In 2018, we highlighted the growing relevance of arguments based on international human rights to investment treaty arbitration. We expect this focus on investor responsibility, as the counterpoint to investment protection, to continue.
Following the 2017 landmark decision in Urbaser v Argentina, where the tribunal accepted jurisdiction over Argentina’s counterclaim based on the human right to water, tribunals have continued to grapple with arguments raised by States based on alleged violations of human rights and environmental standards. In Bear Creek Mining Corporation v Peru (November 2017), for example, the tribunal limited the investor to recovery of its sunk investment costs in circumstances where there was limited prospect of obtaining a “social license to operate” for a mining project, with the dissenting arbitrator also proposing a further reduction in damages for contributory fault. Meanwhile, in Aven v Costa Rica (September 2018), the tribunal upheld Costa Rica’s right to enforce environmental regulations and accepted jurisdiction in principle over a counterclaim. In short, States now appear to be invoking human rights and environmental obligations on investors as a potential ‘shield’ against claims – one question is whether we will see such obligations also increasingly used by States as a possible ‘sword’.
Further reflecting States’ increasing public interest concerns, recently-drafted bilateral investment treaties explicitly prescribe commitments regarding human rights, corporate social responsibility and sustainable development, alongside protections to investors. For example, on 19 October 2018, the Dutch Government adopted a new Model BIT, which contains an innovative provision that permits investor compensation to be reduced for non-compliance with the UN Guiding Principles and the OECD Guidelines for Multinational Enterprises; it further provides that investors can be liable for damage in the host State under the rules applicable in their own home State. The Dutch Government has announced plans to notify the European Commission of its intention to renegotiate its 78 non EU-BITs in line with the new Model BIT. It will be interesting to see how this re-negotiation process unfolds and the extent to which the Model BIT may recalibrate States’ approach generally to investment protection.
Further examples include the Cooperation and Facilitation Investment Agreements that Brazil has signed with Ethiopia (April 2018) and Suriname (May 2018), both of which contain provisions aimed at encouraging sustainable development and corporate social responsibility, as well as provisions expressly confirming that the host State is free to adopt measures in order to ensure that foreign investment is carried out according to national labour, environmental and health laws.
Efforts are also underway to develop a legally binding UN instrument that sets out the rights and obligations of transnational corporations in relation to human rights, as well as to develop a set of arbitral rules specifically tailored towards the resolution of disputes concerning alleged violations by multi-national enterprises.
It appears likely that both investors and States will raise increasingly innovative arguments relating to investor responsibility. We will watch with interest to see how these arguments are treated by tribunals.
This blog was first published as one of the trends in our report, International Arbitration: top trends in 2019.
“States are increasingly invoking human rights and environmental obligations as a potential ‘shield’ against claims by investors. One question is whether we will see such obligations used by States as a possible ‘sword’”.