International State Responsibility and Internal Law A Hierarchy of Sorts

ICSID Review, Vol. 37, No. 1-2 (2022), pp.
210–231
doi: https://doi.org/10.1093/icsidreview/siab053
Published Advance Access 25 May 2022 WINTER/SPRING 2022
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20TH ANNIVERSARY OF ARSIWA
International State Responsibility and
Internal Law in Investment Arbitration:
A Hierarchy of Sorts
Hussein Haeri1 , Clàudia Baró Huelmo2 and Giacomo Gasparotti3
I. INTRODUCTION
It is a truism that the relationship between international law and internal law is nor-
matively one of hierarchy, at least as a matter of public international law. That no
State can unilaterally legislate its way out of its international commitments through
developments in, or invocation of, its internal law is central to the coherence, indeed
integrity, of the international legal order. This foundational tenet of international
law is reflected in the Articles on State Responsibility for Internationally Wrongful
Acts (ARSIWA),4 most specifically in Articles 3 and 32 (as well as in Article 27 of
the Vienna Convention to the Law of Treaties (VCLT)).5 While the core proposition
in these articles is correct, the role of internal law in investment treaty arbitration—
which is primarily focused on addressing international obligations in the context of
international investments—is more elaborate and multidimensional than might be
inferred from this. The relationship is one of hierarchy, but it is a qualified hierar-
chy where internal law can assume a greater role than might be predicted in such a
hierarchy. In short, it is a hierarchy of sorts, the nature and dynamic of which are
informed by the multiple contexts in which international obligations and internal law
interact.
This article will analyse the relationship of international obligations and internal
law through the prism of reliance on internal law in investment treaty arbitration.
Section II will analyse the role that internal law can play in the determination of
1
Hussein Haeri is a Partner and Co-Head of International Arbitration at Withers LLP, London, United Kingdom.
Mr Haeri is a Solicitor-Advocate of the Senior Courts of England and Wales, and a Solicitor-Advocate of the of the
Eastern Caribbean Supreme Court, British Virgin Islands.
2
Clàudia Bar’o Huelmo is an Associate in the Litigation and Arbitration Group of Withers LLP, Geneva, Switzer-
land, specialising in public international law and investment treaty arbitration. Ms Bar’o Huelmo is a Spanish qualified
Abogada, registered with the Barcelona Bar Association, Spain, and a Solicitor in England and Wales.
3
Giacomo Gasparotti is an Associate in the Litigation and Arbitration Group of Withers LLP, London, United
Kingdom, specialising in international arbitration and public international law. Mr Gasparotti is an Italian qualified
Avvocato, registered with the Padua Bar Association, Italy, and a Registered Foreign Lawyer in England and Wales.
4
International Law Commission, ‘Draft Articles on the Responsibility of States for Internationally Wrongful Acts
with Commentaries’, UN GAOR 56th Session Supp 10, ch 4, UN Doc A/56/10 (2001) (ARSIWA).
5
Vienna Convention on the Law of Treaties (opened for signature 23 May 1969, entered into force 27 January 1980)
1155 UNTS 331 (VCLT).
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State Responsibility and Internal Law in Investment Arbitration 211
State responsibility. This includes consideration of the following: first, the relevance
of internal law in determining breaches of international law standards; second, when
internal law is the law applicable to investor-State dispute settlement (ISDS) pro-
ceedings; and, third, in relation to contract claims. Section III considers the role of
internal law in attributing State responsibility, in particular, with regard to Articles
4 and 5 of ARSIWA. Section IV observes the role that internal law can play in the
context of the jurisdiction of claims. Section V offers some conclusions.
II. INTERNAL LAW AND STATE RESPONSIBILITY IN

ISDS
A. Basic Prerogative: International Law Overrides Internal Law
A core tenet of the relationship between international law and internal law is reflected
in Article 3 ARSIWA, which provides that:
[t]he characterization of an act of a State as internationally wrongful is governed by inter-

national law. Such characterization is not affected by the characterization of the same act as
lawful by internal law.
Article 3 ARSIWA has been described as ‘axiomatic’,6 ‘one of the most solidly-
anchored rules of customary international law’7 and ‘a cornerstone rule of interna-
tional law’.8
Article 3 embodies the principle of the ‘autonomy of international law’ (from
internal law), for the purposes of characterising an act as internationally wrong-
ful.9 This is a principle that Roberto Ago called ‘a general principle of international
responsibility’.10 It has been recognised in international decisions since the Alabama
arbitration11 as well as in early projects of codification.12
6
Ipek Investment Limited v Republic of Turkey, ICSID Case No ARB/18/18, Procedural Order No 5 Claimant Request
for Provisional Measures (19 September 2019) para 93; similarly, cf James Crawford, State Responsibility: The General
Part (CUP 2013) 45, according to Article 3 is part of a set of principles, contained in ARSIWA Part I, that are ‘well
established—even axiomatic’.
7
Pierre-Marie Dupuy, ‘Relations Between the International Law of Responsibility and Responsibility in Municipal
Law’ in James Crawford, Alain Pellet and Simon Olleson (eds), The Law of International Responsibility (OUP 2010) 173.
8
Vestey Group Ltd v Bolivarian Republic of Venezuela, ICSID Case No ARB/06/4, Award (15 April 2016) n 234.
9
The expression is used in ARSIWA (n 4) art 12, commentary para 2: ‘[i]n introducing the notion of a breach of
an international obligation, it is necessary again to emphasize the autonomy of international law in accordance with the
principle stated in article 3’.
10
‘Third Report on State responsibility, by Mr Roberto Ago, Special Rapporteur, the internationally wrongful act of
the State, source of international responsibility’ UN Doc A/CN4/246 and Add 1–3 reproduced in ILC YB 1971, vol II,
199, para 86.
11
‘Alabama’ Arbitration (1872) in Georg Friedrich de Martens, Nouveau Recueil Général de Traités et Autres Actes Relatifs
aux Rapports de Droit International (Dietrich 1875) 770–01 (cf, on this point, Crawford (n 6) 45). For an overview of the
early case law of the Permanent Court of International Justice (PCIJ) and arbitral tribunals, cf ARSIWA Commentary
to Article 3, paras 2–4. Following the adoption of ARSIWA, Article 3 has been recognised by the International Court of
Justice (ICJ) as being part of customary international law in Application of the Convention on the Prevention and Punishment
of the Crime of Genocide (Croatia v Serbia) Preliminary Objections, Judgment [2008] ICJ Rep 412, para 128. Similarly,
in the jurisprudence of investment treaty tribunals, cf Compañía de Aguas del Aconquija SA and Vivendi Universal SA v
Argentine Republic, ICSID Case No ARB/97/3, Decision on Annulment (2 July 2002) para 96; European Media Ventures
SA v Czech Republic, UNCITRAL, Partial Award on Liability (8 July 2009) para 68, referring to Article 3 ARSIWA as
‘a well-established rule of international law’; Perenco Ecuador Limited v Republic of Ecuador, ICSID Case No ARB/08/6,
Decision on the Remaining Issues of Jurisdiction and on Liability (12 September 2014) para 534, according to which
Article 3 is a ‘well-established principle recognised in international judicial and arbitral case law’; Vestey v Venezuela (n 8)
n 234.
12
cf Article 2 of the 1929 ‘Harvard Draft’ in Edwin M. Borchard et al, ‘The Law of Responsibility of States for Dam-
age Done in their Territory to the Person or Property of Foreigners’ (1929) 23 AJIL Spec Supp 131, 133; Article 5 of the
212 ICSID Review VOL. 37 1-2
The ARSIWA Commentary explains that there are two ‘elements’ in Article 3:
first, that ‘an act of a State cannot be characterized as internationally wrongful unless
it constitutes a breach of an international obligation, even if it violates a provision
of the State’s own law’; and, second, ‘most importantly’ that ‘a State cannot, by
pleading that its conduct conforms to the provisions of its internal law, escape the
characterization of that conduct as wrongful by international law’.13 In other words,
what is unlawful in internal law is not necessarily unlawful in international law and
what is lawful in internal law is not necessarily lawful in international law.14 It is
important to bear in mind the two ‘elements’ of Article 3 when assessing it in the
context of investment disputes.
Closely related to Article 3 ARSIWA are Article 27 VCLT15 and Article 32
ARSIWA.16 Article 27 VCLT specifically applies to treaty obligations.17 Article 32
ARSIWA ‘transposes’ the principle that a State cannot rely on its internal law to
avoid its international obligations to the ‘secondary’ obligations that arise from a
breach of a ‘primary’ international obligation.18 Those obligations are set out in Part
II ARSIWA and include, most notably, cessation and non-repetition19 and reparation
(in its various forms).20
Autonomy of international law does not mean internal law is irrelevant to ques-
tions of State responsibility.21 For example, internal law can be relevant ‘as fact’ to
determine whether there has been a breach of an international obligation, and can be
incorporated to determine questions arising in an international dispute.22
draft adopted at the 1930 Hague Conference in Green H Hackworth, ‘Responsibility of States for Damages caused in
their Territory to the Person or Property of Foreigners: The Hague Conference for the Codification of International Law’
(1930) 24 AJIL 500, 510; Article 2(1) and 2(2) of the 1961 ‘Harvard Draft’ in Louis B Sohn and RR Baxter, ‘Responsi-
bility of States for Injuries to the Economic Interests of Aliens: II Draft Convention on the International Responsibility
of States for Injuries to Aliens’ (1961) 55 AJIL 548, 548. In relation to the early work of the ILC on State Responsibility,
cf, for example, Article 1(2) and 1(3) of the draft Articles prepared by Special Rapporteur García-Amador in ‘Second
report of the Special Rapporteur, Mr FV García-Amador’, UN Doc A/CN4/106, reproduced in ILC YB 1957, vol II,
104–105.
13
ARSIWA (n 4) art 3, commentary para 1.
14
This proposition has also been formulated with regard to treaty obligations. A very clear formulation is contained
in Elettronica Sicula SpA (ELSI) (United States of America v Italy) Judgment [1989] ICJ Rep 15 (a decision that pre-dates
ARSIWA), where, at para 73, ICJ held that ‘[c]ompliance with municipal law and compliance with the provisions of a
treaty are different questions. What is a breach of treaty may be lawful in the municipal law and what is unlawful in the
municipal law may be wholly innocent of violation of a treaty provision’.
15
VCLT (n 5) Article 27. (‘Internal law and observance of treaties’): ‘[a] party may not invoke the provisions of its
internal law as justification for its failure to perform a treaty. This rule is without prejudice to article 46’.
16
ARSIWA, Article 32 (‘Irrelevance of internal law’): ‘[t]he responsible State may not rely on the provisions of its
internal law as justification for failure to comply with its obligations under this part’.
17
Conversely, ARSIWA, including Article 3, are ‘of general application’; cf Article 12 ARSIWA and ARSIWA Com-
mentary to Article 12, para 3, which specifies that ARSIWA ‘apply to all international obligations of States, whatever
their origin may be. International obligations may be established by a customary rule of international law, by a treaty or
by a general principle applicable within the international legal order. States may assume international obligations by a
unilateral act’.
18
Dupuy (n 7) 176–77.
19
ARSIWA (n 4) art 30.
20
ibid Articles 31 and 34–39.
21
Crawford (n 6) 101.
22
ARSIWA (n 4) art 3, commentary para 7; James Crawford, Brownlie’s Principles of Public International Law (9th edn,
OUP 2019) 51. Particularly illustrative, in this sense, is the Serbian Loans case (Payment of Various Serbian Loans Issued in
France (France v Kingdom of the Serbs, Croats, and Slovenes) (Judgment) PCIJ Rep Series A No 20), where the PCIJ held
that ‘[f]rom a general point of view, it must be admitted that the true function of the Court is to decide disputes between
States or Members of the League of Nations on the basis of international law: Article 38 of the Statute [of the PCIJ]
contains a clear indication to this effect. But it would be scarcely accurate to say that only questions of international
law may form the subject of a decision of the Court’ (paras 40–41). In Ahmadou Sadio Diallo (Republic of Guinea v
Democratic Republic of the Congo), Preliminary Objections, (Judgment) [2007] ICJ Rep 582, para 61, the ICJ held that
‘[i]n determining whether a company possesses independent and distinct legal personality, international law looks to the
rules of the relevant domestic law’. In Barcelona Traction, Light and Power Company Limited (Belgium v Spain) (Judgment)
[1970] ICJ Rep 3, the ICJ looked at internal law to determine questions of standing of the State of nationality of a
This is apposite to international investment arbitration, where international and

