EYIEL Monographs

Studies in European and International Economic Law 34

Andrés Eduardo Alvarado-Garzón

Environmental
Counterclaims
in Investment
Arbitration
Deconstructing the Requirements
of Jurisdiction, Connection and Cause
of Action
European Yearbook of International Economic Law

EYIEL Monographs - Studies in European and

International Economic Law

Volume 34

Series Editor
Marc Bungenberg, Saarbrücken, Germany
Christoph Herrmann, Passau, Germany
Markus Krajewski, Erlangen, Germany
Jörg Philipp Terhechte, Lüneburg, Germany
Andreas R. Ziegler, Lausanne, Switzerland

Licensed to Dymas Satrioprojo ([email protected])

EYIEL Monographs is a subseries of the European Yearbook of International
Economic Law (EYIEL). It contains scholarly works in the fields of European and
international economic law, in particular WTO law, international investment law,
international monetary law, law of regional economic integration, external trade law
of the EU and EU internal market law. The series does not include edited volumes.
EYIEL Monographs are peer-reviewed by the series editors and external reviewers.
Andrés Eduardo Alvarado-Garzón

Environmental Counterclaims
in Investment Arbitration
Deconstructing the Requirements of
Jurisdiction, Connection and Cause of Action
Andrés Eduardo Alvarado-Garzón
Frankfurt am Main, Germany

ISSN 2364-8392 ISSN 2364-8406 (electronic)

European Yearbook of International Economic Law
ISSN 2524-6658 ISSN 2524-6666 (electronic)
EYIEL Monographs - Studies in European and International Economic Law
ISBN 978-3-031-46390-7 ISBN 978-3-031-46391-4 (eBook)
https://doi.org/10.1007/978-3-031-46391-4

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Preface

This book is the result of a doctoral dissertation accepted by the Faculty of Law of
Saarland University in winter 2022/2023. It was written during my time as a research
associate at the Chair for Public Law, Public International Law, European Law and
International Economic Law of Professor Dr. Marc Bungenberg at Saarland Uni-
versity. The manuscript reflects legal literature and case-law until January 2023.
Many people accompanied and supported me during this academic endeavour.
Thus, fully expressing my gratitude to all and every single one of them in these few
lines is well-nigh impossible. Yet, I cannot miss the chance to single out certain
people by name, without whom this work would not have been completed. First of
all, I am extremely grateful to my doctoral supervisor, Professor Dr. Marc
Bungenberg, whose insightful comments and unwavering support for this and
many other projects have paved the following years of my career. I would like to
thank Professor Dr. Torsten Stein, who kindly undertook the second evaluation of
my doctoral dissertation. I would also like to thank the members of the defence
committee, Professor Dr. Thomas Giegerich, Professor Dr. Marc Bungenberg,
Professor Dr. Torsten Stein and Professor Dr. Annemarie Matusche-Beckmann,
for the pleasant and thought-provoking discussions.
Furthermore, I would like to thank the editors of this series, Professor Dr. Marc
Bungenberg, Professor Dr. Christoph Herrmann, Professor Dr. Markus Krajewski,
Professor Dr. Jörg Philipp Terhechte and Professor Dr. Andreas R. Ziegler for
including this dissertation in the EYIL Monographs—Studies in European and
International Economic Law.
This work has enormously benefitted from the experience gained at the Interna-
tional Centre for Settlement of Investment Disputes (ICSID) and the United Nations
Commission on International Trade Law (UNCITRAL), particularly, from my work
with Paul-Jean Le Cannu, Marisa Planells-Valero and Ana Conover at ICSID and
with Judith Knieper and Corentin Baslé at UNCITRAL. Furthermore, I am grateful
to Professor Hélène Ruiz-Fabri for hosting me at the Max Planck Institute Luxem-
bourg for Procedural Law and for providing me with a scholarship to complete my
research.

v
vi Preface

From the bottom of my heart, I am thankful to my dear friends and colleagues

Dr. Pieter Van Vaerenbergh, Bianca Böhme and Vishakha Choudhary, who
reviewed and proof-read the book and provided invaluable feedback for
improvement.
During the writing process, I was fortunate to enjoy an excellent research
environment at the Europa-Institut of Saarland University. In particular, thanks to
my friends and former colleagues Anna, Pieter, Angshuman, Fabian, Bianca, Björn,
Afolabi and Romy, who each contributed in their own way to a pleasant and
inspiring atmosphere. My sincere thank you to Dr. Patricia Nacimiento for motivat-
ing me during the last stages of this process and to my colleagues Adilbek,
Alessandro, Bajar, Elmar, Jacky and Gani, who have warmly welcomed me in the
disputes team.
My deepest and most heartfelt thanks, however, go to my family: To the love of
my life, Claudia, whose patience and unconditional love have become the bedrock of
everything I do; to my dad, Luis Eduardo, the reason and inspiration for everything I
have achieved; to my mom, Graciela and my brother, Sergio, whose constant support
and affection I have felt despite the distance.

Frankfurt am Main, Germany Andrés Eduardo Alvarado-Garzón

August 2023
Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 State of Play . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Scope of the Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2 The Contextualisation of Environmental Counterclaims: A
Comparative Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Counterclaims from a Comparative Perspective in International
Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1.1 The International Court of Justice and Counterclaims . . . . . 12
2.1.2 Iran-US Claims Tribunal and Counterclaims . . . . . . . . . . . 26
2.1.3 International Commercial Arbitration and Counterclaims . . 31
2.1.4 Other Frameworks for International Dispute Settlement . . . 39
2.1.5 Common Characteristics of Counterclaims in International
Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.2 Environmental Counterclaims Through the Prism of Investment
Arbitration: Distilling the Basic Features . . . . . . . . . . . . . . . . . . . 43
2.2.1 The Multifaceted Nature of Investment Arbitration . . . . . . . 43
2.2.2 Finding the Underpinnings of Counterclaims in Investment
Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
2.2.3 The Utility of Environmental Counterclaims in Investment
Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
2.3 Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
3 Jurisdiction Over Environmental Counterclaims: The Puzzle of
Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
3.1 Tribunals’ Jurisdiction to Decide Counterclaims: Covering
the Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

vii
viii Contents

3.1.1 The Parties’ Consent as the Backbone of Tribunals’

Jurisdiction in Investment Arbitration . . . . . . . . . . . . . . . . 76
3.1.2 Consent over Counterclaims: An Unavoidable
Requirement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
3.1.3 Beyond the Arbitration Agreement: Other Possible
Sources for a Tribunal’s Power to Decide
Counterclaims? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
3.2 Jurisdiction Over Environmental Counterclaims in Contract-Based
Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based
Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
3.3.1 The Traditional Appraisal of Counterclaims in
Treaty-Based Investment Arbitration . . . . . . . . . . . . . . . . . 92
3.3.2 The Case of Contractual Counterclaims in Treaty-Based
Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
3.3.3 Revising the Interpretation of Consent to Environmental
Counterclaims in Treaty-Based Investment Arbitration . . . . 131
3.4 Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
4 The Assessment of the Connection Requirement for Environmental
Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
4.1 Justifications for the Requisite Connection in Counterclaims:
Beyond the Explicit Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
4.1.1 Finding Commonalities in Different Instruments . . . . . . . . 164
4.1.2 Connection as an Inherent Requirement for
Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
4.2 The Characterisation of the Connection Requirement:
An Unsettled Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
4.2.1 Jurisdiction and Admissibility in Investment Arbitration:
A Square Peg in a Round Hole? . . . . . . . . . . . . . . . . . . . . 171
4.2.2 The Connection Requirement for Counterclaims as a
Non-Jurisdictional Requirement: Entering Into the
Tribunal’s Discretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
4.3 The Dilution of the Connection Requirement in Investment
Arbitration and its Impact on Environmental Counterclaims . . . . . . 185
4.3.1 A Dichotomy of Legal and Factual Connection: Looking
at Its Origins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
4.3.2 Environmental Counterclaims in Contract-Based
Investment Arbitration: The Content of the Connection
Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
4.3.3 Environmental Counterclaims in Treaty-Based
Investment Arbitration: The Content of the Connection
Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
4.4 Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Contents ix

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
5 Searching a Cause of Action for Environmental Counterclaims . . . . 207
5.1 Investors’ Environmental Obligations in Contract-Based
Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
5.1.1 Environmental Obligations within the Investment
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
5.1.2 The Interaction of Contractual Choice of Law Clauses
and the Host State’s Domestic Law on Environmental
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
5.1.3 Environmental Law Obligations and the Impact of
Stabilisation Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
5.2 Investors’ Environmental Obligations in Treaty-Based Investment
Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
5.2.1 Environmental Obligations from Domestic Law:
Outstripping the Role of Domestic Law? . . . . . . . . . . . . . . 213
5.2.2 Environmental Obligations from International Law: An
Unexploited Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . 226
5.3 How Appropriate Is It for Tribunals in Investment Arbitration to
Decide on Environmental Matters? . . . . . . . . . . . . . . . . . . . . . . . 263
5.3.1 Technical and Procedural Issues . . . . . . . . . . . . . . . . . . . . 264
5.3.2 Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
5.4 Interim Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
6.1 The Theoretical Underpinnings for Environmental
Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
6.2 Jurisdiction Over Environmental Counterclaims . . . . . . . . . . . . . . 282
6.3 Connection Between an Environmental Counterclaim and the
Main Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
6.4 Cause of Action for an Environmental Counterclaim . . . . . . . . . . . 284

Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
Annex 1: Counterclaims with an Environmental Related Issue . . . . . . . . 287
Annex 2: Other Counterclaims in Chronological Order . . . . . . . . . . . . . 289
Annex 3: Counterclaims in Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Annex 4: Article 6 of the Resolution on the ‘Equality of Parties
before International Investment Tribunals’ of the 18th Commission
of the Institut de Droit International . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
List of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
BITs, IIAs and Other Investment-Related Agreements . . . . . . . . . . . . . . 307
Abbreviations

Algiers Accords Declaration of the Government of the Democratic

and Popular Republic of Algeria (General
Declaration) of 19 January 1981
ARSIWA Articles on the Responsibility of States for
Internationally Wrongful Acts
ATCA US Alien Tort Claims Act
BIT Bilateral Investment Treaty
Brundtland Report Report of the World Commission on Environment
and Development of 1987
CAO Compliance Advisor/Ombudsman of the IFC
Claims Settlement The Declaration of the Government of the
Declaration Democratic and Popular Republic of Algeria
concerning the Settlement of Claims by the
Government of the United States of America and
the Government of the Islamic Republic of Iran of
19 January 1981
CSR Corporate and Social Responsibility
DIS Deutsche Institution für Schiedsgerichtbarkeit—
DIS [German Arbitration Institute]
DSU Understanding on the Rules and Procedures
governing the Settlement of Disputes at the WTO
EU European Union
First Hague Convention Convention for the Pacific Settlement of
International Disputes of 1899
FTA Free Trade Agreement
GATT General Agreement on Tariffs and Trade
HKIAC Hong Kong International Arbitration Centre
IBA International Bar Association
ICC International Chamber of Commerce

xi
xii Abbreviations

ICJ International Court of Justice

ICSID Convention Convention on the Settlement of Investment
Disputes between States and Nationals of other
States
ICSID International Centre for Settlement of Investment
Disputes
IFC International Finance Corporation
IIA(s) International Investment Agreement(s)
IISD International Institute for Sustainable
Development
ILC International Law Commission
ILO International Labour Organization
ISDS Investor-State Dispute Settlement
ITLOS International Tribunal for the Law of the Sea
IUSCT Iran-US Claims Tribunal
LCIA London Court of International Arbitration
MFN Most-Favoured Nation Treatment
New York Convention Convention on the Recognition and Enforcement
of Foreign Arbitral Awards
OECD Organization for Economic Co-operation and
Development
OSPAR Convention Convention for the Protection of the Marine
Environment of the North-East Atlantic
PCA Permanent Court of Arbitration
PCIJ Permanent Court of International Justice
Rio Declaration Rio Declaration on Environment and
Development of 1992
SCC Stockholm Chamber of Commerce
Second Hague Convention Convention for the Pacific Settlement of
International Disputes of 1907
SIAC Singapore International Arbitration Centre
Stockholm Declaration Declaration on the Human Environment of 1972
TFEU Treaty on the Functioning of the European Union
UN United Nations
UNCITRAL Arbitration Rules Arbitration Rules of UNCITRAL
UNCITRAL Model UNCITRAL Model Law on International
Arbitration Law Arbitration
UNCITRAL Working Working Group on Investor-State Dispute
Group III Settlement Reform at UNCITRAL
UNCITRAL United Nations Commission on International
Trade Law
UNCLOS UN Convention on the Law of the Sea
UNCTAD UN Conference on Trade and Development

Licensed to Dymas Satrioprojo ([email protected])

Abbreviations xiii

UNFCCC UN Framework Convention on Climate Change

UNIDROIT Principles UNIDROIT Principles of International
Commercial Contracts
US United States of America
USD US Dollar
VCLT Vienna Convention on the Law of Treaties
VIAC Vienna International Arbitral Centre
WIPO World Intellectual Property Organization
WTO World Trade Organization
Chapter 1
Introduction

The notion of sustainable development condenses the close relation between the goal
of economic development and environmental protection. Sustainable development is
‘development that meets the needs of the present without compromising the ability of
future generations to meet their own needs’.1 Pursuant to Principle 4 of the Rio
Declaration on Environment and Development of 1992 (Rio Declaration),2 environ-
mental protection constitutes an integral part of sustainable development. Accord-
ingly, sustainable development connects the goals of economic and social
development with the goal of environmental protection,3 based on the principles
of intergenerational and intragenerational equity.4 Therefore, the notion of sustain-
able development evolves according to the circumstances such as time, the area or
the subjects concerned.5
One may argue that sustainable development seems to entail a political ideal,
which undermines its normative value.6 Thus, it cannot have the status of a norm of

1
Report of the World Commission on Environment and Development (04 August 1987) UN Doc
A/43/427 and Annex ‘Our Common Future’ (Brundtland Report) 54.
2
UN Conference on Environment and Development, ‘Rio Declaration on Environment and Devel-
opment’ (12 August 1992) UN Doc A/CONF.151/26 (Vol I), Principle 4: (‘In order to achieve
sustainable development, environmental protection shall constitute an integral part of the develop-
ment process and cannot be considered in isolation from it’).
3
Beyerlin (2013), mn. 11; Bjorklund (2019), p. 40.
4
According to Virginie Barral, intergenerational equity ‘posits that in their development choices
states must preserve the environmental capital they hold in trust for future generations and ensure
that it is transmitted in conditions equivalent to those in which it was received’, whereas
intragenerational equity ‘requires equity in the distribution of the outcomes of development within
one generation as much internally (within one national society) as internationally (between
developed and developing states)’, see Barral (2012), p. 380.
5
Barral (2012), p. 382.
6
Beyerlin (2013), mn. 17–18.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 1

A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
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2 1 Introduction

international law given its incapability of being couched in normative terms.7 Even
though there is no obligation to achieve sustainable development, this does not
deprive this concept of reflection in custom.8 At least, sustainable development, as
an objective to aspire to, represents a principle of customary international law.9 This
might be ‘by reason not only of its inescapable logical necessity, but also by reason
of its wide and general acceptance by the global community’.10 The International
Court of Justice (ICJ) in the Gabčíkovo-Nagymaros case mentioned for the first time
the concept of sustainable development and underscored the pivotal role of environ-
mental protection in international law and the need to reconcile it with economic
development.11
Yet, international environmental law is deemed as a relatively emerging field in
the broader spectrum of public international law and subject to a state of steady and
dynamic evolution.12 This might explain the gradual development of environmental
considerations in investment arbitration. Investment arbitral tribunals traditionally
exhibited certain reluctance to consider environmental concerns as a decisive ele-
ment in their reasonings.13 In fact, until 2005 there was a tendency for arbitral
tribunals to decide conflicts between environmental protection policies and invest-
ment protection in favour of the latter.14 This clash between environmental policies
and investment protection has functioned as a ‘catalyst’ for the reformulation of
international investment agreements (IIAs) more amenable to non-investment con-
siderations.15 Various IIAs have indeed incorporated into their preambles the

7
Lowe (1999), pp. 23–25.
8
In this regard, Virginie Barral refers to the decision in US-Shrimp, Gabčíkovo-Nagymaros, Iron
Rhine Railway and Pulp Mills, as well as the multitude of international law documents recognising
the need to pursue sustainable development and the national strategies implementing environmental
considerations, see Barral (2012), pp. 386–388. For a different opinion see, Chi (2018), p. 13.
9
Barral (2012), p. 388. Similarly, Sands et al. (2018), p. 219: (‘There can be little doubt that the
concept of ‘sustainable development’ has entered the corpus of international customary law,
requiring different streams of international law to be treated in an integrated manner’).
10
Case concerning the Gabčíkovo-Nagymaros Project (Hungary v Slovakia) (Judgment) [1997]
ICJ Rep 7, Separate Opinion of Vice-President Weeramantry, 95.
11
Case concerning the Gabčíkovo-Nagymaros Project (Hungary v Slovakia) (Judgment) [1997]
ICJ Rep 7, para 140: (‘Throughout the ages, mankind has, for economic and other reasons,
constantly interfered with nature. In the past, this was often done without consideration of the
effects upon the environment. Owing to new scientific insights and to a growing awareness of the
risks for mankind - for present and future generations - of pursuit of such interventions at an
unconsidered and unabated pace, new norms and standards have been developed, set forth in a great
number of instruments during the last two decades. Such new norms have to be taken into
consideration, and such new standards given proper weight, not only when States contemplate
new activities but also when continuing with activities begun in the past. This need to reconcile
economic development with protection of the environment is aptly expressed in the concept of
sustainable development’) (emphasis added).
12
Boyle (1999), p. 62.
13
Kulick (2012), pp. 258–259.
14
Behn and Langford (2017), p. 44.
15
Asteriti (2016), p. 146. Similarly, Chi (2018), p. 90.
1 Introduction 3

protection of the environment and/or the promotion of sustainable development as

objectives worth pursuing through foreign investment or at least consistent with
investment protection.16 In some cases, the objective of protecting the environment
might have been further reflected in exception clauses or carve-out provisions,17 or
even indirectly, through the inclusion of corporate social responsibility provisions.18
As such, treaty provisions reflecting environmental objectives, carve-outs or even
obligations upon the contracting states seem to alleviate to a certain degree the
conflicts an environmental measure may generate in the investment protection
regime.19 Such treaty practice of introducing environmental considerations in invest-
ment treaties suggests that those IIAs should be construed under the light of
sustainable development, or at least that investment and environmental protection
cannot be treated separately.20 In this sense, such new language in IIAs indicates that
the activity of foreign investors cannot impinge on environmental protection.21
Investment tribunals seemed to have heeded these developments. In various
cases, tribunals have considered that environmental concerns merit an analysis in
investment arbitration either by informing the scope of application of other treaty
provisions or by assessing the reasonableness of a state’s conduct.22 This intricate

16
See for instance: NAFTA (1994), Preamble; US-Uruguay BIT (2005), Preamble; Colombia-US
TPA (2006), Preamble; Korea-US FTA (2007), Preamble; US-Rwanda BIT (2008), Preamble;
Japan-Switzerland FTA (2009), Preamble; Japan-Colombia BIT (2011), Preamble; Canada-China
BIT (2012), Preamble; Canada-Benin BIT (2013), Preamble; Canada-Burkina Faso BIT (2015),
Preamble; Austria-Kyrgyzstan BIT (2016), Preamble; Slovak Republic-Iran BIT (2016), Preamble;
Morocco-Nigeria BIT (2016), Preamble; Rwanda-UAE BIT (2017), Preamble; Ethiopia-Qatar BIT
(2017), Preamble; Argentina-UAE BIT (2018), Preamble; Belarus-India BIT (2018), Preamble;
USMCA (2019), Preamble; Hungary-Kyrgyzstan BIT (2020), Preamble.
17
See for instance: Turkey-Gambia BIT (2013), Art 5; Guatemala-Trinidad and Tobago BIT (2013),
Art 2(2); Switzerland-Georgia BIT (2014), Art 9; Mexico-Panama FTA (2014), Art 10.9(2);
Colombia-France BIT (2014), Art 10; Colombia-Turkey BIT (2014), Arts 6 and 11; Japan-Uruguay
BIT (2015), Art 22; Australia-China FTA (2015), Art 9.8; Canada-Burkina Faso BIT (2015), Art
18; Canada-Guinea BIT (2015), Art 18; Argentina-Qatar BIT (2016), Art 10; Colombia-UAE BIT
(2017), Arts 10 and 11; Rwanda-UAE BIT (2017), Art 9; Israel-Japan BIT (2017), Art 15; Turkey-
Cambodia BIT (2018), Art 4.
18
See for instance: Canada-Benin BIT (2013), Art 16; Canada-Cameroon BIT (2014), Art 15;
Colombia-France BIT (2014), Art 11; Canada-Burkina Faso BIT (2015), Art 16; Canada-Guinea
BIT (2015), Art 16; Nigeria-Singapore BIT (2016), Art 11; Canada-Mongolia BIT (2016), Art 14.
19
Asteriti (2016), p. 149. Similarly, Boisson de Chazournes (2017), p. 380: (‘These can be classified
in three categories. First, preambular provisions often refer to environmental protection in general
terms as an objective. Second, by way of exception or derogatory language, environmental concerns
may be part and parcel of the State’s regulatory power. Third, environmental obligations may be
incorporated with provisions on corporate social responsibility and the obligation to conduct an
environmental impact assessment’).
20
Martini (2017), pp. 582–583.
21
Choudhury (2020), p. 5.
22
See for instance: Chemtura Corporation v Government of Canada, UNCITRAL Case, Award
(02 August 2010) paras. 134 et seqq.; Yuri Bogdanov and Yulia Bogdanova v Republic of Moldova,
SCC Case No V091/2012, Award (13 April 2013) paras. 192 et seqq.; Adel A Hamadi Al Tamimi v
Sultanate of Oman, ICSID Case No ARB/11/33, Award (03 November 2015) paras. 387–390;
4 1 Introduction

relation between environmental protection and investment protection delineated by

treaty drafting and arbitral jurisprudence suggests that international investment law
should contribute to sustainable development, and consequently, foreign investors
should not affect a state’s goals in this regard.23
Nowadays, the facilitation of foreign investment (including its protection) is even
deemed critical for achieving sustainable development.24 Particularly, the possibility
to harness the financial and technological resources of foreign investors may pave
the way towards sustainable development.25 Illustratively, with respect to climate
change, the Paris Agreement’s objectives would require approximately USD 90 tril-
lion investment, which renders the channelling of foreign investment towards those
objectives indispensable.26
These developments reveal, perhaps ironically, a two-sided relation between
investment law and environmental protection: synergetic and supportive, on the
one hand, and conflicting, on the other hand.27 The synergetic and supportive
relation epitomises the idea of harnessing the financial and technological resources
of foreign investors for fostering environmental protection.28 The conflicting relation
appears from the origins of investment protection, which was characterised by the
commodification of natural resources in complete disregard of potential environ-
mental effects.29
While environmental awareness has increased over the years, globalisation has
turned investment activities more complex and in some cases more detrimental to
environmental protection.30 For instance, investments in industries such as mining,
oil, or hazardous waste disposal always pose a latent threat to the environment of the
host state,31 irrespective of being heavily regulated.32 In certain cases, environmental
damage may ensue from investors’ misconduct, such as in the case of the oil spills
caused by Shell Oil Company in Nigeria or by Chevron in Ecuador.33 This
conflicting relation between investment law and environmental protection,

David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Award
(18 September 2018) para. 412; Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling
Capital Limited v Republic of Kenya, ICSID Case No ARB/15/29, Award (22 October 2018) paras.
346–347.
23
Choudhury (2020), p. 14.
24
UNCTAD (2017), p. 125. Similarly, UNGA, ‘Transforming our World: The 2030 Agenda for
Sustainable Development’ (21 October 2015) UN Doc A/RES/70/1, Sustainable Development
Goals 2, 7, 10.
25
Viñuales (2019), p. 34.
26
Miles and Lawry-White (2019), p. 2.
27
Dupuy and Viñuales (2018), pp. 453–454.
28
Viñuales (2019), p. 34.
29
Miles (2013), p. 140.
30
Chi (2018), p. 157.
31
Dünnwald (2015), p. 17; Sullivan and Kirsey (2017), p. 107.
32
Mistura (2019), para. 23.10.
33
Miles (2013), pp. 134–135.
1.1 State of Play 5

particularly with respect to the environmental damage caused by foreign investors,

constitutes the premise or starting point of this monograph.
Certainly, domestic courts may rule upon environmental damages caused by
non-state actors, including investors, within the territory of the country. However,
relying on domestic courts might often not be efficient for two reasons: first, host
states may suffer from limited financial, technological and human resources for
the implementation and enforcement of environmental law.34 For instance, after
the disastrous gas leak in a pesticide factory at Bhopal, India, the victims resorted to
the domestic courts to obtain compensation against the foreign investor operating the
factory. However, those court proceedings were strategically stalled at different
instances,35 and finally, the Supreme Court ruled that the parties should agree on a
settlement for an amount insufficient to pay for the treatments of the Bhopal
victims.36
Second, domestic proceedings might be nevertheless thwarted by the impending
threat of foreign investors commencing investment arbitration against the state.37
Adjudication by domestic courts on environmental damage caused by foreign
investors is therefore far from ideal, and as the Chevron saga has proven,38 it may
turn one dispute into a mushrooming series of claims all across the world.
At this juncture, environmental counterclaims come to play, which are the focus
of this book. For this, the first point to necessarily address is the state of play of
environmental counterclaims in investment arbitration from a structural and practical
point of view [Sect. 1.1]. This would lay down the foundations for the subsequent
delimitation on the scope of this manuscript and research questions [Sect. 1.2].

1.1 State of Play

The structure of investment arbitration, and in particular treaty-based investment

arbitration, may portray an asymmetrical system, whereby host states are deemed the
‘perpetual respondents’.39 Even if the respondent state is successful in defeating an
investor’s claim, the former can only expect a beneficial cost-allocation at best,

34
Morgera (2020), pp. 26–28. Similarly, Thomé (2021), pp. 669 et seqq.
35
Cassels (2001), p. 328.
36
Mathur and Morehouse (2002), p. 73.
37
Douglas (2013), p. 417; Shao (2021), p. 158.
38
Multiple claims in multiple fora have been filed against or by Chevron/Texaco related to
Chevron’s oil spillage in Ecuador, including the Aguinda Litigation in New York, the Lago
Agrio litigation in Ecuador, some commercial arbitration cases at the Hague, the state-to-state
arbitration between Ecuador and the US, an AAA arbitration in New York, and the Chevron v
Ecuador treaty-based investment arbitration see, Chevron Corporation and Texaco Petroleum
Corporation v Ecuador (II), PCA Case No 2009-23, Second Partial Award on Track II (30 August
2018) paras. 4.75 et seqq.
39
Popova and Poon (2015), pp. 223–224.
6 1 Introduction

which normally does not cover all the expenses of the proceedings.40 As a result, one
may argue that in investment arbitration, ‘investors have much to gain, and states
everything to lose’.41 In this context, the instrument of counterclaims breaks with
this traditional appraisal of investment arbitration.
Counterclaims are different to defences: while defences seek to fend off a
claimant’s claims or to reduce compensation, counterclaims seek independent relief
for the claimant’s illegal actions, including in the form of monetary compensation.
Accordingly, an environmental counterclaim in investment arbitration would seek
redress for the environmental damages caused by the claimant investor. One may
argue that this instrument thus offers the opportunity to develop investment arbitra-
tion ‘into an enforcement tool for environmental law’.42 Indeed, environmental
counterclaims in investment arbitration would serve as a viable tool to alleviate the
tensions between investment law and environmental protection. This would not only
exalt the role of environmental protection at the international level, but it would also
serve procedural economy by centralising an investment dispute and its related
environmental counterclaim before one single tribunal. Yet, these benefits have
been often overlooked in practice.
From all publicly available decisions in investment arbitration, this monograph
has found 47 cases where the respondent host state has raised a counterclaim against
the claimant investor, of which only eight have been successful or at least partially
successful on merits.43 While the success rate might seem strikingly low, the reasons
for rejecting counterclaims have ranged between jurisdiction, admissibility and
ultimately merits-related issues. Out of all the surveyed counterclaims, only six of
these cases have involved an environmental-related issue, where the respondent has
requested relief for some sort of environmental damage.44 Among those six envi-
ronmental counterclaims, only two have been successful: in the Perenco v Ecuador
case and in the Burlington v Ecuador case. Interestingly, both cases are related.
Both investors, Burlington and Perenco, acquired interests in two oil concession
sites in the Ecuadorian Amazon region and were operating as a consortium. Essen-
tially, both disputes arose from the same legislative measures increasing the tax rate
on extraordinary profits or ‘windfall taxes’ for oil companies, and the subsequent
expropriation of the investments. Burlington and Perenco initiated investment arbi-
tration independently, and Ecuador raised counterclaims (including for environmen-
tal damage) against them. Although the possibility of consolidation of both
proceedings was discussed, the parties could not reach an agreement in that regard.

40
Choudhury (2020), p. 35. However, statistics show that tribunals usually shift the allocation of
costs for winning investors, whereas for winning host states, tribunals tend to adopt a ‘pay-your-
own-way’ approach, meaning that each party pays its own costs see, Franck (2019), p. 218.
41
Vohryzek-Griest (2009), p. 87.
42
Asteriti (2015), p. 270.
43
See this book “Annex 3: Counterclaims in Numbers”.
44
These are: Paushok v Mongolia; Perenco v Ecuador; Burlington v Ecuador; Chevron v Ecuador;
David Aven v Costa Rica and Metro de Lima v Peru, see this book “Annex 1: Counterclaims with an
Environmental Related-Issue”.
1.2 Scope of the Research 7

While these two cases are the only examples of successful environmental coun-
terclaims in investment arbitration, increasing environmental awareness might be
conducive to host states filing this type of counterclaims more often. For instance,
the Perenco v Ecuador tribunal opined that:
Proper environmental stewardship has assumed great importance in today’s world. The
Tribunal agrees that if a legal relationship between an investor and the State permits the
filing of a claim by the State for environmental damage caused by the investor’s activities
and such a claim is substantiated, the State is entitled to full reparation in accordance with the
requirements of the applicable law.45

However, the decisions in Perenco v Ecuador and in Burlington v Ecuador have

begotten mixed reactions. Some authors consider the Perenco v Ecuador and
Burlington v Ecuador decisions on environmental counterclaims as a turning
point, opening investment arbitration as a forum for adjudicating environmental
damages caused by the investors.46 These cases thus evince that environmental
counterclaims in investment arbitration are not a ‘totally hopeless venture’.47
Other authors are more cautious on the importance attributed to those decisions.
They do so either by highlighting that in both cases, Ecuador obtained ‘pyrrhic
victories’ as the damages Ecuador had to pay for the claimants’ claims were
significantly higher,48 or by underscoring that the prospect of investors’ liability in
investment arbitration is rather extremely exceptional.49
At this stage, the discourse on environmental counterclaims in investment arbi-
tration has left more questions than answers: what is the societal and practical
relevance of seeking redress for environmental damages in investment arbitration?
How do environmental counterclaims function in investment arbitration? Are arbi-
tral tribunals entitled and suited for ruling upon environmental counterclaims?
Would do they effectively redress all kind of environmental damages?

1.2 Scope of the Research

This book focuses on the functioning of environmental counterclaims in investment

arbitration, particularly on the requirements of jurisdiction, connection between the
claim and the counterclaim, and cause of action (or legal basis). While these
requirements have been addressed, directly or indirectly, by some legal scholars,
and perhaps more restrictively by arbitral tribunals, the deconstruction of those

45
Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the Environmental Counterclaim
(11 August 2015) para. 34.
46
Sullivan and Kirsey (2017), p. 115. Similarly, Schill and Djanic (2018), p. 52.
47
Bilanová (2020), p. 405.
48
Scherer et al. (2021), p. 434.
49
Sharma (2020), p. 422.
8 1 Introduction

requirements is indispensable: not only because of the lack of systematisation of the

instrument of counterclaims in investment arbitration, but also due to the lack of
coherence in its study.
Against this backdrop, Chap. 2 sets the theoretical underpinnings of the research.
This Chapter undertakes a comparative analysis of the instrument of counterclaims
in the broader spectrum of international dispute resolution. Subsequently, it con-
siders investment arbitration and its particularities, and the possible implications for
counterclaims. Finally, given the intricate relation between international investment
law and environmental protection, the Chapter specifically explores the utility of
environmental counterclaims in investment arbitration.
Chapter 3 analyses the jurisdiction of arbitral tribunals to decide on environmen-
tal counterclaims. Accordingly, this Chapter lays out the tribunals’ jurisdiction and
power to decide counterclaims in investment arbitration in the broader sense.
Subsequently, it delves into the jurisdiction of arbitral tribunals over environmental
counterclaims both in contract-based and treaty-based investment arbitration. With
respect to the latter, this Chapter examines the traditional obstacles for the submis-
sion of environmental counterclaims divided in two fronts: the interpretation of the
underlying IIA and the possible exclusion of contractual counterclaims in treaty-
based investment arbitration. Finally, it critically revises the interpretation of dispute
settlement provisions vis-à-vis environmental counterclaims and proposes some
prospective solutions to overcome the challenges of interpretation.
Chapter 4 scrutinises the requirement of connection between the counterclaim
and the main claim, as well as the implications of this requirement for environmental
counterclaims. As such, this Chapter firstly explores the justifications for the requi-
site connection. Subsequently, it reflects on the proper characterisation of this
requirement. Finally, this Chapter addresses the dilution of the connection require-
ment into various balancing factors and the implications thereof for environmental
counterclaims.
Chapter 5 provides an assessment on the cause of action (or legal basis) for an
environmental counterclaim in investment arbitration and the appropriateness of
bestowing an arbitral tribunal with the power to entertain such counterclaims.
Accordingly, this Chapter analyses what environmental obligations could give rise
to counterclaims in contract-based investment arbitration and in treaty-based invest-
ment arbitration. Finally, it delves into the appropriateness of tribunals in investment
arbitration deciding environmental counterclaims both from a technical/procedural
viewpoint as well as from a policy perspective.
Chapter 6 presents the main take-aways from this monograph and the overall
prospects for an environmental counterclaim in investment arbitration. In arriving to
its conclusions, this book focuses on an in-depth analysis of the surveyed investment
arbitration cases where counterclaims were submitted, legal interpretation of treaties
and other instruments, the formulation of provisions rendering investment arbitration
more amenable to environmental counterclaims, and in general, the discussion of the
theoretical framework supporting the availability of environmental counterclaims.
References 9

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Choudhury B (2020) International investment law and non-economic issues. Vanderbilt J Transnatl
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Douglas Z (2013) The enforcement of environmental norms in investment treaty arbitration. In:
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Dünnwald S (2015) Bilateral and multilateral investment treaties and their relationship with
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world’s worst industrial disaster. Int Labor Work Class-Hist 62:69–75
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environmental damage caused by foreign investors? In: Sachs LE, Johnson LJ, Coleman J (eds)
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Other Documents

Report of the World Commission on Environment and Development (04 August 1987) UN Doc
A/43/427 and Annex ‘Our Common Future’ (Brundtland Report)
UN Conference on Environment and Development (12 August 1992) Rio Declaration on Environ-
ment and Development. UN Doc A/CONF.151/26 (Vol I)
UNCTAD (2017) World Investment Report 2017: Investment and the Digital Economy. UN
Publication
UNGA (21 October 2015) Transforming our World: The 2030 Agenda for Sustainable Develop-
ment. UN Doc A/RES/70/1
Chapter 2
The Contextualisation of Environmental
Counterclaims: A Comparative Perspective

Before embarking upon a critical analysis of environmental counterclaims in invest-

ment arbitration, their availability, functioning and (in some cases) facilitation, this
Chapter sets the theoretical underpinnings of the book. By this means, the first
section analyses the instrument of counterclaims from a comparative perspective
in the broader spectrum of international dispute resolution [Sect. 2.1]. However, a
comparative analysis demands the contextualisation of the specific characteristics
and nuances of the system brought into question. The second section thus assesses
the instrument of environmental counterclaims through the prism of investment
arbitration and its particularities [Sect. 2.2]. Finally, the third section draws some
preliminary conclusions on the functioning of counterclaims in investment arbitra-
tion, the instrument’s rationale and its potential for redressing environmental damage
[Sect. 2.3].

2.1 Counterclaims from a Comparative Perspective

in International Dispute Resolution

By means of a counterclaim, the respondent seeks something more than the mere
rejection of the main claim in the same proceedings.1 While there is no uniform
definition of the instrument of counterclaims across the different forms of interna-
tional dispute settlement,2 the practice of various adjudicative bodies suggests that
counterclaims are generally accepted in international dispute settlement as a proce-
dural instrument.3 Accordingly, this section dives into the instruments and

1
Anzilotti (1930), p. 867; Murphy (2012), para. 1.
2
Antonopoulos (2011), p. 50.
3
de Nanteuil (2018), p. 375.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 11

A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
EYIEL Monographs - Studies in European and International Economic Law 34,
https://doi.org/10.1007/978-3-031-46391-4_2
12 2 The Contextualisation of Environmental Counterclaims: A. . .

jurisprudential developments on counterclaims in various forms of international

dispute settlement including the International Court of Justice (ICJ) [Sect. 2.1.1],
the Iran-US Claims Tribunal (IUSCT) [Sect. 2.1.2], and International Commercial
Arbitration [Sect. 2.1.3]. Subsequently, and for the sake of completeness, this section
presents some short considerations on the interaction of counterclaims in other
institutional frameworks such as the Permanent Court of Arbitration (PCA), the
International Tribunal for the Law of the Sea (ITLOS), and the World Trade
Organization (WTO) [Sect. 2.1.4]. Finally, this section displays the common fea-
tures of counterclaims across the board [Sect. 2.1.5].

2.1.1 The International Court of Justice and Counterclaims

Neither the ICJ nor its Statute or Rules of Court defined the term ‘counterclaim’. The
same was the case for its predecessor, the Permanent Court of International Justice
(PCIJ). Perhaps, this lack of definition has provided a considerable room of manoeu-
vre to the Court for regulating the instrument of counterclaims as it sees fit.4 The
instrument of counterclaims has therefore experienced various reforms to the rules of
court and case law-based developments [Sect. 2.1.1.1]. From this, some observations
on the requirements for counterclaims may be drawn [Sect. 2.1.1.2].

2.1.1.1 History and Evolution of Counterclaims

The concept of counterclaims used at the PCIJ and ICJ seems to emanate from civil
procedural law, with the objective of addressing complex disputes in a comprehen-
sive and effective manner.5 One cannot overstate that by borrowing a concept from
private law such as ‘counterclaims’, international law is not importing such institu-
tion as used in private law, but rather reflecting the policy behind it.6 Thus, the
development of counterclaims at the PCIJ and ICJ must be assessed in its own
context. In this sense, the discussion on counterclaims certainly started at the PCIJ
with the elaboration of a set of rules that firstly sketched the requirements for
submitting counterclaims [Sect. 2.1.1.1.1]. Afterwards, the ICJ took the sample of
the PCIJ Rules of Court and, from its own jurisprudential developments, the ICJ
modified in several occasions the specific rule on counterclaims [Sect. 2.1.1.1.2].

4
Kolb (2013), p. 676. Similarly, Thirlway (1999), p. 198; Arcari (2018), para. 38.
5
Antonopoulos (2011), pp. 7–10.
6
International Status of South-West Africa (Advisory Opinion) [1950] ICJ Rep 128, Separate
Opinion by Sir Arnold McNair, 148.
2.1 Counterclaims from a Comparative Perspective in International. . . 13

2.1.1.1.1 During the Permanent Court of International Justice

The Statute of the PCIJ did not address the instrument of counterclaims. Rather,
when devising its procedural rules, the PCIJ introduced the possibility to submit
counterclaims via its Rules of Court.7 Pursuant to Article 40 of the PCIJ Rules of
Court of 1922, counterclaims were merely mentioned:
(. . .) Counter-cases shall contain:
1. The affirmation or contestation of the facts state in the case
2. A statement of additional facts, if any;
3. A statement of law
4. Conclusion based on the facts stated; these conclusions may include counter-claims, in so
far as the latter come within the jurisdiction of the Court;
5. A list of document in support; these documents shall be attached to the counter-cases.8

The PCIJ discussed this provision for the first time in the famous Chorzów Factory
case in 1928.9 In this case, Germany, as the applicant, did not oppose to the
admissibility of the counterclaim raised by Poland, the respondent. Thus, the PCIJ
concluded that it was competent to hear the counterclaim, given that the Court’s
jurisdiction was based on the will of the parties.10 Moreover, the PCIJ considered
that, since both claim and counterclaim were based on the Versailles Treaty, they
were connected, hence, the counterclaim was admissible.11 Although in substance,
the Polish counterclaim seemed more like a set-off than a counterclaim,12 the Court
dismissed it on the merits.
This case sparked the debate about counterclaims at the PCIJ. Despite the lack of
reference in the Statute of the PCIJ to counterclaims, it was considered that a limit to
the admissibility of counterclaims should exist, for instance, by requiring the
counterclaim to be connected to the main claim.13 This was not mentioned in the
Rules of Court of 1922, but it found its way in the subsequent Rules of Court
of 1936.

7
Murphy (2012), para. 5.
8
PCIJ, Series D—Acts and Documents concerning the organization of the Court, ‘Rules of Court
adopted by the Court on 24 March 1922’, Art 40 (emphasis added).
9
Larschan and Mirfendereski (1986), p. 15.
10
Case concerning the Factory at Chorzów (Germany v Poland) (Merits) (13 September 1928)
PCIJ Rep Series A No 17, 37.
11
Case concerning the Factory at Chorzów (Germany v Poland) (Merits) (13 September 1928)
PCIJ Rep Series A No 17, 38.
12
Case concerning the Factory at Chorzów (Germany v Poland) (Merits) (13 September 1928)
PCIJ Rep Series A No 17, 38: (‘in reality. . . [the counterclaim] constitutes an objection to the
German claim designed to obtain from Poland an indemnity. . . it is in fact a question of eliminating
from the amount of this indemnity a sum corresponding to the value of the rights and interests which
[Germany] possessed in the enterprise’).
13
Anzilotti (1930), p. 866.
14 2 The Contextualisation of Environmental Counterclaims: A. . .

The travaux préparatoires of the PCIJ Rules of Court of 1936 show a lengthy
discussion over counterclaims and their requirements.14 Judge Anzilotti emphasised
that the main purpose of counterclaims was to enable ‘the respondent to demand, in
the course of the same proceedings, what was due to him from the applicant for a
reason related to the dispute already pending.’15 He considered that, for reasons of
justice, it is recommendable to decide the claim and the directly connected counter-
claim in the same proceedings, following uniform standards.16
A new draft of the Rules of Court was presented, introducing the ‘connection’
between the main claim and the counterclaim, and the question emerged whether it is
a connection in fact, in law, or both.17 Judge Fromageot opined that the connection
could only be on fact, while Judge Schücking observed that the connection is flexible
but it would normally be in fact and in law.18 Judge Anzilotti took a moderated
approach, arguing that the direct connection would be for the Court to decide in each
case.19 By introducing an express ‘direct connection’ requirement, the PCIJ closed
the possibility for submitting unconnected cross-claims, which otherwise would
impinge on the consensual nature of international courts.20 Consequently, in 1936
the PCIJ adopted a new set of rules, whose Article 63 provided:
When proceedings have been instituted by means of an application, counter-claims may be
presented in the submissions of the Counter-Memorial, provided that such counter-claims
are directly connected with the subject of the application and that they come within the
jurisdiction of the Court. Any claim which is not directly connected with the subject of the
original application must be presented in the form of a separate application and may form the
subject of distinct proceedings or be joined by the Court to the original proceedings.

Respondents in two cases made use of the newly adopted Article 63 of the Rules of
Court of 1936 namely in the Diversion of Water from the Meuse,21 and in the

14
PCIJ, Series D—Acts and Documents concerning the Organization of the Court, Third Adden-
dum to No 2, ‘Elaboration of the Rules of Court of March 11th, 1936’ (Thirteenth Meeting (28 May
1934a)) 105.
15
PCIJ, Series D—Acts and Documents concerning the Organization of the Court, Third Adden-
dum to No 2, ‘Elaboration of the Rules of Court of March 11th, 1936’ (Thirteenth Meeting (28 May
1934a)) 106.
16
Anzilotti (1930), p. 870.
17
PCIJ, Series D—Acts and Documents concerning the Organization of the Court, Third Adden-
dum to No 2, ‘Elaboration of the Rules of Court of March 11th, 1936’ (Fourteenth Meeting (29 May
1934b)) 111.
18
PCIJ, Series D—Acts and Documents concerning the Organization of the Court, Third Adden-
dum to No 2, ‘Elaboration of the Rules of Court of March 11th, 1936’ (Fourteenth Meeting (29 May
1934b)) 112.
19
PCIJ, Series D—Acts and Documents concerning the Organization of the Court, Third Adden-
dum to No 2, ‘Elaboration of the Rules of Court of March 11th, 1936’ (Fourteenth Meeting (29 May
1934b)) 112.
20
Antonopoulos (2011), p. 64.
21
The Diversion of Water from the Meuse (The Netherlands v Belgium) (Judgment) (28 June 1937)
PCIJ Rep Series A/B No 70.
2.1 Counterclaims from a Comparative Perspective in International. . . 15

Panevezys-Saldutiskis Railway22 cases. However, the Court did not analyse the
counterclaims in depth, leaving the new provision untested. Article 63 of the
Rules of Court of 1936 did not fade into oblivion since it served as the inspiration
for the ICJ and the drafting of its own Rules of Court, containing an almost identical
provision on counterclaims.

2.1.1.1.2 From the Establishment of the International Court of Justice

Onwards

The evolution of the instrument of counterclaims at the ICJ oscillates between the
development on the jurisprudence and the redrafting of the Rules of Court. Yet, the
most important legal points therein can be identified. Like its predecessor, the ICJ
Statute did not foresee the possibility to submit counterclaims. This has been
included in the Rules of Court. Initially, Article 63 of the ICJ Rules of Court of
1946 contemplated counterclaims as follows:
When proceedings have been instituted by means of an application, a counterclaim may be
presented in the submissions of the Counter-Memorial, provided that such counter-claim is
directly connected with the subject-matter of the application and that it comes within the
jurisdiction of the Court. In the event of doubt as to the connection between the question
presented by way of counter-claim and the subject-matter of the application the Court shall,
after due examination, direct whether or not the question thus presented shall be joined to the
original proceedings.

One may deduce from this provision that the Court had some interpretative room of
manoeuvre on the connection between the claim and counterclaim, as long as it
would not exceed the limits of its jurisdiction.23 Under this set of rules, the ICJ
decided a counterclaim in the Asylum case.24 Peru, the respondent, filed a counter-
claim against Colombia, the applicant, arguing that the prolonged asylum to Victor
Raúl Haya de la Torre granted by Colombia was in violation of the Havana
Convention on Asylum.25 Colombia disputed whether the counterclaim was directly
connected to the main claim but the Court concluded that one of the applicant’s
claims rested on the legality of the asylum, thus, there was a direct connection.26 The
counterclaim finally succeeded on the merits. This was certainly the first time the ICJ
ruled upon the ‘direct connection’, however, the Court did not elaborate on this
criterion.
In 1972, the ICJ modified its Rules of Court, keeping the provision on counter-
claims identical but under a different numbering namely Article 68 thereof. A few

22
The Panevezys-Saldutiskis Railway Case (Estonia v Lithuania) (Judgment) (28 February 1939)
PCIJ Rep Series A/B No 76.
23
Larschan and Mirfendereski (1986), p. 15.
24
Colombian-Peruvian Asylum Case (Colombia v Peru) (Judgment) [1950] ICJ Rep 266.
25
Colombian-Peruvian Asylum Case (Colombia v Peru) (Judgment) [1950] ICJ Rep 266, 280.
26
Colombian-Peruvian Asylum Case (Colombia v Peru) (Judgment) [1950] ICJ Rep 266, 280.
16 2 The Contextualisation of Environmental Counterclaims: A. . .

years after, in 1978, a new reform on the Rules of Court was undertaken and
counterclaims were included in Article 80 of the new rules as follows:
1. A counter-claim may be presented provided that it is directly connected with the subject-
matter of the claim of the other party and that it comes within the jurisdiction of the Court.
2. A counter-claim shall be made in the Counter-Memorial of the party presenting it, and
shall appear as part of the submissions of that party.
3. In the event of doubt as to the connection between the question presented by way of
counter-claim and the subject-matter of the claim of the other party the Court shall, after
hearing the parties, decide whether or not the question thus presented shall be joined to the
original proceedings.

Under this new formulation, the ICJ decided the most emblematic case on counter-
claims: the Application of the Convention on Genocide.27 The former Yugoslavia,
the respondent, counterclaimed against Bosnia and Herzegovina, the applicant, for
violations of the Genocide Convention, particularly acts of genocide against Serbs in
the territory of the applicant. The applicant nevertheless disputed the admissibility of
the counterclaim.28 Here, the most important development referred to the ‘direct
connection’ between claim and counterclaim.
Given the lack of definition of ‘direct connection’, the Court considered that this
requirement is to be assessed at its sole discretion, but it usually implies a connection
in fact and in law.29 The Court found no qualms with the connection in fact.
Furthermore, the Court noted that both the applicant and the respondent were
seeking the establishment of responsibility for the violation of the same Genocide
Convention, thus, despite the lack of reciprocity in the obligations therein, the main
claim and counterclaim were considered directly connected.30
Interestingly, Judge Weeramantry disagreed with the majority of the judges and
he explained his position in the following terms: first, a counterclaim must counter
the main claim, thus, by its intrinsic nature, it is not applicable for criminal acts—‘A

27
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243.
28
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, paras. 4–10.
29
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 33.
30
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 35:
(‘. . .the Parties rightly recognized that in no case could one breach of the Convention serve as an
excuse for another; and whereas, however, the argument drawn from the absence of reciprocity in
the scheme of the Convention is not determinative as regards the assessment of whether there is a
legal connection between the principal claim and the counter-claim, in so far the two Parties pursue,
with their respective claims, the same legal aim, namely the establishment of legal responsibility for
violations of the Genocide Convention’).
2.1 Counterclaims from a Comparative Perspective in International. . . 17

murder cannot be set off against another murder, nor a rape against a rape’.31
Second, the counterclaim was based on different facts, victims, motivations, venues,
etc., thus, it did not promote procedural economy in the particular dispute.32 In any
case, the Court never decided the merits of the counterclaim as by a letter dated
20 April 2000, the respondent requested the withdrawal of its counterclaim and the
applicant did not object. Whilst the premise that a counterclaim must attack the main
claim is questionable, the argument on procedural economy bears significant weight.
Hence, the Court could have elaborated further on the complexity the counterclaim
might have added to the case.
Some years later, in a similar dispute between Croatia and Serbia, the latter as
respondent filed a counterclaim against Croatia, the applicant, for the violations of
the Genocide Convention committed against the Serb population in the Krajina
region.33 Without much analysis, the Court concluded that the counterclaim was
admissible,34 but dismissed it on the merits.35
In a different dispute, the Oil Platforms case,36 Iran as the applicant instituted
proceedings against the US, the respondent, for the destruction caused by several US
warships of three Iranian offshore oil production complexes. The US counterclaimed
that Iran was engaged in military actions affecting maritime commerce, thus,
breaching the Treaty of Amity of 1955.37 The Court concluded that the counterclaim
was both within the jurisdiction of the Court and directly connected to the main
claim, thus, it was admissible in the interest of proper administration of justice.38
Perhaps the most important legal development from this case stems from the
Separate Opinion of Judge Higgins with regards to when a counterclaim may be
considered ‘within jurisdiction’ of the Court: ‘it is not essential that the basis of
jurisdiction in the claim and in the counter-claim be identical. It is sufficient that
there is jurisdiction. (Indeed, were it otherwise, counter-claims in, for example, tort

31
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, Dissenting
Opinion Judge Weeramantry, 289–292.
32
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, Dissenting
Opinion Judge Weeramantry.
33
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Croatia v Serbia) (Merits) [2015] ICJ Rep 3, para. 121.
34
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Croatia v Serbia) (Merits) [2015] ICJ Rep 3, para. 123.
35
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Croatia v Serbia) (Merits) [2015] ICJ Rep 3, paras. 446 et seqq.
36
Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ Rep 190.
37
Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ Rep
190, para. 4.
38
Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ Rep
190, para. 43.
18 2 The Contextualisation of Environmental Counterclaims: A. . .

could never be brought, as they routinely are, to actions initiated in contract).’39 The
counterclaim was nevertheless dismissed on the merits.40
Another example of the instrument of counterclaims at the ICJ is the Land and
Maritime Boundary between Cameroon and Nigeria case.41 Nigeria, the respondent,
submitted a counterclaim against Cameroon, the applicant, for the illegal incursions
into Nigeria’s territory and the ensuing damages caused.42 The Court concluded that
the counterclaim was admissible, emphasising that both the claim and the counter-
claim pursued the same legal remedy—the establishment of international responsi-
bility.43 Although this standard seemingly broadens the scope of when
counterclaims may be considered ‘directly connected’ with the main claim, the
Court did not further elaborate on it. The counterclaim was in any case rejected on
the merits.44
In the Armed Activities on the Territory of the Congo case,45 Uganda
counterclaimed against Congo for breaches of international law, such as the prohi-
bition to the use of force and to assist armed groups, and the non-intervention in
internal affairs.46 The Court considered that they were indeed counterclaims because
they sought the establishment of international responsibility and reparation on that
account.47 Here, the Declaration of Judge Verhoeven set an important standard. He
admitted that the connection requirement should not be applied in a ‘mechanical’
manner, but rather, taking heed of a counterclaim’s purpose namely providing a
thorough understanding of the dispute and avoiding contradictory decisions.48 He
belaboured nevertheless for a strict interpretation of the terms ‘directly connected’ in

39
Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ Rep
190, Separate Opinion Judge Higgins, 218.
40
Oil Platforms (Iran v United States of America) (Merits) [2003] ICJ Rep 161.
41
Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria) (Order)
[1999] ICJ Rep 983.
42
Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria) (Order)
[1999] ICJ Rep 983, 984–985.
43
Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria) (Order)
[1999] ICJ Rep 983, 985.
44
Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria, Equatorial
Guinea intervening) (Counterclaims) [2002] ICJ Rep 303.
45
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda)
(Order on Counterclaims) [2001] ICJ Rep 660.
46
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda)
(Order on Counterclaims) [2001] ICJ Rep 660, para. 4.
47
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda)
(Order on Counterclaims) [2001] ICJ Rep 660, para. 29.
48
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda)
(Order on Counterclaims) [2001] ICJ Rep 660, Declaration of Judge Verhoeven, 684.
2.1 Counterclaims from a Comparative Perspective in International. . . 19

the rules governing counterclaims, given the consensual nature of the Court’s
jurisdiction.49 The counterclaim finally failed on the merits.50
In 2001, the ICJ undertook its latest amendment to its Rules of Court with respect
to counterclaims. The provision underwent a few changes on the wording, but the list
of requirements remained the same. Thus, until date, Article 80 of the Rules of Court
reads:
1. The Court may entertain a counter-claim only if it comes within the jurisdiction of the
Court and is directly connected with the subject-matter of the claim of the other party.
2. A counter-claim shall be made in the Counter-Memorial and shall appear as part of the
submissions contained therein. The right of the other party to present its views in writing on
the counter-claim, in an additional pleading, shall be preserved, irrespective of any decision
of the Court, in accordance with Article 45, paragraph 2, of these Rules, concerning the filing
of further written pleadings.
3. Where an objection is raised concerning the application of paragraph 1 or whenever the
Court deems necessary, the Court shall take its decision thereon after hearing the parties.

