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i
D O M E S T I C L AW I N I N T E R N AT I O N A L
I N V E S T M E N T A R B I T R AT I O N
ii
Domestic Law
in International
Investment Arbitration
by
J A R RO D H E P B U R N
1
iv
1
Great Clarendon Street, Oxford, OX2 6DP,
United Kingdom
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© Jarrod Hepburn 2017
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v
For Dad
vi
vii
protections for investors. Such interactions are only likely to increase, if moves con-
tinue towards imposing obligations on investors in IIAs (as seen, for example, in the
2015 Indian Model Bilateral Investment Treaty), particularly where accompanied
by the possibility of host States bringing counterclaims or even direct claims against
investors for, say, failing to comply with host State law.
Unfortunately, as this volume demonstrates, many tribunals have not grappled
well with questions of domestic law in international investment arbitration. Soft
law instruments have developed in other areas of international arbitration, such as
the 2008 report of the International Law Association on ascertaining the contents
of the applicable law in international commercial arbitration, and the guidelines
of the International Bar Association on conflicts of interest in international arbi-
tration (revised in 2014). However, similar guidance does not yet exist to assist
tribunals in determining issues of domestic law in international investment arbitra-
tion. In that context, Hepburn’s recommendations have the potential to form the
basis for enhanced soft law on the determination of the content of domestic law in
international investment arbitration. Those recommendations include interpreting
and applying domestic law as it exists in its own jurisdiction, that is, with reference
to relevant domestic interpretations, principles, statutes and caselaw, as well as to
experts called by the parties or the tribunal itself. The detailed analysis and justifica-
tions underlying these recommendations as set out in this volume provide a crucial
reference for future discussions and disputes.
Andrew D. Mitchell and Tania Voon
November 2016
ix
Acknowledgements
Table of Contents
Table of Cases xv
1 Introduction 1
1.1 Legitimacy and the ‘Backlash’ against Investment Arbitration 4
1.2 Overview of the Book 8
PA RT I I D E N T I F Y I N G D O M E S T I C L AW I S S U E S
I N I N V E S T M E N T A R B I T R AT I O N
2 Domestic Law and Fair and Equitable Treatment 13
2.1 Introduction 13
2.2 Domestic Law and Direct FET Breaches 17
2.2.1 Domestic legality contributing to FET compliance 17
2.2.2 Domestic illegality contributing to FET breach 20
2.2.3 Domestic legality as a determinative factor? 21
2.3 Domestic Law and Legitimate Expectations under
the FET Standard 26
2.4 Domestic Law and Arbitrariness under the FET Standard 31
2.4.1 Domestic legality as irrelevant 33
2.4.2 Domestic legality as contributory factor 34
2.4.3 Domestic legality as a proxy for (non-)arbitrary measures 36
2.5 Conclusion 39
PA RT I I R E S O LV I N G D O M E S T I C L AW I S S U E S
I N I N V E S T M E N T A R B I T R AT I O N
5 Ascertaining the Contents of Domestic Law in Investment Arbitration 103
5.1 Introduction 103
5.2 Domestic Law as Fact in International Investment Arbitration 104
5.3 Tribunals’ Attitude towards Domestic Law 108
5.4 The Practicalities of Ascertaining the Contents of Domestic Law 112
5.4.1 Guidance in arbitral rules 112
5.4.2 Arbitrators’ knowledge of domestic law 113
5.4.3 Guidance from international courts 114
5.4.4 Guidance from national courts 116
5.4.5 Guidance from international commercial arbitration 117
5.5 The Principle of Iura Novit Curia in Investment Arbitration 120
5.6 Weighting Domestic Case-law and Other Domestic
Law Materials 125
5.6.1 Fear of host state manipulation of local case-law 126
5.6.2 No binding res judicata for local case-law 129
5.6.3 Resolving conflicts or uncertainties in domestic case-law 133
5.7 Expert Evidence on Domestic Law 134
5.8 Conclusion 137
8 Conclusion 193
Bibliography 199
Index 209
xiv
xv
Table of Cases
Accession Mezzanine Capital LP v Hungary (ICSID Case No ARB/12/3), Award,
17 April 2015������������������������������������������������������������������������������������������������������������������� 1, 184
ADC Affiliate Ltd v Hungary (ICSID Case No ARB/03/16), Award of the Tribunal,
2 October 2006������������������������������������������������������������������������������������������������� 53, 57, 85, 155
Adel al Tamimi v Oman (ICSID Case No ARB/11/33), Award, 3 November 2015�����������������15, 133
Adem Dogan v Turkmenistan (ICSID Case No ARB/09/9), Award, 12 August 2014 �����������������������82
Adem Dogan v Turkmenistan (ICSID Case No ARB/09/9), Decision on Annulment,
15 January 2016�������������������������������������������������������������������������������������������������������������������108
ADF Group Inc v USA (ICSID Case No ARB(AF)/00/1), Award, 9 January 2003��������������������� 21, 28
AES Summit Generation Ltd v Hungary (ICSID Case No ARB/07/22), Award,
23 September 2010 �������������������������������������������������������������������������������������������������������34, 104
Ahmadou Sadio Diallo (Guinea v DRC) (Compensation) [2012] ICJ Rep 324���������������������������������95
Ahmadou Sadio Diallo (Guinea v DRC) (Judgment) [2010] ICJ Rep 639 �������������������������������32, 114
