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International Courts and Dispute Resolution

Touchy, Touchy. What China’s Sensitivity About the Philippines Arbitration Reveals About the Strength of Its Legal Position

by Julian Ku

While I was on (my completely undeserved) vacation in California recently, I noticed more evidence that China’s government is becoming hyper-sensitive about criticism of its non-participation in the Philippines-China arbitration at the Hague.

First, a top U.S. government official stated at a conference on July 21 that, among other things, “…[W]hen they became parties to the Convention, both the Philippines and China agreed to its compulsory dispute settlement regime. Under this regime, the decision of the arbitral tribunal is legally binding on the parties to the dispute. It’s a treaty. In keeping with the rule of law, both the Philippines and China are obligated to abide by whatever decision may be rendered in the case, whether they like it or not. ”

On July 17, the New York Times published a rather bland staff editorial on the China-Philippines arbitration gently chiding China for failing to participate in that arbitral process.  Noting that China was likely to ignore the arbitration’s outcome, the NYT opined: “[China] should participate in the tribunal process if China wants to be recognized as a leader in a world that values the resolution of disputes within a legal framework.”

Both statements are pretty gentle, in my view, and Russel’s point about China’s obligation to abide by the arbitral tribunal’s rulings on jurisdiction is quite correct as a matter of law.  But it is China’s rather vociferous response that is more striking.

First, the Chinese Foreign Ministry sharply rejected Russel’s remarks.  Most curiously, it charged that the U.S. was, by “[a]ttempting to push forward the arbitration unilaterally initiated by the Philippines, [acting] like an ‘arbitrator outside the tribunal’, designating the direction for the arbitral tribunal established at the request of the Philippines.”  The spokesperson went on to say “This is inconsistent with the position the US side claims to uphold on issues concerning the South China Sea disputes.”

Second, the Chinese Ambassador to the U.S. wrote a letter to the editor of the NYT, calling its editorial “unfair.”  It also concluded that  “we do not believe that the arbitration court has jurisdiction, and as a member of United Nations Convention on the Law of the Sea, China is entitled to exclude any third-party compulsory settlement.”

I am sympathetic to China’s position that compulsory arbitration is not the way to go here, but as a legal matter, their views are hard to understand.  The UNCLOS does NOT give China the right to exclude any “third-party compulsory settlement.”  It does the opposite, and allows very limited exceptions to compulsory dispute resolution which may or may not apply here.  Furthermore, as numerous commentators have explained but which China continues to ignore, Article 288 of UNCLOS plainly gives the UNCLOS arbitral tribunal the final say on jurisdiction.  Russel was only repeating what is in the plain text of the treaty (UNCLOS) that China signed and ratified.

China’s sharply worded but legally incoherent responses are a sign that it is more nervous about the Philippines arbitration than it has let on in the past. China should just stop complaining about the arbitration and move on. It should have enough diplomatic, military, and political leverage to get past this.  It will get nowhere with its legal arguments.

The Most Distressing Paragraph in the Comoros Review Decision

by Kevin Jon Heller

No matter how many times I read the decision, I keep coming back to this paragraph:

51. As a final note, the Chamber cannot overlook the discrepancy between, on the one hand, the Prosecutor’s conclusion that the identified crimes were so evidently not grave enough to justify action by the Court, of which the raison d’être is to investigate and prosecute international crimes of concern to the international community, and, on the other hand, the attention and concern that these events attracted from the parties involved, also leading to several fact-finding efforts on behalf of States and the United Nations in order to shed light on the events. The Chamber is confident that, when reconsidering her decision, the Prosecutor will fully uphold her mandate under the Statute.

The Pre-Trial Chamber’s comment is mere dicta. But oy gevalt is it dangerous dicta — a dream come true for the ICC’s critics, who have always insisted that the Court’s work will be driven by politics, not law. The paragraph does indeed seem to suggest that the gravity of particular crimes is a function, at least in part, of how much attention the international community pays to them. Such a consideration not only makes a mockery of the Court’s independence, it defies common sense: just as crimes the world obsesses over might be insufficiently grave to warrant investigation, crimes the world ignores could be more than grave enough. You don’t have to be an Israel apologist to see that.

I share the PTC’s confidence the Prosecutor will indeed fully uphold her mandate. And that means she will assess the IDF’s crimes on the Mavi Marmara without regard to what the international community thinks about them.

The Pre-Trial Chamber’s Dangerous Comoros Review Decision

by Kevin Jon Heller

In late 2014, the Office of the Prosecutor rejected a request by Comoros to open a formal investigation into Israel’s attack on the Mavi Marmara. To my great surprise, the Pre-Trial Chamber (Judge Kovacs dissenting) has now ordered the OTP to reconsider its decision. The order does not require the OTP to open a formal investigation, because the declination was based on gravity, not on the interests of justice — a critical distinction under Art. 53 of the Rome Statute, as I explain here. But the PTC’s decision leaves little doubt that it expects the OTP to open one. Moreover, the PTC’s decision appears designed to push the OTP to decline to formally investigate a second time (assuming it doesn’t change its mind about the Comoros situation) on the basis of the interests of justice, which would then give the PTC the right to demand the OTP investigate.

To put it simply, this is a deeply problematic and extremely dangerous decision — nothing less than a frontal assault on the OTP’s prosecutorial discretion, despite the PTC’s claims to the contrary. I will explain why in this (very long) post.

At the outset, it is important to emphasise that we are dealing here with situational gravity, not case gravity. In other words, the question is not whether the OTP should have opened a case against specific members of the IDF who were responsible for crimes on the Mavi Marmara, but whether the OTP should have opened a situation into the Comoros situation as a whole. The Rome Statute is notoriously vague about the difference between situational gravity and case gravity, even though it formally adopts the distinction in Art. 53. But it is a critical distinction, because the OTP obviously cannot assess the gravity of an entire situation in the same way that it assesses the gravity of a specific crime within a situation.

