If it is accepted that a host state can, in principle, suspend performance of its investment protection obligations by way of countermeasures, practical challenges arising from the limited jurisdiction of investor-state tribunals would need to be addressed. Jurisdiction is critical to the effectiveness of investor-state arbitration since ICSID annulment committees can annul an award on the ground that the tribunal “manifestly exceeded its powers,” and domestic courts may set aside or refuse to enforce an award if the tribunal exceeds its powers.166 A detailed con- sideration of the jurisdictional hurdles and strategies to overcome these limitations is beyond the scope of this chapter.167 The aim of this sub-section is to identify these challenges and some jurisdiction-related arguments that weight in favour of allowing an investor-state tribunal to consider a countermeasures defense.
In examining a defensive plea of countermeasures by a host state, a threshold question is whether there was a prior wrongful act by the home state. In ADM, Corn Products, and Cargill, Mexico maintained that it was entitled to take countermeasures because the United States had violated its obligations under NAFTA by denying access for Mexican sugar producers to the U.S. market and by frustrating the operation of the Chapter XX disputes settlement mechanism. The applicable provision, Article 1131(1) of NAFTA, provided that “a Tribunal established under this Section shall decide the issues in dispute in accordance with this Agreement and applicable rules of international law.” Nevertheless, the tribunals in ADM and
163. Articles on State Responsibility (n 1) art 48.
164. Brilmayer (n 103) 180.
165. See Olivia Pegna, ‘Counter-claims and obligations erga omnes before the International Court of Justice’
(1998) 9 European Journal of International Law 724, 732.
166. ICSID Convention (n 90) art 52(1)(b); The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (10 June 1958) 330 UNTS 38 art V(1)(c) (New York Convention).
167. For a detailed examination, see Calamita (n 83).
Corn Products concluded that they lacked jurisdiction to determine whether these allegations against the United States were well founded on the basis that the Chapter XI tribunal had no jurisdiction to consider whether there had been a breach of any provisions of NAFTA fall- ing outside Chapter XI.168 The Corn Products tribunal concluded that even if countermeasures were available in principle, Mexico’s argument would be rejected due to Mexico’s failure to prove the wrongfulness of the United States’ conduct.169 The Corn Products tribunal also noted that the United States was not a party to the proceedings, although it is unclear whether this formed a separate basis for the decision to decline jurisdiction.170 The Cargill tribunal (after concluding that countermeasures could not preclude the wrongfulness of actions in respect of a claim asserted by investors under Chapter XI) simply stated that it possessed the necessary jurisdiction to determine the validity of the respondent’s assertion that its actions were, in fact, lawfully adopted countermeasures.171
The first hurdle, then, arises from the limited subject matter jurisdiction of investor-state tribunals. By the reasoning of the NAFTA tribunals, it will be impossible for a reacting state to plead a countermeasures defense successfully when the countermeasure is adopted in response to wrongful conduct by the target state under a different treaty or customary international law.
In my view, the NAFTA tribunals’ disavowal of jurisdiction to make any findings with respect to the alleged wrongfulness of the home state’s conduct is erroneous. While the juris- diction of tribunals formed under Chapter XI of NAFTA is limited to deciding claims alleging violations of Chapter XI,172 this must include the jurisdiction to determine matters incidental to and necessary for the exercise of their substantive jurisdiction. Chapter XI tribunals do not
“lose” this jurisdiction once consideration of non-NAFTA Chapter XI rules is a necessary step to deciding a matter within their jurisdiction, as long as the claim itself is based on NAFTA Chapter XI. If, as argued above, investors’ rights are qualified by the rights of host states to take lawful countermeasures, in a case where lawful countermeasures are adopted, the host state is precluded from international responsibility for not complying with its obligations under Chapter XI for the duration and to the extent that the countermeasure is permitted. Thus, determining whether the offending measure qualifies as a lawful countermeasure is necessary to define the scope of the host state’s obligations toward investors. This issue properly falls within a Chapter XI tribunal’s jurisdiction.173
The second jurisdictional hurdle arises from the absence of the target state’s participation in proceedings in which findings as to the legality of the target state’s conduct will be made. It has been argued that the fact that the United States was not a party in either Corn Products or ADM could arguably have formed the basis for either tribunal to refuse jurisdiction generally over Mexico’s countermeasures defense on the basis of the doctrine of “indispensable parties,”
168. ADM (n 7) [128]; Corn Products (n 7) [182]; Cargill (n 7) [430].
169. Corn Products (n 7) [182].
170. Corn Products (n 7) [182].
171. Cargill (n 7) [430].
172. See NAFTA (n 6) Chapter XI Articles 1115, 1116 and 1117, 642–643.
173. For a similar perspective in the context of the jurisdiction of WTO panels, see Joost Pauwelyn, ‘The role of public international law in the WTO: how far can we go?’ (2001) 95 American Journal of International Law 535, 557; Sverrisson, Countermeasures and Environmental Violations (n 4) 272. For a contrary perspec- tive see Calamita (n 83) 288 (‘while one may have sympathy for the normative advantages of an approach to jurisdiction … it must be accepted that such arguments run against a well-established grain of doctrine and jurisprudence.’).
