Judicial Review of Investment Treaty Awards

INTERNATIONAL DECISIONS
EDITED BY DAVID P. STEWART
JUDICIAL REVIEW OF INVESTMENT TREATY AWARDS:

BG GROUP V. ARGENTINA
On March 5, 2014, the United States Supreme Court, in BG Group PLC v. Republic of
Argentina,1 ruled for the first time on the standard of review U.S. courts should apply when
examining investment treaty awards to determine whether an arbitral tribunal exceeded its
powers. In a 7-2 split, with a concurrence, the majority adopted a highly deferential standard
of review based on interpretive presumptions developed under U.S. domestic law for arbitra-
tion agreements found in ordinary contracts between private parties. The dissent, by contrast,
opted for a de novo standard of review based on the recognition that states have delegated an
important function of policing arbitral decisions on jurisdiction to national courts and that
particular care is required when this function is exercised in investor-state disputes founded on
interstate treaties. The dissent’s approach is preferable because it appreciates the public inter-
national law basis and public law nature of investment treaty arbitration, which differs in
important ways from contractual arbitration between private parties.
Standards of review are a crucial issue in the investment treaty system because investor-state
awards are not currently subject to a full-blown appellate review mechanism. Instead, awards
issued under the Convention on the Settlement of Investment Disputes Between States and
Nationals of Other States (ICSID Convention) are subject to annulment on certain bases,
which include that the tribunal “manifestly exceeded its powers.”2 Absent annulment, the
ICSID Convention requires contracting states to recognize awards as binding and to enforce
them as if they were final judgments of their own courts.3 By contrast, non-ICSID Convention
awards, like the one at issue in BG Group, are open to two avenues of judicial review by domestic
courts. First, one of the disputing parties may seek to set aside the award in the seat of arbi-
tration under the laws of that state. Second, the Convention on the Recognition and Enforce-
ment of Foreign Arbitral Awards obliges contracting states to recognize and enforce arbitral
awards but permits a disputing party to resist recognition and enforcement on certain specified
grounds.4 These grounds and the grounds for setting aside are usually similar5 and typically
1
BG Grp. PLC v. Republic of Arg., 134 S.Ct. 1198 (2014).
2
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Art.
52(1)(b), Mar. 18, 1965, 17 UST 1270, 575 UNTS 159 [hereinafter ICSID Convention].
3
Id., Art. 54(1).
4
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Arts. III, V, June 10, 1958, 21
UST 2517, 330 UNTS 3 [hereinafter New York Convention].
5
Many states have adopted the UNCITRAL Model Law on International Commercial Arbitration, which creates
a mirror image between these grounds. UNCITRAL Model Law on International Commercial Arbitration ( June 21,
750
2014] INTERNATIONAL DECISIONS 751
include that the award deals with a dispute or matters outside the scope of the submission to
arbitration.6
Although triggered by different grounds of review and institutional structures, annulment
proceedings and national court review share at least two characteristics: they cannot be too
interventionist because they are not meant to amount to full appellate review, but they cannot
be too deferential because they must provide some meaningful level of oversight, especially on
jurisdictional questions. That is why the issue of standards of review assumes particular impor-
tance in the investment treaty system. The appropriate standard has prompted considerable
controversy in the annulment context but to date has received little attention in the national
court context. The sharply diverging opinions in BG Group should change this asymmetry by
enlivening the debate about what standard national courts should adopt when reviewing
investment treaty awards, particularly when reviewing preconditions to jurisdiction. To that
end, part I contextualizes and critiques the majority approach in BG Group. Part II then devel-
ops a comparative assessment of the approaches of annulment committees and other national
courts to standards of review, and explores what lesson can be drawn from this case about the
disaggregated—and sometimes far from ideal—state when it comes to internalizing multiple
and conflicting interests.
I. BG GROUP V. ARGENTINA
The Path to the Supreme Court
BG Group, a company from the United Kingdom, was an investor in Argentina’s gas indus-
try. In 2003, it commenced international arbitration against Argentina pursuant to Article 8
of the Argentina–United Kingdom bilateral investment treaty (Treaty).7 BG Group claimed
that Argentina’s gas tariff laws enacted in the face of the Argentine economic crisis in 2001 and
2002 violated the expropriation and fair and equitable treatment provisions of the Treaty.8
Article 8(1) of the Treaty provides that an investor-state dispute that has not been amicably
settled shall be submitted to a tribunal in the host state. Article 8(2) provides that the dispute
shall be submitted to arbitration in one of two circumstances. Under subparagraph (a), either
disputing party may submit the dispute to arbitration (i) eighteen months after the dispute has
been submitted to a tribunal of the host state and that tribunal has not given a final decision;
or (ii) where the host state’s tribunal has given a decision, but the parties are still in dispute.
Under subparagraph (b), the investor and the host state may agree to submit the dispute to
arbitration at any time.
Argentina objected that BG Group’s claim was inadmissible on the basis that the company
had violated Article 8(2)(a)(i) (the local litigation requirement) by failing to submit the dispute
to the Argentine courts first.9 BG Group countered that this requirement was senseless because
1985), as amended July 7, 2006, Arts. 34, 36, in UN GAOR, 40th Sess., Supp. No. 17, at 81, UN Doc. A/40/17
(1985), & UN GAOR, 61st Sess., Supp. No. 17, at 56, UN Doc. A/61/17, UN Sales No. E.08.V.4 (2008) [here-
inafter UNCITRAL Model Law].
6
Id., Art. 34(2)(a)(iii); New York Convention, supra note 4, Art. V(1)(c).
7
Agreement for the Promotion and Protection of Investments, UK-Arg., Dec. 11, 1990, 1993 UKTS No. 41,
1765 UNTS 33.
8
BG Grp. Plc. v. Republic of Arg., Final Award, paras. 84 – 85 (Arb. Trib. Dec. 24, 2007), at http://italaw.com.
9
Id., para. 141.
752 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 108
there was no chance that a decision in a case of this nature could be rendered within eighteen
months; the most-favored-nation provision in the Treaty entitled it to rely on arbitral clauses
in other Argentine investment treaties that did not impose this requirement; and any custom-
ary international law rule of exhaustion of local remedies could be disregarded when they were
unduly slow or expensive.10
The arbitral tribunal rejected Argentina’s argument, finding that it had jurisdiction and
ordering Argentina to pay BG Group US$185 million for violating the Treaty’s fair and equi-
table treatment obligations.11 The tribunal held that Article 8(2)(a)(i) could not be construed
as an absolute impediment to arbitration, as this would allow a host state to “unilaterally elude
arbitration” by preventing or hindering recourse to domestic courts.12 As Argentina had
restricted access to its courts so as to implement its emergency laws, it could not insist that BG
Group go to those courts to challenge these laws.13 To find otherwise would produce an absurd
and unreasonable result, which was proscribed by Article 32 of the Vienna Convention on the
Law of Treaties.14
Argentina filed a motion in the United States District Court for the District of Columbia—
the arbitral seat—to vacate the award under the Federal Arbitration Act (FAA)15 on the basis
that “the arbitrators exceeded their powers” by permitting BG Group to arbitrate without com-
plying with the local litigation requirement.16 BG Group filed a cross motion to confirm the
award. The district court denied Argentina’s motion and confirmed the award.17 The court
adopted a highly deferential standard of review, noting that “careful scrutiny of an arbitrator’s
decision would frustrate the FAA’s ‘emphatic federal policy in favor of arbitral dispute reso-
lution.’”18 To overturn the tribunal’s decision, Argentina had to demonstrate that the “arbi-
trator stray[ed] from interpretation and application of the agreement and effectively dis-
pense[d] his own brand of industrial justice.”19 Applying this standard, the court concluded
that the tribunal had not exceeded its authority because it had “relied upon a colorable, if not
reasonable, interpretation” of the Treaty.20
The U.S. Court of Appeals for the District of Columbia Circuit reversed the district court’s
decision and vacated the arbitral award.21 The appellate court reasoned that compliance with
the local litigation requirement was a matter for the courts to decide de novo, that is, without
10
Id., para. 142.
11
Id., para. 467.
12
Id., para. 147.
13
Id., paras. 155–57.
14
Id., para. 147; see Vienna Convention on the Law of Treaties, Art. 32, May 23, 1969, 1155 UNTS 331 [here-
inafter Vienna Convention].
15
9 U.S.C. §§1–14 (2012). The FAA, which governs domestic and international arbitral agreements, was passed
in 1925. It was amended in 1970 to incorporate the New York Convention. 9 U.S.C. §§201– 08.
16
9 U.S.C. §10(a)(4).
17
BG Grp. PLC v. Republic of Arg., 715 F.Supp.2d 108 (D.D.C. 2010) [hereinafter BG Grp. I ]; 764 F.Supp.2d
21 (D.D.C. 2011). In the first decision, the district court denied Argentina’s motion to vacate the arbitral award
pursuant to §10(a)(4) of the FAA. In the second decision, the district court confirmed the award pursuant to §207
of the FAA and the New York Convention.
18
BG Grp. I, 715 F.Supp.2d at 116 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 631 (1985)).
19
Id. at 121 (quoting Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671 (2010)).
20
Id. at 122.
21
BG Grp. PLC v. Republic of Arg., 665 F.3d 1363 (D.C. Cir. 2012).
deference to the tribunal’s views. It adopted this standard of review because the requirement
was a “precondition to arbitration” and the Treaty was silent on whether the courts or arbi-
trators should decide this issue.22 On that basis, the court found that the tribunal had ignored
the treaty terms and “rendered a decision wholly based on outside legal sources and without
regard to the contracting parties’ agreement.”23 The court decided that BG Group must com-
mence a lawsuit in the Argentine courts and wait eighteen months before initiating arbi-
tration.24
The Supreme Court Decision
BG Group petitioned for and was granted a writ of certiorari.25 A divided Supreme Court
reversed the decision of the court of appeals.26 The principal issue before the Court was,
“[W]ho— court or arbitrator— bears primary responsibility for interpreting and applying the
local litigation requirement to an underlying controversy?” (p. 1204). The majority opinion,
written by Justice Breyer (and joined by Justices Scalia, Thomas, Ginsburg, Alito, and Kagan,
with Justice Sotomayor concurring in part), held that this question was a matter for the arbi-
trators because it simply concerned when arbitration could commence. Accordingly, courts
had to review the arbitrators’ “determinations [concerning the local litigation requirement]
with deference” (id.). The dissent, written by Chief Justice Roberts (and joined by Justice
Kennedy), held that this question was for courts to decide de novo because compliance with
these conditions went to whether the disputing parties had agreed to arbitrate, not simply when
they had agreed to do so (pp. 1216, 1221–22, Roberts, C.J., dissenting).
The sharply divided approaches clearly manifest the “clash of paradigms” underlying the
investment treaty system.27 The majority adopted a two-pronged analysis. In the first step, it
implicitly embraced a commercial arbitration paradigm by approaching the Treaty “as if it were
an ordinary contract between private parties” (p. 1206). Under U.S. law, contracting parties
are entitled to determine whether a particular matter is primarily for arbitrators or for courts
to decide. If the contract is silent on that point, the courts presume that the parties intended
that courts decide disputes about arbitrability (that is, whether the parties have agreed to arbi-
trate) and that arbitrators decide disputes about procedural preconditions to arbitration (pp.
1206 – 07). As nothing in the Treaty demonstrated an intention to delegate these decisions to
judges or arbitrators, the majority concluded that satisfaction of the local litigation require-
ment was for the arbitrators to decide because it governed “when the contractual duty to arbi-
trate arises, not whether there is a contractual duty to arbitrate at all” (pp. 1207– 08).
In the second step, the majority attempted to incorporate a public international law para-
digm by asking whether “the fact that the document in question is a treaty makes a critical dif-
ference” and concluding that it did not (p. 1206). As a “treaty is a contract, though between
nations,” the majority reasoned that its interpretation was a “matter of determining the parties’
22
Id. at. 1371.
23
Id. at 1365– 66.
24
Id. at 1373.
25
BG Grp. PLC v. Republic of Arg., 133 S.Ct. 2795 (2013) (mem.) (granting cert.).
26
134 S.Ct. 1198 (2014).
27
Anthea Roberts, Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System, 107 AJIL 45
(2013).
intent” (p. 1208). When asked to interpret that intent pursuant to a motion to vacate or con-
firm an arbitral award under the FAA, U.S. courts “should normally apply the presumptions
supplied by American law” (id.). This conclusion took the majority back to the interpretive
presumptions identified above, leading it to adopt the same highly deferential standard of
review as the district court. The majority found that, although controversial, the tribunal’s
decision excusing noncompliance with the local litigation requirement was not “barred by the
Treaty” (p. 1213).
There are three key problems with the majority’s analysis. They stem from a failure to appre-
ciate the public international law basis and public law nature of investment treaty arbitration.
First, the majority conflated the investor-state disputing relationship with the interstate
treaty relationship, assuming that a completed agreement to arbitrate existed between BG
Group and Argentina on the basis of the Treaty between Argentina and the United Kingdom.
This conflation misunderstands the triangular nature of investment treaties, which are public
international law agreements between states that create enforceable rights for investors as third-
party beneficiaries.
In dissent, Chief Justice Roberts chastised the majority for starting from the assumption that