The PTC disagrees with nearly every aspect of the OTP’s gravity analysis. It begins by rejecting the OTP’s insistence (in ¶ 62 of its response to Comoro’s request for review) that the gravity of the Comoros situation is limited by the fact that there is no “reasonable basis to believe that ‘senior IDF commanders and Israeli leaders’ were responsible as perpetrators or planners of the apparent war crimes’.” Here is how the PTC responds to that claim:

23. The Chamber is of the view that the Prosecutor erred in the Decision Not to Investigate by failing to consider whether the persons likely to be the object of the investigation into the situation would include those who bear the greatest responsibility for the identified crimes. Contrary to the Prosecutor’s argument at paragraph 62 of her Response, the conclusion in the Decision Not to Investigate that there was not a reasonable basis to believe that “senior IDF commanders and Israeli leaders” were responsible as perpetrators or planners of the identified crimes does not answer the question at issue, which relates to the Prosecutor’s ability to investigate and prosecute those being the most responsible for the crimes under consideration and not as such to the seniority or hierarchical position of those who may be responsible for such crimes.

These are fundamentally irreconcilable conceptions of “potential perpetrator” gravity. The OTP is taking the traditional ICTY/ICTR approach, asking whether the Israeli perpetrators of the crimes on the Mavi Marmara are militarily or politically important enough to justify the time and expense of a formal investigation. The PTC, by contrast, does not care about the relative importance of the perpetrators; it simply wants to know whether the OTP can prosecute the individuals who are most responsible for committing the crimes in question.

To see the difference between the two approaches — and to see why the OTP’s approach is far better — consider a hypothetical situation involving only one crime: a group of the lowest-ranking soldiers from State X executes, against the stated wishes of their commanders, 10 civilians from State Y. The OTP would conclude that the “potential perpetrator” gravity factor militates against opening a formal investigation in State Y, because the crime in question, though terrible, did not involve militarily important perpetrators. The PTC, by contrast, would reach precisely the opposite conclusion concerning gravity, deeming the soldiers “most responsible” for the crime by virtue of the fact that they acted against orders. After all, no one else was responsible for the decision to execute the civilians.

The PTC’s approach to “potential perpetrator” gravity is simply bizarre….

A Legitimate Need for Disqualification in the Lubanga Case

by Kevin Jon Heller

Thomas Lubanga’s lawyer, Catherine Mabille, has moved to disqualify Judge Silvia Fernández de Gurmendi from Lubanga’s upcoming sentence review on the ground that the judge was involved in the case while working in the Office of the Prosecutor. Here are the relevant paragraphs from the motion:

11… [O]fficial Court documents show that Judge Silvia Fernández de Gurmendi acted as Chef de Cabinet for the Prosecutor, Mr Moreno Ocampo.

12. In particular, Judge Silvia Fernández de Gurmendi was engaged in that capacity during the period between the application for a warrant of arrest against Mr Tomas Lubanga and the confirmation of charges hearing in that case.

13. It follows that a reasonable observer, properly informed, must necessarily conclude that she participated in person in the investigations concerning Mr Thomas Lubanga, participated in the drafting of the application for his arrest, participated in the drafting of the detailed list of charges submitted to the Pre-Trial Chamber for examination and, in general, that she participated at the highest level of the organisation in the proceedings against Mr Thomas Lubanga until December 2006.

14. Witnesses Bernard Lavigne (P-0582) and Nicolas Sebire (P-0583) were called in this case by Trial Chamber I to “testify as to the approach and the procedures applied to intermediaries” to assist the Chamber in ruling on the Defence’s abuse of process application. They confirm that the executive committee established within the Office of the Prosecutor, of which Judge Silvia Fernández de Gurmendi was a member, was regularly consulted on the conduct of investigations and that it directed the course of those investigations.

15. Mr Sebire stated that he had himself attended two meetings of the executive committee, the purpose of which was “[TRANSLATION] to report on the investigation, the progress of the investigation and the evidence gathered by … by the time of appearing before the committee.”

The OTP does not deny that Judge Fernandez was previously involved in the Lubanga case. On the contrary, it simply insists that the test for recusal is whether “a reasonable and properly informed observer would apprehend bias by Judge Fernández in deciding on the early release of Mr Lubanga” — and that the Judge’s “sporadic and general” involvement in the case does not satisfy the test:

13. Finally, the Presidency should consider Judge Fernández’s non-operational and relatively circumscribed role in the Lubanga case resulting from her position as head of JCCD and as a member of ExCom from June 2003 to December 2006. Judge Fernandez was never directly responsible for the investigation and prosecution of the Lubanga case. JCCD is a division of the Office of the Prosecutor entrusted with conducting preliminary examinations; evaluating information pursuant to articles 15 and 53(1); providing advice on whether a reasonable basis to proceed with an investigation exists, and providing advice on issues related to jurisdiction and admissibility, and on cooperation matters. Thus, Judge Fernández would have been involved in the early stages of the proceedings in the Democratic Republic of the Congo (including the Lubanga case), in particular, in the decision to commence an investigation, and in transmitting requests for cooperation, including arrest warrants and investigative missions in the field.

14. As a member of ExCom, Judge Fernández would have participated in the general discussion and approval of the main legal and strategic documents and major investigative and prosecution activities developed by the Investigation and Prosecution Divisions with respect to all the cases from June 2003 to December 2006, including that against Mr Lubanga. However, her intervention would have necessarily been sporadic and general in nature. She was not one of the lawyers involved in investigating or prosecuting the case against Mr Lubanga; although she would have been kept apprised of and approved of various steps as the case proceeded against him during the period of her tenure at the Office of the Prosecutor, her situation is not comparable to that of a prosecution lawyer deeply involved in the case and knowledgeable of its details.