Following this latest modification of the Rules of Court, counterclaims came to play
in the Jurisdictional Immunities of the State case.51 Italy, the respondent, filed a
counterclaim against Germany, the applicant, for the violation of humanitarian law
against Italian victims during World War II.52 The Court recognised that the
admissibility of counterclaims pursuant to Article 80 of the Rules of Court depends
on whether the counterclaim is within the Court’s jurisdiction and whether it is
directly connected with the main claim.53 However, after its analysis, the Court
concluded that the counterclaim was beyond the temporal scope of the Court’s
jurisdiction.54 Judge Trindade disagreed with the Court’s decision, but some of the
aspects in its extensive analysis on counterclaims, albeit obiter dictum, deserve
consideration. First, he recognised counterclaims as a juridical instrument of proce-
dural law.55 Second, he emphasised that the parties to the claim and the counterclaim
must be the same.56 Third, he suggested that the connection between main claim and

49
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda)
(Order on Counterclaims) [2001] ICJ Rep 660, Declaration of Judge Verhoeven, 685.
50
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda)
(Merits) [2005] ICJ Rep 168.
51
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ Rep
310.
52
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ Rep
310, para. 3.
53
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ Rep
310, para. 14.
54
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ Rep
310, para. 30.
55
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ Rep
310, Dissenting opinion of Judge Cançado Trindade, para. 4.
56
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ Rep
310, Dissenting opinion of Judge Cançado Trindade, para. 11.

Licensed to Dymas Satrioprojo ([email protected])

20 2 The Contextualisation of Environmental Counterclaims: A. . .

counterclaim should be in fact and law, but it must be assessed with certain
flexibility, mindful of the purposes of counterclaims.57
In the Certain Activities carried out by Nicaragua in the Border Area dispute,
Nicaragua, the respondent, filed a counterclaim against Costa Rica, the applicant, for
the violation of the borders by constructing a road, the failure to protect the
environment, and for the non-implementation of provisional measures.58 There are
two important legal developments in this case. First, the Court considered that it is
not bound by the sequence of requirements set forth in Article 80 of the Rules of
Court.59 Hence, it started its analysis with the direct connection requirement instead
of jurisdiction. Second, the Court delineated some criteria to determine the direct
connection of the counterclaim with the main claim, for instance, whether the facts
relate to the same geographical area, during the same period or to similar types of
conduct; or if the parties rely on the same legal principles or instruments.60 The
Court ultimately rejected the counterclaims, but Judge Guillaume disagreed and
questioned the Court’s restrictive understanding of a connection between a claim and
a counterclaim in the particular case.61
In the Alleged Violations of Sovereign Rights and Maritime Space in the Carib-
bean Sea case, Colombia, the respondent, filed a counterclaim against Nicaragua, the
applicant, for the infringement of Colombia’s rights in the Caribbean Sea.62 The
most important legal development on this case was the analysis of whether the
counterclaim was within the Court’s jurisdiction, which necessitates some context.
Colombia denounced the Pact of Bogotá on 27 November 2012, which contains a
sunset clause of one year.63 Within this one-year period, Nicaragua filed its appli-
cation on 26 November 2013, invoking Article XXXI of the Pact of Bogotá as the
basis for the Court’s jurisdiction. Colombia filed its counterclaims on 17 November
2016 arguing the same jurisdictional basis, although the Pact of Bogotá ceased to be
in force between the parties in the meantime.

57
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ Rep
310, Dissenting opinion of Judge Cançado Trindade, paras. 14–15.
58
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, para. 15.
59
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, para. 27.
60
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, para. 32.
61
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, Declaration of Judge ad hoc Guillaume, para. 17.
62
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, para. 14.
63
Article LVI American Treaty on Pacific Settlement ‘Pact of Bogotá’, signed on 30 April 1948.
2.1 Counterclaims from a Comparative Perspective in International. . . 21

By citing the Nottebohm case, the ICJ in the Alleged Violations of Sovereign
Rights and Maritime Space in the Caribbean Sea case considered that ‘once the
Court has established jurisdiction to entertain a case, it has jurisdiction to deal with
all its phases; the subsequent lapse of the title cannot deprive the Court of its
jurisdiction.’64 Furthermore, the Court highlighted that counterclaims are, albeit
autonomous, incidental to the main proceedings. The Court thus concluded that
the lapse of the jurisdictional title does not affect the Court’s jurisdiction to rule upon
counterclaims.65
This was a certainly controversial decision. Judge Yusuf opined that the Court
needs to establish jurisdiction de novo only when the counterclaim is not based on
the same jurisdictional title as the main claim, in which case, the Court solely checks
whether the counterclaim falls within the scope of consent.66 Judges Tomka, Gaja,
Sebutinde, Gevorgian and Daudet considered that the majority of the Court inap-
propriately relied on the Nottebohm case out of context, and that a claim, in a form of
a counterclaim, could not be based on a non-existent jurisdictional basis.67 Further-
more, they argued that Colombia’s counterclaims did not contribute to the admin-
istration of justice since they have already delayed the proceedings.68 Finally, after
disagreeing with the factual analysis on the counterclaims, Judge Caron suggested
some justifications for counterclaims: they promote procedural economy and the
sound administration of justice; they avoid inconsistent results; they should not

64
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, para. 67.
65
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, para. 67: (‘The Court notes that the
opposite approach would have the disadvantage of allowing the applicant, in some instances, to
remove the basis of jurisdiction after an application has been filed and thus insulate itself from any
counter-claims submitted in the same proceedings and having a direct connection with the principal
claim’).
66
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Declaration of Vice-President Yusuf,
para. 8.
67
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Joint Opinion of Judges Tomka, Gaja,
Sebutinde, Gevorgian and judge ad hoc Daudet, para. 21. Although Judge Greenwood acknowl-
edged that the Nottebohm case did not deal with counterclaims, he shared the opinion that a
counterclaim is incidental to the main proceedings, see Alleged Violations of Sovereign Rights
and Maritime Spaces in the Caribbean Sea (Nicaragua v Colombia) (Order on Counterclaims)
[2017] ICJ Rep 289, Separate Opinion of Judge Greenwood, paras. 5–6.
68
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Joint Opinion of Judges Tomka, Gaja,
Sebutinde, Gevorgian and judge ad hoc Daudet, para. 23.
22 2 The Contextualisation of Environmental Counterclaims: A. . .

affect the applicant’s rights; and adjudicating counterclaims reflects the Court’s role
for peaceful settlement of international disputes.69 The foregoing history at the ICJ
boils down to the definition of certain requirements for the submission of
counterclaims.

2.1.1.2 Observations on the Requirements for Counterclaims at the ICJ

The ICJ certainly considers that a counterclaim seeks relief beyond the mere
dismissal of the main claim,70 but it has not provided a comprehensive definition
beyond the listing of the requirements for a counterclaim. Counterclaims are
categorised as part of incidental proceedings in Section D of the Rules of Court,
yet this does not mean that they are completely dependent on the main claim.71 The
goal of a counterclaim is to achieve procedural economy and to provide an overview
of the whole dispute, which enables the Court to decide more consistently.72 A
counterclaim must nevertheless adhere to the pre-established requirements to pre-
vent its abuse, and it cannot infringe the applicant’s rights or compromise the proper
administration of justice.73
The latest version of Article 80 of the Rules of Court provides that the require-
ments therein are mandatory given the expression ‘only if’.74 However, even if the
requirements are complied with, the Court retains the discretion to reject the

69
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Dissenting Opinion of Judge ad hoc
Caron, paras. 22–28.
70
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 28.
Similarly, Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v
Uganda) (Order on Counterclaims) [2001] ICJ Rep 660, para. 29; Kolb (2013), p. 659.
71
Considering that counterclaims are essentially, albeit not wholly, incidental, one may argue that
the discontinuance of the main claim extinguishes the counterclaim. However, Robert Kolb opines
that counterclaims remained as independent claims, even though they are connected to the main
claim. Thus, once a counterclaim is admitted under the parameters of Article 80 Rules of Court, the
fate of the main claim should not affect the counterclaim, see Kolb (2013), p. 659.
72
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 30.
73
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, paras.
30–31. Similarly, Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998]
ICJ Rep 190, para. 43; Armed Activities on the Territory of the Congo (Democratic Republic of the
Congo v Uganda) (Order on Counterclaims) [2001] ICJ Rep 660, para. 48.
74
Kolb (2013), p. 662. Sean D Murphy suggests that even if the applicant does not raise any
objections against the counterclaim, the Court should analyse the requirements of Article 80 Rules
of Court. See Murphy (2012), para. 17; Arcari (2018), para. 15.
2.1 Counterclaims from a Comparative Perspective in International. . . 23

counterclaim given the expression ‘may entertain’.75 This would be the case, for
instance, where joining the counterclaim to the main proceedings would not serve
the proper administration of justice.76 Until date, there has been no case where the
Court had used its discretion to decline a counterclaim despite having found that the
requirements of Article 80 Rules of Court were met.77 Be that as it may, the three
requirements a counterclaim must fulfil are: first, a counterclaim must fall within the
jurisdiction of the Court [Sect. 2.1.1.2.1]; second, a counterclaim must be directly
connected with the main claim [Sect. 2.1.1.2.2]; and third, a counterclaim must be
submitted with the counter-memorial [Sect. 2.1.1.2.3].

2.1.1.2.1 Within the Court’s Jurisdiction

Since the PCIJ Rules of Procedure of 1926, the first and most important requirement
for counterclaims is that they must fall within the jurisdiction of the Court.78 There is
no need for the counterclaim to be grounded on the same jurisdictional title as the
main claim, but rather on a valid title whereby the parties submit to the jurisdiction of
the Court.79 The Court has highlighted that when the counterclaim is based on the
same jurisdictional title as the main claim there is no need to establish jurisdiction de
novo.80 However, some judges have disagreed with this approach.81 The purpose of
this requirement is to prevent that the jurisdictional limits set by the parties are

75
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, Dissenting
Opinion Judge Weeramantry, 288; Application of the Convention on the Prevention and Punish-
ment of the Crime of Genocide (Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims)
[1997] ICJ Rep 243, Separate Opinion Judge Lauterpacht, para. 18. For a different opinion see
Thirlway (1999), p. 223: (‘The question is not one of the reasonable application of the rule: if the
text lays down certain conditions for the vailidity [sic] of a procedural step, states are entitled to act
on the basis that those conditions are exhaustive, and that the Court does not preserve a residual
discretion to adjust the application of the Rules unless the rules themselves say so’). Similarly,
Antonopoulos (2011), pp. 73–74: (‘once both requirements are present the Court is bound to rule
that a counterclaim is admissible and does not have the discretion to decide the opposite’).
76
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Joint Opinion of Judges Tomka, Gaja,
Sebutinde, Gevorgian and judge ad hoc Daudet, para. 4.
77
Murphy (2012), para. 16; Arcari (2018) para. 14.
78
Anzilotti (1930), p. 868.
79
Anzilotti (1930), p. 869. Similarly, Alleged Violations of Sovereign Rights and Maritime Spaces
in the Caribbean Sea (Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Dec-
laration of Vice-President Yusuf, para. 11; Murphy (2012), para. 24. For a different opinion,
Antonopoulos (2011), pp. 76 et seqq.
80
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, para. 67.
81
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Joint Opinion of Judges Tomka, Gaja,
Sebutinde, Gevorgian and judge ad hoc Daudet, para. 23.
24 2 The Contextualisation of Environmental Counterclaims: A. . .

exceeded with the counterclaim,82 since the Court has jurisdiction over a dispute
only to the extent of the parties’ consent.83

2.1.1.2.2 Direct Connection Between Claim and Counterclaim

A counterclaim is a separate claim that ‘reacts’ to the main claim, thus, both claim
and counterclaim are linked.84 The Rules of Court do not provide a definition of the
requirement of ‘directly connected’ to the main claim. Although the Court on its sole
discretion will assess this requirement, it usually refers to a connection in fact and in
law.85 A counterclaim may be connected in fact with the main claim if the facts
occurred during the same time, in the same geographical area, or when they refer to
the same type of conduct.86 Certainly, the period of time or location must not be
identical between the claim and counterclaim.87 Moreover, this requirement does not
prevent the counterclaim from bringing also new facts, since the connection refers to
a same factual matrix instead of identical facts.88
A counterclaim may be connected in law with the main claim if the applicant and
respondent seek the same legal remedy, or if they rely on the same legal principles or
instruments.89 If the respondent argues a breach of a different instrument, this may

82
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 31.
83
Renteln (1987), p. 385; Thirlway (1999), p. 202.
84
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 27.
85
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 33;
Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ Rep 190, para.
37; Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda)
(Order on Counterclaims) [2001] ICJ Rep 660, para. 36; Certain Activities Carried Out by
Nicaragua in the Border Area (Costa Rica v Nicaragua), Construction of a Road in Costa Rica
along the San Juan River (Nicaragua v Costa Rica) (Order on Counterclaims) [2013] ICJ Rep
200, para. 32.
86
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, para. 32; Alleged Violations of Sovereign Rights and Maritime
Spaces in the Caribbean Sea (Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep
289, para. 25. Similarly, Oil Platforms (Iran v United States of America) (Order on Counterclaim)
[1998] ICJ Rep 190, paras. 38–39.
87
Murphy (2012), para. 37.
88
Kolb (2013), p. 672.
89
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, para. 32; Alleged Violations of Sovereign Rights and Maritime
Spaces in the Caribbean Sea (Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep
289, para. 25. Similarly, Oil Platforms (Iran v United States of America) (Order on Counterclaim)
[1998] ICJ Rep 190, paras. 38–39.
2.1 Counterclaims from a Comparative Perspective in International. . . 25

be considered as a lack of connection.90 Similarly, should the respondent use a

different jurisdictional title for its counterclaim, it might be an indication against the
connection requirement.91 One may argue that precisely due to this connection, the
withdrawal of the main claim should carry the consequence of the discontinuance of
the counterclaim.92 However, should the counterclaim be already admitted, there is
no reason to dismiss it in case of the withdrawal of the main claim since by its nature,
a counterclaim is a substantive and independent claim of the respondent.
Some judges posit that connection in law should take precedence over connection
in fact.93 Others, like Judge Caron considered that Article 80 of the Rules of Court
does not demand a connection both in fact and in law, but rather, the connection can
be either in fact or in law.94 Should the Court find that the counterclaim is not
directly connected with the main claim, the respondent would need to present a
separate case.95 Considering that counterclaims widen the scope of the dispute and
allow the Court to decide more consistently, the connection requirement should be
interpreted with certain flexibility.96 In any case, the requirement of direct connec-
tion becomes the ultimate standard that differentiates what should or should not be
joined to the existing proceedings for reasons of judicial economy.97
A final issue is the order of the analysis. The Court has considered that it is not
bound to follow the sequence set out in Article 80 of the Rules of Court98 but a
counterclaim must comply with all requirements cumulatively.99 In this vein, and
given the Court’s discretion when entertaining a counterclaim, the analysis may start

90
Murphy (2012), para. 37.
91
Kolb (2013), p. 672.
92
Antonopoulos (2011), p. 154: (‘As a counterclaim is so closely bound with the principal claim
both as a matter of procedure and merits it would be a distortion of the entire rationale underlying it
to allow it to survive the withdrawal of the principal claim’).
93
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, Declaration
of Judge ad hoc Kreca.
94
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Dissenting Opinion of Judge ad hoc
Caron, para. 18.
95
Kolb (2013), p. 659.
96
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ Rep
310, Dissenting opinion of Judge Cançado Trindade, paras. 14–15.
97
Kolb (2013), p. 660: (‘In short, the direct connection criterion is the essential pivot enabling the
Court to reconcile the various applicable principles, enabling it to make the necessary separation
between what can be included in existing proceedings and what cannot and must be left to a fresh set
of proceedings’).
98
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, para. 27; Alleged Violations of Sovereign Rights and Maritime
Spaces in the Caribbean Sea (Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep
289, para. 20.
99
Thirlway (1999), p. 203.
26 2 The Contextualisation of Environmental Counterclaims: A. . .

with the connection between the claim and the counterclaim and follow to the
Court’s jurisdiction over the counterclaim.100 Although such interpretation is not
at odds with the wording of the article, it seems more reasonable to start from
jurisdiction, which entails a broader analysis, and only if jurisdiction is found, to
proceed with the connection, which is a narrower, subject-specific assessment.101 As
such, the Court would have no authority to inquire into the facts of the counterclaim
to determine connection if it has no jurisdiction to entertain the counterclaim in the
first place.

2.1.1.2.3 In the Counter-Memorial

Article 80 of the Rules of Court provides that a counterclaim must be submitted in

the counter-memorial. There is however no legal interpretation on this requirement,
since the Court merely acknowledges whether the counterclaim was presented
timely.102 It is argued that this requirement does not prevent the respondent from
submitting its counterclaim earlier than the counter-memorial.103 Furthermore, it is
feasible that the respondent submits a broad counterclaim in time, but with the option
of developing the analytical exposition afterwards.104 Conversely, Article 80 of the
Rules of Court does not foresee the admission of a belated counterclaim. One may
argue that a belated counterclaim should in principle be excluded.105 However,
under exceptional circumstances and only if it serves the proper administration of
justice, the Court could admit such a counterclaim, as long as the equality of parties
is respected.106

2.1.2 Iran-US Claims Tribunal and Counterclaims

The IUSCT was established by the Algiers Accords of 19 January 1981.107 Unlike at
the ICJ, the status and use of counterclaims at the IUSCT seem more consistent. The
Declaration of the Government of the Democratic and Popular Republic of Algeria

100
Arcari (2018), para. 17.
101
Suggesting that the analysis on jurisdiction comes first, and only afterwards the connection
requirement is evaluated, see Murphy (2012), para. 18.
102
For instance, Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v
Nicaragua), Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa
Rica) (Order on Counterclaims) [2013] ICJ Rep 200, para. 19.
103
Kolb (2013), p. 674.
104
Antonopoulos (2011), p. 139.
105
Anzilotti (1930), p. 875; Antonopoulos (2011), pp. 136–137.
106
Kolb (2013), p. 674.
107
Declaration of the Government of the Democratic and Popular Republic of Algeria (General
Declaration), 19 January 1981.
2.1 Counterclaims from a Comparative Perspective in International. . . 27

concerning the Settlement of Claims by the Government of the United States of

America and the Government of the Islamic Republic of Iran of 19 January 1981
(hereinafter ‘Claims Settlement Declaration’) contemplates the IUSCT’s jurisdiction
over counterclaims. Particularly, Article II(1) thereof sets forth:
An international arbitral tribunal (the Iran-United States Claims Tribunal) is hereby
established for the purpose of deciding claims of nationals of the United States against
Iran and claims of nationals of Iran against the United States, and any counterclaim which
arises out of the same contract, transaction or occurrence that constitutes the subject matter
of that national’s claim, if such claims and counterclaims are outstanding on the date of this
Agreement (. . .)

From this wording, there are three clear characteristics of the IUSCT’s jurisdiction:
first, only nationals of the US may bring a claim against Iran and only nationals of
Iran may bring a claim against the US. Second, the respondent state can nevertheless
raise a counterclaim against the claimant as long as there is a connection with the
subject-matter of the main claim. Third, claims and counterclaims must be outstand-
ing on 19 January 1981. Under Article II of the Claims Settlement Declaration, a
myriad of counterclaims have been submitted,108 for payment of social security
premiums, breach of contract, failure to return items, among others.109 The IUSCT
jurisprudence has led to the development of an increasingly nuanced approach to the
adjudication of counterclaims.110
There are four issues in connection with counterclaims at the IUSCT, which are
unique to this form of international dispute settlement. These concern whether the
US or Iran may submit a claim against an investor of the other state [Sect. 2.1.2.1];
the availability of counterclaims in inter-state disputes [Sect. 2.1.2.2]; the excep-
tional admission of belated counterclaims [Sect. 2.1.2.3]; and the limitation of the
connection requirement [Sect. 2.1.2.4].

2.1.2.1 Counterclaims Instead of State Claims Against a National

of the Other State?

Iran submitted a request for interpretation in 1981 asking whether, under the Claims
Settlement Declaration, the Tribunal had jurisdiction over claims by Iran against
nationals of the US. The Tribunal considered that the state parties had limited the
scope of jurisdiction to specific cases.111 This certainly included counterclaims by
the respondent state against the claimant, but not claims by the state against the

108
Brower and Brueschke (1998), p. 99. Similarly, Antonopoulos (2011), p. 23.
109
Marossi (2006), p. 503.
110
Brower and Brueschke (1998), pp. 100–101.
111
Request for Interpretation: Jurisdiction of the Tribunal with respect to claims by the Islamic
Republic of Iran against nationals of the United States of America, Case A/2, Decision No DEC
1-A2-FT (13 January 1982) 1 Iran-US CTR 101, 2.
28 2 The Contextualisation of Environmental Counterclaims: A. . .

nationals of the other state.112 However, three members of the IUSCT disagreed with
this decision.
They considered that claims by the state against a foreigner should be allowed for
three reasons: first, the object and purpose of the Claims Settlement Declaration was
to terminate all litigations between a party and the nationals of the other party;
second, the Algiers Accords pursue reciprocity; third, counterclaims are merely
defensive tools, thus, insufficient.113 While the arguments regarding the interpreta-
tion of the Claims Settlement Declaration and the Algiers Accords could have been
considered in detail by the rest of the Tribunal, reducing the counterclaims’ role to a
‘defensive tool’ is as a misconception of this instrument.

2.1.2.2 Official Counterclaims

Article II(2) of the Claims Settlement Declaration regulates inter-state disputes.

Given that such provision does not contain any mention to the possibility to file
counterclaims, unlike Article II(1) of the Claims Settlement Declaration, the IUSCT
analysed the admissibility of counterclaims under Article II(2) thereof (official
counterclaims). The Tribunal concluded that official counterclaims are allowed for
two reasons: on the one hand, according to the ordinary meaning of the terms,
counterclaims are inherent to the respondent, thus, explicit language is not
needed.114 Article II(2) differs from Article II(1) because under the former, both
contracting parties could file a claim, whereas under the latter a contracting party
cannot claim against the nationals of the other party, thus, if counterclaims were not
included, such claims would be left without a forum.115 On the other hand, the
Tribunal considered the contracting parties have consistently filed counterclaims to
official claims under Article II(2) of the Claims Settlement Declaration, thus, this
subsequent practice reflects an agreement on the interpretation of such provision,
allowing official counterclaims.116

112
Request for Interpretation: Jurisdiction of the Tribunal with respect to claims by the Islamic
Republic of Iran against nationals of the United States of America, Case A/2, Decision No DEC
1-A2-FT (13 January 1982) 1 Iran-US CTR 101, 3.
113
Request for Interpretation: Jurisdiction of the Tribunal with respect to claims by the Islamic
Republic of Iran against nationals of the United States of America, Case A/2, Decision No DEC
1-A2-FT (13 January 1982) 1 Iran-US CTR 101, Dissenting opinion of Mahmoud Kashani, Shafie
Shafiel and Seyyed Hossen Enayat, 3.
114
The Islamic Republic of Iran v The United States of America, Case B1, Interlocutory Award ITL
83-B1-FT (counterclaim) (9 September 2004) 38 Iran-US CTR 77, para. 87.
115
The Islamic Republic of Iran v The United States of America, Case B1, Interlocutory Award ITL
83-B1-FT (counterclaim) (9 September 2004) 38 Iran-US CTR 77, para. 89.
116
The Islamic Republic of Iran v The United States of America, Case B1, Interlocutory Award ITL
83-B1-FT (counterclaim) (9 September 2004) 38 Iran-US CTR 77, para. 116.
2.1 Counterclaims from a Comparative Perspective in International. . . 29

2.1.2.3 Belated Counterclaims

According to Article 19(3) of the Tribunal Rules of Procedure, the respondent must
file its counterclaim in the statement of defence or ‘at a later stage in the arbitral
proceedings if the arbitral tribunal decides that the delay was justified under the
circumstances’. There is thus certain flexibility for the Tribunal with regard to the
timing of the counterclaim’s submission. In the American Bell International v Iran
case, the Tribunal admitted a counterclaim for the repayment of tax costs, albeit
having been presented in a later stage.117 The reasons behind its decision were that
such belated counterclaim did not prejudice the claimant, and the delay was justified
given the voluminous documentary material.118

2.1.2.4 Connection Between Claim and Counterclaim

In principle, Article II(1) of the Claims Settlement Declaration allows that claim and
counterclaim are based on different contracts, insofar such contracts are closely
connected as to represent a ‘single transaction’.119 The situation may be different
when the counterclaim does not arise from a contractual relationship at all. In this
regard, the Tribunal in the TCSB Inc v Iran case held that a distinction should be
made between legal relationship arising out of the application of the law, and a
contractual relation arising out of the contract, but only the latter could be subject of
a counterclaim.120 In this case, the counterclaim was on tax and social security
contributions, including a contractual obligation on 5.5% tax withholding. While the
Tribunal considered that the 5.5% tax withholding arose from the contract and it was

117
American Bell International Inc v The Islamic Republic of Iran, The Ministry of Defense, The
Ministry of Post, Telegraph and Telephone, and the Telecommunications Company of Iran, Case
48, Chamber 3, Award No 255-48-3 (19 September 1986) 12 Iran-US CTR 170, paras. 181–184.
118
American Bell International Inc v The Islamic Republic of Iran, The Ministry of Defense, The
Ministry of Post, Telegraph and Telephone, and the Telecommunications Company of Iran, Case
48, Chamber 3, Award No 255-48-3 (19 September 1986) 12 Iran-US CTR 170, para. 183.
119
American Bell International Inc v The Islamic Republic of Iran, The Ministry of Defense, The
Ministry of Post, Telegraph and Telephone, and the Telecommunications Company of Iran, Case
48, Chamber 3, Interlocutory Award No ITL 41-48-3 (11 June 1984) 6 Iran-US CTR 74: (‘In light
of these particular circumstances, the Tribunal finds that the linkage between all three contracts
must be considered sufficiently strong so as to make them form one single “transaction” within the
meaning of the Claims Settlement Declaration. Accordingly the Tribunal concludes that it has
jurisdiction over the counterclaims’). Similarly, Westinghouse Electric Corporation v The Islamic
Republic of Iran, The Islamic Republic of Iran Air Force, Iran Air, The National Iranian Oil
Company, Case 389, Chamber 2, Interlocutory Award No ITL 67-389-2 (12 February 1987) 14
Iran-US CTR 104, paras. 7 et seqq.
120
TCSB Inc v The Islamic Republic of Iran, Case 140, Chamber 2, Award No 114-140-2 (16 March
1984) 5 Iran-US CTR 160.

Licensed to Dymas Satrioprojo ([email protected])

30 2 The Contextualisation of Environmental Counterclaims: A. . .

within its jurisdiction, the opposite was concluded for the remaining taxes and social
insurance contributions.121
By considering the obligation to pay taxes and social insurance contributions to
arise from the operation of the law rather than from a contract, subsequent tribunals
have consistently rejected counterclaims on those issues.122 Although the Tribunal
in the Houston Contracting Company v Iran case followed the above-mentioned
reasoning, it made two clarifications: first, it considered immaterial that tax revenues
result from the performance of a contract, since the obligation remains statutory in
nature.123 Second, the Tribunal, in line with the TCSB Inc v Iran decision on the tax
withholding, contemplated that contractual provisions creating tax-related obliga-
tions not existing in law, could be considered as counterclaims.124
In a dissenting of opinion to the Sylvania Technical Systems v Iran award, the
arbitrator Seyyed Mohsen Mostafavi considered that the contract had a provision
subjecting it to the laws and regulations of Iran in all aspects, thus, social security
regulations had become ‘an inseparable and integral part’ of the contract.125
Consequently, the dissenting arbitrator concluded that rejecting the counterclaim
on social security premiums was not only a faulty interpretation of Article II(1) of the
Claims Settlement Declaration, but it was causing an unjust enrichment as well.126
Perhaps the most influential reasoning on counterclaims at the IUSCT is the
concurring opinion of Richard Mosk in William L Pereira Associates v Iran. Beyond
the annotation that counterclaims on tax and social security premiums do not arise
out of a contract but rather by the operation of the law, the arbitrator considered the
unique features of tax laws, where issues of domestic policy are involved, and where

121
TCSB Inc v The Islamic Republic of Iran, Case 140, Chamber 2, Award No 114-140-2 (16 March
1984) 5 Iran-US CTR 160.
122
Sylvania Technical Systems Inc v The Islamic Republic of Iran, Case 64, Award No 180-64-1
(27 June 1985) 8 Iran-US CTR 298; Questech Inc v The Ministry of National Defence of the Islamic
Republic of Iran, Case 59, Award No 191-59-1 (20 September 1985) 9 Iran-US CTR 170;
International Technical Products Corporation and ITP Export Corporation v The Islamic Republic
of Iran and others, Case 302, Chamber 3, Award No 196-302-3 (24 October 1985) 9 Iran-US CTR
206.
123
Houston Contracting Company v National Iranian Oil Company, National Iranian Gas Com-
pany, and the Islamic Republic of Iran, Case 173, Chamber 3, Award No 378-173-3 (22 July 1988)
20 Iran-US CTR 3, para. 117.
124
Houston Contracting Company v National Iranian Oil Company, National Iranian Gas Com-
pany, and the Islamic Republic of Iran, Case 173, Chamber 3, Award No 378-173-3 (22 July 1988)
20 Iran-US CTR 3, para. 120: (‘the situation is quite different if the contract includes provisions
which create specific obligations, which do not exist in the law, of one party towards the other, in
relation to the burden of the taxes to be paid, or provisions which set forth conditions for payment of
amounts earned under the contract in relation to the payment of taxes’).
125
Sylvania Technical Systems Inc v The Islamic Republic of Iran, Case 64, Award No 180-64-1
(27 June 1985) 8 Iran-US CTR 298, Dissenting Opinion of Seyyed Mohsen Mostafavi, para. 7.
126
Sylvania Technical Systems Inc v The Islamic Republic of Iran, Case 64, Award No 180-64-1
(27 June 1985) 8 Iran-US CTR 298, Dissenting Opinion of Seyyed Mohsen Mostafavi, para. 7.
2.1 Counterclaims from a Comparative Perspective in International. . . 31

the taxpayer deals in first instance with an administrative agency.127 Thus, Richard
Mosk concluded: ‘[j]ust as courts recognize that they are not equipped to apply and
enforce the revenue laws of a foreign jurisdiction neither is this Tribunal so
equipped.’128

2.1.3 International Commercial Arbitration

and Counterclaims

Party autonomy has been praised as the cornerstone of international commercial

arbitration,129 whereby the contracting parties enjoy considerable leeway to tailor
their arbitral process. Most importantly, each party has the same rights under the
arbitration agreement, and they must be treated equally.130 Correspondingly, the
respondent is normally entitled to raise claims of its own in the same arbitral
proceedings ie counterclaims.131 This is the result of the traditional reciprocal
relation between private parties, where one-side privileges are to be prevented.132
A counterclaim is deemed a procedural instrument for the introduction of a
substantive claim of the respondent.133 Its permissibility depends on the particular
national arbitration law.134 Those laws based on the UNCITRAL Model Arbitration
Law (2006) normally contemplate the possibility of counterclaims.135 It thus
requires two decisions: one for the claimant and its claim, and another for the
respondent and its counterclaim.136 In this context, this section provides an overview
of counterclaims in international commercial arbitration. First, it distinguishes

127
William L Pereira Associates, Iran v the Islamic Republic of Iran, Case 1, Chamber 3, Award No
116-1-3 (19 March 1984) 5 Iran-US CTR 198, Concurring Opinion of Richard M Mosk.
128
William L Pereira Associates, Iran v the Islamic Republic of Iran, Case 1, Chamber 3, Award No
116-1-3 (19 March 1984) 5 Iran-US CTR 198, Concurring Opinion of Richard M Mosk.
129
See Böckstiegel (1997), p. 25; Williams and Kirk (2018), p. 87; Born (2021), pp. 81–83.
130
Baron v Sunderland Corporation (10 December 1966) [1966] 2 QB 56 (CA) 64; Tote Book-
makers Ltd v Development Property Holding Co Ltd (21 December 1984) [1985] 49 P & CR
232 (Ch) 239. If the arbitration agreement confers and unfair advantage to only one of the parties, it
may be declared void afterwards, see Bundesgerichthof (BGH) [Federal Court of Justice]
(Germany) Az: X ZR 23/87, Judgment (26 January 1989); RTK v Sony Ericsson, Case No 1831/
12, Supreme Arbitrazh Court (Russia) Decision (19 June 2012); Supreme Court of Cassation
(Bulgaria) Case No 1193/2010, Judgment (02 September 2011).
131
Paulsson (1995), p. 232.
132
Wälde (2010b), p. 6.
133
Berger (1999), p. 60; Kee (2005), p. 146.
134
Binder (2013), para. 21-012.
135
UNCITRAL Model Law on International Commercial Arbitration (2006), Art 2: (‘For the
purposes of this Law: . . .(f) Where a provision of this Law, other than in articles 25(a) and 32(2)
(a), refers to a claim, it also applies to a counter-claim, and where it refers to a defence, it also
applies to a defence to such counter-claim’).
136
Berger (1999), p. 60; Kee (2005), p. 146.
32 2 The Contextualisation of Environmental Counterclaims: A. . .

counterclaims from a similar instrument ie a set-off [Sect. 2.1.3.1]. Second, it

deduces the basic features of counterclaims having due regard of the interplay of
the arbitration agreement with the arbitration rules [Sect. 2.1.3.2].

2.1.3.1 The Delimitation of the Concept of Counterclaims

in Commercial Arbitration

When a counterclaim consists of a claim for money, it may be confused with a

set-off.137 However, they operate differently. The basic notion of set-off illustrates
the mutual extinction of claims owned by each party to the other.138 Both civil law
and common law traditions contemplate the possibility to set-off claims,139 as well
as the UNIDROIT Principles, in Article 8.1 thereof.140 The instrument of set-offs
and its characteristics may vary from jurisdiction to jurisdiction. For instance, while
in some countries it may be recognised ipso iure and be applied independently from
the parties’ will, in some others the application of a set-off may require a declaration
of the other party.141 This refers to the lex causae or applicable law to the merits of
the set-off, which plays a significant role on the final admissibility of this instru-
ment.142 However, the analysis of the applicable law to the merits of the set-off
exceeds the purpose of this section.143 Instead, it is apposite to mention the proce-
dural admissibility of set-offs in international commercial arbitration, and the dif-
ferences with a counterclaim.
The parties may agree to the possibility of raising set-offs during arbitral pro-
ceedings.144 In the absence of any mention to the admission of set-offs in the
arbitration agreement, the tribunal may opt for one of the following theories. First,
an arbitral tribunal has jurisdiction to rule upon set-offs, given their defensive

137
As eloquently described by Klaus Peter Berger, counterclaims and set-offs are ‘only a hair’s-
breadth away’, see Berger (1999), p. 58.
138
Fountoulakis (2011), p. 9; Pryles and Waincymer (2009), p. 457.
139
The concept of set-off in civil law may harkens back to Roman law, whereas in common law the
concept evolved from considerations of equity, through the concepts of abatement or recoupment,
see Berger (1999), pp. 56–57.
140
UNIDROIT Principles of International Commercial Contracts (2016), Art 8.1 Set-Off:
(‘(1) Where two parties owe each other money or other performances of the same kind, either of
them (“the first party”) may set off its obligation against that of its obligee (“the other party”) if at
the time of set-off, (a) the first party is entitled to perform its obligation; (b) the other party’s
obligation is ascertained as to its existence and amount and performance is due. (2) If the obligations
of both parties arise from the same contract, the first party may also set off its obligation against an
obligation of the other party which is not ascertained as to its existence or to its amount’).
141
Fountoulakis (2011), pp. 8 et seqq.; Koller (2008), p. 61; Mourre (2008), p. 389.
142
Koller (2008), pp. 67–69.
143
For a comprehensive analysis on the applicable law to the set-off see Fountoulakis (2011).
144
Koller (2008), p. 70.
2.1 Counterclaims from a Comparative Perspective in International. . . 33

nature,145 unless they are explicitly subjected to a different arbitration agreement or

forum selection clause.146 Second, the subject-matter of the set-offs must fall within
the scope of application of the arbitration agreement to be admissible.147 The second
theory seems more fitting to arbitration. The consensual nature of international
arbitration requires that to be admissible, a set-off must in principle fall within the
scope of the arbitration agreement.148 Parties admittedly may extend the tribunal’s
jurisdiction afterwards expressly or impliedly to cover a set-off.149 For instance, if
the arbitration agreement is silent on set-offs and the claimant does not object the
tribunal’s jurisdiction over the set-off, it may be considered to impliedly consent to
arbitrating the set-off.150
The respondent should consider two possible drawbacks of set-offs: first, if the
set-off exceeds the main claim, the respondent would need to pursue the exceeding
part in a different forum or in a different proceeding, thus, the set-off would not
foster procedural economy.151 Second, in cases where there is a different arbitration
agreement or forum selection clause covering the subject-matter of the set-off, unless
the parties otherwise agree, the tribunal cannot extend the arbitral proceedings to
such a set-off because it would imply the violation of the parties’ original inten-
tion.152 Thus, the tribunal might be inclined to decline the admissibility of a set-off
covered by a different dispute resolution clause.153
There are clear differences between counterclaims and set-offs. The instrument of
set-off is deemed as an exclusively defensive instrument, ‘as shield, not as a
sword.’154 This marks the first difference with a counterclaim, which embodies a
claim in itself.155 Another difference between a set-off and a counterclaim refers to
their independency/dependency to the main claim. A set-off is accessory or

145
Poudret and Besson (2007), p. 277, para. 323. Some consider that the mere defensive character
of set-offs does not completely resolve the issue of admissibility of set-offs, since only inherent
defences—eg mitigation of damages—will fall within the arbitration agreement, see Pryles and
Waincymer (2009), pp. 483 et seqq.
146
Poudret and Besson (2007), p. 277, para. 323.
147
Poudret and Besson (2007), p. 278, para. 323
148
Berger (1999), p. 62; Poudret and Besson (2007), p. 275, para. 319. Similarly, Mourre
(2008), p. 388.
149
Berger (1999), p. 62.
150
Koller (2008), p.73.
151
Pavic (2006), p. 107.
152
In the words of Klaus Peter Berger, it could imply the introduction of ‘consolidation of arbitral
procedures through the back-door of the set-off defence’, see Berger (1999), p. 75.
153
Pavic (2006), p. 107.
154
Stooke v Taylor, Decision (7 August 1880) [1880] 5 QBD 569, 575.
155
Werner (2002), pp. 5–6: (‘Der Widerkläger macht einen eigenen Anspruch geltend und leitet an
sich einen eigenen Prozess ein. In diesem Sinne geht die Widerklage auf Verurteilung des Klägers.
Damit unterscheidet sich die Widerklage auch von bloßen Angriffs- und Verteidigungsmitteln,
welche lediglich der Abwehr eigener Verurteilung dienen’).
34 2 The Contextualisation of Environmental Counterclaims: A. . .

dependent to the main claim,156 in contrast to a counterclaim. If the main claim is

withdrawn or rejected, the tribunal will still be competent to decide the counter-
claim.157 Whereas in the case of a set-off, this latter will follow the same fate as the
main claim.158 A final difference appertains to the excess of the counterclaim or
set-off over the main claim. A set-off is capped by the amount of the main claim,159
since the main purpose is to free the debtor from the claim.160 Should the set-off
exceed the main claim, such exceeding portion would not be addressed by the
tribunal.161 Whereas if a counterclaim exceeds the main claim, it would lead to
‘enforceable entitlements’ in favour of the counterclaimant.162

2.1.3.2 The Interplay of the Arbitration Agreement, Arbitration Rules

and Counterclaims

A counterclaim in international commercial arbitration must adhere to the require-

ments and time limits stipulated by the parties either in the arbitration agreement or
in the arbitration rules.163 Given the consensual nature of arbitration, a tribunal
would rule on a counterclaim only if it falls within the scope of the arbitration
agreement.164 The wording of arbitration clauses such as ‘relating to’ or ‘in connec-
tion with’ the underlying contract have been construed to allow non-contractual
claims, eg tort or statutory claims, to be referred to arbitration.165 By analogy, this
implies that in commercial arbitration based on broad arbitration clauses, the respon-
dent could as well bring a counterclaim for tort. In other words, ‘[t]he more broadly
the terms [of the arbitration agreement] are drafted, the easier it is to allow a
counterclaim’.166 One may argue that as long as the counterclaim arises from the
same legal relation as the main claim, it is feasible that the arbitration agreement will
cover the counterclaim.167 Moreover, like with a set-off, implied consent to the
submission of a counterclaim is feasible, when, for instance, the claimant does not
raise any objections to the submission of the counterclaim.168 The risk of deciding

156
Poudret and Besson (2007), p. 275, para. 318.
157
Berger (1999), p. 60; Poudret and Besson (2007), p. 275, para. 318; Koller (2008), p. 64.
158
Berger (1999), p. 60; Poudret and Besson (2007), p. 275, para. 318; Koller (2008), p. 64.
159
Pavic (2006), p. 104.
160
Koller (2008), p. 64.
161
Pavic (2006), p. 104.
162
Fountoulakis (2011), p. 21.
163
Fouchard et al. (1999), para. 1222.
164
Pavic (2006), p. 104; Steingruber (2012), para. 7.25; Born (2021), p. 2388.
165
Blackaby and Wilbraham (2016), para. 2.29; Lew et al. (2003), pp. 151–52. Similarly, Douglas
(2009), para. 528; Sourgens (2017), p. 197.
166
Pryles and Waincymer (2009), p. 453.
167
Pavic (2006), p. 105; Lew et al. (2003), p. 153, para. 7–68.
168
Pryles and Waincymer (2009), p. 482.
2.1 Counterclaims from a Comparative Perspective in International. . . 35

on a counterclaim falling outside the scope of the arbitration agreement must be

noted, since this might lead to the refusal of the recognition and enforcement
pursuant to Article V(1)(c) of the Convention on the Recognition and Enforcement
of Foreign Arbitral Awards (New York Convention).169
A different case appertains to the situation when the subject-matter of the
counterclaim and of the main claim are covered by separate arbitration agreements.
While the arbitration agreement governing the counterclaim need not be the same as
the one governing the main claim,170 claim and counterclaim should be part of the
same economic venture, and their respective arbitration agreements should contem-
plate compatible modalities of arbitration.171 However, an incompatible arbitration
agreement (or a forum selection clause for that matter) may be interpreted as the will
of the parties to have separate proceedings for the subject-matter of the claim and
counterclaim, which must be analysed by the tribunal on a case-by-case basis.172
Consequently, either when the counterclaim is subject to an incompatible arbitration
agreement or forum selection clause, tribunals might tend to decline the admissibility
of the counterclaim.173
Arbitration rules174 vary in the wording of their articles referring to counter-
claims. There are nonetheless certain commonalities and differences that are worth

169
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted 10 June
1958, entered into force 7 June 1959) 330 UNTS 3 (New York Convention). The enforcement court
might consider the counterclaim as a matter beyond the arbitration agreement (ultra petita),
constituting a ground for the refusal of enforcement under the New York Convention, see Kurkela
and Turunen (2010), pp. 28–32.
170
Steingruber (2012), para. 7.25.
171
Koller (2008), p. 83: (‘This requires the arbitration agreements to coincide regarding the
following issues: procedure for appointing the arbitrators, applicable procedural rules, language
and place of the arbitration’).
172
Pryles and Waincymer (2009), p. 498.
173
Lew et al. (2003), p. 154, para. 7–69.
174
See for instance: Arbitration Rules of the International Chamber of Commerce (ICC Arbitration
Rules (2021)); Arbitration Rules of the Stockholm Chamber of Commerce (SCC Arbitration Rules
(2017)); Arbitration Rules of the United Nations Commission on International Trade Law
(UNCITRAL Arbitration Rules (2013)); Arbitration Rules of the London Court of International
Arbitration (LCIA Arbitration Rules (2020)); Arbitration Rules of the Deutsche Institution für
Schiedsgerichtbarkeit – DIS [German Arbitration Institute] (DIS Arbitration Rules (2018)); Admin-
istered Arbitration Rules of the Hong Kong International Arbitration Centre (HKIAC Arbitration
Rules (2018)); Arbitration Rules of the Singapore International Arbitration Centre (SIAC Arbitra-
tion Rules (2016)). Arbitration Rules of the World Intellectual Property Organization (WIPO
Arbitration Rules (2021)).
36 2 The Contextualisation of Environmental Counterclaims: A. . .

mentioning. Under the HKIAC Arbitration Rules,175 LCIA Arbitration Rules,176

SCC Arbitration Rules,177 SIAC Arbitration Rules,178 UNCITRAL Arbitration
Rules,179 and WIPO Arbitration Rules,180 the respondent wishing to submit a
counterclaim must indicate it from an early stage of the proceedings with the
response to the notice of arbitration. Most of these rules contemplate formal require-
ments for the submission of a counterclaim, such as a brief statement of facts, legal
arguments, and relief sought.181 Conversely, the DIS Arbitration Rules182 and the

175
HKIAC Arbitration Rules (2018), Art 5.3: (‘Any counterclaim, set-off defence or cross-claim
shall, to the extent possible, be raised with the Respondent’s Answer to the Notice of Arbitration,
which should include in relation to any such counterclaim, set-off defence or cross-claim: (a) a copy
of the contract(s) or other legal instrument(s) out of or in relation to which it arises, or reference
thereto; (b) a description of the general nature of the counterclaim, set-off defence and/or cross-
claim, and an indication of the amount involved, if any; and (c) the relief or remedy sought’).
176
LCIA Arbitration Rules (2020), Art 2.1: (‘Within 28 days of the Commencement Date, or such
lesser or greater period to be determined by the LCIA Court upon application by any party or upon
its own initiative (pursuant to Article 22.5), the Respondent shall deliver to the Registrar a written
response to the Request (the “Response”), containing or accompanied by: . . . (iii) if not full
confirmation, a statement briefly summarising the nature and circumstances of the dispute, its
estimated monetary amount or value, the transaction(s) at issue and the defence advanced by the
Respondent, and also indicating whether any counterclaim will be advanced by the Respondent
against any Claimant and any cross-claim against any other Respondent’).
177
SCC Arbitration Rules (2017), Art 9: (1): (‘The Secretariat shall send a copy of the Request for
Arbitration and any attached documents to the Respondent. The Secretariat shall set a time period
within which the Respondent shall submit an Answer to the SCC. The Answer shall include: . . . (iii)
a preliminary statement of any counterclaims or setoffs, including an estimate of the monetary value
thereof; (iv) where counterclaims or set-offs are made under more than one arbitration agreement,
an indication of the arbitration agreement under which each counterclaim or set-off is made’).
178
SIAC Arbitration Rules (2016), Art 4.1: (‘The Respondent shall file a Response with the
Registrar within 14 days of receipt of the Notice of Arbitration. The Response shall include: . . .
(b) a brief statement describing the nature and circumstances of any counterclaim, specifying the
relief claimed and, where possible, an initial quantification of the counterclaim amount’).
179
UNCITRAL Arbitration Rules (2013), Art 4(2): (‘The response to the notice of arbitration may
also include: . . . (e) A brief description of counterclaims or claims for the purpose of a set-off, if
any, including where relevant, an indication of the amounts involved, and the relief or remedy
sought’).
180
WIPO Arbitration Rules (2021), Art 11(a): (‘Within 30 days from the date on which the
Respondent receives the Request for Arbitration from the Claimant, the Respondent shall address
to the Center and to the Claimant an Answer to the Request which shall contain comments on any of
the elements in the Request for Arbitration and may include indications of any counter-claim or
set-off’).
181
For instance, ICC Arbitration Rules (2021), Art 5(5); UNCITRAL Arbitration Rules (2013), Art
4(2); LCIA Arbitration Rules (2020), Art 15.3; HKIAC Arbitration Rules (2018), Art 17.3; SIAC
Arbitration Rules (2016), Art 4.1.
182
DIS Arbitration Rules (2018), Art 7.5: (‘Any counterclaim shall, when possible, be filed together
with the Answer. Article 5.2 shall apply, mutatis mutandis. The counterclaim shall be filed with the
DIS’).
2.1 Counterclaims from a Comparative Perspective in International. . . 37

WIPO Arbitration Rules183 merely foresee that counterclaims must comply with the
same requirements as the main claim.
The UNCITRAL Arbitration rules are the only set of rules that prescribes as a
requirement for counterclaims to be within the jurisdiction of the tribunal.184
Although not directly addressing the jurisdiction of the tribunal but closely related,
the ICC Arbitration Rules185 and the SCC Arbitration Rules186 demand to mention
the relevant arbitration agreement upon which the counterclaim is made.
A final point to highlight from the analysed arbitration rules refers to the deadline
for submission of counterclaims. Most rules contemplate that counterclaims must be
submitted with the statement of defence. However, only the UNCITRAL Arbitration
Rules187 and the WIPO Arbitration Rules188 mention the admissibility of belated
counterclaims under exceptional circumstances. One may argue that in any case,
even if not mentioned by the arbitration rules, the arbitral tribunal should be

183
WIPO Arbitration Rules (2021), Art 42(c): (‘Any counter-claim or set-off by the Respondent
shall be made or asserted in the Statement of Defense or, in exceptional circumstances, at a later
stage in the arbitral proceedings if so determined by the Tribunal. Any such counter-claim or set-off
shall contain the same particulars as those specified in Article 41(b) and (c)’).
184
UNCITRAL Arbitration Rules (2013), Art 21(3): (‘In its statement of defence, or at a later stage
in the arbitral proceedings if the arbitral tribunal decides that the delay was justified under the
circumstances, the respondent may make a counterclaim or rely on a claim for the purpose of a
set-off provided that the arbitral tribunal has jurisdiction over it’).
185
ICC Arbitration Rules (2021), Art 5(5): (‘. . . Any counterclaims made by the respondent shall be
submitted with the Answer and shall provide: a) a description of the nature and circumstances of the
dispute giving rise to the counterclaims and of the basis upon which the counterclaims are made; b)
a statement of the relief sought together with the amounts of any quantified counterclaims and, to
the extent possible, an estimate of the monetary value of any other counterclaims; c) any relevant
agreements and, in particular, the arbitration agreement(s); and d) where counterclaims are made
under more than one arbitration agreement, an indication of the arbitration agreement under which
each counterclaim is made. The respondent may submit such other documents or information with
the counterclaims as it considers appropriate or as may contribute to the efficient resolution of the
dispute’).
186
SCC Arbitration Rules (2017), Art 9(1): (‘The Secretariat shall send a copy of the Request for
Arbitration and any attached documents to the Respondent. The Secretariat shall set a time period
within which the Respondent shall submit an Answer to the SCC. The Answer shall include: . . . (iii)
a preliminary statement of any counterclaims or setoffs, including an estimate of the monetary value
thereof; (iv) where counterclaims or set-offs are made under more than one arbitration agreement,
an indication of the arbitration agreement under which each counterclaim or set-off is made’).
187
UNCITRAL Arbitration Rules (2013), Art 21(3): (‘In its statement of defence, or at a later stage
in the arbitral proceedings if the arbitral tribunal decides that the delay was justified under the
circumstances, the respondent may make a counterclaim or rely on a claim for the purpose of a
set-off provided that the arbitral tribunal has jurisdiction over it’).
188
WIPO Arbitration Rules (2021), Art 42(c): (‘Any counter-claim or set-off by the Respondent
shall be made or asserted in the Statement of Defense or, in exceptional circumstances, at a later
stage in the arbitral proceedings if so determined by the Tribunal. Any such counter-claim or set-off
shall contain the same particulars as those specified in Article 41(b) and (c)’).
38 2 The Contextualisation of Environmental Counterclaims: A. . .

empowered to admit belated counterclaims as long as it serves the purpose of

procedural economy.189 In this sense, the admission of belated counterclaims should
be balanced against the reasons for the delay as well as the procedural stage at which
the respondent finally filed its counterclaim. For instance, in the Peters Fabrics Inc v
Jantzen case, the respondent submitted its counterclaim only seven days before the
hearing, without putting the arbitrator on notice of its intention to submit a counter-
claim at any previous stage.190 The US District Court for the Southern District of
New York considered that the arbitrator was not guilty of misconduct for refusing to
hear the counterclaim, since the counterclaim was clearly untimely.191
The abovementioned arbitration rules, albeit mentioning counterclaims, would
not overcome the limitations for the admission of counterclaims in the arbitration
agreement. Most of those rules contemplate formal requirements and time limits for
submissions, but they do not cover what kind of counterclaims may be submitted to
the tribunal.192 Besides explicit provisions in the arbitration rules or the lex arbitri,
there are no further requirements for the admission of a counterclaim.193 In principle,
a counterclaim need not be connected with the main claim as long as they are based
on the same arbitration agreement.194 The tribunal may nonetheless demand a
connection of the counterclaim with the main claim, in order to counterbalance the
necessary delay on the proceedings that the admission of a counterclaim would
entail.195 Moreover, in order to preserve the equality of parties, the claimant should
be entitled to respond to the counterclaim.196 Despite the connection with the main
claim, a counterclaim remains as independent in respect to the requirements and
effects of the main claim.197
Some authors posit that the requirements of a counterclaim, including its con-
nection with the main claim, ‘should be interpreted liberally, to minimize the risk of
inconsistent arbitral awards and to reduce unnecessary costs of constituting an
arbitral tribunal and completing initial procedural arrangements’.198 Justifications
for the admission of counterclaims revolve around procedural efficiency, reducing
transaction costs of parallel proceedings, avoidance of contrasting decisions by
different arbitral tribunals.199 Yet, one must be mindful of the risk that counterclaims
may be used as a delaying or retaliatory tactic.200

189
Berger (1999), p. 69.
190
Peters Fabrics Inc v Jantzen Inc [1984] 582 F.Supp 1287 (SDNY) 1292.
191
Peters Fabrics Inc v Jantzen Inc [1984] 582 F.Supp 1287 (SDNY) 1292.
192
Pryles and Waincymer (2009), p. 482.
193
Koller (2008), p. 83.
194
Fouchard et al. (1999), para. 1222.
195
Koller (2008), p. 83.
196
Born (2021), p. 2388.
197
Werner (2002), p. 5: (‘Als grundsätzlich selbständige Klage ist die Widerklage sowohl in Bezug
auf die Voraussetzungen als auch die Wirkungen von der Hauptklage unabhängig’).
198
Born (2021), p. 2388.
199
Pryles and Waincymer (2009), p. 485.
200
Berger (1999), p. 59.
2.1 Counterclaims from a Comparative Perspective in International. . . 39

2.1.4 Other Frameworks for International Dispute Settlement

Counterclaims might come into play in other frameworks for international dispute
settlement. However, their development is usually more limited. For the sake of
completeness, this section briefly addresses the interaction of counterclaims before
three of the most representative institutions for international dispute settlement
namely the Permanent Court of Arbitration [Sect. 2.1.4.1], the International Tribunal
for the Law of the Sea [Sect. 2.1.4.2], and the WTO Dispute Settlement Body [Sect.
2.1.4.3].

