I. Introduction
Most scholarship on international investment law focuses on the extensive network of thousands of bilateral and multilateral investment treaties that have been concluded over the last sixty years. Nearly every state has signed at least one investment treaty, and these treaties have sparked hundreds of investor-state claims in international arbitration and generated a surfeit of commentary and debate.Footnote 1
Alongside these international instruments, 108 states also maintain domestic statutes on foreign investment.Footnote 2 These foreign investment laws (FILs) offer many of the same substantive protections as investment treaties. FILs adopt definitions of “investor” and “investment” that strongly resemble equivalent definitions in investment treaties. FILs commonly include guarantees on transfer of capital, expropriation, and non-discrimination (national treatment),Footnote 3 again mirroring core protections in investment treaties. Some FILs also include a guarantee of fair and equitable treatment found almost universally in investment treaties.Footnote 4 Notably, some FILs also provide the state's prospective consent to the same dispute settlement mechanisms as investment treaties, allowing investors to file claims for breach of FILs before international arbitral tribunals.Footnote 5 At least sixty-one claims relying on a FIL have now been brought to the International Centre for Settlement of Investment Disputes (ICSID) and other arbitral forums. FIL cases have represented roughly 10 percent of new cases filed at ICSID in each of the last ten years, peaking at 17 percent in 2010 and 2013.Footnote 6
The rate of adoption of new investment treaties has declined significantly since the mid-1990s,Footnote 7 likely due to the significant controversies these instruments have created. However, there has not been a corresponding decline in the adoption rate of FILs, which has remained relatively constant since 1990.Footnote 8 Even as the investment treaty regime undergoes a soul-searching period of reflection, the proliferation of FILs has continued unabated.
Despite the significance of FILs for the international investment regime and for international law more generally, they have received remarkably little attention.Footnote 9 The extensive policy debates characterizing the current investment treaty literature and reform projects are almost entirely absent in discussions of FILs.Footnote 10 In addition, arbitral tribunals have shown little willingness to theorize about the nature of FILs or the international law framework of disputes based on a FIL. In some cases, tribunals have even referred to FIL claims as “treaty claims.”Footnote 11
But FILs are not treaties, and their many similarities with investment treaties conceal questions crucial to understanding their place in the investment regime and in international law more generally. This article focuses on one fundamental puzzle relating to these questions: how should FILs be characterized? It argues that there are two plausible ways to view these laws. First, despite their domestic law origins, FILs may be characterized as unilateral acts in international law—i.e., as obligations taking effect on the international plane, assumed by states unilaterally. Second, FILs may instead be ordinary instruments of domestic law.
These competing characterizations have important consequences for doctrinal questions that arise in disputes relating to FILs. In particular, whether or how the international law of state responsibility applies to investor claims under FILs, and whether or how FILs may be terminated, depend on which approach is adopted. The characterization also affects other issues, such as the interpretation of FILs and the determination of compensation.
The remainder of this article proceeds as follows. Part II lays the groundwork by comparing FILs to their better-known international cousins, investment treaties. It reviews the origins of FILs and explains the independent motivations for states to adopt these laws in tandem with the investment treaties whose contents they often closely replicate. Part II then argues that many of the ongoing debates about investment treaty arbitration, and the interpretive paradigms that feature in that field, are likely to be replicated in FIL arbitration.
Part III considers the first possible characterization of FILs—as unilaterally assumed obligations in international law—and traces its doctrinal consequences. There is a good case for treating FILs as unilateral acts owed by states directly to investors, and several tribunals have taken this approach in reviewing FIL arbitration consent clauses. I contend that a unilateral act characterization plausibly extends as well to the substantive protections offered in FILs. On this view, FIL breaches are unlikely to breach treaty-based “umbrella” clauses, in contrast with the domestic law characterization discussed below. In addition, apart from certain defenses including countermeasures, the ordinary rules of state responsibility would apply, perhaps with less conceptual difficulty than in investor-state claims under treaties. A further implication of viewing FILs as unilateral acts is that, subject to certain exceptions (such as where there are stabilization clauses or pending claims), states may terminate them immediately.
Part IV considers the alternative characterization of FILs as ordinary instruments of domestic law. Some tribunals have assumed or implied this view, while others have ignored the question entirely. Addressing the issue directly, Part IV identifies several doctrinal implications that flow from this conceptual framing. Differing domestic statutory construction rules could result in divergent interpretations of similar terms in FILs, although international law may also play an interpretive role. In addition, the law of state responsibility (particularly attribution) is likely to apply in a more indirect manner than under the unilateral act characterization.
Other differences may be more consequential. For example, compensation awards may be lower when FILs are treated as domestic law, due to prohibitions on compound interest or remedial rules that balance public and private interests. Further, the customary international law defense of necessity will not apply to FILs as ordinary domestic legislation, unlike under the unilateral act framing. Other consequences of the characterization include a greater likelihood of cost-shifting orders, fewer concerns about arbitrator “double-hatting,” and a greater possibility of investors seeking to abrogate prior waivers of their FIL rights. Part IV contends, however, that domestic law time-bars are unlikely to affect FIL claims under either characterization. Part IV concludes by arguing that, as domestic law, FILs can be immediately terminated, but for different reasons than under the unilateral act characterization.
The treatment of FILs raises a number of broader conceptual and institutional issues. States have no predetermined reason to prefer one characterization over the other; as this article demonstrates, where outcomes or doctrines differ based on the chosen frame, they sometimes favor governments and at other times favor investors. Nevertheless, as with investment treaties, the origins, motivations, and underlying structures of FILs need to be grasped to lay the groundwork for evaluating any FIL reform agenda that may emerge. There are also urgent reasons to understand these laws if states begin to (or continue to) adopt them as an alternative to beleaguered investment treaties. Most broadly, the alternative characterizations of FILs imply different allocations of authority between domestic and international law, a perennial concern of states and nonstate actors. This article proposes a conceptual framework to analyze these issues, providing the first comprehensive account of FILs that situates these hybrid instruments from the perspective of public international law.
II. Drivers and Paradigms
The many similarities between investment treaties and FILs mask important overlooked differences, which must be properly identified before characterizing FILs as international or domestic law, and before addressing the doctrinal issues implicated by that choice. This Part argues that FILs differ from investment treaties in the drivers that led to their adoption and in the degree to which various analytical paradigms that characterize investment treaty arbitration apply to FIL arbitration. These drivers and paradigms, in turn, affect the resolution of various doctrinal issues that follow from how FILs are characterized.
Drivers of FILs
The reasons why states began signing investment treaties in the 1960s, the drivers of their explosive growth in numbers in the 1990s, and the factors leading to the more recent slowdown in that growth have all been well documented.Footnote 12 By contrast, although states also began enacting FILs in the 1960s and did so in increasing numbers in the 1990s,Footnote 13 the reasons for those enactments have received significantly less attention.
Given the ubiquity of investment treaties, the concurrent growth of FILs appears puzzling. Under the traditional “grand bargain” of investment treaties, a host state assumes the burdens of offering protections for foreign investors, and in return receives the twin benefits of potential inward investment flows and reciprocal protection of its outward investors in the partner state.Footnote 14 At first glance, under the traditional bargain, it may seem strange that a state would unilaterally offer protections to foreign investors in FILs, rather than pursuing bilateral or multilateral treaties. While a unilateral offer may still promote inward foreign investment flows, it eliminates the possibility of reciprocity, arguably removing any incentive for a partner state to offer protections in a treaty in return for securing protections for its own investors.Footnote 15
Despite the arguable drawback of non-reciprocity, there are underappreciated reasons why states would nonetheless enact FILs.Footnote 16 First, in recent times it has become increasingly difficult for states to reach agreement on international economic law. Passing a domestic statute establishing a state's desired level of foreign investment protection may be easier than incurring the transaction costs of negotiating a treaty with one or more partners.
Second, to the extent that domestic legislatures are involved in their creation,Footnote 17 FILs represent a mode of international lawmaking that offers greater transparency and accountability for citizens than treaties, which are often negotiated and concluded by the executive without parliamentary oversight.Footnote 18 These concerns may lead states to prefer FILs over investment treaties.
Third, FILs may be designed in ways that allow states to retain sufficient bargaining chips to negotiate for reciprocity. Although often closely following the terms of investment treaties, FILs do not necessarily contain the full suite of investor protections found in those international instruments. For instance, only a handful of FILs contain a guarantee of fair and equitable treatment, and not all FILs contain clear consent to international arbitration. These missing protections could induce a partner state to conclude a treaty despite a preexisting investment protection law. Some FILs encourage this possibility, incorporating more investor-favorable provisions from subsequent treaties into the statute itself.Footnote 19
Fourth, some states may place a lower value on reciprocity. Most FILs have been enacted by developing countries, capital-importing states for which the benefits of reciprocity are often limited. Such states may be more interested in attracting inward investment than protecting outward investors, meaning that they give up little even when they unilaterally offer very strong protections. Indeed, if FILs are an effective means of attracting foreign investment,Footnote 20 it may be more surprising that states with little or no outward investor interests would expend any effort on concluding bilateral treaties rather than simply relying on FILs.
Fifth, unlike most investment treaties, FILs do not focus solely on investment protection. They often serve many additional functions, including investment promotion and regulation. Some FILs establish “one-stop shops” for foreign investors, such as Indonesia's Investment Coordinating Board (BKPM), which handles all permits and approvals required for investors seeking to enter the country.Footnote 21 Other FILs establish investment-screening bodies and monetary thresholds, create tax or financial incentives for foreign investment, or specify the legal forms in which foreign investors can establish themselves in the state.Footnote 22 Still other statutes combine all the relevant business-related laws (on contracts, tax, intellectual property, corporate forms, etc.) into one instrument to simplify the legal rules applicable to foreign investors.Footnote 23
Sixth, and relatedly, it is now well known that the potential adverse effects of investment treaties were not widely appreciated when most of those treaties were negotiated prior to the mass onset of investor-state claims in the 2000s.Footnote 24 Although the risks associated with FILs are less certain, states could have been equally blasé about the investor protection provisions of those instruments given their similarities to investment treaties. On this view, one would not expect any concern that adopting a FIL would discourage the negotiation of investment treaties.
Seventh, historical evidence suggests that FILs were not perceived to be in competition or tension with investment treaties.Footnote 25 Instead, FILs were commonly adopted as part of a broader package of domestic investment regime reforms, often on the advice of the United Nations, the World Bank, or the United States.Footnote 26 In some cases, FILs paved the way for investment treaties to be signed by preparing the state to make liberal commitments on matters such as expropriation, full compensation, free transfers of capital, and non-discrimination.Footnote 27 Once these commitments were included in domestic instruments, some states then used treaties to “lock in” the domestic commitments (given a perceived greater difficulty in amending treaties) and to prevent later governments from regressing to illiberal policies.Footnote 28
As this discussion has shown, the drivers for enacting FILs and concluding investment treaties were largely independent. This conclusion also matches state practice. If enacting a FIL removed potential partner states’ incentives to seek an investment treaty, one would expect states enacting FILs to have difficulty concluding any subsequent treaties. However, this does not appear to be the case. Tunisia, for instance, concluded several investment treaties following the adoption of its 1969 FIL; similarly, Kazakhstan and Kyrgyzstan concluded treaties with various states after enacting their FILs in 1994 and 1997 respectively.Footnote 29 Even for states with strongly investor-protective FILs that have led to monetary awards following findings of breach, partners have nevertheless been willing to conclude subsequent treaties containing essentially the same protections.Footnote 30 Recent research on the origins of investment treaties indicates why this is so. Poulsen and Aisbett have demonstrated that investment treaties were sometimes concluded not for any purpose relating to investment, but instead as a marker of diplomatic friendship between states and as a personal fillip to the reputation and salary of the diplomats involved.Footnote 31 Enacting a FIL in the national parliament does not offer officials the same attractive travel perks as a treaty negotiation. Moreover, another early driver of investment treaties in developed states was a desire to solidify an investment-friendly view of customary international law. Thus, U.S. and European negotiators pursued investment treaties as a response to the New International Economic Order, aiming to shape custom in a direction supportive of rich-country interests.Footnote 32
Regardless of any FIL, then, both developing and developed states likely had other reasons to continue to seek investment treaties alongside FIL protections. Part III of this article examines what these independent drivers of FILs and investment treaties imply about the legal characterization of the statutes.