I have great respect for Judge Fernandez. I’m thrilled that she was recently elected President of the Court. And I have no doubt whatsoever that she would not be biased against Lubanga in the sentence review. But that’s irrelevant — because Art. 41(2)(a) of the Rome Statute still requires her disqualification. Here is the text of the provision (emphasis mine):

A judge shall not participate in any case in which his or her impartiality might reasonably be doubted on any ground. A judge shall be disqualified from a case in accordance with this paragraph if, inter alia, that judge has previously been involved in any capacity in that case before the Court or in a related criminal case at the national level involving the person being investigated or prosecuted.

The OTP admits that Judge Fernandez has previously been involved in the Lubanga case. Art. 41(2)(a) thus prohibits her from participating in the sentence review as a member of the Appeals Chamber — a judge “shall” be disqualified (not “may” be disqualified) if she has previously been involved “in any capacity” (not in a significant capacity) in the case. End of story.

The OTP, of course, disagrees. Most obviously, it insists that previous involvement in a case requires disqualification only if that involvement would lead a reasonable observer to doubt the judge’s impartiality. But that is not what Art. 41(2)(a) says. There are only two ways to read the provision: (1) as providing two different grounds requiring disqualification — appearance of bias or previous participation in the case; or (2) as establishing an irrebuttable presumption that previous participation gives rise to a reasonable doubt of a judge’s impartiality. The second interpretation is likely correct, given that the provision mentions previous participation “inter alia” as a situation in which a judge “shall” (not “may”) be disqualified from a case. Either way, though, Judge Fernandez must be disqualified from Lubanga’s sentence review.

The OTP seems to recognise that, despite its argument, nothing in the wording of Art. 41(2)(a) actually suggests that previous participation requires disqualification only if a reasonable observer would doubt a judge’s impartiality. It thus insists (para. 7) that “[t]he relevant provisions must be contextually and purposively interpreted according to the rules on interpretation of treaties in the Vienna Convention, and must be applied on a case-by-case basis.” This is typical ICC double-speak, a nudge-nudge, wink-wink to the judges asking them to ignore a clear provision of the Rome Statute simply because the OTP finds it inconvenient. The judges need to say no — although, given their history (Regulation 55, anyone?), there is reason to suspect they’ll simply do what the OTP wants.

Stay tuned…

UPDATE: I made similar points a few years ago. See here.

Appeals Chamber Fails To See the Forest — Complementarity Edition

by Kevin Jon Heller

Earlier this week, the Appeals Chamber rejected Cote d’Ivoire’s challenge to the admissibility of the case against Simone Gbagbo. The challenge was based on Gbagbo’s 20-year sentence for disturbing the peace, forming and organising armed gangs, and undermining state security. Like the Pre-Trial Chamber, the Appeals Chamber concluded that Gbagbo’s domestic convictions failed to satisfy Art. 17’s “same conduct” requirement, making her case admissible. Here are the key paragraphs:

99. The Pre-Trial Chamber found that the conduct underlying the alleged economic crimes was “clearly of a different nature” from the conduct alleged in the proceedings before the Court, and therefore “irrelevant”.171 The Pre-Trial Chamber further found that according to the documentation provided by Côte d’Ivoire, in particular Annex 8 to the Admissibility Challenge, the alleged conduct was characterised as [REDACTED].172 In view of the description of the alleged acts provided in the material submitted by Côte d’Ivoire, the Appeals Chamber finds that it was not unreasonable for the Pre-Trial Chamber to find this conduct to be of a different nature to Ms Gbagbo’s alleged conduct in relation to the crimes against humanity of murder, rape and other forms of sexual violence, persecution and other inhumane acts, on the basis of which the Warrant of Arrest was issued against her by the Court. In addition, Côte d’Ivoire does not explain why “excessively rigid distinction” between the crimes allegedly investigated domestically and those before the Court is erroneous.

100. As regards crimes against the State, the Pre-Trial Chamber noted that in the domestic proceedings it is alleged that Ms Gbagbo [REDACTED].173 The Pre-Trial Chamber further noted that, in the domestic proceedings, “there are references to, inter alia, the allegations of [REDACTED].174 The Pre-Trial Chamber observed that the provisions criminalising such alleged conduct are included in the section of the Ivorian Criminal Code concerning felonies and misdemeanours against the safety of the State, the national defence and the public security.175 The Pre-Trial Chamber concluded that the alleged conduct only includes [REDACTED] and therefore the domestic proceedings in question “do not cover the same conduct” that is alleged in the case before the Court.176 The Appeals Chamber finds that it was not unreasonable for the Pre-Trial Chamber to find, on the basis of the description of the alleged conduct contained in the documents provided by Côte d’Ivoire, read in light of the applicable provisions of the Ivorian Criminal Code, that this conduct, characterised as infringing [REDACTED], is not the same as that alleged before the Court. In addition, as indicated earlier, Côte d’Ivoire does not explain why “excessively rigid distinction” between the crimes allegedly investigated domestically and those before the Court is erroneous.

I have no doubt that the Appeals Chamber’s application of the “same conduct” requirement is correct. But I think it is important to once again ask a basic question about the requirement: what does the ICC gain by insisting that Cote d’Ivoire surrender Gbagbo to the Court to face a second prosecution? 20 years is a significant sentence — five years longer than Lubanga’s, and eight years longer than Katanga’s. Even if the OTP manages to convict Gbagbo, she is very unlikely to receive a substantially longer sentence. So why should the ICC waste the OTP’s precious and overstretched resources by trying Gbagbo again?