Alasdair Anderson v Costa Rica (ICSID Case No ARB(AF)/07/3), Award, 19 May 2010������� 157, 184
Al-Bahloul v Tajikistan (SCC Case No V 064/2008), Partial Award on Jurisdiction and
Liability, 2 September 2009����������������������������������������������������������������������� 15, 22, 26, 128, 171
Albert Jan Oostergetel v Slovakia (UNCITRAL), Decision on Jurisdiction, 30 April 2010 �������������195
Albert Jan Oostergetel v Slovakia (UNCITRAL), Final Award, 23 April 2012���������������������������������122
Alex Genin v Estonia (ICSID Case No ARB/99/2), Award, 25 June 2001 ����������������31, 34, 35, 178-9
Alpha Projektholding GmbH v Ukraine (ICSID Case No ARB/07/16), Award,
8 November 2010�������������������������������������������������������������������������������������� 29, 61, 78, 146, 156
Amco Asia Corporation v Indonesia (1993) 1 ICSID Rep 413���������������������������������������������������87, 132
Anaconda-Iran Inc v Iran (Case No 167, Award No ITL 65-167-3), Interlocutory
Award, 10 December 1986�����������������������������������������������������������������������������������������������������89
Antoine Goetz v Burundi (ICSID Case No ARB/95/3), Award, 10 February 1999�������������� 47, 49–51,
97, 98, 124, 152, 167, 169,183
Ares International srl v Georgia (ICSID Case No ARB/05/23), Award, 28 February 2008 �������������132
ATA Construction, Industrial and Trading Company v Jordan (ICSID Case No ARB/08/2),
Award, 18 May 2010 �������������������������������������������������������������������������������������������������������������97
Azurix Corp v Argentina (ICSID Case No ARB/01/12), Award, 14 July 2006�����������������������38–9, 45
Azurix Corp v Argentina (ICSID Case No ARB/01/12), Decision on the Application for
Annulment of the Argentine Republic, 1 September 2009 ���������������������������������������������������108
Bayindir Insaat Turizm Ticaret ve Sanayi AŞ v Pakistan (ICSID Case No ARB/03/29), Award,
27 August 2009�������������������������������������������������������������������������������������������������������������������104
Bayview Irrigation District v Mexico (ICSID Case No ARB(AF)/05/1), Award,
19 June 2007����������������������������������������������������������������������������������������������������������� 107, 185–6
Bernardus Funnekotter v Zimbabwe (ICSID Case No ARB/05/6), Award, 22 April 2009�����������������60
Bernhard von Pezold v Zimbabwe (ICSID Case No ARB/10/15), Award, 28 July 2015 ������������57, 67,
72, 95, 97, 98, 105
Beyeler v Italy App No 33202/96 (ECHR, 5 January 2000)�����������������������������������������������������������153
Binder v Czech Republic (UNCITRAL), Award on Jurisdiction, 6 June 2007���������������������������������195
Biwater Gauff (Tanzania) Ltd v Tanzania (ICSID Case No ARB/05/22), Award,
24 July 2008��������������������������������������������������������������������������������������������������������������������� 19, 61
Bosh International Inc v Ukraine (ICSID Case No ARB/08/11), Award, 25 October 2012������������186
BP Exploration Co (Libya) Ltd v Libya (1979) 53 ILR 297�������������������������������������������������������������123
British Caribbean Bank Ltd v Belize (PCA Case No 2010-18), Award, 19 December 2014 �����������183
xvi
Dan Cake (Portugal) SA v Hungary (ICSID Case No ARB/12/9), Decision on Jurisdiction and
Liability, 24 August 2015�������������������������������������������������������������������������������������������������������14
David Minnotte v Poland (ICSID Case No ARB(AF)/10/1), Award, 16 May 2014�������������������������20
Desert Line Projects LLC v Yemen (ICSID Case No ARB/05/17), Award,
6 February 2008������������������������������������������������������������������������������������� 14, 140–2, 144–6, 155
Deutsche Bank AG v Sri Lanka (ICSID Case No ARB/09/02), Award, 31 October 2012���������������159
Duke Energy Electroquil Partners v Ecuador (ICSID Case No ARB/04/19), Award,
18 August 2008������������������������������������������������������������������������������������������������� 36, 39, 88, 173
Factory at Chorzow (Germany v Poland) Series A No 17 (1928)����������67, 71, 74, 76, 78, 86, 92–3, 95
Fireman’s Fund Insurance Company v Mexico (ICSID Case No ARB(AF)/02/01), Award,
17 July 2006���������������������������������������������������������������������������������������������������������������������������45
Fisheries Case (United Kingdom v Norway), Judgment of 18 December 1951 [1952]
ICJ Rep 116�������������������������������������������������������������������������������������������������������������������������156
Fisheries Jurisdiction Case (Germany v Iceland) (1974) ICJ Rep 175�����������������������������������������������123
Flughafen Zürich AG v Venezuela (ICSID Case No ARB/10/19), Award, 18 November 2014 �������132
Forminster Enterprises Ltd v Czech Republic App No 38238/04 (ECHR, 9 October 2008)�������������153
Franck Charles Arif v Moldova (ICSID Case No ARB/11/23), Award,
8 April 2013����������������������������������������������������������������������������������� 95, 97, 98, 155, 160–1, 188
Franz Sedelmayer v Russia (ad hoc), Arbitration Award, 7 July 1998������������������������������������������51, 85
Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID Case No ARB/03/25),
Award, 16 August 2007 �����������������������������161,127, 131–2, 144–5, 151, 155–6, 157, 161, 176
Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID Case No ARB/03/25),
Decision on the Application for Annulment of Fraport AG Frankfurt Airport Services