Paradigms of FILs
Anthea Roberts has described investment treaty arbitration as a hybrid, sui generis system, drawing elements from multiple competing fields of law (or “paradigms”): public international law, international commercial arbitration, domestic public law, international trade law, human rights law, and third-party beneficiaries.Footnote 33 Although based on treaties, classic instruments of public international law, the system utilizes the dispute resolution and enforcement mechanisms of international commercial arbitration. Meanwhile, investment treaty disputes often resemble public law regulatory disputes that adjudicate the relationship between the state and the individual; trade law disputes that balance economic and noneconomic interests; and human rights disputes, with individuals challenging government action before an international body. Doctrines relating to third-party beneficiaries, drawn from both public international law and domestic contract law, are relevant too, given that investment treaties create rights, or at least benefits for non-parties (i.e., investors).
These competing paradigms each privilege different aspects of investment treaty disputes, and suggest different answers to questions arising from those disputes.Footnote 34 For instance, the public law paradigm would favor admission of amicus curiae briefs, while the international commercial arbitration paradigm would view this as an inappropriate intrusion into a confidential dispute between two equal parties, the investor and the state.Footnote 35 The third-party beneficiary paradigm might impose constraints on certain modes of amendment or termination of investment treaties, even though a strict application of the public international law paradigm would not.Footnote 36 The human rights paradigm suggests that states should pay their own legal costs, even if successful, while the international commercial arbitration paradigm tends to the view that the losing party bears the successful party's costs,Footnote 37 and the public international law paradigm would likely disfavor any cost-shifting at all.
Commentators have not yet considered how or whether FIL disputes are similarly subject to this “clash of paradigms.” For investment treaties, Roberts has offered three reasons why the different paradigms have emerged.Footnote 38 First, the investment treaty system is “new and undertheorized,” encouraging its participants to borrow from related fields to fill gaps. Second, investment treaties are vaguely worded, and rules of treaty interpretation are often unhelpful in determining the meaning of key concepts like expropriation or “fair and equitable treatment.” Third, the system is decentralized, with thousands of treaties and no singular authoritative voice to favor a particular paradigm or facilitate cohesion.
These reasons apply equally to FIL disputes. First, although in existence since the 1960s, FILs were invoked in only four known cases before 2000, two of which settled,Footnote 39 leaving the bulk of FIL claims to arise at around the same time as the flood of investment treaty claims in the 2000s. Second, the key investor protections offered in FILs are no clearer than their counterparts in investment treaties. Article 25(1) of Ethiopia's 2012 FIL, for instance, provides that “[n]o investment may be expropriated or nationalized except for public interest and then, only in conformity with the requirements of the law,” and that “[a]dequate compensation, corresponding to the prevailing market value, shall be paid” for expropriation. Article 25 of the Democratic Republic of the Congo's 2002 FIL offers investors “fair and equitable treatment, in accordance with the principles of international law.” These provisions do not contain any greater definition of expropriation or fair and equitable treatment than in the typical investment treaty. Third, although the maximum number of FILs is bound by the number of states, this still leaves roughly two hundred potentially different FIL texts. Moreover, as noted above, where FILs contain a clause consenting to investor-state arbitration, they rely on the same decentralized dispute resolution mechanisms as investment treaties, typically arbitration before ad hoc tribunals at ICSID and/or under the UNCITRAL arbitration rules, which have no formal precedent constraints or appeal possibilities.
This suggests that a clash of paradigms could also emerge in FIL arbitration. However, this clash will not necessarily involve the same paradigms as those at play in investment treaty arbitration. In particular, given that FILs are not treaties, it is not immediately clear whether the public international law paradigm can apply to FIL arbitration. (Part III of this article argues, however, that one way in which this paradigm might apply is by characterizing FILs as unilateral acts under public international law.) It is also not obvious that a third-party beneficiary paradigm has any relevance to FILs; only one party (the state) is involved in creating FIL obligations, even if those obligations are granted in favor of another party (the investor). Furthermore, given that international trade and human rights law are both part of public international law, comparisons with those fields might again beg the question of whether FIL arbitration is part of public international law. For example, one prominent use of trade law in investment arbitration has been in analyzing the “essential security” clause, where World Trade Organization (WTO) case law on “necessity” has been applied to interpret an equivalent term in certain investment treaties.Footnote 40 Existing FILs, however, do not contain essential security clauses,Footnote 41 reducing the utility of the trade law comparison in FIL arbitration.
Nevertheless, there are good reasons to conclude that other investment treaty paradigms do apply to FILs. Since FILs employ the same commercial arbitration and enforcement mechanisms as investment treaties, the commercial arbitration paradigm is an important feature. A FIL tribunal is arguably a creature of the two disputing parties’ exercise of autonomy, owing no wider duties to other parties, and in this sense perhaps similar to an investor-state contract dispute. At the same time, the public law paradigm also seems apt. Two theories support the application of this paradigm to investment treaty arbitration.Footnote 42 The “public action” theory emphasizes that the state acted in its public capacity when assuming the relevant investment obligations (i.e., when concluding the investment treaty). The “public interest” theory, meanwhile, highlights various factors demonstrating that the dispute involves “significant matters of public concern”: namely, the dispute's substance relates to regulatory or governmental (as opposed to commercial) conduct, concerns public services, and/or has large implications for the public purse. Both these theories apply equally to FIL arbitration, where the subject matter and potential financial implications of the disputes are largely identical to investment treaty arbitration, and where the relevant obligations flow from an exercise of state power in a public capacity—i.e., passing legislation (whether or not this legislation creates a unilaterally assumed international obligation, as discussed in Part III).
In addition, international public law fields such as trade and human rights can serve as models for FIL arbitration, despite some limitations in the FIL context. Like trade and human rights law, FILs deal with “the ability of states to act and regulate domestically,”Footnote 43 affecting the vertical relationship between the state and the individual. Even if FILs are merely domestic law and international human rights law is not a relevant comparator, one might draw on individual rights found in domestic law, including its concern for standards of review and judicial deference to other government actors.Footnote 44 Similarly, analyses of non-discrimination in trade law might well be relevant, given the frequent presence of national treatment obligations in FILs. Lastly, despite the presence of only two parties in the FIL context, questions of reliance that arise in the third-party beneficiary paradigm may be relevant to termination of FILs and the consequences for investors.
None of the paradigms entirely explains investment treaty arbitration,Footnote 45 and it is not surprising that no one paradigm explains FIL arbitration. As will be seen in Parts III and IV, however, different features of each paradigm are relevant to a range of doctrinal issues that arise in FIL arbitration.
III. FILs as Unilateral Acts
Perhaps the most obvious way to understand FILs is to treat them as simple domestic laws; they are, after all, products of domestic legislatures. This view will be examined in Part IV. But a more interesting characterization is also plausible—FILs as unilateral acts that create binding international obligations for a state. This Part considers whether FILs can be so characterized, and what consequences follow from this characterization for the beneficiaries of FIL obligations, the nature of the rights granted in FILs, the application of the international law of state responsibility, and the revocation of FILs.
Characterizing the Legal Nature of FILs
In its 1974 Nuclear Tests judgment, the International Court of Justice (ICJ) recognized that states may incur international obligations by means of a unilateral act.Footnote 46 The Court held that numerous statements made in press conferences and at the United Nations by the French president, minister of defence, and minister of foreign affairs, to the effect that France would cease atmospheric nuclear weapon tests in the South Pacific Ocean, constituted binding international obligations. As the Court put it:
It is well recognized that declarations made by way of unilateral acts, concerning legal or factual situations, may have the effect of creating legal obligations. … When it is the intention of the State making the declaration that it should become bound according to its terms, that intention confers on the declaration the character of a legal undertaking … .Footnote 47
The judgment engendered a range of reactions. While previous cases and state practice supported the concept of unilateral acts creating international obligations,Footnote 48 it “remained a leap for the Court to assume that the general bindingness of unilateral assurances made by a state was not subject to debate but was simply ‘well recognised.’”Footnote 49 Some commentators, and two of the dissenting judges in the case, disagreed with the decision on the facts, seeing the French declarations as mere statements of government policy with no legal import.Footnote 50 Nevertheless, the basic principle set out in Nuclear Tests also found contemporaneous support,Footnote 51 and was applied again by the Court in the Nicaragua, Armed Activities, and Frontier Dispute cases.Footnote 52 Closely tracking the ICJ jurisprudence, the International Law Commission (ILC) gave a further endorsement of the principle in its study of unilateral acts and the resulting “Guiding Principles” published in 2006.Footnote 53
Domestic laws as unilateral acts
Unilateral acts in international law are generally associated with statements or declarations made by executive branch officials, such as the French declarations at issue in the Nuclear Tests case. Most instances of state practice typically cited in discussions of unilateral acts, including by the ILC, involve such declarations.Footnote 54 This is likely because most interactions between states occur between such officials, who are tasked with representing the state in the conduct of its foreign affairs. States usually do not “speak to the world” through their legislatures or judiciaries.
However, as Caron has observed, “[a] legislative act of any state, like all other acts of a state, can have a meaning within several legal systems simultaneously.”Footnote 55 As state organs, national legislatures can undoubtedly breach international obligations (for instance, by passing laws expropriating the property of aliens) and thereby incur secondary international obligations (of reparation) for their state. Legislative action might also therefore incur new primary obligations as well, by constituting unilateral acts. Certain kinds of domestic statutes purporting to have effects on the international plane have indeed been analyzed as unilateral acts.Footnote 56 Nationality laws are one example.Footnote 57 Laws on neutrality are another.Footnote 58 Legislation establishing maritime zones has also been characterized as a unilateral act. The Norwegian Fisheries case, for instance, centered on Norway's unilateral claim of rights to maritime areas, vis-à-vis other states, made by way of domestic law. The ICJ considered that “the act of delimitation is necessarily a unilateral act, because only the coastal State is competent to undertake it,” even if the validity of the delimitation with regard to other states depended on international law.Footnote 59 Although this was primarily a unilateral claim of rights via legislation, “[i]t is equally possible … for a state to undertake obligations … simultaneously under both national and international law.”Footnote 60 Lastly, Dehaussy includes domestic laws on personal jurisdiction with regard to foreigners as unilateral acts.Footnote 61
If, however, every domestic law qualified as a unilateral act, this could “lead to complete confusion.”Footnote 62 As the Tidewater v. Venezuela tribunal put it, “[t]he great majority of legislation enacted by states produces its effects solely on the municipal plane, and one must carefully distinguish the much smaller category of cases in which the state intended its legislation to produce opposable effects in international law.”Footnote 63
Do FILs display the intention to be considered as international unilaterally assumed obligations? It is necessary here to make two distinctions: first, between the arbitration consent clause of a FIL and the remainder of the statute, including the substantive investor protections;Footnote 64 and second, between unilateral acts adopted “in the framework of a treaty” and unilateral acts “stricto sensu.”Footnote 65
Arbitration consent clauses
Many arbitral tribunals have characterized clauses in FILs consenting to ICSID arbitration as a unilateral act adopted in the framework of a treaty, namely the ICSID Convention. In doing so, they have drawn an analogy to Optional Clause declarations adopted under Article 36(2) of the ICJ Statute, which are frequently viewed as a sui generis category of unilateral act.Footnote 66 The Tidewater tribunal saw the Optional Clause as “very similar to a unilateral offer to arbitrate … both being offers that will deploy their effect on the international plane.”Footnote 67 The CEMEX and Mobil tribunals (both chaired by former ICJ President Gilbert Guillaume) found parallels in the offer of consent to international jurisdiction, made within an instrument adopted under a treaty framework (the ICJ Statute or the ICSID Convention) but not itself governed by the rules of treaty interpretation.Footnote 68 Meanwhile, citing Tidewater and Mobil, the tribunal in Lighthouse Corporation v. East Timor held simply that “[i]t is well established that legislation expressing consent to ICSID jurisdiction constitutes a unilateral declaration of a state formulated in relation to a treaty.”Footnote 69 None of these tribunals were troubled that the unilateral act was contained in domestic legislation rather than executive action.
