Customary International Law and Arbitration Concerning International Investment

Customary International Law and Arbitration Concerning International Investment

Customary international law plays a significant role in investment arbitration disputes. Parties frequently rely on customary international law as a secondary source of law under a bilateral investment treaty or a state contract. In some cases, arbitral tribunals have accepted a more prominent role of customary law, i.e., as a self-standing source of international law. By doing so, arbitral tribunals have arguably helped with the development and crystallization of customary international law.

Recently ICSID cases, claimants have sought to rely on customary international law as a separate head of claim to claims of breach of obligations arising under either an investment treaty or an investment contract. It suggests that the starting point of the analysis must be the scope of consent given in the arbitration clause. In a claim brought pursuant to a contract, it might also be relevant to consider the applicable law of the contract, since that law might incorporate customary international law. Where consent to arbitration is found in an investment treaty, it might be argued that the treaty standard is lex specialist[1] and, in any event, might not differ in any material way from the customary standard. Where consent to arbitration is found in an investment contract with an applicable law that incorporates customary law, there may be questions as to whether an investor is entitled to directly invoke custom. These questions are likely to be explored in future cases, and their answers are likely to depend on the particular circumstances in which they arise

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[1] A Latin phrase which means “law governing a specific subject matter”. It comes from the legal maxim “lex specialis derogat legi generali”. This doctrine relates to the interpretation of laws. It can apply in both domestic and international law contexts. the doctrine states that a law governing a specific subject matter overrides a law that only governs general matters .Generally, this situation arises with regard to the construction of earlier enacted specific legislation when more general legislation is passed after such enactment. This principle also applies to the construction of a body of law or single piece of legislation that contains both specific and general provisions.

The Formation of Customary International Law Article 38 of the ICJ statute is considered the authoritative formulation of the formal sources of international law, wherein customary international law is defined as evidence of a general practice accepted as law. Customary international law is formed over time based on the consistent practice of States’ representatives who believe that they are bound by such a practice which can be classified into 2 types as follows.

1. States’ Practice

In the oft-cited North Sea Continental Shelf Cases, in which the ICJ analysed 15 cases related to boundaries’ delimitations, States’ practice was held as an objective criterion, which must be enerally recognised, extensive and uniform, and a certain duration. Interestingly, with respect to duration, the ICJ did not set any fixed time limit. Rather, it noted that the passage of only a short period of time is not necessarily, or of itself, a bar to the formation of a new rule of customary international law.

• Oponio Juris

Customary International Law in Investment Arbitration Case Study          While customary international law is usually invoked as a secondary rule in investment arbitration, some tribunals have considered it as a self-standing source for a claim as seen in Cambodia Power Company v. Cambodia and Electricité du Cambodge. In Cambodia Power Company v. Cambodia, arising out of different power purchase agreements, governed by English law and entered into with public entities in Cambodia, the investor brought claims for the respondents’ alleged breach of the agreements and violation of principles of international law. While the investor did not specify the breaches on which it intended to base its claim, the arbitral tribunal considered that the investor indicated a breach based on customary international law, including a possible claim for expropriation. Despite Cambodia’s objection, the tribunal upheld jurisdiction over the investor’s claim under customary international law on the following basis.

1. Customary international law was applicable to the dispute independently of any choice of law
2. The specification of an applicable national law does not exclude any recourse to international law

In this regard, the tribunal also noted that the express choice of English law itself has the effect of including (rather than displacing) at least a body of customary international law, since customary international law (i.e. general practices of states followed by them from a sense of legal obligation) constitutes part of the Common law by a well established doctrine of incorporation.

Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. The Republic of Hungary. In Emmis v. Hungary, arising out of Hungary’s bilateral investment treaty entered into with Switzerland and the Netherlands, the claimants brought a claim for expropriation on the basis of customary international law.

Hungary objected to the claim under Rule 41(5) of the ICSID Arbitration Rules on the basis that it was without legal merit, alleging that it had not consented to arbitration of claims arising from stand-alone obligations under customary international law.

The tribunal emphasized the scope of the parties’ consent, rather than the applicable law to the dispute. Thus, the tribunal considered that the dispute resolution clause in the Netherlands bilateral investment treaty, Article 10 was broad enough to include a claim for expropriation under customary international law, while the Switzerland bilateral investment treaty did not allow a self-standing claim on the basis of customary international law.

These decisions suggest that claims based on customary international law may fall within the jurisdiction of an investor-State arbitral tribunal. The key issue for tribunals seems to be the scope of the parties’ consent to arbitrate, which may be contained in a bilateral investment treaty, contract, or national act. On the other hand, if it is clear that the parties’ consent excluded claims under customary international law, then it is arguable that the parties cannot rely on customary international law as a self-contained source.

Just like international court decisions, arbitral awards are not evidence of States’ practice to form a rule of custom under international law. However, arbitral awards may play an important role in the development of customary international law, especially when arbitrators confirm and clarify the content of such rules. Accordingly, the final analysis on whether States’ practice and the opinio juris exist rests with the arbitral tribunal.

In summary, although arbitral awards do not create rules of custom under international law, arbitrators may have an important role in recognizing those rules and influence subsequent State practices.

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[1] I.C.J. Reports 1969, p. 44, para. 77.

[2] Opinio juris is understood as the subjective element of a custom under international law. In this respect, States must be convinced that a practice is required or permitted under international law. As explained by the ICJ in Military and Paramilitary Activities in and against Nicaragua, opinio juris depends on a belief that the practice is required which means, for a new customary rule to be formed, not only must the acts concerned amount to a settled practice, but they must be accompanied by the opinio juris sive necessitatis. Either the States taking such action or other States in a position to react to it, must have behaved so that their conduct is evidence of a belief that this practice is rendered obligatory by the existence of a rule of law requiring it. The need for such a belief. i.e., the existence of a subjective element, is implicit in the very notion of the opinio juris sive necessitatis.[1]

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