Worldwide, 23 December 2010��������������������������������������������������������������� 110, 131–2, 144, 176
Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID Case No ARB/03/25),
Dissenting Opinion of Bernardo Cremades, 19 July 2007��������������������� 146, 156, 158, 175, 176
Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID Case No ARB/11/12),
Award, 10 December 2014����������������������������������������������������������������������������������� 106, 141, 185
F-W Oil Interests Inc v Trinidad and Tobago (ICSID Case No ARB/01/14), Award, 3 March
2006������������������������������������������������������������������������������������������������������������������������ 167, 182–3
GAMI Investments Inc v Mexico (UNCITRAL), Final Award, 15 November 2004����������� 16–7, 26, 28
Gavazzi v Romania (ICSID Case No ARB/12/15), Decision on Jurisdiction, Admissibility
and Liability, 21 April 2015���������������������������������������������������������������������������������������������������92
GEA Group Aktiengesellschaft v Ukraine (ICSID Case No ARB/08/16), Award,
31 March 2011������������������������������������������������������������������������������������������������� 31, 80, 164, 179
Generation Ukraine Inc v Ukraine (ICSID Case No ARB/00/9), Award, 16 September 2003�����������27
Glamis Gold Ltd v USA (UNCITRAL), Award, 8 June 2009����������������������������� 17–8, 28, 34, 40, 178
Gold Reserve Inc v Venezuela (ICSID Case No ARB(AF)/09/1), Award, 22 September 2014 ���������184
Government of the Province of East Kalimantan v PT Kaltim Prima Coal (ICSID
Case No ARB/07/3), Award on Jurisdiction, 28 December 2009 �������������������������������������������63
xviii
H&H Enterprises Investments Inc v Egypt (ICSID Case No ARB/09/15), The Tribunal’s
Decision on Respondent’s Objections to Jurisdiction, 5 June 2012���������������������������������������180
Havala v Slovakia App No 47804/99 (ECHR, 12 November 2002)�����������������������������������������������76
Helnan International Hotels A/S v Egypt (ICSID Case No ARB/05/19), Award, 3 July 2008 ���������132
Hentrich v France App No 13616/88 (ECHR, 22 September 1994) �����������������������������������������153–4
Hochtief AG v Argentina (ICSID Case No ARB/07/31), Decision on Liability,
29 December 2014���������������������������������������������������������������������������������������������������������������147
Hussein Nuaman Soufraki v UAE (ICSID Case No ARB/02/7), Decision of the ad hoc
Committee on the Application for Annulment of Mr Soufraki, 5 June 2007��������� 108, 110, 132
Legal Status of Eastern Greenland (Norway v Denmark) PCIJ Series A/B No 53 (1933)�����������������������8
LESI SpA and Astaldi SpA v Algeria (ICSID Case No ARB/05/3), Decision on Jurisdiction,
12 July 2006��������������������������������������������������������������������������������������������������������� 140–2, 145–6
LG&E Energy Corporation v Argentina (ICSID Case No ARB/02/1), Decision on Liability,
3 October 2006���������������������������������������������������������������������������������������������������������������������31
xix
xx Table of Cases
Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11), Dissenting
Opinion, 20 September 2012������������������������������������������������������������������������������������������� 80, 81
OI European Group BV v Venezuela (ICSID Case No ARB/11/25), Award, 10 March 2015�������������55
Quasar de Valores SICAV SA v Russia (SCC), Award, 20 July 2012����������������������������� 15, 61, 159, 196
Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Award,
16 September 2015 ������������������������������������������������������������������21, 45, 49, 84, 86, 88, 120, 134
Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Decision on Jurisdiction,
27 September 2012 ������������������������������������������������������������������������� 145–6, 150, 155, 184, 188
Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Partially Dissenting Opinion of Brigitte
Stern, 7 September 2015 �������������������������������������������������������������������������������������������������������67
Saba Fakes v Turkey (ICSID Case No ARB/07/20), Award, 14 July 2010 ������������� 135, 143, 148, 190
Salduz v Turkey App No 36391/02 (ECHR, 27 November 2008)���������������������������������������������������76
xxi
United States: Anti-Dumping Act of 1916—Report of the Panel (31 March 2000) WT/DS136/R ������� 111
United States: Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products
from Germany—Report of the Appellate Body (28 November 2002) WT/DS213/AB/R����������116
United States: Sections 301-310 of the Trade Act of 1974—Report of the Panel
(22 December 1999) WT/DS152/R�������������������������������������������������������������������������������������133
Yukos Universal Ltd v Russia (PCA Case No AA 227), Final Award, 18 July 2014 ����������� 92, 141, 159
1
1
Introduction
During the 1990s, the Republic of Hungary adopted a range of policies designed
to attract foreign investment. As part of this, in 1997, Hungary conducted a tender
for the operation of two national commercial FM radio stations. Following the
tender, broadcasting licences for the two stations were awarded separately to two
foreign investors. The investors operated the stations with some degree of success
until 2009, when the licences were due for renewal. In a 2009 tender process, how-