the Treaty was analogous to an ordinary contract between private parties, stating: “It should
come as no surprise that, after starting down the wrong road, the majority ends up at the wrong
place” (p. 1215, Roberts, C.J., dissenting). As an agreement between Argentina and the United
Kingdom, the Treaty did not include a completed arbitration agreement between BG Group
and Argentina because “[n]o investor is a party to that Treaty” (id., p. 1216). Instead, an inves-
tor and the host state had to “form an agreement in another way, before an obligation to arbi-
trate arises” (id.). Article 8(2)(b) of the Treaty allowed the disputing parties to agree to send
the matter straight to arbitration. In the absence of such an agreement—as was the case with
BG Group and Argentina—“[s]omething else must happen to create an agreement,” and “Arti-
cle 8(2)(a) makes clear what that something is: An investor must submit his dispute to the
courts of the host country. After 18 months, or an unsatisfactory decision, the investor may
then request arbitration” (id.). For this reason, Chief Justice Roberts concluded that the local
litigation requirement was a “condition [precedent] to the formation of an agreement, not sim-
ply a matter of performing an existing agreement” (id.).
Second, the majority sought to interpret a public international law treaty between Argentina and
the United Kingdom by reference to presumptions developed in U.S. domestic law in the commer-
cial and employment arbitration context. This approach makes no sense. As a treaty, the agreement
between Argentina and the United Kingdom should have been interpreted in accordance with the
Vienna Convention.28 Argentina and the United Kingdom—the investment treaty parties— have
ratified the Vienna Convention.29 In addition, these interpretive rules are generally accepted as
28
The conspicuous absence of references to the Vienna Convention was perhaps unsurprising, given that the
Supreme Court routinely fails to reference it in its decisions on treaty interpretation. See, e.g., Medellı́n v. Texas,
552 U.S. 491 (2008). Although it did not expressly refer to the Vienna Convention, the Court did interpret the
Treaty by reference to its text, structure, and context. See 134 S.Ct. at 1207, 1210 (majority op.), 1215 (Sotomayor,
J., concurring in part), & 1216 –17, 1219 –20 (Roberts, C.J., dissenting).
29
Argentina signed the Vienna Convention on May 23, 1969, and ratified it on December 5, 1972. The United
Kingdom signed it on April 20, 1970, and ratified it on June 25, 1971. UNITED NATIONS TREATY COLLECTION,
CHAPTER XXIII: LAW OF TREATIES, at https://treaties.un.org.
reflecting customary international law.30 The United States “generally recognizes it as an author-
itative guide to treaty interpretation.”31 Other national courts engaged in judicial review of invest-
ment treaty awards have applied the Vienna Convention.32
The U.S. domestic law presumptions do not reflect the expectations of the parties to the
investment treaty on which the arbitration was based—that is, Argentina and the United King-
dom. The governing law for investment treaties is usually international law, either by itself or
in addition to a specific national law. The Treaty did not specify Washington, D.C., as the seat
of all arbitrations and the treaty parties would not have known in advance where an action to
recognize and enforce an arbitral award might occur. The treaty parties could not have been
expected to use clear words to displace domestic law presumptions that might arise in any num-
ber of states that could have been the seat of the arbitration or the place of enforcement.
Interpreting an investment treaty by reference to the Vienna Convention, rather than
domestic law norms, is likely to be especially significant in cases where the treaty parties have
engaged in subsequent agreements or practice relevant to interpretation. For instance, if the
United Kingdom had filed an amicus brief in this case advocating the same interpretation of
Article 8(2)(a) as Argentina, this concurrence would have amounted to persuasive evidence of
the intention of the treaty parties.33 Such amicus interventions are still rare outside the context
of the North American Free Trade Agreement (NAFTA), and little can be inferred from the
failure of the United Kingdom to file here, since it has not taken an active role in the investment
treaty system to date and investment treaty policy is currently the subject of heated debate in
the European Union. But courts should adopt the interpretive approach of the Vienna Con-
vention, which would enable them to consider such filings where they are made.
Third, by uncritically importing commercial law concepts into the investment treaty con-
text, the majority missed the public law nature of investment treaty arbitration and, in so doing,
“trivialized the significance to a sovereign nation of subjecting itself to arbitration anywhere in
the world, solely at the option of private parties” (p. 1216, Roberts, C.J., dissenting). In most
commercial arbitrations, the contracting parties agree to accept arbitral jurisdiction over pri-
vate law disputes, such as breach of contract. The contracting parties and disputing parties are
typically one and the same and are known to each other at the time of contracting. By contrast,
investment treaties permit investors to challenge a state’s sovereign actions. They also grant
rights to foreign investors as a class: the number of investors is not finite and the host state is
not aware of all of their identities at the time the treaty is negotiated or enters into force.34
Investment treaties thus create a form of dispute resolution that falls between public law judi-
cial review and private law commercial arbitration.
30
Avena and Other Mexican Nationals (Mex. v. U.S.), 2004 ICJ REP. 12, 48, para. 83 (Mar. 31); Golder v.
United Kingdom, 18 Eur. Ct. H.R. (ser. A), para. 29 (1975).
31
Brief for the United States as Amicus Curiae in Support of Vacatur and Remand at 30 n.4, BG Grp. PLC v.
Republic of Arg., 134 S.Ct. 1198 (2014) (No. 12-138), at http://www.americanbar.org/content/dam/aba/
publications/supreme_court_preview/briefs-v2/12-138_v-r_usa.authcheckdam.pdf, available in U.S. S. Ct. Briefs
LEXIS 3532 [hereinafter Brief for the U.S. on Vacatur].
32
See, e.g., Czech Republic v. Eur. Media Ventures SA, [2007] EWHC 2851, [14 –15] (Comm.) (Eng.); Canada
v. S.D. Myers, Inc., 2004 FC 38, [2004] F.C.R. 368, paras. 24, 69 (Can.); Czech Republic v. CME Czech Republic
B.V., 42 ILM 919, 964 – 65 (2003) (Svea Ct. App. 2003) (Swed.).
33
Vienna Convention, supra note 14, Art. 31(3)(a), (b).
34
GUS VAN HARTEN, INVESTMENT TREATY ARBITRATION AND PUBLIC LAW 4 –5, 45, 49, 63, 100, 143– 44
(2007).
In her separate concurring opinion, Justice Sotomayor stressed that “[c]onsent is especially
salient in the context of a bilateral investment treaty where the treaty is not an already agreed-
upon arbitration provision between known parties, but rather a nation state’s standing offer
to arbitrate with an amorphous class of private investors” (p. 1213, Sotomayor, J., concurring
in part). She was concerned to safeguard the ability of treaty parties to designate certain require-
ments as “conditions of consent” and thus ensure de novo review “because otherwise arbitrators
might ‘force unwilling parties to arbitrate.’”35 In obiter, the majority had noted that this
express label, which is used in some U.S. treaties, “is unlikely to be conclusive” so as to “war-
rant[] abandoning, or increasing the complexity of, our ordinary intent-determining frame-
work,” but it left the question of interpreting such treaties for another day (p. 1209, majority
op.). Justice Sotomayor joined the majority opinion on the understanding that it did not
decide the question of how to interpret such treaties (p. 1213, Sotomayor, J., concurring in
part).
Similarly, Chief Justice Roberts recognized that “[i]t is no trifling matter for a sovereign
nation to subject itself to suit by private parties; we do not presume that any country . . . takes
that step lightly” (p. 1219, Roberts, C.J., dissenting). Courts must ensure that any conditions
that the treaty parties imposed on arbitration are met:
Under Article 8, a Contracting Party grants to private adjudicators not necessarily of its
own choosing, who can meet literally anywhere in the world, a power it typically reserves
to its own courts, if it grants it at all: the power to sit in judgment on its sovereign acts.
Given these stakes, one would expect the United Kingdom and Argentina to have taken
particular care in specifying the limited circumstances in which foreign investors can trig-
ger the Treaty’s arbitration process. And that is precisely what they did in Article
8(2)(a) . . . . (Id., p. 1220)
The local litigation requirement gives host states a chance to resolve disputes or narrow the
issues through their local courts or settlement negotiations before being subject to an interna-
tional claim and the possibility of paying hefty damages. It also gives host states a chance to
prepare for arbitration if the dispute cannot be resolved. Unlike sophisticated commercial play-
ers, many host states struggle to reach decisions on the same timetable as used in commercial
arbitrations. The eighteen-month window gives them a chance to come to grips with the case,
to work out which government actor will handle the case and whether to engage outside coun-
sel, and to determine their strategy.
II. UNDERSTANDING THE CASE IN ITS BROADER CONTEXT
Rethinking Judicial Review Standards
How does BG Group compare with decisions of ad hoc annulment committees and other
national courts?
Different generations of ICSID annulment.The fact that ICSID awards are insulated from
national court review has traditionally been viewed as a key strength of the ICSID Convention
35
134 S.Ct. at 1214 (Sotomayor, J., concurring in part) (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S.
938, 945 (1995)).
system. Nevertheless, ICSID awards are subject to annulment proceedings. Although not
meant to function as appellate review, the annulment mechanism was intended to be a check
on ICSID awards to the extent that the tribunal was improperly constituted, manifestly
exceeded its powers, engaged in corruption, seriously departed from a fundamental rule of pro-
cedure, or failed to state reasons.36 In comparative terms, two features of ICSID annulment
jurisprudence are of special interest here.
First, ad hoc annulment committees have struggled to formulate an appropriate standard of
review, their assessments of how deferential and intrusive to be in applying the grounds for
annulment waxing and waning across different generations.37 This oscillation provides a useful
template for understanding some of the conflicting approaches to judicial review taken by
national courts. Second, ad hoc committees have interpreted “manifest excess of powers,”
which is the ground most analogous to judicial review for lack of jurisdiction, as including both
jurisdictional error and failure to apply the applicable law.38 In reviewing arbitral awards on
this basis, many ad hoc committees have taken a far more interventionist approach than the
majority in BG Group.
In the first generation, annulment committees set aside two arbitral awards on the basis that
the tribunals manifestly exceeded their powers for failing to apply the proper law.39 The com-
mittees were criticized for engaging in merits review and failing to distinguish properly between
annulment and appeal. Concern was expressed that ICSID arbitration would lose its attraction
if annulment committees undermined the finality of awards by continuing to be so interven-
tionist. The second generation of annulment committees responded by becoming more cau-
tious, refusing to annul awards and carefully reiterating the distinction between annulment
proceedings and appellate review.40 These decisions raised concern that the committees were
just rubber-stamping tribunal awards, without providing meaningful review.
The third generation of annulment decisions was celebrated for navigating a course between
permitting parties effectively to appeal, on the one hand, and failing to exercise any real over-
sight, on the other. The committees engaged in meaningful review but declared the intention
to intervene only in serious and important cases.41 In particular, in CMS Gas Transmission Co.
v. Argentine Republic, the ad hoc committee criticized the arbitral award for applying the
36
ICSID Convention, supra note 2, Art. 52(1).
37
Promod Nair & Claudia Ludwig, ICSID Annulment Awards: The Fourth Generation?, GLOBAL ARB. REV., Oct.
18, 2010, at 18 (by subscription); Christoph Schreuer, Three Generations of ICSID Annulment Proceedings, in
ANNULMENT OF ICSID AWARDS 17 (Emmanuel Gaillard & Yas Banifatemi eds., 2004).
38
CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8, Decision on Annulment,
para. 49 (Sept. 25, 2007), at http://www.italaw.com.
39
Klöckner Industrie-Anlagen Gmbh v. Republic of Cameroon, ICSID Case No. ARB/81/2, Decision on
Annulment, paras. 79, 81 (May 3, 1985), 1 ICSID REV. 89 (1986); Amco Asia Corp. v. Republic of Indonesia,
ICSID Case No. ARB/81/1, Decision on Annulment, paras. 93, 98, 103 (May 16, 1986), 25 ILM 1439 (1986).
40
See, e.g., Mar. Int’l Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4, Decision on
Partial Annulment, paras. 4.02, 5.04, 5.08, 6.55 (Dec. 22, 1989), 5 ICSID REV. 95 (1990); Amco Asia Corp. v.
Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Annulment of Award and of Supplemental Award,
paras. 1.14, 1.17, 7.19, 7.28, 8.08 (Dec. 17, 1992), 9 ICSID Rep. 3 (2006).
41
See, e.g., Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on Annulment
( Jan. 28, 2002), 41 ILM 933 (2002); Compañı́a de Aguas del Aconquija S.A. v. Argentine Republic, ICSID Case
No. ARB/97/3, Decision on Annulment ( July 3, 2002), 19 ICSID REV. 89 (2004) (reported by Susan L. Kara-
manian at 105 AJIL 553 (2011)).
law “cryptically and defectively,” yet still refused to annul the award for manifest excess of
powers.42
We are currently in the fourth generation of ICSID annulment decisions, which features a
mix of decisions. Some ad hoc committees have fully or partially annulled awards for failing
to understand and apply the law properly. Notably, in Sempra Energy International v. Argentine
Republic and Enron Creditors Recovery Corp. v. Argentine Republic, the committees considered
that manifest errors of law could amount to a failure to apply the applicable law and thus trigger
annulment on the basis of manifest excess of powers.43 Others have adopted a more cautious
approach. For instance, the committee in Continental Casualty Corp. v. Argentine Republic sug-
gested that errors of law would not amount to manifest excess of powers “at least where the error
relates to the substantive issue” rather than a jurisdictional issue.44
Like national courts, annulment committees routinely assert that they are not meant to