This characterization of “unilateral act adopted in the framework of a treaty” has a number of consequences. While unilateral acts stricto sensu are said to require a restrictive interpretation (as discussed below), interpretation of a treaty-based unilateral act is more flexible.Footnote 70 For present purposes, however, a more important consequence is that the arbitration clause creates an international obligation. Given the parallels identified by the CEMEX and Mobil tribunals, the characterization is entirely plausible for FILs granting consent to ICSID arbitration.
But does it also apply to FILs granting consent to arbitration under UNCITRAL or other rules, which are not covered by any treaty framework like the ICSID Convention? For the tribunals just discussed, the important factor was less the surrounding treaty framework and more the analogy to Optional Clause declarations. In interpreting the consent clauses, the cases rely on ICJ jurisprudence interpreting the Optional Clause, including the Fisheries Jurisdiction and Anglo-Iranian Oil cases.Footnote 71 The Tidewater tribunal noted that it was “in particular the effect of submission to the jurisdiction of an international tribunal” that placed the FIL consent clause into this category of unilateral acts.Footnote 72 The Pac Rim tribunal applied this analysis even though the FIL in that case contained consent both to arbitration under a treaty (the ICSID Convention) and to arbitration outside a treaty framework (under the ICSID Additional Facility Rules).Footnote 73 On this basis, non-ICSID consent clauses can also plausibly be treated as unilateral acts in this sense.
Substantive protections
If a FIL's arbitral consent clause constitutes a unilateral act, can the same characterization apply to the statute's other provisions, most importantly its substantive investor protections? There is little direct tribunal support for this proposition. As discussed below, ABCI v. Tunisia explicitly rejects it, although the tribunal's reasons for doing so are opaque. Other tribunals may have implicitly rejected the proposition; some have suggested that FIL breaches amount to breaches of an investment treaty's “umbrella” clause,Footnote 74 perhaps implying that substantive FIL protections are only domestic statutory obligations, to be transformed to international breaches by way of the umbrella clause.Footnote 75 Other tribunals have characterized FILs as part of domestic law,Footnote 76 found that domestic law governed the claim,Footnote 77 or distinguished FIL claims from treaty claims,Footnote 78 with no mention of unilateral acts. Still other decisions have described FILs as unilateral acts without explicitly limiting this characterization to the consent clause.Footnote 79 However, these descriptions were included as part of an analysis of the consent clause itself, suggesting that they do not carry any wider implications. Thus, no tribunal has offered clear reasoning to reject the view that substantive FIL protections are unilateral acts, at best implying or assuming the issue to be inapplicable.
Scholarship on FILs similarly leaves the characterization of the statutes unresolved. Authors such as Caron purport to address whether “national foreign-investment laws [can be viewed] as unilateral acts under international law” without restricting this inquiry to consent clauses.Footnote 80 Nevertheless, despite this broadly framed question, Caron's conclusions are targeted only at “assessing whether the text of a national foreign investment law constitutes a consent to ICSID arbitration.”Footnote 81 Similarly, Potestà notes broadly that “these laws … contain assurances given by host states,” but ultimately only discusses consent clauses.Footnote 82 Mbengue also appears to assume that FILs can be construed as unilateral acts “[t]o a certain extent,” but suggests that “only some of their provisions” (namely, sufficiently clear arbitral consent clauses) qualify as such.Footnote 83 Conversely, Kjos appears to treat FIL claims as domestic law claims, but without considering the unilateral act issue.Footnote 84
Another possibility is that the investor protections in FILs are unilateral acts “stricto sensu.” This second category of unilateral acts, identified above, was the focus of the ILC study and Guiding Principles, synthesizing the ICJ's pronouncements in Nuclear Tests and later cases.Footnote 85 The category covers unilateral acts “formulated by States in exercise of their freedom to act on the international plane,”Footnote 86 including the kind of declarations made by France in Nuclear Tests itself. To qualify as a unilateral act, according to the ICJ and the Guiding Principles, declarations must be “publicly made” in “clear and specific terms” by “an authority vested with the power to do so,” and must “manifest[] the will to be bound.” The “content,” “factual circumstances in which they were made,” and “reactions to which they gave rise” will also affect a determination of whether a unilateral declaration is legally binding.Footnote 87
Neither the Guiding Principles nor the ILC study identify FILs as a particular category of domestic laws that might qualify as unilateral acts.Footnote 88 Nevertheless, FILs appear to fulfill some of the basic requirements of such acts, as articulated, for example, in the ICJ's Nuclear Tests decision. As legislation adopted by national parliaments, FILs are formal declarations, made by an authority with power to bind the state. As discussed above, even if executive conduct is more typically at issue in unilateral act analyses, there is no good reason to exclude legislative conduct, and there are existing instances of legislation being taken to bind the state internationally. FILs are also publicly made declarations, since they are frequently posted on websites and online databases,Footnote 89 often with unofficial translations into English. Although the publicity requirement does not necessarily require broadcasting the declaration to the entire world, it does require communication to intended addressees.Footnote 90 Where those addressees are diffuse and not specifically identified in advance, as in the case of foreign investors, publishing the legislation available to anyone in the world may well be the only means to satisfy this requirement. The content of FILs can also be characterized as “clear and specific.” While the precise meaning of “expropriation” and other investor protections in FILs terms may be undefined or contestable, these terms are no less so when used in a FIL than when they are in a BIT or in custom. The lack of clarity is therefore unlikely to prevent the terms from qualifying as “clear and specific.”
As for the reactions of addressees, Eckart observes that the ILC's reference to this factor appears to contradict the ICJ's insistence that reliance on or acceptance of a unilateral declaration is not required in order for the declaration to be binding.Footnote 91 Eckart resolves this contradiction by treating addressees’ reactions as relevant in a negative sense: where addressees actively reject the state's undertaking, it will not be binding in relation to those addressees.Footnote 92 This factor is unlikely to affect the characterization of FILs, since investors would seem to have no reason to actively reject FIL protections.Footnote 93
The intention to be bound requirement, however, is likely to be the major point of debate in any argument that substantive FIL provisions qualify as unilateral acts stricto sensu. As the ICJ explained in Frontier Dispute, “it all depends on the intention of the State in question.”Footnote 94 An initial issue is whether intent is to be assessed subjectively or objectively. The Court has said that it must “form its own view of the meaning and scope intended by the author of a unilateral declaration which may create a legal obligation.”Footnote 95 The state's subjective (or actual) intent is thus not the focus of the inquiry. But neither does intention depend on the subjective understanding of the addressee. In Nuclear Tests, the applicants (Australia and New Zealand) both argued that they did not view France's statements as internationally binding obligations, and yet the Court determined otherwise.Footnote 96 Instead, as commentators have said, “the only sensible approach”Footnote 97 is to identify the state's “declared intent” by considering “whether other states … could reasonably assume that the statement constituted a commitment.”Footnote 98 This test has been followed in state practice; in pleadings on unilateral acts in their dispute before the ICJ, for example, both Bolivia and Chile have accepted that an objective test applies.Footnote 99
Can it be said that states objectively intend substantive FIL provisions to “produce opposable effects in international law”?Footnote 100 FILs do have some characteristics suggesting this intention. Even if form is not determinative,Footnote 101 compared to oral declarations, written legal instruments—particularly those, like FILs, debated in national parliaments and often drafted with assistance from international institutionsFootnote 102—are more likely to “manifest the will to be bound” to a reasonable addressee.Footnote 103 As with statutes on nationality, neutrality, and maritime zones, and unlike most domestic legislation, FILs have a clear international element, addressing the state's relations with foreigners. As the Lahoud tribunal noted, FILs often make direct or indirect reference to international law in their substantive provisions, perhaps indicating the state's desire to “produce effects in the international legal order.”Footnote 104 Moreover, FILs cannot be viewed as mere political promises of the kind noted by the ICJ in Nicaragua.Footnote 105 The statutes are framed in the language of obligation, use mandatory phrases, provide for remedies, specify a date of entry into force, and allow for judicial settlement of disputes—all features that suggest an intention to be legally, rather than politically, bound.Footnote 106
Of course, states do not need to enact FILs in order to offer investment protections, since treaties are an available (and often utilized) option. Does this affect a finding of objective intention? Commenting on its earlier decision in Nuclear Tests, the Court in Frontier Dispute identified as a relevant circumstance that France “could not express an intention to be bound otherwise than by unilateral declarations,” since it could not have concluded a treaty with Australia and New Zealand without “jeopardizing its contention that its conduct was lawful.”Footnote 107 This made it more likely that France objectively intended to assume a legal obligation.Footnote 108 In the investment context, states’ eagerness to conclude new investment treaties is waning,Footnote 109 probably as a result of the significant controversies these treaties have recently created. If states that still desire to offer strong investment protections are unable to find willing treaty partners, they might turn to FILs instead.Footnote 110 But it does not follow that such states could not otherwise express an intention to be bound; they could, for example, likely convince partner states to conclude investment treaties that offer protections to partner state investors but impose no reciprocal obligations on the partner states.
Nevertheless, this possibility does not preclude the unilateral act argument. The Court in Frontier Dispute may not have meant to suggest that binding unilateral acts may only be found when concluding a treaty is impossible; this would “basically abolish” the Nuclear Tests doctrine one paragraph after reaffirming it.Footnote 111 The possibility of concluding a treaty is best seen as one relevant factor, leaving the door open for FILs to be characterized as unilateral acts.
A further potential roadblock to the unilateral act argument can also be dismissed. Unilateral acts must express “a state's unconditional decision to follow a certain line of future action.”Footnote 112 Rather than a binding unilateral promise, it might be argued that at least some FILs are intended only as an offer to protect foreign investors in specified ways, which would require an acceptance from the investor before becoming binding. It is true that, unlike investment treaties, some FILs require foreign investors affirmatively to apply to and be approved by the state before the statute's protections apply.Footnote 113 Where the state has reserved discretion to refuse an investor's FIL application in this way, it is more difficult to view the FIL as a unilateral act. Such a situation looks more like a traditional contract, where the FIL might be seen as a preliminary expression of willingness to negotiate,Footnote 114 and the investor's application characterized as the formal offer, followed by the state's acceptance. Once an application is approved, rather than representing unilaterally assumed international obligations, such FILs might perhaps be viewed as contracts between the investor and the host state, the terms of which are the provisions of the FIL.Footnote 115 Even FILs not requiring prior approval of investment applications might still be seen as an offer of specified protections, which the investor accepts by investing in the state in accordance with the FIL. Either version of this contractual, offer-and-acceptance frame would take the FIL outside the purview of a unilateral act.Footnote 116
This characterization has, however, found very limited favor in tribunal practice. Most decisions that address the point have downplayed or rejected the contractual argument when characterizing FIL arbitration clauses.Footnote 117 At first glance, the argument is supported in ABCI v. Tunisia, the only case that explicitly rejects the unilateral act characterization. The tribunal majority held that “[t]he investor's argument according to which the 1969 law constitutes a unilateral act within the meaning of international law is not sustainable, due as much to the distinct nature of these acts as to the investor's recourse to procedures specified by Tunisian legislation.”Footnote 118 This holding followed a brief discussion of the investor's efforts to have its investment approved by Tunisian authorities, perhaps suggesting that the majority saw the FIL in a contractual context of negotiations, offers, and acceptances. The tribunal majority did not, however, offer any explanation of how unilateral acts have a “distinct nature” from FILs or why the investor's recourse to legislative procedures was relevant, limiting the persuasive value of its conclusions. This analysis preserves space for the view that substantive FIL provisions are not part of a contractual offer-and-acceptance process but are objectively intended as binding unilateral promises.
