denial of justice, sovereignty, and sequential review - SSRN papers

Reconciling State Sovereignty and Investor Protection in Denial of Justice Claims ANDREA K. BJORKLUND*

TABLE OF CONTENTS I. II.

III.

Introduction ............................................................................... 810 State Responsibility for Injuries to Aliens ................................ 818 A. Finding a Forum .............................................................. 820 1. “Pure” Diplomatic Protection.................................. 821 2. Mixed Claims Commissions.................................... 825 3. Permanent Court of Arbitration and International Court of Justice........................................................ 828 4. Ad Hoc Investment Treaty Arbitration under Bilateral or Multilateral Treaties ............................. 830 B. Establishing Liability ...................................................... 833 The Sweep of Denial of Justice................................................. 838 A. Pre-War Denial of Justice................................................ 838 1. Procedural Denials of Justice .................................. 843 2. Substantive Denials of Justice ................................. 846 B. Post-War Denial of Justice Jurisprudence....................... 847 1. International Court of Justice .................................. 847 2. NAFTA Chapter 11 and BIT Cases......................... 849

* Acting Professor, University of California, Davis, School of Law. B.A., University of Nebraska; M.A., New York University; J.D., Yale Law School. I am grateful to many for their comments and suggestions on this paper and the ideas underlying it—Robert Ahdieh, Diane Amann, David Bederman, Anupam Chander, Joel Dobris, Seán Duggan, Chris Elmendorf, Jack Goldsmith, Philip Hamburger, John Hannaford, Elizabeth Joh, Kevin Johnson, Meg Kinnear, Leslie Kurtz, Al Lin, Rob Mikos, Lisa Pruitt, Angela Onwuachi-Willig, Madhavi Sunder, Laura Svat, Jim Whitman, and Tobias Wolff. The paper also benefited greatly from workshops at Boalt Hall, the Chicago-Kent College of Law, the Louisiana State University Law School, the University of Chicago Law School, and the University of California, Davis, School of Law. I thank Rachel Zellner and Chris Engels for outstanding research assistance, the librarians at the University of California, Davis, and the University of Chicago law schools for indefatigable help, and Dean Rex Perschbacher and the U.C. Davis Academic Senate for research support.

810

VIRGINIA JOURNAL OF INTERNATIONAL LAW

[Vol. 45:4

a.

Mondev International Ltd. v. United States of America...................................................... 849 b. The Loewen Group, Inc. v. United States of America .......................................................... 852 i. “Judicial Finality”.............................. 854 ii. Denial of Justice ................................ 859 c. Waste Management Inc. v. United Mexican States .............................................................. 859 d. BIT Cases ....................................................... 860 C. The Reintersection of State Responsibility and Human Rights Jurisprudence ....................................................... 861 IV. Dissecting Deferential Denial of Justice Standards .................. 866 A. The Risk of Underreaching ............................................. 867 B. The Risk of Overreaching ............................................... 869 C. The Court of Appeal: The Gap between Theory and Practice ............................................................................ 870 D. Reasoned Decision-Making and Arbitral Legitimacy..... 871 V. Sequential review ...................................................................... 873 A. Evaluating Decisions vis-à-vis Municipal Law............... 875 B. Evaluating National Laws vis-à-vis International Standards ......................................................................... 878 VI. Sovereignty as Scapegoat.......................................................... 883 A. The Essence of Sovereignty ............................................ 884 B. Federalism Concerns ....................................................... 888 C. “Reverse Discrimination”................................................ 890 VII. Conclusion................................................................................. 894

I.

INTRODUCTION

If you are a Mexican investor in the United States and you lose a case in the California Supreme Court, or even in the U.S. Supreme Court, your quest for justice may not be over. You may be able to claim a “denial of justice” and seek damages from an ad hoc international tribunal convened under the North American Free Trade Agreement (NAFTA).1 Critics frequently style such investor-state arbitration as an 1. North American Free Trade Agreement, Can.-Mex.-U.S., ch. 11, Dec. 17, 1992, 32 I.L.M. 605, 639 [hereinafter NAFTA]. To date some fourteen cases have been submitted to arbitration against the United States under Chapter 11. See http://www.state.gov/s/l/c3741.htm (last visited Nov. 3, 2005). The exact number is subject to manipulation because a few claims have been submitted but never prosecuted, and over one hundred Canadian farmers have recently filed

2005]

DENIAL OF JUSTICE

811

infringement on sovereignty that confers special rights on multinational corporations in the context of an unstoppable and unwise movement to globalization.2 Proponents highlight investors’ need to protect their investments in volatile environments and thereby increase the flow of foreign direct investment.3 Those proponents certainly include claims challenging the United States’ decision to close the border to Canadian cattle because of the potential danger posed by bovine spongiform encephalopathy; these either form one claim or dozens of individual claims. See id.; http://www.naftalaw.org (last visited Nov. 3, 2005). All of these cases have been filed by Canadian investors. Three other cases are in earlier stages. See http://www.naftaclaims.com/disputes_us.htm (last visited Nov. 3, 2005). Two of the ten cases challenged decisions by U.S. state courts. Loewen Group, Inc. (Can.) v. United States, ICSID (W. Bank) ARB(AF)/98/3 (June 26, 2003) (Award) [hereinafter Loewen Award], available at http://www.state.gov/documents/organization/22094.pdf (last visited Nov. 3, 2005); Mondev Int'l Ltd. v. United States, ICSID (W. Bank) ARB(AF)/99/2 (Oct. 11, 2002) (Award) [hereinafter Mondev Award], available at http://www.state.gov/documents/organization/14442.pdf (last visited Nov. 3, 2005). In the interest of candor, I should disclose that I served as counsel for the United States in both of these cases. The opinions in this article are mine alone, and do not necessarily reflect the views of the U.S. government. 2. See, e.g., Douglas M. Branson, The Very Uncertain Prospect of “Global” Convergence in Corporate Governance, 34 CORNELL INT’L L.J. 321, 352 (2001) (“The growth of large multinational and truly international corporations poses a number of overlapping problems, such as the irrelevancy-impotency of the nation state, the resulting field of play for economic imperialism, and resulting opportunities to engage in regulatory arbitrage, leading to problems such as environmental degradation and ‘plantation production….’”); Charles H. Brower II, Investor-State Disputes under NAFTA: A Tale of Fear and Equilibrium, 29 PEPP. L. REV. 43, 44 (2001) (“Canadian and U.S. writers have denounced the purportedly ‘aggressive’ use of investorstate arbitration as an ‘offensive’ weapon that has ‘chilled’ the exercise of regulatory authority and caused an ‘alarming’ loss of sovereignty. Based on the wide variety of pending claims, writers warn that Chapter 11 provides foreign corporations with a reliable ‘tool for attacking any legislation or regulation that they do not find beneficial to their investments.’”); Lucien J. Dhooge, The North American Free Trade Agreement and the Environment: The Lessons of Metalclad Corporation v. United Mexican States, 10 MINN. J. GLOBAL TRADE 209, 213 (2001) (explaining critics’ charge that Metalclad’s claims were demonstrative of a trend in multinational corporations utilizing Chapter 11 protections over legitimate exercises of sovereignty by local governments); Lawrence L. Herman, Settlement of International Trade Disputes—Challenges to Sovereignty—A Canadian Perspective, 24 CAN.-U.S. L.J. 121 (1998) (discussing how nation states have limited their freedom of action when they join international treaties, such as the WTO and NAFTA); James McIlroy, Private Investment Claims Against State [sic] and Provinces—The Impact of NAFTA Chapter 11 on Sub-Federal Government Agencies, 27 CAN.-U.S. L.J. 323, 325 (2001) (“NAFTA’s Chapter 11 is controversial because it is seen as extending the rights of private, multinational, profit-seeking corporations to attack duly elected governments that are there to promote and protect the public interest.”). 3. Analysts posit both real and perceived problems with governmental stability in many developing countries. See, e.g., JORGE GUIRA, MERCOSUR: TRADE AND INVESTMENT AMID FINANCIAL CRISIS 110–11 (2003); Michael D. Ramsey, Acts of State and Foreign Sovereign Obligations, 39 HARV. INT’L L.J. 1, 8 (1998) (noting that historically, unstable political environments have substantially marred the performance of investment in developing countries); see also Ernest R. Larkins, Multinationals and Their Quest for the Good Tax Haven: Taxes Are

812


[Vol. 45:4

governments: the number of bilateral investment treaties (BITs), most of which contain waivers of sovereign immunity that permit investors to assert claims against governments directly,4 increased from 385 in 1989 to a total of 2,265 in 2003.5 This BIT explosion has drastically expanded both the number of potential claimants and the number of fora that can hear claims of denials of justice, or other alleged breaches of international law.6 Denial of justice is a flexible concept that can range from serious procedural irregularities in a particular case to the systemic shortcomings of a state’s entire judicial system. The challenge for governments and investors is to develop a denial of justice standard that maximizes the dispensation of justice to a particular investor and minimizes intrusion on the sovereignty of the state whose system is being called into question. The approach suggested in this Article— sequential review—does just that.

but One, Albeit an Important, Consideration, 25 INT’L LAW. 471, 473–74 (1991) (explaining that some developing countries need to offer attractive investment incentives to offset disincentives of a relatively unstable political environment). In the area of judicial competence, those concerns may be magnified. See, e.g., GUIRA, supra (noting reform of judiciary is a “long-term” and complex process, involving federal and state entities, changing schemes of judicial compensation and tenure, and resocializing judges); Becky L. Jacobs, Pesification and Economic Crisis in Argentina: The Moral Hazard Posed by a Politicized Supreme Court, 34 U. MIAMI INTER-AM. L. REV. 391, 407 (2003) (explaining that the Argentina Corte Suprema de Justicia de la Nación has been “wholly or partially restructured on seven different occasions,” notwithstanding ostensible guarantees of lifetime tenancy for judges during good behavior). It is true that developed countries may identify themselves as potential defendants by signing such treaties, yet they continue to negotiate and sign such treaties, notwithstanding the potential liability. 4. Andrea Kupfer Schneider, Getting Along: The Evolution of Dispute Settlement Regimes in International Trade Organizations, 20 MICH. J. INT’L L. 697, 756 (1999) (“[BITs], and NAFTA, now provide a blanket waiver of immunity for any case arise under the relevant treaty.”); see also 28 U.S.C. 1605(a)(6)(B) (2002) (establishing that a state’s agreement to arbitrate constitutes a waiver of sovereign immunity under the Foreign Sovereign Immunities Act). 5. United Nations Conference on Trade and Development (UNCTAD), Analysis of BITs, at http://www.unctadxi.org/templates/Page____1007.aspx (last visited Nov. 3, 2005). For general information about different nations’ “BIT” programs, see RUDOLF DOLZER & MARGRETE STEVENS, BILATERAL INVESTMENT TREATIES 1–18 (1995). 6. The number of treaty-based disputes actually filed has also risen substantially; claims brought before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) had risen from three as of the end of 1994 to 106 as of November 2004. U.N. Conference on Trade and Dev., Pub. No. UNCTAD/WEB/ITE/IIT/2004/2, Occasional Note: International Investment Disputes on the Rise (Nov. 29, 2004), available at http://www.unctad.org/sections/ dite/iia/docs/webiteiit20042_en.pdf (last visited Nov. 3, 2005). UNCTAD also notes at least fiftyfour cases outside the auspices of the ICSID. Id. Thus, the total number of cases is about 160, over half of which have been filed within the past three years. Id. These numbers include only known cases; because some claims are kept confidential, the numbers are likely somewhat higher. Id. at 2 (noting that confidentiality of disputes exerts a “downward pressure” on the numbers).

2005]

DENIAL OF JUSTICE

813

Concerns about infringing on sovereign prerogatives pervade denial of justice jurisprudence. Difficult questions arise with respect to what kind of authority national governments actually conferred on the international tribunals, and the ways in which the tribunals should exercise jurisdiction consistently with their mandate. Investors’ ability to challenge domestic court decisions has provoked a strong reaction from members of civil society, the media, and even from judges themselves about the prospect of holding U.S. courts to international standards.7 This is not, however, a new issue. International tribunals reviewed even decisions of the U.S. Supreme Court as long ago as 1871.8 The more international law mandates that countries legislate, prosecute, and judge according to non-national standards, the more it encroaches on sovereign prerogative. Accordingly, the rhetoric of arbitral decisions is that a state is deemed to “deny justice” only in extreme cases: mere errors in a judgment have been held not to implicate international responsibility. Thus, a denial of justice exists only when there has been a “manifest injustice” that would “shock the conscience” of reasonable people or when an alien has been denied access to the judicial system entirely.9 7. See Adam Liptak, Review of U.S. Rulings by Nafta Tribunals Stirs Worries, N.Y. TIMES, Apr. 18, 2004, at 20. Georgetown law professor John D. Echeverria commented, “This is the biggest threat to United States judicial independence that no one has heard of and even fewer people understand.” Id. California Supreme Court Justice Ronald M. George claimed, “It’s rather shocking that the highest courts of the state and federal governments could have their judgments circumvented by these tribunals.” Id. Massachusetts Supreme Judicial Court Chief Justice Margaret Marshall noted, “To say I was surprised to hear that a judgment of this court was being subjected to further review would be an understatement.” Id. But see Rudolph Kass, How Sharp Are the Tiger’s Teeth? Private Action under NAFTA, May 11, 2004, available at http://www.bostonbar.org/pub/bbj/bbj0910_03/analysis1.htm (last visited Nov. 3, 2005) (retired Massachusetts appeals court judge suggests NAFTA Chapter 11 decisions to date have been reasonable, although the procedure potentially has “teeth”). 8. ROBERT C. MORRIS, INTERNATIONAL ARBITRATION AND PROCEDURE 164–65 (1911). The British-American mixed claims commission established in 1871 awarded compensation to British claimants whose cases had been decided adversely to them by the U.S. Supreme Court. Id. 9. See, e.g., Chattin (U.S.) v. United Mexican States, 4 R.I.A.A. 282, 286–87 (Gen. Claims Comm'n, Mex.-U.S. 1927) (distinguishing acts of the judiciary, which are not considered insufficient under international law unless the wrong committed “amounts to an outrage, bad faith, wilful neglect of duty, or insufficiency of action apparent to any unbiased man,” and direct wrongs committed by the legislative and executive branches, which do not require similar aggravating circumstances); cf. Mondev Award, supra note 1, ¶ 127 (requiring impugned decision to be “clearly improper and discreditable”). See generally JAN PAULSSON, DENIAL OF JUSTICE IN INTERNATIONAL LAW (Cambridge U. Press, forthcoming 2005); ALWYN F. FREEMAN, THE INTERNATIONAL RESPONSIBILITY OF STATES FOR DENIAL OF JUSTICE (Kraus Reprint Co. 1970)

814


[Vol. 45:4

Several problems stem from this approach. The first is that the standard used is malleable, at best, and meaningless, at worst. The dividing line between what constitutes a mere error and what constitutes a manifest injustice is not always clear.10 The “shock the conscience” or “manifest injustice” standard is often unsatisfactory for the same reason that review based on equitable, rather than legal, principles has been viewed with suspicion:11 different judges or arbitrators have different susceptibilities and may come to vastly different conclusions on the same facts. Moreover, this standard may also result in a vague, poorly reasoned decision, with debatable utility and a reach which is often more excessive than that of a narrowly crafted decision based on more definite criteria. Because the number of investor-state cases involving denials of justice is likely to increase, formulating coherent approaches to the (1938). 10. CASTOR H. P. LAW, THE LOCAL REMEDIES RULE IN INTERNATIONAL LAW 125 (1961) (“The distinction between an error of judgement and a manifestly unjust judgement is often very difficult to make. After all, a manifest injustice in a judgement is but a variation of an erroneous judgement, a more intensive form of error.”). 11. One concern is that the application of “equity” may end in a “result [that] is nowhere articulated other than [by] the self-serving description of ‘equitable.’” Rosalyn Higgins, International Law and the Avoidance, Containment and Resolution of Disputes, 230 RECUEIL DES COURS 9, 292 (1991). Professor Franck notes, “In its international as in its domestic legal context, equity is sometimes derided as a ‘contentless’ norm amounting to little more than a license for the exercise of judicial caprice.” THOMAS M. FRANCK, FAIRNESS IN INTERNATIONAL LAW AND INSTITUTIONS 47 (1995). Professor Franck also notes that equity yet has a role to play in international decision-making, particularly when necessary to ensure justice in a world with a widening chasm between rich and poor. Id. at 79. An interesting analog may be found in arbitrations in which the disputing parties have to decide whether the arbitral tribunal deciding their case has the authority to decide a case ex aequo et bono (“according to what is equitable and good”) rather than by reference only to the governing law. Decisions made ex aequo et bono are sometimes given less deference in proceedings to enforce or set aside arbitral awards than would be given to a decision based on law. See MAX HABICHT, THE POWER OF THE INTERNATIONAL JUDGE TO GIVE A DECISION “EX AEQUO ET BONO” 72 (1935) (noting chance of error on part of judge deciding ex aequo et bono due to difficulty in ascertaining “the principles of objective justice”); JULIAN D.M. LEW, APPLICABLE LAW IN INTERNATIONAL COMMERCIAL ARBITRATION 120–27, n.1 & ¶ 138 (1978) (noting that England will not enforce arbitral awards made ex aequo et bono). This is part and parcel of the requirement that arbitrators give reasons for their decisions. See Catherine A. Rogers, Fit and Function in Legal Ethics: Developing a Code of Conduct for International Arbitration, 23 MICH. J. INT’L L. 341, 353-54 (2002) (noting shift in arbitral procedure towards more formal rules and more frequent publication of awards). Indeed, under the ICSID Convention, one of the limited grounds on which an arbitral decision may be annulled is for failure to give reasons. Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Mar. 18, 1965, art. 52(1)(e), 17 U.S.T. 1270, 575 U.N.T.S. 159 [hereinafter ICSID Convention]; see also CHRISTOPH SCHREUER, THE ICSID CONVENTION: A COMMENTARY 984–1008 (2001).

2005]

DENIAL OF JUSTICE

815

international law standards against which to measure municipal acts is essential to orderly and persuasive decision-making, and to enhancing the legitimacy of both international tribunals and national judicial processes. These tribunals have the opportunity to reform denial of justice standards to make them useful and fair to governments and foreign investors alike. This Article suggests that such tribunals engage in a sequential review. Under sequential review, the tribunal should first determine whether the challenged judicial practice in a particular case departed from national law so markedly that it denied justice to the alien. If it did not, the tribunal would secondly measure the challenged judicial practice or the national law itself against international law. While both of these phases would allow for a great deal of deference, they would also require a clear analysis and a basis for the decision. This approach is not inconsistent with current practice; it simply requires that the rhetoric match the result. By creating a coherent, wellreasoned body of jurisprudence, investment tribunals would bolster their legitimacy, fulfill the goals of both investors and sovereign states, and enhance the dialogue between international and national courts. This proposal may seem perilously close to suggesting that international tribunals play an appellate role, which they have historically been loath to do. The value in the sequential review approach is in its recognition of the tension between the purposes of the tribunals and the development of the law in any one country. National courts may have various normative structures, and tribunals assessing those court acts should not grant a preference to any one system over the others. Sequential review attempts to balance the interests of investors (and their home states), who want impartial and fair dispute resolution, and host states, which want to attract foreign investment and have abrogated their sovereignty to some extent in order to attract it. The news media periodically draw public attention to the “secret” threat to democracy and popular sovereignty that is supposed to inhere whenever an international tribunal purports to pass judgment on a U.S. court decision or government regulation.12 While the general public and 12. See, e.g., Liptak, supra note 7; The Secret Trade Courts, Editorial, N.Y. TIMES, Sept. 27, 2004, at A26; Bill Moyers, NOW, Trading Democracy: The Other Chapter Eleven (PBS broadcast, Feb. 1, 2002), transcript available at http://www.pbs.org/now/politics/ tradingdemocracy.html (last visited Nov. 3, 2005); William Greider, The Right and U.S. Trade Law: Invalidating the 21st Century, THE NATION, Oct. 15, 2001, available at http://www.thenation.com/doc/20011015/greider (last visited Nov. 3, 2005); Anthony DePalma, Nafta’s Powerful Little Secret: Obscure Tribunals Settle Disputes, but Go Too Far, Critics Say,

816


[Vol. 45:4

governmental officials may not be fully informed about such tribunals and their authority, there is nothing “secret” about a nation’s offering such a remedy to foreign investors. Moreover, a nation’s conferring such authority on international tribunals is the very essence of sovereignty.13 The initial decision to enter into an international agreement such as NAFTA is an expression of popular will, affirmed through the acts of the President and at least one branch of the U.S. Congress.14 Waiving sovereign immunity by agreeing to arbitrate cases brought by foreign investors is also an act of popular will: in each case a duly elected Congress weighs the benefits and drawbacks to entering into such agreements.15 While at least one member of Congress now says (with unusual candor) that Congress did not know what it was doing when it passed Chapter 11,16 in point of fact Congress has enacted not only NAFTA Chapter 11 but also a spate of Free Trade Agreements that post-date NAFTA and which contain very similar dispute settlement provisions. Moreover, the Senate has advised and consented

N.Y. TIMES, Mar. 11, 2001, at A31; Public Citizen, NAFTA Chapter Eleven Investor-to-State Cases: Bankrupting Democracy, http://www.citizen.org/publications/release.cfm?ID=7076 (last visited Nov. 3, 2005). But see Sebastian Mallaby, A Slanted Take on Trade, WASH. POST, Feb. 18, 2002, at A23. 13. S.S. Wimbledon (Ger. v. U.K., France, Italy & Japan), 1923 P.C.I.J. (ser. A) No. 1, at 16, (Aug. 17) (requiring Germany “to submit to important limitation of the exercise of sovereign rights” because of treaty provision). Professor Chander suggests that the important question is “Do We the People retain the power to review international issues through ordinary political processes?” and that the answer is yes—“international law permits the people (at least the peoples of economically powerful states) to review, revise and reject its rules.” Anupam Chander, Globalization and Distrust, 114 YALE L.J. 1193, 1226–27 (2005). 14. Indeed, NAFTA and other U.S. free trade agreements are executive/Congressional agreements signed by the President and passed by both houses of Congress. For a discussion of these implications, see Bruce Ackerman & David Golove, Is NAFTA Constitutional?, 108 HARV. L. REV. 799 (1995). The bilateral investment treaties are treaties signed by the President and consented to by the Senate. 15. Moreover, investor-state dispute settlement is not a new phenomenon. Aliens claiming that their interests have been adversely affected by government action have sought redress from some dozens of arbitral panels in the last two hundred years without attracting much public attention See, e.g., Barton Legum, The Innovation of NAFTA Investor-State Arbitration, 43 HARV. INT’L L.J. 531 (2002); EDWIN M. BORCHARD, THE DIPLOMATIC PROTECTION OF CITIZENS ABROAD: OR, THE LAW OF INTERNATIONAL CLAIMS § 191 (1915); 1 RICHARD B. LILLICH & BURNS H. WESTON, INTERNATIONAL CLAIMS: THEIR SETTLEMENT BY LUMP SUM AGREEMENTS 24–27 (1975). See generally JOHN B. MOORE, HISTORY AND DIGEST OF THE INTERNATIONAL ARBITRATIONS TO WHICH THE UNITED STATES HAS BEEN A PARTY (1898). 16. According to Senator John Kerry, “When we debated NAFTA, not a single word was uttered in discussing Chapter 11. Why? Because we didn’t know how this provision would play out. No one really knew just how high the stakes would get.” Liptak, supra note 7.

2005]

DENIAL OF JUSTICE

817

to thirty-nine BITs with similar provisions, and six more await Senate ratification. Fears about abdication of sovereignty to international tribunals are often based on misinformation and misunderstanding about the nature of international review and the scope of tribunal decision-making. Indeed, close examination of the concerns most often expressed—that democracy is threatened because lawmaking authority has shifted into the hands of unknown international bureaucrats, that state governments within a federal system have no voice, and that access to international tribunals discriminates against domestic investors—reveals an abiding distrust in domestic political institutions and democracy. Section II of this Article examines the venerable tradition by which states have made themselves responsible for injuries to aliens and demonstrates the advantages of ad hoc dispute settlement. Section III describes the broad sweep of denial of justice, examining its historic underpinnings and its resurgence in the 1990s. This Section also points to a reconvergence of state responsibility law with human rights law, noting that the early denial of justice cases involved allegations of what today would be human rights claims. The growing body of human rights jurisprudence on access to civil courts can potentially guide investorstate tribunals. Section IV details the shortcomings in the denial of justice jurisprudence, and in particular identifies the discrepancies between arbitral rhetoric and practice. It also suggests that existing denial of justice standards, which largely rely on whether a court’s decision “shocks the conscience” of a particular arbitrator, are no better than the equitable standards roundly criticized for their unpredictability and malleability. Moreover, while these standards are touted for their respect for sovereignty, their employment does not necessarily guarantee such respect. Section V explores the wisdom of substituting sequential review—systematic and well-reasoned evaluation of the municipal court decision at issue—in place of the ostensibly more deferential “shock the conscience” standard. Such an approach has the benefit of closing the gap between theory and practice, and encourages decisions fair to both sovereigns and investors. Finally, Section VI identifies and responds to oft-repeated concerns about the wisdom of convening tribunals to settle investor-state disputes. The decision by governments to enter into treaties that confer rights on investors is itself an act of sovereignty; thus states are only exercising their sovereignty in choosing to abrogate it. Section VI suggests that criticisms levied at international tribunals might more properly be directed to domestic

818


[Vol. 45:4

political institutions, and argues that the international bugaboos of NAFTA, the WTO, and the World Court serve as scapegoats for dissatisfaction with local political or economic problems.

II.

STATE RESPONSIBILITY FOR INJURIES TO ALIENS

International investment protections, including the doctrine of denial of justice, developed within the ambit of the law of state responsibility for injuries to aliens. The law of state responsibility has a long pedigree. It reached its apogee in the late nineteenth and early twentieth centuries, although its underpinnings date back to Vattel and Grotius.17 The demise of colonialism and the concomitant rise of newly independent states meant that the rights attendant on both persons and property in those states were subject to new governmental regimes. Those aliens left behind in the wake of independence, and those who entered the territory after decolonization, were, generally speaking, subject to the laws promulgated by the new regimes. This was not in itself controversial, as this passage by Pufendorf demonstrates: A stranger who, in the guise of a friend, enters a state whose policy has been the friendly reception of foreigners, even without giving any expression of his fealty, is understood to have expressed tacitly, by his act of entering the country, his willingness to conduct himself by the laws of that state, in accordance with his station, so soon as he has found out that such a general law was promulgated for all who desire to sojourn within the limits of that State. And, on the same ground, he has tacitly stipulated from the state for a temporary defence of his person and the securing of justice.18 The basic premise was that an alien entering a state must subject himself to that state’s law during his sojourn, but that in return the state promised to defend his person and to secure justice for him. The “security of justice” that international law required encompassed a number of obligations. Primary among them were the provision of certain protections of property and the person, and the establishment of a fair and functioning judicial system in which to vindicate those 17. CHITTHARANJAN F. AMERASINGHE, STATE RESPONSIBILITY FOR INJURIES TO ALIENS 1 (1967). 18. 2 SAMUEL PUFENDORF, DE JURE NATURAE ET GENTIUM, 403 (C.H. & W.A. Oldfather, trans., Oceana Pubs.1934) (1688).

