2. The normative basis for investor claims as rights claims

The structural interpretive imbalance between investor claims on one hand, and human rights on the other, stems at least in part from the prevalent framing of investor claims as rights claims in general, and property rights claims in particular.

Viewing investors’ enjoyment of foreign governments’ obligations as rights is not novel. In his 1919 monograph on diplomatic protection, Borchard appeared to view aliens’ property rights as inviolable, regardless of where the alien sought to enjoy them. Protection of aliens’ property rights was, in his view, a general principle of law; such norms appeared in ‘constitutions which placed the individual on a high plane of protection in his relations with the state’. These were (in language that was acceptable at the time) ‘elementary rights which we have come to associate with the modern world and enlightened civilisation’. ^{Footnote 7} The same view was taken by Dunn, who referred to the customary international law minimum standard of treatment of aliens as something that ‘provides essentially for two things—the security of the person from injury or restraint, and the preservation of private property’. ^{Footnote 8} However, these visions of property rights were by no means a consensus, let alone universal state practice. ^{Footnote 9} For example, while the development of the police powers doctrine in relation to indirect expropriation was an inroad to the idea of an absolute rule of protection of private property, ^{Footnote 10} it was evident that certain general regulatory measures modifying systems of land tenure and redistributed property ^{Footnote 11} would not offend the customary international law ‘minimum standard of treatment’. ^{Footnote 12}

Although IIAs typically set out a broad definition of covered investments including a list of assets in which property rights inhere, they do not employ the language of rights (whether property rights or otherwise) to describe the nature of states’ substantive obligations of investment protection.Footnote ¹³ Rather, these obligations are typically framed as standards of treatment, or standards of investment protection. The nature of the corresponding legal entitlements is left open-ended, leaving it to tribunals to fill in these conceptual gaps. This raises the question of why the terminology of rights has been so pervasively employed by tribunals and in the literature. In our view, the question of whether investors are holders of such substantive rights vis-à-vis states ought to be a fundamental question concerning the regime, but this issue is relatively unexplored. There seems to be little elaboration, much less consensus, concerning the nature and scope of such rights. Rather, there appears to be an implicit assumption that the standards of investment protection correlate to some form of rights – probably property rights – without further foundational explication. We do not suggest that such characterizations are necessarily deliberate and made with a view towards systemic implications. Rather, tribunals appear to have made unconsidered references to rights without regard to the normative claims that attend such a characterization. As Hohfeld observed in 1913, people tend to use the term ‘right’ in a generic and indiscriminate manner ‘to denote any sort of legal advantage, whether claim, privilege, power, or immunity, rather than a right in the strictest sense’.Footnote ¹⁴ This problem is alive and well today.

How have investment tribunals conceived of investor claims as property rights? International investment law neither grants property rights to investors nor otherwise establishes them, but nor are investment claims restricted to reliance on such rights. Property rights are clearly relevant to the concepts of direct and indirect expropriation, which control the circumstances in which governments can deprive investors of either the title to their property, or take measures of equivalent effect (although government action that amounts to expropriation can also involve action interfering with an investor’s powers and/or privileges).Footnote ¹⁵ However, the relevance of property rights is less obvious with respect to the other standards of investment protection, in the sense that one could envisage many instances where fair and equitable treatment or national treatment claims, for example, would succeed in the absence of interference with property rights (e.g., when the claim relates to interference with purely contractual rights, or where there is mistreatment of the investor as opposed to their investment).

Property law determines other issues concerning how property rights are created and extinguished, how competing claims to property are resolved, and how contemporaneous rights or interests in property are dealt with. Using the language of property rights to define the nature and scope of foreign investor claims brings with it a great deal of conceptual baggage, such as the privileges, powers and immunities that attend the right/s in question.Footnote ¹⁶ The effect of using property rights terminology, therefore, is that investment tribunals are often at least implicitly called upon to resolve a number of conflicts that pervade property law more generally, including between prioritizing the exploitation of property rights in order to maximize individual or corporate wealth on the one hand, and viewing property as having a role in maximizing the public good, with government intervention being appropriate to ensure the safeguarding of that function, on the other hand.Footnote ¹⁷