Finally, do any of the seven reasons discussed in Part II for why states have adopted FILs alongside investment treaties rule out the possibility of an objective intent to undertake internationally enforceable commitments when enacting such laws? In general, these reasons do not preclude the unilateral act characterization. The first two reasons discussed—that states find enacting FILs easier than negotiating treaties, and that FILs have stronger democratic credentials—might even provide a stronger basis for viewing FIL protections (at least in more recent FILs) as unilateral international obligations, since they offer positive reasons for preferring FILs over treaties as commitment tools for foreign investment protection. The seventh reason—that states enacted FILs because they (and their international and U.S. advisers) saw them as easily terminable domestic instruments that were merely precursors to locking in international obligations via treaties—may suggest a different conclusion. But even if states viewed FILs as precursor instruments to be jettisoned once a treaty was adopted, this does not imply that states did not intend the FIL commitments to be internationally binding; like any legal instrument, they would simply remain binding until revoked. A treaty that provides for immediately effective unilateral termination cannot be considered non-binding solely for that reason.Footnote 119 Moreover, other states arguably have good reasons to think that FILs’ substantive commitments are intended to have international effect, given their unique blend of specific application to foreigners and reference to international law principles combined with consent to international adjudication.Footnote 120
The question of objective intention is finely balanced, and what may sway the final outcome is the principle of restrictive interpretation of unilateral acts. The ICJ has made it clear that “[w]hen States make statements by which their freedom of action is to be limited, a restrictive interpretation is called for.”Footnote 121 The Court has put this into practice, interpreting state declarations restrictively and declining to find binding unilateral acts in the cases since Nuclear Tests. Caron has argued, however, that this principle does not apply to FILs because they are carefully considered documents rather than an “unscripted statement by a diplomat,” and because they do not limit sovereign rights on “territorial boundaries or military practices.”Footnote 122 Indeed, to the extent that FILs largely mirror customary obligations on the treatment of aliens, states that enact such laws are not adopting greater limitations on their freedom of action than those that already exist. Nevertheless, the ICJ's dictum suggests that some arbitral tribunals may apply a high threshold before finding a FIL to be a binding unilateral act.Footnote 123
The remainder of this Part considers the important consequences for application of state responsibility and termination of FILs that follow from characterizing FILs as unilateral acts. Before this, two preliminary questions must be addressed: the identity of the beneficiaries of unilateral FIL obligations, and the nature of the rights that those beneficiaries hold.
Beneficiaries of FIL Rights
Despite their one-sided nature, unilaterally assumed obligations in international law are owed to certain identifiable beneficiaries or addressees.Footnote 124 The precise beneficiary or addressee of a unilateral obligation will depend on the act in question. The ILC's Guiding Principles, in addition to citing “one or several states” as potential addressees of unilateral acts,Footnote 125 recognize that unilateral acts may be addressed to “the international community as a whole” or to “other entities.”Footnote 126 The ILC cites the French declarations in Nuclear Tests as an example of an act addressed erga omnes, to the international community generally, despite the special interest in those declarations for Australia and New Zealand.Footnote 127
As for “other entities,” the ILC gives only the United Nations and the Palestine Liberation Organisation as examples.Footnote 128 However, there is no reason to think that private entities—individuals or corporations—could not also be the addressees of a unilateral act. It is now well accepted that treaties may create rights for individuals.Footnote 129 (Whether investment treaties in fact do so is, of course, contested,Footnote 130 but there is agreement on the principle.) Presumably, there is no greater objection to individuals (or corporations) enjoying rights granted by a unilateral act than by a treaty.Footnote 131
Commentators have uniformly assumed that if FILs represent unilateral acts, private investors are the entities to which the state owes the obligations in the statute.Footnote 132 FIL obligations have, however, occasionally been described as being owed to the international community as a whole, as well as to the worldwide class of qualifying investors.Footnote 133 This seems doubtful. Unlike the French declarations in Nuclear Tests,Footnote 134 FILs are at least targeted at a defined class (if not specific members of that class)—namely, those private investors that meet the laws’ definitions. They are not framed so broadly as to encompass the international community as a whole. Further, FILs as unilateral acts impose obligations in relation to investors only, not to their home states. There is no indication in a typical FIL that the state intends to assume obligations toward any other party. Admittedly, some FILs confirm investors’ rights to transfer their profits abroad, including to their home states.Footnote 135 Others provide (alongside any dispute settlement mechanisms in the FIL itself) that investors may bring disputes to arbitration under any applicable investment treaties signed with home states.Footnote 136 But unlike BITs, FILs do not contain interstate dispute settlement clauses and do not impose any reciprocal obligations on home states; in fact, they do not refer to home states at all. Thus, the most plausible understanding of FIL obligations, conceived as unilateral acts, is as commitments unilaterally assumed toward every member of the worldwide class of investors defined in the statute.
Nature of FIL Rights
The foregoing discussion suggests an answer to the related question of the nature of the rights granted to investors by FILs. In the BITs context, tribunals and writers have debated three potential characterizations of investment treaty rights in international law.Footnote 137 First, investors might hold direct procedural and substantive rights under investment treaties, which they enforce in their own capacity through arbitration (the “direct” view). Second, investors might hold only procedural rights directly, enforcing substantive rights held by the treaty parties (the “intermediate” view). Third, investors might act as agents of their home state, not holding any rights themselves but exercising procedural and substantive rights derived from, and delegated to them by, their home states (the “derivative” view).Footnote 138
In relation to investment treaties, these debates are premised on a plausible claim that the home state holds rights, and that the relation between these rights and the rights of investors needs to be determined. In the FIL context, by contrast, investors’ home states simply do not appear in the analytical frame, limiting the relevance of the third-party beneficiary paradigm. Given that there are only two relevant parties (the host state and the investor), the “intermediate” and “derivative” characterizations—under which certain rights are held by the home state—cannot be maintained. Under the unilateral act characterization, the most plausible view is that FILs grant rights directly to investors.
State Responsibility Under FILs
If FILs conceived of as unilateral acts grant direct rights to foreign investors, the next question is whether or how the international law of state responsibility applies to such claims. If the primary rules allegedly breached in these claims (the substantive FIL provisions) are primary rules of international law unilaterally adopted by the host state, it might follow that the secondary rules of the law of state responsibility will also be applicable. These rules are expressed in general terms to apply to any kind of international obligation binding on a state, regardless of its source.Footnote 139 However, the law of state responsibility was developed in the context of interstate claims, and—as has been examined in the context of investor-state treaty claimsFootnote 140—certain elements of the law require further analysis to explain how they do or do not apply to investor-state claims based on FILs as unilateral acts. The analysis in this section thus shines a light on the application of state responsibility in a previously unexamined context: breach of a unilateral act owed directly and solely to a private actor.
As with investment treaty claims, parts of the law of state responsibility, such as rules on attribution of conduct to states, are likely to apply in the ordinary fashion in a FIL claim, “unaffected by the identity of the beneficiary of the obligation.”Footnote 141 However, the various “circumstances precluding wrongfulness” of breaches of international law call for further analysis, in particular in relation to consent (Article 20), countermeasures (Article 22), and necessity (Article 25), as do the ILC rules on remedies and on invocation.
Consent
The rule on consent provides that the wrongfulness of a breach will be precluded if the claimant has consented in advance to the breaching conduct. However, in the investment treaty context, when viewing investors as holding direct rights under treaties, it has been suggested, drawing on the human rights paradigm, that investors could only give advance consent to breaches of a treaty rule if the particular rule allowed for it.Footnote 142 The same position is likely to apply to FILs. Thus, consent by an investor to a state's purported breach of a FIL obligation would not preclude wrongfulness, but may instead result in a finding of no breach, depending on the content of the particular obligation. For instance, the fact that an investor consented to have a particular administrative procedure applied to it might mean that the procedure would not be found to breach a FIL's fair and equitable treatment obligation. Questions have also been raised in the investment treaty context over the relevance of advance consent by the home state to the host state's breach of an obligation toward an investor.Footnote 143 In FIL claims, by contrast, consent by the investor's home state would be entirely irrelevant, since FIL obligations are owed only to investors, not to home states.
Countermeasures
The responsibility of a respondent state toward a claimant state will be precluded if the respondent's breach was in response to a prior breach by the claimant of an obligation due to the respondent.Footnote 144 Such countermeasures may incidentally affect the interests of third parties, such as private traders bankrupted by countermeasures against breaches of an interstate trade agreement,Footnote 145 but they may not infringe rights held by third states which have not breached an international obligation to the respondent.Footnote 146 The ILC Articles do not, however, clarify whether these interstate rules apply when the claimant is a non-state actor, “so the analysis requires reasoning by analogy.”Footnote 147
Commentators have drawn numerous potential analogies to suggest the role of countermeasures in investment treaty arbitration. Few of these analogies, however, apply easily to FIL arbitration. First, if the “intermediate” or “derivative” characterizations of investment treaty rights discussed above were correct, it would be clear that respondent states could rely on countermeasures as a defense to investment treaty breaches, since investors would enjoy no substantive rights, and would be in an equivalent position to private traders in the trade law paradigm described in Part II.Footnote 148 In the FIL context, however, this does not resolve the matter, since—as discussed above—the “intermediate” and “derivative” characterizations are inapplicable.
Second, investment law is distinct from the WTO regime for trade, which establishes a lex specialis regime of responsibility that excludes countermeasures entirely.Footnote 149 Investment treaties “do not seem to have moved beyond their bilateral origins to form a unified system,”Footnote 150 making it difficult to argue that, like the WTO, they establish any kind of separate regime that similarly excludes countermeasures. Given the necessarily decentralized nature of FILs, with each state enacting its own legislative instrument, such a unified regime is even less plausible in the FIL context, meaning that countermeasures cannot be ruled out by lex specialis in FIL arbitration.
Third, under ILC Article 50(1), states cannot plead countermeasures as a defense to breaches of peremptory norms, “obligations of a humanitarian character,” and “fundamental human rights.” As with investment treaties, however, it is difficult to argue that FIL obligations fall within any of these categories. Protection of investment does not rank as a peremptory norm, such as torture or genocide,Footnote 151 and it is unlikely to amount to “obligations of a humanitarian character.”Footnote 152 Even if certain investment treaty obligations overlap with human rights obligations (such as the right to property or fair trial), they are unlikely to count as “fundamental” human rights, in part because they are not seen as non-derogable rights.Footnote 153 The same argument applies to FILs, given the similarities in content with investment treaties.
Fourth, the reference to “fundamental human rights” in ILC Article 50(1) might perhaps refer to the structure or nature of human rights obligations, rather than to their content, creating a different possible analogy with this paradigm. However, human rights obligations are usually viewed as “objective,” “integral” obligations that flow from multilateral conventions or customary international law. They are not reciprocal, bilateral obligations that can be subject to countermeasures to induce compliance.Footnote 154 If investment treaty or FIL obligations were similarly “integral,” this would provide a workable analogy preventing states from pleading countermeasures in investment cases. However, this is not the usual understanding of investment treaties; their obligations are typically seen as bilateral, even when expressed in the form of multilateral treaties (such as the Energy Charter Treaty or NAFTA), rather than interdependent and integral. While it is difficult to view unilateral FIL obligations as reciprocal, bilateral, quid pro quo obligations similar to investment treaty obligations, neither are FIL obligations equivalent to erga omnes human rights obligations. Thus, as with investment treaties, the differences between the structure of human rights and FIL obligations mean that a countermeasures defense is unlikely to be ruled out under Article 50(1)’s reference to “fundamental human rights.”
