I. INTRODUCTION
Prior to the rise of international investment treaties and institutionalization of investor–state arbitration, the protection of foreign investors from mistreatment in the host state courts was the preserve of customary international law, which prohibited a denial of justice and provided for diplomatic protection as a principal means of dispute settlement. In contrast, contemporary international investment law offers a whole array of legal standards that can be invoked in seeking redress for the acts of national courts before international arbitral tribunals. In addition to relying on the customary prohibition of denial of justice, investors can challenge judicial conduct under the treaty standards on expropriation, fair and equitable treatment and, in some cases, the obligation to ensure effective means of asserting claims. Although the multiplicity of standards available to aggrieved investors can be regarded as an inalienable part of an effective regime for the protection of foreign investment, it also gives rise to a number of fundamental problems relating to the application of procedural mechanisms designed to control the review of the conduct of national judiciary by international courts and tribunals. Focusing on arbitral cases in which claims of a denial of justice were brought under the rubric of ‘a judicial expropriation’ and ‘a failure to provide effective means of asserting claims’, this article seeks to ascertain when investor claims relating to the administration of justice in the host state courts become amenable to arbitral scrutiny. It argues that, by providing a variety of standards under which the acts of judiciary can be challenged, investment treaty law allows investors to circumvent procedural barriers and thus muddles the boundaries demarcating the scope of international review of national judicial conduct.
II. THE DEFINITION OF ‘DENIAL OF JUSTICE’ IN INTERNATIONAL LAW
The scope of international protection of foreigners from judicial misconduct has long been contested. Early legal discourse in this area reveals a split between an all-encompassing definition equating denial of justice with the general notion of an international wrong,Footnote 1 and a restrictive definition limiting denial of justice to incidences of refusal of access to courts.Footnote 2 According to the supporters of a broad definition, any breach of international law by a state instrumentality would amount to a denial of justice.Footnote 3 Whether a disputed act constituted denial of justice would depend ‘solely upon the quality of lawfulness or unlawfulness which international law attaches to the act and not upon the means of redress afforded the individual against whom it was directed’.Footnote 4 By contrast, the proponents of a narrower definition had argued that denial of justice should be restricted to a certain species of international wrong. Otherwise, ‘there would exist no international wrong which would not be covered by the phrase “denial of justice” and the expression would lose its value as a technical distinction’.Footnote 5 Furthermore, some states had regarded a more restrictive definition of denial of justice as a means of delimiting the scope of espousal by home states of claims on behalf of their citizens: the broad interpretation allowed the host state to intervene in respect of virtually any kind of wrong committed against such individuals, regardless of the availability of local remedies.Footnote 6 Read narrowly, denial of justice would comprise only refusal of a state to grant an alien access to its courts or a failure of a court to pronounce a judgment.Footnote 7
In the recent practice of investment arbitration, denial of justice was construed to go beyond a refusal of access to courts to include manifestly unjust decisions, as well as governmental interference with the administration of justice through acts of legislature or the executive.Footnote 8 For example, in Petrobart v Kyrgyzstan an investor was deprived of a chance to enforce a judgement against its debtor, KGM, owing to the last minute interference in the court proceedings by the Prime Minister, who requested that the court stay the execution of the judgement.Footnote 9 Subsequent to the stay of execution, all the oil-related assets of KGM were transferred to another state enterprise, leaving KGM with debts and no assets against which the creditors could enforce their claims.Footnote 10 The tribunal found that the intervention by the government in the court proceedings and the stay of execution constituted a denial of justice contrary to customary international law and the obligation of fair and equitable treatment under article 10(1) of the Energy Charter Treaty.Footnote 11 Another species of denial of justice—involving the conduct of legislative organs—was addressed in AMTO v Ukraine, where an investor claimed that several legislative acts adopted during the bankruptcy proceedings influenced the court judgment and thus constituted a denial of justice.Footnote 12 Although no denial of justice had been found,Footnote 13 the decision suggests that the international protection of foreign investors is not limited to judicial acts but encompasses interference in the administration of justice by the legislature as well as the executive.