internal law are frequently intertwined. Eminent commentators have highlighted the
‘hybrid’ nature of investment arbitration23 and the ‘sui generis’ character of arbi-
tration under the International Convention for Settlement of Investment Disputes
(ICSID).24 This manifests in the multifaceted interactions between international and
internal law, with some authors questioning the traditional conception of internal law
as ‘fact’ in the context of investment arbitration.25
This does not mean that the principle of ‘autonomy of international law’ embedded
in Article 3 ARSIWA has no role to play; quite the opposite. Indeed, investment
treaty arbitration largely concerns the international responsibility of States relating to
treaty and customary rules and, remains clearly within the purview of the principles
codified in Part I ARSIWA.26 However, to appreciate how internal law interacts with
State responsibility in investment arbitration, it is important also to consider the law
applicable to the proceedings and the relevance of internal law to treaty cases that
invoke treaty provisions such as ‘umbrella clauses’, as well as investment disputes
(such as at ICSID) arising from contract claims. A few (although, by no means,
exhaustive) observations on these aspects are set out in subsections below.
Twenty-one years after its formulation, Article 3 ARSIWA has been cited in about
30 known investment tribunals’ decisions. In many cases, Article 3 has been invoked
in connection with the determination of the host State’s responsibility for breaches
of common investment treaty standards, including ‘fair and equitable treatment’,27
company’s shareholders to bring diplomatic protection claims, considering that ‘whenever legal issues arise concerning
the rights of States with regard to the treatment of companies and shareholders, as to which rights international law has
not established its own rules, [international law] has to refer to the relevant rules of municipal law’ (para 38).
23
Zachary Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 BYIL 151; Crawford (n
6) 102.
24
Convention on the Settlement of Investment Disputes between States and Nationals of Other States (opened for
signature 18 March 1965, entered into force 14 October 1966) (ICSID Convention). Zachary Douglas, ‘Other Specific
Regimes of Responsibility: Investment Treaty Arbitration and ICSID’ in James Crawford and others (eds), The Law of
International Responsibility (OUP 2010) 818.
25
According to Douglas (n 22) 832: ‘[t]he investor/State regime […] summons the metaphorical image of a kalei-
doscope of applicable laws, unlike the State/ State regime where public international law is destined to play an exclusive
role, and questions of municipal law are treated as questions of fact’ (footnote omitted). Professor Douglas QC elaborates
further on what he calls ‘the fallacy of municipal laws as facts before an investment treaty tribunal’ in Zachary Douglas,
The International Law of Investment Claims (CUP 2010) paras 115–20. According to Jorge E Viñuales, ‘Sources of Inter-
national Investment Law: Conceptual Foundations of Unruly Practice’ in Jean d’Aspremont and Samantha Besson (eds),
The Oxford Handbook of the Sources of International Law (OUP 2017) 1074, there is a prevailing trend towards considering
domestic laws as applicable ‘law’ in investment disputes. In James Crawford, ‘Treaty and Contract in Investment Arbitra-
tion’ (2008) 24 Arbitration International 351–53, it is explained that ‘[f]aced with article 42 of the ICSID Convention or
some equivalent provision in a BIT, it cannot be argued that the law of the host state is a mere matter of fact’. In the case
law, cf, for example, Fouad Alghanim & Sons Co for General Trading & Contracting WLL and Fouad Mohammed Thunyan
Alghanim v Hashemite Kingdom of Jordan, ICSID Case No ARB/13/38, Award (14 December 2017) paras 347–49; and
Cairn Energy PLC and Cairn UK Holdings Limited v The Republic of India, PCA Case No 2016–7, Award (21 December
2020) para 649.
26
James Crawford, ‘Investment Arbitration and the ILC Articles on State Responsibility’ (2010) 25 ICSID Rev—FILJ
127, 129.
27
cf ECE Projektmanagement International GmbH and Kommanditgesellschaft PANTA Achtundsechzigste
Grundstücksgesellschaft GmbH & Co v Czech Republic, PCA Case No 2010–5, Award (19 September 2013) para
4.749; BayWa re Renewable Energy GmbH and BayWa re Asset Holding GmbH v Kingdom of Spain, ICSID Case No
ARB/15/16, Decision on Jurisdiction, Liability and Directions on Quantum (2 December 2019) n 779; Luigiterzo Bosca
v Republic of Lithuania, PCA Case No 2011–04, Award (17 May 2013) para 199; The Rompetrol Group NV v Romania,
ICSID Case No ARB/06/3, Award (6 May 2013) n 299, citing Article 3 ARSIWA in relation to the ‘fair and equitable
treatment’ and’non-impairment’ standards; Cairn v India (n 25) n 1314 (citing ARSIWA Commentary to Article 3, para
1).
the prohibition against ‘arbitrary impairment’28 and the prohibition against unlaw-
ful expropriation.29 Article 3 has also been invoked in cases involving the distinction
between contract and treaty claims,30 and ‘umbrella clauses’.31 Further, investment
tribunals have referred to Article 3 in the context of multitudinous other issues
including discussions concerning preliminary questions;32 questions arising out of
parallel domestic and international proceedings;33 on domestic remedies and treaty
breaches;34 the effects of domestic court judgments on the international plane;35
questions of applicable law36 and questions of attribution.37 It has moreover been
observed that various tribunals have cited Article 3 ‘almost as part of a throat-clearing
exercise’,38 where the application of the underlying principle was neither decisive, nor
contested.39
Finally, excluding cases in which tribunals have made reference en bloc to articles
in Part II ARSIWA,40 Article 32 ARSIWA has featured less regularly in investment
28
cf Rompetrol v Romania (n 27) para 174; Alghanim v Jordan (n 25) paras 344–45.
29
cf Técnicas Medioambientales Tecmed SA v United Mexican States, ICSID Case No ARB(AF)/00/2, Award (29 May
2003) para 120, citing James Crawford, The International Law Commission’s Articles on State Responsibility (CUP 2002) 84
(‘[a]n Act of State must be characterized as internationally wrongful if it constitutes a breach of an international obligation,
even if the act does not contravene the State’s internal law—even if under that law, the State was actually bound to act that
way’); Vestey v Venezuela (n 8) fn 234; Vigotop Limited v Hungary, ICSID Case No ARB/11/22, Award (1 October 2014)
paras 325–27 (where the Tribunal cited with approval the opinion of the Claimant’s legal expert Professor Schrijver,
invoking inter alia Article 3 ARSIWA); European Media Ventures v Czech Republic (n 11) para 68; Saipem SpA v People’s
Republic of Bangladesh, ICSID Case No ARB/05/07, Award (30 June 2009) para 165.
30
cf Vivendi v Argentina (n 11) para 95; Crystallex International Corporation v Bolivarian Republic of Venezuela, ICSID
Case No ARB(AF)/11/2, Award (4 April 2016) para 474 and SGS Société Générale de Surveillance SA v Islamic Republic
of Pakistan, ICSID Case No ARB/01/13, Decision on Objections to Jurisdiction (6 August 2003) para 147 (both citing
Vivendi v Argentina (n 11) para 95).
31
cf SunReserve Luxco Holdings SÀRL, SunReserve Luxco Holdings II SÀRL and SunReserve Luxco Holdings III SÀRL
v Italian Republic, SCC Case No V2016/32, Final Award (25 March 2020) para 982; Noble Ventures Inc v Romania,
ICSID Case No ARB/01/11, Award (12 October 2005) para 53; SGS Société Générale de Surveillance SA v Republic of the
Philippines, ICSID Case No ARB/02/6, Decision on Objections to Jurisdiction (29 January 2004) para 122 (although, in
this case, the Tribunal cited the ARSIWA Commentary to Article 3, para 7 on the possibility that provisions of internal
law may be incorporated in some form into an international standard, not directly Article 3).
32
cf Pac Rim Cayman LLC v Republic of El Salvador, ICSID Case No ARB/09/12, Award (14 October 2016) fn 96;
Convial Callao SA and CCI—Compañía de Concesiones de Infraestructura SA v Republic of Peru, ICSID Case No ARB/10/2,
Final Award (21 May 2013) fn 427 (in relation to the question of legality of the underlying investment, which the Tribunal
characterised as a jurisdictional question); Iberdrola Energia SA v Republic of Guatemala, ICSID Case No ARB/09/5, Award
(17 August 2012) para 366 and fn 354 (in the context of an objection to the Tribunal’s jurisdiction ratione materiae);
Continental Casualty Company v Argentine Republic, ICSID Case No ARB/03/9, Decision on Jurisdiction (22 February
2006) fn 21.
33
Ipek v Turkey (n 6) para 93.
34
Helnan International Hotels A/S v Arab Republic of Egypt, ICSID Case No ARB/05/19, Decision of the ad hoc
Committee (14 June 2010) para 51.
35
cf Alghanim v Jordan (n 25) paras 344–47 (however, in this case Article 3 was also relevant to the assessment of
the responsibility of the State); cf also, for example, Liman Caspian Oil BV and NCL Dutch Investment BV v Republic of
Kazakhstan, ICSID Case No ARB/07/14, Excerpts of Award (22 June 2010) para 326, where the Tribunal, although
it did not cite Article 3 ARSIWA, cited Article 27 of the VCLT in support of the finding that: ‘a court decision can be
incorrect in terms of domestic law but still be irreproachable from the perspective of international law. And vice versa, a
court decision which is lawful under domestic law can still be considered to violate international law’.
36
cf Perenco v Ecuador (n 11) para 534; Venezuela Holdings BV and others (formerly Mobil Corporation and others) v
Bolivarian Republic of Venezuela, ICSID Case No ARB/07/27, Decision on Annulment (9 March 2017) fn 182; EDF