A fifth analogy, viewing investors as holding direct rights equivalent to rights-holding third states in public international law, provides the strongest argument for the impermissibility of countermeasures. According to Paparinskis, under the direct rights model, countermeasures are not applicable in investment treaty arbitration because “the precluding wrongfulness of countermeasures, while opposable to one beneficiary (the home state), is not opposable to the other beneficiary (the investor).”Footnote 155 In other words, the investor and home state are viewed as distinct entities, and even if the respondent's breach is a justified countermeasure with regard to a prior breach by the home state, it cannot be so with regard to the innocent investor. Under FILs, however, there is only one beneficiary—the investor—meaning that a prior breach by the investor's home state is entirely irrelevant. Further, given that FILs as unilateral acts only create obligations for the enacting state, the investor itself has no obligations the prior breach of which might justify countermeasures. This argument would rule out the application of countermeasures in FIL claims.Footnote 156
In relation to investment treaties, Roberts takes a different view, rejecting Paparinskis's analogy with third state rights. Her approach accepts the public international law premise that interstate countermeasures are permissible. However, Roberts adds a qualification drawn from the third-party beneficiary paradigm, arguing that investor rights “might better be understood as qualified by the initial treaty and contingent to some extent on the ongoing actions of [the treaty parties].”Footnote 157 In particular, she contends, an investor's rights under an investment treaty should be seen as contingent on continued compliance with the treaty by the home state.Footnote 158 Similarly, Roberts observes, third-party doctrines from contract law should also prevent a respondent being worse off when sued by a third party (because no defense is available) than when sued by the promisee directly.Footnote 159 Roberts thus concludes that prior home state breaches will justify countermeasures as a defense to investors’ claims in investment treaty arbitration.Footnote 160
While this analysis might make sense for investment treaty arbitration,Footnote 161 it does not apply to FIL arbitration. Investors’ rights under FILs cannot be seen as conditional on their home states’ conduct when those states are not party to the unilateral act creating the rights. Similarly, the contractual analogy is inapposite since, under FILs, the beneficiary and promisee are the same party. Thus, Paparinskis's two-party, absolute rights analysis, ruling out the availability of countermeasures, is a better fit for FIL arbitration.
Necessity
Unlike the defense of countermeasures, the defense of necessity does not require a prior breach of international law by the claimant, and thus could more easily apply to statutory obligations owed directly to investors.Footnote 162 This necessity defense has already been applied in numerous investment treaty cases involving Argentina.Footnote 163 By and large, the tribunals in these cases have not been troubled by the defense's requirement that the respondent's conduct “not seriously impair an essential interest” of the home state; they have simply replaced the home state with the investor.Footnote 164 Necessity should similarly apply to a FIL claim, which involves unilaterally assumed obligations owed not to any state but directly to qualifying investors.
Remedies
The ILC Articles on remedies should also apply to FIL claims without difficulty. Arbitral tribunals have applied the remedies rules in the law of state responsibility without controversy in investment treaty claims, despite Article 33(2)’s caveat that they are without prejudice to the responsibility of states to “any person or entity other than a State.”Footnote 165 One “technically accurate”Footnote 166 explanation for this development is that tribunals are implicitly treating investor-claimants as agents of their home state, rather than as direct rights holders, meaning that the claim remains at the interstate level. But this explanation could not apply to FILs, where the agency argument fails, as explained above.
Other possible justifications have been offered. For instance, certain remedies, such as cessation, might inherently apply whenever responsibility is establishedFootnote 167 and not be dependent on the state/non-state identity of the claimant. Alternatively, separate investor-state remedies rules with identical content may exist in custom, similar to the ILC's relaxed transfer of interstate rules to the Articles on Responsibility of International Organisations.Footnote 168 A related reason—and the most intuitive to justify application of the interstate rules in FIL cases—is that the rules concerning remedies are general principles that apply whenever responsibility is established regardless of the entity invoking it.Footnote 169
However, the public law paradigm offers an important qualification here (both for investment treaty claims and FIL claims). Acknowledging the concerns of state sovereignty and eminent domain that underpin this paradigm, there may be a weaker claim that the remedy of restitution of property applies where claimants are private parties.Footnote 170 FILs do not typically contain provisions specifying the consequences of a violation, but such provisions are contained in some investment treaties that limit tribunals’ powers to order restitution.Footnote 171 Otherwise, the remedial rules in Part Two of the ILC Articles would most likely be applied without concern in FIL cases. Indeed, certain rules—such as on a claimant's contribution to its own injury in ILC Article 39—seem more naturally applied to a FIL claim, without the “triangular” presence of a home state, than an investment treaty claim.Footnote 172
Invocation
The application of the ILC rules on invocation of responsibility is arguably even clearer in FIL claims than in investment treaty claims. In the latter context, Paparinskis rejects Douglas's view that a treaty breach does not injure the home state at all, and that the home state therefore has no right to invoke the host state's responsibility.Footnote 173 In the FIL context, Douglas's position seems much more apposite. If FIL obligations are not owed to any state, it is difficult to accept that an injured investor's home state has suffered injury from a breach. Certainly, the home state may have suffered a breach of customary obligations, or even treaty obligations, that have essentially the same content as the FIL obligations. The home state may be in a position to invoke responsibility for these separate breaches,Footnote 174 but that is a different matter to invoking responsibility for the FIL breach itself.Footnote 175
Since home states have no rights, debates over when a home state might lose its right to invoke responsibility for an investment treaty breach therefore have no application to FIL claims.Footnote 176 Whether a home state could waive its national's FIL rights, meanwhile, would be analyzed similarly to treaty rights: if such rights are directly granted to one party (the investor), waiver by another party (the home state) is not possible.Footnote 177 An investor's ability to waive its own FIL rights might depend on the strength of the analogy to the human rights paradigm. If FIL rights are created for investors’ own protection, waiver might appear doubtful,Footnote 178 but if (as is more likely) they are merely dispositive rights that can be removed by the host state at any time,Footnote 179 then they can surely be waived by the investor as well. The rule on waiver in ILC Article 45 would then apply, by analogy, with the “injured State” being replaced by the “injured investor.”Footnote 180
Conclusions
In sum, apart from certain defenses, it can be expected that the law of state responsibility will apply largely as usual in FIL claims under the unilateral act characterization, with perhaps even greater justification than in BIT claims. Arguments over the role of the home state (on consent and waiver) will disappear, and certain remedies rules may apply more easily than in BIT claims. While other defenses will remain applicable, the defense of countermeasures (and of self-defense) is more clearly excluded in FIL claims, short-circuiting the debates that have arisen on this question in the BIT context.
Revoking FILs as Unilateral Acts
If the substantive and procedural provisions of FILs are characterized as unilateral acts, when and how can those acts be revoked? The rules governing revocation of unilateral acts are unclear, leaving space for constructing new rules by analogy. This section argues that analogies drawn from public international law, in particular the practice regarding the termination of ICJ Optional Clause declarations and treaties, do not apply to FILs. Further, termination rules drawn from the third-party beneficiary paradigm, based on reliance, are also inapplicable. The section contends that analogies drawn from the commercial arbitration paradigm and public law paradigm (for FIL arbitration clauses and substantive protections, respectively) are most apposite. Both paradigms suggest that, where a FIL is silent on revocation (as in most cases), states may terminate their FILs with immediate effect.
Termination rules for investment treaties are well-established. The Vienna Convention on the Law of Treaties permits termination either by mutual consent or in accordance with the treaty's terms.Footnote 181 In general, investment treaties permit unilateral termination with prior notice, subject to a “sunset” period of continued effect for a specified number of years, often ten. Although the presence of sunset clauses has not prevented states from terminating investment treaties,Footnote 182 it naturally makes it more difficult for states to end their investment treaty commitments unilaterally. By contrast, at first glance, it might be thought that FILs are much more easily terminable via unilateral state action simply by repealing the law. Indeed, the perceived ease of termination of a FIL might encourage states to use these instruments instead of treaties, where partner state interests might be taken into account in a decision to terminate.
If FILs are characterized as unilateral acts, the question of their termination parallels the long-controversial question of revocation of unilateral acts. As Eckart observes, a corollary of allowing states to bind themselves in international law via unilateral acts is that there must also exist limits on revocation of those acts, to avoid undermining their binding nature.Footnote 183 At the same time, however, treating unilateral acts as irrevocable would render states reluctant to undertake such acts, potentially impeding international relations by discouraging the use of a valuable commitment tool. Even treaties that do not provide for termination are terminable under certain conditions;Footnote 184 it would be curious to think that unilateral commitments were more binding on states than bilateral or multilateral commitments.Footnote 185
As one FIL tribunal has acknowledged,Footnote 186 the question is not whether states can repeal FILs; they clearly have the power to do so, and the repeal might well be effective in the host state's domestic legal system. The question is the effect of such a repeal on the continuation of the rights and protections in the FIL at the international level, and the continued ability for investors to bring claims to international arbitration.
As discussed above, FIL arbitration clauses can be treated as unilateral acts “in the framework of a treaty” by analogy to the ICJ Optional Clause declaration. There were no grounds to treat substantive FIL provisions in the same way, but such provisions at least arguably fell under the separate, more general category of unilateral acts stricto sensu. In the interstate context, rules on termination of each category of unilateral act may not necessarily be the same.
For Optional Clause declarations, the Nicaragua case provides the most prominent example. In that case, the United States had purportedly withdrawn its Optional Clause declaration three days before Nicaragua filed a claim against it. The United States contended that it had a right to withdraw its declaration with immediate effect.Footnote 187 However, the ICJ considered that “the right of immediate termination of declarations with indefinite duration is far from established.”Footnote 188 The Court then drew an analogy between unilateral declarations and treaties, based on “the requirements of good faith,” and observed that treaties containing no provision on their intended duration were only terminable upon notice lasting a “reasonable time.”Footnote 189 Applying this to unilateral declarations, and in particular the U.S. Optional Clause declaration, the Court held that reasonable notice must be given before a termination takes effect. The ICJ declined to define a “reasonable” notice period, but observed only that three days would not qualify.Footnote 190
Although the analogy with Optional Clause declarations is straightforward when applied to FIL arbitration clauses, it is less convincing in the context of termination of those laws. When a state issues an Optional Clause declaration, it “makes a standing offer to the other States party to the Statute [of the ICJ] which have not yet deposited a declaration of acceptance,”Footnote 191 similar to a FIL offer of arbitration. But the declarant state also joins a “reciprocal and mutual network,”Footnote 192 establishing “a series of bilateral engagements with other States accepting the same obligation.”Footnote 193 The state has effectively perfected its consent to adjudication with other Optional Clause states; nothing further is needed from either party before the ICJ can be seised.Footnote 194 When a state consents to arbitration in a FIL, by contrast, it has not established any engagement or joined any network, and there is not yet any perfected consent.Footnote 195 Kolb treats Optional Clause declarations as hybrids—“unilateral acts with bilateral or multilateral effects”; the unilateral element predominates in some respects, such as on interpretation, but the bilateral or multilateral element predominates in other respects, preventing immediately effective terminations.Footnote 196 FIL arbitration clauses might instead be closer to purely unilateral acts, with the adopting state's intent predominating for both interpretive and revocation purposes.
This suggests that the reasonable notice requirement for terminating unilateral acts, formulated by analogy to treaty withdrawals, will not necessarily apply to termination of FIL arbitration clauses. The rules on termination of other unilateral acts, however, might be relevant. Indeed, in discussing termination of Optional Clause declarations, the Court in Nicaragua notably relied on its findings from Nuclear Tests,Footnote 197 suggesting that—at least in relation to termination—the categories are not watertight. Furthermore, if substantive FIL clauses are viewed as unilateral acts stricto sensu, their termination will also be governed by general rules.
