In a recent post on our Arbitration Notes blog, Andrew Cannon, Antony Crockett, Chad Catterwell, James Allsop, Imogen Kenny and Joy Rao consider the Federal Court of Australia decision in CCDM Holdings, LLC v Republic of India (No 3)  FCA 1266. The central issue was whether India, a Contracting State to the 1958 New York Convention on the Recognition and Enforcement of Arbitration Awards (New York Convention), had waived sovereign immunity and submitted to the jurisdiction of the Court with respect to proceedings for the recognition and enforcement of an arbitral award. It was ultimately held that India had waived sovereign immunity and submitted to the Court’s jurisdiction “by agreement” within the meaning of the Foreign States Immunities Act 1985 (Cth) (FSI Act) because: (a) India was a signatory of the New York Convention; and (b) the Mauritian investors had tendered a copy of an arbitral award against India together with a prima facie arbitration agreement.
Tag: Antony Crockett
The PRC has passed a new Foreign State Immunity Law which will apply the “restrictive” approach to foreign state immunity with effect from 1 January 2024. As a result, foreign states will not be granted immunity from suit or execution in the PRC in respect of commercial activities. The PRC government has indicated that the same approach should apply in Hong Kong and Macau (and references in this post to the PRC should be read accordingly).
ICSID has recently released its biannual caseload statistics for FY2023 and a separate publication reviewing the first year of practice under the newly implemented ICSID 2022 Rules. These publications offer valuable information for practitioners and stakeholders interested in the evolving landscape of investment arbitration. This article summarises some of the key information from each publication.
Caseload statistics for the 2023 fiscal year
ICSID has published the latest edition of its biannual caseload statistics for FY2023. The latest edition includes detailed information on different elements of international investment cases, such as the quantity of cases, regional and economic distribution of cases, results of proceedings and gender of arbitrators and conciliators. ICSID has published its caseload statistics every year since the first case was registered in 1972.
ICSID’s caseload in FY2023 demonstrates notable regional diversity. New cases were reported from various regions, with Central America and the Caribbean representing 22% of the total, followed by Eastern Europe and Central Asia at 18%. North America and South America each accounted for 13% of the cases. The remaining cases were attributable to Western cases (11%), the Middle East and North Africa (9%), Sub Saharan Africa (9%), and South and East Asia/Pacific (5%).
ICSID cases involve a diverse range of economic sectors. Following the trends of previous years, the extractive and energy sectors were responsible for the majority of cases in FY2023. The oil, gas and mining sectors were responsible for 27% of cases, and electric power and other energy-related cases comprised 15% of total cases.
The finance sector also played a significant role, comprising 11% of cases. Construction and transportation each accounted for 9% of cases, while information and communication, as well as agriculture, fishing, and forestry, made up 7% each. Other cases involved water, sanitation, and flood protection (4%), tourism (2%), and services and trade (2%).
The remaining 7% of cases registered in FY2023 involved various other industries.
Diversity of arbitration tribunals
Women accounted for 22% of tribunal appointments in FY2023, compared with women accounting for 14% of appointments in all ICSID cases since 1972.
Western Europe and North America remain the dominant regions in terms of geographic distribution of arbitrators, accounting for 41% and 26% respectively.
Of the arbitrations concluded in FY2023, 62% of disputes were determined by the tribunal with the remainder settled or discontinued. 59% of awards partially or fully upheld the investors’ claims, 24% of awards rejected all of the investors’ claims on the merits, and 14% of awards involved a determination that the tribunal did not have jurisdiction. 3% of cases concluded in FY2023 were dismissed due to a clear lack of legal merit.
ICSID publishes overview of first year of practice under the ICSID 2022 Rules
The 2022 ICSID Rules and Regulations came into force on 1 July 2022 and were designed to make the administration of ICSID cases more efficient and transparent and to ensure ICSID’s facilities are accessible to a broader range of cases.
The overview provides observations on application of the modernised rules for arbitration, conciliation, fact-finding and the newly introduced mediation rules. As it is only one year into the implementation of the ICSID 2022 Rules and Regulations, cases proceeding under the new rules remain in their early stages. Therefore, the overview provides insight into the operation of the new rules corresponding to the first steps in an ICSID proceeding.