International SA, SAUR International SA and León Participaciones Argentinas SA v Argentine Republic, ICSID Case No
ARB/03/23, Award (11 June 2012) para 906; El Paso Energy International Company v Argentine Republic, ICSID Case No
ARB/03/15, Award (31 October 2011) para 130; Azurix Corp v Argentine Republic, ICSID Case No ARB/01/12, Decision
on the Application for Annulment of the Argentine Republic (1 September 2009) para 149 (although, in this case, the
Tribunal quoted the ARSIWA Commentary to Article 3, para 7, not directly Article 3 ARSIWA).
37
cf Flemingo DutyFree Shop Private Limited v Republic of Poland, Award (12 August 2016) para 433 (where, however,
the reference to Article 3 ARSIWA is only tangential).
38
The expression is ‘borrowed’ from Crawford (n 26) 131.
39
Examples are Flemingo v Poland (n 37) para 433; Perenco v Ecuador (n 11) para 534.
40
Víctor Pey Casado and President Allende Foundation v Republic of Chile I, ICSID Case No ARB/98/2, Decision on
Annulment (8 January 2020) para 678; OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v Kingdom of Spain,
ICSID Case No ARB/15/36, Award (6 September 2019) para 609; Veteran Petroleum Limited (Cyprus) v Russia, PCA
Case No 2005–05/AA228, Final Award (18 July 2014), Hulley Enterprises Limited (Cyprus) v Russia, PCA Case No
arbitration jurisprudence, but has not been without prominent and consequential
application.41
B. Breaches of Investment Treaty Standards—When Is Internal Law Relevant?
This section discusses cases that are particularly illustrative both of how Article 3
operates in the assessment of host State responsibility for breach of investment treaty
standards and some of the complexities to which it can give rise.
In a first group of cases, Article 3 has come into play in the presence of host States’
pleas based on internal laws. Cases like this typically engage the second element
of Article 3 (ie the State cannot rely on its internal law to avoid its international
obligations).
For instance, in Tecmed v Mexico, the Claimant alleged that INE’s decision not
to renew the Claimant’s permit to operate the Las Víboras landfill amounted to an
expropriation of the Claimant’s investment.42 In response, the Respondent submitted
inter alia that INE had the discretionary powers required to grant and deny permits,
and that such issues, except in special cases, were exclusively governed by domestic
and not international law.43 The Tribunal noted that the fact that the actions of the
Respondent were legitimate, lawful, or complied with the law from the standpoint of
the Respondent’s domestic laws did not mean that they were in compliance with the
applicable treaty or with international law.44
More elaborately, in Vestey v Venezuela, by way of defence to the Claimant’s expro-
priation claim, the Respondent submitted, inter alia, that Venezuela’s land law, which
was one of the contested measures, had to be taken into account in determining
whether the Claimant held any rights capable of being expropriated.45 The Tribunal
rejected this argument considering that the Claimant’s rights had to be assessed in
light of the law in force before the contested measures.46 In the Tribunal’s view, if
one were to set the date of assessment of the investor’s ownership any later than the
date of the first contested measure, a State could adopt a law making it impossible
for a private owner to prove ownership and thereby circumvent the treaty prohibition
on unlawful expropriation.47 This would run contrary to the principle of Article 3
ARSIWA.48
A second line of cases has seen investors pleading that host States violated their own
laws in support of claims for breaches of investment treaties. This familiar scenario
engages the first element of Article 3 ARSIWA (what is unlawful in internal law is
not necessarily unlawful as a matter of international law).
2005–03/AA226, Final Award (18 July 2014) and Yukos Universal Limited (Isle of Man) v Russia, PCA Case No 2005–
04/AA227, Final Award (18 July 2014) fns 110 and 2105 (of each of the three ‘companion’ Awards) (also citing en bloc
Articles 1–11 ARSIWA).
41
Bernhard von Pezold and others v Republic of Zimbabwe, ICSID Case No ARB/10/15, Award (28 July 2015) paras
690 and 725.
42
TecMed v Mexico (n 29) para 95.
43
ibid para 97.
44
ibid para 120.
45
Vestey v Venezuela (n 8) paras 251–52.
46
ibid paras 253–54.
47
ibid para 254.
48
ibid n 234; cf also 9REN Holding Sarl v Kingdom of Spain, ICSID Case No ARB/15/15, Award (31 May 2019) paras
242–44, where Spain relied on the jurisprudence of its Supreme Court in an effort to defeat the Claimant’s legitimate
expectation claim under the Energy Charter Treaty (Energy Charter Treaty (opened for signature 17 December 1994,
entered into force 16 April 1998) 2080 UNTS 100). The Tribunal held that the matter fell to be determined under
international law and cited Article 27 VCLT (although not Article 3 ARSIWA).
For example, in Bosca v Lithuania, the Claimant pleaded a breach of the ‘just and
fair treatment’ standard in the applicable treaty by claiming inter alia that the Respon-
dent had violated its domestic law and policy in its actions towards the Claimant.49
The Tribunal warned that a breach of the privatisation process under Lithuania’s
internal law did not ‘without further analysis’ amount to a breach of the applicable
treaty.50 However, ‘upon review of the evidence and submissions of the Parties’, it
ultimately found that the Respondent had breached the treaty.51
In Anglo American v Venezuela, the Claimant submitted that the Respondent had
expropriated the Claimant’s investment by seizing ‘non-reversionary’ assets.52 The
Tribunal acknowledged that the question of reversion was decisive53 and determined
it by looking at the relevant provisions of Venezuelan law as well as at the Claimant’s
mining titles.54
A question that frequently arises in this kind of case concerns the degree of rele-
vance of a host State’s violation of its internal law. Some tribunals have emphasised
that they do not act as ‘administrative review bodies’55 or ‘appellate courts’56 on acts
and decisions of the host State’s administrative agencies and judiciary in light of the
host State’s internal laws. Others have found that while a single, isolated breach of
internal law by the host State may not be determinative of whether the State has
or has not breached an international standard, the broader context in which such a
violation has taken place can be instructive.57
In von Pezold v Zimbabwe the Claimants asked for restitution of properties as relief
for alleged breaches of a treaty and other rules of international law.58 The Respondent
objected to this request, alleging inter alia that restitution in kind was not possible
for reasons relating to its internal law.59 The Tribunal addressed several legal and
factual points relating to the availability of restitution and ultimately found that this
49
Bosca v Lithuania (n 27) para 184.
50
ibid para 199.
51
ibid para 201.
52
Anglo American PLC v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/14/1, Final Award (18 January
2019) para 331.
53
ibid para 333.
54
ibid paras 335 ff.
55
cf Generation Ukraine Inc v Ukraine, ICSID Case No ARB/00/9, Award (16 September 2003) para 20.33.
56
cf Hussein Haeri and Ruzin Dagli, ‘Fairness and the Final Word: State Responsibility and Court Action in Invest-
ment Arbitration’ (2016) 2 The Turkish Commercial Law Review 4, 9–11. In the case law, cf Robert Azinian, Kenneth
Davitian, & Ellen Baca v The United Mexican States, ICSID Case No ARB(AF)/97/2, Award (1 November 1999) para
99; Mondev International Ltd v United States of America, ICSID Case No ARB(AF)/99/2, Final Award (11 October 2002)
para 126, citing Azinian v Mexico; Loewen Group, Inc and Raymond L Loewen v United States of America, ICSID Case No
ARB(AF)/98/3, Award (26 June 2003) para 48; ADF Group Inc v United States of America, ICSID Case No ARB(AF)/00/1,
Award (9 January 2003) para 190; Mobil Investments Canada Inc and others v Government of Canada, ICSID Case No
ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012) para 55 Middle East Cement Shipping
and Handling Co SA v Arab Republic of Egypt, ICSID Case No ARB/99/6, Award (12 April 2002) para 159; Generation
Ukraine v Ukraine (n 55) para 20.33; Jan de Nul NV and Dredging International NV v Arab Republic of Egypt, ICSID Case
No ARB/04/13, Award (6 November 2008) para 82; Alghanim v Jordan (n 25) para 362; Gavrilovic and Gavrilovic doo v
Republic of Croatia, ICSID Case No ARB/12/39, Award (26 July 2018) para 878.
57
cf ELSI (n 14) para 124: ‘the fact that an act of a public authority may have been unlawful in municipal law does
not necessarily mean that that act was unlawful in international law, as a breach of treaty or otherwise. A finding of the
local courts that an act was unlawful may well be relevant to an argument that it was also arbitrary; but by itself, and
without more, unlawfulness cannot be said to amount to arbitrariness’; Helnan v Egypt (n 34) para 50: ‘[a] single aberrant
decision of a low-level official is unlikely to breach the standard unless the investor can demonstrate that it was part of a
pattern of state conduct applicable to the case or that the investor took steps within the administration to achieve redress
and was rebuffed in a way which compounded, rather than cured, the unfair treatment’; Rompetrol v Romania (n 27) para
177, noting that the additional element required for there to be a treaty breach might be ‘a matter of the specific facts of
the case and of the particular conduct impugned’; Bosca v Lithuania (n 27) paras 201–35.
58
Pezold v Zimbabwe (n 41) paras 670–77.
59
ibid para 680.
was available.60 In so doing, it recalled that, by virtue of Article 32 ARSIWA, alleged

