Commitment and Compliance: The Role of Non-binding Norms in the International Legal System

192 Pages·2003·1.5 MB·English

by  Dinah Shelton

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1
Introduction
Thisbookexaminesthehistoricalandlegalaspectsofawardingcompensationand
restitutionininvestor–statearbitrationcasesinthefieldofinternationalinvestment
law, which is a branch of international economic law. The topic of compensation
and valuation of damages has received attention only in recent years.1 Restitution
has received almost no coverage lately, which could be partly due to arbitral
tribunals’tendencynottoawardthisremedy.Thisbookprovidesacomprehensive
andsystematiccoverageofthesetopics,focusingonhistoricalrootsofthemodern
principlesaswellasthepracticeofarbitraltribunals.
The modern law of international investment is dominated by a network of
bilateralandmultilateralinvestmenttreaties.Recently,therehasbeenanunprece-
dented increase in the number2 and complexity of such treaties.3 Investment
treaties are generally designed to protect and promote investment flows in the
member states. In order to achieve this objective, investment treaties contain
a variety of safeguards for foreign investors who make such investments in the
form of protection against expropriation of investment without compensation,
protection against unfair and inequitable treatment, national treatment, and
other protections. Central among these safeguards is the right of the investors to
initiateinternationalarbitrationdirectlyagainsthoststatesoftheinvestments.4The
majorityofmoderninvestmenttreatiesprovideforthisright,whichtogetherwith
the increase in capital flows, and investors’ awareness about the right to direct
1 This relatively late treatment of the subject has been partly attributed to lawyer’s tendency to
avoiddealingwithnumbers.Valuationandaccountingaspectsofthesetopics,whichwastraditionally
deemed to be beyond lawyers’ territory, have been subject of in-depth studies. See, eg, Irmgard
Marboe, ‘Compensation and Damages in International Law—The Limits of “Fair Market Value”’
(2006)7(5)JWorldInvestment&Trade723;MarkKantor,ValuationforArbitration:Compensation
Standards,ValuationMethodsandExpertEvidence(KluwerLawInt’l2008);SergeyRipinskyandKevin
Williams,Damagesin InternationalInvestment Law(British InstituteofInternationalandCompar-
artiveLaw2008).ThomasWWäldeandBorzuSabahi,‘Compensation,Damages,andValuation’,in
PeterMuchlinskietal(eds),TheOxfordHandbookofInternationalInvestmentLaw(OxfordUniversity
Press2008)(hereinafterOxfordHandbook).
2 Over2,700bilateralinvestmenttreatiesthrough2009,aswellasanincreasingnumberofother
types ofinvestment agreements. UNCTAD, Recent Developments in International Investment Agree-
ments (2008–June 2009), IIA Monitor No. 3, UN Doc. UNCTAD/WEB/DIAE/IA/2009/8 at 1
(2009).
3 Seeeg,2004USModelBIT,whichhas34articles;cfUK–AlbaniaBIT(1996),whichhas14.
4 Traditionally,privateinvestorsweredependentontheespousaloftheirclaimsbytheirhomestate
toseekredressininternationallaw.SeeSection2.2.2,below.
Compensation and Restitution in Investor-State Arbitration. Borzu Sabahi.
© Oxford University Press 2011. Published 2011 by Oxford University Press.
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2 Introduction
investor–state arbitration, have led to a surge in the number of investor state
disputesinthelasttenyears.5
Investment treaty disputes have attracted a disproportionate share of public
attention,foravarietyofreasons,including:(i)thepresenceofastateasdefendant
in such disputes; (ii) the subject matter of such disputes, which often involve
economic issues of interest to the public and which may also touch upon other
areas of public interest such as human rights, health, and environment; (iii) the
nature of legal issues, which usually at some level relate to the extent of a state’s
regulatory powers to promulgate laws of interest to the public; and (iv) the
developmentaspectofthelegalissuesinvolved,inasmuchassuchdisputesusually
involvedevelopingcountries.
