COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
Mr Justice Aikens
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE CLARKE
LORD JUSTICE MANCE
| Occidental Exploration & Production Company
|- and -
|The Republic of Ecuador
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr David Lloyd Jones QC and Mr Simon Birt (instructed by Messrs Weil Gotshal & Manges Llp) for the Respondent
Crown Copyright ©
Lord Justice Mance:
"Unless the parties have agreed upon the place where the arbitration is to be held, such place shall be determined by the arbitral tribunal, having regard to the circumstances of the arbitration".
Occidental and Ecuador were unable to agree upon a place, and the arbitrators by decision dated 1 August 2003 determined that it should be London. The factor "tipping the balance" in favour of London (over Washington D.C.) was its "perception . as being neutral". Hearings were actually held in Washington, but the award dated 1st July 2004 records the place of arbitration as London.
The Bilateral Investment Treaty
"14. .. (1) The Preamble sets out the aim of the Treaty, which is to promote greater economic cooperation and investment between the Parties, but on a defined and agreed basis.
(2) Article I sets out various definitions. "Investment" is defined broadly.
(3) Article II sets out the basis on which each Party will permit and treat investment .. It also provides that the Parties will ensure that investment will have fair and equitable treatment according to international law standards.
(4) Article III deals with expropriation or nationalisation of investments.
(5) Article IV deals with transfers, particularly of funds.
(6) By Article V the Parties agree to consult promptly to resolve any disputes in connection with the Treaty.
(7) Article VI deals with the resolution of "investment disputes" between a State Party and a national or company of the other State Party. Its terms are central to this application ...
(8) Article VII concerns the resolution of disputes between the two Parties to the treaty, ie. USA and Ecuador. If necessary, disputes are to be submitted to an arbitral tribunal, for binding decision "in accordance with the applicable rules of international law"."
(9) Article X deals with the tax policies of each Party and provides that each Party should strive to accord fairness and equity in the treatment of investments of nationals and companies of the other Party. It states that the provisions of the Treaty, in particular Articles VI and VII will nevertheless apply to matters of taxation only to a certain extent, as set out in the Article. This Article gave rise to argument about its scope in the arbitration between Occidental and Ecuador."
"II.3(a) Investment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law.
(b) Neither Party shall in any way impair by arbitrary or discriminatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion or disposal of investments. For purposes of dispute resolution under Articles VI and VII, a measure may be arbitrary or discriminatory notwithstanding the fact that a party has had or has exercised the opportunity to review such measure in the courts or administrative tribunals of a Party.
V. The Parties agree to consult promptly, on the request of either, to resolve any disputes in connection with the Treaty or to discuss any matter relating to the interpretation or application of the Treaty.
VI.1. For purposes of this Article, an investment dispute is a dispute between a Party and a national or company of the other Party arising out of or relating to (a) an investment agreement between that Party and such national or company; (b) an investment authorization granted by that Party's foreign investment authority to such national or company; or (c) an alleged breach of any right conferred or created by this Treaty with respect to an investment.
2. In the event of an investment dispute, the parties to the dispute should initially seek a resolution through consultation and negotiation. If the dispute cannot be settled amicably, the national or company concerned may choose to submit the dispute, under one of the following alternatives, for resolution:
(a) to the courts or administrative tribunals of the Party that is party to the dispute; or
(b) in accordance with any applicable, previously agreed dispute-settlement procedures; or
(c) in accordance with the terms of paragraph 3.
3. (a) Provided that the national or company concerned has not submitted the dispute for resolution under paragraph 2 (a) or (b) and that six months have elapsed from the date on which the dispute arose, the national or company concerned may choose to consent in writing to the submission of the dispute for settlement by binding arbitration:
(i) to the International Centre for the Settlement of Investment Disputes ("Centre") established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, done at Washington March 18, 1965 ("ICSID Convention"), provided that the Party is a party to such Convention; or
(ii) to the Additional Facility of the Centre, if the Centre is not available; or
(iii) in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL); or
(iv) to any other arbitration institution, or in accordance with any other arbitration rules, as may be mutually agreed between the parties to the dispute.
