Investment Arbitration: Restricted Area

by Tomaso Ferrando | 16 Jul 2012

With a Procedural Order issued on June 26^th, an ICSID Arbitral Tribunal has made a decision concerning an amicus curiae petition filed on 23 May 2012 by an ensemble of Petitioners formed by an international NGO and four Zimbabwean indigenous communities. Reversing the recent trend toward transparency and participation in investment arbitration, the Panel has denied the Application.

The Order, which at first sight could be relegated to a mere procedural decision revolving around articles 32(2) and 37(2) of the ICSID Convention, appears extremely relevant for conception of the relationship between investment arbitration and international law that it proposes, and for the significant limitation over the participation of non-disputing-parties (NDPs) that it generates.

The arguments adopted by the Tribunal in order to deny all the requests of the Petitioners, including the permission to make a written submission as joint amici curiae, consolidates the idea of a divided world where fundamental decisions over natural resources and the life of people are taken in private contracts or behind the curtains of investment arbitration, where sovereign prerogatives are exercised away from public scrutiny and function in the interests of capital. The only hope is that the latest exclusion will reinforce awareness, and consolidate a legal struggle in favor of inclusion, participation and transparency.

The underlying Zimbabwean cases and the ICSID precedents

As anticipated, the Procedural Order issued by the ICSID Tribunal in the Forestry and timber processing enterprises case (ICSID Case No. ARB/10/25) filed in December 2010, concerns two conjoined arbitrations triggered by Switzerland and German investors against the Land Reform Programme adopted by the Republic of Zimbabwe. In what could appear as a typical case of taking, the Claimants sought the restoration of the full unencumbered legal title and exclusive control over a vast area of territory, the Border Properties, which were expropriated and then redistributed. For more than a year, State and Market (Zimbabwe and the investors) had been opposed one to the other before a private tribunal, with no participation of the community and their representatives.

In March 2012, however, the intervention of an international NGO and, subsequently, of four indigenous communities, could have modified the original picture, and introduced an element of novelty capable of redefining the power relations. With an Application filed on 23 May 2012, in fact, the European Center for Constitutional and Human Rights (ECCHR) and the four communities of the Chikukwa, Ngorima, Chinyai and Nyaruwa peoples (that are living in the region of Chimanimani, in South-Eastern Zimbabwe where the Claimant’s alleged properties are located), sought a) permission to make a written submission as joint amici curiae in the present arbitration; b) access to the key arbitration documents; and c) permission to attend the oral hearings when they take place, and to reply to any specific questions of the Tribunals on the written submissions.

The request, formulated on the basis of the recently reformed Articles 32(2) and 37(2) of the ICSID Rules of Procedure for Arbitration Proceedings, did not differ from applications formulated in recent ICSID cases: however, the outcome has been significantly different. Starting from the 2005 Suez Order,¹ moving to the 2006 Biwater Order,² passing through the more recent Pac Rim Cayman LLC v. Republic of El Salvador³, Piero Foresti v. Republic of S. Africa,⁴ until the 2011 Commerce Group Corp. and San Sebastian Gold Mines, Inc v. Republic of El Salvador, ⁵ in fact, ICSID Tribunals had been opening up to NDPs, especially in cases where issues of public importance and public interests were raised.

Conversely, in the Zimbabwean case the Tribunal has decided to make reference to the second Suez Order, which denied a NGO the possibility to intervene as an amicus curiae, and to narrow even more the possibility of NDPs’ participation. Matthew Coleman, a partner at Steptoe & Johnson in London and counsel to the claimants, has affirmed that the decision serves as ‘a warning to potential non-disputing parties that rule 37(2) is not an unconditional invitation for a rare day out before an international tribunal’,⁶ and as such the Order of the Tribunal intercedes in the debate on accepting amicus briefs in international investment arbitration like a heavy-weight punch. By showing its internal paradoxes and potential effects, I want to avoid a possible KO.