ever, the investors failed to have their licences renewed, despite enjoying what they
viewed as a legally guaranteed incumbent operator advantage. Instead, the licences
were transferred to inexperienced new operators with close ties to the ruling politi-
cal party. Concern over the tender process, and over later changes in Hungary’s
media laws, was expressed by a range of countries and organizations, including the
European Union, the Council of Europe, various European states, Japan, and the
United States.1
Affronted by the 2009 tender outcome, in October 2011 the investors lodged
notices of arbitration at the International Centre for Settlement of Disputes
(ICSID), relying on the UK–Hungary, Netherlands–Hungary, and Switzerland–
Hungary bilateral investment treaties (BITs). According to the investors, the ‘scan-
dalously flawed’ tender process amounted to an unlawful expropriation of their
investment in Hungary, violating the BITs and deserving compensation.2 Two sep-
arate tribunals were constituted to hear the claims. In April 2014 and 2015, the two
tribunals rendered their final decisions on each claim. Both tribunals hinted that
the investors had a reasonable case on the merits, and that Hungary’s conduct left
much to be desired.3 However, both tribunals rejected jurisdiction over the claims,
and the investors received no compensation.
As a dispute brought under treaties relating to rights granted in interna-
tional law, the radio investors’ claims were largely governed by international law.
However, despite the international framework of the dispute, unavoidable and
crucial questions of domestic (Hungarian) law lay at the heart of the expropria-
tion claim. As one of the tribunals observed, an investor cannot be expropriated
1 Emmis International Holding BV (ICSID Case No ARB/12/2), Award, 16 April 2014 [42]–[44];
Accession Mezzanine Capital LP v Hungary (ICSID Case No ARB/12/3), Award, 17 April 2015 [55].
2 Emmis International Holding BV v Hungary (ICSID Case No ARB/12/2), Request for Arbitration,
28 October 2011 [3].
3 Emmis (n 1) [261]; Accession Mezzanine (n 1) [190], [200].
Domestic Law in International Investment Arbitration. First Edition. Jarrod Hepburn. © Jarrod
Hepburn 2017. Published 2017 by Oxford University Press.
2
2 Introduction
if it has no property in the first place.4 Importantly, whether or not the investors
had any property required a determination of whether Hungarian law granted a
property right in the outcome, or the process, of the 2009 tender (as the inves-
tors had argued). Applying Hungarian law, the tribunals in both cases ruled that,
while the investors might have been well placed to win the tender, and while they
had a right to expect the tender to be conducted fairly and transparently, they had
no property rights that could have been expropriated by Hungary. Because of this
fundamental question of domestic law, the tribunals denied jurisdiction, and the
investors’ claims failed.5
The investors’ claim of expropriation under BITs governed by international
law, then, ultimately depended almost entirely on the answer to a question
of Hungarian domestic law.6 This scenario is not by any means unusual. The
Hungarian radio investor cases are only one instance of a commonplace phenome-
non in international investment law: claims made under BITs, ostensibly governed
by international law, depend in various respects on questions of domestic law.7
Such questions include the attribution of conduct to the state, the nationality of
an investor, the existence of property rights under host state law, the breach of an
‘umbrella’ clause, and an investor’s compliance with domestic law when making
an investment.8 All these questions call for consideration of the law of the host
state in order to resolve some issue relevant for the remainder of the international
law claim.
In spite of the significant role of domestic law, however, much of the academic
discussion in the field of investment law has concentrated on questions of inter-
national law. Several authors have examined the meaning of the guarantee of ‘fair
4 Emmis (n 1) [159].
5 As the Emmis tribunal observed (at [144]), the cases might well have ended differently if the rel-
evant BITs had included consent to arbitration over alleged breaches of another common investment
treaty protection, the fair and equitable treatment standard. This standard would not require the strict
proof of property rights called for by an expropriation claim. Other cases relating to flawed tender
processes, such as Lemire v Ukraine or Bosca v Lithuania, have indeed succeeded on claims of breach of
fair and equitable treatment.
6 The term ‘domestic law’ in this book is considered to be equivalent to the potential alternatives
of ‘municipal law’, ‘local law’, ‘internal law’, or ‘national law’. While J Crawford, Brownlie’s Principles
of Public International Law (8th edn, OUP 2012) 48, considers the various terms to have ‘slightly dif-
ferent connotations’, this book treats the terms as interchangeable, as do HE Kjos, Applicable Law in
Investor-State Arbitration: The Interplay between National and International Law (OUP 2013) 14, and G
Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (CUP 2015)
187. The intention is to encompass all products of a state’s legal system, including laws adopted at fed-
eral, state/provincial, or city/municipality levels, as well as judicial precedents where these constitute a
source of law, as in common law systems.