2.1.4.1 Permanent Court of Arbitration

The PCA was established by the Convention for the Pacific Settlement of Interna-
tional Disputes of 1899 (First Hague Convention). Some years later, the contracting
parties to the Convention undertook a revision, resulting in the Convention for the
Pacific Settlement of International Disputes of 1907 (Second Hague Convention).
According to Article 20 First Hague Convention, the idea was to facilitate recourse
to arbitration to the contracting states ‘for international differences, which it has not
been possible to settle by diplomacy’. The first case entertained at the PCA was the
Pious Fund Arbitration, between the US and Mexico in 1902.201 Originally, the
PCA administered inter-state arbitration exclusively, until 1934 with the Radio
Corporation of America v China dispute,202 which was the first arbitration involving
a non-state party against a state at the PCA.203 Until date, the administration of
arbitration proceedings involving a non-state party has considerably increased,204
however, the PCA continues to administer inter-state arbitrations.205
The Hague Conventions of 1899 and 1907 do not mention the possibility to raise
counterclaims in the arbitration proceedings. Yet, the latest version of the PCA
Arbitration Rules (2012) contains several references to counterclaims.206 These rules
seem to be inspired by the UNCITRAL Arbitration Rules,207 thus, there is no
requirement for presenting counterclaims save for the submission in the statement
of defence.

201
The Pious Fund (United States of America v United Mexican States), Award (14 October 1902)
IX RIAA 1.
202
Radio Corporation of America v the National Government of the Republic of China, Award
(13 April 1935) III RIAA 1621–1636.
203
Daly (2012), p. 40; Ando (2006), para. 28.
204
Ando (2006), para. 31.
205
Daly (2012), p. 40.
206
PCA Arbitration Rules (2012), Arts 2(d), 21(3), 22, 23, 30.
207
Antonopoulos (2011), p. 16.

Licensed to Dymas Satrioprojo ([email protected])

40 2 The Contextualisation of Environmental Counterclaims: A. . .

2.1.4.2 International Tribunal for the Law of the Sea

The ITLOS was established by the UN Convention on the Law of the Sea
(UNCLOS).208 The ITLOS is a permanent judicial body, competent to adjudicate
disputes arising from the interpretation or application of UNCLOS.209 While there
are no provisions in UNCLOS referring to the possibility to submit counterclaims,
Article 98 ITLOS Rules of Procedure contains the following provision:
1. A party may present a counter-claim provided that it is directly connected with the
subject-matter of the claim of the other party and that it comes within the jurisdiction of the
Tribunal.
2. A counter-claim shall be made in the counter-memorial of the party presenting it and
shall appear as part of the submissions of that party.
3. In the event of doubt as to the connection between the question presented by way of
counter-claim and the subject-matter of the claim of the other party the Tribunal shall, after
hearing the parties, decide whether or not the question thus presented shall be joined to the
original proceedings.

This provision is similar to Article 80 ICJ Rules of Procedure, and it is also framed
within the section of ‘incidental proceedings’. Given this characterisation, one may
argue that if the Tribunal finds no jurisdiction to decide the main claim, the incidental
proceedings will be consequently terminated.210 However, a counterclaim at ITLOS
has a double nature, while the decision on the admission of counterclaims is part of
the Tribunal’s incidental jurisdiction, the decision on the merits of the counterclaims
belongs to the main jurisdiction of the Tribunal.211 This characterisation of counter-
claims is certainly creative but far from settling the debate. Even the decision on the
admissibility of counterclaims differs considerably from other orders issued by the
Tribunal since there is a substantive discussion on it, which resembles a judgment.212
The M/V Virginia G case213 is an example of counterclaims at ITLOS. The
authorities of Guinea Bissau detained a ship with a Panamanian flag and Panama
claimed for the damages suffered during the detention period. However, Guinea
Bissau counterclaimed that Panama violated UNCLOS by granting nationality to the
ship without having a genuine link to Panama.214 After analysing the facts of the
case, the Tribunal considered that the counterclaim had complied with all conditions

208
United Nations Convention on the Law of the Sea (adopted 10 December 1982, entry into force
16 November 1994) 1833 UNTS 3.
209
ITLOS Statute, Art 284.
210
Eiriksson (2000), p. 133.
211
García García-Revillo (2015), p. 254.
212
Lekkas and Staker (2017), mn. 5.
213
M/V ‘Virginia G’ (Panama v Guinea-Bissau), Order (02 November 2012) ITLOS Reports 39.
214
M/V ‘Virginia G’ (Panama v Guinea-Bissau), Order (02 November 2012) ITLOS Reports
39, para. 16
2.1 Counterclaims from a Comparative Perspective in International. . . 41

of Article 98 ITLOS Rules of Procedure, thus, it was admissible.215 However, Judge

Treves disagreed and argued that the main claim and counterclaim, albeit based on
the UNCLOS Convention, were disconnected.216
Neither the Tribunal nor the dissenting judge found any qualms with the juris-
diction over the counterclaim. This has been criticised because the jurisdictional title,
in spite of being concluded after the dispute arose, did not contemplate the possi-
bility to submit counterclaims.217 Such criticism does not seem tenable. Nothing in
UNCLOS or in the ITLOS Rules of Procedure demand an express consent to
counterclaims in the jurisdictional title even if the parties agreed to arbitrate after
the dispute arose. Besides, it is conceivable that the Tribunal’s jurisdiction over a
counterclaim may be found on the basis of forum prorogatum.218 Thus, an explicit
mention to counterclaims in the jurisdictional title should not be required.

2.1.4.3 WTO Dispute Settlement Body

The WTO was established in 1994 by the treaty of Marrakesh.219 It contemplates a

dispute settlement body which decides by ad hoc panels, in the first instance, and by
a standing Appellate Body, in the second instance. Under the Understanding on
Rules and Procedures Governing the Settlement of Disputes (DSU) every WTO
Member may request consultations to other WTO Member for any dispute arising
from a covered agreement.220 If the consultations fail, the adjudicative process may
start by a request for the establishment of a panel.221 The provision referring to the
instrument of counterclaims, or in this case a counter-complaint, is Article
3(10) DSU, which states that ‘complaints and counter-complaints in regard to
distinct matters should not be linked’. Based on this provision, one may argue that
the WTO dispute settlement system does not permit to adjudicate counterclaims.222
Moreover, during the adjudicative proceedings in front of the panel there is no room
for counter-complaints since a panel’s review only follows failed consultations
requested by a complaining party.223 Additionally, the panel’s terms of reference
are set based on a panel request, which only contains the complainant’s claims.

215
M/V ‘Virginia G’ (Panama v Guinea-Bissau), Order (02 November 2012) ITLOS Reports
39, paras. 34 et seqq.
216
M/V ‘Virginia G’ (Panama v Guinea-Bissau), Order (02 November 2012) ITLOS Reports
39, Dissenting Opinion of Judge ad hoc Treves.
217
García García-Revillo (2015), pp. 198–99.
218
Eiriksson (2000), p. 239. In a nutshell, forum prorogatum reflects the scenario where an
international court assumes jurisdiction based on the respondent’s consent expressed through its
conduct.
219
Marrakesh Agreement establishing the World Trade Organization (with final act, annexes and
protocol) (adopted 15 April 1994, entered into force 01 January 1995) 1867 UNTS 3.
220
DSU, Art 4(3).
221
DSU, Art 4(7).
222
Carmody (2011), p. 175.
223
Pauwelyn (1998), p. 241.
42 2 The Contextualisation of Environmental Counterclaims: A. . .

Pertaining to the admissibility of counter-complaints at the WTO dispute settle-

ment mechanism, the panel report in Mexico – Soft Drinks may be illustrative.
Mexico, the respondent, filed a counter-compliant against the US for the violation
of a market access commitment under NAFTA (1994), although the main complaint
of the US against Mexico was for the violation of the GATT 1994. By referring to
Article 3(10) DSU, the panel rejected the counter-complaint based on two reasons:
first, it was based on a different agreement (NAFTA (1994)); second, it was not
mentioned in the terms of reference.224 Furthermore, in an obiter dictum, the panel
highlighted that ‘even if, arguendo, the dispute between Mexico and the United
States regarding access of Mexican sugar in the United States market were a matter
under the WTO covered agreements, a Panel could not link the complaints and
counter-complaints related to distinct matters in one single case.’225 Consequently,
the respondent party wishing to file a complaint against the complaining party must
in turn initiate new proceedings, starting with the request for consultations.226

2.1.5 Common Characteristics of Counterclaims

in International Dispute Settlement

The foregoing comparative analysis has proven that the instrument of counterclaims
shares some features across different forms of international dispute settlement.
Primarily, the court or tribunal ought to have jurisdiction to decide the counterclaim
in accordance with the underlying instrument of consent. Similarly, the counterclaim
should be connected to the main claim for the tribunal or court to entertain it. While
there might be some varying time-frames for the submission of counterclaims in
each international dispute settlement framework, belated counterclaims could excep-
tionally be admitted. Of particular relevance for this monograph are the requirement
of jurisdiction over the counterclaim and the connection between the main claim and
the counterclaim. Accordingly, the interplay and development of such characteristics
in their respective frameworks of international dispute settlement might shed some
light on the functioning of counterclaims in investment arbitration (where
appropriate).

224
Mexico: Tax Measures on Soft Drinks—Report of the Panel (07 October 2005) WT/DS308/R,
para. 8.232.
225
Mexico: Tax Measures on Soft Drinks—Report of the Panel (07 October 2005) WT/DS308/R,
para. 8.232.
226
Pauwelyn (2001), p. 553. Similarly, Antonopoulos (2011), p. 29.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 43

2.2 Environmental Counterclaims Through the Prism

of Investment Arbitration: Distilling the Basic Features

The common features of counterclaims in international dispute settlement must be

tested through the prism of investment arbitration, its nature and particular function-
ing. Although investment arbitration may be considered the ‘poster-child of inter-
national legalization’,227 its conceptualisation is unfortunately far from being
settled. Accordingly, a preliminary issue consists of the analysis of the unique and
multifaceted nature of investment arbitration [Sect. 2.2.1], and based upon this
analysis, the subsequent section elaborates on the underpinnings of environmental
counterclaims in the specific framework of investment arbitration [Sect.
2.2.2]. Finally, the third section specifically ascertains the utility of environmental
counterclaims in investment arbitration [Sect. 2.2.3].

2.2.1 The Multifaceted Nature of Investment Arbitration

The state may express its consent to international arbitration for solving investment
disputes with foreign investors by means of domestic legislation or by an interna-
tional treaty, as well as by a contract provision concluded directly with the concerned
investor.228 Encompassing all investment disputes arising from these different types
of the state’s consent within the category of ‘investment arbitration’ may be seen as
an oversimplification, particularly if the instrument by which the state gives its
consent would move the dispute settlement procedure from the private to the public
sphere.229 Therefore, this section firstly provides an overview of the functioning of
contract-based investment arbitration and some preliminary remarks on the viability
of counterclaims [Sect. 2.2.1.1]. Secondly, this section addresses the design of law-
and treaty-based investment arbitration and the implications thereof for counter-
claims [Sect. 2.2.1.2].

227
Puig (2014), p. 238.
228
Van Harten (2007), p. 24; Kriebaum (2014), p. 69; Schreuer (2014), pp. 302–303. Even at a
substantial level, the obligations arising out of an international investment may be linked to three
legal frameworks namely national, contractual and international law, see Salacuse (2014),
pp. 35–48.
229
Van Harten (2007), p. 24: (‘The form of a state’s consent is significant because it correlates
strongly with the positioning of investment arbitration in the private or public sphere, and in the
domestic or international sphere’).
44 2 The Contextualisation of Environmental Counterclaims: A. . .

2.2.1.1 Contract-Based Investment Arbitration: Closer to International

Commercial Arbitration?

Investment contracts between a state and a foreign investor have been concluded for
centuries, for instance, in form of concession agreements.230 Here, there is a
reciprocal (synallagmatic) and defined investor-state relation restricted to the specific
transaction.231 Moreover, investment contracts are ordinarily governed by a domes-
tic law, which can be found in a particular choice of law clause within the con-
tract.232 Thus, the breach of an investor-state contract does not entail in itself
responsibility on the international law level.233 Nowadays, investment contracts
usually contemplate international arbitration as method for dispute resolution.234
The agreement to arbitrate is concluded directly by the host state and the foreign
investor with the aim of submitting future or existing disputes related to that
contract.235 Consequently, one may consider that the state is acting in its private
capacity ( jure gestionis) and the method for solving disputes will basically be a type
of international commercial arbitration.236
Admittedly, in most of the cases of law- or treaty-based investment arbitrations,
there are equally some contractual relations between the investor and the state. This
is explained by the fact that in practice, the specificities of the investment are
normally condensed in a contractual instrument (joint venture, concession, public
private partnership).237 However, the decisive element to distinguish between a
contract-based investment claim and a law- or treaty-based claim is the jurisdictional
basis for the arbitration (contract v law/treaty) and the alleged breach.
Should the state seek to raise a counterclaim in contract-based investment arbi-
tration, the counterclaim would most likely reflect the breaches of the contractual
obligations owed to the state,238 or breaches of domestic law in some cases.239 Given
the reciprocal (or synallagmatic) nature of investment contracts, as well as their
reliance on international arbitration, one should pay heed to the intricacies of
counterclaims in international commercial arbitration as elaborated above.

230
Walter (2015), p. 82.
231
Van Harten (2007), p. 63. Similarly, De Brabandere (2014), p. 26.
232
Salacuse (2014), pp. 160 et seqq. Similarly, Bjorklund (2014), p. 272.
233
Alvik (2019), p. 274. Similarly, SGS Société Générale de Surveillance SA v Islamic Republic of
Pakistan, ICSID Case No ARB/01/13, Decision on Jurisdiction (06 August 2003) para. 167.
234
Besch (2015), p. 140.
235
Schreuer (2014), p. 303.
236
Van Harten and Loughlin (2006), p. 142; Magnarelli (2020), pp. 46–47. For a different opinion
considering that investor-state contracts always concern the exercise of public authority, see Alvik
(2019), p. 271.
237
De Brabandere (2014), p. 29. Similarly, Dumberry (2012), p. 241.
238
Paulsson (1995), p. 247.
239
See Sect. 5.1.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 45

2.2.1.2 Law- and Treaty-Based Investment Arbitration

Law- and treaty-based investment arbitration can be grouped into one category given
that in both cases, there is a prospective consent of the state to submit to arbitration
with an undefined number of foreign investors to control the exercise of public
authority.240 The first time that arbitral tribunals assumed jurisdiction under such
model was in the SPP v Egypt case in 1988 for law-based investment arbitration,241
and in the AAP v Sri Lanka case in 1990 for treaty-based investment arbitration.242
Considering that the majority of cases are based on treaties rather than on domestic
laws,243 this book focuses only on the framework for treaty-based investment
disputes. This section consequently starts with the conceptualisations of treaty-
based investment arbitration [Sect. 2.2.1.2.1]. It follows with a discussion on the
relevant features of this dispute settlement system for the purpose of counterclaims
[Sect. 2.2.1.2.2]. Finally, it briefly addresses the backlash against treaty-based
investment arbitration as an opportunity for environmental counterclaims [Sect.
2.2.1.2.3].

2.2.1.2.1 Conceptualisations of Treaty-Based Investment Arbitration:

A Never-Ending Story

The nature of treaty-based investment arbitration has engendered heated debates

among practitioners and academics, who seek to explain the functioning of this
relatively new model of international arbitration. In 1995, Jan Paulsson coined the
term of ‘arbitration without privity’, which sought to describe a new type of
international arbitration between a foreign investor and a host state.244 The novelty
lied in a unique consent to arbitration achieved by two distinct steps: the state
indicates its consent, as a result of an inter-state bargaining, in a treaty provision,
whereas the investor consents by submitting its notice of arbitration against the state,
based on the pre-existing treaty provision.
Accordingly, the dispute settlement provisions in IIAs providing for arbitration
with the investors of the other contracting state(s) are considered as a ‘unilateral
offer’ to arbitrate, upon which an arbitration agreement is concluded when an

240
Van Harten and Loughlin (2006), p. 143.
241
Southern Pacific Properties (Middle East) Ltd v Arab Republic of Egypt, ICSID Case No
ARB/84/3, Decision on Jurisdiction (14 April 1988).
242
Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No ARB/87/3, Award
(27 June 1990).
243
The figures of the ICSID database show this tendency. From the 888 cases registered at ICSID by
30 June 2022, only 8% has been based on a domestic investment law of the host state, see <https://
icsid.worldbank.org/sites/default/files/publications/The_ICSID_Caseload_Statistics_2022-2_
ENG.pdf> accessed 10 January 2023.
244
Paulsson (1995), pp. 232 et seqq. See also, Alvarez (2011), pp. 46–47.
46 2 The Contextualisation of Environmental Counterclaims: A. . .

investor ‘accepts the offer’, usually by submitting a claim.245 Consequently, one

thing is the dispute resolution provision in the treaty which reflects the consent of the
state to submit to arbitration, whereas the arbitration agreement is a separate agree-
ment entered by the host state and the specific foreign investor based on the
respective treaty provision.246 In this vein, in the Occidental Exploration v Ecuador
case, the Supreme Court of the United Kingdom held ‘the agreement to arbitrate
which results by following the Treaty route is not itself a treaty. It is an agreement
between a private investor on the one side and the relevant State on the other’.247
Given the use of contractual-related terms such as ‘offer’ and ‘acceptance’, a first
conceptualisation emerged, conceiving treaty-based investment arbitration as akin to
international commercial arbitration.248 Initially, most of the arbitrators dealing with
this kind of disputes had a commercial arbitration background, which perhaps
supported the characterisation of treaty-based investment arbitration as subset of
commercial arbitration.249 However, commercial arbitration differs from treaty-
based investment arbitration on the instrument conferring authority to the tribunal
and on the source of the obligations of the parties. The disputing parties certainly
select the arbitrators sitting on each case, but the authority of the tribunal to judge the
conduct of the state stems from the underlying IIA.250 Moreover, the tribunal, unlike
in commercial arbitration, is asked to assess the possible breaches of public inter-
national law obligations embedded in the respective IIA.251
This prevents a blind importation of an unmodified principle of party auton-
omy,252 which is the cornerstone of commercial arbitration.253 Certainly, the inves-
tor seeks the protection of its private rights,254 and the procedure in treaty-based
investment arbitration contains several similarities with commercial arbitration in
regards to party-appointed arbitrators, the rules governing the conduct of proceed-
ings or even the enforcement instruments.255 However, the principle of party
autonomy in treaty-based investment arbitration should play a less controlling role

245
Bjorklund (2001), p. 183; Magnarelli (2020), p. 40; Marisi (2020), p. 240.
246
Douglas (2009), para. 674.
247
Occidental Exploration & Production Company v The Republic of Ecuador [2005] EWCA Civ
1116, para. 33. Similarly, ICS Inspection and Control Services Limited v The Republic of Argentina,
PCA Case No 2010-9, Award on Jurisdiction (10 February 2012) para. 270: (‘The formation of the
agreement to arbitrate occurs through the acceptance by the investor of the standing offer to arbitrate
found in the relevant investment treaty’).
248
Further on investment treaty arbitration as international commercial arbitration, see Price (2000),
p. 112; Alvarez (2000), pp. 393–394.
249
Kulick (2012), p. 77.
250
Roberts (2013), p. 61.
251
De Brabandere (2014), p. 8.
252
Roberts (2013), p. 61.
253
See Sect. 2.1.3.
254
De Brabandere (2014), p. 27.
255
Van Harten and Loughlin (2006), pp. 139–140; De Brabandere (2014), pp. 49–50.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 47

than in commercial arbitration256 because the system stems from public international
law instruments. Despite the similarity between investment and commercial arbitra-
tion, they should not be deemed as interchangeable.257 Otherwise, this might lead to
overlooking the broader context of each one, their principles and more importantly,
their differences.258 Consequently, in spite of the ground-breaking contribution of
considering treaty-based investment arbitration as ‘arbitration without privity’ or
containing a unilateral offer to arbitrate, it has been argued that both descriptions
may mislead the interpreter exclusively to a private law sphere.259
The second conceptualisation consists of framing treaty-based investment arbi-
tration as part of public international law.260 It is argued that the public international
law regime in the broad sense governs the investment regime, given the intersections
of investment law with public international law.261 It has thus been suggested that
within the four corners of public international law, one may find similar rules to
apply by analogy in treaty-based investment arbitration, for instance, from rules of
state responsibility, diplomatic protection, or the law of treaties.262 A clear example
from customary international law that has been applied in investment arbitration
constitutes the minimum standard of treatment as developed in the seminal Neer
case.263 Still, public international law governs inter-state rather than investor-state
relations, which puts into question its suitability for treaty-based investment
arbitration.264
These discussions reveal that the traditional fields such as public international law
or commercial arbitration may not be adequate characterisations of treaty-based
investment arbitration.265 In the latter, foreign investors are entitled to sue the host
state in matters related to public administration, which does not correspond to the
underlying principle of equality of parties in commercial disputes, nor to the concept
of sovereign immunity in inter-state disputes.266 Moreover, the tribunal might decide
on the exercise of regulatory powers, there is a hierarchical relation between the

256
Brown (2010), p. 671.
257
Cordero-Moss (2009), pp. 782 et seqq.
258
Cordero-Moss (2009), p. 784.
259
Van Harten (2007), p. 64.
260
For instance, Loewen Group Inc and Raymond L Loewen v United States of America, ICSID
Case No ARB(AF)/98/3, Award (26 June 2003) para. 233.
261
José E Alvarez identifies ten points of intersection: (1) treatification and other positivist sources;
(2) fragmentation; (3) impact of non-state parties; (4) globalization and its discontents; (5) the
profession of international law; (6) the move to judicialization; (7) hegemonic international law;
(8) global administrative law (9) constitutionalization (10) humanity’s law; see Alvarez
(2011), p. 406.
262
Paparinskis (2014), pp. 74 et seqq.
263
LFH Neer and Pauline Neer (United States of America v United Mexican States), Award
(15 October 1926) IV RIAA 60–66.
264
Van Harten (2007), p. 135; Schill (2011), pp. 73–74. Similarly, Kriebaum (2014), pp. 49 et seqq.
265
Schill (2010), p. 12; Kalderimis (2011), p. 149.
266
Wälde (2010b), p. 6.
48 2 The Contextualisation of Environmental Counterclaims: A. . .

investor and the state as the former is subject to the exercise of sovereignty of the
latter, the obligations arise from a treaty, and there is a generalised and prospective
consent.267
Although recognising that treaty-based investment arbitration does not fit into one
traditional field of law, the similarities on some issues cannot be ignored. Thus, one
may be tempted to draw conclusions in treaty-based investment arbitration from
analogies in similar fields of law. For instance, from public international law with
respect to sources of law, from administrative or constitutional law with respect to
the analysis of government conduct vis-à-vis private investors, or from commercial
arbitration with respect to procedure.268 This ‘clash of paradigms’ strives to shed
some light on the functioning of treaty-based investment arbitration by focusing only
on certain aspects of the system.269 Certainly, under those paradigms the argument is
that given the textual or functional similarities between the fields, it is illustrative to
draw comparisons for solving some issues in treaty-based investment arbitration.270
However, the emphasis on commonalities or differences with other fields of law
is more telling of the perspective and personal background of the person conducting
the analysis than it is about treaty-based investment arbitration as such.271 Thus, the
transplant of principles from one field of law to another may not always respond to
an oversimplification, but rather sometimes may be the result of a conscious choice
to steer the system towards certain direction.272 Consequently, using analogies with
others fields to explain the investment treaty system may fail to capture the whole
picture.273
In this context, a third conceptualisation of treaty-based investment arbitration
comes into play. For the first time in 2003, Zachary Douglas posited that treaty-
based investment arbitration presents ‘hybrid foundations’.274 The idea is to look
beyond traditional fields of law in order to understand treaty-based investment
arbitration as a sui generis system.275 This requires to analyse the different founda-
tional structures of treaty-based investment arbitration to understand its functioning.
In any case, this must be undertaken carefully. Sometimes the different hybrid
foundations may not provide the same answer to a legal question in treaty-based
investment arbitration, or they may even lead to the same answer but for very

267
Schill (2011), pp. 75–77. Similarly, Van Harten (2007), p. 126.
268
Schill (2010), p. 17.
269
Roberts (2013), p. 47.
270
Roberts (2013), p. 52.
271
Mills (2011), p. 101.
272
Cordero-Moss (2009), pp. 796–797.
273
Roberts (2013), p. 49.
274
Douglas (2003), p. 159.
275
Roberts (2013), p. 93.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 49

different reasons.276 The practical relevance of considering investment arbitration as

hybrid has nevertheless been called into question.277
A final conceptualisation consists of portraying treaty-based investment arbitra-
tion as a ‘species of global administrative law’.278 This conceptualisation, also
known as the public law paradigm, describes treaty-based investment arbitration as
akin to the administrative or constitutional procedures in domestic law, where the
individual seeks compensation for damages against the state.279 From a substantive
point of view, this paradigm conceives treaty-based investment arbitration as pro-
viding an adjudicatory framework for the control of the exercise of public authority,
dissolving the domestic/international law dichotomy, and handing trump cards
derived from public international law to the investor against the state’s exercise of
public authority.280 In this sense, treaty-based investment arbitration constitutes an
instrument of global governance by means of a strong and persuasive, albeit
non-binding, system of precedent, providing how investment treaties should be
construed.281 Thus, it is argued that the public law paradigm of treaty-based invest-
ment arbitration provides legitimacy and accountability for the exercise of public
authority.282
Under the public law paradigm, it may be contended that commercial arbitration
rules and instruments are unsuitable for regulatory disputes between a state and a
foreign investor.283 Such assertion might however ignore the fact that since its
origins, arbitration has been used for all kind of disputes, including inter-state

276
Paparinskis (2014), p.106.
277
Pauwelyn (2014b), p. 13: (‘[L]imited pay-off can be gain from thinking IIL as a hybrid in search
of an appropriate analogy . . . what defines IIL is its myriad sources and actors . . . and how they
interact and have interacted over the time. The appropriate unit of analysis is not the system but its
interacting components. . . the decentralized composition of IIL and its self-organizing qualities’).
De Brabandere (2014), p. 4: (‘[C]ategorizing investment law and arbitration as “hybrid” fails to take
account of the fact that contemporary investment arbitration forms an integral part of public
international law, and that (the recognition of) this feature is of paramount importance to the
dispute settlement procedure’).
278
Van Harten and Loughlin (2006), p. 122: (‘[I]t is precisely because of the potential of these
internationally generated adjudicative norms and mechanisms to exert a strong disciplinary influ-
ence over domestic administrative programmes that investment arbitration should be seen to
constitute a powerful species of global administrative law’). Similarly, Kalderimis (2011),
pp. 155 et seqq.
279
Van Harten (2007), pp. 68–71. This system could be even theorised as judicial review of
government conduct in international law akin to the procedures at the ECtHR or the CJEU, see
Schill (2011), p. 78.
280
Kulick (2012), pp. 96–97.
281
Schill (2010), pp. 18–19.
282
Schill (2010), pp. 17–18.
283
Van Harten (2007), p. 58.

Licensed to Dymas Satrioprojo ([email protected])

50 2 The Contextualisation of Environmental Counterclaims: A. . .

disputes.284 In fact, on several occasions, states have relied on international arbitra-

tion or arbitration-like proceedings for inter-state disputes as well for claims from
citizens of one state against the other state.285 Critics to the public law paradigm
posit that such paradigm obscures or overlooks the crucial features of treaty-based
investment arbitration, such as the underlying state-state relation286 or the choice of
commercial-like arbitration.287
One may certainly theorise some justifications for treaty-based investment arbi-
tration ranging from procedural justice,288 corrective justice,289 and deterrence.290
However, the fragmented system of IIAs and the unconnected decisions of ad hoc
arbitral tribunals might not contribute to a single understanding of ISDS.291 As such,
it seems that the abovementioned conceptualisations attempted to square the circle
by searching an overarching theme to explain all the features of treaty-based
investment arbitration. Thus, for the purpose of this monograph, it seems appropriate
to instead focus on the relevant features of treaty-based investment arbitration, which
are relevant for the environmental counterclaims.

2.2.1.2.2 Relevant Features of Treaty-Based Investment Arbitration

for Environmental Counterclaims

There is not a single point of time where the creation of treaty-based investment
arbitration can be traced back, but rather a myriad of factors and historical events,
including the development of treaties of friendship, commerce and navigation, the
use of diplomatic protection, the decolonisation process, debt crises, the gunboat
policy, among others, which gradually mould treaty-based investment arbitration as
it currently stands.292 Thus, instead of a rational design, treaty-based investment

284
Emerson (1970), pp. 155–157; Ager (1996); Lafont (2000), pp. 557–590; Born (2021), pp. 8 et
seqq. For a different opinion considering the origins of arbitration as for resolving exclusively
private disputes, see Mustill (1989), pp. 43 et seqq.
285
In this regard see, Dolzer (2011), paras. 6–7; Brilmayer et al. (2017), pp. 13–14; Happ and
Wuschka (2017), pp. 116 et seqq.; Ando (2006), para. 36.
286
De Brabandere (2014), pp. 5–8.
287
Roberts (2013), p. 68.
288
Procedural justice refers to granting access to a neutral and readily available tribunal for the
invocation of state responsibility by non-state actors, overcoming the obstacles and formalities of
public international law, see Puig (2014), p. 243.
289
Corrective justice or compartmentalisation of investment disputes seeks to create a setting where
investment disputes do not affect inter-state relations, see Puig (2014), pp. 244–245.
290
Deterrence refers to the idea that international commitments towards foreign nationals can be
upheld, thus, avoiding opportunistic behaviour of host states, see Puig (2014), p. 247.
291
Roberts (2013), p. 75: (‘As long as the investment treaty system remains based on thousands of
BITs and FTAs interpreted by hundreds of ad hoc tribunals, we will continue to see conflicting
analogies and diverse paradigms for understanding the system’s nature’).
292
For an analysis on the origins of investment treaty arbitration see Newcombe and Paradell
(2009), pp. 1–74; Miles (2013); John (2018).
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 51

arbitration seems to be the result of ‘historical accidents’ evolving over decades.293

Yet, there are some overarching features of the investment treaty regime, which
might not only be accepted by each and all of the different conceptualisations
discussed above, but also might be relevant for environmental counterclaims.
First, the process for achieving consent to arbitration starts with the state
expressing its consent to arbitration in an IIA provision without direct involvement
of possible investors.294 The state consent is thus a sovereign act rooted in a public
international law instrument295 and delineates the tribunal’s jurisdiction by limiting
the kind of disputes that can be submitted to arbitration.296 Whilst previous mixed
claims tribunals or the IUSCT foresaw a similar system of dispute settlement giving
standing to private actors against a state, consent in claims tribunals was always
retrospective and circumscribed to specific events, in the aftermath of an interna-
tional upheaval or internal disturbances.297 The state consent to treaty-based invest-
ment arbitration is markedly different, in the sense that it is prospective (for events
that may happen in the future) and generalised (direct action granted to an indeter-
minate group of claimants).298 Naturally, the claimant investor must comply with the
requirements set out in the respective treaty provision,299 but the fact remains that the
state could not foresee the particular covered investors at the moment of consent.
As mentioned above, the consent to arbitration is perfected in a second stage with
the investor’s acceptance, usually when submitting its claim against the state.300

293
Pauwelyn (2014b), p. 19: (‘[Investment treaty arbitration] is at least partly the result of historical
accident; a series of discrete, small steps by both contract and treaty negotiators, international
institutions, and arbitrators which, taken together, vegetated into the complex regime with which we
are all familiar’). Similarly, John (2018), p. 5: (‘Rather than one moment of institutional design, the
institution of investor-state arbitration developed incrementally—a transformative political change
that occurred in small steps’).
294
Van Harten (2007), pp. 68–70; Bjorklund (2001), p. 183; Douglas (2003), p. 220; Schill (2010),
pp. 12–14.
295
De Brabandere (2014), p. 8.
296
Consent in treaty-based investment arbitration may be open for all kind of disputes related to the
investment, it may be limited to disputes arising out of an investment authorisation, investment
agreement or treaty obligation, or it may be even restricted to the quantum payable in cases of
expropriation see, Douglas (2009), paras. 443 et seqq.; Fontanelli (2018), p. 34.
297
Brilmayer et al. (2017), pp. 7–9; Dolzer (2011); Pauwelyn (2014b), p. 36; De Brabandere (2014),
pp. 50–51.
298
Van Harten and Loughlin (2006), p. 128; Schill (2011), pp. 75–77; De Brabandere (2014),
pp. 50–51.
299
Bjorklund (2001), p. 190. In any case, it must be highlighted that direct legal standing of the
investors was only included in a second generation of IIAs, see Pauwelyn (2014b), p. 38.
300
See for example the investor’s acceptance to submit to arbitration in the Philip Morris v Uruguay
case through the notice of arbitration, whereby the investor expressly stated: ‘The Claimants in the
present Request for Arbitration accept the Respondent’s offer to arbitrate and consent to the
jurisdiction of ICSID over their claims’ see, Philip Morris Brands Sàrl, Philip Morris Products
SA and Abal Hermanos SA v Oriental Republic of Uruguay, ICSID Case No ARB/10/7 (formerly
FTR Holding SA, Philip Morris Products SA and Abal Hermanos SA v Oriental Republic of
Uruguay), Request for Arbitration (19 February 2010) para. 56.
52 2 The Contextualisation of Environmental Counterclaims: A. . .

Accordingly, some authors have pondered the question whether an acceptance

limited to the investor’s claims could narrow the scope of the arbitration agreement,
thereby excluding the possibility of counterclaims. There are three different views in
this regard: the first view considers that if the investor’s consent is limited to its
claims, this excludes the possibility of counterclaims irrespective of the wording of
the underlying treaty provision.301 The second view borrows the terminology of
contractual law and posits that if by means of its acceptance the investor aims at
modifying the scope of the dispute resolution provision in the treaty (eg excluding
counterclaims), this constitutes a rejection of the ‘offer’ to arbitrate accompanied by
a ‘counteroffer’ on the terms of the arbitration agreement directed to the host state.302
It would be then for the host state to accept (or reject) that ‘counteroffer’ in order to
reach the mutual consent to arbitration.303 The third view holds that an investor
cannot ‘pick and choose’ from the dispute resolution provision in IIAs, for instance
by excluding counterclaims.304 Thus, the investor can neither limit nor expand the
scope of the dispute resolution provision in the IIA, but rather only accept it as it
stands.305
Consequently, the last two views concord: if the dispute resolution provision can
be construed as permitting counterclaims,306 the investor cannot unilaterally exclude
such possibility with its acceptance. This conclusion should be supported given that
the state’s consent is embedded in an instrument of public international law. On this
point, the Urbaser v Argentina tribunal considered, in obiter dictum, that the
restriction of the dispute resolution provision in the treaty via the notice of arbitration
could not be upheld.307 The 18th Commission of the Institut de Droit International

301
Alvarez (2000), p. 411: (‘since the investor’s consent will usually be given only after the dispute
has arisen, the scope of its consent can be expected to be quite narrow, thus limiting the possibility
of counterclaims by the disputing State Party’); Shihata and Parra (1999), p. 320: (‘There would
normally be no reason for the consent of the investor to be broader than is necessary to enable the
investor’s grievance against the State to be submitted to arbitration under the [ICSID] Convention.
Other grievances, such as that of the State against the investor, would then fall outside the scope of
the consent of the two parties and could not be placed before the arbitral tribunal’). Similarly, Kjos
(2007), p. 610.
302
Ben Hamida (2003), para. 280; Dudas and Tsolakidis (2013), p. 10; Steingruber (2013), p. 297;
Huber (2020), p. 330.
303
Steingruber (2012), para. 14.21; Douglas (2009), para. 129;
304
Lalive and Halonen (2011), p. 150; Kryvoi (2012), p. 227.
305
Kjos (2013), p. 135; Ishikawa (2017), p. 723; de Nanteuil (2018), p. 381.
306
In this respect, see Sect. 3.3.
307
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1147: (‘Article
X of the BIT, which has been invoked by them as basis of this proceeding, covers all disputes in
connection with investments within the meaning of the BIT, exactly as the scope of the Argentine
Republic’s offer to arbitrate has been defined in the very same provision. Even if it is argued that
Claimants’ acceptance was more restricted in its scope than the Argentine Republic’s offer to
arbitrate contained in Article X of the BIT, the appropriate conclusion would have been that no
agreement had been concluded between the Parties’) (emphasis added).
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 53

holds a similar position. Pursuant to Article 6(3) of the Resolution of 31 August 2019
on Equality of Parties before International Investment Tribunals, the tribunal’s
jurisdiction is not limited ‘by the scope of the dispute as framed by the claimant in
its Request for Arbitration’.308
Second, treaty-based investment arbitration involves the adjudication of regula-
tory disputes. This means, on the one hand, there is a vertical or hierarchical relation
between the respondent host state and the investor because the latter is subject to the
jurisdiction of the former, and on the other hand, the disputes in treaty-based
investment arbitration are centred on the state’s exercise of sovereign authority
(or acts jus imperii).309 Thereby, treaty-based investment arbitration is more likely
to involve concerns of public interest.310 This is of the utmost importance as
environmental protection constitutes the quintessential example of a public interest.
As will be elaborated below, this influences the analysis of the connection require-
ment,311 and addresses some legitimacy concerns on arbitrators adjudicating public
law-related issues such as environmental counterclaims based on domestic law.312
Third, treaty-based investment arbitration presents an interaction of multilevel
norms. Accordingly, tribunals encounter, on the one hand, a three-layer disposition
of norms regulating the substantive obligations allegedly breached, the consent to
arbitration and thereby the tribunal’s jurisdiction, and the procedural rules for
dispute resolution.313 On the other hand, even within those layers, there is a rich
variety of norms, for instance, at the substantive level, tribunals’ determinations
might involve treaty provisions, customary international law, domestic law, conces-
sion contracts, insurance schemes, or at the procedural level, arbitral procedures may
be subject to the ICSID Arbitration Rules, SCC Arbitration Rules, UNCITRAL
Arbitration Rules, PCA Arbitration Rules among others.314 Particularly, the
multilevel interaction of norms at the substantive level should be taken into account
when analysing the appropriate cause of action for an environmental
counterclaim.315

308
See this book “Annex 4: Article 6 of the Resolution on the ‘Equality of Parties before
International Investment Tribunals of the 18th Commission of the Institut de Droit International”.
309
Van Harten (2007), pp. 45 et seqq.; Kulick (2012), pp. 85 and 146; Schill (2010), pp. 12–14.
310
Van Harten (2007), pp. 65–67.
311
See Sect. 4.3.3.1.2.
312
See Sect. 5.3.2.
313
Kriebaum (2014), p. 47. Similarly, McLachlan et al. (2017), para. 398; Thomas and Dhillon
(2014), p. 975
314
Pauwelyn (2014b), pp. 14–15.
315
See Sect. 3.3.1.2 as well as Chap. 5.
54 2 The Contextualisation of Environmental Counterclaims: A. . .

2.2.1.2.3 Backlash Against ISDS: An Opportunity for Environmental

Counterclaims?

The ‘legitimacy crisis’316 of, or ‘backlash’317 against treaty-based investment arbi-

tration has portrayed an increasing array of concerns surrounding the functioning of
this dispute settlement mechanism and the discontent of several groups of the
society. Criticisms range from inconsistency of decisions, partiality of arbitrators
or the threat to the state’s right to regulate, but substantially the rise of environmental
protection is one of the factors calling for ISDS reform.318 On this point, it is
perceived that the exercise of public authority, eg by enacting environmental regu-
lations, might by threatened by the looming use of treaty-based investment
arbitration.319
Should the state pursue the protection of the environment under its domestic law,
this could potentially conflict with the broad substantive standards of protection in an
IIA triggering investment arbitration, where the investor’s interests would likely
override the state measure.320 Moreover, the discontent with treaty-based investment
arbitration has been further fuelled by ‘high-profile’ cases of corporate misconduct
that considerably affects the environment of the host state.321 For instance, the
never-ending story of Chevron v Ecuador,322 where there is evidence of disastrous
oil spillage in the Amazon rainforest.
The criticisms to treaty-based investment arbitration have moved different states
to discuss possible reforms at UNCITRAL already in 2017.323 Particularly,
UNCITRAL Working Group III has considered the inclusion of counterclaims as a

316
For a full analysis see Franck (2005), pp. 1521 et seqq.
317
For a full analysis see Waibel et al. (2010).
318
See for instance, Miles (2013), p. 106: (‘Although a complex interplay of factors is at work in the
current pressure to reshape international investment law, environmentalism stands out as a signif-
icant challenge to the status quo . . . In many ways, therefore, the continued reluctance of the
investment sector to engage with host state public interest issues is in conflict with the current
globalising culture of environmental consciousness’).
319
Alvarez (2011), pp. 54–56.
320
Kulick (2012), p. 51.
321
Miles (2013), p. 133.
322
Multiple claims in multiple fora have been filed against or by Chevron/Texaco related to
Chevron’s oil spillage in Ecuador, including the Aguinda Litigation in New York, the Lago
Agrio litigation in Ecuador, some commercial arbitration cases at the Hague, the state-to-state
arbitration between Ecuador and the US, an AAA arbitration in New York, and the Chevron v
Ecuador treaty-based investment arbitration, see Chevron Corporation and Texaco Petroleum
Corporation v Ecuador (II), PCA Case No 2009-23, Second Partial Award on Track II (30 August
2018) paras. 4.75 et seqq.
323
UNCITRAL, Possible future Work in the Field of Dispute Settlement: Reforms of Investor-State
Dispute Settlement (ISDS) (20 April 2017a) UN Doc A/CN.9/917, para. 2.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 55

reform option for ISDS324 but without embarking upon a detailed analysis on the
subject. Perhaps this is so because a counterclaim, in the context of ISDS, touches
upon the substantive obligations of investors, an issue that has been consistently
considered to fall outside of the scope of the Working Group’s mandate.325 Yet,
some delegations such as the Government of Morocco326 and the Government of
South Africa327 have suggested in their submissions to the Working Group III that a
comprehensive ISDS reform should, among other things, enable host states to bring
counterclaims against the claimant-investors.
The deliberations held at UNCITRAL are still ongoing, and no further prospects
for counterclaims have been discussed. Some argue that counterclaims could turn
treaty-based investment arbitration more appealing for the states,328 as well they
could rebalance the often-criticised asymmetry of the system.329 Yet, the implemen-
tation of counterclaims via the current UNCITRAL Working Group III might need
to focus on the procedural aspects of the instrument exclusively330 because any
discussion on the substance of counterclaims risks either forestalling the ISDS
reform process or receiving objections from some participating delegations.331

2.2.2 Finding the Underpinnings of Counterclaims

in Investment Arbitration

Almost dogmatically, different frameworks for international dispute settlement

display similar justifications for the availability of counterclaims. This includes the
emphasis on counterclaims serving procedural economy,332 the proper

324
UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the
work of its thirty-fourth session, Part I (26 February 2018) UN Doc A/CN.9/930/Add.1/Rev.1,
paras. 3–7. See also UNCITRAL, Possible reform of investor-State dispute settlement (ISDS)
Multiple Proceedings and Counterclaim (22 January 2020) UN Doc A/CN.9/WG.III/WP.193,
paras. 32–45.
325
UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the
work of its thirty-seventh session (09 April 2019c) UN Doc A/CN.9/970, para. 27; UNCITRAL,
Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-
fourth session, Part II (19 December 2017b) UN Doc A/CN.9/930/Rev.1, para. 20.
326
UNCITRAL, Possible reform of investor-State dispute settlement (ISDS) Submission from the
Government of Morocco (04 March 2019a) UN Doc A/CN.9/WG.III/WP.161, para. 9.
327
UNCITRAL, Possible reform of investor-State dispute settlement (ISDS) Submission from the
Government of South Africa (17 July 2019b) UN Doc A/CN.9/WG.III/WP.176, para. 64.
328
Pathak (2019), p. 101.
329
Gleason (2021), p. 428.
330
In this regard, see Sect. 3.3.3.3.2.
331
EI—IILCC Study Group on ISDS Reform (2022), pp. 51 et seqq.
332
Werner (2002), p. 14; Koller (2008), p. 64; Antonopoulos (2011), p. 10; Steingruber (2012),
para. 7.24; Murphy (2012), para. 3; Kolb (2013), p. 660; Atanasova et al. (2014), p. 359; Bubrowski
(2013), p. 214.
56 2 The Contextualisation of Environmental Counterclaims: A. . .

administration of justice,333 the equality of parties334 among others. Yet, the instru-
ment of counterclaims in investment arbitration has always been controversial,
particularly in treaty-based investment arbitration. This is arguably explained by
the differentiated functioning of treaty-based investment arbitration:
This new world of arbitration is one where the claimant need not have a contractual
relationship with the defendant and where the tables could not be turned: the defendant
could not have initiated the arbitration, nor is it certain of being able even to bring a
counterclaim.335

Against this backdrop, this section assesses the rationale/objectives behind the
instrument of counterclaims and to what extent those proclaimed objectives are
(or not) fostered by permitting counterclaims in investment arbitration, with especial
emphasis on treaty-based investment arbitration. These objectives are the promotion
of procedural/judicial economy [Sect. 2.2.2.1], due process [Sect. 2.2.2.2], and the
rule of law [Sect. 2.2.2.3].

2.2.2.1 The Principle of Procedural or Judicial Economy

Procedural or judicial economy in international adjudication ‘requires the judge to

obtain the best result in the management of a controversy with the most rational and
efficient use possible of his or her powers’.336 Thus, one may wonder about the
nature of such mandate either as a principle or as a rule. A principle expresses a
fundamental legal idea or a standard of optimisation, which detailed rules are based
on.337 As such, while rules are either complied with or not, and they set out the legal
consequences for their breach, principles can be fulfilled in different degrees.338
Procedural or judicial economy does not reflect a dichotomy of compliance/non-
compliance but rather it evinces a standard of optimisation or legal value to be
pursued. In other words, procedural or judicial economy epitomises a principle.
As a principle, procedural or judicial economy may justify either the application
of a procedural rule or the departure therefrom, but the adjudicator must always

333
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim) [2010] ICJ
Rep 310, Dissenting opinion of Judge Cançado Trindade, para. 15; Murphy (2012), para 84; Kolb
(2013), p. 660; Ng (2018), p. 4; Sharpe and Jacob (2018), p. 357.
334
Larschan and Mirfendereski (1986), p. 34; Application of the Convention on the Prevention and
Punishment of the Crime of Genocide (Bosnia and Herzegovina v Yugoslavia) (Order on Counter-
claims) [1997] ICJ Rep 243, Declaration of Judge ad hoc Kreca; Kjos (2013), p. 131; Kolb (2013),
p. 660; Marisi (2020), p. 252.
335
Paulsson (1995), p. 232 (emphasis added).
336
Palombino (2010), p. 909.
337
Alexy (1994), pp. 75–76; Kolb (1999), p. 428.
338
Dworkin (1977), pp. 24–25; Alexy (1994), pp. 75–76. In a slightly different note, Joseph Raz
considers whilst rules prescribe relatively specific acts, principles prescribe highly unspecific
actions, thus concluding that the distinction between both is one of degree on the specificity of
the prescribed act, see Raz (1972), p. 838.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 57

weigh the interests at stake and the particular circumstances of the case.339 This does
not mean that procedural efficiency is a subjective notion, whose meaning depends
on the party wielding it.340 Rather, the objective circumstances of each case will
dictate what course of action would better serve procedural efficiency.
In this vein, the principle of procedural or judicial economy appears as the first
(and perhaps most important) underpinning of the instrument of counterclaims for
two reasons: first, counterclaims prevent the commencement of two separate and
parallel proceedings for claim and counterclaim because only one tribunal or court
would decide upon them in a single proceeding.341 In fact, parallel proceedings
constitute the antithesis of procedural or judicial economy because they burden
disputing parties, whose costs would duplicate for appearing in different but related
proceedings.342 This also burdens adjudicators, who are unnecessarily engaged in
duplicative tasks, uncapable of relying on the work of the other adjudicators tasked
with the parallel proceeding.343 Thereby, there is a higher risk of contradictory
decisions given that the different adjudicators need not consider the decisions
taken on the other proceedings.344
This is even more pronounced in treaty-based investment arbitration with respect
to counterclaims, where the parallel proceedings would run at different levels,
usually international arbitration for the investor’s claim and domestic court pro-
ceedings for the host state’s claim. This kind of parallel proceedings could not be
prevented by invoking lis alibi pendens because while the claimant would most
likely seek international arbitration, the respondent might rely on its domestic
judicial system, and the legal issues and probably the disputing parties might differ
as well.345 Consequently, the ‘triple identity test’ would not be fulfilled. Under-
standably, the dissenting arbitrator Mauro Rubino-Sammartano in the Gavazzi v
Romania case questioned whether by concluding the underlying treaty, the
contracting states ‘intended to give rise to parallel proceedings before different

339
Palombino (2010), p. 926.
340
For a different opinion see Pathak (2019), p. 113: (‘In fact, procedural efficiency represents a
rather eclectic notion, the interpretation of which varies from one disputing party to another. What
may be efficient for a respondent State may not be efficient at all for a claimant investor’).
341
Renteln (1987), p. 380; Murphy (2012), para. 3; Werner (2002), p. 14.
342
Renteln (1987), p. 391; Pryles and Waincymer (2009), p. 485. Similarly, Magnarelli
(2020), p. 94.
343
Shany (2003), pp. 156–157: (‘co-existence of two or more simultaneous proceedings before
different for a places an unusual heavy burden on the parties to litigation, which are required to
maintain two legal teams or shuttle between two or more tribunals. It also entails the investment of
unnecessarily duplicative judicial time and resources by courts and tribunals that are faced with
similar (if not identical) tasks and yet are unable to rely on the work of each other. . . Thus the
possibility of parallel proceedings may radically increase the costs of the legal process and offer apt
room for manipulating it . . . and it might result in inconsistent judgments’).
344
Schreuer et al. (2009), Art 46, mn. 1; Dudas and Tsolakidis (2013), pp. 4–5; Bravin and Kaplan
(2013), p. 195.
345
Reinisch (2004), p. 51; Shany (2003), p. 26; Magnarelli (2020), pp. 108 et seqq.; Magnayea and
Reinisch (2016), p. 271.
58 2 The Contextualisation of Environmental Counterclaims: A. . .

courts and tribunals, by preventing the Host State from asserting its rights against
the investor in a counterclaim’.346
Second, counterclaims in investment arbitration have the potential to prevent a
circuity of action, particularly latent in treaty-based investment arbitration.347 This
refers to the scenario where the investor initiates investment arbitration against the
host state, but the latter is prohibited to bring a closely connected counterclaim in the
same proceedings. The host state would have to resort to its domestic courts to have
its failed counterclaim heard. However, if the outcome of the domestic court pro-
ceedings is adverse to the investor, the investor could be tempted to return to treaty-
based investment arbitration, challenging the negative consequences of the domestic
court judgment, for instance, claiming denial of justice or generally the breach of the
fair and equitable treatment standard.
Consequently, one may thus conclude that the principle of procedural or judicial
economy underpins the instrument of counterclaims in investment arbitration. Yet,
counterclaims could be abused of, for instance, by introducing ill-founded claims
that complicate the judicial debate and delay the process.348 As such, counterclaims
could be used to slow down the disposition of the main claim349 or to obscure the
central dispute.350 Paradoxically, this would impinge on the procedural economy
counterclaims seek to promote. Therefore, arbitrators ought to be mindful of such
risks, particularly when assessing the connection requirement between the claim and
counterclaim,351 and to balance the benefits of admitting a counterclaim against the
negative consequences on the overall procedure of such admission.