III. DENIAL OF JUSTICE AND THE LOCAL REMEDIES RULE IN INVESTMENT ARBITRATION
While debates over the definition of denial of justice seem to have receded into the past, recent arbitral practice has witnessed a renewed attention to the scope of protection against internationally unlawful treatment meted out to foreign investors in host state courts. Particularly troublesome has been the relationship between denial of justice and the rule of local remedies. Should local remedies be exhausted before a denial of justice can be claimed? Historically, both denial of justice and the exhaustion of local remedies rule shared their origin in the medieval practice of private reprisals. While private reprisals evolved into the institution of diplomatic protection of citizens abroad,Footnote 14 the local remedies rule developed into a principle of customary international law and a condition precedent to bringing an international claim against a state.Footnote 15 Although the exhaustion of local remedies still retains its status of a general rule of customary international law, its application can now be excluded by consent, such as in a case where an agreement contains an express waiver.Footnote 16 It is a prominent feature of investor–state arbitration that the exhaustion of local remedies can be waived by a bilateral or multilateral agreement, thus enabling investors to bring their grievances against a host state without trying the domestic avenues of redress.Footnote 17 The foremost example of this practice is article 26 of the International Centre for the Settlement of Investment Disputes (ICSID) Convention, where the exhaustion of local remedies has been relegated to an exception:
Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.Footnote 18
Likewise, the recent generation of bilateral investment treaties (BITs) has shown an overwhelming tendency to waive the exhaustion requirement.Footnote 19 Freed from the obligation to go through national courts, investors eagerly seized the opportunity to claim against host states before investment tribunals.Footnote 20 However, the emerging tide was turned by a decision of the North American Free Trade Agreement (NAFTA) tribunal in Loewen v United States, which held that, notwithstanding a waiver in the applicable treaty, the local remedies requirement ought to be satisfied in a case where the investor claimed a denial of justice.Footnote 21
IV. LOEWEN V UNITED STATES: REINSTATING THE LOCAL REMEDIES RULE IN DENIAL OF JUSTICE CLAIMS
In Loewen v United States, the dispute arose from a private litigation in the Mississippi court instigated against Loewen, a Canadian investor, by its local competitor, Jeremy O'Keefe, the owner of a funeral home business. In the course of the trial, the judge had not only allowed the jury to be exposed to extensive xenophobic and racist comments by O'Keefe's counsel, but he had also failed to reform the US$500 million jury verdict against Loewen. Subsequently, Loewen had been prevented from appeal by the state's ‘supersedeas bond’ requirement, according to which a stay of execution on assets pending recourse to higher courts was available only subject to the posting of a bond as security for payment of the judgment, in the amount of 125 per cent of the verdict appealed. As O'Keefe threatened to seize the assets immediately and Loewen could not raise the necessary sum, the claim was settled by the payment of US$170 million.Footnote 22
In its claims brought before an investment tribunal, Loewen contended that the trial in the Mississippi court amounted to a denial of justice, breach of the fair and equitable treatment standard and expropriation in violation of investment protection provisions of NAFTA Chapter 11.Footnote 23 The tribunal agreed that ‘the trial court permitted the jury to be influenced by persistent appeals to local favouritism as against a foreign litigant’.Footnote 24 It did not hesitate to conclude that the trial and the verdict were clearly improper and contrary to minimum standards of international law and fair and equitable treatment.Footnote 25 Having reached this conclusion, however, the tribunal turned to the question of whether ‘the trial and the verdict alone or in combination with the subsequent proceedings amounted to an international wrong’.Footnote 26 It upheld the objection by the United States that state responsibility for a judicial act would arise only when there was a final action by the state's judicial system as a whole: as a judicial decision was a single action, the state should not be deemed to have spoken until all appeals had been exhausted.Footnote 27 The tribunal reasoned that the rule of ‘judicial finality’ meant to ‘afford the State the opportunity of redressing through its legal system the inchoate breach of international law occasioned by the lower court decision’.Footnote 28 Notwithstanding the fact that article 1121 NAFTA expressly envisaged a waiver of domestic proceedings as a condition of bringing a claim before an investor–state tribunal, the tribunal reasoned that the purpose of such provision was not ‘altogether clear’ and it contained ‘nothing expressly about the requirement that, in the context of a judicial violation of international law, the judicial process be continued to the highest level’.Footnote 29 The tribunal thus held that the principle of judicial finality rendered a waiver of local remedies inapplicable: where a breach of international law was caused by a judicial act, local remedies still ought to have been exhausted.Footnote 30 Unsurprisingly, the award was met with scathing criticism. By reinstating local remedies under the guise of the ‘judicial finality’ requirement, the Loewen ruling not only defied the expressly stipulated provisions of NAFTA and the ICSID Convention, but also spawned internally contradictory case law.
V. THE FALLACY OF THE JUDICIAL FINALITY EXCEPTION
A. Denial of Justice as a Failure to Provide ‘A Fair and Effective System’
Despite swathes of criticism against the Loewen award,Footnote 31 its judicial finality rule has influenced the subsequent arbitral jurisprudence and continues to shape the scope of application of the local remedies rule in international investment law. Before turning to examination of the consequences of the Loewen award, it is useful to revisit the theoretical underpinnings of its judicial finality rule. In the tribunal's view, underlying the judicial finality rule was the need to ‘to afford the State the opportunity of redressing through its legal system the inchoate breach of international law occasioned by the lower court decision’.Footnote 32 The exceptional applicability of the exhaustion requirement in denial of justice cases was thus founded upon the idea that an entire legal system ought to be tried and failed before a judicial act becomes amenable to review by an international tribunal.