Legitimate doubts of independence or neutrality

Paragraph 56 of the Procedural Order states that “[b]ased on the foregoing, the Arbitral Tribunals consider that the circumstances of their Application give rise to legitimate doubts of the independence or neutrality of the Petitioners. The apparent lack of independence or neutrality of the Petitioners is a sufficient ground to deny the NDP Application (emphasis added).”⁷ In this way, the Tribunals not only operate a shift from the need to demonstrate independence, as already stated in the 2006 Suez Order,⁸ to the sufficiency of an apparent lack thereof, but provide two justifications for denying the Application that deprives the institution of amicus curiae of any real meaning.

a) Significant Interest v. lack of independence: in the last part of the Order, the Tribunals affirm that “there is a latent tension in the Rule 37(2) criteria which require that an NDP be independent yet also possess a significant interest in the proceeding” (para.62). Whether that might be true, the tension certainly depends on the way in which ‘independence’ is defined, and there is little doubt that the Tribunals have chosen to interpret it in the narrowest way. In paragraph 50-51, in fact, the Arbitral Tribunals recognize that the Petitioners stand against both the State and the investors because they claim that ‘both Parties have responsibilities towards the indigenous communities relating to their alleged rights over or in relation to their ancestral lands’. As a consequence, the Tribunals claim not to be ‘persuaded that they are “aligned” with the Respondent”, as argued by the Claimants. However, because the claims of the communities appear to be in conflict with the Claimant’s primary position in these proceedings, the Tribunals conclude that they are not independent. Thus, the Tribunals affirm that the parties are independent and bring a perspective which is different from that of the disputing parties, so much so that their arguments are against those of the Parties. However, it is precisely that excessive independence which prevents them from filing the Application. If we think about what could be the consequence of this reasoning becoming the rule, we have to conclude that all parties who could be directly or indirectly affected by an arbitral award would be prevented from being NDPs. Objectively independent parties, in fact, would be prevented from taking a stand in favor of one of the parties (under the threat of being dependent) but also against the position of one of the Parties or even both of them (under the threat of apparently lacking independence). In the same way, academics and NGOs could not propose an amicus whose nature could sustain or contest the positions or the parties, nor, as we will see, generally discuss international law and human rights. To conclude on this point, the notion of ‘independence’ as interpreted by the Tribunals appears to be incompatible with the notion of ‘significant interest’, which determines the incongruence of article 37(2) or, more likely, of this specific interpretation.

b) Beware of your friends: For their second reason, the Tribunals have reinforced their legitimate doubts as to the independence or neutrality of the Petitioners by making reference to the relationship between the Petitioners and Mr. Rob Sacco, Director of the Nyahode Union Learning Centre (NULC), with whom the Claimants are engaged in an “ongoing dispute” (para.7) and who “threatened to ‘internationalise’ his dispute with them regarding the Border Estate’s refusal to enter into a Joint Forest Management Project” (para.54). Taking this situation into the analysis, the Tribunals concluded that the Petitioners have received ‘support from the NULC in the nature of facilitating communications between the ECCHR and the indigenous communities, the production of affidavits and the holding of meetings to discuss the Application’ (para.54). Although the ‘NULC itself does not appear to be closely linked with either Party’ (para.54), however, the Tribunals considered relevant the existing relationship between the petitioners and the Director of the Organization, affirming that the lack of independence of Mr. Sacco determines an apparent lack of independence of the Petitioners. Independence, therefore, is not only a matter of control and different perspective, but an issue which depends on the personal opinions and individual situations of the people who have provided help in order to facilitate the production of the Application. According to me, the reading of the Tribunals is characterized by two main flaws: first of all, it infantilizes both the ECCHR and the indigenous communities, which are considered incapable of formulating their own opinions and Application independently from the will and personal aims of a third party. Secondly, it suggests that NDPs should stay far away from local organizations, associations, unions, or persons in any way linked to one of the Parties. Whoever intends to file an Application in an investment arbitration, therefore, should collect data and information trying to avoid sources that may have officially taken a stand concerning the struggle; a circumstance that appears almost impossible.