2.2.2.2 Due Process and Counterclaims: Comparing Apples

and Oranges?

Due process may be portrayed as a safeguard ‘to reduce the power of the state to a
comprehensible, rational, and principled order, and to ensure that citizens are not
deprived of life, liberty, or property except for good reason.’352 Thus, it represents
those norms that control the exercise of adjudicative and sovereign powers.353 There

346
Marco Gavazzi and Stefano Gavazzi v Romania, ICSID Case No ARB/12/25, Dissenting
Opinion (14 April 2015) para. 42(i).
347
Kryvoi (2012), p. 221; Marisi (2020), p. 239.
348
Kolb (2013), p. 660.
349
Bjorklund (2013), p. 477.
350
Murphy (2012), para. 3.
351
See Sect. 4.3.3.1.
352
Sandefur (2012), p. 285.
353
Kotuby and Sobota (2017), p. 1.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 59

are some precepts or basic standards of due process common to all legal systems ie
the right to be heard or equal treatment.354
On the one hand, the right to be heard (audiatur et altera pars or audi alteram
partem) entails that each party, during the course of adjudicative proceedings, must
have the opportunity to be heard by the adjudicator.355 In practice, this implies that
each party enjoys the opportunity to present its position, submit evidence and rebut
the counterparty’s evidence.356 In investment arbitration, the right to be heard is
certainly a core aspect, which, if ignored, may lead to the annulment or setting aside
of the award.357 As recognised by the Wena Hotels v Egypt tribunal:
It is fundamental, as a matter of procedure, that each party is given the right to be heard
before an independent and impartial tribunal. This includes the right to state its claim or its
defense and to produce all arguments and evidence in support of it. This fundamental right
has to be ensured on an equal level, in a way that allows each party to respond adequately to
the arguments and evidence presented by the other.358

On the other hand, the equality of arms (equal treatment or equality of parties)
implies that whilst the opposing parties must not enjoy equal resources or skills, they
must have the same procedural rights to present their position in the case.359
Consequently, neither of the disputing parties should be put at a disadvantage
towards the counterparty to present their case.360 As such, the equality of arms is a
central component of adjudicatory systems in domestic and international law,
including investment arbitration, without which no effective legal protection is
conceivable.361 It is thus ‘a key component of the principle of “procedural fairness”,
“integrity of process” or “good administration of justice” which tribunals have to
apply.’362 The difference between the right to be heard and equality of parties is that
the former operates vertically (between each party and the adjudicator), whereas the
latter operates horizontally (between the parties) and is thereby relative in nature.363
The crux of the matter here is whether the availability of counterclaims in
investment arbitration might be supported by the right to be heard, the equality of
parties or more generally due process. In this vein, the dissenting opinion of the

354
della Cananea (2010), p. 49. One may further suggest those basic standards of due process might
have become international through its uniform application across the globe, see Friedmann (1963),
p. 290; Kotuby and Sobota (2017), p. 55.
355
Cheng (1953), p. 296.
356
Bain (2018), para. 8.09.
357
Sourgens (2017), p. 199. Similarly, della Cananea (2010), pp. 60–61.
358
Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Decision on
Annulment (05 February 2002) para. 57.
359
Silver (1990), p. 1009.
360
Dombo Beheer v The Netherlands, ECtHR Judgment (27 October 1993) Series A No 274, para.
33; The Prosecutor v Dusko Tadic, ICTY Case No IT-94-1-A, Appellate Judgment (15 July 1999)
para. 48.
361
Huber (2020), pp. 310–311. Similarly, Wälde (2010a), p. 161; Reinisch (2016), p. 299.
362
Wälde (2010b), p. 11.
363
Bain (2018), para. 8.08.

Licensed to Dymas Satrioprojo ([email protected])

60 2 The Contextualisation of Environmental Counterclaims: A. . .

arbitrator Mauro Rubino-Sammartano in the Gavazzi v Romania case becomes

apposite:
Since the counterclaim is an extension of the Respondent’s defence against the claim, one
has to consider whether counterclaims are included within the consent of the Parties to
arbitrate before the Tribunal their dispute arising from the investment . . . due process
includes the right to defend a claim and in my opinion natural justice requires that such
defence may include making a counterclaim related to such issues.364

Yet, such position might have misconceived due process. As opined by James
Crawford, the equality of parties (or more generally due process) ‘does not require
that the respondent state be able to bring counterclaims’.365 Even in the particular
case of treaty-based investment arbitration, the Institut de Droit International con-
sidered that the limitation on counterclaims by itself does not evince a lack of
equality between the disputing parties because it might either reflect the contracting
parties’ choice when framing their IIAs, but most importantly, the state will always
have recourse to its domestic courts for seeking relief for the investor’s miscon-
duct.366 Indeed, the availability of counterclaims, by itself, does not protect nor
impinge on the right to be heard, the equality of parties, or more generally due
process. As long as the respondent is granted the possibility to comment on the
claimant’s submissions and to present evidence on an equal footing as the claimant,
due process in the broader sense would be preserved. Thus, whether a respondent
may submit a counterclaim is immaterial to due process.
However, if the respondent files a counterclaim, the tribunal should grant addi-
tional rounds of submissions, and adapt the procedure accordingly, in order to
safeguard due process. Moreover, a submitted (and eventually, an admitted) coun-
terclaim ‘must not infringe due process rights or compromise the proper adminis-
tration of justice’,367 including the claimant’s rights.368 This includes the claimant’s
expectation of having its claims decided within a reasonable time.369 Here, once

364
Marco Gavazzi and Stefano Gavazzi v Romania, ICSID Case No ARB/12/25, Dissenting
Opinion (14 April 2015) para. 42(i).
365
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Profes-
sor Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’,
p. 544 (James Crawford) <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-
of-parties-before-international-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf>
accessed 10 January 2023.
366
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Profes-
sor Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’
para. 187 <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-parties-
before-international-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf> accessed
10 January 2023.
367
Sharpe and Jacob (2018), p. 357.
368
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, Separate
Opinion Judge Koroma.
369
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 40.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 61

again, the tribunal must engage in a balancing exercise, particularly when assessing
the connection requirement.

2.2.2.3 The Rule of Law and the Asymmetrical Structure

of Treaty-Based Investment Arbitration

Without pretending to provide a definition of the rule of law, there are some elements
or principles all conceptions of the rule of law share, namely government by the law,
supremacy of the law, equality before the law, and access to an independent legal
body for the settlement of disputes.370 These elements of the rule of law may also be
applied to international law, particularly in the adjudication of disputes.371 Here,
adherence to the rule of law by international law becomes a matter of degree: instead
of compliance or non-compliance, the appropriate standard consists of ‘the extent to
which international rule of law principles are operative and can be operative within
the international system’.372
Even recognising the application of the rule of law principles in international law,
one may question whether they serve for the benefit of the state, or whether applying
the rule of law on a state’s interest indirectly benefits the people committed to its
charge.373 Such enquiries nevertheless exceed the scope of this book. Suffice it to
say that investment arbitration, as an international adjudicative system should adhere
to the rule of law basic precepts. This also seems to be the states’ goal as indicated by
recent ISDS reform processes, which are rule of law oriented. Particularly, the UN
has encouraged the rule of law among its member states at the national,374 and at the
international level.375 Here, common elements such as core notions of due process,
access to justice, judicial independence and impartiality, transparency, and consis-
tency and predictability of the dispute settlement decisions can be identified.376
These elements provide the yardstick for the functioning of investment arbitration
and the extent to which such adjudicative system is concordant with the rule of

370
Chesterman (2008), p. 342; McCorquodale (2016), p. 284.
371
Crawford (2003), p. 10.
372
McCorquodale (2016), p. 296.
373
Waldron (2011), p. 326; Van Harten (2010), p. 629.
374
See eg, UNSC, Report of the Secretary General on ‘The Rule of Law and Transitional Justice in
Conflict and Post-Conflict Societies’ (23 August 2004) UN Doc S/2004/616.
375
UNGA Resolution 67/1, ‘Declaration of the High-level Meeting of the General Assembly on the
Rules of Law at the National and International Levels’ (30 November 2012) UN Doc A/RES/67/1,
para. 2: (‘We recognize that the rule of law applies to all States equally, and to international
organizations, including the United Nations and its principal organs, and that respect for and
promotion of the rule of law and justice should guide all of their activities and accord predictability
and legitimacy to their actions. We also recognize that all persons, institutions and entities, public
and private, including the State itself, are accountable to just, fair and equitable laws and are
entitled without any discrimination to equal protection of the law’) (emphasis added).
376
Reinisch (2019), p. 344.
62 2 The Contextualisation of Environmental Counterclaims: A. . .

law.377 The interrelation between investment arbitration and the rule of law has been
extensively studied.378 Of particular interest is whether the asymmetrical structure of
treaty-based investment arbitration (in other words, a structure whereby access to
arbitration exists exclusively at the investor’s behest since states cannot lodge a
claim against investors) adheres to the rule of law.379
Some authors consider the asymmetrical structure of treaty-based investment
arbitration as problematic for the rule of law.380 One of the options for rebalancing
the asymmetrical structure of the system is to allow the respondent to submit
counterclaims.381 It is argued that by conferring the authority to a single arbitral
tribunal to decide all related claims from both the claimant and the respondent in a
single proceeding, some of the concerns on the legitimacy of the system regarding
the disparity between states and investors with respect to rights and remedies could
be tackled.382 Accordingly, the Institut de Droit International opined that the ‘ability
of the State to assert a counterclaim rebalances the asymmetry that otherwise
applies where the claimant is always an investor’.383 This might explain the
inclusion of Article 6 of the Resolution of 31 August 2019 on Equality of Parties
before International Investment Tribunals, which sets out an entire provision on
counterclaims.384
Be that as it may, the argument that the asymmetrical structure of treaty-based
investment arbitration undermines the rule of law is difficult to follow. One may
argue that treaty-based investment arbitration resembles an administrative review,
therefore, it does not demand correction especially given that the states remain the
masters of the treaties.385 Moreover, treaty-based investment arbitration might be

377
Reinisch (2019), p. 345.
378
On an analysis of investment arbitration and certain components of the rule of law such as
impartiality of arbitrators, procedural fairness, access to arbitration, consistency and transparency,
see Reinisch (2016), pp. 291–307. On a discussion on how the investment treaty regime promotes
the rule of law, see Schill (2015), pp. 81–102.
379
Arcuri (2019), pp. 394–413.
380
Arcuri (2019), para. 22.37. Similarly, noting on the salient problems of the asymmetrical
structure see, Garcia et al. (2015), p. 870; Amado et al. (2018), pp. 14–15.
381
Ben Hamida (2003), para. 280; Kryvoi (2012), p. 218; Kjos (2013), p. 131; Bjorklund (2013),
pp. 463–464; Rivas (2015), p. 781; Ishikawa (2017), p. 728; Tietje and Krow (2017), pp. 27–28.
382
Sharpe and Jacob (2018), p. 366. Similarly, Marisi (2020), p. 250; Zin (2020), p. 228;
Nacimiento et al. (2021), p. 168.
383
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Profes-
sor Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’,
para. 186 <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-parties-
before-international-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf> accessed
10 January 2023. For a different opinion, stating that including the possibility of a counterclaim
does not change the inherently unilateral structure of investment-treaty arbitration, see Steingruber
(2020), p. 598.
384
See this book “Annex 4: Article 6 of the Resolution on the ‘Equality of Parties before
International Investment Tribunals of the 18th Commission of the Institut de Droit International”.
385
Wälde (2010b), pp. 7–16.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 63

more symmetrical than assumed since it shifted investment protection from state
power and the use of force to a rule-based dispute settlement system.386 Further-
more, the host state has the sovereign power to enforce its laws and adjudicate claims
against the investor through its domestic courts.387
One concern treaty-based investment arbitration could cause to the rule of law is
if the system is used to prevent the respondent to submit its claim elsewhere. This
was recognised by the SGS v Pakistan tribunal. The claimant investor in treaty-based
investment arbitration requested a stay of domestic arbitral proceedings, through
which the respondent was pursuing damages against the investor, until the treaty-
based tribunal rendered a decision on jurisdiction. Accordingly, the SGS v Pakistan
tribunal stated:
It would be inequitable if, by reason of the invocation of ICSID jurisdiction, the Claimant
could on the one hand elevate its side of the dispute to international adjudication and, on the
other, preclude the Respondent from pursuing its own claim for damages by obtaining a stay
of those proceedings for the pendency of the international proceedings, if such international
proceedings could not encompass the Respondent’s claim.388

In this context and despite the concerns on the asymmetrical structure of treaty-based
investment arbitration, this by itself does not undermine the rule of law. Accord-
ingly, counterclaims appear immaterial to the rule of law and their availability—or
lack thereof—simply reflects the contracting parties’ limited consent to treaty-based
investment arbitration.

2.2.3 The Utility of Environmental Counterclaims

in Investment Arbitration

After embarking on the analysis of counterclaims through the prism of investment

arbitration, one may argue that, as a procedural instrument, a counterclaim is neutral
to the particular interests, for which a host state might seek relief. Given the relation
between investment law and environmental protection outlined in the Introduction,

386
Pauwelyn (2014a), p. 403.
387
For instance, Stephen M Schwebel considered the arguments on the asymmetrical structure of
treaty-based investment arbitration as ‘misconceived’, since the host state has many means for
bringing pressure upon the investor, see Schwebel (2008), pp. 5–6. Similarly, underscoring the
availability of domestic courts for the host state, see Report of the Eighteenth Commission of the
Institut de Droit International (Rapporteur Professor Campbell McLachlan) on the ‘Equality of
Parties before International Investment Tribunals’, para. 83 <https://www.idi-iil.org/app/
uploads/2019/06/Commission-18-Equality-of-parties-before-international-investment-tribunals-
McLachlan-Travaux-La-Haye-2019.pdf> accessed 10 January 2023.
388
SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No
ARB/01/13, Procedural Order No 2 (16 October 2002) 302 [reproduced in (2003) 18(1) ICSID
Review 293–306].
64 2 The Contextualisation of Environmental Counterclaims: A. . .

this section underscores the utility of environmental counterclaims in investment

arbitration.
Overall, counterclaims would direct the adjudicator’s attention over a series of
facts and legal arguments that otherwise would not appear in the case,389 thereby
contextualising the dispute and the different interests involved.390 In particular, the
instrument of counterclaims has the potential to incorporate environmental obliga-
tions into investment arbitration permitting an appropriate balance between an
investor’s conduct and the state’s right to protect its environment.391
Within this balance, environmental counterclaims may serve a variety of related
purposes. First, environmental counterclaims may furnish environmental norms
with effective enforcement mechanisms. Whilst the state may force compliance
with its environmental laws domestically eg through administrative law to sanction
environmental damage, the enforcement of domestic decisions in third states might
be more problematic.392 Accordingly, respondent host states might want to benefit
from the enforcement regime of arbitral awards provided that their counterclaims
outweigh the investor’s claims.393 As successful environmental counterclaims in
investment arbitration would be reflected in an arbitral award, the respondent host
state could enforce such award via the Convention on the Settlement of Investment
Disputes Between States and Nationals of Other States (ICSID Convention),394 or
the New York Convention.395
Second, the availability of environmental counterclaims might incentivise inves-
tors to improve their corporate governance practices and social responsibility.
Certainly, environmental counterclaims remain reactionary and their use is subordi-
nated to the investor’s commencement of arbitral proceedings,396 and to the prefer-
ences of the host state for the adjudication of environmental issues. However,
investors may wish to enhance their corporate governance and social responsibility
as to prevent that any proceedings in investment arbitration could be turned into a
forum for discussing damages they may have caused in the host state.397

389
Murphy (2012), para. 3; Marotti (2017), p. 84.
390
Bjorklund (2013), p. 475; Schill and Djanic (2018), p. 52.
391
Boisson de Chazournes (2017), pp. 392–394.
392
Huber (2020), p. 312.
393
Ng (2018), p. 5.
394
Convention on the Settlement of Investment Disputes Between States and Nationals of Other
States (adopted 18 March 1965, entered into force 14 October 1966) 575 UNTS 159 (ICSID
Convention).
395
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted 10 June
1958, entered into force 7 June 1959) 330 UNTS 3 (New York Convention).
396
Tan and Chong (2020), p. 191. Thus, some authors highlight the limited efficacy of counter-
claims as they are only available after the investor brings a claim see, Amado et al. (2018), p. 118.
397
Ishikawa (2019), p. 36; Marisi (2020), p. 250.
2.2 Environmental Counterclaims Through the Prism of Investment Arbitration:. . . 65

Accordingly, investors may not only be inclined to strong adherence to environ-

mental laws but also they may be deterred from engaging in particularly polluting
practices.398
Third, environmental counterclaims might strengthen and promote environmental
policies. In this sense, states might seek, on the one hand, to advance their environ-
mental interests and policies through environmental counterclaims.399 On the other
hand, states may gain political and reputational benefits by upholding their commit-
ments to environmental protection through investment arbitration.400 Thereby, the
environment gains an international forum for its protection (at least indirectly),
which may exalt the role of environmental protection within the broader context of
sustainable development in the long term.
Fourth, the adjudication of environmental counterclaims in investment arbitration
centralises the settlement of related disputes at a neutral forum. Instead of relying on
its domestic courts, a host state could submit a counterclaim against the investor for
environmental damages in investment arbitration. This would prevent the duplica-
tion of related proceedings (and the ensuing risks of inconsistency) by resolving both
claim and counterclaim in a neutral forum ie investment arbitration.401 Thereby, the
principle of procedural or judicial economy as one of the underpinnings of counter-
claims finds its application to full extent.
Furthermore, when the host state’s legal system is plagued by corruption or is
susceptible to political interference, this may breed investors’ distrust of the effec-
tiveness of the judicial system.402 This in fact could be the investor’s reason to resort
to arbitration in the first place. All in all, environmental counterclaims would serve
as a catalyst to the benefit of the host state (avoiding the unnecessary duplication of
proceedings) and of the investor (eluding unreliable domestic judicial systems).
These considerations may explain the parties’ decision in the Burlington v
Ecuador case: the claimant committed to not raise jurisdictional objections to the
environmental counterclaim, and the respondent waived its right to file the same
counterclaim against the claimant or its related entities before any other jurisdiction
(whether arbitral or judicial, national or international).403
Consequently, the utility of environmental counterclaims in investment arbitra-
tion reflects on various aspects such as the availability of an effective enforcement
mechanism for environmental norms, the improvement of investors’ corporate
governance and social responsibility, the strengthening and promotion of environ-
mental policies and the centralisation of related disputes at a neutral forum.

398
Marisi (2020), p. 253; Tan and Chong (2020), fn. 113.
399
Scherer et al. (2021), p. 440.
400
Scherer et al. (2021), p. 434.
401
Kjos (2007), p. 628; Hussin (2019), p. 3.
402
Ishikawa (2019), p. 35.
403
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) para. 61.
66 2 The Contextualisation of Environmental Counterclaims: A. . .

Nevertheless, an important caveat must be underscored: environmental counter-

claims in investment arbitration should be circumscribed to ‘pure’ environmental
damage.
The definition of environmental damage is problematic as it may vary from treaty
to treaty.404 However, one must distinguish between ‘pure’ environmental damage
and the possible damage to persons or property ensuing therefrom: while the former
deals with the impairment suffered by the environment (which includes air, water,
land, flora and fauna, natural ecosystems), the latter refers to the economic losses due
to personal injury or affected property that are consequential to the ‘pure’ environ-
mental damage.405
An environmental counterclaim for damage other than ‘pure’ environmental
damage could be dismissed by an investment tribunal as in the Chevron v Ecuador
case. The case revolves around a domestic judgment against Chevron where the
plaintiffs (the Lago Agrio plaintiffs) won compensation for the damages suffered as
consequence of Chevron’s environmental contamination. Chevron submitted to
treaty-based investment arbitration arguing that it suffered denial of justice since
the domestic judgment was procured through corruption. Ecuador thus filed a
counterclaim seeking to secure that even if the claimant wins on denial of justice,
the Lago Agrio plaintiffs could receive appropriate compensation for the losses
arising out of Chevron’s contamination.406
However, the tribunal concluded that Ecuador based its counterclaim on ‘a right
belonging only to these individual plaintiffs alleging personal harm. It is not a right
belonging to the Respondent’,407 thereby dismissing the counterclaim. Interestingly,
the tribunal opined in an obiter dictum that the respondent could have been
legitimised for bringing a counterclaim on ‘pure’ environmental damage (using the
terminology of Ecuadorian law, based on a ‘diffuse or collective right’), however,
since the respondent waived such possibility in the late nineties, this was not possible
in the case at hand.408
All in all, the main problem with consequential damage as the basis for a
counterclaim is the legitimisation both of the state for claiming on behalf of its
citizens and of the citizens themselves as gaining indirect access to investment
arbitration. Therefore, following the Chevron v Ecuador tribunal, it is more likely
that, either in accordance with its domestic law or with public international law, a

404
Douhan (2019), mn. 3.
405
ILC YB [2006] vol II, part II, A/CN.4/SER.A/2006/Add.l (Part 2) ‘Draft Principles on the
Allocation of Loss in the Case of Transboundary Harm arising out of Hazardous Activities, with
Commentaries’ (58–90) Art 2, mn. 8ff; Sands et al. (2018), p. 741; de Sadeleer (2020), p. 65.
406
Chevron Corporation and Texaco Petroleum Corporation v Ecuador (II), PCA Case No 2009-
23, Second Partial Award on Track II (30 August 2018) paras. 7.29–7.31.
407
Chevron Corporation and Texaco Petroleum Corporation v Ecuador (II), PCA Case No 2009-
23, Second Partial Award on Track II (30 August 2018) para. 7.40.
408
Chevron Corporation and Texaco Petroleum Corporation v Ecuador (II), PCA Case No 2009-
23, Second Partial Award on Track II (30 August 2018) paras. 7.41 et seqq.
2.3 Interim Conclusions 67

respondent host state is legitimised for asserting a cause of action aimed at the
remediation of ‘pure’ environmental damage.

2.3 Interim Conclusions

This Chapter has set the theoretical underpinnings of this monograph. Preliminary, a
comparative analysis of counterclaims in various frameworks for international
dispute settlement reveals some common features of counterclaims across the
board. For instance, the court or tribunal must have jurisdiction over the counter-
claim in accordance with the underlying instrument of consent. Moreover, the
tribunal ought to assess whether the counterclaim is connected to the main claim.
Time-frames for the submission of counterclaims may vary in each framework, but it
appears that belated counterclaims could exceptionally be admitted. While the
features (or requirements) of jurisdiction and connection in other frameworks for
international dispute settlement might be enlightening for this book, they must
nevertheless be tested through the prism of investment arbitration, its nature and
particular functioning.
In this vein, one must differentiate between contract-based and treaty-based
investment arbitration: given the synallagmatic structure of investment contracts,
international commercial arbitration and the operation of counterclaims therein
might be of guidance when assessing counterclaims in contract-based investment
arbitration. In the case of treaty-based investment arbitration, irrespective of its
multiple conceptualisations, there are three overarching characteristics, which will
delineate the analysis of counterclaims: the unique process for achieving consent; the
adjudication of regulatory disputes; and the interaction of multilevel norms.
Furthermore, all different frameworks for international dispute settlement display
similar objectives justifying the availability of counterclaims including procedural
economy, the proper administration of justice, the equality of parties, or due process.
An analysis in investment arbitration reveals that procedural or judicial economy is
the cornerstone of counterclaims, whereas due process and the rule of law are
immaterial for the availability of such procedural instrument. Finally, while coun-
terclaims appear neutral to the particular interests they may protect, the evolving
relation between investment law and environmental protection supports the partic-
ular case of environmental counterclaims in investment arbitration as a means to
address instances of ‘pure’ environmental damage. All in all, these underpinnings
support the deconstruction of the requirements of jurisdiction, connection and cause
of action for environmental counterclaims.
68 2 The Contextualisation of Environmental Counterclaims: A. . .

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Chapter 3
Jurisdiction Over Environmental
Counterclaims: The Puzzle of Consent

An arbitral tribunal’s jurisdiction to adjudge counterclaims is the most significant

obstacle for environmental counterclaims. In approximately 38% of the cases with
counterclaims analysed in this monograph, tribunals have declined jurisdiction to
rule upon the respective counterclaims.1 These statistics might work as a deterrent
for a respondent state, who despite being entitled to submit counterclaims might be
reluctant to expend its time and resources on a counterclaim that most probably
would be rejected on jurisdiction. Against this backdrop, it cannot be overstated that
the parties’ consent plays a central role in the limitation of a tribunal’s jurisdiction
and the ensuing power to decide on counterclaims.
Accordingly, this Chapter analyses the requisite jurisdiction for an environmental
counterclaim in investment arbitration centred around consent. With this purpose,
the first section lays out the foundations for a tribunals’ jurisdiction to decide
counterclaims in investment arbitration [Sect. 3.1]. The second and third sections
delve into the jurisdiction of arbitral tribunals over environmental counterclaims
both in contract-based [Sect. 3.2] and treaty-based investment arbitration [Sect.
3.3]. Finally, the last section presents some conclusions on parties’ consent for
contract-based and treaty-based investment arbitration, its implications for environ-
mental counterclaims and possible tools to overcome the jurisdictional obstacles
[Sect. 3.4].

1
See this book “Annex 3: Counterclaims in Numbers”.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 75

A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
EYIEL Monographs - Studies in European and International Economic Law 34,
https://doi.org/10.1007/978-3-031-46391-4_3
76 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

3.1 Tribunals’ Jurisdiction to Decide Counterclaims:

Covering the Basics

As portrayed in Chap. 2, the requisite jurisdiction is the foremost important require-

ment for environmental counterclaims or any other kind of counterclaims for that
matter. In this sense, some authors find that the failure of counterclaims in invest-
ment arbitration is mostly caused by jurisdictional barriers, particularly in treaty-
based cases.2 Yet, the factual background, underlying instruments and tribunals’
reasoning for declining or upholding jurisdiction has considerably varied. It is thus
necessary to analyse the source of arbitral tribunals’ jurisdiction to decide counter-
claims. Accordingly, this section starts with parties’ consent as the backbone of
tribunals’ jurisdiction in investment arbitration [Sect. 3.1.1]. Afterwards, it addresses
consent over counterclaims [Sect. 3.1.2]. Finally, this section explores other possible
bases for an arbitral tribunal’s power to decide counterclaims [Sect. 3.1.3].

3.1.1 The Parties’ Consent as the Backbone of Tribunals’

Jurisdiction in Investment Arbitration

Consent is a foundational idea in international law, which legitimises the submission

of a state to an international adjudicative body.3 Consequently, the jurisdiction of
any court or tribunal hinges on the disputing parties’ consent.4 The PCIJ and the ICJ
have reaffirmed this in cases such as Status of Eastern Carelia,5 Mavrommatis,6

2
Popova and Poon (2015), p. 226.
3
Brilmayer et al. (2017), p. 31; Fontanelli (2018), pp. 100–101. For a slightly different opinion,
analysing a shift from a predominantly consensual paradigm towards a compulsory one in interna-
tional adjudication see, Romano (2007), pp. 791–872.
4
Fitzmaurice (1986), p. 436; Waibel (2015), p. 1213.
5
Status of Eastern Carelia (Advisory Opinion) (23 July 1923) PCIJ Rep Series B No 05, 27: (‘It is
well established in international law that no State can, without its consent, be compelled to submit
its disputes with other States either to mediation or to arbitration, or to any other kind of pacific
settlement’).
6
The Mavrommatis Palestine Concessions (Greece v United Kingdom) (Judgment) (30 August
1924) PCIJ Rep Series A No 02, 16: (‘For this reason the Court, bearing in mind the fact that its
jurisdiction is limited, that it is invariably based on the consent of the respondent and only exists in
so far as this consent has been given’).
3.1 Tribunals’ Jurisdiction to Decide Counterclaims: Covering the Basics 77

Interpretation of Peace Treaties,7 or Certain Phosphate Lands in Nauru,8 highlight-

ing that without consent a state cannot be compelled to adjudication.
In this sense, consent to the jurisdiction of a court or tribunal in public interna-
tional law cannot be presumed, but rather it requires strict proof.9 This however does
not mean that only a particular form of consent is accepted. As set out in the Corfu
Channel case, it is not required that ‘consent should be expressed in any particular
form’.10 Accordingly, consent may be general (every kind of disputes) or partial
(certain disputes), it may be given before or after the dispute arose, and consent may
as well be explicit or implicit.11
The same principle applies for consent to international arbitration.12 Arbitral
tribunals are bound in their jurisdiction to the confines of the respective parties’
consent.13 This is equally true for contract-based and treaty-based investment arbi-
tration. As highlighted by the arbitrator Brigitte Stern in Impregilo v Argentina:
[I]n the framework of BITs, investors are not capable of intervening on the international
level against States for the recognition of their rights, unless States grant them such a right
under conditions that they determine. An arbitral tribunal – just as the ICJ or any interna-
tional court – does not have a general jurisdiction, it only has a “compétence d’attribution”,
which has to respect the limits provided for by the States.14

‘Unlimited’ consent by a state to the jurisdiction of an adjudicative body is rather

rare, thus, consent must be carefully interpreted.15 The interpretation of states’
consent to the jurisdiction of an adjudicative body (including its scope of applica-
tion) must be construed neither broadly nor restrictively, but rather following the
canons of treaty interpretation.16 The importance of the delimitation of consent
cannot be overstated because if a tribunal decides a claim outside the parties’ consent

7
Interpretation of Peace Treaties with Bulgaria, Hungary and Romania (Advisory Opinion) [1950]
ICJ Rep 65, 71: (‘The consent of States, parties to a dispute, is the basis of the Court’s jurisdiction in
contentious cases’).
8
Case concerning Certain Phosphate Lands in Nauru (Nauru v Australia) (Judgment) [1992] ICJ
Rep 240, para. 53: (‘[the Court’s] jurisdiction depends on the consent of States and, consequently,
the Court may not compel a State to appear before it, even by way of intervention’).
9
Fitzmaurice (1986), pp. 514 and 738.
10
Corfu Channel Case (United Kingdom v Albania) (Judgment on Preliminary Objection) [1948]
ICJ Rep 15, 27.
11
Tomuschat (2012), mn. 35. Similarly, Fitzmaurice (1986), p. 515.
12
Carlston (1972), p. 62: (‘Arbitration between States, as well as between persons, is contractual in
source and arises solely out of consent’); Ambatielos Case (Greece v United Kingdom) (Merits:
Obligation to Arbitrate) [1953] ICJ Rep 10, 19: (‘. . . the principle, which is well established in
international law and accepted by its own jurisprudence as well as that of the Permanent Court of
International Justice, to the effect that a State may not be compelled to submit its disputes to
arbitration without its consent’).
13
Sharpe and Jacob (2018), p. 352.
14
Impregilo SpA v Argentine Republic, ICSID Case No ARB/07/17, Concurring and Dissenting
Opinion of Professor Brigitte Stern (21 June 2011) para. 53.
15
Fitzmaurice (1986), p. 513.
16
Fitzmaurice (1986), p. 513; Tomuschat (2012), mn. 35.
78 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

this may lead to the unenforceability or annulment/setting aside of the resulting

award.17 In this line, one may use the analogy drawn by Alan Scott Rau, who
described that the presence of consent to arbitration reflects a series of concentric
circles: the inner circle pertains to whether there is consent at all, followed by wider
circles representing questions such as who are the parties, what kind of disputes,
what are the procedural rules, etc.18 The closer to the centre the question is, the
stricter the requirement of proof should be.

3.1.2 Consent over Counterclaims: An Unavoidable

Requirement?

The consensual nature of investment arbitration, which limits the arbitral tribunal’s
jurisdiction, engenders the question of whether there must be consent over counter-
claims. In principle, all procedural rules conceive that the arbitral tribunal must have
jurisdiction over counterclaims as sine qua non requirement.19 Thus, a variety of
authors consider that there must be consent to the settlement of a counterclaim,
otherwise it would fall outside the scope of the tribunal’s jurisdiction.20 Certainly, a
counterclaim cannot be used as a back door for a claim that is out of the tribunal’s
jurisdiction.21 However, what does ‘consent to counterclaims’ entail? Must the
dispute settlement clause set out explicitly the tribunal’s jurisdiction over
counterclaims?
Illustratively, the Claims Settlement Declaration explicitly contemplates the
IUSCT’s jurisdiction over counterclaims.22 However, there is no reason to require
such express language. Jurisdiction over counterclaims should be analysed similarly
as jurisdiction over the main claim without imposing stricter requirements. More-
over, a state’s consent to the investor’s claims need not appear in the same instru-
ment as the investor’s consent to counterclaims.23 Accordingly, there are four
scenarios of parties’ consent to counterclaims:
In the first scenario, explicit consent prior to the dispute, there is an express
provision on counterclaims either in the investment contract in contract-based

17
Scherer et al. (2021), fn. 16, referring to Article V(c) New York Convention, Article 34(2)(a)(iii)
and Article 36(1)(a)(iii) UNCITRAL Model Law on Arbitration, and Article 52(1)(b) ICSID
Convention.
18
Rau (2008), pp. 203 et seqq.
19
Renteln (1987), p. 390.
20
Kjos (2007), p. 602; Bjorklund (2013), p. 466; Rivas (2015), pp. 790–791.
21
Sharpe and Jacob (2018), p. 352.
22
See Sect. 2.1.2.
23
Kalicki and Silberman (2012), p. 14. This finds reflection in public international law, where judge
Higgins held that claim and counterclaim need not have identical basis of jurisdiction see, Oil
Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ Rep 190, Separate
Opinion Judge Higgins, 218.
3.1 Tribunals’ Jurisdiction to Decide Counterclaims: Covering the Basics 79

investment arbitration or in the underlying treaty in treaty-based investment arbitra-

tion. Such provision may either explicitly foresee counterclaims to be decided by the
arbitral tribunal, in which case there is no obstacle for it,24 or it may explicitly
exclude the possibility of raising counterclaims, in which case the tribunal is
prevented from deciding on counterclaims. While this might be the safest route to
find consent to counterclaims, arbitration agreements do not normally contain
procedural details but rather an outline of the procedure, for instance through the
incorporation of institutional rules.25 Thus, the existence of an IIA (or even invest-
ment contracts) explicitly excluding the possibility of raising any counterclaim
would rather be an exception.26
In the second scenario, explicit consent after the dispute arose, the disputing
parties explicitly agree to submit the respondent’s counterclaim in the same pro-
ceedings as the claimant’s claim, or they explicitly agree not to do so. Should the
parties agree on having both counterclaim and claim in the same arbitral proceed-
ings, nothing prevents the tribunal from adjudging the counterclaim.27 This is
precisely what occurred in Burlington v Ecuador.28 However, the disputing parties
may agree not to submit the counterclaim in the same proceedings as the claim,29 for
instance, with the purpose of submitting such counterclaim to a different forum. This
second scenario is based on the premise that the jurisdictional title did not foresee
counterclaims, nor did it exclude them from its scope. Thus, by explicitly agreeing to
submit counterclaims to arbitration, the disputing parties are ‘expanding’ the original
arbitration agreement to include a previously non-contemplated issue, namely a
respondent’s counterclaim.30 This idea relies on the consensual nature of arbitration,
whereby any jurisdictional gap may be fulfilled by the parties’ agreement including
counterclaims not originally foreseen in the arbitration agreement.31
In the third scenario, tacit consent after the dispute arose, there is no prior
indication of consent over counterclaims but the claimant has expressed its consent
to the submission of counterclaims through its conduct. This assimilates to forum
prorogatum at the ICJ, whereby there is a lack of the respondent’s consent to the
jurisdiction of the Court, or the applicant’s submissions go beyond the jurisdictional
title, yet the Court assumes jurisdiction given that the respondent consented to it

24
Kjos (2007), p. 615.
25
Hanefeld and de Jong (2019), p. 250.
26
Bravin and Kaplan (2013), fn. 30.
27
Kjos (2007), p. 615.
28
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) paras. 6 and 60.
29
Steingruber (2013), p. 293.
30
With regards to the expansion of the arbitration agreement in the framework of counterclaims, see
Kjos (2007), p. 615; Kryvoi (2012), p. 251. Similarly, Popova and Poon (2015), pp. 226–227; Ben
Hamida (2005), p. 266.
31
Blackaby et al. (2022), para. 5.101.

Licensed to Dymas Satrioprojo ([email protected])

80 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

through its conduct.32 The respondent’s acts or conduct must conclusively establish
consent to the Court’s jurisdiction33 and be regarded as ‘an unequivocal indication’
of the state to willingly submit to the Court.34 Similarly, in international arbitration,
the parties may express their consent by conduct, even expanding the original
arbitration agreement.35
Accordingly, it has been considered that if the investor does not raise any
objections to the tribunal’s jurisdiction to decide a respondent’s counterclaim, this
should be construed as tacit consent.36 Examples of tacit consent over counterclaims
can be found in the context of contract-based investment arbitration, such as in
Benvenuti v Congo,37 RSM v Grenada,38 Balkan Energy v Ghana,39 Metro de Lima
v Peru,40 or in the context of treaty-based investment arbitration, such as in Alex

32
Fitzmaurice (1986), p. 753: (‘Consent by subsequent conduct constitutes a consent virtually as
express as if it were conveyed in a written statement . . . indeed, the conduct will normally take the
form of, or be accompanied or manifested by, something in writing, such as a letter of appointment,
the deposit of a memorial, thus leaving little room for inferences or implications’). Similarly,
Tomuschat (2012), mn. 40.
33
Rights of Minorities in Upper Silesia (Minority Schools) (Germany v Poland) (Judgment)
(26 April 1928) PCIJ Rep Series A No 15, 24: (‘And there seems to be no doubt that the consent
of a State to the submission of a dispute to the Court may not only result from an express
declaration, but may also be inferred from acts conclusively establishing it. It seems hard to deny
that the submission of arguments on the merits, without making reservations in regard to the
question of jurisdiction, must be regarded as an unequivocal indication of the desire of a State to
obtain a decision on the merits’).
34
Case Concerning Armed Activities on the Territory of the Congo (New Application: 2002)
(Democratic Republic of Congo v Rwanda) (Jurisdiction) [2006] ICJ Rep 6, para. 21; Corfu
Channel Case (United Kingdom v Albania) (Judgment on Preliminary Objection) [1948] ICJ Rep
15, 27.
35
Carlston (1972), p. 172: (‘by their conduct the parties can by tacit consent enlarge the powers of
the tribunal. Accordingly, objection should be promptly be made to departures from the course of
procedure stipulated for the tribunal if a State desires to avoid the otherwise reasonable inference
that its inaction is to be viewed as acquiescence’). With respect to tacit consent for counterclaims,
see Steingruber (2020), p. 602.
36
Kjos (2007), p. 616; Kendra (2013), p. 593. Similarly, Ben Hamida (2005), p. 266; Popova and
Poon (2015), pp. 226–227.
37
The tribunal acknowledged that its competence over the counterclaims was not disputed, see
SARL Benvenuti & Bonfant v People’s Republic of the Congo, ICSID Case No ARB/77/2, Award
(08 August 1980) para. 4.104.
38
The claimant simply addressed the merits without challenging tribunal’s jurisdiction over the
counterclaims, see RSM Production Corporation v Grenada, ICSID Case No ARB/05/14, Award
(13 March 2009).
39
The claimant contested the lack of evidence for the merits of the counterclaim without challeng-
ing tribunal’s jurisdiction over it, see Balkan Energy (Ghana) Limited v Republic of Ghana, PCA
Case No 2010-7, Award (01 April 2014) para. 570.
40
Neither did the claimant challenge the tribunal’s jurisdiction over counterclaims, nor did the
tribunal address the issue of jurisdiction over counterclaims, see Metro de Lima Línea 2 SA v
Republic of Peru (I), ICSID Case No ARB/17/3, Decision on Jurisdiction and Liability
(06 July 2021).
3.1 Tribunals’ Jurisdiction to Decide Counterclaims: Covering the Basics 81

Genin v Estonia,41 Desert Line v Yemen,42 Occidental v Ecuador,43 and Perenco v

Ecuador.44 In those cases, no jurisdictional objections to the counterclaims were
raised and consequently, the respective tribunals assumed jurisdiction over them.
In the fourth scenario, there is no prior expression of consent vis-à-vis counter-
claims, and the parties have not expressly or tacitly agreed on the submission of a
counterclaim after the dispute arose. This is the most recurrent scenario, in which the
tribunal ought to interpret the jurisdictional title and decide whether the counterclaim
falls within the arbitration agreement or not. In other words, the tribunal would seek
to determine whether there is implied consent to counterclaims within the underlying
contract or treaty. Determining implied consent consists of interpreting the terms of
the arbitration agreement in order to infer if a specific case is covered by the parties’
consent or not.45
On a related note, one may consider that consent over counterclaims is a juris-
dictional question, which must be proven by the respondent.46 This implies that the
respondent must furnish the tribunal with proof of consent together with the sub-
stance of its counterclaim. However, as mentioned above, consent over counter-
claims may be completed in a later stage, for instance, when the claimant does not
object to the tribunal’s jurisdiction over counterclaims. In this case, the claimant’s
actions should suffice for the finding of consent over counterclaims.

41
The claimants did not address the tribunal’s jurisdiction over the counterclaim, see Alex Genin,
Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia, ICSID Case No ARB/99/2,
Award (25 June 2001).
42
The claimant did not comment on the respondent’s counterclaims, see Desert Line Projects LLC v
The Republic of Yemen, ICSID Case No ARB/05/17, Award (06 February 2008) para. 221.
43
This case was based both on a treaty’s and on a contract’s dispute resolution clause. However, the
claimants counter the counterclaims’ substance without addressing the tribunal’s jurisdiction to
decide them, see Occidental Petroleum Corporation and Occidental Exploration and Production
Company v The Republic of Ecuador, ICSID Case No ARB/06/11, Award (05 October 2012) paras.
288–290.
44
Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(Petroecuador), ICSID Case No ARB/08/6, Decision on Perenco’s Application for Dismissal of
Ecuador’s Counterclaims (18 August 2017) para. 35: (‘The Tribunal further observes that Perenco
never in the past challenged its jurisdiction to hear Ecuador’s counterclaims nor their
admissibility’).
45
Fitzmaurice (1986), pp. 753–754.
46
Sullivan and Kirsey (2017), p. 109.
82 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

3.1.3 Beyond the Arbitration Agreement: Other Possible

Sources for a Tribunal’s Power to Decide
Counterclaims?

The arbitral tribunal may be tempted to search its power of determining counter-
claims beyond the wording of the arbitration agreement. In this regard, there are two
possible sources of a tribunal’s powers that might be relevant in the framework of
counterclaims, namely, the theory of inherent powers of arbitrators [Sect. 3.1.3.1],
and the rules of procedure or arbitration rules [Sect. 3.1.3.2].

3.1.3.1 Inherent Powers

From the outset, inherent powers are intertwined with the judicial function of
international courts and tribunals.47 They are powers necessary to fulfil their man-
date as adjudicatory bodies.48 Inherent powers can be categorised as expressed,
discretionary or implied.49 Expressed inherent powers are set out in the underlying
instruments and rules, discretionary inherent powers stem from rules granting
discretion to the tribunal to decide procedural or substantive issues, and implied
inherent powers rest on the principle of interpretation effet utile of the underlying
instruments as a whole.50 In any case, the powers falling within the scope of inherent
powers is subject to evolution,51 and they should ‘reflect contemporary views of
judicial functions’.52
Under the umbrella of inherent powers of international courts and tribunals, one
could consider an arbitral tribunal’s decision to adjudge counterclaims.53 Against
this backdrop, the question to solve is whether a tribunal’s power to adjudge
counterclaims indeed falls within its inherent powers. However, the concept of
inherent powers alone cannot justify such a jurisdictional decision.
Considering that international courts and tribunals are based on state consent or
party autonomy, the exercise of inherent powers cannot supersede parties’ consent.54
Some inherent powers can indeed be modified or even restricted by agreement of the
parties, as long as such modification or restriction does not deprive the court or

47
Holzer (2022), pp. 77 et seqq.
48
Brown (2010), p. 666. Similarly, Hanefeld and de Jong (2019), p. 253.
49
Bjorklund and Brosseau (2019), pp. 34–52.
50
Bjorklund and Brosseau (2019), pp. 34–52.
51
Wälde (2010), p. 182.
52
Bjorklund and Brosseau (2019), p. 52.
53
Brown (2010), pp. 666–669. Similarly, in commercial arbitration, see Steingruber (2012), para.
7.26.
54
Thirlway (2013), p. 693. Nevertheless, Andrea Bjorklund and Jonathan Brosseau argue that when
inherent powers are used properly, they actually promote state consent and party autonomy, see
Bjorklund and Brosseau (2019), p. 34.
3.1 Tribunals’ Jurisdiction to Decide Counterclaims: Covering the Basics 83

tribunal of their judicial nature.55 In the context of the ICJ, on the one hand,
counterclaims are referred to as ‘Incidental Proceedings’,56 which fall within the
Court’s incidental or ancillary jurisdiction as part of the inherent powers of the
Court.57
Accordingly, given that a tribunal’s jurisdiction in a subject-matter encompasses
the power to decide all relevant incidental questions,58 one may argue that counter-
claims fall within the category of ‘incidental’ questions to which the tribunal’s
jurisdiction extends. However, a decision on counterclaims does not involve a
preliminary or incidental matter per se, thus, jurisdiction over counterclaims is ‘not
independent of, but consequential upon, a determination (even if a negative one), of
the question of substantive jurisdiction’.59 This means that the Court must analyse
whether it is empowered to decide the particular dispute giving rise to the
counterclaim.60
In international arbitration, on the other hand, inherent powers have been invoked
by arbitral tribunals, in the interest of efficiency, to streamline the proceedings, for
consolidation and joinder, when bifurcating proceedings, or issuing an early dis-
missal of a claim.61 This also includes the inherent power to ensure the equality of
parties.62 However, there are limitations on the exercise of inherent powers. For
instance, an international court or tribunal cannot assert an inherent power if by
doing so it would be inconsistent with its constitutive instruments.63 In fact, the
International Law Association (ILA) highlighted that inherent powers remain sub-
ordinate to the parties’ consent.64
Thus, consent in investment arbitration has priority and cannot be trumped by
efficiency purposes.65 In other words, inherent powers must not be used as a tool to

55
Bjorklund and Brosseau (2019).
56
See ICJ Rules of Court of 2001, Section D. Incidental Proceedings, whereby Subsection 3, Article
80 thereof, deals with counterclaims.
57
Fitzmaurice (1986), fn. 5: (‘The main types of incidental jurisdiction, besides that relating to
interim measures, are in respect of counterclaims, third-party interventions, the control of the
proceedings and the interpretation and revision of judgments’).
58
Cheng (1953), p. 266.
59
Fitzmaurice (1986), p. 535.
60
On ‘substantive jurisdiction’ of the ICJ, see Fitzmaurice (1986), p. 483.
61
Certainly, in the absence specific provisions empowering the tribunal, methods such as early
dismissal might be controversial, see Hanefeld and de Jong (2019), pp. 255 et seqq.
62
Bain (2018), para. 8.42.
63
Brown (2010), p. 669; Bain (2018), para. 8.42.
64
ILA Committee on International Commercial Arbitration, ‘Inherent and Implied Powers of
International Arbitral Tribunals: Recommendations’ (Resolution No 4/2016) <https://www.ila-
hq.org/images/ILA/docs/No.4_Resolution_2016_InternationalCommercialArbitration.pdf>
accessed 10 January 2023.
65
Pathak (2019), p. 113. A seemingly opposite view was expressed by Berger (1999), p. 76:
(‘Aspects of procedural economy in the ongoing arbitration may therefore take priority over the
parties’ will as expressed in the arbitration agreement covering the cross-claim only in those
exceptional cases where the claimant clearly indicates a corresponding will’). Interestingly, Klaus
84 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

enlarge the already-defined scope of the arbitration agreement. The same applies for
a tribunal’s power to adjudge counterclaims. If the jurisdictional title evinces an
inconsistency with the exercise of a tribunal’s power to decide a counterclaim, then
the tribunal must refrain from doing so.

3.1.3.2 Rules of Procedure or Arbitration Rules

Most of the arbitration rules used for the settlement of investment disputes foresee a
procedure (and sometimes requirements) for the submission of counterclaims.66
Interestingly, most of those sets of rules were not drafted for treaty-based invest-
ment arbitration, thus, whether the incorporation of arbitration rules suffices to
include counterclaims within the scope of the tribunal’s jurisdiction in investment
arbitration is at least debatable.67 Understandably, arbitration provisions (either in
IIAs or in investment contracts) are hardly ever detailed enough on issues of
procedure, which normally is left to the chosen arbitration rules.68 Consequently,
some authors may consider that unless explicitly prohibited by the underlying treaty
or contract, counterclaims should be allowed, provided they are contemplated in the
arbitration rules.69
However, the arbitration rules cannot be used to extend the tribunal’s jurisdiction,
when the latter has a restrictive scope.70 In other words, if the arbitration agreement
is narrowly drafted, the tribunal cannot entertain counterclaims arguing that the
arbitration rules contemplate the submission of counterclaims.71 The crux of the
matter thus lies in the tribunal’s jurisdiction, which is solely based on consent.

