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Published online by Cambridge University Press: 19 November 2020
International investment tribunals often use the language of ‘rights’ to characterize foreign investors’ claims against host states, evoking the language of human rights and, in some cases, appearing to conflate the two concepts. We investigate the cognitive framing of the relationship between investor rights and human rights in investor-state dispute settlement (ISDS), as characterized by investment tribunals. We first establish that arbitrators (and scholars and counsel) tend to characterize investor claims as rights claims in general and property rights claims in particular, even if this normative basis is far from precise. Second, building on behavioural economics and cognitive psychology, we argue that this characterization places human rights considerations at a structural disadvantage in ISDS. Investor rights are perceived by arbitrators as endowments that are possessed and that risk being lost, while the human rights of host state populations are viewed as aspirational demands that might only be fully realized in the future. Thus, governmental actions interfering with investments are perceived by arbitrators as actual losses, while competing human rights claims are perceived as potential gains or demands. Following prospect theory, the former (certain losses) will usually be weighed more heavily in a decision-making calculus than the latter (possible gains). This loss–gain frame provides a cognitive explanation for the prevalence of arbitral decisions that prefer investor claims over human rights, a phenomenon that is highly problematic in times in which the legitimacy of the ISDS system rests on its ability to consider the rights of non-investors.
We thank Anne van Aaken, Julian Arato, Jonathan Bonnitcha, Patrick Emerton, Moshe Hirsch, Ernst-Ulrich Petersmann, Sergio Puig, Yuval Shany, and Joel Trachtman as well as participants at workshops and conferences at the University of Oslo, Hebrew University of Jerusalem, Monash University, and Brooklyn Law School for helpful comments and discussions. All errors are ours.
1 Unless otherwise stated, we use the term ‘rights’ in relation to investors in relation to investors’ enjoyment of the substantive protections set out in the relevant investment treaty and as afforded by customary international law, rather than procedural rights such as a right to bring proceedings or a right to eschew redress in domestic courts.
2 Columbia Center on Sustainable Investment, International Institute for Environment and Development and International Institute for Sustainable Development, ‘Third Party Rights in Investor-State Dispute Settlement: Options for Reform’, Submission to UNCITRAL Working Group III on ISDS Reform, 15 July 2019.
3 For an overview see J. T. Gathii and S. Puig, ‘Introduction to the Symposium on Investor Responsibility: The Next Frontier in International Investment Law’, (2019) 113 American Journal of International Law Unbound 1, and subsequent contributions in that issue.
4 For a thorough analysis of property as a human right see J. E. Alvarez, ‘The Human Right of Property’, (2018) 72 University of Miami Law Review 580.
5 See D. Kahneman and A. Tversky, ‘Prospect Theory: An Analysis of Decision under Risk’, (1979) 47 Econometrica 263.
6 See M. Hirsch, ‘The Interaction between International Investment Law and Human Rights Treaties: A Sociological Perspective’, in T. Broude and Y. Shany (eds.), Multi-Sourced Equivalent Norms (2011), 211.
7 See, eg., E. Borchard, The Diplomatic Protection of Citizens Abroad or the Law of International Claims (1919), at 61; E. Borchard, ‘The “Minimum Standard” of the Treatment of Aliens’, (1940) 38 Michigan Law Review 445, at 452.
8 Dunn, F., ‘International Law and Private Property Rights’, (1928) 28 Columbia Law Review 166, at 176CrossRefGoogle Scholar.
9 D. Schneiderman, ‘The Global Regime of Investor Rights: Return to the Standards of Civilised Justice?’, (2014) 5 Transnational Legal Theory 60, at 68.
10 Schneiderman, ibid., at 68, citing Sir John Fischer Williams, ‘International Law and the Property of Aliens’, (1928) 9 British Yearbook of International Law 1, at 24.