More broadly, understanding the manner in which investment tribunals view investment claims as rights claims gives rise to one key question: the precise nature of the relevant entitlement that is said to amount to a right.Footnote ¹⁸ When thinking about the nature of rights, it is useful to take as a starting point the approach of Hohfeld, who tells us that a right exists where there is an interest that is significant enough to give rise to a correlative duty on behalf of other persons, on the basis that right and duty are jural correlatives.Footnote ¹⁹ For example, there is a duty on behalf of states to protect the human rights of those people in their jurisdiction. The argument in favour of investor rights would be that investors’ enjoyment of the protections found in IIAs should be characterized as rights because they correlate to states’ obligations (duties) of investment protection. Alternatively, we could view the standards of investment protection as giving the investor a power (in the Hohfeldian sense) to activate ISDS in the event of certain conduct on the part of the host state. This gives rise to a correlative liability on the part of the state to be brought to ISDS (and to pay compensation in the event of an adverse finding). In other words, we could characterize international investment law as a regime that confers power on foreign investors vis-à-vis host states, with the role of ISDS as determining whether the host state’s conduct is sufficient to trigger treaty’s remedial provisions.Footnote ²⁰ Another approach would be to characterize the investor as enjoying immunity from certain types of government action, with a corresponding disability imposed on the state. That is, the investor is immune from government action that goes against the state’s commitments in the IIA, and by dint of its IIA commitments, the state foregoes its ability to alter the investor’s normative situation in certain relevant ways.

It is true that each type of entitlement that Hohfeld identifies can be described as a ‘right’ in a non-technical sense because each is a type of individual advantage vis-à-vis another actor. But the key difference is that each type of Hohfeldian entitlement correlates to a different type of relationship, and only a right in the strict sense enlivens a correlative duty.Footnote ²¹ Assuming for the sake of argument that investors do indeed enjoy rights (as distinct from other advantages), further questions arise in relation to what would amount to an interference with the relevant right, and the circumstances in which any such interference would be permissible. In other words, if an investor enjoys a substantive right under the relevant treaty, what is the exact nature of the correlative duty on the host state? What is the scope of the right? In what circumstances, if any, is the right defeasible by countervailing factors, including but not limited to the state’s duty to give effect to the human rights of the host state population? Does the fact that the claim is characterized as a rights claim give it greater normative weight than it would otherwise have had, were it regarded as some other type of claim, in the sense that it would exclude the consideration of other reasons that might point in a direction other than a duty toward the right-bearer?Footnote ²² In which circumstances may a government fail to carry out what would otherwise be its duty toward an investor because it has more compelling duties to its population? In other words, assuming that the relevant right is not absolute in nature,Footnote ²³ when may it be infringed?Footnote ²⁴

We do not seek to answer these fundamental questions here, but rather to observe, firstly, that the nature of investors’ entitlements under IIAs is far from certain and secondly, that to the extent that the literature engages with the question of the nature of investor rights, it generally only discusses the similarities between international investment law and human rights in relation to access to adjudication, due process, non-discrimination, and the protection of property, rather than interrogating the characterization of investor claims as rights claims.Footnote ²⁵ Some authors have, however, dealt with the nature of investor rights in more detail, noting the absence of justification for the normative positions that investment tribunals appear to take with respect to the rights at issue. Douglas notes that tribunals rely on a variety of conceptions of the nature of the investment (investment-as-property, investment-as-contractual rights, investment-as-expectations, and investment-as-value), in some cases apparently unwittingly and in other cases, apparently as a means to justify a particular outcome.Footnote ²⁶ Bonnitcha observes that one of the rationales invoked to justify a certain level of substantive protection under investment treaties is the intrinsic desirability of the protection of property rights, yet the basis for this view is not articulated by tribunals – rather, it appears to be based on a view that privileges the free market over government intervention, and obliges governments to compensate a right-holder for any interference with those rights.Footnote ²⁷ Perrone likewise suggests that arbitrators’ understandings of investor rights privilege wealth maximization by the exercise of rights of exclusion or exclusivity over a theory of property that treats property rights as existing only insofar as they aid ‘the creation and maintenance of the social order’.Footnote ²⁸ In other words, investment tribunals have tended to take a Blackstonian, indefeasible view of property, at the expense of more liberal, pluralistic conceptions thereof.Footnote ²⁹

Tribunals and commentators have rightly observed that the nature and scope of property rights are defined by the municipal law of the host state because international law does not itself provide substantive rules of private property law. Accordingly, one investment-related annulment committee emphasized that because investments are proprietary in nature, a tribunal would need to ascertain the exact nature of the relevant property rights in the domestic law of the host state as the first step in an analysis of whether an interference with those rights had occurred.Footnote ³⁰ However, Sornarajah argues that investment tribunals have imposed what he terms ‘a uniform principle of property protection, often in excess of even the best constitutional systems of protection that exist’, in order to elevate concepts such as the protection of legitimate expectations into a type of property right.Footnote ³¹ Perrone similarly contends that tribunals depart from interpreting investor rights according to domestic law when they decide cases through the lens of legitimate expectations relating to their investment.Footnote ³²

What emerges, therefore, is that despite its theoretical weaknesses and imprecise limits, the normative understanding of investor claims as rights claims in general and property rights claims in particular is prevalent in the literature, generally without explication or justification. We turn now to see how this approach is expressed in the decided investment cases.