Peter Berger’s argument hinges on the claimant’s consent; thus, procedural economy does not take
priority over the parties’ agreement, but rather procedural economy arguments for the admission of
counterclaims presuppose the existence of parties’ agreement.
66
These are: ICSID Rules of Procedure for Arbitration Proceedings (ICSID Arbitration Rules
(2006) and the newly adopted ICSID Arbitration Rules (2022)); UNCITRAL Arbitration Rules
(2013); SCC Arbitration Rules (2017); ICC Arbitration Rules (2021); Vienna International Arbitral
Centre Rules of Investment Arbitration and Mediation (VIAC Investment Arbitration Rules (2021)).
67
Harrison (2016), p. 479.
68
Bjorklund (2013), p. 471.
69
Alvarez (2000), p. 410. Similarly, Larschan and Mirfendereski (1986), pp. 32–33. With respect to
the UNCITRAL Arbitration Rules (1976) see, Clodfelter and Tsutieva (2018), paras. 17.75 et seqq.
70
Kjos (2007), fn. 95: (‘One may wish to note that a restriction of the tribunal’s jurisdiction in this
regard cannot be overcome by a reference to explicit provisions for counter-claims in the relevant
arbitration rules’). For a different opinion see Sourgens (2017), p. 198: (‘the question arises whether
the scope of the arbitration consent is broadened by reference to the arbitration instruments pursuant
to which it is given. . .many arbitration rules in fact expressly contemplate that the parties consent to
a tribunal hearing counterclaims that arise out of the same transaction and occurrence as the main
claim. This incorporation may well operate to expand even narrowly drafted arbitration
consent. . .there is no bar to stating counterclaims if they are appropriately articulated as matter of
applicable law’) (footnotes omitted).
71
Popova and Poon (2015), p. 227; Hussin (2019), p. 3.
3.1 Tribunals’ Jurisdiction to Decide Counterclaims: Covering the Basics 85

Moreover, the arbitration rules do not normally address whether parties have
consented to counterclaims, but rather they start from that assumption and further
regulate the procedure to present a counterclaim.72
On the one hand, the ICC Arbitration Rules73 and the SCC Arbitration Rules74
contemplate certain requirements that must be included in a counterclaim such as
statement of facts, statement of relief and an indication of any relevant arbitration
agreement grounding the counterclaim. These requirements seem to evoke the
formal requisites for the proper submission of a counterclaim rather than jurisdic-
tional preconditions. Although until date, no investment tribunal has discussed the
requirements for submitting a counterclaim under the ICC Arbitration Rules or the
SCC Arbitration Rules, it is likely that tribunals following these set of rules would
consider the scope of the relevant arbitration agreement as the jurisdictional require-
ment for the adjudication of counterclaims.
On the other hand, the UNCITRAL Arbitration Rules and the ICSID Arbitration
Rules (as some of the most often-used arbitration rules in investment arbitration)
establish that a purported counterclaim must fall within the scope of parties’ consent.
Particularly, Rule 40 ICSID Arbitration Rules (2006) (and cwith similar language
Rule 48 ICSID Arbitration Rules (2022)) sets forth:
1. Except as the parties otherwise agree, a party may present an incidental or additional
claim or counter-claim arising directly out of the subject-matter of the dispute, provided that
such ancillary claim is within the scope of the consent of the parties and is otherwise within
the jurisdiction of the Centre.

72
Bjorklund (2013), fn. 20. Interestingly, Andrea Bjorklund disagrees with Zachary Douglas when
he stated that ‘if a general principle can be discerned . . . it is that the jurisdiction ratione materiae of
an international tribunal extends to counterclaims unless expressly excluded by the constitutive
instrument’. However, in reality Andrea Bjorklund and Zachary Douglas are on the same page
because before making such statement, he started from the assumption that the parties’ consent is
couched in broad terms. Otherwise, as he further explains, an arbitration clause allowing only
claims from the investor as to the breach of treaty—such as NAFTA—might not be wide enough to
encompass counterclaims, see Douglas (2009), paras. 488 et seqq.
73
ICC Arbitration Rules (2021), Art 5(5): (‘. . . Any counterclaims made by the respondent shall be
submitted with the Answer and shall provide: (a) a description of the nature and circumstances of
the dispute giving rise to the counterclaims and of the basis upon which the counterclaims are made;
(b) a statement of the relief sought together with the amounts of any quantified counterclaims and, to
the extent possible, an estimate of the monetary value of any other counterclaims; (c) any relevant
agreements and, in particular, the arbitration agreement(s); and (d) where counterclaims are made
under more than one arbitration agreement, an indication of the arbitration agreement under which
each counterclaim is made. The respondent may submit such other documents or information with
the counterclaims as it considers appropriate or as may contribute to the efficient resolution of the
dispute’).
74
SCC Arbitration Rules (2017), Art 9(1): (‘The Secretariat shall send a copy of the Request for
Arbitration and any attached documents to the Respondent. The Secretariat shall set a time period
within which the Respondent shall submit an Answer to the SCC. The Answer shall include: . . . (iii)
a preliminary statement of any counterclaims or setoffs, including an estimate of the monetary value
thereof; (iv) where counterclaims or set-offs are made under more than one arbitration agreement,
an indication of the arbitration agreement under which each counterclaim or set-off is made’).
86 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

2. An incidental or additional claim shall be presented not later than in the reply and a
counter-claim no later than in the counter-memorial, unless the Tribunal, upon justification
by the party presenting the ancillary claim and upon considering any objection of the other
party, authorizes the presentation of the claim at a later stage in the proceeding.
3. The Tribunal shall fix a time limit within which the party against which an ancillary
claim is presented may file its observations thereon.

This provision replicates the requirements of Article 46 ICSID Convention, whereby

the requisite consent is emphasised.75 Rule 40 ICSID Arbitration Rules (Rule
48 ICSID Arbitration Rules (2022)) envisages further details, such as a deadline
for submission and the possibility of the counterparty to file observations to the
counterclaim. In the case of the UNCITRAL Arbitration Rules, Article 21(3) thereof
provides for the appropriate moment for the submission of counterclaims, but it also
states that ‘the respondent may make a counterclaim . . . provided that the arbitral
tribunal has jurisdiction over it’. One may assume that such reference to the tri-
bunal’s jurisdiction refers to the scope of parties’ consent as the underpinning of
arbitration. Accordingly, the drafting history of the rules elucidates the intention
behind such requirement.
The previous version of the rules namely the UNCITRAL Arbitration Rules
(1976) contemplated counterclaims under Article 19 thereof in a similar wording.
Nevertheless, instead of ‘provided that the arbitral tribunal has jurisdiction over it’,
Article 19(3) UNCITRAL Arbitration Rules (1976) contained a different require-
ment ie ‘arising out of the same contract’. From its inception, such wording had
caused some concerns, especially in related contracts.76 Despite the absence of any
reference for counterclaims to be within the scope of consent, arbitral tribunals
constituted in accordance with the UNCITRAL Arbitration Rules (1976) have
consistently analysed whether the instrument of consent is broad enough to cover
counterclaims.77
In an opposite view, some authors argue that given the absence of any reference to
the parties’ consent, by selecting the UNCITRAL Arbitration Rules (1976) there is
either an ipso facto importation of consent or at least an implied consent to coun-
terclaims.78 This latter view is untenable. The requirement for a counterclaim to fall
within the scope of jurisdiction of the tribunal arises from the consensual nature of
arbitration, which ought to be assessed by the each tribunal irrespective of the
existence of a treaty provision or an arbitration rule in that regard. Thus, the selection
of the UNCITRAL Arbitration Rules (1976) cannot obviate this requirement.

75
For a full analysis on Article 46 ICSID Convention see Sect. 3.3.1.3.
76
Binder (2013), para. 21-014.
77
See for instance: Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on
Counterclaims (07 May 2004) paras. 37 et seqq; Sergei Paushok, CJSC Golden East Company and
CJSC Vostokneftegaz Company v The Government of Mongolia, UNCITRAL Case, Jurisdiction
and Liability (28 April 2011) paras. 688 et seqq.
78
Clodfelter and Tsutieva (2018), paras. 17.75–17.81.
3.1 Tribunals’ Jurisdiction to Decide Counterclaims: Covering the Basics 87

During the deliberations of UNCITRAL Working Group II undertaking the

revision of the arbitration rules of 1976, it became clear that the rules should permit
counterclaims in wider circumstances than the ‘same contract’.79 Various wordings
were proposed striving to strike a balance between investment and commercial
disputes, whereby the admission of counterclaims might have different nuances.80
Considering that references to the ‘same arbitration agreement’ or ‘sufficient link’
with the main claim might be construed differently under various legal systems, it
was ultimately decided to include the broad wording of ‘provided that the arbitral
tribunal has jurisdiction over it’.81
Therefore, the rationale behind the introduction of ‘provided that the arbitral
tribunal has jurisdiction over it’ in Article 21(3) UNCITRAL Arbitration Rules
(2013) was to broaden the article’s scope of application.82 Certainly, the tribunal’s
jurisdiction may stem from the terms of an arbitration agreement, the applicable law
or the underlying investment treaty depending on the situation,83 which is deemed to
encapsulate a variety of disputes, promoting procedural efficiency.84 Some com-
mentators underline that although treaty-based tribunals had interpreted the ‘arising
out of the same contract’ requirement under the UNCITRAL Arbitration Rules
(1976) quite broadly, the change under the UNCITRAL Arbitration Rules (2013)
provided greater certainty and clarity on this regard.85
Illustratively, the tribunals in Saluka v Czech Republic and Paushok v Mongolia
had construed the ‘arising out of the same contract’ requirement under UNCITRAL
Arbitration Rules (1976) in a broader sense. Both tribunals assimilated such phrase
with the requirement of connection with the main claim,86 which constitutes a

79
UNCITRAL, Report of Working Group II (Arbitration and Conciliation) on the work of its fiftieth
session (09 March 2009) UN Doc A/CN.9/669, para. 27.
80
See for instance: UNCITRAL, Report of the Working Group on Arbitration and Conciliation on
the work of its forty-fifth session (05 October 2006) UN Doc A/CN.9/614, para. 96: (‘the view was
expressed that permitting the arbitral tribunal to deal with any such issue arising out of a legal
relationship between the parties might raise important issues, especially in the context of investment
disputes, where it might be necessary to adopt a particularly broad understanding of the range of
counter-claims and set-off that could be dealt with in the same proceedings’); UNCITRAL, Report
of the Working Group on Arbitration and Conciliation on the work of its forty-sixth session
(20 March 2007) UN Doc A/CN.9/619, para. 158: (‘In that context, the view was expressed that
removal of any connection between the claim and the counter-claim or set-off might accommodate
the needs of specific situations such as investment disputes involving States but might not
sufficiently meet the needs of more general commercial disputes’).
81
UNCITRAL, Report of Working Group II (Arbitration and Conciliation) on the work of its fiftieth
session (09 March 2009) UN Doc A/CN.9/669, paras. 29–31.
82
Binder (2013), para. 21-015; Croft et al. (2013), para. 21.15; Paulsson and Petrochilos (2017),
p. 170; Webster (2019), para. 21.29.
83
Caron and Caplan (2013), p. 426.
84
Paulsson and Petrochilos (2017), p. 171.
85
Caron and Caplan (2013), p. 428; Paulsson and Petrochilos (2017), p. 172.
86
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 76; Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz
88 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

second step of analysis right after finding whether the scope of jurisdiction covers the
counterclaims or not.87 Certainly, those tribunals addressed the issue of consent over
counterclaims regardless of the absence of such explicit requirement—as it should
be. It nevertheless seems that the modification of the UNCITRAL Arbitration Rules
(2013) pertaining explicitly to the tribunal’s jurisdiction over counterclaims might
have been warranted in order to avoid confusions.
The modification of the UNCITRAL Arbitration Rules (2013) refers back to the
analysis of the consent and its extent as expressed by the parties.88 In this vein and
for the purpose of this section, the foregoing analysis demonstrates that the require-
ment of ‘provided that the arbitral tribunal has jurisdiction over it’ in Article
21(3) UNCITRAL Arbitration Rules (2013) reaffirms this Chapter’s premise that a
counterclaim must be covered by the parties’ consent, upon which the tribunal
exercises jurisdiction.
The Oxus v Uzbekistan tribunal89 discussed this issue. The respondent state
pointed out that the dispute settlement provision in the underlying treaty, ie Article
8 UK-Uzbekistan BIT (1993), did not explicitly exclude counterclaims, but rather
such provision referred to the UNCITRAL Arbitration Rules, whereby counter-
claims were contemplated.90 The tribunal rejected the counterclaims and stated
that it did ‘not consider that this provision creates a jurisdiction where there is
none. All it does is stating that counter-claims are admissible and can be submitted
to the extent that they already fall under the scope of jurisdiction of the Arbitral
Tribunal’.91
Similarly, the Iberdrola v Guatemala tribunal92 considered this point. Here, it
was to determine whether a reference in the treaty to a set of arbitration rules
foreseeing counterclaims would incorporate consent to counterclaims.93 Although
the tribunal agreed that such arbitration rules are incorporated by reference, it held
that ‘this is only to the extent that they are not contradicting the treaty. . . if there is a
contradiction between the arbitration rules and the treaty language (as is the case
here), the treaty prevails’.94 The counterclaims were thereby rejected.
Consequently, one may conclude that a counterclaim must fall within the parties’
consent to be permitted. Whether the specific provision explicitly requires the

Company v The Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April
2011) paras. 688–693.
87
On this issue see Chap. 4.
88
Bjorklund (2013), p. 473.
89
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015).
90
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 908.
91
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 944.
92
Iberdrola Energía SA v The Republic of Guatemala (II), PCA Case No 2017–41, Award
(24 August 2020).
93
Iberdrola Energía SA v The Republic of Guatemala (II), PCA Case No 2017–41, Award
(24 August 2020) para. 388.
94
Iberdrola Energía SA v The Republic of Guatemala (II), PCA Case No 2017–41, Award
(24 August 2020) para. 389.
3.2 Jurisdiction Over Environmental Counterclaims in Contract-Based. . . 89

counterclaim to be within the parties’ consent (such as ICSID Arbitration Rules) or

not (such as ICC Arbitration Rules) is immaterial. Accordingly, a set of arbitration
rules by its own does not suffice as a source of counterclaims in investment
arbitration because the tribunal must analyse in every case whether its jurisdiction
encompasses the said counterclaim.

3.2 Jurisdiction Over Environmental Counterclaims

in Contract-Based Investment Arbitration

Investors may choose either contract-based or treaty-based investment arbitration

depending on the breach they relied upon. Following the annulment committee in
Vivendi v Argentina, a treaty breach is determined by the underlying treaty and
public international law, whereas a contract breach is determined by the proper law
of the contract.95 Indeed, a breach of contract may at the same time be a breach of the
treaty, but only if it is the result of the exercise of sovereign authority (‘puissance
publique’).96 Whether the tribunal’s jurisdiction arises from a treaty or a contract
may be determinative to the availability of counterclaims, including environmental
counterclaims.
As elaborated above, an investment contract embodies a specific transaction
between the investor and the host state.97 Accordingly, the arbitration provisions
therein tend to be restricted to the specific contractual relation, but it also entails that
the state is entitled to commence arbitral proceedings against the foreign investor.98
This arises from the synallagmatic character of the contractual obligations which are
subject to redress at either party’s behest.99 In principle, the possibility of filing a
counterclaim in contract-based investment arbitration is generally accepted,100 as
long as the arbitration clause is broadly worded granting jurisdiction to the tribunal
to adjudge any matters arising from the contractual relationship between the

95
Compañiá de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID
Case No ARB/97/3, Decision on Annulment (03 July 2002) para. 96.
96
Impregilo SpA v Islamic Republic of Pakistan, ICSID Case No ARB/03/3, Decision on Jurisdic-
tion (22 April 2005) para. 260.
97
See Sect. 2.2.1.1.
98
Kjos (2013), pp. 129–130; Sourgens (2017), p. 196.
99
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Professor
Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’ para.
80 <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-parties-before-inter
national-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf> accessed 10 January 2023.
100
Lalive and Halonen (2011), p. 146; Kjos (2007), p. 599; Asteriti (2015), p. 258; Clodfelter and
Tsutieva (2018), para. 17.46; de Nanteuil (2018), p. 384.

Licensed to Dymas Satrioprojo ([email protected])

90 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

parties.101 By analogy to international commercial arbitration,102 such broad word-

ing could include tort counterclaims based on environmental law of the host state.
The foregoing explains that arbitral tribunals did not have many qualms
recognising their jurisdiction over counterclaims in the framework of investment
contracts.103 For instance, the Adriano Gardella v Côte d’Ivoire,104 Benvenuti v
Congo,105 MINE v Guinea,106 Zeevi v Bulgaria,107 Balkan Energy v Ghana108 and
RSM v Grenada109 tribunals did not elaborate on their jurisdiction over the coun-
terclaims raised by the respective respondents.110 A different situation occurred in
the Klöckner v Cameroon case. The claimant investor disputed the jurisdiction over
a counterclaim, which was based on another arbitration clause in a related con-
tract.111 By resorting to the intricacies of the contractual relation between the parties
and the definitions of investor and investment under the ICSID Convention, the
tribunal decided to entertain the counterclaim.112 Conversely, the dissenting arbitra-
tor reached a different conclusion by delving into the purpose of the various
contracts.113
The tribunals in Atlantic Triton v Guinea and Elsamex v Honduras upheld
jurisdiction over certain counterclaims while rejecting others for specific reasons.

101
Sourgens (2017), p. 204. As such, the contractual arbitration clause (and the interpretation
thereof) would define the tribunal’s power to rule upon counterclaims against the claimant investor,
see Nacimiento et al. (2021), p. 170.
102
See Sect. 2.1.3.2.
103
Vohryzek-Griest (2009), pp. 83–124.
104
Adriano Gardella SpA v Côte d’Ivoire, ICSID Case No ARB/74/1, Award (29 August 1977).
105
SARL Benvenuti & Bonfant v People’s Republic of the Congo, ICSID Case No ARB/77/2,
Award (08 August 1980) para. 4.104.
106
Maritime International Nominees Establishment (MINE) v Republic of Guinea, ICSID Case No
ARB/84/4, Award (06 January 1988).
107
Zeevi Holdings v The Republic of Bulgaria and the Privatization Agency of Bulgaria,
UNCITRAL Case No UNC 39/DK, Award (25 October 2006).
108
Balkan Energy (Ghana) Limited v Republic of Ghana, PCA Case No 2010-7, Award
(01 April 2014).
109
RSM Production Corporation v Grenada, ICSID Case No ARB/05/14, Award (13 March 2009)
para. 266.
110
It must be highlighted that the Benvenuti v Congo tribunal recognised that the parties did not
dispute the jurisdiction over counterclaims, and the RSM v Grenada tribunal without much details
acknowledged its jurisdiction to decide counterclaims.
111
For a detailed explanation of this case and the grounds for challenging the tribunal’s jurisdiction
see Sect. 3.3.2.3.
112
Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société
Camerounaise des Engrais, ICSID Case No ARB/81/2, Award (21 October 1983) 13–16
[reproduced in R Rayfuse (ed), ICSID Reports vol 2 (CUP 1994) 3-163].
113
Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société
Camerounaise des Engrais, ICSID Case No ARB/81/2, Award (21 October 1983), Dissenting
Opinion Prof D Schmidt, 93 [reproduced in R Rayfuse (ed), ICSID Reports vol 2 (CUP 1994)
3-163].
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 91

For instance, in the Atlantic Triton v Guinea case, the arbitration clause was
explicitly limited to the scope of the underlying contract (a vessels’ management
agreement) between the investor and the state. Yet, one of the respondent’s coun-
terclaims pursued damages for the alleged failure on the choice of vessels, which was
an obligation preceding the contract. The tribunal rejected such counterclaim for
being outside of the scope of the contract and the arbitration agreement,114 whereas
the jurisdiction over the rest of the counterclaims was not discussed. In the Elsamex v
Honduras case, the tribunal upheld its jurisdiction over most of the respondent’s
counterclaims, except for those based on tort or otherwise outside the contractual
relationship.115 Considering the restrictive wording of the underlying arbitration
clause,116 it is understandable that the Elsamex v Honduras tribunal rejected the
counterclaims based on tort.
Therefore, in the particular case of environmental counterclaims, nothing pre-
vents the tribunal from deciding on counterclaims seeking redress for the environ-
mental damage caused by the investor, as long as the underlying arbitration clause is
broadly drafted. Yet, whether the environmental counterclaim is to be based on
contract obligations or on domestic law of the host state appertains to the source of
the environmental obligation rather than to the tribunal’s jurisdiction, which will be
elaborated in Chap. 5.

3.3 Jurisdiction Over Environmental Counterclaims

in Treaty-Based Investment Arbitration

In treaty-based investment arbitration, the tribunal’s jurisdiction is the result of a

two-step process: the state provides a general consent to submit to international
arbitration through a treaty, and the foreign investor meets such consent by initiating
arbitral proceedings in accordance with the treaty.117 This particularity of investment
arbitration has an impact on the functioning of the procedural mechanism of
counterclaims. Therefore, this section analyses the traditional appraisal of an arbitral
tribunal’s jurisdiction over counterclaims in treaty-based investment arbitration
[Sect. 3.3.1]. Then, it examines the obstacles to the contractual counterclaims in
treaty-based investment arbitration [Sect. 3.3.2]. Finally, this section proposes a
reinterpretation of consent to environmental counterclaims [Sect. 3.3.3].

114
Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea, ICSID Case No
ARB/84/1, Award (21 April 1986) 39 [reproduced in R Rayfuse (ed), ICSID Reports vol 3 (CUP
1995) 13–44].
115
Elsamex SA v Republic of Honduras, ICSID Case No ARB/09/4, Award (16 November 2012)
paras. 302–305.
116
For the reproduction of the underlying arbitration clause(s), the sort of disputes subject to
arbitration and the tribunal’s analysis in this regard see, Elsamex SA v Republic of Honduras,
ICSID Case No ARB/09/4, Decision on Jurisdiction (04 June 2010) paras. 33 and 158 et seqq.
117
See Sect. 2.2.1.2.2.
92 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

3.3.1 The Traditional Appraisal of Counterclaims

in Treaty-Based Investment Arbitration

Counterclaims in treaty-based investment arbitration have faced an initial reluctance

by arbitral tribunals, who remained cautious to decide on them, given the restrictive
wording of the underlying treaty provisions.118 Accordingly, different approaches
have been proposed to interpret whether the underlying treaty confers jurisdiction on
the tribunal to adjudge counterclaims raised by the respondent host state. Mark
Clodfelter and Diana Tsutieva consider three features of investment treaties that
might indicate the possibility to adjudge counterclaims119: first, direct or indirect
reference to counterclaims, for instance allowing them or excluding certain type
thereof. Second, the scope of jurisdiction ratione materiae, either by a broad
arbitration provision or by a broad applicable law provision including domestic
law of the host state. Third, the standing granted to the state to bring claims to
arbitration.
Ina Popova and Fiona Poon contemplate three kinds of obstacles in investment
treaties that might prevent the tribunal from deciding on counterclaims120: first,
treaty clauses limiting the tribunal’s jurisdiction to claims raised by investors.
Second, applicable law provisions excluding the host state’s domestic law. Third,
the effect of the investor’s violation of domestic law. Similarly, Arnaud de Nanteuil
considers that the tribunal’s jurisdiction over counterclaims hinges on the wording of
the arbitration clause, and on the possibility to identify an investor’s obligations.121
All these approaches boil down to two categories: the scope of the arbitration
provision foreseen in the treaty [Sect. 3.3.1.1], and the scope of the applicable law
vis-à-vis an investor’s obligations [Sect. 3.3.1.2]. This section thus examines
whether these two categories provide the correct approximation to the tribunal’s
jurisdiction over counterclaims. Additionally, this section addresses the particular
case of counterclaims under the ICSID Convention [Sect. 3.3.1.3].

3.3.1.1 The Scope of the Dispute Settlement Provision in the Treaty

The first obstacle that counterclaims face in treaty-based investment arbitration

constitutes the wording of the provision referring to arbitration. Considering the
consensual nature of investment arbitration, the possibility to raise counterclaims

118
On that account, Ana Vohryzek-Griest described the instrument of counterclaims in investment
arbitration, perhaps provokingly, as a ‘history of 30 years of failure’, a label that subsequently has
been taken up by several authors see, Vohryzek-Griest (2009), p. 83.
119
Clodfelter and Tsutieva (2018), para. 17.46.
120
Popova and Poon (2015), p. 228.
121
de Nanteuil (2018), pp. 377 et seqq.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 93

demands the interpretation of the respective arbitration agreement.122 There are two
kinds of formulations of such provisions that may be construed as restricting the
tribunal’s jurisdiction over counterclaims: first, the state’s possibility to bring claims
or legal standing [Sect. 3.3.1.1.1]. Second, the limited scope ratione materiae over
treaty breaches [Sect. 3.3.1.1.2]. Although both features may overlap, for the
purpose of clarity, they will be explained separately.

3.3.1.1.1 A State’s Legal Standing for Submitting Claims: Obstacle

or Logical Starting Point?

Treaties use different wordings in providing for investment arbitration. Some IIAs
leave the initiation of proceedings open to either the investor or the host state.123 In
case of state claims against the investor, such IIAs presuppose that the investor has
consented to international arbitration. Other IIAs grant the investor the exclusive
right to initiate arbitration proceedings.124
One may argue that state counterclaims can only be admitted as long as the
respective dispute resolution provision grants legal standing to the state to submit a
claim.125 Conversely, treaty provisions conferring upon the investor the exclusive
right to initiate arbitration proceedings may suggest that the state has not legal

122
Kryvoi (2012), p. 226; Bjorklund (2013), p. 466; Hoffmann (2013), p. 446; Dudas
(2016), p. 395.
123
See for instance: Italy-Chad BIT (1969), Art 7; UK-Singapore BIT (1975), Art 8; Korea-UK BIT
(1976), Art 8(1); UK-Sri Lanka BIT (1980), Art 8(3); OIC Investment Agreement (1981), Art 17(1)
(2)(a); Romania-Sri Lanka BIT (1981), Art 7(2); US-Panama BIT (1982), Art VII(2);
France-Pakistan BIT (1983), Art 8; Senegal-Tunisia BIT (1984), Art 8; St Lucia-Germany BIT
(1985), Art 10(2); Sri Lanka-China BIT (1986), Art 13(2); UK-Jamaica BIT (1987), Art 9(1);
Malta-BLEU BIT (1987), Art 8(2); Hungary-Denmark BIT (1988), Art 9(2); France-Nigeria BIT
(1990), Art 8(2); Netherlands-Czech Republic BIT (1991), Art 8; Germany-Argentina BIT (1991),
Art 10(3); US-Estonia BIT (1994), Art VI(3)(b); Russia-Mongolia BIT (1995) Art 6; Peru-Germany
BIT (1995), Art 10(3); Germany-Ghana BIT (1995), Art 12(2); China-Saudi Arabia BIT (1996), Art
8(2); UK-El Salvador BIT (1999), Art 8(3); Netherlands-Algeria BIT (2007), Art 9.
124
See for instance: Netherlands-Kenya BIT (1970), Art 11; Japan-Egypt BIT (1977), Art 11;
Singapore-BLEU BIT (1978), Art 9; Netherlands-Senegal BIT (1979), Art 10; Korea-Italy BIT
(1989), Art 10(2); Poland-Kuwait BIT (1990), Art 10(2)(b); France-Argentina BIT (1991), Art 8(2);
Norway-Lithuania BIT (1992), Art IX(2); Germany-Belarus BIT (1993), Art 11; ECT (1994), Art
26(2); Croatia-Canada BIT (1997), Art XII; Indonesia-Bangladesh BIT (1998), Art VIII(2); Israel-
Armenia BIT (2000), Art 8(3); Turkey-Greece BIT (2000), Art VII(2); Austria-Iran BIT (2001), Art
11(2); Finland-Uruguay BIT (2002), Art 9(2); Spain-Albania BIT (2003), Art 11(2); Thailand-
Jordan BIT (2005), Art 11(2); Mexico-Trinidad and Tobago BIT (2006), Art 13; Panama-Sweden
BIT (2008), Art 8(2); China-Malta BIT (2009), Art 9(2); Canada-Czech Republic BIT (2009), Art X
(2); Moldova-Estonia BIT (2010), Art 11(2); Japan-Colombia BIT (2011), Art 27; Switzerland-
Tunisia BIT (2012), Art 11(2); Canada-Benin BIT (2013), Art 23; Colombia-France BIT (2014),
Art 15(4); Russia-Cambodia BIT (2015), Art 8(2); Austria-Kyrgyzstan BIT (2016), Art 14; Israel-
Japan BIT (2017), Art 24(2); Turkey-Cambodia BIT (2018), Art 9(2); Hungary-Kyrgyzstan BIT
(2020), Art 9(3).
125
Kjos (2007), pp. 611 et seqq.; Dudas (2016), pp. 401–402; Bilanová (2020), p. 402.
94 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

standing to raise a claim, and accordingly, it is prevented from the possibility to raise
a counterclaim.126 This aspect of counterclaims has been referred to, perhaps
inappropriately, as ‘jurisdiction ratione personae’.127 However, state legal standing
and jurisdiction ratione personae pertain to different notions.
The tribunal’s jurisdiction ratione personae alludes to the parties to the dispute in
investment arbitration namely the host state and the protected foreign investor.128
For instance, under the ICSID Convention, the tribunal’s jurisdiction ratione perso-
nae is limited to disputes ‘between a Contracting State (or any constituent subdivi-
sion or agency of a Contracting State designated to the Centre by that State) and a
national of another Contracting State’.129 Similarly, each IIA determines the con-
ditions ratione personae for submitting a claim to investment arbitration,130 defining
who are protected investors and possible respondent states. If the disputing parties
fulfil the requirements or conditions of the underlying treaty with regards to the
definition of investor and of host state, the tribunal ought to enjoy jurisdiction
ratione personae irrespective of the possibility for the state to submit claims
(or counterclaims for that matter). Thus, the state’s legal standing to submit claims
should not be confused with the tribunal’s jurisdiction ratione personae, as the latter
encompasses the disputing parties over which the tribunal has jurisdiction, whereas
the former goes one step further and addresses whether one of those disputing
parties, ie the state, may bring a claim.
It follows from this that the issue is not whether the tribunal’s jurisdiction ratione
personae plays a role for counterclaims (because the disputing parties are the same
as to the main claim) but rather whether the state’s lack of legal standing to submit
claims affects the possibility of counterclaims. The reason behind such conflation
may lie in the conceptualisation of a counterclaim as an independent claim of the
respondent. If the state lacks legal standing to raise a claim against the foreign
investor, it would equally lack legal standing to raise a counterclaim.
By such logic, some tribunals have considered the dispute settlement provisions
that do not provide for the state’s legal standing to submit a claim as an obstacle for
counterclaims. For instance, in the Roussalis v Romania case, one of the arguments
to decline jurisdiction over the counterclaims was that the treaty did not contemplate
claims to be introduced by the host state.131 Similarly, the Gavazzi v Romania
tribunal considered that the underlying treaty only conferred upon the investor the

126
Clodfelter and Tsutieva (2018), para. 17.60. Similarly, de Nanteuil (2018), p. 378; Sharpe and
Jacob (2018), pp. 353 et seqq.
127
Dudas (2016), pp. 401 et seqq.; Kjos (2007), p. 611.
128
Dolzer et al. (2022), p. 354; Waibel (2015), p. 1241.
129
ICSID Convention, Art 25(1).
130
Reed and Davis (2015), p. 616.
131
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) para.
869.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 95

right to claim in arbitration against the host state.132 However, the dissenting
arbitrator Mauro Rubino-Sammartano criticised such decision and stated:
The omission of any express mention of the Host State’s right to file a counterclaim may be
due to the fact that the drafters of the BIT focused on the protection of the investor. One has
then to consider whether this omission excludes any counterclaim by the Host State against
the investor before the arbitration forum provided for by the BIT.
...
Since the counterclaim is an extension of the Respondent’s defence against the claim, one
has to consider whether counterclaims are included within the consent of the Parties to
arbitrate before the Tribunal their dispute arising from the investment.133

The tribunal in the Rusoro Mining v Venezuela case held as one of the reasons for
denying jurisdiction over the counterclaim that, by its literal wording, ‘the Treaty
affords investors, and only investors, standing to file arbitrations against host
States’.134 In the Karkey v Pakistan case, siding with the tribunal’s decision in
Roussalis v Romania, the tribunal declined jurisdiction over the counterclaims,
among other reasons, given that the underlying treaty only enabled arbitration at
the investor’s initiative.135
The tribunal in the Iberdrola v Guatemala case noted first that by the wording of
the dispute settlement provision in the underlying BIT, the Spain-Guatemala BIT
(2002), the right to initiate arbitration was only bestowed on the investor.136
Consequently, relying on the Karkey v Pakistan decision, the tribunal declined
jurisdiction over the counterclaim.137 A last tribunal that deemed the lack of the
state’s legal standing as an obstacle for counterclaims was in the Naturgy v Colombia
case. The tribunal analysed in detail the dispute settlement provision of the under-
lying treaty, ie Article 10 Spain-Spain BIT (2005), and concluded ‘[i]t is doubtful, in
this Tribunal’s view, that in the context of such a precisely defined dispute resolution
procedure, the Contracting parties would have omitted addressing state counter-
claims if it was truly their intention that an arbitral tribunal’s jurisdiction should
extend to such counterclaims’. 138

132
Marco Gavazzi and Stefano Gavazzi v Romania, ICSID Case No ARB/12/25, Decision on
Jurisdiction, Admissibility and Liability (21 April 2015) para. 151.
133
Marco Gavazzi and Stefano Gavazzi v Romania, ICSID Case No ARB/12/25, Dissenting
Opinion (14 April 2015) para. 42(i).
134
Rusoro Mining Ltd v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/12/5, Award
(22 August 2016) para. 627.
135
Karkey Karadeniz Elektrik Uretim AS v Islamic Republic of Pakistan, ICSID Case No ARB/13/
1, Award (22 August 2017) para. 1013.
136
Iberdrola Energía SA v The Republic of Guatemala (II), PCA Case No 2017-41, Award
(24 August 2020) para. 386.
137
Iberdrola Energía SA v The Republic of Guatemala (II), PCA Case No 2017-41, Award
(24 August 2020) paras. 390–391.
138
Naturgy Energy Group SA and Naturgy Electricidad Colombia SL (formerly Gas Natural SDG
SA and Gas Natural Fenosa Electricidad Colombia SL) v Republic of Colombia, ICSID Case No
UNCT/18/1, Award (12 March 2021) para. 616.
96 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

In the same vein, some tribunals have considered that treaty dispute settlement
provisions open to both investor and host state support the finding of jurisdiction
over counterclaims. In the Al-Warraq v Indonesia case, despite the wording of
Article 17 OIC Investment Agreement (1981), whereby ‘each [disputing] party
has the right to resort to the Arbitration Tribunal for a final decision on the dispute’,
the claimant argued that the treaty did not provide for ‘a state’s right to a cause of
action against an investor’.139 The tribunal nevertheless interpreted the state’s right
to resort to arbitration under the OIC Investment Agreement (1981) as entitling the
state to either initiate arbitration or to file counterclaims.140
The Urbaser v Argentina tribunal found that the dispute resolution provision in
the underlying treaty was ‘completely neutral as to the identity of the claimant or
respondent’.141 Consequently, ‘it cannot happen that in acting first one party could
prevent the other from raising its claim. This can be avoided only by admitting the
possibility of a counterclaim’.142 Similarly, in the Tethyan v Pakistan case, the
underlying treaty allowed both the investor and the host state to initiate proceedings,
thus, the tribunal considered this as an indication that the state could raise
counterclaims.143
Conversely, some tribunals have not deemed the lack of the state’s legal standing
to submit a claim as an impediment for counterclaims either explicitly or implicitly.
In the Amto v Ukraine case, the claimant argued that the respondent had no standing
to file a claim or counterclaim.144 The tribunal did not analyse the legal standing
argument and rather dismissed the counterclaim stating that the respondent failed to
present the legal basis for non-material injury to reputation in the treaty or interna-
tional law.145 In the Inmaris v Ukraine case, despite the fact that pursuant to Article
11 Germany-Ukraine BIT (1993),146 the submission to arbitration was conferred
exclusively on the investor, the tribunal focused on the definition of dispute and

139
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) para. 476.
140
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) paras. 660–661.
141
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1143.
142
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1144.
143
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) paras. 1418–1419.
144
Limited Liability Company Amto v Ukraine, SCC Case No 080/2005, Award (26 March 2008)
para. 35.
145
Limited Liability Company Amto v Ukraine, SCC Case No 080/2005, Award (26 March 2008)
para. 118.
146
Germany-Ukraine BIT (1993), Art 11: (‘(1) Meinungsverschiedenheiten in bezug auf
Kapitalanlagen zwischen einer der Vertragsparteien und einem Staatsangehörigen oder einer
Gesellschaft der anderen Vertragspartei sollen, soweit möglich, zwischen den Streitparteien gütlich
beigelegt werden. (2) Kann die Meinungsverschiedenheit innerhalb einer Frist von sechs Monaten
ab dem Zeitpunkt ihrer Geltendmachung durch eine der beiden Streitparteien nicht beigelegt
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 97

considered that the counterclaim ‘is a dispute between [Respondent] and Claimants
“with regard to [Claimants’] investments”; further, it is a component of the larger
dispute that Claimants have consented to submit to this arbitration’.147 Therefore,
the tribunal acknowledged jurisdiction over the counterclaim.
In the Metal-Tech v Uzbekistan case, one of the claimant’s arguments was that
Uzbekistan lacked standing to bring a claim.148 Indeed, pursuant to Article 8 Israel-
Uzbekistan BIT (1994), the institution of arbitral proceedings was granted at the
investor’s behest.149 However, given the wording of the provision, the tribunal
considered that its jurisdiction was not ‘restricted to disputes initiated by an investor
against a Contracting Party. It covers any dispute about an investment’.150 In the
case of Oxus v Uzbekistan, pursuant to Article 8 UK-Uzbekistan BIT (1993), the
submission of a claim to international arbitration was subject to the investor’s
discretion. Based on this provision, the tribunal held that ‘the Parties’ consent to
arbitration under the BIT only cover claims from investors against the host State, but
not claims from the host State against the investors’ but it also contemplated an
outside-treaty caveat to such rule namely ‘to the possible exception of counter-
claims having a close connection with the investor’s claims’.151
Finally, the tribunal deciding in a similar direction was constituted for the David
Aven v Costa Rica case. The tribunal recognised that other arbitral tribunals have
traditionally declined jurisdiction over counterclaims, yet there were recent decisions
in the opposite direction.152 In spite of the underlying treaty granting standing to
submit claims only to the investor,153 the David Aven v Costa tribunal relied on the

werden, so wird sie auf Verlangen des Staatsangehörigen oder der Gesellschaft der anderen
Vertragspartei einem Schiedsverfahren unterworfen. . .’) (emphasis added).
147
Inmaris Perestroika Sailing Maritime Services GmbH and Others v Ukraine, ICSID Case No
ARB/08/8, Award (01 March 2012) para. 432.
148
Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (04 October 2013)
para. 400.
149
Israel-Uzbekistan BIT (1994), Art 8: (‘1. Each Contracting Party hereby consents to submit to
the ICSID for settlement by conciliation or arbitration under the Convention, any legal dispute
arising between that Contracting Party and a national or company of the other Contracting Party
concerning an investment of the latter in the territory of the former (. . .) 3. If any such dispute
should arise and cannot be resolved, amicably or otherwise, within three (3) months from written
notification of the existence of the dispute, then the investor affected may institute conciliation or
arbitration proceedings by addressing a request to that effect to the Secretary-General of the
Centre, as provided in Article 28 or 36 respectively of the Convention. The Contracting Party which
is a party to the dispute shall not raise as an objection at any stage of the proceedings or enforcement
of an award the fact that the investor which is the other party to the dispute has received, in
pursuance of an insurance contract, an indemnity in respect of some or all of his or its losses’)
(emphasis added).
150
Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (04 October 2013)
para. 410.
151
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 948.
152
David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Award
(18 September 2018) para. 736.
153
DR-CAFTA, Art 10.16 in conjunction with Art 10.18.
98 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

Urbaser v Argentina decision and on the declaration of Michael Reisman in the

Roussalis v Romania case, sustaining that there was no ‘reason of principle to
declare inadmissible a counterclaim in which the Respondent State claims that the
foreign investor has breached obligations falling within the scope of [the tribunal’s
jurisdiction]’.154
All in all, utilising the state’s lack of standing for submitting a claim as an
obstacle for counterclaims might rather be an oversimplification. Conferring the
right to initiate arbitration exclusively on the investor may simply underscore the
states’ consent to resort to arbitration.155 Particularly, considering the unique func-
tioning of treaty-based investment arbitration whereby consent is achieved in two
stages: first, the state provides its prospective and generalised consent; second, the
investor consents normally by filing its notice of arbitration. The state cannot initiate
arbitral proceedings against the investor based on the treaty simply because the
investor’s consent would be lacking. This is reaffirmed by the wording of the IIAs
discussed above, whereby the initiation of arbitral proceedings was open to the state
only because those treaties required investors to have previously consented to
arbitration. In other words, treaty-based investment arbitration necessitates the
investor to be the moving party (or as in certain treaties, to provide its consent in
advance) since its consent is the missing piece to form an arbitration agreement.
As such, for state counterclaims, the investor would have already consented to
arbitration and initiated proceedings. Thus, one cannot equate both situations: state
claims and state counterclaims. Accordingly, subjecting the possibility of raising
counterclaims to the legal standing to initiate proceedings is not only unreasonable
but also inconsistent with the system’s functioning.
In this context, some authors suggest that the nub of the matter is whether the
dispute resolution clause in the treaty contains a broad wording as to include, for
instance ‘all disputes’, within the tribunal’s jurisdiction, rather than the legal stand-
ing to initiate proceedings.156 This issue of the tribunal’s jurisdiction over certain

154
David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Award
(18 September 2018) paras. 737–742.
155
Kjos (2013), pp. 140–141. For a different opinion, considering that in such cases the state parties
purposefully decided to grant exclusive access to arbitration to investors see, Hoffmann (2013),
p. 450; Vöneky (2020), p. 351.
156
Ishikawa (2017), p. 726: (‘It is submitted here that the scope of arbitrable disputes as expressed
in the dispute resolution clause is of crucial importance. If it is limited to disputes arising from the
host State’s alleged breach of IIA obligations, then it is an indication of the contracting parties’
intention to exclude jurisdiction over counterclaims, arguably showing their preference to resolve
their claims against investors in national courts. Conversely, if it is broadly defined. . .it strongly
suggests that the contracting parties consent to jurisdiction over disputes giving rise to counter-
claims’); Atanasova et al. (2014), p. 377: (‘In view of the uncertain tenure of reserving the right to
initiate proceedings only to investors, and due to the specific structure of investment treaty
arbitration, it would be too strict a reading to discard the possibility of counterclaims by a host
state on this basis alone’); Clodfelter and Tsutieva (2018), para. 17.61: (‘it has been submitted that,
in the absence of additional limiting language (i.e. a narrowly worded dispute settlement clause), a
one-sided locus standi cannot be construed as necessarily excluding counterclaims’).
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 99

kind of disputes and its impact on the possibility to raise counterclaims is addressed
in the next section.

3.3.1.1.2 What Kind of Disputes Are within the Tribunal’s Jurisdiction:

(Solely) Treaty Breaches?

The second kind of formulations in dispute settlement treaty provisions, which might
be construed (or have been construed) as restricting a tribunal’s jurisdiction over
counterclaims, relates to the types of disputes that may be submitted to investment
arbitration. Some IIAs establish that ‘any kind of dispute’ or ‘all disputes’ arising out
of a protected investment may be submitted to investment arbitration.157 Other IIAs
restrict investment arbitration to the violation of the substantive standards of pro-
tection embedded in the respective treaty.158 For the purpose of clarity, the former

157
See for instance: Japan-Egypt BIT (1977), Art 11 (‘any legal dispute’); Sweden-Egypt BIT
(1978) Art 6 (‘a dispute. . .in connection with an investment’); Sweden-Serbia BIT (1978) Art 6 (‘a
dispute. . .in connection with an investment’); Singapore-BLEU BIT (1978), Art 9(1) (‘any legal
dispute’); UK-Sri Lanka BIT (1980), Art 8(1) (‘any legal disputes’); Romania-Sri Lanka BIT
(1981), Art 7(1) (‘any legal dispute’); France-Pakistan BIT (1983), Art 8(1) (‘tout différend’); St
Lucia-Germany BIT (1985), Art 10(1) (‘investment disputes’); Sri Lanka-China BIT (1986), Art
13(1) (‘any dispute’); Germany-Belarus BIT (1993), Art 11 (‘Meinungsverschiedenheiten in bezug
auf Kapitalanlagen’); China-Saudi Arabia BIT (1996), Art 8(1) (‘Disputes concerning invest-
ments’); Indonesia-Bangladesh BIT (1998), Art VIII(1) (‘Any dispute’); Israel-Armenia BIT
(2000), Art 8(1) (‘any legal dispute’); Austria-Iran BIT (2001), Art 11 (‘any dispute’); Finland-
Uruguay BIT (2002), Art 9(1) (‘cualquier controversia de naturaleza legal’); Guatemala-Italy BIT
(2003), Art 9(1) (‘cualquier controversia sobre inversiones’); Thailand-Jordan BIT (2005), Art
11(1) (‘dispute with respect to investments’); Italy-Bahrain BIT (2006), Art 10(1) (‘Any legal
dispute’); Netherlands-Algeria BIT (2007), Art 9 (‘tout différend’); Panama-Sweden BIT (2008),
Art 8(1) (‘toda diferencia’); Moldova-Estonia BIT (2010), Art 11(1) (‘any dispute’); Armenia-Iraq
BIT (2012), Art 8(1) (‘Disputes arising between’);Russia-Cambodia BIT (2015), Art 8-
(1) (‘disputes. . .in connection with an investment’); Turkey-Cambodia BIT (2018), Art 9-
(1) (‘disputes. . .in connection with his investment’); Nicaragua-Iran BIT (2019), Art
12(1) (‘cualquier controversia’).
158
See for instance: Hungary-Denmark BIT (1988), Art 9(2) (‘any dispute arising under Article
5 [Expropriation]’); Poland-Kuwait BIT (1990), Art 10(2)(b) (‘a dispute concerning expropria-
tion’); UK-Czech and Slovak Republic BIT (1990), Art 8(1) (‘Disputes. . .concerning the obligation
of [a Contracting Party] under Articles 2(3), 4, 5 and 6 of this Agreement’); ECT (1994), Art
26(1) (‘Disputes. . .which concern an alleged breach of an obligation. . .under Part III [of the
Treaty]’); Germany-Ghana BIT (1995), Art 12(1) (‘Streitigkeiten. . .hinsichtlich einer
Verpflichtung der [Vertragspartei] aufgrund dieses Vertrags’); Ghana-Malaysia BIT (1996), Art
7(1) (‘Disputes. . .concerning an obligation of [a Contracting Party] under this agreement’);
Croatia-Canada BIT (1997), Art XII(1) (‘in breach of this Agreement’); France-Mexico BIT
(1998), Art 9(1) (‘disputes concerning an alleged breach of an obligation of [a Contracting Party]
under this Agreement’); Turkey-Greece BIT (2000), Art VII(1) (‘disputes. . .concerning an
obligation. . .under this agreement’); India-Bahrain BIT (2004), Art 9(1) (‘any dispute. . .under
this Agreement’); Mexico-Trinidad and Tobago BIT (2006), Art 11 (‘controversias. . .derivadas
de un presunto incumplimiento de una obligación. . .en el Capitulo II’); China-Malta BIT (2009),
Art 9(1) (‘investment dispute regulated by this Agreement’); Japan-Colombia BIT (2011), Art

Licensed to Dymas Satrioprojo ([email protected])

100 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

group of clauses will be referred to as ‘broad/broadly drafted’ whereas the latter

group will be indicated as ‘narrow/narrowly drafted’.
On that account, it has been propounded that dispute settlement provisions in IIAs
restricting the tribunal’s jurisdiction to the violation of the treaty (which usually do
not foresee investors’ obligations but rather only states’ obligations) hinder the
possibility of state counterclaims.159 In contrast, dispute settlement provisions in
IIAs couched in broad terms are ‘more conducive’ to state counterclaims.160 The
latter kind of provisions are deemed to be wide enough to cover a more compre-
hensively range of issues not necessarily governed by the treaty itself like for
example tort claims.161
The reason behind the differentiation of broad and narrow provisions is placed on
the consensual character of arbitration. Besides, in treaty-based investment arbitra-
tion not only consent is framed by the terms of treaty, but it also tends to be focused
on the investor’s one-sided rights.162 Hence, narrowly worded dispute settlement
provisions in IIAs display states’ consent to exclude state counterclaims, placing any
investor’s violation outside the scope of tribunal’s jurisdiction.163 Certainly, effi-
ciency considerations may tilt the tribunal towards allowing state counterclaims in

27 (‘that the disputing Party has breached an obligation under Chapter II’); Switzerland-Tunisia BIT
(2012), Art 11 (‘concerning an alleged breach of this Agreement’); Canada-Benin BIT (2013), Art
23 (‘the respondent Contracting Party has breached an obligation under Chapter II’); Colombia-
France BIT (2014), Art 15 (‘una supuesta violación de una obligación del presente Acuerdo’);
Austria-Kyrgyzstan BIT (2016), Art 13 (‘an alleged breach of an obligation of the [Contracting
Party] under this Agreement’); Israel-Japan BIT (2017), Art 24(2) (‘the [Contracting Party] has
breached an obligation under [this Treaty]’); Singapore-Myanmar BIT (2019), Art 11-
(1) (‘concerning an alleged breach of an obligation of [a Party] under this Agreement’).
159
Kjos (2007), p. 611: (‘The fact that the arbitration agreement only encompasses host State
obligations does create an obstacle for host State counter-claims. Since the parties have not agreed
to settle through arbitration disputes concerning investor obligations, any grievance against the
investor would not have a basis in the parties’ arbitration agreement, and would consequently seem
to fall outside the jurisdiction of the tribunal’); Lalive and Halonen (2011), p. 147: (‘By contrast, a
clause that limits jurisdiction to claims brought under the BIT itself would in all likelihood not
suffice for counterclaims to be introduced, as BITs generally impose no obligations on investors,
only on states’). Similarly, Bjorklund (2014), pp. 265–266.
160
Douglas (2009), para. 488: (‘when the consent of the contracting state parties to investor/state
arbitration in an investment treaty is couched in broad terms, there is nothing in principle to exclude
a tribunal’s ratione materiae jurisdiction over counterclaims’); Bjorklund (2013), p. 468: (‘Some
ISDS provisions are quite broad and confer on tribunals the authority to hear any “dispute between
an investor of one Contracting Party and the other Contracting Party in connection with an
investment,” or some similar formulation. Such a clause appears to be more conducive to counter-
claims compared to narrow ISDS clauses that limit arbitrable claims to those alleging the breach of a
treaty provision’); Jain (2013), p. 146: (‘If the scope of the dispute settlement procedure extends to
all obligations, consent for counterclaims may be presumed’).
161
Douglas (2009), para. 253. Similarly, Schreuer (2014), pp. 7–10. For a different opinion, see
Steingruber (2020), p. 630.
162
Kjos (2007), pp. 599–600.
163
Sharpe and Jacob (2018), pp. 352–353.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 101

investment arbitration, nevertheless, such considerations pale in comparison to the

narrowly worded provisions in a treaty.164
Consequently, although one may argue that the state’s legal standing is not
conclusive of the exclusion of state counterclaims in treaty-based investment arbi-
tration, a narrowly worded dispute settlement provision in the treaty may fit the bill.
It could even be suggested that a combination of both a limited legal standing and a
narrow treaty provision is more likely to result in the exclusion of state counter-
claims from the tribunal’s jurisdiction.165
Various arbitral tribunals have dealt with narrowly worded dispute resolution
clauses and rejected counterclaims because of it. In the Roussalis v Romania case,
one of the arguments to decline jurisdiction over counterclaims was that the treaty
limited the range of disputes to only those arising out of obligations of the host state
under the treaty.166 This decision however seems to encompass the combination of
lack of the state’s legal standing, applicable law and the scope of disputes to dismiss
the counterclaims at the jurisdictional stage.167 In the Rusoro Mining v Venezuela
case, one of the reasons for denying jurisdiction over the counterclaim was that
pursuant to the dispute resolution provision of the underlying treaty, the ‘[t]ribunal’s
power is limited to adjudicating disputes which arise from the BIT, and the obliga-
tions allegedly breached by Rusoro do not derive from and have no connection with
the Treaty’.168
Similarly to the approach of the Roussalis v Romania tribunal, the decision seems
to be grounded on a combination of factors such as, the applicable law, the lack of
cause of action against investors and the restricted scope of ‘arbitrable’ disputes.169
Here, it must be noticed that by ‘arbitrable’ disputes the tribunal simply referred to
the scope of disputes that according to the treaty may be subject to arbitration.
In the case of Karkey v Pakistan, siding with the tribunal’s decision on Roussalis
v Romania, the tribunal declined jurisdiction over the counterclaims, among other
reasons, given the restricted scope of the dispute resolution provision.170 However,
Article VII Pakistan-Turkey BIT (1995) does not define what kind of disputes may

164
Popova and Poon (2015), p. 230.
165
Kjos (2007), p. 614: (‘This leads us to conclude that whereas the sole reference to the investor’s
locus standi would not necessarily be conclusive with regard to the admissibility of counterclaims;
the combined features of a limited jurisdiction ratione personae and a limited jurisdiction ratione
materiae are more likely to have such effect’). Similarly, Hoffmann (2013), pp. 450–451.
166
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) para.
869.
167
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) paras.
869–875.
168
Rusoro Mining Ltd v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/12/5, Award
(22 August 2016) para. 628.
169
Rusoro Mining Ltd v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/12/5, Award
(22 August 2016) para. 623–629.
170
Karkey Karadeniz Elektrik Uretim AS v Islamic Republic of Pakistan, ICSID Case No ARB/13/
1, Award (22 August 2017) para. 1013.
102 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

be subject to arbitration. To the contrary, Article VII(1) of the BIT simply refers to
‘[d]isputes between one of the Parties and an investor of the other Party, in
connection with the investment’ without limiting jurisdiction to the substantive
standards of protection of the treaty in question. Thus, considering the broad consent
to arbitration, the tribunal might have seen an obstacle to its jurisdiction where there
was none.
The Anglo American v Venezuela tribunal was faced with a specific limitation in
its jurisdiction. Pursuant to Article 8(3) UK-Venezuela BIT (1995), ‘[t]he jurisdic-
tion of the arbitral tribunal shall be limited to determining whether there has been a
breach by the Contracting Party concerned of any of its obligations under this
Agreement’. Accordingly, the tribunal considered that such provision reflected a
clear intention to restrict the scope of disputes, thus, excluding host state
counterclaims.171
When the dispute resolution provision is broadly drafted as to the disputes subject
to arbitration, tribunals have reached opposite conclusions. For instance, the Tethyan
v Pakistan tribunal interpreted a broadly couched dispute resolution provision in
Article 13 Australia-Pakistan BIT (1998), as indicative of the parties’ consent to
extend the tribunal’s jurisdiction not only to treaty violations, but also to counter-
claims based on investment contracts or on the regulatory framework for the
investment.172 Similarly, the Gardabani v Georgia tribunal construed the underlying
Article 9 Netherlands-Georgia BIT (1998) as “sufficiently broad” to encompass
counterclaims based on contractual instruments.173
Interestingly, the Paushok v Mongolia tribunal paid lip service to the broad
wording of Article 6 Russia-Mongolia BIT (1995), and considered that the counter-
claims related to taxes were neither within the purview of arbitral tribunals nor
connected to the main claim.174 Here, the tribunal mistakenly confused the requisite
jurisdiction with connection (as many other tribunals), but most importantly, the
Paushok v Mongolia tribunal misconstrued its mandate in treaty-based investment
arbitration.175

171
Anglo American PLC v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/14/1,
Award (18 January 2021) paras. 526–528.
172
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) para. 1420.
173
It must be noted that in this case, the application of the umbrella clause as invoked by the
claimant also played in favour of jurisdiction over the counterclaim, see Gardabani Holdings BV
and Silk Road Holdings BV v Georgia, ICSID Case No. ARB/17/29, Award (27 October 2022)
para. 374.
174
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) paras.
694 et seqq.
175
Further on this see Sect. 4.3.3.1.2.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 103

On a slightly different direction, the Hamester v Ghana tribunal took notice that
consent was limited to disputes relating to the state’s obligations under the treaty.176
However, the Tribunal highlighted that Article 12 Germany-Ghana BIT (1995)
contemplated the possibility of a state party to be aggrieved and thus entitled to
refer the dispute to arbitration.177 It thus seems that the tribunal was open to adjudge
host state counterclaims despite the restrictive wording on the types of disputes
subject to arbitration.
This overview of case law displays three different approaches. First, when the
treaty restricts the kind of disputes subject to arbitration, tribunals in cases such as
Roussalis v Romania, Rusoro Mining v Venezuela and Anglo American v Venezuela
have declined jurisdiction over counterclaims, whereas broadly drafted dispute
resolution provisions, such as in the Tethyan v Pakistan case may lead to an opposite
conclusion. Second, even if having open dispute resolution provisions vis-à-vis the
kind of disputes subject to arbitration, tribunals, such in the Karkey v Pakistan case,
may be reluctant to adjudge counterclaims. Third, the Hamester v Ghana tribunal did
not see as an obstacle the allegedly restricted definition of disputes in the treaty given
the other indications pointing to the state’s possibility to raise complaints.

