LLM Course on the Law of Treaties: Session 11

LLM Course on the Law of Treaties: Session 11 Flávia P. Malucelli ‘Appeals’ to the Annulment Committee concerning the ICSID Tribunal’s award in Sempra Energy International v. Argentina case Considering the Interpretation of Article XI of the US-Argentina BIT according to the VCLT; Considering that the Tribunal’s award erroneous held that Argentina had breached the fair and equitable standard and the Umbrella clause of the BIT; Considering the Tribunal’s failure to apply the defence of ‘necessity’ under Article XI of the BIT, equating it with the ‘necessity’ contained in Article 25 of the ILC’s Articles on State Responsibility for Internationally Wrongful Acts (customary international law), manifestly ignoring the rules of primary and secondary norms; Considering that the Tribunal manifestly exceeded its powers in failing to apply the applicable law: Article XI of the BIT; and Considering that the proper application of the “necessity” clause remains uncertain; this party request the annulment of the Tribunal's award of September 28, 2007, concerning the appropriate interpretation of the words “measures necessary for… the protection of its essential security interests” in Article XI of the US-Argentina BIT, as follows. Interpretation of Article XI of the BIT: General rules of interpretation (VCLT) and the rule of primary norm and secondary norm Article XI of the Argentina-US BIT provides: This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests. Regarding treaty interpretation, the Vienna Convention on the Law of Treaties (VCLT) is clear, in Article 31, that the General Rule of Interpretation is that a treaty must be interpreted in good faith, according to the ordinary meaning of the terms and in the light of its object and purpose. The Article XI of the BIT itself allows either State to apply “measures necessary for…the protection of its essential security interests”. It prevents both States of situations where some measures needed to be taken into consideration, and provides the necessary treaty language to be interpreted. Therefore, it is required first to apply (interpret) the provision of the BIT, which constitutes the applicable law, before the application of a secondary norm. Instead, the Tribunal sequence of argument consider primary the necessity under custom and then under the Article XI, what is illogical, since only were liability is not precluded under Article XI of the BIT, could the question of necessity (Article 25) become an issue to justifies exoneration from state responsibility. In its paragraph 375 and 376, the Tribunal has simply ‘granted’ the State of necessity, without analysing if the State has acted not in conformity with its international obligation - since article 25 presupposes an ‘wrongful’ act1. 1 Tribunal’s award in Paragraphs 375 and 376: Once the BIT "does not define what is to be understood by an 'essential security interest,' the requirements for a state of necessity under customary international law, as outlined above in connection with their expression in Article 25 of the Articles on State Responsibility, become relevant to the matter of establishing whether the necessary conditions have been met for its invocation under the Treaty" and "believes...that the Treaty provision is inseparable from the customary law standard insofar as the definition of necessity and the conditions for its operation are concerned, given that it is under customary law that such elements have been defined." LLM Course on the Law of Treaties: Session 11 Flávia P. Malucelli The Tribunal ignored the rules of primary and secondary norms, prioritising the customary, right over the Article XI. It is distinguished that primary norms establish an obligation, and Secondary norms determine the consequences of a violation. Consequently, if the primary law is satisfactory regulated (in this case, the necessity under the BIT), than the second law (ILC Articles on State Responsibility) does not apply. The Secondary law plays if the primary norms are violated, and a breach of International Law is conditional. The Tribunal’s approach not only ignores that Article XI operates as a primary rule exception to liability under the BIT, but also that the customary standard, as a secondary rule, only kicks in should (i) there be a breach of a substantive BIT provision; and (ii) the Article XI exception fails. The primary-secondary rule distinction has been previously applied in the CMS Annulment, para. 129). In the CMS case, the Annulment Committee had identified the Article XI as the applicable legal norm of primary importance when examining the necessity defence. The Tribunal itself, in LG&E case (para. 124), had diverged its opinion with respect to the implications for liability that should be found applicable in the defense of Article XI: to the extend it found that Argentina had a valid defense under Article XI, found that Argentina’s financial liability was excused for any breach of BIT obligations occurring during its state of emergency. The CMS annulment committee also appeared to agree with this result, since it opined that Article XI was the ‘primary’ rule that excludes all liability under the BIT2, unlike the customary international law defense of necessity (which was the ‘secondary’ rule). Despite of VCLT Article 31(3)(c) provision, which states that “shall be taken into account, together with the context:(c) any relevant rules of international law applicable in the relations between the parties”, is the Article 25 of State Responsibility the customary international law to be applicable to the case, if a proper interpretation of Article XI of the BIT could solve the case? If considering