Bederman was a prince of a guy, and a great international law scholar who loved the life of the law. I’ve known him for over twenty years and always appreciated his thoughtful analysis and kind words.

When I asked him several years ago what sustained him as he was battling cancer, he said that, in addition to his family, he loved to wake up every morning and think about his latest writing project. He wrote until his dying days, finishing his last great book, Custom as a Source of Law, just last year. Among his passions was international arbitration, especially the history of international adjudication.

Just to give you a taste of his work, here’s a choice excerpt from a book chapter he wrote:

What made international claims tribunals the preferred method of claims settlement until the end of the Second World War? One factor not to be underrated is the psychology of international arbitration. It makes for a superb face-saving device in the conduct of international relations. Contentious disputes are submitted to what appear to be a neutral authority which adjudicates them on the basis of a respect for law. The highly-charged political circumstances which gave rise to the claims—whether wars or political upheavals—are neutralized with (usually) years of dispassionate legal analysis and adjustment. If nothing else, international claims settlement is a superb political soporific.

David Bederman gave a “Final Lecture” in September 2011, but it was not a self-reflective journey on the meaning of life. Rather it was the Inaugural David J. Bederman Lecture.

Interim Dean Robert Schapiro introduced David by stating “Please join me in welcoming … our friend and colleague, and a hero of mine, Professor David J. Bederman.” After a standing ovation, David said, “I’m glad to be here, in so many respects. I look out in the audience and see so many friends and I’m going to try and spend a few minutes with each of you after the lecture. I am deeply touched that you would spend your afternoon with me. It means a lot to me.” Then he spent the next hour discussing his latest work on the role of custom in law.

That was David Bederman. Always thinking, always excited about the life of the law, always looking to his next great project. A scholar and friend to the very end.

Conventionally, legal education has been confined to the classroom. In England it was left to the Inns of Court and the Law Society, and in the civil law systems to the Bar authorities, for bridging the gap between ‘legal education’ and learning the science (or art) of ‘lawyering’.

The concept of compulsory continuing legal education (CLE) after qualification came about as a result of a number of elements that indicated an increasing need to ensure that practitioners keep themselves up-to-date with changes in the law. It is surprising that this was not introduced earlier, as (for example) the medical profession has been doing it for many decades, if not centuries. One of the results of this development is that practitioners and post-graduate/pre-qualification lawyers feel the pressure of increasing tuition costs.

The full effects of this have yet to be seen and analysed. However, it can be predicted with some confidence that increasing student demands, together with the requirements for compulsory continuing post-qualification legal education, will witness a corresponding rise in the need for modern ‘skills-learning’ methods – such as the use of ‘mock’ scenarios for dispute resolution and negotiation, rather than the classical model of classroom teaching. By analogy, when you learn to drive a car you may start by learning the rules of the road in a classroom, but you do not get your licence without spending time ‘behind the wheel’ with an instructor sitting in the passenger’s seat. Thus, teaching substantive law in a classroom is not be enough; students must learn ‘lawyering skills’ as well.

The compulsory CLE system was designed to ensure that practising lawyers would be up-dated with latest developments in their specialised fields (and more widely for the few remaining general practitioners). However it confused newly qualified lawyers and employers alike – especially the latter because they could not fathom the need for new recruits to waste precious billing hours in a classroom. Skills learning was introduced partly in order to avoid the potential problem of qualified lawyers being mere wallflowers at lectures. For instance, dispute resolution techniques were taught by using mock cases supervised by career practitioners. Course leaders would brief the students on the mock case before the action began, and would ‘de-brief’ them afterwards to help them analyse what they did right, and what they did wrong. While the longer established universities experienced difficulty in creating faculties for this purpose, comprised primarily of individuals who had not acquired the required academic qualifications and/or a suitable publications list, the new universities found it relatively easy to conform to this method of instruction as a result of the flexibility contained in their statutes to award chairs to suitably qualified retired or semi-retired practitioners). Commercial providers also took advantage of this ‘gap’ in the market.

Another development of the ‘learning-by-doing’ process was in the field of mooting. Mooting is an age old skills learning tool. The Willem C. Vis International Arbitration Moot, for example, is presented in the form of a ‘file’ rather than a narrative so, as lend to the competition the feeling of a real live dispute. What adds to the value of mooting is the fact that, as well as knowledge of substantive law gained from the problem scenario itself, participants gain confidence and generally improve their ‘soft skills’ during the exercise. Rapport building is a large component of this, and engaging in a moot makes a student privy to a number of verbal and non-verbal tools that are of great importance to legal practitioners.