engage in appellate review. Yet many of these committees have taken a much more exacting
approach to reviewing the underlying awards than the highly deferential approach adopted by
the majority in BG Group. The comparison starkly raises the question whether ICSID contin-
ues to be a better option for investors. But just as the approaches of annulment committees
vary, so do the approaches of national courts.
Different generations of judicial review? It is difficult to compare judicial review decisions of
national courts in different states. Although many states have adopted the UNCITRAL Model
Law on International Commercial Arbitration, others have crafted their own legislation with
somewhat similar and somewhat different terminology. For example, the U.S. FAA—adopted
in 1925 well before the model law—and the model law both contain grounds of set aside relat-
ing to excess of jurisdiction, but these grounds are differently phrased.45 The appropriate level
of judicial review might also vary depending on the ground raised for setting aside, or for seek-
ing to resist enforcement and recognition of, an award. Despite these limitations, some waxing
and waning may be discerned in the level of judicial review applied by different national courts
with respect to jurisdictional challenges, though these different “generations” have not hap-
pened in chronological order.
In the first court decision reviewing an investment treaty award—United Mexican States v.
Metalclad Corp.—a Canadian court found that the arbitral tribunal had “decided a matter
beyond the scope of the submission to arbitration” by misstating the applicable law as including
a nonexistent transparency obligation in the investment chapter of NAFTA.46 That decision
has been criticized for according too little deference to the arbitral tribunal and being a dis-
guised form of merits review.47 By contrast, the recent decision in BG Group deserves criticism
42
CMS Gas Transmission Co., paras. 136, 158 –59.
43
See, e.g., Sempra Energy Int’l v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on Annulment,
paras. 121–25, 165 ( June 29, 2010), at https://icsid.worldbank.org (reported by Bart M. J. Szewczyk at 105 AJIL
547 (2011)); Enron Creditors Recovery Corp. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on
Annulment, para. 405 ( July 30, 2010), at http://www.italaw.com.
44
Continental Casualty Corp. v. Argentine Republic, ICSID Case No. ARB/03/9, Decision on Partial Annul-
ment, para. 90 (Sept. 16, 2011), at https://icsid.worldbank.org.
45
UNCITRAL Model Law, supra note 5, Art. 34(2)(a)(iii); FAA, 9 U.S.C. §10(a)(4) (2012).
46
United Mexican States v. Metalclad Corp., 2001 BCSC 664, paras. 70 –72, 76 (Sup. Ct. B.C., Can.), at http://
www.courts.gov.bc.ca (reported by William J. Dodge at 95 AJIL 910 (2001)).
47
See generally Charles H. Brower II, Investor-State Disputes under NAFTA: The Empire Strikes Back, 40 COLUM.
J. TRANSNAT’L L. 43 (2001).
for the opposite reason, for according too much deference to the arbitral tribunal on a clear
question of jurisdiction.
Between Metalclad and BG Group— both in time and in standard of review—lie cases that
have attempted to strike a more nuanced approach. The courts in these cases have applied
something akin to a “correctness” standard (analogous to “de novo” review) when considering
jurisdictional challenges, but have also wrestled, to varying degrees, with restraining the ambit
of their review.
In United Mexican States v. Cargill, Inc., a Canadian court adopted a correctness standard
of review for jurisdictional decisions “in the sense that the tribunal had to be correct in its deter-
mination that it had the ability to make the decision it made.”48 The arbitral tribunal’s author-
ity to make any decision was limited by NAFTA as interpreted in accordance with international
law: “It has no authority to expand its jurisdiction by incorrectly interpreting the . . . [treaty],
even if its interpretation could be viewed as a reasonable one.”49 The court, however, limited
the scope of its jurisdictional review to “true question[s] of jurisdiction.”50
Other national courts have adopted similar approaches. In Republic of Ecuador v. Chevron
Corp., a Dutch court found that the determination by a tribunal of its own competence under
an investment treaty “has to be fully reviewed by the court,”51 but was careful to draw a line
between jurisdictional issues that were subject to full review and “follow-on question[s]” that
were not.52 Moreover, when it came to other grounds of review, the Dutch court clearly stated
that such decisions should be reviewed with restraint, as set-aside proceedings “may not be used
as a disguised appeal” and national courts should “only intervene . . . in significant cases.”53
Some national courts have not expressly tried to reconcile correctness and restraint, but have
just adopted a “correctness-like” standard when dealing with jurisdictional questions. For
example, in Republic of Ecuador v. Occidental Exploration & Production Co., an English court
held that to determine whether the arbitral tribunal had “substantive jurisdiction,” the relevant
question was “whether, on the true construction of the [treaty], . . . the Tribunal has jurisdic-
tion to determine the dispute.”54 In some cases, these courts may implicitly balance correctness
and restraint in their actual review of the arbitral tribunal’s award.55
The need for courts to police arbitral jurisdiction. As in ICSID annulment proceedings,
national courts will probably continue to vacillate between being more interventionist and
more deferential in determining the appropriate standard of review. In this way, the extremely
48
United Mexican States v. Cargill, Inc., 2011 ONCA 622, para. 42 (Ont. Ct. App., Can.) [hereinafter Cargill ],
at http://www.ontariocourts.ca.
49
Id., para. 41.
50
Id., paras. 44, 47, 53.
51
Republic of Ecuador/Chevron Corp. (USA), Dist. Ct. The Hague, May 2, 2012, Nos. 386934/HA ZA
11-402, & 408948/HA ZA 11-2813, para. 4.5 (Neth.), at OXFORD REPORTS: INT’L INVESTMENT CLAIMS 539
(NE 2012).
52
Id., paras. 4.11–.12.
53
Id., para. 4.4.
54
Republic of Ecuador v. Occidental Exploration & Prod. Co., [2006] EWHC 345, [79] (Comm), [2006] 1
Lloyd’s Rep. 773 (High Ct.), aff ’d, [2007] EWCA Civ 656 (Ct. App.).
55
In Ecuador v. Occidental, for instance, although it did not set aside the arbitral award, the court interpreted the
jurisdictional provisions of the treaty itself, even disagreeing with the tribunal on some points, but taking care not
to review the merits of Occidental’s claims. [2006] EWHC, supra note 54, at [79], [93]–[94].
deferential approach of the majority in BG Group represents one contribution to the debate
rather than the final word. Some mediation away from the BG Group extreme is important
because the reasons commonly given for why national courts should defer are open to question
when dealing with jurisdictional issues in the investment treaty context.
In adopting a highly deferential standard of review, the district court explained that the
unequivocal federal policy favoring arbitral dispute resolution “applies with special force in the
field of international commerce,” and thus “careful scrutiny”56 of arbitral awards would
“undermin[e] the goals of arbitration, namely, settling disputes efficiently and avoiding
lengthy and expensive litigation.”57 But, for the reasons explained by the Chief Justice and Jus-
tice Sotomayor, investment treaty arbitrations are not purely commercial because they involve
an important sovereign element, which necessitates greater scrutiny. In addition, there is little
evidence that investors choose investment treaty arbitration because it is speedy and cheap;
many investor-state arbitrations take years to complete and involve millions of dollars in
legal fees.
Instead, the major reason that investors invoke arbitration is that they prefer that their claims
be heard by an arbitral tribunal rather than by the host state’s courts. Although investors may
elect to bypass the national courts of the host state, they pursue arbitration with full knowledge
that the tribunal’s award may still be challenged in other domestic courts through set-aside or
recognition and enforcement proceedings. The treaty parties may not have elected to give
national courts full appellate review powers, but they have delegated authority to them to
ensure that arbitral tribunals act within their jurisdiction.
Policing jurisdiction assumes special importance in the investment treaty context, not only
because of the sovereign character of disputes but also because of the asymmetric nature of
investor-state arbitration. That is, as claims are brought only by investors and against states,
broad jurisdictional rulings systematically advantage investors and disadvantage host states.
Commercial arbitration is unlike investment treaty arbitration in this respect, as either con-
tracting party could end up as claimant or respondent. In addition, arbitrators may have an
actual or perceived incentive to provide expansive rulings on jurisdiction, as they are paid only
if and to the extent that a case proceeds.58 Being deferential to jurisdictional decisions allows
this real or perceived bias to go unchecked.
The possibility of having an award set aside or not enforced provides a powerful incentive
for arbitrators to scrutinize their approach to jurisdiction and not overreach. Following the
decision of the court of appeals in BG Group, several arbitral tribunals held that noncompliance
with a local litigation requirement precluded their jurisdiction, with one tribunal referring to
the decision of the court of appeals.59 This is an important step in a dialogic process where
56
BG Grp. I, 715 F.Supp.2d at 116 (quoting Mitsubishi Motors Corp., supra note 18, at 631).
57
Id. (quoting LaPrade v. Kidder, Peabody & Co., 94 F.Supp.2d 2, 4 –5 (D.D.C. 2000)).
58
GUS VAN HARTEN, SOVEREIGN CHOICES AND SOVEREIGN CONSTRAINTS: JUDICIAL RESTRAINT IN
INVESTMENT TREATY ARBITRATION 45– 46 (2013); Gus Van Harten, Arbitrator Behaviour in Asymmetrical Adju-
dication: An Empirical Study of Investment Treaty Arbitration, 50 OSGOODE HALL L.J. 211, 214 –16, 237– 40, 252
(2012).
59
Ömer Dede v. Romania, ICSID Case No. ARB/10/22, Award, paras. 225, 262 (Sept. 5, 2013), at https://
icsid.worldbank.org; Kiliç Ĭnşaat Ïthalat Ĭhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan, ICSID Case No.
ARB/10/1, Award, paras. 6.2.8 –.9, 6.3.15, 6.6.1 ( July 2, 2013), at http://www.italaw.com; Urbaser S.A. v. Argen-
tine Republic, ICSID Case No. ARB/07/26, Decision on Jurisdiction, paras. 129 –30 (Dec. 19, 2012), at http://
www.italaw.com; Daimler Fin. Servs. AG v. Argentine Republic, ICSID Case No. ARB/05/1, Award, paras. 193–94
tribunals initially interpret jurisdictional provisions, national courts judicially review those
determinations for excess of jurisdiction, and both inform the next round of arbitral decisions.
If national courts abdicate this function by being overly deferential, they reduce the incentive
of investment tribunals to police their own jurisdictional limits.
The Disaggregated—and Not Always Ideal—State
The United States is sometimes portrayed as akin to an “ideal” state in the investment treaty
system because of its ability to internalize its different interests so as to reach more balanced
approaches than those adopted by states that function more purely as capital importers or cap-
ital exporters. A review of the different roles played by the United States in BG Group illustrates
the multiple and conflicting interests of major states in the investment treaty system, but also
why they are not always able to resolve these interests in an ideal way.
As a capital-exporting home state, the United States has an interest in ensuring the avail-
ability of effective protections and dispute resolution mechanisms for U.S. nationals investing
abroad. A critical part of this interest involves minimizing the potential for national courts to
set aside, or to refuse to enforce, arbitral awards in favor of U.S. investors. At the same time,
the United States is increasingly being sued as a capital-importing host state, which gives it an
interest in ensuring that it is not forced to arbitrate without its consent and that arbitral tri-
bunals do not exceed the bounds of their authority. If the United States ever loses a case, it
would want to be able to seek to have the award set aside.
For many reasons, the United States is also a popular arbitral seat and place for enforcing
awards. Its legal system is well developed and it holds the world’s reserve currency, so that many
respondents are likely to retain assets in the United States that can be attached. But a critical
reason why the United States has proved to be a popular venue for arbitration is that its courts
have taken a pro-arbitration approach that minimizes interference in the arbitral process. This
stance works to the advantage of the U.S. business and arbitral communities, which maintain
extensive contacts throughout the government to make their interests known.
These competing interests all come to bear on the interagency process, established by the
United States to review its positions in investment treaty negotiations, arbitral pleadings, and
court cases. The Office of the U.S. Trade Representative is likely to be concerned with offensive
interests in the form of protecting U.S. investors abroad. The Department of State is likely to
be concerned with offensive and defensive interests, as it both engages in diplomatic protection
and defends investor-state claims. Regulatory agencies, such as the Food and Drug Adminis-
tration and the Environmental Protection Agency, are likely to be protective of regulatory
space when the United States is sued. The solicitor general is best placed to know how to craft
arguments that would appeal to U.S. courts like the Supreme Court.
In an ideal scenario, the interagency process creates a framework for the United States to
balance its interests and reach a consensus position that moderates extremes. In the revisions
to its Model Bilateral Investment Treaty, for example, the United States has clearly weighed
its interests as a home and a host state and articulated standards that it could live with on either
side of the equation. But the ultimate position adopted may well depend on the “interpretation
(Aug. 22, 2012), at http://www.italaw.com; ICS Inspection & Control Servs. Ltd. (UK) v. Argentine Republic,
PCA Case No. 2010-9, Award on Jurisdiction, at 90 n.301 (Feb. 10, 2012), at http://www.italaw.com (referring
to the D.C. Circuit’s decision in BG Group).
catalyst” for the process—the event that pushes the executive to take a position.60 And, instead
of producing a balanced position, this process can sometimes result in failure to adopt a clear
and convincing approach, as occurred in BG Group.
When BG Group sought a writ of certiorari, the Supreme Court invited the solicitor general
to submit a brief, but the solicitor general seemed reluctant to engage on the substance, rec-