7 The general problem of interaction between domestic law and international law in international
courts and tribunals is certainly not a new one. For instance, CW Jenks, ‘The Interpretation and
Application of Municipal Law by the Permanent Court of International Justice’ (1938) 19 BYIL 67,
describes many situations in which the PCIJ was, or might have been, required to apply municipal law.
8 See, e.g., A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of
Treatment (Kluwer 2009) 92–5; C McLachlan, L Shore and M Weiniger, International Investment
Arbitration: Substantive Principles (OUP 2007) 69–70, 182–4; M Sasson, Substantive Law in Investment
Treaty Arbitration: The Unsettled Relationship between International and Municipal Law (Kluwer 2010)
xxviii–xxx.
3
Introduction 3
9 M Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (OUP
2013); A Diehl, The Core Standard of International Investment Protection: Fair and Equitable Treatment
(Kluwer 2012); R Kläger, ‘Fair and Equitable Treatment’ in International Investment Law (CUP 2011);
I Tudor, The Fair and Equitable Treatment Standard in the International Law of Foreign Investment
(OUP 2008).
10 S López Escarcena, Indirect Expropriation in International Law (Edward Elgar 2014); J Dalhuisen
and A Guzman, ‘Expropriatory and Non-Expropriatory Takings under International Investment Law’
(2012) UC Berkeley Public Law Research Paper 2137107 <ssrn.com/abstract=2137107>; T Gazzini,
‘Drawing the Line between Non-Compensable Regulatory Powers and Indirect Expropriation of
Foreign Investment: An Economic Analysis of Law Perspective’ (2010) 7 Manchester J Intl Econ L 36;
Y Fortier and S Drymer, ‘Indirect Expropriation in the Law of International Investment: I Know It
When I See It, or Caveat Investor’ (2004) 19 ICSID Review 293.
11 Z Douglas, ‘The MFN Clause in Investment Arbitration: Treaty Interpretation off the Rails’
(2011) 2 JIDS 97; K Hobér, ‘MFN Clauses and Dispute Resolution in Investment Treaties: Have
We Reached the End of the Road?’ in C Binder and others, International Investment Law for the
21st Century: Essays in Honour of Christoph Schreuer (OUP 2009); Y Radi, ‘The Application of
the Most-Favoured-Nation Clause to the Dispute Settlement Provisions of Bilateral Investment
Treaties: Domesticating the “Trojan Horse” ’ (2007) 18 EJIL 757.
12 K Chubb, ‘The State of Necessity Defense: A Burden, Not a Blessing to the International
Investment Arbitration System’ (2013) 14 Cardozo J Conflict Resolution 532; A Kent and A
Harrington, ‘The Plea of Necessity under Customary International Law: A Critical Review in Light of
the Argentine Cases’ in C Brown and K Miles (eds), Evolution in Investment Treaty Law and Arbitration
(CUP 2011); A Reinisch, ‘Necessity in Investment Arbitration’ (2010) 41 NYIL 137.
13 G Bücheler, Proportionality in Investor- State Arbitration (OUP 2015); C Henckels,
Proportionality and Deference in Investor-State Arbitration (CUP 2015); E Leonhardsen, ‘Looking for
Legitimacy: Exploring Proportionality Analysis in Investment Treaty Arbitration’ (2012) 3 JIDS 95;
A Stone Sweet, ‘Investor-State Arbitration: Proportionality’s New Frontier’ (2010) 4 Law and Ethics
of Human Rights 47.
14 LW Mouyal, International Investment Law and the Right to Regulate: A Human Rights
Perspective (Routledge 2016); J Calamita, ‘International Human Rights and the Interpretation of
International Investment Treaties: Constitutional Considerations’ in F Baetens (ed.), Investment Law
within International Law: Integrationist Perspectives (CUP 2013); E de Brabandere, ‘Human Rights
Considerations in International Investment Arbitration’ in M Fitzmaurice and P Merkouris (eds),
The Interpretation and Application of the European Convention of Human Rights: Legal and Practical
Implications (Martinus Nijhoff 2012); B Simma, ‘Foreign Investment Arbitration: A Place for
Human Rights?’ (2011) 60 ICLQ 573; T Nelson, ‘Human Rights Law and BIT Protection: Areas of
Convergence’ (2011) 12 JWIT 27; PM Dupuy, EU Petersmann, and F Francioni (eds), Human Rights
in International Investment Law and Arbitration (OUP 2009); J Fry, ‘International Human Rights
Law in Investment Arbitration: Evidence of International Law’s Unity’ (2007) 18 Duke J Comp &
Intl L 77.
15 C Henckels, ‘Balancing Investment Protection and the Public Interest: The Role of the Standard
of Review in Investor-State Arbitration’ (2013) 4 JIDS 197; A Katselas, ‘Do Investment Treaties
Prescribe a Deferential Standard of Review?’ (2012) 34 Mich J Intl L 87; A Roberts, ‘The Next
Battleground: Standards of Review in Investment Treaty Arbitration’ (2011) 16 ICCA Congress Series
4
4 Introduction
has received somewhat less attention, notwithstanding its frequent centrality to the
outcome of the case (as the Hungarian radio investors’ claims show).
