In addition to typical standards of investment protection such as fair and equitable treatment, national treatment or most-favored nation treatment, investment treaties sometimes contain an effective means of asserting claims and enforcing rights provision, commonly known as an “effective means provision“.
This provision figures mainly in investment treaties concluded by the USA, such as the BIT signed between the USA and Jamaica (Article II(6)). It is noteworthy that, although the effective means provision figured more prominently in early model BIT’s, it has been moved only to the Preambles of the USA’s 2004 and 2012 versions. It can also be found, for example, in the Energy Charter Treaty (Article 10(12) of Part III) or in the Kuwait-Croatia BIT (Article 3(5)).
A standard effective means provision reads as follows (see Article II(6) of the USA-Jamaica BIT):
Each Party shall provide effective means of asserting claims and enforcing rights with respect to investments, investment agreements, and investment authorizations granted by a Party’s foreign investment authority.
Treaties usually do not typically include any further specificities as to the definition of “effective” or “means”; the latter have been left to interpretation by arbitral tribunals.
What Kind of “Means of Asserting Claims/ Enforcing Rights” Are Effective?
Effective means provisions are usually invoked by investors seeking redress for judicial misconduct, although it not the sole standard of protection to this effect. In fact, it is not uncommon for investors to assert the same facts relating to judicial misconduct in support of their claims regarding fair and equitable treatment, denial of justice or judicial expropriation.[1]
That said, the effective means provision “guarantees the access to the courts and the existence of institutional mechanisms for the protection of investments.”[2] However, the effective means standard “does not guarantee that each and every decision is correct”,[3] as investment arbitration tribunals do not act as appellate courts to domestic judiciaries.
The core element of assessment revolves around the notion of “effectiveness”. This notion was discussed in detail in the Amto v. Ukraine case where the tribunal considered that it implied “a systematic, comparative, progressive and practical standard”[4]:
- Systematic in the sense 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 [the effective means provision].”[5]
- Comparative in the sense that “compliance with international standards indicates that imperfections in the law might result from the complexities of the subject matter rather than the inadequacies of the legislation.”[6]
- Progressive in the sense that “legislation ages and needs to be modernized and adapted from time to time, and results might not be immediate. Where a State is taking the appropriate steps to identify and address deficiencies in its legislation -in other words improvement is in progress- then the progress should be recognized in assessing effectiveness.”[7]
- Practical in the sense that “some areas of law, or the application of legislation in certain circumstances, raise particular difficulties which should not be ignored in assessing effectiveness.”[8]
For instance, judicial misconduct under this provision might relate to the situation where it can be established that the means at investors’ disposal in order to assert its claims or enforce its rights were “subject to indefinite or undue delay” (Chevron v. Ecuador (I),[9]).
A Positive or Negative Obligation of the Host State?
The Chevron v. Ecuador (I) tribunal specified that the effective means provision is “a positive obligation of the host State to provide effective means, as opposed to a negative obligation not to interfere in the functioning of those means.”[10] This means, further states the tribunal, that “while instance of governmental interference may be relevant to the analysis […], the provision is applicable to the Claimant’s claims for undue delay and manifestly unjust decisions even if no such interference is shown.”[11]
A similar conclusion was reached by the arbitral tribunal in the White Industries v. India case where it stressed that the effective means provision constitutes “a forward looking promise by a State to provide effective means of enforcing rights and making claims.”[12]
Are There Any Limits as to the Ambit of Effective Means Provisions?
As mentioned above, claims under the effective means standard relate mainly to judicial misconduct. Thus, as expressly outlined in the Apotex v. USA case, the effective means provision contained in the USA-Jamaica BIT did not “apply to non-adjudicatory proceedings [as the] wording ‘asserting claims and enforce rights’ is the language of adjudicatory proceedings […] not the language of non-adjudicatory administrative decision-making”.[13]
Effective Means Provision and Denial of Justice – Where Lies the Difference?
The arbitral tribunal in the Duke Energy v. Ecuador case ruled that the effective means provision “seeks to implement and form part of the more general guarantee against denial of justice”.[14] In the same vein, the arbitral tribunal in the OAO Tatneft v. Ukraine case held that the effective means provision was “to a large extent subsumed”[15] under the fair and equitable treatment standard.
