Subjects of International ALIFF ZAQWAN

Law (Question 6) S H A I F U L N I Z A M 1 91 8 0 2 3
Question
Atlanta, an under-developed State, enters into an oil concession agreement with Petronas. The concession
allows Petronas to do oil drilling and exploitation for 30 years. Since 2005, Petronas has invested RM 100
million for the construction of oil-drilling installations in Atlanta. However, the Government of Atlanta
recently declares that it unilaterally terminates the concession agreement by its newly promulgated Law
No.111 on the ground that due to increasing movements of Atlan-tigers (an ethnic rebel group) in the
surrounding areas, the Government can no longer guarantee the safety of oil-drilling activities in the area. In
fact, the rebel movements are quite far from the area where Petronas is doing business and the real intention
of the Government of Atlanta is to grant the concession to another Oil Company. Petronas wants to institute
proceedings against Atlanta for its financial losses before the International Court of Justice.
You are a legal counsel in the Attorney General’s Chamber of Malaysia. How will you advise Petronas?
Would your advice be different if the case were brought before the International Centre for Settlement of
Investment Disputes (ICSID) and both Malaysia and Atlanta were parties to the Convention on the Settlement
of Investment Disputes between States and Nationals of Other States, 1965?
Introduction
▪In the nineteenth century, only States were regarded as subjects of international law.

▪However, after World War II many international organizations and corporations are also, to some
extent, considered as subjects of international law.

▪Nevertheless, unlike States which are subjects of international law par excellence, the
international personality of corporations are limited.

▪The question above concerns Petronas (Petroliam Nasional Berhad), a multinational corporation
incorporated in Malaysia and the extent of its international personality.
Overview of the Presentation
ISSUE 1
Whether Petronas is a subject of
international law
•Rights and obligations under
international law
•Capacity to enter into treaties
•Capacity to make international
claims
•Enjoyment of privileges and
immunities from national
jurisdictions
ISSUE 2
Whether Petronas can institute
proceedings against Atlanta at the
ICJ
•International Wrongful Act
•Admissibility of international
claims
•Jurisdictional requirement
ISSUE 3
Whether Petronas can bring an
action against Atlanta at ICSID
•Legal dispute arising out of an
investment
•Between a Contracting State and a
national of another Contracting
State
•Consent in writing
Issue 1: Whether Petronas
is a subject of
international law
▪A subject of international law is one who possesses legal personality under international law.

▪There is no definite definition of international legal personality.

▪However, there are four generally accepted characteristics of international legal personality:
1) Rights and obligations under international law
2) Capacity to enter into international treaties
3) Capacity to make international claims
4) The enjoyment of privileges and immunities from national jurisdictions
1st characteristic: Rights and
obligations under international law
▪Many multinational corporations enter into agreements with States thus these corporations
generally have contractual rights and obligations.

▪Such contracts are usually governed by the municipal laws of the party or parties.

▪However, in Texaco Overseas Petroleum Co. v. Libya, an agreement for the extraction of oil might
be an internationalized contract subject to international law.

▪Thus, Petronas, a multinational company which generally enters into agreements with many
sovereign States, may to some extent, have rights and obligations under international law.
2nd characteristic: Capacity to enter
into treaties
▪The Vienna Convention on the Law of Treaties 1969 in Article 2 defines a treaty as an
“international agreement concluded between States in a written form and governed by
international law”.
▪Thus, treaties under this definition only include agreements between States and not corporations.
▪Anglo-Iranian Oil Co case: Iran entered into a contract with a British company. The ICJ rejected the
argument that a treaty was entered with Britain because of the part played by Britain in the
negotiations. It is only a concessionary contract between a government and a company.
▪Thus, it is clear that corporations cannot enter into treaties.
▪Since Petronas is a corporation, it has no capacity to enter into international treaties. Thus,
Petronas does not fulfill the second characteristic.
3rd characteristic: Capacity to make
international claims
▪An international claim is a demand of one government upon another through diplomatic channels
or an international tribunal, to redress a breach in international obligation.

▪It can be clearly concluded that corporations have no capacity to make international claims. Also,
only States have access to the International Court of Justice, the principal judicial organ of the
United Nations.

▪Thus, since Petronas is a corporation, it has no capacity to make international claims thus this
characteristic is not fulfilled.
4th characteristic: Enjoyment of privileges
and immunities from national
jurisdictions
▪States, which are subjects of international law par excellence, are immune and free from national
laws of other States. In contrast, corporations are subject to laws of the State in which it is
incorporated.

▪Petronas is a company incorporated under the Malaysian Companies Act 1965. It is subjected to
Malaysian legislations. It can also be sued and trialed at the Malaysian courts.

▪Thus, it is clear that Petronas does not enjoy immunities from national jurisdictions and thus does
not have this characteristic.
Conclusion of the 1st Issue
▪Petronas only has the first out the four characteristics of international personality.

▪Thus, Petronas has a limited international personality and is a subject of international law to a
limited extent.
Issue 2: Whether Petronas
can institute proceedings
against Atlanta at the ICJ
▪Article 34(1) of the Statute of ICJ states that only States can bring action before the court.

▪Thus, it is clear that corporations like Petronas have no locus standi to bring action before the ICJ.

▪Nevertheless, it is possible for the State to which the corporation is a subject to, bring a case to
the ICJ on behalf of the corporation. Three requirements:
1) International wrongful act,
2) Admissibility of the claim
3) Jurisdictional requirement which is consent of the States.
First Req: International Wrongful
Act
Article 2 of the Articles on Responsibility of States for Internationally Wrongful Acts 2001 - there
are two requirements of an international wrongful act:

1) Attributable to the State.

2) A breach of international obligation.