The emphasis on the state's duty to provide a system of justice can also be discerned in the strand of scholarship which supports the Loewen award and postulates the need to exhaust local remedies in cases involving the acts of the judiciary. In justifying the need for a finality of judicial action, the proponents of judicial finality rely on the Second Report on State Responsibility to the International Law Commission (ILC), which states that ‘an aberrant decision by an official lower in the hierarchy, which is capable of being reconsidered, does not of itself amount to an unlawful act’.Footnote 33 Drawing on this premise, they argue that
the obligation which the State owes the foreign national in this context (whether under general international law or under the specific provisions of a treaty like NAFTA or a bilateral investment treaty) is to provide a system of justice which affords fair, equitable and non-discriminatory treatment. So long as the system itself provides a sufficient guarantee of such treatment, the State will not be in violation of its international obligations merely because a trial court gives a defective decision which can be corrected on appeal.Footnote 34
Thus, for proponents of judicial finality international law does not require a state to ensure justice at every step of the judicial process.Footnote 35 Although host states can waive local remedies in respect of breaches committed by organs other than the judiciary,
in the particular case of denial of justice, however, claims will not succeed unless the victim has indeed exhausted municipal remedies, or unless there is an explicit waiver of a type yet to be invented. … This is neither a paradox nor an aberration, for it is in the very nature of the delict that a state is judged by the final product or at least a sufficiently final product – of its administration of justice. A denial of justice is not consummated by the decision of a court of first instance. Having sought to rely on national justice, the foreigner cannot complain that its operations have been delictual until he has given it scope to operate, including by the agency of its ordinary corrective functions.Footnote 36
Since a consummation of a denial of justice presupposes that the entire system of justice fails to redress a wrong, the supporters of the judicial finality rule regard the local remedies requirement not as a procedural condition but rather as a substantive element of the delict of denial of justice. This view is heavily influenced by a theory that draws a distinction between ‘obligations of conduct’ and ‘obligations of result’. As explained in an earlier ILC Report on State Responsibility, an obligation of result presupposes some form of finality of action:
When the conduct of the State has created a situation not in conformity with the result required of it by an international obligation, but the obligation allows that this or an equivalent result may nevertheless be achieved by subsequent conduct of the State, there is a breach of the obligation only if the State also fails by its subsequent conduct to achieve the result required of it by that obligation.Footnote 37
In practical terms, looking at a denial of justice through the lens of an obligation of result means that an international wrong materializes only when the state has ‘failed to take any of the opportunities available to it to produce the required result’.Footnote 38 Since the state is under a duty to provide a fair and efficient system of justice, a wrongful decision by an inferior court would not violate that obligation if redress were available in a higher court.
Does a distinction between obligations of conduct and obligations of result provide a convincing basis for transforming the local remedies rule into the requirement of judicial finality? Conceptually, obligations that host states assume in their international investment treaties can be readily classified as both obligations of conduct and those of result.Footnote 39 For instance, an obligation to provide fair and equitable treatment can be classified as an obligation of conduct because it requires the state to refrain from unfair treatment of foreign investors (for example, by not withdrawing a licence without prior notice or not cancelling a permit on improper grounds). In a similar fashion, however, the fair and equitable treatment standard can be characterized as an obligation of result, calling for host state conduct that ultimately achieves a fair and equitable outcome. Thus, where an allegedly wrongful act is committed by a host state's administrative authorities, it can plausibly be argued that the fair and equitable treatment standard is an obligation of result under which the state is required to ensure a fair and efficient system of administration as opposed to ensuring fairness at each stage of the administrative process. If fair and equitable treatment were to be construed as an obligation of result, an unjustified cancellation of a permit—or indeed any wrong committed by an administrative body—would not constitute a breach; rather, the investor would need to show that the whole system of administration, as well as the entire system of judicial review, had failed to remedy an original wrong. Interpreting the host state duty not to deny justice as an obligation of result inevitably raises the question whether there exists a rule of administrative and legislative finality. Once the rule of finality is extended to administrative and legislative conduct, a waiver of local remedies in the applicable treaty instruments becomes ineffective in its entirety.Footnote 40 Relying heavily on the notion of an obligation of result, the proponents of the judicial finality rule fail to explain why, of all forms of governmental action, only judicial conduct should be conceptualized as an obligation of result and therefore be tried before all degrees of appeal up to the highest instance.
B. Denial of Justice Arising from a Breach of the ‘Obligations of Conduct’
While administrative and legislative wrongs are not subject to the finality requirement and defy the conduct–result dichotomy, the conceptual validity of the judicial finality rule is further undermined by inconsistency in classifying a guarantee against denial of justice as an obligation of result. It has been acknowledged that, in some cases, a denial of justice may result from a violation of the obligation of conduct. For example, the distinction between obligations of conduct and obligations of result has been deployed in support of the proposition that the local remedies rule must not apply in the case of a denial of justice resulting from a state's refusal to arbitrate. In stark contrast with the theory of judicial finality and its reliance on the concept of an obligation of result, it has been argued that a state's refusal to arbitrate disputes with a foreigner must be classified as an obligation of conduct where the state has bound itself to act in a certain way by expressly agreeing to refer disputes to arbitration.Footnote 41 Once committed to arbitration as a preferred means of dispute settlement, the state cannot subsequently contend that justice would be provided in another way, namely through recourse to national courts.Footnote 42 Construed as an obligation of conduct, the obligation to arbitrate would impose on the state a duty to provide for specifically agreed means of adjudication. Where the state refuses or otherwise fails to honour its commitment to arbitrate disputes, a breach of the obligation of conduct and a denial of justice occurs—even in the absence of the investor's attempts to exhaust domestic avenues of redress.Footnote 43 One cannot help noticing a fundamental disparity between this interpretation of a denial of justice and that endorsed in the Loewen award. Why should a commitment to arbitrate disputes be enforced as an obligation of conduct and give rise to a denial of justice without the prior exhaustion of local remedies, if a general commitment not to deny justice is construed as an obligation of result and is subject to the exhaustion and finality rule? If a denial of justice can, as a matter of principle, arise from a breach of the obligation of conduct (such as an obligation to arbitrate disputes), one is left to ponder why all other cases of judicial failure ought to be classified as arising from the obligation of result and be subject to the exhaustion of local remedies.