Thesephenomenatogetherwiththeincreasingnumberofthecaseshavecreated
a veritable jurisprudence and extensive commentary on this area of law.6 Com-
mentatorshavewrittenatlengthaboutsuchtopicsasestablishingthejurisdiction7
of arbitral tribunals, liability issues in the event of an indirect expropriation,
attribution of acts to governments and other state responsibility issues,8 and
whetherarbitralawardshaveanyprecedentialvalue.9
In regard to the precedential value of the awards, one may recall that in
international law, decisions of international courts and tribunals, unlike the court
judgmentsin acommonlawjurisdiction,donot haveabindingforce,otherthan
betweenthepartiestoadispute.10Therefore,internationalarbitraltribunalsarenot
5 ThefirstinvestmenttreatydisputewasAmcowhichcommencedin1981.AmcoAsiavIndonesia,
ICSID Case No. ARB/81/1; 1 ICSID Reports 396 (1983). As of December 2010, according to
ICSID,331caseswerefiledbeforethatcentre.ICSIDCaseload–Statistics,Issue2011–1at7(2011).
6 See, eg Peter Muchlinski et al (eds), Oxford Handbook, above note 1; Christopher Dugan,
Don Wallace, Jr, Noah Rubins, and Borzu Sabahi, Investor State Arbitration (Oxford University
Press2008);CampbellMclachlan,LaurenceShore,andMatthewWeiniger,InternationalInvestment
Arbitration: Substantive Principles (Oxford University Press 2007); Zack Douglas, ‘The Hybrid
FoundationsofInvestmentTreatyArbitration’(2003)74BYIL151;AndrewNewcombeandLluís
Paradell,LawandPracticeofInvestmentTreaties:StandardsofTreatment(KluwerLawInt’l2009);Ian
ALairdandToddJWeiler(eds),InvestmentTreatyArbitrationandInternationalLaw,VolsII&III
(JurisNet2008).
7 See,eg,ChristophSchreuer,TheICSIDConvention:ACommentary(CambridgeUniversityPress
2001), Art. 25; UNCTAD Course on Dispute Settlement, Module 2.4, Requirements Ratione
Personae,UNCTAD/EDM/Misc.232/Add.3(UnitedNations2003);UNCTADCourseonDispute
Settlement, Module 2.5, Requirements Ratione Materiae, UNCTAD/EDM/Misc.232/Add.4,
(United Nations 2003); Noah Rubins, ‘The Notion of “Investment” in International Investment
Arbitrations’,inNorbertHorn(ed.),ArbitratingForeignInvestmentDisputes(KluwerLawInt’l2003).
8 AbbyCohenSmutny,‘StateResponsibilityandAttribution:WhenisaStateResponsibleforthe
ActsofStateEnterprises?’,inToddWeiler(ed.),InternationalInvestmentLawandArbitration:Leading
CasesfromtheICSID,Nafta,BilateralTreatiesandCustomaryInternationalLaw17(CameronMay
2005);KajHobér,StateResponsibilityandAttribution,inOxfordHandbook,abovenote1.
9 SeeMatthewWeinigerandChristophSchreuer,Precedent,inOxfordHandbook,abovenote1;
IanLairdandBorzuSabahi,‘TrendsinInternationalInvestmentDisputes:2007inReview’,inKarlP
Sauvant(ed.),YearbookonInternationalInvestmentLaw&Policy2008–2009(OxfordUniversityPress
2009), at text accompanying n. 15 and materials cited in that note. See also Andrea Bjorklund,
‘InvestmentTreatyArbitralDecisionsasJurisprudenceConstante’,UCDavisLegalStudiesResearch
PaperNo.158(2008).
10 TheICJStatute,Art.59,providesthat‘[t]hedecisionoftheCourthasnobindingforceexcept
between the parties and in respect of that particular case’. Similarly, Art. 53(1) of the ICSID
Conventionprovidesthat‘awardshallbebindingontheparties....’ConventionontheSettlement
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Introduction 3
required to follow prior decisions. Arbitral tribunals do, however, extensively rely
on earlier decisions,11 which shows that they consider them, at a minimum, as
persuasiveauthority,whichcanprovideameasureofpredictabilitytotheapplica-
tionofnormsinthisfield.12Arbitraldecisionsareparticularlyimportantforastudy
ofthetopicsofcompensationandrestitution,because,asweshallsee,investment
treaties do not sufficiently address these issues. This book, therefore, provides an
in-depthcoverageofthejurisprudenceofarbitraltribunalsinthisrespect.