articulated by the International Court of Justice in Monetary Gold.174 The case arose from the Washington Statement made by the United Kingdom, the United States, and France. Under the Washington Statement, the three governments agreed to deliver to the United Kingdom Albanian gold removed from Rome as partial satisfaction for the judgment due to the United Kingdom from Albania in the Corfu Channel case, unless Italy would make an application to the Court with a claim that the gold should be transferred to Italy, or Albania would make a similar application; in such a case, they agreed, as defendants, to accept the jurisdiction of the Court.175 Italy instituted proceedings against the three governments, claiming that it had a right to the gold and that this right should have priority over the claims of the United Kingdom. Albania chose not to appear before the Court. An earlier arbitration award had affirmed Albania’s title to the gold. Thus, at the merits stage, the Court would have had to decide on allocation of the gold, which was under Albanian title. The Court declined to exer- cise jurisdiction, on the basis that “Albania’s legal interests would not only be affected by a decision, but would form the very subject matter of the decision.”176
It has been argued that the direct rights approach is preferable in order to avoid the com- plex procedural debate about Monetary Gold.177 But this puts the cart before the horse. Mere convenience should not control the proper conceptualization of investors’ rights—an issue that implicates other debates across the investment treaty field, such as whether the treaty par- ties can jointly terminate the investment treaties178 or whether home states may waive or settle claims with binding effect on their investors.
There is a serious argument that in the absence of consent by the home state to the jurisdiction of an investor-state tribunal over it, the Monetary Gold principle precludes an investor-state tribunal from entertaining a countermeasures defense.179 However, the signifi- cance and applicability of Monetary Gold beyond the exceptional facts of that case has been questioned.180 Further, it is arguable that the real rationale of Monetary Gold might lie in the inevitable enforcement implications of the claim for the absent state: In Monetary Gold, the case could not proceed because the claim would inevitably have led to a determination of dis- puted title to the gold, and the enforcement of remedies against the absent state.181 On this
174. Case of the Monetary Gold Removed from Rome in 1943 (Preliminary Questions) [1954] ICJ Reports 19 (Monetary Gold).
175. ibid [22], [26].
176. ibid [32].
177. Paparinskis (n 39) 337, 340.
178. Individuals do not appear to be protected against revocation and modification of third-party rights under Articles 36 and 37 of the VCLT; states can amend or terminate treaties which provide rights for individ- uals under general treaty law: see Christine M. Chinkin, Third Parties in International Law (Oxford University Press 1993) 121. These principles are contentious when it comes to investors’ rights.
179. See Uchkunov and others (n 39).
180. E.g., Hersch Lauterpacht described Monetary Gold as a case ‘confined to the interpretation of the techni- cal clauses of the relevant instruments without providing an occasion for a decision of wider issues of inter- national law’: Hersch Lauterpacht, The Development of International Law by the International Court (Stevens
& Sons 1955) 33–34; Alexander Orakhelashvili, ‘The competence of the International Court of Justice and the doctrine of the indispensable party: from Monetary Gold to East Timor and beyond’ (2011) 2(2) Journal of International Dispute Settlement 373 (arguing that Monetary Gold does not actually amount to any generally applicable doctrine of indispensable parties).
181. See Martins Paparinskis, ‘Procedural aspects of shared responsibility in the ICJ’ (2013) 4(2) Journal of International Dispute Settlement 295, 315 (Paparinskis, Procedural Aspects of Shared Responsibility);
Orakhelashvili (n 180) 380 (arguing that ‘if in Monetary Gold, the Court had pronounced on the title to the
reading, the Monetary Gold principles would not seem to apply to the countermeasures sce- nario, unless one views the rights of the home state to be the same as those of its investors. If not, a determination by a tribunal that a measure was a valid countermeasure by virtue of an anterior breach by the home state prima facie disposes of the investor’s claim—it does not dis- pose of the home state’s interests or lead to the enforcement of remedies against it.