(b) Once the national or company concerned has so consented, either party to the dispute may initiate arbitration in accordance with the choice so specified in the consent.
4. Each Party hereby consents to the submission of any investment dispute for settlement by binding arbitration in accordance with the choice specified in the written consent of the national or company under paragraph (3). Such consent, together with the written consent of the national or company when given under paragraph (3) shall satisfy the requirement for:
(a) written consent of the parties to the dispute for purposes of Chapter II of the ICSID Convention (Jurisdiction of the Centre) and for purposes of the Additional Facility Rules; and
(b) an "agreement in writing" for purposes of Article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, June 10, 1958 ("New York Convention").
5. Any arbitration under paragraph 3(a) (ii), (iii) or (iv), of this Article shall be held in a state that is a party to the New York Convention.
6. Any arbitral award rendered pursuant to this Article shall be final and binding on the parties to the dispute. Each Party undertakes to carry out without delay the provisions of any such award and to provide in its territory for its enforcement.
7. In any proceeding involving an investment dispute, a Party shall not assert, as a defense, counterclaim, right of set-off or otherwise, that the national or company concerned has received or will receive, pursuant to an insurance or guarantee contract, indemnification or other compensation for all or part of its alleged damages.
8. For purposes of an arbitration held under paragraph 3 of this Article, any company legally constituted under the applicable laws and regulations of a Party or a political subdivision thereof that, immediately before the occurrence of the event or events giving rise to the dispute, was an investment of nationals or companies of the other Party, shall be treated as a national or company of such other Party in accordance with Article 25 (2) (b) of the ICSID Convention.
VII.1 Any dispute between the Parties concerning the interpretation or application of the Treaty which is not resolved through consultations or other diplomatic channels, shall be submitted, upon the request of either Party, to an arbitral tribunal for binding decision in accordance with the applicable rules of international law. In the absence of an agreement by the Parties to the contrary, the arbitration rules of . UNCITRAL, except to the extent modified by the Parties or by the arbitrators, shall govern. ..
X 1. With respect to its tax policies, each Party should strive to accord fairness and equity in the treatment of investment of nationals and companies of the other Party.
2. Nevertheless, the provisions of this Treaty, and in particular Article VI and VII, shall apply to matters of taxation only with respect to the following:
(a) expropriation, pursuant to Article III;
(b) transfers, pursuant to Article IV; or
(c) the observance and enforcement of terms of an investment agreement or authorization as referred to in Article VI (1) (a) or (b),
to the extent they are not subject to the dispute settlement provisions of a Convention for the avoidance of double taxation between the two Parties, or have been raised under such settlement provisions and are not resolved within a reasonable period of time."
The nature of the rights to which Occidental's claim relates
"It is an elementary principle of international law that a State is entitled to protect its subjects, when injured by acts contrary to international law committed by another State, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights its right to ensure, in the person of its subjects, respect for the rules of international law.
The question, therefore, whether the present dispute originates in an injury to a private interest, which in point of fact is the case in many international disputes, is irrelevant from this standpoint. Once a State has taken up a case on behalf of one of its subjects before an international tribunal, in the eyes of the latter the State is sole claimant."
"The Court would here observe that, within the limits prescribed by international law, a State may exercise diplomatic protection by whatever means and to whatever extent it thinks fit, for it is its own right that the State is asserting ..
The State must be viewed as the sole judge to decide whether its protection will be granted, to what extent it is granted, and when it will cease. It retains in this respect a discretionary power the exercise of which may be determined by considerations of a political or other nature, unrelated to the particular claim"
See also Oppenheim's International Law (9th Ed.) Vol. 1 para. 410.
"a dispute .. arising out of or relating to (a) an investment agreement between that Party and such national or company; (b) an investment authorisation granted by that Party's foreign investment authority to such national or company; or (c) an alleged breach of any right conferred or created by this Treaty with respect to an investment".