legal difficulties relating to the host State’s internal legal framework were not a valid
defence against a claim of restitution.61
In sum, investment tribunals have generally been cognisant of the distinction,
underpinned by Articles 3 and 32 ARSIWA, between the international and national
planes. That said, where appropriate, they have considered internal law as part of the
relevant factual matrix to determine whether there has been a breach of international
law.
C. Internal Law and the Substantive Law Applicable to the Proceedings

The relationship between State responsibility and internal law can assume a more
complex dynamic when the substantive law applicable in investment treaty arbitration
proceedings includes internal/municipal law.
In investment treaty arbitration, the substantive law applicable to the proceedings
is first and foremost the law chosen by the parties (albeit in treaty cases by the host
State of the investment and the non-disputing home State of the investor, rather
than by both parties to the dispute, since the investor will typically have no role in
its determination).62 Such a framework for the choice of law is recognised under
the main arbitration rules.63 In investment treaty arbitration, therefore, the parties’
choice of law is found primarily in the provisions of the applicable investment treaty,
which the investor accepts when taking up the host State’s offer to arbitrate64 —to
the extent the treaty says anything in respect of the substantive law applicable to
investor-State proceedings arising thereunder. The specificity of treaty provisions on
applicable law can vary from the identification of one legal system or body of rules to
multiple legal systems or bodies of rules.65
In the absence of provisions on applicable law, the default rules contained in the
applicable arbitration rules can come into operation. Most notable in this respect is
Article 42(1) of the ICSID Convention, according to which:
[t]he Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by
the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting
State party to the dispute (including its rules on the conflict of laws) and such rules of international
law as may be applicable. [emphasis added]
60
61
ibid paras 690 and 725.
62
On the role of the non-disputing State party in investment treaty arbitration more broadly, cf Loretta Malintoppi
and Hussein Haeri, ‘The Non-Disputing State-Party in Investment Arbitration, an Interested Player or the Third Man
Out?’ in David D Caron and others (eds), Practising Virtue: Inside International Arbitration (OUP 2015).
63
Yas Banifatemi, ‘The Law Applicable in Investment Treaty Arbitration’ in Katia Yannaca-Small (ed), Arbitration
under International Investment Agreements: A Guide to the Key Issues (OUP 2010) 193.
64
Emmanuel Gaillard and Yas Banifatemi, ‘The Meaning of “and” in Article 42(1), Second Sentence, of the Wash-
ington Convention: The Role of International Law in the ICSID Choice of Law Process’ (2003) 18 ICSID Rev—FILJ
375, 376–77.
65
Two examples well illustrate this point: Article 26(6) of the Energy Charter Treaty (Energy Charter Treaty (n 46),
art 26(6)) provides that ‘[a] tribunal established under paragraph (4) shall decide the issues in dispute in accordance
with this Treaty and applicable rules and principles of international law’. Such a provision can be contrasted with Article
9(5) of the Netherlands–Venezuela BIT 1991 (Agreement on encouragement and reciprocal protection of investments
between the Kingdom of the Netherlands and the Republic of Venezuela (signed 22 October 1991, entered into force 1
November 1993, terminated 1 November 2008)): ‘[t]he arbitral award shall be based on: i. the law of the Contracting
Party concerned; ii. the provisions of this Agreement and other relevant Agreements between the Contracting Parties; iii.
the provisions of special agreements relating to the investments; iv. the general principles of international law; and v. such
rules of law as may be agreed by the parties to the dispute’. For an overview of the most common types of choice-of-law
treaty provisions in investment arbitration, cf Gaillard and Banifatemi (n 64) 377–78.
Neither Article 42(1), nor similarly worded ‘mixed’ treaty provisions on applica-
ble law stipulate when the law of the host State (or other internal laws designated
by the host State’s conflict of laws rules) or international law are to be applied.
In practice, this has not infrequently given rise to a complex interplay on the
applicable law in ICSID and other investment arbitration proceedings and, par-
ticularly, on the respective roles of internal and international law. Article 42(1)
of the ICSID Convention is often at the centre of such discussions, with differ-
ent theories having been formulated on how it should be interpreted and applied.66
What seems beyond doubt is that, within the framework of Article 42(1), interna-
tional law and internal law ‘both have a role to play’ (although what specific role is
debated).67
Against this background, the relationship between Article 3 ARSIWA and the law
applicable to the proceedings under Article 42(1) raises issues of both theoretical
and practical importance. It is arguable that as Article 3 ARSIWA forms part of
the international legal order68 its relevance to a particular context presupposes that
international law applies in some form to the question of responsibility of the State.69
Others emphasise a more overarching role postulating that international law takes
priority over internal law.70
66
In her monography on the law applicable in investment treaty arbitration, Monique Sasson identifies three ‘main-
stream’ theories on the relationship between internal and international law under Article 42 of the ICSID Convention
(cf Monique Sasson, Substantive Law in Investment Treaty Arbitration, the Unsettled Relationship between International Law
and Municipal Law (2nd edn, Wolters Kluwer 2017) 45–74): (i) the theory attributable to some early ICSID tribunals
(Klöckner/Amco) of the complementary and corrective function of international law, according to which an ICSID tri-
bunal should apply municipal law unless this presents a lacuna or is inconsistent with international law; (ii) the theory
attributable to Professor Reisman, according to which an ICSID tribunal should apply international law: (a) where the
parties so agree; (b) where the law of the host State calls for the application of international law, including customary
international law; (c) where the subject matter or issue is directly regulated by international law, such as a treaty between
the state parties to the dispute; and (d) where the law of the host State violates a fundamental principle of international law,
including a peremptory international human rights norm; and (iii) the theory attributable to Professor Gaillard and Yas
Banifatemi according to which an investment treaty tribunal’s freedom to adopt the rules of law that the tribunal deems
applicable, whether national or international. Sasson advances a forth theory deriving from Aron Broches, according to
which a tribunal should apply international law only when (a) national law provides for the application of international
law, (b) where the subject matter is regulated directly by international law, and (c) when national law violates international
law. Of relevance is also the theory of Professor Douglas QC, according to which Article 42(1) of the ICSID Convention
leaves it to investment tribunals the task of identifying a system of conflict of laws rules to determine which law to apply
to which issue (upon characterising the implicated issue) (cf Douglas (n 25) paras 88–91). Such conflict of laws rules,
according to this view, are to be found outside Article 42(1), in general principles of private international law and in
the structure of investment treaties (ibid para 87). In this context, according to the author, a certain importance is to be
attached to the cause of action of the claim (investment treaty, investment agreement or authorisation), which identifies
the law applicable to issues of liability (ibid para 271). However, that law is not to be regarded as the law applicable on
an exclusive basis to all issues implicated in the proceedings, as the author advocates for a ‘multi-source’ approach to the
choice of law under Article 42(1) (ibid para 259).
67
CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No ARB/01/8, Award (12 May 2005)
para 116.
68
It is amply recognised that Article 3 reflects customary international law (cf n 11).
69
Professor Douglas QC notes that the approach in ICSID awards appears to be that the connecting factor which
determines the applicability of the rules of State responsibility in investment arbitration is the application of international
law as the substantive law governing the determination of a particular claim (Douglas (n 24) 818). According to Francis A
Mann, ‘State Contracts and State Responsibility’ (1960) 54 AJIL 572, 582, the principle that no State can rely on its own
legislation to limit the scope of its international obligations ‘contemplates obligations governed by public international
law and has no bearing upon the scope of obligations which are subject to a system of municipal law such as the law of
the debtor state’.
70
cf Professor Robert Y Jennings, ‘State Contracts in International Law’ (1961) 37 Brit Y B Int’l L 156, 161–62,
noting inter alia that ‘[t]he boundaries of public international law cannot be subjected to definition by principles of
municipal law or of private international law without denying the validity of one of the axioms of international law’. cf
also Bankswitch Ghana Ltd v The Republic of Ghana acting as the Government of Ghana, PCA Case No 2011-10,
Award Save as to Costs (11 April 2014) para 11.67, according to which ‘[...] this Tribunal accepts the propositions that
(i) international law can be invoked in matters involving a State and a non-State foreign party and (ii) a governing law
clause providing for the application of national law does not preclude an international tribunal from resorting to relevant
customary international law principles, if applicable’.
Be that as it may, where the host State is alleged to have breached a treaty or
customary international law standard, the dispute remains in the domain of inter-
national law and questions of liability thus remain, in principle, subject to Article 3
ARSIWA. Even so, internal law may still be relevant to determine some preliminary
questions (such as questions relating to the existence and validity of rights comprising
the investor’s investment).71
For example, in Alghanim v Jordan, the Claimant took issue with the Azinian dic-
tum according to which the conduct of a governmental authority acting in a manner
validated by its courts does not attract international responsibility ‘unless the courts
themselves are disavowed at the international level’.72 In the Claimant’s view, the
Azinian dictum ran counter to the rule that internal law is to be treated as fact, not as
law, in the international sphere as well as pursuant to Article 3 ARSIWA.73 The Tri-
bunal acknowledged the relevance of the principles set out in Article 3 ARSIWA.74
Yet, it observed that under Article 42(1) of the ICSID Convention, international law
was not the only applicable law.75 The Tribunal also pointed out that it had to char-
acterise the issues before it and decide which were governed by international law and
which by national law.76
Internal law may play a bigger role, which includes issues of liability, in the con-
text of contract/domestic claims. Illustrative of this is WalAm v Kenya, an ICSID
contract case concerning claims arising in respect of a licence (which contained no
choice-of-law provisions).77 The Tribunal considered that the applicable law under
Article 42(1), second part, of the ICSID Convention was Kenyan law.78 It went
on to note that customary international law could be relevant ‘through Kenyan law
insofar as customary international law is incorporated into Kenyan law’.79 However,
the Tribunal left open the possibility that international law could serve a ‘corrective
function’ and the question of whether this was by virtue of the Kenyan constitution
or Article 42(1) of the ICSID Convention (whereas it made no reference to Article
3 ARSIWA).80
In conclusion, Article 3 ARSIWA has a role to play in ICSID arbitration in respect
of questions of responsibility of the State, but cognisant of the role that internal law
can assume. Normally, in the context of treaty claims, international law and inter-
nal law will be applied to different issues, with questions of liability being primarily
governed by international law and subject to Article 3 ARSIWA. In the presence of
contract claims, internal law typically assumes a more substantial—sometimes indeed
salient—role.81 Would the legal position be different in the context of an investment
71
cf, for example, Total SA v Argentine Republic, ICSID Case No ARB/04/01, Decision on Liability (27 December
2010) para 39. Illustrative are also the findings on applicable law contained in Cairn v India (n 25) paras 649–53.
72
Azinian v Mexico (n 56) para 97: ‘[a] governmental authority surely cannot be faulted for acting in a manner
validated by its courts unless the courts themselves are disavowed at the international level […]. What must be shown is that
the court decision itself constitutes a violation of the treaty […]. For if there is no complaint against a determination by
a competent court that a contract governed by Mexican law was invalid under Mexican law, there is by definition no
contract to be expropriated.’
73
Alghanim v Jordan (n 25) para 344.
74
ibid para 345.
75
ibid para 348.
76
ibid para 349.
77
WalAm Energy LLC v Republic of Kenya, ICSID Case No ARB/15/7, Award (10 July 2020) para 341.
78
ibid para 347.
79
ibid para 348.
80
ibid para 349.
81
Note should also be made, however, that several ICSID tribunals have recognised the existence of a ‘corrective’
function of international law under Article 42(1), second sentence, of the ICSID Convention (sometimes pairing it
dispute brought outside the ICSID framework (and assuming the applicable treaty
does not contain any provisions mirroring Article 42(1) of the ICSID Convention)?
The answer may depend on whether one construes Article 42(1), second sentence,
of the ICSID Convention as a conflict of laws rule or as a mere rule on the powers of
ICSID tribunals when it comes to determining the applicable law. In practice, in the
context of non-ICSID treaty disputes, the respective roles of international and inter-
nal law remain underpinned by Articles 3 and 32 ARSIWA (which, as demonstrated
above, also have a role to play in ICSID arbitration).
D. Contract Claims and Umbrella Clauses