11 Schneiderman, ibid., at 68.
12 Ibid.
13 However, we note that FET clauses in some more recently concluded IIAs that refer to ‘substantive rights’ in order to contain the ambit of the clause: see, e.g., Art. 10.5 Oman–US FTA (2006): ‘the concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by [customary international law] and do not create additional substantive rights’. See also, e.g., with similar wording, Art. 6 Ch. 11, Agreement Establishing the ASEAN–Australia–New Zealand Free Trade Area (2009).
14 W. N. Hohfeld, ‘Fundamental Legal Conceptions as Applied in Judicial Reasoning’, (1917) 26 Yale Law Journal 710, at 717.
15 We discuss the distinctions between these types of entitlements below.
16 See Hohfeld, supra note 14, at 742–3, 747.
17 See G. Alexander, ‘Property as Propriety’, (1998) 77 Nebraska Law Review 667, at 668 (noting different views concerning what the role of property in the proper social order should be).
18 We note for the sake of completeness that rights talk has also begun to pervade the characterization of what is termed states’ ‘right to regulate’ to promote public welfare. In Hohfeldian terms, the preferable characterization would be a privilege.
19 Hohfeld, supra note 14, at 717.
20 This is a civil recourse theory type argument transplanted to international law – the idea that a state’s failure to comply with the IIA endows the investor with a legal power to seek redress (rather than the corrective justice theory, which holds that failure to comply with first-order duties toward the investor enlivens a second-order duty to repair): see B. Zipursky, ‘Rights, Wrongs, and Recourse in the Law of Torts’, (1998) 50 Vanderbilt Law Review (1998) 1.
21 S. Munzer, A Theory of Property (1990), at 20.
22 See generally F. Kamm, ‘Rights’, in J. Coleman, K. Himma and S. Shapiro (eds.) The Oxford Handbook of Jurisprudence and Philosophy of Law (2004), 476.
23 Dunn, supra note 8, at 177: ‘It is apparent … that the social conception of property has made little if any progress among the dominant powers of the world, and that vested property rights are still looked upon as absolute and inviolable.’
24 Kamm, supra note 22, at 478, citing J. Thomson, The Realm of Rights (1990) (distinguishing between permissible and impermissible transgressions of rights).
25 See, e.g., some of the contributions in P. Dupuy, F. Francioni and E. Petersmann (eds.), Human Rights in International Investment Law and Arbitration (2009).
26 Z. Douglas, ‘Property, Investment, and the Scope of Investment Protection Obligations’, in Z. Douglas, J. Pauwelyn, and J. E. Viñuales, The Foundations of International Investment Law: Bringing Theory into Practice (2014), 363.
27 J. Bonnitcha, Substantive Protection Under Investment Treaties: A Legal and Economic Analysis (2014). See further, in relation to the intersection of the international law of expropriation with a variety of theories of property rights, J. Kurtz, The WTO and International Investment Law: Converging Systems (2016), 192–3.
28 N. Perrone, ‘The Emerging Global Right to Investment: Understanding the Reasoning Behind Foreign Investor Rights’, (2017) 8 Journal of International Dispute Settlement 673, at 679.
29 See J. Arato, ‘The Private Law Critique of International Investment Law’, (2019) 113 American Journal of International Law 1, at 3, 5 (also noting that in Philip Morris v. Uruguay, the tribunal took a more nuanced view that recognized the non-absolute nature of intellectual property rights, in the same vein as other investment tribunals that have considered intellectual property claims: Philip Morris v. Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016). These concerns are not new. As Judge Rosalyn Higgins observed in 1982 in relation to expropriation in international law, ‘I am very struck by the almost total absence of any analysis of conceptual aspects of property … how … can we decide whether a particular deprivation is permissible, and if so on what grounds … unless we have some sense of the social function of property and what it is that judges and arbitrators are doing when they make these decisions.’ R. Higgins, ‘The Taking of Property by the State: Recent developments in International Law’, (1982) 176 Collected Courses of the Hague Academy of International Law 268.
30 See Venezuela Holdings, BV and others v. The Bolivarian Republic of Venezuela, ICSID Case No ARB/07/27, Decision on Annulment, 9 March 2017, paras. 168, 172. See also Mason Capital L.P. and Mason Management LLC v. Republic of Korea, PCA Case No. 2018-55, Decision on Respondent Preliminary Objections, 22 December 2019, para. 135.