ommending that the Court deny certiorari.61 The Court granted it anyway, putting the exec-
utive branch in a difficult position: how could it best balance its conflicting interests? The gov-
ernment’s argument on the merits began well by explaining that an investment treaty should
be interpreted in accordance with the Vienna Convention, not by reference to domestic inter-
pretive presumptions applied to contractual arbitration agreements.62 But it then sought to
draw a line between jurisdictional provisions going to consent, which required de novo review,
and jurisdictional provisions not going to consent, which could be reviewed with deference.63
The brief offered no compelling justification for this dividing line or for determining which
jurisdictional elements fell on which side of the line.
The U.S. government clearly wanted to preserve its ability to seek de novo review for non-
compliance with expressly labeled “conditions of consent” in U.S. treaties,64 yet this position
led it to draw a line that looked ad hoc and self-serving, leaving the Court frustrated and con-
fused.65 The government also refused to take a stand on how the local litigation requirement
in the Treaty before the Court should ultimately be interpreted, on the basis that doing so was
inappropriate because the Treaty was between two other states.66 But this abstention left the
Supreme Court (still an arm of the U.S. government) in the position of having to give such an
interpretation without clear guidance on an approach that would work across a range of trea-
ties. And the case is not truly bilateral because it will serve as a precedent for national court
review with respect to other investment treaties, given the quasi-multilateral nature of the
investment treaty system.
The interagency process led to a similar failure to speak clearly in Cargill. In that case, the
Canadian court was open to considering the views of the NAFTA parties on a certain issue of
interpretation. The United States intervened, yet its submissions lacked clear content. In the
end, the court was unable to decipher a clear agreement between the treaty parties in view of
the ambiguous U.S. submission.67 These cases represent examples of the inability of the United
States to internalize its interests fully in order to arrive at a clear and coherent approach, con-
trary to the “ideal” state theory.
60
Rebecca Ingber, Interpretation Catalysts and Executive Branch Legal Decisionmaking, 38 YALE J. INT’L L. 359
(2013).
61
Brief for the United States as Amicus Curiae at 14, 17–20, BG Grp. PLC v. Republic of Arg., 134 S.Ct. 1198
(2014) (No. 12-138), at http://sblog.s3.amazonaws.com/wp-content/uploads/2013/05/12-138-BG-Group.pdf,
available in U.S. S. Ct. Briefs LEXIS 2339.
62
Brief for the U.S. on Vacatur, supra note 31, at 15–19.
63
Id. at 19 –28.
64
Id. at 20 –25; Transcript of Oral Argument at 34, BG Grp. PLC v. Republic of Arg., 134 S.Ct. 1198 (2014) (No.
12-138), at http://www.supremecourt.gov/oral_arguments/argument_transcripts/12-138_c18e.pdf.
65
For example, Justice Breyer said, “[I]t seems to me this has sprung, full blown, from someone’s brain, but is
not well embedded in any law . . . .” Justice Kagan said, “I don’t know what a consent-based objection is.” Tran-
script of Oral Argument, supra note 64, at 28, 33.
66
Id. at 32–33.
67
Cargill, supra note 48, paras. 75– 84.
III. CONCLUSION
In the short term, the arbitral community may have an interest in broad interpretations of
jurisdiction by arbitral tribunals and deferential review of those decisions by national courts.
But the availability of meaningful review through annulment proceedings and judicial review
would encourage arbitrators to be more cautious and self-restrained, which would help to pro-
tect the system’s integrity and legitimacy in the long term. In this case, engaging in de novo
review would not necessarily have required that the underlying award be set aside, as ordered
by the court of appeals. Recognizing that “an investor might argue that it was an implicit aspect
of the unilateral offer that he be afforded a reasonable opportunity to submit his dispute to the
local courts,” Chief Justice Roberts would have remanded the case for an inquiry into whether
BG Group’s failure to go to the local courts could be excused on the basis of futility (pp. 1216,
1224, Roberts, C.J., dissenting). This approach seems reasonable and may well have ended up
with the same result in this case. The dissent’s de novo approach, however, points to a superior
way of understanding the appropriate relationship between national courts and arbitral tribu-
nals, particularly when it comes to reviewing jurisdictional objections like compliance with
local litigation requirements. If national courts adopt an overly deferential approach, and thus
prove unable or unwilling to fulfill their important function of policing jurisdictional decisions
in treaty cases, the arguments for establishing an international appellate mechanism will
only grow.
ANTHEA ROBERTS
Of the Board of Editors
CHRISTINA TRAHANAS
New York University
International Court of Justice—provisional measures—irreparable harm—attorney-client privilege
QUESTIONS RELATING TO THE SEIZURE AND DETENTION OF CERTAIN DOCUMENTS AND DATA
(Timor-Leste v. Australia). Provisional Measures Order. At http://www.icj-cij.org.
International Court of Justice, March 3, 2014.
On March 3, 2014, the International Court of Justice (Court or ICJ) granted provisional
measures in a proceeding brought by Timor-Leste (East Timor) against Australia alleging that
the latter had violated international law (and interfered with East Timor’s sovereignty) by seiz-
ing documents and electronic data containing legal advice regarding a separate dispute between
the two countries being arbitrated under the auspices of the Permanent Court of Arbitration
(PCA).1 In its decision, the Court found that a plausible right exists under international law
for East Timor to communicate in confidence with its legal advisers and that East Timor faced
an urgent risk of irreparable prejudice if the contents of the material in question were com-
municated to any Australian involved in the PCA arbitration, the present Court case, or poten-
tial future maritime delimitation negotiations with East Timor.
1
Questions Relating to the Seizure and Detention of Certain Documents and Data (Timor-Leste v. Austl.), Pro-
visional Measures Order (Int’l Ct. Justice Mar. 3, 2014). Decisions and documents of the ICJ cited herein are avail-
able at the Court’s website, http://www.icj-cij.org.
The 2002 Timor Sea Treaty2 apportioned petroleum resources in the Timor Sea between
Australia and East Timor. In 2006, the Certain Maritime Arrangements in the Timor Sea
Treaty (CMATS Treaty) reapportioned the resource allocation and, with certain exceptions,
extended the terms of the Timor Sea Treaty from thirty to fifty years— until 2057.3 It also pre-
cluded the parties from asserting claims to sovereign rights, jurisdiction, or maritime bound-
aries for the same period.
In April 2013, East Timor commenced an arbitration against Australia under the CMATS
Treaty’s dispute settlement provisions, challenging the validity of the treaty on the ground that
during its negotiation Australia had allegedly intercepted the internal discussions of East
Timor’s cabinet meetings and hence had not negotiated in good faith.4 The details of the arbi-
tration are confidential, but from what has been stated in filings and transcripts on the Court’s
website, as well as in analyses on other websites,5 it appears that East Timor’s Australian lawyer,
Bernard Collaery, learned from a former member of the Australian Secret Intelligence Service
that four of its agents posing as aid workers had hidden microphones in the East Timor cabinet
meeting room during the 2004 negotiation of the CMATS Treaty. East Timor thus apparently
alleges that the CMATS Treaty is invalid under the law of treaties and under customary inter-
national law.
On December 3, 2013, while Collaery was in The Hague in connection with the arbitration,
the Australian government executed a search warrant issued by the Australian attorney general
under the Australian Security Intelligence Organization Act of 1979 and searched and
removed material from Collaery’s office in Australia. The office contained copies of documents
and electronic data concerning the arbitration and potential maritime negotiations, including
legal advice of East Timor’s British lawyers. A week later, on December 10, new Australian
attorneys for East Timor sought a copy of the search warrant, return of the material, and a list
of all the material seized, but to no avail.
On December 17, 2013, East Timor filed an application before the ICJ seeking a declaration
that the seizure of those materials violated East Timor’s sovereignty and its property and other
rights and an order that the materials be returned and that any material not returned be
destroyed. In the same filing, East Timor requested the indication of provisional measures,
arguing that the material would provide Australia with privileged information and irreversibly
weaken East Timor’s position in the arbitration. East Timor also indicated concern about con-
tinuing Australian surveillance and its own ability to conduct confidential communications
2
Timor Sea Treaty, E. Timor–Austl., May 20, 2002, [2003] Austl. TS 13, 2258 UNTS 3 (entered into force
Apr. 2, 2003).
3
Treaty on Certain Maritime Arrangements in the Timor Sea, Timor-Leste–Austl., Jan. 12, 2006, 2483 UNTS
359 (entered into force June 27, 2006).
4
See Case View, Arbitration Under the Timor Sea Treaty (Timor-Leste v. Australia), at http://www.pcacases.
com/web/view/37 (listing arbitrators and counsel, but no details about the case). For the Australian government’s
announcement of the arbitration, see Australian Minister for Foreign Affairs, Arbitration Under the Timor Sea
Treaty (May 3, 2013), at http://foreignminister.gov.au/releases/2013/bc_mr_130503.html.
5
See ICJ, Questions Relating to the Seizure and Detention of Certain Documents and Data (Timor-Leste v.
Austl.), at http://www.icj-cij.org/docket/index.php?p1⫽3&p2⫽3&code⫽tla&case⫽156&k⫽17 [hereinafter
Docket]; Donald K. Anton, The Timor Sea Treaty Arbitration: Timor-Leste Challenges Australian Espionage and Sei-
zure of Documents, ASIL INSIGHT, Feb. 26, 2014, at http://www.asil.org/insights/; Kate Mitchell & Dapo Akande,
Espionage & Good Faith in Treaty Negotiations: East Timor v Australia, EJIL: TALK! ( Jan. 20, 2014), at http://
www.ejiltalk.org; David Robie, East Timor Takes on Australia in ‘Rip off ’ Spy Case with Country’s Future on Line
(Pacific Media Centre Jan. 20, 2014), at http://www.pmc.aut.ac.nz/articles/east-timor-takes-australia-rip-spy-
case-country-s-future-line.
with its legal advisers. It made a series of requests, including that the material be sealed and
delivered to the Court and that Australia give assurances that future communications would
not be intercepted.
In opposing the interim measures request, Australia asserted among other things that the
matter should be dealt with in the arbitration (in which a hearing that had been scheduled for
September 2014 was postponed that month6 ) and that East Timor should be satisfied with an
undertaking by the Australian attorney general that the materials would not be shared with
Australia’s Court team.
On December 18, 2013, the president of the Court, acting under Article 74(4) of the
Court’s rules,7 wrote to Australia calling on it to “refrain from any act which might cause prej-
udice to the rights claimed” by East Timor (para. 9).
In hearings on the provisional measures request from January 20 to 22, 2014,8 East Timor
argued both that it owned the seized materials, which were thus inviolable and immune from
seizure under treaty and customary international law, and that the materials were subject to
legal privilege as a general principle of law. Provisional measures, it maintained, were urgent
and necessary to prevent prejudice to it in the arbitration and Court proceedings and in poten-
tial future negotiations, and it viewed the assurances provided by the Australian attorney gen-
eral as insufficient to prevent that prejudice. Australia argued that East Timor had no property
rights in the material, that the claim to inviolability was unsupported, that immunities did
not extend to the present circumstances, that any claim to legal privilege had been lost
because the communications were seized in pursuance of a criminal offense, that Austra-
lian actions accorded with accepted state practice, that the requirements for provisional mea-
sures had not been met, and that, in any event, a broadened undertaking by the Australian
attorney general obviated the need for provisional measures. Further, Australia argued that the
arbitral proceedings could deal with the issue and, while it neither confirmed nor denied that
espionage had occurred, that the right of Australia to protect its national security had to be
weighed.
On January 28, 2014, the Court issued an order denying a stay that Australia had requested,
on grounds that the ICJ proceedings were sufficiently distinct from the arbitral proceedings.
On March 3, 2014, the Court issued its order indicating provisional measures. The Court
found prima facie jurisdiction under Article 36(2) of its Statute, by which both East Timor and
Australia had agreed to the Court’s jurisdiction on any question of international law.9 It held
6
Oral proceedings were also scheduled to be held in the ICJ from September 17 to 24, 2014. The parties agreed
to request a six-month postponement of the hearings in both forums “to enable [them] to seek an amicable agree-
ment.” ICJ Press Release 2014/28 (Sept. 5, 2014) (quoting letter to the Court dated Sept. 1, 2014, from the agents
of Timor-Leste and Australia); Bullying for Oil, POLITICOZ (Austl.), Sept. 8, 2014, at http://www.themonthly.
com.au/politicoz/september/1410138393/bullying-oil.
7
ICJ, Rules of Court (1978), as amended Apr. 14, 2005. Article 74(4) provides: “Pending the meeting of the
Court, the President may call upon the parties to act in such a way as will enable any order the Court may make
on the request for provisional measures to have its appropriate effects.”
8
For transcripts of the hearings, see Docket, supra note 5.
9
In the March 22, 2002, revision of its declaration accepting jurisdiction under Article 36(2), Australia excluded
disputes related to the delimitation of maritime zones or the exploitation of any disputed maritime zone area pend-
ing its delimitation. Declaration of Australia, Mar. 22, 2002, at https://treaties.un.org/Pages/Declarations.
aspx?index⫽Australia#EndNotes. Thus, the CMATS dispute could not be brought to the Court, but the claim aris-
ing from the seizure of materials from Collaery, which the Court determined by its January 28, 2014, order to be
distinct, could be.
that a state would expect to undertake an arbitration or negotiations “without interference by