Thestudybegins,inChapter2,withaconcisehistoricalreviewoftheprivatelaw
foundationsofthemodernreparationdoctrine.Chapter2tracesthelaw’soriginsto
Romanlawaswellastocertainprivatelawnotionsthatwerelaterintroducedinto
the European continent’s legal systems (particularly the law of extra-contractual
liability).Chapter2alsofollowstheparalleldevelopment,attheinternationallaw
level, of the concepts of reprisals, denial of justice, and the practice of diplomatic
protectionanddiscusseshowalltheseconceptswerecombinedtoformthemodern
doctrinesofstateresponsibilityandreparation.Thishistoricalstudyhighlightsthe
strong role of the private law notions in shaping the structure of modern interna-
tionallawonstateresponsibilityandreparation.Inthiscontext,thestudydemon-
strates that some of the major contributors to the doctrine of state responsibility
and reparation in international law such as Hugo Grotius (the father of interna-
tionallaw)aswellasotherscholarssuchasAnzilottiandHerschLauterpacht,were
largelyinfluencedbyprivatelaw.
Some modern commentators, however, have assimilated the international in-
vestment law regime into a system of public administrative law13 because of the
similarities,among others, in thesubject mattersofthetwosystems, ie,a govern-
mentandprivateparty.Chapter2,incomparison,highlightstheroleofprivatelaw
sources14 in forming the intricate structure of the law of reparation and its forms,
ofInvestmentDisputesbetweenStatesandNationalsofOtherStates(1965)(‘ICSIDConvention’),
Art.53.
11 Jeffery Commission, ‘Precedent in Investment Treaty Arbitration: A Citation Analysis of a
Developing Jurisprudence’(2007)24(2)JInt’l Arb129;seealsoTai-Heng Cheng,‘Precedentand
ControlinInvestmentTreatyArbitration’(2007)30FordInt’lLJ1014,1016.
12 AstheADCtribunalnoted‘cautiousrelianceoncertainprinciplesdevelopedinanumberof
thosecases,aspersuasiveauthority...mayservepredictabilityintheinterestofbothinvestorsandhost
States.’ADCAffiliateLtdandADC&ADMCManagementLtdvHungary,FinalAwardonJurisdic-
tion,MeritsandDamages,ICSIDCaseNo.ARB/03/16,IIC1para293(2006).
13 See,eg,GusvanHarten,InvestmentTreatyArbitrationandPublicLaw(OxfordUniversityPress
2007); Wälde and Sabahi, above note 1; Santiago Montt, State Liability in Investment Arbitration:
Global Constitutional and Administrative Law in the BIT Generation (Hart 2009); see also Stephan
Schill(ed.),InternationalInvestmentLawandComparativePublicLaw(Oxford2010).
14 Particularly general principles of law. See generally Bin Cheng, General Principles of Law as
Applied by International Courts and Tribunals 1–26 (Stevens & Sons 1953). In this study, general
principlesoflawrefertogeneralprinciplesofmunicipallaw,includingbothpublicandprivatelaw.
ArthurWattsandRobertYJennings(eds),Oppenheim’sInternationalLaw37(Longman1996)(‘The
intention is to authorize the Court to apply the general principles of municipal jurisprudence, in
particulartheprivatelaw,insofarastheyareapplicabletorelationsofStates.’).Somecommentators
consider general principles to reflect general principles of international law, which represent the
fundamental body of rules developed in international law. See id. Or, more specifically, as general
principlesofprivatelaw.SeeSirHerschLauterpacht,PrivateLawSourcesandAnalogiesofInternational
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4 Introduction
particularlylegalrulesgoverningthecalculationoftheamountofcompensationfor
violatingrulesofinternationalinvestmentlaw.15
Chapter3focusesonreparationininternationallaw.Itbeginsbyexaminingthe
more recent historical origins of the modern concept of reparation and how it
becamepartofinternationallaw.Thishistoricalstudysetsthestagefortheproper
interpretation of the Chorzów Factory case, which remains the cornerstone of the
modern reparation doctrine and has been followed by numerous international
tribunals. Pursuant to the case, reparation for unlawful acts in international law
must put the aggrieved party in the economic situation that he would have
possessed if the unlawful act had not occurred (the ‘hypothetical position’). This
may be achieved by restitution of the property (discussed in Chapter 4), or its
monetaryequivalent(ifrestitutionisnotfeasible)(discussedinChapter5),aswell
as by paying additional compensation to eliminate completely other damage
suffered as a result of that act, such as moral damage, loss of the use of money
(interest),damagecausedduetocurrencyfluctuationsandsoforth,allofwhichare
discussed in Chapter 6 under the general title of ‘Supplemental Compensation’.