My answer, not surprisingly, remains the same: it shouldn’t. The ICC simply cannot afford the kind of hyper-formalism that underlies the “same conduct” requirement. As I have argued elsewhere, the Court should defer to any national prosecution that results in a sentence equal to or longer than the sentence the suspect could expect to receive at the ICC, even if the national prosecution is based on completely different conduct than the ICC’s prosecution.

In fairness to the Appeals Chamber, it’s worth noting that Gbagbo’s attorney challenged the Pre-Trial Chamber’s application of the “same conduct” requirement; she did not challenge the requirement itself. That’s a shame, because I think Gbagbo’s case perfectly illustrates why the Appeals Chamber should jettison the “same conduct” requirement. Would it? Probably not — as I note in my article, the requirement does have a clear textual basis in Art. 20 of the Rome Statute (“upward” ne bis in idem). But the Appeals Chamber has proven remarkably willing to ignore the Rome Statute when it proves inconvenient, so it would have been worth a shot — especially as the “same conduct” requirement is fundamentally inconsistent with the principle of complementarity’s emphasis on the ICC being a court of last resort . At the very least, challenging the requirement would have forced the Appeals Chamber to explain why the requirement’s waste of OTP resources is warranted. I would have liked to read that explanation.

When the Left Shoots Itself in the Foot (IHL Version)

by Kevin Jon Heller

Last week, I made the mistake of relying on an article in Electronic Intifada about a recent speech by Moshe Ya’alon, the Israeli Defense Minister. Here are the relevant paragraphs in the article:

Israeli defense minister Moshe Yaalon on Tuesday said Israel would attack entire civilian neighborhoods during any future assault on Gaza or Lebanon.

Speaking at a conference in Jerusalem, Yaalon threatened that “we are going to hurt Lebanese civilians to include kids of the family. We went through a very long deep discussion … we did it then, we did it in [the] Gaza Strip, we are going to do it in any round of hostilities in the future.”

I probably should have known better than to rely on an article entitled, in relevant part, “Israeli defense minister promises to kill more civilians.” Prompted by a skeptical commenter, I watched the video of Ya’alon’s speech. And the video makes clear that the author of the article, Asa Winstanley, selectively quoted what Ya’alon said in order to make it seem like Ya’alon was advocating deliberately attacking civilians. In fact, Ya’alon was discussing a possible attack on a rocket launcher located in a civilian house and acknowledging that, if the IDF launched the attack, it was clear they were “going to hurt Lebanese civilians to include kids of the family.” The IDF launched the attack anyway, believing that the military advantage outweighed the certain civilian damage.

Bothered by being suckered into making such a significant mistake, I tweeted Winstanley about his selective quotation. Perhaps he had not actually seen the video? His response was disappointing, to put it mildly. Instead of acknowledging his mistake, he repeated the selective quote. I replied that the video made clear Ya’alon was talking about Israel’s proportionality calculation, not deliberate attacks on civilians, and pointed out that civilian damage is permissible under IHL unless the anticipated civilian damage caused by an attack is excessive in relation to the expected military advantage. I also noted that I thought the attack Ya’alon was discussing was still illegal, because in my view killing a number of civilians in order to take out one rocket launcher was disproportionate.

At that point, it’s safe to say, Winstanley simply lost it. Here are some of his tweets, with my thoughts in the parentheticals…

Regulation 55 and the Irrelevance of the Confirmation Hearing

by Kevin Jon Heller

It’s becoming an old story: the Pre-Trial Chamber (PTC) rejects a charged mode of liability after a confirmation hearing, so the OTP simply asks the Trial Chamber (TC) to give the defendant notice that it will consider convicting him on the basis of the rejected mode anyway. This time, the defendant is Laurent Gbagbo. The OTP initially alleged that Gbagbo is responsible for various crimes against humanity on the basis of Art. 25 in the Rome Statute — indirect co-perpetration; ordering, soliciting or inducing; and otherwise contributing to the commission of crimes — as well as command responsibility and superior responsibility. Following the confirmation hearing, the PTC confirmed all of the modes of liability in Art. 25, but declined to confirm command and superior responsibility, because those modes “would require the Chamber to depart significantly from its understanding of how events unfolded in Cote d’Ivoire during the post-electoral crisis and Laurent Gbagbo’s involvement therein.” Undeterred, the OTP then asked the TC to invoke Regulation 55:

The Office of the Prosecutor (“Prosecution”) requests that Trial Chamber I (“Chamber”) give notice to the Parties and participants pursuant to regulation 55(2) of the Regulations of the Court (“RoC”) that the legal characterisation of the facts confirmed by Pre-Trial Chamber I (“Pre-Trial Chamber”) may be subject to change to accord with a further alternative form of participation of the Accused Laurent Gbagbo (“Gbagbo”): superior responsibility under article 28(a) and (b) of the Rome Statute (“Statute”) for all crimes (“Request”).

I have explained at length in this article why the Rome Statute — Art. 61 in particular — does not permit the Trial Chamber to convict a defendant on the basis of an unconfirmed mode of liability, so there is no need to repeat the argument here. Suffice it to say that the OTP’s request, which will almost certainly be granted by the TC (if past practice is any guide), continues the confirmation hearing’s long, slow slide into irrelevance. Given how the TC and Appeals Chamber have (wrongly) interpreted Regulation 55, the confirmation hearing actually “confirms” nothing; it just provides suggestions to the TC concerning how it might choose to convict the defendant. If the TC wants to go a different direction and convict the defendant on the basis of an unconfirmed mode of participation, no problem. It can simply “recharacterize” the facts and circumstances proven at trial.

