“Private” Breaches of International Law: Lessons from Domestic Courts for International Investment Law

[Siddharth S. Aatreya is an LLM Candidate in International Law at the University of Cambridge  and a General Editor of the Cambridge International Law Journal.]

The Canadian Supreme Court’s decision in Nevsun Resources v. Araya has shone new light on the debate around the horizontal application of international law, particularly international human rights norms. With a 5-4 majority, the court held that Nevsun, a Vancouver-based mining company, could be held directly liable for breaches of customary international law norms against slavery, forced labour and cruel and inhuman treatment in relation to its operation of a mine in Eritrea. Finding that customary international law norms directly bind corporations (and other private persons) is a massive step forward from the uncertain stance taken on this question by other adjudicatory bodies. This post will compare this approach to the one adopted in international investment law and argue that adopting the Canadian Supreme Court’s reasoning will significantly strengthen the power of a Host State’s counterclaim to hold investors liable for breaches of international human rights law.

The Present Position on Host State Counterclaims

The decision in Urbaser v Argentina has been discussed widely (including here, here and here) for being the first investment arbitral decision to create the possibility of a counterclaim by a Host State against an investor for a breach of international human rights law. The investor in this case was a shareholder in a concessionaire that supplied water and sewage services in Buenos Aires. The financial crisis in Argentina caused losses to the investor, which formed the basis for the claim. Argentina, in turn, made a counterclaim, arguing that the investor’s failure to maintain an adequate level of investment in the concessionaire resulted in a violation of its citizens’ human right to water.

Broadly speaking, human rights obligations can be viewed as being either positive or negative. Positive obligations entail a duty to actively engage in conduct necessary to fulfill rights, while negative obligations create a more limited duty of non-interference with a citizen’s existing rights (a discussion of this distinction is available here). While the basis for and utility of this distinction has been challenged extensively (including here and here), the Urbaser tribunal appears to adhere quite strictly to it. The tribunal holds, therefore, that private investors do not have any positive obligations under international human rights law, but do have negative obligations of non-interference.

The conflicting analysis in the award is explained by this distinction. In paragraph 1208, the tribunal explicitly holds that the investor’s obligation to fulfill Buenos Aires’ citizens’ human right to water under Arts. 11 and 12 of the ICESCR (General Comment No. 15 to the ICESCR that deals specifically with the right to water is available here) was not derived from international law, but from the Concession Agreement it had with the government. This suggests that such positive obligations under international human rights law do not bind private investors. In paragraph 1199 however, the tribunal had observed that:

“the human right for everyone’s dignity and its right for adequate housing and living conditions are complemented by an obligation on all parts, public and private parties, not to engage in activity aimed at destroying such rights”

[emphasis supplied]

Following Urbaser, therefore, it appears that the Host State’s counterclaim in an investment arbitration must be limited to violations of negative obligations of non-interference of its citizens’ human rights.

The Canadian Supreme Court’s Analysis

The Canadian Supreme Court’s approach in Nevsun builds significantly on Urbaser’s approach. The claim was made by three Eritrean workers who had been indefinitely conscripted through the Eritrean military and forced to work in an Eritrean mine owned by Nevsun. The claims were made both in tort and for violations of customary international law. In response, Nevsun brought a motion to strike the proceedings, arguing, among others, that there was no prospect of success since private corporations were not bound by customary international law. The first instance judge and the Court of Appeal of British Columbia dismissed this motion.

The Supreme Court agreed with the courts below on appeal. On the use of customary international law, the majority and the dissenting judges adopted interestingly divergent approaches. While both sides found and agreed that the prohibition on slavery, forced labour and inhuman conduct were obligations under customary international law, the dissenting judges required that holding private actors liable and creating civil liability for breaches of these obligations also meet the state practice and opinion juris requirements to form a part of customary international law. Brown and Rowe JJ (with whom Moldaver and Côté JJ agreed on this point) observed that the claimants had not met this threshold. Since there was no obligation for Canada under customary international law to hold Nevsun civilly liable for its actions, they held that the entire customary international law claim was bound to fail.