Chapter 3 also briefly discusses the International Law Commission Articles on
ResponsibilityofStatesforInternationallyWrongfulActs(‘ILCArticles’).16
In Chapter 4, the study provides an in-depth coverage of theoretical aspects of
the topic of restitution and its application in international investment cases. The
power of arbitral tribunals to award restitution comes from the specific tribunal’s
grant of jurisdiction, typically contained in the relevant treaty. A tribunal may
award two types of restitution: material restitution, whichincludes the restitution
of any unlawfully taken property or money; and juridical restitution, which
involvesthe restoration ofa pre-existing legal situationthrough suchorders by an
arbitral tribunal as directing the revocation of governmental decrees or directing
specific performance. The power of a tribunal to order restoration is limited,
however, particularly by the doctrines of impossibility and disproportionate bur-
den,asalsodiscussedinthischapter.
Chapter5examinesvariousaspectsofawardingmonetarycompensation,which
isbyfarthemostcommonformofreparationininvestmenttreatyarbitration.The
developmentoflegalprinciplesinthisareaarecloselyrelatedtocasesofexpropria-
tion, although compensation is also used as reparation for other breaches of
Law(Longmans,Green&Co1927).SeealsothereferencesinIanBrownlie,ThePrinciplesofPublic
InternationalLaw16(6thedn,OxfordUniversityPress2003).
15 Themulti-disciplinarynatureofthetopicscoveredinthisbookrequiredconsultinganumberof
historicalaswellasmodernsourcesfallingwithinthefollowingdisciplines:Romanlaw,canonlaw,
comparativelaw,thehistoryofinternationallaw,publicinternationallaw,investmenttreatyarbitra-
tion,internationalcommercialarbitration,thelawofdamages,tortlaw,theEuropeanlawofextra-
contractualliability,historyofthelawofextra-contractualliability,contractlaw,accounting,finance,
corporatefinance,internationalconventionssuchastheUnitedNationsConventiononContractsfor
the International Sale of Goods (CISG) and the UNIDROIT principles, and international human
rightslaw.AlistofthematerialsthathavebeencitedissetforthintheSelectBibliography.
16 International Law Commission Articles on Internationally Wrongful Acts (‘ILC Articles’),
Art.31,inReportoftheInternationalLawCommissionontheWorkofItsFifty-thirdSession,UN
GAOR,56thSess.,Supp.No.10,at43,UNDoc.A/56/10(2001)(hereinafter‘ILCArticles’).
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Introduction 5
internationalinvestmentlawsuchasunfairandinequitabletreatment.Aconceptof
rising importance concerning compensation due for expropriation is whether the
expropritoryactislawfulorunlawful.Althoughcompensationmostoftenfocuses
on the fair market value of the property lost to the investor, the question of the
lawfulnessoftheactcanimpactthedateonwhichsuchvalueisdetermined,which
in turn may impact the value of the property. Additionally, Chapter 5 briefly
discusses certain valuation and accounting methods to the extent necessary to
facilitatetheunderstandingofthecompensationpartofarbitralawards.17
Chapter 6 introduces the concept of ‘supplemental compensation’, which is a
generictermusedtorefertocompensationthatanaggrievedinvestormayreceive
for various heads of damage suffered in addition to the principal damage caused
directly to the investment, which is discussed in Chapter 5. Supplemental com-
pensation is necessary to put the wrongfully harmed investor in the hypothetical
position. It repairs the aggrieved party’s losses for the following heads of damage:
moral damage, interest, currency fluctuations, and arbitration related costs. Key
issues and important limitations relating to these heads of damage are discussed
undertheindividualsubsectionsinChapter6.
Chapter7discussesgenerallimitationsonawardingcompensation.Causationis
akeyelementherethatlimitstherecoverableamountstothosethatcanbefactually
and legally linked to the injurious acts. The acts of injured party can also limit
compensation, through contributory negligence or failure to mitigate losses. The
respondentstatemayalsohavecounterclaims ordefences,particularlythe stateof
necessity,whichwillhavealimitingeffect.Chapter7alsobrieflylooksathowthe
burdenofproofandtheprohibitionondoublecountingcanaffecttheamountof
compensation, as well as the role of equity in awarding compensation. Chapter 8
containstheconcludingremarksonthisstudy.