However, the mooting scenario does not progress beyond argument and counter argument. There is no scope for presentation of evidence by cross-examination or other confrontational methods. The National Institute of Trial Advocacy (NITA), which is at the forefront of advocacy training in the USA has introduced this element in workshop format. However, the NITA experience is, in general, restricted to jury trial techniques, which is an entirely different ball game from international arbitration, or even a civil trial before a judge alone. In the international scenario, a number of institutions have embarked on advocacy training exercises, for example the Foundation for Advocacy in International Arbitration (FIAA) and the Dubai International Arbitration Centre (DIAC).

Learning-by-doing is by no means the only way to train lawyers, and prospective lawyers, to acquire advocacy skills. However, it is an important element for those infected with a mission to become advocates in the international arbitration context, and – as a later step – to become international arbitrators. Other educational techniques also exist, which due to constraints of space and time must wait for another day. These include mentoring, pupillage and so forth.

The overwhelming conclusion is that the skills needed to become an effective lawyer in the field of advocacy cannot be learned solely in a classroom or lecture theatre. There is an undeniable role for the ‘learning-by-doing’ experience.

Your contributor would welcome debate on the topic in this forum; the international arbitration community needs to examine the ways in which the system can be made to operate better in the medium-to-long term.

Last week, a federal district court judge in Washington, D.C. heard oral arguments on a motion to compel arbitration of this dispute pursuant to an arbitration clause in the Joint Prosecution Agreement. Press reports of the developments are here, here, and here.

One of the most unusual twists in the case is that the implementing statute, the Libyan Claims Resolution Act (“LCRA”), immunizes the assets from “attachment or any other judicial process” before, during, and after the assets are held by the U.S. Department of Treasury for distribution to the American victims. In other words, when Treasury cuts a check to the American victims who succeed before the Foreign Claims Settlement Commission, those assets remain immune from attachment or any judicial process. How then can non-American victims attempt to seize those assets pursuant to a contract claim? The answer should be that they cannot. Consistent with the arbitrability doctrine, a competing federal statute overrides the general requirements of the FAA, precluding arbitration of the contract claims.

Serving as an expert consultant on the case on behalf of the American victims, I read this statute as precluding “any judicial process” whatsoever, which includes court proceedings to compel arbitration. Section 4 of the LCRA states that “[n]otwithstanding any other provision of law, any property described [below] … shall be immune from attachment or any other judicial process.” The property is defined as “any property that relates to the [U.S.-Libya] claims agreement” and “for purposes of implementing the claims agreement” is “held by,” “transferred to,” or “transferred from” the Department of Treasury. See 73 Fed. Reg. 50666 (Aug. 27, 2008). Thus, it seems clear that the assets the non-Americans are seeking to attach were immunized by law from “attachment or other judicial process” under the LCRA in order to guarantee that they would reach the intended recipients after they were “transferred from” the Department of Treasury.

During the hearing Judge Bates was very intrigued by the argument, but frankly it was impossible to tell which way he would rule on the arbitrability question. He was particularly interested in hearing that the Department of State was considering filing a Statement of Interest in the case to articulate the federal policy interests that are at stake. The American victims argued that one of the reasons the case should not go to arbitration is that there are clearly established rules requiring federal courts to give deference to such Executive Branch concerns, whereas in arbitration there is no obvious means for the United States to intervene in the arbitration, nor any guarantee that the panel would give the government’s Statement of Interest any weight.

Roger Alford

The claim itself was based on losses that the supposed investor had suffered through pre-contractual expenditure, prior to acquiring a bid and forming a contract. The tribunal rejected the claim on the basis that such pre-contractual expenditure could not amount to an ‘investment’ for the purposes of the ICSID Convention or the USA- Trinidad & Tobago Bilateral Investment Treaty. A different position had been reached by a tribunal in the Mihaly v. Sri Lanka (ICSID Case No. ARB/00/2, 15/03/02). The tribunal did not seek to explain in detail why the present case was justifiably different from Mihaly (FWO at para 126). The tribunal made it clear that a state changing its position on the offer of a successful tender with reason did not amount to a lack of good faith (FWO at para 179). It did not, however, sadly give any qualification as to what justifiable ‘reasons’ might be, and implicitly left a broad right to states to withdraw with no compensation for the investor. It is not clear on the facts how in this case such a decision by the partially state controlled bodies was not arbitrary. Not having put the Mihaly distinction to bed, the case still leaves open the question: Under what circumstances is pre-contractual expenditure a justifiable ‘investment’ for the purposes of the ICSID Convention and a similarly worded investment treaty to the US-Trinidad & Tobago BIT?