Discerning readers might wonder how a defendant is supposed to prepare his defence in such a situation. Isn’t the entire point of the confirmation hearing to inform the defendant of the crimes and modes of liability he will have to rebut during trial? Yes — which is the fundamental problem with Regulation 55 as the judges have interpreted it. Because of their interpretation, defendants now have only two potential strategies at trial: (1) prepare a defence to every possible legal characterization of the facts and circumstances in the charge sheet — all possible crimes and all possible modes of liability; or (2) ignore the law entirely and focus solely on rebutting the facts and circumstances themselves. The first strategy is effectively impossible — and it’s very unlikely the TC would even let a defendant do it. (“Sorry, you have to pick one or two theories of the case — even though we can pick any theory we want down the track.”) And the second strategy is inconsistent with the nature of the adversarial trial contemplated by the Rome Statute. Defendants are (supposed to be) charged with specific crimes on the basis of specific modes of liability; they are not charged with bare facts and circumstances.

It’s a shame that the ICC’s judges have allowed Regulation 55 to metastasise into the ultimate judicial hammer — a one-size-fits-all tool for saving the OTP from its own poor charging decisions and ineffective trial advocacy. (See, e.g., Katanga.) But, of course, it’s not a surprise. After all, the judges wrote the Regulation themselves.

Must Read: Darryl Robinson on the ICC’s “Inescapable Dyads”

by Kevin Jon Heller

Darryl is one of my very favourite international criminal law scholars. Indeed, I think he is the leading purveyor of what we might call “meta” ICL scholarship — scholarship that is concerned less with doctrine than with the nature of ICL reasoning and rhetoric itself. His article “The Identity Crisis of International Criminal Law” is a genuine classic, and I learn from everything he writes. So it is with great pleasure that I call readers’ attention to Darryl’s brilliant new article, just published in the Leiden Journal of International Law. It’s entitled “Inescapable Dyads: Why the ICC Cannot Win,” and here is the abstract:

The International Criminal Court (ICC) is surrounded by controversies and criticisms. This article highlights some patterns in the arguments, showing that many plausible criticisms reflect inescapable dyads. For any position that Court could take, one or more powerful criticisms can inevitably be advanced. The tension can be obscured because shared terms are often recruited for opposite meanings. Awareness of these patterns can (i) provide a framework to better situate arguments, (ii) reveal the deeper complexity of the problems, and (iii) help us to evaluate and improve upon the arguments. Awareness of dyadic structures can lead to a debate that is more generous, as we acknowledge the difficulty and uncertainty of choosing among flawed options, yet also more rigorous, as we attempt to articulate and improve upon our frameworks of evaluation. The goal of this article is to encourage a better conversation that can generate better insights.

The article is a must-read for anyone interested in ICL. You can find the published version here (free until end of October 2015) and an earlier SSRN draft here.

Does Investor-State Arbitration “Weaken[] the Rule of Law”? Judith Resnik and Larry Tribe Seem to Think So

by Julian Ku

I have not been surprised by the swelling opposition in the U.S. (mostly from the progressive left) against proposed trade agreements with Pacific and European nations (TPP and TTIP).  But I am mildly surprised by the way in which TPP and TTIP opponents have zeroed in on the inclusion of investor-state arbitration mechanisms as a rallying point for their opposition.  Not only has former Harvard lawprof (and now U.S. Senator) Elizabeth Warren come out against the inclusion of investor-state dispute settlement (or ISDS), but yesterday, Yale law prof Judith Resnik and Harvard lawprof Lawrence Tribe, along with Nobel Laureate Joseph Stiglitz and a few others released a letter outlining their concerns with (really, their opposition to)  ISDS.  This letter is much more sophisticated and persuasive than an earlier lawprof letter Roger criticized here.  Indeed, its critique is far broader and echoes “sovereigntist” critiques that many on the political right have often applied to international tribunals.  Here is one snippet of their argument.

ISDS weakens the rule of law by removing the procedural protections of the legal system and using a system of adjudication with limited accountability and review. It is antithetical to the fair, public, and effective legal system that all Americans expect and deserve.

The letter valorizes U.S. courts and Article III judges, as well as the importance of democracy, and contrasts those institutions and values with the secretive ISDS process.  The main complaint, which is quite true, is that ISDS gives foreign investors a “separate legal system” to which others, including US citizens and corporations, cannot access. ISDS is not subject to any serious review by either courts or other arbitral tribunals.

None of the statements in the letter are inaccurate or incorrect. But they do leave out the basic assumption and rationale behind ISDS provisions. Foreign investors are presumed to be more likely to face disadvantages in a foreign legal system, which is why they are presumed to need “extra” protections from ISDS.  I think the rationale for ISDS is weaker for trade agreements between the US and Europe or the US and other developed industrialized countries.  But it is still probably true that there is a greater risk of discrimination against foreigners from a local legal system than against local companies.

I am not convinced of the necessity of ISDS in these trade agreements, but I don’t think it is necessarily a bad thing to include them either. I do recognize that these systems of dispute settlement do create non-trivial tensions with the domestic legal systems of member countries. In other contexts (law of the sea, ICJ/death penalty, etc), raising concerns about these tensions has been associated with the political right. So it is interesting to see progressives borrow sovereigntist arguments in their campaign against ISDS.

 

Guest Post: Landmark Sovereign Debt Restructuring Award

by Laurie Achtouk-Spivak and Paul Barker

[Laurie Achtouk-Spivak is a member of the Bar in Paris and New York. She acts as counsel and advocate in investment treaty arbitrations before ICSID as well as other arbitration institutions. She teaches investor-State dispute settlement at the University of Poitiers. She also regularly publishes on investment treaty arbitration and is a member of the Peer Review Board of the ICSID Review. Paul Barker is a member of the Bar in New York. He has acted as counsel to States in ICSID arbitrations and international proceedings arising out of sovereign debt restructurings. His publications and research interests include the standard of review and legitimate regulatory interests in investment treaty arbitration, and transnational human rights litigation. The authors were members of Cleary Gottlieb’s counsel team for the Hellenic Republic in the Poštová arbitration. The views expressed here are their own and do not necessarily reflect those of their firm, the Hellenic Republic or any of their firm’s other clients.]