Notably, it was a proponent of the judicial finality rule (and an advocate of the view that an obligation not to deny justice is an obligation of result) who found Indonesia responsible for a denial of justice resulting from a breach of the agreement to arbitrate. In Himpurna v Indonesia,Footnote 44 a dispute arose from the government's refusal to acknowledge a guarantee of performance by PLN, a national electricity company, of its obligations under a power supply contract with a foreign investor. Following the initiation of international arbitration by the foreign investor, Indonesian authorities secured an order from the District Court of Jakarta enjoining parties from taking part in any arbitral proceedings in relation to the dispute. After the arbitral tribunal had decided to change the place of arbitration and continue the proceedings in the Hague, Indonesia sought an injunction from the District Court of the Hague and intercepted its own appointee in order to prevent him from taking part in the arbitral hearings. The tribunal found that it was
a denial of justice by the courts of a State to prevent a foreign party from pursuing its remedies before a forum to the authority of which the State consented, and on the availability of which the foreigner relied in making investments explicitly envisaged by that State.Footnote 45
Himpurna demonstrates that a denial of justice is not always a breach of the obligation of result, and that in practice the host state duty to refrain from denial of justice can be (and has been) construed flexibly as both an obligation of conduct and also one of result. With the advocates of judicial finality having failed to address the doubtful distinction between obligations of result and obligations of conduct, the conceptual foundations of their theory have been further eroded in post-Loewen jurisprudence.
VI. AFTER LOEWEN: DENIAL OF JUSTICE DISGUISED
By interpreting an obligation not to deny justice as an obligation of result, the proponents of judicial finality reinforce the key postulate that ‘an aberrant decision by an official lower in the hierarchy, which is capable of being reconsidered, does not of itself amount to an unlawful act’.Footnote 46 Thus, a state cannot be held responsible for individual acts because it is only bound by a duty to provide a system of justice. While exceptional treatment of judicial decisions has met with criticism,Footnote 47 it is possible to envisage—for the sake of argument—a situation where such a principle could derive support from a treaty text or indeed from customary international law. In other words, states may agree to subject wrongs committed by judicial organs to the finality of action requirement. Importantly, for the finality rule to be internally consistent, any judicial wrong would need to be challenged in national courts prior to a claim being brought on the international plane. In practice, however, the rule of judicial finality has failed spectacularly after exhaustion of local means of redress was found unnecessary in claiming violations other than denial justice. As will be shown below, by distinguishing between denial of justice and other judicial wrongs, and thus dispensing with the exhaustion requirement, recent awards have defeated the principal rationale behind the Loewen rule of judicial finality.
A. Judicial Expropriation
Saipem v Bangladesh was one of the first post-Loewen awards to cast light on the internal inconsistency of the judicial finality rule. Just as in Himpurna, a dispute concerned interference by the Bangladeshi national courts with arbitral proceedings that the investor had instituted before an International Chamber of Commerce (ICC) panel in pursuit of its contractual rights.Footnote 48 An underlying contractual dispute between Saipem and PetrobanglaFootnote 49 concerned payments under a contract for the construction of a gas pipeline. Faced with Petrobangla's refusal to pay the outstanding amount, Saipem resorted to a contractual clause providing for arbitration in the ICC. However, its attempts to obtain redress proved futile after Petrobangla succeeded in obtaining a series of judgments from the Bangladeshi courts that revoked the authority of an ICC panel, enjoined Saipem from proceeding with the arbitration and held that the ICC award was a nullity. In the claim that Saipem subsequently brought before an ICSID tribunal, the investor relied on the Italy–Bangladesh bilateral investment treaty (BIT) and contended that the judicial intervention in the contractual arbitration constituted an uncompensated expropriation.
As the investor's claim concerned acts of the host state judiciary, one would expect the tribunal to have examined whether local remedies had been exhausted as a prerequisite for making an international claim. Indeed, in its objection to the tribunal's jurisdiction Bangladesh invoked the decision in Loewen, arguing that where a court decision formed the basis of an investor's claim the local remedies rule ought to be applied as a substantive precondition regardless of whether the claim was characterized as a denial of justice or as an expropriation.Footnote 50 The tribunal acknowledged the Loewen ruling by admitting that denial of justice called for the finality of judicial action,Footnote 51 but held that an expropriation resulting from the actions of the state's judiciary did not necessarily amount to a denial of justice and, therefore, the exhaustion of local remedies was not required.Footnote 52 It thus distinguished between a denial of justice and a judicial expropriation. As the tribunal did not dwell on the reasons underlying this distinction, one is left to speculate as to whether labelling a denial of justice as ‘a judicial expropriation’ served the sole purpose of justifying the inapplicability of the local remedies rule in the case before the tribunal. While affirming the rule of judicial finality, Saipem has controversially opened the door to the possibility of avoiding the application of the local remedies rule by presenting a denial of justice claim as of one of expropriation. It has undermined the central tenet of the judicial finality rule: indeed, if the exhaustion of local remedies in denial of justice claims is explained by the special nature of the judicial activity, does the labelling of a judicial act as an expropriation change the nature of the underlying wrong? If the host state is obliged to provide a fair and efficient system of justice, thus requiring claimants to exhaust all available remedies, the same principle should arguably be extended to all forms of misconduct by the judiciary.Footnote 53 Regrettably, Saipem set a precedent for the creative but ultimately dubious use of causes of action in circumventing the local remedies requirement.Footnote 54
B. Failure to Provide Effective Means of Asserting Claims and Enforcing Rights