Investment arbitration as HR-proof: from NDP to affidavit

A second element of the Opinion which deserves to be analyzed, concerns the conclusions of the Arbitral Tribunals with regard to the relationship between investment arbitration, Bilateral Investment Treaties (“BITs”) and Human Rights law. In this case too, the reasoning of the Panel appears functional to a specific objective, contradictory, and charged with dangerous potential.

The Tribunals not only confirm what Muthucumaraswamy Sornarajah affirms about the relationship between human rights and the law of investments, i.e. that “human rights are seldom, if at all, referred to in bilateral investment treaties” mainly because “the tendency of elites in many states geared to neo-liberalism has been to attract foreign investment even at the cost of human rights”, ⁹ but go beyond, erecting walls where the rest of the international order is trying to build bridges. While Judge Greenwood in the recent International Court of Justice Diallo judgment has affirmed that “international law is not a series of fragmented specialist and self-contained bodies of law, each of which functions in isolation from the others; it is a single, unified system of law and each international court can, and should, draw on the jurisprudence of other international courts and tribunals, even though it is not bound necessarily to come to the same conclusions”, ¹⁰ the Tribunals have affirmed that “the reference to ‘such rules of general international law as may be applicable’ in the BITs does not incorporate the universe of international law into the BITs or into disputes arising under the BITs” (para 57).

The possibility and implications of a contrast between a judgment issued on the basis of the BIT and the entire international legal order is, therefore, discarded a priori. The fact that recognizing the property title of the investors would mean to officially erase the ancestral title of the communities, and therefore determine a violation of the African Convention on Human and Peoples Rights and the UN Declaration on the Rights of Indigenous People, along with several other human rights linked to the access to land and culture, is simply overlooked. And it is tautological to add that this position contrasts with the affirmations by the European Court of Human Rights and the Inter American Court of Human Rights that a country signatory of a Human Rights Convention “cannot evade its own responsibility by relying on its obligations arising out of bilateral agreements.” ¹¹

While the conclusions of the Tribunals provide an ulterior demonstration of the attempt to use investment arbitration in order to consolidate investors’ rights without putting into evidence the duty to respect human rights, they also pose significant problems concerning the future of the amicus curiae. The entire reasoning of the Tribunals, in fact, is driven to justify the rejection of the Petitioners’ Application: If human rights law and investment law are separated, an amicus brief which exposes human rights’ concerns and consequences, can only be considered “unrelated to the matters before the Arbitral Tribunals” (para.57) and therefore denied on the basis of Article 37(2)(b).

Discarding the possibility for affected communities to file a brief, and declaring as lacking the sufficient level of independence all NDPs which have interacted with the parties involved, the decision of the Tribunals to reject opinions concerning the respect of human rights would limit the admissibility of amici focused on the violation of the BIT to experts having no relation with the underlying situation. This decision to reduce the scope of investment arbitration to the minimum, which is diametrically opposite to the statements in the 2006 Suez Order and the Biwater Tribunal,¹² is the ulterior confirmation of the intention to keep the community outside the private rooms of arbitration, and transforms the idea of the non-disputing party into that of the affidavit.

Conclusion

Other elements of the Order could be underlined and criticized for their incongruence or functionality, but they would only intensify a picture which is already densely dark. As the Petitioners have underlined in their request, the instrument of the amicus brief represents the only means in the hands of the affected communities to intervene in a confrontation between state and market, in order to make their voice heard. The choice of the Tribunal to reject the Application because of the presumed lack of independence of the affected people, because of the separation between international law on foreign investment and international human rights law, and, finally, because their participation could ‘unfairly prejudice’ the Claimant (para.62), is a clear demonstration of the intention to deprive the institution of the amicus brief of meaning, and to render arbitration a technical mechanism which does not concern the people.

