A Rebalancing Act? - Human Rights and Environmental Counterclaims in International Investment Arbitration

Abstract: International investment law (IIL) is a highly complex area of law that consists of around 3000 international investment agreements (IIAs) that aim to promote and protect foreign investment. They provide for investor-State dispute settlement (ISDS) which gives investors the right to sue host States directly through international arbitral tribunals. During the last decade, this system has received significant criticism for being asymmetric as it affords only rights to investors and consequently only obligations for host States. IIL is at the same time becoming increasingly connected to issues of environmental protection and human rights as investors have used the ISDS mechanism to challenge host State’s public policy measures in these fields and often been successful in doing so. This has generated further criticism and concerns that the IIL regime is obstructing much needed State efforts to address such non-economic issues. Furthermore, transnational corporations (TNCs) can often avoid liability for environmental destruction and human rights violations when operating abroad due to the lack of a mechanism at the international level that can impose responsibility on such actors. Reform efforts to rebalance this asymmetry have been made at international level, primarily within the UNCITRAL Working Group III but also at domestic level by renegotiating and reforming IIAs. The increasing significance afforded to the non-economic issues that are implicated in investment law and ISDS can be seen in this progress as well as in arbitral awards in which arbitrators are to a greater extent dealing with such issues. A mechanism that has been presented as a potential tool to further this reform, and rebalance the IIL regime, is counterclaims. States have traditionally rarely raised counterclaims in ISDS but over the last years they have become increasingly common. This thesis examines the legal framework of counterclaims in ISDS and how such counterclaims have been received by investment tribunals. The questions that are asked are how counterclaims could support the ongoing reform efforts and how they can be used to promote accountability for TNCs for environmental harm and human rights violations. It draws the conclusion that counterclaims do in fact have great potential to rebalance the system but that the current framework must be improved in order to allow counterclaims by host States to a higher degree. The need for reform of IIAs is discussed as well as the possibilities to interpret existing IIAs in a way that is more open to counterclaims despite their asymmetry. The thesis further concludes that ISDS could become a venue in which TNCs can be held accountable for environmental harm and human rights violations, something that is much needed. However, it also discusses concerns of allocation of authority between arbitral tribunals and domestic courts as well the appropriateness of dealing with such non-economic issues closely related to public policy in ad hoc tribunals.