2005]

DENIAL OF JUSTICE

819

rights.19 In an era of governmental instability, aliens often did not have the basic protections to which they were entitled under international law, either because the judiciary was not functioning or because of discriminatory government practices. Protection of the person is now largely the domain of international human rights law as developed under different treaties, such as the European Convention on Human Rights,20 while the protection of property remains within the purview of state responsibility. To the extent that the human rights of investors are at stake, however, the legal regimes of investment protection and human rights protection could eventually reintersect. Moreover, some human rights jurisprudence may be instructive in the interpretation of international law obligations, such as the duty to accord aliens a minimum standard of treatment, which states have undertaken in investment treaties.21 Many claims for wealth deprivation remain within the realm of state responsibility law.22 In the past, aliens whom a state injured faced two obstacles before they could obtain redress for their injuries. First, they had to establish that the wrong done was contrary to international law, whether that law was a treaty undertaking, a violation of customary international law, or some other obligation undertaken by the state. Second, they had to find a forum in which to bring their claim, or find some other way to assert their claim, such as securing the espousal, or diplomatic protection, of their rights by their own governments. States established various 19. See, e.g., EDWIN M. BORCHARD, THE DIPLOMATIC PROTECTION OF CITIZENS ABROAD 39–44 (1915) (setting forth minimum public rights owed to aliens, including personal and religious liberty, inviolability of domicile and “the right to equal protection of the laws, which involves access to the courts and the use of the executive arm of the government in the enforcement of the rights granted”); CLYDE EAGLETON, THE RESPONSIBILITY OF STATES IN INTERNATIONAL LAW 21 (1928) (“There can be no doubt that to-day responsibility is recognized between states as a fundamental principle of international law, implying an obligation upon the part of the state under whose jurisdiction an offence was committed to repair the damage done.”). 20. See F.D. Berman, Legal Theories on International Dispute Prevention and Dispute Settlement: Lessons for the Transatlantic Partnership, in TRANSATLANTIC ECONOMIC DISPUTES: THE E.U., THE U.S. AND THE WTO 453 (Ernst-Ulrich Petersmann & Mark Pollack eds., 2003). 21. Section III.B.3 discusses the potential for using jurisprudence developed by international human rights tribunals in the area of denial of justice. See also Richard B. Lillich, The Current Status of the Law of State Responsibility for Injuries to Aliens, in INTERNATIONAL LAW OF STATE RESPONSIBILITY FOR INJURIES TO ALIENS 1, 26–29 (Richard B. Lillich ed., 1983); Charles H. Brower II, Structure, Legitimacy, and NAFTA’s Investment Chapter, 36 VAND. J. TRANSNAT’L L. 37, 68 (2003). 22. Yet certain human rights conventions permit challenges to the unfair taking of property. See, e.g., J.G. MERRILLS & A.H. ROBERTSON, HUMAN RIGHTS IN EUROPE: A STUDY OF THE EUROPEAN CONVENTION ON HUMAN RIGHTS 234–41 (Dominic McGoldrick ed., 4th ed. 2001).

820


[Vol. 45:4

mechanisms through the years to deal with the latter problem. The subsection below briefly sketches the historical development of the law of state responsibility to provide context for the current regime of ad hoc investment dispute settlement.

A.

Finding a Forum

An injured party faced a significant hurdle in finding a forum to seek redress. Usually the security of justice was left to the good offices of the host state. An alien would have very little recourse against a state’s failure to abide by its international (or even national) obligations. States usually had sovereign immunity from suits in local courts.23 The independence of the judiciary would also have a strong effect on whether an alien’s claim against a government would get a fair hearing. States also had, and in many cases continue to have, foreign sovereign immunity from suit in non-local courts, so bringing suit in an investor’s home court was not an option.24 As for allegations of international wrongs, individuals had no standing to bring a claim; only a government could do that on the alien’s behalf through “espousal,” or diplomatic dispute settlement.25 For reasons explained below, espousal was and is an often unsatisfactory method of settling disputes. The drawbacks of espousal have led to the establishment of various fora, including temporary claims commissions, permanent international judicial bodies, and mechanisms for the establishment of ad hoc arbitral bodies, including investor-state dispute settlement, which have provided a 23. The assumption that a state has sovereign immunity derives from the maxim “the king can do no wrong.” See 1 DIG. 1.3.31 (Theodor Mommsen & Paul Krueger eds., Alan Watson trans. 1985) (“The emperor is not bound by statutes.”). See generally Guy I. Seidman, The Origins of Accountability: Everything I Know About the Sovereigns’ Immunity, I Learned from King Henry III, 49 ST. LOUIS U. L.J. 393 (2005). Most states have abrogated sovereign immunity to some extent in the last 75 to 100 years. See Gyula Eörsi, Private and Governmental Liability for the Torts of Employees and Organs, in 11 INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW 173–273 (André Tunc ed., 1975). Whether a failure to abrogate sovereign immunity comports with international law has already been the subject of one NAFTA claim. See infra Section III.B.2.a for a discussion of Mondev Corp. v. United States of America. 24. The Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C. §§ 1330, 1602–1611 (2000), lifted foreign sovereign immunity in certain cases, such as when a foreign sovereign has waived immunity or has engaged in commercial activities. The FSIA also lifted immunity for certain gross abuses of human rights. See, e.g., Liu v. Republic of China, 892 F.2d 1419, 1425 (9th Cir. 1989); Letelier v. Republic of Chile, 488 F. Supp. 665, 671–74 (D.D.C. 1980). 25. EDWIN M. BORCHARD, THE DIPLOMATIC PROTECTION OF CITIZENS ABROAD 16–18 (1915) (describing the status of an individual in international law); id. at 29–30 (describing the exercise of diplomatic protection).

2005]

DENIAL OF JUSTICE

821

framework for the development of the law of state responsibility for injuries to aliens. Many of the principles of interest today, including denial of justice, developed in those tribunals.

1.

“Pure” Diplomatic Protection

Individuals had no personality in traditional public international law theory and practice; that is, they are not recognized as subjective agents who might be heeded at international law.26 International law applied only to relationships between states, whose sovereign equality was considered absolute, regardless of differences in size or power.27 26. See IAN BROWNLIE, PRINCIPLES OF PUBLIC INTERNATIONAL LAW 57–58 (5th ed. 1998) (noting complexities relating to status of international organizations, but stating “it is as well to remember the primacy of states as subjects of the law”); Philip C. Jessup, A Modern Law of Nations (1948) (“International law is generally defined or described as law applicable to relationship between states.”). The traditional law of nations did not draw a bright line between public and private international law. MARK W. JANIS, AN INTRODUCTION TO INTERNATIONAL LAW 240 (4th ed. 2003). It included issues such as mercantile questions, disputes relating to prizes and shipwrecks, and those involving passports and piracy. Id. (citing 4 W. BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND 67–73 (1st ed. 1765-1769)). Indeed, the rules of the traditional law of nations applied in the municipal courts of England. See FRIEDRICH K. JUENGER, CHOICE OF LAW AND MULTISTATE JUSTICE 23–24 (1993) (explaining that English judges applied the special body of law known variously as the lex mercatoria or the “law of nations” until the turn of the eighteenth century, when it became part of the common law). Professor Janis attributes the division largely to Jeremy Bentham’s influential work. Mark W. Janis, Jeremy Bentham and the Fashioning of International Law, 78 AM. J. INT’L L. 405, 409–10 (1984) (describing Bentham’s separation of the law of persons and the law of nations). In the United States the separation happened somewhat later. Joseph Story is credited with coining the phrase “private international law,” JUENGER, supra, at 30, yet it took some time before the split between public and private international law developed further. See Harold H. Koh, Transnational Public Law Litigation, 100 YALE L.J. 2347, 2352–56 (1991) (describing gradual march towards the public/private law distinction); Joel R. Paul, The Isolation of Private International Law, 7 WISC. INT’L L.J. 149, 155–64 (1988). In recent years, individuals have been able to invoke certain rights derived from international law, usually in the human rights context. See Laurence Helfer & Anne Marie Slaughter, Toward a Theory of Transnational Adjudication, 107 YALE L.J. 273, 293–94 (1997) (describing the effectiveness of the European Court of Human Rights, in which nationals of member states may claim violations of the European Convention). The Alien Tort Statute offers very limited rights to aliens in U.S. courts who assert a violation of the law of nations. Sosa v. Alvarez-Machain, 542 U.S. 692, 752 (2004). 27. See Edith Brown Weiss, Invoking State Responsibility in the Twenty-First Century, 96 AM. J. INT’L L. 798, 798 (2002) (discussing the development of the Westphalian conception of international law based on theoretically equal nation-states). In practice, of course, some sovereigns were (and are) more equal than others. W. Michael Reisman, The Constitutional Crisis in the United Nations, 87 AM. J. INT’L L. 83, 83 (1993) (“Its rhetoric of state equality notwithstanding, the United Nations Charter confirms and endorses a highly differentiated international society.”); cf. RICHARD FALK, LAW IN AN EMERGING GLOBAL VILLAGE: A POSTWESTPHALIAN PERSPECTIVE 60 (1998) (noting that even the “strongest and richest” states have

822


[Vol. 45:4

Because injuries to individuals played no role under international law, the fiction arose that an injury to an alien was also an injury to the alien’s country of origin.28 This fiction facilitated the elevation of a dispute to the state-to-state level recognized under international law, but only when a state decided to espouse its national’s claim. Solving disputes through diplomatic protection was an advance over so-called gunboat diplomacy, but it could be unsatisfactory for many reasons. First, espousal was optional at the discretion of the protecting state. Thus, in the event of an alleged international wrong, such as an expropriation of property, or a failure to obtain redress for an injury through the courts—a denial of justice—an alien suffering injury still had to prevail upon his government to espouse a claim against the other state in an attempt at diplomatic settlement.29 For any number of reasons, including the possibility of jeopardizing negotiations with another state over some long-sought concession, a protecting state might not want to espouse a claim against that state for the alleged injury.30 “[T]he Department [of state]’s decision with respect to espousal is likely to be influenced, not only by the merits of the case, but by the

failed to regulate global economic activity). The normative conception of equality between sovereigns still plays an important role in the international legal system. Benedict Kingsbury, Sovereignty and Inequality, 9 EUROPEAN J. INT’L L. 599, 600, 616–18 (1998). 28. Berman, supra note 20; see also Mavrommattis Palestine Concessions (Greece v. U.K.), 1924 P.C.I.J. (ser A) No. 2, at 63 (Aug. 30) (“[W]hen a government officially intervenes on behalf of its citizen, it makes his or her claim its own”); Panevezys-Saldutiskis Railway (Est. v. Lith.), 1939 P.C.I.J. (ser. A/B) No. 76, at 16 (Feb. 28). 29. See, e.g., Matthew S. Duchesne, The Continuous-Nationality-of-Claims Principle: Its Historical Development and Current Relevance to Investor-State Investment Disputes, 36 GEO. WASH. INT’L L. REV. 783 (2004). The presumption is against espousal. See, e.g., U.S. Dep’t of State, Bilateral Investment and Other Bilateral Claims, at http://www.state.gov/s/l/c7344.htm (last visited Nov. 3, 2005) (“Under international law and practice the United States does not formally espouse claims on behalf of U.S. nationals unless the claimant can provide persuasive evidence demonstrating that certain prerequisites have been met.”). Edwin Borchard argued that pecuniary claims should be divorced from political considerations, as they create “a union which now not only results in inexact justice but often gross injustice.” Edwin M. Borchard, The Adjustment of International Pecuniary Claims: Their Removal from Political to Legal Channels, in REPORT OF THE TWENTY-SECOND ANNUAL LAKE MOHONK CONFERENCE ON INTERNATIONAL ARBITRATION 37, 44 (1916). 30. See, e.g., KENNETH J. VANDEVELDE, UNITED STATES INVESTMENT TREATIES: POLICY AND PRACTICE 160–62 (1992) (“[T]he government may be reluctant to espouse because of a fear that the investment dispute could damages [sic] its relations with the expropriating country and interfere with other foreign policy objectives.”); David. J. Bederman, International Law Advocacy and its Discontents, 2 CHI. J. INT’L L. 475, 483–84 (2001) (“Individual grievances have tended to be subordinated to the greater good of the state in its pursuit of common foreign policy objectives.”).

2005]

DENIAL OF JUSTICE

823

Department’s concern for offending a foreign state and creating a potential irritant in its dealings with that state.”31 Thus, even if a claimant met all other criteria, a state might still decide not to espouse the claim. Second, a claimant would have to convince his government that the offending government had actually violated international law—that he could make a good case. Given the difficulty of establishing a breach of international law, see infra Section II.B, this hurdle should not be underestimated. Third, only the government of the state of which the injured party is a citizen could advocate a claim on the party’s behalf. While this seems straightforward, injured parties may be corporations, and the question of corporate nationality under international law remains unsettled.32 Moreover, nationality can change during the course of a claim, or a controlling or minority shareholder may be a citizen of a jurisdiction different from that attributable to the corporation.33 31. The Foreign Sovereign Immunities Act: Hearing Before the Subcomm. on Cts. and Admin. Prac., S. Comm. on the Judiciary, 103d Cong. 83–84 (1994) (testimony of Abraham D. Sofaer, former Legal Advisor to U.S. Dep’t of State). Sofaer also referred to the case of Scott Nelson, who at that time had waited over nine years for a decision regarding whether the United States would espouse his torture claim against Saudi Arabia. Id. Indeed, one reason the FSIA, 28 U.S.C. § 1602(a)(2) (2000), was passed in 1976 was to lift sovereign immunity for claims arising from a foreign state’s commercial activities because of the difficulty of obtaining diplomatic protection. See Michael G. Ziman, Comment, Holding Foreign Governments Accountable for their Human Rights Abuses: A Proposed Amendment to the Foreign Sovereign Immunities Act of 1976, 21 LOY. L.A. INT’L & COMP. L. REV. 185, 188–89 (1999); see also Michael D. Murray, Jurisdiction Under the Foreign Sovereign Immunities Act for Nazi War Crimes of Plunder and Expropriation, 7 N.Y.U. J. LEGIS. & PUB. POL’Y 223, 260 (2003-04) ([T]he FSIA addressed the uncertainties of the Department of State’s policies with regard to providing suggestions regarding a foreign nation’s sovereign immunity that seemed to fly in the face of the restrictive theory of immunity, or by providing the cryptic statements of “no comment.”). 32. See, e.g., Lan Cao, Corporate and Product Identity in the Postnational Economy: Rethinking U.S. Trade Laws, 90 CAL. L. REV. 401, 445–46 nn.183–87 (2002) (describing various tests for corporate nationality); cf. Peter B. Oh, A Jurisdictional Approach to Collapsing Corporate Distinctions, 55 RUTGERS L. REV. 389, 427 n.165 (2003) (discussing establishment of corporate situs for purposes of diversity jurisdiction and standing in U.S. federal courts). Of course, individuals may have dual nationality also. 33. See, e.g., Barcelona Traction, Light & Power Co. Ltd. (Belg. v. Spain), 1970 I.C.J. 3 (Feb. 5). In Barcelona Traction, the International Court of Justice (ICJ) refused to honor Belgium’s claims on behalf of Belgian shareholders in a Canadian company, incorporated under Canadian law and headquartered in Canada, but which was operating in Spain and had been effectively expropriated by the Spanish government. Reasoning that municipal law placed great weight on the distinction between the shareholders of a company and the company itself, the ICJ determined that only Canada could espouse a claim on behalf of the Canadian company. Id. ¶¶ 41–101, at 34.

824


[Vol. 45:4

Fourth, the principle of exhaustion of local remedies served to limit the claims a state would be asked to espouse.34 A state could not intervene diplomatically until its injured citizen had attempted to gain redress locally.35 This principle respected the sovereign right of a host state to control matters within its borders by allowing it the opportunity to grant redress for wrongs committed within its territory. While an alien did not have to exhaust local remedies if they proved to be futile,36 waiting to reach the point of futility could be very frustrating, and proving futility is not necessarily straightforward.37 Finally, if the government did espouse the claim, the individual claimant lost all control over it. Thus, the government might waive or settle the claim without the agreement of the individual.38 The settlement, if any, would usually be paid to the government rather than to the injured individual because of the fiction that the wrong was actually perpetrated against the protecting government.39 While this formal requirement could be waived at the discretion of the espousing state, which could pass any recovery on to the aggrieved citizen, the citizen seeking espousal was dependent on the government’s goodwill.40 34. One school of thought considered the local remedies rule to be “substantive” in that no international responsibility could exist until local remedies had been exhausted. See CHITTHARANJAN F. AMERASINGHE, LOCAL REMEDIES IN INTERNATIONAL LAW 84–106 (2d ed. 2004). The second school of thought argued that the local remedies rule was merely a procedural barrier—a gate-keeping mechanism designed to respect sovereignty while limiting the number of cases that a government would be asked to espouse. In other words, the initial wrong alleged against a municipal government could, in itself, give rise to state responsibility, even though a claimant’s state would not intervene diplomatically until the claimant had tried, but failed, to gain relief through local means. Id. at 56–59. The current consensus is that exhaustion of local remedies is a procedural issue linked to espousal, which can be waived at the election of the claimant’s government. Andrea K. Bjorklund, Waiver and the Exhaustion of Local Remedies Rule in NAFTA Jurisprudence, in NAFTA INVESTMENT LAW AND ARBITRATION: PAST ISSUES, CURRENT PRACTICE, FUTURE PROSPECTS, 253, 259 (Todd Weiler ed., 2004). 35. See id. at 102–04. 36. See, e.g., Finnish Ships Arbitration (Fin. v. G.B.), 3 R.I.A.A. 1479, 1503–04 (1934) (stating that exhaustion is not necessary when obviously futile or manifestly ineffective); Certain Norwegian Loans (Fr. v. Nor.), 1957 I.C.J. 9 (July 6). See generally AMERASINGHE, supra note 34, at 200–215. 37. See Interhandel (Switz. v. U.S.), 1959 I.C.J. 6, 26–27 (Mar. 21) (notwithstanding twelve years of delay, the ICJ held that the possibility of remedy still existed in United States courts). 38. RICHARD B. LILLICH & GORDON A. CHRISTENSON, INTERNATIONAL CLAIMS: THEIR PREPARATION AND PRESENTATION 94–95 (1962); VANDEVELDE, supra note 30, at 161 (noting the possibility that the government may accept a small amount in settlement, thereby extinguishing all claims, in order to further foreign policy goals). 39. LILLICH & CHRISTENSON, supra note 38, at 103. 40. In the United States, “as a matter of practice claimants generally receive their proportionate share of any settlement fund.” Id. at 95. Such a decision is within the discretion of

2005]

DENIAL OF JUSTICE

825

Diplomatic protection is not merely a relic; parties still seek the protection of their governments.41 Yet in many cases they no longer need to find their way through the maze of espousal because BITs and certain free trade agreements, including NAFTA, have granted individual rights to alien investors from countries covered by the relevant agreement.

2.

Mixed Claims Commissions

Diplomatic protection was most effective when imposed on a grand scale. In certain cases, revolutions or other unsettled conditions could lead to large numbers of claims arising from the same set of circumstances, such as the nationalization of property on a countrywide or sectorwide basis, or the unavailability of national remedies for injurious conduct due to domestic unrest. In those cases, the protecting government could negotiate the settlement of a large number of cases at once, often through the establishment of a mixed claims commission, usually by means of a treaty.42 The commission was “mixed” because it contained arbitrators from each country, who would hear the claims submitted to it and assess damages when the claims were valid. Some commissions were established to hear claims submitted against only one country, while others heard claim submitted by citizens of both countries. Some commissions were established by lump-sum agreements and had a fixed amount of money to distribute; others were not so limited.43 Participating governments found establishing these commissions an attractive option for a number of reasons. First, the governments did not have to make the complex political calculations that would accompany the Secretary of State. Id. at 103. 41. Scott Nelson sought diplomatic protection in 1985. See The Foreign Sovereign Immunities Act: Hearing Before the Subcomm. on Cts. and Admin. Prac., supra note 31, at 83– 84. See also the requirements for seeking espousal detailed on the State Department website, http://www.state.gov/s/l/c7344.htm (last visited Nov. 3, 2005), and Norbert Horn, Arbitration and the Protection of Foreign Investment: Concepts and Means, in ARBITRATING FOREIGN INVESTMENT DISPUTES 22–23 (Norbert Horn & Stefan Kröll eds., 2004) (noting the continuing role of diplomatic protection in settling investment disputes, especially in situations where treaties outline substantive State Party obligations but do not provide standing to individual investors). Governments often provide assistance in resolving disputes that falls short of full-blown espousal. 42. See generally 1 LILLICH & WESTON, supra note 15; BURNS H. WESTON ET AL., INTERNATIONAL CLAIMS: THEIR SETTLEMENT BY LUMP SUM AGREEMENTS, 1975–1995 (1999). 43. See 1 LILLICH & WESTON, supra note 15, at 26–27 & 27 n.36 (listing twenty-six instances in which lump-sum agreements were used to settled claims prior to the Second World War).

826


[Vol. 45:4

decisions about extending diplomatic protection in an individual case.44 Second, the question of state liability in the larger sense was already conceded: the only outstanding question was whether an individual claimant (usually represented by his government) could establish a right to compensation.45 Third, when a lump-sum settlement commission was established, the responsible government could contribute the agreedupon amount and know its liability would be limited to that amount.46 Finally, the establishment of such a commission would put an end to the diplomatic wrangling over the incident in question and the states involved could turn their attention to other matters.47 The modern era of mixed claims commissions is usually traced to the Jay Treaty of 1794, which established panels to resolve disputes between the United States and Great Britain.48 By that treaty, the two countries agreed to settle claims stemming from the Revolutionary War.49 From 1794 until the onset of the Second World War, adjudicatory settlement, usually by means of mixed claims commission arbitration, was used in at least 249 cases.50 Most of the claims settled were personal injury and property claims arising from “civil rebellion, international conflict, and miscellaneous maritime seizures.”51 By the post-War era, nations were much more likely to have recourse to lumpsum dispute settlement than to adjudication without a negotiated cap on

44. See generally RICHARD B. LILLICH, INTERNATIONAL CLAIMS: THEIR ADJUDICATION BY NATIONAL COMMISSIONS 5–6 (1962) (noting the impediments to diplomatic protection presented by the continuous nationality rule, a state’s views of espousal’s effect on national policy, and the rule of exhaustion of local remedies). 45. Often claims settlements were made ex gratia; that is, without countries admitting any specific liability. Id. at 13 & n.51. 46. Id. at 13. A state’s decision to settle outstanding claims against it would establish conditions favorable to increased foreign trade and investment. Id. 47. 1 LILLICH & WESTON, supra note 15, at 7 & n.44 (noting that this benefit is especially strong in the context of lump-sum settlement agreements). 48. A. M. STUYT, SURVEY OF INTERNATIONAL ARBITRATIONS 1794-1970, at ix (1972). Previous commissions had settled government-to-government claims even in ancient Greece and Rome. See 1 LILLICH & WESTON, supra note 15, at 4 & nn.24–26; JACKSON H. RALSTON, INTERNATIONAL ARBITRATION FROM ATHENS TO LOCARNO 153–73 (1929). 49. Treaty of Amity, Commerce, and Navigation, U.S.-Gr. Brit., Nov. 19, 1794, 8 Stat. 116 (entered into force Feb. 29, 1796) [hereinafter Jay Treaty]. 50. 1 LILLICH & WESTON, supra note 15, at 26. Of those 249 instances, Professors Lillich and Weston identified twenty-six instances in which lump-sum settlements were used to settle disputes. Id. at 26–27 & n.36. For a short summary of many of these arbitrations, see RALSTON, supra note 48, at 194–239. 51. 1 LILLICH & WESTON, supra note 15, at 27.

2005]

DENIAL OF JUSTICE

827

damages, and such commissions were likely to be run by national, rather than mixed, commissions.52 The United Nations Compensation Commission (UNCC), set up in the aftermath of the First Gulf War, was established to hear millions of claims of individuals and states arising from Iraq’s invasion of and subsequent withdrawal from Kuwait.53 The UNCC was set up under the aegis of the United Nations Security Council, and is truly an international claims commission that is adjudicating claims filed by nearly 100 states.54 The Iran-U.S. Claims Tribunal, established in The Hague by the Algiers Accords in 1979 following the Iranian Revolution, has been perhaps the most influential mixed claims commission, and is still extant today.55 The high quality of some of the judges on the Tribunal, the volume of cases, the fact that all of their decisions to date have been published, and the Tribunal’s longevity have all contributed to the important place the Tribunal holds in developing the law of state responsibility.56 National claims commissions are a close cousin of mixed commissions. The main difference between the two is in the composition of the panel, which comprises nationals of a state who happen to be charged with the hearing and settlement of claims that arose internationally.57 52. Id. at 30–31. Professors Lillich and Weston attributed the popularity of lump-sum dispute settlement under the aegis of national commissions to the number of claims engendered by World War II, the emergence of a stronger Third World, postwar revolutionary ideology, and force of habit, given that lump-sum settlement agreements had become much more popular from 1871 to 1939 than they had been in the 1794–1871 period, the first era of arbitral dispute settlement. Id. 53. See generally MARCO FRIGESSI DI RATTALMA & TULLIO TREVES, THE UNITED NATIONS COMPENSATION COMMISSION: A HANDBOOK (1999). 54. Id. at 35; see also S.C. Res. 687, U.N. SCOR, 46th Sess., 2981st mtg., U.N. Doc. S/RES/687 (1991); S.C. Res. 692, U.N. SCOR, 46th Sess., 2987th mtg., U.N. Doc. S/RES/692 (1991). 55. For information about the tribunal, see generally CHARLES N. BROWER & JASON D. BRUESCHKE, THE IRAN-UNITED STATES CLAIMS TRIBUNAL (1998). 56. See generally id.; THE IRAN-UNITED STATES CLAIMS TRIBUNAL: ITS CONTRIBUTION TO THE LAW OF STATE RESPONSIBILITY (Richard B. Lillich & Daniel Barstow Magraw eds., 1998). 57. In the United States, the Foreign Claims Settlement Commission is a semipermanent body whose predecessor was the International Claims Commission, a body established to hear claims against Eastern European governments, which had nationalized property, including that of foreigners, in the aftermath of the Second World War. See Milo G. Coerper, The Foreign Claims Settlement Commission and Judicial Review, 50 AM. J. INT’L L. 868, 868–69 (1956). The jurisprudence of national claims commissions is often overlooked as a source of international law, yet the bases for the decisions are violations of international law. See generally LILLICH, supra

828

3.