Application of the Monetary Gold principle to defenses, as distinct from claims, raises dif- ficult issues, notably when the claim asserted before the investor-state tribunal may be consid- ered, but defenses to it may not be. Entertaining the investors’ claim, but not a relevant defense, effectively deprives the host state of its opportunity to be heard on its defense in the arbitra- tion. This would likely be a ground for denying enforcement or setting aside an arbitral award under the New York Convention,182 and arguably annulment of the award because of a “serious departure from a fundamental rule of procedure” under the ICSID Convention.183
Assuming the Monetary Gold rule applies, concerns arising from the absence of home state participation might be addressed in a couple of ways. First, due process concerns could be addressed by treating the home state as an interested party, and inviting it to participate and make submissions on the threshold issue of the wrongfulness of the home state’s under- lying conduct in investor-state arbitrations. This is only feasible if the home state agrees to participate.
Alternatively, the dispute might be brought before a state-to-state adjudicatory body. Most investment treaties include provisions for a state-to-state dispute mechanism permitting state-to-state arbitration over disputes concerning the interpretation and/or application of the treaty.184 A dispute over whether a measure that allegedly violates the host state’s obligation in an investment treaty qualifies a lawful countermeasure is one that concerns the interpreta- tion and application of the treaty, and would accordingly fall within the jurisdiction of such a state-to-state tribunal.
One exception to the Monetary Gold doctrine is where a legal finding against the absent third state could be taken as a “given.”185 Paparinskis has suggested that this could be the case, for instance, if the determination has res judicata effect186 in the investor-state dispute. If so, a host state could commence an action against the home state before a state-to-state tribunal seeking a declaration that the host state’s suspension of its investment protection obligations vis-à-vis a single investor or class of investors amounts to a lawful countermeasure, thereby precluding a violation of the investment treaty. In this scenario, the investor-state tribunal could exercise its power to stay its own proceedings to allow the state-to-state tribunal to reach a decision on the matter.187
gold, the effect of the judgment would have been a definitive and irreparable impact on Albania’s rights and interests’).
182. See New York Convention (n 166) Article V(1).
183. ICSID Convention (n 90) art 52(1).
184. Campbell McLachlan, Laurence Shore and Matthew Weiniger, International Investment Arbitration Substantive Principles (Oxford University Press 2007) 33.
185. Paparinskis (n 39) 338, citing Larsen v Hawaiian Kingdom (Award, 5 February 2001) UNCITRAL Arbitration (2001) 119 International Law Reports 566, 592 [11.24] (Larsen).
186. Paparinskis (n 181) 312.
187. Space constraints preclude a more detailed discussion of the types of treatment that might be given to the other forum’s findings. However, it is worth noting that, generally, the investor-state tribunal might choose to give the state-to-state tribunal’s finding on the issue preclusive effect, or treat it as prima facie evidence of the fact established, or grant those findings appropriate weight or deference in the exercise of comity.
The formal conditions for the application of res judicata are identity of parties, identity of cause, and identity of object (or subject matter) in the subsequent proceedings.188 Thus, strictly speaking, the determination of the state-to-state tribunal would not have res judicata effect in the investor-state proceedings as the claims involve different claimants (the home state in one, the investor in the other) and different causes of action (non-violation of the home state’s rights and violation of the investor’s rights). However, a party seeking to rely upon the findings of an earlier tribunal may be able to invoke principles similar to collateral estoppel (under U.S. law) or issue estoppel (under English law), which would preclude the re-opening of certain issues already determined by the earlier tribunal.
The requirements for collateral/issue estoppel are the same as the classical international law requirements for res judicata, except that identity of cause is not required.189 This leaves two requirements: identity of object and identity of parties. The requirement of identity of object is intended to ensure that it is the identical issue which arises in both cases.190 This would be the case where the issue determined by the state-to-state tribunal is whether the home state com- mitted an anterior violation of international law. As to identity of the parties, in some legal sys- tems, res judicata and collateral/issue estoppel does not require exact identity of the parties—it is sufficient if the parties are in “privity of interest.”191 In the United States, privity has been found, in one case, where a party is “so identified in interest with a party to former litigation that he represents precisely the same right in respect to the subject matter involved,”192 and in another case, when the “interests of the party in the subsequent action were shared with and adequately represented by the party in the former action.”193
If investors’ rights are seen as interlinked with their home states’ rights, there is arguably identity of interest in the parallel state-to-state and investor-state arbitrations. On the other hand, if the test for “privity of interest” is whether the interests of the investor are “adequately repre- sented” by the home state in the state-to-state proceedings, privity of interest may be lacking. In some cases, the home state may have broader strategic or political interests beyond those of its investors and might decline to defend or even purport to waive its defense vis-à-vis the host state.
