INVESTORS’ HUMAN-RIGHTS OBLIGATIONS IN NEW-GENERATION IIAs: A DOUBLE-EDGED SWORD?

1.    INTRODUCTION-

“There is no love at first sight between bilateral investment treaties (BITs) and other international investment agreements (IIAs) and human-rights.”

Traditionally, IIAs do not impose human-rights obligations on investors whereas many new-generation IIAs do. Thus, firstly, this paper will discuss the reasons for the absence of human-rights obligations in the traditional IIAs, the need for their presence, and what new-generation IIAs are. Furthermore, it will discuss the types, enforcement, and efficiency of these obligations. Lastly, this paper will conclude with answering the main question it poses, that is, whether the new-generation IIAs are in need of a change themselves?

2.    ANALYSIS-

2.1.        ABSENCE AND NEED

2.1.1. IIAs VERSUS HUMAN-RIGHTS?

IIAs have tended not to include human-rights issues within their ambit, in part, because international investment and international human-rights law are often viewed as disparate areas of the law. But, in reality, these two areas are not “mutually exclusive”. Instead, these often overlap and consequently, create conflicts. For example, in the 2010 case of Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, the Host State enacted the ‘Black Economic Empowerment Act’ to address racial discrimination, which conflicted with the investors’ interests. Consequently, the investors brought claims against the Host State and won the International Centre for Settlement of Investment Disputes (ICSID) award. Such situations also lead to the Host States experiencing ‘regulatory chill’. For example, New Zealand delayed implementing its public health policy of introducing plain packaging in cigarettes so as to avoid conflicts with investors, which could have otherwise led to an unfavorable, time-consuming and expensive arbitration process for New Zealand.

2.1.2. INVESTORS VERSUS HOST STATES?

The primary focus of the traditional IIAs has been on solely benefiting the investors. For example, under Investor-State Dispute Settlement (ISDS), only the investors can bring initial claims against the Host State. And only after that, the Host State can bring counter-claims. Furthermore, the ICSID Convention mandates the Host State to show “a sufficient connection between the legal obligation breach and the investor’s own claim”. Such restrictive provisions impose an obligation only on the Host State to act responsibly, therefore giving a leeway to the investors to breach such IIAs and violate their human-rights obligations.

Therefore, the need for new-generation IIAs, imposing human-rights obligations on investors, arises. These is an attempt at reforming the traditional IIAs, avoiding conflicts between international human-rights law and international investment law, preventing human-rights’ violation, and “to balance the protection of foreign investment with the Host State’s right to regulate”.

2.2.        TYPES OF HUMAN-RIGHTS OBLIGATIONS-

The investor obligations ensure that, despite the grand theme of investor protection, investments are not encouraged at the cost of the environmental, health, labour, and public policy to the detriment of a Host State. One such case is the case of Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, where the Tribunal was in favor of Uruguay, as against the investors, because the former had enacted policies to control tobacco for maintaining the public health of its citizens.

Now, the human-rights obligations in new-generation IIAs are of two types – soft obligations and hard obligations. While hard obligations are binding on the parties to the IIAs, soft obligations are non-binding. For example, Articles 22 and 23 of the Brazil-India BIT, by using the term “shall”, seem to impose hard obligation on the investors to not jeopardize human-rights in pursuit of their investments. But it is instead a ‘best efforts’ approach and thus, is a soft obligation. This is similar to Article 9 of Brazil-Malawi BIT. Another example is the Draft Pan African Investment (“PAI”) Code, which contains both soft and hard obligations. Article 22 of this Code imposes a hard obligation (by using the term “shall”) on investors regarding their responsibility towards the human-rights of the citizens of a Host State. But Article 24 of this Code imposes a soft obligation (by using the term “should”) on the investors regarding the same. Again, Articles 15 and 18 of the Morocco-Nigeria BIT use the term “shall” and impose hard obligations on the investors, similar to the ones mentioned previously. This is also similar to Article 15 of the Southern African Development Community (SADC) Model BIT and Articles 11, 12, 13, 14, 15, 16 and 17 of the Economic Community of West African States (ECOWAS) Supplementary Act on Investment. Also, a recent example is the Ecuador Model BIT which imposes human-rights obligations on investors.