‘Judicial expropriation’ has not been the only investment treaty standard that disgruntled investors have invoked in an attempt to obtain redress for judicial misconduct without having to exhaust local remedies. Another recent contender is an obligation ‘to provide effective means of asserting claims and enforcing rights with respect to investment, investment agreements, and investment authorisations’ (the ‘effective means standard’), which can be found in a number of the US BITs and in the Energy Charter Treaty.Footnote 55 The scope of the effective means standard and its relationship with denial of justice was recently addressed in Chevron v Ecuador.Footnote 56 The dispute concerned the investor's failure to obtain redress in seven breach of contract cases brought in the Ecuadorian courts against the Ecuadorian government. After failing to obtain redress in all these cases, the investor contended that an unreasonable delay in deciding on the investor's contractual claims and a wrongful dismissal of some of its cases by the courts constituted a violation of Ecuador's obligations under the BIT, including the obligation to provide effective means of asserting claims.Footnote 57
Unreasonable delays in the administration of justice having been traditionally subsumed in the protection against denial of justice, it can be argued that a standalone obligation to provide effective means of asserting claims is superfluous. Indeed, where is a boundary, if any, to be drawn between a denial of justice and a failure to provide effective means of asserting claims? One may argue that the obligation to provide effective means of asserting claims and enforcing rights is nothing but a positive statement of the obligation not to deny justice. However, it is also possible to construe the effective means standard as a provision that requires states to do more than just refraining from a denial of justice: a negative duty to refrain from a denial of justice could be narrower in its scope than a positive duty to provide means of justice.Footnote 58 Yet delving into this philosophical discussion becomes unnecessary if the international guarantee against denial of justice is understood to mean the state's obligation to provide a fair and efficient system of justice, in line with an argument that the supporters of the Loewen ruling put forward in explicating the need for finality of judicial action.Footnote 59 Once denial of justice is construed as a failure to provide a fair and efficient system of justice, an obligation not to deny justice becomes eclipsed by an obligation to provide effective means of asserting claims and enforcing rights.
The Chevron tribunal admitted that the effective means standard in the applicable treaty overlaps significantly with the prohibition of denial of justice under customary international law.Footnote 60 However, since the wording of the effective means standard in the BIT did not explicitly refer to denial of justice, the tribunal held that the standard ought to be construed not as a mere restatement of a customary guarantee against denial of justice but rather as lex specialis.Footnote 61 In the tribunal's view, if the effective means standard were to be construed as expressing an obligation not to deny justice, the treaty would need to contain an explicit formulation to that effect.Footnote 62 It therefore concluded that an obligation to provide effective means for asserting claims represented a distinct and ‘potentially less demanding’ standard than the guarantee against denial of justice under customary international law.Footnote 63 In determining the substantive content of the standard, the tribunal found that ‘effective means of asserting claims’ encompassed a guarantee against indefinite or undue delay.Footnote 64 The tribunal concluded that the nature of the delay and the apparent unwillingness of Ecuadorian courts to allow the cases to proceed constituted a failure to provide effective means of justice.Footnote 65 Since it was the effective means standard and not the denial of justice guarantee that the Ecuadorian courts violated, the local remedies rule was found inapplicable. The tribunal followed the reasoning of Saipem and held that the exhaustion of local remedies, while being mandatory in denial of justice claims, was not required in establishing a breach of other BIT standards.Footnote 66
At first glance, the Chevron award can be regarded as just another arbitral decision supporting the judicial finality rule. Indeed, the tribunal did not dispute that, in principle, local remedies ought to be exhausted as a condition precedent to a denial of justice claim.Footnote 67 However, the award begs the question whether the considerations underlying the finality rule would command the exhaustion of remedies not only in denial of justice claims but also in all cases involving judicial acts. Both in Loewen and Chevron the disputed conduct was committed by the judiciary and would thus require similar treatment of the exhaustion requirement. If the state is under a duty to provide a fair and efficient system of justice, then any wrong committed in the course of the administration of justice should be subject to correction through recourse to existing avenues of appeal.
Regrettably, the Chevron tribunal failed to offer a convincing explanation of the differentiation between a failure to provide effective means of asserting claims and a denial of justice. On the contrary, in its analysis of whether an unreasonable delay by the Ecuadorian courts amounted to a violation of the effective means standard, the tribunal expressly referred to the customary law standard of denial of justice.Footnote 68 Furthermore, the tribunal's analysis of the availability and effectiveness of local remedies did not differ from what should have otherwise been analysed as part of the determination of a denial of justice.Footnote 69 Despite being construed as a standard distinct from a guarantee against denial of justice, the effective means standard was applied in Chevron on the basis of the same principles that usually govern the finding of a denial of justice in all but exhaustion of remedies aspects. If establishing a violation of the effective means standard involves the application of the same principles and norms that govern establishing a denial of justice, both in terms of substance and procedure, doubts arise as to whether the two grounds of state responsibility are materially different. In Chevron, the disputed conduct (labelled as a failure to provide effective means of asserting claims) was committed by judicial organs, fell within the definition of denial of justice in international law, and was subject to the same procedural and substantive analysis that is usually carried out in determining the existence of a denial of justice. It is therefore difficult to see how, in the circumstances of the dispute, a breach of the effective means standard was different from a denial of justice.Footnote 70 The tribunal's preference for the effective means standard as the basis of Ecuador's liability for the acts of its judiciary is more readily explained as an attempt to avoid the local remedies rule. By accepting the investor's claim under the effective means standard, the tribunal found the host state liable without having to distinguish the Loewen ruling on judicial finality. Just as was the case with Saipem, the Chevron award encourages the doubtful practice of obtaining redress for a denial of justice by disguising the latter as a different cause of action and circumventing local remedies.