The majority, on the other hand, deemed it unnecessary to find that holding corporations responsible and civilly liable for breaches of customary international law itself was a customary international law obligation for States. Instead, they simply observed that there was no reason, in principle, for customary international law to not directly bind private individuals. Relying extensively (and exclusively) on academic literature on this issue, Abella J (for the majority) observed that while international law was initially conceived as binding only states, the rise of human rights has created a “human-centric” conception of this order that requires that corporations not enjoy a “blanket exclusion” from liability for violations of “obligatory, definable and universal norms of international law”. To argue otherwise, in her opinion, is a “misconception” of modern international law.

Lessons for International Investment Law

The majority’s decision is revolutionary in explicitly identifying obligations for private actors in customary international law. The traditional characterisation of international law as creating rights for both states and individuals but obligations only for states, therefore, can no longer stand. Crucially, the majority in Nevsun make no distinction between positive and negative rights – they simply hold that corporations may be held liable for any violations of customary international law.

It is this blanket decision on the liability of corporations that places Nevsun one step ahead of Urbaser. On Nevsun’s line of reasoning, the investor in Urbaser would have clearly been in violation of its obligation to take positive steps to ensure citizens’ international human right to water, since this obligation was found to be a part of customary international law in the award.

Two qualifications are necessary here. First, this does not suggest that the obligation to provide water to Buenos Aires’ citizens would automatically extend to any private water provider in Argentina – the obligation is still exclusive to Urbaser in this case, because of the unique position (as the exclusive supplier of water to Buenos Aires’ citizens) its contractual relationship with the State put it in. The key difference is the source of the obligation – while Urbaser sees this as being a purely contractual obligation, Nevsun’s analysis would see it as a direct obligation under international law. Second, this analysis does not necessarily suggest that the ultimate result in Urbaser itself would have been different. The implications of a direct obligation on investors to respect international human rights law, however, are far-reaching in the investment arbitration context. For instance, an independent counterclaim for an investor’s mistreatment of its labourers (such as a failure to pay an adequate minimum wage, provide humane working conditions etc) would lie under international law under Nevsun’s approach, but would be seen as “positive” obligations that don’t bind investors directly under international law if Urbaser’s approach is followed.

Cumulatively, this creates an important lesson for international investment law – Nevsun gives international investment arbital tribunals a signal that customary international law obligations of any kind can bind investors, and tells Host States that it is worth pusruing counterclaims for any violation of customary international law by an investor, despite Urbaser. This assumes, of course, that the investment contract/treaty under which such arbitrations take place allow the tribunal to assume jurisdiction over such counterclaims, and for it to apply customary international law to the claim and counterclaim before it.

On the question of civil liability, however, Nevsun creates some ambiguities. It endorses Prof Harold Hongju Koh’s suggestion that the possibility of holding corporations (through their corporate officers) criminally liable under the Rome Statute for violations of international criminal law means that civil liability for violations of customary international law (as a matter of customary international law itself) must logically follow. However, it ultimately grounds its justification for Nevsun’s civil liability in this case in Canadian common law, observing that the common law can and must evolve to develop civil remedies for such breaches.

Investment arbitral tribunals faced with a similar situation, therefore, cannot rely exclusively on Nevsun to justify creating imposing civil liability on corporations for violations of customary international law. They must focus on the Canadian Supreme Court’s treatment of Prof Koh’s argument and the strong analogy drawn between civil and criminal liability of corporations for breaches of customary international law to develop an independent justification, purely under international law, for the imposition of civil liability on corporations in such cases.

Conclusion

Despite these limited ambiguities, however, Nevsun clearly provides a strong justification for major changes in international investment law’s approach to Host State counterclaims. While the international community waits and observes rapid developments on the introduction of an international Business and Human Rights Treaty that would create extensive, specific obligations for transnational corporations (discussed here and here), a decision to pursue Nevsun’s approach over Urbaser’s by subsequent investment arbitral tribunals could go a long way in bringing the conduct of foreign investors in line with the expectations of international human rights law.

[Editorial note: The International Commission of Jurists filed an amicus brief together with Amnesty International in this case.]