[Vol. 45:4

Permanent Court of Arbitration and International Court of Justice

The International Court of Justice (ICJ) and the Permanent Court of Arbitration (PCA) are permanent tribunals that can theoretically provide redress for violations of state responsibility law. Though a few diplomatic protection claims have been adjudicated by the ICJ—notable are the Barcelona Traction and Elettronica Sicula (ELSI) cases58—the Court has not frequently decided such disputes. Several factors likely explain this relative paucity of investor-state cases. First, all claims submitted to the ICJ are state-to-state.59 Thus, an investor must convince a state to espouse her claim, a cumbersome process for the reasons outlined in Section II.A.1. Second, many states have not accepted the compulsory jurisdiction of the ICJ in all cases. Rather, they must agree to submit to the Court’s jurisdiction in each case as it arises.60 Sometimes states do this via a treaty, in which they agree that any dispute arising under the treaty will be referred to the Court.61 Absent such a treaty or adhesion to the optional clause of the ICJ Statute, by which states accept ICJ jurisdiction in all cases, a state will have to agree to the Court’s jurisdiction with respect to a particular case before

note 44, at 71–75; Robert R. Wilson, Some Aspects of the Jurisprudence of National Claims Commissions, 36 AM. J. INT’L L. 56, 65–76 (1942). 58. Barcelona Traction, Light and Power Co., Ltd. (Belg. v. Spain), 1970 I.C.J. 3, 114–66 (Feb. 5); Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1989 I.C.J. 15 (July 20). For an explanation of the issue in Barcelona Traction, see infra notes 145–47 and accompanying text; for a more thorough discussion of ELSI, see infra notes 137–44 and accompanying text. 59. The Statute of the International Court of Justice has no provision for private party participation before the Court, even in a role similar to that of an amicus curiae. See Statute of the International Court of Justice, June 26, 1945, 59 Stat. 1055. In the 1990s the Court appeared to indicate some flexibility on the topic by accepting an “informal” submission in a case involving a dispute over damming the Danube. See, e.g., Gabcikovo-Nagymaros Project (Hung. v. Slovk.), 1997 I.C.J. 7 (Sept. 25); Carl Bruch, Charting New Waters: Public Involvement in the Management of International Watercourses, 31 ENVTL. L. REP. 11389, 11409 (2001) (stating that for the first time, the ICJ accepted a position paper from a coalition of nongovernmental organizations, which included Greenpeace, the International Rivers Network, the Natural Heritage Institute, the Sierra Club, and the World Wildlife Fund). 60. As of July 31, 2004, sixty-five of the 191 states party to the Statute had accepted the Court’s compulsory jurisdiction under the optional clause. Report of the International Court of Justice, 1 Aug. 2003-31 July 2004, available at http://www.icj-cij.org/icjwww/ igeneralinformation/igeninf_Annual_Reports/iicj_annual_report_2003-2004.pdf (last visited Nov. 3, 2005). 61. See, e.g., Single Convention on Narcotic Drugs, Mar. 30, 1961, art. 48, 18 U.S.T. 1407. For a complete list of treaties with such compromissory clauses, see 2001-2002 I.C.J. Y.B. 56 at 161–81, U.N. Sales No. 869.

2005]

DENIAL OF JUSTICE

829

the Court can hear the case. Third, litigating before the ICJ is a timeconsuming process. The procedures of the court are very formal and have been described as “ponderous,”62 with all oral pleadings read from written documents that are then submitted for detailed consideration by the Court. The procedures give each of the fifteen judges ample time to consider their decisions and also accord great deference to the sovereign litigants, but they are not expeditious.63 The PCA is also located in the Peace Palace in The Hague. It grew out of the Hague Peace Conferences of 1899 and 1907, and its establishment was intended to deflect armed conflict by settling disputes through pacific means.64 The name was something of a misnomer; at its inception the PCA was neither permanent nor a court, but rather a panel of possible arbitrators who might be convened to hear a case should disputing governments choose to submit a claim to them.65 The PCA heard several cases, perhaps the most notable of which is the 1902 judgment Pious Fund of the Californias,66 but its status was eclipsed by the Permanent Court of International Justice in the aftermath of World War I. After a period of dormancy—no cases were initiated between 1931 and 196667—it is now a permanent institution with a secretariat that can facilitate arbitrations. It is developing some expertise in processing mass claims and environmental disputes.68 62. Stephen M. Schwebel, Fifty Years of the World Court: A Critical Appraisal, 90 AM. SOC’Y INT’L L. PROC. 339, 344 (1996). 63. A study group established by the British Institute for International and Comparative Law published a report on the efficiency of the procedures and working methods of the Court, which detailed many factors contributing to the delays, both real and perceived, in the Court’s adjudication of controversies. BOWETT ET AL., THE INTERNATIONAL COURT OF JUSTICE: PROCESS, PRACTICE, AND PROCEDURE 34–64 (1997). Those included: the need for high-quality judgments; the length and volume of written pleadings, as well as the timetable for their submission and states’ requests for extensions; the timing and length of oral arguments; and the procedures the Court follows in reaching its decisions. 64. See ALAN REDFERN ET AL., LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 59 (4th ed. 2004). 65. See RALSTON, supra note 48, at 260. 66. Pious Fund of the Californias (U.S. v. Mex.), Hague Ct. Rep. (Scott) 1–6 (Perm. Ct. Arb. 1902). 67. For the list of all PCA cases, see PERMANENT COURT OF ARBITRATION, 1998 ANNUAL REPORT 29-35 (1999), available at http://www.pca-cpa.org/ENGLISH/AR/Report%202003/ Annex%202.pdf (last visited Nov. 3, 2005). Only three cases were filed between 1966 and 1996. Id. 68. See ALAN REDFERN ET AL., LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 59–60 (4th ed. 2004) (asserting that excellent facilities and recent growth in membership bode well for future of the institution); Susan Franck, The Legitimacy Crisis in Investment Arbitration: Privatizing Public International Law Through Inconsistent Decisions, 73

830

4.


[Vol. 45:4

Ad Hoc Investment Treaty Arbitration under Bilateral or Multilateral Treaties

Most of the foregoing dispute settlement processes share one characteristic: they are retrospective. Mixed claims commissions, national claims commissions, and pure diplomatic protection all become relevant only after the conduct alleged to have affected the rights of aliens has already occurred. Ad hoc investment arbitration is prospective; it establishes mechanisms to settle disputes that can be invoked once the breach occurs. In effect, a state that agrees to investorstate dispute settlement in a BIT, or other similar instrument, has made an offer, which an investor can accept according to the provisions of the treaty, to arbitrate an enumerated set of disputes should circumstances arise that make dispute settlement necessary.69 A tribunal is actually constituted on an ad hoc basis only after a dispute has arisen. In the 1960s, the world community, under the auspices of the World Bank, laid the groundwork for this prospective process. To encourage foreign direct investment in developing countries, the World Bank established the International Centre for Settlement of Investment Disputes (ICSID).70 ICSID provides for impartial arbitration of disputes arising from contracts between states and investors.71 The availability of impartial, binding dispute settlement reassured investors who were skittish about the potential for expropriations and the breaching of contractual commitments by sovereigns omnipotent in their own countries who often enjoyed immunity from court proceedings.72 ICSID rules often are invoked when countries have undertaken a contractual obligation to submit any disputes arising under the contract to

FORDHAM L. REV. 1521 (2005) (noting potential for the PCA to act as an appellate body for investor-state dispute settlement). 69. See Andrea K. Bjorklund, Contract without Privity: Sovereign Offer and Investor Acceptance, 1 CHI. J. INT’L L. 183, 183 (2001) (describing ad hoc investment arbitration in general). 70. LUCY REED ET AL., GUIDE TO ICSID ARBITRATION 1–2 (2004). The ICSID Convention entered into force in October 1966. ICSID Convention, supra note 11. For a description of the events leading to the negotiation of the convention, see Elihu Lauterpacht, Foreword to THE ICSID CONVENTION: A COMMENTARY, supra note 11, at xi. 71. REED ET AL., supra note 70, at 7. The investor’s state of origin and the contracting state both must be parties to the ICSID Convention for ICSID to have jurisdiction over the dispute. Id.; ICSID Convention, supra note 11, art. 25. 72. See Andrew T. Guzman, Why LDCs Sign Treaties that Hurt Them: Explaining the Popularity of Bilateral Investment Treaties, 38 VA. J. INT’L L. 639, 644 (1998) (noting that BITs allow potential investors to negotiate for whatever protections are needed).

2005]

DENIAL OF JUSTICE

831

arbitration under the auspices of ICSID. ICSID arbitration may also be invoked under provisions of bilateral and multilateral investment treaties.73 Indeed, dispute settlement by ad hoc tribunals convened under the dispute resolution mechanism of BITs is a fertile source of ICSID cases, both under the ICSID Convention and under the ICSID Additional Facility Rules. Ad hoc investment arbitration offers manifold advantages to investors. Earlier claims commissions were technically government-togovernment dispute settlement. An aggrieved alien was represented by his country of origin, rather than representing himself. In contrast, in entering investment treaties, the United States and other countries have permitted foreign investors to bring claims directly against the government in whose territory they are investing.74 This change accords with the purpose of the treaties: to increase the certainty and predictability of dispute resolution should there be a problem with the investment that is the fault of the government and a violation of international law. It means, however, that an important filtering mechanism is no longer in place: aliens do not need to convince their own countries to espouse their claims but may themselves commence arbitration.75 Moreover, any recovery goes directly to the individual. In the case of the national or mixed claims commissions, any lump sum settlement paid to the United States, for example, is subject to its control; the

73. Although eclipsed by these private rights of action, espousal, the traditional method by which a state brings a claim on behalf of its nationals, is still a viable legal doctrine and could result in action against the United States, as was the case in recent controversies involving alleged U.S. derelictions of duty under the Vienna Convention on Consular Relations. See Avena and Other Mexican Nationals (Mex. v. U.S.), 2004 I.C.J. 1 (Mar. 31); LaGrand (F.R.G. v. U.S.), 2001 I.C.J. 466 (June 27); Vienna Convention on Consular Relations (Para. v. U.S.), 1998 I.C.J. 248 (Apr. 9). 74. The predecessors to the United States’ BITs were the treaties of Friendship, Commerce, and Navigation (FCN). These treaties were the cornerstone of U.S. trade policy negotiation before the Second World War. While one can trace many of the substantive BIT provisions to FCN treaties, the FCN treaties lacked one important protection—they did not provide for investor-state dispute settlement. For a description of the FCN treaty program, both before and after the War, see VANDEVELDE, supra note 30, at 14–22. 75. NAFTA does have an exception with respect to disputes challenging taxation measures as expropriations: an investor must give the appropriate officials—in the case the of United States, the Assistant Secretary of the Treasury (Tax Policy)—the opportunity to prevent the case from going forward before she can file a claim on that basis. NAFTA, supra note 1, art. 2103(6).

832


[Vol. 45:4

individual claims have no equitable interest in the monies held by the United States.76 Finally, as capital flows increase in amount and vary in direction, former capital exporting countries are starting to be defendants in these cases. Earlier mechanisms for dispute settlement dealt mainly with disputes between colonial powers (e.g., France and Great Britain) and newly independent nations that were often former colonies (e.g., Venezuela, Panama, Mexico, and the United States).77 Although these claims occasionally went in both directions, most were made against the less powerful country.78 For the most part that holds true for BITs as well; most BITs are between developed and developing countries. While the treaty obligations are again reciprocal, developed-country investors seeking recompense from developing countries bring most claims of treaty violations. That dynamic is changing; an Argentinean company recently brought and won a claim against Spain, and the United States and Canada both find themselves defendants in disputes brought by foreign investors under NAFTA.79 The Energy Charter 76. Williams v. Heard, 140 U.S. 529 (1891) (holding that the federal government had a moral, but not legal, obligation to distribute to individual claimants funds obtained in the settlement of the “Alabama claims” dispute with Great Britain). Such a conclusion flows from the principle that only a government has standing to assert a claim against a foreign government, and that claims made by the government belong to it, rather than to the injured parties themselves. LILLICH, supra note 44, at 27–30. 77. See generally EDWIN M. BORCHARD, THE DIPLOMATIC PROTECTION OF CITIZENS ABROAD (1916); MOORE, supra note 15. The United States and Britain established several commissions to settle disputes in the aftermath of the Revolution and the War of 1812. Jay Treaty, supra note 49; Treaty of Ghent, Dec. 24, 1814, T.S. 109. Other disputes involved: territorial questions left unresolved by the treaty of peace of 1783, A.M. STUYT, SURVEY OF INTERNATIONAL ARBITRATIONS (1794-1989) at 13 (3d ed. 1990); clarifying the terms of the Treaty of Ghent, id. at 26, 29, 49; indemnification due U.S. subjects, id. at 27; territorial claims in the Oregon and Washington territories, id. at 75; and claims arising from U.S. acts against British subjects and property during the U.S. civil war, id. at 95. See also THE CASE OF THE UNITED STATES TO BE LAID BEFORE THE TRIBUNAL OF ARBITRATION (1872) (describing the “Alabama” claims in which the United States alleged that Great Britain had violated the laws of neutrality by permitting the construction and fitting out of the Confederate warships Alabama and Florida); FRED K. NIELSEN, AMERICAN AND BRITISH CLAIMS ARBITRATION (1926) (reporting cases arising from a commission formed to settle varied disputes, including those arising from disputed property rights, shipping controversies, and military and naval operations during the “Philippine War”). 78. The defendant states are developing countries in fifty-three of the sixty-one investmenttreaty arbitrations in which an award or other information about the case is publicly available. See http://ita.law.uvic.ca/alphabetical_list_respondant.htm for a current list of cases (last visited Nov. 3, 2005). 79. Maffezini (Arg.) v. Kingdom of Spain, ICSID Case No. ARB/97/7, (Nov. 13, 2000) (Award), in 16 FOREIGN INV. L.J. 248, 268–70 (Spring 2001) available at

2005]

DENIAL OF JUSTICE

833

Treaty, signed by forty-nine states and the European Community,80 has dispute settlement provisions similar to those in most BITs.81

B.

Establishing Liability

Finding a forum in which to press one’s claim is one matter; winning it is another. Establishing that an injury violates an obligation explicitly set forth in a treaty may be relatively straightforward. Some of the treaty protections are not explicit but instead incorporate customary international law obligations; establishing that an injury violates customary international law may be much more difficult. The most widely accepted sources of international law are those set forth in Article 38 of the statute of the ICJ: “(i) international conventions; (ii) international custom, as evidence of a general practice accepted as law; (iii) general principles of law recognized by civilized nations; and as a subsidiary means of determining the law, and (iv) judicial decisions and the teachings of the most highly qualified publicists of the various nations.”82 No treaty has yet established the general content of the law of state responsibility for injuries to aliens; although BITs are specific with respect to certain obligations, such as expropriation, other obligations incorporate principles of customary international law.83 Numerous codification attempts addressed state responsibility, commencing in the League of Nations in the 1920s and continuing through the 1960s. In the 1920s, the League of Nations started an ambitious, worldwide effort to codify international law which culminated in the 1930 Hague Conference for the Codification of International Law.84 The delegates to http://www.worldbank.org/icsid/cases/awards.htm (last visited Nov. 3, 2005). See http://www.naftalaw.org for a list of pending cases. 80. Energy Charter Treaty, Dec. 17, 1994, 34 I.L.M. 360. 81. Five cases have been decided under the Energy Charter Treaty. See Emmanual Gaillard, Menatep’s Counsel—The Energy Charter Will Protect Group Menatep, INTERFAX, (Feb. 15, 2005) at http://www.interfax.ru/e/B/exclusive/29.html?id_issue=10749912 (last visited Nov. 3, 2005). 82. Statute of the International Court of Justice, supra note 59, art. 38. 83. See, e.g., NAFTA, supra note 1, art. 1110 (defining expropriation). Other treaty obligations, such as NAFTA Article 1105, refer to the standards set by customary international law. 84. See, e.g., Green H. Hackworth, Responsibility of States for Damages Caused in Their Territory to the Person or Property of Foreigners, 24 AM. J. INT’L L. 500, 500 (1930). Since the middle of the nineteenth century certain states had attempted to codify parts of international law, id. at 500, and publicists had suggested potential benefits from such a codification. See, e.g., PASQUAL FIORE, INTERNATIONAL LAW CODIFIED AND ITS LEGAL SANCTION (Edwin M.

834


[Vol. 45:4

the conference considered three subjects: Nationality, Territorial Waters, and the Responsibility of States for Damage Caused in Their Territory to the Person or Property of Foreigners.85 The delegates to the 1930 conference were not able to agree on fundamental issues, and the effort subsided until after World War II. The main stumbling block with respect to state responsibility was “the refusal of [newly independent countries] to accept the…minimum standards of treatment insisted upon by the capital-exporting states.”86 The iterations of the International Law Commission’s (ILC) Draft Articles on State Responsibility as drafted in the 1960s are descendants of that League of Nations conference.87 However, despite the efforts of gifted rapporteurs like Roberto Ago, the ILC failed to give final approval to those articles.88 Now, in a rather different form that focuses on primary obligations like the duty to intervene in time of war, State Responsibility Articles prepared under the auspices of Professor James Crawford of Cambridge University were finally approved by the ILC in 2001.89 They have been referred to the General Assembly for approval.90 The fact that the international community attempted to codify the law of state responsibility suggests some agreement on the existence of such law; nevertheless, there was considerable debate over its content.91 Customary international law can be a slippery concept. It is usually described as a combination of state practice and legal principles that

Borchard trans., 1918). 85. Hackworth, supra note 84, at 500. 86. MIRIAN KENE OMALU, NAFTA AND THE ENERGY CHARTER TREATY 41 (1999). 87. The United Nations established the International Law Commission (ILC) in 1947 to “promot[e] the progressive development of international law and its codification.” Statute of the International Law Commission, G.A. Res. 174(II), U.N. GAOR, 2d Sess., at 105, U.N. Doc. A/519 (1947) available at http://www.un.org/law/ilc/texts/statufra.htm (last visited Nov. 3, 2005). 88. See, e.g., Philip Allott, State Responsibility and the Unmaking of International Law, 29 HARV. INT’L L.J. 1, 2–7 (1988) (discussing missteps taken by the ILC in the 1950s and 1960s which effectively undid the progress made in the 1920s); DANIEL BODANSKY ET AL., The ILC and State Responsibility, 96 AM. J. INT’L L. 792, 792 (2002). 89. Report on the Work of its Fifty-third Session, U.N. I.L.C., 55th Sess., Supp. No. 1, ¶ 11, U.N. Doc. A/56/10 (2001), available at http://www.un.org/law/ilc/reports/2001/2001report.htm (last visited Nov. 3, 2005). 90. See James Crawford, Jacqueline Peel & Simon Olleson, The ILC’s Articles on Responsibility of States for Internationally Wrongful Acts: Completion of the Second Reading, 12 EUR. J. INT’L L. 963, 964 (2001). 91. Of course, attempted codification also suggests a search for the lowest common denominator in order to gain universal acceptance—a problem with the traditional concept of customary international law.

2005]

DENIAL OF JUSTICE

835

nations follow out of a sense of legal obligation, or opinio juris.92 Determining when an obligation has crystallized into customary international law is a difficult exercise; recently some scholars have suggested that some flexibility is necessary, and that so-called “soft law” has a role to play, though this issue remains contentious.93 In the context of state responsibility law, the most frequently cited source of the obligations is the case law arising from the mixed and national claims commissions of the early part of the twentieth century. The contribution of mixed claims commission jurisprudence to customary international law has been the subject of some debate. Arbitral decisions cannot be conveniently pigeonholed in the hierarchy established by Article 38 of the ICJ statute. While such an eminent scholar as Philip Jessup stated in 1948 that “[t]he international law governing the responsibility of states for injuries to aliens is one of the most highly developed branches of that law,”94 the ICJ itself as recently as 1970 negated the status of arbitral decisions and even lump-sum settlement agreements as sources of international law.95 International publicists roundly and persuasively criticized this determination, and in the years since Barcelona Traction, the trend has been towards recognizing that claims commission decisions are important contributors to the construction of a predictable edifice within which states operate.96 Moreover, the ICJ Statute’s rigid hierarchy and its failure to reflect international decision-making processes and norms have been trenchantly criticized.97 92. See North Sea Continental Shelf (F.R.G./Den.; F.R.G./Neth.), 1969 I.C.J. 3, 44 (Feb. 20). 93. See, e.g., Jonathan I. Charney, Universal International Law, 87 AM. J. INT’L L. 529, 543– 48 (noting changes to the international lawmaking process, including greater development in multilateral fora); W. Michael Reisman, The Cult of Custom in the Late 20th Century, 17 CAL. W. INT’L L.J. 133, 135 (1987); Laurence R. Helfer & Anne-Marie Slaughter, Toward a Theory of Effective Supranational Adjudication, 107 YALE L.J. 273 (1997). There are also many critics of customary international law. See Jack L. Goldmsith & Eric A. Posner, A Theory of Customary International Law, 66 U. CHI. L. REV. 1113 (1999). 94. PHILIP C. JESSUP, A MODERN LAW OF NATIONS 94 (1948). 95. Barcelona Traction, Light & Power Co. Ltd. (Belg. v. Spain), 1970 I.C.J. 3, 40 (Feb. 5). 96. See, e.g., 1 LILLICH & WESTON, supra note 15, at 38; W. MICHAEL REISMAN, NULLITY AND REVISION 555 (1971); Richard B. Lillich, The Rigidity of Barcelona, 65 AM. J. INT’L L. 522, 525 n.4 (1971). 97. REISMAN, supra note 96, at 554–58 (1971). Professor Reisman wrote: In point of fact, the problem of priorities is artificial, since authoritative international policy does not present itself for application with a convenient label affixed, specifying its source. International prescription is an ongoing process. The purport of a convention cannot be grasped without consideration of prior and subsequent customary developments, their consonance with general principles, and the responses of quasi-

836


[Vol. 45:4

The perceived tendency of many states to discriminate, whether explicitly or implicitly, against aliens motivated the establishment of state responsibility law. Combating such discrimination in areas where international law prohibits it, such as the administration of justice, runs thematically through much of the law.98 The concern that an outsider may have a hard time getting justice vis-à-vis a local resident in a local court is the same concern that underlies diversity jurisdiction in the U.S. federal courts.99 Discrimination is therefore a primary theme in many of the decided cases, and in the codification attempts that proliferated in the early twentieth century. Developed states in particular were concerned, however, that states not be able to raise a defense of nondiscrimination in order to defeat responsibility. While state responsibility is predicated on a violation of international law, municipal law may be at issue in cases of alleged discrimination. In other words, certain states might assert in their defense that their own nationals were entitled to no better treatment, either in terms of substantive laws or in terms of judicial administration. authoritative doctrine. Id. at 555. 98. International law does not require that nationals and aliens be treated equally for all purposes. A. H. ROTH, THE MINIMUM STANDARD OF INTERNATIONAL LAW APPLIED TO ALIENS 156 (1949) (“A State may exercise a large control over the pursuits, occupations and modes of living of the inhabitants of its domain. In so doing, it may doubtless subject resident aliens to discrimination without necessarily violating any principle of international law.”). Aliens have sought equal treatment for centuries; one of the driving forces behind the Law Merchant was a desire to achieve parity with local citizens. See HAROLD J. BERMAN, LAW AND REVOLUTION: THE FORMATION OF THE WESTERN LEGAL TRADITION 342–44 (1983) (dating first “nationaltreatment” clause from a twelfth century treaty between King Henry II of England and the City of Cologne). 99. See, e.g., Lumberman’s Mut. Cas. Co. v. Elbert, 348 U.S. 48, 54–55 (1954) (Frankfurter, J., concurring) (stating that the primary reason for diversity jurisdiction was “the desire of the Framers to assure out-of-state litigants courts free from susceptibility to potential local bias”); Burgess v. Seligman, 107 U.S. 20, 34 (1883) (“The very object of giving to the national courts jurisdiction to administer the laws of the states in controversies between citizens of different states was to institute independent tribunals, which…would be unaffected by local prejudices and sectional views.”); William A. Braverman, Note, Janus was not a God of Justice: Realignment of Parties in Diversity Jurisdiction, 68 N.Y.U. L. REV. 1072, 1082 (1993) (“The strongest rationale for diversity jurisdiction continues to be that it protects out-of-state citizens from prejudice, or the fear of prejudice, in state courts.”); Henry J. Friendly, The Historic Basis of Diversity Jurisdiction, 41 HARV. L. REV. 483, 492 (1928) (finding that the most often stated argument for diversity jurisdiction is possible bias against out-of-state litigants); cf. Guillermo Aguilar Alvarez & William W. Park, The New Face of Investment Arbitration: NAFTA Chapter 11, 28 YALE J. INT’L L. 365, 369 (2003) (“Traditionally, American multinationals imposed arbitration as the mechanism for settling investment disputes with foreign countries…. Arbitration was justified as a way to level the playing field and to reduce the prospect of host state ‘home town justice.’”).

2005]

DENIAL OF JUSTICE

837

For this reason, developed states in particular posited the “international minimum standard of treatment,” standards below which a nation could not fall without violating international law. The international minimum standard encompassed substantive rights that must be accorded aliens, as well as procedural remedies, including judicial procedures, for the vindication of those rights. The international minimum standard and denial of justice are often conflated,100 but the requirement not to deny justice is a subset of the international minimum standard.101 The international minimum standard, as expressed through the doctrine of denial of justice, requires that aliens have access to impartial courts to vindicate certain fundamental rights. Access alone is not enough; national laws must give the alien some right of redress for certain wrongs. Thus, “the more numerous and extensive the rights to be respected the greater the potential margin of culpability that confronts a nation’s judiciary.”102 There is also a nondiscrimination requirement. Even if international law would not have required that a nation provide a mechanism for a certain right to be vindicated in the first instance, the alien must have the same access to justice as a citizen should such a right exist.103 100. IAN BROWNLIE, STATE RESPONSIBILITY PART I 74 (1983). 101. Many of the requirements apply to governmental acts outside the judicial system. See ROTH, supra note 98, at 185–86, for a summary of the minimum requirements of international law: (1) “an alien, whether a natural person or a corporation, is entitled to have his juridical personality and legal capacity recognized by the host state”; (2) an “alien can demand respect for his life and protection for his body”; (3) an alien’s personal and spiritual liberty is protected “within socially bearable limits”; (4) aliens enjoy no political rights in a host state, “but have to fulfill such public duties as are not incompatible with allegiance to their home state”; (5) aliens have no right to be economically active, but if a state permits aliens to “undertake economic activities,” they are entitled to “equality of commercial treatment among themselves”; (6) an alien has no right to acquire private property, but: (7) if an alien does have the right to own property, it cannot be expropriated without adequate compensation except for “moral or penal reasons”; and finally (8) an alien has “procedural” rights, which include “freedom of access to court, the right to a fair, non-discriminatory and unbiased hearing, the right to full participation in any form in the procedure, [and] the right to a just decision rendered in full compliance with the laws of the State within a reasonable time,” in his state of residence to protect himself from substantive violations. 102. FREEMAN, supra note 9, at 497–98. 103. Professor Root wrote eloquently: Each country is bound to give to the 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. Elihu Root, The Basis of Protection to Citizens Residing Abroad, 4 AM. SOC. INT’L L. PROC. 16, 20 (1910).

838


[Vol. 45:4

The international minimum standard also requires that aliens be treated fairly once they are within the judicial system, regardless of the case they are bringing or the right they are seeking to vindicate.104 Denial of justice claims are brought under the international minimum standard article of NAFTA Chapter 11 and BITs.105

III. THE SWEEP OF DENIAL OF JUSTICE The recent cases brought under NAFTA Chapter 11, Loewen v. United States and Mondev v. United States, have triggered renewed interest in international review of domestic court proceedings, yet NAFTA is by no means the first international agreement to provide a forum for arbitral decisions on denials of justice. The mixed claims commissions that proliferated in the latter part of the nineteenth century and the early part of the twentieth, especially those convened to settle disputes between more developed countries and the newly independent countries of Latin America, frequently addressed themselves to claims arising from allegedly deficient judicial processes.106

A.