C. The Obligation to Provide Effective Means of Asserting Claims: A Systematic Standard?
As finality of judicial action requires the exhaustion of local remedies, any act or omission of the judiciary, including a failure to provide effective means of redress, should become subject to an international review only after the whole system has been unsuccessfully tried. Besides, the formulation of the effective means standard in investment treaty instruments seems to suggest that, just as with an obligation to provide a fair and efficient system of justice underpinning the guarantee against a denial of justice, the provision of an effective means of redress similarly requires that an effective framework is created for the assertion of claims and enforcement of rights. Such interpretative stance was adopted in AMTO v Ukraine.Footnote 71 The dispute concerned an unsuccessful attempt to recover debt, including through institution of bankruptcy proceedings, by a Ukrainian entity of which the investor was a shareholder. Besides contending that there had been a denial of justice, the investor claimed that Ukraine had failed to ‘ensure that its domestic law provides effective means for the assertion of claims and the enforcement of rights’ in violation of article 10(12) of the Energy Charter Treaty.Footnote 72 While the tribunal did expressly distinguish between the two standards, its reasoning suggests that an obligation to provide effective means of redress, while being closely related to an obligation not to deny justice, goes beyond the judicial process to encompass legislation. Furthermore, although the question of exhaustion was not expressly raised in the tribunal's examination of the investor's allegations, it construed the effective means standard as an obligation to provide an effective system or framework, thus echoing the rationale behind the Loewen rule of judicial finality, with its emphasis on the systemic nature of an obligation not to deny justice.
As noted above, the AMTO tribunal did not draw a line between a denial of justice and a failure to provide effective means of asserting claims. Yet it did address the claimant's allegation under the two grounds separately. While acknowledging that the claimant's experience of Ukrainian bankruptcy proceedings might have been frustrating, the tribunal concluded that the investor failed to prove ‘any legal error, abuse, undue delay or interference in the process by the Ukrainian courts’.Footnote 73 No denial of justice by the Ukrainian courts was established because the tribunal found that the investor's submissions demonstrated ‘unrealistic expectations of a simple and rapid result, in a judicial structure where there were many other interests and competing rights to be considered’.Footnote 74 The tribunal then turned to the effective means provision in article 10(12), which the investor had invoked in support of its contention that the bankruptcy legislation in Ukraine was inadequate and ‘did not live up to the standard required by international law’.Footnote 75 The tribunal construed the ‘effective means’ provision in article 10(12) as a qualitative standard: legislation ought to be not only constitutional and accessible but also effective.Footnote 76 It acknowledged the difficulty of identifying criteria by reference to which the effectiveness of the legislation could be assessed. Taking into consideration the object and purpose of the Energy Charter Treaty, the tribunal suggested that ‘effectiveness’ under article 10(12) implied a systematic, comparative, progressive and practical standard. In particular, the tribunal emphasized that the standard
is systematic in that the State must provide an effective framework or system for the enforcement of rights, but does not offer guarantees in individual cases. Individual failures might be evidence of systematic inadequacies, but are not themselves a breach of Article 10(12).Footnote 77
In examining the investor's allegations against the above criteria, the tribunal observed that the Ukrainian bankruptcy law was modern and introduced new concepts. It found it unsurprising that the application of the law to an enterprise of strategic importance in the energy sector caused certain problems.Footnote 78 Despite the fact that the claimant had encountered difficulties in collecting its debts, the tribunal was not persuaded that the bankruptcy legislation fell short of providing an effective means to enforce creditors’ rights in Ukraine.Footnote 79 Neither had the investor succeeded in showing that the legislation at issue otherwise constituted a denial of justice.Footnote 80
The AMTO award is notable not only for highlighting the systemic nature of, and a considerable overlap between, the customary international guarantee against denial of justice and the obligation to provide effective means of redress, but also for adding another dimension to the latter. As is evident from the investor's claim and its analysis by the tribunal, the effective means standard is not limited to the obligation to provide a fair and efficient system of justice. Indeed, the reading of the pertinent provision suggests that the state is obligated to ensure effectiveness not only of the judicial system but also of legislation as may be necessary for the assertion of claims and the enforcement of rights by foreign investors. The question is whether the need to assess the relevant legislation as a part of the whole system, by analogy with the prevailing views on denial of justice, should imply a mandatory application of the local remedies rule as a substantive element of the delict. If denial of justice requires that the entire judicial system be tried (and failed) before an international claim can be made, then a failure to provide an effective means of asserting claims might be construed as necessitating the same measure of remedial finality in respect of legislative conduct. The AMTO tribunal highlighted that the effective means standard ‘is systematic in that the State must provide an effective framework or system for the enforcement of rights’.Footnote 81 Should this mean that, in order to challenge the efficacy of a certain regulation or law, the whole framework of remedies should be exhausted? If the rationale behind the judicial finality rule is to be extended to the effective means standard, one could argue that a successful claim under article 10(12) of the Energy Charter Treaty would necessitate the exhaustion of all available remedies, including, where applicable, an attempt to challenge the inefficiency of certain legislative provisions before a constitutional court of the host state. The ‘systematic’ nature of a host state's obligation under the effective means standard once again brings to the fore problematic aspects of the judicial finality rule, which has yet to provide a convincing explanation for exempting administrative and legislative decision-making from the exhaustion of local remedies requirement.