The answer to this question depends on one’s views of the purpose of ICSID and investment treaties. Staying true to their aims of providing capital for sustainable economic development (the aims of the World Bank’s ICSID project), judicial constructions of ‘investment’ have to mirror this. Thus unnecessary loss of capital through pre-contractual expenditure should generally be wastage as far as Contracting Parties are concerned. Taking the facts as the FWO tribunal has narrated them, there was no clear basis why the state controlled entities withdrew the tender after it had been acquired by the claimant causing it loss. The oil fields that the investor sought to exploit were left unused up to the date of the decision. As far as the overarching policy of ICSID is concerned this is waste. Where the tribunal got lost is drawing parallels between how rights are created as a matter of domestic law, with the mutually exclusive conceptualization of public international treaty obligations. To put it simply, it does not follow that a lack of a cause of action for pre-contractual expenditure in domestic law leads to no rights of action on the same facts in treaty law. It is simply irrelevant whether one or more jurisdictions do or do not recognize pre-contractual liability to liability in public international law. One way to look at it might be to say that the aims of the treaties consumes all such distinctions.

To protect capital expenditure and the aims of investment treaties and ICSID an approach closer to the overall goals of the system is need of judicial elucidation. One approach may be to couple protection in this issue with the existing doctrine of legitimate expectations. Thus the definition of investment may include: ‘Where an investor as made legitimate expenditure in the pursuit of real expectation of contract’. This would remove mere expenditure where the award of contract is speculative from protection. The tribunal rightly intimated this as the commercial risk of contractual relations (FWO at para 141). However risk cannot be so broad as to include all expenditure in all circumstances of pre-contractual relations. Otherwise it would undermine the purpose of the investment treaty to encourage cross-border commercial venture. There will be a point were state behaviour reduces commercial risk by increasing likelihood of the contract being awarded. It needs to then be determined whether excess expenditure in this regard, beyond a mere speculative input of capital, justifies protection as an ‘investment’. There are many cases less clear than direct inducement as in Mihaly, where this will be so. The remarkable aspect of FWO is that the tender for contract had been awarded, and only the formality of formation was left. Adequate focus on the expenditure in this period or the likelihood of being awarded the tender (which must in my view give rise to a treaty right) was not carried out by the tribunal. The latter is no doubt still speculative. There may be a case for different approaches to the pre-contractual expenditure issue between cases of tendering process and the investor as a sole negotiator for the contract. The latter may justify a greater degree of protection where the state’s conduct is tantamount to inducement. However judicial tests need to be carefully construed to meet these exigencies, to ensure appropriate investor protection. My example based on expectations is merely suggestive, however it is clear that a better balance than in FWO needs to be struck between risk and protection. At the moment the approach in Mihaly is far closer to overall aims of the investment treaty system.

Managing Editor of the blog, Sarah Thomas, partner and international projects expert at Pinsent Masons, will draw contributions from a panel of pre-eminent construction lawyers and barristers covering Europe, the United States, Canada, Africa, South America, Asia Pacific, India and the Gulf. The blog will have a discussion forum and an “Ask the Expert” feature that will give readers the chance to add their comments and raise questions.

Now truth to be told, construction is not my area, and I will not frequent that particular blog. But I love what it represents nonetheless. Kluwer is one of the most respected publishers in the world, and the fact that it has launched two blogs in 2009 means that it is betting big that this new media format is the wave of the future. As the managing editor of this blog, I know from first-hand experience how serious and professional they take this endeavor.

In the beginning blogs were marginal at best. Then young upstarts began posting new, fresh, and insightful content that quickly gathered a following. Two or three years ago law blogs moved from being marginal to acceptable. Now with the likes of Kluwer jumping into the arena, we can safely say that blogs are mainstream. There are still plenty of septuagenarians who just don’t get it and will never be converts. But for every one of those, I suspect there are a half dozen who are open and receptive to the new medium.

And why not? It is perfectly acceptable to spend hours on an airplane to attend one of a dozen international arbitration conferences and present your ideas to an audience of fifty. Why not spend one hour in the comfort of your home and reach an audience of several hundred? Blogs will never replace the human touch that one experiences at conferences. Blogs are horrible as a means of networking and making friends. A mile wide and an inch deep when it comes to building relationships. But as a medium for expressing ideas, blogs are a killer app, and Kluwer gets it.