3. Investment tribunals’ discussion of investor rights: Rights as endowments

Our survey of a large number of available investment treaty cases first reveals a significant gap between the frequency in which the language of rights is employed by tribunals (with respect to investors) on one hand, and the degree of attention devoted to the analysis of the justificatory basis of the use of this language and its scope and circumstances, on the other hand. It also shows that investor rights are generally treated by tribunals as the endowments of investors.

From a simple word search conducted among investment treaty cases (741 documents), it emerges that the majority of them make some use of terms indicative of an acceptance of investor claims as based on rights (regardless of whether the award was in favour of the claimant or the responding state). Thus, the terms ‘investor rights’, ‘property rights’, and ‘proprietary rights’ were mentioned at least once in 101, 332, and 20 tribunal decisions, respectively (with some overlaps). ^{Footnote 33} Although the preponderance of references to property rights in the decided cases were quotes from treaty provisions regarding the definition of investment, or referring to the concept of expropriation as a deprivation of the property rights of the investor, the overwhelming majority of the other references (‘investor rights’ and ‘proprietary rights’) did not involve any analysis of the nature or scope of these rights, or why investor claims should be considered as rights at all. These findings are perhaps not surprising on the backdrop of our critique of the theoretical literature in the previous section. Indeed, most substantive discussion of investor rights in the decided cases concerns not the nature of any substantive rights that investors may enjoy but the question whether the rights-bearer is indeed the investor, or should rather properly be construed as the investor’s home state.Footnote ³⁴

This gap between textual usage and theoretical analysis may have important implications for various questions that could arise, for example, with respect to the nature of the rights in question. We also searched for any discussion of the concept of the ‘nature of the right’, which appeared only three times in the database. In other legal contexts, such as domestic constitutional law or international human rights law, the characterization of the nature of a right goes beyond the mere recognition of the right, and is of importance: for example, when it comes into conflict with other rights in the sense of the relative normative weight of the right, and whether and if so in which circumstances is the right absolute, qualified or derogable. ^{Footnote 35}

There are some glimmers of deeper analysis in a small handful of cases. The Accession Mezzanine v. Hungary tribunal emphasized the distinction between property rights that were ‘capable of alienation or assignment’, and personal rights that were inalienable. Rights in the latter category were not capable of expropriation but could be interfered with in a manner that breaches fair and equitable treatment, such as by failure to afford lack of due process or by frustrating legitimate expectations. ^{Footnote 36}

The British Caribbean Bank v. Belize tribunal also drew a distinction between expropriation and fair and equitable treatment with respect to property rights, noting that the protection against expropriation ‘is principally focused on the property rights of the investor’, whereas fair and equitable treatment ‘is focused more subjectively on the intent and context of governmental action, as well as on its effects’, which might be read as suggesting that an investor’s enjoyment of other standards of investment protection is something qualitatively different from expropriation, perhaps not amounting to a right. ^{Footnote 37} Arbitrator Nikken in Suez v. Argentina (a former judge and president of the Inter-American Court of Human Rights), argued this point more strongly, opining that fair and equitable treatment, being ‘a standard of conduct or behaviour of the State vis à vis foreign investment … should not automatically translate into a source of subjective rights for investors’; rather, investment treaties ‘contain a list of the States’ obligations regarding their respective investments, not a declaration of rights for investors’.Footnote ³⁸ In other words, Nikken appeared to characterize investment treaties as not granting individual rights, but rather as placing certain restrictions on government action, be it legislative, executive, judicial or commercial. (In Hohfeldian terms, we might describe this as providing immunities from some types of government action). These analyses are, however, a rare occurrence in investment decisions.

This absence of deeper analysis of the nature of the rights recognized is in itself problematic for the doctrinal understanding of the relationship between investor rights and competing human rights, but that is not our primary concern. For present purposes, we contend that this phenomenon is reflective of the way in which arbitrators perceive investor claims as based on investor rights. To be blunt, by depicting these claims as rights claims without concern for the justification for this depiction suggests that the existence of these rights as such is taken for granted, as a self-evident proposition. Investor claims are regarded as rights claims because in the arbitrator’s mindset, they reflect a status quo ante, something that an investor held but that was taken from them or that was otherwise impaired. To be sure, in some cases the arbitrator may find that the investor has not established that they actually held the relevant right at domestic law – the title in the property was actually not theirs. Hence, perhaps, the prevalent reference to property rights – which would make much sense when questions of expropriation are involved – is less justified when other standards of treatment are at hand. But the underlying perception is important here. Investor claims are characterized as rights because they are perceived to be something that investors possess(ed) and stand to lose (or have indeed lost).

In other words, investor claims are perceived to be rights, and more so as endowments. This is an insight that is crucial, in our view, to explaining the differential treatment of investor claims and opposing human rights, which we will return to in Section 5 below.

4. Investment tribunals’ discussion of human rights: Rights as aspirations

We also surveyed the same body of decided cases for mentions of the term ‘human rights’, and examined the context in which these references occur. Close to 30 per cent (216 out of 741) of the decisions in the database we used included some reference to the term. However, most substantive references to human rights specifically concerned investors’ rights. There were several references in the cases to each of the following: assimilating investors’ procedural rights under the relevant treaty to the right to a fair hearing and/or rights in the criminal process; analogizing the European Convention on Human Rights (ECHR) right to property with expropriation and with the protection of legitimate expectations; referring to the approaches of the European Court of Human Rights (ECtHR) to proportionality and the margin of appreciation as analytical tools; analogizing the security exception and/or necessity defence with Article 15 ECHR (permitting derogation in times of emergency); noting that Article 31(3)(c) of the Vienna Convention on the Law of Treaties would permit human rights treaties applicable between the parties to aid in the interpretation of investor rights in the investment treaty; using ECtHR practice as guidance regarding the assessment of damages to the investor and/or costs; and noting existing or contemplated parallel proceedings before the ECtHR.

Thus, it appears that investment arbitrators are far from unaware of international and regional human rights implications for investment law, and they are prepared to revert to them in the context of supporting investor rights. Importantly, however, human rights in these cases are employed as supplementary means to strengthen findings relating to investor claims.Footnote ³⁹ That is, they are not regarded as the primary norms that in themselves establish these claims as rights in the sense of endowments – this is perceived as the operation of investment law, as has been discussed in the previous section. Rather, human rights as used in the majority of cases provide only secondary guidance and justification regarding how an investor’s rights should have been respected in additional conformity with human rights obligations.

Only a few decisions touch on the human rights of host state populations that potentially compete with investor rights or conflict with them. There could be several reasons why this is the case. What is important for our purposes is that in all of these cases, in contrast to the broad acceptance of investors as bearers of human rights, host states’ human rights arguments were rejected. We found little analysis that could cast a bright light on the ways in which tribunals perceive the human rights of host state populations, although we can try to deduce their perceptions from the reasoning that they have employed. In only one case (South American Silver v. Bolivia, discussed briefly below) did a tribunal reject the actual normative applicability of the human rights raised by the host state as a defence (which is clearly different from a positive claim), though not as a general matter, but for reasons related to the particular human rights in question. The most common approach taken by tribunals has been to deny that investor rights and human rights of the host state population were in fact in conflict, usually suggesting that the host state government could or should have been able to comply with both its obligations under the investment treaty and protect the human rights of its populace. These findings can be read as inferring that the host government could have pursued the promotion of the human rights of its population without detracting from the investor’s rights. We deal with these cases below, generally in reverse chronological order, and explain how this approach suggests that arbitrators view investor rights in very different ways compared with to the rights of the host state population: the former as endowments of present claimants that have been lost, and the latter as aspirational gains of less visible stakeholders that require positive action by the government for their fulfilment. To be sure, this is in keeping with the mainstream doctrinal perception of economic and social rights as ‘positive’ rights, a perception that comes into harsh relief when contrasted with the acceptance of investor claims as rights. Moreover, it is undeniable that almost all IIAs do not provide any explicit reference to human rights, either as obligations or defences; and arbitrators are limited, in principle, though not absolutely, to the claims of the parties

In South American Silver v. Bolivia,Footnote ⁴⁰ Bolivia argued that investment treaty obligations and human rights obligations should be subject to the principle of systemic integration, but in cases of conflict between human rights norms (here, Indigenous rights) and obligations of investment protection, human rights should prevail. The tribunal found that none of the human rights norms raised by Bolivia were norms of customary international law or were found in treaties that either Bolivia or the investor’s home state were parties to. This dismissive approach to the relevance of Indigenous rights, regardless of whether or not the analysis is correct under international law, clearly demonstrates the gap between investor rights as reflecting solid endowments, in contrast with (some) human rights that are merely aspirational. The tribunal also found that Bolivia had not further articulated why the relevant human rights norms conflicted with the BIT or should prevail over its provisions, similar to the other cases discussed here.

In Bear Creek v. Peru,Footnote ⁴¹ the claimant’s mining project was controversial and had attracted large protests by the Indigenous communities whose land was affected and who did not stand to benefit from the project. Peru eventually revoked the mining rights on the basis that it needed to quell the unrest, with the effect that the project could not continue. The tribunal found that Peru had known about community opposition to the project for some time but had made the necessary approvals, concluding that the revocation amounted to an indirect expropriation. Here too, it is evident that the tribunal’s majority viewed the investor’s mining concessions as an endowment lost (e.g., in determining its jurisdiction, referring to Peru’s constitution and law to establish that concession rights as ‘rights in rem’),Footnote ⁴² whereas the relevant Indigenous rights (such as the right to informed consultation), are viewed as something to be gained, which here was not fulfilled. In a partial dissent, Arbitrator Sands argued that the ILO Convention 169 on Indigenous and Tribal PeoplesFootnote ⁴³ was applicable law and that it should have been taken into account in terms of assessing the sufficiency of the consultation undertaken by the investor (but as no counterclaim was made, this would likely not have affected the outcome).

In Urbaser v. Argentina,Footnote ⁴⁴ provincial Argentine authorities had, following the 2001 financial crisis, renegotiated and then terminated a contract for the provision of water and sewerage services. The tribunal found that it had jurisdiction to consider a counterclaim based on human rights. It agreed that private parties (i.e., the investor) were obliged to comply with human rights norms in the sense of refraining from acting in a way that destroyed the enjoyment of rights, but did not agree that, like the government, they had a positive obligation to facilitate access to water.Footnote ⁴⁵ The tribunal held that Argentina should have fulfilled these obligations ‘in a manner that comports with the [FET] standard’.Footnote ⁴⁶ This approach, too, focuses on the forward-looking or aspirational character sometimes attributed to social rights such as the right to water – a right to something that ought to be fulfilled in the future through positive action, placing this responsibility squarely on the shoulders of the government, while viewing the investor’s contract as an endowment lost, regardless of the government’s positive obligations.

Indeed, as far as we are aware, all investment cases where the human rights of host state populations have been engaged to date have concerned economic, social and cultural rights. In this regard, it could be that tribunals are influenced by the framing of these rights in juxtaposition to civil and political rights in the sense of the classic (although artificial)Footnote ⁴⁷ negative-positive rights dichotomy, which is based on the distinction between the rights contained in the International Covenant on Civil and Political Rights and the those found in the International Covenant on Economic, Social and Cultural Rights (ICESCR).Footnote ⁴⁸ There is almost no evidence from the decided cases that investment tribunals have expressly considered this dichotomy,Footnote ⁴⁹ but the general literature does support the idea that positive/negative framing may have cognitive effects on judicial decision-making.Footnote ⁵⁰ In only one case (Urbaser, discussed above) does a tribunal discuss the nature of obligations under the ICESCR, noting that one of the General Comments of the Committee on Economic, Social and Cultural Rights provides that the right to an adequate standard of living and the right to the highest attainable standard of health under the ICESCRFootnote ⁵¹ ‘imposes a duty on each State party to take whatever steps are necessary to ensure that everyone enjoys the right to water, as soon as possible’.Footnote ⁵² Finding that the investor itself had no such duty as a matter of international law, the tribunal stated: ‘The situation would be different in case an obligation to abstain, like a prohibition to commit acts violating human rights would be at stake.’Footnote ⁵³

In EDF v. Argentina,Footnote ⁵⁴ Argentina argued that the emergency measures it took due to its 2001–2002 economic crisis, such as the ‘pesification’ of concession contracts in the energy sector, were done to protect (unspecified) human rights. The tribunal observed that once the crisis had abated, there was no need to continue the emergency measures in order to protect human rights, and the government should have reverted to the previous position. The tribunal did not comment directly on the relevance of protecting human rights during the time of the emergency. The vagueness of the arguments in this case make it difficult to draw conclusions relating to the question at hand, but we would contend that it reflects a view whereby the aspiration to fulfil human rights (as gains to the host population) can take precedence over the protection of investor rights perceived as endowments only temporarily and in exceptional circumstances. In ordinary times, the duty of progressive realization of social rights – though not referred to as such – as a forward-looking aspiration, is not seen to be in conflict with the preservation of investor endowments.