Under the present Treaty, a dispute may thus arise out of or relate to (a) a commercial agreement, (b) an executive authorisation or (c) an alleged breach of a Treaty right. Article VI(3)(a) of the present Treaty provides the investor with various ways in which to pursue an investment dispute (i) by use of International Centre for the Settlement of Investment Disputes ("ICSID"), provided the State is a party to the relevant Convention, (ii) by use of the Centre's Additional Facility, if the Centre is not itself available, (iii) by UNCITRAL arbitration, as here occurred, or (iv) by using any other arbitration institution or rules agreed between the parties to the dispute.
"States can, . and occasionally do, confer upon individuals, whether their own subjects or aliens, international rights strictu sensu, ie rights which they can acquire without the intervention of municipal legislation and which they can enforce in their own name before international tribunals",
See also Oppenheim, para. 7, as well as McCorquodale, The Individual and the International Legal System in Evans' International Law (OUP) (2003), pp. 304-6. Most frequently cited in this connection is the Permanent Court of International Justice's Advisory Opinion in the Jurisdiction of the Courts of Danzig Case (1928) PCIJ Rep Series B No. 15, p.1, considering the effect of a treaty (the Beamtenabkommen) made on 22 October 1921 between Poland and Danzig. The Beamtenabkommen regulated the employment conditions of Danzig railway employees who had, after the First World War, passed into the service of the Polish Railways Administration. Poland's contention that this treaty only created inter-State rights was rejected. The Court said that:
"It may be readily admitted that, according to a well established principle of international law, the Beamtenabkommen, being an international agreement, cannot, as such, create direct rights and obligations for private individuals. But it cannot be disputed that the very object of an international agreement, according to the intention of the contracting Parties, may be the adoption by the Parties of some definite rules creating individual rights and enforceable by the national courts. That there is such an intention in the present case can be established by reference to the terms of the Beamtenabkommen. (pp.17-18)"
The Court thus looked at the intention of the States making the treaty and held, in that light, that the Beamtenabkommen "constitutes part of the provisions of the "contract of service", that is "the series of provisions which constitute the legal relationship between the Railways Administration and its employees"; and that the relevant officials could sue the Administration direct in the Danzig courts. In the more recent LaGrand Case (2001) 40 ILM 1069, the International Court of Justice held that article 36(1)(b) of the Vienna Convention on Consular Relations, requiring prison authorities to "inform the person concerned without delay of his rights under this subparagraph" creates "individual rights". By this we read the Court as meaning rights of the person concerned operating independently of and not derivative from any rights of such person's national state (even though that state, Germany, was invoking such rights under the compulsory jurisdiction article of the relevant Optional Protocol). In the area of human rights a number of treaties provide individuals with rights of access to vindicate the protection afforded by the treaty. The European Convention on Human Rights is thus enforceable by victims of the breach of such rights, and "any person, non-governmental organisation or group of individuals" may seek to establish that he is a victim by bringing a direct claim before the European Court of Human Rights in Strasbourg (cf article 34 of the Convention).
"The fundamental assumption underlying the investment treaty regime is clearly that the investor is bringing a cause of action based upon the vindication of its own rights rather than those of its national State."
We note that this is how the matter is also seen by the authors of a number of recent international arbitration awards, faced with arguments relying on the Barcelona Traction case to limit or control the protection available to investors under bilateral investment treaties. We will not cite all of them. But in Enron Corporation v. The Argentine Republic (ICSID Case No. ARB/01/3; January 14. 2004) the tribunal said that the Barcelona Traction case "has been held not to be controlling in investment claims such as the present, as it deals with the separate question of diplomatic protection in a particular setting" (para. 38) and that:
.what the State of nationality of the investor might argue in a given case to which it is a party cannot be held against the rights of the investor in a separate case to which the investor is party. This is precisely the merit of the ICSID Convention in that it overcame the deficiencies of diplomatic protection where the investor was subject to whatever political or legal determination the State of nationality would make in respect of its claim" (para. 48).