the other party in the preparation and conduct of its case” and that it follows that there is “a
plausible right to the protection of its communications with counsel . . ., in particular . . . the
correspondence between them, as well as to the protection of confidentiality of any documents
and data prepared by counsel to advise that State in such a context” (para. 27). It concluded
that provisional measures were linked to this plausible right since they were aimed at preventing
further access to the material, providing East Timor with information on exactly what had been
seized, and ensuring noninterference with future communications between East Timor and its
legal advisers (para. 30). The Court had no difficulty finding it urgent to take measures to pre-
vent “irreparable prejudice” (paras. 31–32, 42). While assuming that Australia would comply
in good faith with its attorney general’s assurances, the Court found them insufficient because
of an exception for national security uses of the materials and because they terminated upon
the issuance of the Court’s interim measures decision (paras. 44, 46).
In view of these findings, the Court indicated two provisional measures by a 12-4 vote and
a third by a 15-1 vote:
(1) “Australia shall ensure that the content of the seized material is not in any way or
at any time used by any person or persons to the disadvantage of Timor-Leste until
the present case has been concluded”;
(2) “Australia shall keep under seal the seized documents and electronic data and any
copies thereof until further decision of the Court”; and
(3) “Australia shall not interfere in any way in communications between Timor-Leste
and its legal advisers in connection with the pending Arbitration under the Timor
Sea Treaty of 20 May 2002 between Timor-Leste and Australia, with any future
bilateral negotiations concerning maritime delimitation, or with any other related
procedure between the two States, including the present case before the Court.”
(Para. 55)
Judges Keith, Greenwood, and Donoghue voted against the first two measures and Judge
ad hoc Callinan voted against all three. Judges Keith, Greenwood, and Callinan wrote dissent-
ing opinions; Judges Donoghue and Cançado Trindade wrote separate opinions.
Concerning the first two measures, Judge Keith believed the Australian attorney general’s
undertakings removed the risk of irreparable harm to East Timor. Judge Greenwood took the
same position and expressed concern that the measures exceeded the stated risks and did not
take into account Australia’s interests. Judge Donoghue similarly believed that the risk of irrep-
arable harm required only the third measure and expressed concern about the failure to balance
the interests of Australia in national security and enforcing its criminal laws.
Judge Callinan argued that no provisional measures were required since the true facts were
uncertain and the Australian attorney general’s undertakings were sufficient to ensure that no
irreparable harm would occur, noting the need of intelligence organizations to protect against
terrorists.10
Judge Cançado Trindade thought the Court’s measures were better than nothing, but he
would have gone further. He took a skeptical view of any reliance on the Australian attorney
10
See Rain Liivoja, Timor-Leste v Australia: Provisional Observations, EJIL: TALK! (Mar. 6, 2014), at http://
www.ejiltalk.org (critique of Callinan’s views).
general’s unilateral assurances, believed East Timor had already suffered prejudice, and con-
sidered that general principles of law could not be obfuscated by allegations of national security
that fall outside the scope of those principles.
On March 4, 2014, Australia announced that it was “pleased” with the Court’s order and
that the order “will, of course, be complied with. This is a good outcome for Australia.”11
****
The Court’s order does not deal with the merits of East Timor’s claim. Thus, after full merits
briefing and argument, the Court could revisit and deal differently with issues addressed in the
order. But the steps taken in the order are groundbreaking. In its first case with underlying espi-
onage and intelligence issues, the Court has found that a state has a “plausible” right under
international law to the protection of its communications with its legal advisers.
In the past, the Court has frequently dealt with matters that states litigating before it consider
to implicate national security. It has been quite ready, for example, to make findings related
to the use of force.12 In its order, the Court only mentioned Australia’s national security when
reciting positions taken by Australia, and did not in fact seem to weigh either national security
or Australia’s interest in pursuing criminal proceedings related to intelligence that a former
employee of its intelligence service allegedly leaked unlawfully.
Australia argued that state practice showed that the authorization of its intelligence agency
to collect intelligence was not at all unusual and that “there is certainly nothing unlawful about
this, under domestic law or international law.”13 Australia’s participation in intelligence activ-
ities has been reported. In the summer of 2013, Australia, a member with the United States,
the United Kingdom, Canada, and New Zealand of the “Five Eyes” intelligence alliance, was
described as having “deep involvement in mass surveillance and intelligence collection oper-
ations such as the US National Security Agency’s PRISM program revealed last week by US
intelligence leaker Edward Snowden.”14 In November 2013, Australia’s spy agencies report-
edly attempted to listen to private telephone calls of Indonesian president Susilo Bambang
Yudhoyono, his wife, and senior ministers.15
It seems hardly surprising that Australia would seek to sweep up conversations in a foreign
cabinet meeting. The interception of communications by certain states seems widespread, par-
ticularly in light of the information made available by Snowden.16 But countries will neither
11
Press Release, Attorney General of Australia, International Court of Justice Decision, Timor Leste v Australia
(Mar. 4, 2014), at http://www.attorneygeneral.gov.au/Mediareleases/Pages/default.aspx#Q12014.
12
E.g., Oil Platforms (Iran v. U.S.), 2003 ICJ REP. 161 (Nov. 6); Military and Paramilitary Activities in and
Against Nicaragua (Nicar. v. U.S.), 1986 ICJ REP. 14 ( June 27).
13
Verbatim Record, Questions Relating to the Seizure and Detention of Certain Documents and Data (Timor-
Leste v. Austl.), ICJ Doc. CR 2014/2, at 13, para. 17 ( Jan. 21, 2014) (Statement of Justin Gleeson, solicitor general
of Australia).
14
Philip Dorling, Black Vault for a Deluge of Secrets—Data Mining—Australian Link to PRISM, SYDNEY MORN-
ING HERALD, June 13, 2013, at 14 (1st ed.), available in ACCESS WORLD NEWS, Record No. 2013061300
0039223241.
15
E.g., Oliver Laughland & Lenore Taylor, Indonesia Halts Co-operation with Australia in Phone-Tapping Row,
GUARDIAN, Nov. 21, 2013, at 2, available in ACCESS WORLD NEWS, Record No. 110407453.
16
See, e.g., Craig Timberg, Slide Shows NSA Surveillance of Data from Undersea Cables, WASH. POST, July 11,
2013, at A8, available in 2013 WLNR 16797179; Glenn Greenwald, How NSA Can See ‘Nearly Everything You Do
Online’: Secret Tool Searches Email, Chat and Social Media Use, GUARDIAN, Aug. 1, 2013, at 1, available in ACCESS
WORLD NEWS, Record No. 108224451; see also U.S. PRIVACY AND CIVIL LIBERTIES OVERSIGHT BOARD,
confirm nor deny any specifics, and in view of that stance, whether or not the intelligence activ-
ities in question are actually consistent with the laws of the countries where they are conducted
or with international law is impossible to judge. United States embassies in Moscow and War-
saw used to be bugged,17 which may have been consistent with then-applicable domestic law
in those places, but some years ago a conference room in the U.S. Department of State was
bugged,18 and the United States apparently regarded this act as unlawful under its law. After
Germans learned that the United States had intercepted telephone calls of the German chan-
cellor, Germany’s top federal prosecutor launched an official investigation.19
At present, it seems difficult to argue that a rule of customary international law, based
on widespread state practice accepted out of a sense of legal obligation, provides that the inter-
ception of a foreign state’s communications is either lawful or unlawful. But it can certainly be
argued that such activities by an established state (here, one that belongs to an intelligence alli-
ance with other intelligence powers) carried out against a small, newly established state create
an unfair and unethical balance in international dispute settlement and negotiations.
Australia would naturally want to pursue criminal charges in connection with leaked intel-
ligence information. In the United States, criminal charges have been filed against those who
disclose classified information.20 One may therefore wonder why Australia said it was “pleased”
with the Court’s provisional measures, which precluded using the materials for national secu-
rity purposes even under provisions designed to prevent further dissemination.
Of course, the legality of the communications interception was not directly at issue in the
request for provisional measures and presumably will not be addressed in the continuation of
the case at the Court. The interesting legal point is that the order finds a plausible legal right
of East Timor “to conduct arbitration proceedings or negotiations without interference by
Australia, including the right of confidentiality of and non-interference in its communications
with its legal advisers” (para. 28). The basis for this norm in international law is discussed in
one scant paragraph (para. 27). The Court speculated that such a right “might be derived from
the principle of the sovereign equality of States,” citing Article 2(1) of the Charter, and sug-
gested, “[m]ore specifically, [that] equality of the parties must be preserved when they are
involved, pursuant to Article 2, paragraph 3, of the Charter, in the process of settling an inter-
national dispute by peaceful means” (id.). The Court noted that a state “would expect to under-
take . . . arbitration proceedings or negotiations without interference by the other party in the
REPORT ON THE SURVEILLANCE PROGRAM OPERATED PURSUANT TO SECTION 702 OF THE FOREIGN
INTELLIGENCE SURVEILLANCE ACT ( July 2, 2014), at http://www.pclob.gov/documents/ (follow “Report on the
Section 702 Program” hyperlink); Office of the Press Secretary, The White House, Presidential Policy Directive—
Signals Intelligence Activities, Pres. Pol’y Directive/PPD-28 ( Jan. 17, 2014), at http://www.whitehouse.gov/the-
press-office/2014/01/17/presidential-policy-directive-signals-intelligence-activities; Ellen Nakashima & Barton
Gellman, For NSA, Broad Leeway to Intercept Data, WASH. POST, July 1, 2014, at A1, available in 2014 WLNR
17795202.
17
U.S. DEP’T OF STATE, HISTORY OF THE BUREAU OF DIPLOMATIC SECURITY, ch. 5, at 161– 62 (2011),
available at http://www.state.gov/documents/organization/176701.pdf.
18
Philip Shenon, A Spy’s Bug Set Artfully in Woodwork, U.S. Concedes, N.Y. TIMES, Dec. 11, 1999, at A8, avail-
able in 1999 WLNR 2814559.
19
Embassy Espionage: The NSA’s Secret Spy Hub in Berlin, SPIEGEL ONLINE INT’L, Oct. 27, 2013, at http://
www.spiegel.de/international/germany/cover-story-how-nsa-spied-on-merkel-cell-phone-from-berlin-embassy-
a-930205.html; Matthew Schofield, Germany Opens Criminal Probe into US Tapping of Merkel’s Phone,
MCCLATCHY WASH. BUREAU, June 4, 2014, available in 2014 WLNR 15109467.
20
See, e.g., Press Release, U.S. Dep’t of Justice, Office of Public Affairs, Statement on the Request to Hong Kong
for Edward Snowden’s Provisional Arrest ( June 26, 2013), at http://www.justice.gov/opa/pr/2013/June/13-opa-
761.html.
preparation and conduct of its case” (id.). No judicial decisions or state practice and opinio juris
are cited, and no factual basis for the expectation is reviewed. Presumably, more analysis will
come at the merits stage of the case.
Although the attorney-client privilege is well established in many legal systems, the closest
analogy might have occurred last year when defense attorneys for a Guantánamo prisoner
charged that U.S. intelligence agencies were eavesdropping on conversations with their clients.
In that context, the military judge in the case suggested removing the microphone from the
defense table to ease the concern.21 Nevertheless, it is doubtful that one will find many reported
instances of government intelligence agencies’ seeking to monitor attorney-client communi-
cations, with the risk that the communications would be shared with that government’s attor-
neys to the potential prejudice of the client.22 Nor does it seem likely that one will find prec-
edent—in either reported decisions or state practice—involving the seizure or interception by
one state of the communications of an attorney representing another state, when those two
states are involved in dispute settlement or negotiations.
The conclusion that such a seizure or intrusion violates customary international law will
involve new legal reasoning. It is hard to see how this plausible rule derives from Article 2(1)
of the Charter—the principle that the “Organization [i.e., the United Nations] is based on
the principle of the sovereign equality of all its Members.” How does the seizure in this case
affect the United Nations as an organization?
Perhaps the principle in Charter Article 2(3) is more relevant—that members “shall settle
their international disputes by peaceful means in such a manner that international peace and
security, and justice, are not endangered.” Access by one state to the privileged communica-
tions of another state with its legal advisers when those states are engaged in an arbitration or
negotiation of a dispute between them may endanger peaceful settlement of the dispute in a
manner consistent with justice.
RONALD J. BETTAUER
George Washington University Law School
Exclusive economic zone—fishing—regulation of bunkering— confiscation of vessels—judicial review of pen-

