June 16, 2017, by Richard Mackenzie-Gray Scott
How international investment law could improve the enforcement of business and human rights
Six years to this day, on 16 June 2011, the United Nations (UN) Human Rights Council (HRC) endorsed the Guiding Principles on Business and Human Rights, which implement the UN ‘Protect, Respect and Remedy’ framework. This date marked an important part of advancing the legal protection afforded to individuals at the international level. Yet when corporations abuse the rights of individuals, those wronged face a multitude of hurdles in being able to enforce such rights. At present, in terms of litigation, domestic law offers the most likely chances of pursuing a successful case. And this is not to say that such an avenue does not come without significant obstacles. It should also be noted that these types of claims are not typically formulated in human rights terms, but usually centre on arguments regarding tort law. At the international level, the past year has shown that there could be a significant change in the way business and human rights cases are litigated, with investor-state dispute settlement (ISDS) being at the heart of this shift. The following post will briefly offer some insights as to how international investment law could provide a platform for individuals to obtain a remedy in situations where corporations have abused their human rights.
Protect: the emergence of BITs protecting human rights
3 December 2016 saw Morocco and Nigeria sign a bilateral investment treaty (BIT). The occasion was seen as ‘fully aligned with the evolution of international law’. A reason behind such a statement is that this BIT explicitly confers rules on investors to respect human rights. The Preamble of this treaty recognises the importance of furthering ‘human rights and human development’, with Article 18, paragraph 2 stating: ‘Investors and investments shall uphold human rights in the host state’. This provision appears to pave the way for non-state actors to be held responsible, under the BIT, for potential human rights abuses in the host state. Paragraphs 3 and 4 of the same article reflect a strong intention that investors should adhere to other rights, in particular those under labour and environmental laws. The BIT sets a standard that investors should not conduct their business in a way that factually ‘circumvents’ obligations that a host state or home state may have under human rights, environmental or labour law. That non-state actors, in this instance investors, can bear obligations at the international level is a highly contested notion. The prevailing rule is that non-state actors lack international legal personality and therefore cannot bear obligations generally. There are exceptions to this rule, but these are limited to a small number of international humanitarian law and international human rights law treaties. The Morocco-Nigeria BIT has shown that international investment law could become an important platform for ensuring that corporations can be held legally accountable for not respecting human rights. It is unlikely that states will bring direct claims against investors under this BIT. The number of ISDS cases where a state has initiated proceedings is vastly outweighed by the inverse. This is because the international investment law framework was established with a focus on protecting individuals’ and corporate entities’ investments abroad. With that said, states can (and do) make counterclaims during investment disputes, which is an additional incentive for corporations to ensure they comply with human rights law, otherwise they risk being countersued by states when ISDS mechanisms are initiated.
Respect: an investment tribunal that has set a progressive tone
It has been pointed out that tribunals presiding over ISDS cases ‘rarely examine host state arguments based on international human rights law in great depth’. On 8 December 2016, the ICSID tribunal in Urbaser v Argentina was the first to address a host state’s counterclaim centred on respecting human rights. The investor initiated the case against Argentina for alleged breaches of the Spain-Argentina BIT. Under the ICSID Convention (Article 46) and the ICSID Arbitration Rules (Article 40, paragraph 1), Argentina submitted a counterclaim, arguing the investor’s alleged failure to supply the required amount of investment had led to it breaching its obligations under international law, namely the human right to water (Award, para. 36). The investor argued that the applicable BIT was ‘asymmetric’, meaning Argentina did not have any rights, as the treaty did not impose any obligations on the investor (para. 1182). The Tribunal did not look favourably on this contention (see paras. 