Loewen Group, Inc. v. United States. ICSID Case No. ARB(AF)/98/3. 42 ILM 811 (2003).

Mondev
International Ltd. v. United States. ICSID Case No. ARB(AF)/99/2. 42 ILM 85 (2003)
Author(s): William S. Dodge
Source: The American Journal of International Law, Vol. 98, No. 1 (Jan., 2004), pp. 155-163
Published by: American Society of International Law
Stable URL: http://www.jstor.org/stable/3139264
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2004] INTERNATIONAL DECISIONS 155

measurehas caused a complainingmember.39 If,as theAppellateBodysuggested,the evi-

dence does notsupporttheviewthattheByrdAmendmenthas resultedin thefilingofmore
petitionsthanwouldhave been thecase withoutit,itis hard to see howthemeasurewould
have caused a complainantanycompensableloss. It willbe interestingto see howthecom-
plainantstry to surmountthisdifficult
problem.
MARKL. MOVSESIAN
Law School
Hofstra

Arbitration-NAFTA 1 --relationship
Chapter ofarbitral todomestic
tribunals courts-courtjudgments
as measures-denial
ofjustice-requirement ofcontinuous
ofjudicialfinality-requirement nation-
ality-lackofretrospective
effect
LOEWENGROUP,INC.V. UNITED STATES.ICSID Case No. ARB (AF) /98/3.42 ILM 811 (2003).
At<http://www.state.gov/documents/organization/22094.pdf>.
NAFTAChapter11 ArbitralTribunal,June 26, 2003.

Case No. ARB(AF) /99/2. 42 ILM 85

MONDEV INTERNATIONAL LTD. V. UNITED STATES. ICSID
(2003). At<http://www.state.gov/documents/organization/14442.pdf>.
NAFTAChapter11 ArbitralTribunal,October 11, 2002.

In tworecentawards,LoewenGroup, Inc.v. United and MondevInternational

States Ltd.v. United
arbitraltribunalsrejectedclaimsthatU.S. courtdecisionsviolatedChapter11 ofthe
States,
NorthAmericanFreeTradeAgreement(NAFrA).1These awardsnotonlyarticulatestandards
for"denialofjustice"claimsunderNAFTA,butalso addressdifficult questionsregardingthe
relationshipbetween Chapter 11 tribunalsand domestic courts.

LoewenGroup,Inc. v. UnitedStates

The claimin Loewen2 grewout ofa businessdisputebetweenJeremiah O'Keefe, theowner

of a funeralhome in Mississippi,and the Loewen Group,Inc. (LG), a Canadian chain of
funeralhomesthatwasexpandingitsoperationsin theUnitedStates.Afterattempts toreach
a settlementfailed,O'Keefe's contract,tort,and state-law
antitrust
claimswent to trial
before
a Mississippijury,whichawardedO'Keefe $500 milliondollarsin damages,including$75
millionforemotionaldistressand $400 millionin punitivedamages.Mississippilawrequires
a 125% bond to stayexecutionofajudgmentpendingappeal. WhentheMississippi Supreme
Courtrefusedto reducetherequiredbond,LG settledthecase for$175 million.LG and its
owner,RaymondLoewen,thenbroughtclaimsagainsttheUnitedStatesunderNAFTAChap-
ter11,arguingthatthetrialcourtviolatedArticle1102 (nationaltreatment)and Article1105
(minimumstandardoftreatment) byallowingprejudicialcommentsaboutnationality, racial
attitudes,and economic class,thatthe$500 millionverdictand thebond requirementwere
denials ofjustice in violationofArticle1105,and thattheend resultwas an expropriation
underArticle1110.

39Understandingon Rules and Procedures

Governingthe Settlementof Disputes,Apr. 15, 1994, Art.22.4,
MARRAKESH AGREEMENT ESTABLISHINGTHEWORLDTRADEORGANIZATION, Annex 2, in THE LEGALTEXTS,supra
note 1, at 354.
1NorthAmericanFree Trade
Agreement,Dec. 17,1992,Can.-Mex.-U.S.,32 ILM 289 & 605 (1993) [hereinafter
NAFTA].
2Loewen
Group,Inc. v.UnitedStates,ICSIDCase No. ARB(AF)/98/3 (NAFTACh. 11 Arb.Trib.June26,2003),
42 ILM 811,at<http://www.state.gov/documents/organization/22094.pdf> [hereinafterLoewen award(merits)].
Publiclyreleased documentson all NAFTAdisputesare availableonline at <http://www.naftalaw.org>.

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156 THE AMERICANJOURNALOF INTERNATIONAL LAW [Vol. 98

Afterthearbitraltribunalwasconstituted,3 theUnitedStatesraisedpreliminary objections