With regard to contract claims, some tribunals have referred to Article 3 ARSIWA in
noting the distinction between contract and treaty claims, and to sustain the propo-
sition that a breach of contract does not necessarily amount to a treaty breach.82
However, while a contract is a ‘creature’ of internal law and, at least from an internal
law perspective, it derives its binding force from internal law,83 the phenomenon of
‘internationalised contracts’ is notable and legally consequential.84
Moreover, although distinct, contract and treaty claims are not necessarily unre-
lated. It has been aptly pointed out that ‘responsibility for breach of treaty is
conceptually distinct from responsibility for breach of contract, but the latter may,
depending on the context, entail or imply the former’.85
One of the scenarios in which this is possible is in the presence of an umbrella
clause.86 Indeed, some investment arbitration decisions have expressly referred to
Article 3 ARSIWA in dealing with umbrella clauses. Such decisions raise the question
of the relationship between umbrella clauses and Article 3 ARSIWA.
with a supplementary function): cf Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société
Camerounaise des Engrais, ICSID Case No ARB/81/2, Excerpts of Ad hoc Committee Decision on Annulment (3 May
1985) para 69; Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on the
Application for Annulment (16 May 1986) paras 20–22; Southern Pacific Properties (Middle East) Limited v Arab Republic
of Egypt, ICSID Case No ARB/84/3, Award (20 May 1992) para 84; AIG Capital Partners Inc and CJSC Tema Real
Estate Company v Republic of Kazakhstan, ICSID Case No ARB/01/6, Award (7 October 2003) para 10.1.2; Compañia
del Desarrollo de Santa Elena SA v Republic of Costa Rica, ICSID Case No ARB/96/1, Award (17 February 2000) para 64;
Zhinvali Development Ltd v Republic of Georgia, ICSID Case No ARB/00/1, Award (24 January 2003) paras 297–98; MCI
Power Group, LC and New Turbine, Inc v Republic of Ecuador, ICSID Case No ARB/03/6, Award (31 July 2007) para 218;
Togo Electricité and GDF-Suez Energie Services v Republic of Togo, ICSID Case No ARB/06/7, Award (10 August 2010)
para 138; Pac Rim v El Salvador (n 32) para 5.62; Caratube International Oil Company LLP and Devincci Salah Hourani v
Republic of Kazakhstan, ICSID Case No ARB/13/13, Award (27 September 2017) para 290.
82
Vivendi v Argentina (n 11) para 95; Noble Ventures v Romania (n 31) para 50; Crystallex v Venezuela (n 30) para 474
and SGS v Pakistan (n 30) para 147 (both citing Vivendi v Argentina (n 11) para 95).
83
This is something that civil law-style codifications make very clear: cf, for example, Article 1131(1) of the French
Civil Code: ‘[l]es conventions légalement formées tiennent lieu de loi à ceux qui les ont faites’; Article 1278 of the Spanish
Civil Code: ‘[l]os contratos serán obligatorios, cualquiera que sea la forma en que se hayan celebrado, siempre que en
ellos concurran las condiciones esenciales para su validez’; Article 1372(1) of the Italian Civil Code ‘[i]l contratto ha
forza di legge tra le parti. Non può essere sciolto che per mutuo consenso o per cause ammesse dalla legge’.
84
For an extensive discussion of the origins, foundations and debate surrounding internationalised contracts, cf, for
example, Ivar Alvik, Contracting with Sovereignty: State Contracts and International Arbitration (Bloomsbury 2011).
85
Crawford (n 25) 357–58.
86
It is not within the parameters of this article to enter into the debate on the effects of umbrella clauses and on
whether these elevate contract claims to treaty claims. cf, on this point, SGS v Pakistan (n 30) paras 163–74; SGS v
Philippines (n 31) paras 113–28; Eureko BV v Republic of Poland, Partial Award (19 August 2005) paras 244–60; Noble
Ventures v Romania (n 31) paras 42–62; Toto Costruzioni Generali SpA v Republic of Lebanon, ICSID Case No ARB/07/12,
Decision on Jurisdiction (11 September 2009) paras 187–202; Bureau Veritas, Inspection, Valuation, Assessment and Control,
BIVAC BV v Republic of Paraguay, ICSID Case No ARB/07/9, Decision of the Tribunal on Objections to Jurisdiction (29
May 2009) paras 134–42; SGS Société Générale de Surveillance SA v Republic of Paraguay, ICSID Case No ARB/07/29,
Decision on Jurisdiction (10 February 2010) paras 162–85; Gustav F W Hamester GmbH & Co KG v Republic of Ghana,
ICSID Case No ARB/07/24, Award (18 June 2010) paras 342–50.
In Noble Ventures v Romania, the Tribunal took the view that umbrella clauses con-
stitute an exception to the separation of the internal and the international spheres
underpinned by Article 3.87 Conversely, in Azurix v Argentina, in an obiter dictum,
the ICSID ad hoc Committee held that even in the presence of an umbrella clause,
internal law remains a fact, the assessment of which is necessary to establish whether
there has been a breach of the umbrella clause.88 In Hamester v Ghana, the Tribunal
(although without expressly citing Article 3 ARSIWA), emphasised (taking issue with
the findings in Noble Ventures v Romania), that:
the consequence of an automatic and wholesale elevation of any and all contract claims
into treaty claims risks undermining the distinction between national legal orders and
international law.89
A related issue concerns the extent to which a host State can modify its domestic
legal framework governing the undertakings entered into vis-à-vis an investor without
incurring a breach of an umbrella clause. In SunReserve v Italy, the Tribunal was
called upon to assess the relevance of a judgment of the Italian Constitutional Court,
invoked by the Respondent by way of defence. The Tribunal took the view that,
to the extent the State did not ‘unreasonably or arbitrarily’ alter its domestic law
extinguishing the investor’s obligations, the judgment constituted a development of
the host State’s legal system to be taken into account in assessing the existence and
scope of the investor’s rights for the purpose of the umbrella clause.90
In conclusion, the divergent approaches reflected in the investment treaty jurispru-
dence on the relationship between Article 3 ARSIWA and ‘umbrella clauses’ appear
to largely reflect, albeit not precisely, the different views pertaining to the effects of
these clauses themselves.
87
Noble Ventures v Romania (n 31) paras 53–54: citing Article 3 ARSIWA, the Tribunal recalled that, ordinarily, a
contract breach does not in and of itself engage the international responsibility of the State and, if it does, the State’s
national and international responsibility will coexist on different levels. It went on to note that, nonetheless, it is entirely
possible for States to create an exception to the separation between the domestic and the international spheres by entering
into treaty provisions to the effect that the host State may incur international responsibility by reason of a breach of its
contractual obligations towards the private investor of the other Party.
88
Azurix v Argentina (n 36) para 151: [i]f Azurix and Argentina had been the parties to the Concession Agreement,
and if the Tribunal had found that the word ‘obligations’ in Article II.2(c) of the BIT included obligations under municipal
law (a matter on which the Committee is not called upon to express any view), it might have become necessary for the
Tribunal to determine whether Argentina was in breach of obligations under municipal law in order to determine a
claim under Article II.2(c) of the BIT. In that event, it would have been necessary for the Tribunal to apply Argentine
municipal law in determining whether there was a breach of obligations under municipal law. However, even in this
situation, municipal law would not thereby become part of the applicable law under Article 42 of the ICSID Convention
for purposes of determining whether there was a breach of Article II.2(c) of the BIT. Rather, any breach of municipal
law that might be established would be a fact or element to which the terms of the BIT and international law would be
applied in order to determine whether there was a breach of Article II.2(c).
89
Hamester v Ghana (n 86) para 349.
90
SunReserve v Italy (n 31) para 986:
in the event that a host State were to extinguish an obligation that existed earlier by unreasonably or arbitrarily
altering ex post its domestic law, such an invocation of domestic law can be challenged by an investor, and would then
have to be examined in light of the principles emanating from Article 3 of the ILC Articles on State Responsibility or
Article 27 VCLT […]. However, if the domestic legal situation vis-àvis [sic] the existence or scope of an obligation develops
or evolves in time, for instance by virtue of a domestic court’s decision, that factual development should be taken into
account while determining whether and to what extent an obligation exists for the purposes of the Umbrella Clause.
III. INTERNAL LAW AND ATTRIBUTION IN ISDS

Another area where internal law becomes relevant in investment treaty arbitration
is principles of attribution for the purposes of establishing State responsibility. As
recognised by the International Law Commission (ILC):
In determining what constitutes an organ of a State for the purposes of responsibility, the
internal law and practice of each State are of prime importance. The structure of the State
and the functions of its organs are not, in general, governed by international law. It is a matter
for each State to decide how its administration is to be structured and which functions are
to be assumed by government.91
Therefore, the interplay of internal and international law is of considerable impor-

tance to attribution for the purposes of State responsibility. There are two ARSIWA
articles which are particularly relevant to this analysis: Article 4 (Subsection A) and
Article 5 (Subsection B).
A. Notion of ‘State Organ’