Roger Alford

But, while there are many scholars and writers looking to bridge the two fields, it’s rarer to come across adjudicators with experience in the two realms.

However, Judge Pedro Nikken is one of the rare individuals who straddles the two fields. He’s a former Judge on the Inter-American Court of Human Rights (IACHR) and he’s also sitting as arbitrator in a trio of ICSID cases against Argentina which may touch upon the relationship of human rights law and investment law.

So, it was with particular interest that I read Judge Nikken’s brief contribution to a recent edited collection on human rights and investment law.

Judge Nikken’s article surveys the jurisprudence and practice of the Inter-American human rights system and concludes that investment protection has been handled rather delicately and timidly by that region’s human rights institutions.

He goes on to examine whether protections owed to foreign investors might be considered to be legitimate limitations on human rights in some circumstances. While this is not a question that the Inter-American Court of Human Rights has grappled with squarely, or at length, he does highlight several cases where tensions arise between human rights obligations and foreign investor protections.

Rather than canvas each of them here, I thought I’d focus on a case which I discussed on this blog some months ago: the so-called Trillium case (Claude Reyes v. Chile).

In a 2006 judgment, the Inter-American Court of Human Rights held Chile liable for breaching the rights of Chilean activists who had been stonewalled by Chile’s Foreign Investment Commission following a request for information about a major forestry development in the Patagonia region.

As noted in an earlier blog posting, the Court’s judgment has been hailed for its ringing endorsement of the public’s right to receive information and to exercise informed democratic control over political and bureaucratic institutions.

However, in his recent article, Judge Nikken also wonders if the Court’s disclosure-friendly approach might, in fact, conflict with the “fair and equitable treatment” owed to foreign investors.

Judge Nikken acknowledges that the Chilean Government had not framed its defence in the Claude Reyes case in these terms; however, a Chilean bureaucrat did testify during the hearings before the Inter-American Court of Human Rights that one reason for refusing to disclose certain categories of information sought by public petitioners had been because it was “not reasonable that foreign companies applying to the Foreign Investment Committee should have to disclose … financial information … that could be very important to them in relation to their competitors”.

Judge Nikken suggests that the Inter-American Court failed to consider whether “access to confidential information was in conflict with the right of a foreign investor to a certain standard of treatment, which could involve respect for the confidentiality of some financial information that it had given to the government” – either as a matter of the “fair and equitable treatment” obligation found in many investment protection treaties or in the “right to privacy” contained in the American Convention on Human Rights.

Regrettably, Judge Nikken follows the Court in declining to analyze the potential friction between these norms. However, he does point to a suggestive line of inquiry – one which I hope some of the legions of budding investment & human rights scholars will examine in more detail.

Doubtless much can be said about what expectations of confidentiality are legitimate in a given domestic context; local laws on access to information (which Chile did not have when the Claude Reyes claim was initiated) will also prescribe certain categories of information which need not be disclosed.

In the Claude Reyes case, Chile’s behaviour was sanctioned by the Court, in part, because the absence of a law on access to information meant that too much discretion was given to bureaucrats.

However, where so-called sunshine or access to information laws are in place – but prescribe certain categories of information which need not be disclosed to the public – it would be interesting to see how much leeway the Inter-American Court is prepared to give to government bureaucrats who use such exceptions to thwart disclosure of information about FDI projects.

Certainly, the Court used very bold rhetoric in its 2006 judgment: speaking of the need for “maximum disclosure”, and stipulating that restrictions on disclosure must serve a “compelling public interest”.

For this (admittedly lay) observer, it’s hard to imagine that a human rights Court would deem a very ambiguous “fair and equitable treatment” obligation contained in a BIT to be the type of compelling public interest that could override the principle of maximum disclosure. (Were an arbitral tribunal to go so far as to read the fair and equitable treatment in such a manner, that might give the Court something more tangible than the treaty text to grapple with).

If we assume, for the sake of argument, that the Court sticks to its guns on information disclosure – even in the face of arguments that BIT obligations should shelter foreign investors from the full brunt of such a principle – one wonders if the disclosure of particularly-sensitive information about a foreign investment project would give rise to a BIT arbitration claim?

A preliminary question might be whether there is a protected investment under most investment protection treaties? Recall that many such treaties only apply once an investment has been established. So, if we are talking about information submitted by a foreign investor to a government agency as part of the screening and review phase of an investment (i.e. prior to the establishment of an actual investment), has the investor made an investment that will be protected under the treaty?

