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Economic Disputes between States and Private Parties: Some Legal Thoughts on the Institutionalization of their Settlement

Published online by Cambridge University Press:  21 May 2009

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The international economic order of the late fifties and early sixties was still fascinated by the so-called salt-water colonialism. This appears from international legal attempts at that time to offer more protection to foreign investors than was available to their host countries. The mid-sixties inaugurated a new era by reversing this trend. Legal aspects of the settlement of investment disputes between States and nationals of other States, such as stabilization clauses and the choice of both forum and applicable law, thus in the seventies became subordinate to the discretionary powers of host States, whether or not a party to a contract. A possible consensus regarding the 1974 Charter of Economic Rights and Duties of States (CERDS) was even abandoned because of this prevailing view. The real challenge in this period formed the establishment of a New International Economic Order (NIEO) moulded in a predominantly political blue-print for the development of States as the sole or main actors in international economic relations.

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Articles
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Copyright © T.M.C. Asser Press 1986

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References

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10. It is controversial whether and to what extent technology belongs to the natural resources of a State.

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17. GA Res. 3281 (XXIX) of 12 December 1974, adopted by 120 votes to 6, with 10 abstentions. See De Waart, P.J.I.M., ‘Permanent Sovereignty over Natural Resources as a Cornerstone for International Economic Rights and Duties of States’, Essays on International Law and Relations in Honour of A.J.P. Tammes (1977) pp. 311314 and 322Google Scholar;Stemberg, D.H., Die Charta der wirtschaftlichen Rechte und Pflichten der Staaten (1983) pp. 2629Google Scholar.

18. CERDS, Art. 2(1) adopted by 119 votes to 9, with 3 abstentions. A survey of the votes on separate articles is presented in Doc. A/9946 p. 19.

19. In this connection it is worth noting that Vattel includes private property in the possessions of a State. See Le Droit des Gens ou Principes de la Loi Naturelle Appliqués à la Conduite & aux Affaires des Nations et des Souverains (1758) book I para. 235, and book II para. 81.

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22. CERDS, Chapter I(j), adopted unanimously.

23. CERDS, Art. 33, adopted unanimously. See ILA - Report of the Sixtieth Conference, Montreal (1982) p. 197Google Scholar.

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25. Vienna Convention on the Law of Treaties, Arts. 53 and 64; Sornarajah, , op.cit. n.8, pp. 127130Google Scholar.

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28. Case concerning United States Diplomatic and Consular Staff in Tehran, ICJ Rep. (1980) p. 20.

29. David, R., L'arbitrage dans le Commerce International (1980) pp. 232 and 260Google Scholar. See also, Lalive, P., ‘Some Threats to International Investment Arbitration’, 1 Foreign Investment L.J. (1986) pp. 27Google Scholar, 32 who mentions some types of ‘arbitral behavior’ and gives ‘pathological’ examples. At page 37 the author writes: ‘There are a significant and disturbing number of cases — ICSID, ICC and others — in which a State or State-controlled entity has resorted to various techniques to water down or undermine its commitment to arbitrate’.

30. Docs. TD CODE TOT/41; 18 The CTC Reporter (1984) pp. 10–11.

31. Docs. TD/CODE TOT/35 and 38; 18 The CTC Reporter (1984) pp. 10–11.

31. Docs. TD/CODE TOT/35 and 38; 18 (1984) p. 9.

32. Verzijl, J.H.W., ‘International Law in Historical Perspective’, Part VI, Juridical Facts and Sources of International Rights and Obligations (1973) pp. 727735Google Scholar; Sornarajah, , op.cit. n.8, pp. 1112 and 135–137Google Scholar.

33. Meessen, K., ‘IMF Conditionality and State Sovereignty’, in Dicke, D.Chr., ed., Foreign Debts in the Present and a New International Economic Order (1986) pp. 117130Google Scholar. See also, Gold, J., Legal and Institutional Aspects of the International Monetary System: Selected Essays, vol. II (1984) pp. 306 and 436–440Google Scholar; UNCTAD Trade and Development Report 1984, op.cit. n.5, paras. 343–354; Moffitt, M., The World's Money (1983) pp. 127132Google Scholar; Dam, K.W., The Rules of the Game, Reform and Evolution in the International Monetary System (1982) pp. 125 and 169Google Scholar; Sampson, A., The Money Lenders, Bankers In A Dangerous World (1982) pp. 350354Google Scholar.