Annexes. The book includes the following annexes: 1) a Chronology, which
mainly aims at showing the time line, in Chapters 2 and 3, of how general
principles of reparation, compensation, and restitution have evolved from Roman
times till present; 2) Damages Table, which provides certain information about
investment treaty awards discussed in the book, such as the amount of damages
awarded, the causes of action, the valuation method used, and whether supple-
mentalcompensation(includingmoraldamages,interest,andcosts)wereawarded;
3) Table of Costs, which lists all the costs awarded in investment treaty cases;
4)Glossary;5)SelectBibliography,whichexplainssomeofthetermsofartusedin
valuationandfinanceaswellasinRomanlaw;andfinally,6)anIndexofkeyterms
discussedinthebook.
Terminology.Theterminologyofthelawofstateresponsibility,andparticularly
the international law of reparation, is not uniform.18 The concepts are not
17 Books focusing on valuation issues in arbitration have discussed those aspects. See mainly
Kantor,abovenote1;seealsoRipinskyandWilliams,abovenote1,andShannonPratt,TheLawyer’s
BusinessValuationHandbook(ABA2000).
18 SeeIanBrownlie, 1SystemoftheLawofNations: StateResponsibility 442 (OxfordUniversity
Press1983);SLHaasdijk,‘TheLackofUniformityintheTerminologyoftheInternationalLawof
Remedies’ (1992) 5 Leiden J Int’l L 245; Eibe H Riedel, ‘Damages’, in Rudolf Bernhardt (ed.),
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6 Introduction
numerous,but theterms usedareabundant.Toavoidconfusion,withthe excep-
tion of Chapter 2, where some of the historical concepts are discussed, the terms
usedinthisbookhavethemeaninggiventothemintheILCArticles,19whichmay
notnecessarilybesimilartothoseusedintheinternationaljurisprudence.
The most striking difference is in the usage of the terms ‘compensation’ and
‘damages’. A number of scholars and awards use the term ‘compensation’ to refer
only to the consequences of a lawful expropriation and the term ‘damages’ to
refer tothe consequences ofan unlawful act.20This distinction is not followed in
thisbook.TheILCArticlesexplainthatcompensation‘shallcoveranyfinancially
assessabledamageincludinglossofprofitsinsofarasitisestablished’.21‘Compen-
sation’ in this sense, hence, is used as a generic term to refer to monetary sums
payable for the damage caused to the victim. The term ‘damage’ is synonymous
with a loss or harm, which could be material or moral. Therefore, the word
‘damages’ (plural), in this text, shall be considered equivalent to ‘harms’. The
otheruse ofthe word‘damages’in this bookistorefer tomonetary sums duefor
breachofacontract.
Theterm‘supplementalcompensation’ismeanttoencompasscompensationfor
the following heads of damage: moral damage, interest, adjustment for currency
devaluation,andarbitrationrelatedcosts.
Anumberofothertermsareusedsynonymouslysuchas‘unlawful’,‘illegal’,and
‘wrongful’.Theterms‘protection(s)’and‘basesofliability’refertovariousprotec-
tions in investment treaties22 and customary international law, such as fair and
equitabletreatment,expropriation,andsoforth.Definitionsofothertermsofart,
not explained above, and the way they relate to each other, are provided in the
Glossary.
IEncyclopediaofPublicInternationalLaw929,929–30(MaxPlanck1992);GaetanoArangio-Ruiz,
SecondReport onState Responsibility, UN Doc. A/CN.4/425&Corr.1 andAdd.1&Corr.1, in
(1989)2(1)YBInt’lLComm’n1,5.
19 ILCArticles,abovenote16.
20 ForanoverviewofthosescholarswhoadheretothisviewseeMarboe,abovenote1,at725–6.
SeealsoCharlesNBrowerandMichaelOttolenghi,‘DamagesinInvestor-StateArbitration’(2007)
4(6)TDM1,4.
21 ILCArticles,abovenote16,Art.36.
22 Thesetermshavebeenusedinsteadoftheterm‘standardoftreatment.’Alsotheterm‘standard
ofcompensation’hasnotbeenused.