to itscompetenceon thegroundthattheMississippijudgments werenot"measuresadopted
or maintainedbya Party."4 In itsawardonjurisdiction,5 thetribunalrejectedtheUnitedStates'
argumentthatjudicial acts in litigationbetween privatepartiesare not"measures."It noted
thatArticle201 defines"measure"broadlytoinclude"anylaw,regulation, procedure,require-
mentor practice,"thatotherprovisions ofNAFTAindicatethatjudicialdecisionsmaybe mea-
sures,and thatgeneralprincipalsofstateresponsibility makestatesresponsiblefortheacts
oftheircourts.The tribunalfoundno basisin NAFTAor in internationallawforexcluding
courtjudgmentsin privatedisputes.6
The UnitedStatesfurther arguedthattheMississippijudgments werenot"adoptedormain-
tainedbya Party,"because "Stateresponsibility only ariseswhen thereis finalactionbythe
as
State'sjudicialsystem a whole."7 Apparently in order to avoid theargumentthatArticle1121
ofNAFTA waivestheprocedural-exhaustion requirement ofthe localremediesrule,8theUnited
Statescharacterizedtheruleofjudicialfinality as a substantive requirementofdenial ofjus-
ticeclaims.9The tribunalexpressedskepticism, stating that "theruleofjudicialfinality
is no
different fromthelocal remediesrule.Itspurposeis to ensurethattheStatewherethevio-
lationoccurredshouldhavean opportunity to redressitbyitsownmeans,withintheframe-
workofitsowndomesticlegalsystem."'? In theend,however, thetribunaldecidedtoconsider
the argumentlater-at the hearingon themerits."LG subsequentlyfiledforbankruptcy,
fromwhichit emergedas a U.S. corporation,withitsChapter11 claimsassignedto a new
Canadian subsidiary.
In itsawardon themerits,thetribunalconcluded"thattheconductofthe trialbythetrial
judge wasso flawedthatitconstituted a miscarriageofjusticeamountingtoa manifestinjus-
ticeas thatexpressionis understoodin internationallaw."'2The tribunalfaultedthe trial
judge forallowingseveraldifferent kindsofprejudicialbehavior:repeatedreferencesto LG's
suggestions
nationality,13 that LG did businessonlywithwhitepeople,'4and appeals toclass-
based prejudice.'5The tribunalalso faultedthe irregularmannerin whichthe trialjudge
acceptedthejury'sinitialverdicton compensatory damagesbutdirectedittoreconsiderthe
of
question punitivedamages.16
The tribunalfocusedon NAFTAArticle1105(1) because LG had not providedsufficient
evidenceofhowU.S. investors weretreatedto allowan evaluationofLG's Article1102claim

3
The tribunalinitiallycomprisedSir AnthonyMason (president),JudgeAbnerJ.Mikva,and L. YvesFortier.
Afterthe awardon jurisdictionbut priorto theawardon the merits,Fortierresignedfromthe tribunaland was
replaced byLord Mustill.
4
NAFTA,supranote 1,Art.1101(1).
5
Loewen Group,Inc. v. United States,Competence andJurisdiction,ICSID Case No. ARB(AF)/98/3 (NAFTA
Ch. 11Arb.Trib.Jan.5,2001), at<http://www.state.gov/documents/organization/3921.pdf> Loewen
[hereinafter
award (jurisdiction)].
6Id.,
paras. 39-54.
7 Id.,
para. 61.
8 See
infranotes 59-62 and accompanyingtext.
9 Loewen award
(jurisdiction),supranote 5, para. 61.
10Id.,
para. 71.
1 Id.,
para. 74.
12
Loewen award (merits),supranote 2, para. 54.
paras. 56-64.
13 Id.,
14
Id., paras. 65-67.
'5 Id., paras.68-70. The tribunalexcused LG's failuresto object to such comments,reasoningthat"[i]n ajury
trial,... counsel are naturallyreluctantto createtheimpression,bycontinuouslyobjecting,thattheyare seeking
to suppressrelevantevidenceor thattheyare relyingon technicalities," id.,para. 73, and foundthatLG had pre-
serveditsclaimsbyrequestingajury instruction addressingnationality, racial,and classbias, id.,paras. 84-87.
16
Id., paras. 88-114, 122.

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2004] INTERNATIONAL DECISIONS 157

(nationaltreatment)and because itsArticle1110 claim(expropriation)wassimplyduplica-

tive.'7Article1105(1) provides:"Eachpartyshallaccordto investments ofinvestors ofanother
party treatment in accordance with international
law,includingfairand equitabletreatment
and fullprotectionand security."'8 AlthoughLG did notestablishthatthejudge orjurywas
actuallybiasedagainstit,19thetribunalconcludedthat"bad faithor maliciousintention" was
notrequired.20 "Manifest in
injustice thesenseofa lackofdue processleading to an outcome
whichoffendsa sense ofjudicial proprietyis enough ... ."21In thiscase, the tribunalsaid
that"thewhole trialand itsresultantverdictwere clearlyimproperand discreditableand
cannot be squared withminimumstandardsof internationallaw and fairand equitable
treatment."2
Nevertheless, thetribunalrejectedLG's Article1105 claimbecause LG had failedto pur-
sue itsdomesticremedies.This conclusionrequired"qualification"of the tribunal'sstate-
mentin the awardon jurisdictionthat"therule ofjudicialfinality is no different fromthe
local remediesrule."23 Upon the
reflection, tribunalconcluded that the ruleswere distinct24
and thatwhateverimpactArticle1121 mighthaveon thelocal remediesrulewithrespectto
nonjudicialmeasures,"itsaysnothingexpresslyabout therequirementthat,in thecontext
of ajudicial violationof internationallaw,thejudicial processbe continuedto thehighest
level."25The tribunalcontinued:

17Id., paras. 140-41.