The overview reflects on the amended Institution Rules (“IR“) which apply to all requests to initiate arbitration or conciliation proceedings under the ICSID Convention after 1 July 2022, even if administered under prior versions of the ICSID Arbitration and Conciliation Rules.
Notably, the overview reflected on IR 2(2)(b)(iii) which states that the Request shall include the parties’ date of consent, which in turn will determine the applicable arbitration rules.
In many cases, the date of consent is the date of the Request, but in others, the written consent may have been made earlier, such as in a notice of dispute or a contract. As such, requesting parties should ensure that the indication of consent is explicit, referencing the ICSID rules and the date of consent.
The overview reflects on the application of several amended rules under the 2022 ICSID Arbitration Rules (“AR“).
Notably, AR 31 provides for additional case management conferences throughout the arbitration proceedings to provide an opportunity for the tribunal and parties to actively manage the case. Where case management conferences are substantive in nature, they may narrow the issues in dispute or lead to a settlement. This can benefit parties in situations where certain issues are narrowed or settled before substantial costs are incurred.
AR 62-66 regulate the transparency and confidentiality of cases. These rules aim to provide greater public access to information regarding ICSID arbitration proceedings, while fine-tuning procedures to protect confidential information. In practice, the Secretariat will circulate a proposed draft Procedural Order No. 2 for consideration by the parties which includes provisions related to transparency throughout the ICSID arbitration, e.g. publication of party submissions, transcripts, orders and the award. All provisions in the draft order may be revised by the parties, and it provides an opportunity for the parties to specify in detail the information which shall be kept confidential.
Administrative and Financial Regulations
The overview also addresses the introduction of the 2022 Administrative and Financial Regulations (“AFR“) which apply to all pending ICSID Convention proceedings, including those pending under prior versions of the ICSID Rules.
Upon registration of a Request, claimants are now required to advance funds to defray costs from registration through to the first session of the Tribunal (or Commission in the case of Conciliation Proceedings). Respondents are required to pay their share of the advance following the constitution of the tribunal (as set out in Regulations 15 and 16 of the 2022 AFR); on average each party will be asked to pay USD150,000 upon registration.
The purpose of this new regulation is to prevent delays due to a lack of funds in the initial procedures of a case. The Secretary-General has discretion to suspend or discontinue proceedings on the basis of non-payment. In the last year, two cases have been suspended under this regulation: Astronergy Solar Netherlands B.V. v. Republic of Bulgaria (ICSID Case No. ARB/22/32) and Sepadeve International LLC v. United Mexican States (ICSID Case No.ARB/23/6). Given this, it is important that parties ensure payments are made in accordance with Regulations 15 and 16 of the 2022 AFR in order to ensure expedition of the proceedings.
The goal of the amendments to the ICSID Rules and Regulations was to “modernise, simplify and streamline the rules, while also leveraging information technology to reduce the environmental footprint of ICSID proceedings.” While the overview provides some insight into how the amendments have begun to modernise and simplify arbitration proceedings in practice, it is still yet to be seen whether the arbitration community will be able to apply the Rules so as to conduct more sustainable proceedings.
For further information, please contact Antony Crockett, Partner, Caitlin Setter, Registered Foreign Lawyer (Victoria, Australia), or your usual Herbert Smith Freehills contact.
On 4 March 2023, the UN Intergovernmental Conference on Marine Biodiversity of Areas Beyond National Jurisdiction (Conference) reached agreement on the text of a new treaty which seeks to protect the marine environment.
The Agreement under the United Nations Convention on the Law of the Sea on the Conservation and Sustainable Use of Marine Biological Diversity of Areas Beyond National Jurisdiction (High Seas Treaty) aims to promote the conservation and sustainable use of marine biological diversity in the High Seas.
On January 9, 2023, Chile and Colombia co-signed a request to the Inter-American Court of Human Rights (“Inter-American Court”) for an advisory opinion with the purpose of “clarify[ing] the scope of the States’ obligations … to respond to the climate emergency within the framework of international human rights law” (the “Request”).