In two related cases involving water concessions,Footnote ⁵⁵ Argentina argued that its human rights obligations to assure its population the right to water prevailed over its investment obligations as derived from BITs, but was unsuccessful in persuading the tribunal on this issue. The tribunals, in almost identically worded decisions, concluded that:

This, in our analysis, represents (however implicitly), a view that governments have an obligation to promote the progressive attainment of human rights, without incurring any loss to the investor’s right understood as an endowment – as opposed to a view that would consider both sides of the equation as losses.

For the sake of completeness, it bears mentioning that in several cases, it appears that Argentina had raised but not developed its human rights arguments before the tribunal. In these cases, a human rights argument was briefly mentioned but not dealt with in the decision, meaning that it cannot contribute meaningfully to our analysis. In Mobil v. Argentina, Argentina argued that its human rights obligations were relevant to interpreting its investment obligations,Footnote ⁵⁷ whereas the claimant contended that there were no relevant human rights obligations at issue.Footnote ⁵⁸ The issue was not discussed further by the tribunal. In Siemens v. Argentina, Argentina argued that a finding in favour of the claimant would breach human rights law, but did not develop the point further.Footnote ⁵⁹ And in Azurix v. Argentina, Argentina argued that a conflict between a BIT and human rights treaties must be resolved in favour of human rights, but the tribunal ruled that ‘The matter has not been fully argued and the Tribunal fails to understand the incompatibility in the specifics of the instant case.’Footnote ⁶⁰

In sum, although, the body of tribunal decisions relating to the human rights of host state populations is undeveloped and lacks explicit theoretical discussion of the status of such rights vis-à-vis investor rights, we argue that a common thread can be identified: the perception that human rights are something to be realized in future, primarily through positive government actions. This suggests, in our view, a psychological explanation: the framing of human rights as aspirations, in contrast to investor rights as endowments.

5. The loss–gain frame: Investor rights, human rights and cognitive psychology

Our analysis so far has demonstrated that the lens of ISDS decisions – also as a reflection of the IIAs themselves, and human rights law – places investor claims and the human rights of non-investors in the host state in very different positions. To be sure, the normative priority of certain rights or interests over others depends on the normative structure of the regime, and, unlike investors, host state citizens generally lack standing in investor-state arbitrations. However, arbitrators have by and large, albeit without sufficient theoretical grounding,Footnote ⁶¹ considered investor claims to be based on investor rights, often construed as property rights. This translates into a perception of such rights as ex ante endowments that risk being (or more accurately, have been) lost or otherwise impaired because of governmental action.Footnote ⁶² In contrast, arbitrators have, in the small pool of cases that have raised the issue, considered the human rights of host state populations as aspirational. They may exist in theory, but they have not yet been realized, and certainly not in full. Although they may be gained in the future, or could have been gained, with sufficient positive government action, this is usually understood to be disconnected from the negative obligations towards the investor and their investment, which is seen as an endowment.Footnote ⁶³

Thus, in its simplest form, the question of investor rights that compete with non-investor human rights in ISDS has taken on a basic structure of investor loss versus non-investor gain. Moreover, in terms of probability, the loss - the alleged violation of investor rights – is certain (if the existence of the investment has been established) because it has already occurred. The contrasting gain, however – the fulfilment of human rights – is depicted and framed as uncertain, a possibility whose realization is contingent on a variety of factors such as positive governmental intervention. The circumstances of the particular dispute with the investor are only one factor among many, that arbitrators prefer to distinguish from the human rights questions entirely.

On both sides of the equation, this calculus may be factually and legally flawed. Investor claims do not always constitute endowments, whereas human rights often do, in the sense that they are enjoyed by their holders. What is important for present purposes, however, is that this is the frame of analysis that has emerged from actual arbitral decisions. It is within this loss–gain framework that arbitrators have so far made their decisions and justified them. They have also created this framework, through their interpretive decisions regarding investor rights and non-investor human rights, designing their own ‘choice architecture’, similar to what negotiators sometimes do.Footnote ⁶⁴ One might wonder whether these normative design preferences are intentional or otherwise, and whether they have sociological explanations.Footnote ⁶⁵ Our limited concern here, however, is to show how this loss–gain frame sets human rights at a structural decision-making disadvantage in ISDS.