Article 4 ARSIWA states the basic rule attributing to the State the conduct of its
organs. As early as 1871, international judicial decisions recognised that the State is
responsible for the conduct of its own organs.92 As acknowledged by the Tribunal in
Jan de Nul v Egypt, the first port of call to determine what constitutes a State organ is
internal law.93 This is because of the language of Article 4(2) ARSIWA, which notes
that ‘[a]n organ includes any person or entity which has that status in accordance
with the internal law of the State’. Therefore, if a State organ has this status by virtue
of internal law, ‘no difficulty will arise’.94
However, when a State organ is not so designated de jure under internal law, attri-
bution can still be effected under Article 4 ARSIWA.95 As the Tribunal in F-W v
Trinidad and Tobago noted, ‘[t]he internal law of the State will be the starting point,
but not the end point’.96 This is the case, for example, of subdivisions in a federal
State. Under internal law, these territorial units have their own executive, legislative
and judicial functions.97 Despite the lack of organ status under internal law, Article
91
ARSIWA (n 4) Chapter II (Attribution of Conduct to a State), commentary para 6.
92
93
Jan de Nul v Egypt (n 56) para 160; cf also EDF (Services) Limited v Romania, ICSID Case No ARB/05/13, Award
(8 October 2009) para 188; Kristian Almås and Geir Almås v Republic of Poland, PCA Case No 2015–13, Award (27 June
2016) para 207.
94
95
ibid cf also F-W Oil Interests Inc v Republic of Trinidad & Tobago, ICSID Case No ARB/01/14, Award (3 March
2006) para 200; Flemingo v Poland (n 37) para 433.
96
F-W Oil v Trinidad & Tobago (n 95) para 203. Professor Crawford and Paul Mertenskötter criticise the approach
of certain tribunals that starts with the internal law of the State, and its characterisation of the entity in question as a
State organ, arguing that it can lead tribunals to focus excessively on the description the entity in question receives under
internal law (cf James Richard Crawford and Paul Mertenskötter, ‘The Use of the ILC’s Attribution Rules in Investment
Arbitration’ in Meg Kinnear, Geraldine R Fischer and others (eds), Building International Investment Law: The First 50
Years of ICSID (Kluwer Law International 2015) 28). The same authors submit that, rather than how a certain entity
is ‘labelled’ under internal law, the relevant question is whether the entity ‘make[s] up the organization of the State and
acts on its behalf’ (ibid, citing ARSIWA Commentary to Article 4, para 1). cf also Kaj Hobér, ‘State Responsibility and
Attribution’ in Peter T Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International
Investment Law (OUP 2015) 555, pointing out that it is not sufficient to look at the internal law of the State to determine
the status of a State organ and linking this concept to the principle that a State cannot avoid responsibility by relying on
its internal law.
97
cf ARSIWA, Article 4(1): ‘[t]he conduct of any State organ shall be considered an act of that State under interna-
tional law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in
4(1) clearly establishes that these entities will constitute State organs for the pur-
poses of international responsibility.98 This is related to the overarching principle
that ‘a state cannot avoid responsibility for the conduct of a body which does in truth
act as one of its organs merely by denying it that status under its own law’.99
Even in cases where the entity is not a subdivision of the State, it can still be a State
organ de facto for purposes of Article 4.100
The Tribunal in Flemingo v Poland considered this question in depth, noting that
the entity in question: (i) was owned and controlled by the Polish State Treasury;101
(ii) managed and operated an international airport (a task which is not often dele-
gated to private businesses);102 (iii) performed strategic functions for the existence of
the State;103 (iv) operated under the supervision of, and reported to, a ministry;104
(v) had its management team appointed and dismissed by a minister;105 and (vi) its
property was national property, among others.106 The Tribunal thus concluded that
the entity was a State organ for the purposes of Article 4.
Other investment treaty tribunals have preferred to start their analysis with whether
the entity has a separate legal personality. When combined with other factors pointing
to the entity’s independence,107 this component has sometimes proven determinative
with tribunals holding that the entities in question could not be considered to be de
facto State organs.108
the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of
the State’.
98
ARSIWA Commentary to Article 4, paras 8–10; Mytilineos Holdings SA v The State Union of Serbia & Montenegro
and Republic of Serbia, Partial Award on Jurisdiction (8 September 2006) para 176; Metalclad Corp v United Mexican
States, ARB (AF)/97/1, Award (30 August 2000) para 73; Compañiá de Aguas del Aconquija SA and Vivendi Universal SA
v Argentine Republic, ICSID Case No ARB/97/3 (formerly Compañía de Aguas del Aconquija, SA and Compagnie Générale des
Eaux v Argentine Republic), Award (21 November 2000) para 49; Tethyan Copper Company Pty Limited v Islamic Republic
of Pakistan, ICSID Case No ARB/12/1, Decision on Jurisdiction and Liability (10 November 2017) paras 725–28; UAB
E Energija (Lithuania) v Republic of Latvia, ICSID Case No ARB/12/33, Award (22 December 2017) paras 796–801.
99
ARSIWA Commentary on Article 4, para 11. cf also William Ralph Clayton and others v Government of Canada,
PCA Case No 2009–04, Award on Jurisdiction and Liability (17 March 2015) para 315; Almås v Poland (n 93) para 207;
Ortiz Construcciones y Proyectos SA v People’s Democratic Republic of Algeria, ICSID Case No ARB/17/1, Award (29 April
2020) para 161.
100
Emilio Agustín Maffezini v The Kingdom of Spain, ICSID Case No ARB/97/7, Decision of the Tribunal on Objections
to Jurisdiction (25 January 2000) paras 77–82. This approach was disputed by the Tribunal in Tulip Real Estate and
Development Netherlands BV v Republic of Turkey, ICSID Case No ARB/11/28, Award (10 March 2014) para 289:
[f]inally, the Tribunal does not accept the Claimant’s contention that, as a matter of international law, majority
ownership of an entity by the State gives rise to a presumption of statehood in respect of that entity. While the decisions
in Mazzefini [sic] and Salini may have held otherwise, the Tribunal is not bound by those decisions. Rather, the Tribunal
is compelled to decide the issues before it in accordance with the BIT and applicable principles of international law. The
conclusion of the Tribunal is that there is no basis under international law to conclude that ownership of a corporate entity
by the State triggers the presumption of statehood. The position of the Tribunal is that, whilst state ownership may, in
certain circumstances, be a factor relevant to the question of attribution, it does not convert a separate corporate entity
into an ‘organ’ of the State. The Tribunal agrees with the holding in EDF (Services) Limited v Romania that state-owned
corporations ‘possessing legal personality under [municipal] law separate and distinct from that of the State, may [not]
be considered as a State organ’.
101
Flemingo v Poland (n 37) para 427.
102
ibid para 428.
103
ibid para 429.
104
105
ibid para 430.
106
ibid.
107
For example, the ability to appoint and remove directors. cf Deutsche Bank AG v Democratic Socialist Republic of
Sri Lanka, ICSID Case No ARB/09/2, Award (31 October 2012) para 405(b). However, this consideration per se is not
enough if other factors point towards State control. cf Flemingo v Poland (n 37) para 431. Neither is the fact that an entity
is subject to a system of control by the State in view of the public interests involved in its activity. cf Ulysseas, Inc v Republic
of Ecuador, PCA Case No 2009–19, Final Award (12 June 2012) para 135.
108
Jan de Nul v Egypt (n 56) paras 158–62; Bayindir Insaat Turizm Ticaret ve Sanayi AS v Islamic Republic of Pakistan,
ICSID ARB/03/29, Award (27 August 2009) para 119; Hamester v Ghana (n 86) para 184; EDF (Services) v Romania
(n 93) para 190; Almås v Poland (n 93) para 213; Staur Eiendom AS, EBO Invest AS and Rox Holding AS v Republic of
Latvia, ICSID Case No ARB/16/38, Award (28 February 2020) para 336; Limited Liability Company Amto v Ukraine,
However, the jurisprudence is far from homogeneous. For instance, in the case of
Paushok v Mongolia, the Tribunal determined that MongolBank (Mongolia’s central
bank) was a de facto State organ as per Article 4.109 The Tribunal held that:
[t]he simple fact that an institution has separate legal status does not allow one to conclude
automatically that that institution is not an organ of the State; in order to reach such a con-
clusion, a tribunal has to engage in a broader analysis which includes the functions assigned
to that entity. There is a huge difference to be found between public authorities established
to operate and maintain a navigational canal or to construct and maintain highways and a
central bank charged with the issuance of the currency and running the State’s monetary
policy.110
This contrasts with the position of the Tribunal in Unión Fenosa v Egypt. In that
case, the Tribunal considered that:
circumstances sufficient to connote the status of an organ of the State to a separate

legal person must be extraordinary, involving functions and powers considered to be as
quintessentially powers of Statehood, such as those exercised by police authorities.111
The Tribunal justified this approach with reference to the Bosnian Genocide case,
where the ICJ required ‘proof of a particularly great degree of State control’ akin to
‘complete dependence’.112 In this regard, the Tribunal found that the entity was not
a de facto State organ113 despite the fact that: (i) it was wholly owned by the State;114
(ii) it was denominated by domestic law as a public authority;115 and (iii) the chair-
man and the board were designated by government officials.116 It held that these
factors were of no material relevance since they did not show that the entity, the Egyp-
tian General Petroleum Corporation, lacked ‘any real autonomy’.117 Interestingly,
those same considerations led the Tribunal in Ampal v Egypt to designate the actions
of the same entity as attributable to the State by virtue of Article 8 ARSIWA.118 The
Unión Fenosa v Egypt Tribunal also considered attribution under Article 8 ARSIWA
but held that ‘[t]he factors identified above in regard to Article 4 of the ILC Articles
apply equally to Article 8’.119 Article 8 ARSIWA is based on the notion of ‘effective
control’ and, as noted by ILC Commentary, depends upon ‘a specific factual rela-
tionship’.120 As such, it will be the particular actions of the entity in the particular
case that will inform whether attribution is found under Article 8 ARSIWA.
SCC Case No 080/2005, Final Award (26 March 2008) para 101; GEA Group Aktiengesellschaft v Ukraine, ICSID Case
No ARB/08/16, Award (31 March 2011) para 262; H&H Enterprises Investments, Inc v Arab Republic of Egypt, ICSID
Case No ARB/09/15, Award (6 May 2014) para 387.
109
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Government of Mongolia, UNCI-
TRAL, Award on Jurisdiction and Liability (28 April 2011) para 582.
110
ibid para 583.
111
Unión Fenosa Gas SA v Arab Republic of Egypt, ICSID Case No ARB/14/4, Award (31 August 2018) para 9.96.
112
Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v
Serbia and Montenegro) (Judgment) [2007] ICJ Rep 43, para 393.
113
Unión Fenosa v Egypt (n 111) para 9.112.
114
ibid para 9.97.
115
ibid para 9.98.
116
ibid para 9.106.
117
ibid. cf also Ortiz v Algeria (n 99) paras 176, 179, 185, 188.
118
Ampal-American Israel Corporation and others v Arab Republic of Egypt, ICSID Case No ARB/12/11, Decision on
Liability and Heads of Loss (21 February 2017) para 146.
119
Unión Fenosa v Egypt (n 111) para 9.117.
120
Therefore, as seen in the Flemingo v Poland case, even when an entity has separate
legal personality under internal law, it can be considered a de facto State organ under
Article 4 although not all tribunals have taken the same approach.121
Another aspect of Article 4 that has been often debated (notwithstanding the clar-
ity in the ARSIWA Commentary)122 is whether a State organ acts in a commercial or
‘acta iure gestionis’ capacity.123 While this determination may be relevant to the law of
State immunity or under Article 5 ARSIWA, investment treaty tribunals have deter-
mined that this consideration is irrelevant for the purposes of attribution under Article
4, even when the applicable internal law determines that the entity has a commercial
dimension.124
B. Notion of ‘Elements of Governmental Authority’

