Human Rights Counterclaims in Investment Treaty Arbitration

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Eric De Brabandere, Leiden University

25 October 2018

Typically, investment treaties provide that only claims directly related to investments can be brought before an arbitral tribunal. This means that disputes subject to arbitration cannot extend to any type of conflict between the investor and the home State, such as a human rights dispute, unless the conflict is part of the ‘investment dispute’.

One of the ways in which this can be done is the use of counterclaims by the host State. To illustrate, in Urbaser v. Argentina¹, the host State interposed counterclaims against the foreign investor for alleged human rights violations. The Tribunal accepted jurisdiction over the counterclaim mainly based on a broadly formulated investor-State arbitration clause, which according to the Tribunal allowed Argentina to present any claim against the foreign investor if such claim is ‘in connection with an investment’. The Tribunal thus accepted not only the procedural possibility for the host State to bring a counterclaim, but also the applicability of a legal regime other than the treaty itself – domestic and contract law – on which to ground the cause of action of the counterclaim.

The counterclaim in Urbaser v. Argentina has to be seen in a broader context: namely, the (very) recent development whereby States are gradually including provisions relating to the human rights obligations of foreign investors. For instance, the 2012 Model BIT of the Southern African Development Community establishes the duty of investors ‘to respect human rights in the workplace and in the community and State in which they are located’, and further provides that ‘investors and their investments shall not undertake or cause to be undertaken acts that breach such human rights.’ The recently negotiated Draft Pan-African Investment Code goes even further, and is to date perhaps the most complete investment treaty when it comes down to including human rights related provisions. It contains no less than six provisions dealing with investor obligations.

The possibility for host States to bring counterclaims against foreign investors has, in principle, been accepted for several years, but the precise contours of whether, how, and when a counterclaim can be submitted are not yet fully settled. Requirements such as whether there is a need for explicit consent in the treaty to exercise the right to submit a counterclaim, or the required connectedness between the counterclaim and the principal claim have not been decided in a uniform way by arbitral tribunals over the past decade. For instance, under a first approach, parties to the dispute need to consent explicitly to the exercise by an arbitral tribunal of its jurisdiction in respect of counterclaims, and therefore the arbitration clause in the treaty and the applicable law clause are relied upon to verify the existence of such consent. One of the clearest cases in this respect is Spyridon Roussalis v Romania.² Under a second approach, the relevance of the treaty itself containing an explicit consent to submit counterclaims would be less important, since the applicable arbitration rules allow for such a possibility. The idea then is that the reference to a particular set of arbitration rules would incorporate the possibility under those arbitration rules to file a counterclaim. An example of this approach is Antoine Goetz & Consorts and SA Affinage des Metaux v Burundi.³

In light of this lack of uniformity, the inclusion of clauses referring to the obligations of foreign investors under domestic law are, from the perspective of the jurisdiction of tribunals in relation to counterclaims based on such obligations, important. Indeed, these clauses will make it more difficult for tribunals to deny the connectedness and proximity between the human rights-based counterclaim and the initial treaty-based claim, or to deny a cause of action for such a counterclaim if the treaty itself contains provisions on human rights. Secondly, from the perspective of whether a tribunal can exercise jurisdiction over a counterclaim in the sense of there being consent to such a possibility, the inclusion of provisions in relation to counterclaims circumvents the current ambiguity that may still exist in case-law as to whether there is a need for an express provision in the treaty allowing counterclaims.

Eric De Brabandere is Professor of International Dispute Settlement and Director Grotius Centre for International Legal Studies, Leiden University. He is also an Attorney-at-Law at the Brussels Bar in Belgium.

[1] Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016.

[2] Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award, 7 December 2011). See for a criticism of the case, Zachary Douglas, ‘The Enforcement of Environmental Norms in Investment Treaty Arbitration’, in Pierre-Marie Dupuy and Jorge Vifiuales, Harnessing Foreign Investment to Promote Environmental Protection: Incentives and Safeguards, (Cambridige: Cambridge University Press, 2013), 415-444, at p. 433.

[3] Antoine Goetz & Consorts and SA Affinage des Metaux v Burundi, ICSID Case No ARB/01/2, Award (21 June 2012).