31 M. Sornarajah, Resistance and Change in the International Law on Foreign Investment (2015), at 224, 271, 275, 288.
32 Perrone, supra note 28, at 689.
33 We performed searches for ‘investor rights’, ‘property rights’, and ‘proprietary rights’ on 28 February 2020 using the investorstatelawguide.com database. The search was restricted to English language documents and the following document types: Decisions on Jurisdiction or Preliminary Questions; Final Awards on Jurisdiction, Merits or Damages; Partial Awards or Decisions on the Merits; Separate Opinions; Decisions of Annulment Committee.
34 Regarding the nature of investor rights as original or derivative see, e.g., Z. Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’, (2003) 7 British Yearbook of International Law 151; M. Paparinskis, ‘Investment Treaty Arbitration and the (New) Law of State Responsibility’, (2013) 24 European Journal of International Law 617.
35 In human rights law, some rights are regarded as absolute (indefeasible) and peremptory, such as the right not to be subjected to torture, and some may have greater normative force than others (such as the right to a fair trial compared with the right to property); see, e.g., noting such distinctions, A. Legg, The Margin of Appreciation in International Human Rights Law: Deference and Proportionality (2012), at 200.
36 Accession Mezzanine Capital L.P. and Danubius Kereskedohaz Vagyonkezelo v. Hungary, ICSID Case No. ARB/12/3, Award, 17 April 2015, paras. 147–8. However, the tribunal did not give examples of what personal rights might be in the context of a foreign investment, instead referring somewhat obliquely to a ‘license to practice medicine’ as a type of personal right, compared with a license to operate a taxi, which is regarded in many legal systems as a property right that may be transferred: Accession Mezzanine, paras. 147–8. A license to practice medicine is better regarded, in Hohfeldian terms, as a privilege rather than a right. See also Douglas, supra note 26, at 375 (Douglas was a member of the Accession Mezzanine tribunal).
37 British Caribbean Bank Ltd. v. Government of Belize, PCA Case No. 2010-18/BCB-BZ, Award, 19 December 2014, para. 281 (finding that the impugned conduct was both an expropriation and a failure to afford fair and equitable treatment).
38 Suez and others v. Argentina, ICSID Case No. ARB/03/17, Separate Opinion of Pedro Nikken, 30 July 2010, paras. 4, 19.
39 C.f. S. Steininger, ‘What’s Human Rights Got To Do With It? An Empirical Analysis of Human Rights References in Investment Arbitration’, (2018) 31 Leiden Journal of International Law 33, at 45–9.
40 South American Silver Limited v. Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 30 August 2018.
41 Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award, 30 November 2017.
42 Ibid., para. 297.
43 Indigenous and Tribal Peoples Convention, 1989 (No. 169), signed 27 June 1989, in force 5 September 1991.
44 Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v. Argentine Republic, Award, 8 December 2016.
45 Ibid., paras. 1205–10.
46 Ibid., para. 622. However, Argentina was held liable for only one act in breach of FET; most of the claims were dismissed, and the tribunal held that any breach was justified by the defence of necessity.
47 The debate over the nature of social and economic rights as mainly ‘positive’ rights, and the implications for judicial review, is longstanding. See, e.g., R. Hirschl, ‘“Negative” Rights vs. “Positive” Entitlements: A Comparative Study of Judicial Interpretations of Rights in an Emerging Neo-Liberal Economic Order’, (2000) 22 Human Rights Quarterly 1060; Y. Shany, ‘Stuck in a Moment in Time: The International Justiciability of Economic, Social and Cultural Rights’, in D. Barak-Erez and A. Gross (eds.), Exploring Social Rights (2007), 77.
48 Art. 2 ICESCR provides: ‘Each State Party … undertakes to take steps … to the maximum of its available resources, with a view to achieving progressively the full realization of the rights recognized in the present Covenant …’, whereas Art. 2 ICCPR provides: ‘Each State Party … undertakes to respect and to ensure the rights recognized in the present Covenant’ and ‘undertakes … to adopt such laws or other measures as may be necessary to give effect to the rights recognized in the present Covenant’.