alties—nationality of ships— genuine link—flag state claims for losses by foreign nationals— exhaustion
of local remedies—influence of practice on treaty interpretation
THE M/V “VIRGINIA G” (Panama/Guinea-Bissau). Case No. 19. 53 ILM 1164 (2014).
International Tribunal for the Law of the Sea, April 14, 2014.
On August 21, 2009, the Panamanian-flagged tanker Virginia G was arrested by Guinea-
Bissau in its exclusive economic zone (EEZ) for unlawfully bunkering (refueling) foreign ves-
sels fishing there. Several days later, the Virginia G and the gas oil (diesel) on board were con-
fiscated by the government. Subsequent provisional measures orders of the Regional Court of
21
Jane Sutton, Rip out Guantanamo Microphones to Prevent Eavesdropping: Judge, REUTERS, Feb. 4, 2013, at
http://www.reuters.com/article/2013/02/05/us-usa-guantanamo-idUSBRE91400T20130205.
22
Such a situation was reported in February 2014. Australia intercepted communications between Indonesia and
its American lawyers on trade issues and shared that information with the U.S. government while the United States
was involved in trade negotiations with Indonesia and in disputes with Indonesia, apparently on the same issues,
before the World Trade Organization. James Risen & Laura Poitras, Spying by N.S.A. Ally Entangled U.S. Law Firm,
N.Y. TIMES, Feb. 16, 2014, at A1, available in 2014 WLNR 4661358.
Bissau suspended the confiscation at the request of the owner. Nevertheless, the Guinea-Bissau
authorities had the gas oil removed from the ship. The government’s decision to release the ship
more than a year after its arrest followed “the persistent request by the Embassy of Spain for
its release” and took into consideration, among other things, Guinea-Bissau’s “friendship and
cooperation with the Kingdom of Spain in the field of fisheries, knowing that although the ves-
sel has a Panamanian flag, it belongs to a Spanish company” (paras. 82, 140).
In its judgment of April 14, 2014,1 the International Tribunal for the Law of the Sea (ITLOS
or Tribunal) concluded that, under the United Nations Convention on the Law of the Sea
(Convention),2 the bunkering of vessels fishing in the EEZ is subject to regulation by the
coastal state, and that confiscation of a vessel and its cargo is a permissible penalty for violation
of the coastal state’s fisheries regulations in the EEZ, but that confiscation was not “necessary
to ensure compliance” with those regulations in the circumstances of this case (para. 269).
Damages were awarded for the confiscation of the gas oil and for the cost of repairs to the ship,
but not for lost profits during the ship’s detention, the largest element of the damages claimed.
Panama originally submitted the dispute to arbitration under Annex VII to the Convention.
In its letter of June 3, 2011, notifying Guinea-Bissau of the submission, Panama also raised the
possibility of “resolving the dispute contentiously, yet in a less costly manner” pursuant to an
agreement to submit it “to ITLOS through an exchange of letters” (para. 2). Guinea-Bissau
agreed to the transfer to ITLOS, “whose jurisdiction in this case Guinea-Bissau accepts fully,”
and Panama notified the Tribunal of the special agreement on July 4, 2011 (paras. 3, 5).3 The
Tribunal upheld the contention of Guinea-Bissau that it retained the right to make counter-
claims and to interpose objections to the admissibility of Panama’s claims (paras. 24, 101).
There were no objections to jurisdiction under Article 297 of the Convention or otherwise.4
The objection to admissibility on grounds of the absence of a genuine link between Panama
and the ship was rejected unanimously (para. 452(3)). The Tribunal reaffirmed its prior con-
clusion that the purpose of the genuine link requirement “is to secure more effective imple-
mentation of the duties of the flag State, and not to establish criteria by reference to which the
validity of the registration of ships in a flag State may be challenged by other States” (para.
112).5 The Tribunal also declared that the “meaning of ‘genuine link’” is the requirement for
the flag state under Article 94 of the Convention to “exercise effective jurisdiction and control
over th[e] ship in order to ensure that it operates in accordance with generally accepted inter-
national regulations, procedures and practices” (para. 113).6
1
M/V Virginia G (Pan./Guinea-Bissau), Case No. 19 (ITLOS Apr. 14, 2014), 53 ILM 1164 (2014) [hereinafter
Judgment]. Judgments of the Tribunal cited herein are available at its website, http://www.itlos.org.
2
United Nations Convention on the Law of the Sea, Art. 73(1), opened for signature Dec. 10, 1982, 1833 UNTS
397, available at http://www.un.org/depts/los/ [hereinafter Convention].
3
Former ITLOS Judge Tullio Treves and Professor José Manuel Sérvulo Correia were appointed by Panama and
Guinea-Bissau, respectively, as judges ad hoc.
4
Article 297 limits compulsory jurisdiction over disputes concerning the exercise of coastal state sovereign rights,
including fishing in the EEZ.
5
Quoting M/V Saiga (No. 2) (St. Vincent v. Guinea), 1999 ITLOS Rep. 10, 42, para. 83 (reported by Bernard
H. Oxman & Vincent Bantz at 94 AJIL 140 (2000)) [hereinafter Saiga (No. 2)].
6
This analysis casts doubt on alternative hypotheses advanced at the International Law Commission in the 1950s
and more recently at the International Maritime Organization, the Food and Agriculture Organization, and the UN
General Assembly. See Vincent P. Cogliati-Bantz, Disentangling the “Genuine Link”: Enquiries in Sea, Air and Space
Law, 79 NORDIC J. INT’L L. 383, 398 – 415 (2010).
Having examined the information before it and finding no reason to question Panama’s
exercise of effective jurisdiction and control over the ship, the Tribunal decided that a genuine
link existed at the time of the incident (paras. 114, 117, 325). The Tribunal took note of Article
91(1) of the Convention, which does not impose “any limitations on the nationality of ship-
owners or crew” as regards the right of a state to grant its nationality to ships (para. 323), and
unanimously concluded that Guinea-Bissau had violated Article 73(4) of the Convention “by
failing to notify Panama, as the flag State, of the detention and arrest of the M/V Virginia G
and subsequent actions taken against the vessel and its cargo” (paras. 328, 452(11)).
The judgment also rejected the objection to the admissibility of Panama’s claims on the
grounds that “the owner of the vessel and the crew are not nationals of Panama” (paras. 129,
452(4)). Relying on its prior decision to similar effect,7 the Tribunal found that “the M/V Vir-
ginia G, its crew and cargo on board as well as its owner and every person involved or interested
in its operations are to be treated as an entity linked to the flag State” (para. 127). It therefore
held that “Panama is entitled to bring claims in respect of alleged violations of its rights under
the Convention which resulted in damages to these persons or entities” whether or not they
are its nationals (id.).
In addition, the Tribunal rejected the objection, on grounds of nonexhaustion of local rem-
edies, to the admissibility of claims made in the interests of individuals or private entities (para.
452(5)). Article 295 of the Convention conditions access to its compulsory dispute settlement
procedures on exhaustion of local remedies “where this is required by international law.” After
examining Article 14(1) of the International Law Commission’s Draft Articles on Diplomatic
Protection,8 the Tribunal considered whether the exhaustion of local remedies is required
because the preponderant element of the claim related to injury to private persons rather than
a direct injury to the state.9 It concluded that the principal rights under the Convention alleged
to have been violated “include the right of Panama to enjoy freedom of navigation and other
internationally lawful uses of the seas” in the EEZ under Article 58 of the Convention “and
its right that the laws and regulations of the coastal State [be] enforced in conformity with arti-
cle 73 of the Convention” (para. 157). Those rights “belong to Panama under the Convention”
and violations of them “thus amount to direct injury to Panama” (id.).10
Panama argued that the provision of bunkering services is encompassed by the freedoms and
rights of all states in the EEZ under Article 58(1) of the Convention, notably the freedom of
navigation and other internationally lawful uses of the sea related to that freedom (para. 165).
In this regard, it distinguished between the coastal state’s regulation of bunkering by fishing
vessels because of their fishing activities in the EEZ, and the regulation of the bunkering vessel
7
Saiga (No. 2), at 48, para. 106.
8
Draft Articles on Diplomatic Protection, Art. 14(1), in Report of the International Law Commission, Fifty-
Eighth Session, UN GAOR, 61st Sess., Supp. No. 10, at 16, 20, UN Doc. A/61/10 (2006).
9
Panama initially argued that it was bringing the case “within the framework of diplomatic protection,” Judg-
ment, para. 119, but thereafter maintained that it was claiming “a violation of its own right to secure, in respect of
vessels flying its flag, freedoms for which the Convention provides,” id., para. 142. Panama added that it would
allocate respective portions of the compensation it might be awarded to the private parties who suffered damage or
loss. Id., para. 143.
10
Two judges, who believed that the claim was preponderantly brought on the basis of an injury to private per-
sons, nevertheless concluded that exhaustion of local remedies was not required because the “repeated intrusion of
the political and administrative authorities of the country into the course of justice precluded the possibility of any
effective redress or reparation.” Judgment, Joint Separate Opinion of Judges Cot and Kelly, para. 32.
that is at issue in this case (para. 177). Guinea-Bissau argued that bunkering in support of fish-
ing operations in the EEZ has a much stronger connection to the right of the coastal state to
regulate fishing there under Article 56 and related provisions than to freedom of naviga-
tion (para. 193).11
The Tribunal interpreted the Article 62(4) list of fisheries management measures that may
be taken by the coastal state to require “a direct connection to fishing” (para. 215). It observed
that such a connection exists with respect to bunkering of foreign vessels fishing in the EEZ
“since this enables them to continue their activities without interruption at sea” (id.). In this
context, the Tribunal cited and was “guided by” broad definitions in various international
agreements of “fishing” and “fishing-related activities” that include support operations and
support vessels (para. 216). It also noted that other states, in West Africa and elsewhere, reg-
ulate bunkering of foreign vessels fishing in the EEZ, and “that there is no manifest objection
to such legislation and . . . it is, in general, complied with” (para. 218).
In the view of the Tribunal, Article 56 of the Convention concerning the coastal state’s sov-
ereign rights regarding natural resources in the EEZ is to be read together with Article 58 on
the rights and freedoms of all states in the EEZ. It concluded that “the bunkering of foreign
vessels engaged in fishing” in the EEZ “is an activity which may be regulated by the coastal
State concerned,” but that the coastal state “does not have such competence with regard to
other bunkering activities, unless otherwise determined in accordance with the Conven-
tion” (para. 223).
Panama argued that the payment required for the authorization of bunkering in reality rep-
resents an attempt to extend tax or customs legislation to the EEZ (paras. 178 –79, 231). In
the Saiga case, the Tribunal found that, under the Convention, the coastal state has jurisdiction
to apply its customs laws and regulations within the twenty-four-mile limit of the contiguous
zone and with respect to artificial islands, installations, and structures in the EEZ, but not with
respect to any other parts of the EEZ.12 Although this finding “applies to laws on taxes as it does
to laws concerning customs,” the Tribunal agreed with Guinea-Bissau that the requisite pay-
ment is a fee that “is not guided by its fiscal interests but is for services rendered in connection
with the authorization of bunkering” and “does not constitute an attempt to extend its tax and
customs legislation” to the EEZ (paras. 233–34).13 Moreover, the procedure for obtaining a
permit was not unduly burdensome (para. 235).
Article 73(1) of the Convention authorizes the coastal state, in the exercise of its sovereign
rights over the living resources in the EEZ, to “take such measures, including boarding, inspec-
tion, arrest and judicial proceedings, as may be necessary to ensure compliance with the laws
and regulations adopted by it in conformity with this Convention.” Referring to its previous
11
The Tribunal did not address the environmental protection argument made by Guinea-Bissau, noting that
“Guinea-Bissau incorporated its regulations on bunkering in its legislation on fishing rather than in legislation con-
cerning the protection of the marine environment.” Judgment, para. 224.
12
Saiga (No. 2), supra note 5, at 54, para. 127.
13
Article 62(4) of the Convention permits the coastal state to require, from foreign vessels permitted to fish in
the EEZ, “fees and other forms of remuneration” and other benefits related to fishing that are of economic value
to itself and its nationals. The opinion does not purport to limit that right, or the collection of royalties, taxes, and
other revenues in connection with the issuance, enjoyment, and exercise of rights to explore and exploit hydrocar-
bons and other resources of the continental shelf.
observation to this effect,14 the Tribunal noted that many coastal states provide for the con-
fiscation of vessels for fisheries violations in the EEZ. It interpreted Article 73(1) in the light
of that practice and held that legislation authorizing confiscation “is not per se in violation of ”
that provision (para. 257).
The Tribunal emphasized that enforcement measures must be necessary to ensure compli-
ance with the laws and regulations of the coastal state (para. 256). “Whether or not confiscation
is justified in a given case depends on the facts and circumstances” (para. 257). In this regard,
the Virginia G did not have the requisite written authorization for bunkering and had not paid
the fee prescribed, “amounting to a value of €112.00” (para. 266). This is “a serious violation,”
but there were “mitigating factors” (paras. 267, 268). The two fishing vessels arrested together
with the Virginia G for unlawful bunkering were merely fined and quickly released; two others
were neither arrested nor fined (para. 268). The proper authorities had been informed of the
bunkering. The failure to obtain written authorization was “rather the consequence of a mis-
interpretation of the correspondence” with government officials “than an intentional viola-
tion” (para. 269). In these circumstances, the confiscation “was not necessary either to sanction
the violation committed or to deter the vessels or their operators from repeating this violation”
(id.). The Tribunal thus found that the confiscation of the vessel and the gas oil on board vio-
lated Article 73(1) of the Convention (para. 452(8)).
Article 73(2) of the Convention requires prompt release of an arrested vessel and crew upon
the posting of reasonable bond. The Tribunal rejected Panama’s contention that Guinea-Bis-
sau’s statutory procedure for obtaining such a release was unreasonable and unaffordable
(paras. 295, 452(9)). This conclusion, in turn, underlay the Tribunal’s rejection of Panama’s
claim for lost profits on behalf of the owner; namely, that there was no direct causal nexus
between confiscation of the vessel and loss of profit because the owner failed to use the available
procedures for prompt release on bond (paras. 436, 438).15
Applying Article 73(2) in a prior case, the Tribunal had required the release on bond of the
master of a fishing vessel whose passport had been taken away.16 In this case, the question
whether Guinea-Bissau had violated the Convention by holding the passports of crew mem-
bers for four months was raised in the context of the prohibition in Article 73(3) on impris-
onment or other forms of corporal punishment as penalties for fisheries violations in the EEZ.
The Tribunal found no contravention of that prohibition (paras. 310, 452(10)).
****
The judgment in this case helps clarify the interpretation and application of the Convention,
especially with regard to the regulation of foreign vessels fishing in the EEZ. In reaching its
decision on the two most important fisheries management issues presented, the authority to
regulate bunkering and to impose confiscation as a penalty under the Convention, the Tribu-
nal carefully considered the way those issues were addressed in municipal legislation and inter-
national agreements on fishing. This attention to the practice of the parties to the Convention
14
Citing Tomimaru ( Japan v. Russ.), Prompt Release, 2005– 07 ITLOS Rep. 74, 96, para. 72 (reported by Ber-
nard H. Oxman at 102 AJIL 316 (2008)).
15
Claims for lost profits of the charterer after the termination date of the charter party were rejected on con-
tractual grounds. Judgment, para. 437. Contra Separate Opinion of Judge Akl, paras. 9 –10.
16
Camouco (Pan. v. Fr.), Prompt Release, 2000 ITLOS Rep. 10, 32–33, para. 71 (reported by Bernard H.
Oxman & Vincent P. Bantz at 94 AJIL 713 (2000)).
in its application increases the likelihood that the Tribunal’s interpretation will be welcomed
by governments and will promote stability.17
The judgment suggests that bunkering in the EEZ as such is not subject to coastal state juris-
diction; there must be a specific basis in the Convention for the coastal state’s competence.
That is, Panama correctly argued that in principle bunkering is governed by the freedom of
navigation and related activities under Article 58(1), and Guinea-Bissau correctly argued that
bunkering of vessels fishing in the EEZ is subject to coastal state jurisdiction over the conser-
vation and management of living resources in the EEZ under Article 56 and related provisions.
The tension between the two propositions results from the preservation of freedom of navi-
gation but not freedom of fishing in the EEZ.
Two key questions that divided the Tribunal were the exhaustion of local remedies and the
lawfulness of the confiscation. Each was decided by a vote of 14-9, with the same judges on each
side.18
As to the first question, states implement their freedom of navigation under international
law primarily by authorizing private ships of their nationality to exercise that freedom. The
security and economy of many states, including, but not limited to, flag states, depend on that
freedom. Perhaps its most important legal consequence is the right to ensure that it is respected
by other states. This was a principal reason for the inclusion of compulsory dispute settlement
provisions in the Convention. Freedom of navigation is particularly important in the EEZ
because it applies to the same area where the coastal state has sovereign rights with respect to
natural resources and attendant enforcement powers with respect to foreign ships.19 Making
vindication of the freedom of navigation and related rights in an international tribunal depen-
dent on exhaustion of local remedies in the arresting state would undermine that basic con-
struct. The Tribunal performed a signal service in recognizing this.
The duty of the coastal state under Article 62(2) of the Convention to “give other States
access to the surplus of the allowable catch” and the extensive provisions addressing the rights
and duties of the coastal state regarding fishing, including Article 73, form part of the overall
balance between the interests of the coastal state and those of the flag state in the EEZ. The
protection of the regulatory and enforcement interests of the coastal state in the EEZ from
interference by international tribunals is addressed by the Convention in great detail, notably
in Articles 292(3), 294, 297, and 298. In that context, one cannot easily sustain the suggestion
that the flag state faces an additional obstacle of exhaustion of local remedies when a foreign
ship is arrested in the EEZ; that position could also have the perverse effect of discouraging the
kind of liberal interpretation of the scope of the coastal state’s rights that characterizes the opin-
ion in this case on the basic issues of the coastal state’s competence with respect to fishing. A
very different situation would be presented where, for example, the object of a confiscation is
a property interest in continental shelf hydrocarbons or installations. That is not this case.
As to the second question, the Tribunal revealed substantial sensitivity to the difficulties
posed by the widespread temptation to resort to confiscation of fishing vessels. Mandating
harsh treatment of foreigners is perhaps too facile a way to curry favor with local constituencies.
17
The Tribunal did not, however, assert that the subsequent practice amounted to an agreement of the parties
regarding the interpretation of the Law of the Sea Convention. See Vienna Convention on the Law of Treaties, Art.
31(3)(b), opened for signature May 23, 1969, 1155 UNTS 331.
18
The majority on these issues did not include judges from African or Lusophone countries.
19
See Convention, supra note 2, Art. 297(1)(a).
Confiscation can be a useful enforcement tool, but it can also be a blunt instrument that is not
readily calibrated to make the punishment fit the crime. This case offered a good opportunity
to address the problem.20 The Tribunal emphasized that the necessity and reasonableness of
a penalty must be assessed on a case-by-case basis in light of the circumstances. In that context,
it went out of its way to uphold the law of Guinea-Bissau by finding that its statute affords the
authorities and courts flexibility over whether or not to confiscate. Accordingly, it seems
unlikely that reasoned determination of penalties by law enforcement professionals and
municipal courts in light of the circumstances of the violation will be second-guessed.
The implications of this decision for international human rights law merit further analysis.
The Tribunal quoted a passage from a prior case that a decision to confiscate should not be
taken “through proceedings inconsistent with international standards of due process of law”
(para. 254).21 While it did not explicitly rely on that statement in assessing the penalty of con-
fiscation in this case, it did state that the “principle of reasonableness applies generally to
enforcement measures under article 73” (para. 270).
The Virginia G judgment was accompanied by five declarations, four separate opinions, and
four dissenting opinions. In all, sixteen of the twenty-three judges wrote or joined one of these,
and two judges wrote or joined two. The president and four other judges neither wrote nor
joined any.
Judges, scholars, and practitioners are familiar with the possible tension between the need
to forge and maintain a coherent majority on a collegial court and the need to write a coherent
opinion. If remedies, including the quantification of damages, can offer a fertile field for
accommodation in aid of the first objective, articulation of the outcome may take its toll on
the second. The rationale for the decision to deny any recovery for lost profits in this case is a
good example.22 In reaching their decision, the judges were doubtless aware of alternatives,
such as reducing damages on grounds of contributory fault or failure to mitigate losses. It is
perhaps not coincidental that the proffered rationale for denying any damages for the shipown-
er’s lost profits, namely, that the owner had failed to seek prompt release under the laws of
Guinea-Bissau, evokes at least some of the considerations that inform the exhaustion-of-local-
remedies requirement and mirrors the consequences of failure to do so.
BERNARD H. OXMAN
Of the Board of Editors
VINCENT P. COGLIATI-BANTZ
T. C. Beirne School of Law, University of Queensland
20
This is not the first time that the Tribunal has confronted complexity and lack of clarity in coastal state leg-
islation. The law of Guinea-Bissau created confusion in the Juno Trader case over the effect of a decision by an
administrative body to confiscate the vessel. See Juno Trader (St. Vincent v. Guinea-Bissau), Prompt Release, 2004
ITLOS Rep. 17; Vincent P. Bantz, Views from Hamburg: The Juno Trader Case or How to Make Sense of the Coastal
State’s Rights in the Light of Its Duty of Prompt Release, 24 U. QUEENSL. L.J. 415, 422 (2005). In the Tomimaru case,
supra note 14, considerable controversy surrounded the procedure in Russian law applicable to a bond in parallel
administrative and criminal proceedings.
21
Quoting Tomimaru, supra note 14, at 96, para. 76.
22
See Judgment, Separate Opinion of Judge Akl, passim; Separate Opinion of Judge Paik, paras. 39 – 48; Dec-
laration of Judge ad hoc Treves, paras. 2– 4.
Sovereign immunity—restrictive theory— commercial arbitration—waivers of immunity—New York Con-

