Implicancias de la identificación y cuantificación para la representación: tema

The term “State contract” describes an agreement between a government and a natural or legal person. Concession agreements,

e.g.,

contracts conferring rights on investors to exploit natural resources in the host State, are the best known examples of State contracts.si However,

48 ) Voss, The Protection and Promotion o f Foreign Investment in Developing Countries: Interests,

Interdependencies, Intricacies, 706.

49 ) See: UNCTAD, Series on Issues in Intem ational investment Agreements: Taking o f Property, 21 listing treaties, particularly Canadian BITs, which adopt this approach. See also: Treaty between the US and Senegal Concerning the Reciprocal Encouragement and Protection of Investment, dated Decem ber 6, 1983, Art. 111(1) and Treaty between the US and Haiti Concerning the Reciprocal Encouragement and Protection of Investment, dated Decem ber 1 2 ,1 9 8 3 , Art. 111(1).

80 ) Such an exception would probably be favoured by capital-importing States, which may otherwise fear that any regulation that somehow interferes with a foreign investment may be termed “creeping expropriation” or “regulatory taking”. The difficulty of defining the borderline between “legitimate regulatory measures” and “takings" would remain. 81 ) The term “concession agreem ent” often refers to an agreement to exploit natural resources, particularly oil and gas. See: e.g., the B P [1974] 53 ILR 297, Texaco [1977] 53 ILR 389 and Liamco [1977] 62 ILR 141 cases as well as

they may also have other objectives, such as the construction and operation of transport and telecommunication s y s te m s .^ z State contracts raise two highly controversial legal is s u e s .^ ^

The first is the law applicable to such agreements in the absence of an explicit choice of law clause. Some jurists, for example arbitrator Prof. Dupuy in the

Texaco

award,assert that in these cases State contracts may be “internationalised”. This means that they are subject to international law either instead of or, in addition to, the law of the host State. The breach of a State contract would then

per se

constitute an international wrong, similar to the breach of a treaty. Opponents of this theory reject it because international State practice does not support it.^s “Internationalisation” of a State contract also does not offer a clear set of rules applicable to such agreements,56 and there is no convincing definition of the category of contracts so “internationalised”^^. According to this alternative view, the State contract is subject to the national law of the host State, but certain aspects may be controlled by the

lex mercatoria,

or by another national law determined by applying rules of conflict of laws.^8 The breach of a State contract is not per se an international wrong.

The second controversy relates to the validity of stabilisation clauses. A stabilisation clause in a State contract provides that a State may not unilaterally alter or prematurely terminate the agreement. The majority of writers adopt the view that stabilisation clauses are valid under

Sapphire Intemational Petroleums Ltd. vs. National Iranian Oil Company [1963] 35 ILR 136 (hereinafter “Sapphire’), Saudi Arabia vs. Arabian American Oii Company [1958] 27 ILR 117 (hereinafter “Aramco”) and Ruler o f Q atar vs.

International Manne Oil Company, Ltd. [1953] 20 ILR 534. However, in The Mavrommatis Jerusalem Concessions

Case [1925] P.C.I.J., Series A, No. 5, the concession covered rights for the “public distribution of electric power and for electric tramways”, and rights for the “construction and exploitation of the works necessary for the supply of drinking w ater”. See also: the decision of the Permanent Court of Arbitration in the Lighthouses Arbitration between France and Greece (Claim No. 27) [1956] 23 ILR 299, where the operation and administration of lighthouse services was subject to a concession agreement. For more details on contractual rights as one form of an “investment” see, supra: chapter A III 1.

52 ) For a more examples, see: Brownlie, Principles o f Public International Law, 549-550.

53 ) For more details on State contracts see: e.g., Paasivitra, “Internationalisation and Stabilisation of State Contracts versus State Sovereignty” (1989) 60 BYIL 315 and Greenwood, State Contracts and International Law - The Libyan

0/7 Arbitrations, 27.

54 ) [1977] 53 ILR 389 at 455 and Jennings, “State Contracts in International Law” (1961) 37 BYIL 156 at 162-163. 55 ) Brownlie, Principles of Public International Law, 552, See also: the decision of the P.C.I.J. in the Case Conceming the Paym ent o f Various Serbian Loans Issued in France [1929] P.C.I.J., Series A, No. 20/21, where the court held that “any contract, which is not a contract between States in their capacity as subjects of international law is based on the municipal law of some country” Ibid., 41.