49 For example, in all the cases reviewed there are no references to the term ‘progressive realization’ in the cases, which one might expect tribunals to discuss if they were cognisant of the positive rights–negative rights distinction.
50 E. Zamir and D. Teichman, Behavioral Law and Economics (2018), at 190–1.
51 Arts. 11 and 12, ICESCR.
52 Committee on Economic, Social and Cultural Rights, General Comment No. 15: The Right to Water (Arts. 11 and 12 of the Covenant), Adopted at the Twenty-ninth Session of the Committee on Economic, Social and Cultural Rights, on 20 January 2003, para. 45.
53 Urbaser, para. 1210.
54 EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Award, 11 June 2012.
55 Suez, Sociedad General de Aguas de Barcelona S.A. and Interagua Servicios Integrales de Agua S.A. v. Argentine Republic, ICSID Case No. ARB/03/17, Decision on Liability, 30 July 2010; Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A v. Argentine Republic, ICSID Case No. ARB/03/19, Separate Opinion of Arbitrator Pedro Nikken, 30 July 2010.
56 Ibid., paras. 240 and 263 respectively.
57 Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Decision on Jurisdiction and Liability, 10 April 2013, paras. 304, 312.
58 Ibid., para. 308.
59 Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 17 January 2007, para. 79.
60 Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, paras. 254, 261. See also, e.g., National Grid P.L.C. v. Argentina Republic, UNCITRAL, Award, 3 November 2008: Argentina makes these arguments (at para. 136) but they are not discussed by the tribunal.
61 Section 2 above.
62 Section 3 above.
63 Section 4 above.
64 See T. Broude and S. Moses, ‘The Behavioral Dynamics of Positive and Negative Listing in Services Trade Liberalization: A Look at the Trade in Services Agreement (TiSA) Negotiations’, in P. Sauvé and M. Roy (eds.), Research Handbook on Trade in Services (2016), 385.
65 See Hirsch, supra note 6.
66 See Kahneman and Tversky, supra note 5.
67 R. H. Coase, ‘The Problem of Social Cost’, (1960) 3 Journal of Law and Economics 1.
68 Zamir and Teichman, supra note 50, at 43; see also E. Zamir, ‘Loss Aversion and the Law’, (2012) 65 Vanderbilt Law Review 829.
69 Zamir and Teichman, ibid., at 50. See also R. Korobkin, ‘Wrestling with the Endowment Effect, or How to do Law and Economics without the Coase Theorem’, in E. Zamir and D. Teichman (eds.), The Oxford Handbook of Behavioral Economics and the Law (2014), at 300.
70 A. Tversky and D. Kahneman, ‘Rational Choice and the Framing of Decisions’, (1986) 59 Journal of Business S251.
71 A. Tversky and D. Kahneman, ‘The Framing of Decisions and the Psychology of Choice’, (1981) 211 Science 453.
72 For a masterly overview regarding law in general see Zamir and Teichman, supra note 50; focusing on international law applications, see A. van Aaken, ‘Behavioral Law and Economics’, (2014) 55 Harvard International Law Journal 421; T. Broude, ‘Behavioral International Law’, (2015) 163 University of Pennsylvania Law Review 1099.
73 Broude, ibid., at 1132.
74 As per Hirsch, supra note 6.
75 C. Guthrie, J. J. Rachlinski and A. J. Wistrich, ‘Inside the Judicial Mind’, (2001) 86 Cornell Law Review 777.
76 K. Sharfman, ‘Judicial Valuation Behavior: Some Evidence from Bankruptcy’, (2005) 32 Florida State University Law Review 387, at 391.
77 As to which see C. Henckels, Proportionality and Deference in Investor-State Arbitration (2015), 128–68 (advocating for an institutionally sensitive approach to the use of proportionality analysis and arguing that its final balancing stage of is inapposite to ISDS).