2.3.   ENFORCEMENT AND EFFICIENCY OF HUMAN-RIGHTS OBLIGATIONS

2.3.1. NATURE

As the aforementioned soft obligations are not binding on investors, a Host State can find it difficult to make counter-claims against an investor, based on such obligations. Also, the Draft PAI Code, the Brazil-India BIT, the Morocco-Nigeria BIT and the Brazil-Malawi BIT are not in force yet and thus, are not legally binding on the investors. Furthermore, the purpose of the SADC Model BIT is to be a guideline. Thus, it is also not legally binding on the investors. But ECOWAS can be useful for the Host States as it is currently in force.

2.3.2. DISPUTE RESOLUTION CLAUSES

“The jurisdiction clauses in the Morocco-Nigeria BIT, the SADC Model BIT and the draft PAI Code, however, remain relatively restrictive”. IIAs usually do not have dispute resolution clauses in favor of the Host States. This is seen in Article 27 of the Morocco-Nigeria BIT, which states that “the investor concerned may submit at his preference the dispute settlement” and Article 29.4 of the SADC Model BIT, which states that “an investor may submit a claim to arbitration”. Consequently, these restrict the Host States from initiating claims against the investors.

2.3.3. CONSENT-

Article 42(1) of the Draft PAI Code impliedly allows Host States to initiate claims against investors. But most IIAs need the investors’ consent to make their obligations legally binding. This ‘consent’ usually means the investors requesting arbitration and is, thus, problematic for the Host States. Yet Article 20 of the Morocco-Nigeria BIT brings in investor liability without such consent of the investors. This is similar to Article 17 of ECOWAS and as it is in force, this can be useful for the Host States. But such use is not much significant as these IIAs do not explicitly allow Host States to bring initial claims or counter-claims against the investors.

2.3.4. COUNTER-CLAIMS-

Due to the human-rights obligations imposed on investors in new-generation IIAs, the Host States can bring in the claim of non-compliance through counter-claims if the investors breach such obligations and if the IIAs allow it. For example, Article 19(1) of the SADC Model BIT and Article 43(2) of the Draft PAI Code both provide Host State the right to bring counter-claims against investors “for damages or other relief resulting from an alleged breach” of an investor obligation. The Morocco-Nigeria BIT, while it does not have a provision for a Host State’s counter-claims against an investor yet under Article 27, does mention that Tribunals have the jurisdiction over “any dispute between the Parties”. This may include a Host State’s counter-claim against an investor. But an investor may choose to submit a claim under Article 46 of the ICSID Convention, where this Article limits the scope of the Host State to bring counter-claims against the investors by stating that the counter-claims must take place only and directly from the “subject-matter of the dispute”. Thus, this becomes another hurdle for the Host States that must be considered.

2.3.5 REMEDIAL SCOPE-

These new-generation IIAs do not explicitly clarify the remedial scope when it comes to the breach of human-rights obligations in an IIA by an investor. This is because, after all, such human-rights are of the citizens of a Host State and not of the Host State itself. It thus may be troublesome to decide the remedy for each citizen, to prove how the citizens have been affected, and to measure the extent of effect of the breach on each citizen.

3.    CONCLUSION-

Although the new-generation IIAs are a much-needed change from traditional IIAs, the asymmetrical protection standards given to investors and Host States (or, in other words, the investors and the human-rights of the citizens of the Host States), have persisted, from traditional IIAs to new-generation IIAs. For example, the consent of the investors still plays a role in lending the binding force to most new-generation IIAs, most of the dispute resolution clauses in such IIAs still favor the investors over the Host States as the initial claimants and not all such IIAs allow counter-claims by the Host States. Frequently, such counter-claims are further restricted by Article 46 of the ICSID Convention. Thus, the investors’ human-rights obligations in new-generation IIAs are currently a double-edged sword. This means that although these are useful to some extent and is a step forward from traditional IIAs, simultaneously, these new-generation IIAs are in need of significant changes to fully realize their potential and purpose.

Author: Rajlakshmi Chakravarti

4th year, B.A. LL.B. Hons.

Jindal Global Law School

O.P. Jindal Global University