On 9 April 2015, an International Centre for Settlement of Investment Disputes (“ICSID”) arbitral tribunal dismissed a case arising out of Greece’s sovereign debt exchange for lack of jurisdiction. The landmark decision is the first time that an ICSID tribunal has declined jurisdiction over interests in sovereign bonds.

The award was made in Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, a bilateral investment treaty (“BIT”) arbitration initiated in 2013 by a Slovak bank and its former Cypriot shareholder under the Slovak Republic-Hellenic Republic BIT (“Slovakia-Greece BIT”) and the Cyprus-Hellenic Republic BIT. The claimants had sought compensation for illegal expropriation, failure to accord fair and equitable treatment, and violation of umbrella clauses in respect of the bank’s interests in Greek government bonds (“GGBs”) that were exchanged in 2012.

Beyond the headline, the decision is an important reminder that not every kind of asset qualifies as a protected investment under a potentially applicable investment treaty or the ICSID Convention, and of the basic yet fundamental rule of treaty interpretation that a BIT’s terms must be interpreted in good faith within their context and in light of the treaty’s object and purpose. More generally, the conclusion by a majority of the Tribunal that the bank’s interests in GGBs did not meet the objective requirements of contribution and risk for the purposes of Article 25 of the ICSID Convention may have broader implications for treaty-based claims asserted by other holders of interests in restructured sovereign debt.

No Investment Under The BIT

In deciding whether it had jurisdiction ratione materiae (subject-matter jurisdiction) over the dispute, the Tribunal had to determine as a matter of treaty interpretation whether the interests in the GGBs held by the Slovak claimant, Poštová banka, qualified as a protected investment under the definition of investment in Article 1(1) of the Slovakia-Greece BIT, specifically its chapeau and the categories of assets listed thereunder. As we discuss below, the Tribunal found that the bank’s interests in GGBs did not fall within the definition and therefore dismissed the claim.

The chapeau of Article 1 of the Slovakia-Greece BIT provides that “[i]nvestment means every kind of asset and in particular, though not exclusively includes: (…).” Article 1(1)(b) refers to “shares in and stock and debentures of a company and any other form of participation in a company.” Article 1(1)(c) refers to “loans, claims to money or to any performance under contract having a financial value.” (para 278)

Although the Tribunal agreed with Claimants that Article 1 of the BIT contains a broad asset-based definition rather than a closed list or exhaustive description (para 286), the Tribunal noted that the careful drafting of categories of protected investments in the subsections demonstrated that there were limits to the definition. (para 294) In this regard, the Tribunal considered Greece’s treaty practice, observing that some Greek BITs refer to the term “loans,” others to “long term loans,” others to loans “connected to an investment”, whilst others exclude the term “loan” altogether. (para 292) Accordingly, the Tribunal underlined the importance of the principle of effective treaty interpretation as follows:

  1. The list of examples provided by the Slovakia-Greece BIT must, thus, be considered in the context of the treaty and be given some meaning together. Otherwise, if the interpretation stops by simply indicating that any asset is an investment, the examples will be unnecessary, redundant or useless. […]

The Tribunal was further persuaded by the fact that Article 1(1)(b) of the BIT refers to “shares in and stock and debentures of a company and any other form of participation in a company” but not to sovereign debt or bonds issued by the State parties. The Tribunal found that this language in the Slovakia-Greece BIT differed significantly from the Argentina-Italy BIT at issue in Abaclat and Ambiente Ufficio, in which ICSID tribunals upheld jurisdiction over sovereign bonds. (para 304) For example, whereas Article 1(c) of the Argentina-Italy BIT includes “obligations, private or public titles or any other right to performances or services having economic value, including capitalized revenues,” Article 1(1) of the Slovakia-Greece BIT does not refer to a general concept such as “obligations,” or to “public titles”. (paras 306-308)

In the absence of similar language to the Argentina-Italy BIT, the Tribunal could not reach the same conclusions as in Abaclat and Ambiente (or for that matter the more recent Alemanni case), holding that:

an interpretation of the text and context of Article 1(1) leads the Tribunal to consider that the State parties to the treaty wanted an ample definition of what could constitute an investment, but within certain categories that are also broad, but not unlimited. Otherwise, the examples could be expanded to include any asset whatsoever, and would become useless or meaningless. (para 314)

As part of the interpretative exercise, the Tribunal paid particular attention to the special features and characteristics of sovereign debt that distinguish it from private debt, (318-323) including that creditors’ security and legal recourse against a sovereign debtor is much more limited, and there is a high degree of political influence and risk, because:

[a] sovereign State engages in much more complex decisions, both in negotiating and structuring the debt and in payment thereof, and repayment is subject not only to the normal credit risk of any credit operation, but also to political decisions that are extremely sensitive for the inhabitants of the given State, such as a tax increase or a reduction in public expenditure or investment to repay the sovereign debt. (para 320)

The Tribunal thus concluded:

In sum, sovereign debt is an instrument of government monetary and economic policy and its impact at the local and international levels makes it an important tool for the handling of social and economic policies of a State. It cannot, thus, be equated to private indebtedness or corporate debt (para 324)

The Tribunal also noted the practical realities of sovereign debt, including that its issuance is subject to specific and strict regulations and that secondary market trading and holding of sovereign debt is also heavily regulated. (paras 325-326, 329) The Tribunal noted that sovereign debt financial instruments are “easily tradable” on the secondary market, independent of the issuing State, and that creditors therefore change many times during the life of the financial instrument. (para 327)

The Tribunal agreed with Greece that sovereign bonds are “different from forms of participation in corporations, and therefore their exclusion from the definition of investment in a given treaty indicates that the contracting parties did not intend to cover these types of assets.” (para 333)

Having performed its analysis of the treaty language and practicalities of sovereign debt issuance and trading, the Tribunal reasoned that:

  1. Neither Article 1(1) of the Slovakia-Greece BIT nor other provisions of the treaty refer, in any way, to sovereign debt, public titles, public securities, public obligations or the like. The Slovakia-Greece BIT does not contain language that may suggest that the State parties considered, in the wide category of investments of the list of Article 1(1) of the BIT, public debt or public obligations, much less sovereign debt, as an investment under the treaty.