The ICJ has given only minimal guidance on the rules applicable to revocation of unilateral acts in general. In Nuclear Tests, the Court asserted that “the unilateral undertaking resulting from [the French] statements cannot be interpreted as having been made in implicit reliance on an arbitrary power of reconsideration.”Footnote 198 Based on this statement, as well as comments in Nicaragua concerning reliance by addressees and an analogy with the fundamental change of circumstances doctrine in treaty law,Footnote 199 ILC Guiding Principle 10 provides that unilateral acts “cannot be revoked arbitrarily.” Principle 10 further provides that, in determining arbitrariness, consideration should be given to any specific terms on revocation, any reliance by addressees, and any fundamental changes of circumstances. These considerations provide a starting-point for analyzing the termination of FILs.
Easy cases
Certain scenarios are straightforward. First, a party that has not yet invested in a state will not be able to benefit from FIL protections (either procedural or substantive) if the FIL is repealed before the investment is made.Footnote 200 Without an investment as defined in the FIL, the protections will not even apply.
Second, a state cannot terminate a pending claim by repealing the FIL on which the claim is based.Footnote 201 Once accepted, consent to arbitration cannot be revoked. Article 25(1) of the ICSID Convention, for instance, specifies that, “[w]hen the parties have given their consent, no party may withdraw its consent unilaterally.”Footnote 202 This principle would also apply where the investor has given its consent to arbitration over future FIL disputes, for instance in a separate letter to host state authorities, before the FIL is repealed. (This situation is analogous to an arbitration clause in a state contract, which is commonly treated as irrevocable because the contract itself has already perfected the parties’ consent.Footnote 203) In these circumstances, a tribunal would simply ignore the termination and proceed with the case.Footnote 204 The more difficult question, discussed below, concerns the effect of termination on future investor claims in relation to preexisting investments where the investor has not previously consented.
Third, similar to investment treaties’ “sunset” clauses, some FILs contain stabilization clauses, some of which purport to preserve the law's procedural and substantive guarantees for a specified minimum duration (usually five, ten, or twenty years).Footnote 205 Where such clauses exist, they will constitute “specific terms of the declaration relating to revocation,” in the words of Guiding Principle 10, and a termination in accordance with the stabilization clause (i.e., taking effect once the time period has expired) would therefore not be arbitrary. Conversely, a defense from the respondent state that the FIL was terminated will be rejected if the investor's claim was brought within the stabilization period.Footnote 206 This reasoning was on display in Rumeli v. Kazakhstan, where the investors’ claim, commenced in 2005, was held not to be barred by the fact that Kazakhstan had repealed its FIL in 2003. The statute contained a stabilization clause purporting to guarantee that the law applicable when a long-term investment contract was signed would continue to apply until the contract expired. According to the tribunal, this meant that the investors’ legal position (including their FIL rights) could not be changed until 2009.Footnote 207 Similarly, in AES v. Kazakhstan, a case brought under the same law, the tribunal considered whether the 2003 repeal affected the claimants’ ability to commence arbitration in 2010, during the stabilization period. The tribunal held that repeal of the law would only affect investments made after repeal, “in particular” because of the stabilization clause.Footnote 208 Further, a change in available remedies for foreign investors should not affect preexisting investments, “which were meant to be protected for a certain duration” (i.e., the length of the stabilization period).Footnote 209
Some FILs go beyond time-limited stabilization clauses and purport to maintain protections for existing investments indefinitely.Footnote 210 This more extreme self-limitation goes far beyond the “sunset” clauses in investment treaties.Footnote 211 However, ultimately such a commitment would likely be analyzed in the same manner as the time-limited clauses. There is no reason in principle why states cannot self-impose such constraints on their international freedom of action. Moreover, the apparently extreme nature of the restriction is tempered in at least two respects. First, the exception for fundamental changes in circumstances identified in Guiding Principle 10(c) would continue to apply.Footnote 212 Second, the indefinite protection applies only to existing investments, most of which are likely to have a natural life span of perhaps thirty years at most (say, for a complex, large-scale oilfield or mining investment). In practice, then, “indefinite” protection will persist only for a certain (albeit long-term) period.
Hard cases
The above three scenarios are relatively straightforward. More difficult questions arise in a fourth scenario: where no provision (including a stabilization clause, time-limited or not) relating to termination exists at all, as in the large majority of FILs.Footnote 213 Unlike for treaties, where VCLT Article 56 permits parties to unilaterally terminate in certain circumstances even where the treaty is silent on termination, the rules for unilateral acts in this scenario are less clear. ILC Guiding Principle 10 precludes arbitrary revocation. But what amounts to arbitrariness for FILs that contain no provisions relating to that topic?
In a recent study of unilateral acts in general, Eckart concluded that it was not possible to state any firm rules on revocability, given “too much disagreement, too little state practice and only limited jurisprudence.”Footnote 214 Lex ferenda, Eckart supported drawing an analogy with the law of treaties as the best available guidance, meaning that unilaterally assumed obligations could be renounced as long as reasonable notice was given. In his view, by analogy to VCLT Article 56(2), the default notice period should be a twelve-month minimum.Footnote 215 This approach makes sense in the classical public international law paradigm, where both promisors and promisees are states, and where good faith is an important overriding principle. But, like investment treaties, FILs entail grants of rights by states to private parties, creating a different kind of relationship than one between equals governed by good faith. In the context of revocation, the other paradigms analyzed in Part II might be more useful in advancing the analysis.
The previous discussion of countermeasures dismissed the relevance of the third-party beneficiary paradigm. Nevertheless, the paradigm introduces concepts of reliance by beneficiaries on rights granted by others that are worth considering in the revocation analysis. While it is difficult to view investors as third parties in the FIL context, they might perhaps be viewed as second-party beneficiaries of FIL rights conferred by states, similar to viewing two investment treaty states parties as a unitary “joint sovereign” that confers rights on investors.Footnote 216 If a second- or third-party beneficiary has relied on rights, they may become irrevocableFootnote 217 or only conditionally revocable. Guiding Principle 10(b) endorses this idea, requiring consideration of addressees’ reliance on a state's unilaterally assumed obligations in order to determine whether revocation would be arbitrary.Footnote 218
At first glance, the Rumeli v. Kazakhstan tribunal appears to support this view, relying on the concept of “accrued rights” to suggest that FIL protections in that case were irrevocable. In the tribunal's view, this position was “well established in international law,” and stemmed from “the principles of good faith, estoppel and venire [contra] factum proprium.”Footnote 219 In this portion of its reasoning, the tribunal placed no explicit timeline on the FIL's operation, apparently indicating a view that the rights continued indefinitely. However, as noted above, the Kazakh FIL contained a stabilization clause. The tribunal's ultimate finding of jurisdiction relied both on its general analysis based on accrued rights and on the stabilization clause. It is unclear whether the tribunal would have reached the same result in the absence of the stabilization clause.Footnote 220
AES v. Kazakhstan also appears to support a reliance approach. There, the tribunal rejected the extreme position that states could never retract consent to arbitration made in a FIL.Footnote 221 At the same time, the tribunal also rejected the view that repealing a FIL meant instant revocation of consent. Instead, the question depended on “the specificities of ICSID arbitration, the sovereignty of States with regard to their national legislation, the aim and object of the relevant national law and the protection afforded therein, as well as the specific wording of the relevant legal instruments.”Footnote 222 Given the “objectives of the ICSID Convention and the nature of treaty [sic] claims,”Footnote 223 the tribunal appeared to favor an “international public law” approach, based on unilateral declarations, estoppel, and good faith, limiting a state's freedom to withdraw a unilateral commitment “when such declaration was made in unequivocal terms and the other party has relied upon it.”Footnote 224 This meant that FILs could not be terminated “unilaterally and with immediate effect.”Footnote 225 Although, as discussed above, the tribunal resolved the issue by applying the statute's stabilization clause, the reasoning supports the “reasonable notice” view even in the absence of such a clause.
However, as to whether FIL rights are irrevocable or only conditionally revocable, the concept of reliance in the third-party (or second-party) beneficiary paradigm, and the Rumeli and AES tribunals’ references to estoppel, are unlikely to be relevant.Footnote 226 First, it is not clear that estoppel applies to the investor-state relationship; it is arguably reserved for situations of interaction between juridically equal actors.Footnote 227 Second, even if estoppel does apply, it is intended to be a last resort argument, and would prevent revocation only in the “probably rather rare” situation that no alternative measure (such as sufficient advance notice) could adequately protect investors’ reliance interests.Footnote 228 Third, the investor's reliance must be reasonable. It is arguably not reasonable for an investor to “make far-reaching arrangements to its future detriment in reliance on the perpetual existence” of FIL protections when there is at least a possibility that those protections might be revoked.Footnote 229
A fourth reason relates to the detrimental nature of the investor's reliance.Footnote 230 This would require evidence that the investment had been made after the FIL was adopted,Footnote 231 and would not have been made without the FIL. This will be difficult to prove for any specific investment. It is uncertain whether investors actually rely on investment treaty protections in making investment decisions.Footnote 232 The same uncertainty presumably applies to statutes that protect investments. And there is little support for the argument that unilateral acts in general are irrevocable or persist indefinitely.Footnote 233 The ILC finds “no doubt that unilateral acts may be withdrawn or amended in certain specific circumstances.”Footnote 234
Other paradigms discussed in Part II have greater relevance and favor separate treatment of FIL arbitration clauses and substantive provisions.Footnote 235 For arbitration clauses, the commercial arbitration paradigm and its contractual basisFootnote 236 provide a useful reference point. Even for unilateral acts adopted in the framework of a treaty, FIL arbitration clauses bear similarities to contractual offers, which require acceptance before becoming binding, and may be revoked without notice prior to acceptance. A former secretary-general of ICSID, Antonio Parra, has suggested that “the State may, by repeal or amendment of the investment law, withdraw its consent to arbitration” at any time until an investor lodges its own consent by filing an arbitration, or by filing a notice of advance consent at the time of making its investment (as some FILs require).Footnote 237 Once the mutual consent is in place, the arbitration “cannot be upset by any subsequent modification or repeal of the investment law concerned”;Footnote 238 but before this point, repeal is effective to remove jurisdiction. Parra also contrasts FILs with investment treaties, where a state's consent to arbitration is “more difficult to withdraw” because of treaty sunset clauses.Footnote 239 In the absence of the FIL equivalent to a sunset clause—a stabilization clause—Parra's comparison supports the view that unilateral termination with immediate effect is permissible.Footnote 240 Schreuer also supports this contractual, offer-and-acceptance analysis, stating that “the host State may repeal its offer [of arbitration in a FIL] at any time unilaterally” before acceptance.Footnote 241
For substantive FIL provisions, the public law paradigm is instructive. This paradigm acknowledges that “[t]he state possesses the constitutional power to redefine and readjust the relationship between private interests and the public interest.”Footnote 242 Investors must expect the law to change, and cannot complain purely because such changes might affect their rights.Footnote 243 As with joint termination of an investment treaty, revocation of substantive FIL provisions is therefore instantly effective to end investors’ rights under this paradigm.Footnote 244 Giving content to the public international law rule against “arbitrary” termination of unilateral acts, the public law paradigm suggests that arbitrariness only arises where revocation occurs contrary to a FIL stabilization clause. If the state did not itself provide for a stabilization clause, a tribunal cannot imply a reasonable notice survival period for FIL protections. In practice, however, some formal or informal notice period is likely to apply, since repeal processes often require some time to complete and may not come into force immediately.
In sum, for both the arbitration clause and the substantive provisions of FILs, when viewed as a unilateral act, the public international law rules—analyzed in light of the competing paradigms applicable to FIL arbitration—are best seen as providing that an instantly effective revocation is permissible.
IV. FILs as Domestic Law
Part III proceeded on the basis that FILs are characterized as unilateral acts with binding effect in international law. This conclusion, while clear in relation to arbitral consent clauses, is more debatable with respect to the substantive protections in FILs. If substantive FIL protections are not unilateral acts, they can alternatively be characterized as provisions of an ordinary domestic statute.