Article 5 deals with the conduct of entities which are not State organs but that are
empowered by the law of the State in question to exercise the governmental authority
of a State. The acts of such parastatal entities will be ‘considered an act of the State
under international law, provided the person or entity is acting in that capacity in the
particular instance’.125 Therefore, Article 5 requires a two-step test for attribution: (i)
whether the entity is empowered by internal law to exercise governmental authority;
and (ii) whether the act in question was undertaken in that capacity.126
The first question is: what does the term ‘governmental authority’ mean? The
ARSIWA Commentary makes clear that:
Article 5 does not attempt to identify precisely the scope of ‘governmental authority’ for the
purpose of attribution of the conduct of an entity to the State. Beyond a certain limit, what
is regarded as ‘governmental’ depends on the particular society, its history and traditions.127
In this regard, the Tribunal in F-W v Trinidad and Tobago aptly noted:
121
Flemingo v Poland (n 37) paras 431–32. cf also Deutsche Bank v Sri Lanka, (n 107) para 405(a).
122
ARSIWA (n 4) art 4, commentary para 6. ‘It is irrelevant for the purposes of attribution that the conduct of a State
organ may be classified as “commercial” or as acta iure gestionis. Of course, the breach by a State of a contract does not as
such entail a breach of international law. Something further is required before international law becomes relevant, such
as a denial of justice by the courts of the State in proceedings brought by the other contracting party. But the entry into
or breach of a contract by a State organ is nonetheless an act of the State for the purposes of article 4, and it might in
certain circumstances amount to an internationally wrongful act.’
123
Paushok v Mongolia (n 109) para 584.
124
Tethyan Copper v Pakistan (n 98) para 729. cf also F-W Oil v Trinidad & Tobago (n 95) para 200: ‘Conversely, in
seeking to bolster its argument by drawing on the distinction between commercial and sovereign activities that underlies
the law on State immunity, the Respondent is guilty of introducing an element foreign to the quite different context of
State responsibility—as the ILC has, once again, been at pains to point out (e.g., para. (6) of the Commentary to Article
4)’; Alpha Projektholding GmbH v Ukraine, ICSID Case No ARB/07/16, Award (8 November 2010) para 402; Paushok v
Mongolia (n 109) para 580; Yukos v Russia (n 40) para 1479.
125
ARSIWA (n 4) art 5.
126
ARSIWA (n 4) art 5, commentary para 2: ‘They may include public corporations, semipublic entities, public
agencies of various kinds and even, in special cases, private companies, provided that in each case the entity is empowered
by the law of the State to exercise functions of a public character normally exercised by State organs, and the conduct
of the entity relates to the exercise of the governmental authority concerned.’ cf Flemingo v Poland (n 37) para 440; EDF
(Services) v Romania (n 93) para 191; Ortiz v Algeria (n 99) para 194; Noble Ventures v Romania (n 31) para 70; Hamester
v Ghana (n 86) para 176; Bosca v Lithuania (n 27) para 127; Antoine Abou Lahoud and Leila Bounafeh-Abou Lahoud v
Democratic Republic of the Congo, ICSID Case No ARB/10/4, Award (7 February 2014) para 378; Tulip v Turkey (n 100)
para 292; H&H v Egypt (n 108) para 387; Almås v Poland (n 93) para 215; Garanti Koza LLP v Turkmenistan, ICSID
Case No ARB/11/20, Award (19 December 2016) para 335; Saint-Gobain Performance Plastics Europe v Bolivarian Republic
of Venezuela, ICSID Case No ARB/12/13, Decision on Liability and Principles of Quantum (30 December 2016) paras
458–60; Tethyan Copper v Pakistan (n 98) para 731; Unión Fenosa v Egypt (n 111) para 9.114.
127
ARSIWA (n 4) art 5, commentary para 6. cf also Ortiz v Algeria (n 99) para 201.
[i]ndeed the ILC consciously refrained from including in the draft even elements towards
defining its application in particular cases. […] In short, the notion is intended to be a
flexible one, not amenable to general definition in advance; and the elements that would go
in its definition in particular cases would be mixture of fact, law and practice.128
Therefore, an analysis of the test under Article 5 is necessarily a functional exer-
cise that cannot be examined in a vacuum.129 Concerning the first part of the test,
the ARSIWA Commentary to Article 5 makes clear that internal law must explicitly
authorise the exercise of governmental authority:
[t]he internal law in question must specifically authorize the conduct as involving the exercise
of public authority; it is not enough that it permits activity as part of the general regulation
of the affairs of the community. It is accordingly a narrow category.130
The ARSIWA Commentary also notes that:
[t]he fact that an entity can be classified as public or private according to the criteria of a
given legal system, the existence of a greater or lesser State participation in its capital, or,
more generally, in the ownership of its assets, the fact that it is not subject to executive
control—these are not decisive criteria for the purpose of attribution of the entity’s conduct
to the State. Instead, article 5 refers to the true common feature, namely that these entities
are empowered, if only to a limited extent or in a specific context, to exercise specified
elements of governmental authority.131
Despite the lack of definition of the term ‘governmental authority’, the first limb
of the test under Article 5 has not frequently been the fulcrum issue in the con-
text of investment treaty arbitration—either because respondents have not denied
that the relevant entities had governmental authority or because tribunals have taken
a broad approach as to what constitutes this type of authority.132 For instance, in
Bosh v Ukraine, the Tribunal had to determine whether a university had elements
of governmental authority under Ukrainian law.133 The Tribunal held that it did
because:
the provision by the University of, inter alia, higher education services and the management
of State-owned property in accordance with [several internal laws and decrees] constitute
128
F-W Oil v Trinidad & Tobago (n 95) para 203.
129
Ortiz v Algeria (n 99) para 194; Windstream Energy LLC v Government of Canada, PCA Case No 2013–22, Award
(27 September 2016) para 234.
130
ARSIWA (n 4) art 5, commentary para 7. cf also EDF (Services) v Romania (n 93) para 193; Ortiz v Algeria (n 99)
para 195.
131
ARSIWA (n 4) art 5, commentary para 3. cf also Jan de Nul v Egypt (n 56) para 165; Tenaris SA and Talta—Trading
e Marketing Sociedade Unipessoal Lda v Bolivarian Republic of Venezuela, ICSID Case No ARB/11/26, Award (29 January
2016) para 398.
132
cf, for example, Bayindir v Pakistan (n 108) para 121; Garanti Koza v Turkmenistan (n 126) para 335; United Parcel
Service of America Inc v Government of Canada, ICSID Case No UNCT/02/1, Award on the Merits (24 May 2007) para
77; Strabag SE v State of Libya, ICSID Case No ARB(AF)/15/1, Award (29 June 2020) para 173. Exceptions can be
found in the cases of OAO Tatneft v Ukraine, PCA Case No 2008–8, Partial Award on Jurisdiction (28 September 2010)
para 140; Tulip v Turkey (n 100) para 293; Unión Fenosa v Egypt (n 111) para 9.114; Staur v Latvia (n 108) para 342;
Interocean Oil Development Company and Interocean Oil Exploration Company v Federal Republic of Nigeria, ICSID Case No
ARB/13/20, Award (6 October 2020) para 297.
133
Bosh International Inc and B&P, LTD Foreign Investments Enterprise v Ukraine, ICSID Case No ARB/08/11, Award
(25 October 2012) para 165.
forms of governmental authority that the University is empowered by the law of Ukraine to
exercise.134
As to the second part of the test, the ARSIWA Commentary to Article 5 clarifies
the justification behind the principle as follows:
The justification for attributing to the State under international law the conduct of ‘paras-
tatal’ entities lies in the fact that the internal law of the State has conferred on the entity in
question the exercise of certain elements of the governmental authority. If it is to be regarded
as an act of the State for purposes of international responsibility, the conduct of an entity
must accordingly concern governmental activity and not other private or commercial activ-
ity in which the entity may engage. Thus, for example, the conduct of a railway company to
which certain police powers have been granted will be regarded as an act of the State under
international law if it concerns the exercise of those powers, but not if it concerns other
activities (e.g. the sale of tickets or the purchase of rolling stock).135
This has been found, at least according to a more restrictive view of what consti-
tutes exercise of elements of governmental authority, to mean that acts iure gestionis
of State-owned or private entities cannot be attributed to the State under Article 5
since prerogatives of public authority are not thereby at play.136
In Flemingo v Poland, the Respondent confirmed that the entity in question, PPL,
was performing ‘strategic functions for the existence of the State’ via its operation
and modernisation of Chopin Airport.137 The Tribunal also noted that internal law
‘entrusted PPL expressly with the modernisation of airport terminals’—again high-
lighting the relevance of internal law to its analysis—and that its decision to terminate
lease agreements ‘were carried out in the exercise of the governmental task, delegated
by the PPL Act’.138 Finally, the Tribunal also took into account the statements of the
Ministry of Transport, which confirmed that the modernisation of the airport was a
governmental matter.139 This led the Tribunal to conclude that, if it had not found
PPL to be a State organ under Article 4, it would have considered its acts attributable
to Poland by virtue of Article 5.140
Similarly, in Jan de Nul v Egypt, the Respondent also acknowledged that the entity
in question, the Suez Canal Authority, was empowered under internal law ‘to issue
the decrees related to the navigation in the canal’ as well as ‘to impose and collect
charges for the navigation and passing through the canal’.141 Turning to the second
part of the test,142 the Tribunal relied on the functional test adopted by the Tribunal
in Maffezini v Spain, meaning the Tribunal had to establish:
134
ibid para 173. The Tribunal then considered the second limb of the test and considered that ‘the university’s decision
to enter into and subsequently terminate the 2003 Contract with B&P did not relate to the exercise of the University’s
governmental authority’ (para 177). Therefore, the disputed actions were not attributable to the State.
135
136
Ortiz v Algeria (n 99) para 200.
137
Flemingo v Poland (n 37) para 436.
138
ibid.
139
ibid.
140
ibid para 437. This case should be contrasted with Staur v Latvia (n 108) para 342, where the Tribunal considered
that there had been no delegation of governmental authority to an airport under Latvian law.
141
Jan de Nul v Egypt (n 56) para 166.
142
ibid para 167.
whether specific acts or omissions are essentially commercial rather than governmental in
nature or, conversely, whether their nature is essentially governmental rather than commer-
cial. Commercial acts cannot be attributed to the State, while governmental acts should be
so attributed.143
This led the Tribunal to conclude that, in its dealing with the Claimants during
the tender process, the entity:
acted like any contractor trying to achieve the best price for the services it was seeking. It
did not act as a State entity. The same applies to the SCA’s conduct in the course of the
performance of the Contract.144
Thus, the key consideration for the second part of the test under Article 5 was ‘not
the “service public” element, but the use of “prérogatives de puissance publique” or
governmental authority’.145 Since the refusal to grant an extension of time at the time
of the tender did not show that governmental authority was used, the Tribunal held
that acts of the SCA vis-à-vis the Claimants were not attributable to the Respondent
on the basis of Article 5 ARSIWA because any private contract partner could have
acted in a similar manner.146
In Tenaris v Venezuela, the Claimants focused on this second part of the test, arguing
that the entity in question, CVG FMO, held a ‘governmental monopoly over a criti-
cal natural resource and thereby exercises governmental authority’.147 The Tribunal
found:
there is no evidence that CVG FMO was exercising any element of government authority in
respect of the allocation of pellets under the Supply Contract. And Claimants’ submission
that CVG FMO exercises government authority in carrying out its monopoly over a natural
resource is misconceived in that the monopoly is not that of CVG FMO but of CVG. The
submission, in any event, is far too widely drawn for the purposes of Article 5 of the ILC
Articles.148
This conclusion was reaffirmed upon examination of the first part of the test under
Article 5, with the Tribunal accepting the Respondent’s contention that the entity had
not been specifically empowered by internal law to distribute pellets.149 The Tribunal
concluded its analysis by noting the words of the Hamester v Ghana Tribunal that ‘it
is not enough for an act of a public entity to have been performed in the general fulfil-
ment of some general interest, mission or purpose to qualify as an attributable act’.150
Therefore, the Tribunal held that the actions of CVG FMO were not attributable to
Venezuela under Article 5.
Similarly, in InterTrade v Czech Republic, the Claimant submitted that the tasks
of the entity in question, LCR, ‘was not simply to exploit the State Forests to its
143
Maffezini v Spain (n 100) para 52 cited in Jan de Nul NV v Egypt (n 56) para 168.
144
Jan de Nul v Egypt (n 56) para 169.
145
ibid para 170.
146
ibid paras 170–71. cf also EDF (Services) v Romania (n 93) paras 195–98.
147
Tenaris v Venezuela (n 131) para 400.
148
ibid para 416.
149
ibid para 417.
150
Hamester v Ghana (n 86) para 202 as cited in Tenaris v Venezuela (n 131) para 417. cf also Bayindir v Pakistan (n
108) para 122
maximum financial advantage but that it had clearly the purpose of benefitting wider
public interest’.151 The Tribunal demurred, noting that ‘State entities are always
deemed to act in the public interest, but this, in and by itself, is not sufficient under
Article 5’.152 Looking at the disputed acts, the Tribunal echoed the findings of the
Tribunal in Jan de Nul v Egypt and held that the entity was engaged in a commercial
activity when conducting the disputed tender.153 The fact that the State’s economy
was in the middle of a transition from a centralised to a market economy did not
affect the Tribunal’s reasoning.154
However, the decision was not unanimous, with Mr Álvarez dissenting on the
majority’s qualification of the tender process:
In my view, applying the label ‘tender’ to the acts complained of and saying that it is therefore
commercial overly simplifies the necessary factual analysis and does not properly perform
the functional test required to determine whether Lesy CR was exercising governmental
authority through the tender process. Although a tender process may appear to be connected
only to commercial activities, it is necessary to analyse the purpose of the tender in question.
I am of the view that there are few functions more intimately related to governmen-
tal authority than the management of natural resources, such as State-owned forests. […]
Through this tender process, the Ministry of Agriculture hoped to change how the State-
owned forests were managed by deciding which firms would be awarded the contracts to
harvest timber based on criteria that went beyond the best price. The determination of
who will be granted the right to perform complete forest services, including not only log-
ging activities, but also silvicultural activities to protect, preserve and ameliorate the forests,
is central to the management of the forests. I consider this an exercise of governmental
authority.155
Thus, the Article 5 test pertains both to empowerment under internal law and
impugned conduct being undertaken by way of a public power.156
IV. INTERNAL LAW AND QUESTIONS OF

