Developing countries must welcome the jurisdiction of international tribunals to gain investor’s trust.
Interdependence between nations has always existed throughout history. The economic interests have always been the driving force for the peaceful interaction between nations. Unfortunately, it was also the reason for wars and colonialism; the desire to expand the market and the need for natural resources to boost industries were the reasons of pre-WWII colonialism in Africa, Latin America and Asia, however, physical Colonialism ceased to exist for the most part of the world, as it proved to be very costly.
Today, developed countries still need to create markets for its manufactured goods and are obviously thirstier for natural resources; however the developing world, which is the larger market for many goods and the place of natural resources and cheap labor, demands more than it used to in colonialism era.
In post-colonialism era, sovereignty was exercised by liberalization movements that formed governments. The process of decision making on the levels of state functions was not to be impaired under the cloak of international investment. Non-national arbitrators are not permitted to take decisions with domestic impact.
Various tools were created to ascertain the state’s sovereignty, autonomy and, most importantly, control over its own resources. The international community acknowledged the legitimacy of many actions carried out by post-colonial independent governments to establish its undisputed sovereignty<1>, ex. nationalization.<2>
However these acts of sovereignty are not limitless; State responsibility is invoked whenever a state commits a wrongful act in violation of international law. Regardless of how civilized and developed a state is, there’s always the tendency to discriminate against foreign individuals or entities before the local courts of the host state. This was the reason behind developing state responsibility law<3>; the rules of law governing events of international wrong committed by states; the “Denial of Justice” principle erupted from such rules. Denial of Justice can occur on the procedural level, which entails the denial of access to court, as well as on the substantive<4>level, when a court renders a manifestly unjust judgment.<5>
Recent decisions show a modern approach towards the concept of Denial of Justice, which identifies it to be the "arbitrariness" or acts that “shock” or surprise a sense of "judicial propriety”. A decision rendered by the ICJ in 1989,<6> defined the arbitrariness as "a willful disregard of due process of law, an act which shocks, or at least surprises, a sense of judicial propriety."<7> In an earlier ICJ case<8>, a dissenting opinion stated that denial of justice would occur if "corruption, threats, unwarrantable delay, flagrant abuse of judicial procedure, a judgment dictated by the executive, or a judgment so manifestly unjust that no court which was both competent and honest could have given it."<9> The decision clearly prohibited the tribunal from second-guessing the local courts’ decisions, only in extreme deviations from the due process of “international law”.
The aforementioned judicial understanding of Denial of Justice is of major importance, since international tribunals, as it is clearly indicated above, are not appellate bodies since "an investment treaty claim cannot be converted into an appeal against the decisions of municipal courts "<10>.However, in Loewen v. United States<11> the court asserted that "A
manifest injustice in the sense of a lack of due process leading to an outcome which offends a sense of judicial propriety is enough to constitute a denial of justice."<12> Nevertheless the boundaries sometimes fade between bringing a shocking judgment to a halt and reviewing the merits of a national court’s decision, as will be discussed below.
We are testing whether the rule of Exhaustion of Local Remedies (“ELR”) will stand against the overwhelming wave of treaties that support international settlement of investment disputes without local recourse.
The rule of the ELR was amongst the attractive principles for the newly independent countries; the state has to have the chance to undo the injustice that occurred on its territory, with instruments within its judicial system, before invoking its international liability/ state responsibility, hence exposing the state to a claim before an international tribunal. Nonetheless, the claimant may seek international protection, if the wrongful act has not been adequately redressed.
To measure the influence of the rule of ELR on customary international investment law, one must first consider the following:
The rule of ELR is a general rule of International Law and finds its roots in various fields thereof.<13> In international investment law, stipulations upon ELR can be found in Bilateral Investment Treaties (“BIT’s”) and contractual instruments between states and private parties, like concession agreements. Many BIT’s introduce the concept of referring to the state courts first before resorting to an international tribunal<14>. Several of which however include options for the parties to chose between several litigation mechanisms or to opt out of the ELR clause, by the lapse of a certain period of time without a decision rendered by the local courts.<15>
Furthermore, the ELR entails that the case will be heard by the highest court of the state.<16> A failure to abide by such prerequisite will trigger the inadmissibility of the claim before the international tribunal on the grounds of lack of jurisdiction.<17>
The rule of ELR can also be found in other fields of international law that have a much more experienced jurisprudence in connection with access to national courts before resorting to international tools.
The European Convention on Human Rights emphasizes on the necessity of the fulfillment of the ELR available in the state.<18> In
Ruiz-Mateos v. Spain, the European Court for Human Rights resorted to a three criterions test to measure the propriety of the state’s act under the European Convention for Human Rights: (1) the complexity of the case, (2) the conduct of the applicants, and (3) the conduct of the competent authorities.<19> Similarly, the American Convention for Human Rights also requires the ELR.<20>
The rule of ELR does not preclude the state’s submission to the international standards of investor protection; however it grants state courts the authority to render decisions on wrongs occurring within their jurisdiction. As indicated above, it is – at least theoretically – difficult to discredit the court’s decision unless it shocks the tribunal’s sense of judicial propriety.<21> At least, the application thereof guarantees the reduction of the state’s exposure on the international level, as only on the basis of denial of justice a tribunal may claim jurisdiction.
An identically purposed approach has been adopted by the Calvo doctrine, widely applied in Latin America; the Calvo doctrine supports the engagement of local courts in investor-state disputes without the recognition to the foreign status. The investor should not be granted any privileges, including “international minimum standards” of treatment<22> and the recourse to non-local litigation, as opposed to the national investor.<23> This doctrine is still evident in the domestic laws and constitutions of many Latin American states.<24> The equal/national treatment of the foreign investor is the core principle of the doctrine. UN General Assembly Resolution 3281 Art. 2(2) (1974) established such doctrine on a global level, by asserting the state’s right to resort to its own