What are the practical and doctrinal consequences of this alternative framing? This Part argues that the characterization will affect the process of interpretation of FILs, the application of international law defenses such as countermeasures and necessity, and the calculation of compensation. It also argues that, although termination with immediate effect is permitted under either characterization, the reasons for this differ under each. Lastly, this Part contends that, whether domestic or international instruments, the international nature of FIL consent clauses will rule out application of domestic law limitations periods.
A domestic law characterization could also affect other issues in FIL cases, such as costs determinations and the question of arbitrator “double-hatting.” In brief, if FILs are purely domestic law, the public international law paradigm discussed in Part II cannot apply. As a result, FIL tribunals would be less likely to follow the typical public international law approach to costs (disfavoring costs-shifting) and more likely to make costs orders than under a unilateral act analysis.Footnote 245 Similarly, without a public international law framework, a FIL tribunal is likely to be somewhat less focused on developing systemic precedent, and more inclined to follow the commercial arbitration paradigm of simply resolving the dispute before it. This could reduce concerns about FIL arbitrators serving as counsel in other cases—a concern expressed in investment treaty arbitration.Footnote 246
Further, a domestic law characterization may have concrete effects for an arbitration under a parallel treaty with the investor's home state, in particular where that treaty contains an “umbrella” clause.Footnote 247 This clause is typically understood to transform (some) contractual breaches by the state into treaty breaches, and it is sometimes contended that the clause similarly transforms breaches of legislative commitments. As noted in Part III, these commitments could include FILs, if seen as domestic obligations.Footnote 248 By contrast, it is unlikely that umbrella clauses cover a state's international obligations to investors, such as those entailed by the unilateral act characterization, since there would be no reason to elevate already-international breaches to the international level. Thus, FIL breaches will only violate treaty-based umbrella clauses under the domestic law characterization.
The Role of International Law in Domestic Law Claims
An international tribunal that views FILs as domestic law will be ruling on a primary claim of breach of that law. This is not a new situation; the PCIJ ruled on questions of domestic law in the Serbian Loans and Brazilian Loans cases, and early twentieth century claims commissions often ruled on alleged breaches of contracts governed by domestic law.Footnote 249 More directly relevant are numerous ICSID tribunal decisions, issued before the current investment treaty era, that involved purely contractual claims against states.Footnote 250 In a FIL claim, two main questions arise: whether a tribunal would draw on international law to interpret the primary rules of the FIL as an instrument of domestic law, and whether or how the secondary rules of international law (in particular the law of state responsibility) would apply.
FIL case law provides only minimal guidance on these questions. Although sixty-one known claims under FILs have been brought before tribunals, very few of these cases have reached the merits.Footnote 251 There is thus little guidance to draw general conclusions about the proper approach to interpretation, responsibility, and remedies.
As the earlier ICSID and other cases mentioned above indicate, however, international law retains various roles even in proceedings where the claim is governed by domestic law. Importantly, international law still falls within the law applied by the tribunal. FILs do not typically contain applicable law clauses, unlike many BITs.Footnote 252 Where FIL cases are heard at ICSID, the tribunal will apply the default applicable law specified in the ICSID Convention—namely, “the law of 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.”Footnote 253 Where FIL cases are heard under UNCITRAL rules, the default applicable law is “the law which [the tribunal] determines to be appropriate,”Footnote 254 giving significant leeway for an UNCITRAL tribunal also to apply international law.
International law as an interpretive tool
The presence of international law as part of the applicable law raises the possibility of depeçage, an approach practiced by investment treaty tribunals. On this approach, the tribunal itself determines whether domestic or international law governs any particular issue in a case, and applies the appropriate law to that issue.Footnote 255 For example, determination of property rights or claimant nationality entails a renvoi from international law to domestic law,Footnote 256 calling for the application of domestic law by a treaty tribunal to determine the incidental issue of the claimant's nationality, within the overall framework of a primary determination of breach of international law. In the same way, a tribunal might consider that a FIL's reference to expropriation entails a renvoi in the other direction, from domestic law to international law. An international law finding on expropriation might then inform the analysis of whether, under domestic law, the FIL provision on expropriation has been breached. This could also apply to a FIL clause guaranteeing fair and equitable treatment; the tribunal might take that clause to be a renvoi to the meaning commonly given to fair and equitable treatment guarantees either in investment treaties or in customary international law, depending on the tribunal's view of the connection between fair and equitable treatment and custom.
Even without a formal renvoi, international law could play other interpretive roles. It is well established that international tribunals must apply domestic law as it would be applied in its domestic context.Footnote 257 Where the tribunal's primary task is to determine a breach of a domestic law, it will need to determine how the FIL is interpreted according to the law of the host state. This will require reference to domestic law materials that establish the state's approach to statutory interpretation. The results of this interpretive process will, of course, vary across states, depending on the materials that may permissibly be used. In some cases, domestic law principles of statutory interpretation might bar reference to international law, leaving FIL protections to be interpreted solely under domestic law. However, in most cases, given the nature and content of FILs, it is likely that the legislature intended to refer to the cognate concepts of international law.Footnote 258 Where this intention can be established (and where the domestic legal system treats legislative intent as relevant to statutory interpretation),Footnote 259 international law could serve as a tool to interpret FIL provisions that mirror the substantive investor protections of custom or investment treaties, such as with respect to expropriation.Footnote 260 Indeed, the limited FIL case law available reveals that tribunals have used international law as an interpretive tool in relation to expropriation,Footnote 261 investment,Footnote 262 and fair and equitable treatment.Footnote 263
Elaborating the meaning of FIL provisions by reference to international case law examining similar phrases in investment treaties is potentially just as problematic as using one investment treaty to interpret another.Footnote 264 References to custom are more justifiable, since it is more likely that states’ use of particular terms or concepts in FILs was intended to reflect the equivalent terms or concepts in customary international law.Footnote 265 This is particularly so where the FIL makes this link explicit, as in Article 25 of the Democratic Republic of the Congo's FIL, which offers investors “fair and equitable treatment, in accordance with the principles of international law.”Footnote 266 Even in relation to custom, however, reliance on international case law may overlook the varied institutional settings in which similar concepts (like expropriation) are interpreted,Footnote 267 casting doubt on whether those interpretations are apposite for a FIL tribunal.
A further potential complicating factor is the fact that FILs, unlike BITs, often apply to both foreign and domestic investors. In some cases, the possibility of a domestic investor bringing its own state to arbitration will be foreclosed, either explicitly in the FIL (which might provide only for host state courts to hear national claims) or because the domestic claimant will not fulfill the ICSID Convention requirement of diversity of nationality.Footnote 268 Nevertheless, the substantive protections are sometimes still expressed to apply to host state nationals. In other cases, FILs appear to permit even domestic investors to access arbitration (e.g., under UNCITRAL rules).Footnote 269 In James v. UK, the European Court of Human Rights observed that, although the right of property applied both to respondent state nationals and non-nationals, the reference to the “general principles of international law” in its expropriation clause applied only to non-nationals.Footnote 270 National claimants, in contrast, only received the (arguably) lower standard of protection in the European Convention itself.Footnote 271 If FIL tribunals were to apply a similar approach, referring to international law to interpret FIL provisions would be inappropriate where a local investor is the claimant.
The interpretive process for FILs as domestic law thus could be quite different from that applied to FILs as unilateral acts, with potentially diverging outcomes. Domestic law standards of expropriation, for instance, might establish a more restrictive definition than under international law, only covering property rights and excluding investors’ claims of expropriation of contract rights.Footnote 272 At the same time, however, domestic law interpretation rules might prevent tribunals from importing “balancing” tests such as proportionality from trade law or human rights law, leading to more absolutist views that may favor investors.
State responsibility in domestic law disputes
The second main question for the role of international law in a domestic law dispute is the relevance of state responsibility. If the primary breach found by a FIL tribunal is a breach of domestic law, one might expect that the law of state responsibility will not feature at all in the tribunal's analysis. Article 1 of the ILC Articles provides that state responsibility arises from an “internationally wrongful act,” and Article 2 confirms that such an act requires a breach of an “international obligation of the State.” The Articles do not appear to envisage that state responsibility might also arise from breaches of domestic obligations, instead stating the well-known principle that domestic unlawfulness is irrelevant to international responsibility.Footnote 273
It seems unlikely that the international law circumstances precluding wrongfulness would be relevant; these are predicated on a finding of international responsibility, which will not arise if a FIL is merely a domestic law instrument.Footnote 274 States appear to accept this: in other cases where tribunals have ruled on breaches of domestic law, most notably in investor-state contractual claims at ICSID or elsewhere, states have never attempted to rely on any of the international law circumstances precluding wrongfulness. Unlike in the unilateral act analysis, therefore, respondent states in FIL claims viewed as domestic law could not invoke the customary defense of necessity, and would need to rely instead on any defenses in the primary rules of the FIL itself, analogous to the “essential security” clause in certain BITs.Footnote 275 Similarly, the international rules on waiver would not apply, leaving waiver to be governed by the respondent's domestic law. This law might well contain equitable principles permitting an individual to invoke a statutory right despite an earlier purported waiver of it, unlike in the unilateral act analysis.
However, the law of state responsibility has proven highly adaptable,Footnote 276 and its applicability in a domestic law analysis may be more nuanced. The remedial provisions in the law of state responsibility may be relevant to FIL claims, since neither FILs nor applicable arbitral rules specify the remedies for breach. If these rules simply reflect general principles of law, as suggested above, tribunals could refer to them for guidance on remedies, if they do not apply them directly. For instance, after finding breaches of both a FIL and a treaty, the Khan v. Mongolia tribunal was content to derive its damages analysis from both instruments, “as well as both Mongolian and customary international law.”Footnote 277 The SPP v. Egypt tribunal similarly drew on customary international law damages principles to determine compensation for a FIL breach.Footnote 278 The only hint that a domestic law lay behind the tribunal's findings was in the determination of interest, where the tribunal applied Egyptian law (including its prohibition on compound interest) on the grounds that international law contained no mechanism for fixing the interest rate and no rule that would bar the application of the domestic compound interest prohibition.Footnote 279 The Lahoud tribunal, meanwhile, drew its principles on interest from international case law,Footnote 280 and also cited the ILC Articles’ principle of causation.Footnote 281
Nevertheless, given tribunals’ large discretion in awarding damages, they would be equally justified in turning to domestic principles of state liability, which may differ from state to state. In general, however, national laws typically aim to balance public and private interests in awarding compensation for state breaches and thus diverge from the “full reparation” envisaged by international law.Footnote 282 Alongside prohibitive domestic rules on interest, this suggests that compensation awards are likely to be lower in FIL claims viewed as domestic law than under the unilateral act characterization, where international principles apply directly.