On 29 November 2022, a group of 19 States published the draft text of a proposed United Nations General Assembly resolution which would request an advisory opinion from the International Court of Justice (“ICJ“) on climate change (the “Draft Resolution“) (available here). The initiative, led by the small island State of Vanuatu, was described by Vanuatuan President Nikenike Vurobaravu at COP27 as intended to “strengthen our understanding” of what “international law already obliges” States to do in relation to action on climate change. This post provides an overview of the ICJ’s advisory function, before discussing the potential implications of an advisory opinion on climate change.
On 24 June 2021, an international panel of legal experts (the Panel) published a legal definition of ‘ecocide’ (the Proposal, link) proposed to be adopted as a fifth crime to the Rome Statute of the International Criminal Court (the ICC or the Court). The Rome Statute addresses crimes that are deemed to be of international concern: genocide, crimes against humanity, war crimes and the crime of aggression. The ICC complements the jurisdiction of national criminal legal systems, and does not replace them (see Article 1, Rome Statute). The Court prosecutes cases as a court of “last resort”, only when States are unwilling or unable to do so.
Since Indonesia announced its intention to terminate and replace “all of its 67 bilateral investment treaties” (BITs) in 2014, the State has actively re-negotiated several BITs. Starting with some of its largest trading partners in the region, Indonesia signed new BITs with Singapore in 2018 and Australia in 2019.
On 9 March 2021, the Agreement between the Government of the Republic of Singapore and the Government of the Republic of Indonesia on the Promotion and Protection of Investments (Indonesia-Singapore BIT) came into force after being ratified by both States.
The treaty provides broad protections for investments, balanced with targeted carve-outs to protect the State’s right to regulate, for example in relation to public health, environmental matters, privacy and data protection. Provisions on corporate social responsibility and anti-bribery and corruption also feature in the new treaty.
Summary of Features
The Indonesia-Singapore BIT introduces a number of novel features, and investors operating in Singapore and Indonesia should carefully consider their options as early as possible and certainly before any dispute arises. Several provisions of this carefully drafted treaty can also provide useful assistance to international negotiators of investment treaties, such as the provisions regarding balance of payments, taxation, and most-favoured-nation (MFN) treatment.
As we discuss in greater detail below, the Indonesia-Singapore BIT provides complex mechanisms that would apply in the event of a dispute, including:
- Exclusion of dual nationals and permanent residents in certain contexts;
- Denial of benefits to mere holding companies or companies controlled by investors from third States;
- Jurisdictional limits for investments that do not satisfy the characteristics of an investment under international law;
- Limited invocation of most-favoured nation treatment and rights under Indonesia and Singapore’s future investment treaties;
- Impact of joint statements issued by tax authorities of Indonesia and Singapore on disputed taxation measures;
- Suspension of IP protections through compulsory licensing;
- Notice requirements in a serious financial crisis;
- Compulsory consultations and mandatory waiting period before submitting the dispute to arbitration;
- Request for a factual report in a voluntary mediation;
- An investor’s right to request to review an arbitral tribunal’s draft award; and
- Mechanisms applicable to costs of the arbitration and third party funding of claims.
(i) Existing investments are protected
The 2005 bilateral investment treaty between Indonesia and Singapore expired in 2016. The entry into force of the new Indonesia-Singapore BIT may come as a relief to many investors given that Singapore was Indonesia’s largest source of foreign investment in 2020. Importantly, the Indonesia-Singapore BIT applies to investments “in existence” as of 9 March 2021, as well as to investments “made, established, acquired or expanded thereafter”.
(ii) Investments by permanent residents may be protected
Permanent residents of both Indonesia and Singapore are covered by the definition of protected investors, although they have rights under the Indonesia-Singapore BIT only where both States “recognise permanent residents and accord substantially the same treatment to their respective permanent residents as they accord to their respective nationals in respect of measures affecting investment”.
Further, dual nationals would be deemed to possess “exclusively” the nationality of their dominant and effective nationality. Dual nationals should therefore seek advice on the “dominant and effective nationality” test under international law.
(iii) Broad protection for investments with sophisticated carve-outs
Signalling both States’ openness to foreign investment, the Indonesia-Singapore BIT provides broad protection for investments, which are defined broadly as including: “shares, stocks and other forms of equity participation in an enterprise, including rights derived therefrom” and “claims to money or to any contractual performance related to a business and under contract having an economic value”.