Pre-War Denial of Justice

For many years prior to the Second World War, a debate flourished over the contours of the principle of denial of justice. While international scholars always understood denial of justice to fall within the context of state responsibility for injury to aliens, they diverged on the question of its breadth. One school of thought held that any delictual act (whether or not judicial in nature) implicating the responsibility of a state in international law was a denial of justice.107 The second school of

104. See FREEMAN, supra note 9, at 242–63. (describing responsibilities once an alien is within the judicial system). 105. NAFTA, supra note 1, art. 1105. The content of NAFTA Article 1105, including its requirement that NAFTA Parties accord “fair and equitable” treatment to investors, and analogous provisions in other investment treaties, has been the subject of recent scholarly commentary. See, e.g., Rudolf Dolzer, Fair and Equitable Treatment: A Key Standard in Investment Treaties, 39 INT’L LAW. 87 (2005); Christoph Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6 J. WORLD INVEST. & TRADE 357 (2005); Todd J. Weiler, NAFTA Article 1105 and the Principles of International Economic Law, 42 COLUMBIA J. TRANSNAT’L L. 35, (2003), Organisation for Economic Co-operation and Development, Fair and Equitable Treatment Standard in International Investment Law (Sept. 2004). 106. 3 MOORE, supra note 15, at 3073–3234 (regarding denial of justice); 4 id. at 3235–3332 (regarding arrest, imprisonment, and detention). 107. See FREEMAN, supra note 9, at 65.

2005]

DENIAL OF JUSTICE

839

thought limited a denial of justice to wrongful acts in the administration of justice, whether that administration resided in the judicial branch itself or in offices performing necessary related functions, such as prosecuting criminals. Other acts committed by executive or legislative organs might in certain circumstances give rise to state responsibility under international law under different theories, but would not be “denials of justice” in and of themselves.108 In many respects, the debate was largely semantic, as Professor Lissitzyn suggested: [T]he determination of particular controversies has almost never depended upon the meaning attached to this term. In almost all cases the real question has always been whether or not a State was responsible internationally for a particular act or omission, and not whether such an act or omission can be called denial of justice.109 The denial of justice debate was part of a larger concern about when states could or should be held accountable at the international level. The distinction between acts affecting the administration of justice and other wrongful acts was especially important to several of the arbitrators in the Mexican Claims Commission cases, who adopted the position that acts involving the administration of justice should be given greater deference than acts of the legislative or executive branches.110 In early cases, however, the Commission refused to draw any such distinction between the judicial and executive and legislative branches, holding in the Neer case:

108. Id. at 67–72. 109. Oliver J. Lissitzyn, The Meaning of the Term Denial of Justice in International Law, 30 AM. J. INT’L L. 632, 645 (1936). 110. The notion of heightened deference persisted even after there was a more or less general consensus that acts of the judiciary were equally attributable to the State as were the acts of other parts of a government. See, e.g., Différend concernant l’interprétation de l’Article 79, 13 R.I.A.A. 389, 438 (1955) (translation by author): Although it is true that in certain arbitral awards handed down in the twentieth century the opinion is expressed that the independence of the courts, in accordance with the principle of separation of powers generally recognized in civilized countries, excludes the international responsibility of States for acts of the Judiciary which are contrary to law, that theory now appears to be universally and rightly repudiated by writers on and courts administering international law. The judgment or order of a court is something issuing from an organ of the State, just like a law promulgated by the Legislature or a decision taken by the executive authorities.

840


[Vol. 45:4

[First] that the propriety of governmental acts should be put to the test of international standards, and [second] that the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.111 In Neer, the widow of a United States mine supervisor alleged that Mexican authorities failed to exercise sufficient diligence or investigative zeal in pursuing the murderers of her husband. Applying the above standard, the commission exonerated Mexico. The Chattin case, decided by the Mexican-American Claims Commission of 1923, limited the standard to acts of the judiciary, and posited that only cases involving bad faith or a wilful neglect of duty could implicate responsibility for those acts.112 In Chattin, Arbitrator van Vollenhoven wrote, “Acts of the judiciary, either entailing direct responsibility or indirect liability (the latter called denial of justice, proper), are not considered insufficient unless the wrong committed amounts to an outrage, bad faith, wilful neglect of duty, or insufficiency of action apparent to any unbiased man.”113 It became important to identify with some precision what constituted denials of justice because states were soon to attempt to codify international law, and because arbitrators had indicated that different, and more deferential, standards of review should be applied to decisions of courts. Further, identifying precisely what conduct of a state violates international law could affect the state’s practice and the remedy provided.114 111. Neer (U.S.) v. United Mexican States, 4 R.I.A.A. 60, 61–62 (Gen. Claims Comm’n, Mex.-U.S. 1926). 112. Chattin (U.S.) v. United Mexican States, 4 R.I.A.A. 282, 286–88 (Gen. Claims Comm’n, Mex.-U.S. 1927). [The Chattin case’s] only bearing would be on the question of what standard ought to be applied in determining the wrongfulness of certain governmental acts. Its only effect then would be to make it more easy to establish the wrongfulness of the act in question in the case of executive and legislative, than in the case of judicial acts. JACOBUS GIJSBERTUS DE BEUS, THE JURISPRUDENCE OF THE GENERAL CLAIMS COMMISSION, UNITED STATES AND MEXICO, UNDER THE CONVENTION OF SEPTEMBER 8, 1923, 128 (1938). 113. Chattin, 4 R.I.A.A. at 286–87. Van Vollenhoven, however, extended the same deference to those acts of the executive or the legislature that would give rise to “indirect liability,” e.g., a failure to take governmental action in response to a wrong committed by a private person. See id. 114. Tribunals convened under NAFTA Chapter 11 lack the authority to order any change in

2005]

DENIAL OF JUSTICE

841

When the League of Nations tried to codify international law in the 1920s, part of its effort was an attempt to define denials of justice and to identify what kinds of acts or omissions by the judiciary and related agencies would engender international responsibility. In preparation for the conference on codification that took place at The Hague in 1930, researchers at Harvard Law School prepared an influential set of draft articles, which included the following definition of denial of justice: A state is responsible if an injury to an alien results from a denial of justice. Denial of justice exists when there is a denial, unwarranted delay or obstruction of access to courts, gross deficiency in the administration of judicial or remedial process, failure to provide those guaranties which are generally considered indispensable to the proper administration of justice, or a manifestly unjust judgment. An error of a national court which does not produce manifest injustice is not a denial of justice.115 The drafters maintained that they were not attempting to advance international law beyond its then-existing boundaries, but to “combine a restatement of the existing law with proposals for moderate changes which seem necessary to secure the acceptance of the convention by all countries.”116 By this time, the late 1920s, commentators concentrated primarily on the acts of courts themselves, although the acts of related entities, such as prosecutors or policemen, could also be involved. Many early cases involved the failure of governments to investigate or

domestic laws. See NAFTA, supra note 1, art. 1135. Article 1135 states: Where a Tribunal makes a final award against a Party, the Tribunal may award, separately or in combination, only: (a) monetary damages and any applicable interest; (b) restitution of property, in which case the award shall provide that the disputing Party may pay monetary damages and any applicable interest in lieu of restitution. Id. Nevertheless, the award of significant damages due to a change in law or regulation deemed to constitute an expropriation might lead to the repeal of the law for fear of further liability in similar cases. In a case where the affected claimant attempted to obtain, but was denied, relief in municipal courts, the claims presented to the tribunal might well encompass both direct expropriation and a denial of justice. For future claimants, and for the state defendant, a tribunal decision that the law itself effected an expropriation would have potentially different consequences than a decision that a court erred in determining that no taking occurred in a particular case. 115. Research in International Law at Harvard Law School, The Law of Responsibility of States for Damage Done in Their Territory to the Person or Property of Foreigners, 23 AM. J. INT’L L. SPEC. SUPP. 131, 134 (1929) [hereinafter Harvard Research]. 116. Id. at 140.

842


[Vol. 45:4

prosecute with sufficient diligence the perpetrators of crimes against aliens.117 The procedural and substantive guarantees noted in the Harvard Research Draft are not limited to civil cases; much of the early case law had to do with criminal cases against aliens whose treatment both before and after trial was unsatisfactory. Nevertheless, these issues are most apt to arise today in the context of investor-state arbitrations under BITs or Chapter 11 of NAFTA, which are far more likely to involve civil actions.118 In the 1930s, Alwyn Freeman exhaustively canvassed denial of justice as of that time; he concluded that it was undesirable to formulate precise standards, given a system in which the question is one of degree and arbitrators should be accorded latitude.119 In the early 1960s, in conjunction with the International Law Commission’s stillongoing codification attempts, Harvard law professors Louis Sohn and Richard Baxter again took a hand at drafting a convention, this time entitled Convention on the International Responsibility of States for Injuries to Aliens.120 Most recently, Jan Paulsson has written an

117. Neer (U.S.) v. United Mexican States, 4 R.I.A.A. 60, 61 (Gen. Claims Comm’n, Mex.U.S. 1926) (discussing the widow Neer’s claim that the Mexican authorities failed to investigate her husband’s murder with adequate diligence). 118. See Jack J. Coe, Jr., Taking Stock of NAFTA Chapter 11 in Its Tenth Year: An Interim Sketch of Selected Themes, Issues, and Methods, 36 VAND. J. TRANSNAT’L L. 1381, 1399 (2003) (describing the range of measures that have formed the basis of claims: “trade restrictions (import and export), justice system practices (in particular alleged denials of justice by state courts), concession cancellations, alterations in real property rights, and permit-related facility closures”).

Investor-state arbitration under BITs and NAFTA is limited to “investment disputes.” Nevertheless, the NAFTA protections in some articles extend to “investors of another Party,” without explicitly requiring that a case be brought because of damage to the investor as related to his investment. Thus, in theory, a NAFTA investor who is jailed for a crime could claim before an international tribunal that details of his charging or his incarceration or his trial denied him justice. The Iran-U.S. Claims Tribunal explored a similar issue in Grimm v. Iran, in which the claimant alleged that Iran had failed to protect her husband from assassination. Though declining to go that far, the tribunal noted, “‘[i]t would perhaps be possible’ that a failure to act could be a ‘measure’ affecting property.” IRAN-UNITED STATES CLAIMS TRIBUNAL: ITS CONTRIBUTION TO THE LAW OF STATE RESPONSIBILITY, supra note 56, at 305 (citing Grimm v. Iran, 2 Iran-U.S. Cl. Trib. Rep. 78, 79 (1983)). 119. FREEMAN, supra note 9, at 331–32. 120. Louis B. Sohn & R.R. Baxter, Convention on the International Responsibility of States for Injuries to Aliens, in F.V. GARCÍA-AMADOR, LOUIS B. SOHN & R.R. BAXTER, RECENT CODIFICATION OF THE LAW OF STATE RESPONSIBILITY FOR INJURIES TO ALIENS 133 (1974). Professors Sohn and Baxter worked closely with the special rapporteur of the ILC, F.V. GarcíaAmador, in the preparation of their draft and in the simultaneous preparation of the ILC draft articles.

2005]

DENIAL OF JUSTICE

843

insightful and provocative denial of justice treatise stemming from his Hersch Lauterpacht lectures.121 Broadly speaking, these publicists and arbitrators have agreed to separate denials of justice into two categories, procedural and substantive, although Mr. Paulsson suggests that all denials of justice be treated under the procedural rubric and criticizes the addition of a substantive category.122 Of course, as is the way with U.S. constitutional law, some issues cross the borders of procedure and substance.123 Nevertheless, for clarity of thought and analysis, I will discuss them separately.

1.

Procedural Denials of Justice

Most of the misdoings of courts as conceived by international law involve procedural denials of justice. At its most basic, a procedural denial of justice is a denial of access to a court.124 This definition commanded universal adherence during the codification attempts of the 1920s. Courts themselves may deny access, or what might be termed a failure of legislation may deny access: the legislative branch has either failed to pass a law that would permit redress or has passed a law that prevents or unduly limits access to the courts. Thus, a court’s dismissal of a case for lack of jurisdiction would not automatically constitute the basis for an international claim (absent some bad faith or discrimination 121. PAULSSON, supra note 9. My approach departs from Mr. Paulsson’s in certain respects. This article was submitted and accepted for publication before I received a pre-publication copy of Mr. Paulsson’s forthcoming book. I am grateful to him for sending me the copy so that I can address at least a few of his arguments in this article, although at this stage in the publication process I am unable to treat his arguments with the thoroughness they merit. 122. Id. at 7, 80–90 (criticizing the substantive denial of justice as a separate category, and suggesting that substantive denials of justice, properly conceived, amount to certain types of procedural wrongs). 123. In the post-Erie world much depends on whether a given law is denominated procedural or substantive. Erie v. Tompkins, 304 U.S. 64, 77–79 (1938); see also Hanna v. Plumer, 380 U.S. 460, 476 (1965) (Harlan, J., concurring) (noting the possibility of frustrating “a state’s substantive regulation of the primary conduct and affairs of its citizens” merely by characterizing any adopted federal rule as procedural); Guaranty Trust Co. v. York, 326 U.S. 99, 109–10 (1945) (announcing “outcome-determinative” test in deciding whether to apply federal laches doctrine or state statuteof-limitations provisions in a diversity case); Sampson v. Channell, 110 F.2d 754, 761–62 (1st Cir. 1940) (determining in a diversity case that burden of proof was “substantive” under Erie and applying law of state in which the court was sitting, even though that state regarded burden of proof as “procedural”). 124. Under customary international law, a government must “provide an opportunity to the private party to seek a remedy for an alleged breach through a competent independent tribunal.” OSCAR SCHACHTER, INTERNATIONAL LAW IN THEORY AND PRACTICE 312 (1991).

844


[Vol. 45:4

on the part of the tribunal), especially if another court or tribunal could provide redress. If no other redress were available, the next question would be whether the state was entitled not to provide any legal remedy. Logically extending this statement leads one to ask in what circumstances the state would be obliged to ensure the existence of a law that could give redress against a particular act in some kind of local tribunal.125 A claimant attempting to assert a cause of action or a case otherwise not prosecutable under municipal law would not have an international right for the court to hear her case unless she could show that the state in question was obligated to provide redress for that particular wrong.126 Alwyn Freeman and Charles de Visscher give the example of recourse against high officials of a state, which municipal law often does not permit.127 Freeman concluded that there was no customary international law requirement that states permit redress against high officials, and therefore there can be no denial of justice when a state fails to provide an avenue for such redress.128 A claimant could, however, submit an international claim directly against the high official, assuming the act was wrongful.129 The procedural obligations attendant on arrest or detention of aliens also fall under this heading. These obligations would usually be relevant in criminal matters, but might also come into play for civil or administrative detention of unlawful aliens.130 Human rights law, as opposed to the law of state responsibility, now most often deals with these requirements. While customary international law may not be settled as to all of the procedural obligations that a state must meet, 125. “Ce qui importe, au point de vue du droit international, c’est qu’il se trouve au moins un tribunal compétent pour examiner la demande au fond. S’il ne s’en trouve aucun, la déclaration d’incompétence, même rendue conformément à la législation interne, fera apparaître les défectuosités de l’organisation judiciaire.” Charles de Visscher, Le Déni de justice en droit international, 52 RECUEIL DES COURS 365, 396 (1935) (“What is important from the point of view of international law is that there is at least a tribunal competent to examine the basis of the claim. If there is no such tribunal, the tribunal’s declaration that it lacked jurisdiction, even if given in conformity with national law, would appear to demonstrate defects in the organization of the judiciary.”) (translation by author). Along the same lines, judicial dismissal of a case because of an alleged conflict of jurisdiction could give rise to a denial of justice in the event that the supposed conflict was unfounded. See, e.g., Fabiani (Fr.) v. Venez., 5 MOORE’S INT’L ARBS. 4877, 4903–04 (1896). 126. de Visscher, supra note 125, at 395–96. 127. FREEMAN, supra note 9, at 228 (citing de Visscher, supra note 125, at 395–96.). 128. Id. 129. Id. at 228–29. 130. Sohn & Baxter, supra note 120, art. 7.

2005]

DENIAL OF JUSTICE

845

certain fundamental responsibilities have been identified: arrests or detentions must satisfy the requirements of local law, which should include the obligation that the officer issuing the warrant had the authority to do so, that the warrant complies with municipal procedural requirements, and that it clearly states the offense punishable by law;131 the imprisoning state must treat the alien humanely and give adequate nutrition;132 the detention must not be unduly prolonged;133 the state must investigate and substantiate the charges within a reasonable period of time;134 and the state must inform the accused of the charges against him and permit him to communicate with his attorney.135 Certain obligations also accompany the conduct of the trial. Again, the alien must be allowed to prepare a defense. Preparation includes knowing the charges against him, examining the evidence against him, consulting with an attorney, presenting evidence on his behalf, and being able to summon witnesses in court.136 Furthermore, “no documents should be withheld, hidden or destroyed by authorities to the prejudice of the foreigner’s case.”137 Undue delay in the proceedings may effect a denial of justice throughout the judicial process. Delay in coming to trial, delay during trial, delay in decision-making, and delay in appellate decision-making can all give rise to denials of justice. Most often delay is measured against the rules or practices prevailing in local courts; so long as the timing in a particular case comports with the usual practices, delays will

131. FREEMAN, supra note 9, at 197. Note that the seizure of goods must also be done in accordance with legal process. Id. at 199 & n.3. The International Covenant on Civil and Political Rights applies equally to all individuals, whether citizens or foreigners, and has been ratified by 152 countries (eight others have signed it but not yet ratified). See http://www.unhchr.ch/pdf/report.pdf (last visited Nov. 3, 2005) for a list of signing and ratifying countries. See http://www.unhchr.ch/html/menu3/b/a_ccpr.htm (last visited Nov. 3, 2005) for the text of the Convention itself. There is a great deal of contemporary human rights law illuminating these requirements. See generally Diane M. Amann, Guantánamo, 42 COLUM. J. TRANSNAT’L L. 263, 319–30 (2004 (describing human rights norms with respect to detention and interrogation). 132. FREEMAN, supra note 9, at 201–03. 133. Id. at 203–05. Freeman noted the difficulty in determining what constitutes an undue length of detention and the lack of international legal consensus on that point, and referred to local law requirements as the primary means against which to measure the permitted length of detention. Id. at 203–04. 134. Id. at 205–06. 135. Id. at 206–08. 136. Id. at 549–50; see also ROTH, supra note 98, at 182. 137. ROTH, supra note 98, at 182.

846


[Vol. 45:4

not be fatal. Consideration is also given to the complexity of the case and the reasons for the delay.

2.

Substantive Denials of Justice

Protecting aliens from procedural injustice is not enough to ensure that they receive adequate justice. Free access to the courts means nothing if judges are corrupt or judicial decisions are not anchored in the relevant national law.138 Otherwise, a state’s courts or tribunals could effectively insulate themselves from any culpability in the international sphere by simply permitting an alien to present his case in court, thereby satisfying procedural requirements, and then denying the claim on the merits, without giving reasons for the judgment. Thus, a substantive denial of justice results when a court gives a “manifestly unjust judgment.”139 A manifestly unjust decision may be directed to the substantive law governing the merits of the case, or it may be a decision on a matter of procedure that has the effect of unfairly preventing an alien from defending or from prosecuting his case. Early suggestions that claimants would have to prove ill will or bad faith by a judge before international fault could lie have been rejected because of the difficulty, and perhaps impossibility, of divining a judge’s intentions. Thus, the consensus is that the written decision has to stand by itself and be judged on its merits. Yet the standard of review most often employed seems to reinsert this element of bad faith; tribunals reviewing the decision are to determine whether it is so outrageous that nothing could explain it except bad faith on the part of the judge or jury. However, because international tribunals are not intended to sit as courts of appeal deciding questions of municipal law,140 they may have difficulty deciding whether something besides bad faith explains a decision that seems facially troubling. 138. Mr. Paulsson would place many of the wrongs sometimes conceived as substantive denials of justice under the procedural rubric: judgments “vitiated by bad faith however perceived: fraud, bias, dishonesty or malice” are indeed actionable, but are properly perceived as procedural rather than substantive. PAULSSON, supra note 9, at 88. He generally rejects the idea that an international tribunal should ever opine on national law, even in the case of significant judicial error, but would allow such an inquiry when the international tribunal is “persuaded that the error was of a kind which no competent judge could reasonably have made.” Id. at 89 (internal citation omitted). Such a finding would reflect “a grave defect in the legal system, and therefore a failure to abide by the obligation to provide an acceptable mechanism to hear the grievances of foreigners. Id. at 89–90. 139. Harvard Research, supra note 115, at 173. 140. Sohn & Baxter, supra note 120, art. 8.

2005]

DENIAL OF JUSTICE

847

In summary, international tribunals and scholars who addressed denials of justice in the pre-War period were extremely mindful of the potential for the intrusions into sovereign prerogatives attendant on international decision-making. They assumed that a formula which contained both a deferential and an extremely low standard of review would minimize those instances in which international tribunals opined negatively on municipal courts.

B.

Post-War Denial of Justice Jurisprudence

Denial of justice occasioned little interest in the years between the Second World War and the 1990s. The advent of more frequent investor-state arbitration has brought renewed interest to the field, as evidenced by Mr. Paulsson’s new work.141 Recent tribunals convened to consider denials of justice have generally agreed that the international minimum standard set by Chattin for judicial acts is too easily satisfied given advances in international law over the last seventy five years; however, they have hardly raised the bar. Instead, the recent tribunals look for “arbitrariness” or acts that shock or surprise a sense of “judicial propriety.” They also reiterate the idea that international tribunals should not sit as “courts of appeal.” Mr. Paulsson suggests that the concept must certainly be allowed to evolve, but that even so it must be expressed as an abstraction must not be applied mechanically.142

1.

International Court of Justice

The ICJ has not directly addressed denial of justice. In Elettronica Sicula (ELSI), a case decided in 1989 under the Treaty of Friendship, Commerce, and Navigation (FCN Treaty) that the United States had concluded with Italy, a chamber of the ICJ addressed whether certain executive actions were arbitrary or capricious in violation of a supplementary agreement to the FCN Treaty which provided that “nationals, corporations and associates of either High Contracting Party shall not be subjected to ‘arbitrary or discriminatory measures.’”143 ELSI, an Italian company purchased by two U.S. corporations in the late 141. PAULSSON, supra note 9. 142. Id. at 59, 68–69. 143. Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1989 I.C.J. 15 (July 20). The United States espoused ELSI’s claim. Id. at 17. The Italy-U.S. FCN did not contain any investor-state dispute settlement clause. Treaty of Friendship, Commerce, and Navigation (U.S.-Italy) (entered into force July 26, 1949, 79 U.N.T.S. 171.

848


[Vol. 45:4

1950s, produced electrical components, but did not generate an operating profit sufficient to cover its debt or accumulated losses.144 Its owners then decided to liquidate the company, preserving as many assets as possible in order to attract buyers. This decision caused the mayor of Palermo to requisition the plant on the grounds that shutting it down and putting some 800 employees out of work would injure an already weak economy and likely spark further “disturbances of public order.”145 The ICJ Chamber considered whether the mayor’s issuance of the requisition order was “arbitrary” in violation of the FCN treaty.146 In that context, the ICJ Chamber defined arbitrariness as “a willful disregard of due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.”147 It concluded that the mayor’s requisition withstood that test because it was sanctioned by Italian law, subject to the control of Italian courts, and undertaken in response to a “difficult and distressing situation.”148 The ICJ Chamber came to this conclusion notwithstanding the fact that an Italian court determined the Mayor’s acts to be lacking “any juridical cause which would make the order enforceable” and an “eccesso di potere.”149 While the U.S.-Italy FCN treaty does not mention the international minimum standard per se, its prohibition against arbitrary acts has generally been treated as synonymous with that standard.150 Barcelona Traction involved an effective expropriation of an electric company by the Spanish government; the expropriation may or may not have been sanctioned by Spanish law.151 The case was dismissed on procedural grounds, but Judge Tanaka, in his separate opinion in 144. Id. at 23–24. 145. Id. at 27–32. 146. Id. at 72–73. 147. Id. at 76. 148. ELSI., 1989 I.C.J. at 76–77. 149. Id. at 73. Although the Italian Court of Appeal decided that the mayor’s requisition order was unlawful, it awarded only minimal damages on the grounds that the company’s financial distresses preceding the order were the real cause of its ultimate bankruptcy. See id. at 114–15 (Schwebel, J., dissenting). The decision of the Italian courts was not before the ICJ and, in any event, did not amount to a denial of justice. Id. 150. See, e.g., infra note 163 (the Mondev tribunal derived its denial of justice standard from the international minimum standard in ELSI); see also MEG KINNEAR ET AL., INVESTMENT UNDER NAFTA: AN ANNOTATED GUIDE TO NAFTA CHAPTER ELEVEN, CHAPTER 1105 (Kluwer) (forthcoming 2006) (discussing the relationship between the minimum standard of treatment, arbitrary and capricious conduct, and denial of justice). 151. Barcelona Traction, Light and Power Co., Ltd. (Belg. v. Spain), 1970 I.C.J. 3, 6–11, 17– 49 (Feb. 5).

2005]

DENIAL OF JUSTICE

849

Barcelona Traction, set forth the criteria he would have used to consider Barcelona Traction’s denial of justice claim had the case indeed gotten to the merits. In his view, a denial of justice would occur in the event of “corruption, threats, unwarrantable delay, flagrant abuse of judicial procedure, a judgment dictated by the executive, or [a judgment] so manifestly unjust that no court which was both competent and honest could have given it.”152 Neither of these formulations represents an appreciable change from the standard of Chattin or the Harvard Research Draft. Judge Tanaka’s decision in the Barcelona Traction decision in particular is characterized by heightened respect for the judiciary (assuming judicial independence) and a conviction that “no erroneous or even unjust judgment” of a court will constitute a denial of justice.153

2.

NAFTA Chapter 11 and BIT Cases

A few investor-state tribunals convened under NAFTA Chapter 11 have addressed denials of justice, and have determined that the international minimum standard with respect to denial of justice has progressed since the last U.S.-Mexican General Claims Commission disbanded .154 The tribunals have not, however, entirely agreed on the progress made in the intervening seventy-five years, and they have not announced appreciably clearer or more useful standards. Three NAFTA tribunals, discussed in detail below, have addressed directly denial of justice.155

a.

Mondev International Ltd. v. United States of America

In Mondev, a tribunal convened under Chapter 11 of NAFTA heard a challenge to a 1998 decision of the Supreme Judicial Court (SJC) of 152. Id. at 155–56. 153. Id. at 156. Judge Tanaka noted that the allegations against the Spanish courts involved highly technical matters of Spanish law respecting civil procedure, private international law, and bankruptcy, and that deciding even that the Spanish courts had been incorrect in their interpretation would be difficult. Id. 154. Reflecting the defensive posture they assumed after being confronted with several different claims, the three NAFTA governments have insisted that the standard for establishing a denial of justice is very high. Tribunals have rejected this assertion. Mondev Award, supra note 1, ¶¶ 114–118 (Noting that Canada had particularly pressed such and standard and that “[i]t would be surprising if [the international minimum standard] were to be interpreted as meaning no more than the Neer Tribunal (in a very different context) meant in 1927.”). 155. Other NAFTA tribunals have dealt with claims that NAFTA Parties have violated the “minimum standard of treatment” outside the judicial context.