At first glance, it might not be surprising that questions of domestic law are
largely ignored by commentators. With more than one hundred states having
now faced at least one investment treaty claim,16 commentators in the global
environment of international law are keen to focus on issues of common impor-
tance across the claims rather than the peculiarities of one hundred legal sys-
tems. This will naturally mean a focus on the portions of tribunals’ awards that
relate to issues of international law. The substance of Polish law might have been
highly relevant to Dutch insurance firm Eureko’s 2005 claim against Poland,
for instance,17 but scholars may not see how its relevance would extend to other
investment treaty claims.18 The substance of domestic law might be significant
for individual disputes, but it is not necessarily significant for the system of
investment arbitration.
As will be explained further below, however, the concern of this book is not with
the substance of domestic law in host states around the world. Rather, the book’s
first concern is with the range of situations in which domestic law is relevant in an
investment arbitration. The book’s second concern is with the process and meth-
odology used by international arbitrators to determine the substance of domes-
tic law when necessary to resolve an international law claim. These two process
questions—of when, and how, tribunals should deal with domestic law issues—
have significant ramifications. Both questions relate to the appropriate interaction
between domestic and international law in this area. As the next section explains,
disagreement over this interaction plays a large role in the ‘legitimacy crisis’ cur-
rently said to be plaguing investment arbitration.
Tensions between domestic prerogatives and international oversight are at the heart
both of historical doctrines on the treatment of aliens and of modern investment
treaty arbitration. For most of the twentieth century, debates over the customary
international law on foreign investment centred on the existence of an international
170; W Burke-White and A von Staden, ‘Private Litigation in a Public Law Sphere: The Standard of
Review in Investor-State Arbitrations’ (2010) 35 Yale JIL 283.
16 UNCTAD, World Investment Report 2016 (UN 2016) 104.
17 See Eureko BV v Poland (ad hoc), Partial Award, 19 August 2005; for analysis of the domestic law
aspects, see Z Douglas, ‘Nothing If Not Critical for Investment Treaty Arbitration: Occidental, Eureko
and Methanex’ (2006) 22 Arb Intl 27.
18 Apart from further claims against Poland in respect of the same domestic legal measures.
Certainly, many cases against Argentina have related to the same legal measures taken by that state
at the height of its 2001 financial crisis. For background, see, e.g., W Burke-White, ‘The Argentine
Financial Crisis: State Liability under BITs and the Legitimacy of the ICSID System’ in M Waibel and
others (eds), The Backlash against Investment Arbitration (Kluwer 2010).
5
Introduction 5
6 Introduction
inherent in granting relatively strong protections to foreign investors under inter-
national law while leaving domestic investors with often weaker protections under
local law.28
Some commentators have developed sophisticated critiques of the reasoning of
investment tribunals underpinned by democratic and political theory.29 Andreas von
Staden, for instance, has argued that principles of normative subsidiarity should push
international investment tribunals to show significant degrees of deference to the deci-
sions of host states before responsibility can be found for breach of an investment
treaty.30 Armin von Bogdandy and Ingo Venzke question the democratic legitimacy of
international adjudicators, and suggest their re-orientation towards the ‘cosmopolitan
citizen’.31 Gus van Harten has advocated comprehensive reform of the system based on
the view that investment tribunals perform roles analogous to domestic courts in judi-
cial review actions, and should therefore be bound by similar standards of review and
notions of deference to the decisions of the (domestic) political branches.32 A range
of other authors, including Stephan Schill and Benedict Kingsbury, have emphasized
the role of investment tribunals in global governance, with arbitrators ruling on the
public law obligations of states under broadly worded standards; these authors call for
appropriate standards of review and deference to fit with that role.33
Despite being the original authors of BITs and facilitating instruments such
as the ICSID Convention, states themselves have taken many of these criticisms
to heart. Countries including South Africa, Ecuador, Indonesia, Venezuela, and
Bolivia have withdrawn from the ICSID Convention and/or terminated existing
investment treaties.34 Venezuela, Argentina, and Zimbabwe have refused to pay
many awards rendered against them.35 Australia resolved to exclude the mechanism
28 V Lowe, ‘Changing Dimensions of International Investment Law’ (2007) Oxford Legal Studies
Research Paper No. 4/2007, 48–9 <ssrn.com/abstract=970727>; M Sornarajah, The International
Law on Foreign Investment (3rd edn, CUP 2010) 338; Colombian Constitutional Court, Case No
C-358/96 <www.corteconstitucional.gov.co/relatoria/1996/C-358-96.htm>. See also A de Mestral
and R Morgan, Does Canadian Law Provide Remedies Equivalent to NAFTA Chapter 11 Arbitration?
(CIGI 2016).