Assuming, however, that there is a protected investment at stake, I wonder if arbitrators would go so far as to declare that it is unfair or inequitable for government officials to disclose information about proposed projects, particularly where governments do so in a good faith effort to maximize disclosure of information under a relevant domestic law (and under the watchful eye of the Inter-American Human Rights Court).

I’m not sure. However, the fact that at least one arbitrator thinks there is a possible conflict here should give pause – and perhaps even an idea for a PhD dissertation.

Luke Eric Peterson is Editor of InvestmentArbitrationReporter.com an on-line news service tracking and analyzing investor-state arbitrations.

There is no doubt that the content of contemporary customary international law has been shaped by the numerous BITs entered into by States as acknowledged by tribunals in cases such as CME Czech Republic B.V. v. Czech Republic (UNCITRAL, Award, 14 March 2003, para. 498) and Mondev v. United States (ICSID, Award, 11 October 2002, para. 125). However, while it is certainly true that BITs will influence the development of customary international law, it is quite another thing to simply say that BITs now represent the new custom in international investment law. The better view is that custom in the field of international investment law does not correspond to the total sum of more than 2,500 BITs. In this respect, the approach was adopted by the Pope & Talbot Tribunal must be rejected (UNCITRAL, Award, 31 May 2002, para. 62: “applying the ordinary rules for determining the content of custom in international law, one must conclude that the practice of States is now represented by those treaties [i.e. BITs].”).

The main weakness of the proposition equalling BITs to new custom is its basic failure to meet the definition of customary international law. Custom has two constitutive elements: a “constant and uniform” (but not necessarily unanimous) practice of States in their international relations and the belief that such practice is required by law (opinio juris).

State practice. In theory, BITs can serve as evidence of the element of State practice required to establish the existence of a rule of customary international law (see, Camuzzi v. Argentina, ICSID, Award, 11 May 2005, para. 144). At the same time, as explained by the recent work of the International Law Association (ILA) on customary international law “[t]here is no presumption that a succession of similar treaty provisions gives rise to a new customary rule with the same content.” (p. 47). The undeniable reality is that BITs are very diverse in their content and scope. They are certainly not consistent enough to constitute the basis for any rule of customary international law. For instance, the inconsistency of State practice is undeniable with respect to the type and scope of legal protection offered to different types of shareholders (minority, indirect) as well as for holding (or “shell”) companies (see: T. Gazzini, “The Role of Customary International Law in the Protection of Foreign Investment”, 8(5) Journal of World Investment & Trade, 2007, at p. 707-710). This is also the position held by many authors in doctrine who have undertaken the analysis of BITs to determine whether specific substantive rights contained in these treaties represent custom (see: M. Sornarajah, The International Law on Foreign Investment, 2nd ed., Cambridge U.P., 2004, p. 206, 220-227, 436, 441-443 ; B. Kishoiyian, “The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law”, 14(2) Northwestern Journal of International Law & Business, 1994, at p. 343-346, 363-373; A. Al Faruque, “Creating Customary International Law Through Bilateral Investment Treaties: A Critical Appraisal”, 44 Indian J. Int’l L., 2004, at p. 304-305, 356-363).

Opinio juris. As explained by the Tribunal in UPS v. Canada, there is no evidence of any “general sense of obligation” by States entering into BITs (UNCITRAL, Award, 22 November 2002, para. 97). In fact, the evidence suggests that the decision of States to enter into BITs is solely based on their (perceived) economic interest. Clearly, developing States sign BITs to attract foreign investments. BITs are the result of trade-offs and mutual concessions between States. Their content depends on the political and economic bargaining power of each party to the negotiations. BITs are the product of a compromise between conflicting interests; they are not entered into by States based on any perceived legal obligation.

It is noteworthy that the proposition that customary law is coterminous with BITs has been explicitly rejected by States. This is clearly the case in the context of NAFTA arbitration where unambiguous statements to that effect have been made by Mexico (submission filed in the context of Loewen v. United States, para. 33 & 39), by the United States (submission filed in: Glamis v. United States, p. 142 et seq.) and by Canada (submissions filed in: Chemtura v. Canada, at para. 269-273, and in: Loewen v. United States, at para. 18).

In sum, the content of custom and the thousands of BITs are simply not the same. Does this mean, as recently concluded by the ADM v. Mexico Tribunal (ICSID, Award, 21 November 2007, para. 117) that BITs only create lex specialis rules solely applicable between the countries which are party to these BITs? conclusion is not entirely satisfactory either, as it wrongly excludes the role that these treaties might play in the development of custom. Thus, these numerous BITs will necessarily influence customary international law.