Similar statements appear in LG&E Energy Corporation v. Argentine Republic ICSID Case No. ARB/02/1; April 30, 2004, para. 52, in GAMI Investments Inc. v. United Mexican States NAFTA Final Award 15 November 2004, para. 30, in Camuzzi International S.A. v. The Argentine Republic ICSID Case No. ARB/03/2; May 11, 2005, paras. 138-145, where the tribunal observed that diplomatic protection "cannot be considered the general rule in the system of international law presently governing the matter, but as a residual mechanism available when the affected individual has no direct channel in its own right", and in Camuzzi International S.A. v. The Republic of Argentina ICSID Case No. ARB/03/7, para. 44, where the tribunal said of the Barcelona Traction case that:
" . this decision of the International Court of Justice referred particularly to the protection that could be expected by the shareholders in this case, but specifying that they can enjoy other protection, if there is a specific agreement in this regard. In this case, this is precisely the situation. There is an applicable international juridical agreement. This agreement is the Treaty and according to it, Camuzzi has the right to request, directly and immediately, the protection of its rights by accessing the Tribunal."
Finally, we mention Gas Natural SDG S.A. v. The Argentine Republic ICSID Case No. ARB/03/10, where the tribunal stated:
"The scheme of both the ICSID Convention and the bilateral investment treaties is that in this circumstance, the foreign investor acquires rights under the Convention and Treaty, including in particular the standing to initiate international arbitration." (para. 34)
"rights of action under private law aris[ing] from personal obligations (albeit they may be owed by or to a State) brought into existence by domestic law and enforceable through domestic tribunals and courts"
and, on the other hand,
"NAFTA claims [which] have a quite different character, stemming from a corner of public international law in which, by treaty, the power of States under that law to take international measures for the correction of wrongs done to its nationals has been replaced by an ad hoc definition of certain kinds of wrong, coupled with specialist means of compensation" (paragraph 233).
The arbitrators concluded that:
"There is no warrant for transferring rules derived from private law into a field of international law where claimants are permitted for convenience to enforce what are in origin the rights of Party states" (paragraph 233).
" ..have only to be stated to compel the conclusion that these are not issues upon which a municipal court can pass. [T]here are .. no judicial or manageable standards by which to judge these issues, or to adopt another phrase .., the court would be in a judicial no-man's land: the court would be asked to review transactions in which four sovereign states were involved, which they had brought to a precarious settlement, after diplomacy and the use of force, and to say that at least part of these were "unlawful" under international law. I would just add .. that it is not to be assumed that these matters have now passed into history, so that they now can be examined with safe detachment."
We note in parenthesis that the House did not have to address what would have happened to the libel claim, if Buttes Gas had insisted on pursuing it, after it was held that the defence of justification was non-justiciable though Lord Wilberforce commented that "this would seem unjust". The injustice was avoided since Buttes was held to its offer to abandon the libel claim in this event.
"The interpretation of treaties to which the United Kingdom is a party but the terms of which have not either expressly or by reference been incorporated in English domestic law by legislation is not a matter that falls within the interpretative jurisdiction of an English court of law."
This was however in the context of a claim that the US Government had been in breach of treaty obligations (so that the considerations later identified in Buttes Gas were potentially in play). The case was not concerned with a situation where the interpretation of treaty wording may be relevant to the construction of an agreement with a private party, or with any investment treaty. In Westland Helicopters Ltd. v. Arab Organisation for Industrialisation  QB 282, international arbitration proceedings under a joint venture agreement had led to an award in Westland's favour against the Organisation. The award was converted into a judgment and Westland obtained garnishee orders nisi against six London banks. Colman J was faced with a claim by an Egyptian intervener to be the same as (or a successor to) the Organisation by virtue of domestic Egyptian laws. The justification for such laws was in issue but was said by the intervener to lie in an international law principle of necessity which was in turn said to be invoked by breach by the other member states setting up the Organisation of the treaty by which it was set up. Colman J held such issues to be non-justiciable.