8NAFTA,
supranote1,Art.1105(1). OnJuly31,2001, theNAFTAFree Trade Commission,comprisingrepresen-
tativesfromthe threeNAFTAparties,issued an interpretation ofArticle1105(1), limiting"internationallaw" to
customary lawand statingthat"fairand equitabletreatment"
international and "fullprotectionand security"
werenot
meant to go beyondthe protectionsof customaryinternationallaw:
B. MinimumStandardof Treatmentin AccordancewithInternationalLaw
1. Article1105(1) prescribesthe customaryinternationallaw minimumstandardof treatmentof aliens
as the minimumstandardof treatmentto be affordedto investmentsofinvestorsof anotherParty.
2. The conceptsof "fairand equitable treatment"
and "fullprotectionand security"
do notrequiretreat-
mentin additionto or beyondthatwhichis requiredbythecustomary internationallawminimumstan-
dard of treatmentof aliens.
3. A determinationthattherehas been a breachofanotherprovisionoftheNAFTA, or ofa separateinter-
nationalagreement,does not establishthattherehas been a breach ofArticle1105(1).
FreeTradeCommission RelatedtoNAFTA
Clarifications Chapter11 (July31, 2001), at <http://www.ustr.gov/regions/
whemisphere/nafta-chapterl .PDF>. Althoughclaimantshad arguedthattheinterpretation amountedto an unau-
thorizedamendmentofChapter11,theydid notpresstheargument.The tribunalconcluded thattheinterpreta-
tionwas bindingon itunder NAFTAArticle 1131(2). Loewen award(merits),supranote 2, paras. 124-28; compare
Pope & Talbot,Inc.v.Canada, Damages,para.47 (NAFTA Ch. 11 Arb.Trib.May31,2002), 41 ILM 1347,1356 (2002)
("werethe Tribunalrequiredto make a determinationwhetherthe Commission'sactionis an interpretation or
an amendment,itwould choose the latter").
19Loewen award (merits),
supranote 2, para. 138.
20
Id., para. 132.
21
Id. The tribunalalso quoted withapprovaltwootherformulations ofa standardfordenial ofjustice:(1) the
formulationoftheMondevtribunal,id.para. 133,seeinfranote 47 and accompanyingtext;and (2) a phrasefrom
theELSIcase on whichthetribunalinPope& Talbot, para.63,41 ILM at 1358,had relied.SeeLoewenaward(merits),
supranote 2, para. 131 (quotingElettronicaSicula S.p.A. (ELSI) (U.S. v. Italy),1989ICJREP.15, 76 (July20) ("It is
a wilfuldisregardofdue processoflaw,an act whichshocks,or at leastsurprises, a sense ofjuridicalpropriety.")).
22Loewen award
(merits),supranote 2, para. 137.
23 Id., paras. 158-59;
seesupranote 10 and accompanyingtext.
24Loewen award (merits),supranote 2, paras. 142-56.
25 Id., para. 161. As a condition
precedent to submittinga claim,Article1121 requiresthe investorand the
enterpriseto
waivetheirrightto initiateor continuebeforeanyadministrative tribunalor courtunderthelawofanyParty,
or otherdisputesettlementprocedures,anyproceedingswithrespectto themeasureofthedisputingParty
thatis alleged to be a breach ..., exceptforproceedingsforinjunctive,declaratoryor otherextraordinary
relief,notinvolvingthepaymentofdamages,beforean administrative tribunalor courtunderthelawofthe
disputingParty.
NAFTA,supranote 1, Arts.1121(1) (b) & 1121(2) (b). LG argued thatArticle1121 "requiresan arbitralclaimant
to waiveitslocal remedies,not exhaustthem."Loewen award (merits),supranote 2, para. 145.

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158 THE AMERICANJOURNALOF INTERNATIONAL LAW [Vol. 98

IfArticle1121 were to have thateffect,itwould encourage resortto NAFTAtribunals

ratherthanresortto theappellatecourtsand reviewprocessesofthehostState,an out-
comewhichwouldseemsurprising, havingregardtothesophisticatedlegalsystemsofthe
NAFTAParties.... Further,it is unlikelythatthe Partiesto NAFTAwould have wished
toencouragerecoursetoNAFTAarbitration at theexpenseofdomesticappeal or review
when,in the generalrun of cases, domesticappeal or reviewwould offermore wide-
rangingreviewas theyare not confinedto breachesof internationallaw.26
The ruleofjudicialfinalityimposes"an obligationto exhaustremedieswhichare effective
and adequate and are reasonablyavailabletothecomplainantin thecircumstances inwhich
itissituated."27
Although the bond requirement meant thatappeal to theMississippi
Supreme
Courtwasnot "a reasonablyavailableremedy,"28 LG also had thealternativeoffilinga peti-
tionforcertiorariwiththeU.S. SupremeCourtchallengingthebond requirementas a due
processviolationand seekinga stay." [T] he centraldifficulty
in Loewen's case,"thetribunal
concluded,wasthat"Loewenfailedtopresentevidencedisclosingitsreasonsforenteringinto
thesettlement agreementin preferencetopursuingotheroptions,in particulartheSupreme
Court option ...."29
The tribunalfurther reasoned thatLG's reorganizationin bankruptcy as a U.S. corpora-
tiondeprivedthe tribunalofjurisdiction.30NAFTAChapter11 applies onlyto measuresof
one NAFTApartyrelatingto investorsof another NAFTApartyor theirinvestments.31 Under
customary law,"theremustbe continuousnationalidentity
international fromthedateofthe
eventsgivingriseto theclaim,whichdate is knownas the diesa quo,throughthedate ofthe
resolutionoftheclaim,whichdateisknownas thediesad quem."32 Althoughsometreatieshave
alteredtherequirementofcontinuousnationality, "suchspecificprovisionsinothertreaties
and agreements sinceNAFTAhasno suchspecificprovision."33
onlyhinder[LG]'s contentions,
LG's attempttosatisfythecontinuousnationalityrequirement byassigningitsclaimsto a new
Canadian subsidiarywithno otherassetswas unavailing."Allof the benefitsof anyaward
wouldclearlyinureto theAmericancorporation.Such a nakedentity as Nafcanco,evenwith
itscatchyname,cannotqualifyas a continuingnationalforthepurposesofthisproceeding."34
Finally,thetribunaloffereda wordofexplanationforwhyithad declinedto correctwhat
itsawas a clearmiscarriage
ofjustice.EmphasizingthelimitsofChapter11 review,thetribunal
stated:
Aswe havesoughtto makeclear,we findnothingin NAFTAtojustify theexercisebythis
Tribunalofan appellatefunctionparallelto thatwhichbelongsto thecourtsofthehost
nation.In thelastresort,a failurebythatnationto provideadequate meansofremedy
mayamountto an international wrongbutonlyin thelastresort.... Too greata readi-
ness to stepfromoutsideintothedomesticarena,attributing theshape of an interna-
tionalwrongtowhatisreallya localerror(howeverserious),willdamageboththeintegrity
of NAFTAitself.35
of the domesticjudicial systemand theviability