34. See (Dutch) National Advisory Council for Development, 84, ‘Recommendation on Minimum International Labour Standards’, (11 1984) pp. 3334 and 46–50Google Scholar; Teunissen, H.J.J., ‘Recommendation on Minimum International Labor Standards’, 2 AJIL (1986) pp. 385386CrossRefGoogle Scholar.

35. Universal Declaration of Human Rights, Art. 17.

36. Henkin, L., ed., The International Bill of Human Rights, The Covenant on Civil and Political Rights (1981) p. 21Google Scholar; Türk, and de Waart loacit. n. 4, para. 2.1Google Scholar.

37. With the exception of COMECON, international and regional economic organizations and treaties are characterized by the absence of an explicit condition for members (parties) in respect of the choice of their economic systems. COMECON aims at the extension of mutual economic co-operation. Membership shall be open to other countries which subscribe to the purposes of the Council and declare that they agree to accept the obligations contained in the COMECON Charter (Art. 11(2)).

38. On the speciality of the arbitral clause in this connection see, among others, Schmithoff, C.M., ‘The Jurisdiction of The Arbitrator’, in The Art of Arbitration, Essays on International Arbitration Liber Amicorum Pieter Sanders (1982) pp. 290291Google Scholar; Kahn, P.H., ‘Contracts d'Etats et nationalisation, les apports de la sentence arbitrale du 24 mars, 1982’, 109 Clunet (1982) p. 850 with referencesGoogle Scholar.

39. Vienna Convention on the Law of Treaties, Arts. 27 and 46. See also, Elias, T.O., The Modern Law of Tteaties (1974) pp. 142150Google Scholar; Akehurst, M., A Modern Introduction to International Law, 5th edn. (1984) p. 130Google Scholar.

40. In re Marie-Elisabeth Bol concerning the application of the 1902 Hague Convention Governing the Guardianship of Infants, ICJ Rep. (1958) p. 62, fn. 1.

41. Ibid.

42. On this subject see Kokkini-Iatridou, D. and de Waart, P.J.I.M., ‘Foreign Investments in Developing Countries — Legal Personality of Multinationals in International Law’, 14 NYIL (1983) pp. 87131CrossRefGoogle Scholar.

43. de Waart, P.J.I.M., The Element of Negotiation in the Pacific Settlement of Disputes Between States (1973) pp. 3132Google Scholar. In principle the methods for the settlement of disputes between States and nationals of other States are no different from those which are mentioned in Art. 33 of the UN Charter, albeit that in the former relations the private party has no corresponding freedom of choice.

44. In Holiday Inns and Others v. Government of Morocco (ICSID Case No. ARB/72/1) the ICSID tribunal stated that the Convention need not have been ratified before the contract was entered into. See on this case Lalive, P., ‘The First “World Bank” Arbitration, Some Legal Problems’, 51 BYIL (1980) p. 146Google Scholar.

45. Report of G. Delaume (Senior Legal Adviser, ICSID), for the Conference on Contemporary Problems in International Arbitration, 25–27 March 1985, Queen Mary College, University of London, p. 20; see also Shihata, , op.cit. n. 15, p. 5Google Scholar.

46. See Schmidt, G., ‘Arbitration Under the Auspices of the ICSID, Implications of the Deci-sion on Jurisdiction in Alcoa Minerals of Jamaica Inc. v. Government of Jamaica’, Harv. ILJ (1976) p. 90Google Scholar.

47. The award on jurisdiction (25 September 1983, Case ARB/81/2) is published in 23 ILM (1984) p. 351. See Legal Rules applied by ICSID Arbitral Tribunals’, News From ICSID, vol. 1, no. 2 (1984) p. 5Google Scholar.

