Summary LLM International Dispute Resolution - Investment Treaty Arbitration II - Module 1 (Introduction)
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Course
LLM
Institution
Queen Mary, University Of London (QMUL)
Standards of protection before WW2
- Standards of protection
- Scholarly opinion
- Early cases
- Efforts on codification
- BITs
Standards of protection after WW2
- Multinational investment framework
- Post-colonial challenges to protection frameworks
- Renewed attempts > Global treaty
Describe the standards of protection before World War II.
By 1915, Brochard remarked that ‘[the] legal position of the alien has in the progress of time
advanced from that of complete outlawry, in the days of the early Rome and the Germanic
tribes, to that of the practical assimilation with nationals, at the present time.’1 Salacuse noted
‘[…] international investment law did not arise suddenly and miraculously the way Athena
sprang from the head of Zeus. The movement finds its origins in nations' diverse economic
interests and the state of international investment law of an earlier time.’ 2 In 991 AD,
Byzantine Emperors Basil II and Constantine VIII granted rights to trade in the ports and
other places of the Byzantine Empire without paying customs duties (chrysobul) and the right
to a quarter for dwelling and trade (embolem) to the merchants of Venice. In 1157 AD, King
Henry VII of England issued a grant guaranteeing protection to German merchants from
Cologne and to their establishment in London. These merchants even persuaded King Henry
VII to grant them special trading privileges and market rights, which freed them from all
London tolls and allowed them to trade at fairs throughout England.
Protecting foreign merchants’ property was also the subject of early treaties
concluded among European sovereigns. 1641 Treaty of Truce and Commerce between the
Portuguese Crown and the Republic of the United Netherlands states ‘[…] since a great
number of Dutchmen, by purchase of estates, commonly called ingenhos, and of other
immovable goods, have fixed their residence there, a regard for the [actual] status of property
there acquired will nowise permit any goods should be demanded back or restored under right
or quasi-right of postiminy; nor that the subjects of the Lords States General should exact
from the Portuguese, nor the Portuguese from the subjects of these provinces, any debts or
other charges, much less may it be proper for them to press for such things by means of
judicial prosecution; but each shall remain secure in the possession of that which he has at the
time of the said notification.’
State practice from the 17th century also shows that sovereigns agreed to grant to
foreigners equal access to justice before their municipal courts. Article I of Treaty of Peace
between France and Great Britain of 1655 states that ‘[The] people and subjects of both
nations shall be able to remain safely and freely in the ports and roadsteads, and travel
through the cities, just as they please, without incurring any harm or injury, but on the
contrary they shall be favoured everywhere, and every kind of justice shall be rendered them,
and the judges and officers of those places shall take care that this is done.’
Describe the scholarly opinion on the standards of protection.
Early scholars
Emerich de Vattell considered that once aliens/non-nationals were admitted into the Host
State, they were subject to local laws and the State was under a duty to protect them in the
same manner as its own subjects. But as foreigners retained the Home State’s
nationality/membership, they were not obliged to submit to the Host State’s commands like
its own subjects. Vattel opposed the ‘droit d’aubaine’ (right of escheat) which ruled that the
foreigners’ property passed to the Host State at their death3.
1
Edwin Borchard, Diplomatic Protection of Citizens Abroad or The Law of International Claims (Banks Law
Publishing Co., 1915) 33
2
JW Salacuse, The Law of Investment Treaties (OUP, 2010) 37
3
Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment
(Kluwer Law International 2009) 4
, Whereas Hugo Grotius and Francisco de Vitoria argued that aliens’ rights arose out
of their status as ‘members of the human race’ rather than as a result of nationality. Instead,
the aliens looked to nationality to improve their treatment4. Thus Grotius recognised the most
favoured nation treatment by writing that ‘A common right by supposition relates to the acts
which any people permits without distinction to foreigners; for if under such circumstances a
single people is excluded, a wrong is done to it. Thus if foreigners are anywhere permitted to
hunt, fish, snare birds, or gather pearls, to inherit by will, or sell property, and even to
contract marriages in case there is no scarcity of women, such rights cannot be denied to one
people alone, except on account of previous wrong-doing.’5
‘Minimum standard’ of treatment
Lillich and Neff noted in 1978 that ‘the treatment of aliens always has been one of the most
controversial areas of international law’6. Based on comity and equality, one suggested that
the Host State need not treat aliens and their property any better than their own nationals.
This was based on the fact that the alien had chosen to live/invest in the Host State. In the
1930s, Mexican Foreign Minister Eduardo Hay confirmed that ‘the foreigner who
voluntarily moves to a country which is not his own, in search of a personal benefit, accepts
in advance, together with the advantages he is going to enjoy, the risks to which he may find
himself exposed. It would be unjust that he should aspire to a privileged position.’7
But by the early 1900s, legal scholars in US and Europe generally agreed that
international law entitled foreigners to a minimum standard of justice in respect of the Host
State’s treatment. This was in consideration of the low treatment standards afforded to both
locals and aliens as to violate international justice. This minimum standard involved: (1)
Equal access to justice before the Host State’s local courts; and (2) Compensation for aliens
in case of expropriation. Ultimately, ‘civilised’ states like US and Europe applied such
treatment standard that was followed by capital-exporting countries. Elihu Root stated in
1910 that ‘Each country is bound to give to nationals of another country in its territory the
benefit of the same laws, the same administration, the same protection, and the same redress
for injury which it gives to its own citizens, and neither more nor less: provided the
protection which the country gives to its own citizens conforms to the established standard of
civilization. There is a standard of justice, very simple, very fundamental, and of such general
acceptance by all civilized countries as to form part of the international law of the world […]
If any country’s system of law and administration does not conform to that standard of
justice, although the people of the country may be content or compelled to live under it, no
other country can be compelled to accept it as furnishing a satisfactory measure of treatment
to its citizens.’8
Calvo Doctrine
4
Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment
(Kluwer Law International 2009) 4-5, citing F.V. Garcia-Amador, The Changing Law of International Claims
(Oceana Publications Inc, 1984) at 46
5
Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment
(Kluwer Law International 2009) 4, citing H. Grotius, De Jure Belli Ac Pacis Libri Tres (1625), J. B. Scott, ed.,
F.W. Kelsey, trans. (Clarendon Press, 1925), Book II, Chapter II, XXII
6
Richard B. Lillich and Stephen C. Neff (1978), ‘The Treatment of Aliens and International Human Rights
Norms: Overlooked Developments at the UN’ (1978) 21 German Y.B. Int'l L. 97
7
‘Mexico-United States: Expropriation by Mexico of Agrarian Properties Owned by American’, The American
Journal of International Law, Vol. 32, No. 4, Supplement: Official Documents (Cambridge University Press,
1938), 181-207
8
Elihu Root (1910), ‘The Basis of Protection to Citizens Residing Abroad' 4 AJIL 517
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