850


[Vol. 45:4

Massachusetts.156 The SJC had decided that Lafayette Place Associates (LPA), a subsidiary of the Canadian corporation Mondev Ltd., could not prevail on the breach of contract claim it had brought against the City of Boston, nor could it recover from the Boston Redevelopment Authority on the tort claim of tortious interference with contract.157 The dispute arose from a development deal gone awry.158 Although a jury had found that the City of Boston had breached the contract under which it had agreed to sell property for development to LPA, at what would have been a very favorable price for the developer, the SJC vacated the jury award.159 The basis for the SJC decision on the breach of contract claim was that LPA had not availed itself of the contractual procedures that would have permitted it to compel the City to obtain the property valuations necessary to close the deal; and that LPA had not shown that it was “ready, able, and willing” to perform its side of the contract, and thus as a matter of law could not claim for the City’s alleged breach.160 The second issue involved the Boston Redevelopment Authority (BRA), whose approval of the proposed development scheme was required before the sale of the property could close.161 Although a jury had found that the BRA had intentionally interfered with contractual relations between LPA and the Campeau Corporation, an entity to whom LPA attempted to sell the development rights under the contract, the trial judge dismissed the claim on the grounds that the BRA was a

156. See id. 157. Lafayette Place Assoc. v. Boston Redev’t Auth., 427 Mass. 509, 524, 526–27 (1998). 158. In the 1970s, a Canadian developer, Mondev International Ltd., entered into an agreement with the City of Boston and the Boston Redevelopment Authority (BRA) to develop property in the so-called “Combat Zone,” a dangerous area in downtown Boston. Mondev Award, supra note 1, ¶ 37. The project was to proceed in two phases and was carried out by Mondev’s subsidiary, Lafayette Place Associates (LPA). The first phase involved the construction of a hotel, shopping mall, and parking garage. The second phase would entail the development of adjacent, city-owned property, then in use as a parking facility. LPA held an option contract to purchase the adjacent property (the “Hayward Parcel,” which in fact consisted of four different parcels of land), in the event the City decided to stop using it as a parking facility. The option contract set out a formula to determine the price of the property; the price was largely pegged to 1970s property values and was quite low compared to market prices after the real estate boom of the 1980s. Id. at 37–38. 159. Lafayette Place Associates v. Boston Redevelopment Auth., 694 N.E.2d 820 (Mass. 1998). 160. Id. at 829–31. The contractual procedures regarding valuation were integral to the contract in that the terms of the deal would otherwise have been too indefinite to constitute a binding contract. Id. at 829–30. 161. Id. at 824.

2005]

DENIAL OF JUSTICE

851

state agency immune from liability for intentional tort under the Massachusetts Tort Claims Act, The SJC affirmed.162 The Mondev tribunal determined that the appropriate lens through which to examine the SJC’s decision was: whether the shock or surprise occasioned to an impartial tribunal leads, on reflection, to justified concerns as to the judicial propriety of the outcome, bearing in mind on the one hand that international tribunals are not courts of appeal, and on the other hand that Chapter 11 of NAFTA is intended to provide a real measure of protection.163 It further elaborated that it would examine whether “a tribunal can conclude in the light of all the available facts that the impugned decision was clearly improper and discreditable, with the result that the investment has been subjected to unfair and inequitable treatment.”164 In applying the standard to the pending case, the tribunal determined that the SJC’s decision was not a significant or serious departure from previous precedent, nor did it announce new law applied retroactively to the detriment of LPA.165 The tribunal noted that even had the SJC decision done either, it would still have been “within the limits of common law adjudication.”166 One subsidiary issue, alleged to be a procedural denial of justice, involved whether the SJC should have remanded the decision to the trial court so the jury could consider the “ready, able, and willing” determination, an issue of fact ordinarily within a jury’s purview. In dismissing this allegation, the tribunal emphasized that it was not a court of appeal and that its appropriate role was not to question the application of local procedural rules.167 Mondev claimed that the SJC’s decision about the BRA’s sovereign immunity denied it justice by barring any avenue for redress of its 162. Id. at 832–35. The Massachusetts Tort Claims Act excludes from its definition of public employer (and thus from the exemption of liability) any “independent body corporate and politic”; the BRA was an independent body that nonetheless performed public functions. Id. at 832. 163. Mondev Award, supra note 1, ¶ 127. The Tribunal looked to ELSI for direction as to what would constitute a denial of justice, even though that decision involved arbitrariness of administrative conduct. Id. 164. Id. 165. Id. ¶¶ 131–133. 166. Id. ¶ 133. 167. See id. ¶ 136. The Tribunal did note that if the appellate decision had been based on a new fact about which the affected party could not present its case the outcome might have been different. Id.

852


[Vol. 45:4

wrongs, but did not argue that the Massachusetts courts had been wrong to deem the BRA to be a state agency.168 The tribunal dismissed U.S. arguments that the question of foreign sovereign immunity presented a useful analogy to the present case, and instead looked to European Court of Human Rights (ECHR) jurisprudence on whether immunizing state agencies and employees violated Article 6(1) of the European Convention on Human Rights, which requires that civil claims be submitted to a judge for adjudication.169 The Tribunal noted the difficulty of distinguishing between procedure and substance—a requirement that a court be accessible to right a particular wrong may require the country in question to create the substantive right itself. The Mondev tribunal, in accord with the European Court of Human Rights, deemed this step rather far-reaching.170 The Mondev tribunal then looked at the government’s rationale for immunizing state authorities from liability for intentional tort. It noted the lack of international consensus on permissible bases for immunizing state actors from torts; although the tribunal suggested that denial of access to courts for redress against state actors could in some instances violate international law, it declined to decide the case on a hypothetical basis.171 In the view of the tribunal, Massachusetts had good reason for immunizing a regulatory authority from potential liability for tortious interference with contract; by virtue of its position it would always have the potential for interfering with contractual relations by granting or withholding planning permission.172 Thus, the tribunal dismissed all claims.173

b.

The Loewen Group, Inc. v. United States of America

In Loewen, a Canadian funeral home company challenged the acts of the Mississippi judiciary on several grounds. The Canadian company claimed that the Mississippi trial court proceedings in which it had been 168. Id. ¶ 139–140. 169. Id. ¶¶ 141–143. 170. Id. ¶¶ 143–144 (citing Al-Adsani v. United Kingdom, 34 Eur. Ct. H.R. 11, ¶ 47 (2002); Fogarty v. United Kingdom, 34 Eur. Ct. H.R. 12, ¶ 25 (2002); McElhinney v. Ireland, 34 Eur. Ct. H.R. 13, ¶ 24 (2002)). 171. Mondev Award, supra note 1, ¶¶ 151–153. 172. Id. ¶ 153. It also noted that, within broad limits, the extent to which a state decides to immunize regulatory authorities from suit is a matter for the competent organs of the state to decide. Id. ¶ 154. 173. Id. ¶ 157.

2005]

DENIAL OF JUSTICE

853

a defendant had been infused with prejudice against the company by virtue of its Canadian pedigree and that the judge had impermissibly allowed introduction of racial issues.174 It also claimed that errors riddled the trial, which resulted in a jury award of compensatory and punitive damages so disproportionate to the amount sought as to result in a substantive denial of justice under international law.175 The award totaled $500 million—$100 million in compensatory damages, and $400 million in punitive damages—although the initial claim had arisen from breach of contract claims of a few million dollars.176 Moreover, the jury had initially returned with a verdict of $260 million, which included both compensatory and punitive damages, although the punitive damages portion of the award was premature because the jury had not yet heard testimony about the net worth of the company. The judge reformed the verdict into a $100 million compensatory damages award. After the jury heard testimony about the company’s worth, it returned a verdict for $400 million in punitive damages. Loewen maintained that the judge’s actions sent a message to the jury that its initial verdict was insufficient.177 Mississippi law required Loewen to post a supersedeas bond (125% of the award) to stay execution of the judgment pending appeal. Both the intermediate appellate court and the state supreme court declined to reduce the supersedeas bond of $625 million, although Mississippi law provided that they could have done so for “good cause shown.”178 Thus, no Mississippi appellate court ever heard the merits of the appeal. The Loewen Group settled with the local funeral company to which it had lost, in what it described as a settlement coerced by the bond requirement that effectively denied it access to courts that could have corrected the errors of the trial court.179

174. Loewen Group, Inc. (Can.) v. United States, ICSID (W.Bank) ARB(AF)/98/3 (Jan. 5, 2001) (Decision on Competence and Jurisdiction) ¶ 2 [hereinafter Loewen Decision on Competence and Jurisdiction], available at http://www.state.gov/documents/organization/ 3921.pdf (last visited Nov. 3, 2005). 175. Loewen Award, supra note 1, ¶ 39. 176. Id. ¶¶ 3–4. 177. Id. ¶¶ 4, 91–96. 178. Id. ¶¶ 6, 183. A supersedeas bond differs from an appeal bond in that it stays execution of a judgment pending appeal, thus enabling a defendant to avoid losing its assets during any appeal, but is not a prerequisite for the filing of an appeal. 179. Loewen Award, supra note 1, ¶¶ 48–50; Loewen Decision on Competence and Jurisdiction, supra note 174, ¶ 5.

854


[Vol. 45:4

Although the company had considered petitioning for a writ of certiorari to the U.S. Supreme Court prior to the settlement, it did not do so.180

i.

“Judicial Finality”

When faced with this claim—the first to be filed against the United States under NAFTA Chapter Eleven—the United States filed objections on competence and jurisdiction which, if accepted, would have kept the tribunal from considering the merits of the case and opining on the acts of the Mississippi judiciary. It raised the argument that the Mississippi trial court’s acts could not form the basis of a violation of Article 1105 of NAFTA, which requires that Parties accord investments of investors “treatment in accordance with international law,” because they were not final acts of the Mississippi court system.181 The United States did not argue in favor of a return to the local remedies rule; rather, it distinguished international wrongs based on the acts of courts from those based on the acts of other government agencies.182 Citing publicists and cases from the mixed claims commissions of the early part of the last century, the United States suggested that the acts of courts have always been subject to special deference; moreover, it argued that because the judiciary acts as a whole, and inherent in the nature of a system with appellate review is the use of that review, a judicial act cannot give rise to a NAFTA claim unless and until it is the final act of a court of last resort.183 The United States did not argue that a requirement of judicial finality would always require petitioning for certiorari to the Supreme Court in the U.S. system. It did provide expert testimony, however, that such review would likely have been forthcoming in Loewen, based on the due process issues that Loewen 180. Memorial of the United States of America on Matters of Competence and Jurisdiction, ICSID Case No. ARB(AF)/98/3, 62–65 (NAFTA Ch. 11 Arb. Trib. Feb. 15, 2000) [hereinafter Loewen, U.S. Memorial on Jurisdiction], available at http://www.naftalaw.org; Loewen Award, supra note 1, ¶¶ 200 & 210–217. 181. NAFTA, supra note 1, art. 1105(1); Loewen, U.S. Memorial on Jurisdiction, supra note 180, at 49–56. 182. Id. at 51 n.30. The waiver of the exhaustion of local remedies rule in NAFTA is implicit rather than explicit, but the better view is that the NAFTA parties did indeed waive it. See, e.g., Andrea K. Bjorklund, Waiver and the Exhaustion of Local Remedies Rule in NAFTA Jurisprudence, 253, 261–62, in NAFTA INVESTMENT LAW AND ARBITRATION: PAST ISSUES, CURRENT PRACTICE, FUTURE PROSPECTS (T.J. Weiler ed., 2004); William S. Dodge, National Courts and International Arbitration: Exhaustion of Remedies and Res Judicata Under Chapter Eleven of NAFTA, 23 HASTINGS J. INTL & COMP. L. 357, 374–75 (2000). 183. Loewen, U.S. Memorial on Jurisdiction, supra note 180, at 49–56.

2005]

DENIAL OF JUSTICE

855

could have raised in its petition, and based on the remarkable similarity of the Loewen case to the Pennzoil-Texaco case, which had previously captured the interest of the Court.184 The Loewen tribunal’s interim decision indicated some skepticism of the finality argument. The first reaction seemed to be that the United States was trying to resurrect the local remedies rule, but applying it only when the subject of the claim was a court act.185 The tribunal, noting first that the modern view was that the conduct of any organ of the state could be considered an act of that state for purposes of liability under international law, continued: “Viewed in this light, the rule of judicial finality is no different from the local remedies rule. Its purpose is to ensure that the state where the violation occurred should have an opportunity to redress it by its own means, within the framework of its own domestic legal system.”186 The United States continued to press its claim with respect to finality of court decisions during the case on the merits, and the tribunal ultimately upheld the U.S. position with respect to finality.187 Acknowledging that the question was to some extent intertwined with the local remedies rule, the tribunal nevertheless found that: 184. Id. at 56–67 (quoting the expert testimony of Drew S. Days, III); see also Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 16 n.15 (1987). 185. “There is support for the view that no distinction should be drawn between the principle of finality and the local remedies rule.” Loewen Decision on Competence and Jurisdiction, supra note 174, ¶ 66. 186. Id. ¶¶ 70–71. Nevertheless, the tribunal did not altogether dismiss the idea. It noted that the United States’ position with respect to the exact extent of the local remedies rule was unclear, and also suggested that Article 1121(2)(b) did no more than “curtail or restrict rights that a claimant would otherwise have,” suggesting that without the provision, the claimants would be able to pursue remedies simultaneously. Id. ¶ 74. 187. Loewen Award, supra note 1, ¶¶ 142–156. At first blush discussion on this point may appear to have been obiter dicta, because the tribunal disposed of the case by finding that when Loewen filed for corporate reorganization under Chapter 11 of the U.S. Bankruptcy Code, some years after bringing the NAFTA claim, it had failed to preserve the Canadian nationality of the claim in violation of the continuous nationality rule, which it held requires a claim to be held by an entity of the same nationality at the time of the injury, at the time the claim is filed, and throughout the pendency of the claim. Id. ¶ 225. The continuous nationality issue did not, however, dispose of Ray Loewen’s claim. The United States and Ray Loewen each asked for clarification of its status; the tribunal responded that the failure of the claimants to demonstrate that they had exhausted the remedies available so as to achieve a final award disposed of Ray Loewen’s claim. Loewen Group Inc. (Can.) v. U.S., ICSID (W. Bank) ARB(AF)/98/3 (Decision on Request for Reconsideration) (Sept. 13, 2004). Mr. Loewen filed a petition to set aside the award in the U.S. District Court for the District of Columbia, the court of first instance at the place of arbitration, but the court rejected his petition as untimely., Loewen v. United States, No. 1:04CV02151, mem. op. at 8-9 (D.D.C. Oct. 31, 2005).

856


[Vol. 45:4

[T]he purpose of the requirement that a decision of a lower court be challenged through the judicial process before the State is responsible for a breach of international law constituted by judicial decision is to afford the State the opportunity of redressing through its legal system the inchoate breach of international law occasioned by the lower court decision.188 In a manner reminiscent of the substance/procedure distinction inherent in local remedies rule debates, the tribunal distinguished court acts from internationally wrongful acts of other branches of government. The latter acts, it wrote, might be attributable to the state before a claimant had recourse to a court, or when such recourse proved unavailing.189 Under the tribunal’s logic, then, a claimant could only bring a claim based on a lower court’s failure to provide redress after the claimant had appealed to the court of last resort, although the underlying governmental wrong might itself be actionable directly.190 The Loewen Group had argued that it had no avenue for appeal because the bond requirement foreclosed access to the Mississippi courts and because the U.S. Supreme Court would have been unlikely to grant certiorari to hear the fact-laden issues on which the case rested.191 The tribunal did not 188. Loewen Award, supra note 1, ¶156 (emphasis added). 189. Id. ¶ 148. See J.E.S. Fawcett, The Exhaustion of Local Remedies, Substance or Procedure?, 31 Brit. Y.B. Int’l L. 452, 453–54 (1954) (noting the distinction between the local remedies rule as substantive (i.e., no international liability exists absent exhaustion of local remedies) and procedural (i.e., international liability may exist but local remedies must be exhausted before a claim is brought); A. A. Cançado Trindade, Denial of Justice and Its Relationship to Exhaustion of Local Remedies in International Law, 53 PHILIPPINE L.J. 404, 417 (1978) (describing the exhaustion of local remedies as “a procedural rule affecting less the conditions of existence of responsibility than the conditions of exercise of a claim”). 190. See, e.g., Gerald G. Fitzmaurice, The Meaning of the Term “Denial of Justice,” 13 BRIT. Y.B. INT’L L. 93, 98 (1932) (describing the situation in which the original wrong is that of the court system’s failure to give redress, as compared to the case in which the original wrong stems from a governmental act preceding the dispensation of justice); Fawcett, supra note 189, at 454– 57 (noting situations in which the initial wrongful act is a breach of international law, and suggesting that the exhaustion of local remedies rule in such a case is merely procedural). But see CHITTRANJAN F. AMERASINGHE, LOCAL REMEDIES IN INTERNATIONAL LAW 98–99 (2d ed. 2004) (describing circumstances in which a lower court denies justice, and noting that local remedies must be exhausted before a claimant seeks international remedies, but asserting that international responsibility nevertheless stems from the lower court decision). 191. Id. ¶¶ 207–210. The United States had also argued that Loewen should have filed to reorganize the company under Chapter 11 of the U.S. Bankruptcy Code when the appeal was pending, which would have stayed execution of the Mississippi jury award. The tribunal did not question that in some circumstances requiring a company to file for bankruptcy would be an available local remedy, and suggested that Loewen had failed to convince the tribunal that corporate reorganization was not an adequate remedy in this case. Id. ¶ 209.

2005]

DENIAL OF JUSTICE

857

question the assumption that futility or unavailability of remedy, exceptions to the exhaustion of local remedies rule, applied to the doctrine of judicial finality. However, it determined that the Loewen Group had not carried its burden to demonstrate that it had no recourse, with particular reference to the possibility of filing for certiorari in the U.S. Supreme Court.192 The results of the Loewen decision could be far-reaching, even though NAFTA explicitly states that decisions do not have precedential effect for other cases.193 In the short time NAFTA panels have been convened, they have consistently looked to other tribunals’ treatments of the issues. They have not always followed the decisions of the other tribunals, but NAFTA panels have made some effort to explain they have rejected or found inapplicable the reasoning of prior tribunals.194 Intuitively appealing to lawyers especially is a requirement that a litigant avail itself of all avenues of redress before bringing a claim challenging the acts of a lower court as violations of international law.195 Trial court judges, as well as the lawyers before them, make mistakes when they decide complex issues in short order. Neither appellate courts 192. Id. ¶ 215. 193. NAFTA, supra note 1, art. 1136(1) (“An award made by a Tribunal shall have no binding force except between the disputing parties and in respect of the particular case.”). 194. See, e.g., Loewen Award, supra note 1, ¶ 227 (distinguishing the Mondev tribunal’s treatment of continuous nationality rule); Feldman v. Mex., ICSID Case No. ARB(AF)/99/1 (2002) (Award) ¶ 96, available at http://www.state.gov/s/l/c3751.htm (last visited Nov. 3, 2005) (noting the consistency of the tribunal’s ruling with the S. D. Myers Award on a similar issue); Id. ¶ 107 (acknowledging tribunal’s guidance from other Chapter 11 awards because of the parties’ reliance on them); cf. Raj Bhala, The Myth About Stare Decisis and International Trade Law (Part One of a Trilogy), 14 AM. U. INT’L L. REV. 845, 849–932 (1999) (discussing the de facto precedential value accorded to GATT panels and WTO panel and appellate body decisions); Dana T. Blackmore, Eradicating the Long Standing Existence of a No-Precedent Rule in International Trade Law—Looking Toward Stare Decisis in WTO Dispute Settlement, 29 N.C. J. INT’L L. & COM. REG. 487, 512–14 (2004) (describing the importance, but nonbinding nature, of GATT panel reports); Jiaxiang Hu, The Role of International Law in the Development of WTO Law, 7 J. INT’L ECON. L. 143, 159–60 (2004) (explaining that the appellate body may pay deference to decisions of other international tribunals, but it is not necessarily bound by them). 195. See, e.g., Emmanuel Gaillard, Centre International Pour Le Reglement Des Differends Relatifs Aux Investissements: Chronique des sentences arbitrales, 131 JOURNAL DU DROIT INTERNATIONAL 213, 235 (2004) (noting the seductiveness of such a rule as a means of limiting responsibility); Noah Rubins, Loewen v. United States: The Burial of an Investor State Arbitration Claim, 21 ARB. INT’L 1, 16 n.53 (2005) (noting that there is room for debate, but that the idea of judicial finality appears to be “solidly grounded in customary law”); Don Wallace, Jr., Fair and Equitable Treatment and Denial of Justice: Chattin v. Mexico and Loewen v. USA, in INTERNATIONAL INVESTMENT LAW AND ARBITRATION: LEADING CASES FROM THE ICSID, NAFTA, BILATERAL TREATIES AND CUSTOMARY INTERNATIONAL LAW 669 (Todd Weiler ed., 2005).

858


[Vol. 45:4

nor appellate attorneys are free from error. By the time an issue reaches an appellate court, however, it is often more refined and the chances of it being decided correctly are greater. More people, judges and attorneys alike, will have had a chance to evaluate the issue, to make more, different, and better arguments. Errors may be corrected, juries may be reined in, and justice may be done. From a policy perspective, however, it is difficult to distinguish the desirability of requiring a decision of the highest body within a court system from requiring a final decision from the highest official in an administrative system.196 Thus, if a lower-level official denies a request for a permit, why not require an applicant to appeal to the official’s superiors for a different decision, or to an administrative body with supervisory or appellate oversight? When the Loewen tribunal opined that only a final act of a judicial system may give rise to a NAFTA claim, the logical extension of that concept to requiring “appeals” within different hierarchical structures may lead to claims by states party to NAFTA that eviscerate any waiver of the local remedies rule. It may also limit any review by international tribunals faced with claims of denial of justice to appellate court decisions. Finally, claimants’ incentive to seek local redress may be diminished. If a claimant can make a colorable claim of a violation of international law based on a governmental measure outside the courts, she would have little incentive to seek local redress, the unavailability of which would not bolster her international claim unless and until all local remedies were exhausted.197

196. See Gaillard, supra note 195, at 235 (noting that the rule of finality should fail because it would apply with the same force to acts of the executive or legislative branch). Mr. Paulsson has suggested that the Loewen tribunal did not adequately explain its holding, but that the finality principle can be sustained by reference to a state’s international obligation to ensure an adequately functioning system of justice, rather than a court that dispenses justice in every individual case. PAULSSON, supra note 9, at 106–09. 197. See Andrea K. Bjorklund, Waiver and the Exhaustion of Local Remedies Rule in NAFTA Jurisprudence, in NAFTA INVESTMENT LAW AND ARBITRATION: PAST ISSUES, CURRENT PRACTICE, FUTURE PROSPECTS 253, 286 (T.J. Weiler ed., 2004) (discussing drawbacks to waiver of exhaustion of local remedies rule); William S. Dodge, National Courts and International Arbitration: Exhaustion of Remedies and Res Judicata Under Chapter Eleven of NAFTA, 23 HASTINGS J. INTL & COMP. L. 357, 381–83 (2000) (discussing wisdom of encouraging investors to seek relief in local courts, notwithstanding exhaustion of the local remedies rule).

2005]

ii.

DENIAL OF JUSTICE

859

Denial of Justice

Even though it had already ruled against Loewen on the basis of its decision on finality, the Loewen tribunal also opined on the acts of the Mississippi judicial system, and found that they constituted a denial of justice under international law. The Loewen tribunal adopted the standard set forth in Mondev and cited approvingly the International Court of Justice decision in ELSI: “Manifest injustice in the sense of a lack of due process leading to an outcome which offends a sense of judicial propriety is enough [to constitute a denial of justice].”198 The tribunal reiterated that “a NAFTA claim cannot be converted into an appeal against the decisions of municipal courts,” and said that “[w]hether the conduct of the trial amounted to a breach of municipal law as well as international law is not for us to determine.”199 Yet the tribunal noted that international law attaches special importance to discriminatory violations of municipal law, and concluded that, “[a] decision which is in breach of municipal law and is discriminatory against the foreign litigant amounts to manifest injustice according to international law.”200 Based on the Mondev standard, the tribunal found that the trial and resultant verdict failed to accord with the minimum standard of international law.201 It castigated the whole trial as unfair but declined to identify particularly egregious flaws on the grounds that it was not acting as an appellate court, though it specially mentioned the judge’s reformation of the jury verdict, and the result, as the “antithesis of due process.”202

c.

Waste Management Inc. v. United Mexican States

In Waste Management II, another case brought under NAFTA Chapter 11, the tribunal primarily reviewed the acts of local government officials who terminated a concession agreement between the municipality of Acapulco and Acaverde, a local subsidiary of a U.S. company. After reviewing the recent cases addressing the minimum standard of treatment NAFTA Parties are required to afford under

198. 199. 200. 201. 202.

Loewen Award, supra note 1, ¶¶ 131–132. Id. ¶ 134. Id. ¶ 135. Id. ¶ 137. Id. ¶¶ 121–122.

860


[Vol. 45:4

Article 1105, the tribunal determined that the minimum standard of treatment is violated: if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety—as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process.203 Because the company had sought relief in local courts, the tribunal also reviewed two decisions of Mexican federal courts, but did not find a denial of justice. In both cases Acaverde lost on what the tribunal termed “rather technical grounds,”204 but the decisions did not suggest that Mexican law had imposed unusual requirements or that the Mexican courts had come to conclusions that were “evidently arbitrary, unjust or idiosyncratic.”205

d.

BIT Cases

Most investor-state cases do not involve challenges to the judicial system. Many BITs take a fork-in-the-road approach to dispute settlement; an investor may challenge the acts of local officials either in local courts or in arbitration, but not in both.206 Theoretically an investor could challenge the local court proceedings as a denial of justice if the decision or the procedure was inadequate, though by then the investor would have forgone its right to challenge the underlying government act. There are, however, no published cases of such a challenge.207 203. Waste Management, Inc. v. United Mex. States, ICSID (W. Bank) ARB(AF)/00/3 (Apr. 30, 2004) (Award) ¶ 98, available at http://www.state.gov/s/l/c3753.htm (last visited Nov. 3, 2005). 204. Id. ¶ 129. 205. Id. ¶ 130. 206. See, e.g., VANDEVELDE, supra note 30, at 166–68 (noting that an investor who has chosen to submit a claim to local courts will have forfeited the ability to bring a BIT claim challenging the same government measure for which it sought a municipal remedy, but the investor may have a separate BIT claim against those court procedures, should they fail to comply with the appropriate standard); see also DOLZER & STEVENS, supra note 5, at 147–56 (comparing treaty clauses with varying procedures investors must pursue to obtain a treaty-based remedy); Giorgio Sacerdoti, Bilateral Treaties and Multilateral Instruments on Investment Protection, 269 RECUEIL DES COURS 251, 436–41 (1997) (noting the variety of procedures available to investors adopted under different BITs). 207. Many bilateral investment treaty cases are unpublished, so it is not possible to know

2005]

C.