3.3.1.2 Applicable Law to the Substance of a Counterclaim

as a Jurisdictional Barrier?

While Chap. 5 will elaborate on the applicable law to the substance of an environ-
mental counterclaim, this section puts forward that an applicable law provision does
not constitute a jurisdictional barrier for state counterclaims in treaty-based invest-
ment arbitration. The concept of ‘applicable law’ in treaty-based investment arbitra-
tion is usually used for three situations namely the substance of the dispute, the
agreement to arbitrate, and the arbitration procedure.178 With regards to counter-
claims, the applicable law to the substance of the counterclaim has appeared as an
obstacle, particularly when it does not match the treaty’s applicable law provisions.
In this sense, some tribunals have taken into account applicable law provisions as
one of the reasons for declining jurisdiction over counterclaims. In the Amto v
Ukraine case, the respondent host state requested compensation for alleged
non-material injury to its reputation.179 The tribunal opened its reasoning with the
‘jurisdiction of an Arbitral Tribunal over a State party counterclaim under an
investment treaty depends upon the terms of the dispute resolution provisions of

176
Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24,
Award (18 June 2010) para. 353.
177
Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24,
Award (18 June 2010) para. 354.
178
McLachlan et al. (2017), para. 398. Other authors may differentiate between applicable law in
procedure, jurisdiction, privilege among others, see Thomas and Dhillon (2014), p. 975.
179
Limited Liability Company Amto v Ukraine, SCC Case No 080/2005, Award (26 March 2008)
para. 35.
104 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

the treaty. . .’.180 The tribunal dismissed the counterclaim on non-material injury to
reputation because there was no basis on the applicable law provision in the treaty
for it, since it only referred to the treaty itself (the ECT (1994)) and public interna-
tional law.181 It may thus be assumed that the applicable law provision in the ECT
(1994) was indeed a jurisdictional barrier for this tribunal.
In the Roussalis v Romania case, one of the arguments to decline jurisdiction over
counterclaims was that the applicable law provision referred exclusively to the treaty
itself and public international law, both of which did not foresee obligations of the
investors.182 Similarly in the Rusoro Mining v Venezuela case, one of the reasons for
denying jurisdiction over the counterclaim was that ‘the Tribunal must decide the
dispute in accordance with the Treaty and the principles of international law, and
the dispute underlying the counterclaim – that Rusoro breached the mine plan – and
cannot be adjudicated by applying the Treaty or principles of international law’.183
Finally, another example is the Naturgy v Colombia case. Here, the counterclaim
was based on the claimants’ alleged mismanagement of the domestic company
Electricaribe SA ESP.184 However, the tribunal considered that ‘the Treaty simply
does not appear to govern the investor’s management of its investment in a regu-
lated sector in accordance with the requirements of national law. Nor does Respon-
dent indicate where in the Treaty such an issue is addressed’.185 This was not the
only ground given by the tribunal to deny jurisdiction, but the line of reasoning
certainly shows the characterisation of applicable law to the counterclaim as a
jurisdictional issue.
The term ‘jurisdiction’ denotes the tribunal’s power to entertain a claim,186 which
is rooted in the parties’ consent. Likewise, provisions on applicable law may be the
result of the exercise of the autonomy that the parties enjoy.187 Accordingly, it has
been stated that a tribunal exceeds the boundaries of its powers (jurisdiction) if it
does not respect the parties’ agreement on the applicable law to the substance, which

180
Limited Liability Company Amto v Ukraine, SCC Case No 080/2005, Award (26 March 2008)
para. 118.
181
Limited Liability Company Amto v Ukraine, SCC Case No 080/2005, Award (26 March 2008)
para. 118.
182
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) para.
871.
183
Rusoro Mining Ltd v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/12/5, Award
(22 August 2016) para. 628.
184
Naturgy Energy Group SA and Naturgy Electricidad Colombia SL (formerly Gas Natural SDG
SA and Gas Natural Fenosa Electricidad Colombia SL) v Republic of Colombia, ICSID Case No
UNCT/18/1, Award (12 March 2021) para. 582.
185
Naturgy Energy Group SA and Naturgy Electricidad Colombia SL (formerly Gas Natural SDG
SA and Gas Natural Fenosa Electricidad Colombia SL) v Republic of Colombia, ICSID Case No
UNCT/18/1, Award (12 March 2021) para. 582 (footnotes omitted).
186
Waibel (2015), p. 1213. Similarly, Douglas (2009), paras. 291 et seqq.
187
Kjos (2013), p. 70.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 105

‘constitute[s] part of the definition of the tribunal’s mandate’.188 Should the tribunal
disregard the specific substantive law agreed upon by the parties, the resulting award
may be annulled under the ICSID Convention189 or refused to be enforced under the
New York Convention.190 Similarly, if tribunals mischaracterise the law applicable
to the issues before it, this would open the door for possible annulments or setting
aside.191 Therefore, a tribunal should not blatantly disregard the applicable law
provisions since they embody one piece of the parties’ agreement. Nevertheless,
those provisions’ role as a jurisdictional barrier to state counterclaims may be
overstated due to three reasons:
First, the permissible legal bases for a claim (or a counterclaim for that matter) are
defined in the jurisdictional title, which reflects the kind of disputes a tribunal can
entertain, rather than by applicable law provisions.192 In light of this, the latter
cannot alter the former. Illustratively, the relation between applicable law provisions
and the jurisdictional title was addressed by the tribunal in the OSPAR Arbitration
case. Article 32(1) OSPAR Convention subjects to arbitration only disputes relating
to the interpretation and application of the convention, whereas Article 32(6)
(a) OSPAR Convention foresees that the tribunal ‘shall decide according to the
rules of international law and, in particular, those of the OSPAR Convention’. As
held by the tribunal, the latter provision did not intend to extend a tribunal’s
jurisdiction to other obligations they parties may have assumed under other instru-
ments of international law beside the OSPAR Convention.193 Otherwise, it ‘would
transform [the consent in the OSPAR Convention] into an unqualified and compre-
hensive jurisdictional regime in which there would be no limit ratione materiae to the
jurisdiction of a tribunal’.194 This reasoning suggests that an applicable law provi-
sion in a treaty cannot expand the explicit powers the parties have bestowed on
arbitral tribunals. By the same token, a narrow applicable law provision could not in
turn restrict an otherwise broad jurisdictional title.

188
Hussein Nuaman Soufraki v The United Arab Emirates, ICSID Case No ARB/02/7, Decision on
Annulment (05 June 2007) paras. 37–45; Amco Asia Corporation and others v Republic of
Indonesia, ICSID Case No ARB/81/1, Decision on Annulment in Resubmitted Proceeding
(17 December 1992) para. 7.19; Empresas Lucchetti SA and Lucchetti Peru SA v The Republic of
Peru, ICSID Case No ARB/03/4, Decision on Annulment (05 September 2007) para. 98.
189
Schreuer et al. (2009), Art 52, mn. 195.
190
Borris and Hennecke (2019), mn. 235.
191
Hepburn (2017), pp. 105–108.
192
Atanasova (2019), pp. 399–400. Dafina Atanasova further argues that applicable law provisions
play a subsidiary role in the determination of the permissible legal bases, however, this situation is
not completely clear.
193
Dispute Concerning Access to Information under Article 9 of the OSPAR Convention (Ireland v
United Kingdom of Great Britain and Northern Ireland), PCA Case No 2001-03, Final Award
(02 July 2003) para. 85.
194
Dispute Concerning Access to Information under Article 9 of the OSPAR Convention (Ireland v
United Kingdom of Great Britain and Northern Ireland), PCA Case No 2001-03, Final Award
(02 July 2003) para. 85.
106 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

Second, an arbitral tribunal may be perfectly constituted and it may render its
decision on merits even if the underlying IIA does not contain an applicable law
provision. In fact, applicable law provisions are not ubiquitous to all IIAs. Although
newer treaties are more detailed and usually contain such provisions,195 older treaties
still in force lack a reference to the applicable law.196 In the absence of an agreement
on applicable law, other instruments may confer considerable leeway on the tribunal
to determine the proper applicable law to the substance of the dispute,197 for instance
Article 42 ICSID Convention,198 Article 35 UNCITRAL Arbitration Rules
(2013),199 Article 27 SCC Arbitration Rules (2017),200 and Article 21 ICC Arbitra-
tion Rules (2021),201 among others. Certainly, the tribunal ought to explain the
reasons for selecting a particular applicable law.202 But this shows that the absence
of parties’ agreement on applicable law does not affect the tribunal’s power to decide

195
From an empirical study, Dafina Atanasova concludes that applicable law provisions are more
common in recent treaties, see Atanasova (2019), p. 407.
196
As to 2012 slightly over 32% of IIAs with ISDS contain clauses on applicable law see Pohl et al.
(2012). Even more recent treaties with ISDS may not contain applicable law provisions, see for
instance: Korea-Cameroon BIT (2013); Israel-Myanmar BIT (2014); Colombia-France BIT (2014);
Kyrgyzstan-Kuwait BIT (2015); Ethiopia-UAE BIT (2016); Morocco-Nigeria BIT (2016);
Nicaragua-Iran BIT (2019); Uzbekistan-Korea BIT (2019); Kazakhstan-Singapore BIT (2018).
197
De Brabandere (2014), pp. 123–124.
198
ICSID Convention, Art 42: (‘(1) The Tribunal shall decide a dispute in accordance with such
rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall
apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws)
and such rules of international law as may be applicable. (2) The Tribunal may not bring in a finding
of non liquet on the ground of silence or obscurity of the law. (3) The provisions of paragraphs
(1) and (2) shall not prejudice the power of the Tribunal to decide a dispute ex aequo et bono if the
parties so agree’).
199
UNCITRAL Arbitration Rules (2013), Art 35: (‘1. The arbitral tribunal shall apply the rules of
law designated by the parties as applicable to the substance of the dispute. Failing such designation
by the parties, the arbitral tribunal shall apply the law which it determines to be appropriate. 2. The
arbitral tribunal shall decide as amiable compositeur or ex aequo et bono only if the parties have
expressly authorized the arbitral tribunal to do so. 3. In all cases, the arbitral tribunal shall decide in
accordance with the terms of the contract, if any, and shall take into account any usage of trade
applicable to the transaction’).
200
SCC Arbitration Rules (2017), Art 27: (‘(1) The Arbitral Tribunal shall decide the merits of the
dispute on the basis of the law(s) or rules of law agreed upon by the parties. In the absence of such
agreement, the Arbitral Tribunal shall apply the law or rules of law that it considers most
appropriate. (2) Any designation by the parties of the law of a given state shall be deemed to
refer to the substantive law of that state, not to its conflict of laws rules. (3) The Arbitral Tribunal
shall decide the dispute ex aequo et bono or as amiable compositeur only if the parties have
expressly authorised it to do so’).
201
ICC Arbitration Rules (2021), Art 21: (‘1) The parties shall be free to agree upon the rules of law
to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such
agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate. 2)
The arbitral tribunal shall take account of the provisions of the contract, if any, between the parties
and of any relevant trade usages. 3) The arbitral tribunal shall assume the powers of an amiable
compositeur or decide ex aequo et bono only if the parties have agreed to give it such powers’).
202
Such explanation turns the resulting award less vulnerable for annulment, see Kjos (2013), p. 82.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 107

the dispute in treaty-based investment arbitration. In other words, an agreement on

applicable law to the substance does not constitute a conditio sine qua non for the
tribunal’s jurisdiction.
Third, given the variety of issues dealt with in treaty-based investment arbitration,
many arbitral tribunals have been compelled to apply domestic law to certain issues
of the disputes, even in cases of narrowly worded applicable law provisions.203
Indeed, treaty-based investment arbitration is not a self-contained regime,204 and
irrespective of the applicable law provision, a tribunal might be directed to both
international and domestic law to settle a single dispute.205 For instance, issues of
property rights over the investment must be referred to domestic law of the state
where the assets are located because public international law does not comprise
property law.206 Necessarily, the role of applicable law provisions in treaty-based
investment arbitration appears relevant when discussing the cause of action for an
environmental counterclaim, which will be addressed in detail in Chap. 5.
Be that as it may, the scope of the tribunal’s jurisdiction remains to be framed by
the jurisdictional title, whereas the applicable law plays only a secondary role.
Therefore, it does not seem tenable to consider that applicable law provisions pose
jurisdictional barriers to counterclaims by themselves, but rather that any barrier will
be found in the jurisdictional title as such. An argument to the contrary would
exacerbate the already blurred function of applicable law clauses in treaty-based
investment arbitration.

3.3.1.3 The ICSID Convention and a Tribunal’s Jurisdiction Over

Counterclaims

The ICSID Convention warrants a separate analysis given that it specifically

addresses counterclaims. In particular, Article 46 ICSID Convention provides:

203
Fraport AG Frankfurt Airport Services Worldwide v Republic of The Philippines, ICSID Case
No ARB/11/12, Award (10 December 2014) para. 298; Bayview Irrigation District et al v United
Mexican States, ICSID Case No ARB(AF)/05/1, Award (19 June 2007) paras. 109–118; Mobil
Investments Canada Inc and Murphy Oil Corporation Inc v Canada, ICSID Case No ARB(AF)/07/
4, Decision on Liability and on Principles of Quantum (22 May 2012) paras. 354–355.
204
Simma and Pulkowski (2015), p. 361. Similarly, Douglas (2003), pp. 195 et seqq.
205
Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No ARB/87/3, Award
(27 June 1990) para. 21; BG Group Plc v Republic of Argentina, UNCITRAL Case, Award
(24 December 2007) para. 100; CMS Gas Transmission Company v The Republic of Argentina,
ICSID Case No ARB/01/8, Award (12 May 2005) para 116. In a more nuanced approach and
considering the treaty nature of the claims, the Azurix v Argentina tribunal approached Argentinian
domestic law only as an ‘element of inquiry’, however, without specifying what that means, see
Azurix Corp v The Argentine Republic, ICSID Case No ARB/01/12, Award (14 July 2006) para. 67.
206
Douglas (2009), paras. 101 et seqq.; Bjorklund (2014), pp. 273–274; Asteriti (2015), p. 265. This
was equally recognised by investment tribunals, for instance, EnCana Corporation v Republic of
Ecuador, LCIA Case No UN3481, Award (3 February 2006) para. 184.
108 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine
any incidental or additional claims or counterclaims arising directly out of the subject-matter
of the dispute provided that they are within the scope of the consent of the parties and are
otherwise within the jurisdiction of the Centre.

The ICSID Arbitration Rules (2006) duplicate the provision of the Convention in its
Rule 40207 (Rule 48 in the newly adopted rules of 2022208), adding on time limits for
the presentation of ‘ancillary claims’. Whilst Article 46 ICSID Convention seems to
address the arbitral tribunal,209 Rule 40 ICSID Arbitration Rules (2006) (or Rule
48 ICSID Arbitration Rules (2022)) seems to address the disputing parties. In any
case, and despite its apparent simple wording, Article 46 ICSID Convention has
been a serious bone of contention. Accordingly, this section addresses the drafting
history of Article 46 ICSID Convention and the issue of consent [Sect.
3.3.1.3.1]. Subsequently, this section delves into the doctrine of ‘ipso facto’ impor-
tation of consent [Sect. 3.3.1.3.2] and its interaction with Article 26 ICSID Conven-
tion [Sect. 3.3.1.3.3]. Finally, it analyses the apparently extra requirement of
‘otherwise within the jurisdiction of the Centre’ [Sect. 3.3.1.3.4].

3.3.1.3.1 Drafting History of Article 46 ICSID Convention and the Issue

of Consent

Originally, in the ICSID travaux préparatoires, the provision on counterclaims read

‘[e]xcept as the parties otherwise agree, the Tribunal shall have the power to hear
and determine incidental or additional claims or counter-claims arising directly out
of the subject-matter of the dispute’.210 Some delegates to the drafting committee
expressed that such a provision could eventually expand a tribunal’s jurisdiction

207
ICSID Arbitration Rules (2006), Rule 40 Ancillary Claims: (‘(1) Except as the parties otherwise
agree, a party may present an incidental or additional claim or counter-claim arising directly out of
the subject-matter of the dispute, provided that such ancillary claim is within the scope of the
consent of the parties and is otherwise within the jurisdiction of the Centre. (2) An incidental or
additional claim shall be presented not later than in the reply and a counter-claim no later than in the
countermemorial, unless the Tribunal, upon justification by the party presenting the ancillary claim
and upon considering any objection of the other party, authorizes the presentation of the claim at a
later stage in the proceeding. (3) The Tribunal shall fix a time limit within which the party against
which an ancillary claim is presented may file its observations thereon’).
208
ICSID Arbitration Rules (2022), Rule 48 Ancillary Claims: (‘Unless the parties agree otherwise,
a party may file an incidental or additional claim or a counterclaim (“ancillary claim”) arising
directly out of the subject-matter of the dispute, provided that such ancillary claim is within the
scope of the consent of the parties and the jurisdiction of the Centre. (2) An incidental or additional
claim shall be presented no later than in the reply, and a counterclaim shall be presented no later
than in the counter-memorial, unless the Tribunal decides otherwise. (3) The Tribunal shall fix time
limits for submissions on the ancillary claim’).
209
Not only due to its obvious wording, but also given the Convention’s structure, whereby Article
46 ICSID Convention is located in Chapter IV Arbitration, Section 3 Powers and Functions of the
Tribunal.
210
History of the ICSID Convention, Vol I (ICSID Publication 1968) 204.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 109

beyond the parties’ agreement. The chairman of the drafting committee, Aaron
Broches, reassured that the idea was not to ‘extend the competence of the tribunal
beyond what the parties had agreed. That section only made it unnecessary for
parties making additional claims or counterclaims to start new procedures’.211
However, he acknowledged that it was appropriate to clarify that any incidental
claim is subject to the ‘overriding principle of consent’, thus, no extension of the
tribunal’s competence would be possible.212
This prompted the redrafting of the article in two occasions: first, it was proposed
to add ‘provided that they are within the jurisdiction of the Centre and within the
scope of the consent of the parties’. However, it was considered that such phrase
might cause misunderstanding suggesting that consent and jurisdiction are ‘separate
and distinct factors’.213 Second, Aaron Broches suggested the phrase—which was
finally adopted—‘provided that they are within the scope of the consent of the
parties and are otherwise within the jurisdiction of the Centre’. This change was
meant to highlight that consent was at the core of jurisdiction, but that there might be
other jurisdictional elements preventing the tribunal to decide the incidental or
additional claim.214
As such, the rationale behind the inclusion of Article 46 ICSID Convention,
which specifically mentions counterclaims, was to avoid unnecessary separate pro-
ceedings.215 Moreover, one may argue that this provision creates a rebuttable
presumption in favour of the tribunal’s power to decide counterclaims, which can
be disproven by the absence of one of the elements of Article 46 ICSID Conven-
tion.216 However, the travaux préparatoires show the careful consideration given to
the requisite consent, upon which the tribunal’s jurisdiction is based. This might be
the cause for having consent mentioned in two different limbs of the article: first, by
opening with ‘except as the parties otherwise agree’; and second, by stating ‘pro-
vided that they are within the scope of the consent’. This duality was not addressed
during the drafting process, but the principle of effet utile suggests that each
expression must have a meaning.
The first limb of the article regarding consent—‘except as the parties otherwise
agree’—suggests that the tribunal’s power to decide on counterclaims might be
modified by the parties’ agreement.217 Accordingly, the underlying instrument
could exclude counterclaims outright or restrict its use for certain issues/cases. To

211
History of the ICSID Convention, Vol II-1 (ICSID Publication 1968) 270.
212
History of the ICSID Convention, Vol II-1 (ICSID Publication 1968) 337, 422 and 573.
213
History of the ICSID Convention, Vol II-2 (ICSID Publication 1968) 948.
214
History of the ICSID Convention, Vol II-2 (ICSID Publication 1968) 987.
215
Kryvoi (2012), p. 223. Similarly, Kalnina and Godbole (2019), mn. 4.430.
216
Jain (2013), p. 138: (‘the framers of the Convention intended to create a rebuttable presumption
in favour of the permissibility of counterclaims. This presumption could be rebutted by the consent
of the parties’). Similarly, Asteriti (2015), p. 258; Ishikawa (2017), p. 725; Clodfelter and Tsutieva
(2018), paras. 17.24 and 17.61.
217
Schreuer et al. (2009), Art 46, mn. 6 et seqq.

Licensed to Dymas Satrioprojo ([email protected])

110 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

the author’s knowledge, there are no treaties explicitly excluding the instrument of
counterclaims in its entirety. There are certain IIAs, whereby certain issues have
been banned from being raised as counterclaims,218 but these are the minority
nonetheless.
The second limb of the article regarding consent—‘provided that they are within
the scope of the consent’—covers the arbitration agreement as a whole and its
compatibility with the specific counterclaim. Accordingly, this requirement does
not demand an additional or specific agreement on counterclaims, but rather it
demands that the existing consent covers the specific counterclaim.219 As mentioned
above, this expression was added given the concerns on the expansion of the
tribunal’s jurisdiction beyond the parties’ agreement. Thus, the requirement of
consent is highlighted as the core of the tribunal’s jurisdiction.220
The foregoing demonstrates that consent under Article 25 ICSID Convention
differs from consent under Article 46 ICSID Convention. Thus, even though a
tribunal may have jurisdiction under Article 25 ICSID Convention, whereby one
of the requirements is consent of the parties, this does not necessarily entail that there
is consent over a counterclaim under Article 46 ICSID Convention.221 Otherwise,
the requirement of consent under Article 46 ICSID Convention would lose its
meaning.222 Accordingly, the most reasonable interpretation of Article 46 ICSID
Convention suggests that counterclaims under the ICSID Convention constitute a
procedural mechanism, which would be permitted only if it is covered by the
instrument of consent.223
In the context of treaty-based investment arbitration, this means that an arbitral
tribunal has the power to adjudge counterclaims as a general rule, which is relevant
given the absence of provisions on that regard in most of the IIAs, but the wording of
the specific dispute resolution provision (or jurisdictional title) would be determina-
tive for admitting counterclaims in each case.224 Certainly, consent to arbitration
under the ICSID Convention was conceived either through a direct agreement

218
See for instance: NAFTA (1994), Art 1137(3); ECT (1994), Art 15(3); US-Uruguay BIT (2005),
Art 28(7); Colombia-US TPA (2006), Art 10.20(7); Peru-US TPA (2006), Art 10.20(7); Korea-US
FTA (2007), Art 11.20(9); US-Rwanda BIT (2008), Art 28(7); Israel-Japan BIT (2017), Art 24(12);
Canada-Moldova BIT (2018), Art 36; Uzbekistan-Korea BIT (2019), Art 11(9); Australia-Uruguay
BIT (2019), Art 14(13); Morocco-Japan BIT (2020), Art 16(13).
219
Pathak (2019), p. 109.
220
Schreuer et al. (2009), Art 46, mn. 87; Kalnina and Godbole (2019), mn. 4.443.
221
Bubrowski (2013), p. 218. For a different opinion suggesting that Article 46 ICSID Convention
does not impose an additional requirement on consent, but rather, as long as there is consent under
Article 25 ICSID Convention, the requirement is fulfilled, see Vohryzek-Griest (2009), pp. 90–91.
222
Kjos (2007), p. 617: (‘If the bringing of a claim could in and of itself be construed as consent to
counter-claims, this clause would lose its meaning. Accordingly, and in line with the maxim
interpretatio fienda est ut res magis valeat quam pereat, the fact that the investor presents a
claim ought not to be construed to create, in and of itself, the consent necessary for the host State
to present counter-claims against the investor’).
223
Bjorklund (2013), p. 472.
224
Clodfelter and Tsutieva (2018), para. 17.45.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 111

between the host state and the investor (eg by means of a concession agreement
referring to ICSID), or by a unilateral consent given by the state, which would be
subsequently accepted by the investor (eg law-based or treaty-based investment
arbitration).225
While no discussion was held about the state’s ability to submit claims for that
matter during the drafting process, the Convention as such was conceived to strike a
balance between the foreign investor and the host state, whereby either one of them
was able to bring claims under the Convention against the other.226 Yet, the requisite
consent under Article 46 ICSID Convention points back to the instrument of consent
to the tribunal’s jurisdiction and its scope vis-à-vis the specific counterclaim.227
Consequently, the ICSID Convention appears neutral to the admission of counter-
claims since the decisive analysis on consent will always focus on the dispute
settlement provision.

3.3.1.3.2 The Doctrine of ‘Ipso Facto’ Importation of Consent in the ICSID

Convention

Another point regarding counterclaims under the ICSID Convention pertains to the
‘ipso facto’ importation of consent developed by the arbitrator Michael Reisman in
his declaration dated 28 November 2011. Given his disagreement with the other
members of the Roussalis v Romania tribunal, his declaration reads as follows:
I regret that I cannot join my colleagues in that part of our decision which rejects jurisdiction
over counterclaims “arising directly out of the subject-matter of the dispute,” the first time it
has been so rejected on the ground of absence of consent. I understand the line of their
analysis but, in my view, when the States Parties to a BIT contingently consent, inter alia, to
ICSID jurisdiction, the consent component of Article 46 of the Washington Convention is
ipso facto imported into any ICSID arbitration which an investor then elects to pursue. It is
important to bear in mind that such counterclaim jurisdiction is not only a concession to the
State Party: Article 46 works to the benefit of both respondent state and investor. In rejecting
ICSID jurisdiction over counterclaims, a neutral tribunal - which was, in fact, selected by the

225
History of the ICSID Convention, Vol II-1 (ICSID Publication 1968) 274 and 275. The
Executive Directors of the ICSID Convention further confirmed this point, see Report of the
Executive Directors on the ICSID Convention dated 18 March 1965, para. 24. To this point see
additionally, Newcombe and Paradell (2009), p. 44; Parra (2012), p. 25; Schreuer et al. (2009), Art
25, mn. 382 et seqq.
226
Based on the World Bank Executive Directors Report on the ICSID Convention, Gustavo
Laborde posits that the equal access to arbitration was always in the mind of the drafters, see
Laborde (2010), p. 100.
227
Lalive and Halonen (2011), pp. 146–149. There is one author defending the possibility of a treaty
conflict between the ICSID Convention and the underlying investment treaty concerning counter-
claims, see Jain (2013), pp. 141 et seqq. This position is inaccurate. Whilst the ICSID Convention
defines the outer limits of jurisdiction, the specific IIA defines the scope and limits of the tribunal’s
jurisdiction in the particular case. Moreover, the ICSID Convention itself allows to contract out the
tribunal’s power to decide counterclaims, which may be done through an IIA. Thus, no conflict with
regards to counterclaims is possible between the two instruments.
112 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

claimant - perforce directs the respondent State to pursue its claims in its own courts where
the very investor who had sought a forum outside the state apparatus is now constrained to
become the defendant. (And if an adverse judgment ensues, that erstwhile defendant might
well transform to claimant again, bringing another BIT claim.) Aside from duplication and
inefficiency, the sorts of transaction costs which counter-claim and set-off procedures work
to avoid, it is an ironic, if not absurd, outcome, at odds, in my view, with the objectives of
international investment law.228

This very succinct, but sharp statement suggests that by consenting to proceedings
under the ICSID Convention, thereby consenting to Article 46 thereof, there is an
‘ipso facto’ importation of consent to counterclaims. Before delving into the impli-
cations of this theory, some background might be enlightening.
The Roussalis v Romania case arose from the claimant’s alleged failure to comply
with its obligation of a post-purchase investment of USD 1.4 million in the Roma-
nian company Continent Marine Enterprise SA embedded in a privatisation agree-
ment.229 The claimant argued that its investment was subsequently subjected to a
series of acts amounting to indirect expropriation.230 In turn, Romania
counterclaimed against the claimant and its locally incorporated company for the
failure to invest the said amount and for the misappropriation of assets, as well as
against the investment for the increase of capital which was allegedly null and
void.231
The claimant challenged the admissibility of the counterclaim on several grounds:
(i) the tribunal’s jurisdiction concerns only breaches of the BIT and not issues of
Romanian law; (ii) an umbrella clause does not cover respondent’s rights; (iii) the
dispute resolution clause in the BIT refers exclusively to obligations owed by the
state to the investors; (iv) the counterclaim is addressed to the local incorporated
company and the investment, which are not part of the proceedings; (v) the respon-
dent did not exhaust local remedies.232 The tribunal concluded it lacked jurisdiction
over the counterclaims given the absence of consent. This decision was mainly based
on two points: on the one hand, the jurisdiction of the tribunal was limited to claims
brought by the investor according to Article 9(1) Greece-Romania BIT (1997).233
On the other hand, pursuant to Article 9(4) Greece-Romania BIT (1997) the appli-
cable law referred exclusively to the BIT and public international law, which do not

228
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Declaration Michael Reisman
(28 November 2011) (emphasis added).
229
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) paras.
8–9.
230
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) para.
10.
231
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) paras.
747–755.
232
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) paras.
817–841.
233
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) para.
869.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 113

contain obligations for investors.234 Evidently, one of the arbitrators, Michael

Reisman, did not share the same opinion and posited an ‘ipso facto’ importation of
consent in his abovementioned declaration.
Interestingly, the entire tribunal in Antoine Goetz v Burundi supported Michael
Reisman’s declaration in the Roussalis v Romania case and followed the ‘ipso facto’
importation of consent under the ICSID Convention. The tribunal started by devel-
oping on the inspiration of Article 46 ICSID Convention but highlighting that the
term ‘consent’ did not add anything given that such requirement was required for the
jurisdiction of the tribunal under Article 25 ICSID Convention.235 The tribunal thus
seemed to have ignored the ordinary meaning of Article 46 ICSID Convention,
which expressly refers to consent to counterclaims. Furthermore, by downgrading
the requisite consent in such manner, the Antoine Goetz v Burundi tribunal stepped
afoul of the drafters’ profuse discussion on consent as a core element for counter-
claims under the Convention.
Additionally, the tribunal asserted that, in accordance with the spirit and purpose
of the ICSID Convention, by accepting the offer to arbitrate in the treaty, there was
an ‘ipso facto’ importation of consent to counterclaims.236 Thus, the Antoine Goetz v
Burundi tribunal concluded to have jurisdiction over Burundi’s counterclaim.237
This line of argument used by Michael Reisman and the Antoine Goetz v Burundi
tribunal may be called as the ‘doctrine of ipso facto importation of consent’.238 Such
doctrine has provoked intense discussions and the opinion is divided between those
in favour and those against.
On the side of the doctrine’s supporters, some suggest that at its core, the issue of
counterclaims under the ICSID Convention reveals three questions: how to interpret
parties’ consent, what other sources of consent there might be, and what policy
concerns entail the majority’s decision in Roussalis v Romania.239 In this sense, it is
suggested that consent under the Article 46 ICSID Convention should not be limited
to the underlying treaty provision on dispute settlement since consent to counter-
claims does not need to feature in the same instrument of consent to the main

234
Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (07 December 2011) para.
871.
235
Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June
2012) paras. 273–274: (‘Modifiant légèrement cette rédaction, les auteurs de la Convention ont
précisé que le consentement des parties était en outre requis pour que le Tribunal arbitral ait
compétence. Mais cette condition n’ajoute rien puisque ce consentement est l’une des conditions
de la compétence du Tribunal’).
236
Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June
2012) paras. 278–280.
237
It must be highlighted that in spite of relying explicitly on Michael Reisman’s Declaration, the
jurisdiction of the Antoine Goetz v Burundi tribunal was based on different and broadly-worded
dispute resolution clause namely Article 8 BLEU Burundi BIT (1989), thus, it does not seem to be a
complete departure from the majority in the Roussalis v Romania case, see Jain (2013), p. 145.
238
Rivas (2015), p. 802.
239
Kalicki and Silberman (2012), p. 9.
114 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

claim.240 Others submit that a sort of ‘implied’ consent to counterclaims under the
ICSID Convention exists as long as the underlying treaty does not explicitly exclude
counterclaims, following Michael Reisman’s declaration and the tribunal’s decision
in Antoine Goetz v Burundi.241 Arguments on judicial economy and efficiency have
also been put forward to condemn the majority’s decision in Roussalis v Romania
and to endorse Michael Reisman’s declaration.242 Finally, it has been suggested as
well that there are compelling reasons within the ICSID framework, such as the
exclusivity of ICSID jurisdiction, to reject the decision of the Roussalis v Romania
tribunal and to prefer Michael Reisman’s declaration.243
On the side of the doctrine’s detractors, some suggest that the doctrine amounts to
an illegitimate amendment of the underlying IIAs,244 or a disregard of parties’
consent to arbitration.245 It has also been posited that Michael Reisman’s declaration
embodies policy considerations on how the system should be, when he could have
used arguments on efficiency or judicial economy, thereby availing himself of
contextual or teleological interpretations at least.246 Other opponents, with a more
cautious approach, acknowledge the policy concerns raised by Michael Reisman, but
highlight that from the perspective of treaty interpretation, the ‘ipso facto’ importa-
tion of consent does not find place in Article 46 ICSID Convention,247 particularly
when the investment treaty envisages a narrowly drafted dispute resolution
clause.248

240
Kalicki and Silberman (2012), pp. 13–14.
241
Bravin and Kaplan (2013), pp. 190 et seqq.
242
Asteriti (2015), pp. 259–260.
243
Douglas (2013), p. 433: (‘The majority of the tribunal considered that in view of the tribunal’s
limited jurisdiction over claims, it followed that “the BIT does not provide for counterclaims to be
introduced by the host state in relation to obligations of the investor” because the “meaning of
“dispute” is the issuance of compliance by the State with the BIT”. This reasoning should not be
endorsed. A limitation upon the scope of the host state’s consent to arbitration in respect of the
investor’s claims does not necessarily apply to the host state’s counterclaims; indeed, there are
compelling reasons militating against such a conclusion in the ICSID context, especially given that
once a notice of arbitration is filed it must be the exclusive forum for resolving the dispute as noted
earlier. The host state’s consent to ICSID arbitration requires the full application of Article
47 insofar as it vests the tribunal with the power to adjudicate counterclaims with the required
factual nexus to the dispute. Professor Reisman’s dissent on this point is to be preferred’) (footnotes
omitted).
244
Atanasova et al. (2014), p. 358: (‘The assertion that consent of the parties to a dispute under
arbitral rules enshrining the possibility of counterclaims suffices for the counterclaims to be within
the tribunal’s jurisdiction, amounts to illegitimate amendment of the applicable treaties and legal
instruments’).
245
de Nanteuil (2018), p. 379.
246
Jain (2013), p. 142–143.
247
Dudas (2016), pp. 392–393; Clodfelter and Tsutieva (2018), paras. 17.40 et seqq.; Atanasova
et al. (2014), pp. 367 et seqq.; Kalnina and Godbole (2019), mn. 4.456.
248
Pathak (2019), p. 114.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 115

Furthermore, the doctrine of ‘ipso facto’ importation of consent has been even
disparaged, uttering that the Antoine Goetz v Burundi tribunal ‘chose to exercise
jurisdiction for reasons of policy’.249 This latter assertion seems imprecise. The
underlying IIA in Antoine Goetz v Burundi was BLEU-Burundi (1989), whose
Article 8 foresees a broadly worded dispute resolution provision.250 Consequently,
the decisions in Roussalis v Romania and in Antoine Goetz v Burundi seem recon-
cilable.251 The tribunal in the latter, despite endorsing Michael Reisman’s declara-
tion, was in fact based on a broad dispute resolution provision allowing it to entertain
counterclaims.
As the foregoing analysis shows, the doctrine of ‘ipso facto’ importation of
consent is questionable at best. Certainly, there are some valuable aspects to remark
from Michael Reisman’s declaration, which are in line with the purpose of counter-
claims. However, Article 46 ICSID Convention cannot substitute the dispute reso-
lution provisions in IIAs simply for policy purposes. A careful exercise of treaty
interpretation must always be undertaken to determine the scope of consent given by
the parties vis-à-vis counterclaims.

3.3.1.3.3 Does Article 26 ICSID Convention Tilt the Balance?

Zachary Douglas commends Michael Reisman’s declaration in Roussalis v Roma-

nia, although without alluding to the doctrine of ‘ipso facto’ importation of consent.
Instead, he infers the parties’ consent from the interpretation of Article 26 ICSID
Convention, which states ‘[c]onsent of the parties to arbitration under this Conven-
tion shall, unless otherwise stated, be deemed consent to such arbitration to the
exclusion of any other remedy’. Zachary Douglas considers that such Article would
be deprived of meaning if a tribunal’s jurisdiction was restricted to the claimant’s
claim exclusively.252 He thus concludes that the scope of consent cannot be limited
to the investor’s claims with the exclusion of counterclaims since ‘once a notice of
arbitration is filed it must be exclusive forum for resolving the disputes’.253

249
Kalnina and Godbole (2019), mn. 4.454.
250
BLEU-Burundi (1989), Art 8 (‘(1) Pour 1’application du présent article, un différend relatif à un
investissement est défini comme un différend concernant: a) 1’interprétation ou 1’application d’un
accord particulier d’investissement entre une Partie contractante et un investisseur de l’autre Partie
contractante; b) l’interprétation ou l’application de toute autorisation d’investissement accordée par
les autorités de l’Etat hôte régissant les investissements étrangers; c) l’allégation de la violation de
tout droit conféré ou établi par la présente Convention en matière d’investissement. (2) Tout
différend relatif aux investissements fait l’objet d’une notification écrite, accompagnée d’un aide-
mémoire suffisamment détaillé établi à l’initiative de l’investisseur de l’une des Parties, à l’autre
Partie contractante 3. Si le différend ne peut être réglé dans les trois mois à compter de la notification
écrite visée au paragraphe 1, il est soumis, à la demande de l’investisseur concerné, pour concil-
iation ou arbitrage au CIRDI. . .’).
251
Steingruber (2013), p. 296; Ishikawa (2017), pp. 723–24; Scherer et al. (2021), pp. 421–422.
252
Douglas (2013), p. 429.
253
Douglas (2013), p. 433.
116 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

The rationale of Article 26 ICSID Convention indicates that parties would not
have recourse to other national or international fora as soon as both parties have
consented to ICSID arbitration.254 However, the caveat is that parties may agree
otherwise.255 Such agreement need not be explicit, for instance, there might be tacit
consent when the parties do not argue the exclusivity of ICSID jurisdiction before
the non-ICSID forum.256 In practice, parties usually raise Article 26 ICSID Con-
vention requesting provisional measures, particularly to stop parallel proceedings.
Nevertheless, there is no discernible trend in this regard. In the Tokios Tokelés v
Ukraine case, the tribunal ordered both parties to refrain from, suspend or discon-
tinue domestic or other proceedings relating to the investor or its investment in
Ukraine.257 In Ceskoslovenska Obchodni Banka AS v The Slovak Republic, the
claimant requested the suspension of domestic bankruptcy proceedings against a
claimant’s subsidiary, which was granted by the tribunal.258
A similar request to stop domestic bankruptcy proceedings was submitted by the
investor in the Plama v Bulgaria case, however, with a different result. The tribunal
denied the requested provisional measure on several grounds: first, the proceedings
before the court differed in nature to the proceedings before the arbitral tribunal;
second, the parties on both proceedings did not coincide; third, there was no risk of
aggravating the dispute if the provisional measure was not granted; fourth, the
requested provisional measure was neither urgent nor necessary.259 An interesting
approach was adopted by the SGS v Pakistan tribunal, which acknowledged that:
It would be inequitable if, by reason of the invocation of ICSID jurisdiction, the Claimant
could on the one hand elevate its side of the dispute to international adjudication and, on the
other, preclude the Respondent from pursuing its own claim for damages by obtaining a stay
of those proceedings for the pendency of the international proceedings, if such international
proceedings could not encompass the Respondent’s claim.260

However, the SGS v Pakistan tribunal finally ordered to stop the domestic arbitration
between the parties until it had decided on jurisdiction because it would be ‘wasteful
of resources for two proceedings relating to the same or substantially the same

254
Haridi (2019), mn. 2.256.
255
SGS Société Générale de Surveillance SA v Republic of The Philippines, ICSID Case No
ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para. 147.
256
Schreuer et al. (2009), Art 26, mn. 54 and 140.
257
Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18, Order No 1 (01 July 2003) paras. 1–7.
258
Ceskoslovenska Obchodni Banka AS v The Slovak Republic, ICSID Case No ARB/97/4,
Procedural Order No 4 (11 January 1999).
259
Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24, Order
(06 September 2005) paras. 42–46.
260
SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No
ARB/01/13, Procedural Order No 2 (16 October 2002) [reproduced in (2003) 18(1) ICSID Review
293–306] 302.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 117

matter to unfold separately while the jurisdiction of one tribunal awaits

determination’.261
The request for stopping parallel proceedings is one of the most common
provisional measures sought after in investment arbitration,262 which might prove
Zachary Douglas’ point on the interpretation of Article 26 ICSID Convention. At the
same time, one may construe narrowly drafted provisions on dispute settlement as
the consent under Article 26 ICSID Convention against the exclusivity of ICSID
jurisdiction, directing counterclaims to a different forum. This brings about two
conclusions: on the one hand, the interpretation of consent (as encompassing coun-
terclaims or not) remains the decisive factor for a tribunal’s power to entertain
counterclaims. On the other hand, claimant investors might wish to be mindful of
their arguments regarding counterclaims as it may be inequitable (if not an abuse of
process) objecting to counterclaims for being outside the scope of the tribunal’s
jurisdiction, and subsequently wielding Article 26 ICSID Convention for the stay of
other proceedings where the respondent host state seeks to have its counterclaim
heard.

3.3.1.3.4 ICSID and ‘Otherwise Within the Jurisdiction of the Centre’: Old
Wine in a New Bottle?

As mentioned above, the starting point for counterclaims under the ICSID Conven-
tion is Article 46 thereof. Particularly, this provision sets that the tribunal shall
determine counterclaims ‘provided that they are within the scope of the consent of
the parties and are otherwise within the jurisdiction of the Centre’. An almost
identical formulation is used in Rule 40 ICSID Arbitration Rules (2006) (and in
Rule 48 ICSID Arbitration Rules (2022)). This brings about Article 25 ICSID
Convention, which refers to the four requirements for the jurisdiction of the Centre
namely (i) a legal dispute; (ii) arising directly out of an investment; (iii) between a
Contracting State and a national of another Contracting State; (iv) which the parties
to the dispute consent in writing to submit to the Centre.
The term ‘consent’ is explicitly mentioned under both Article 46 and Article
25 ICSID Convention. However, this corresponds to the drafters’ intention to
highlight the importance of consent with respect to counterclaims.263 The other
elements of jurisdiction under Article 25 ICSID Convention, albeit relevant for
counterclaims, play only a secondary role. This is supported by the ICSID travaux
préparatoires. When concerns were raised with regards to the language of Article
46, which suggested that consent and jurisdiction were not the same, Aaron Broches

261
SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No
ARB/01/13, Procedural Order No 2 (16 October 2002) [reproduced in (2003) 18(1) ICSID Review
293–306] 304.
262
Commission and Moloo (2018) para. 3.27.
263
See Sect. 3.3.1.3.1.
118 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

opined that ‘consent of the parties is a most essential element of the jurisdiction of
the Centre. . . the language he had suggested emphasized that consent in the
hardcore of jurisdiction while the other elements were secondary’.264 In the same
vein, another delegate observed that ‘although consent of the party would be an
essential condition for the jurisdiction of the Centre, there might be other reasons
why the parties might not have the right to have recourse to the jurisdiction of the
Centre’, for instance, when the dispute does not pertain to an investment.265
Thus, Article 46 ICSID Convention presupposes jurisdiction, which cannot be
extended via counterclaims. In other words, the existence of jurisdiction covering the
counterclaims is a precondition for the operation of Article 46.266 Although the main
purpose seems simple, the interaction between Article 25 and Article 46 ICSID
Convention is far from straightforward. Particularly, there are two problems to
consider: the possible overlap of requirements and the double assessment of
jurisdiction.
The first problem is the possible overlap between the requirements of Article
25 and the requirements of Article 46 ICSID Convention, specifically the requisite
‘arising directly out of an investment’ and the requisite ‘arising directly out of the
subject matter of the dispute’.267 Christopher Schreuer draws an example for the
differentiation between both articles: a counterclaim may be within the Centre’s
jurisdiction without arising of the subject-matter of dispute when it is based on a
different investment operation.268 However, in practice, the line might become
blurry.
In the Amco v Indonesia case, the respondent raised a counterclaim based on tax
fraud allegedly committed by the investor. The tribunal dismissed the counterclaim
because ‘[t]he obligation not to engage in tax fraud is clearly a general obligation of
law in Indonesia. It was not specially contracted for in the investment agreement and
does not arise directly out of the investment’.269 Thus, it concluded that a counter-
claim on tax fraud exceeded its jurisdiction ratione materiae as per Article
25(1) ICSID Convention.270 While the prohibition of committing tax fraud was
‘property-independent’, which may undermine its connection with the invest-
ment,271 one may only speculate to what extent the tribunal’s reasoning was leaning
to the lack of connection between the main claim and the counterclaim rather than
the jurisdictional requirements of Article 25 ICSID Convention.

264
History of the ICSID Convention, Vol II-2 (ICSID Publication 1968) 987.
265
History of the ICSID Convention, Vol II-2 (ICSID Publication 1968) 987.
266
Schreuer et al. (2009), Art 46, mn. 86.
267
Clodfelter and Tsutieva (2018), para. 17.65.
268
Schreuer et al. (2009), Art 46, mn. 73.
269
Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1,
Decision on Jurisdiction in Resubmitted Proceeding (10 May 1988) para. 126.
270
Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1,
Decision on Jurisdiction in Resubmitted Proceeding (10 May 1988) paras. 122–127.
271
Douglas (2009), para. 475.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 119

In the Metal-Tech v Uzbekistan case, the tribunal started is analysis by referring to

Article 25 ICSID Convention but considered that only consent was relevant for the
case at hand.272 Specifically, the tribunal recalled that in accordance with the
underlying treaty, the offer to arbitrate was limited to investments meeting the
legality requirement.273 However, the tribunal found that the claimant’s investment
did not meet the legality requirement and that counterclaims could not extend a
tribunal’s jurisdiction.274 Thus, the tribunal rejected jurisdiction over both claims
and counterclaims. The tribunal seemed particularly preoccupied with the scope of
consent and framed the entire discussion around it, thus, the reference to Article
25 ICSID Convention could have been spared especially because Article 46 ICSID
Convention already foresees consent as an independent requirement for
counterclaims.
In the Fraport v The Philippines case, the tribunal, after finding that the invest-
ment was made in violation of domestic law, held that the ‘illegality of the invest-
ment at the time it is made goes to the root of the host State’s offer of arbitration
under the treaty’.275 The tribunal therefore declined jurisdiction over the claim in
accordance with Article 25(1) ICSID Convention and the underlying treaty, whereas
for the counterclaims, it declined jurisdiction given the lack of connection with the
subject-matter of the dispute pursuant to Article 46 ICSID Convention.276 Despite
emphatically referring to the scope of consent vis-à-vis the illegality of an invest-
ment, the Fraport v The Philippines tribunal decided to reject the counterclaims
based on the connection requirement set out in Article 46 ICSID Convention.
Certainly, the tribunal did not elaborate further on the counterclaims and their
requirements, however, it could have pointed to ‘otherwise within the jurisdiction
of the Centre’ or simply consent as the Metal-Tech v Uzbekistan tribunal and
reaching the same conclusion.
The second problem pertains to the question of whether a tribunal, which has
found jurisdiction over the main claim, must examine its jurisdiction de novo and
independently for counterclaims using Article 25 ICSID Convention as a bench-
mark. Some authors consider that the tribunal’s jurisdiction over counterclaims must
be separately evaluated pursuant to Article 25 ICSID Convention.277 This means that
the tribunal would need to establish whether the particular counterclaim complies

272
Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (04 October 2013)
para. 408.
273
Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (04 October 2013)
para. 411.
274
Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (04 October 2013)
paras. 412–413.
275
Fraport AG Frankfurt Airport Services Worldwide v Republic of The Philippines, ICSID Case
No ARB/11/12, Award (10 December 2014) para. 467.
276
Fraport AG Frankfurt Airport Services Worldwide v Republic of The Philippines, ICSID Case
No ARB/11/12, Award (10 December 2014) para. 468.
277
Clodfelter and Tsutieva (2018), para. 17.65; Pathak (2019), p. 112; Kalnina and Godbole (2019),
mn. 4.434; Shao (2021), p. 165.