JURISDICTION
It is generally accepted that the law applicable to questions of jurisdiction and admis-
sibility of treaty claims is, in principle, international law, although questions of
internal law may still be implicated.157 That said, it is not uncommon for investment
151
InterTrade Holding GmbH v Czech Republic, PCA Case No 2009–12, Final Award (29 May 2012) para 182.
152
ibid.
153
ibid para 185.
154
ibid para 187. cf also Ceskoslovenska Obchodni Banka, AS v The Slovak Republic, ICSID Case No ARB/97/4,
Decision of the Tribunal on Objections to Jurisdiction (29 May 1999) para 23.
155
InterTrade Holding GmbH v Czech Republic, PCA Case No 2009–12, Separate Opinion of Henri Alvarez (29 May
2012) paras 14–15.
156
Notable in this respect is the elaboration of the problem of determining what constitutes exercise of elements of
governmental authority offered by Petrochilos (cf Georgios Petrochilos, ‘Attribution: State Organs and Entities Exercising
Elements of Governmental Authority’ in Katia Yannaca-Small, Arbitration Under International Investment Agreements: A
Guide to the Key Issues (2nd edn, OUP 2018), paras 14.44–14.57). The author identifies two broad approaches: one
which looks at the act in its overall context and assesses how closely it relates to governmental authority and another
which focuses narrowly on the relevant conduct severed from its context (ibid paras 14.46–14.47). Petrochilos disagrees
with this second approach, pointing out that ‘the main question is not whether the relevant act, seen in the abstract and
in isolation […] is or is not one that private parties could also undertake. Rather, the main question is whether the act
that was in fact undertaken required special authority which private parties lacked and was committed in the course of
the exercise of the entity’s special grant of authority’ (ibid para 14.50).
157
cf Cairn v India (n 25) para 650; Douglas (n 25) paras 125–32. With regard to questions of jurisdiction under
Article 25 of the ICSID Convention, cf, for example, Philip Morris Brand Sàrl (Switzerland), Philip Morris Products SA
arbitration tribunals to address the role of internal law and indeed refer to Article 3
ARSIWA while considering questions of jurisdiction.158
An example is Pac Rim v El Salvador, where the Claimant sought to found jurisdic-
tion for an ICSID arbitration upon an investment law of El Salvador. The Respondent
objected, arguing that only the laws of El Salvador applied to the dispute and that
since some of the Claimant’s claims were based on general principles of interna-
tional law, they fell outside the scope of the Tribunal’s jurisdiction.159 In support of
that view, the Respondent raised inter alia some arguments based on provisions of
its investment law.160 The Tribunal, for its part, considered that the applicable law
under Article 42(1), second part, of the ICSID Convention was the law of El Salvador
and international law.161 It went on to reject the Respondent’s jurisdictional pleas
based on internal law.162 The Tribunal recalled that ‘a State cannot justify the non-
observance of its international obligations in an international arbitration by invoking
provisions of its internal law’ and cited in a footnote in Article 3 ARSIWA.163
In Continental Casualty v Argentina, the Respondent objected that the Claimant,
a US company holding shares of an Argentinian company, lacked locus standi in
the arbitration since the measures complained of only affected the position of the
Claimant’s Argentinian subsidiary.164 The Tribunal assessed the question in light of
the provisions of the applicable investment treaty, distinguished the Barcelona Trac-
tion case165 and considered the jurisprudence of investment treaty tribunals.166 It
concluded that it had jurisdiction to entertain the claim.167 The Tribunal further con-
sidered the question of the relation between the Claimant’s treaty claim and the claims
(Switzerland) and Abal Hermanos SA (Uruguay) v Oriental Republic of Uruguay, ICSID Case No ARB/10/7, Decision on
Jurisdiction (2 July 2013) para 30, citing Christoph Schreuer, The ICSID Convention, A Commentary (2nd edn, CUP
2009) para 578, arguing that Article 42 of the ICSID Convention only concerns the law applicable to the merits of the
case.
158
It is beyond the ambit of this article, which focuses in large part on the interplay between internal law and interna-
tional law in the context of State responsibility and Articles 3 and 32 of the ARSIWA, to address other areas of jurisdiction
in investment treaty arbitration that implicate questions of internal law, such as the nationality of qualifying investors and
qualifying investments. Suffice it to say that, with regard to natural persons, the relevance of internal law to establish
nationality is well established. cf Hussein Nuaman Soufraki v United Arab Emirates, ICSID Case No ARB/02/7, Award
(7 July 2004) para 55; Víctor Pey Casado and President Allende Foundation v Republic of Chile, ICSID Case No ARB/98/2,
Award I (8 May 2008) paras 255–57; Ioan Micula and others v Romania, ICSID Case No ARB/05/20, Decision on Juris-
diction and Admissibility (24 September 2008) para 86; Tza Yap Shum v Republic of Peru, ICSID Case No ARB/07/6,
Decision on Jurisdiction and Competence (19 June 2009) para 54; Jan Oostergetel and Theodora Laurentius v Slovak Repub-
lic, Decision on Jurisdiction (30 April 2010) para 119; Mr Franck Charles Arif v Republic of Moldova, ICSID Case No
ARB/11/23, Award (8 April 2013) para 354; Mohamed Abdel Raouf Bahgat v Arab Republic of Egypt, PCA Case No 2012–
07, Decision on Jurisdiction (30 November 2017) para 156. With regard to legal entities, the question is more nuanced
(as it largely depends on the criteria set out in the applicable treaty). That said, in a number of cases internal law has been
considered relevant to establish corporate nationality. Quite well known in this respect are Saluka Investments BV v The
Czech Republic, UNCITRAL, Partial Award (17 March 2006) and Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18,
Decision on Jurisdiction (29 April 2004). In Saluka, the Tribunal dismissed an objection of the Respondent based on the
lack of a ‘real connection’ of the claimant company with what the Claimant claimed was its home State (the Netherlands)
by noting that the only relevant criterion set out in the treaty was incorporation under the laws of the Netherlands (paras
239–41). In Tokios Tokelés, the Tribunal was called upon to address Ukraine’s objections to jurisdiction on the grounds
that the Claimant, a Lithuanian company, was predominantly owned or controlled by Ukrainian nationals (para 21). The
applicable treaty covered ‘any entity established in the territory of the Republic of Lithuania in conformity with its laws
and regulations’ (para 28). The Tribunal dismissed the Respondent’s objections, noting inter alia that ‘the only relevant
consideration is whether the Claimant is established under the laws of Lithuania’ (para 38).
159
Pac Rim v El Salvador (n 32) paras 5.2–5.7.
160
ibid paras 5.2–5.3.
161
ibid para 5.61.
162
ibid para 5.62.
163
ibid para 5.62 and n 96.
164
Continental Casualty v Argentina (n 32) para 76.
165
Barcelona Traction (n 22). Continental Casualty v Argentina (n 32) para 82.
166
Continental Casualty v Argentina (n 32) paras 78–85.
167
ibid para 86. The Tribunal characterised the question of the Claimant’s standing to bring the claim as a jurisdictional
question.
that the Claimant’s Argentinian subsidiary might have had vis-à-vis the Argentinian
authorities under local law.168 It concluded that the two were distinct and operated
on different levels and cited ELSI and Article 3 ARSIWA.169
Another example is Convial Callao v Peru, which concerned a plea of illegality of
the underlying investment based on the host State’s internal law.170 In that case, the
Respondent submitted that the Claimant’s alleged investment was either non-existent
or null for not having been made in compliance with Peru’s laws and regulations.171
The applicable treaty contained a legality requirement.172 After determining other
points relating to the treaty’s legality requirement,173 the Tribunal considered that
not every breach of the host State’s law made the investor’s investment illegal for the
purposes of the treaty, thereby affecting the Tribunal’s jurisdiction.174 It justified such
a finding by referring to Article 3 ARSIWA but also to a more general and parallel
principle concerning the autonomy of international law when it comes to establishing
the effects and validity of acts of internal law.175
Article 3 ARSIWA has therefore been invoked by tribunals in a broader array
of questions that have a bearing on State responsibility, even though they are not
questions of State responsibility stricto sensu.
V. CONCLUSIONS
As reflected in this note, the interaction between matters of international State
responsibility and internal law in investment treaty arbitration can assume myriad
dynamics and a degree of complexity far beyond that of straightforward hierarchy.
This is amplified by the particular and inherent features of investment disputes.
The role of internal law can manifest in relation to numerous preliminary and
principal issues to be determined in investment arbitration proceedings, including
(non-exhaustively) in questions of jurisdiction, admissibility, applicable law, attribu-
tion and merits. That being said, in recognising the autonomy (and legal supremacy)
of international law from internal law, the rules codified in Articles 3 and 32 ARSIWA
are of significant importance to determining State responsibility, both doctrinally and
as a matter of practice. Indeed, Articles 3 and 32 ARSIWA remain cornerstone rules
of international law, no less so for investment treaty arbitration disputes than other
areas of international law. Their relevance in investment treaty arbitration has been
amply recognised in the jurisprudence, which shows that Article 3 and 32 ARSIWA
remain fundamental tenets and a necessary starting point of any analysis of the role
of internal law with regard to State responsibility in investment treaty arbitration.
168
ibid para 87.
169
ibid para 88.
170
Convial Callao v Peru (n 32).
171
ibid para 384.
172
Article 1(1) of the Argentina–Peru BIT 1994 (Convenio entre el Gobierno de la República del Peru
y el Gobierno de la República Argentina sobre Promoción y Protección Recíproca de Inversiones (signed
10 November 1994, entered into force 24 October 1996) as cited in Convial Callao v Peru (n 32)
para 384) provided as follows: ‘[a] los fines del presente Convenio: 1. El término “inversion” designa,
de conformidad con las leyes y reglamentaciones de la Parte Contratante en cuyo territorio se realizó la inversión, todo
tipo de activo invertido por inversores de una Parte Contratante en el territorio de la otra Parte Contratante, de
conformidad con este Convenio’ (emphasis in original).
173
174
ibid para 404.
175
ibid para 405.

International State Responsibility and Internal Law A Hierarchy of Sorts

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International State Responsibility and Internal Law A Hierarchy of Sorts

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ICSID Review, Vol. 37, No. 1-2 (2022), pp.

II. INTERNAL LAW AND STATE RESPONSIBILITY IN

[t]he characterization of an act of a State as internationally wrongful is governed by inter-

This is apposite to international investment arbitration, where international and

B. Breaches of Investment Treaty Standards—When Is Internal Law Relevant?

was available.60 In so doing, it recalled that, by virtue of Article 32 ARSIWA, alleged

C. Internal Law and the Substantive Law Applicable to the Proceedings

D. Contract Claims and Umbrella Clauses

III. INTERNAL LAW AND ATTRIBUTION IN ISDS

Therefore, the interplay of internal and international law is of considerable impor-

A. Notion of ‘State Organ’

circumstances sufficient to connote the status of an organ of the State to a separate

B. Notion of ‘Elements of Governmental Authority’

The ARSIWA Commentary also notes that:

IV. INTERNAL LAW AND QUESTIONS OF

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