VII. LABELLING AS A MEANS OF AVOIDING LOCAL REMEDIES?
In both Chevron and Saipem, the investors succeeded in obtaining redress for a denial of justice without having to comply with the rule of judicial finality. By drawing a line between a denial of justice and other judicial wrongs, the respective awards encourage investors to disguise their claims by invoking an investment treaty standard other than the denial of justice guarantee. Yet the effective means standard and judicial expropriation are not the only causes of action upon which an investor can rely in its attempt to avoid the application of the local remedies requirement and other procedural barriers. In accordance with some of the US BITs, claims under the arbitrary and discriminatory measures clause are also exempt from the local remedies requirement.Footnote 82 This provision was invoked in the Chevron claim but was not discussed by the tribunal. While it is only logical that, in order to avoid the need to satisfy the cumbersome exhaustion rule, investors would prefer to present their cases as anything but a denial of justice, the willingness on the part of tribunals to accept such tactics of cherry-picking is questionable at best. The exercise in ‘skilful labelling’ undermines the principal justification for the rule of judicial finality, which explains the mandatory exhaustion of local remedies by reference to the special nature of judicial activity and the host state's duty to provide a fair and efficient system of justice, as opposed to ensuring justice at every stage of the judicial process. As argued earlier, if the exercise of judicial power were to be subject to special treatment in international law, the rule of finality would need to be extended to all forms of judicial action.
Importantly, both the unresolved tension between the local remedies rule and denial of justice and a consequent practice of distinguishing between denial of justice, expropriation and the effective means standard betray the existing indeterminacy about the role of investment arbitration and the relationship between international tribunals and national courts. Indeed, it remains unclear whether investor–state arbitration ought to function as an alternative to national courts or as a subsidiary adjudicatory body.Footnote 83 If, in line with existing views,Footnote 84 investment arbitration is to be regarded as an alternative to the host state courts, should the competence of investment tribunals extend to any dispute relating to the administration of justice in national courts? To what extent is the creation of a hitherto unprecedented mechanism of international review of judicial acts, with an inbuilt waiver of local remedies, justified by the need to promote and protect foreign investment, especially if contrasted with the subsidiary nature of the international human rights courts?Footnote 85 And if the functioning of investment arbitration as a neutral forum and an alternative to national courts is to be maintained, with the exception of judicial acts as advocated in Loewen, should this exception be applied on an ad hoc basis by individual tribunals or otherwise agreed by contracting states?
The reinstatement by the Loewen tribunal of the local remedies rule in relation to claims involving judicial acts was nothing but an attempt to draw the line between investor–state arbitration and adjudication by host state courts. The tribunal explained that
far from fulfilling the purposes of NAFTA, an intervention on our part would compromise them by obscuring the crucial separation between the international obligations of the State under NAFTA, of which the fair treatment of foreign investors in the judicial sphere is but one aspect, and the much broader domestic responsibilities of every nation towards litigants of whatever origin who appear before its national courts.Footnote 86
By subjecting judicial acts to the exhaustion requirement even despite the applicable waiver, the Loewen tribunal seems to have favoured the view of investment arbitration as an alternative to national courts in all but cases involving acts of the judiciary. However, the rule of judicial finality that it advocated has failed to command uniform acceptance among arbitral tribunals, and successful attempts to circumvent the local remedies requirement have only exacerbated the lack of consistency in arbitral treatment of claims arising from judicial conduct. As evidenced by Saipem and Chevron, the investor–state dispute settlement system continues to function as an alternative to domestic courts, but at the expense of conceptual clarity, certainty and predictability. The judicial finality exception to the local remedies rule was created in Loewen only to be departed from in subsequent arbitral practice. In all three cases, the treatment of the investors by the host state courts indeed justified an international review. However, the fact that exhaustion of local remedies was found necessary to stop a claim against the US but dispensed with to allow claims against Ecuador and Bangladesh raises the question whether the rule ought to be so flagrantly moulded to suit different preferences of party-appointed arbitrators.
The lack of principled approach in recent practice points to a need to redefine, in clear terms, the scope of the local remedies rule and its applicability to various categories of investment disputes. Since arbitral practice exhibits strong disagreement and a varying measure of support for the exhaustion rule, the task of redefining the role of local remedies in investment arbitration is better deferred to state parties. For its part, the ICSID Convention already allows states to make their consent to arbitration subject to the exhaustion of local remedies.Footnote 87 States must decide whether claims arising from the administration of justice, legislative acts and executive conduct should be subject to the local remedies rule. The possibility of an entire rethinking of the existing approaches to the exhaustion of local remedies in bilateral and multilateral treaty instruments is not to be ruled out. For example, recent proposals from the European Parliament on the future of the EU international investment policy have already emphasized the need to change the existing dispute settlement mechanism to include the obligation to exhaust local judicial remedies where they are reliable enough to guarantee due process.Footnote 88 However, until such proposals are implemented, tribunals should enforce existing waivers of local remedies and refrain from creating special categories of international wrong for the sole purpose of granting investor claims.