29 See generally Roberts (n 15).
30 A von Staden, ‘Democratic Legitimacy of Judicial Review Beyond the State: Normative
Subsidiarity and Judicial Standards of Review’ (2012) 10 ICON 1023; Burke-White and von Staden
(n 15). Nollkaemper has made a similar subsidiarity-based argument in respect of the relations between
the ICJ and domestic law, suggesting that ‘national authorities are better positioned [than international
bodies] to assess the factual and legal context of a dispute’: A Nollkaemper, ‘The Role of Domestic
Courts in the Case Law of the International Court of Justice’ (2006) 5 Chinese JIL 301, 318.
31 A von Bogdandy and I Venzke, ‘In Whose Name? An Investigation of International Courts’
Public Authority and its Democratic Justification’ (2012) 23 EJIL 7.
32 G van Harten, Investment Treaty Arbitration and Public Law (OUP 2007).
33 B Kingsbury and S Schill, ‘Investor- State Arbitration as Governance: Fair and Equitable
Treatment, Proportionality and the Emerging Global Administrative Law’ (2009) IILJ Working Paper
2009/6 <www.iilj.org/publications/documents/2009-6.KingsburySchill.pdf>. See also Dolzer and
Schreuer (n 21) 24–5.
34 Sornarajah (n 23) 1. Various EU states have also terminated (intra-EU) BITs, although not neces-
sarily out of dissatisfaction with the system: UNCTAD (n 16) 102.
35 J Dahlquist and LE Peterson, ‘Analysis: As Venezuela’s ICSID Debt Hits $4.6 Billion (Before
Interest), Two Ad Hoc Committees Offer Differing Approaches to Requests that Stays of Enforcement
Be Lifted’ (2016) 9(10) Investment Arbitration Reporter <tinyurl.com/hwebcbs>; LE Peterson,
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but not always connected with, right motor paralysis we have the
inability to use words in speaking, known as aphasia, aphemia,
alalia, and others. The first of these names is the one most
frequently used. Agraphia is the inability to use words in writing.
There are many degrees and kinds of amnesic aphasia, and, in fact,
every case is a study by itself. The slightest might be called
physiological; at any rate, it is sufficiently common among people
supposed to be well, and consists in the failure to recollect in time for
use the name, most frequently of a person, but sometimes of a thing,
which is really well known, is recognized at once if suggested, and
perhaps returns spontaneously at a later period. Another person may
forget only some words which are not recalled at any time, or parts
of words. A man appeared among the out-patients at St.
Bartholomew's Hospital who had his name written on a piece of
paper, because he could not say it, but could carry on a long
conversation. There were a few other words he could not say. The
more complete cases have no vocabulary at all, or only a few words
or syllables applied to all purposes, and perhaps an exclamation or
two. In these cases the patient may know perfectly well that he is not
expressing his ideas, and he may recognize perfectly well the word
when it is told to him or reject a wrong one. If he be, as happens in
nearly all cases, unable to pronounce the word after he has
recognized it as the one he wished for, there is a combination of
ataxic and amnesic aphasia. Incorrect or deficient words may be
corrected or supplemented by gestures or intonation. “Yes” may do
duty without confusion for “yes” or “no,” according to the tone.
Oaths may be retained, and sometimes an exclamation may be
uttered with perfect propriety of application which cannot be
repeated deliberately a moment afterward. This emotional use of
words may be considered akin to the movement executed by
paralyzed limbs under the stimulus of a movement taking place
elsewhere, and may lead to an erroneous prognosis of recovery.
This curious fact, that more or less automatic expressions are
possible when deliberately-willed pronunciation is not, is a probable
explanation for the observation which has occasionally been made
that an aphasic patient is able to sing words which he cannot speak.
40 L'Encephale, 1883, 2.
This affection is not a common one, and Weir Mitchell states that it is
common in inverse proportion to the age. He thinks it possible that
some of the congenital choreas may be the result of, or at least
closely connected with, intra-uterine cerebral paralysis. It remains for
years or for life. In the absence of history such a case might present
difficulties of diagnosis from the more usual hemichorea, which is not
infrequently accompanied by considerable weakness of the affected
side.
FIG. 41.
FIG. 42.
The modifications undergone by the urine in a case of cerebral
hemorrhage are increase of quantity amounting to polyuria, the urine
becoming limpid and afterward returning to the usual color; a
diminution in the quantity of urea coinciding with the fall of
temperature, and afterward a return to the normal or even above it.
When this augmentation is considerable, it constitutes at the same
time with a marked elevation of temperature an unfavorable
prognostic sign.46 In a case under the observation of the writer,
probably of thrombosis, the acid urine has been remarkable for the
amount of mucus contained in it, so that it pours from one vessel to
another like white of egg. There is a small amount of pus, but no
vesical irritation whatever.
46 Ollivier, Archives de Physiol., 1876.
Since the trophic centres for the muscles are situated in the spinal
cord, cerebral hemiplegia, which does not cut off their connection,
does not produce the rapid wasting seen in some cases of spinal
paralysis, unless descending degeneration involves the anterior gray
columns. The limbs preserve their fulness for a time, although the
muscular masses become flabby and slowly atrophy for want of use.
This atrophy, however, seldom becomes extreme. The skin of the
hands becomes dry, the folds at the knuckles disappear, and the
hand loses its expression, looking more like a stuffed glove. The
change, however, is not much greater than may be seen in a hand
kept for a long time in a bandage. The growth of the nails is retarded,
as may be seen by staining them with nitric acid.