The Chevron v. Ecuador (I) tribunal, however, went further in its assessment and considered that, although the standards overlap “significantly”,[16] the effective means provision as contained in Article II is a standalone principle and, thus, constituted “a lex specialis and not a mere restatement of the law on denial of justice.”[17]
This begs the question as to where exactly to draw a line, if any, between a denial of justice and a violation of the effective means provision?
In the Chevron (I) tribunal’s view, the main difference is that the effective means provision requires a “potentially less-demanding test”[18] than a denial of justice in the sense that “a failure of domestic courts to enforce rights ‘effectively’ will constitute a violation of [the effective means provision], which may not always be sufficient to find a denial of justice under customary international law.”[19] In this respect, it is to be recalled that arbitral tribunals have almost unanimously considered that to establish a denial of justice a high[20] and stringent[21] standard of proof is required.
For example, the White Industries v. India tribunal concluded that, although set aside proceedings lasting more than nine years did not amount to a denial of justice, “Indian’s judicial system inability to deal with White’s jurisdictional claim in over nine years, and the Supreme Court’s inability to hear White’s jurisdictional appeal for five years amounts to undue delay and constitutes a breach of India’s voluntarily assumed obligation of providing White with ‘effective means’ of asserting claims and enforcing rights.”[22]
This position has been greeted with criticism in doctrine. Some authors have opined that the distinction drawn between a denial of justice and a violation of the effective means provisions is artificial, stating that “the establishing of the effective means standard involve[s] the application of the same principles and norms that govern establishing a denial of justice, both in terms of substance and the procedure”.[23]
Conclusion
Although effective means provisions have been subject to diverse interpretations that have generated doctrinal criticism, it cannot be expected that this would prevent or somehow refrain foreign investors from invoking them, especially since a less-demanding standard, as compared to the one required for the denial of justice, is appealing to foreign investors.
Zuzana Vysudilova, Aceris Law LLC
[1] M. Sattorova, “Denial of Justice Disguised – Investment Arbitration and the Protection of Foreign Investors from Judicial Misconduct”, 61 Int’l & Comp. L.Q. 223 (2012).
[2] Duke Energy v. Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008, para. 391.
[3]Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction, Admissibility and Liability, 21 April 2015, para. 260.
[4] Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008, para. 88.
[5] Ibid.
[6] Ibid.
[7] Ibid.
[8] Ibid.
[9] Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Partial Award on the Merits, 30 March 2010, para. 250 (emphasis added).
[10] Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Partial Award on the Merits, 30 March 2010, para. 248.
[11] Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Partial Award on the Merits, 30 March 2010, para. 248.
[12] White Industries Australia Limited v. The Republic of India, Final Award, para. 11.4.16, fn. 78.
[13] Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award, 25 August 2014, para. 9.70.
[14] Duke Energy v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008, para. 391.
[15] OAO Tatneft v. Ukraine, PCA Case No. 2008-8, Award on Merits, 29 July 2014, para. 441.
[16] Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Partial Award on the Merits, 30 March 2010, para. 242.
[17] Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Partial Award on the Merits, 30 March 2010, para. 242.
[18] Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Partial Award on the Merits, 30 March 2010, para. 244.
[19] Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Partial Award on the Merits, 30 March 2010, para. 244.
[20] H&H v. Egypt, ICSID Case No. ARB/09/15, Award, 6 May 2014, para. 400. See also Jan de Nul v. Egypt, ICSID Case No. ARB/04/13, Award, 6 November 2008, para. 209.
[21] White Industries v. India, Award, 30 November 2011, para. 10.4.5.
[22] White Industries Australia Limited v. The Republic of India, Final Award, para. 11.4.19.
[23] M. Sattorova, “Denial of Justice Disguised – Investment Arbitration and the Protection of Foreign Investors from Judicial Misconduct”, 61 Int’l & Comp. L.Q. 223 (2012), pp. 237-238; see also, C. McLachlan, “International Investment Arbitration: Substantive Principles”, OUP, 2nd ed., 2017, pp. 297-302.