The impact of BITs on customary international law is twofold. First, some of the standards of protection systematically contained in BITs will certainly contribute to the consolidation of already existing rules of custom in international investment law (see Generation Ukraine v. Ukraine, ICSID, Award, 16 September 2003, para. 11.3). Second, the common features to investment protection resulting from BITs will also contribute to the crystallisation of new rules of customary international law in the future. By their very nature, customary rules evolve over time. The repetitive enunciation of some of the standards of protection existing under BITs may be the starting point of State practice which will eventually become custom. A treaty provision may, indeed, provide the impulse for the formation of new custom.

Patrick Dumberry
Assistant Professor
University of Ottawa (Civil Law Section)

Is this right? Can a State successfully claim the status of persistent objector in investor-State arbitral proceedings to prevent the application of a specific rule of customary international law to its conduct?

The argument was for the first time raised in the recent 2007 case of BG Group v. Argentina. BG Group Plc (BG), a U.K. company, commenced arbitration proceedings alleging that measures taken by Argentina in the context of its financial crisis were contrary to the U.K.-Argentina BIT. In defence, Argentina invoked the state of necessity doctrine to exclude its international responsibility under both the BIT and custom as codified in Article 25 of the ILC’s Articles on State Responsibility.

The Claimant objected to this argument on the ground that the ILC Articles were a “non-binding codification of customary international law” and that, in any event, the United Kingdom had been “formally opposed to the inclusion by the ILC of a provision on ‘necessity’” and was, therefore, a persistent objector to any such alleged principle of necessity under custom (Award, para 400). The Tribunal held that Argentina could not invoke the doctrine of necessity under customary international law to excuse its liability under the BIT and that even if it were to apply Article 25 of the ILC Articles, Argentina would not have met the restrictive conditions for its application. The Tribunal did not further discuss the persistent objector argument.

The very existence of the concept of persistent objector is controversial in general international law. This is because, as a matter of principle, a rule that has already crystallised to become customary international law is binding upon all States. No State is allowed to opt out unilaterally. The persistent objector theory would allow for an exemption: when a State objected to a rule in the early stage of its formation and actively, unambiguously and persistently maintain such an objection thereafter. The concept of persistent objector has been criticised by several leading scholars. They argue that judicial findings in support of the concept of persistent objector do not represent the strongest authorities and that actual State practice does not support its existence.

I submit that there are other fundamental reasons specific to international investment law why an arbitral tribunal should reject a persistent objector defence. This analysis is based on the “test” adopted by Professor Schachter in his General Course to determine when the status of persistent objector may be permissible:

“It would be germane to consider a variety of factors including the circumstances of adoption of the new principles, the reasons for its importance to the generality of States, the grounds for dissent, and the relevant position of the dissenting States. The degree to which new customary rules many be imposed on recalcitrant States will depend, and should depend, on the whole set of relevant circumstances.”
These three criteria will be now briefly examined.

First, what are the circumstances of the adoption of customary rules? Some authors argue that custom rules have been imposed on developing States which have always rejected them (Sornarajah, p. 92-93). The better view is that while these rules may be “Western” in origin, they are not strictly “Western” in nature; they are truly universal. The fact that developing States are now signing BITs which typically contain the type of provisions they have historically rejected (such as the “Hull formula” on compensation for expropriation) clearly undermines the claim that customary rules have been imposed upon them. Moreover, recent empirical studies show that the same types of provision have also found their way in recent BITs entered into between developing States themselves. Thus, the content of these “South-South” BITs (representing 26% of the total number of BITs in 2008 according to UNCTAD, Recent Developments in International Investment Agreements (2007-June 2008) is therefore not significantly different from those other treaties entered into by developing States with developed States (UNCTAD, South-South Cooperation in International Investment Arrangements, p. 45). Since these rules represent universally-recognised values and are not biased against developing States, there are no reasons why any State should be allowed to opt out unilaterally from them.

Second, why are these customary rules so important in international investment law? The few existing rules which can be said to have crystallised to the rank of customary law in investor-State arbitration are important because they represent the last bastion of international legal protection against unlawful conduct by States. This is because custom is the residual applicable legal regime between a foreign investor and the host State in the absence of any BIT. These rules can therefore be invoked by any foreign investor in any country. To allow a State the benefit of the status of persistent objector would means, in practical terms, that there would simply be no minimum standard existing for the protection of foreign investors in that country. The coherence of the system of international investment law requires that a set of basic legal protections be applicable to any foreign investors at all time. This strongly militates against allowing any State the status of persistent objector to be able to opt out from such basic requirements that must be binding on all states.