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2
A Concise History of the Law of State
Responsibility and Reparation
in International Law
2.1 Introduction
Overview. International investment law and investment treaty arbitration are part
ofpublicinternationallaw.Violationofinvestmenttreaties andthe consequences
intermsofreparationduearesubjecttothegeneralrulesofstateresponsibilityfor
internationally wrongful acts. Under the modern doctrine of state responsibility:
the commissionofan internationally wrongfulact creates state responsibility, and
the latter entails a new obligation of reparation. In the past, however, these
elements were not as clearly defined and interconnected as they are today. For
example,itwillbenotedinSection2.6belowthatthenotionofan‘international
wrong’didnotemergeuntilthelatenineteenthandearlytwentiethcentury.
The modern doctrines of state responsibility and reparation are the result of
morethan2,000yearsofhumanthought.Generationsoflawyers,statesmen,and
scholars have contributed to the creation of these two concepts and to their
interrelationship as we know them today. Chapter 2 will trace the history of
some of the most important components of state responsibility and reparation
doctrine, before examining the modern law of reparation in investment treaty
arbitrationandthemainreparationforms;thatis,restitutionandcompensation.
Utilityofthishistoricalchapter.Thereseemstobearenewedinterestinthestudy
ofthehistoryofinternationallaw.1But,apartfromintellectualcuriosityaboutthe
genealogy of the norms of international law, is there any use for such a study? As
Verzijlhassuggested,thereisa‘rareintellectualcharm’embeddedinsuchstudies,
whichcouldleadonlytoblindalleys.2
Aswillbeshowninthischapter,thereisnodirectlineagebetweenthemodern
concepts of reparation and state responsibility and their ancient forerunners.
1 IngoJHueck,‘TheDisciplineoftheHistoryofInternationalLaw—NewTrendsandMethods
ontheHistoryofInternationalLaw’(2001)3JHistoryInt’lL194,208.Hueckascribesthisto‘[t]he
younger generation’s...[interest] in the epistemological development of international law and the
developmentofideaswhichledtomoderninternationallaw....’at208–9.SeealsoMarttiKosken-
niemi,‘WhyHistoryofInternationalLawToday?’(2004)4Rechtsgeschichte61,availableat<http://
www.helsinki.fi/eci/Publications/Koskenniemi/MHistory.pdf>.
2 JHWVerzijl,InternationalLawinHistoricalPerspective403–4(MartinusNijhoff1968).
Compensation and Restitution in Investor-State Arbitration. Borzu Sabahi.
© Oxford University Press 2011. Published 2011 by Oxford University Press.
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8 HistoryoftheLawofStateResponsibilityandReparation
Studyingthehistoryofthelawofstateresponsibilityandreparationhoweverdoes
notleadtoablindalley;rather,theabsenceofdirectlineagebetweenancientand
modern law indicates that: first, modern writers must be cautious in relying too
much on ancient concepts; and, second, that some of the more contemporary
sourcesofinternationallaw,specificallythegeneralprinciplesoflawinArticle38of
the Statute of the International Court of Justice, should be considered more
seriously in the study of the international law of reparation for injuries to foreign
investors, because the law of reparation is indirectly an embodiment of these
principles.
Finally, this chapter clarifies the roots of some of the terminological and
conceptual inconsistencies and confusion in the international law of reparation,
whichshouldbeusefulbothforWesternand,perhapsevenmore,forthedevelop-
ing non-Western legal systems to understand the scope and shape of today’s
jurisprudenceandpractice.3
Generalmethod.MarttiKoskenniemihascategorizedhistoricalstudiesoninter-
national law into three general groups:4 (1) studies that concentrate on the great
epochs of international law;5 (2) studies that examine the development of impor-
tantprinciplesduringsuccessivehistoricalepochs;6and(3)studiesthatconcentrate
onindividuals.7
Themethodusedinthisstudymainlyaccordswiththesecondgroup,although
ithaselementsofthethirdgrouptoo,insofarasitexaminestheviewsofsuchkey
figures such as Thomas Aquinas, Hugo Grotius, and Dionisio Anzilotti in more
detail.