"It is axiomatic that municipal courts have not and cannot have the competence to adjudicate upon or to enforce the rights arising out of transactions entered into by independent sovereign states between themselves on the plane of international law. That was firmly established by this House in Cook v Sprigg  AC 572, 578, and was succinctly and convincingly expressed in the opinion of the Privy Council delivered by Lord Kingsdown in Secretary of State in Council of India v Kamachee Boye Sahaba (1859) 13 Moo. P.C.C. 22, 75:
'The transactions of independent states between each other are governed by other laws than those which municipal courts administer: such courts have neither the means of deciding what is right, nor the power of enforcing any decision which they may make.'
On the domestic plane, the power of the Crown to conclude treaties with other sovereign states is an exercise of the Royal Prerogative, the validity of which cannot be challenged in municipal law: see: Blackburn v Attorney-General  1 WLR 1037. The Sovereign acts
'throughout the making of the treaty and in relation to each and every of its stipulations in her sovereign character, and by her own inherent authority; and, as in making the treaty, so in performing the treaty, she is beyond the control of municipal law, and her acts are not to be examined in her own courts:' Rustomjee v The Queen (1876) 2 QBD 69, 74, per Lord Coleridge C.J.
That is the first of the underlying principles. The second is that, as a matter of the constitutional law of the United Kingdom, the Royal Prerogative, whilst it embraces the making of treaties, does not extend to altering the law or conferring rights upon individuals or depriving individuals of rights which they enjoy in domestic law without the intervention of Parliament. Treaties, as it is sometimes expressed, are not self-executing. Quite simply, a treaty is not part of English law unless and until it has been incorporated into the law by legislation. So far as individuals are concerned, it is res inter alios acta from which they cannot derive rights and by which they cannot be deprived of rights or subjected to obligations; and it is outside the purview of the court not only because it is made in the conduct of foreign relations, which are a prerogative of the Crown, but also because, as a source of rights and obligations, it is irrelevant."
"These propositions do not, however, involve as a corollary that the court must never look at or construe a treaty. Where, for instance, a treaty is directly incorporated into English law by Act of the legislature, its terms become subject to the interpretative jurisdiction of the court in the same way as any other Act of the legislature. Fothergill v Monarch Airlines Ltd  AC 251 is a recent example. Again, it is well established that where a statute is enacted in order to give effect to the United Kingdom's obligations under a treaty, the terms of the treaty may have to be considered and, if necessary, construed in order to resolve any ambiguity or obscurity as to the meaning or scope of the statue. Clearly, also, where parties have entered into a domestic contract in which they have chosen to incorporate the terms of the treaty, the court may be called upon to interpret the treaty for the purposes of ascertaining the rights and obligations of the parties under their contract: see, for instance, Philippson v Imperial Airways Ltd.  A.C. 332.
Further cases in which the court may not only be empowered but required to adjudicate upon the meaning or scope of the terms of an international treaty arise where domestic legislation, although not incorporating the treaty, nevertheless requires, either expressly or by necessary implication, resort to be had to its terms for the purpose of construing the legislation (as in Zoernsch v Waldock  1 W.L.R. 675) or the very rare case in which the exercise of the Royal Prerogative directly effects an extension or contraction of the jurisdiction without the constitutional need for internal legislation, as in Post Office v Estuary Radio Ltd  2 Q.B. 740.
It must be borne in mind, furthermore, that the conclusion of an international treaty and its terms are as much matters of fact as any other fact. That a treaty may be referred to where it is necessary to do so as part of the factual background against which a particular issue arises may seem a statement of the obvious. But it is, I think, necessary to stress that the purpose for which such reference can legitimately be made is purely an evidential one. Which states have become parties to a treaty and when and what the terms of the treaty are are questions of fact. The legal results which flow from it in international law, whether between the parties inter se or between the parties or any of them and outsiders, are not and they are not justiciable by municipal courts."
"whereby the court has no jurisdiction to declare the true interpretation of an international instrument which has not been incorporated into English domestic law and which it is unnecessary to interpret for the purposes of determining a person's rights and duties under domestic law".
The question arises whether in the present case there is a sufficient foothold of the nature contemplated by these last words.
The judge's approach and further considerations
"(a) .. the said agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the law of the country where the award was made; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; .".