Third, what could be the grounds for dissent of a State seeking the status of persistent objector? One can hardly think of any reasons persuasive enough to prevent the application of, for instance, the requirement for the host State to provide foreign investors with the minimum standard of treatment under international law. There is simply no reason why an arbitral tribunal should reward a “free rider” on the entire international legal order. The objector would, indeed, not provide certain very basic legal protections to foreign investors while expecting that its own nationals and companies doing business abroad be accorded that standard of protection by all other States.

In conclusion, for all these reasons I believe that to allow a State to claim the status of persistent objector would not be beneficial to the international community and to the further development of international investment law.

Patrick Dumberry
Assistant Professor
University of Ottawa (Civil Law section)

Turning to the cases and recent scholarship, one may illustrate how the emphasis on necessity drives analysis towards unpalatable extremes. Thus, according to the Enron tribunal, the Sempra tribunal, and Professor José Alvarez, states may invoke necessity only to pursue the sole means required to safeguard their “very existence” or “independence” from grave and imminent peril. To cast doubt on this proposition, one may cite the Nuclear Weapons case, in which the International Court of Justice held open the possibility that states could lawfully use nuclear weapons in extreme cases of self-defense involving their very survival. From my perspective, it seems unlikely that the threshold for modifying gas transport licenses and the justification for nuclear exchange should lie on similar planes.
By contrast, the LG&E tribunal and Professor William Burke-White would have us believe that the collapse of the national currency and the rapid succession of five presidential administrations threatened essential interests and, thus, supported pleas of necessity under international law. To cast doubt that proposition, one may observe that necessity could also justify uncompensated takings, arbitrary arrest, or long-term detention without process in remote or, possibly, secret locations. From my perspective, it seems unlikely that fear, hardship and instability should become the recognized gateways for descent into otherwise lawless behavior. If anything, Argentina’s Dirty War and later wars against security threats reinforce the need for vigilance against legal opinions and the application of doctrine in ways that reflect an eagerness to travel that terrible path.
Taken together, these two examples suggest that the doctrine of necessity does not provide a calibrated tool for assessing national interests. To the contrary, it functions like a doomsday button; difficult to engage, but filled with the potential to unleash terrible force. Building on this analogy, one may observe that states keep a variety of weapons to defend their national interests. While the heaviest weapons provide assurance against the worst case, lighter ones perform most of the work even during crises and, thus, become more useful in advancing national interests for the vast run of cases. Likewise, investment treaty tribunals possess a variety of tools to accommodate the national interests of host states. Knowledge of that inventory can help to avoid the high costs of overreliance on necessity while still affording states room to maneuver during crisis and other moments of national importance.
Turning to that inventory, one may draw distinctions among tools designed to permit derogation, to define rights, and to formulate remedies. With respect to derogation, one must start with the customary doctrine of necessity, which suspends the rule of law when absolutely required for self-preservation. In other words, during the last throes of starvation or the panicked swim to a lifeboat, one returns to a state of nature in which ends justify means, and one does what it takes to survive. However, the pursuit of survival imposes profound costs on the legal process by undermining the general transition from a power-based to a rules-based system of international relations, by undermining the goal of investment treaties to elevate principle over expedience even in hard times, and by undermining the obligation of tribunals to resolve controversies according to law. Given the specificity of the national interest in self-preservation and the potential systemic costs, one must start from the presumption that necessity operates like most doomsday buttons: available in theory but practically beyond reach even in periods of crisis and turmoil.
Moving from custom to treaty, it remains possible that states may wish to preserve more leeway for derogation, especially when undertaking new obligations on matters of secondary importance likely to collide with strong national interests during times of crisis. For example, Professor Alvarez explains that the U.S.-Argentina BIT includes an article on non-precluded measures designed to immunize the exercise of executive powers during emergencies like Iran’s seizure of 52 American hostages in 1979, which (though serious) threatened neither the existence nor the independence of the United States. While the explicit consent to such provisions signals acceptance of systemic costs in exchange for discretion, one must recall that investment treaties aim to provide meaningful safeguards even during hard times. Under these circumstances, one may still regard treaty-based derogations as exceptional tools that address a somewhat broader range of national interests, but whose application requires both caution and strict adherence to the exigencies of the situation.
Turning to the definition of rights, we find a lighter but more useful tool for balancing interests, including the national interests of host states. Just as the interests of neighbors play an important role in defining the limits of my property rights, so do the national interests of host states play an important role in defining the limits of rights granted to foreign investors. Thus, some recent treaties and awards expressly recognize that expropriation generally excludes nondiscriminatory regulations designed to protect public welfare objectives, including public health, safety and the environment. Likewise, as recognized in National Grid PLC v. Argentina, one should accept that the requirements of fairness and equity can shift to accommodate a range of steps that host states might reasonably take during national emergencies, unless of course a state notoriously prone to emergency (like Argentina) has adopted stabilization measures specifically designed to protect foreign investors against the inevitable cycles of turmoil.
To round out discussion, tribunals may finally consider the respondents’ interests when formulating remedies. For example, in Prosecutor v. Erdemovic, an ethnic Croat serving with Serbian forces first objected and, then, personally killed 70 civilians during the Srebrenica massacre after superiors made clear that his alternative was to join the victims in their dark fate. While refusing to accept that they excused liability, the International Criminal Tribunal for the Former Yugoslavia considered the circumstances when imposing a sentence of only ten years, about the same awarded to a Croatian military police commander for tacitly encouraging a single rape during interrogation. Likewise, even where national interests do not rise to the level of necessity and cannot tip the balance in the definition of norms, investment treaty tribunals should still consider the circumstances in deciding if host states bear sole responsibility for the economic losses of foreign investors. As demonstrated by the Argentine gas sector cases, tribunals can pay due regard to the interests of host states by awarding compensation only for unlawful management, and not for inevitable losses caused by the proper management, of national emergencies.
In closing, as Professor Andrea Bjorklund observes, the question remains one of risk allocation and determining who should bear the burden in situations of economic crisis. While she correctly states that the answer “is likely to differ from treaty to treaty, and . . . from case to case,” I would submit that the answer also depends on the tools that one selects for conducting the inquiry.