The necessary starting point for this claim is prospect theory,Footnote ⁶⁶ one of the most important theories of human decision-making. In contrast with standard rational choice, exemplified by expected utility theory and the Coase Theorem,Footnote ⁶⁷ prospect theory considers that people make decisions on the basis of perceived gains and losses rather than final states of wealth, however defined. Moreover, as substantiated by robust experimental research, under conditions of uncertainty and risk, people perceive losses as greater than objectively equivalent gains, or more precisely, ‘the disutility generated by a loss is greater than the utility produced by a similar gain’, and hence, ‘people are generally loss averse’.Footnote ⁶⁸ This is the underlying intuition for two important cognitive concepts that relate strongly to our analysis of ISDS in the present context.

The first is the endowment effect, according to which ‘individuals tend to place a higher value on objects and entitlements they already have, compared with objects and entitlements they do not’.Footnote ⁶⁹ The second is framing effects, that arise when alternative descriptions of the same decision problem lead to different preferences,Footnote ⁷⁰ often as a result of loss aversion. When a choice between a certain outcome and a probabilistic one is framed in positive gainful terms (e.g., the number of people saved by one vaccine in an epidemic disease crisis, when the effect of one vaccine is certain and that of another is potentially greater but uncertain), people will avoid the riskier option. When the same decision is framed as potential losses (how many people will die due to the disease if one vaccine is administered and not the other), people will prefer the riskier one. This is the classical illustration of this cognitive phenomenon in Kahneman and Tversky’s ‘Asian disease’ experiment.Footnote ⁷¹ Both endowment effects and framing effects have provided fertile ground for discussion of decision making in legal contexts, including decisions by judges and arbitrators.Footnote ⁷²

Against this background, we apply this theory, while based on empirical observations on real decision-making displayed through our survey of the decided investment cases, to suggest a cognitive explanation for the negative record of ISDS in taking into account the human rights of host-state populations. Theoretical applications such as ours take research scenarios in which a divergence from perfect rationality is noted on the basis of general empirical evidence, and then apply the ramifications to a different legal rule or institution and set of circumstances.Footnote ⁷³ As the legal construction of investor claims by arbitrators frames the former as rights in the nature of endowments, while the legal construction of opposing human rights frames them as aspirational gains, arbitrators may be susceptible to a cognitive tendency that attaches greater relative value to the loss of an endowment than to the potential gain. We emphasize the relativity involved – what is at stake in the decision-maker’s mind is not the final position of the investor and the final position of, say, the First Nations people on whose land the investor received a mining concession. Rather, it is the arbitrators’ perception of relative (certain) loss to the investor pitted against the perception of relative (uncertain) gain to the affected people. This is largely the result of the endowment effect and the implicit framing of the problem.

Moreover, as already noted, in an ex post arbitration, at least in all those that have been surveyed, it would appear that the loss to the investor is perceived as a certainty (again, once arbitrators have found that a legally defined investment indeed existed in accordance with the applicable investment agreement), whereas the human rights gains to the non-investors are a potentiality, subject to risk and uncertainty. This is a relatively complex framing in its asymmetries, but it is conceivable that the arbitrator would in this frame have a tendency to value the certain loss as greater than the uncertain gain. We reiterate that this decision-making frame has been established by the decision-makers themselves, i.e., the arbitrators. Thus underlying, implicit cognitive biases in favour of investors may be in play, at the sociological level.Footnote ⁷⁴ This does not, however, negate the argument because it suggests that arbitrators may (if only subliminally) consider it more justifiable to discount non-investors’ human rights within a loss–gain frame, whether of their own construction or as a consequence of the formal legal framework of IIAs.

One potential objection to our approach is that we go beyond classical prospect theory insights, as the scenario we discuss is not one in which individuals weigh their choices with respect to their own losses or gains. Rather, arbitrators are assessing the relative value of the losses and gains of others, and one might also note that the losses are of one party (in casu, the investor) and the gains to another (the non-investors). Although the basic and well-known Prospect Theory framework relates to the assessment of gains and losses to the self, there is experimental basis for the contention that endowment effects and framing effects exist also in scenarios such as these – that is, when decisions or evaluations are made on behalf of others, even when these others occupy differential positions, and also in legal settings. Thus, in a seminal analysis of cognitive biases and heuristics in judicial decision-making (which is comparable to arbitration in this regard), an experimental study of federal US judges’ assessment of settlement offers showed them to be subject to framing effects relating to the losses and gains of others. More judges thought that plaintiffs should accept an offer (the settlement offer being a certain gain, compared to the uncertain gain of a possible litigation win), than thought that defendants should accept the same settlement deal (the offer representing a certain loss to the defendant, with continued litigation leading to an uncertain loss).Footnote ⁷⁵ Another empirical study in the area of bankruptcy law found that judges tended to be pro-debtor in cases that ‘pit a highly risk-averse party (the debtor or unsecured creditors) against a risk-neutral or relatively less risk-averse party (secured creditors)’.Footnote ⁷⁶ Neither of these studies goes hand-in-glove with the investor rights versus human rights scenarios discussed here, but they do demonstrate that endowment effects and framing effects may apply also in respect of decisions made by one person concerning other people.