the consistence of the rule of primary and secondary norm, the answer should be no. The Tribunal should had interpreted the bilateral treaty provisions, and if necessary, recourse to the customary international law. It could not ‘jump’ straight to what envisaged Article 31(3)(c), as long as this is clearly the incorrect approach of treaty interpretation, since the starting point has to be Article 31(1) VCLT and its tripartite test. Identifying the operative primary rule enables the logical application of Article 31 analysis. Based on those arguments, the Tribunal has patently exceeded its powers, failing to apply the primary source and applicable law (necessity under Article XI of the BIT), and consequently, prejudicing the proper interpretation of the BIT and the rights established by common agreement and good faith between the parties. There’s a difference between the failure to apply the law correctly, which would not result in annulment, and the failure to apply the law at all, which would result in an annulment. The Tribunal should have asked first whether the treaty was breached (or whether the defence applied) and only then moved on the question of whether the ILC rules applied. The Article 52(1) of the ICSID Convention provides the grounds to annul the Tribunal’s award, since the Tribunal manifestly exceeded its powers (52(1)(b)). Article XI of the BIT and Article 25 of ILC Articles on State Responsibility: customary international law is not a guide to Article XI’s Interpretation Article XI of the BIT and Article 25 of the ILC Articles on State Responsibility have similar provisions. However, their interpretations are divergent: the differences between them are distinct in their causes. While Article 25 presupposes that a State has acted not in conformity with an international obligation, Article XI awards a permission to take necessary measures. 2 In CMS Annulment, para. 160 it set aside the finding on the umbrela clause, but this did not have implications for the quantum of damages awarded. LLM Course on the Law of Treaties: Session 11 Flávia P. Malucelli In Article 25, ‘necessity’ is an excuse, which precludes wrongfulness; it is not a justification. It is regulated to set out a limited set upon which a State can invoke necessity “as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State”. In Article XI, the possibility to take "measures necessary for...the protection of its own essential security interests" is granted to either Party of the BIT, creating a situation where the State can undertake certain necessary measures, without breaching their international obligations. Other relevant aspect is that Article XI can be considered an escape clause, and if the Tribunal had properly applied, there would be no duty to Argentina to compensate. The opposite happened when the Tribunal ignored the interpretation of Article XI and applied Article 25 (a claim to necessity), creating to Argentina the duty to compensate: since the plea necessity excludes the wrongfulness but not the compensation. Therefore, there are relevant consequences in applying the BIT provision or the ILC Articles on State Responsibility, specially concerning the will to relieve the State (Argentina) from an obligation (to continue the investment) in a moment of crisis. One way to relieve a State from an obligation is to identify an escape clause (in this case Article XI is an escape clause), and next, look for a ground to terminate a treaty. The grounds for terminating a Treaty require a deliberate act of will, while “necessity” (on State Responsibility) leaves no choice but compels the State to take the act. Necessity is a temporary phenomenon and do not terminate the treaty. They are also distinct in their consequences, how it was mentioned, regarding the duty to compensate. The Tribunal was obligated to consider whether Argentina’s actions were justified under Article XI, even though it has raised its defense of necessity under both customary international law and the question of preclusion under Article XI of the BIT. How the Party enumerated its arguments should not misguide Tribunal’s interpretation. Once more, it is flagrant that the Tribunal failure in concerns the applicable law and exceeded its powers. Fulfillment of Article 52(1)(b) of the ICSID Convention: Tribunal manifestly exceeded its powers The fact that the Tribunal has not applied Article XI of the BIT (which already was mentioned as the applicable law) is self-evident. In paragraph 388 of the award, the tribunal said that there was no need to “undertake a further judicial review under Article XI given that this Article does not set out conditions different from customary law in such regard”. Nevertheless, on the grounds argued in this claim, these two Articles deal with different situations and do not work together. Either their function or their substantive conditions are different. This was a fundamental error of the Tribunal in identify and apply the applicable law – by connecting both to achieve an interpretation. The BIT stipulates an Emergency Clause, as primary law, and could be interpreted without equating to a customary law. Thus, the intention that the parties had in signing the Treaty (BIT) is relevant. Finally, it is plainly clear that the Tribunal’s errors constitute a manifest excess of its powers, not only because of the misapplication of the applicable law, but also because the misinterpretation of Article XI of the BIT caused a manifestly error of law and failure in stating reasons. Having fulfilled the Legal grounds for the Claim, respectably present before this Annulment Committee the request to annul the Tribunal’s award, based on Article 52(1)(b) of the ICSID Convention.