Charles H. Brower, II
Croft Associate Professor of International Law
University of Mississippi

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Professor Roger Alford’s recent posting, “The Arbitrator as Diplomat”, discusses the role of “diplomatic arbitration,” a concept with a long historical pedigree. Some of that history (and much more) is contained in the late Professor Douglas M. Johnston’s posthumous opus, The Historical Foundations of World Order: The Tower and the Arena (2008). The book was awarded the ASIL’s 2009 Certificate of Merit for a Preeminent Contribution to Creative Scholarship and was the subject of a panel discussion at the ASIL Annual Meeting in March 2009. It was feted as an extraordinary work of scholarship. As Professor W. Michael Reisman discusses in the book’s preface, Professor Johnston’s work is “the most detailed account of the history of international law.”

Although the treatment of international arbitration in The Historical Foundations of World Order: The Tower and the Arena is brief, there are some treasures. Prof. Johnston notes that legend in primitive and classical antiquity suggests that arbitration was favoured by the gods, although the gods retained a “fickle attachment to war as an honorable course of action to settle issues.” From arbitration in Sumer, Greece and Rome, Johnston turns to the Jay Treaty of 1794 as “the first early modern experiment in the peaceful settlement of international disputes” and “the modern foundation of the adjudicative model of world order.” Historical tidbits abound. For instance, when the US House of Representatives demanded access to documents relating to the Jay Treaty negotiations, President Washington asserted “executive privilege,” a precedent that “still reverberates within the American constitutional system.”

Johnston’s discussion of the 1899 Hague Peace Conference exemplifies his approach. As Professor Reisman describes in the preface:

Great history is far more than a chronological narrative. It requires a contextualization of events in their cultural, economic and technological milieu and an appreciation of their contingency. It must account for the impacts of exceptional individuals, without, as Harold Lasswell put it, rendering them taxidermical specimens. Yet it must also account for collective actions and path-driven results, the so-called “great historical forces.”

Johnston highlights the efforts of legal internationalists and the European and American peace movements in advocating for the process of international arbitration in the late 19th century. He also details the role of individuals, including Léon Victor Auguste Bourgeois, who presided over the Third Commission (and who later became President of the League of Nations), and state policy resulting in the establishment of the Permanent Court of Arbitration.

Johnston’s functionalist, multi-model approach to international law “commits the historian – and his reader – to a long story of slow and uneven human development.” At 772 pages this is not a short summer time read. Yet it remains accessible to the general reader and expert alike. It is a richly rewarding discussion of the historical foundations of the international legal system.