VIII. ELIMINATING MULTIPLE AND OVERLAPPING STANDARDS OF TREATMENT
Beyond the application of the local remedies rule, the scope of international protection against mistreatment of foreign investors in host state courts has been significantly muddled because of the proliferation of alternative causes of action in recent arbitral practice, which investors have exploited to circumvent various procedural constraints. Indeed, governmental action in the administration of justice can now be challenged under the fair and equitable treatment standard (which incorporates a guarantee against denial of justice), the prohibition of arbitrary and discriminatory measures, expropriation and the effective means standard. It is thus possible to discern a trend for a greater specificity and even fragmentation of standards of treatment in international investment instruments, such developments being arguably driven by the need for greater precision and clarity and, more plausibly, by the desire to cast an all-encompassing net protecting investors from different forms of governmental misconduct in a variety of settings. However, does the availability of the largely overlapping standards of treatment benefit the system of investment treaty protection as opposed to favouring individual stakeholders? As demonstrated by Chevron and Saipem, the principal advantage of having multiple and overlapping standards was their ability to replace a denial of justice guarantee in order to allow the investor to avoid the local remedies rule and other procedural barriers. While individual investors may gain from labelling the host state's conduct as a breach of the effective means standard or as a judicial expropriation instead of invoking a denial of justice, such practice is likely to compromise significantly the integrity, credibility and sustainability of investment treaty law in the long term. It is therefore submitted that both host states and foreign investors would benefit more from replacing variously overlapping provisions by a unified standard of treatment.Footnote 89 This would preclude claimants and tribunals from deploying the local remedies rule in a selective manner, and would introduce clarity as to what forms of governmental action can give rise to the international responsibility of the host state to affected investors.
One argument against the unification of overlapping standards of treatment is that, under existing treaties, the reliance on the standard of expropriation, including a judicial expropriation, as a distinct cause of action may be of decisive importance if a dispute is brought under a BIT that allows for investor–state arbitration only in the case of expropriation. The award in Saipem v Bangladesh brought to the fore the practical implications of invoking expropriation in a case where the factual context more readily supports the finding of a denial of justice. Although the conduct complained of also amounted to denial of justice and a breach of fair and equitable treatment, the primary claim was for expropriation, which under article 9(1) of the BIT was the sole and exclusive ground giving rise to the jurisdiction of an ICSID tribunal.Footnote 90 Despite the fact that the case was clearly about a denial of justice, the tribunal preferred to characterize the disputed conduct as an expropriation through judicial acts. Had the Saipem tribunal described the conduct of the Bangladeshi courts as a denial of justice and not as an expropriation, the investor would have been deprived of the opportunity to have its grievance heard by an investment treaty tribunal. With regard to BITs providing for the arbitration of expropriation cases only, the elimination of overlapping standards may seem problematic. Such BITs reflect a policy choice that intentionally limits the availability of investment arbitration to certain types of host state interference with foreign investment, such as expropriation.Footnote 91 However, it is clear that, despite seeking to limit its exposure to investment arbitration by providing consent only to expropriation disputes, a host state might still end up being held liable in cases where arbitral tribunals—driven by a perceived need to afford the investor an effective remedy—preferred to characterize the disputed conduct as an international wrong, upon which they are competent to rule. Since BITs providing for arbitration of expropriation disputes alone fail to limit the exposure of the host state to international responsibility, host states would arguably gain more from eliminating multiple and overlapping standards. Furthermore, the adoption of a unified standard of treatment with clearly outlined parameters of illegality and procedural conditions would introduce clarity as to what forms of governmental conduct can give rise to international responsibility of the host state to affected investors. Greater clarity and consistency would in turn benefit all stakeholders by enhancing the credibility of the system and militating against radical proposals for its overhaul.
IX. CONCLUSION
This article sought to illustrate how the scope of investment treaty protection from judicial misconduct is obscured owing to lack of clarity and consistency in arbitral approaches to the application of the local remedies rule in cases involving acts of judiciary. After the exhaustion requirement was controversially reinstated as a rule of judicial finality, foreign investors seized the opportunity to deploy multiple and overlapping causes of action to circumvent the exhaustion prerequisite by bringing denial of justice claims under alternative rubrics. As the resulting jurisprudence is characterized by glaring inconsistency in the application of the local remedies rule to allegations of judicial misconduct, the article has identified two principal directions in which the clarification of the scope of investment treaty protection against judicial acts could be achieved. First, it is argued that states should reappraise the nature of investment arbitration vis-à-vis adjudication in national courts rather than leaving this matter to be decided on an ad hoc basis by individual tribunals. The practice of other international adjudicatory bodies, such as that of the European Court of Human Rights, can be instructive. One question that state parties to investment treaty instruments will need to answer is whether, in the light of practice yielded by arbitral tribunals, the functioning of investment arbitration as a full or partial alternative to national courts is justified by the need to promote and protect foreign investment. Second, the use of multiple and overlapping causes of action as a means of circumventing the local remedies rule (as well as other procedural barriers) raises the question whether a recent trend for inclusion of a greater number of protections in investment treaty texts contributes to or militates against clarity, consistency and predictability. It is suggested that duplicate and redundant provisions should be abandoned in favour of a unified concept of an investment treaty breach.