First Req: International Wrongful
Act
Attributable to the State

▪A ‘State’ cannot by itself act, but it can act only through its organs.

▪Article 4 states that “the conduct of a State organ shall be considered an act of that state under
international law, whether the organ exercises legislative, executive, judicial or any other
functions…”

▪Thus, since the Government of Atlanta is the executive organ of Atlanta, its act of terminating the
concession agreement, is therefore attributable to the State of Atlanta.
 First Req: International Wrongful
Act
Breach of international obligation
▪Article 12 states that a breach of international obligation is “An act of that State which is not in
conformity with what is required of if by that obligation, regardless of its origin or character”.
▪An obligation can arise from a treaty. It must be emphasized that the concession agreement with
Petronas however is not a treaty as defined under the Vienna Convention.
▪However, in the Texaco v Libya case, the arbitrator held that an agreement for the extraction of oil might
be an internationalized contract subject to international law. Therefore, a concession agreement
between Atlanta and Petronas can be subject to international law and Atlanta had breached an
international obligation when it unilaterally terminated the agreement.

▪Thus, the requirements of an international wrongful act are fulfilled

2nd Req: Admissibility of
international claims
According to Article 44 of the Articles on Responsibility of States for Internationally Wrongful Acts
2001, there are two requirements of admissibility of international claims:

1) Nationality of claims

2) Exhaustion of local remedies.

2nd Req: Admissibility of
international claims
Nationality of claims

▪The victim must be linked by nationality with the State bringing the action.

▪How is the nationality of a corporation determined?

▪Barcelona Traction case: The company concerned was incorporated in Canada with 75% Belgian
shareholding. It was held that in allocating corporate entities to States for the purposes of
diplomatic protection, the nationality of a company is based on the State where it was
incorporated and has a registered office.

▪Thus, since Petronas is a company incorporated in Malaysia under the Malaysian Companies Act
with a registered office in Malaysia it is a national of Malaysia.
2nd Req: Admissibility of
international claims
Exhaustion of local remedies

▪Effective local remedies available at the wrongdoer State must have been exhausted.

▪This is an important requirement that Petronas must be aware of.

▪Thus, Petronas must first seek remedies from the highest level of Atlanta’s judiciary, before
Malaysia can bring an action on behalf of Petronas at the ICJ.
3rd Req: Jurisdictional
requirement
▪Article 36 of the Statute of ICJ – The ICJ can only exercise jurisdictions over States parties with
their consent.

▪Thus, it is clear that Atlanta’s consent to bring the dispute to the ICJ is required and if Atlanta
does not consent, Malaysia cannot proceed to bring the case at ICJ.
Conclusion of the 2nd Issue
▪Petronas cannot, on its own name, bring an action against Atlanta at the ICJ.

▪However, it may ask Malaysia to bring an action on its behalf subject to fulfilling the conditions,
Issue 3: Whether Petronas
can bring the case at
ICSID
▪ICSID is established by the Convention on the Settlement of Investment Disputes between States
and Nationals of Other States (ICSID Convention).
▪Article 18 of the Convention states that ICSID has full international legal personality including the
capacity to institute legal proceedings.
▪Article 25(1) of the Convention provides three requirements for the dispute to fall under the
jurisdiction of ICSID:
1) Legal dispute arising out of an investment
2) Between a Contracting State and a national of another Contracting State
3) Consent in writing
1st Req: Legal dispute arising out
of an investment
▪Article 25(1) states that the dispute must be a “legal dispute arising directly out of an
investment.”
▪ This indicates the dispute must concern the existence of a legal right or obligation.
▪In the current case, the dispute between Petronas and Atlanta is a contractual dispute thus it is a
legal dispute.
▪The meaning of investment is not defined in the convention. Nevertheless, clearly, a concession
agreement, which is an agreement which permits foreign business to invest in a country falls
under the definition.
▪Thus, the dispute between Petronas with Atlanta on the oil concession agreement fulfills this
requirement.
2nd Req: Between a Contracting State
and a national of another Contracting
State
❑Article 25(2) of the Convention defines a national of another Contracting State which includes
any juridical person which had the nationality of a Contracting State.

❑ Again, the rule on nationality of a corporation is applied in this issue.

❑Since Petronas is a national of Malaysia which is a Contracting State and Atlanta is a Contracting
State as stated in the question, this requirement is fulfilled.
3rd Req: Consent in Writing
▪The Convention in its Preamble states that:
“No Contracting State shall by the mere fact of its ratification, acceptance or approval of this Convention and
without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or
arbitration”.

▪There must be a consent in writing to bring the dispute to ICSID.

▪Consent may be given in a clause included in an investment agreement, providing for the submission to
the Centre of future disputes arising out of that agreement. This means that if the oil concession
agreement between Petronas and Atlanta states that disputes must be submitted to the ICSID, then
consent has been given by both parties.
▪It is important to note that Article 27 of the Convention states that once the Contracting States have
consented to settle the dispute at the ICSID, no international claim can be brought. In the current case,
if the parties have consented to resolve the dispute at ICSID, they cannot bring the dispute to the ICJ.
Conclusion of Issue 3
▪Since Malaysia and Atlanta are members of ICSID, Petronas and Atlanta can bring the dispute to ICSID
subject to the requirements.
Conclusion
▪Petronas cannot bring the claim to ICJ on its own name. However, Petronas can persuade
Malaysia to bring the case on behalf of Petronas to ICJ.

▪It is undeniable that Malaysia should assist Petronas as Petronas is a company wholly owned by
the government which has significantly contributed to Malaysia’s economy.

▪Alternatively, Petronas can bring the case to ISCID. However, if the concession agreement states
that the dispute must be settled at ISCID, then the dispute cannot be resorted at ICJ.
Thank You