I. Difficulties in taking into account the investor's conduct
Investment treaties were designed to protect investors and their investments. It is therefore not surprising that investment protection agreements impose few, if any, explicit obligations on investors. Such agreements generally include only substantive provisions requiring host States to provide a certain standard of treatment to foreign investors and their investments. Although recent international instruments have included wordings related to Corporate Social Responsibility,1 it is still very rare that BITs or investment laws contain specific commitments for investors.2
Moreover, investment treaty arbitration is fundamentally unbalanced. In most cases, its initiation is a prerogative of the investors only.3 Notwithstanding such inherent imbalance, and despite theoretical and practical difficulties, taking into account the investors’ conduct by arbitral tribunals has helped to rebalance this dispute resolution mechanism. Investor-State arbitral tribunals have been able to achieve this result by resorting to various methods, both procedural and substantive.
The United Nations Global Compact, The International Labour Organization (ILO) Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (TDP); The OECD Guidelines for Multinational Enterprises; The United Nations Guiding Principles on Business and Human Rights (UNGP).
Netherlands Model BIT (2019), Article 16. 2; SACD (Southern African Development Community) Model BIT (2012), Arts. 10-13, 15-16; Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its member States, Art. 8.18.3; India Model BIT (2015), Chapter III – Investor Obligations, Arts. 11-12; Morocco – Nigeria BIT (2016), adopted on 3 December 2016, Arts. 14, 17-19.
Agreement on the Promotion and Reciprocal Protection of Investments Between the United States of Mexico and the Kingdom of Spain, 10 October 2006, Art. XI.1; Agreement Between the Lebanese Republic and the Republic of Austria on the Reciprocal Promotion and Protection of Investments, 26 May 2001, Art. 12; Agreement Between the Government of Canada and the Government of the United Republic of Tanzania for the Promotion and Reciprocal Protection of Investments, 17 May 2013, Art. 21.1; Bilateral Agreements for the Promotion and Protection of Investments between Cambodia and Malaysia, 17 August 1994, Art. 6.2; Agreement Between the Government of Canada and the Government of the Republic of Benin for the Promotion and Reciprocal Protection of Investments, 9 January 2013, Art. 26.1; Agreement Between the Republic of Turkey and Australia on the Reciprocal Promotion and Protection of Investments, 16 June 2005, Art. 13.2.
II. Procedural mechanisms
In some cases, tribunals have relied on jurisdictional and admissibility grounds, as well as procedural techniques and mechanisms, to block or circumscribe the investors’ substantive claims. For instance, tribunals have invoked —abuse of process—to discourage undue manipulation of the investment and misuse of the arbitral procedure.4 International tribunals have relied on abuse of process to decline jurisdiction or declare claims inadmissible when the claimant restructured the investment after the dispute had arisen or at a time when the dispute was foreseeable.5
III. Costs and counterclaims
Ordering the investor to pay the costs of the arbitration and other costs or reducing an award of damages to penalize frivolous claims, recklessness, bad faith or inefficiency (thus unjustifiably increasing the cost of arbitration) is another technique of rebalancing the dispute settlement mechanism.6 7 Notably, however, the Respondent State may also be penalized for its conduct in the course of or prior to the proceedings.8 Furthermore, despite the mechanism’s conceptually one-sided nature, arbitral tribunals may address and allow counterclaims of the Respondent State, when applicable.9
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2009, paras. 321-322; Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, paras. 151-152; Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Reconsideration and Award, 7 February 2017, paras. 620-621; Capital Financial Holdings Luxembourg S.A. v. Republic of Cameroon, ICSID Case No. ARB/15/18, Award, 22 June 2017, paras. 477-481; European American Investment Bank AG v. The Slovak Republic, PCA Case No. 2010-17, Award on Costs, 20 August 2014, para. 43; AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary (II), ICSID Case No. ARB/07/22, Award, 23 September 2010, para. 15.3.3; Alasdair Ross Anderson and others v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award, 19 May 2010, para. 62; Anglo-Adriatic Group Limited v. Republic of Albania, ICSID Case No. ARB/17/6, Award, 7 February 2019, paras. 306-308; Ömer Dede and Serdar Elhüseyni v. Romania, ICSID Case No. ARB/10/22, Award, 5 September 2013, paras. 268-270.
Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award, 22 August 2017, paras. 1063-1074; Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v. Republic of Kenya, ICSID Case No. ARB/15/29, Final Award, 22 October 2018, paras. 389-390; 399-401.
IV. Substantive obligations of investors
On another level, investors’ substantive obligations may be provided for either explicitly—in the relevant underlying instrument(s)10 – or implicitly, as interpreted by arbitral tribunals. Concerning the latter case, tribunals have assessed the investors’ compliance with the domestic legal framework at the time the investment was made11 and thereafter.12 Failure to observe domestic legal regime, depending on the timing and the degree of the subject violations, has led to arbitral sanctions ranging from declining jurisdiction13 to a dismissal of the claims on the merits.14 See further Legality of Investment.
Investors are also required either explicitly or implicitly to act in good faith and not to engage in corruption. As such, investment tribunals have viewed corruption as a serious and dangerous phenomenon and have (consistently) penalized or refused to entertain investors’ claims in cases where corruption was established.15 16
Recent practice faced an increasing number of cases where investors’ conduct has caused environmental damages or violation of fundamental human and Social rights of the host State population.17 Absent an express obligation in the BITs or the investment law for the investors to comply with Human, social and environmental rights and/or a possibility for the host State to counterclaim (See Human rights counterclaims; Social rights), host States have referred, as a defence, to human, social and environment rights included in their domestic law (See above) or in the international treaties or conventions they are parties. While the host State’s domestic law is opposable to the investor and its investment, international treaties or conventions do not contain international obligations for non-State actors. Though more and more BITs, model BITs and investment laws include human rights, social and environmental obligations towards investors,18 the practice is not yet uniform.
Reciprocal Investment Promotion and Protection Agreement Between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria, 3 December 2016, Preamble, Arts. 15.5, 18.4; Agreement between the Belgo-Luxembourg Economic Union, on the one hand, and the Republic of Nicaragua on the other hand, on the reciprocal promotion and protection of investments, 27 May 2005, Arts. 5.2, 6.2; Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of Ethiopia on Investment Cooperation and Facilitation, 11 April 2018, Art. 14.2.e; Brazil - Malawi BIT (2015), 25 June 2015, Art. 9.2.b; Agreement Between the Government of the Republic of Turkey and the Government of the People’s Republic of Bangladesh Concerning the Reciprocal Promotion and Protection of Investments, 12 April 2012, Art. 4; Belgium-Luxembourg Economic Union Model BIT 2019, Preamble; Netherlands Model BIT 2019, Preamble; Czech Republic Model BIT 2016, Preamble; United States Model BIT 2012, Preamble, Art. 12.4; Law of the Republic of Indonesia Number: 25 of 2007 Concerning Investment, Arts. 15-17.
El Hayek, I., La prise en compte du comportement de l’investisseur dans le cadre de l’arbitrage fondé sur les traités d’investissement, Thèse, Université Paris 1 Panthéon-Sorbonne, 2016
Brabandere (De), E., Human Rights Considerations in International Investment Arbitration, in Fitzmaurice, M. and Merkouris, P. (eds), The Interpretation and Application of the European Convention of Human Rights: Legal and Practical Implications, Leiden, Nijhoff, 2013.
Dumberry, P. and Dumas-Aubin, G., How to Impose Human Rights Obligations on Corporations under Investment Treaties? Pragmatic Guidelines for the Amendment of BITs, Journal of World Investment and Trade 13(3), 2012, 349-372.
Kriebaum, U., Foreign Investments and Human Rights: the Actors and Their Different Roles, Transnational Dispute Management, 2013
Leinhardt, S., Some Thoughts on Foreign Investors’ Responsibilities to Respect Human Rights, Transnational Dispute Management, 2013
Reiner, C. and Shreuer, C., Human Rights and International Investment Arbitration, in Dupuy, P. M., Francioni, F. and Petersmann, E.U. (eds), Human Rights in International Investment Law and Arbitration, Oxford, Oxford University Press, 2009, pp. 82-96.
Manciaux, S., Investissements étrangers et arbitrage entre États et ressortissants d‘autres États Trente années d‘activité du CIRDI, Paris, Litec, 2004, p. XIII-727
Balcerzak, F., Jurisdiction of Tribunals in Investor-State Arbitration and the Issue of Human Rights, ICSID Review – Foreign Investment Law Journal, 2014, pp. 216-230
Braun, T.R., Globalization-driven innovation: the investor as a partial subject in public international law: an inquiry into the nature and limits of investor rights, Jean Monnet Working Paper 04/13, New York University School of Law, 2013, p. 63.