Next, international attribution rules may be relevant even where a state's international responsibility is not in issue. In contract claims,Footnote 283 the rules on attribution have been readily applied, without concern for the domestic law basis of the tribunal's jurisdiction. Some FIL cases, in which a domestic law characterization was at least arguably present, have also applied international attribution rules. The Lahoud tribunal, for instance, asserted that the ILC Articles “are both pertinent and regularly applied by analogy in cases opposing states and private investors, as is the case here.”Footnote 284 The SPP and Tradex tribunals also applied international rules of attribution,Footnote 285 in order to determine whether state conduct that could potentially violate the FIL was at issue. These applications can be justified on the grounds that, unlike the circumstances precluding wrongfulness, attribution rules are not premised on a finding of international responsibility, but instead arise prior to such a finding.Footnote 286 Subject to any lex specialis definition in a FIL itself of the state or state entities to which the statute applies, international attribution rules can be applied by FIL tribunals on incidental questions of state definition.Footnote 287
In fact, just as a FIL's primary rules might require application of international law via renvoi, as suggested above, the reference to international law might also entail reference to secondary rules. Nollkaemper has suggested that “primary and secondary norms are interdependent and inseparable,” and that “[e]ven when the rule of international law on which the claim is based is incorporated in domestic law, it retains its international character.”Footnote 288 In Nollkaemper's view, this implies that domestic courts should apply secondary rules of international law when dealing with “domesticated international norms,” primary rules of international law that have been transformed or incorporated into the domestic legal order.Footnote 289
Nollkaemper's argument is explicitly normative; he admits that domestic courts at present generally apply domestic rules of responsibility “without considering what international law might have had to say.”Footnote 290 Indeed, based on current evidence from domestic systems, Nollkaemper accepts that “[d]omesticated obligations start a new life as domestic norms, governed by separate secondary norms,”Footnote 291 rather than retaining their international character. But, he suggests, applying international secondary rules would help to avoid this “threat to the uniform interpretation and application of international law” by encouraging equivalent results regardless of the forum in which the claim is brought.Footnote 292 Furthermore, applying international secondary rules to domesticated norms can prevent national courts from committing a breach of international law by failing to provide an international-law-compliant remedy for the original breach of the domesticated norm.Footnote 293 It may also strengthen the effectiveness of international law, at least indirectly.Footnote 294
Applying international rules will not always be possible, however, since domestic and international courts often have different remedial powers and objectives.Footnote 295 Nevertheless, if confined to the more realistic view that domestic courts should draw guidance from the secondary rules of international law when ruling on domesticated norms, the argument seems to converge on the interpretive use of international law discussed above. If this is permissible for domestic courts dealing with domestic rules sourced from international law, it is certainly permissible for international tribunals dealing with such rules, where international law forms part of the tribunal's applicable law. The “fundamental connection between primary and secondary norms”Footnote 296 can therefore lead to application of (or at least reference to) some parts of the international law of state responsibility in FIL claims, even where FILs are viewed as domestic law.
Revoking FILs as Domestic Law
If FILs are treated purely as domestic law instruments, their revocation is more straightforward than where FILs are viewed as unilateral acts. The “easy cases” discussed in Part III remain easy. First, if no investment has yet been made, revocation is effective to deny jurisdiction. Second, despite a domestic law characterization, arbitral consent clauses nevertheless unavoidably carry international effects (as just discussed above in relation to Pac Rim), given that they represent the state's offer of consent to international arbitration with foreign investors. Thus, if consent is perfected, either before revocation or during a post-revocation stabilization period,Footnote 297 revocation of domestic law is ineffective to deny international jurisdiction.
Part III's “hard cases”—where the FIL is silent on termination and consent remains unperfected—also become somewhat easier. Even if the consent clause is viewed purely as domestic law, it retains its similarity with a contractual offer. Withdrawal of the offer via repeal before acceptance will thus be effective to deny jurisdiction.Footnote 298 Similarly, the continued existence and validity of the FIL's substantive protections will be governed by domestic law.Footnote 299 Thus, upon repeal of the FIL, the substantive protections also immediately terminate, assuming the law was validly repealed under the state's constitutional system.
The Effect of Domestic Limitations Clauses
Many cases and commentators have held that domestic statutes of limitation do not apply to claims before international tribunals.Footnote 300 This principle is perhaps confined to situations where an international tribunal is ruling on an alleged breach of international law. Most of the cases addressing the issue have related to international law breaches: of investment treaties (in Wena v. Egypt, Biedermann v. Kazakhstan, Maffezini v. Spain, Bogdanov v. Moldova, and Energoalians v. Moldova) or custom (in the Gentini and Spader arbitrations).Footnote 301 The Wena tribunal even specified that, in its view, domestic time-bars “do not necessarily bind a claim for a violation of an international treaty before an international tribunal.”Footnote 302 If FIL protections are treated as unilaterally assumed international obligations, as considered in Part III, then FIL claims are equivalent to claims under treaty or custom, and domestic time-bars would not be applied. But the cases just cited arguably say nothing about claims before international tribunals for breaches of domestic law.Footnote 303 If, therefore, FIL protections are treated as domestic law obligations, the application of domestic time-bars might be plausible.
However, contract claims before international tribunals have also rejected the application of domestic time-bars. In Craig v. Iran, the Iran-U.S. Claims Tribunal recalled the usual rule that “[m]unicipal statutes of limitation have not been considered as binding on claims before an international tribunal,” without placing any relevance on the fact that it was ruling on a claimed breach of contract.Footnote 304 In Caratube v. Kazakhstan, the tribunal upheld its jurisdiction on the basis of a contract, but held that a Kazakh law time-bar was not applicable.Footnote 305
Regardless of whether a domestic or international instrument is within the tribunal's jurisdiction, the reference to international law within the tribunal's applicable law might allow it to apply international time-bar rules, overriding domestic ones if necessary.Footnote 306 The Caratube and Wena tribunals connected their decisions to ignore domestic time-bars to the applicability of international law under the ICSID Convention.Footnote 307 Similarly, in an UNCITRAL rules case, the Energoalians tribunal held that it would apply international law to questions of jurisdiction, disregarding a Moldovan law time-bar.Footnote 308
Even FIL cases have ignored domestic time-bars.Footnote 309 The Interocean v. Nigeria tribunal did so, although its position was simplified by the fact that it treated the case as a claim for violation of international law, thus putting the case in the same, less problematic category as investment treaty claims.Footnote 310 Pac Rim v. El Salvador also disregarded a domestic time-bar in a FIL case. The tribunal focused on neither the nature of the applicable law nor the nature of the law on breach, but instead on the nature of the law conferring jurisdiction. Although without explicitly referring back to its earlier finding that the FIL arbitration consent clause was a unilateral act adopted in the framework of a treaty,Footnote 311 the tribunal confirmed that the state's consent to ICSID arbitration in the FIL created an “international obligation” that could not be avoided by reliance on domestic law.Footnote 312 Indeed, whether or not a consent clause is a unilateral act, as suggested in Part III, and whether or not the consent is to ICSIDFootnote 313 or non-ICSID arbitration, the clause nevertheless creates an international obligation, being a state's commitment to arbitrate with foreign investor. A state's interference with its own commitment to arbitrate has been characterized as a denial of justice in non-ICSID cases such as Swissbourgh v. Lesotho (based on a treaty) and Himpurna v. Indonesia (based on a contract).Footnote 314 This suggests a broader application for the Pac Rim tribunal's argument.Footnote 315
V. Conclusion
The characterization of foreign investment laws—as either unilateral acts creating international obligations or as ordinary domestic statutes—has a variety of consequences for investment arbitrations involving such statutes. If FILs are characterized as unilateral acts, certain defenses (such as necessity) will be available to the respondent, unlike under a domestic law characterization. The interpretive process will also differ, which may create differences in meaning where domestic standards diverge from international law. Further, under the unilateral act view, compensation may be higher (avoiding domestic prohibitions on compound interest and “balanced” rules on state liability); cost-shifting is less likely; arbitrator “double-hatting” poses more of a concern; and investors are more likely to be held to waivers of their FIL rights. The characterization can also affect investment treaty cases: FILs are not likely to breach treaty-based umbrella clauses if seen as unilateral acts, contrasting with the domestic law characterization.
On other issues in FIL claims, both characterizations will lead to the same results, but for different reasons. For instance, whether FIL protections are unilaterally assumed international obligations or domestic obligations, the defense of countermeasures will be unavailable, and repeal of substantive FIL provisions will be immediately effective (absent a stabilization clause), but the explanation for this under each characterization is distinct. In yet other cases, the conclusions and reasons are both likely the same regardless of the characterization. A contractual analysis will apply to repeal of consent to arbitration under either characterization, making it immediately effective, and domestic time-bars are unlikely to affect FIL claims because perfected consent to international arbitration (whether rooted in a domestic law or a unilateral act) creates an international obligation that cannot be interfered with by domestic law.
These differences, where they exist, do not necessarily provide states with positive reasons to prefer one characterization of FILs over another. For example, while a unilateral act characterization would grant states access to international law defenses such as necessity, it would also grant investors access to international law remedies, which may be more favorable than domestic law (for instance, on calculation of interest). Domestic law interpretive principles could favor states, but could equally favor investors, depending on the particular country.
Even where the consequences are the same, the characterization adopted by the tribunal still matters. Treating FILs as domestic instruments allows the state to retain greater control over issues such as interpretation and termination, which international tribunals must then apply more or less faithfully.Footnote 316 Treating FILs as international instruments, by contrast, permits a tribunal to take greater authority over the interpretive process, for instance in ascertaining and applying the uncertain rules on termination of unilateral acts in international law.
Internationalizing a statute in this way has notable parallels with the contested idea of the internationalized contract, a twentieth-century invention intended to provide a theoretical basis for subjecting investor-state contracts to international rather than domestic law.Footnote 317 Commentators have viewed the internationalized contract both as a useful means to remove foreign investment disputes from the potentially biased national sphere, and as one in a series of exploitative tools used by industrialized states to universalize and thereby privilege certain values in the international order at the expense of developing states.Footnote 318 Characterizing FILs as either domestic laws or “internationalized statutes” may raise the same debates. States might avoid these issues by making their intentions clearer in a FIL, for example by including provisions declaring it to be an “international instrument,”Footnote 319 or, conversely, by adopting an applicable law clause in which the sole choice of domestic law might more noticeably signal a lack of objective intention to undertake an international obligation.
For investment lawyers, the fact that diverging underlying assumptions can produce diverging justifications and outcomes is a familiar phenomenon. Just as the rise of investor-state arbitration under investment treaties has led to efforts to understand those strange new beastsFootnote 320 by way of analogies to more recognizable systems, understanding mixed arbitration under foreign investment laws will also require applying a conceptual lens.
At a minimum, the existence of FILs complicates the familiar treaty/contract distinction made by investment lawyers.Footnote 321 This article has sought to demonstrate that claims under FILs are not merely treaty claims, as several tribunals have suggested,Footnote 322 nor contract claims, but have a separate and distinct nature raising unique questions of general international law, particularly the law of state responsibility and unilateral acts. Analogies to ICJ Optional Clause declarations, contractual offers, third-party beneficiary rules, public law systems, human rights regimes, state contracts, and even investment treaties themselves will assist in maturing this source of international investment law alongside its treaty-based cousin.
FILs also deserve greater attention from commentators outside investment law. The statutes have a potential role in creating custom.Footnote 323 Viewing them also as unilateral acts reminds observers of this underappreciated source of rights and obligations in international law, and pushes thinking on boundaries between domestic and international law. Scholars have already identified certain kinds of promises made to foreign investors outside FILs that could be characterized as unilateral acts.Footnote 324 States might begin to make promises to non-state actors, who are still largely excluded from formal international lawmaking,Footnote 325 in other fields too, whether in domestic legislation or via more traditional executive declarations. Alongside laws on nationality, neutrality, and maritime zones, there may be statutes in these fields for which a unilateral act characterization might also fit, particularly where they display plausible similarities to FILs, with their combination of specific application to foreigners, reference to international law principles and consent to international adjudication.Footnote 326 The article's analysis of FILs offers guidance in identifying such statutes, and in addressing the questions of state responsibility and termination, among others, that could arise in those contexts.
FILs might also provide a new, fertile ground on which to study references to international law by domestic courts. While FILs are not yet known to have been invoked before domestic courts, the continuing convulsions of investment treaties may push claimants into fora other than international arbitration, giving domestic courts an opportunity to interpret these rules. Different international law regimes might encourage differing degrees of faithfulness in their application by domestic courts. Human rights agreements, for instance, “may be more open to divergence in application … as compared to highly technical regimes” such as tax law.Footnote 327 Investment protection might appear more mundane, but domestic interpretations of FILs would not necessarily trace any closer parallels with international law than domestic interpretations of human rights treaties.
Despite their domestic law origins, FILs still occupy a mysterious position in public international law. In highlighting these issues, this article seeks to shed light on that mystery, aiming to illuminate both an overlooked category of international dispute settlement and a further instance of international law's ever-widening horizons.