vention—Hong Kong—China
FG HEMISPHERE ASSOCIATES v. DEMOCRATIC REPUBLIC OF THE CONGO. [2011] 14 H.K.C.F.A.R.

395.
Court of Final Appeal of the Hong Kong Special Administrative Region, June 8, 2011.
In June 2011, the Hong Kong Court of Final Appeal (CFA), Hong Kong’s de facto supreme
court, handed down its judgment in FG Hemisphere Associates v. Democratic Republic of the
Congo.1 The CFA decided that, since the reversion of Hong Kong to the People’s Republic of
China (China or PRC) on July 1, 1997, sovereign states have enjoyed absolute immunity in
the courts of Hong Kong, which cannot be waived in predispute contractual documents.
Because China’s Supreme People’s Court and other Chinese courts rarely rule on public inter-
national law issues, this decision has especial significance for understanding China’s position
on the issue of sovereign immunity.
The case stems from a suit brought in Hong Kong by a Delaware-incorporated “vulture
fund” (or distressed debt fund), FG Hemisphere Associates (FG), which sought to enforce two
awards against the Democratic Republic of the Congo (DRC) in arbitrations held in Paris and
Zurich, respectively. FG had acquired the rights to the two arbitral awards (totaling more than
US$34 million) in November 2004. The awards were originally secured against the Congolese
state by Energoinvest, a Yugoslav state-owned company, which had agreed to construct a
hydroelectric facility and electric transmission lines in the DRC in the 1980s. To finance the
project, Energoinvest extended credit to the DRC and its state-owned electric company,
Société Nationale d’Électricité. In time, the electric company defaulted on a US$30 million
payment to Energoinvest. The credit agreement contained an International Chamber of Com-
merce (ICC) arbitration clause, pursuant to which Energoinvest referred its claims to arbitra-
tion. The DRC and the electric company had signed terms of reference by which they agreed
to arbitration in accordance with the 1998 ICC Rules of Arbitration. The DRC chose not to
attend the arbitration hearings, but the electric company participated in them.
On April 30, 2003, each arbitral tribunal made a substantial award of principal and interest
in favor of Energoinvest against the DRC and the electric company jointly and severally. Nei-
ther respondent challenged either award in any jurisdiction. In 2004, Energoinvest transferred
the entire benefit of the principal and interest payable by the DRC and the electric company
under the two arbitral awards to FG, whose main business is to invest in emerging markets,
including by acquiring and recovering distressed debts, particularly those of defaulting states.
FG managed to recover US$3.3 million under the two awards through enforcement proceed-
ings in Belgium, Bermuda, and South Africa.
To satisfy the DRC’s remaining liability under these awards, FG claimed against certain
“mining entry fees” in the amount of US$9.25 billion that were payable by China Railway
Group (Hong Kong) Ltd., a state-owned enterprise in China, to La Générale des Carrières et
des Mines (Gécamines), a Congolese state-owned mining company. China Railway Group, a
1
Democratic Republic of the Congo v. FG Hemisphere Assocs., [2011] 14 H.K.C.F.A.R. 395, Judgment Sum-
mary, FACV 5, 6, & 7/2010, paras. 62, 502–12 ( June 8 & Sept. 8, 2011) (Legal Reference System) [hereinafter
Judgment], available at http://legalref.judiciary.gov.hk.
company listed in Hong Kong and Shanghai, together with another Chinese company, Sino-
hydro Corp. Ltd., had previously entered into a joint venture agreement with Gécamines.
Under that agreement, the DRC would be paid US$221 million by subsidiaries of China Rail-
way Group as part of the entry fees for rights to a mining project in the DRC.
To obtain satisfaction under the two arbitral awards, FG made an ex parte application to the
Hong Kong High Court and, on May 15, 2008, was granted, inter alia, (1) leave to enforce the
awards against the DRC in the same manner as judgments, and (2) interim injunctions
restraining the China Railway Group subsidiaries from paying the DRC US$104 million as
entry fees, both of which rulings were eventually confirmed by the Hong Kong Court of
Appeal.2
The critical issue in the proceeding was the nature and scope of state immunity, that is,
whether the DRC should be held to enjoy full sovereign immunity from FG’s claims in Hong
Kong. If the common law notion of “restrictive sovereign immunity” applies in Hong Kong,
a traditional common law jurisdiction, the DRC could be held liable for damages in the context
of a commercial dispute. By contrast, under the “absolute immunity” doctrine traditionally
applied in China, the courts would not have jurisdiction to adjudicate even commercial matters
that name another state as a defendant, unless the state has waived its immunity. If that
approach were taken, FG’s effort to recover against debts owing to the DRC would fail.
The PRC has never recognized a commercial exception. Instead, it has practiced absolute
immunity, for itself and other states. As a matter of fact and law, Chinese courts have no juris-
diction over, nor in practice have they ever entertained, any suit against a foreign state or gov-
ernment, or any claim involving the property of a foreign state or government. In the same vein,
China has never accepted the jurisdiction of any foreign courts over suits against the state or
government of China, or cases involving the property of the state or government of China.
China’s principled position thus differs from the position of the United Kingdom (UK) that
sovereign states enjoy only restrictive immunity, which does not cover transactions of a purely
commercial or private nature. A commercial exception to absolute immunity was codified in
the UK State Immunity Act of 1978 and extended to Hong Kong by the State Immunity
(Overseas Territories) Order in 1979. The Hong Kong courts applied the exception until
Hong Kong reverted to China on July 1, 1997. The position adopted by the local courts in
Hong Kong with respect to sovereign immunity had largely reflected the prevailing doctrine
of restrictive immunity, which allows immunity to a foreign state only for its “sovereign acts”
(acta jure imperii).3
The position post-1997, however, was unclear for three reasons. First, the UK State Immu-
nity Act obviously no longer applied to Hong Kong. Second, continuing to apply the doctrine
of restrictive immunity in Hong Kong would probably have led to doctrinal conflict with Chi-
na’s practice on state immunity, which strictly, though occasionally inconsistently,4 adhered
to the doctrine of absolute immunity. Third, no applicable local legislation had been passed
2
Democratic Republic of the Congo v. FG Hemisphere Assocs., [2010] 2 H.K.L.R.D. 66, CACV 373/2008 &
CACV 43/2009 (Feb. 10, 2010) (Legal Reference System), available at http://legalref.judiciary.gov.hk [hereinafter
CA Judgment Feb. 10, 2010].
3
Relevant cases included Midland Inv. Co. v. Bank of Commcns, [1956] 40 H.K.L.R. 42, 48; Wallen [Wallem]
Shipping (Hong Kong) Ltd. v. Owners of the Ship “Philippine Admiral,” [1974] H.K.L.R. 111, 145.
4
Roderick O’Brien, Sovereign Immunity and the People’s Republic of China, 13 HONG KONG L.J. 202 (1983).
in the meantime. FG’s effort to enforce the two arbitral awards thus presented a difficult chal-
lenge for the CFA.
Three different lines of argument were discussed in the CFA’s decision. One possibility was
to continue to apply the common law rule recognizing restrictive state immunity in the absence
of local legislation to fill the vacuum since Hong Kong’s reversion. In fact, the appeals court,
in a 2-1 decision, did decide that “the doctrine of restrictive immunity currently continues to
apply in Hong Kong.”5 But the CFA rejected that ruling and held instead that the common
law previously in force continues to apply in Hong Kong subject to such modifications, adap-
tations, limitations, or exceptions as are necessary to bring its rules into conformity with Hong
Kong’s status as a special administrative region of the PRC (para. 336).6 It said that such an
approach was necessary to avoid any inconsistency with the Basic Law (Hong Kong’s mini-
constitution). “[A] divergent state immunity policy,” the CFA rightly pointed out, “would
embarrass and prejudice the State in its conduct of foreign affairs” (para. 269).
The second approach centered on the fact that the Central People’s Government of China
is responsible for the foreign affairs of Hong Kong under Articles 13 and 19 of the Basic Law,
and the Hong Kong courts are therefore disqualified from adjudicating questions of sovereign
immunity. The majority of the CFA found that the common law principle of state immunity
should be modified in accordance with the requirements of the Basic Law, for two reasons.
First, at common law, no region or municipality of any state can independently exercise sov-
ereign rights and apply a state immunity doctrine at variance with the state’s own policy.
According to this view, Hong Kong (as a special administrative region of China) must adopt
the same state immunity rule as China’s. Second, according to Article 13 of the Basic Law,
responsibility for foreign affairs is allocated to China’s central government. Further, Article 19,
paragraph 3 of the Basic Law explicitly excludes foreign affairs from the sphere of autonomy
of Hong Kong,7 so that Hong Kong courts have no jurisdiction over “acts of state such as
defence and foreign affairs.”8 As state immunity forms part of foreign affairs, the courts in
Hong Kong are therefore bound to respect and act in conformity with the basic principle of
absolute state immunity,9 which has always been applied by China in relations with other sov-
ereign states.
As regards jurisdiction, the majority of the CFA concluded that the determination by the
Chinese Central People’s Government that the PRC’s policy of sovereign immunity applicable
to the CFA is absolute immunity qualifies as an act of state such as defense and foreign affairs,
within the meaning of Article 19, paragraph 3 of the Basic Law (para. 352). The CFA char-
acterized absolute immunity from prosecution as falling under the defense and foreign affairs
exception but outside the limits of its judicial autonomy. As a result, the courts lack jurisdiction
5
CA Judgment Feb. 10, 2010, para. 122.
6
See BASIC LAW, Arts. 8, 160 (H.K.); Decision Concerning the Handling of the Laws Previously in Force in
Hong Kong in Accordance with Article 160 of the Basic Law of the Hong Kong Special Administrative Region of
the People’s Republic of China (promulgated by the Standing Comm. Nat’l People’s Cong. Feb. 23, 1997), trans-
lated in 1997 P.R.C. LAWS 319; Interpretation and General Clauses Ordinance, No. 110, (1997) 1 O.H.K.,
§2A(1).
7
BASIC LAW, Arts. 13, 18, para. 3, & 158, para. 3.
8
Id., Art. 19, para. 3.
9
Procedurally, the courts of Hong Kong are bound to determine questions of fact concerning acts of state in
accordance with a certificate issued by the Hong Kong chief executive based on a certifying document from the
Central People’s Government of China.
to determine state immunity policy. Even at common law, the CFA said, it is for the sovereign
state to determine the principle of state immunity applicable to its relations with other sov-
ereign states, which should be uniformly applied by all the institutions of the state throughout
its territory.
The third analytical approach involves how to apply the principle of “one country, two sys-
tems,” which was codified into the Basic Law but never before decided by the Hong Kong
courts. Under the Basic Law, China’s National People’s Congress, the highest legislative body,
authorizes Hong Kong to “exercise a high degree of autonomy and enjoy executive, legislative
and independent judicial power, including that of final adjudication,”10 thus emphasizing the
guarantee of independent judicial power and final adjudication. In addition, the Standing
Committee of the Congress, which is granted the power to interpret the Basic Law,11 autho-
rizes the Hong Kong courts to interpret on their own the provisions of the Basic Law that are
within the limits of Hong Kong’s autonomy.12 Nevertheless, the Hong Kong courts must seek
an interpretation from the Standing Committee if they need to construe any excluded provi-
sion concerning affairs that are the responsibility of the Chinese government or the relationship
between the central authorities and Hong Kong.13 Consequently, the majority opinion
directed that questions drawn up by the parties on these matters be referred to the Standing
Committee before the CFA’s judgment could take effect.
By ruling that it lacked jurisdiction over the DRC and that the lower court’s order to enforce
the arbitral awards be set aside, the CFA in the instant case again indicated the Hong Kong
courts’ judicial restraint, which is “inherent in the very nature of the judicial process,”14 and
abstention from prejudicing the PRC government in the conduct of its foreign policy.
****
China’s Central People’s Government articulated its stance on the state immunity rule by
issuing three letters on the FG Hemisphere proceedings to the Hong Kong government through
the PRC’s Office of the Commissioner of the Ministry of Foreign Affairs in Hong Kong. The