The broad definition of investment in the Indonesia-Singapore BIT is limited by a substantive requirement that the “characteristics of an investment include the commitment of capital, the expectation of gain or profit, the assumption of risk or certain duration”. The Indonesia-Singapore BIT also expressly excludes from the definition of protected investments “an order or judgment entered in a judicial or administrative action or an arbitral award made in an arbitral proceeding”. This exclusion appears to signal the States’ concern that an order, judgment or commercial arbitration award in either State could potentially give rise to an investor-State claim.
Separately, holding companies are not entitled to protection if they have “no substantive business operations” in the home State, meaning that investments in Indonesia held via a Singapore-incorporated company with no substantive business operations in Singapore may not be protected, and vice-versa. Further, investors from third States that do not maintain diplomatic ties with the State in which the investment was made, who own more than 50 per cent interest or hold the power to appoint a majority of the directors of an enterprise, may not be entitled to protection. For example, Indonesia currently has no diplomatic ties with Israel and consequently, investments made by Israeli investors via Singapore may not qualify for protection.
(iv) Most-favoured-nation treatment for future BITs
The most-favoured-nation treatment clause of the 2005 Indonesia-Singapore BIT required the host State to extend to investors any more favourable treatment that it gave to investors from third States or to its own investors. Interestingly, the new Indonesia-Singapore BIT now excludes the privileges of most favoured nation treatment that were contained in the States’ existing BITs or other investment agreements from before 9 March 2021. This mechanism reflects their desire for a clean break from old BITs and that the privileges contained in terminated BITs should not be revived and invoked by investors under the new Indonesia-Singapore BIT. However, this MFN clause still provides investors a guarantee of any most-favoured-nation treatment that will be accorded to investors in any future treaties signed by Indonesia or Singapore.
Greater certainty through careful drafting of this MFN clause could offer a useful template for international negotiators of future BITs. Under Article 5(3), an investor may not invoke dispute settlement provisions of BITs with third States; and under Article 5(4), an investor may not claim the right to MFN treatment where “no measures have been adopted or maintained” by the State to accord investors of the third State more favourable “treatment”.
Regulatory space and international governance
(i) Regulatory space for compulsory licensing, taxation and expropriation for a public purpose
Protection of intellectual property rights for pharmaceuticals have come under significant scrutiny since the Covid-19 pandemic. Article 6(6) of the Indonesia-Singapore BIT is of particular relevance here, as it allows the States to issue compulsory licenses granted in accordance with the Agreement on Trade-Related Aspects of Intellectual Property Rights under the WTO Agreement (“TRIPS”) without incurring any liability under the Indonesia-Singapore BIT for expropriation.
Claims arising from taxation measures are subject to a special regime. When an investor claims that its investment has been expropriated by a taxation measure, the Indonesian and Singapore tax authorities may agree within six months that such taxation measure is not an expropriation.
(ii) Corporate social responsibility and measures against corruption
The Indonesia-Singapore BIT affirms the “importance of encouraging enterprises […] to voluntarily incorporate into their internal policies those internationally recognised standards, guidelines, and principles of corporate social responsibility that have been endorsed or are supported by that Party” and “that bribery and other forms of corruption in any investment activities can undermine democracy and rule of law, discourage foreign investment and adversely affect economic development of the Parties”.
Although such provisions are apparently not designed as enforceable obligations, their inclusion in the Indonesia-Singapore BIT signals the concern of both States that investors should adhere to international standards relating to responsible business conduct. States and investors alike should seek advice as to whether these provisions could be used to prevent or deny a claim by an investor that fails to adhere to these standards.
(iiI) Balance of payments
As governments across the world incur billions of dollars in budget deficits to ease the financial difficulties caused by the Covid-19 pandemic, safeguarding their balance of payments will become increasingly important.