Much importance has been attached to the fact that large sloughs
form with great rapidity upon the nates of the paralyzed side, and
Charcot says that this tendency is greater than can be accounted for
in any mechanical way. He therefore thinks that a direct trophic
influence of the brain upon nutrition is shown. At the very most,
however, that can only be a contributory cause, and the freedom of
other portions from a similar condition—and that, too, in regions
farther removed from the centres of circulation—makes it highly
improbable that anything more is necessary to account for it than the
less sensitiveness of that side to irritation from urine, roughnesses in
the bed, or pressure, and hence neglect. The writer, among a very
considerable number of hemiplegias, fatal and otherwise, does not
remember to have seen a well-marked case of the kind. Scrupulous
cleanliness and changing the position sufficiently often make the
preference for the paralyzed side a very slight one.
Arthropathies, consisting in a vegetating, and sometimes an
exudative, synovitis, and accompanied by swelling, redness, and
pain, are sometimes observed, especially in the upper extremity.
They do not appear until fifteen days or a month after the attack.
The arms are usually flexed at the elbow, the wrists on the arm, and
the fingers in the hand. Sometimes, however, the arm is straight. The
leg, which is not always affected to the same extent, is generally in
extension, though the toes are likely to be flexed. Attempts to move
the limbs are resisted strongly, and in such a way as to show the
reflex nature of the phenomenon. If an attempt be made to open the
fingers of a contractured hand slowly and carefully, it can be often
accomplished and the hand held open with but little pressure, but if it
is twitched the fingers resist like a spring. The violent attempt to
overcome rigidity is often painful.
In some rare cases rapid atrophy of the muscles of one limb may
take place. This has been found to coincide with extension of
degenerative changes in the cord to the anterior gray columns.
After the time for the initial depression has passed, rapidly-rising
temperature is very strong evidence in favor of apoplexy. If the
patient be only partially unconscious and able to protest against
being handled, to make some short answers, or even be inclined to
be combative, this is not to be taken as evidence of alcohol.
Hemiplegia may then be noticed. This condition of excitement may
be observed in the early stage of an apoplectic attack before it
deepens into coma. Unfortunately, when the lesion is situated in
certain portions of the brain, as in the extremities of either the frontal
or occipital lobes, there may be no paralysis, but then also there is
less likelihood of the extreme symptoms we are supposing to be
present. In the cerebellum, however, the symptoms may be very
severe without hemiplegia, and the diagnosis correspondingly
difficult. Vomiting, not caused by the presence of large quantities of
food or liquor, and persisting after the stomach is once emptied,
would be of some value in this case, but it would often be necessary
to wait for a diagnosis. Cerebellar hemorrhage is, however, a very
rare accident, and cerebellar embolism sufficiently large to cause
apoplectiform symptoms still more so. A limited lesion in the pons
may cause gradually-increasing stupor without distinct paralysis.
Chloroform, especially if swallowed, and chloral might possibly give
rise to difficulties in the way of diagnosis, and would have to be
distinguished on the same general principles as alcohol and opium.
Injuries to the head should be carefully looked for in any case with
unknown history. Actual fracture, which perhaps leads to no
depression of bone, may give rise to hemorrhage, probably
meningeal, which will cause the usual symptoms, and a shock which
is not accompanied by fracture may cause considerable laceration of
the brain with consequent hemorrhage. In the latter case, however,
unless the brain be already predisposed by arterial disease, the
laceration and hemorrhage will not be extreme and the symptoms
will be those of concussion. The diagnosis can hardly be said to be
between hemorrhage and concussion, but whether the hemorrhage
be the result of concussion—a question which can hardly be
answered without the history and observation of the further progress.
Cuts and bruises may result from a fall caused by the shock, and
pericranial ecchymoses may result from cerebral hemorrhage
through the vaso-motor system without the intervention of accident.
After the severer apoplectic symptoms have passed off, and in cases
where they have never been present, the diagnosis, so far as most
of the conditions mentioned above is concerned, is divested of many
of its difficulties when we are dealing with cases of well-marked
hemiplegia. The chief points left are the distinctions from the
apoplectiform attacks of general paralysis, cerebral syphilis, and
cerebral tumor, which are to be made as already pointed out.
In the vast majority of cases the lesion is situated upon the side of
the brain opposite to the paralysis, except in some instances of
cerebellar lesion, while in the peculiar form known as alternate
paralysis due to lesion of the pons it is on the opposite side to the
paralysis of the limbs and on the same side with the facial. It should
be distinctly stated, however, that there are exceptions which are
inexplicable on the present basis of cerebral anatomy. It is well
known that only a part of the motor tracts cross to the other side of
the cord at the decussation, and also that the proportion between the
fibres which do and those which do not cross is a variable one. It has
been suggested, in some cases of the kind mentioned, that all the
motor fibres, instead of only a minority, as is usual, pass down on the
same side of the cord as their origin. This has not been
demonstrated. The number of such cases are so small that it need
not be taken into account in diagnosis, and if the practitioner should