48. Delaume, , Report, op.cit. n.45, p. 16Google Scholar; Shihata, , op.cit. n. 15, p. 4Google Scholar.

49. This means that when a party attempts to bring an action in another forum, such as a domestic court in a Contracting State, the court should refer the parties to ICSID. See ICSID and the Courts’, News From ICSID, vol. 21, no. 2 (1985) pp. 6Google Scholar and 7 where the decision of the Court of Appeal of Rennes, France, of 26 October 1984 is published. In casu one of the parties to an ICSID clause sought the assistance of the French court in attachment proceedings relating to the vproperty of the other party. The Court refused its assistance: under the Convention the only provisional measures available to the parties are those that can be recommended by an ICSID tribunal on its own initiative or at the parties' request.

50. See ‘ICSID and the Courts’, loc.cit. n. 49, p. 6.

51. In this context mention should also be made of Rule 21 of the Revised Arbitration Rules 1984 which states that at the request of the Secretary-General (or at the discretion of the President of the Tribunal or at the request of the parties) a pre-hearing conference may be held between the Tribunal and the parties. The pre-hearing conference may be employed to accelerate the process of fact-finding or to facilitate amicable settlement between parties. See Parra, A.R. (Counsel, ICSID), ‘Revised Regulations and Rules’, News From ICSID, vol. 2, no. 1 (1985) pp. 46Google Scholar.

52. According to Parra, A.R., 'The Screening Power of the ICSID Secretary-General, News From ICSID, vol. 2, no. 2 (1985) pp. 10Google Scholar and 12, the only occasion so far on which the Secretary- General has withheld registration of a request pursuant to Arts. 28 and 36 was in the Holiday Inns case (supra n. 44) with respect to four of the eight claimants. The author observes (p. 13) that parties often consult with the Secretary-General before submitting requests, thus allowing an informal screening to take place at that stage.

53. Parra, , loc.cit. n. 52, p. 12Google Scholar.

54. On the identity and nationality of parties, see Delaume, , Report, op.cit. n.45, p. 22 et seq.Google Scholar; see also by the same author, Legal Rules Applied by ICSID Tribunals’, News From ICSID, vol. 2 (1985) pp. 36Google Scholar where ICSID awards are cited, and Parra, , loc.cit. n.52, pp. 11, 12Google Scholar.

55. Shihata, writes (loc.cit. n.15, p. 6)Google Scholar: ‘Disputes relating to new types of “investment” have included disputes arising out of agreements for the construction of a chemical plant on a turnkey basis, coupled with a management contract; a management contract for a cotton mill, a contract for the equipping of vessels for fishing and training of their crews, and technical and licensing agreements for the manufacture of weapons’.

56. See Delaume, G., News From ICSID, vol. 1, no. 2 (1984) pp. 1819Google Scholar.

57. Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Arts. 38 and 5; ICC Rules of Arbitration, pp. 18–19.

58. UNCITRAL Arbitration Rules, Art. 6(3)(d) and Administrative Guidelines under Art.13(2)(a).

59. ICC Rules of Arbitration, Art. 2(5) and Internal Rules of the Court of Arbitration, Art. 13.

60. GA Res. 31/98 of 15 December 1976, adopted without a vote.

61. During the ICCA (= International Council for Commercial Arbitration), VI International Arbitration Congress Mexico City, 13–16 March 1979 (1980) pp. 419–422, 426 and 436, the significance of arbitration for the settlement of disputes arising from transfer of technology was extensively dealt with.

62. Herrmann, G., ‘Commentary on the UNCITRAL Conciliation Rules’, VI Yearbook Commercial Arbitration (1981) p. 176Google Scholar; Eisemann, D., ‘Conciliation as a Means of Settlement of Interna-tional Business Disputes: the UNCITRAL Rules as Compared with the ICC System’, in The Art of Arbitration, op.cit. n.38, pp. 121129Google Scholar.