Reflecting both Indonesia and Singapore’s wish to safeguard their balance of payments and the stability of their currencies against foreign exchange rates, unlike the 2005 BIT, the new Indonesia-Singapore BIT contains a uniquely worded provision to safeguard the macro-economic interests of both States. Article 9 of the Indonesia-Singapore BIT provides as follows:
“…in the event of serious balance of payments and external financial difficulties or threat thereof, or in cases where, in exceptional circumstances, movements of capital cause or threaten to cause serious difficulties for macroeconomic management, in particular, monetary and exchange rate policies, a Party may adopt or maintain restrictions on payments, transfers or capital movements, related to investments.”
Although this safety valve recognises “particular pressures on the balance of payments of a Party in the process of economic development” as well as “the maintenance of a level of financial reserves adequate for the implementation of its programme of economic development”, these measures must “not exceed those necessary to deal with the circumstances”, “be temporary and phased out progressively” and “applied on a non-discriminatory basis”.
Accordingly, any capital restriction measures taken by Indonesia or Singapore to address a financial crisis would be examined in detail by an international arbitral tribunal. Additionally, each State is required to promptly notify the other State Party, which must “promptly agree” to a request for consultation to “review the restrictions adopted by it”.
States and investors alike should seek advice on the process to invoke requests for consultations and managing a financial crisis in light of the international law principles of necessity, proportionality, and non-discrimination.
The Indonesia-Singapore BIT provides a sophisticated, multi-tiered dispute resolution mechanism comprising: (i) mediation; (ii) consultations; and (iii) international arbitration.
(i) Voluntary mediation
Mediation is voluntary and the parties would have to bear their own expenses. Interestingly, a mediator may issue a written factual report upon request, but the “factual report shall not include any interpretation of this Agreement”. Thus, a mediator may face the creative challenge of assisting the parties to narrow down their dispute by reaching agreement on certain facts, even if they are unable to agree on legal issues.
(ii) Compulsory consultations and international arbitration proceedings
Investors must initially seek to resolve their dispute through consultations. The investor is then obligated to wait one year from the date of their request for consultation before the claim can be submitted to an international arbitral tribunal pursuant to the ICSID, ICSID Additional Facility or UNCITRAL Arbitration Rules. The arbitrators must have “experience or expertise in public international law”.
Investors have a new, interventionist right to comment on the arbitral tribunal’s award. A disputing investor has the right to request to review the arbitral tribunal’s draft award, and to submit comments to the tribunal. In the Indonesia-Singapore BIT, this right is limited to the “disputing investor”, in contrast to the 2019 Myanmar-Singapore BIT which provides this right to any “disputing party”. In addition to the chosen arbitration rules, Article 24(4) of the Indonesia-Singapore BIT provides as follows:
“In any arbitration conducted under this Section, at the request of a disputing investor, a tribunal shall, before issuing a decision or award on liability, transmit its proposed decision or award to the disputing parties. Within 60 days after the tribunal transmits its proposed decision or award, the disputing parties may submit written comments to the tribunal concerning any aspect of the proposed decision or award. The tribunal shall consider any such comments and issue its decision or award not later than 45 days after the expiration of the 60-day comment period.” [Emphasis added.]
The arbitral tribunal is obligated to consider the comments within 45 days of receipt. It is uncertain how such comments would feature into considerations of due process at the stage of enforcement of the award before domestic courts.
Article 25 states that the arbitral tribunal “shall order that the costs of the proceedings be borne by the unsuccessful disputing party”. This robust cost-shifting presumption would also apply against a losing State. Conversely, to discourage speculative claims and the risk of the State being unable to claim an award of its legal costs against an unsuccessful investor, Article 18 requires disclosure of third-party funding, and Article 26 provides the arbitral tribunal with express jurisdiction to order security for costs against an investor “if there are reasonable grounds to believe that the disputing investor risks not being able to honour a possible decision on costs issued against it”.
The ratification of the new Indonesia-Singapore BIT brings into force long-awaited protection for investors, which may both give an important boost to the economic recovery of the two countries amid the Covid-19 pandemic and support the potential realisation of USD200 billion annual investment in the region by 2030.
For more information, please contact David Dawborn, Partner, Gitta Satryani, Partner, Tomas Furlong, Partner, Antony Crockett, Senior Consultant, Christine Sim, Legal Manager – Disputes.