Licensed to Dymas Satrioprojo ([email protected])

120 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

with the requirements of Article 25 ICSID Convention regardless of the jurisdiction

over the main claim. In this sense, and considering the requisite of consent ‘in
writing’, a counterclaim would be subject to an explicit consent of the parties.278
Conversely, some posit that as long as the main claim satisfies the jurisdictional
requirements of Article 25 ICSID Convention, the respective counterclaim should
also fall within the ICSID jurisdiction.279
In this regard, the decisions in Burlington v Ecuador and Tethyan v Pakistan may
glimpse an appropriate answer. In the Burlington v Ecuador case, the disputing
parties had expressly agreed to the submission of counterclaim.280 Thus, it was for
the tribunal to decide on the remaining elements under Article 46 ICSID Conven-
tion. Succinctly, by referring to the conditions of the mentioned provision, the
tribunal found that:
These conditions are met here: (i) the counterclaims arise directly out of the subject-matter of
the dispute, namely Burlington’s investment in Blocks 7 and 21; (ii) they are within the
scope of the Parties’ consent to ICSID arbitration which is manifested in the agreement just
referred to; and (iii) they also fall within the jurisdiction of the Centre as circumscribed by
Article 25 of the ICSID Convention (legal dispute arising out of an investment, and
nationality requirement).281

The Burlington v Ecuador tribunal did not undertake a detailed analysis of the
requirements under Article 25 ICSID Convention vis-à-vis the counterclaims.
Instead, it simply stated that the counterclaims fell within the jurisdiction of the
Centre. A plausible explanation may indicate that the tribunal considered unneces-
sary to repeat its analysis on Article 25 ICSID Convention which had been com-
pleted vis-à-vis the main claims.
In the Tethyan v Pakistan case, despite recognising the requisite ‘within the
jurisdiction of the Centre’ in Article 46 ICSID Convention as an independent
jurisdictional requirement referring to Article 25 ICSID Convention, the tribunal
expressly conceded that an analysis under the latter partially overlaps with an
analysis under the former.282 Nevertheless, the tribunal succinctly addressed all
requirements under Article 25 ICSID Convention with respect to the counterclaim,
and it found all of them were met.283
It seems unlikely that an independent analysis of Article 25 ICSID Convention
with respect to counterclaims would render different results once the tribunal has
addressed the requirements of Article 46 ICSID Convention and has acknowledge

278
Pathak (2019), p. 111.
279
Lalive and Halonen (2011), p. 144.
280
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) paras. 6 and 60.
281
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) para. 62.
282
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) para. 1427.
283
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) paras. 1429–1433.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 121

jurisdiction over the main claim. Furthermore, a literal interpretation of Article

46 ICSID Convention requiring a de novo and independent assessment of the
Centre’s jurisdiction pursuant to Article 25 ICSID Convention may further lead to
absurd situations. For instance, treaty provisions on cooling-off periods or notices of
intent prior to the submission to arbitration might be considered conditions attached
to consent to the Centre’s jurisdiction that ought to be equally fulfilled in case of
counterclaims. Accordingly, a respondent would have to exhaust the waiting period
for being able to file a counterclaim, whilst the proceeding on the main claim would
continue its course. Such a situation would be absolutely inimical to the procedural
efficiency counterclaims represent.
The foregoing analysis does not intend to render the phrase ‘otherwise within the
jurisdiction of the Centre’ of Article 46 ICSID Convention otiose, but rather to prove
that such phrase might be overestimated. This provision does not require de novo
and independent assessment of the Centre’s jurisdiction pursuant to Article
25 ICSID Convention over counterclaims, otherwise there might be an overlap
with the other elements of Article 46 ICSID Convention or simply encumber the
proceedings. Instead, as evinced from the ICSID travaux préparatoires284 the phrase
‘otherwise within the jurisdiction of the Centre’ stems from the drafters’ extreme
caution as to avoid any expansion of the tribunal’s scope of jurisdiction, which is
supported by the overriding principle of consent. In the same vein, it is thus
unfortunate that pursuant to Article 6(4) of the Resolution of 31 August 2019 on
Equality of Parties before International Investment Tribunals,285 the 18th Commis-
sion of the Institut de Droit International has explicitly tied back Article 46 ICSID
Convention with Article 25 ICSID Convention, which according to the foregoing
analysis adds nothing to the assessment of a tribunal’s power to adjudge
counterclaims.

3.3.2 The Case of Contractual Counterclaims

in Treaty-Based Investment Arbitration

When discussing treaty-based and contract-based investment arbitration in 2007,

James Crawford asserted that the state’s counterclaims arising from an investment
contract should be permitted in the context of a treaty-based arbitration as long as the
said contract falls within the scope of the dispute and there is a connection with the
main claim.286 He further stated that such conclusion ‘seems desirable as a matter of
policy as well as law. Despite the inherently asymmetrical character of a BIT, BIT

284
See Sect. 3.3.1.3.1.
285
See this book “Annex 4: Article 6 of the Resolution on the ‘Equality of Parties before
International Investment Tribunals of the 18th Commission of the Institut de Droit International”.
286
Crawford (2007), p. 17. Similarly, Kryvoi (2012), p. 240.
122 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

tribunals should be able to hear closely connected investment counterclaims arising

under the investment contract’.287
Considering the purposes of counterclaims, James Crawford’s proposition
appears reasonable. Unfortunately, contractual counterclaims by the state in treaty-
based investment arbitration face some hurdles, which might impinge on the tri-
bunal’s jurisdiction to decide such counterclaims. This section consequently revises
the possible obstacles for this type of counterclaims in the context of treaty-based
investment arbitration, starting by the dispute resolution clause in the underlying
treaty [Sect. 3.3.2.1], followed by the analysis on forum selection clauses in invest-
ment contracts [Sect. 3.3.2.2], and concluding with non-consenting third parties
[Sect. 3.3.2.3].

3.3.2.1 The Limited Scope of the Dispute Resolution Provision

in the Treaty

The differentiation between treaty claims and contract claims represents a bone of
contention,288 and contractual counterclaims in treaty-based investment arbitration
contain both: a claimant bringing a treaty claim, whereas the respondent submitting a
contractual counterclaim. Thus, the question here is whether a treaty-based tribunal
would have jurisdiction over such contractual counterclaim.
The starting point for assessing a tribunal’s jurisdiction is certainly the dispute
resolution provision in the specific treaty. Accordingly, if the provision in question
explicitly contemplates the possibility to submit contract claims, then the tribunal
constituted upon such provision would have jurisdiction to decide contract claims.
However, IIAs are not usually so specific and the dispute resolution provision
thereof must be interpreted. Some tribunals and annulment committees have
suggested that broadly drafted dispute resolution provisions in a treaty could encom-
pass contract claims. For instance, the annulment committee in Vivendi v Argentina
pointed into that direction as long as the contract is related to the protected invest-
ment.289 Similar views have been expressed by the tribunals in SGS v Paraguay290

287
Crawford (2007), p. 17.
288
Cremades (2012), p. 95.
289
Compañía de Aguas del Aconguija SA and Vivendi Universal SA v Argentine Republic, ICSID
Case No ARB/97/3, Decision on Annulment (03 July 2002) para. 55: (‘Article 8 deals generally
with disputes “relating to investments made under this Agreement between one Contracting Party
and an investor of the other Contracting Party.” It is those disputes which may be submitted, at the
investor’s option, either to national or international adjudication. Article 8 does not use a narrower
formulation, requiring that the investor’s claim allege a breach of the BIT itself. Read literally, the
requirements for arbitral jurisdiction in Article 8 do not necessitate that the Claimant allege a breach
of the BIT itself: it is sufficient that the dispute relate to an investment made under the BIT’).
290
SGS Société Générale de Surveillance SA v The Republic of Paraguay, ICSID Case No ARB/07/
29, Decision on Jurisdiction (12 February 2010) para. 129.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 123

and SGS v The Philippines.291 These decisions suggest that the definition of invest-
ment under the treaty ought to be broad enough as well.
Therefore, it has been submitted that, as a general rule, ‘pure’ contract claims are
excluded from a tribunal’s jurisdiction based on a treaty unless both the definition of
investment and the dispute resolution provision in the treaty are wide enough.292 In a
more nuanced approach, Eric De Brabandere proposes that the analysis of whether
contract claims can be decided by a treaty-based tribunal cannot be limited to the
wording of the dispute resolution clause but rather it should focus on the treaty as a
whole and its objective.293
The same reasoning should apply for contractual counterclaims submitted by the
state. Should the treaty provision on dispute settlement be broadly worded, the
tribunal constituted upon it ought to have jurisdiction to adjudge contractual coun-
terclaims. Ironically, this brings back the above discussion on the interpretation of
the dispute settlement provisions in IIAs and their capability to encompass state
counterclaims. As a result, one may conclude that the answer to whether a treaty-
based tribunal has jurisdiction over a contractual counterclaim will depend on the
interpretation of the respective treaty provision.
The 18th Commission of the Institut de Droit International seems to hold a
slightly different opinion in this regard. Pursuant to Article 6(3) of the Resolution
of 31 August 2019 on Equality of Parties before International Investment Tribunals,
the tribunal’s jurisdiction over a counterclaim is not dependent on invoking the same
jurisdictional title.294 Thus, in treaty-based arbitration, a host state could raise a
counterclaim based on an arbitration clause contained in an investment contract.295
This approach would certainly streamline the tribunal’s analysis on jurisdiction over
counterclaims. However, in practice, the situation remains the same: the tribunal
ought to interpret the dispute resolution provision in the treaty and assess whether its
jurisdiction could expand to a counterclaim based on a different instrument.

3.3.2.2 Forum Selection Clauses in Investment Contracts

and the Doctrine of Forum Non Conveniens

Besides the scope of the treaty provision, the most prominent obstacle that a
respondent state may face when submitting a contractual counterclaim before a
treaty-based tribunal arises when the said investment contract contemplates a
forum selection clause directing the parties to an adjudicating body other than an

291
SGS Société Générale de Surveillance SA v Republic of The Philippines, ICSID Case No
ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para. 131.
292
Dumberry (2012), p. 234. Similarly, Schreuer (2005), p. 296.
293
De Brabandere (2014), pp. 46–47.
294
See this book “Annex 4: Article 6 of the Resolution on the ‘Equality of Parties before
International Investment Tribunals of the 18th Commission of the Institut de Droit International”.
295
Steingruber (2020), p. 618.
124 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

international arbitral tribunal. Here, unlike in the Vivendi v Argentina case, there is
no problem on the characterisation of contract breach or treaty breach. The claimant
investor submits an alleged treaty breach, whereas the respondent state submits an
alleged contract breach. The problem however lies in the fact that the tribunal in such
disputes is based on an IIA, whilst the contract, upon which the respondent state
bases its counterclaim, contains a forum selection clause for a different
adjudicative body.
Certainly, the contractual forum selection clause should not affect the jurisdiction
of a treaty-based arbitral tribunal insofar the claimant investor is claiming the
violation of the treaty rather than the contract.296 The subject-matter in a treaty
breach differs from the subject-matter in a contract breach, thus, a forum selection
clause may apply for the latter but not for the former.297 This means that the mere
existence of a forum selection clause cannot operate as a waiver of the treaty-based
dispute settlement mechanism.298
However, given the contractual nature of the respondent state’s counterclaim, it
would be covered by a forum selection clause in the respective contract. Following
the reasoning of the SGS v The Philippines tribunal with respect to contractual
disputes, a dispute settlement provision in a treaty ‘should not, unless clearly
expressed to do so, override specific and exclusive dispute settlement arrangements
made in the investment contract itself’.299 Indeed, the differentiation between
contract claim and treaty claim for the purposes of a tribunal’s jurisdiction may
restrict the possibility of the respondent state to submit a contractual counterclaim in
treaty-based investment arbitration.300 On this note, the tribunals in Saluka v Czech
Republic, Al-Warraq v Indonesia and Oxus v Uzbekistan have dismissed some
counterclaims, which arose from a contractual relationship with an independent
dispute resolution clause.

296
Schreuer (2005), p. 293: (‘forum selection clause contained in a contract between the investor
and the host state does not affect the competence of a tribunal based on a BIT, since the two
proceedings are based on different causes of action even though they may arise from the same set of
facts’).
297
Azurix Corp v The Argentine Republic, ICSID Case No ARB/01/12, Decision on Jurisdiction
(08 December 2003) para. 79. Similarly, Compañía de Aguas del Aconguija SA and Vivendi
Universal SA v Argentine Republic, ICSID Case No ARB/97/3, Decision on Annulment (03 July
2002) para. 105.
298
Magnarelli (2020), p. 78. Interestingly, the Lanco v Argentina tribunal considered that a forum
selection clause directing the contract parties to local courts, which by law are not subject to
agreement or waiver, does not constitute a previously agreed dispute settlement procedure barring
the jurisdiction of a treaty-based tribunal, see Lanco International Inc v The Argentine Republic,
ICSID Case No ARB/97/6, Decision on Jurisdiction (08 December 1998) paras. 25–27.
299
SGS Société Générale de Surveillance SA v Republic of The Philippines, ICSID Case No
ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para. 134.
300
Ben Hamida (2005), pp. 268–269: (‘L’on note également que la distinction contract claim/BIT
claim selon laquelle un tribunal arbitral statuant sur le fondement d’un traité international ne peut
statuer que sur les violations du traité commises par l’État peut limiter la possibilité pour l’État
d’introduire des demandes reconventionnelles sur le fondement du contrat’).
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 125

In the Saluka v Czech Republic case, the respondent host state based some of its
counterclaims on a share purchase agreement allegedly breached by the claimant’s
parent company.301 One of the obstacles to the tribunal’s jurisdiction over those
counterclaims was found in Article 21 of the said shares purchase agreement, which
contained an arbitration clause. Relying on the ad hoc annulment committee in
Vivendi v Argentina, the tribunal concluded that it ‘cannot in this arbitration
entertain a counterclaim based on a dispute arising out of or in connection with,
or the alleged breach of, an agreement which . . . contains its own mandatory
arbitration provision’.302 Interestingly, both the treaty and the investment contract
provided for the UNCITRAL Arbitration Rules and the seat of arbitration was in
Switzerland (Geneva and Zürich respectively). Thus, the appropriateness of rejecting
the counterclaims on that ground is at least questionable given the similarities of the
arbitration agreements.
In the Al-Warraq v Indonesia case, the respondent host state requested damages
for the losses incurred given the claimant’s allegedly fraudulent transactions.303
However, the tribunal considered that those losses arose from the claimant’s failure
to comply with the Asset Management Agreement, which in turn was subject to the
jurisdiction of the courts of England or arbitration at the Singapore International
Arbitration Centre.304 Similarly, in the Oxus v Uzbekistan case, the tribunal
dismissed the respondent’s counterclaims based on a Special Dividend Agreement
because of the forum selection clause therein, which referred all disputes out of such
agreement to the courts of Uzbekistan.305 This tribunal thus considered that the
‘special dispute resolution clause constitutes a sort of carve-out from a potential
jurisdiction under the BIT and deprives the Arbitral Tribunal of any jurisdiction
over such counter-claims’.306
These decisions elucidate the principle of pacta sunt servanda and the doctrine of
forum non conveniens. In light of the principle of pacta sunt servanda, the contrac-
tual forum selection clause should be respected and enforced, by which a contractual
counterclaim ought to be dismissed by the treaty-based arbitral tribunal.307 One may
thus argue that the parties’ interests in concluding a forum selection clause should
not yield to judicial economy’s considerations.308

301
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 47.
302
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) paras. 52–57.
303
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) paras. 465ff.
304
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) para. 671.
305
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) paras.
957–958.
306
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 958.
307
Kjos (2007), p. 619.
308
Berger (1999), p. 77.
126 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

Consequently, the treaty claims would be heard by the treaty-based arbitral

tribunal, whereas the contractual counterclaims would be decided in accordance
with the specific contractual dispute resolution clause.309 Considering the consen-
sual nature of the tribunal’s jurisdiction, the easiest (and perhaps simplest) solution
would be to rescind the contractual forum selection clause and to agree that a single
tribunal decides claims and counterclaims altogether.310
The doctrine of forum non conveniens represents the inherent power of a court to
decline the exercise of jurisdiction in cases where the claim may be more appropri-
ately decided by a different court or tribunal.311 This doctrine seems to originate in
the United Kingdom and later be adopted by the US courts,312 and has permeated
arbitration.313 In fact, the Salini v Argentina tribunal recognised the applicability of
the doctrine of forum non conveniens in treaty-based investment arbitration.314
Accordingly, a treaty-based tribunal could not arrogate jurisdiction over such
contractual counterclaim disregarding the forum selection clause governing the
underlying contract. Absent compelling reasons against its applicability (for
instance, given fraud or undue influence at the conclusion of the arbitration agree-
ment), the forum selection clause should govern the specific contract/dispute.315 A
silver lining for contractual counterclaims in treaty-based investment arbitration
could nevertheless exist. For instance, in cases where the line between treaty/
contractual claim is blurred, taking into account the interest of procedural economy,
the tribunal could decide to adjudicate the respondent state’s counterclaim based on
a contract with a forum selection clause.316

3.3.2.3 Non-Consenting Third Parties

A final point appertains to the identity of parties to the dispute and the parties to the
investment contract. In the framework of contractual counterclaims in treaty-based

309
Lalive and Halonen (2011), pp. 151–152; Kryvoi (2012), pp. 240–241; Bubrowski (2013),
pp. 224–225.
310
Kjos (2007), p. 620. Similarly, Bubrowski (2013), p. 225. On an analogous point with respect to
set-offs and diverging forum selection clauses see, Berger (1999), p. 78.
311
Blair (1929), p. 1.
312
Barret (1947), pp. 386 et seqq. A similar suggestion on the origins of the doctrine see, Blair
(1929), pp. 20 et seqq.
313
Rogers (1988), p. 249.
314
It must be noted that in that case the tribunal concluded that there were no compelling reasons to
decline the exercise of jurisdiction see, Salini Impregilo SpA v Argentine Republic, ICSID Case No
ARB/15/39, Decision on Jurisdiction and Admissibility (23 February 2018) paras. 165–173.
315
Rogers (1988), p. 242.
316
Kjos (2013), p. 146. One example where the line between contractual and treaty claims is blurred
could be the case of umbrella clauses. In that case, a sense of ‘fairness’ would suggest that the same
treaty-based tribunal should decide the contractual counterclaim see Lalive and Halonen
(2011), p. 152.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 127

investment arbitration, the issue of non-consenting third parties may be twofold: on

the one hand, the claimant investor may have concluded the investment contract
through a local subsidiary with independent legal personality. On the other hand, the
respondent state may have concluded the investment contract through a subdivision,
territorial entity, or agency with independent legal personality. The question thus
arises whether such an investment contract may be the basis for a counterclaim in
treaty-based investment arbitration despite the different parties involved.
This evokes the ‘privity of contract’ notion, which dictates that contractual
obligations and rights only operate between the contracting parties.317 Although
the notion of privity of contract has its origins in common law, civil law jurisdictions
developed a similar concept inherited from Roman law.318 Transposed to investment
arbitration, privity of contract suggests that the disputing parties and the contracting
parties ought to be the same.319 This rarely occurs in investment arbitration because
most of the times investors deal with territorial entities or administrative agencies in
their investment contracts which normally have a different legal personality under
domestic law.320
Accordingly, in the framework of treaty-based investment arbitration, the avail-
ability of contractual counterclaims may be hindered by the presence of separate
legal entities, territorial subdivisions, state-owned enterprises or national funds as the
contracting parties.321 Some treaty-based tribunals have even taken into consider-
ation the different contracting parties to either reject requests for staying proceedings
or for denying objections to the tribunal’s jurisdiction.322
In the context of counterclaims arising of contractual relationships entered into by
different parties, tribunals have reached different conclusions. In the Klöckner v
Cameroon case, the respondent host state invoked, as one jurisdictional basis for the
counterclaims, Article 21 of the Establishment Agreement.323 This Agreement had
been concluded between Société Camerounaise des Engrais or ‘Socame’
(a Cameroonian company initially established by the claimant) and the State of
Cameroon. The claimant argued that there was no consent to arbitration between the
disputing parties under the mentioned Establishment Agreement, given that it had

317
Newman (1983), p. 339.
318
However, the notion of privity of contract has been reconsidered and many options for a third-
party beneficiary exist in both Common Law and Civil Law traditions. In this regard and for a
comprehensive study on privity of contract see Merkin (2000); Hallebeck and Dondorp (2008).
319
Magnarelli (2020), p. 3.
320
Voss (2011), p. 139.
321
Bubrowski (2013), p. 217. Similarly, Kryvoi (2012), p. 240.
322
See for instance, Impregilo SpA v Islamic Republic of Pakistan, ICSID Case No ARB/03/3,
Decision on Jurisdiction (22 April 2005) para. 289; Aguas del Tunari, SA v Republic of Bolivia,
ICSID Case No ARB/02/3, Decision on Jurisdiction (21 October 2005) para. 114.
323
Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société
Camerounaise des Engrais, ICSID Case No ARB/81/2, Award (21 October 1983) 14 [reproduced
in R Rayfuse (ed), ICSID Reports vol 2 (CUP 1994) 3–163].
128 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

been concluded by a different company.324 The tribunal acknowledged jurisdiction

by referring to the notion of foreign control under Article 25 ICSID Convention and
stated:
This Agreement, although formally signed between the Government and Socame, was in
fact negotiated between the Government and Klöckner. . .Moreover, it is undeniable that it
was manifestly concluded in the interest of Klöckner, at a time when Klöckner was Socame’s
majority shareholder. The Establishment Agreement reflected the contractual relationship
between a foreign investor, acting through a local company, and the host country of this
foreign investment.325

In the Saluka v Czech Republic case, one of the main objections raised by the
claimant was that some counterclaims were against Nomura Europe, who was a
parent company of the claimant not involved in the arbitral proceedings.326 The
tribunal highlighted as a cardinal principle that the parties to the counterclaim must
be the same as the parties to the main claim.327 However, as a preliminary matter, the
tribunal had already stated it would ‘initially proceed on the assumption, but without
deciding, that the relationship between Saluka and Nomura Europe is sufficiently
close to enable the Tribunal’s jurisdiction in proceedings instituted by Saluka to
extend to claims against Nomura’.328 The tribunal dismissed the counterclaims
before analysing this point in depth.
In the Paushok v Mongolia case, the respondent submitted a set of counterclaims
against KOO Golden East-Mongolia (a gold mining company owned by the claim-
ants) for alleged violation of tax laws and license agreements.329 However, the
tribunal determined that KOO Golden East-Mongolia was not a party to the dispute
and its obligations could not be transposed into treaty obligations.330 A last example
is found in the Al-Warraq v Indonesia case. Relying on the Saluka v Czech Republic
case, the tribunal considered as a ‘cardinal’ principle that the parties to the counter-
claim must be the same as the parties to the main claim.331 Given that the

324
Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société
Camerounaise des Engrais, ICSID Case No ARB/81/2, Award (21 October 1983) 15 [reproduced
in R Rayfuse (ed), ICSID Reports vol 2 (CUP 1994) 3–163].
325
Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société
Camerounaise des Engrais, ICSID Case No ARB/81/2, Award (21 October 1983) 17 [reproduced
in R Rayfuse (ed), ICSID Reports vol 2 (CUP 1994) 3–163].
326
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 42.
327
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 49.
328
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 44.
329
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) para. 678.
330
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) para. 686.
331
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) para. 669.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 129

counterclaim involved other parties’ actions (First Gulf Asia Holdings Limited and
Mr. Rafat Ali Rizvi), who were not present in the arbitration, the tribunal rejected the
counterclaims.332 Interestingly, for this tribunal the identity of parties was part of the
merits rather than the jurisdiction over counterclaims,333 but most importantly, this
tribunal did not consider the caveat made by the Saluka v Czech Republic tribunal on
sufficiently close relation between legal entities.
It is moreover striking that separate corporate legal personality is easily side-lined
to the benefit of the investor, but strictly upheld when the accountability of the
investor is at stake.334 Thus, the notion of privity of contract should not be construed
strictly where the circumstances of the case entail a high degree of complexity.335
Therefore, some flexibility on privity should be encouraged in order to preserve the
legitimacy of investor-state arbitration.336 This implies a moderate approach for
contractual counterclaims in treaty-based investment arbitration. In that sense, for
cases where the claimant investor bears a different legal personality that the com-
pany concluding the investment contract, the contractual counterclaim could be
allowed if there is a sufficient connection between the contracting company and
the claimant investor, for instance, as forming a single economic reality.337
Based on principles of equity and good faith, a treaty-based tribunal could
interpret its jurisdiction over a contractual counterclaim as involving a
non-consenting third party, which is nonetheless connected to the claimant investor
as a single economic reality.338 In fact, given that foreign investment normally
involves complex corporate structures, such ‘economic approach’ seems to be
appropriate not only for counterclaims but also for various situations.339
For cases where the respondent state bears a different legal personality from the
state entity concluding the investment contract, the contractual counterclaim could
be allowed by recourse to the criteria of attribution. Accordingly, if the act of
concluding the investment contract by the territorial subdivision, agency, state-

332
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) para. 669.
333
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) para. 683.
334
Miles (2013), p. 152. Particularly, Kate Miles points to the SD Myers decision, whereby the
tribunal stated that it ‘does not accept that an otherwise meritorious claim should fail solely by
reason of the corporate structure adopted by a claimant in order to organise the way in which it
conducts its business affairs’ see, SD Myers Inc v Government of Canada, UNCITRAL Case,
Partial Award (13 November 2000) para. 229.
335
Magnarelli (2020), p. 126.
336
Magnarelli (2020), p. 130.
337
Pathak (2019), pp. 117 et seqq. For a different opinion considering that the corporate veil cannot
be lifted without a modification of domestic law see, Shao (2021), pp. 174–175.
338
Pathak (2019), p. 119.
339
For instance, as advanced by August Reinisch with respect to res judicata and lis pendens, the
triple identity test, particularly the identity of parties, should reflect the economic realities of foreign
investment, see Reinisch (2004), pp. 56 et seqq.

Licensed to Dymas Satrioprojo ([email protected])

130 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

owned enterprise, or a national fund is attributable to the respondent state by the

principles of customary international law on attribution, there should be no limitation
on the respondent state to file a contractual counterclaim. In this light, the functional
test on attribution may be used to determine whether the specific state entity was
acting as an agent of the state or discharging an essential governmental function
when concluding the investment contract.340 Should the answer be positive, the
treaty-based tribunal could assume jurisdiction over a contractual counterclaim
involving a different state entity, which was nonetheless exercising governmental
authority when concluding the investment contract. This approach could be even
extended beyond investment contract relations, in cases where the tribunal might be
hesitant to adjudge a counterclaim involving third parties such as in the Alex Genin v
Estonia case.341
Interestingly, the Hamester v Ghana tribunal used the test of attribution between a
state company and the state to reject a counterclaim. Here, the respondent’s coun-
terclaim arose out of a joint venture agreement concluded by the claimant and the
Ghana Cocoa Board.342 The tribunal rejected the counterclaim because the respon-
dent state was not a party to the agreement, and the actions of the Ghana Cocoa
Board were not attributable to the state.343 Should the attribution analysis have led to
a different answer, the tribunal may have admitted the counterclaim. Similarly, in the
Al-Warraq v Indonesia case, the tribunal held that respondent’s alleged loss was
seemingly suffered by a state bank, and the respondent did not prove subrogation or
other right to recover those losses.344 A contrario, should the respondent have
proven a right to recover on behalf of the bank, for instance through attribution
criteria, the result may have been different.

340
With regards to exercise of governmental authority as an attribution test in public international
law, see Crawford (2019), p. 528. With regards to the functional test on attribution in the context of
investment arbitration see, Emilio Agustín Maffezini v The Kingdom of Spain, ICSID Case No
ARB/97/7, Decision on Jurisdiction (25 January 2000) paras. 75 et seqq.; Bayindir Insaat Turizm
Ticaret Ve Sanayi AS v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Award
(27 August 2009) paras. 111–130; Deutsche Bank AG v Democratic Socialist Republic of Sri
Lanka, ICSID Case No ARB/09/2, Award (31 October 2012) paras. 401–407.
341
The Alex Genin v Estonia tribunal expressed its concerns, albeit obiter dictum, that the respon-
dent might not have been the appropriate party to raise the counterclaim on illegally diverted money
but rather the liquidation committee of the locally incorporated company see, Alex Genin, Eastern
Credit Limited, Inc and AS Baltoil v The Republic of Estonia, ICSID Case No ARB/99/2, Award
(25 June 2001) fn. 101. Thus, the tribunal could have availed itself of attribution criteria with
regards to Estonia and the liquidation committee to eventually determine whether Estonia was
actually entitled to raise the counterclaim on the illegally diverted money.
342
Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24,
Award (18 June 2010) paras. 351–352.
343
Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24,
Award (18 June 2010) para. 356.
344
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) para. 670.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 131

Certainly, one may be reluctant to avail of an economic analysis to circumvent the

corporate veil or to use attribution criteria in public international law to quash the
differentiation between the state and state entities. In fact, the Tethyan v Pakistan
decision stressed this issue. Pakistan raised three counterclaims: one based on the
IIA; other based on a joint venture agreement concluded with the autonomous
province of Balochistan; the last one based on local regulations enacted by Balochi-
stan.345 However, the tribunal refused to use attribution criteria to equate the
Pakistani State with the province of Balochistan. Thus, it concluded that Pakistan
was not entitled to bring those counterclaims but rather Balochistan.346 The tribunal
failed to provide any reason supporting such conclusion.
Even though the analysis of the single economic unity (or the attribution criteria
in case of the respondent) might theoretically overcome the disparity of legal
personalities, one must pay heed to new norms on this regard, for instance, the
VIAC Investment Arbitration Rules (2021). Particularly, Article 9(3) thereof states
that a tribunal ‘may return the counterclaim to the Secretariat to be addressed in
separate proceedings if. . .the parties are not identical’. While it is in the tribunal’s
discretion to return the counterclaim, such provisions may be construed as curtailing
the analysis of the single economic unity or the use of attribution criteria.

3.3.3 Revising the Interpretation of Consent

to Environmental Counterclaims in Treaty-Based
Investment Arbitration

The traditional appraisal of counterclaims evinces that neither the state’s legal
standing to submit claims nor the narrow applicable law provisions represent a
major hurdle for a tribunal’s jurisdiction over the respondent’s counterclaims.
Conversely, the narrowly worded dispute settlement treaty provisions might do
so. While jurisprudence constante in this regard is not clearly discernible, one
cannot ignore that limitations on the kind of disputes a tribunal may decide upon
have been interpreted on several occasions as the determinative factor to dismiss
counterclaims on jurisdictional grounds [Sect. 3.3.3.1]. There are two options to
overcome such barrier, making treaty-based investment arbitration amenable to
environmental counterclaims: either by means of treaty interpretation [Sect.
3.3.3.2] or by the implementation of prospective solutions [Sect. 3.3.3.3].

345
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) para. 1375.
346
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) para. 1421.
132 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

3.3.3.1 Jurisprudence Constante on the Interpretation of Tribunals’

Jurisdiction over Counterclaims?

It is undisputed that no binding precedent or stare decisis doctrine exists in invest-

ment arbitration, yet, arbitral tribunals often rely on previous decisions of other
tribunals to support their findings.347 This conveys an ideal of consistency and
harmonious development within international investment law.348 This phenomenon
has been denominated as jurisprudence constante, which is a practice from civil law
traditions according to which, a line of cases deciding an issue in a certain manner
may influence the interpretation of the same issue in the future.349
Although one may criticise the appropriateness of using the concept of jurispru-
dence constante in investment arbitration,350 it is argued that the development of a
persuasive and consistent system of decisions builds up the expectations on how
treaty provisions should be construed, turning investment arbitration into an instru-
ment of global governance.351 Considering that the rule of law demands consistency
and predictability within a legal system,352 jurisprudence constante may contribute
to it. Accordingly, investment arbitral tribunals are encouraged to consider existing

347
Bungenberg and Titi (2015), pp. 1507–1508.
348
Saipem SpA v The People’s Republic of Bangladesh, ICSID Case No ARB/05/07, Decision on
Jurisdiction and Recommendation on Provisional Measures (21 March 2007) para. 67: (‘it has a
duty to seek to contribute to the harmonious development of investment law and thereby to meet the
legitimate expectations of the community of States and investors towards certainty of the rule of
law’). Similarly, see Mathias Kruck and others v Kingdom of Spain, ICSID Case No ARB/15/23,
Decision on Jurisdiction (16 April 2021) para. 114: (‘While there can be no doctrine of binding
precedent among the ad hoc tribunals adjudicating upon investment disputes, the consistency and
predictability of legal decisions is a goal of the most fundamental importance. No tribunal is an
island entire of itself. It is one element of a much more extensive, evolving system for the protection
of parties’ rights; and individual tribunals are, rightly, slow to depart from principles and analyses
that are generally accepted and established within the system’); Astrida Benita Carrizosa v Republic
of Colombia, ICSID Case No ARB/18/5, Award (19 April 2021) para. 22: (‘. . . subject to the text of
the treaty or to compelling grounds to the contrary, it should adopt legal solutions firmly established
in a series of consistent cases, thereby contributing to the harmonious development of
international’).
349
Kaufmann-Kohler (2007), pp. 359–60; Bjorklund (2008), p. 272.
350
De Brabandere (2014), pp. 97–98: (‘The fact that states have chosen international arbitration as a
dispute settlement method needs to be respected, and this implies that each case will be examined de
novo based on the specific factual and legal circumstances of the case . . . Stare decisis and
jurisprudence constante very often presuppose a hierarchical system of courts and tribunals...
The very fact that states have chosen to establish a horizontal system of ad hoc arbitration with
no appellate mechanism by necessary implication results in a system whereby each arbitral tribunal
assesses the case without any obligation to consider or apply previous case law’).
351
Schill (2010), pp. 18–19.
352
Reinisch (2016), pp. 291–307. It is important to note the approach of Thomas Schultz, who
posits that consistency entails a relative value since it depends on what is kept ‘consistent’ see
Schultz (2014), p. 298.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 133

lines of consistent awards on similar issues, but their decision-making cannot depart
from the particularities of the underlying treaty and applicable law.353
In the case of counterclaims and the tribunals’ jurisdiction to adjudge them, no
jurisprudence constante can be discerned. On the one hand, decisions declining
jurisdiction given state’s legal standing to submit a claim or applicable law clauses
prove unconvincing. On the other hand, jurisdictional barriers based on the kind of
disputes subject to the tribunal’s jurisdiction seem reasonable but no consistent case
law has arisen on this regard. Despite the divergences, one may assume arguendo
that tribunals constrain themselves from adjudging counterclaims when the under-
lying treaty contains a narrowly drafted dispute resolution provision on the types of
disputes subject to arbitration. Such rationale may indicate a sort of jurisprudence
constante and future tribunals might as well follow suit.
However, even in such scenario, previous decisions on jurisdiction over counter-
claims ought not to be followed blindly. Consistency does not mandate the same
outcome, and the tribunals should critically examine the particularities and legal
soundness of the previous decisions vis-à-vis the case at hand.354 This implies that
consistency cannot be upheld at the expense of any other legitimate interests,355 but
rather consistency should be pursued ‘only when doing so furthers a benign,
desirable regime.’356 Therefore, awards are to be critically evaluated in order to
promote the development and legitimacy of the system.357 Certainly, this might
bring about a body of inconsistent decisions, however, that is exactly the purpose:
promoting discourse and operating as a system of ‘checks and balances’ as long as
the diverging decision presents a careful analysis for its deviation.358
Given the theoretical framework of investment arbitration, it must be stressed that
the investment protection in the broader sense represents a means to achieve a public
goal, thus, it ‘should not be championed at the expense of other governmental
priorities’,359 which might include environmental protection. This demands a revi-
sion of tribunals’ approach to counterclaims, specifically, environmental counter-
claims and their jurisdiction to adjudge them. In other words, even though
jurisprudence constante on a tribunal’s jurisdiction over counterclaims with respect
to narrowly drafted dispute resolution provisions could be tenable, the underlying

353
Diel-Gligor (2017), p. 109.
354
Paulsson (2018), para. 4.16.
355
Schultz (2014), p. 298: (‘it is not more important for a rule to be settled than to be right’).
Similarly, Diel-Gligor (2017), p. 107.
356
Schultz (2014), p. 316.
357
Paulsson (2018), para. 4.64.
358
Diel-Gligor (2017), pp. 153–155. Jan Paulsson might disagree since this issue pertains a matter
of jurisdiction and treaty interpretation, whereby the tribunal’s analysis is less fact-specific, thus
inconsistent decisions might be more problematic, see on this regard, Paulsson (2018), para. 4.16,
fn. 6. However, as long as tribunals analyse their jurisdiction cautiously, a deviation from previous
cases should not be worrisome.
359
Van Harten (2007), p. 145.
134 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

public interest on protecting the environment prompts a critical analysis of the

particular treaty.

3.3.3.2 Interpreting Environmental Counterclaims within

the Jurisdiction of Arbitral Tribunals

Each IIA and its dispute resolution provisions must be examined on their own, which
might impede transferring the reasoning from one case to another.360 The main
purpose of treaty interpretation is to give effect to the parties’ intention, which in
principle is reflected in the plain text of the treaty as a whole, considering the
circumstances surrounding its conclusion.361 In this vein, there are three treaty
aspects that should guide the tribunal’s interpretation of jurisdictional provisions
in investment arbitration amenable to environmental counterclaims: first, the under-
lying treaty provision on dispute resolution is only a starting point for finding
jurisdiction over environmental counterclaims [Sect. 3.3.3.2.1]. Second, the treaty’s
context, object and purpose provisions in the underlying IIA may supplement the
tribunal’s analysis [Sect. 3.3.3.2.2]. Third, environmental interests might permeate a
tribunal’s analysis on its jurisdiction [Sect. 3.3.3.2.3].

3.3.3.2.1 The Jurisdictional Title as a Single Piece of the Puzzle

The analysis of a tribunal’s jurisdiction vis-à-vis environmental counterclaims must

necessarily start with the treaty text, particularly its dispute resolution provision. As
discussed above, those provisions do not generally refer to counterclaims at all but
tribunals have construed the scope of the jurisdictional title as an indication of the
permissibility or not of counterclaims. It is thus indispensable to engage in treaty
interpretation, whereby a court or tribunal must not be restricted to a literal inter-
pretation nor can it rewrite the treaty under the disguise of treaty interpretation.362 In
this regard, Gerald Fitzmaurice suggested a balance between the letter and spirit of
the treaty, eloquently describing them as ‘opposite poles of an electro-magnetic
field’.363
Article 31 of the Vienna Convention on the Law of Treaties (VCLT) provides the
general rule of interpretation, reflecting customary international law, whereby par-
agraph 1 thereof states: ‘[a] treaty shall be interpreted in good faith in accordance

360
Paulsson (1995), p. 236. As recognised by Gerald Fitzmaurice, there are no absolute principles
of interpretation and each issue must be decided on its merits, see Fitzmaurice (1986), p. 791.
361
Fitzmaurice (1986), p. 793.
362
Case Concerning the Aerial Incident of July 27th, 1955 (Israel v Bulgaria) (Preliminary
Objections) [1959] ICJ Rep 127, Joint Dissenting Opinion by Judges Sir Hersch Lauterpacht,
Wellington Koo and Sir Percy Spender, 183.
363
Fitzmaurice (1986), p. 797.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 135

with the ordinary meaning to be given to the terms of the treaty in their context and
in the light of its object and purpose’. Accordingly, Article 31(1) VCLT presents a
set of elements that must be used in combination rather separately, without any
ranking among them, when interpreting a treaty provision,364 considering as well
authentic means of interpretation and relevant rules of international law as indicated
pursuant to Article 31(2) to (4) VLCT. In spite of this, the logical order suggests to
start with the ordinary meaning, followed by context, object and purpose, etc.365
However, this might not be a straightforward exercise, particularly when the treaty
fails to mention the issue at stake. Silence or absent terms entail one of the most
difficult interpretation processes.366 Contrasting conclusions may be reached from
treaty silence but in all cases the recourse to the entire treaty might be necessary.367
Possibly, treaty negotiations might not have considered procedural aspects in
detail such as the possibility to bring counterclaims during investment arbitration.368
Dispute resolution provisions in IIAs alone might not be conclusive to determine
whether the parties’ consent covers environmental counterclaims, thus, recourse to
other indications in the respective treaty becomes indispensable. Similar conclusions
should be reached with respect to narrowly drafted dispute resolution provisions,
whereby the kind of disputes subject to arbitration appears restricted to a state’s
obligations or simply treaty breaches. Even if such narrowly worded provisions
could be deemed as to limiting the possibility of counterclaims, such ‘ordinary
meaning’ would have to be confirmed by the treaty’s context, object and purpose
in accordance with the rules of treaty interpretation.369 Whilst the main claim ought
to revolve around the disputes envisaged under the dispute settlement provision, the
question whether such restriction extends to environmental counterclaims can only
be answered by interpretation recourse to the context of the particular IIA, and its
object and purpose. All in all, the treaty dispute resolution provision is only the
starting point.

364
Gardiner (2015), p. 162; Dörr (2018), mn. 38. Similarly, Aguas del Tunari, SA v Republic of
Bolivia, ICSID Case No ARB/02/3, Decision on Jurisdiction (21 October 2005) para. 91.
365
Villiger (2009), Art 31, mn. 30–31.
366
Gardiner (2015), p. 165.
367
Gardiner (2015), pp. 165–166.
368
Dudas (2016), p. 402. Some may even suggest that states had not realised the implications of the
structure and language used in their investment treaties see, Methymaki and Tzanakopoulos
(2017), p. 156.
369
Gardiner (2015), p. 185: (‘the ordinary meaning is the starting point of an interpretation, but only
if it is confirmed by investigating the context and object and purpose, and if on examining all other
relevant matters (such as whether an absurd result follows from applying a literal interpretation) no
contra-indication is found, is the ordinary meaning determinative’).
136 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

3.3.3.2.2 Treaty Indications for Environmental Counterclaims: Analysing

the Treaty’s Context, Object and Purpose

Examining the treaty context, its object and purpose is a necessary step in treaty
interpretation. In regard to a tribunal’s jurisdiction over counterclaims, some authors
have already suggested that many factors have a role to play on the interpretation of
the dispute resolution provision, such as other provisions in the treaty, or even the
applicable arbitration rules.370 This section thus analyses how an IIA’s context,
object and purpose may indicate that an arbitral tribunal based thereupon may
adjudge environmental counterclaims.
Context, and the treaty’s object and purpose serve as qualifiers of the ordinary
meaning of a term, avoiding strictly literal interpretations.371 Considering that the
terms of a treaty are not placed in isolation,372 they must be interpreted in the light of
their context,373 which are provided by the entire treaty, including its structure,
headings, contrasting provisions, preamble, annexes among others.374
The identification of a treaty’s object and purpose might be more cumbersome
since a single treaty might as well comprise several objects and purposes.375 One
may argue that the VCLT formulates ‘object and purpose’ in the singular, thus, it
refers to a single overarching notion referring to the treaty as a whole.376 However,
such approach might not be appropriate and instead all objects and purposes
expressed in the treaty must be considered and balanced out for the purpose of
interpretation.377 In any case, the use of a treaty’s object and purpose infuses
flexibility and common sense in the law of treaties.378 Yet, it must neither override
the text of the treaty,379 nor establish a reading incompatible with the text.380 This
entails that such exercise of interpretation requires a careful analysis of the treaty text

370
Atanasova et al. (2014), pp. 377–378.
371
Gardiner (2015), pp. 197 and 211.
372
Villiger (2009), Art 31, mn. 10.
373
Dörr (2018), mn. 43.
374
Villiger (2009), Art 31, mn. 10; Gardiner (2015), p. 210.
375
Gardiner (2015), p. 216.
376
Klabbers (2006), mn. 6–7.
377
Dörr (2018), mn. 54: (‘Since, however, in practice, the object of interpretation is always a
specific provision, or a part of such, rather than the treaty as a whole, this global view is bound to
diminish the value of teleological interpretation. Therefore, in the case of multi-purpose treaties all
goals that are expressed in the terms of the treaty are to be taken into account, and in the end that
which conforms best with the grammatical and systematic considerations on the term in question
will prevail in the process of interpretation’).
378
Klabbers (2006), mn. 21–22.
379
Gardiner (2015), p. 211.
380
Dörr (2018), mn. 57.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 137

since a treaty’s object and purpose cannot operate as independent source of meaning
contradicting the plain treaty language.381
Accordingly, the context of dispute resolution provisions in IIAs, as well as the
treaty’s object and purpose may provide some indications permitting tribunals to
positively find jurisdiction over environmental counterclaims in investment arbitra-
tion. These indications are categorised in two groups: treaty provisions excluding
certain types of counterclaims and treaty provisions providing for the protection of
the environment or promoting sustainable development as a goal.

3.3.3.2.2.1 Provisions Excluding Certain Types of Counterclaims

A considerable number of IIAs prevent respondent host states from raising as
counterclaims that the claimant has received or will receive indemnification from
an insurance or guarantee.382 Certainly, those treaty provisions do not constitute a
general authorisation of counterclaims, but they may constitute an indication in
favour of their permissibility.383 Accordingly, an interpretation a contrario may
suggest that those IIAs permit host states to submit counterclaims except for the
reasons of indemnification pursuant to an insurance.384 Thus, those provisions
constitute a factor to consider when interpreting the scope of consent to arbitrate
and the ensuing jurisdiction of the tribunal.385 Interestingly, in the David Aven v
Costa Rica case, the respondent asserted that only counterclaims on indemnification
already received by the claimant pursuant to an insurance were explicitly excluded
by the underlying treaty (eg Article 10.20.7 of the DR-CAFTA), thus, its

381
The United States of America and the Federal Reserve Bank of New York v The Islamic Republic
and Bank Markazi, Case A28, Decision No DEC 130-A28-FT (19 December 2000) 36 Iran-US
CTR 5, para. 58: (‘Even when one is dealing with the object and purpose of a treaty, which is the
most important part of the treaty’s context, the object and purpose does not constitute an element
independent of that context. The object and purpose is not to be considered in isolation from the
terms of the treaty; it is intrinsic to its text. It follows that, under Article 31 of the Vienna
Convention, a treaty’s object and purpose is to be used only to clarify the text, not to provide
independent sources of meaning that contradict the clear text’).
382
See for instance: NAFTA (1994), Art 1137(3); ECT (1994), Art 15(3); Kazakhstan-Netherlands
BIT (2002), Art 8(3); US-Uruguay BIT (2005), Art 28(7); Colombia-US TPA (2006), Art 10.20(7);
Peru-US TPA (2006), Art 10.20(7); Korea-US FTA (2007), Art 11.20(9); US-Rwanda BIT (2008),
Art 28(7); Israel-Ukraine BIT (2010), Art 10; Mexico-Kuwait BIT (2013), Art 16; Australia-China
FTA (2015), Art 9.16(8); Canada-Mongolia BIT (2016), Art 36; Israel-Japan BIT (2017), Art
24(12); Canada-Moldova BIT (2018), Art 36; Uzbekistan-Korea BIT (2019), Art 11(9); Australia-
Uruguay BIT (2019), Art 14(13); Morocco-Japan BIT (2020), Art 16(13); Israel-UAE BIT (2020),
Art 23(1); Japan-Georgia BIT (2021), Art 23(15).
383
Alvarez (2000), p. 410; Huber (2020), p. 329. Similarly, Lahlou et al. (2019), p. 54.
384
Rivas (2015), pp. 814–816. Ben Hamida (2003), para. 280; Ben Hamida (2005), p. 270. For a
different opinion considering that an a contrario interpretation of treaty provisions excluding
certain types of counterclaims may lead to inequality vis-à-vis the claimant investors, see Mitra
and Donde (2016), p. 122.
385
Kjos (2013), p. 146.
138 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

environmental counterclaim would fall within the tribunal’s jurisdiction.386 This

aided the tribunal, which acknowledged prima facie jurisdiction before dismissing
the counterclaim on procedural grounds.387
Some authors however doubt that such provisions can override a narrowly
worded arbitration provision, and only in cases of doubt those provisions may
speak in favour of counterclaims.388 Although it is an understandable position, it
must be highlighted that a narrowly worded arbitration provision (for instance,
limiting the kind of disputes subject to arbitration) is only one indication with
regards to counterclaims. Unless explicit wording in that direction, narrowly worded
arbitration provisions do not constitute a definitive exclusion of counterclaims.
In any case, an a contrario interpretation must be reconcilable with its context,
and the treaty’s object and purpose.389 In this regard, as remarked by arbitrator
Mauro Rubino-Sammartano in his dissenting opinion in the Gavazzi v Romania
case, it ‘would be hard to accept that the BIT’s Contracting Parties intended to give
rise to parallel proceedings before different courts and tribunals, by preventing the
Host State from asserting its rights against the investor in a counterclaim’.390 It thus
stands to reason that if the underlying treaty aims at providing the foreign investor
with a neutral forum for the resolution of investment related disputes, the same
investor should not be drawn to national courts for related issues that could constitute
a counterclaim of the respondent host state.391
Furthermore, the treaty provisions excluding certain types of counterclaims
would be meaningless if a host state could never submit a counterclaim against the
investor.392 In support of this, the general rule of interpretation in Article 31 VCLT
implies that preference should be given to an interpretation which gives meaning to
the text rather than an interpretation which deprives it of all meaning,393 also known
as the principle of effet utile or effectiveness. This principle arises from two elements
of the article: interpretation in good faith, on the one hand, and in light of the treaty’s

386
David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Award
(18 September 2018) paras. 693–694.
387
David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Award
(18 September 2018) paras. 728 et seqq.
388
Atanasova et al. (2014), p. 378. Similarly, suggesting that those treaty provisions must be
assessed against the rest of the entire treaty see, Steingruber (2020), p. 616.
389
Question of the Delimitation of the Continental Shelf between Nicaragua and Colombia beyond
200 Nautical Miles from the Nicaraguan Coast (Nicaragua v Colombia) (Preliminary Objections)
[2016] ICJ Rep 100, para. 35. Similarly, Dörr (2018), mn. 50.
390
Marco Gavazzi and Stefano Gavazzi v Romania, ICSID Case No ARB/12/25, Dissenting
Opinion (14 April 2015), para. 42(i).
391
Magnarelli (2020), p. 126.
392
Bubrowski (2013), p. 222: (‘In fact, the express exclusion of claims of a certain nature would be
superfluous if the host state could never file a counterclaim. It seems rather that the contracting
parties only wanted to exclude the host state’s right to initiated proceedings while preserving its
right to respond to the investor’s claim by filing a counterclaim’).
393
Gardiner (2015), pp. 168–169; Dörr (2018), mn. 52; Villiger (2009), Art 31, mn. 7.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 139

object and purpose, on the other hand.394 In conclusion, in order to provide meaning
to those treaty provisions excluding certain kind of counterclaims, it should be
interpreted that other types, such as environmental counterclaims, are within the
jurisdiction of the arbitral tribunals.

3.3.3.2.2.2 Provisions for the Protection of the Environment or the Promotion

of Sustainable Development
From the perspective of treaty interpretation, preambles may represent the context
and the treaty’s object and purpose.395 Certainly, treaty preambles might be less
clear and precise than substantive treaty provisions but ‘where there is doubt over the
meaning of a substantive provision, the preamble may justify a wider interpretation
or at least rejection of a restrictive one’.396 Yet, the interpretation of jurisdictional
provision in a treaty under the light of the preamble must be carefully undertaken. In
this vein, the Land, Island, and Maritime Frontier Dispute397 is apposite. In this
case, Honduras argued that the ICJ’s jurisdiction was not limited to determining the
legal situation of maritime spaces, but rather it included the delimitation of such
spaces, since the treaty’s object and purpose was to dispose completely of the
disputes.398 The Court rejected the argument since it could go beyond the common
intention as expressed in the treaty.399 As such, an interpretation in light of the
preamble cannot disregard the express wording of the jurisdictional title.
As mentioned above, IIAs have started to incorporate the protection of the
environment and/or the promotion of sustainable development.400 Given the flexi-
bility of its content, sustainable development may function as a valuable hermeneu-
tical tool conferring on the adjudicative body a wider margin of appreciation for
construing the content of the provision to be interpreted.401
In this context, the interpretation of IIAs provisions might be informed by the
mentioning of sustainable development or environmental protection as an objective
protected under the treaty including dispute settlement provisions. Thus, when the
underlying treaty does not contain an express exclusion of counterclaims but it does
provide for environmental protection or sustainable development as one of the

394
ILC YB [1966] vol II, part II, A/CN.4/SER.A/1966/Add.1, ‘Draft Articles on the Law of
Treaties, with Commentaries’ (177–274) 219, para. 6.
395
Gardiner (2015), p. 205; Dörr (2018), mn. 49.
396
Gardiner (2015), p. 206.
397
Land, Island, and Maritime Frontier Dispute (El Salvador v Honduras: Nicaragua intervening)
(Judgment) [1992] ICJ Rep 351.
398
Land, Island, and Maritime Frontier Dispute (El Salvador v Honduras: Nicaragua intervening)
(Judgment) [1992] ICJ Rep 351, para. 375.
399
Land, Island, and Maritime Frontier Dispute (El Salvador v Honduras: Nicaragua intervening)
(Judgment) [1992] ICJ Rep 351, para. 376.
400
See Chap. 1.
401
Barral (2012), p. 393.

Licensed to Dymas Satrioprojo ([email protected])

140 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

objectives pursued by the contracting parties, the arbitral tribunal should consider
this as an indication for the permissibility of environmental counterclaims.

3.3.3.2.3 Looking at the Big Picture: Can Environmental Interests Permeate

the Interpretation of Jurisdictional Provisions?

