Human rights and BITs: Mapping the role of human rights law within investor-state arbitration

Rights & Democracy | June 2009

Human Rights and Bilateral Investment Treaties: Mapping the role of human rights law
within investor-state arbitration

By Luke Eric Peterson

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Executive Summary

The last half-century has seen the expansion of two distinctive areas of international law: one protecting
human rights and the other protecting foreign direct investment. The human rights system may be
more familiar—consisting of certain international law principles binding upon all states, as well as a
range of regional and UN treaties. However, foreign investment also enjoys a vast network of investment
treaties and free trade agreements that have taken on key importance in recent years. The latter regime
protects foreign investors (both corporations and individuals) from arbitrary treatment at the hands of
host governments, including cases of expropriation or nationalization of investments.

Sometimes these two regimes meet. International arbitration tribunals tasked with assessing the compliance
of states with their obligations to foreign investors are occasionally confronted with human rights ques-
tions, including the relevance of human rights law to the resolution of disputes between foreign investors
and states.

This paper introduces the foreign investment protection regime, so that human rights actors and experts
can understand the basic features of the system—and its key legal and policy implications. The paper
then profiles a series of lawsuits that have arisen between foreign investors and their host states—where
state compliance with investment treaty obligations is at issue, and where human rights issues have also
arisen. Human rights considerations are arising in several distinctive ways in these arbitrations. In a
number of instances, adjudicators of treaty disputes have invoked human rights law as a guide or an
analogy when interpreting the legal protections owed to foreign investors. For example, human rights
norms related to due process or property rights are studied by adjudicators in order to help interpret and
elucidate the investment treaty protections owed to foreign investors.

Meanwhile, in other contexts, arbitrators are being asked by host-governments or outside interests (e.g.
civil society groups) to consider the human rights interests of community members. Where governments are accused of breaching protections owed to foreign investors, they are sometimes seeking to
justify such actions on the grounds that a valid human rights obligation compelled the government to
act in a given situation. For example, in an international arbitration between the Republic of Argentina
and a bloc of foreign water companies, the government has sought to defend alleged investment treaty
breaches by invoking the human right to water.
It remains to be seen to what extent governments are genuinely torn by their different international law
obligations, or whether these are reconcilable. What is clear is that adjudicators of investment treaty
arbitrations are on the front lines, making such determinations. In currently pending international law
proceedings between investors and governments, arbitrators are being asked to weigh whether human rights
considerations should limit or preclude the liability of states for breaching investment treaty obligations.

Yet, arbitrators have little guidance, apart from general rules of treaty interpretation, when it comes to
reading and grappling with the human rights obligations of governments. Investment treaties and free
trade agreements offer few instructions as to how such agreements should be reconciled with human
rights obligations of the state. Governments could opt, in future, to introduce explicit human rights
language into treaties. This would make explicit the requirement of arbitrators to consider the relevance
of human rights law to the matters in dispute. However, this leads inevitably to broader questions as to
the capacity of arbitrators to handle the human rights law dimensions of such disputes.

At times, investment arbitration tribunals and regional human rights courts may be functionally
interchangeable—with prospective claimants able to decide whether to frame government interferences
as a potential breach of an investment agreement or of a human rights convention. However, there is a
potential for these two different legal regimes to generate different substantive outcomes—with varying
policy and financial consequences for governments. Consequently, there is a need for human rights
actors and policy-makers to compare and assess how these two parallel regimes may resolves differently
certain basic types of disputes, including property expropriations, denial of justice or due process claims,
and the claims for moral damages arising out of physical or intangible harms inflicted by governments.

More generally, it will be imperative to monitor more closely developments under the foreign investment
regime, in an effort to understand how human rights issues are resolved when they arise.

This publication is volume 3 of a three-volume series, Investing in Human Rights.
- Volume 1: Human Rights Impacts for Foreign Investment Projects: Learning from community
experiences in the Philippines, Tibet, the Democratic Republic of Congo, Argentina, and Peru,
Rights & Democracy, 2007.
- Volume 2: Getting it Right: A step by step guide to assess the impact of foreign investments on
human rights, Right & Democracy, 2008.

Available at www.dd-rd.ca.