63. On the question of the applicable law, see Kokkini-Iatridou, and De Waart, , op.cit. n.9, pp. 6673, 233 – 259Google Scholar; Cabanellas, G. Jr., ‘Applicable Law under International Transfer of Technology Regulations’, International Review of Industrial Property and Copyright Law (1984) p. 39 et seq.Google Scholar; Kokkini-Iatridou, , ‘Contracts for the Transfer of Technology’, an unpublished report for the Hague Zagreb Colloquium (1985) pp. 3176Google Scholar. These publications contain numerous references to the literature.

64. The autonomy of the parties is also accepted in the UNCITRAL Model Law on International Commercial Arbitration, adopted at the eighteenth session in Vienna, 21 June 1985 (UN D A/40/17, pp. 81–93). On this Model Law see Herrmann, G., ‘UNCITRAL Adopts Model Law on International Commercial Arbitration’, 2 Arbitration International (1986) p. 3CrossRefGoogle Scholar.

65. On this question see de Boer, Th.M. and Kotting, R., ‘Der niederländische Richter und das US - Gasröhren - Embargo’, Praxis des Internationalen Privat- und Verfahrensrechts (1984) pp. 108112Google Scholar.

66. 21 ILM (1982) pp. 92–105 and the annotation by H. Battifol.

67. For an English translation see 1 Foreign Investment Law Journal (1986) p. 112.

68. Art. 28(2) of the UNCITRAL Model Law states: ‘Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of law rules which it considers applicable’. Unlike the ICSID rules, the Model law rejects renvoi ‘unless otherwise expressed’ (Art. 28.1).

69. See Derains, Y., ‘Les normes d'application immédiate dans la jurisprudence arbitrale’, Le Droit des relations economiques Internationales, Etudes offertes a Berthold Goldman (1982) p.32et seq.Google Scholar; Derains, Y. and Jarvin, S., ‘Chronique des sentences arbitrales’, 110 Clunet (1983) pp. 891899Google Scholar. See also Fumagelli, L., ‘La lege applicabile al merito della controversia nell' arbitrato commerciale internazionale’, Rivista di Diritto Internazionale Privato e Processuale (1985) pp. 477484Google Scholar, with many references to the literature; Loquin, E., ‘Les pouvoirs des arbitres internationaux à la lumière de l'évolution recente du droit de l'arbitrage international’, 110 Clunet (1983) p. 339Google Scholar.

69. Paulsson, J., ‘Le tiers monde dans l'arbitrage commercial international’, Revue de l'arbitrage (1983) p. 10Google Scholar.

71. See Derains, , loc.cit. n.69, p. 44Google Scholar.

72. Ibid., p. 37; by the same author see also Règles de lois et règles de fond applicables aux litiges, a report for the ICCA Interim Meeting on UNCITRAL's Model Law, 9–12 May 1984, Lausanne, in which he largely repeats his contribution from the Goldman volume

73. See Fumagelli, , loc.cit. n.69, p. 475Google Scholar and fn. 28 where numerous international Conventions and Agreements are mentioned.

74. The dominant opinion takes as its point of departure that the multiplicity of national public order should not present a barrier to free-flowing international trade which has led to the emerging of the concept of ‘ordre public rielement international’. As to its contents this concerns human rights, the principles of pacta sunt servanda and auditur et altera pars, good faith, jus cogens within international law, and the customary law recognized within international trade denoted as lex mercatoria. On these concepts see, in particular, Goldman, B., ‘Les conflits des lois dans l'Arbitrage International de Droit Privé, Hague Recueil (1963) p. 344Google Scholar, and by the same author, ‘Lex Mercatoria’, Forum Internationale (1983) p. 22Google Scholar; Matray, L., ‘Arbitrage et ordre public transnational’, in The Art of Arbitration, op.cit. n.38, p. 241Google Scholar; Lew, J., Applicable Law in International Commercial Arbitration (1978) p. 539Google Scholar; Courteault, P. and Flecheux, G., ‘La notion d'ordre public dans la jurisprudence de la Cour de Cassation’, Revue de l'arbitrage (1978) p. 342Google Scholar.