26Loewen award
(merits),supranote 2, para. 162.
27
Id., para. 168.
28Id.,para. 208. The tribunalconcluded thattherefusalsofthe trialjudge and theMississippiSupremeCourt
to reduce the bond were not themselvesviolationsofArticle1105. Id., paras. 189, 197.
29Id.,
para. 215.
30This holdingwouldseem to rendertherestoftheawardunnecessary, butthetribunalexplained:"Asour con-
siderationofthemeritsofthecase waswelladvancedwhenRespondentfiledthismotionto dismiss[forlackofjuris-
diction] and as we reached the conclusionthatClaimants'NAFTAclaimsshould be dismissedon the merits,we
include in thisAwardour reasonsforthisconclusion."Id., para. 2.
31NAFTA,supranote 1,Art.1101(1).
32
Loewen award (merits),supranote 2, para. 225.
33Id.,
para. 229.
34Id., para. 237.
35
Id., para. 242.

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2004] INTERNATIONAL DECISIONS 159

MondevInternational
v. UnitedStates

The claimin Mondev36 arose out ofa real estatedevelopmentcontractconcluded in 1978

betweentheCityofBoston(City),theBostonRedevelopmentAuthority (BRA),and Lafayette
PlaceAssociates(LPA), a limitedpartnership ownedbytheCanadiancompanyMondevInter-
nationalLtd. One provisionofthiscontractgaveLPA theoptionto purchasea piece ofland
knownas the HaywardParcel byJanuary1, 1989,at a price calculatedbya formulain the
contract.The City,believingtheoptionpriceto be too lowin lightoftheintervening surge
in realestateprices,allegedlytriedtofrustrate exerciseoftheoption.LPA had leaseditsrights
in theprojecttoCampeau,anotherCanadiandeveloper,whichnotifiedtheCityin December
1988 thatitwishedto buytheparcel.Campeau nevermade a formaltenderofpayment, how-
ever,and LPA terminated thelease afterCampeau defaultedon itsobligations.Subsequently,
Manufacturers HanoverTrustforeclosed on bothLPA'sand Campeau'sinterests in theproject.
In March 1992,LPA broughtsuitin Massachusettsstatecourtagainstthe Cityforbreach
ofcontractand againstBRAforintentionalinterference withcontractualrelations.Thejury
foundforLPA on bothclaims,butthetrialjudgesetaside thetortjudgmenton theground
thatBRAwas immunefromliability forintentionaltortsundera Massachusettsstatute.On
appeal, theMassachusettsSupremeJudicialCourt (SJC) affirmed BRA's tortimmunity and
reversedthejudgment againsttie Cityforbreachofcontract.In a unanimousopinionauthored
byJusticeCharlesFried,theSJCheld thatLPA could not claimthatthe Citywas in breach,
because LPA had notformally tendereditsownperformanceunder theoption.37The U.S.
Supreme Courtdenied LPA's petitionforcertiorari.38
Mondevthenbroughta claimagainsttheUnitedStatesunderChapter11 ofNAFTA, alleging
violationsofArticles1102 (nationaltreatment), 1105 (minimumstandardof treatment), and
1110 (expropriation). The Chapter11 tribunaldismissedMondev'sclaimsin theirentirety.39
The tribunalconcluded thatonlyMondev'sArticle1105 claimswere properlybeforeit
because theallegedexpropriationinviolationofArticle110 and theallegeddiscrimination
in violationofArticle1102 had bothoccurredpriorto NAFTA'sentryintoforceonJanuary1,
1994, and NAFTAis not retrospective.40
The tribunalacceptedtheclarifications ofArticle1105(1) issuedbytheNAFTAFreeTrade
Commission(FTC) as legitimate.41 The tribunalfurther noted,however,thatcustomary inter-
nationallaw evolves,and concluded thatthe phrase "customaryinternationallaw" in the
FTC's interpretation "refersto customaryinternationallaw as it stood no earlierthan the
timeatwhichNAFTAcame intoforce."42 The tribunalthereforerejectedthesuggestionthat
theminimumstandardbe limitedto thestandardarticulatedbytheMexican ClaimsCom-
missionin the Neercase-that "thetreatmentofan alien ... should amountto an outrage,
to bad faith,to wilfulneglectof duty,or to an insufficiency of governmentalaction so far
shortofinternationalstandardsthateveryreasonableand impartialman wouldreadilyrec-
ognize itsinsufficiency."43