 Indonesia-Singapore BIT, Article 2(1)
 Ibid, footnote 7
 Ibid, Article 1
 Ibid, Article 36
 2005 Indonesia-Singapore BIT, Article III
 Indonesia-Singapore BIT, Article 5
 Ibid, Article 43
 Ibid, Article 9
 Ibid, Article 9
 Ibid, Article 16(5)
 Ibid, Article 15
 Ibid, Article 19(3)
 2019 Myanmar-Singapore BIT, Article 18(4)
On 28 February 2020 the Supreme Court of Canada in Nevsun Resources Ltd. v. Araya (2020 SCC 5) issued a 5-4 ruling allowing a claim by Eritrean miners against Nevsun Resources Ltd. (“Nevsun”), a Canadian mining company, to proceed. The miners had initiated proceedings in British Columbia against Nevsun alleging, among other things, breaches of customary international law prohibitions against forced labour, slavery, cruel, inhuman or degrading treatment, and crimes against humanity. Nevsun filed a motion to strike the miners’ pleadings, arguing that these customary international law claims had no reasonable prospect of success. Nevsun’s motion to strike was denied, and its appeals to the Court of Appeal and the Supreme Court were in turn dismissed.
The workers’ claims arose out of an expansion project between Nevsun and the State of Eritrea for the development of the Bisha gold-copper-zinc mine in Eritrea. Nevsun indirectly owns 60% of the company that owns and operates the Bisha mine, with the other 40% owned by the Eritrean National Mining Corporation. The miners alleged that they had been conscripted via the Eritrean military’s national service program into indefinite servitude in the mine, contrary to the customary international law prohibitions noted above and domestic torts of conversion, battery, unlawful confinement, conspiracy, and negligence.
In appealing against the dismissal of its motion to strike, Nevsun argued that the “act of state doctrine” barred the workers’ claims because the Canadian courts could not adjudicate upon the sovereign acts of a foreign State, including Eritrea’s national service program. Nevsun further argued that the miners’ claims based on customary international law had no reasonable prospect of success and should therefore be struck.
The Supreme Court considered two questions on appeal:
- Whether the act of state doctrine forms part of Canadian common law, and
- Whether the customary international law prohibitions against forced labour, slavery, cruel, inhuman or degrading treatment, and crimes against humanity may ground a claim for damages under Canadian law.
On the first issue, the majority of the Supreme Court, in an opinion authored by Justice Abella, concluded that the act of state doctrine was not part of Canadian common law. Rather than an all-encompassing act of state doctrine, the majority considered that Canadian law had developed its own approach to addressing the twin principles underlying the doctrine: conflict of laws and judicial restraint. Accordingly, the act of state doctrine did not bar the miners’ claims.
On the second issue, the Court considered that, “Canada has long followed the conventional path of automatically incorporating customary international law into domestic law via the doctrine of adoption, making it part of the common law of Canada in the absence of conflicting legislation.” Specifically, the prohibitions against forced labour, slavery, cruel, inhuman or degrading treatment, and crimes against humanity were jus cogens, i.e., peremptory norms fundamental to the international legal order, from which no derogation is permitted. Consequently, these peremptory norms of customary international law were fully integrated into, and formed part of, Canadian law.
In response to Nevsun’s argument that, being a corporation, it was immune to the application of these customary international law norms, the Court considered that “international law has so fully expanded beyond its Grotian origins that there is no longer any tenable basis for restricting the application of customary international law to relations between states.” Given the evolution of international law to encompass individuals and private actors as subjects, it was not “plain and obvious” (the standard for a motion to strike) that corporations “today enjoy a blanket exclusion under customary international law” from liability. However, the Court recognized that the trial judge would have to determine whether the specific norms relied on in this case were of a strictly inter-State character, and if so, whether the common law should evolve to extend the scope of those norms to bind corporations. For the purposes of the appeal, and in the absence of any Canadian laws to the contrary, the Court concluded that the customary international law norms relied upon by the miners formed part of the Canadian common law and potentially applied to Nevsun.
In addition, the Court considered that there was nothing in Canadian law to preclude the “possibility of a claim against a Canadian corporation for breaches in a foreign jurisdiction of customary international law, let alone jus cogens.” The Court further opined that customary international law norms are inherently different from existing domestic torts, as their violation “shocks the conscience of humanity.” Accordingly, relying on existing domestic torts may not do justice to the specific principles in place with respect to the human rights norm.