56 ) Sornarajah, The International Law on Foreign Investment, 343 and Fatouros, “International Law and the Internationalized Contract” (1980) 74 A J IL 134 at 136.

57 ) Bowett, “State Contracts with Aliens: Contemporary Developments on Compensation for Termination or Breach” (1988) 59 BYIL 49 at 51.

56 ) For more details on these other views rejecting the “internationalisation theory”, see: Ibid, 50-53.

international iaw^s as long as they do not amount to the permanent and irrevocable relinquishment of a State’s sovereign povi/ers.^o However, it is disputed whether or not the breach of a State contract containing a stabilisation clause constitutes an internationally unlawful act

The Convention needs to avoid the uncertainties associated with these controversial questions. There are three possible approaches to deal with State contracts.

1.

Explicit Provision Equating Termination or Alteration o f State Contracts with

Expropriation.

Such a clause would specify that a unilateral alteration or termination of a State

contract by the host State for non-commercial reasons may amount to a lawful expropriation if the requirements set forth in the treaty for a lawful taking are met.^z The Guidelines contain a similar provision.63 Such a rule clarifies that the breach of a State contract even in violation of a stabilisation clause is not

per se

unlawful under international law. It constitutes an unlawful taking only if certain pre-conditions listed in the Convention for a lawful expropriation are not satisfied. For example, the unilateral termination of a concession agreement for non-commercial reasons and without a legitimate public purpose would be illegal. The qualification that the State contract may not be unilaterally terminated or altered for non-commercial reasons is essential. It ensures that a termination or alteration by the host State for commercial reasons, and in compliance with

59 ) The validity of stabilisation clauses under national law obviously depends on domestic laws and regulations. Some authors have argued that stabilisation clauses are often invalid under national law and even if they are not, their continuing effect is in the hands of the national legislature. See: W alde and N ’di, “Stabilising International Investment Commitments: International Law Versus Contract Interpretation” (1996) 1:9 CEPM LP Internet Journal 1 at 20, published at http://www.dundee.ac.uk/cepmlp/iournal/html/article1-9.html. However, the validity of stabilisation clauses under domestic law only becomes an issue if the State contract in question is governed by a national law. 69 ) See: e.g., Greenwood, State Contracts and International Law - The Libyan Oil Arbitrations, 61-62, Jaenicke, “Consequences of a Breach of an Investment Agreem ent Governed by International Law, by General Principles of Law or by Domestic Law of the Host State” in Dicke (ed.). Foreign Investment in the Present and a N ew Intemational Economic Order (Fribourg: University Press Fribourg, 1987) 177 at 185 and the Texaco [1977] 53 ILR 389, Liamco

[1977] 62 ILR 141 and Aminoil [1982] 66 ILR 519 awards. It is, however, unclear under which circumstances a State’s sovereignty has been limited to an extent which would render a stabilisation clause invalid. In Texaco [1977] 53 ILR 389, a stabilisation clause in an agreem ent over 50 years was considered to be valid, while in Amoco Intem ational Finance Group Corp. vs. Iran, National Iranian Oil Company, National Petrochemical Company and Kharg Chemical Company (Partial Award) [1987] 83 ILR 501 (hereinafter “Am oco’), 35 years was not a “limited period of tim e”. Detter De Lupis argues that stabilisation clauses are contrary to State sovereignty and thus invalid because a State cannot bind itself not to nationalise foreign property. See: Detter De Lupis, Finance and Protection o f Investments In Developing Countries, 2"^ ed., (Hants: Gower Publishing Company Ltd., 1987), 84-85.

61 ) For illegality: Judge Fitzmaurice in his separate opinion in the Aminoil award [1982] 66 ILR 621-627, White,

Nationalisation o f Foreign Property, 179 and arbitrator Dupuy in the Texaco award [1977] 53 ILR 389 at 494-495. However, the majority in the Aminoil case [1982] 66 ILR 519 and arbitrator Mahmassani in the Liamco case [1977] 62 ILR 141 at 196-197 held that the breach of a State contract containing a stabilisation clause was lawful.