Contents.Thishistoricalreviewwillshowthatthedoctrineofstateresponsibility
hasitsoriginsinprivatelawnotionsaswellasintheearlydoctrinesofinternational
law relating to the protection of foreign nationals. On the private law side, the
earliest source of the relevant concepts is the Roman law of delicts (particularly, a
statute called Lex Aquilia) as well as the Roman law of actions, particularly the
remedy of restitutio in integrum.8 Later on, these concepts were further developed
throughtheworksofcanonists,theologians,scholastics, andtheschoolofnatural
law. All these contributions were ultimately incorporated in European civil codes
underthebannerofthelawofextra-contractualliability(or,intheparlanceofthe
commonlaw,thelawoftorts).Ontheinternationallawside,therootsofthelawof
3 SeeIanBrownlie,1SystemoftheLawofNations:StateResponsibility199–200(OxfordUniversity
Press 1983) for a reference to this problem. See also, eg, Christine Gray, Judicial Remedies in
International Law 5–11 (Clarendon Press 1990); FV García Amador, International Responsibility,
SixthReportoftheSpecialRapporteur,SixthReportoftheSpecialRapporteur,UNDoc.A/CN.4/
134andAdd.1,in2YBInt’lLComm’n17–8(1961).
4 Koskenniemi,abovenote1,at67–9.
5 See,eg,WilhelmGGrewe,TheEpochsofInternationalLaw(MichaelByers,trans.,2000).
6 See, eg, Robert Redslob, L’histoire des Grands Principes du Droit des Gens—Depuis
l’AntiquitéJusqu’àlaVeilledelaGrandeGuerre(Rousseau1923).
7 See,eg,AdeLapradelle,MaîtresetDoctrinesduDroitdesGens(2ndedn,EditionsInternationales
1950).TheEuropeanJournalofInternationalLawhaspublishedonoccasionstudiesdevotedtoa
numberofcontemporaryindividualjuristssuchasHerschLauterpacht,HansKelsen,andCharlesde
Visscher:see<http://www.ejil.org/archives.php>.
8 Restitutioinintegrumliterallymeansreturntotheoriginalposition.
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ModernDoctrinesofStateResponsibilityandReparation 9
stateresponsibilitymaybetracedtothedoctrinesofreprisals,denialofjustice,and
thepracticeofdiplomaticprotection.
Chapter2beginswithabriefidentificationofthemainelementsofthemodern
doctrine of state responsibility as codified in the International Law Commission’s
Articles on Responsibility of States for Internationally Wrongful Acts (the ‘ILC
Articles’). After introducing the historical Roman and private law sources of the
modern law, particularly jus gentium, for the purpose of this study in Section 2.3,
Chapter2proceedstotracetheoriginsoftheseconceptsinthehistoricalrootsofthe
civil law doctrines of extra-contractual liability and the remedy of restitutio in
integrum, from Roman times until their incorporation into European civil codes
(Section2.4).Chapter2thendiscussestheinfluenceofthecommonlawontheearly
doctrine of state responsibility (Section 2.5). It also traces the development of the
conceptsofstateresponsibilityand,particularly,thenotionofinternationalwrong,in
theinternationallawofreprisalsanddenialofjustice(Section2.6).Then,itexplains
howtheprivatelawnotionsdiscussedinSections2.3to2.5enteredintointernational
law (Section 2.7) and how, from the fusion of these notions and concepts,
suppliedthroughtheevolvingdoctrinesofreprisals,denialofjustice,anddiplomatic
protection,themoderndoctrineofstateresponsibilityandreparationwasborn.
Consideringthatthischapterexamineslegaldevelopmentsovertwomillennia,a
chronology of important events has been included (Annex 1) to aid the reader in
followingthesedevelopmentsthroughvarioushistoricalepochs.
2.2 Elements of the Modern Doctrines of State Responsibility
and Reparation for Internationally Wrongful Acts9
2.2.1 Overview
ItiswidelyheldthattheILCArticles10codifythecustomarylawofstateresponsibil-
ityandreparation.11WhetheralltheprovisionscodifiedintheILCArticlesrepresent
acodificationofcustomorratheraprogressivedevelopmentofinternationallawgoes
beyondthescopeofthischapter.TheILCArticles,however,insofarastheyidentify
fundamental concepts of state responsibility, such as responsibility, attribution,
variousaspectsofthedoctrine ofreparationandsoforth,area convenientstarting
point for a study of the norms governing determination of state responsibility
in investment treaty disputes as well as the reparation due in such cases.12 Thus,
9 Foramorein-depthcoverageoftheconceptofreparationseegenerallyChapter3below.
10 InternationalLawCommission’sArticlesonResponsibilityofStatesforInternationallyWrong-
fulActs,inReportoftheInternationalLawCommissionontheWorkofItsFifty-thirdSession,UN
GAOR,56thSess.,Supp.No.10,at43,UNDoc.A/56/10(2001)(hereinafter‘ILCArticles’).