Justices Brown and Rowe agreed with the majority’s dismissal of Nevsun’s appeal in relation to the act of state doctrine, but disagreed that the workers had made out a reasonable cause of action based on violations of customary international law. In their partial dissent, the Justices considered that the two theories on which the pleadings of the workers were based were fundamentally flawed.
In particular, on the first theory of the workers’ claims for breach of customary international law, the partial dissent considered that these claims were viable only if international law were “given a role that exceeds the limits placed upon it by Canadian law…. These prohibitive rules of customary international law, by their nature, could not give rise to a remedy.”
The partial dissent further considered that, as a matter of law, corporations cannot be liable at customary international law for human rights violations; at most, the proposition that such liability had been recognised was equivocal, rendering any such norm non-binding. Accordingly, the claims were doomed to fail.
Justices Moldaver and Cote agreed with the partial dissent that the miners’ claims were bound to fail, and considered in addition that the extension of customary international law to corporations represented a “significant departure in this area of law.” They further dissented from the majority opinion in relation to the act of state doctrine, opining that the workers’ claims were within the realm of international affairs and therefore not justiciable.
Does Canadian common law present more fertile ground for international human rights claims than the U.S. Alien Tort Statute?
The Supreme Court of Canada’s ruling in Nevsun raises the potential of Canadian courts as a forum for international human rights claims grounded in jus cogens norms—particularly in the context of recent United States Supreme Court jurisprudence limiting the scope and reach of the Alien Tort Statute (“ATS”), which provides that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” 28 U. S. C. §1350.
Nevsun presents an interesting contrast with the U.S. Supreme Court cases in two regards: extraterritorial application and corporate liability. However, it should be noted that, unlike the foreign corporate defendants involved in the U.S. cases discussed here, Nevsun is a Canadian company bound by Canadian law and subject to the jurisdiction of the Canadian courts. Given the nature of the ATS as a “jurisdictional statute” that creates no cause of action, this distinguishing factor alone may account for the different holdings reached by the Supreme Court of each jurisdiction—if not the Courts’ specific lines of reasoning, which no doubt merit further analysis.
In Kiobel v. Royal Dutch Petroleum Co. et al, 569 U.S. 108 (2012), the petitioners, Nigerian nationals residing in the U.S., filed suit alleging that respondents—certain Dutch, British, and Nigerian corporation—aided and abetted the Nigerian Government in committing violations of customary international law in Nigeria. The U.S. Supreme Court affirmed the dismissal of the entire complaint by the U.S. Court of Appeals for the Second Circuit, holding that there was nothing in the ATS or its legislative history to rebut the presumption against extraterritorial application. The Court noted, further, that there was “no indication that the ATS was passed to make the United States a uniquely hospitable forum for the enforcement of international norms.”
More recently, in Joseph Jesner et al. v. Arab Bank, PLC, 584 U.S. (2018), the Court held that foreign corporations may not be defendants in suits brought under the ATS. The Court, however, did not foreclose the possibility that U.S. corporations could potentially face liability under the ATS: the portions of Justice Kennedy’s opinion on corporate liability were joined only by Chief Justice Roberts and Justice Thomas, whereas Justices Alito and Gorsuch joined only the parts of the opinion concerning the liability of foreign corporations.
As the first case decided by the Supreme Court of Canada on the issue of corporate liability for human rights violations under customary international law, Nevsun arguably reflects an expansive approach to customary international law as a source of rights and remedies as part of Canadian common law, in contrast to the U.S. Supreme Court’s relatively conservative approach to the scope and reach of the ATS.
Specifically, the fact that the alleged jus cogens violations in Nevsun occurred outside Canada’s territory presented no bar to jurisdiction, whereas the U.S. Supreme Court has upheld the presumption against extraterritoriality in the context of the ATS. Given that extraterritoriality was not discussed in Nevsun, it is not clear to what extent Nevsun’s Canadian nationality may have influenced the Court’s decision. South of the border, the U.S. Supreme Court has foreclosed foreign corporate liability under the ATS, leaving a definitive holding as regards domestic corporations for another day—at which point, there may yet be occasion for the U.S. Supreme Court to consider the modern approach to international law advocated by the majority in Nevsun.