75. See, e.g., UNCTAD (28 August 1980) under the title, ‘Legislation and Regulations on Technology Transfer: empirical analysis of the effects in selected countries’, TD/B/C/. 6/55. For the consequences of the introduction of the American Export Control Laws, see, e.g., Fazzone, P.B., ‘Business Effects of the Extraterritorial Reach of the U.S. Export Control Laws’, Droit et Pratique du Commerce International (1982) pp. 631 et seqGoogle Scholar.

76. Report of Cahier, Ph., The Strengths and Weaknesses of International Arbitration Involving a Country as a Party, for the Conference on Contemporary Problems in International Arbitra-tion 25–27 03 1985, Queen Mary College, University of London, pp. 137139Google Scholar. The court's judgment is under review before the French Cour de Cassation — see Shihata, , loc.cit. n. 15, p. 5 fn. 23Google Scholar.

77. See the Texaco award which considered a provision on international arbitration to be an argument for the internationalization of the contract, in 17 ILM (1978) p. 3 et seq. (The original French text of the decision is published in 104 Clunet (1977) p. 320).

78. Matray, in the Art of Arbitration, op.cit. n.38, p. 247Google Scholar: ‘Elle [to read: la bonne foi] a certainement inspiré la jurisprudence arbitrate constante selon laquelle une personne morale de droit public traintant avec des personnes étrangères et concluant avec elles une clause compromissoire ne peut, ultérieurement, au mépris de son propre engagement, contester la validité de la clause en invoquant sa loi nationale d'interdiction’.

79. David, , op.cit. n.29, p. 262Google Scholar writes: ‘II serait vain de chercher à rèaliser un accord international pour définir les matières dans lesquelles on peut, ou on ne peut pas, recourir à l'arbitrage. La sagesse demande qu'on laisse chaque Etat décider souverainement pour quelles catégories de contestation il admet ou non ce recours; toute perspective de voir ratifier les Conventions internationales disparaîtrait s'il en était autrement’. However, in our opinion, this has nothing to do with the ‘false doctrine’, which identifies the State and the law and against which Rigaux rightly makes a stand. See Rigaux, F., ‘Souveraineté des états et arbitrage transnational’, Le Droit des Relations Economiques Internationales, Etudes offertes à Berthold Goldman (1982) p. 274Google Scholar. From a waiver of that competence by a host State in the context of a contract with the national of another State international law may draw the conclusion that the State's own concept of its power to do so will be decisive.

80. See n. 42, supra.

81. UN Convention on the Law of the Sea (1982), Art. 153 para. 2 and Annex III, Art. IV, in 21 ILM (1982) pp. 1297 and 1331.

82. World Bank Convention Establishing the Multilateral Investment Guarantee Agency (MIGA), Art. 24 with Annex I and Art. 57 with Annex II, in 24 ILM (1985) pp. 1616, 1626, 1629–1634 and the Introductory Note, p. 1603; see also Shihata, , loc.cit. n.15, pp. 1719Google Scholar.

83. Ibid.

84. According to David, (op.cit. n.29, p. 263)Google Scholar a State party to the ICSID or COMECON Conventions is not allowed to oppose an arbitration on the mere ground that such an arbitration violates the public order as that State sees fit: ‘une telle assertion serait contraire à toute bonne fois dans le cas de la Convention de la BIRD, à un engagement pris sur le plan du droit international public dans le cas de la Convention entre Etats du CAEM. Nulle question de conformité ou contrariété à l'ordre public ne saurait se poser, en conséquence, dans le cas des conventions ou litiges auxquels sont applicables ces Conventions’.

85. The distinction in internal law between the rights of the shareholders (for example, the right to vote and the right to dividend) and the rights of the company was transposed to the international level by the International Court of Justice in the Barcelona Inaction case. If the rights of the company are violated this may entail an infringement upon the ‘interests’ of the shareholders. Concerning this distinction see Kokkini-Iatridou and Waart, De, loc.cit. n.42, pp. 124128Google Scholar, with references to the relevant literature.

86. See Annex, para. 14.