36 Mondev Int'l Ltd. v. United States,ICSID Case No. ARB(AF)/99/2 (NAFTA Ch. 11 Arb.Trib. Oct. 11, 2002),
42ILM 85 (2003),at<http://www.state.gov/documents/organization/14442.pdf> Mondevaward(merits)].
[hereinafter
37LafayettePlace Assoc.v. Boston RedevelopmentAuthority, 694 N.E.2d 820 (Mass. 1998).
38
LafayettePlace Assoc. v. Cityof Boston,525 U.S. 1177 (1999).
39 The tribunalconsistedof Sir Ninian Stephan (president),JamesCrawford, andJudge Stephen Schwebel.
40 Mondevaward(merits), supranote 36, paras.57-75.Alternatively,
thetribunalsuggestedthattheseclaimswould
havebeen barredbythethree-year statuteoflimitations.
SeeNAFTA,supranote 1,Art.1116(2) ("Aninvestor maynot
makea claimifmorethanthreeyearshaveelapsedfromthedate on whichtheinvestor first
acquired,or shouldhave
firstacquired,knowledgeoftheallegedbreachand knowledgethattheinvestor hasincurredlossor damage.);seealso
id.,Art 1117(2). The tribunalsaiditwouldnothaveacceptedMondev'sargument thatitcouldnothavehad "knowledge
of... lossor damage"priorto thecourtdecisionsdenyingitrelief.Mondevaward(merits),supranote36, para.87.
41Mondev award (merits),supranote 36, paras. 121-22; seesupranote 18.
42 Mondev award (merits),supranote 36, para. 125.
43Neer (U.S.A.) v. UnitedMexicanStates,4 RI.A.A. 60 (U.S.-Mexico Gen'l ClaimsComm'n) (1926); seeMondev
award (merits),supranote 36, paras. 114-17, 125.

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160 THE AMERICANJOURNALOF INTERNATIONAL LAW [Vol. 98

The tribunalthenturnedtoconsiderthespecificstandardfordenial ofjusticeclaims,em-

phasizing"theimportanceofthespecificcontextinwhichan Article1105(1) claimismade."44
It is one thingto deal withunremediedacts of the local constabularyand anotherto
second-guessthereasoneddecisionsofthehighestcourtsofa State.Under NAFTA,par-
tieshave theoptionto seek local remedies.Iftheydo so and lose on themerits,itis not
the functionof NAFTAtribunalsto act as courtsof appeal.45
Buildingon theELSI case's descriptionofarbitrary conductas thatwhichdisplays"a wilful
disregardofdue processoflaw,... whichshocks,or at leastsurprises, a senseofjudicialpro-
priety,"46 the tribunalarticulatedthefollowingstandardfordenial ofjustice:
The testis not whethera particularresultis surprising, but whetherthe shock or sur-
prise occasionedto an impartialtribunalleads, on tojustifiedconcernsas to
reflection,
thejudicialproprietyoftheoutcome,bearingin mindon theone hand thatinternational
tribunalsare notcourtsofappeal,and on theotherhand thatChapter11 ofNAFTA(like
othertreatiesfortheprotectionof investments) is intendedto providea real measure
ofprotection.In theend the questionis whether,at an internationalleveland having
regardto generallyaccepted standardsof the administration ofjustice,a tribunalcan
conclude in thelightofall theavailablefactsthattheimpugneddecisionwasclearlyim-
properand discreditable,withtheresultthattheinvestment has been subjectedtounfair
and inequitabletreatment.47
Applyingthisstandardto Mondev'sclaim,thetribunalfoundno denial ofjustice.The SJC's
dismissalof LPA's contractclaimagainstthe Citybased on LPA's failureto tenderitsown
performance wassimplyan applicationofexistingMassachusetts law,or atmostthedevelop-
mentof Massachusetts law"withinthelimitsof commonlawadjudication.There is nothing
here to shockor surpriseevena delicatejudicialsensibility."48
Turningto theSJC'sdecision
thatBRAwasstatutorially immunefromtortliability, thetribunalreasonedthat,"within broad
limits,theextentto whicha Statedecides to immunizeregulatory authoritiesfromsuitfor
interference withcontractualrelationsis a matterforthecompetentorgansoftheStateto
decide,"49thattherewerelegitimatereasonswhya legislaturemightwishto so immunizea
redevelopmentagency,and thattherewas thusno breach ofArticle1105 in thiscase.50

Both the Loewenand the Mondevtribunalsrepeatedlyemphasized thatit was not their

functionto serveas courtsofappeal fromdomesticdecisions,51butbecause ofdifferences
in
the cases, each tribunalinterpretedthatprinciplein a different The
way. Loewentribunal
requiredthata Chapter11 claimantwishingto challengeajudicial decisionfirstexhaustits
domesticremedies;theconcernwasthata failureto.requireexhaustion"wouldencourage

44Mondev award
(merits),supranote 36, para. 126.
45 Id.
46
ElettronicaSicula S.p.A. (ELSI) (U.S. v. Italy),1989 ICJREP.15, 76 (July20).
47Mondevaward(merits), a somewhat
supranote36,para. 127.The tribunalconceded that"[t]his isadmittedly
open-endedstandard,but it maybe thatin practiceno more preciseformulacan be offeredto coverthe range
of possibilities."Id.
Id., para. 133. AfterexaminingMondev'sclaimsthattheMassachusettsSupremeJudicialCourtshould have
48

remandedthecontractclaimand consideredwhetheritsallegedlynewruleshould have been applied retrospec-

tively,thetribunal concludedthatthesequestionswerematters oflocalpracticeand did notconstitute
denialsofjustice.
Id., paras. 135-38.
49
Id., para. 154.
50
Id., paras. 153-54.
51
Seesupranotes 26, 35, 45, 47 and accompanyingtext;seealsoLoewen award (merits),supranote 2, para. 51
("The Tribunalcannotundertheguiseofa NAFTAclaimentertainwhatis in substancean appeal froma domestic
judgment."); id.,para. 134 ("ANAFTAclaimcannotbe convertedintoan appeal againstthedecisionsofmunicipal
courts.");Mondevaward(merits),supranote 36,para. 136 ("On theapproachadoptedbyMondev,NAFTA tribunals
would turninto courtsof appeal, whichis not theirrole.").