DENIAL OF JUSTICE

861

The Reintersection of State Responsibility and Human Rights Jurisprudence

In the middle of the twentieth century, the law of state responsibility was eclipsed by the rise in vigor and importance of international human rights law.208 The human rights instruments considered and drafted by the international community contained many of the protections found in the law of state responsibility, but extended those protections to national, as well as to aliens.209 Investor-state arbitral tribunals have only rarely turned to the guidance that might be provided by the human rights tribunals, a regrettable failure to use all available resources and to commence a dialogue among the bodies that make important decisions about the standards for a functioning judicial system.210 The European Court of Human Rights jurisprudence offers guidance to a tribunal for measuring precisely how often investors have challenged court decisions. More decisions are now being published, but this trend towards transparency is relatively new. There are cases, both under the BITs and NAFTA, that have found the international minimum standard to require a level of “stability of the legal and business framework” under which a foreign investor does business. See, e.g., Occidental Exploration & Prod. Co. (U.S.) v. Ecuador, LCIAA No. UN3467, ¶¶ 183–192 (July 1, 2004) (Final Award), available at http://www.asil.org/ilib/OEPC-Ecuador.pdf (last visited Nov. 3, 2005); see also Metalclad Corp. (U.S.) v. United Mexican States, ICSID (W. Bank) ARB(AF)/97/1, ¶¶ 74–76, 88 (Aug. 30, 2000) (Final Award) (discussing the importance of transparency). Whether this requirement really is part of the international minimum standard has been questioned; the British Columbia Supreme Court reviewing the Metalclad decision held that it was not. United Mexican States v. Metalclad Corp., [2001] 89 B.C.L.R.3d 359, 379–81. 208. See Thomas E. Carbonneau, The Convergence of the Law of State Responsibility for Injury to Aliens and International Human Rights Norms in the Revised Restatement, 25 VA. J. INT’L L. 99, 104–05 (1984) (“[T]he emerging law of international human rights has become the linchpin concept in the international protection of the individual against state interference.”). 209. This advance to extend protections to citizens was welcomed by many proponents of the law of state responsibility, so long as the protections were enforceable and of a sufficiently high order. See Richard B. Lillich, Duties of States Regarding the Civil Rights of Aliens, 161 RECUEIL DES COURS 329, 360, 373–77 (1978). Proponents of the rights of aliens, however, were later concerned that draft human rights instruments failed to give adequate protection to aliens. Id. at 379–89 (describing Baroness Elles’s Draft Declaration on Prevention of Discrimination and Protection of Minorities, an instrument designed in part to reaffirm that international human rights norms should be extended to all, including aliens). 210. An exception is the Mondev tribunal, which looked to ECHR jurisprudence in its consideration of the relationship between sovereign immunity and access to justice. See supra notes 169–173 and accompanying text. In addition, an ICSID tribunal convened under the SpainMexico BIT looked extensively at European Court of Human Rights jurisprudence in the area of takings to decide the investor’s claim of expropriation. Tecnicas Medioambientales Tecmed S.A. (Sp.) v. United Mexican States, ICSID (W. Bank) ARB(AF)/00/02 ¶ 122 (May 29, 2003) (Award), available at http://www.investmentclaims.com/decisions/Tecnicas-Mexico-Award29May2003-Eng.pdf (last visited Nov. 3, 2005).

862


[Vol. 45:4

a nation’s practices against the standards contained in an international treaty while showing deference to the rights of those countries to maintain individually structured judicial systems. Given the similarity between the European Convention’s language and the customary international law views of denial of justice, the Court’s decisions may also help to illuminate the modern content of denial of justice. The European Convention on Human Rights, in Article 6(1), requires that “in the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.”211 Most of the ECHR’s decisions have dealt with process, and often with delays in coming to trial. In its 1993 judgment in Ruiz-Mateos v. Spain, the ECHR determined that the duration of proceedings related to the restitution of expropriated property, which had lasted nearly seven years and nine months, violated Article 6(1).212 The ECHR applied a three-part, fact-specific, substantive test to determine whether the length of the proceedings exceeded the Convention’s norms. The three criteria used by the ECHR were: (1) the complexity of the case, (2) the conduct

211. Convention for the Protection of Human Rights and Fundamental Freedoms, art. 6(1), 213 U.N.T.S. 221, 228 (entered into force Sept. 3, 1953). The Inter-American Convention on Human Rights also has a fair trial provision, Article 8(1), which provides that: Every person has the right to a hearing with due guarantees and within a reasonable time, by a competent, independent, and impartial tribunal, previously established by law, in the substantiation of any accusation of a criminal nature made against him or for the determination of his rights and obligations of a civil, labor, fiscal, or any other nature. American Convention on Human Rights, 9 I.L.M. 99, 104 (1970) (entered into force July 18, 1978). The jurisprudence on this provision is relatively sparse. In Garrido and Baigorria, two men disappeared after they had been seen talking to Argentine police officials, and neither the judicial system nor the public prosecutor responded to their families’ requests for assistance. Argentina admitted its responsibility in the case, so the finding of a denial of justice did not entail analysis on the part of the Court. Case 26, Inter-Am. C.H.R. 75, OAS/ser. L./V./III.35, doc. 4 (1997). 212. 16 Eur. Ct. H.R. 505 (1993). The facts are described as follows: The applicants...owned 100 percent of the shares in the RUMASA group companies. By legislative decree, the Spanish Government ordered the expropriation of the applicants’ shares…. By 27 May 1983, the applicants had instituted civil proceedings for the restitution of the expropriated property. The claims were dismissed both at first instance and on appeal after questions as to the constitutionality of the impugned measure had been referred to the Spanish Constitutional Court. The final appeal was dismissed on 25 February 1991. Id. at 505.

2005]

DENIAL OF JUSTICE

863

of the applicants, and (3) the conduct of the competent authorities.213 Based on its review of the facts of the case, the Court found that the proceedings had exceeded a reasonable time limit.214 The Court has also addressed the right to a remedy provided by the judicial system for alleged inappropriate government conduct. In its 1983 decision Sporrong and Lönnroth v. Sweden, the ECHR questioned the effects of long-term expropriation permits issued by the Swedish government which had deprived the owners of the use of their property for twenty three years and eight years, respectively.215 Though they did not claim that they had been formally and definitively deprived of their possessions, the applicants alleged that the permits and prohibitions at issue excessively limited their enjoyment and power to dispose of their properties and did not give rise to any compensation.216 The ECHR examined “whether a fair balance had been struck between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights.”217 The ECHR ruled that the prolonged extension of the expropriation permits and prohibition on construction upset this balance and imposed an excessive burden on the applicants which could only be rendered legitimate had Swedish law permitted the applicants to seek a reduction of the time limits for expropriation or to claim compensation.218 Since no such remedies existed, the expropriation violated Article 1 of Protocol No. 1.219 Moreover, the ECHR also found that the possibility of judicial review by the Supreme Administrative Court of the government’s decision to issue expropriation permits was an extraordinary remedy, exercisable only on limited grounds.220 Because the review structure would not allow examination of the merits of the case or a full review, the ECHR held that the review structure did not meet the requirements of Article 6(1).221 In Osman v. United Kingdom, decided by the ECHR in 2003, a father was killed and his teenage son, O, was seriously injured when they were

213. 214. 215. 216. 217. 218. 219. 220. 221.

Id. at 517–19. Id. at 521. 5 Eur. Ct. H.R. 35, 54 (1983). Id. at 35–36, 48. Id. at 52–54. Id. at 54. Id. Id. at 57–58. Id. at 58.

864


[Vol. 45:4

shot by P, the son’s former teacher.222 Prior to the shooting, a number of disturbing incidents had occurred, for which the school authorities and the police had interviewed P.223 P, who had also shot and injured a deputy headmaster and killed his son, was convicted of manslaughter.224 O and his mother, M, brought a negligence action against the police for failing to apprehend, interview, search, or charge P, despite having extensive knowledge of his suspicious activities.225 The British Court of Appeal ordered the action to be struck out as disclosing no reasonable cause of action on the ground that no action in negligence could lie against the police in respect of the investigation and suppression of crime.226 This rule followed a House of Lords ruling that had foreclosed such relief for reasons of public policy.227 The ECHR concluded that: the applicants must be taken to have had a right, derived from the law of negligence, to seek an adjudication on the admissibility and merits of an arguable claim that they were in a relationship of proximity to the police, that the harm caused was foreseeable and that in the circumstances it was fair, just and reasonable not to apply the exclusionary rule.228 Yet it stressed that the right of access to the courts is not absolute. The Court pointed out that a government may limit the right of access to the courts but must meet two criteria: (1) the limitation on access must pursue a legitimate aim, and (2) there must be a reasonable relationship of proportionality between the means employed and the aim sought to be achieved.229 The Court stated that these issues must be examined on the merits and not automatically excluded by the application of a rule which amounts to an absolute grant of an immunity to the police.230 Because the application of the exclusionary rule in Osman constituted a

222. 29 Eur. Ct. H.R. 245 (2000). 223. Id. at 252–54 (including reports regarding P’s “special relationship with O” and his harassment of another student, G, for his friendship with O). 224. Id. at 262–63. 225. Id. at 263. 226. Id. 227. Id. at 263–64 (referring to Hill v. Chief Constable of West Yorkshire, [1989] A.C. 53). 228. Id. at 313. 229. Id. at 315. 230. Id. at 316–17.

2005]

DENIAL OF JUSTICE

865

disproportionate restriction on the applicants’ right of access to a court, the Court found a violation of Article 6(1).231 The Court has reviewed far fewer cases involving the actual decision of a national court. In the 1999 case Brumarescu v. Romania, however, the Court addressed a Romanian court’s decision on the taking of property, and found the decision invalid on substantive grounds.232 The government seized a parcel of property in 1950, the applicant sued many years later after the ruling regime had changed, and the court of first instance ordered property returned to him in 1993.233 The Procurator-General of Romania applied some unspecified time after the entry of that judgment to have the judgment quashed under power given him by the Code of Civil Procedure.234 This power was not subject to a time limitation.235 The Romanian Supreme Court of Justice quashed the lower court’s decision and returned the property to the state.236 The ECHR held that this was a violation of “the principle of legal certainty.”237 Moreover, the Court held that the taking of property was invalid on substantive grounds because neither the Supreme Court nor the government showed that the taking was in the public interest.238 The ECHR further noted that any taking must be proportional; there must be a balance between the general interest of the community and “the protection of the individual’s fundamental rights.”239 The balance, according to the ECHR, does not exist “where the person concerned bears an individual and excessive burden.”240 The ECHR found that the applicant “bore and continues to bear an excessive burden,” and pointed to the lack of a public interest ground and the lack of compensation for four years (between the re-appropriation of the property and the ECHR claim) as evidence of this disproportionality.241 Although one needs to be careful in assuming that ECHR jurisprudence is necessarily transferable to different contexts, the decisions are a useful source, regardless of whether one is trying to find 231. 232. 233. 234. 235. 236. 237. 238. 239. 240. 241.

Id. at 317. Brumarescu v. Romania, 33 Eur. Ct. H.R. 862 (1999). Id. at 862. Id. at 864. Id. Id. Id. Id. at 865–66. Id. Id. at 866. Id.

866


[Vol. 45:4

guidance as to human rights norms or is seeking a methodology for examining the practices of a sovereign state within a larger federal entity. Seeking guidance from areas of law traditionally cordoned off from each other is becoming more common. The WTO Appellate Body plays an increasingly large role in developing international legal principles beyond the strict confines of trade law itself.242 This practice lends support to the arguments made by some international law scholars an acknowledgement that the dialogue between transnational actors helps to shape and make law.243

IV. DISSECTING DEFERENTIAL DENIAL OF JUSTICE STANDARDS The imprecision of denial of justice standards is unsatisfactory for several reasons. First, they may not work in the way their proponents envision. Formulations requiring arbitrators to give great deference to the national judiciary may be appealing on their face, if one’s goal is to minimize the ability of an international tribunal to make findings critical of a municipal court action. Yet ill-defined standards allow considerable latitude to international tribunals, making it dangerous to rely on them to achieve the goal of deference. Moreover, imprecise standards encourage unreasoned decision-making. These problems combine to undercut the legitimacy of international tribunals and their potential effectiveness in contributing to the rule of law.244 Imprecision in the standard means that decision-making is left largely to the conscience of an arbitrator in a particular case. The Harvard Research Draft does not define what would constitute a “gross deficiency” in process, precisely which guarantees are “indispensable to the proper administration of justice, or what would render a judgment “manifestly unjust.”245 Even the Chattin standard, which measures a 242. See, e.g., James Bacchus, Groping Toward Grotius, 44 HARV. INT’L L.J. 533, 540 (2003) (“As we said in the very first ruling of the WTO Appellate Body, WTO rules cannot be viewed in ‘clinical isolation’ from the broader corpus of international law.” ) (citation omitted). 243. See Harold H. Koh, Why Do Nations Obey International Law?, 106 YALE L.J. 2599, 2626 (1997) (discussing the transnational legal process theory and how various public and private actors “interact in a variety of public and private, domestic and international fora to make, interpret, internalize, and enforce rules of transnational law”); . 244. For a trenchant analysis of current threats to the legitimacy of international investment tribunals, see Susan Franck, supra note 68. Mr Paulsson suggests that concerns about legitimacy are overstated and premature. PAULSSON, supra note 9, at 241–46. 245. In fact, in their commentary, the authors wrote, “An exact definition seems neither possible nor advisable.” Harvard Research, supra note 115, art. 9 cmt. 23, at 173. In 1910, John

2005]

DENIAL OF JUSTICE

867

decision in reference to whether or not it shocks the arbitrator’s conscience, is more akin to an equity principle than a legal standard, and does not offer any more specific guidance to aid in decision-making.246 The more modern formulations—a decision that “shocks the conscience” of an arbitrator or “offends a sense of judicial propriety”— also depend on the subjective view of the arbitrator in any given case. The justification for this deference is usually attributed to concerns about sovereignty. First, because nations are permitted to organize their judicial systems as they see fit within very broad boundaries, the establishment of more precise standards risks favoring some legal systems over others. Thus, any standard must be fluid enough to encompass legal systems constructed from different legal, cultural, and political traditions.247 Second, publicists, national decision makers, and tribunal members have asserted that minimalist review maximizes deference to national sovereignty. Yet this conclusion rests on often erroneous assumptions about the actual decisions that arise from the standard formulations.

A.

The Risk of Underreaching

For many specific governmental functions, no international law standards exist; indeed, precisely in order to respect sovereignty, the organization of a judicial system, and indeed the laws of the territory, are left to individual states. An alien usually must take the legal system as he finds it.248 Because international law has not set specific Bassett Moore stated that he did “not consider it to be practicable to lay down in advance precise and unyielding formulas by which the question of a denial of justice may in every instance be determined.” Paul S. Reinsch, The Fourth International Conference of American Republics, 4 AM. J. INT’L L. 777, 787 (1910). 246. “[T]he doctrine of the ‘equitable result’…if allowed its head, leads straight into pure judicial discretion and a decision based upon nothing more than the court’s subjective appreciation of what appears to be a ‘fair’ compromise of the claims of either side.” Sir R.Y. Jennings, Equity and Equitable Principles, ANNUAIRE SUISSE DE DROIT INTERNATIONAL 27, 30 (1986). 247. Courts will interpret laws very differently depending on whether they are grounded in a civil law or common law tradition. Matters become more complicated when the systems are mixed. For a brief description of some of the vicissitudes in judicial behavior exhibited by courts interpreting a U.S.-style constitution in a legal regime premised on civil law principles, see Jacobs, supra note 3, at 408–14. 248. One tribunal noted: “As a rule, a foreigner must acknowledge as applicable to himself the kind of justice instituted in the country in which he did choose his residence including all deficiencies of such jurisdiction, imperfect as it is like every other human work.” Salem (U.S.) v. Egypt, 2 R.I.A.A. 1161, 1202 (1932).

868


[Vol. 45:4

requirements for national legal systems, many unsatisfactory domestic acts theoretically could not violate the law of nations. Given the restraint counseled by the deferential standard of review, a tribunal faced with such a situation would presumably declare a non liquet (it is not clear).249 Thus, if tribunals truly adhered to the maxim that they do not actually sit as courts of appeal, measuring acts of local courts against municipal laws, they would virtually never find a denial of justice. Even application of the standard—an act that “shocks the conscience” or “surprises a sense of judicial propriety”—would be rather rare.250 Indeed, many claims against quite questionable court proceedings have been dismissed because of the standard of review.251 Yet the fact that many judicial acts have been found to be a denial of justice suggests that arbitral tribunals are not abiding strictly by the “shock the conscience” standard. In Chattin, for example, several charges were leveled against the Mexican court proceedings in which Chattin was tried and convicted of embezzlement from the railroad company for which he worked: (1) illegal interference by the governor in court proceedings; (2) consolidation of proceedings against all wrongdoers without reason; (3) undue delay in the proceedings; (4) bail set in an exorbitant amount; (5) failure to inform the accused of the case against him; (6) failure to

249. Those who counsel restraint in decision-making suggest that this is the only course open to tribunals faced with gaps in international law. Others who take a more expansive view of the structure of international law suggest that it is the role of tribunals to fill in those gaps. For an excellent discussion of the competing camps, see Richard H. Steinberg, Judicial Lawmaking at the WTO, 98 AM. J. INT’L L. 247, 258–59 (2004). 250. A comparison of the standard of review U.S. federal courts employ in federal habeas corpus cases is interesting. The Fourth Circuit determined, in the aftermath of the Anti-terrorism and Effective Death Penalty Act of 1996, that a federal court could grant relief only if the state court had applied federal law “in a manner that reasonable jurists would all agree is unreasonable.” Green v. French, 143 F.3d 865, 870 (4th Cir. 1998). Four justices on the U.S. Supreme Court found that this required too much; Congress would not have required such unanimity of federal judges on the question of what constitutes reasonableness. Williams v. Taylor, 529 U.S. 362, 377–84 (2000) (Stevens, J., plurality opinion). The Court itself found that standard inappropriate because it would transform the nature of the inquiry from an objective assessment of reasonableness to a subjective inquiry as to whether any judge had ever come to a contrary conclusion. Id. at 409–10 (O’Connor, J., plurality opinion). 251. See, e.g., Salem, 2 R.I.A.A. at 1202 (noting that only exorbitant cases of injustice can give rise to relief in an international tribunal). Thus, notwithstanding the fact that Salem was not given an opportunity to be heard or to present evidence in his defense, he did not face a denial of justice in the eyes of the majority. The dissenting arbitrator criticized this conclusion and noted the numerous occasions on which international tribunals had reviewed the acts of national courts in cases presenting similar irregularities. Id. at 1235–36 (Nielson, F., dissenting).

2005]

DENIAL OF JUSTICE

869

ensure that the accused had counsel; (7) failure to give the accused an interpreter; (8) failure to require that the witnesses take oaths; (9) failure to let the accused confront the witnesses against him; and (10) hearings in open court that lasted only five minutes but resulted in finding of guilt and imprisonment for over two years.252 Several of the allegations were held to be unfounded. The tribunal did find that there had been an undue delay in the proceeding, yet the formal proceedings began on July 9th and ended in February. Though the tribunal pointed to several instances in which the proceedings could have gone more quickly, it did not explain why a roughly seven-month period from arrest to incarceration was a per se denial of justice apparent to any reasonable person.253 The tribunal also found that the bail set was “exorbitant,” but that this could not be held to be an “illegal act on the part of the judge.” Again, no explanation accompanied this conclusion.254 Measuring acts against such a vague standard neither advances justice in a particular case nor develops the international law of state responsibility in a way beneficial to states or to investors. Moreover, the lack of precision in the standard and in the decision means that one often does not know why a judicial action is or is not a denial of justice. This paucity of reasoning does not assist states desirous of knowing whether their judicial systems meet international standards.

B.

The Risk of Overreaching

A deferential approach may lead to unreasoned decisions that are potentially more wide-reaching indictments of a nation’s administration of justice than a more focused and searching review would produce.255 This again largely has to do with the imprecision permitted, indeed almost demanded of, an arbitrator in determining whether a decision shocks the conscience or “surprises a sense of judicial propriety.”

252. Chattin (U.S.) v. Mexico, 4 R.I.A.A. at 288. 253. See id. at 290. 254. See id. 255. In L’Affaire Martini, a case involving a breach of a concession contract awarded to the claimants by the Venezuelan government and a claim that the Venezuelan courts had failed to give justice, a majority of the tribunal examined very particularly the acts of the Venezuelan court, and found that each one could be explained satisfactorily. The tribunal thus determined that there had been no denial of justice. L’Affaire Martini (Italy v. Venez.), 2 R.I.A.A. 975 (1930). The dissenting arbitrator argued in vain for his fellow tribunal members to look at the events as a whole; from that perspective, he though it evident that there had been a denial of justice. Id. at 1008 (Tumedei, C., concurring in part, dissenting in part).

870


[Vol. 45:4

Chattin again provides such an example. According to the majority, the proceeding in which Chattin was convicted in open court lasted some five minutes, and accompanied other acts that evidenced “a most astonishing lack of seriousness on the part of the Court.”256 The Chattin tribunal noted the authorities’ failure to investigate or verify the complaints against Chattin, his inability to see all of the evidence against him or to confront his accusers, and concluded that “the Commission would render a bad service to the Government of Mexico if it failed to place the stamp of its disapproval and even indignation on a criminal procedure so far below international standards of civilization as the present one.”257 Loewen is another example. The claimants in Loewen had challenged numerous acts of the trial court. These included complaints about the judge having permitted plaintiff’s counsel to make insidious comparison based on race, nationality, and class; the admission of inappropriate evidence; improper jury instructions; and an improper reformation of the damages award. In its opinion, the Loewen tribunal stated that “the whole trial and its resultant verdict were clearly improper and discreditable and cannot be squared with minimum standards of international law and fair and equitable treatment.”258 The statement refers back to several paragraphs of the decision in which the tribunal refused to discuss the domestic procedural disputes and said it would avoid “nitpicking” at the decisions of the trial judge, and refers specifically to the reformation of the jury award as one single instance, among many, of the unfair treatment accorded Loewen during the Mississippi court trial.259 This leaves the reader not knowing which particular parts of the trial failed to comport with the international minimum standard, and fails to give guidance as to what acts in particular might be sufficient to trigger international liability.

C.

The Court of Appeal: The Gap between Theory and Practice

Most arbitral tribunals emphasize that they are not and that they should not sit as “courts of appeal” reviewing the decisions of municipal courts. Yet often they do just that, or something suspiciously akin to it. 256. Chattin, 4 R.I.A.A. at 292. 257. Id. At least the Chattin tribunal had fairly particularly described the acceptable and unacceptable parts of the process. 258. Loewen Award, supra note 1, ¶ 137. 259. Id. ¶¶ 119–123.

2005]

DENIAL OF JUSTICE

871

In the 1933 case of Solomon v. Panama, the tribunal found, without any reference to the appropriate standard of review, that a U.S. national, Solomon, had been arrested and tried under the wrong provision of Panamanian law, and that had he been tried under the correct provision, he should not have been found guilty.260 The dissenting Panamanian arbitrator in vain reminded the majority of the standard of review they should have been employing.261 In Mondev, the tribunal dutifully reiterated the axiom that it should not be sitting as a court of appeal,262 yet it proceeded to examine whether the SJC decision had stated a new rule of contract law as compared to prior Massachusetts precedent.263 It declined to address whether the SJC’s failure to remand the issue of tender of performance violated its obligation to remand questions of fact to the jury (because doing so would turn the tribunal into a court of appeal), yet noted that there could be a problem if the appellate decision had taken into account some entirely new issue of fact essential to the decision and the affected party had not been able to present its case.264 These cases present problems not only because the arbitral tribunals exceed what they perceive to be their authority, but also because what they claim they are doing does not always correlate with what they are actually doing. The Mondev tribunal’s analysis was incisive and cogent, but not altogether consistent with its avowed role. This undercuts the legitimacy of the tribunals and the value and persuasiveness of their decisions. Also, it thwarts the efforts of investors or states who may look to prior practice to ascertain their obligations.

D.

Reasoned Decision-Making and Arbitral Legitimacy

The above criticisms lead to the same conclusion: without defined standards arbitrators do not have to write thoughtful and well-reasoned awards. Requiring that tribunals give a reasoned account of their decision-making is crucial to the integrity of the arbitral process.265 260. Solomon (U.S.) v. Panama, 6 R.I.A.A. 370, 371–72 (Cl. Cmm’n U.S.-Pan. 1933). 261. Id. at 376–77 (Panamanian Comm’r, dissenting). 262. Mondev Award, supra note 1, ¶ 126 (“[I]t is not the function of NAFTA tribunals to act as courts of appeal.”). 263. Id. ¶¶ 129–134. 264. Id. ¶¶ 135–136. 265. See ICSID Convention, supra note 11, § 5 art. 52. In recognition of that goal, Article 52(1)(e) of the ICSID Convention requires that arbitrators address every claim in front of them. See id. § 5, art. 48. This has not been interpreted to be an especially rigorous requirement, although it has given rise to the annulment of a decision in at least one case. Amco Asia v.

872


[Vol. 45:4

Receipt of an imperfectly reasoned or supported award frustrates claimants who have spent considerable money, time, and effort to get a full and fair result. A full accounting of the decision may also give the parties grounds on which to challenge the decision by revealing logical flaws in the reasoning process.266 The difference between a serious error and a manifestly unjust judgment is not always easy to make, and having such an abstract formulation places a great deal of discretion in the arbitrator. To use an Anglo-American formulation, such flexibility may well encourage a tribunal to act in equity rather than in law. Professor Thomas Franck has written that “Equity plays the same role in international law as in domestic jurisprudence, and seeks similarly to protect itself from direct confrontation with expectations of legitimacy by adopting many of the appurtenances of normativity.”267 Even when deciding a case on the basis of “equity,” the ICJ has noted: [T]he justice of which equity is an emanation, is not abstract justice but justice according to the rule of law; which is to say that its application should display consistency and a degree of predictability; even though it looks with particularity to the peculiar circumstances of an instant case, it also looks beyond it to principles of more general application. This is precisely why the courts have, from the beginning, elaborated equitable principles as being, at the same time, means to an equitable result in a particular case, yet also having a more general validity and hence expressible in general terms.268

Republic of Indonesia, 89 I.L.R. 514, 551 (ICSID 16 May 1986) (Decision of ad hoc committee in the annulment proceedings); see also FRANCK, supra note 11, at 317 (discussing reasons that the decisions of the International Court of Justice have garnered respect) (“The final decisions of the Court are not its most important contribution. More significant is the rigorous and principled reasoning by which those decisions are reached. Through that reasoning the Court exercises a vital influence over the evolution of the international system’s normative foundations.”) (citation omitted); Susan Franck, supra note 68, at 1616–17 (suggesting that making awards public provides an incentive to tribunals to ensure that they are persuasive and well-reasoned, and suggesting that such a development contributes to the legitimacy of such tribunals). 266. See Amco Asia, supra note 265, at 526–27. The Amco Asia decision has been subject to criticism for not abiding by the very narrow standard of review set forth in the ICSID Convention; the annulment body frequently supplied the missing reasons. See, e.g., SCHREUER, supra note 11, at 988 & 1019–23; Jan Paulsson, ICSID’s Achievements and Prospects, 6 ICSID REV. 380, 390 (1991). 267. FRANCK, supra note 11, at 49. 268. Continental Shelf (Libyan Arab Jamahiriya v. Malta), 1985 I.C.J. 13, at 39 (June 3).

2005]

DENIAL OF JUSTICE

873

Likewise, states are often skeptical of: judicial departures from black letter law; it accords entirely with the history of equity in England, where its introduction into a legal dispute was cast in strictly remedial terms, with the avowed purpose not of laying down broad legal principles but merely of remedying the effects of the law in exceptional instances of injustice.269 An investment tribunal operating under a “shock the conscience” standard may similarly be expected to act in equity: when faced with a facially disturbing judicial or quasi-judicial decision the tribunal can adjudge the questionable act wrongful without thoroughly exploring the justifications the municipal decision maker might offer to support the decision and without explaining how international law supports such a conclusion.

V.

SEQUENTIAL REVIEW

What, then, is the answer, if traditional views of denial of justice are too imprecise? An approach I call sequential review attempts to harmonize the disparate, and sometimes competing, goals of investorstate dispute settlement. This approach rectifies one of the main problems with the “manifest injustice” or “shock the conscience” standard -- it is pressed into service for two purposes. It acts at once as both a standard of review and as a substantive standard against which municipal court decisions are measured. This conflation means that a tribunal is not to review a court decision unless the decision shocks the conscience; yet a tribunal will not be able to make that assessment before engaging in any review. Separating these functions has the salutary effect of giving more specific direction to tribunals. Thus, the best way to avoid resort to purely equitable principles that may lack grounding in the law is to require tribunals to engage in a systematic review of a decision, and to make clear the bases on which they are deciding.270 Andreas Roth, writing in 1949, clearly set forth the 269. FRANCK, supra note 11, at 64. 270. See id. at 7, commenting: The fairness of international law, as of any other legal system, will be judged, first by the degree to which the rules satisfy the participants’ expectations of justifiable distribution of costs and benefits, and secondly [sic] by the extent to which the rules are made and applied in accordance with what the participants perceive as right process.