Substantively, in considering the extent to which customary international law norms form part of U.S. common law (in other words, in respect of which violations of the law of nations shall the U.S. district courts have original jurisdiction pursuant to the ATS?), courts in the U.S. would apply the analytical framework set out by the U.S. Supreme Court in Sosa v. Alvarez-Machain, 542 US 692 (2004).
In Sosa, the U.S. Supreme Court inferred from the legislative history of the ATS that “the ATS was meant to underwrite litigation of a narrow set of common law actions derived from the law of nations,” such as offenses against ambassadors, violations of safe conduct, and piracy. The Court cautioned that, while nothing “categorically precluded federal courts from recognizing a claim under the law of nations as an element of common law,” there were “good reasons for a restrained conception of the discretion a federal court should exercise in considering a new cause of action of this kind.” Such reasons included the need to seek legislative guidance before exercising innovative authority over substantive law, the potential implications for foreign relations of recognizing private causes of action for violating international law, and the lack of any congressional mandate to seek out and define new and debatable violations of the law of nations.
Accordingly, “federal courts should not recognize private claims under federal common law for violations of any international law norm with less definite content and acceptance among civilized nations than the historical paradigms familiar when [the ATS] was enacted.” In addition, “the determination whether a norm is sufficiently definite to support a cause of action should (and, indeed, inevitably must) involve an element of judgment about the practical consequences of making that cause available to litigants in the federal courts.”
It should be noted that the breach of international law alleged in Sosa was arbitrary arrest—a norm the Court described as expressing “an aspiration that exceeds any binding customary rule having the specificity we require.” U.S. courts have found that jus cogens violations such as torture meet the Sosa standard. See e.g., Filártiga v. Peña-Irala, 630 F. 2d 876 (2d Cir. 1980).
In recognising customary international law norms that meet the twin requirements of widespread State practice and opinio juris, therefore, Nevsun is not inconsistent with the jurisprudence of the U.S. Supreme Court, although U.S. courts might exercise greater judicial restraint and deference to the legislative and executive branches of government—themes echoed by the partial dissent and dissent in Nevsun. Further, given that Nevsun is a Canadian corporation, whereas the U.S. Supreme Court has only precluded the liability of foreign corporate defendants, there currently exists no conflict as regards the nationality of corporate defendants.
The key point of divergence therefore lies in the question of extraterritoriality, and in particular in the two Supreme Courts’ contrasting approaches to this issue. In Nevsun, the discussion was minimal, in the context of the partial dissent’s argument that the proposed torts of cruel, inhuman and degrading treatment should not be recognized for the first time in a proceeding based on conduct that occurred in a foreign territory. The majority did not reach the question of extraterritoriality in dismissing Nevsun’s appeal on its motion to strike. In contrast, the significance of the U.S. Supreme Court’s decision in Kiobel is difficult to overstate: as Justice Breyer’s concurring opinion put it, the majority’s use of the presumption against extraterritoriality risked “placing the statute’s jurisdictional scope at odds with its substantive objectives, holding out ‘the word of promise’ of compensation for victims of the torturer, while ‘break[ing] it to the hope.’” Any hope of extraterritorial application would rest upon a showing that the claim “touch[es] and concern[s] the territory of the United States … with sufficient force to displace the presumption”—a slim hope, perhaps, but a hope nonetheless.
For more information please contact Andrew Cannon, Partner, Christian Leathley, Partner, Stephane Brabant, Partner Antony Crockett, Of Counsel, Liang-Ying Tan, Associate, Aseel Barghuthi, Associate, or your usual Herbert Smith Freehills contact.
An intergovernmental working group mandated to draft a new international legal instrument to regulate the activities of transnational corporations in relation to human rights is holding its third meeting in Geneva this week.
Negotiations for a business and human rights treaty have been ongoing since 2014 when the Human Rights Council established an open-ended mandate (discussed in further detail here). The issues that will be discussed in the latest round of negotiations are set out in a working paper published by the Chairperson-Rapporteur Maria Espinosa of Ecuador on 29 September. Continue reading