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2004] INTERNATIONAL DECISIONS 161

resortto NAFTAtribunalsratherthanresortto theappellate courtsand reviewprocessesof

thehostState."52 Bycontrast,theMondevtribunaladopteda deferential "clearlyimproperand
discreditable"standardforreviewingdomesticdecisions,53 reasoningthat"[i] tis one thing
to deal withunremediedactsofthelocal constabulary and anotherto second-guesstherea-
soned decisionsofthehighestcourtsofa State."54 These twostrategies toavoidactingas courts
ofappeal are in tension,however,forifone requiresexhaustionofdomesticremediesand
appliesa deferential standardofreviewto thosedomesticdecisions,theresultmaybe to insu-
late violationsof Chapter 11 fromeffective reviewbyinternationaltribunals.
As a matterofpolicy,thereis much tobe said forrequiringexhaustionofdomesticreme-
dies beforeallowingan investor to bringclaimsbeforea Chapter11 tribunal.Fromthestate's
point of view,an exhaustion requirement"afford [s] theStatetheopportunity ofredressing
its
through legal system the inchoate breach of international law occasioned bythe lower
courtdecision."55 Fromtheinvestor'spointofview,"domesticappeal or reviewwouldoffer
morewide-ranging reviewas theyare notconfinedtobreachesofinternationallaw."56 One
might also add thatdomestic court reviewis more determinate (because domestic law tends
to be betterdeveloped), moreaccountable (because domesticcourtsare lessinsulatedfrom
review),and morelegitimate(legitimacy beinga functionofbothaccountability and deter-
minacy) than review byChapter 11 And
tribunals.57 although theLoewen tribunal limitedits
exhaustionrequirementtojudicial decisions,the same factorsargue in favorofrequiring
exhaustionofdomesticremedieswithrespecttoothermeasuresallegedtoviolateChapter11.58
As desirableas an exhaustionrequirementmaybe in theory, however,theLoewen awardis
in considerabletensionwiththe textof NAFTAand the decisionsof otherChapter11 tribu-
nals.Customary international lawrequirestheexhaustionoflocal remediesbeforebringing
an internationalclaim,59 but thisrule maybe waivedbyinternationalagreement.60 NAFTA
Article1121 establishesthat,as a conditionprecedentto bringinga Chapter11 claim,the

52
Loewen award (merits),supranote 2, para. 162.
53
Mondev award (merits),supranote 36, para. 127.
54 Id., para. 126.
55 Loewen award (merits),
supranote 2, para. 156.
56Id.,para. 162.LG could,forexample,havechallengedthepunitivedamagesawardas excessiveunderMississippi
law,seeMiss.Code Ann.?11-1-65(2001), AndrewJackson LifeIns. Co. v.Williams,566 So. 2d 1172 (Miss.1990),and
undertheDue ProcessClause of the U.S. Constitution, seeStateFarmMut.Auto.Ins. Co. v. Campbell,538 U.S. 408
(2003),BMWofN. Am.,Inc.v.Gore,517 U.S. 559 (1996),TXO Prod.Corp.v.AllianceRes.Corp.,509 U.S. 443 (1993).
Domesticappeals could be made moreeffective in redressingChapter11violationsifU.S. and Canadian imple-
mentinglegislationwerechanged tomakeNAFTA enforceablein domesticcourt.See19 U.S.C.A. ?3312(c) (2) ("No
personotherthantheUnitedStates... maychallenge,in anyactionbroughtunderanyprovisionoflaw,anyaction
or inactionbyanydepartment,agency,or otherinstrumentality of the United States,any State,or anypolitical
subdivisionofa Stateon thegroundthatsuchactionor inactionis inconsistent withthe [NAFTA]."); NorthAmerican
Free Trade AgreementImplementationAct,ch. 44, 1993 S.C. 1924-25 (Can.) ("Subjectto SectionB of Chapter
ElevenoftheAgreement,no personhas anycause ofactionand no proceedingsofanykindshallbe taken,without
the consentof theAttorney Generalof Canada, to enforceor determineanyrightor obligationthatis claimedor
arisessolelyunder or byvirtueoftheAgreement.").InvestorsmayraiseChapter11 claimsin Mexican courtsbut
are subsequentlyprecluded fromraisingthe same claimsbeforea NAFTAtribunal.SeeNAFTA,Annex 1120.1(a)
("an investorof anotherPartymaynot allege thatMexico has breached an obligationunder [NAFTA]... bothin
an arbitrationunder thisSection and in proceedingsbeforea Mexican courtor administrative tribunal").
57WilliamS. Dodge, Loewen v. United States:Trialsand ErrorsUnderNAFTAChapterEleven, 52 DEPAULL.REV.
563, 570-71 (2002) (published beforethe Loewentribunal'sawardon the merits);seealsoCharles H. BrowerII,
Structure, and NAFTA's
Legitimacy, Investment 36 VAND.J.
Chapter, TRANSNAT'L L. 37 (2003) (discussinglegitimacyof
Chapter 11 review).
58Dodge,
supranote 57, at 575-77. This discussionassumesthatdomesticcourtsprovideadequate remedies.
U.S. and Canadian courtscertainlydo, and thesame is probablytrueofMexican courts.Customaryinternational
lawexcusesa claimantfromexhaustinglocal remedieswhendoingso wouldbe futile.SeeC.F.AMERASINGHE, LOCAL
REMEDIES IN INTERNATIONALLAW 193-94 (1990).
59Interhandel(Switz.v. U.S.), 1959 ICJREP.5, 27 (Mar. 21) ("The rule thatlocal remediesmustbe exhausted
beforeinternationalproceedingsmaybe institutedis a well-established ruleofcustomaryinternationallaw."); see
generallyAMERASINGHE, supranote 58.
60ElettronicaSicula S.p.A. (ELSI) (United Statesv. Italy),1989 ICJREP. 15,42 (July20) (expressing"no doubt
thatthe partiesto a treatycan thereineitheragree thatthelocal remediesruleshallnot applyto claimsbased on
alleged breaches of thattreaty");seeAMERASINGHE,supranote 58, at 251-75.