In an historical moment characterized by thousands of BITs, and where the number of controversies arising between states and investors have been multiplying in an exponential way, the choice of the Tribunals not only represents a warning to potential NDPs, but a thick wall that separates the reality on the ground from the legal reality of arbitration and investment contracts. Moreover, it is the demonstration that the inherent flaws and the problems caused by a system of foreign investments that divide the world into states and investors, cannot be fully and satisfactory solved by a procedural mechanism created within the system itself. Therefore, the attempt to bring communities and environmental issues into investment laws should not pass through a broader reading of the existing Rules of Procedure, but through a radical modification of their content, in a way that every interested party was given the right to participate, access the documents, and prevent the Tribunal from issuing awards that violate international law and human rights. However, such a procedural reform would consistently augment the essence of investment arbitration, transforming it in a quasi-public proceeding with private tariffs.

In conclusion, investment arbitration appears incapable of guaranteeing the inclusion and participation required by the duty to respect local communities, human rights and the environment. In this framework, future legal resistance has not to be addressed against investment arbitration as it is today, but against investment arbitration as privatization of public struggles.

1
See Suez Order (available at http://ita.law.uvic.ca/docuemnts/SuezVivendiamici.pdf).
2
See Biwater Order (available at http://www.worldbank.org/icsid/cases/awards#awardarb0522, case 58, Procedural Order No. five).
3
ICSID Case No. ARB/09/12, Decision on Repsondent’s Preliminary Objections under CAFTA Articles 10.20.4 and 10.20.5, para 50 (Aug. 2, 2010), http://icsid.worldbank.org/ICSID/FrontServlet?rquestType=CasesRH&actionVal=showDoc%docId=DC1652_En&caseId=C661.
4
ICSID Case No. ARB(AF)/07/1, Award (Aug. 4, 2010), http://icsid.worldbank.org/ICSID/FrontServlet?rquestType=CasesRH&actionVal=showDoc%docId=DC1651_En&case Id=C90.
5
ICSID Case No. ARB/09/17, Award, para 39 (Mar. 14, 2011), http://icsid.worldbank.org/ICSID/FrontServlet?rquestType=CasesRH&actionVal=showDoc%docId=DC1971_En&caseId=C741.
6
Ross A., ICSID panel prevents intervention over tribal rights, GAR Review, 27 June 2012.
7
ICSID Case No. ARB/10/25, Procedural Order No. two, 26 June 2012.
8
See Aguas Provinciales de Santa Fe S.A., Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A. v. The Argentine Republic, ICSID Case No. ARB/03/17, Order in Response to a Petition for Participation as Amicus Curiae, 17 March 2006, para 23.
9
Sornarajah M., 2010, The International Law on Foreign Investment, Third Edition, Cambridge University Press, New York, pp.227 ss.
10
Judge Greenwood Opinion, Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Judgment, I.C.J. June 19, 2012.
11
Jamaa v. Italy, para. 129 (Eur. Ct. H.R. Feb. 23, 2012), http://www.echr.coe.int/. “…the Court observes that Italy cannot evade its own responsibility by relying on its obligations arising out of bilateral agreements with Libya. Even if it were to be assumed that those agreements made express provision for the return to Libya of migrants intercepted on the high seas, the Contracting States’ responsibility continues even after their having entered into treaty commitments subsequent to the entry into force of the Convention or its Protocols in respect of these States.”
12
For example, in the 2005 Suez Order the Tribunal affirmed that “Even if its decision is limited to ruling on a monetary claim, to make such a ruling the Tribunal will have to assess the international responsibility of Argentina. In this respect, it will have to consider matters involving the provision of ‘basic public services to millions of people’. To do so, it may have to resolve ‘complex public and international law questions, including human rights considerations’ (Order of May 19, 2005, para. 19). it is true that the forthcoming decision will not be binding on the current operator of the water and sewage system of Buenos Aires. It may nonetheless have an impact on how that system should and will be operated. More generally, because of the high stakes in this arbitration and the wide publicity of ICSID awards, one cannot rule out that the forthcoming decision may have some influence on how governments and foreign investor operators of the water industry approach concessions and interact when faced with difficulties”. See Suez Order, para. 18.