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Editor’s note:
Discussions at the international investment policy level are increasingly focusing on the intersection between human rights obligations, investor responsibilities, and international investment law. In this context, CCSI staff recently gave remarks at two fora on these issues. The remarks below, which highlight how investor responsibilities are, could, and should be incorporated into or interact with investment law, were delivered on November 13, 2019 at a breakout session on “Ensuring Responsible Investment” at UNCTAD’s High Level IIA Conference. A separate set of remarks, which address the issues of access to justice and corporate accountability for investment-related harms, were delivered in November 2019 at the UN Forum on Business and Human Rights.
The issue of investor responsibilities in investment law is – and should be — gaining prominence. Questions regarding whether and how investor responsibilities are, could, and should, be incorporated into or otherwise interact with international investment law and international investment agreements (IIAs) are a crucial part of the conversation regarding international investment law and policy, and reform thereof.
We can break the issue of IIAs and investor responsibilities down into three main, related areas:
The first issue is the one that is most discussed: whether and to what extent IIAs can and should provide legal grounds and procedural mechanisms to challenge corporations when they violate laws and/or cause harms, or to limit the benefits they would otherwise get from the treaty. For example, if a locally established, foreign-owned firm violates domestic environmental regulations, internationally recognized human rights, or domestic and international rules against corruption, can we and should we treat those breaches as relevant to or actionable under international investment law? If the answer is yes, there are several ways IIAs could treat these breaches of law or otherwise respond to harm-causing conduct. Certain breaches could result in the loss of IIA coverage or, more narrowly, access to ISDS. Additionally, IIAs could empower tribunals to order the firm to pay damages or comply with other sanctions. Claims against companies could be made as counterclaims or direct claims by states, or, potentially, by other non-state actors allowed to join the proceedings.
As a general matter, under current treaties and tribunal approaches, investor misconduct can result in loss of IIA protection and/or access to ISDS in the narrow cases in which the investor has clearly engaged in fraud or corruption in the making of the investment.[1] In some cases, investor misconduct can also result in the tribunal reducing the damages awarded to an investor if and when the tribunal deems that the misconduct has contributed to the investor’s losses.[2] In IIA-based ISDS cases, tribunals have permitted counterclaims based on contract, domestic and international law in only a handful of disputes.[3] And these are counterclaims, not independent claims, meaning that they are brought as a response to the investor’s suit as opposed to as an original cause of action. One consequence is that the parties to the case – generally the investor (not the locally invested firm) and the respondent state (not the particular individuals or entities harmed) – may not be the right parties. The shareholder claimants may not owe legal duties to those harmed in the host country;[4] and the state party may not adequately represent those harmed, or rightly recover remedies for the harms suffered by its citizens.[5] In short, IIAs and ISDS are currently not well-structured to be, nor are being interpreted and used as, tools for affirmatively enforcing corporate obligations and securing recourse for harms suffered by investment-affected rights-holders.
The second issue area related to investment law and investor responsibilities involves the signals that investment law sends investors. In other spheres of law and policy, we have recently seen important shifts in how corporate responsibilities are being conceived and articulated. Key contributions at the international level include the development of the protect, respect and remedy framework, adoption of the United Nations (UN) Guiding Principles on Business and Human Rights, development and continued refinement and application of the OECD Guidelines on Multinational Enterprises, and adoption of the UN Sustainable Development Goals (SDGs). These instruments, particularly in concert, recognize the private sector as a key actor with shared responsibilities to advance articulated rights and goals. At the domestic level, we have seen important new laws that, for instance, expressly require human rights due diligence.[6]
Investment law is falling behind these parallel trends and initiatives and is even sending contrary signals. For instance, as a general matter, domestic and international laws, norms, and guidance are well advanced in terms of articulating corporate responsibilities to ensure respect for human rights, including the right to free, prior and informed consent (FPIC). But tribunals, in failing to adequately address, grapple with, and incorporate those laws, norms and guidance in investment disputes, have effectively told investors that their failure to comply with responsibilities in these areas and their complicity in human rights violations are legally irrelevant when, for instance, determining whether the investment was legal,[7] whether the investor had legitimate expectations to develop the project,[8] whether the state breached the treaty by taking action to protect those human rights,[9] and whether general exceptions or policy powers protections apply.[10]
Additionally, the OECD Guidelines for Multinational Enterprises and the OECD Guiding Principles for Durable Extractives Contracts caution against investors’ attempts to secure stabilization provisions and/or otherwise secure contractual deviations from or exceptions to the law.[11] In investment law, however, such stabilization provisions and deviations are strongly protected. Indeed, in the recent case of Tethyan v. Pakistan, the tribunal effectively granted the investor rights to stabilization provisions and deviations from the law it had never actually contractually secured and was not entitled to, and ordered billions of dollars of compensation, allowing the investor to benefit from that special, privileged, unsound, and effectively made-up legal regime.[12]
These decisions undermine signals being sent to investors in other contexts about the conduct we expect of global corporate citizens, and are out of step with modern policies on corporate responsibilities and sustainable development.
Third and finally, the ways in which investor claimants, third-party funders, and even law firms are using investment law are inconsistent with corporate responsibilities. Corporate responsibilities to respect human rights include corporations’ positions and practices in litigation and arbitration, and how they use those processes to influence the content and application of the law.[13] Much of the concern about investors vis-à-vis IIAs and ISDS relates not to the fact that investors who are using the system have breached discrete obligations under domestic or other law, but the fact that investment law provides corporate actors and asset holders disproportionate power to shape the law and outcomes, including in ways that are inconsistent with or undermine sustainable development and human rights. Investment law allows them extraordinary power to challenge, for instance:
ISDS cases are rarely about unremedied corruption or discrimination at the domestic level. More commonly, they are corporate efforts to use international law to shape how public and private rights and interests are balanced, and how economies and societies are regulated, and to do so in a forum where the participation, power and voices of other stakeholders are marginalized or non-existent. The focus on investor obligations is thus broader than issues of discrete investor wrongdoing. It is about attempting to address abusive and extortionary uses of investment treaties, and the failure, to date, of actors within the ISDS system to rein in such practices. While some recent treaty innovations are noteworthy, existing efforts do not adequately prevent treaties from being used as tools for rent extraction, or as instruments for international asset holders, law firms, and claim funders to distort the law in their favor. Meaningful articulation of the precise problems treaties are meant to address (bias, discrimination and lack of due process), and the grievances they are not, would be of tremendous value, as would sanctions for the filing of abusive claims.
Each of these three areas of intersection between investor obligations and IIAs are areas that merit further attention, and that reform processes could and should be used to address.
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For more information on aligning investment frameworks with human rights obligations and sustainable development objectives, see:
