In a long-running dispute, the Permanent Court of Arbitration (“PCA“) Tribunal has issued its Final Award. The Final Award, which runs to nearly 400 pages, determines disputed territorial and maritime boundaries between the Republic of Slovenia and the Republic of Croatia. The Final Award also creates a “junction” in the Adriatic Sea for Slovenia’s uninterrupted access to and from international waters and a regime for use of that junction. The parties are bound to comply with the Final Award within six months of its issue.
Having purported to withdraw from the arbitration in 2015, Croatia has stated that it does not consider itself bound by the Final Award. Slovenia, on the other hand, has indicated that it considers continued incursions into its territorial sea as delimited by the Tribunal to be a breach of both international and EU law (as Slovenia became part of the Schengen area on its accession to the EU).
The parties are reported to be engaging in dialogue regarding the implementation of the Final Award, with speculation as to if and how the EU Commission will bring pressure to bear on Croatia.
Background to the dispute
Croatia and Slovenia, both successor States to the Socialist Federal Republic of Yugoslavia (SFRY), declared independence in June 1991. With the countries sharing a land border to the north of Croatia and the south-east of Slovenia, and a maritime boundary in the Adriatic Sea including the Gulf of Trieste, independence left several unanswered questions of disputed territory between the two nations. Slovenia, which joined the EU in 2004, initially blocked Croatia’s accession talks in 2008 due to the border issue. The parties reached a compromise to submit the dispute to arbitration via an arbitration agreement which came into force in November 2010 (the “Arbitration Agreement“). Under the Arbitration Agreement, a five-member Tribunal was tasked with determining the course of certain disputed sections of the maritime and land boundary between the two States, Slovenia’s “Junction to the High Sea”, and a regime for use of the relevant maritime areas.
Alleged breaches of confidentiality and the Tribunal’s Partial Award on Jurisdiction
In May 2015, the Tribunal expressed concerns over the suggestion that one Party might have access to confidential information related to the Tribunal’s deliberations. In June 2015, the Tribunal informed the parties that the deliberations were sufficiently progressed such that it would render its award in December 2015. However, in July 2015 Croatian and Serbian newspapers published transcripts and audio files of two telephone conversations reportedly involving Slovenia’s nominated arbitrator, Dr. Jernej Sekolec and Slovenia’s Agent Ms. Drenik, a Legal Advisor in the Slovenian Ministry of Foreign Affairs. This led Croatia first to request a suspension of the arbitration proceedings, and thereafter to attempt to terminate the Arbitration Agreement for breach under Article 60, paragraph 1 of the Vienna Convention on the Law of Treaties (VCLT). Slovenia objected to Croatia’s purported termination, and asserted that the Tribunal had the power and the duty to continue the proceedings.
Croatia did not participate further in the proceedings. On 30 June 2016, the Tribunal issued a Partial Award, affirming its jurisdiction and that the Arbitration Agreement remained in force.
The Tribunal found that: (i) in the absence of any agreement to the contrary, an arbitral or judicial tribunal has, under general international law, jurisdiction to determine its own jurisdiction; (ii) it had jurisdiction under the Arbitration Agreement and Article 21 of the PCA Optional Rules to determine whether Croatia’s termination of the Arbitration Agreement under Article 60 of the VCLT was valid, which jurisdiction was not affected by Article 65 of the VCLT on the “Procedure to be followed with respect to invalidity, termination, withdrawal from or suspension of the operation of a treaty”; (iii) termination of a treaty due to a material breach under Article 60, paragraph 1 of the VCLT “is warranted only if the breach defeats the object and purpose of the treaty“; (iv) Slovenia had breached the provisions of the Arbitration Agreement, however the breach did not undermine its purpose, which was premised on a desire for the peaceful and definitive settlement of a dispute that had been incapable of amicable resolution; and (v) the breach did not entitle Croatia to terminate the Arbitration Agreement, nor did it affect the ability of the Tribunal (composed as it was) to determine the dispute independently and impartially.
The Final Award
On 29 June 2017, the Tribunal, comprising Gilbert Guillaume, Professor Vaughan Lowe QC, Judge Bruno Simma, H.E. Ambassador Rolf Einar Fife and Professor Nicolas Michel, proceeded to render its Final Award during a public sitting at the Peace Palace, The Hague.
The Parties agreed that the principle of uti possidetis – a well-established principle of international law – governed the determination of their land boundary. The Parties also agreed on the fundamental aspects of its application. Uti possidetis governs the transformation of administrative borders into international boundaries protected by public international law following the dissolution of a State. The uti possidetis principle applies as of the date of independence (in this case, 25 June 1991). The parties agreed that, pursuant to the uti possidetis principle, evidence of title includes “all formal acts adopted in the pre-independence era”. It was common ground that legal title takes precedence over the effectivités of the parties (the effectivités being the acts by a State relevant to a claim of title to territory). However, where no legal title can be established, or where legal title is established but not with sufficient precision to establish the exact location of the boundary, the Tribunal noted that “the effectivités play a crucial role” (para. 340 of the Final Award). The Tribunal also noted, that “[i]t is, however, necessary to handle the evidence of effectivités with considerable caution“. It therefore considered evidence that points clearly to the assertion of the public power of the State at the location in question, to the exclusion of the public power of other States, but was mindful of the fact that some activities – for example, conscription, the organising of elections, levying of taxes, law enforcement – are more likely to demonstrate the exercise of authority in the name of the state (à titre de souverain) than others, such as the delivery of mail or the provision of telephone or other services.
The parties further agreed that, as a matter of international law, the course of the pre-independence boundary is the course that was stipulated by the law applicable to that matter – that is, the municipal law applicable in Croatia and Slovenia as constituent republics of SFRY immediately prior to 25 June 1991. The parties agreed on the legal instruments which were relevant to the Tribunal’s determination of the land boundary, they presented different positions as to the interpretation and relevance of certain aspects of the legal framework.
Around ninety percent of the land boundary was already agreed by the parties – the areas not in dispute were those in which the cadastral limits of neighbouring Croatian and Slovenian districts coincided and were “aligned” (a cadastre being an area or parcels of land delimited for administrative or taxation purposes). The Tribunal inferred that the Parties were agreed that the cadastral limits in principle represent the boundaries of the Republics. Whilst the cadastres evidenced the title to the land and location of the boundary, it was the agreement between the Parties as to the boundary that established the boundary as a matter of international law.
In respect of the remaining 10%, the position adopted by both Parties permitted the Tribunal in this case to proceed by accepting that the cadastral limits are a prima facie indication of the boundary between the two Republics in 1991 and therefore of the boundary between the two States now. The Tribunal therefore considered in respect of the disputed areas whether there was any reason for applying a criterion other than the location of cadastral limits for the determination of the boundary. The parties’ dispute concerned areas where cadastral limits depicted on cadastral maps overlapped or left gaps, or there was no cadastral limit. The dispute also concerned areas where there was an assertion that the boundary must be determined by the application of some instrument or criterion other than the cadastral limit.
The Tribunal determined that the boundary of some 20 disputed areas should follow the aligned limits of the cadastres of Croatia, Slovenia, or, in some cases, both. However, the boundaries of other disputed areas were determined by consideration of the evidence which the Tribunal had before it as to historic boundaries and legal title (including historical maps, agreements, and land surveys), and the effectivités alleged by the States in support of their respective claim lines.
The Bay of Savudrija/Piran or the Bay of Piran – the “Bay”
Slovenia asserted the Bay was and remained “internal waters”, on the basis of it being a juridical bay (or an historic bay), and thus the practices for delineating land should apply (in particular, the principle of uti possidetis juris), and principles of maritime delimitation found in UNCLOS should not. Slovenia argued that the bay kept its status on dissolution of the SFRY as a consequence of the principle of automatic succession to boundaries and boundary regimes and to historic titles. It further argued that UNCLOS does not exclude the possibility of a juridical bay bordered by several States. It remains only to fix the States’ limits within the Bay. Slovenia also argued that those limits must respect the principle of uti possidetis, which it alleged supported its claim to the whole Bay.
Croatia, on the other hand, maintained that the Bay was sea and not land, and thus the determination of the boundary should be via maritime delimitation principles. Croatia contended that the Bay had never had the status of a juridical bay, and constituted territorial waters of Yugoslavia (and to the extent that it had constituted internal waters, the dissolution of the SFRY caused the Bay to be re-characterized as territorial waters). Croatia alleged that the Bay should be delimited under Article 15 of UNCLOS and therefore the delimitation should follow the equidistant line.
The Tribunal agreed with Slovenia and concluded that the Bay had had the status of Yugoslav internal waters prior to the dissolution of the SFRY. The Bay had retained that status after the independence of Croatia and Slovenia via state succession and the Tribunal found that, in the absence of any provision on the delimitation of internal waters in the Conventions concerning the law of the sea, such delimitations are to be made on the basis of the same principles as are applicable to the delimitation of land territories. The Tribunal therefore made the delimitation of the Bay based on uti possidetis.
In considering delimitation within the Bay itself, the Tribunal considered the effectivités of both parties at the date of independence, including regulation of fisheries and police patrol. As neither party had exclusive jurisdiction over the whole Bay and on the basis of the effectivités it had been able to determine, the Tribunal concluded that the delimitation should follow a line between those proposed by the parties.
The remaining maritime disputes
The parties disagreed in their interpretation of Articles 3 and 4 of the Arbitration Agreement, which concerned the Tribunal’s task and the applicable law. Article 3(1) of the Arbitration Agreement stipulated that the Tribunal shall determine: (a) the course of the maritime and land boundary between Slovenia and Croatia; (b) Slovenia’s junction to the High Sea; (c) the regime for the use of the relevant maritime areas. Article 4 of the Arbitration Agreement stipulated that the Tribunal shall apply: “(a) the rules and principles of international law for the determinations referred to in Article 3(1)(a); (b) international law, equity and the principle of good neighbourly relations in order to achieve a fair and just result by taking into account all relevant circumstances for the determinations referred to in Articles 3(1)(b) and (c).”
The Tribunal found that the Arbitration Agreement required it to conduct a sequential analysis of the tasks set out in Article 3(1) of the Arbitration Agreement and accordingly addressed in turn the delimitation of the territorial sea between Croatia and Slovenia, the determination of “Slovenia’s junction to the High Sea,” Slovenia’s continental shelf claim, and the regime for the use of the relevant maritime areas.
The Tribunal proceeded to consider the maritime boundary of the seas surrounding the two States, a task which had never previously been undertaken. The UNCLOS and settled jurisprudence of the International Court of Justice requires an equidistant line to be drawn between the two disputing States’ claims, unless either party can prove that the disputed area possesses historic title or that there are other special circumstances. The Tribunal did not view the marked difference between the length of the coastal fronts of Croatia and Slovenia (1,773km and 43km respectively) as a special circumstance warranting departure from the general rule. However, it acknowledged that, given the configuration of the coast, drawing a strict equidistant line in these circumstances would be adversely detrimental to Slovenia. The Tribunal therefore modified the equidistant line so as not to leave Slovenia disproportionately “boxed-in”.
“Junction to the High Sea” and regime of maritime use
As determined by the Tribunal, the whole of Slovenia’s territorial sea boundary was determined to be adjacent to the territorial sea of either Italy or Croatia and no part of the boundary directly abutted upon an area of high seas or of exclusive economic zone (EEZ). There was therefore no place where Slovenia’s territorial sea was immediately adjacent to an area in which the applicable legal regime preserves the freedoms of navigation and overflight and the laying of submarine cables and pipelines, and other internationally lawful uses of the sea related to these freedoms (referred to in UNCLOS Article 87).
The parties disagreed, among other things, about the meaning of the term “junction” in the Arbitration Agreement. The Tribunal considered that the term “junction”, as used in the Arbitration Agreement had “an essentially spatial meaning and connotation” and meant the connection between the territorial sea of Slovenia and an area beyond the territorial seas of Croatia and Italy.
The Tribunal carved out a corridor of sea measuring 2.5 nautical-miles wide and 10 nautical-miles long, to allow Slovenia access to the high seas (the Junction). This was accompanied by a regime of usage of the Junction, which was established pursuant to Article 4 of the Arbitration Agreement which bound the Tribunal to determine the regime for the use of the relevant maritime areas applying “international law, equity and the principle of good neighbourly relations in order to achieve a fair and just result by taking into account all relevant circumstances.”
The regime established by the Tribunal included freedom of communication for all ships and aircraft, regardless of nationality, for the purpose of access to and from Slovenia, and freedoms of navigation, overflight, the laying of submarine cables and pipelines, and other internationally lawful uses of the sea related to these freedoms. The Tribunal stipulated that such freedom of communication did not extend to the freedom to explore, exploit, conserve or manage natural resources in the Junction area, nor did it give Slovenia the right to construct artificial islands or structures, engage in marine scientific research, or take measures for the protection or preservation of the marine environment. Whilst Croatia retained the right to make laws and regulations in respect of ships and aircraft in the Junction giving effect to the generally accepted international standards in accordance with UNCLOS Article 39(2) and (3), the Tribunal drew a distinction with enforcement by Croatia of such laws and regulations. In order to guarantee the freedoms of communication prescribed in the regime for use of the Junction, it was necessary that ships and aircraft were not subject to boarding, arrest, detention, diversion or any other form of interference by Croatia while in the Junction.
Finally, as a consequence of the Tribunal’s maritime determinations, the Tribunal concluded that Slovenia’s claim to a continental shelf, which would extend west beyond the maritime boundary, naturally failed.
Despite the PCA’s Final Award being final and binding, Croatia has openly rejected the ruling and, indeed, before the Final Award was even issued, stated that it does not consider itself bound by the decision because it was irreparably contaminated and compromised by the actions of the Slovenian side. Croatia maintains that the issue must be resolved on a bilateral basis. The EU had looked to this arbitration as a potential template for border disagreements between further Balkan States who are keen to join the EU (such as Serbia and Montenegro). However, Croatia’s purported withdrawal from the arbitration and its rejection of the Final Award raises a question mark as to whether arbitration will be a successful method of dispute resolution for these disputes. Croatia and Slovenia have engaged in talks regarding implementation of the Final Award.
The Tribunal’s approach to Croatia’s unilateral withdrawal from this case resonates with that of the Tribunal in the South China Sea Arbitration. In the present case, the Tribunal found that proceedings would not automatically terminate in the event that one State stops participating. In the Partial Award dated 30 June 2016, while the Tribunal expressed regret that Croatia had not taken the opportunity to participate further, it nevertheless recognised that it is a well-established principle of international procedural law that a unilateral decision to withdraw from dispute settlement proceedings cannot of itself bring such proceedings to a halt. In the context of the present arbitration, the Tribunal pointed to Article 28 of the PCA’s Optional Rules for Arbitrating Disputes between Two States. Similarly, in the South China Sea Arbitration (see previous blog post here), the Tribunal confirmed that, while it was open to China to stop participating in the proceedings, China nevertheless remained a party to the arbitration, with the ensuing rights and obligations, and was thus bound under international law by any decision of the Tribunal.
This case also provides insight into how to maintain the procedural integrity of an arbitration, in the circumstances in which one or more Tribunal members resigns or is removed. In this case, the Tribunal ruled in its Partial Award that it was properly recomposed, as no concerns had been expressed on the impartiality or on the independence of the three remaining arbitrators or of the two new arbitrators. Furthermore, the Tribunal affirmed that the views of the arbitrators expressed in deliberation meetings before they resigned were of no relevance for the work of the Tribunal in its present composition. Accordingly, no account would be had of their various deliberation notes, which they had circulated at earlier stages of these proceedings in their capacity as arbitrators. Further, in the interests of transparency, the two documents submitted by Dr. Sekolec to the Tribunal had been released to the Parties.
The Tribunal’s approach notwithstanding, the success of arbitration as a method of resolving long-term state to state disputes may hinge on whether both parties ultimately abide by the Final Award.
For more information, please contact Andrew Cannon, Partner, Hannah Ambrose, Professional Support Consultant, Vanessa Naish, Professional Support Consultant, Natalie Yarrow, Associate, or your usual Herbert Smith Freehills contact.
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 The South China Sea Arbitration. Award of 12 July 2016, para 143