letters reaffirmed China’s consistent practice of absolute immunity as a matter of principle.
The first letter, dated November 20, 2008, stated:
The courts in China have no jurisdiction over, nor in practice have they ever entertained,
any case in which a foreign state or government is sued as a defendant or any claim involv-
ing the property of any foreign state or government, irrespective of the nature or purpose
of the relevant act of the foreign state or government and also irrespective of the nature,
purpose or use of the relevant property of the foreign state or government.15
10
BASIC LAW, Art. 2; see also id., Art. 19, para. 1.
11
Id., Art. 158, para. 1.
12
Id., para. 2.
13
Id., para. 3.
14
Buttes Gas & Oil Co. v. Hammer (Nos. 2 & 3), [1982] A.C. 888 (H.L.), 932 (Lord Wilberforce).
15
Letter from the PRC Office of the Commissioner of Foreign Affairs to Constitutional and Mainland Affairs
Bureau of the HKSAR Government (Nov. 20, 2008), quoted in Judgment, para. 197 (majority op.). This letter was
sent at the time of the proceedings in the high court. The second letter was meant for the proceedings in the court
of appeal and was dated May 21, 2009. The third letter was directed to the proceedings in the CFA and was dated
Aug. 25, 2010.
In September 2005, China had signed the United Nations Convention on the Jurisdictional
Immunities of States and Their Property, which adopts the doctrine of restrictive immunity.16
As confirmed by the second letter, however, which was dated May 21, 2009, China had not
ratified the Convention and it was therefore not lex lata at the time of the proceedings. The
lower courts took the view that “having signed the Convention, the PRC Government must
be taken to have at least indicated its acceptance of the wisdom of the provisions therein.”17
Yet the letters from the commissioner of the Foreign Ministry represent the latest official state-
ment by the Chinese government and reflect its continued principled adherence to absolute
sovereign immunity, consistent with its 1983 statement in the Hukuang Railway Bonds case.18
The Chinese stance on absolute immunity has also been evidenced in the PRC’s treaty prac-
tice. China has concluded some treaties with other states providing for a waiver of immunity.19
In addition, it has acceded to some multilateral conventions containing “restrictive” elements
in the state immunity rule. Overall, China’s continuing reluctance to accept the restrictive
immunity doctrine can largely be attributed to three reasons. The first, and most technical,
arises from the arbitrary and inconsistent approach to distinguishing between sovereign and
nonsovereign practices.20 The second, historical reason is that for many years China endured
the imposition of extraterritorial rules by the West, resulting in an array of “unequal treaties”
concluded under duress.21 The third, and a more cogent, reason is the vast number of Chinese
state-owned enterprises (some of which are among the Global Fortune 50022), which aggres-
sively invest overseas and actively conduct a large number of cross-border commercial trans-
actions.23
Even if absolute immunity is the norm, it can be waived. Indeed, FG argued that the DRC
had surrendered its sovereign immunity by agreeing to the 1998 ICC Rules of Arbitration,
since Article 28(6) provides that “[e]very Award shall be binding on the parties” and that “[b]y
submitting the dispute to arbitration under these Rules, the parties undertake to carry out any
Award without delay and shall be deemed to have waived their right to any form of recourse
16
United Nations Convention on the Jurisdictional Immunities of States and Their Property, GA Res. 59/38
(Dec. 2, 2004) (not yet in force) [hereinafter UN State Immunities Convention].
17
FG Hemisphere Assocs. v. Democratic Republic of the Congo, [2009] 1 H.K.L.R.D. 410 (C.F.I.), HCMP
928/2008 (Dec. 12, 2008), quoted in Judgment, para. 201 (majority op.).
18
Jackson v. People’s Republic of China (Hukuang Railway Bonds), 596 F.Supp. 386 (N.D. Ala, 1984), aff ’d,
794 F.2d 1490 (11th Cir. 1986). For the Ministry of Foreign Affairs’ aide-mémoire in that case, see 22 ILM 81
(1983).
19
Huang Jin & Ma Jingsheng, Immunities of States and Their Property: The Practice of the People’s Republic of
China, 1988 HAGUE Y.B. INT’L L. 163, 165– 66.
20
Wang Houli, Sovereign Immunity: Chinese Views and Practices, 1 J. CHINESE L. 23 (1987).
21
DONG WANG, CHINA’S UNEQUAL TREATIES: NARRATING NATIONAL HISTORY 2 (2005) (claiming that
from 1840 to 1943 China and foreign countries had concluded between five hundred and one thousand treaties,
agreements, and conventions that contained unequal provisions).
22
After the United States, China has the world’s second largest concentration of Global Fortune 500 companies,
and over half of the Chinese companies in this list are state-owned enterprises. Li-Wen Lin & Curtis J. Milhaupt,
We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China, 65 STAN. L. REV.
697, 699 (2013).
23
China’s official statistics indicate that China’s outbound investment reached US$435.49 billion by the end
of 2012 and 59.8% of this amount was invested by the state-owned enterprises. MINISTRY OF COMMERCE, STATE
STATISTICS BUREAU AND STATE ADMINISTRATION OF FOREIGN EXCHANGE, STATISTICAL REPORT OF CHI-
NA’S OUTBOUND INVESTMENT IN 2012, at 4, 19 (China Statistics Press 2013) (in Chinese).
insofar as such waiver can validly be made.”24 But the CFA rejected this argument, holding that
agreement to arbitration does not constitute express or implied submission to any other state’s
jurisdiction.
In the CFA’s view, an agreement to settle disputes by arbitration merely gives rise to a con-
tractual obligation on the part of the foreign state to accept enforcement of the resulting award
in the Hong Kong courts. In such an enforcement action, it must be established that the foreign
state had waived both its jurisdictional immunity from suit and the immunity of its property
from execution. The waiver must be served on the court itself at the time the court is asked to
exercise jurisdiction over the foreign state. Thus, the CFA did not view the agreement to arbi-
tration as a valid and effective waiver of immunity.
Moreover, it appears that the active participation of a state in proceedings with knowledge
of its right to claim immunity would also be sufficient to constitute a waiver. The CFA observed
that even under the common law, a state’s voluntary submission to the exercise of jurisdiction
by the courts of the forum state is a valid waiver of immunity. It disagreed with FG that signing
an arbitration agreement constituted an unequivocal waiver of any form of recourse since such
agreements are between a state and a private party (rather than two states).
In short, China has now explicitly repeated its policy of applying the principle of absolute
immunity in its relations with other sovereign states, and that rule binds the courts of Hong
Kong. Given that the practice of Asian states, in particular China,25 in the formative period of
the doctrine or principles of state immunity was nonexistent,26 FG Hemisphere will be a land-
mark case for understanding China’s state immunity rule and practice.
Nevertheless, the court’s characterization of the DRC’s participation in the ICC arbitration
remains puzzling, since in most cases such participation is a commercial and private activity.
It appears unfair to allow the DRC to walk away from its responsibilities of complying with
arbitral awards rendered against it. A sovereign state that agrees to be involved in arbitration
proceedings must be aware of the possibility that, under the New York Convention on Rec-
ognition and Enforcement of Foreign Arbitral Awards,27 an award against that state can be
enforced in a New York Convention jurisdiction even if the state itself is not a party to the Con-
vention (as is the case with the DRC). The arbitration agreement contains a pledge by parties
to comply with the award and to waive any form of recourse. The question remains whether
being a party to the New York Convention itself implies a waiver of state immunity. That ques-
tion was not addressed by the CFA; to the contrary, the CFA’s judgment reflects the view that
a state enterprise cannot waive sovereign immunity by private agreement because that immu-
nity relates to the relationship between sovereign states.28
24
International Chamber of Commerce, Rules of Arbitration, Rule 28(6) (entered into force Jan. 1, 1998), at
http://www.icc.se/skiljedom/rules_arb_english.pdf.
25
China’s judicial practice on state immunities has been limited. 2 JEROME ALAN COHEN & HUNGDAH CHIU,
PEOPLE’S CHINA AND INTERNATIONAL LAW: A DOCUMENTARY STUDY, pt. VII (1974).
26
Sompong Sucharitkul, Jurisdictional Immunities in Contemporary International Law from Asian Perspectives, 4
CHINESE J. INT’L L. 1, 8 (2005).
27
Convention on Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 UST 2517, 330
UNTS 3.
28
This ruling appears to be reasonable and legitimate. States cannot be bound by a waiver in an arbitration agree-
ment between private parties to which they have not consented (unless of course the party to the agreement was
explicitly authorized to bind the state). By contrast, a sovereign state may not assert state immunity ratione materiae
if its being bound by a treaty is deemed to be explicit consent not to invoke immunity from jurisdiction. In this
The UN State Immunities Convention explicitly provides that a state that enters into a writ-
ten agreement with a foreign national to submit disputes concerning a commercial transaction
to arbitration may not invoke immunity before a foreign court in proceedings relating to that
agreement, the arbitration procedure, or the award unless the agreement provides otherwise.29
Contracts with states providing that disputes will be submitted to arbitration clearly amount
to implied consent to the jurisdiction of the courts of the state where the arbitration would be
held when those courts exercise supervisory powers over the arbitration.30 The CFA, however,
did not accept an implied waiver but closely followed the common law approach, which
requires the foreign state in question to make a voluntary and unequivocal submission at the
time when the courts of the forum state are asked to exercise their jurisdiction against that for-
eign state. The approach makes sense if state immunity is understood as a rule for dealing with
relations between states, whereas an arbitration agreement should be characterized as between
one state and a private party.31
The significance of the CFA’s decision is twofold. First, an arbitration clause or agreement
is still effective and binding on the foreign state and may still be used. Yet when a Chinese court
(or a Hong Kong court) is approached for interim relief or in support of the arbitration in the
enforcement stage, the foreign state may nonetheless be found to have immunity from such
proceedings. The decision thus presents an insurmountable obstacle where parties are trying
to recover against assets of a foreign state located in Hong Kong (or China) or where enforce-
ment proceedings are brought in Hong Kong (or China) in the absence of an explicit waiver
of immunity with respect to both immunity and the assets in question. Second, and more
important, when the case involves China (including Hong Kong and Macau), parties should
anticipate that the doctrine of absolute sovereign immunity will be firmly applied unless the
foreign state has submitted an explicit waiver.
SHEN WEI
Shanghai Jiao Tong University Law School
scenario, the well-established principle cannot be circumvented. Immunity ratione materiae is lost when the sov-
ereign state ratifies the treaty, which may deprive that state of its right to object to the assertion of extraterritorial
jurisdiction by another state. This subtle difference was illustrated in Regina v. Bow St. Metro. Stipendiary Magistrate,
ex parte Pinochet (No. 3), [1999] UKHL 17, [2000] 1 A.C. 147, and Int’l Ins. Co. v. Caja Nacional de Ahorro y Seguro,
293 F.3d 392, 397 (7th Cir. 2002).
29
UN State Immunities Convention, supra note 16, Art. 17.
30
E.g., European Convention on International Commercial Arbitration, Arts. 1, 2, 3, Apr. 21, 1961, 484 UNTS
364.
31
For a discussion of this issue on the basis of analogous facts, see Creighton Ltd. v. Government of Qatar, 181
F.3d 118 (D.C. Cir. 1999).
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Judicial Review of Investment Treaty Awards

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INTERNATIONAL DECISIONS

EDITED BY DAVID P. STEWART

JUDICIAL REVIEW OF INVESTMENT TREATY AWARDS:

The Path to the Supreme Court

The Supreme Court Decision

II. UNDERSTANDING THE CASE IN ITS BROADER CONTEXT

Rethinking Judicial Review Standards

The Disaggregated—and Not Always Ideal—State

International Court of Justice—provisional measures—irreparable harm—attorney-client privilege

that a state would expect to undertake an arbitration or negotiations “without interference by

Exclusive economic zone—fishing—regulation of bunkering— confiscation of vessels—judicial review of pen-

Sovereign immunity—restrictive theory— commercial arbitration—waivers of immunity—New York Con-

FG HEMISPHERE ASSOCIATES v. DEMOCRATIC REPUBLIC OF THE CONGO. [2011] 14 H.K.C.F.A.R.

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