Moreover, even if the investor-state tribunal is prepared to stay the proceedings to allow the state-to-state tribunal to reach a decision, the home state may refuse to engage in the state-to- state claim. The question would arise whether the host state’s claim would be subject to dis- missal on the basis that there is no “concrete” dispute between the parties, as occurred recently in Ecuador v United States. In that case, Ecuador had launched a state-to-state claim against the United States, seeking an authoritative interpretation of Article II(7) of the Ecuador-U.S.
BIT,194 and arguing for an interpretation different from the that adopted by the tribunal in an investor-state case decided previously Chevron v Ecuador.195 The United States had remained
188. Vaughan Lowe, ‘Res judicata and the rule of law in international arbitration’ (1996) 8 African Journal of International and Comparative Law 38, 40.
189. ibid 42.
190. ibid 40.
191. Mclachlan and others (n 184) 125.
192. Stratosphere Litigation LLC v Grand Casinos, 298 F.3d 1137, 1142 n.3 (9th Cir. 2002), as cited in Pedro J. Martinez Fraga and Harout Jack Samra, ‘The role of precedent in defining res judicata in investor-state arbi- tration’ (2012) 32 Northwestern Journal of International Law & Business 419, 432.
193. Shaw v Hahn, 56 F.3d 1128, 1131–32 (9th Cir. 1995), as cited in Martinez Fraga and others (n 192) p 432.
194. Republic of Ecuador v United States, (2011), PCA Case No 2012-5 (Ecuador v United States).
195. Chevron Corporation (USA) and Texaco Petroleum Company (USA) v The Republic of Ecuador, (Partial Award, 30 March 2010) UNCITRAL, PCA Case No 34877.
silent on its interpretation of Article II(7) of the Ecuador-U.S. BIT. The majority declined juris- diction over the claim and reportedly determined, first, that there was no concrete dispute with “practical consequences between the parties,” and second, that there was no “dispute”
at all.196
With respect to the first finding, the majority reportedly took the view that while the dis- pute may have practical consequences between Ecuador and U.S. investors, it did not affect the relationship between the two states themselves (the majority reportedly found that such
“practical consequences” might arise if the United States was to make a direct claim of breach of the BIT).197
With respect to the finding that there was no dispute at all between the treaty parties, the majority reportedly noted that the United States had not actually opposed Ecuador’s views on Article II(7) or actively supported the Chevron tribunal’s views, and observed that the United States’ silence on its preferred interpretation could not be taken to mean that it rejected Ecuador’s stated view, as the United States could have stayed silent because it wished to avoid interfering with a prior BIT tribunal’s decision.198
There are two, arguably pivotal, considerations that distinguish the Ecuador v United States dispute from the hypothetical parallel state-to-state arbitration described above.
First, unlike the situation in Ecuador v United States, here, the host state would be seek- ing a determination as to its obligations under the investment treaty with respect to specific investors, in the context of a pending investor-state dispute, and not a mere interpretation of the treaty in the absence of pending dispute. If one accepts that the Monetary Gold principles require an investor-state tribunal to decline jurisdiction over the anterior question of alleged breach by the home state, a determination by the state-to-state arbitral tribunal is necessary (and arguably dispositive) to determine the host state’s countermeasures defense. Since, under this view, no other tribunal would be able to exercise jurisdiction over the threshold issue of wrongfulness of the home state’s conduct, there is a strong argument that a failure to exer- cise jurisdiction over the parallel inter-state dispute in these circumstances would amount to an abdication of the tribunal’s judicial function and a denial of the host state’s right to due process.
Second, the scenario in Ecuador v United States gave rise to the concern that the state-to- state arbitration might allow collateral attacks on investor-state arbitrations or awards. The United States had argued that states could unilaterally seek a preferred interpretation of the treaty, before, during or after an investor-state case, and that this would add “tremendous uncertainty to the final and binding nature of investor-state awards.”199 Leaving aside the mer- its of this argument in the context of that case, this concern does not seem to apply to a coun- termeasures case. If the premise is that an investor-state tribunal cannot exercise jurisdiction over a countermeasures defense to begin with, the risk of a collateral attack on investor-state tribunals’ determinations on the issue does not arise.
196. Jarrod Hepburn and Luke Eric Peterson, ‘U.S.-Ecuador inter-state investment treaty award released to parties; tribunal members part ways on key issues’ IAReporter (30 October 2012) 1 (Hepburn and others, U.S.-Ecuador Inter-State Investment Treaty Award).
197. ibid 1.
198. ibid.
199. Ecuador v United States (n 194) Respondent’s Memorial on Jurisdiction 5.