874


[Vol. 45:4

intellectual process a tribunal should go through in considering whether there has been a denial of justice. “The first test to be applied is, therefore, whether, according to national justice, the alien’s judicial treatment was correct and lawful. Then, in the second place, it must be ascertained whether the state’s judicial organization measures up to the standard instituted by international law.”271 Sohn and Baxter, in their Draft Convention of 1961, attempted to inject more objectivity into the standards by setting forth multipart tests for both procedural and substantive denials of justice. Thus, for substantive denials of justice, they suggest a disjunctive three-part inquiry into whether a violation is wrongful: “(a) if it is a clear and discriminatory violation of the law of the State concerned; (b) if it unreasonably departs from the principles of justice recognized by the principal legal systems of the world; or (c) if it otherwise involves a violation by the State of a treaty.”272 If a state’s judgment should fall short of any one of the above criteria, it would present a denial of justice. This approach, similar to that suggested by Roth, is a marked improvement on the Harvard Research Draft and the Chattin standard.273 Sequential review builds on this approach, but falls short of adopting wholesale a rules-based approach.274 A rules-based approach is generally perceived as restricting the authority of an implementing decision maker, while a standards-based approach “allow[s] decision makers to consider context-specific factors as well as principles that motivated the legal directive.”275 The many learned publicists who have grappled with denial of justice have understandably found the adoption of categorical rules unwise, given the disparities of national legal Professor Franck went on to note that “[t]hese two aspects of fairness—the substantive (distributive justice) and the procedural (right process)—may not always pull in the same direction, because the former favors change and the latter stability and order.” Id. 271. ROTH, supra note 98, at 184. . 272. Sohn & Baxter, supra note 120, art. 8. 273. See also Myres S. McDougal et al., The Protection of Aliens from Discrimination and World Public Order: Responsibility of States Conjoined with Human Rights, 70 AM. J. INT’L L. 432, 450–52 (1976) (noting, in the context of the international minimum standard, that the distinction between lawful differences in treatment of aliens and nationals and discrimination on an arbitrary basis “must depend not only upon the values which are primarily at stake but also upon many varying features of the institutional practices by which such values are sought and shaped.”). 274. Spencer Overton, Rules, Standards, and Bush v. Gore: Form and the Law of Democracy, 37 HARV. C.R.-C.L. L. REV. 65, 73–75 (2002) (comparing the merits of rules-based and standards-based approaches). 275. Id. at 73.

2005]

DENIAL OF JUSTICE

875

systems and the variety of circumstances in which denial of justices cases arise.276 In such circumstances, however, consistency in the process of decision-making can add structure and predictability. Sequential analysis has many benefits. It correctly recognizes that in many cases the most likely denial of justice will arise from the judicial system’s failure to live up to the standards imposed by its own government. Only secondarily would the organization of the judicial system itself give rise to liability. Finally, at the end of this process, the tribunal should have clearly identified the evidence on which it based its decision. This latter step is crucial to doing justice to both the investor and the host state.

A.

Evaluating Decisions vis-à-vis Municipal Law

The denial of justice doctrine should recognize that the primary obligation a nation has is to establish a system of justice and to abide by it. The first analytical step effectively requires the tribunal to measure the decision in question against the requirements of municipal law. This review would take into account both determinations on questions of procedure and on substance. At this stage of review, the tribunal would not be opining on the underlying validity of the municipal laws in question, but would review alleged errors in the application of those laws. This level of inquiry acknowledges that the most likely breach of international law would be a failure to abide by one’s own standards. While counterintuitive to those who determinedly resist the notion that arbitral courts act in any way as “appellate courts,” this review is, in fact, much less far-reaching in result than is an inquiry into the sufficiency of the whole of a nation’s legal system. At stage one of the review, the result of a decision adverse to a state would give redress only to the claimant in a particular case. That does not mean, however, that the standard of review should not be deferential. The common view has been that court judgments should not be second-guessed for mere mistakes.277 Yet mistakes may lead to 276. See McDougal et al., supra note 271, at 450–52 (1976) (“The minimum international standard for treatment of aliens, like all prescriptions which require delicate relation to the many varying features of differing contexts, has of necessity been left highly general in its empirical reference.”); PAULSSON, supra note 9, at 59–61 (noting the tentativeness with which commentators have suggested definitions). 277. A number of cases and commentators have suggested that mere errors should not implicate international responsibility. See PAULSSON, supra note 9, at 64–65. This trope, conflates the notion of a standard of review and a standard of state responsibility. Other

876


[Vol. 45:4

miscarriages of justice; the presence of too many mistakes suggests incompetence and a non-functioning system. Scrutiny that respects the expertise of the court while nonetheless making a meaningful inquiry into the decision—one possibility is review akin to the deference granted to agencies in the hard-look doctrine employed by the D.C. Circuit—would better meet the case.278 The hard-look doctrine is attractive because it requires a court to “examine the adequacy of an agency’s reasoning and explanation, including its consideration of material comments, all relevant factors, and the like, without substituting their judgment for that of the agency.”279 In most instances, the presumption must be that a national court is best suited to interpret national laws.280 In fact, in common law countries, courts make law—the decisions of many courts have precedential authority in subsequent cases. Any review would have to take into account both the incremental development in the common law and the interpretive process in which courts engage.281 One subsidiary question is whether the decision of a court of first instance should be subject to less deferential review. Because the state parties to the BITs and NAFTA have generally waived the requirement of exhaustion of local remedies, they have increased the likelihood that international tribunals will review lower court decisions.282 For practical reasons, these lower court decisions should also be deferentially reviewed. First, such a court should still be well qualified to apply or international tribunals also face the difficulty of developing standards of review commensurate with their function. See Steven P. Croley & John H. Jackson, WTO Dispute Procedures, Standard of Review, and Deference to National Governments, 90 AM. J. INT’L L. 193 (1996). 278. See Overton Park, Inc v. Volpe, 401 U.S. 402, 415–16 (1971). I am grateful to Cass Sunstein for suggesting the hard-look doctrine as a useful analogy. 279. William S. Jordan III, Ossification Revisited: Does Arbitrary and Capricious Review Significantly Interfere With Agency Ability to Achieve Regulatory Goals Through Informal Rulemaking?, 94 NW. U. L. REV. 393, 398–99 (2000). 280. Mr. Paulsson has gone somewhat further on this point. PAULSSON, supra note 9, at 73 (noting that “the final word as to the meaning of national law should be left with the national judiciary”). But even though Mr. Paulsson suggests that international tribunals not evaluate a court’s application of its national law, he allows an exception for certain cases that are so egregious as to demonstrate a grave defect in the legal system. Id. at 89–90. My concern with this approach is that it does not solve the problems associated with underreaching or overreaching; nor does it help to ensure thoroughly reasoned decisions. 281. Cf. Bouie v. Columbia, 378 U.S. 347, 354–55 (1964) (an unforeseeable state court decision retroactively applied against a criminal defendant fails to comport with due process). 282. It is true that the decision on finality in Loewen, which says that lower court decisions can usually not be the subject of arbitral review, may limit the number of times such review is contemplated. See supra Section III.B.2.b.i, “Judicial Finality,” and its accompanying notes.

2005]

DENIAL OF JUSTICE

877

interpret its own municipal laws. Second, subjecting such courts to lessdeferential review would increase the incentive to refer the case to an international tribunal. Generally speaking, the most attractive option is still to let a nation’s court system correct its own errors. Granting less protection to lower court decisions might well provoke fewer appeals and more international arbitrations. Part of the sequential review inquiry would be whether there is evidence of discrimination against aliens, or some other invidious motive. While such proof may be difficult to obtain, the inquiry should still be made.283 Even an act that seems discriminatory may be able to be explained. For example, in Aminoil, an expropriation affected only one foreign-owned enterprise, but the international tribunal “found that this did not prove that the government had acted out of hostility to foreign capital when there was evidence that the authorities had long pursued a coherent, phased plan to establish control over the nation’s principal resource.”284 Loewen effectively illustrates the first stage of review. At the first stage of the inquiry, the tribunal would review the conduct of the Mississippi courts and jury in Loewen. Such a limited review is, in fact, all that the Loewen claimants requested. They carefully tailored their claim to challenge the particular verdict handed down in Mississippi trial court, but did not suggest that the punitive damages system, or the civil jury trial, were themselves flawed.285 Thus, a tribunal would analyze the trial to determine whether the Mississippi court’s 283. In fact, Professors Sohn and Baxter, when suggesting that a discriminatory violation of the law of the state concerned might be a denial of justice, use the term “discriminatory” not in the sense of invidious discrimination; rather, they suggest that the appropriate inquiry is to the law as applied, as opposed to the law on the books. Thus, if a state’s constitution confers certain rights, but no persons in the state are allowed to assert those rights, the failure on the part of a court to grant an alien redress for a violation of that right would not effect a denial of justice. Sohn & Baxter, supra note 120, art. 5, at 182 (referred to by Article 8 for an explanation of discrimination in that provision as well). 284. FRANCK, supra note 11, at 471 (citing Kuwait v. American Indep. Oil Co., 21 I.L.M. 976 ¶ 91 (Award) (1982)); see also Elettronica Sicula S.p.A. (U.S. v. Italy), 1989 I.C.J. 15, 72 (July 20). 285. Similarly, the Loewen claimants’ challenge to Mississippi’s 125% supersedes bond requirement was only to it as applied in their case. Many countries have supersedeas bonds, and some even have appellate bonds, but there is no evidence to suggest that either violates international law. In fact, states may require higher deposits for security for costs from aliens who do not have assets in the territory without violating international law, despite the obvious discriminatory nature of such a requirement. Sohn & Baxter, supra note 120, at 189. The Loewen claimants appeared to recognize the magnitude of asking the Tribunal to find that punitive damages as applied in civil cases, or bond requirements, violate international law.

878


[Vol. 45:4

application of the law in that particular case so departed from ordinary municipal legal practice as to constitute a denial of justice; given the obiter dicta in the Loewen tribunal’s decision, one presumes the answer would be yes.286 Yet under sequential review, the tribunal would actually need to identify the reasons for its conclusion; reciting the open-ended statement that a court process was biased would not suffice. If a decision did not meet those requirements, the reviewing tribunal would find that there had been a denial of justice in international law. The inquiry could often end there; once a claimant received relief because of deficiencies in a court’s decision, the tribunal would not always have to proceed to the second part of the inquiry—whether a state’s laws were consistent with the requirements of international law. A tribunal would proceed to the second stage only if it were necessary either to evaluate the merits of a claimant’s case or to calculate damages. This latter inquiry involves a greater intrusion into sovereignty: an international tribunal passing judgment on the propriety of a state’s legal system as a whole has potentially much further reaching implications than passing judgment over a single act.287

B.

Evaluating National Laws vis-à-vis International Standards

The second step of the inquiry would be to determine whether the legal system or allegedly inadequate law fell short of international standards. A court’s faithful application of its own municipal laws would in most cases satisfy international law obligations. In rare instances, however, the system itself may fail, or the laws provided by either the legislature or the courts may provide inadequate redress. This second stage would address those potential shortcomings. Determining whether the nation’s legal process, or laws themselves, comport with international law is likely to be extremely difficult, given the difficulty in establishing customary international law and the wide variety in national legal systems. The jurisprudence of the ECHR offers helpful approaches, particularly with respect to procedural matters. If a claimant alleges a denial of access to a court—for example, because a nation has not waived sovereign immunity for certain claims, the government’s acts should meet two criteria: the limitation on access must facilitate a legitimate aim and there must be proportionality 286. Loewen Award, supra note 1, ¶¶ 121–126 & 137. 287. This is analogous to constitutional abstention doctrines under which a court does not reach an unnecessary constitutional question.

2005]

DENIAL OF JUSTICE

879

between the means employed and the aim sought to be achieved.288 The ECHR’s approach to the merits of a substantive law also provides some guidance: for example, in a case involving the taking of property, the law must reflect a balance between the general interest of the community and the burden borne by any one individual.289 Imagine that the Loewen tribunal had reached the second stage of analysis. Certainly punitive damages have been subject to a great deal of criticism, both within and without the United States.290 The system of trial by jury in the United States, while inherited from English law and similar in some respects to those of other countries that took their legal system from the English model, has developed in a unique manner.291 The United States is one of the few common law countries in the world that still use juries in civil trials.292 If the United States were to defend the practice of punitive damages in the context of a proportionality analysis, as suggested by ECHR jurisprudence, it could have a difficult time offering a satisfactory justification. The aim of punitive damages is to deter wrongdoing; to the extent that the burden is sometimes very heavy on one wrongdoer, and seems to give a windfall to another individual without necessarily benefiting society at large, perhaps the system is problematic.293 From that perspective, limiting international review is in the interests of the United States. 288. Osman v. United Kingdom, 29 Eur. Ct. H.R. 245, 289 (2000). 289. Brumarescu v. Romania, 33 Eur. Ct. H.R. 862, 882 (1999). 290. See generally Gerald Walpin, America’s Failing Civil Justice System: Can We Learn from Other Countries?, 41 N.Y.L. SCH. L. REV. 647 (1997) (discussing general reforms to America’s punitive damages scheme). 291. Most constituent states of the United States still have civil jury trials, and for trials in federal courts, this right is enshrined in the Seventh Amendment to the U.S. Constitution: “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of a trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.” U.S. CONST. amend. VII. In criminal cases, the Fifth Amendment to the U.S. Constitution provides that all persons should be tried by a jury of their peers. U.S. CONST. amend. V. Since jury trials, along with concomitant doctrines such as the hearsay rule, are generally viewed as providing more protection to individual defendants than a trial without a jury, no one has yet suggested that jury trials in criminal cases violate international law. 292. Many countries have exemplary damages, a rough analog to punitive damages. See John Y. Gotanda, Punitive Damages: A Comparative Analysis, 42 COLUM. J. TRANSNAT’L L 391 (2004); Ronald A. Brand, Punitive Damages and the Recognition of Judgments, 43 NETH. INT’L L. REV. 143, 171–73 (1996). 293. Several European countries are loathe to enforce U.S. punitive damages awards. See Brand, supra note 292, at 163–66 & 169–71 (describing Germany’s and Switzerland’s policy of recognizing punitive damages only to the extent they are compensatory); Hartwin Bungert, Enforcing U.S. Excessive and Punitive Damages Awards in Germany, 27 INT’L LAW. 1075

880


[Vol. 45:4

In the case of the jury system itself, it would likely be an exaggeration to say that entrusting punitive damages decisions to juries violates “principles in the principal legal systems of the world,”294 since many other legal systems also have jury trials. Britain abolished the use of juries in civil cases not because it believed it had to do so in order to comply with international law, but to provide for what Britain considered to be the orderly administration of justice.295 If one considers the options—that a grossly inflated damages award in a particular case may be found to violate international law, or that the system of punitive damages as a whole does not correlate with international law—the former has a much narrower reach. There is still a “signaling” function, which suggests that a particular court made an error. Yet this would not likely have an effect on the system at large. The latter inquiry has potentially more far-reaching ramifications; international investors could then have an incentive to challenge every punitive damage award. One of the primary concerns in denial of justice jurisprudence is denial of access to courts, which is essentially a denial of access to redress for an underlying wrong. Court decisions implementing laws that limit liability for certain acts are thus likely targets of denial of justice claims. In Mondev, one of the issues was whether the

(1993) (discussing the difficulties faced by claimants seeking enforcement in Germany of a U.S. punitive damages award). The issue was one of the stumbling blocks in finalizing the draft of the Hague Convention on the Recognition and Enforcement of Judgments. Peter D. Trooboff, Ten (and Probably More) Difficulties in Negotiating a Worldwide Convention on International Jurisdiction and Enforcement of Judgments: Some Initial Lessons, in A GLOBAL LAW OF JURISDICTION AND JUDGMENTS: LESSONS FROM THE HAGUE 263, 267–69 (John J. Barceló III & Kevin M. Clermont eds., 2002) (noting the concern over the assertion of jurisdiction by U.S. courts “because of the size of awards that juries are believed to grant in civil litigation”). Compromise language in the most recent draft suggests some promise for resolving that conflict. Arthur T. von Mehren, Drafting a Convention on International Jurisdiction and the Effects of Foreign Judgments Acceptable World-wide: Can the Hague Conference Project Succeed?, in A GLOBAL LAW OF JURISDICTION AND JUDGMENTS: LESSONS FROM THE HAGUE 281, 284–85 & 285 n.9 (John J. Barceló III & Kevin M. Clermont eds., 2002). On June 30, 2005, the Hague Conference on Private International Law has signed on behalf of its member states a Convention on Choice of Court Agreements. The Convention is available at http://www.hcch.net/index_en.php?act=conventions.text&cid=98 (last visited December 1, 2005). Article 11 of the Convention permits a court to refuse enforcement of a punitive or exemplary damages award to the extent that it does not compensate a party for actual loss or damage suffered. 294. Sohn & Baxter, supra note 120, art. 8(b), at 196. 295. Britain has retained civil juries for defamation cases. See Walpin, supra note 290, at 652 n.36.

2005]

DENIAL OF JUSTICE

881

Massachusetts Tort Claims Act improperly shielded government actors from liability for intentional tort.296 Mondev did not challenge the Massachusetts court’s determination that the Boston Redevelopment Authority (BRA) (the entity that allegedly failed to give proper due process to the Canadian business entity seeking to do business with it) was indeed a governmental actor under Massachusetts law.297 Thus, only the second stage of the analysis was before the tribunal: is maintaining a system in which governmental actors are immune from liability for intentional torts, and thereby foreclosing any recovery for those injured by such actors, consistent with international law? This is slightly more problematic.298 Most nations have waived sovereign immunity from liability for intentional torts.299 The United States, however, articulated a legitimate aim for limiting sovereign immunity for intentional tort, at least in the case of insulating planning agencies from liability for interference with contractual relations. The fact that, by definition, every agency decision could adversely affect a contract would mean the agency could spend all its time litigating.300 Moreover, the Mondev claimant, by filing a Bivens action, may have had other recourse for the wrongs allegedly done by the government agency.301 Even if a tribunal were to decide that customary international law requires states to provide redress for such wrongs, such redress does not necessarily have to come by way of federal or tort claims acts. Countries are permitted to order their legal systems as they choose.

296. Mondev Award, supra note 1, ¶¶ 139–140. 297. Id. ¶ 140. 298. The opportunity to find redress for torts has always seemed important, even at a time when state responsibility law was less established. [I]n the case of contractual claims the active notice taken by the state of the wrong done its citizen is deferred until he has exhausted his local judicial remedies and a denial of justice is established, whereas in claims arising out of tort, if chargeable to a government authority, interposition is generally immediate; and in the further fact that wider discretion is exercised by the protecting state in the enforcement of contractual claims than of those purely tortious in origin. Edwin M. Borchard, International Contractual Claims and Their Settlement, 13 JUD. SETTLEMENT OF INT’L DISPUTES 3, 5 (1913). 299. See Eörsi, supra note 23, at 160. 300. Mondev, supra note 1, ¶¶ 151–53. 301. See Monell v. New York City Dep’t of Social Servs., 436 U.S. 658, 694–95 (1978) (recognizing that local government entities are subject to suit under the federal civil rights act). See generally Bivens v. Six Unknown Named Federal Agents, 403 U.S. 388 (1971).

882


[Vol. 45:4

The Mondev tribunal effectively engaged in the sequential review process, even though it did not describe it in that way. Mondev represents very well the potential reach of a decision that a nation has failed to provide in its laws access to courts. Imagine that the Mondev tribunal had indeed found that the failure to provide redress for intentional torts violated international law. The Massachusetts Tort Claims Act and the tort claims acts of many other U.S. constituent states mirror the Federal Tort Claims Act (FTCA).302 They all limit the liability of state actors for intentional torts. The imprecise deferential denial of justice standard might have been reasonable in an era in which states had to espouse the claims of their nationals and mixed-claims commissions were formed to remedy the most egregious wrongs. As demonstrated in Section IV above, however, it did not necessarily serve the function for which it was designed. The drawbacks to such a standard are increasingly clear in the context of burgeoning investor-state dispute settlement. Moreover, attempting to limit the scope of arbitral review so strictly, albeit imperfectly, may no longer align with the goals or needs of the international community. It is true that denial of justice is grounded in customary international law, yet that law is now developing in the context of a large and growing web of investment treaties. Encouraging the production of well-reasoned and articulate decisions may have broad implications. The transnational legal process that Dean Harold Koh has described suggests that one of the reasons nations obey international law is that as transnational actors continue to interact they generate norms of external conduct which are then internalized through continued dialogue.303 A state’s failure to abide by its international obligations creates frictions that a state will wish to avoid when it has an ongoing relationship with other states.304 In addition, an overarching goal of the treaties is to enhance the rule of law.305 The primary obligations undertaken by countries include 302. See generally Federal Tort Claims Act, 28 U.S.C. §§ 2671–2680 (2000). 303. Harold H. Koh, Transnational Legal Process, 75 NEBRASKA L. REV. 181, 191 & 203– 05 (1996) (describing “the importance of interaction within the transnational legal process and domestic internalization of international norms as determinants of why nations obey [international law]”); Robert B. Ahdieh, Between Dialogue and Decree: International Review of National Courts, 79 N.Y.U. L. REV. 2029, 2082–86 (2004) (discussing the potential for Chapter 11 tribunals to develop international law norms and effectuate their internalization). . 304. Koh, supra note 243, at 2655. 305. Investors are often skittish about investing in a foreign country because of perceptions

2005]

DENIAL OF JUSTICE

883

establishing a stable environment for investment.306 Since the countries are committed to these goals, one important question is how to make the doctrine of denial of justice work in this context. Until recently, few scholars in what might be termed the modern era had addressed this concern. Professor Robert Ahdieh has written of the benefits to be derived from what he calls “dialectical review”—a recurring engagement among international tribunals and national courts that could ultimately yield a system of harmonized legal norms.307 Sequential review complements this system of recurrent engagement by requiring that tribunal decisions be reasoned sources from which national courts can draw. The idea that they will wish to do so may be somewhat idealistic, but not impossible. Countries wishing to provide evidence that their investment climate is stable and predictable may be willing to embrace changes suggested by international tribunals, particularly if they are under pressure from locals who are dissatisfied with the quality of the local judicial system and wish to obtain the benefits that foreign investors have received under investment treaties.

VI. SOVEREIGNTY AS SCAPEGOAT A country signing a treaty that permits arbitration of investment disputes acts in a dual capacity. The state is, on the one hand, protecting its investors overseas by ensuring that they receive some assurance of recompense in the event measures are taken against them in violation of international law. At the same time, that state, with the hope of increasing inbound foreign direct investment, binds itself to abide by the same dispute resolution mechanisms.308 One may surmise that in most about the risk of unfair treatment and the inability to gain redress in local courts. Access to investor-state dispute settlement assures investors that they will have access to a neutral forum in the event something goes awry with their investments. See Giorgio Sacerdoti, Bilateral Treaties and Multilateral Instruments on Investment Protection, 269 RECUEIL DES COURS 251, 412–15 (1997). Countries enter into investment treaties in part to signal their hospitability to foreign investment and to allay those fears. 306. See Guzman, supra note 72, at 669–70. 307. Ahdieh, supra note 306, at 2086–87. Professors Anne-Marie Slaughter and Laurence Helfer have written more broadly of the interplay between national and international court decisions. See generally Helfer & Slaughter, supra note 26. 308. Recent scholarship suggests that a country’s ratification of a BIT does not necessarily increase foreign direct investment. See, e.g., Zachary Elkins et al., Competing for Capital: The Diffusion of Bilateral Treaties, 1960-2000 (Aug. 2004), at http://ssrn.com/abstract=578961 (last visited Nov. 3, 2005); Mary Hallward-Driemeier, Do Bilateral Investment Treaties Attract FDI?

884


[Vol. 45:4

instances a capital-exporting country is more concerned with protecting its investors than with drawing more investment, while a capitalimporting country is more concerned with attracting investment than with protecting its investors. Yet the obligations are reciprocal, and dispute settlement under such treaties should take account of both goals.309 Concerns about the appropriate scope of the denial of justice doctrine, and about investor-state dispute settlement generally, are often grouped under the broad and amorphous mantle of “sovereignty.”310 It is necessary to identify with more particularity those concerns to examine critically whether they have any merit. One concern is a state’s giving up exclusive power to regulate all activities within its borders. In federations such as the United States, those concerned with federal-state relations may view international tribunals as able to interfere in local affairs in a way that federal courts or officials do not. There are also concerns about reverse discrimination—that access to these tribunals is given to foreigners but not to nationals.

A.

The Essence of Sovereignty

Classically, “sovereignty in the relations between States signifies independence. Independence in regard to a portion of the globe is the Only a Bit…and they Could Bite 19–22 (June 2003), at http://econ.worldbank.org/files/ 29143_wps3121.pdf (last visited Nov. 4, 2005); Susan Rose-Ackerman & Jennifer Tobin, Foreign Direct Investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties (June 2004), at http://ssrn.com/abstract=557121 (last visited Nov. 3, 2005). But see Eric Neumayer & Laura Spess, Do Bilateral Investment Treaties Increase Foreign Direct Investment To Developing Countries? 3, 21–22 (Nov. 2004) (unpublished manuscript), at http://papers.ssrn.com/abstract=616242 (last visited Nov. 3, 2005); Deborah Swenson, Why Do Developing Countries Sign BITs?, 12 U.C. DAVIS J. INT’L L. & POL’Y (forthcoming 2006). 309. The principle of “restrictive immunity,” under which tribunals construe narrowly any waivers of sovereign immunity, is no longer generally followed. See, e.g., Fisheries Jurisdiction Case (Spain v. Can.), 1998 I.C.J. 432, 452–53; Mondev Award, supra note 1, ¶ 43. 310. In fact, claims of interference with “sovereignty” present nicely amorphous objections to whatever one does not like. See, e.g., J.L. BRIERLY, THE LAW OF NATIONS 47 (6th ed. 1963) (sovereignty is “merely a term which designates an aggregate of particular and very extensive claims that states habitually make for themselves in their relations with other states”); Steven R. Ratner, The Cambodia Settlement Agreements; 87 AM. J. INT’L L. 1, 22–23 (describing the “willo’-the-wisp” of sovereignty) (citation omitted). Concerns about sovereignty also arise in other contexts; one recent example is the debate over the establishment of the International Criminal Court. See Diane M. Amann, The International Criminal Court and the Sovereign State, in GOVERNANCE AND INTERNATIONAL LEGAL THEORY 185, 199–212 (Ige F. Dekker & Wouter G. Werner eds., 2004) (discussing sovereigntist objections to the establishment of an international criminal court).