11 NobleVentures,Inc.vRomania,Award,ICSIDCaseNo.ARB/01/11;IIC179para69(2005);
seealsoLG&EEnergyCorpandorsvArgentina,DecisiononLiability,ICSIDCaseNo.ARB02/1,IIC
152para31(2006);CMSGasTransmissionCompanyvArgentina,Award,ICSIDCaseNo.ARB/01/8,
IIC65para315(2005).
12 Thearticleswerecreatedtogovernstate–statedisputes;but,theyhavebeenwidelyappliedto
relationshipsinvolvingstatesandindividuals,includingforeigninvestors.Somescholarsbelievethat
OUPCORRECTEDPROOF–FINAL,13/6/2011,SPi
10 HistoryoftheLawofStateResponsibilityandReparation
in this section, some of these fundamental concepts are examined as they are
understoodandappliedtoday.
2.2.2 Investors’ right of action for injuries caused by states
in international law13
In the past, under modern international law, individuals, including foreign inves-
tors,lackedstandingtobringclaimsagainststatesforinjuriescausedbythestates’
actions.Bringingsuchaclaimwasaprivilegereservedforotherstates.14Theonly
international legal remedyfor individuals was toseek the diplomatic protection of
theirhomestateandtoconvinceittoespousetheirclaim.Iftheyweresuccessful,
then the home state would bring a claim against the respondent state. This latter
claim,however,wasonbehalfoftheespousingstateitself,andnotonbehalfofthe
individual.15TherationalewastheVattelianfiction,thatinjurytotheindividualis
injurytothestate.16
In the modern world of investment treaties, however, there is no need for that
fiction,becausethestatusoftheindividualhassubstantiallyimproved.Investment
treaties grant direct right of action to those injured individuals who qualify as
investors.17Investmenttreatiesbroadlydefineinvestorstoincludenaturalpersons
and a variety of legal persons such as corporations and even non-profit institu-
tions.18 Under this modern system, individuals do not need to seek diplomatic
protection;thetreatiesallowthemtobringaclaimdirectlyagainstastatethathas
causedtheminjury.19Itisinthiscontextthattheelementsofthemoderndoctrine
ofstateresponsibilityandreparationshouldbeviewed.
2.2.3 State responsibility
ItisimportanttonotethattheILCArticleshavecodifiedtheso-called‘secondary
rules’governingstateresponsibilityininternationallawincontrasttothe‘primary
rules’.Theprimaryrulesdefinethecontentofinternationalobligations,breachof
cautionshouldbeexercisedwhenapplyingthearticlesinthelatterfield.See,eg,Gray,abovenote3,at
218;BorzuSabahi,‘TheCalculationofDamagesinInternationalInvestmentLaw’,inPhilippeKahn
&ThomasWWälde(eds),NewAspectsofInternationalInvestmentLaw553,554(MartinusNijhoff
2007).
13 SeealsoSection2.6.3below.
14 TheCentralAmericanCourtofJustice,whichoperatedbetween1907–18,standsasalimited
exceptiontothisprinciple:seeProjectonInternationalCourtsandTribunals,CentralAmericanCourt
ofJustice,availableat<http://www.pict-pcti.org/courts/CACJ.html>.
15 ChristopherDugan,DonWallace,Jr,NoahRubins,andBorzuSabahi,InvestorStateArbitration
27–8(OxfordUniversityPress2008).
16 Seep37 below.
17 See, eg, US–Argentina BIT (1994), Art. VII. For more examples see generally Christoph
Schreuer,‘ConsenttoArbitration’,inPeterMuchlinskietal(eds),TheOxfordHandbookofInterna-
tionalInvestmentLaw830etseq(OxfordUniversityPress2008).
18 Duganetal,abovenote15,at304–5.
19 Wherethereisnoinvestmenttreaty,theoldsystemmaystillprevail.See,eg,theELSIcase.Case
ConcerningElettronicaSiculaS.p.A.(ELSI)(USvItaly),1989ICJ15(20July1989).