Nor did the sovereign bonds at issue fall within Article 1(1)(c) of the BIT (“loans, claims to money or to any performance under contract having a financial value”), because there was inter alia no claim to money, no contractual privity or contractual relationship between Poštová and Greece that could arise out of the bond issuance or trading process. (paras 338-349)

By adopting a rigorous approach to treaty interpretation that focuses on the terms in their context and in light of the BIT’s object and purpose in order to give an effective meaning, the award therefore has wider significance in demonstrating that not every kind of asset qualifies as a protected investment, including where the treaty contains a broadly drafted asset-based definition, which is common in BITs.

No Investment Under The ICSID Convention

For an ICSID arbitral tribunal to have jurisdiction ratione materiae, it must find that the dispute concerns an investment protected under both the underlying BIT and the ICSID Convention. Because the Poštová Tribunal found no jurisdiction under the Slovakia-Greece BIT, it was not necessary to consider the position under the ICSID Convention in order to dispose of the case. Nevertheless, a majority of the Tribunal made important observations on the treatment of sovereign debt under the ICSID Convention.

As noted by the Tribunal, a number of ICSID tribunals have held that there are “objective” characteristics of an “investment” under Article 25 of the ICSID Convention irrespective of any “subjective” definition of an investment agreed in the BIT, namely (i) a contribution of money or assets, (ii) duration and (iii) risk. (paras 351-359)

Having concluded that the “subjective” test pursuant to Article 1 of the BIT was not met – and therefore the Tribunal lacked jurisdiction over the dispute – a majority of the Tribunal nevertheless stated that the claimants would also have failed to satisfy the “objective” requirements for an investment to be protected under the ICSID Convention. (paras 360, 371) Specifically, “the element of contribution to an economic venture and the existence of the specific operational risk that characterizes an investment under the objective approach” were not present. (para 371) Accordingly, the Tribunal could not have asserted jurisdiction even if the BIT had been drafted broadly enough to cover sovereign debt.

Whereas the majority considered an investment “in an economic sense, is linked with a process of creation of value”, the arbitrators found that Poštová’s purchase of interests in GGBs made no contribution to an economic venture. (paras 361, 371) In this regard, the majority noted:

  1. The Claimants have not argued that the money Poštová banka paid for the GGB interests, even if considered as ultimately benefitting Greece, was used in economically productive activities. Rather, it appears that the funds were used for Greece’s budgetary needs, and particularly for repaying its debts…

Citing to Michael Waibel’s scholarship, the Tribunal noted the importance of the distinction between sovereign bonds that are used for general funding purposes and those used for specific public works or services. (para 364)

The Tribunal observed that the ICSID tribunals in Fedax v. Venezuela, CSOB v. Slovakia, Joy Mining v. Egypt and Alps Finance v. Slovak Republic have adopted the same approach in distinguishing between protected investments connected with a particular economic operation, on the one hand, and instruments or contracts that are not linked with an economic venture and are therefore do not satisfy the objective test, on the other. (para 365)

Regarding the risk element, the majority held that investment risk requires the presence of operational risk, explaining:

  1. Under the objective approach, commercial and sovereign risks are distinct from operational risk. The distinction here would be between a risk inherent in the investment operation in its surrounding – meaning that the profits are not ascertained but depend on the success or failure of the economic venture concerned – and all the other commercial and sovereign risks.

The majority’s view was that acquisition of interests in sovereign bonds would not amount to taking any operational risk. (para 371)

In sum, had the objective requirements of contribution and risk been applied, the Tribunal would not therefore have had jurisdiction over the dispute under the ICSID Convention, regardless of the language in the Slovakia-Greece BIT. This conclusion will undoubtedly give pause to other holders of interests in sovereign debt before initiating arbitration proceedings under other investment treaties.

Scholars Debate Investment Arbitration Chapter in TPP and TTIP

by Roger Alford

Negotiations over the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) have highlighted the growing debate over investment arbitration. Last week the New York Times published an article summarizing objections to the TPP investment chapter. The article notes that politicians, law professors and liberal activists “have expressed fears the provisions would infringe on United States sovereignty and impinge on government regulation involving businesses in banking, tobacco, pharmaceuticals, and other sectors.”

The reference to academic opposition is based on a letter published by the Alliance for Justice with the signatories from numerous law professors. The one-page AFJ letter urges Congress to “protect the rule of law and our nation’s sovereignty by ensuring [investment arbitration] is not included.” Foreign corporations, the letter continues, can use investment arbitration to “challenge government policies, actions, or decisions that they allege reduce the value of their investments…. This practice threatens domestic sovereignty and weakens the rule of law by giving corporations special legal rights, allowing them to ignore domestic courts, and subjecting the United States to extrajudicial private arbitration.”

Today another group of prominent law professors who are experts in investment arbitration have written a lengthy response. The letter (to which I am a signatory) challenges the notion that signing an investment treaty constitutes a loss of sovereignty or undermines the rule of law. “Corporations cannot and will not gain victory simply by arguing reduced investment value.” Instead, a corporation must establish that “a host state has discriminated on the basis of nationality, has failed to accord a foreign investor due process, or has expropriated the property of a foreign investor without payment of prompt, adequate, and effective compensation.” The letter then addresses the contentious issue of regulatory takings, and highlights the limits of corporate claims challenging environmental, health, and safety regulations.

It concludes: “investment treaty arbitration does not undermine the rule of law…. The obligations commonly found in investment agreements—including non-discrimination on the basis of nationality; due process; expropriation of property only for a public purpose and on payment of prompt, adequate and effective compensation; and repatriation of profits—are the hallmarks of a society that is governed by law.”

Frankly, the rebuttal letter is substantive and faithful to the true state of investment arbitration, while the AFJ letter reads more like a piece of political advocacy than a memorandum by scholars offering legal analysis.

Of course, these battle lines are not new. The Multilateral Agreement on Investment was scuttled in the late 1990s because of similar concerns. In the meantime, over 3,000 bilateral and multilateral investment agreements have now been signed, with the United States a signatory to over 50 such agreements. NAFTA and CAFTA-DR are among the most prominent examples of such agreements.

What is new is the potential economic impact of the deals. The sheer size of TTP and TTIP significantly raises the stakes. The TPP countries collectively would represent the largest U.S. trading partner, accounting for 40% of total U.S. goods trade and 25% of total U.S. services trade. As for the TTIP, the combined share of the U.S.-EU GDP is approximately 45% of global GDP and reflects 17% of global foreign direct investment.

Any hope for a TTP or TTIP deal depends on Congress granting the Obama Administration trade promotion authority, which seems increasingly likely. Whether that authority includes investment arbitration remains to be seen. But the fact that the Obama Administration and the vast majority of Republicans in Congress strongly favor investment arbitration in both agreements bodes well for its inclusion.

The Advantage for Palestine of a Slow Preliminary Examination

by Kevin Jon Heller

Nearly everyone treats Palestine’s membership in the ICC as a done deal; after all, the UN Secretary-General (UNSG) has accepted Palestine’s accession to the Rome Statute and the OTP has publicly stated that “since Palestine was granted observer State status in the UN by the UNGA, it must be considered a ‘State’ for the purposes of accession.” But neither the UNSG nor the OTP has final say over whether Palestine qualifies as a state; as Eugene Kontorovich, my friend and regular Israel/Palestine sparring partner, has repeatedly pointed out on Twitter (see here, for example), statehood is a legal issue that the ICC’s judges will eventually have to decide.

Unlike Eugene, I would be very surprised if the judges second-guessed the UNSG and the OTP and held that Palestine does not qualify as a state. But it’s certainly possible. So here is something for Palestine to consider: because the ICC’s judges cannot make a determination concerning Palestine’s statehood until the OTP has decided to formally investigate the situation, the longer the preliminary examination takes, the longer Palestine will have to make it more difficult for the judges to decide against it.

I don’t want to get into too much detail about the relevant provisions in the Rome Statute; a brief summary should suffice. Art. 15, which concerns proprio motu investigations — the current situation regarding Palestine, because the OTP treats an Art. 12(3) declaration as a request for an Art. 15 investigation — does not permit the Pre-Trial Chamber (PTC) to determine whether a situation “appears to fall within the jurisdiction of the Court” until the OTP has asked it to authorise a formal investigation. Art. 18, which in certain circumstances requires the OTP to defer to state investigations of specific suspects, also does not apply until the OTP has decided to formally investigate (whether proprio motu or on the basis of a state referral). And Art. 19, the basic complementarity provision, does not permit a state to challenge admissibility until there is a specific case pending and does not permit a suspect to challenge admissibility (which includes jurisdiction) until a warrant for his arrest or a summons for his appearance has been issued — both of which occur subsequent to the opening of a formal investigation.

There is, in short, only one party that can ask the PTC to decide a jurisdictional issue prior to the commencement of a formal investigation: the OTP itself. That’s Art. 19(3). And it’s safe to say that the OTP won’t ask the PTC to determine whether Palestine qualifies as a state before it has to.

That means, of course, that it could easily be years before the PTC gets to weigh in on the issue of Palestinian statehood. Why is that a good thing for Palestine? Most obviously, because it gives it more time to get its statehood ducks in a row — acceding to more international conventions, resolving internal political differences, seeking additional recognitions of Palestine as a state, etc. More importantly, though, it gives Palestine time to become an integral member of the Court, thereby increasing the institutional pressure on the PTC to conclude that it is a state. Assume that the OTP takes four years to open a formal investigation, which would be relatively quick by OTP standards. Palestine could — and should! — take advantage of that gap to pay dues each year to the ICC; to attend the annual sessions of the ASP (as it did as an observer in the 13th Session) and participate in its intersessional work; to nominate Palestine’s delegate to the ASP for a position in the Bureau; and (better still) to nominate a Palestinian as a judge. After four years of such involvement, it would be very difficult for the PTC to conclude that Palestine was not a state, given that such a decision would force the ASP to expel the Palestinian delegate, (presumably) refund four years of Palestine’s dues, and perhaps even unseat a Palestinian judge.

I’m sure some readers — particularly those who believe that Palestine cannot qualify as a state as long as Israel illegally occupies its territory — will find my strategy cynical. Perhaps it is — but it would hardly be the first time a state acted strategically with regard to an international organisation. After all, Israel is the culprit-in-chief in that regard; its favourite strategy, which is the height of cynicism, is to refuse to cooperate with an international investigation and then dismiss the results of that investigation as “one-sided” and thus biased. Moreover, I use the term “state” with regard to Palestine deliberately; contrary to the view of many pro-Israel commentators, the Montevideo criteria do not remotely doom Palestine’s claim to statehood. On the contrary, I believe Palestine has legally qualified as a state under those criteria for many years. But that is a subject for another day. (Interested readers can start with this brief, written by Errol Mendes.)

For now, Palestine needs to take full advantage of its admittedly provisional membership in the ICC. As a wise man once said, if it walks like a duck and quacks like a duck…