2005]

DENIAL OF JUSTICE

885

right to exercise therein, to the exclusion of any other State, the functions of a State.”311 This absolutist, territorially-based definition is under increasing attack as global interdependence and multilateral actions become more frequent.312 The idea of an intrusion into sovereignty, and its effect on international relations, are subjective and difficult to measure. In a discussion of the extraterritorial reach of U.S. antibribery laws, Philip Nichols pointed to the lack of empirical evidence of any negative effect on “global harmony” resulting from implementation of those laws.313 Of course, not all intrusions into sovereignty are alike; those stemming from the assertion of more controversial jurisdictional bases, like the effects principle used in U.S. (and increasingly in EU) antitrust law, or the passive personality principle, are more controversial, raise more hackles, and have had more demonstrable effects.314 The simplest response to criticisms of abrogation of sovereignty is that through treaty ratification or fast-track legislation the political branches have voluntarily agreed to such a waiver.315 States exercise their sovereignty in choosing to abrogate it. In the state-to-state context, ad hoc or institutional arbitration is often seen as a “middle ground” in which neither state submits itself to the jurisdiction of the other state’s courts.316 In the investor-state context, states have voluntarily given 311. Island of Palmas Case (U.S. v. Neth.), 2 R.I.A.A. 829, 838 (1928). 312. THOMAS M. FRANCK, FAIRNESS IN INTERNATIONAL LAW AND INSTITUTIONS 4 (1995) (stating that it is impossible to reconcile notions of sovereignty that prevailed fifty or sixty years ago with the “contemporary state of global interdependence”). 313. Philip M. Nichols, The Myth of Anti-Bribery Laws as Transnational Intrusion, 33 CORNELL INT’L L.J. 627, 645–46 (2000). The Foreign Corrupt Practices Act permits the Department of Justice to investigate and prosecute U.S. citizens who violate its provisions by making improper payments to obtain or retain business anywhere in the world. Despite scores of prosecutions under the law, no one has documented any meaningful diplomatic breach resulting from those alleged intrusions into the sovereign territory of another state. Id. at 646. 314. For example, under the Helms-Burton Act, the U.S. Congress would penalize all those doing business with Cuba; by its terms, the proscription would extend to any U.S. national overseas. Presidents Clinton and Bush, as they were entitled to do under the statute, each suspended enactment of the extraterritorial provisions of the Act. The Helms-Burton Act was challenged before the World Trade Organization, but “[t]he United States settled the matter ‘outof-court’ immediately before the first submissions were due with the panel.” Eugene Kontorovich, The Arab League Boycott and WTO Accession: Can Foreign Policy Excuse Discriminatory Sanctions?, 4 CHI. J. INT’L L. 283, 297 (2003). 315. S.S. Wimbledon, (Ger. v. U.K., France, Italy, Japan), 1923 P.C.I.J. (ser. A), No. 1, at 15, & 24 (Aug. 17) (requiring Germany to submit to “important limitation of the exercise of sovereign rights” because of treaty provision); see also Chander, supra note 13 (discussing democratic international law). 316. See David D. Caron, The Nature of the Iran-United States Claims Tribunal and the

886


[Vol. 45:4

more rights to individuals, including the ability, in some instances, to press their own claims.317 This conception accepts the inevitability that in an interactive world there will be disputes and a need to resolve them. Giving consent to a regime in which an international tribunal, be it the WTO Dispute Settlement Understanding, the Iran-U.S. Claims Tribunal, or an ad hoc tribunal convened under the procedures outlined in a BIT, has the power to impose a solution on the state or states involved in the settlement process necessarily involves some abrogation of sovereignty.318 One reason for the criticisms is that states entering into bilateral investment treaties rarely articulate clearly their reasons for so doing. One might, for example, wonder why the U.S. Congress and the President do not regard the availability of diversity jurisdiction in U.S. federal courts as adequate protection for aliens in the United States.319 The reason may be that the doctrine of complete diversity may in many cases prevent an alien from removing a case to federal court, or that U.S. trading partners do not perceive federal courts as significantly less biased against aliens than are state courts. Those fearful of a “democratic deficit”—decision-making by nonelected, non-accountable international arbitrations—and abdication of authority rarely identify the precise results likely to ensue from the decision of an investment tribunal.320 It is true that decisions might Evolving Structure of International Dispute Resolution, 84 AM. J. INT’L L. 104, 116 (1990). 317. As early as the 1900s, Professor Fiore called for giving rights to people as individuals, not just to states as sovereigns, so as to “enlarge the enlightened concept of juridical freedom and equality, acknowledging the fact that the latter are not territorial rights, but properly international rights.” FIORE, supra note 84, at 30–31. 318. See Berman, supra note 20, at 453; Chander, supra note 13, at 1226–27. For a persuasive argument that ceding authority to institutions such as the World Trade Organization can actually strengthen a nation’s sovereignty, see Kal Raustiala, Rethinking the Sovereignty Debate in International Economic Law, 6 J. INT’L ECON. L. 841 (2003) (arguing that changes in the international system have undermined sovereignty, and that a state’s concrete concession of sovereignty such as that given to the WTO permits the state to reassert or reclaim sovereignty should it wish to do so). 319. See Kevin R. Johnson, Why Alienage Jurisdiction? Historical Foundations and Modern Justifications for Federal Jurisdiction over Disputes Concerning Non-Citizens, 21 YALE J. INT’L L. 1, 35 (1996) (suggesting that “bias against noncitizens unfortunately remains to this day.” 320. Professor Robert Howse has written an insightful and provocative discussion of the role differing perceptions of democracy plays in the context of international regulatory affairs and trade disputes. Robert Howse, Transatlantic Regulatory Cooperation and the Problem of Democracy, in TRANSATLANTIC REGULATORY COOPERATION 469 (George A. Bermann et al. eds, 2000). Mr. Paulsson has eloquently responded to “anti-international critiques,” describing and refuting “neonationalist currents” that tend to reject international law. PAULSSON, supra note

2005]

DENIAL OF JUSTICE

887

criticize the act of a local or national government, and those criticisms might have some effect on the transgressing entity, although any individual decision is practically limited—ad hoc investment tribunals can usually only order a losing state to pay damages.321 They may suggest that a court’s decision in a particular instance was wrong, but their order will not affect the status of that particular court’s decision, nor will it order that court to employ more sweeping change. Such decisions could adversely affect the reputation of a particular court, but could not order it to rescind a decision or change its laws.322 In many cases those decisions are akin to a declaratory judgment without an enforcement provision. This status does not mean the decisions are unimportant or necessarily without force. States may choose to abide by their treaty obligations and to give effect to the decisions of international tribunals, even when doing so seems to be against their self interest, in order to signal their willingness to comply with international obligations.323 Yet the most vehement criticisms also presume a chilling effect on judicial decision-making or legislative action, notwithstanding the fact that a state will not be obliged to change its laws or court procedures in response to adverse decisions.324 It is true that fears of repeat litigation 9, at 232–41. In particular, Mr. Paulsson posits that “[t]here is no foreign bogeyman who wants to subvert democratic legislation.” Id. at 237. 321. NAFTA, supra note 1, art. 1135(1). 322. The effect on reputation should not be discounted. See Andrew T. Guzman, A Compliance-Based Theory of International Law, 90 CAL. L. REV. 1823, 1880 (2002) (attributing states’ compliance with soft law to reputational concerns). But see JACK L. GOLDSMITH & ERIC R. POSNER, THE LIMITS OF INTERNATIONAL LAW 173–75 (2005) (suggesting that states’ assertions about their reputations are at best weak signals about their intent to comply with international obligations). 323. For thorough treatment of the role played by signaling theory in the realm of international law compliance, see Thomas Ginsburg & Richard McAdams, Adjudicating in Anarchy: An Expressive Theory of International Dispute Resolution, 45 WM. & MARY L. REV. 1229 (2004); see also Oona A. Hathaway, Between Power and Principle: An Integrated Theory of International Law, 72 U. CHI. L. REV. 469, 510–11 (2005) (discussing signaling theory in the context of government accession to treaties) Diane M. Amann, Group Mentality, Expressivism, and Genocide, 2 INT’L CRIM. L. REV. 93, 118–24 (2002) (discussing the importance of “expressivism”—the ways in which social and legal values are conveyed and received—in norm cultivation). 324. In contrast, a WTO tribunal may in fact order a state to withdraw laws or regulations incompatible with a state’s obligations under the WTO Agreements; however, a state may disregard the order and pay sanctions. See JACKSON ET AL., INTERNATIONAL ECONOMIC RELATIONS 259–71, 295–303 (4th ed. 2002) for an explanation of the WTO Dispute Settlement Understanding; cf. Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, in WORLD TRADE ORGANIZATION, THE LEGAL TEXTS—THE RESULTS OF THE URUGUAY

888


[Vol. 45:4

might in some instances curtail the freedom of political or judicial processes. In particular, repeated assertions that a particular judicial practice is wrong may have an accretive effect that ultimately would result in some legislative or judicial response. In some instances that effect will be desirable because reform of the judicial system is warranted. On the other hand, there may in the future be instances in which tribunal decisions have an in terrorem effect on desirable judicial or legislative action. To date, however, those fears have not been realized. In addition, a state may always choose to “pay and breach.” Moreover, the sequential review approach suggested in Section V above will tend to minimize decisions that could have a chilling effect. From a broader perspective the ability to “pay and breach” or even simply to ignore international court decisions illustrates the limits of international law often highlighted by its detractors.325 The critics of international tribunals do not seem to view either possibility as an option but assume compliance with tribunal decisions—and continued adherence to the treaties giving rise to such tribunals. Perhaps this is because, as Louis Henkin famously observed, the fact is “almost all nations observe almost all principles of international law and almost all of their obligations almost all of the time.”326 International tribunals, including those in ad hoc investor-state arbitrations, are convened under the authority of a treaty to which a state has consented. Should a state decide that it no longer wishes to comply with its treaty obligations, it may withdraw from the treaty. The concerns raised by critics, therefore, would seem to demonstrate as much a distrust of internal political processes as a distrust of international tribunals.

B.

Federalism Concerns

Within a federal system, an adverse decision by an international tribunal can, at least theoretically, effect two or more intrusions into sovereignty—on the federal and on the constituent state level when a subfederal law or judicial decision is at issue. For example, an adverse decision by the Loewen tribunal would, at least from a signaling ROUND OF MULTILATERAL TRADE NEGOTIATIONS 4 (1999), available at http://www.wto.org/english/ docs_e/legal_e/04-wto.pdf (last visited Nov. 3, 2005). 325. See JACK L. GOLDSMITH & ERIC R. POSNER, THE LIMITS OF INTERNATIONAL LAW 185– 203 (2005) (suggesting that states obey international law when it is in their self-interest to do so). 326. LOUIS HENKIN, HOW NATIONS BEHAVE 47 (1979).

2005]

DENIAL OF JUSTICE

889

perspective, have affected not only the United States but also Mississippi. The actual concrete effect that an adverse ruling would have on Mississippi, however, is far from clear. In a federal system of government that defendant will be the national government, which under international law is responsible for the acts of its constituent states.327 Unless the federal government were to succeed in getting subrogation from Mississippi, Mississippi’s concrete injury would appear to be limited for any particular case.328 In the event of a more sweeping decision, for example one that found Mississippi’s punitive damages law to violate international law, Mississippi would not necessarily have a strong fiscal incentive to change its laws in response to a decision. The federal government, on the other hand, might attempt to procure Mississippi’s compliance to protect the federal fisc. In the United States, the President, particularly when his acts are ratified by the Senate or by the Congress as a whole, has substantial authority to conduct matters relating to foreign affairs.329 The executive may via treaty establish a national or international regime that effectively preempts control that previously had been in the hands of the local governments.330 It is possible that in such an instance the federal 327. It is axiomatic that a state cannot avoid its international obligations by pleading inconsistent local law. Vienna Convention on the Law of Treaties, May 23, 1969, art. 27, 1155 U.N.T.S. 331, 339, 8 I.L.M. 679 (entered into force Jan. 27, 1980). 328. The United States has yet to lose any investor-state case. Tribunals in three of the cases filed against the United States have produced awards to date, all of which have been in favor of the United States. Loewen Award, supra note 1, ¶ 240; Mondev Award, supra note 1, ¶¶ 157–159; ADF Group Inc. (Can.) v. United States, ICSID (W. Bank) ARB(AF)/00/1 (Jan. 9, 2003) (Award) ¶¶ 199–200, available at http://www.state.gov/documents/organization/16586.pdf (last visited Nov. 3, 2005). No publicly available information suggests that the United States has ever faced a claim under one of its bilateral investment treaties. It strains credulity to suggest that the United States could face such a claim without at least some information about it leaking to the public. The assumption is that any payment of damages would come from the judgment fund, maintained by the U.S. government to pay damages in cases it loses. Congress has not passed any law authorizing the federal government to seek subrogation from the states in the event of a judgment that finds a state’s measure to violate the international law obligations of the United States. An interesting question is whether it could do so under its Commerce Clause powers or under its Foreign Affairs power. 329. The Supreme Court struck down a local Massachusetts law that restricted the state’s purchases of goods or services from individuals doing business with the military dictatorship in Burma (a.k.a. Myanmar) on the grounds that it interfered with the federal government’s conduct of foreign relations. Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363, 366–88 (2000). 330. Thomas M. Franck, Can the United States Delegate Aspects of Sovereignty to International Regimes, in DELEGATING STATE POWERS: THE EFFECT OF TREATY REGIMES ON DEMOCRACY AND SOVEREIGNTY 1, 4–5 (Thomas M. Franck ed., 2000). The Supreme Court’s

890


[Vol. 45:4

government could bring a federal preemption claim to require Mississippi repeal its offending laws. An adverse international tribunal decision could thus theoretically assist a federal government desirous of making an end run around limitations on federal authority by bringing a federal preemption claim.331 Absent a concerted effort by the federal government to usurp state authority, these preemption claims are likely to be rare.

C.

“Reverse Discrimination”

The vicissitudes of sovereignty concerns are intimately tied to accountability. In the late nineteenth and early twentieth centuries the most vehement attacks on expansions of international law as violative of sovereignty came from the Latin American states, whose actions were then most likely to be the subject of international law claims. At that time, developed countries, including the United States, argued hard for increased obligations, and downplayed the sovereignty concerns expressed by nations from the developing world. In an ironic twist, much of the concern about sovereignty now comes instead from the developed countries, and in particular from the United States and Canada.332 Previously Latin American nations had resisted decision in Missouri v. Holland, 252 U.S. 416 (1920), upheld the ability of the federal government to regulate to enforce protections for migratory birds contained in the Migratory Bird Treaty of 1918 based on the treaty power assigning responsibility for treaty making to the President and the Senate. Thus, the treaty makers could regulate to give effect to the subject matter of the treaty without trespassing on the authority left to the states under the Constitution.. Left open was the question of what subjects were appropriate for inclusion in a treaty. For an insightful discussion of the matter in the wake of the Rehnquist Court’s federalism decisions, see Edward T. Swaine, Does Federalism Constrain the Treaty Power?, 103 COLUM. L. REV. 403 (2003). 331. For a description of how various international commercial regimes interact with U.S. constitutional law, see Eschrat Rahimi-Laridjani, The Instance of Commercial Regimes, in DELEGATING STATE POWERS: THE EFFECT OF TREATY REGIMES ON DEMOCRACY AND SOVEREIGNTY 61–93 (Thomas M. Franck ed., 2000); John Yoo, The New Sovereignty and the Old Constitution: The Chemical Weapons Convention and the Appointments Clause, 15 CONST. COMMENT. 87 (1998). 332. See, e.g., Public Citizen, supra note 12, at http://www.citizen.org/publications/ release.cfm?ID=7076 (last visited Nov. 3, 2005); Bill Moyers, NOW, Trading Democracy: The Other Chapter Eleven, supra note 12. The Council of Canadians and the Canadian Union of Postal Workers filed and lost a challenge to the constitutionality of NAFTA Chapter 11 in the Ontario Superior Court of Justice. The Council of Canadians et al. v. Canada, Reasons for Decision, Court File no. 01-CV-20841 (July 8, 2005). They had claimed a “breach of binding and fundamental constitutional principles including the rule of law, democracy, constitutionalism and federalism”.The Council of Canadians et al. v. Canada, Notice of Application Court File No. 01-

2005]

DENIAL OF JUSTICE

891

the notion of the international minimum standard, following the maxim of the jurist Carlos Calvo and arguing that aliens deserved no better treatment, and no better recourse from alleged wrongs, than did their own nationals.333 By inserting so-called Calvo clauses in contracts, they attempted to eliminate diplomatic recourse for aliens, which in their view gave the aliens an extra and unfair venue in which to pursue relief, by requiring investors to give up their right to espousal, which effectively required them to give up all relief from international law.334 Though the United States was one of the most vociferous critics of the Calvo doctrine, the recent legislation granting the President “Trade Promotion Authority” (formerly fast-track negotiating authority) evinces Congress’s understanding that the administration will not negotiate agreements that give aliens greater rights than U.S. citizens and thus contains what appears to be a Calvo Clause.335 According to Senator Max Baucus, “many have complained that foreign investors actually have rights well beyond those of domestic investors. We must fix this. Foreign investors deserve comparable treatment to domestic investors—not superior treatment.”336 Since the passage of Trade Promotion Authority, however, the President has negotiated at least five agreements that contain investor-state dispute settlement provisions giving foreign investors the right to submit arbitral claims against the U.S. government.337 Moreover, the U.S. Model BIT, revised most CV-20841 (Apr. 3, 2001) ¶ 1(j). An appeal is pending. 333. DONALD R. SHEA, THE CALVO CLAUSE 16–21 (1965). 334. Id. 335. In Trade Promotion Authority, one of the principal negotiating objectives is “to reduce or eliminate artificial or trade-distorting barriers to foreign investment, while ensuring that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States….” Trade Act of 2002, Pub. L. No. 107-210, § 2102(b)(3), 116 Stat. 933, 995 (2002). This was, in fact, a watered-down version of the “Kerry Amendment,” which would have said that a trade agreement “shall ensure that foreign investors are not granted greater legal rights than citizens of the United States possess under the United States Constitution … [and] ensure that standards for minimum treatment … shall grant no greater legal rights than United States citizens possess under the due process clause of the United States Constitution.” Proposed Kerry Amendment to H.R. 3009, S.A. 3430, 107th Cong., 148 CONG. REC. S4504 (2002). 336. Senator Max Baucus, Moving Ahead on Fast Track, Remarks at the New America Foundation Global Economic Policy Project (Oct. 11, 2001) available at http://usinfo.org/wfarchive/2001/011011/epf419.htm. 337. U.S.-Uruguay Bilateral Investment Treaty, Oct. 25, 2004, available at http://www.ustr.gov/assets/World_Regions/Americas/South_America/Uruguay_BIT/ asset_upload_file583_6728.pdf (last visited Nov. 3, 2005); the Central America-Dominican Republic-United States Free Trade Agreement, Aug. 5, 2004, available at http://www.ustr.gov/

892


[Vol. 45:4

recently in November 1994 and the starting point for all U.S. BIT negotiations, contains investor-state dispute settlement provisions very similar to those in NAFTA, including references to substantive protections, such as the minimum standard of treatment in customary international law.338 An open question, then, is whether the President acted outside the bounds of his authority by negotiating and agreeing to provisions allowing arbitral claims to be brought by foreign investors. However, the fact that Congress approved those agreements, notwithstanding their departure from the directions encompassed in the Trade Promotion Authority legislation, likely insulates them from such claims. Still, one can imagine a challenge to the agreements in U.S. courts on the grounds that they are outside the bounds of the executive’s statutory authority, or are even unconstitutional.339 One can also imagine that the scope of the obligations undertaken by the defendant governments may be at issue in the arbitrations themselves, and that those seeking to limit liability may point to the language in the legislation. A further possibility is that U.S. investors will seek to assert the same rights directly against the United States, although state responsibility law does not historically protect a citizen from the acts of his or her own government. While it is unlikely that a tribunal would interpret its mandate so broadly, the results could be interesting. Such an extension would indeed effect the complete reconvergence of the law of human rights, under which states are

Trade_Agreements/Bilateral/CAFTA/CAFTA-DR_Final_Texts/Section_Index.html (last visited Nov. 3, 2005); U.S.-Morocco Free trade Agreement, June 15, 2004, available at http://www.ustr.gov/Trade_Agreements/Bilateral/ Morocco_FTA/Final_Text/Section_Index.html (last visited Nov. 3, 2005); U.S.-Chile Free Trade Agreement, June 6, 2004, available at http://www.ustr.gov/Trade_Agreements/Bilateral/ Chile_FTA/Final_Texts/Section_Index.html (last visited Nov. 3, 2005); U.S.-Singapore Free Trade Agreement, Jan. 15, 2003, available at http://www.ustr.gov/Trade_Agreements/Bilateral/ Singapore_FTA/Final_Texts/Section_Index.html (last visited Nov. 3, 2005). For a discussion of NAFTA Chapter Eleven’s influence on subsequent investment treaties, see David A. Gantz, The Evolution of FTA Investment Provisions: From NAFTA to the United States-Chile Free Trade Agreement, 19 AM U. INT’L L. REV. 679 (2004). 338. United States Model Bilateral Investment Treaty, Nov. 2004, available at http://www.ustr.gov/assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf (last visited Nov. 3, 2005). 339. See Ackerman & Golove, supra note 14 (discussing NAFTA’s status as a Congressionalexecutive agreement and not an official treaty because it was not approved by two-thirds of the Senate); Made in the USA Foundation v. United States, 242 F.3d 1300, 1300–20 (11th Cir. 2001) (holding that the political question doctrine precluded consideration of the constitutionality of NAFTA in a challenge brought by unions and a nonprofit organization).

2005]

DENIAL OF JUSTICE

893

obliged to protect the rights of their own citizens as well as aliens, and the law of state responsibility.340 Those concerned that aliens are given more rights than nationals misapprehend the reciprocal nature of the treaties. U.S. nationals are given the right to invoke investor-state dispute settlement as against a foreign government in return for foreign nationals having the same right against the U.S. government. One may readily question the wisdom of this arrangement, but to suggest that U.S. nationals have received no benefit is erroneous.341 Even the differences in access, however, may be overstated. The effective claimant in many NAFTA cases, though ostensibly a foreign national, may in fact be a U.S. national.342 Article 1105 permits claims to be brought on behalf of “investments of 340. If human rights treaties containing viable enforcement mechanisms were readily available, the need to protect aliens under the law of state responsibility would be diminished or even eliminated. Richard B. Lillich, Duties of States Regarding the Civil Rights of Aliens, 161 RECUEIL DES COURS, 329, 360–61 (1978). 341. This is a slightly different emphasis than the oft-stated view that investor-state dispute settlement gives rights to multinational corporations. While it is often true that the cost of arbitration puts it out of reach of ordinary people, nothing inherent in Chapter 11 or similar mechanisms reserves it to multinationals, and indeed some of the claimants are relatively small businesses or individuals. See, e.g., Marvin Roy Feldman Karpa (U.S.) v. United Mexican States, ICSID (W. Bank) ARB(AF)/99/1 (Dec. 16, 2002) (Final Award); Metalclad Corp. (U.S.) v. United Mexican States, ICSID (W. Bank) ARB(AF)/97/1 (Sept. 2, 2000) (Final Award); Robert Azinian et al. (U.S.) v. United Mexican States, ICSID (W. Bank), ARB(AF)/97/02, (Nov. 1, 1999) (Final Award). 342. In a recent article, one scholar, giving credence to the suggestion, raised by Loewen, that state courts may be biased against aliens, suggested that one appropriate response would be to change the law to permit aliens to remove cases to federal court even when there is not complete diversity among parties. Renee Lettow Lerner, International Pressure to Harmonize: The U.S. Civil Justice System in an Era of Global Trade, 2001 BYU L. REV. 229, 292–303 (2001). This solution cannot work, however, because of the structure of NAFTA itself (a structure shared by most BITs). Articles 1102 and 1105 (national treatment and minimum standard of treatment, respectively) permit Mexican and Canadian investors to bring a claim on behalf of their investments in the United States. NAFTA, supra note 1, arts. 1102 & 1105. Those investments will often be U.S. subsidiaries of the foreign parent. Unless the parent were also named in a particular state court case, the case could proceed through the state courts without an alien as a party, and with no basis for removal. Until the U.S. subsidiary lost the case, the Canadian or Mexican claimant itself might have no basis for a NAFTA claim. Short of permitting removal of all cases involving a U.S. subsidiary with a foreign parent, which would erode the distinction carefully preserved between corporate entities, changing diversity law would not remove all such cases from the purview of the state courts. Furthermore, the benefits from removal, even if it were permitted, might not be that extensive. Litigants have a right to a jury trial even in federal court. While judges may temper a hypothetical discriminatory animus on the part of juries, often the jury in a federal court will be drawn from the same pool it would have been drawn from in state court. Moreover, the federal court decision itself would be subject to review under denial of justice standards.

894


[Vol. 45:4

investors”; the investor may not bring a claim on behalf of itself under that article, although it may bring a claim for itself under Article 1102, which provides for national treatment. Many investments will be U.S. subsidiaries—U.S. persons under corporate law doctrines. Thus, the effective claimants are U.S. companies. Unless they are discriminated against because of their foreign parents—which was alleged to have been the case in Loewen and Mondev—they are unlikely to be discriminated against because of their nationality. This puts them squarely in the realm of the international minimum standard, designed to protect aliens when treatment accorded to nationals falls below the minimum requirements of customary international law, whether or not there is discrimination. So while investor-state dispute settlement does not always provide an additional forum exclusively for foreign companies, it may effectively provide an extra forum for domestic companies as well.343 Close examination of the major objections to investor-state dispute settlement illustrate disquiet about the potential reach of those tribunal decisions coupled with only a partial understanding of the actual scope of their authority. The chimera of sovereignty covers multiple concerns, most of which are more properly directed at domestic political institutions than at international tribunals. States exercise their sovereignty in choosing to abrogate it.

VII. CONCLUSION Over 2,200 investment treaties obligate states to abide by certain primary obligations with respect to investors, including providing a functioning and fair judicial system, and submitting to neutral arbitration in the event of an alleged breach of an international legal obligation. A persistent and unsatisfactorily resolved question has been the standards such tribunals should use to evaluate the decisions of a state’s judiciary in individual cases and to measure the adequacy of a state’s judicial system as a whole. Answering this question is not easy; there is a tension between the development of laws and judicial practices in a manner consistent with the mores of any given country

343. If an investor brings a claim “on behalf of an enterprise of another Party that is a juridical person that the investor owns or controls directly or indirectly,” NAFTA, supra note 1, art. 1117(1), then any award would go directly to the enterprise, Id. art. 1135(2). Thus, a U.S. corporation owned by a Canadian corporation would receive the damages award.

2005]

DENIAL OF JUSTICE

895

and an international tribunal’s assessment of those laws against a general international standard. Tribunals have attempted to resolve that tension by employing what purports to be a deferential approach to evaluating the acts of national courts. In fact, the rhetoric of such tribunals suggests great deference to states, but the actual standard employed—determining whether court decisions “surprise a sense of judicial propriety” or “shock the conscience” of an arbitrator—gives arbitrators significant leeway in their decision-making and is not conducive to prompt, clear, or predictable decisions. This Article demonstrates that such a malleable standard serves the interests of neither the host state, the ostensible beneficiary of the deference, nor the home state, which has negotiated on behalf of its investors the right to submit disputes to arbitration, nor the investors themselves. A reasoned analysis that addresses clearly the possible bases for departures from international law, what I have dubbed sequential review, better balances those competing interests and gives effect to the goals sought by the states in negotiating the treaties. Those states have abrogated their sovereignty through the domestic political process. By creating a coherent, well-reasoned body of jurisprudence, investment tribunals bolster their legitimacy, fulfill the goals of both investors and sovereign states, and enhance the possibility of norm development resulting from the dialogue between international and national courts.