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162 THE AMERICANJOURNALOF INTERNATIONAL LAW [Vol. 98

claimantwaiveits"righttoinitiateorcontinuebeforeanyadministrative tribunalorcourt"any
proceedingswithrespectto themeasurealleged to breachNAFTA,"exceptforproceedings
forinjunctive,declaratoryor otherextraordinary relief,notinvolvingthepaymentofdam-
OtherNAFTAtribunals
ages."61 haveunanimously concludedthatArticle1121waivesthelocal
remediesruleforChapter11 claims.62 Of course,theawardsciteddid notinvolvechallenges
to domesticcourtdecisions,and the Loewentribunaldistinguisheditssubstantiverule of
fromtheproceduralrequirements
judicialfinality ofthelocalremediesrule.63ButLoewen does
squarelyconflicton thispointwithMondev, whichdid involvea challengeto a domesticcourt
decision.The Mondevtribunalassumed thatan investorclaimingdenial ofjustice was not
requiredto exhaustdomesticremedies:
[U]nder thesystemofChapter11,itwillbe a matterfortheinvestorto decide whether
tocommencearbitration immediately,withtheconcomitantrequirementunderArticle
1121ofa waiverofanyfurther recourseto anylocal remediesin thehostState,orwhether
initiallyto claimdamageswithrespectto themeasurebeforethelocal courts.... Thus
underNAFTAitis nottruethatthedenialofjusticeruleand theexhaustionoflocal reme-
dies rule "are interlocking and inseparable."64
Indeed, the Mondevtribunaljustifieditsdeferentialstandardof review,at leastin part,on
thegroundthattheinvestorhad chosen toappeal throughtheMassachusetts courts:"Under
NAFTA,partieshave theoptionto seek local remedies.Iftheydo so and lose on themerits,
it is not the functionof NAFTAtribunalsto act as courtsof appeal."65
The Mondevtribunal'salternative strategyto avoidfunctioning as a courtofappeal was to
adopt a deferential standard fordenial ofjustice claims. It is noteworthy thatMondevsup-
ported thisapproach with a quotation from the Chapter 11 award in Azinianv. Mexico:"The
of
possibility holding a State internationallyliable forjudicial decisionsdoes not,however,
entitlea claimantto seek internationalreviewofthenationalcourtdecisionsas thoughthe
internationaljurisdiction seisedhas plenaryappellatejurisdiction. Thisis nottruegenerally,
and itis not trueforNAFTA."66 In Aziniantheinvestorshad appealed a citycouncildecision
annullingtheirconcessioncontractto theMexicancourts,and lost.The Chapter11 tribunal
suggestedthatMexicancourtdecisionsshouldbe givenresjudicataeffect, thereby foreclosing
the investors'expropriationclaimsunlessthe Mexican decisionsthemselvesconstituteda
denialofjustice.67 The Mondev-Azinian approachofdenyingan investortwobitesat theapple
seemspremisedon thenotionthatiftheinvestor choosestopursueitsclaimsin domesticcourt,
it should have to livewiththe resultabsentan extraordinary miscarriageofjustice.

61
NAFTA, supranote 1,Arts.1121(1) (b), 1121(2) (b).
62SeeFeldmanv.Mexico,ICSIDCase No. 11 Arb.Trib.Dec. 16,2002),42 ILM
ARB(AF)/99/1,para.73 (NAFTA Ch.
625, 639 (2003) ("Article1121(2) (b) and (3) substitutes itselfas a qualifiedand special rule on the relationship
betweendomesticand international judicial proceedings,and a departurefromthe general rule of customary
international lawon theexhaustionoflocal remedies.");WasteManagement,Inc.v.Mexico,Mexico's Preliminary
ObjectionConcerningthePreviousProceedings,ICSIDCase No. ARB(AF)/00/3,para. 30 (NAFTA Ch. 11 Arb.Trib.
June26,2002), 41 ILM 1315,1321 (2002) ("In commonwithalmostall investment thereis no requirement
treaties,
ofexhaustionoflocal remedies.");MetalcladCorp.v.Mexico,ICSIDCase No. ARB(AF) /97/1,para.97 n.4 (NAFTA
Ch. 11 Arb.Trib.Aug. 30, 2000), 40 ILM 36, 49 n.4 (2001) ("Mexico does not insistthatlocal remediesmustbe
exhausted.Mexico'spositioniscorrectin lightofNAFTA Article1121(2) (b) ...."); seealsoWilliamS. Dodge, National
Courts Arbitration:
and International Exhaustion ofRemedies andResJudicata UnderChapterEleven ofNAFTA,23 HASTINGS
INT'L & COMP.L. REV.357, 373-76 (2000) (arguingthatArticle1121 waivesthe local remediesrule).
63
Seesupranotes 24-25 and accompanyingtext.
64Mondev award
(merits), supranote 36,para. 96 (quotingC. EAGLETON,THE RESPONSIBILITY OF STATESIN INTER-
NATIONALLAW113 (1928)).
65
Id., para. 126.
66Id. Ch. 11Arb.Trib.Nov. 1,1999),
(quotingAzinianv. Mexico,ICSIDCase No. ARB(AF)/97/2,para.99 (NAFTA
39 ILM 537, 552 (2000)).
67Azinianv.
Mexico,paras.96-100, 39 ILM at 551-52. The rule in customaryinternationallawis thatthedeci-
sionsof domesticcourtsdo not bind internationaltribunalsas resjudicata. See,e.g.,Amco Asia Corp. v. Republic
ofIndonesia (Nov.20,1984), 1 ICSIDREP.413,460 (1993) ("an international tribunalisnotbound tofollowtheresult
of a nationalcourt"). For furtherdiscussion,see Dodge, supranote 62, at 365-370, 376-83.