62 ) For more details on the requirements for a lawful expropriation, see infra: chapter B IV 2. 63) Guideline IV(11).

the law of the contract,

e.g.,

upon a material breach of the contract by the investor, would not be equated with an expropriation, for which compensation would be due.64

2.) Obligation Clause.

An obligation clause guarantees that each Contracting Party

observes any obligations arising from a particular commitment it may have entered into with regard to a specific investment's Some BITs contain an obligation clause, which makes the observation of the terms of a State contract a treaty obligation.^s This feature distinguishes it from the first option outlined above. The breach of a State contract by the host State would thus automatically constitute a breach of the Convention. This technicality puts pressure upon States not to breach agreements with foreign investors. It safeguards a high degree of security and predictability. In addition to a traditional obligation clause the Convention may also specify that such a provision is without prejudice to the host States right to alter or terminate the contract for commercial reasons and in compliance with the law governing the agreement. This would reassure States otherwise reluctant to agree to an obligation clause because it ensures that unilateral alteration and termination of State contracts in these circumstances would not result in a violation of the Convention.

3.) Making the observation of a State contract a prerequisite for a lawful taking.

A third

option to address State contracts is explicitly to make their observation a prerequisite for a lawful taking under the Convention. The treaty would then only allow expropriation if, in addition to the other conditions for lawful takings outlined below,^^ it is not a breach of a State contract. The difference between such a provision and an obligation clause is that the latter makes the

64 ) The difficulty in practice, however, is how to distinguish commercial from political reasons and how to deal with cases where both motivations are involved.

65 ) Gallins, Bilateral Investment Protection Treaties, 84. An obligation clause reinforces that contractual rights are “investments” under the Convention. For more details on the definition of investment, see supra: chapter A III 1.

66 ) Jaenicke, Consequences o f a Breach o f an Investment Agreem ent Governed by Intemational Law, by General Piinclples o f Law or by Domestic Law o f the Host State, 190. A number of recent treaties, such as the Energy Charter Treaty (Art. 10(1), last sentence) and the Agreement between the UK and India for the Promotion and Protection of Investments, dated March 1 4 ,1 9 9 4 , (Art. 3(3)) make the observation of any obligation entered into with an investor a treaty obligation. The difference between such a provision and a traditional obligation clause is that the latter Is limited to “specific commitments” or obligations arising out of a “specific investment”, while the former may cover all types of obligations of the host State, even commitments in general legislation on which prospective investors relied. See: W alde, intemational Investment under the 1994 Energy Charter Treaty, 294-295. Such a broad provisions that does not clearly define which obligations of the host State are covered by the treaty, may not be acceptable to States in a multilateral investment convention, particularly if disputes between foreign investors and host States arising out of this provision are covered by the treaty’s investor-State dispute resolution machinery. The Energy Charter Treaty - if interpreted literally - seems to provide for these very wide consequences. See: ibid., 295. The UK-lndia BIT, by contrast, explicitly mentions in Art. 3(3) that “Each Contracting Party shall observe any obligation it may have entered into with regard to investments of investors of the other Contracting Party, provided that dispute resolution under Article 9 o f this Agreem ent shail only be applicable to this paragraph in the absence o f a normal local judicial rem edy being available." [Emphasis added.] Article 9 of the BIT addresses disputes between an investor and a host State.

67 ) Chapter B IV 2.

observation of

all

articles of a State contract a treaty obligation. Ttie former, by contrast, would only make the provision on expropriation in the State contract a treaty obligation under the Convention.

To summarise:

1.) The treaty must elaborate the concept of creeping expropriation. It should list illustrative measures, which would constitute a creeping expropriation.

2.) The instrument should include an obligation clause, making the observation of State contracts a treaty obligation. Such a provision should be without prejudice to the host State’s right to alter or terminate the agreement for commercial reasons and in compliance with the law of the contract.

2. Conditions for Lawful Expropriations

It is generally accepted that expropriations of alien property are not

per se

contrary to international law, provided that certain conditions are met.^s However, much disagreement exists on the exact extent of these prerequisites.

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