Another point to contemplate is that arbitrators may not actually be considering the population of the host state as a party or actor whose interests and rights are to be taken into account. Rather, they see the host state government as representing its population. This conflation may create a distance that makes the preference in the valuation of the investor’s rights even stronger (and as we have seen in Section 4, permits arbitrators to shift the issue of responsibility to give effect to the relevant human rights onto the host state government).

Finally, it is important to note that although we have presented this cognitive framework as pitting investor losses against non-investor gains, this presentation is not a reflection of the current doctrinal analysis undertaken by tribunals. We acknowledge that the prevalent formal construction is of investor claims versus host state obligations, and this indeed might be a significant part of the problem, insofar as investment tribunals do not consider the interests and indeed rights of host state populations independently, let alone explicitly. We will return to some of these points in our prescriptive suggestions in our conclusion, below.

6. Conclusions: Can the loss–gain frame be reframed?

Adopting the language of rights as a framework for discussion, in this article we have investigated the attitudes adopted by ISDS tribunals towards the competing rights of investors and host state populations. We have seen that scholarly literature, as well as arbitral decisions, have a strong tendency to treat investor claims as investor rights, often as property rights, although the theoretical grounding for this proposition is only partial at best. In contrast, human rights are largely treated by ISDS tribunals as supplements to investor rights, and only in a few cases have the human rights of non-investors been addressed. Moreover, we have shown that investor rights are by and large framed by tribunals as endowments that have been lost (insofar as there is an evidential basis for the investment claim itself), while the competing human rights of host-state populations are considered to be aspirational and potential gains. On this basis, we have suggested that this loss–gain frame triggers certain cognitive effects that set human rights considerations at a structural disadvantage vis-à-vis investor rights: endowment effects and framing effects.

We consider this state of affairs undesirable in several respects. It is important to clarify not only the characterization of investor claims as rights, but the nature of these rights and the extent to which they are defeasible when they compete with other rights and interests. Greater specification of the nature of investor rights can be of great importance to the human rights of non-investors: for example, if the rights of the former are recognized as relative and derogable in the face of the competing rights of the latter.

No less importantly, we find the loss–gain frame that has been developed – perhaps unwittingly – by tribunals in the few relevant cases, and the structural disadvantage in which it places the human rights of host state populations, as highly problematic in times in which the legitimacy of the ISDS system rests, to a substantive degree, on its ability to take into account not only the interests of investors, but also the concerns of other stakeholders.

In conclusion, we make some brief suggestions towards how this frame could be dismantled, or at least weakened. First, the perception that human rights of non-investors are prospective gains, even when economic and social rights are at stake, is not aligned with progressive understandings of human rights. Tribunals should take as a reference point not the current human rights situation of potentially harmed populations, but rather the situation in which international human rights standards would expect them to be. Second, tribunals should establish an interpretative, rebuttable presumption that the host state is taking due steps to protect and promote human rights, especially in the areas of economic and social rights. While this might appear to merely strengthen state positions against investor claims, we contend that it would more particularly strengthen the position of human rights, by reframing them as endowments. Both of these approaches would go some way towards rectifying the certain loss – uncertain gain framework. Third, tribunals should consider the rights of host state populations regardless of the host state’s litigation strategy, thereby overcoming the ingrained dyadic characterization of the interests at stake. This can be achieved through procedural methods such as amicus briefs or third-party participation by non-state representatives, but notwithstanding such mechanisms, this approach should be adopted by tribunals themselves, ex proprio motu. A fourth approach would be to rely on techniques such as proportionality analysis that would provide a more transparent and coherent analytical structure to reconcile the investor’s losses with the losses (or foregone gains) to the human rights of non-investors in host states, while recognizing the need for circumspection and deference with respect to deploying this method of review in the ISDS context.Footnote ⁷⁷ These are all issues worthy of further contemplation and, where possible and helpful, of empirical research.