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2004] INTERNATIONAL DECISIONS 163

The Mondev-Azinian deferencetodomesticcourtdecisionsisopen tocriticism, however-

whetherexhaustionisrequiredornot.Withoutan exhaustionrequirement,suchdeference
will"encourageresorttoNAFTAtribunalsratherthanresorttotheappellatecourtsand review
processesofthehostState."8Indeed, thisdynamicis likelyto be strongest forthoseinvestors
withtheweakestclaims."Aninvestorthatdoubtsitschancesofsuccessin a domesticappeal
mayneverthelessbe willingto gambleon gettinga sympathetic Chapter11 tribunalwhose
decisionwillbe largelyinsulatedfromreview."69 Butwithan exhaustionrequirement,one
of theprincipaljustifications fordeferencedisappears,forone cannotfaultan investorfor
taking twobites at the apple itwasforcedto takethefirstbite.70
if Moreover,ifan investoris
required to exhaust its remedies in domesticcourtand ifarbitral
tribunals
thendeferto the
decisionsof thosecourts,investorsmaybe denied the "real measure of protection"71 that
Chapter 11 is intended to provide.
At present,theproblemis notgrave.Mondev's"clearlyimproperand discreditable"stan-
dard,72whiledeferential, plainlyallowsmoremeaningful reviewthanthe"outrage"standard
oftheNeercasethattheMondevtribunalrejected.73 Loewen'sexhaustionrequirementapplies
onlytojudicial decisionsand not to othermeasuresalleged to breach Chapter 1.74Given
thedifferent directionsin whichthesetwoawardspoint,however,itis apparentthattherela-
tionshipbetween domesticcourtsand NAFTAChapter11 tribunalsstillneeds to be worked
out. Myownviewis thatinvestorsshouldbe requiredto exhausttheirremediesin domestic
courtsbeforebringingChapter11 claims,but thatNAFTAtribunalsshouldnotbe bound to
followthoseresults.75 These rulesare, ofcourse,theones thatcustomary internationallaw
has developedtomediatebetweennationalcourtsand international tribunals.76
The NAFTA
partiesmay have been unwise to abandon themso hastily.
WILLIAM S. DODGE
University
ofCalifornia, oftheLaw
HastingsCollege

ofinternational
agreements
Headquarters and immunities
organizations-privileges ofinternational
taxationinFranceofretirement
civilservants-income UNESCOofficials
pensionsofformer
Award. 107 REVUEGENRALE DE DROIT INTERNATIONAL
UNESCO-FRANCEARBITRATION. PUBLIC
221 (2003).
Arbitraltribunal,
January14, 2003.

In an effort
toovercomea conflict
thathad resisteda negotiatedsolutionfornearlya decade,
Franceand theUN Educational,Scientificand CulturalOrganization(UNESCO) agreed in

8 Loewen award (merits),supranote 2, para. 162; seealsoAzinianv.Mexico,para. 86, 39 ILM at 550 ("itwould
be unfortunateifpotentialclaimantsunder NAFTAweredissuaded fromseekingreliefunder domesticlaw from
nationalcourts,because such actionsmighthave thesalutaryeffectof resolvingthe disputewithoutresortingto
investor-state arbitrationunder NAFTA").
69
Dodge, supranote 57, at 575.
70Seesupranotes 65-67 and accompanyingtext.
71
Mondev award (merits),supranote 36, paras. 119, 127.
72
Id., para. 127.
73Seesupranote 43 and accompanyingtext.The Loewentribunal'sstandard-"[m]anifestinjusticein thesenseof
a lackofdue processleading toan outcomewhichoffendsa sense ofjudicialpropriety"-seemssubstantively iden-
ticalto Mondev's.Moreover,theLoewentribunalbothquoted and applied Mondev'sstandard.Seesupranotes21-22
and accompanyingtext.
74Seesupranotes 23-26 and accompanyingtext.
75SeeDodge, supranote 57.
76 See,e.g.,Interhandel(Switz.v. U.S.), 1959 ICJREP.5, 27 (Mar. 21) ("The rule thatlocal remediesmustbe
exhaustedbeforeinternationalproceedingsmaybe instituted isa well-established
ruleofcustomary international
law.");AmcoAsiaCorp.v. RepublicofIndonesia (Nov.20,1984), 1 ICSIDREP.413,460 (1993) ("an international tri-
bunal is not bound to followthe resultof a nationalcourt"); seegenerallyDodge, supranote 62, at 360-70.

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