar provisions which are favour-
able to foreign investors. A BIT or an IIA more often than not has a limited or fixed
lifespan—they are normally valid for 10 or 20 years—after which the unwilling state
concerned would, strictly speaking, no longer be bound by the treaty provisions
because of their contractual character, albeit they may be under an obligation to
adhere to the principles enunciated in such treaties if it can be established that they
have acquired customary international law character. Further, in exercise of their

sovereign rights inherent in them, states can also denounce a bilateral or other
contractual treaty by giving advance notice if the treaty has a provision to this effect.
It also is easier to renegotiate such treaties since the number of states party to it is
small. However, an agreement to conclude an international treaty would mean
committing the state to the provisions of the treaty for a long time to come. They may
be regarded as law-making treaties in international law, creating effects binding on all
parties. It would be harder to denounce or withdraw from such treaties.


Pro tectio n Under Stabilis a tio n Claus es in Inves tment o r Sta te Co ntracts

Many investment contracts—also known as concessions or state contracts or host
government agreements—between a host government and a foreign investor
concluded in relation to infrastructure-related projects contain a stabilisation clause


36 Art 42(1) of the ICSID Convention.

Page 127

that seeks to insulate foreign investors from any changes in the legal regime in the host
country after the investment has been made. These clauses provide additional and
slightly different protection from the protections that BITs afford to foreign investors.
Under a BIT a host state is not prevented from taking new legal and administrative
measures in accordance with the wishes of the people in the country or in order to
comply with or implement the obligations flowing from an international treaty,
whether dealing with human rights or environmental matters. In such a situation a
company affected by a new measure would be expected to be compensated for the loss
incurred due to the new legislation, regulatory or otherwise, if it amounts to ‘indirect’
expropriation. As seen earlier, under customary international foreign investment law,
a regulatory governmental measure taken for a public purpose and in a non-discrim-
inatory measure does not necessarily become expropriation if the measure does not
result in significant economic injury to the foreign investors. However, certain invest-
ment contracts go further and require compensation for any interference by the host
state that increases the costs of a project.

These provisions—known as stabilisation clauses—in such contracts stipulate that
the law prevailing at the time the decision was taken by foreign investors to invest in

the host countries would be applicable to them, and such laws would not be altered tothe detriment of such investors. It is well and good that foreign investors commit
themselves to abiding by the laws of the host country prevailing at the time the invest-
ment was made, but such clauses have the effect of preventing host states from
enacting new legislation or undertaking new international obligations which would
affect the profitability of the relevant foreign investors.37


Traditionally, it has been accepted in international law that a breach of a contract by

a state does not give rise to direct international responsibility on the part of that state.
However, in the recent past, some BITs have included provisions characterised by
various ICSID tribunals as the ‘umbrella clause’, which has often been interpreted as
providing a blanket protection for foreign investment, including activities under a
contract with a foreign investor. Once such activities are regarded as being covered by
a BIT, then certain contractual undertakings to be governed by domestic law are
liable to be elevated to international law obligations or enjoy protection under inter-
national law.38 In such a situation a breach of a contractual obligation with a foreign
company may become a breach of a BIT, thereby attracting the protection available


37 Examples of such restrictive provisions in investment contracts are Art 30.1–2 of the Chad–Cameroon
Pipeline contract (see COTCO–Cameroon Convention 1997), and Art 34.4 in the Consortium–Chad

Convention for the Development of Oil Fields and the Host Government Agreement between Turkey andthe Consortium led by the British Petroleum in 2000 as cited in S Leader, ‘Human Rights, Risks, and New
Strategies for Global Investment’ (2006) 9(3) 657–705, 667 (footnote
24) and 672–3 (footnote 44) .

38 J Wong, ‘Umbrella Clauses in Bilateral Investment Treaties: of Breaches of Contract, Treaty Violations
and the Divide between Developing and Developed Countries in Foreign Investment Disputes’ (2006) 14(1)

135–77; AC Sinclair, ‘The Origins of the Umbrella Clause in the International Law of
Investment Protection’ (2005) 20(4) 433.

Page 252

regulatory expropriation 77–8, 156–7, 203, 214
states’ regulatory powers

Reisman, WM 79, 121, 125
resource nationalism 191–3
Root, E 9

Sampliner, GH 139–40

sanctity of contracts 21
Schwarzenberger, G 9, 68
security state security
shareholder rights 129–32
Sloane, RD 79, 121, 125
social objectives 170–1
social responsibility/governance, corporate, vol-

untary schemes 44–5
sovereignty 8, 14

permanent sovereignty of state over natural
resources (PNSR) 21–3

Soviet Union 15, 26, 29, 188
stabilisation clauses 103–4, 159–60, 180
standard claims 119

state responsibility 57, 118–19, 122, 141state security 138–9, 140
exceptions 186–7

states’ regulatory powers
case for 161–4
environmental protection 163–7
human rights 167–70
legitimate 164–5
social/economic objectives 170–1

Sutton, SD 7

terrorism 140
transnational corporations (TNCs) 27–8, 36

Argentine-US Treaty 1991 98–100Energy Charter Treaty 1994
global global treaty
global comprehensive 195–8
global model 198

US–Argentine Treaty 1991 98–100

tribunals investment tribunals
TRIMS (Agreement on Trade-Related Invest-

ment Measures) 37–8
TRIPS (Agreement on Trade-Related Aspects

of Intellectual Property) 38–9

UK Companies Act 2006 43–4
umbrella clauses 104–7, 180
UNCITRAL (UN Commission on Interna-

tional Trade Law), rules revision 212
UN Commission on Human Rights 48–9

non-legally enforceable norms 49
UN Commission on International Trade Law

(UNCITRAL), rules revision 212
UN Commission on Transnational Corpora-

tions (CTC) 27
UN Convention against Corruption 51–2
UNCTC (UN Commission on Transnational

Corporations) 27
UN Declaration on the Establishment of a New

Economic Order 24–5
UN Declaration on Permanent Sovereignty over

Natural Resources 21–3
background 21–2
resolution 22–3
significance 23

UN Draft Code of Conduct for Transnational

Corporations 27–8
UN Global Compact 42–3
United Nations, foreign investment law and

US-Argentine Treaty 1991 98–100

van Harten, G 177
Vandevelde, KJ 97, 114–15
Vattel, E de 7, 12
Venezuela 191–2
victims access 212–13
Voluntary principles on Security and Human

Rights for the Extractive and Energy Sec-
tors 44

Watts, Sir A 214
World Bank

guidelines Guidelines on the Treatment
of Foreign Direct Investment 1992

role 30
World Trade Organisation (WTO)

agreements 37–9
comprehensive treaty 195–6, 198, 221
Dispute Settlement Body (DSB) 209–10
Doha Conference Doha Conference

Worldwide Responsible Apparel Production
(WRAP) 44


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