1193-1221). The Tribunal was clearly reluctant to accept such a stance based on an understanding of international law that it viewed as dated (i.e. bilateral state-to-state interaction). In stating that international law sets a standard for corporations to comply with human rights, referencing the Guiding Principles on Business and Human Rights (para. 1195), the Tribunal set a tone which made clear that corporations are bound by international law to respect human rights. Human rights were viewed in this case as inextricably linked to individuals’ dignity, with both state and non-state actors being obligated not to engage in conduct that would compromise these rights. In this case, the Tribunal stated: ‘The BIT cannot be interpreted and applied in a vacuum’ because such a treaty must be interpreted alongside the wider rules of international law, ‘including those relating to human rights’ (para. 1200). Despite the fact that the host state’s counterclaim on this occasion ultimately failed, the Tribunal’s position has opened the door for more action by states and tribunals involved in ISDS to help protect human rights in business contexts by not letting corporations off the hook when they choose to abuse individuals’ rights, whether they form part of a specific BIT (e.g. as with the Morocco-Nigeria BIT), or those that exist as part of the international legal system more generally. Anil Yilmaz-Vastardis has highlighted that states could raise business and human rights concerns as a defence during ISDS where an investor had undertaken activities that harmed individuals in the host state. As she rightly argues, ‘[m]ere recognition of existence of a duty to “do no harm” may not suffice to make the rights [of individuals] enforceable against investors’, as was the case in Urbaser v Argentina. In terms of taking the area of business and human rights forward through ISDS mechanisms, a key question, which is relevant to both the Urbaser v Argentina case and the Morocco-Nigeria BIT, is how can the framework’s principles be enforced when they are abused by non-state actors part of the international business sector? In other words, how can individuals obtain a remedy by way of ISDS for human rights abuses they have suffered at the hands of corporations/investors?
Remedy: providing the platform for states to step up to the mantle
Despite the Tribunal’s viewpoint in Urbaser v Argentina that state-to-state relations represent an understanding of international law that has ‘lost its impact and relevance’ (Award, para. 1194), states are the predominant actors of the international community. They are the ultimate makers and breakers of international law. States can, among other things, utilise this status to advance individuals’ rights. Indeed, they do this by signing and ratifying treaties, and then accepting to be bound by their contents. Theoretically, this is how ISDS and host-state counterclaims have the potential to become a part of enforcing business and human rights standards. States using human rights arguments as a defence in ISDS does little for advancing the possibilities for enforcing individuals’ right to a remedy, as such an avenue (if successful) essentially means states do not have to pay an award; although it could (as noted above) draw further (necessary) attention to the importance of respecting human rights laws, regardless of whether an actor is a state, a private corporation or an individual investor. However, an option to consider for the future would be to use human rights-focussed counterclaims as a means for obtaining financial compensation granted by investment tribunals, which the state could in turn allot to individuals who have suffered human rights abuses in a particular case. International investment law does not currently function in such a manner. At present, if a state’s counterclaim were to bear success it would likely mean that the investor had to cover the costs of the arbitration and nothing more. The key question arising here is why not expand this rationale so that investors also pay for the harm they have caused individuals in the host state upon conclusion of ISDS? If this conceptualisation could be implemented in practice, a possible alternative avenue for enforcing individuals’ right to a remedy would exist. For those that have suffered harm, trickle-down remedies of this sort may not have the same sense of justice as perhaps winning a domestic case against a corporation without the involvement of the state acting as a litigating proxy (even if on non-human rights-related grounds), but they could at least serve a practical purpose: compensating individuals in situations where states were willing to make counterclaims essentially on their behalf during ISDS. There should be equal incentives for states and investors to protect human rights in the course of business. The point made here represents a more stick than carrot approach to the matter. The Morocco-Nigeria BIT has shown that obligations can be placed on parties involved in transnational investment with the aim of protecting human rights. The case of Urbaser v Argentina sets an important precedent for counterclaims based on human rights to be made against investors during ISDS. Where the area of business and human rights will be in another six years rests on how willing states are to continue along such paths. Equally as significant is whether ISDS can develop so as to allow – currently theoretical – ideas akin to the one canvassed above to apply in practice. Time will tell if ISDS can help enforce individuals’ right to a remedy through the litigating power of the state. The potential exists through this platform to enable such a change to take place. As with many things related to international law, it will depend on what states choose to do.