Environmental protection has undoubtedly permeated international investment law

during the last years.402 Accordingly, some authors have proposed interpretative
tools to reconcile substantive standards of investment protection with competing
public interests (eg the protection of the environment) such as systematic integration
of international law, proportionality, or deferential standard of review.403 Particu-
larly, in case of environmental considerations, the principle of systematic integration
in accordance with Article 31(3)(c) VCLT may steer tribunal’s interpretation task
towards an investment regime amenable to environmental protection.404 This inter-
pretative approach seems limited for the substantive treaty provisions, whereas its
application to jurisdictional titles is not yet clear. The question thus arises whether
environmental considerations could permeate the interpretation of jurisdictional
provisions in IIAs favouring the introduction of environmental counterclaims.
Article 31(3)(c) VCLT provides that in treaty interpretation ‘there shall be taken
into account, together with the context. . .any relevant rules of international law
applicable in the relations between the parties’. This article embodies the principle
of interpretation known as systematic integration, which conceives treaties within
the broader realm of international law.405 Accordingly, despite their actual subject-
matter, treaties must be interpreted and applied against the background of public
international law.406 One may argue that the principle of systematic integration
‘furnishes the interpreter with a master key’,407 which allows to cross specialised
fields of international law with the objective of finding a common place.408 This
might be helpful in hard cases where the four corners of the treaty do not provide a
definitive answer.409 In any case, Article 31(3)(c) VCLT remains an interpretative
tool for the treaty in question, thus, it cannot be used as a back door for incorporating

402
See Chap. 1.
403
Schill and Djanic (2018), pp. 44–48.
404
Bjorklund (2014), p. 282; Asteriti (2016), p. 181.
405
ILC YB [2006] vol II, pt. II, A/CN.4/SER.A/2006/Add.l (Part 2), ‘Fragmentation of
International Law: Difficulties Arising from the Diversification and Expansion of International
Law’ (175–184) 180, para. 17.
406
McLachlan (2005), p. 280; Dörr (2018), mn. 92.
407
McLachlan (2005), p. 319.
408
Dörr (2018), mn. 94.
409
McLachlan (2005), p. 281.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 141

other obligations of international law,410 or for the modification of the treaty in

question either.411
The application of Article 31(3)(c) VCLT involves three relevant aspects: first,
the relevant time—whether the reference to international law is at the moment of the
treaty conclusion or at the moment of interpretation depends on the wording of the
treaty provision under interpretation.412 Second, the meaning ‘applicable’ to the
relation between the parties—this term appears flexible including rules of a binding
character (another treaty, customary international law, general principles of law), but
also other rules that are at least implicitly tolerated by the parties may become
relevant under Article 31(3)(c) VCLT.413 Third, the relevant parties—whether the
provision refers to all treaty parties or only to the disputing parties. While one may
suggest a strict reading concluding that the relevant rules must be applicable to all
treaty parties,414 the ILC suggests a broader reading, otherwise, the use of Article
31(3)(c) VCLT as an aid to interpretation becomes practically impossible in a
multilateral context.415 There is an extra layer of complexity in treaty-based invest-
ment arbitration since one of the parties to the dispute (the investor) is not even a
treaty party. One may suggest that for the purpose of Article 31(3)(c) VLCT, the
relevant parties ought to be the disputing parties (host state and investor).416 Given
the difficulties of finding international rules applicable to both the host state and
investors, the application of Article 31(3)(c) VLCT would probably not add anything
for the purpose of interpretation. However, Article 31(3)(c) VLCT could still be
relevant in the inter-state context.
In practice, Article 31(3)(c) VCLT may have a bearing on the interpretation of an
adjudicator’s jurisdiction, as well as on the introduction of environmental consider-
ations in the decision-making process. With respect to the interpretation of an

410
Gardiner (2015), p. 330: (‘The extent of the international law inquiry is confined to the context of
the treaty provision, aiding its interpretation and, ultimately, its application. Such application
continues to represent application of the treaty to the situation, not direct application of international
law to it’).
411
Yotova (2017), p. 185.
412
ILC YB [2006] vol II, pt. II, A/CN.4/SER.A/2006/Add.l (Part 2), ‘Fragmentation of
International Law: Difficulties Arising from the Diversification and Expansion of International
Law’ (175–184) 180, para. 22: (‘International law is a dynamic legal system. A treaty may convey
whether in applying article 31 (3) (c) the interpreter should refer only to rules of international law in
force at the time of the conclusion of the treaty or may also take into account subsequent changes in
the law.’). Similarly, McLachlan (2005), pp. 316–317; Gardiner (2015), pp. 295–298; Dörr (2018),
mn. 108; Legal Consequences for States of the Continued Presence of South Africa in Namibia
(South West Africa) notwithstanding Security Council Resolution 276 (1979) (Advisory Opinion)
[1971] ICJ Rep 16, para. 53.
413
Luke (2019), p. 169. Linderfalk (2008), p. 345; Dörr (2018), mn. 96 et seqq.
414
Linderfalk (2008), p. 362.
415
ILC, Report of the Study Group of the ILC on ‘Fragmentation of International Law: Difficulties
Arising from the Diversification and Expansion of International Law’ (13 April 2006) UN Doc
A/CN.4/L.682, para. 450.
416
Baetens (2019), fn. 96.
142 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

adjudicator’s jurisdiction, the Oil Platforms case417 is enlightening. In this case, the
ICJ’s jurisdiction under the 1955 Treaty418 was limited to disputes as to the
interpretation or application of the treaty. However, considering other provisions
of the same treaty and having recourse to Article 31(3)(c) VCLT, the Court deter-
mined that its jurisdiction was not limited to treaty breaches but it also could consider
whether the US action constituted an unlawful use of force under customary
international law.419 The Court finally found that the US action did not constitute
a lawful use of force without entering into the discussion of US state responsibility
under international law for such finding.
One may suggest that if the Court would have analysed US responsibility for the
unlawful use of force, it would have transgressed its jurisdiction.420 Yet, this view
might misconceive Article 31(3)(c) VCLT and its use for the interpretation of
dispute settlement provisions, especially, given that the Court had arrogated juris-
diction to decide whether the US action constituted an unlawful use of force via
systematic integration. Therefore, the Oil Platforms judgment shows that the inter-
pretative role of Article 31(3)(c) VCLT is not limited to substantive treaty pro-
visions, but rather it can be expanded to other provisions, such as those defining the
scope of jurisdiction of a court or tribunal. At the end, the VCLT does not differen-
tiate between substantive and jurisdictional treaty provisions. Consequently, Article
31(3)(c) VCLT may play a role in the interpretation of the scope of a tribunal’s
jurisdiction with regards to environmental counterclaims.
As such, the Iron Rhine Railway case can be hailed as a milestone for the
introduction of environmental considerations through Article 31(3)(c) VCLT. The
tribunal considered that the emerging principles of environmental protection were
relevant to the relations between the parties (ie Belgium and the Netherlands) and
thus they might be referred to for the interpretation of the underlying treaties in the
dispute.421
Considering that a myriad of IIAs do not foresee environmental protection, one
may wonder whether arbitral tribunals constituted upon those treaties would

417
Oil Platforms (Iran v United States of America) (Merits) [2003] ICJ Rep 161.
418
Treaty of Amity, Economic Relations, and Consular Rights between the United States of
America and Iran of 1955, Art XXI(2): (‘Any dispute between the High Contracting Parties as to
the interpretation or application of the present Treaty, not satisfactorily adjusted by diplomacy, shall
be submitted to the International Court of Justice, unless the High Contracting Parties agree to
settlement by some other pacific means’).
419
Oil Platforms (Iran v United States of America) (Merits) [2003] ICJ Rep 161, paras. 41–42. This
reasoning arose some compelling dissents from Judge Buergenthal and Judge Higgins, and perhaps
unnecessarily as pointed out by Campbell McLachlan see McLachlan (2005), p. 309: (‘The Court
may well have found itself placing undue weight on a principle of interpretation to make this point,
in view of the jurisdictional constraints under which it was working. But, as Judge Simma reminds
us, the rules of custom and Charter with which the Court was concerned were in any event of a
peremptory character, and so their impact could not properly be ignored’).
420
Yotova (2017), p. 191.
421
Iron Rhine Railway Arbitration (Belgium v The Netherlands), Award (24 May 2005) XXVII
RIAA 35, paras. 58–60.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 143

consider environmental concerns as the Iron Rhine Railway tribunal did in its
decision.422 As elaborated above, sustainable development (as an objective to aspire
to) reflects customary law,423 which can be utilised as an interpretative tool via
Article 31(3)(c) VCLT. Given that the content of sustainable development never-
theless remains quite flexible, it appears as a valuable hermeneutical tool, providing
the interpreter with a wide margin of appreciation in determining the sense of the rule
subject to interpretation.424
Article 31(3)(c) VCLT may therefore incorporate not only environmental con-
siderations but also the concept of sustainable development in the treaty interpreta-
tion process which constitutes the core of environmental counterclaims in
investment arbitration. Yet, this might require support by other references in the
IIA to environmental law,425 or even in multilateral frameworks such as the ICSID
Convention, where the concept of sustainable development might be read into the
goal of economic development.426 In any case, it must be reminded that treaty
interpretation is not intended to ‘re-write’ the treaty,427 and by using Article 31(3)
(c) VCLT the interpreter must carefully consider the weight given to external sources
relied upon for the purpose of interpretation.428
In sum, when an arbitral tribunal is faced with the question whether it has
jurisdiction to adjudge an environmental counterclaim in investment arbitration,
this requires an exercise of interpretation of the scope of its jurisdictional mandate
as reflected in the underlying treaty provision on dispute settlement. Additionally,
the tribunal may consider environmental considerations and the concept of sustain-
able development as hermeneutical tools pursuant to Article 31(3)(c) VCLT, which
altogether should tilt the balance in favour of construing the dispute settlement
provision as covering the possibility of environmental counterclaims.

3.3.3.3 Prospective Solutions: Paving the Path Towards Environmental

Counterclaims

As evinced from the exercise of treaty interpretation, tribunals might find certain
indications in favour of finding environmental counterclaims within their

422
Miles and Lawry-White (2019), p. 12.
423
See Chap. 1.
424
Barral (2012), p. 393.
425
Yotova (2017), pp. 195–197.
426
Miles and Lawry-White (2019), p. 12: (‘Moreover, in relation to the ICSID Convention, the
concept of sustainable development might be read into its economic development objectives. The
practice of inter alia tribunals and the ICJ has considered that economic development must be
interpreted in an evolutionary manner, i.e. taking into account current standards’).
427
Case Concerning the Aerial Incident of July 27th, 1955 (Israel v Bulgaria) (Preliminary
Objections) [1959] ICJ Rep 127, Joint Dissenting Opinion by Judges Sir Hersch Lauterpacht,
Wellington Koo and Sir Percy Spender, 183.
428
McLachlan (2005), p. 310.
144 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

jurisdiction. However, these indications do not constitute conclusive proof and must
be balanced out with contrary indications suggesting the opposite conclusion. For
instance, and as elaborated by the Naturgy v Colombia tribunal, detailed treaty
provisions on dispute resolution might suggest that the contracting states have
deliberately omitted counterclaims within the purview of arbitral tribunals. 429
The problem stems from the wording of investment treaties, for which only states
are to blame for constraining themselves in the dispute settlement provisions when
negotiating the respective treaties.430 Thus, it may be necessary that states explicitly
clarify or redraft the jurisdictional scope of arbitral tribunals as to cover environ-
mental counterclaims. This approach will be prospective in nature and will be
limited in application for disputes arising after the clarification or redraft has been
completed. There are three options in this regard: first, by means of authentic or
authoritative interpretation of dispute settlement provisions [Sect. 3.3.3.3.1]. Second,
through treaty drafting or amendment amenable to environmental counterclaims
[Sect. 3.3.3.3.2]. Third, by imposing acceptance to possible environmental counter-
claims as a domestic requirement for admission of the investment [Sect. 3.3.3.3.3].

3.3.3.3.1 Authentic or Authoritative Interpretation of Dispute Settlement

Provisions

The interpretation of investment treaties follows the rules of public international law,
whereby the contracting parties themselves can subsequently interpret the content or
scope of treaty provisions (also known as authentic interpretation), or they can
delegate the interpretative authority to a third party (also known as authoritative
interpretation). Consequently, states could pursue either authentic or authoritative
interpretation of dispute settlement provisions to define whether environmental
counterclaims are within the purview of arbitral tribunals.

3.3.3.3.1.1 Authentic Interpretation and Environmental Counterclaims

Contracting states are the masters of their treaty.431 Thus, they hold the power to
construe it, vesting their interpretations with the same legal value as the treaty
itself.432 Accordingly, when treaty parties reach an agreement on the interpretation
of a treaty provision after the conclusion of the said treaty, this constitutes an

429
Naturgy Energy Group SA and Naturgy Electricidad Colombia SL (formerly Gas Natural SDG
SA and Gas Natural Fenosa Electricidad Colombia SL) v Republic of Colombia, ICSID Case No
UNCT/18/1, Award (12 March 2021) para. 616.
430
Magnarelli (2020), p. 116.
431
Villiger (2009), Art 31, mn. 16.
432
Berner (2016), p. 875: (‘Authentic interpretation is law-making in all but name. This distinct type
of law-making rests on a simple premise. The entity that makes the law a fortiori has the power to
construe it. Furthermore, it can vest its constructions with the same legal value as the original
norm’).
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 145

authentic interpretation and must be read into the treaty.433 This rule found its way
into the VCLT and is contemplated under Article 31(3)(a) thereof.
In the framework of international investment law, it is submitted that a construc-
tive dialogue through subsequent agreements creates an interpretative balance and
promotes more legitimate investment treaty interpretations.434 In this sense, the
contracting states could issue joint interpretations of their treaty, or they could
seek clarification of treaty provisions through exchange of diplomatic notes.435 In
practice, some IIAs have formed joint commissions for the interpretation of the
underlying treaty terms. For instance, NAFTA (1994) constituted the Free Trade
Commission, whose interpretations of NAFTA (1994) provisions were considered
binding upon tribunals in investor-state arbitration.436
Although joint interpretations may entail a legitimising factor in investment
arbitration,437 arbitral tribunals might be wary of the implications thereof.438 Fur-
thermore, given the dual role states have in international investment law (treaty
parties and possible disputing parties), one may suggest some constraints, especially
in ongoing cases, and the persuasiveness of the subsequent agreement on interpre-
tation must be assessed against the background of its timing and reasonableness.439
Furthermore, subsequent agreements need not follow the formal requirements of
a treaty, but they must demonstrate the common intention of the parties as to the
understanding of the provision in question.440 As held by the Methanex v US tribunal
‘[i]t follows from the wording of Article 31(3)(a) [VCLT] that it is not envisaged that
the subsequent agreement need be concluded with the same formal requirements as
a treaty; and indeed, were this to be the case, the provision would be otiose’.441
Under this light, minutes, memoranda of understanding or letters could constitute
subsequent agreements but it would be necessary to assess whether the state officials
had the authority to make an agreement binding their states or whether the common
understanding has been put into effect reflecting ‘subsequent practice’ in conformity
with Article 31(3)(b) VLCT.442
Certainly, Article 31(3)(a) VCLT presupposes that all parties to the treaty are on
agreement on the intended interpretation. Nevertheless, before reaching an

433
ILC YB [1966] vol II, part II, A/CN.4/SER.A/1966/Add.1, ‘Draft Articles on the Law of
Treaties, with Commentaries’ (177–274) 221, para. 14.
434
Roberts (2010), p. 225.
435
Titi (2017), pp. 39–43.
436
NAFTA (1994), Art 1131(2) and Art 2001(2)(c).
437
See in this regard, van Aaken (2015), pp. 19–47.
438
For instance, whether the interpretation may in fact be an amendment without observing the
treaty amendment process, whether the interpretation affects ongoing cases among others see,
Methymaki and Tzanakopoulos (2017), pp. 173 et seqq.
439
Roberts (2010), pp. 211–212.
440
Dörr (2018), mn. 75.
441
Methanex Corporation v United States of America, UNCITRAL Case, Award (03 August 2005)
Part II, Ch B, para. 20.
442
Gardiner (2015), p. 245.
146 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

agreement, the question is whether the treaty parties are bound by a duty to cooperate
and to strive finding a clearer meaning of their treaty and their provisions.443 One
may argue that they are bound by such a duty, which stems from various principles
of international law such as performing a treaty in good faith.444
Considering that the main barrier on counterclaims in investment arbitration has
been found in the dispute settlement provisions in IIAs, it is understandable that
some authors might call for affirmative action by the states, for instance, rendering
interpretative notes on existing investment treaties.445 Therefore, states could engage
in the interpretation of their IIAs, particularly the dispute resolution provisions
thereof, and provide explicitly that an arbitral tribunal based upon them has juris-
diction to adjudge environmental counterclaims of the respondent state.
Although in practice ‘few treaty parties have reached explicit interpretive agree-
ments and few tribunals have relied on such agreements’,446 the potential for
subsequent interpretative agreements when it comes to interpreting dispute resolu-
tion provisions as encompassing environmental counterclaims cannot be overstated.
Future arbitral tribunals would have a clear indication of the parties’ consent towards
environmental counterclaims and most likely they would find no qualms about
deciding on them.

3.3.3.3.1.2 Authoritative Interpretation and Environmental Counterclaims

In contrast to authentic interpretation, when the parties delegate the interpretative
function to a third party (for instance a court or a tribunal), the treaty interpretation
produced by the third party is known as authoritative interpretation.447 States may
seek to retain certain control over treaty interpretation claims. Accordingly, they may
have decided to include state-to-state arbitration in investment treaties,448 which has
gained more relevance in the last years.449
There are two types of treaty interpretation concerning IIAs a state-to-state
arbitral tribunal may render: claims for interpretation of the treaty on abstract
questions (purely interpretative questions or abstract interpretation claim) or claims
for interpretation of the treaty based on existing disputes (concrete interpretation
claim).450 Abstract interpretation claims seek to clarify the meaning of a treaty
provision, isolated from any specific dispute based on that provision.451 Concrete
interpretation claims refer to specific disputes between the state parties on the

443
Clodfelter (2014), p. 189.
444
Clodfelter (2014), pp. 189–190.
445
See in this regard, Kalicki and Silberman (2012), p. 15.
446
Roberts (2010), pp. 215–216.
447
Hernández (2015), 174 et seqq.
448
Hazarika (2021), p. 63. Similarly, Kulick (2017), p. 144.
449
Posner and Walter (2015), pp. 381 et seqq.
450
Hazarika (2021), pp. 63 et seqq.
451
Lourie (2015), p. 513.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 147

interpretation of a treaty provision, thus, they may refer to a forthcoming, existing or

decided investor-state dispute and the treaty provisions relied upon.452
For both abstract and concrete interpretation claims, the relevant question here is
whether the resulting state-to-state arbitral award would be binding upon future
investor-state arbitral tribunals. One may argue that even in the absence of a treaty
provision granting such binding effect, interpretative awards of state-to-state tri-
bunals should be regarded as binding upon investor-state arbitral tribunals, otherwise
those awards would be deprived of any practical value.453 However, even if investor-
state arbitral tribunals do not consider themselves bound by interpretative awards of
state-to-state tribunals based on the same IIA, those awards can at least be regarded
as ‘highly persuasive’ in the interpretation process.454 This might be different for
pluri- or multilateral investment treaties since the state-to-state arbitration may not
comprise all contracting states, thus, the resulting interpretative award would not
reflect the will of all contracting states.455
Certainly, state-to-state arbitration based on IIAs may present an opportunity for
rebalancing investment commitments and other policy goals.456 It also provides a
level playing field for developing states, who otherwise might be trumped in
negotiations with dominant and more powerful states.457 Yet, there is no guarantee
that the state-to-state tribunal will decide in certain direction.458
Therefore, for the purpose of environmental counterclaims, contracting states to
an IIA should first strive to reach a common interpretation of the underlying dispute
resolution provision for investor-state disputes as encompassing the possibility of
environmental counterclaims. If they cannot reach an agreement, they could resort to
state-to-state arbitration with an interpretation claim (either abstract or concrete) in
this regard. There is however uncertainty about the interpretation the state-to-state
tribunal may take: either accepting or rejecting that the treaty dispute resolution
provision for investor-state disputes covers possible environmental counterclaims.
At this point, one may consider that it would be simpler to roll the dice with the
investor-state tribunal instead of with the state-to-state tribunal. Yet, the latter option
might have lasting effects given the ensuing ‘authoritative interpretation’ character
of its awards, which might bring some consistency and guidance for future tribunals.

452
Hazarika (2021), p. 68.
453
Potestà (2015), p. 267. Similarly, Kulick (2015), p. 456.
454
Hazarika (2021), pp. 118–119.
455
Kulick (2017), p. 150. In this regard, Angshuman Hazarika suggests that in cases of multilateral
treaties, the state-to-state arbitral award could be used as supplementary means of interpretation
affecting all contracting parties see Hazarika (2021), pp. 82–83.
456
Lubambo (2016), p. 241: (‘However, [state-state investment arbitration] constitutes an additional
opportunity for both home and host states to provide balance to investment treaty commitments and
fine-tune their investment policies’).
457
Hazarika (2021), pp. 82–83.
458
Alschner (2015), p. 330.
148 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

3.3.3.3.2 Drafting or Amending Treaties Amenable to Environmental

Counterclaims

The second option consists of engaging in treaty drafting or amendment which

would turn dispute settlement provisions in IIAs amenable to environmental coun-
terclaims. In general, arbitral tribunals have declined jurisdiction over counterclaims
in investment arbitration given the language of the dispute settlement provisions in
the underlying IIAs. Accordingly, some authors have proposed the amendment of
existing treaties or new drafting for future ones, which expressly incorporates the
possibility of counterclaims by the host state.459 This would not only bring about
legal certainty460 and reduce the risk of tribunals disallowing counterclaims based on
treaty language,461 but would also rebalance investment commitments with other
policies such as environmental protection.462 Under this option, a general reference
to counterclaims would suffice to encompass environmental counterclaims.
UNCTAD has suggested in its World Investment Report 2012 that the negotiation
of ‘sustainable-development-friendly IIAs’ may imply the inclusion of the host
state’s right to submit a counterclaim against the claimant investor.463
The question is however how those treaty provisions expressly establishing the
possibility of counterclaims would look like. The earliest suggestion for explicitly
including counterclaims within the purview of arbitral tribunals in treaty-based
investment arbitration consists of the IISD Model Investment Agreement (2006).
Succinctly, Article 18(e) thereof provides that a ‘host state may initiate a counter-
claim before any tribunal established pursuant to this Agreement for damages
resulting from an alleged breach of the Agreement’. Whilst the drafters of this
provision belaboured the possibility for host states to initiate arbitration against
investors as well, this option was considered to encroach on building domestic
judicial procedures.464 Irrespective of whether such concern is justified, host state
claims would have faced the hurdle of investors’ lack of consent to arbitration
defeating their purpose.
The formulation of Article 18(e) IISD Model Investment Agreement (2006)
seems to have served as inspiration for African model investment treaties. Article
19(2) SADC Model BIT (2012) provides in similar wording the possibility for the

459
See for instance, Kalicki and Silberman (2012), p. 15; Asteriti (2015), p. 264; Schill and Djanic
(2018), p. 53; Clodfelter and Tsutieva (2018), para. 17.96; Zin (2020), p. 241; Choudhury
(2020), p. 56.
460
Bubrowski (2013), p. 228.
461
Scherer et al. (2021), p. 420.
462
Asteriti (2016), p. 181; Gleason (2021), p. 440.
463
Such inclusion is coupled with incorporating specific environmental commitments for investors
within the treaty when making and operating the investment, but also at a post-operation stage see,
UNCTAD (2012), p. 135.
464
Mann et al. (2006), p. 30.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 149

host state to submit counterclaims against the investor.465 Article 43(2) PAIC (2016)
introduces a similar permission for host state counterclaims,466 but in a slightly
broader language since investor-state arbitration is not the only method of dispute
settlement foreseen under PAIC (2016). This latter option is deemed to clear any
doubt about tribunals’ jurisdiction over counterclaims and to serve as an enforcing
mechanism of investors’ obligations such as on the protection of the environment or
human rights.467 A different example is provided by the COMESA Investment
Agreement (2007). Within the framework of investor-state disputes, Article 28-
(9) thereof contemplates:
A member against whom a claim is brought by a COMESA investor under this Article may
assert as a defence, counterclaim, right of set off or other similar claim, that the COMESA
investor bringing the claim has not fulfilled its obligations under this Agreement, including
the obligations to comply with all applicable domestic measures or that it has not taken all
reasonable steps to mitigate possible damages.

COMESA departs from the model treaties discussed above in the sense that it does
not foresee investors’ obligations as part of the treaty. Only a reference in Article
13 thereof is made to ‘all applicable domestic measures’ which is later reproduced in
Article 28(9) concerning counterclaims. Notwithstanding this deviation, COMESA
explicitly refers to counterclaims, which should suffice for the purpose of an arbitral
tribunal’s jurisdiction.
Similar to these African IIAs, other IIAs give contracting states carte blanche to
submit counterclaims. These are the Slovak Republic-UAE BIT (2016), the Slovak
Republic-Iran BIT (2016), and the Colombia-UAE BIT (2017). The Slovak
Republic-UAE BIT (2016) provides that the ‘respondent may present an incidental
or additional claim or counter-claim arising out of the investment’.468 Although in
the context of damages, the possibility of host state counterclaims is further reiter-
ated in Article 22(6) Slovak Republic-UAE BIT (2016), which states ‘[w]here a
tribunal makes a final award against respondent or against claimant in the light of a

465
SADC Model BIT (2012), Art 19(2): (‘A Host State may initiate a counterclaim against the
Investor before any tribunal established pursuant to this Agreement for damages or other relief
resulting from an alleged breach of the Agreement’).
466
PAIC (2016), Art 43: (‘(1)Where an investor or its investment is alleged by a Member State party
in a dispute settlement proceeding under this Code to have failed to comply with its obligations
under this Code or other relevant rules and principles of domestic and international law, the
competent body hearing such a dispute shall consider whether this breach, if proven, is materially
relevant to the issues before it, and if so, what mitigating or off-setting effects this may have on the
merits of a claim or on any damages awarded in the event of such award. (2) A Member State may
initiate a counterclaim against the investor before any competent body dealing with a dispute under
this Code for damages or other relief resulting from an alleged breach of the Code’) (emphasis
added).
467
Mbengue and Schacherer (2017), pp. 444–445.
468
Slovak Republic-UAE BIT (2016), Art 17(3).

Licensed to Dymas Satrioprojo ([email protected])

150 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

defence, counterclaim, right of set off or other similar claim pursuant to Section C of
this Agreement, the tribunal may award, separately or in combination’.469
The Slovak Republic-Iran BIT (2016) has included two express references to
counterclaims: Article 14(3) thereof provides that the respondent may assert coun-
terclaims for the claimant’s non-compliance with domestic law (similar to the
COMESA provision), whereas Article 17 seeks to pre-empt issues with claimant’s
consent to arbitration. This provision requires that, in order to pursue arbitration, the
investor must provide its express and written consent to counterclaims by the host
state.470 It thus opens the possibility of counterclaims since any jurisdictional
constraints a tribunal may encounter in regard to counterclaims are unravelled by
the investor’s explicit consent. Considering that consent to claims and to counter-
claims need not be contained in a single instrument,471 such approach might be
further utilised by other states in the future.
Finally, the Colombia-UAE BIT (2017) took a similar approach. Article 13-
(3) thereof requires, as a condition to submit to arbitration, that the investor accepts
the possibility of facing claims from the prospective respondent state:
In order to submit a claim to arbitration under this Section, the Investor must present Forms 1
(a) or 1(b) of Annex II, as applicable, with the Investor’s acceptance of the possibility of
facing claims by the Respondent against them.

Most likely, Colombian negotiators were the driving force behind this treaty provi-
sion considering that the Colombia Model BIT (2017) presents not only a similar
provision, but also further references to the possibility of lodging respondent’s
claims against the investor.472 Although all provisions therein mention ‘claims
raised by the Respondent State’ instead of counterclaims, it has been posited that
such provisions amount to an express intention of including counterclaims within a
tribunal’s purview.473 The drawback of these IIAs is that no investors’ obligations
were included.
Other examples of treaty provisions incorporating the possibility of counterclaims
are the Argentina-UAE BIT (2018) and BLEU Model BIT (2019). Whilst Article
28(4) Argentina-UAE BIT (2018) simply states that the respondent may submit a
counterclaim directly related to the dispute, Article 19(D)(2)(a) BLEU Model BIT
(2019) has incorporated the requirement for the submission to arbitration of giving
express and written consent to the possibility of counterclaims by the host state. A

469
Slovak Republic-UAE BIT (2016), Art 22(6).
470
Slovak Republic-Iran BIT (2016), Art 17(1): (‘The claimant may submit the claim to arbitration
if, cumulatively: (a) the claimant gives express and written consent: . . . (ii) that the Host State may
pursue any defense, counterclaim, right of set off or other similar claim pursuant to Article 14 of this
Agreement in arbitration under this Section. . .’).
471
Kalicki and Silberman (2012), p. 14.
472
See the provisions of the Colombia Model BIT (2017) concerning: ‘Scope of Application of
Investor-State Dispute Settlement’ paragraph 2; ‘Submission of a claim before a Court of Law or
Arbitral Tribunal’ paragraph 6(a); and ‘Disputes and Claims raised by the Respondent State’.
473
Duggal et al. (2019), p. 235.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 151

last group of IIAs have explicitly included the possibility for the respondent host
state to raise counterclaims but limited to the cases where the investor’s claims are
based on the breach of investment authorisations or contracts. This is the case of, for
instance, the CPTPP (2018)474 and the China-Mauritius FTA (2019).475
All the above-mentioned examples might serve as templates for amending
existing treaties or for drafting future treaties, which may allow arbitral tribunals
to adjudge counterclaims by the host state. Nevertheless, treaty drafting or amend-
ment faces certain drawbacks. First, treaty negotiations are rather slow, so counter-
claims would continue to struggle with jurisdictional barriers in the immediate
future.476 Second, treaty reform is particularly more cumbersome for existing
treaties, given the considerable number of treaties already in circulation,477 and
their corresponding sunset or survival clauses.478 Third, a major deterrent may
constitute the transaction costs associated with amending old treaties or negotiating
new ones.479
Be that as it may, ISDS reform has been in the crosshairs of UNCITRAL for the
last couple of years,480 which facilitates the discussion on treaty reform more
amenable to environmental counterclaims. Working Group III could thus work on
a new model dispute settlement provision for IIAs that states could use as a template
when concluding their own treaties. This could provide, for instance, that all disputes
concerning a protected investment are subject to arbitration, adding a final clarifica-
tion that the ‘arbitral tribunal constituted thereunder shall have jurisdiction to
decide counterclaims arising directly out of the subject-matter of the dispute’.481 It
might even be further suggested that, similarly to the Slovak Republic-Iran BIT
(2016) and the Colombia-UAE BIT (2017), an investor must provide its explicit
consent to possible counterclaims in order to submit to arbitration.
With regard to existing IIAs, similar language might be conceived but the crux of
the matter would be how to engage in the process of treaty modification. In this
scenario, there are two possible courses of action: either modifying each particular
IIA one-by-one or modifying several IIAs by means of a multilateral/plurilateral
treaty. Whilst a one-by-one modification seems untenable given the number of IIAs,
the latter option could be realised by means of an opt-in convention expanding the

474
CPTPP (2018), Art 9.19(2): (‘When the claimant submits a claim pursuant to [an investment
authorisation or an investment agreement], the respondent may make a counterclaim in connection
with the factual and legal basis of the claim or rely on a claim for the purpose of a set off against the
claimant’).
475
China-Mauritius FTA (2019), Art 8.24(4): (‘When the claimant submits a claim pursuant to
[an investment agreement], the respondent may make a counterclaim in connection with the factual
and legal basis of the claim or rely on a claim for the purpose of a set off against the claimant’).
476
Rivas (2015), p. 781.
477
Kendra (2013), p. 587.
478
Schill and Djanic (2018), p. 44.
479
Roberts (2010), pp. 192–193.
480
See Sect. 2.2.1.2.3.
481
On this, see the proposal of EI—IILCC Study Group on ISDS Reform (2022), p. 54.
152 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

dispute resolution provisions for the purpose of arbitrating the investor’s conduct.482
The mechanism of an opt-in convention has been already suggested to the Working
Group III for addressing a manifold of aspects in ISDS reform, drawing inspiration
from the UN Convention on Transparency in Treaty-based Investor-State Arbitra-
tion (Mauritius Convention) or the Multilateral Convention to Implement Tax Treaty
Related Measures to Prevent Base Erosion and Profit Shifting (BEPS Conven-
tion).483 Certainly, an opt-in convention is a more ambitious project, but it could
cover other aspects of ISDS reform as well.
Explicit references to counterclaims might equally be used if the UNCITRAL
Working Group opts for a standing court for the settlement of investment disputes.
The instrument creating the standing court should expressly include the possibility of
submitting counterclaims, and the corresponding power of the court to decide those
counterclaims. Thus, it is suggested that the provision establishing the scope of
jurisdiction of the court could include a paragraph as follows: ‘[t]he Court consti-
tuted thereunder shall have jurisdiction to decide counterclaims arising directly out
of the subject-matter of the dispute’.484 In the same vein, the conditions for submit-
ting to the jurisdiction of the court could explicitly state that the investor must
provide its consent to possible counterclaims of the host state. These reform options
would allow counterclaims from the outset, which necessarily would encompass
environmental counterclaims. Thus, the prospective claimant investor would be
aware that, by initiating proceedings, it would be consenting to the possibility of
counterclaims.

3.3.3.3.3 Adding Admission Requirements at the Domestic Level?

A last option for environmental counterclaims might find place in licensing pro-
cedures under domestic law. When exploring the possibility of direct claims of host
state and host state nationals against the foreign investor, Jose Daniel Amado,
Jackson Shaw Kern and Martin Doe Rodriguez have considered to demand the
investor’s consent to arbitration in cases of licencing procedures.485 In industries

482
Amado et al. (2018), pp. 93 et seqq. They propose an opt-in convention to subject the standing
offer to arbitrate in IIAs to the condition that investors must consent to possible claims from the host
state or nationals of the host state. However, an opt-in convention could simply modify the dispute
resolution provisions as to include explicit language on the tribunal’s jurisdiction over
counterclaims.
483
See UNCITRAL, Possible reform of investor-State dispute settlement (ISDS) Submission from
the European Union and its Member States (24 January 2019a) UN Doc A/CN.9/WG.III/WP.159/
Add.1, paras. 35–37; UNCITRAL, Possible reform of investor-State dispute settlement (ISDS)
Submission from the Government of Colombia (14 June 2019b) UN Doc A/CN.9/WG.III/WP.173,
paras. 4ff; UNCITRAL, Possible reform of investor-State dispute settlement (ISDS) Submission
from the Government of Ecuador (17 July 2019c) UN Doc A/CN.9/WG.III/WP.175, paras. 28–33.
484
On this, see the proposal of EI—IILCC Study Group on ISDS Reform (2022), p. 56.
485
Amado et al. (2018), pp. 82–84.
3.3 Jurisdiction Over Environmental Counterclaims in Treaty-Based. . . 153

prone to cause some injury in the host state, enterprises are usually subject to
licensure requirements pursuant to domestic law.486 Thus, the inclusion of the
investor’s consent to arbitration as a requirement for the issuance of licenses could
be easily achieved via domestic law modifications.
Following a similar logic, licencing procedures for foreign investors operating in
an industry with foreseeable environmental impact might require an ex ante consent
to counterclaims by the host state in treaty-based investment arbitration for possible
environmental damages. Since an investor’s consent to claims and counterclaims
need not appear in the same instrument, such option seems tenable. As the require-
ment of the investor’s consent would be included in domestic law of the host state,
this would avoid the lengthy and costly renegotiation of investment treaties. Never-
theless, there are two points that must be taken into consideration namely whether
the state has committed to pre-establishment obligations via IIAs and whether the
inclusion of the investor’s consent through domestic law may constitute an abuse.
On the one hand, treaties with pre-establishment obligations are admittedly few
but this seems to be changing through the conclusion of comprehensive regional
trade agreements with investment chapters.487 In this sense, an obligation on foreign
investors to provide consent to possible environmental counterclaims in investment
arbitration may be considered at odds with the national treatment standard covering
the pre-establishment phase since domestic investors might not be required to
provide a similar consent.
On the other hand, the modification of domestic law as to require investor’s
consent to possible counterclaims may be misused by host states foreseeing a
possible claim in investment arbitration. Certainly, states enjoy a wide discretion
on the foreign investment’s pre-establishment phase and they might include restric-
tions on admission of certain investments.488 Furthermore, a requirement of the
investor’s consent in a licencing procedure would most certainly precede any
foreseeable dispute between the investor and the state. Finally, the amendment of
licencing procedures might require a legislative process which would not be readily
available for the state facing an investment claim. However, a tribunal should be
cautious if such requirement is introduced during the operation of the investment
project and as a condition for renewing existing licences. In this case, arbitrators
should consider if there were foreseeable disputes at the moment of the legislative
change.

486
Amado et al. (2018), p. 83.
487
de Mestral (2015), p. 687.
488
de Mestral (2015), pp. 685–686.
154 3 Jurisdiction Over Environmental Counterclaims: The Puzzle of Consent

3.4 Interim Conclusions

The scope of consent constitutes the centrepiece of a tribunal’s analysis over its
jurisdiction to adjudge environmental counterclaims in investment arbitration.
Irrespective of the tribunal’s inherent powers or the applicable arbitration rules,
every tribunal ought to assess its jurisdiction over environmental counterclaims as
reflected in the respective dispute resolution provision. Whilst the framework of
contract-based investment arbitration might be more supportive of finding jurisdic-
tion over environmental counterclaims, the framework of treaty-based investment
arbitration may have created obstacles on two fronts: the restrictive appraisal of IIAs
vis-à-vis counterclaims and the possible exclusion of contractual counterclaims from
treaty-based investment arbitration.
With respect to the restrictive appraisal of IIAs vis-à-vis counterclaims, tribunals
have misconceived jurisdictional requirements over counterclaims particularly with
respect to the lack of the state’s legal standing to submit claims and the applicable
law provisions in IIAs. In contrast, the kind of disputes subject to arbitration as
defined by the respective treaty may indeed prevent a tribunal from adjudging
environmental counterclaims in treaty-based investment arbitration. This is so
even in the framework of the ICSID Convention where the Convention’s wording
and drafting history emphasise the pivotal role of consent for counterclaims.
With respect to the possible exclusion of contractual counterclaims from treaty-
based investment arbitration, this is explained by the existence of dispute resolution
provisions in IIAs with a limited scope or the presence of a forum selection clause in
the respective investment contract. Another potential obstacle for contractual coun-
terclaims in treaty-based investment arbitration is the difference between parties to
the dispute and parties to the investment contract. Yet, one could rely on an analysis
of a single economic unity (for investors) or on the attribution criteria in public
international law (for the respondent) to overcome such difference.
While there is no jurisprudence constante with respect to a tribunal’s jurisdiction
to decide environmental counterclaims, the limitations on the kind of disputes a
tribunal may decide upon has been interpreted on several occasions as the determi-
native factor to dismiss counterclaims. This demands a critical revision on how
tribunals should interpret dispute resolution provisions in IIAs. Like any other treaty
provision, they ought to be interpreted in accordance with the VCLT. Accordingly, a
tribunal can find some indications in favour of the adjudication of environmental
counterclaims for instance by assessing their context and the respective treaty’s
object and purpose, or by relying on systematic integration. This exercise could
thus consider provisions excluding certain types of counterclaims, provisions setting
out environmental protection or sustainable development as part of the treaty’s
objectives, and emerging principles on environmental law or any environmental
instruments applicable between the treaty parties.
Certainly, prospective solutions such as authentic or authoritative interpretations,
treaty drafting or modification, or perhaps imposing the requisite consent over
counterclaims in domestic law could clearly clarify the tribunal’s jurisdiction to
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Accessed 10 January 2023
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Difficulties Arising from the Diversification and Expansion of International Law’. UN Doc
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with Commentaries’ (177–274)
ILC YB [2006] vol II, pt II, A/CN.4/SER.A/2006/Add.l (Part 2), ‘Fragmentation of
International Law: Difficulties Arising from the Diversification and Expansion of International
Law’ (175–184)
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<https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-parties-before-
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work of its forty-sixth session. UN Doc A/CN.9/619
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Chapter 4
The Assessment of the Connection
Requirement for Environmental
Counterclaims

After finding jurisdiction to adjudge environmental counterclaims in investment

arbitration, an arbitral tribunal must further assess the connection of the particular
counterclaim with the main claim. Should the environmental counterclaim not be
(closely) linked to the claimant’s claim, the tribunal might refrain from adjudicating
the said counterclaim’s merits. Virtually all arbitral tribunals concur with counter-
claims having to fulfil the connection requirement, but only a handful of them have
dismissed counterclaims based exclusively on the lack of such connection.1
Accordingly, this Chapter analyses the requisite connection for counterclaims and
its implications for the particular case of environmental counterclaims. With this
purpose, the first section explores the justifications for the requirement of connection
between the counterclaim and the main claim [Sect. 4.1]. The second section
appertains to the proper characterisation of the requisite connection [Sect.
4.2]. The third section deals with the dilution of the connection requirement into
various balancing factors and the implications for environmental counterclaims
[Sect. 4.3]. Finally, the fourth section presents conclusions on the nature and
application of the connection requirement, as well as its relevance for environmental
counterclaims [Sect. 4.4].

1
See Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 81; Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz
Company v The Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April
2011) paras. 694 et seqq.; Fraport AG Frankfurt Airport Services Worldwide v Republic of The
Philippines, ICSID Case No ARB/11/12, Award (10 December 2014) para. 468; Oxus Gold v
Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 956. Although in
obiter dictum, the Naturgy v Colombia tribunal considered that given the lack of close connection,
the counterclaims would nevertheless fail, see Naturgy Energy Group SA and Naturgy Electricidad
Colombia SL (formerly Gas Natural SDG SA and Gas Natural Fenosa Electricidad Colombia SL) v
Republic of Colombia, ICSID Case No UNCT/18/1, Award (12 March 2021) para. 623.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 163
A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
EYIEL Monographs - Studies in European and International Economic Law 34,
https://doi.org/10.1007/978-3-031-46391-4_4
164 4 The Assessment of the Connection Requirement for Environmental Counterclaims

4.1 Justifications for the Requisite Connection

in Counterclaims: Beyond the Explicit Rules

An environmental counterclaim must indisputably fulfil the requirement of close

connection with the main claim.2 However, the rationale behind such requirement is
often overlooked. From a comparative perspective, the connection requirement for
counterclaims appears ubiquitous in different mechanisms of international dispute
resolution. This is the case for the ICJ, since, according to the latest version of the
Rules of Court and the Court’s jurisprudence, a counterclaim must be directly
connected with the subject-matter of the main claim.3 Similarly, the ITLOS Rules
of Procedure require the counterclaim to be directly connected with the subject-
matter of the main claim.4
In the framework of the IUSCT, both the Claims Settlement Declaration and the
tribunals constituted thereunder recognise the requisite connection as fundamental
for the submission of counterclaims.5 Although in the context of international
commercial arbitration the connection requirement may not be explicitly foreseen,
arbitral tribunals may nevertheless demand a close link between the counterclaim
and the main claim.6 Therefore, this section explores whether there is an explicit rule
on connection for counterclaims under different instruments used for investment
arbitration [Sect. 4.1.1]. Second, this section posits that even in the absence of such
an explicit rule, arbitral tribunals must always assess the requisite connection as an
inherent element of counterclaims [Sect. 4.1.2].

4.1.1 Finding Commonalities in Different Instruments

Neither investment contracts nor IIAs delve into procedural details such as the
requirements for submitting counterclaims. There might be explicit restrictions on
which kind of counterclaims are permitted.7 However, from the IIAs surveyed in this
book, only a few explicitly mention the connection requirement of counterclaims.8
The requisite connection nevertheless appears in three instruments related to invest-
ment arbitration namely: in the ICSID Framework [Sect. 4.1.1.1]; in the UNCITRAL
Arbitration Rules [Sect. 4.1.1.2]; and in the Resolution on the ‘Equality of Parties

2
Shao (2021), p. 168.
3
See Sect. 2.1.1.
4
See Sect. 2.1.4.2.
5
See Sect. 2.1.2.4.
6
See Sect. 2.1.3.2.
7
See Sect. 3.3.3.2.2.1.
8
See for instance: Slovak-UAE BIT (2016), Art 17(3); Argentina-UAE BIT (2018), Art 28(4).
4.1 Justifications for the Requisite Connection in Counterclaims: Beyond. . . 165

before International Investment Tribunals’ of the 18th Commission of the Institut de

Droit International [Sect. 4.1.1.3].

4.1.1.1 ICSID Framework

Article 46 ICSID Convention and Rule 40 ICSID Arbitration Rules (2006) (or Rule
48 ICSID Arbitration Rules (2022)) set forth that the counterclaim must arise
‘directly out of the subject-matter of the dispute’. This formulation resembles the
requirements of the Centre’s jurisdiction in Article 25 ICSID Convention, whereby
the legal dispute must arise ‘directly out of an investment’. In order to differentiate
between both requirements, Christoph Schreuer points out that a counterclaim may
arise out of an investment (pursuant to Article 25 ICSID Convention) without arising
out of the subject-matter of the dispute (pursuant to Article 46 ICSID Convention),
for instance, when the counterclaim pertains to a different investment operation
between the same parties.9 Thus, the tribunal ought to first ascertain whether it has
jurisdiction over the counterclaim, and only afterwards, it would determine whether
the counterclaim is connected to the main claim.10
However, the line between ‘arising out of an investment’ and ‘arising out of the
subject-matter of the dispute’ might get blurred in practice.11 This might explain the
possible overlap between Article 25 and 46 ICSID Convention in this regard.12 Be
that as it may, the requisite connection has been modestly developed by several
arbitral tribunals in investment arbitration and its content will be elaborated upon
below.

4.1.1.2 UNCITRAL Arbitration Rules

The UNCITRAL Arbitration Rules present an evolution in their requirements

shifting the focus from the requisite connection to the requisite consent. As men-
tioned above, Article 19(3) UNCITRAL Arbitration Rules (1976) foresaw that
counterclaims ought to arise ‘out of the same contract’.13 This requirement might
be at odds with treaty-based investment arbitration, since a dispute need not arise
from a contractual relation, or it may even involve a myriad of contracts concluded
by different (but related) legal entities.
In this context, the Saluka v Czech Republic tribunal sought to interpret the
requirement of ‘out of the same contract’ in Article 19(3) UNCITRAL Arbitration
Rules (1976) for the purposes of treaty-based investment arbitration. The tribunal

9
Schreuer et al. (2009), Art 46, mn. 73.
10
Schreuer et al. (2009), Art 46, mn. 74.
11
Clodfelter and Tsutieva (2018), para. 17.27.
12
See Sect. 3.3.1.3.4.
13
See Sect. 3.1.3.2.
166 4 The Assessment of the Connection Requirement for Environmental Counterclaims

undertook the assessment of other awards rendered under the ICSID Convention and
the IUSCT Claims Settlement Declaration14 and concluded that such requirement
expressed the ‘general legal principle’ that a counterclaim ought to be closely
connected with the main claim.15 The Paushok v Mongolia tribunal followed this
reasoning.16 Although these decisions might have finally exaggerated the content of
the ‘close connection’ requirement thereby dismissing the respective counterclaims
in both cases,17 they certainly revealed a point of discussion for the later
UNCITRAL Working Group II entrusted with the revision of the said rules.
Whereas the Saluka and Paushok interpretation of Article 19(3) UNCITRAL
Arbitration Rules (1976) seems to align with the provisions in the ICSID framework
ie denoting a connection with the main claim, there are some authors suggesting a
broader interpretation. Particularly, instead of referring to the main claim, they
recommend that the requisite ‘out of the same contract’ in Article 19(3) UNCITRAL
Arbitration Rules (1976) should be read as ‘out of the same investment’ for the
purposes of treaty-based investment arbitration.18 Nevertheless, as with the ICSID
framework, the differentiation between ‘out of the same investment’ and ‘out of the
main claim’ may not be evident in practice. Thus, the crux of the matter lies in the
actual assessment of connection, the factors involved, and the impact on the viability
of counterclaims in investment arbitration.
Mindful of the challenges Article 19(3) UNCITRAL Arbitration Rules (1976)
posed on counterclaims in treaty-based investment arbitration,19 the UNCITRAL
Working Group II opted to introduce the single requirement of ‘provided that the
arbitral tribunal has jurisdiction over it’ in the newly adopted Article 21-
(3) UNCITRAL Arbitration Rules (2013). One could argue that these rules no longer

14
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) paras. 65 et seqq.
15
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 76.
16
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) paras.
688–693.
17
See Sect. 4.3.3.
18
Douglas (2009), para. 494: (‘It is therefore preferable to interpret the reference to “contract” in
Article 19(3) of the UNCITRAL Rules as a reference to the source of the rights forming the object
of the claim. In the investment treaty context, that is the investment, and hence a symmetry between
the tribunal’s jurisdiction over primary claims and counterclaims is achieved by interpreting the
reference to “contract” in Article 19(3) as equivalent to “investment” in this context’); Clodfelter
and Tsutieva (2018), paras. 17.82: (‘. . .While investment per se is not the source of the rights (the
treaty is), replacing the “contract” with “investment” would most effectively modify the rules for
investment arbitration, consistent with the object of most dispute settlement provisions, that is, to
resolve investment disputes’).
19
UNCITRAL, Report of the Working Group on Arbitration and Conciliation on the work of its
forty-fifth session (05 October 2006) UN Doc A/CN.9/614, paras. 93–96.
4.1 Justifications for the Requisite Connection in Counterclaims: Beyond. . . 167

require connection between the counterclaim and the main claim.20 However,
ignoring the requirement of connection might be irreconcilable with counterclaims’
purpose.21
As a result, while the UNCITRAL Arbitration Rules (2013) have omitted the
requirement of connection for counterclaims, tribunals might be arguably inclined to
consider whether the particular counterclaim fulfils such requirement as a general
rule nonetheless.22 Such analysis would vary greatly among different tribunals as it
would be strictly case-by-case based.23

4.1.1.3 Resolution on the ‘Equality of Parties Before International

Investment Tribunals’ of the 18th Commission of the Institut de
Droit International

The 18th Commission of the Institut de Droit International acknowledged that the
principle of equality of parties demanded a close connection between the counter-
claim and the main claim.24 Accordingly, Article 6 Resolution on the ‘Equality of
Parties before International Investment Tribunals’ of the 18th Commission of the
Institut de Droit International proposes as one requirement of admissibility that a
counterclaim must ‘arise directly out of the subject-matter of the investment’.25
Perhaps with the aim of defining this requirement, the same provision further
streamlines two important clarifications: first, the requisite connection is fulfilled
when the counterclaim concerns the same investment giving rise to the main claim
[Sect. 4.1.1.3.1]. Second, this requirement does not necessitate ‘legal’ connection
[Sect. 4.1.1.3.2].

20
Anning (2021), p. 1308. In the same sense, arguing that in the absence of an explicit mention in
the arbitration rules, the tribunal should not burden the respondent with the connection requirement
see Kendra (2013), p. 582.
21
On this see Sect. 4.1.2.
22
Clodfelter and Tsutieva (2018), para. 17.92; Marisi (2020), p. 246.
23
Atanasova et al. (2014), p. 364. Similarly, Report of the Eighteenth Commission of the Institut de
Droit International (Rapporteur Professor Campbell McLachlan) on the ‘Equality of Parties before
International Investment Tribunals’ para. 192 <https://www.idi-iil.org/app/uploads/2019/06/
Commission-18-Equality-of-parties-before-international-investment-tribunals-McLachlan-
Travaux-La-Haye-2019.pdf> accessed 10 January 2023.
24
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Professor
Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’ paras.
187 and 202 <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-parties-
before-international-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf> accessed
10 January 2023.
25
See this book “Annex 4: Article 6 of the Resolution on the ‘Equality of Parties before Interna-
tional Investment Tribunals of the 18th Commission of the Institut de Droit International”.
168 4 The Assessment of the Connection Requirement for Environmental Counterclaims

4.1.1.3.1 Connection When the Counterclaim Concerns the Same

Investment

Neither an investment treaty, an arbitration rule, nor an arbitral tribunal has referred
to ‘arise directly out of the subject-matter of the investment’ as a requirement for
counterclaims. One may thus argue that the 18th Commission borrowed from the
ICSID Convention the concepts of ‘arising out of an investment’ (Article 25) and
‘arising out of the subject-matter of the dispute’ (Article 46) but blurred their
distinction.26 Although such argument seems tenable, it appears that the 18th
Commission’s intention was, from the outset, to link the connection requirement
to the underlying investment. Indeed, Article 6(5) Resolution on the ‘Equality of
Parties before International Investment Tribunals’ of the 18th Commission of the
Institut de Droit International explicitly states that the requirement of connection is
fulfilled when the counterclaim concerns the same investment giving rise to the main
claim.
In contrast with the ICSID framework, the Resolution on the ‘Equality of Parties
before International Investment Tribunals’ of the 18th Commission of the Institut de
Droit International detaches itself from a seemingly narrower construction of
‘subject-matter of the dispute’ and establishes an apparently more objective point
of reference ie the same investment. Such effort is commendable for proposing a
clearer threshold with respect to the connection requirement.

4.1.1.3.2 ‘Legal’ Connection Is Not Indispensable

The Resolution on the ‘Equality of Parties before International Investment Tribu-

nals’ of the 18th Commission of the Institut de Droit International brings about a
second clarification with respect to the connection requirement, specifically,
pertaining to the so called ‘legal’ connection. Pursuant to Article 6(5) thereof, it is
not necessary that ‘the counterclaim be founded upon the same legal instrument or
cause of action asserted by the claimant’. Although the dichotomy between legal
and factual connection has certainly evolved,27 the clarification represents a mile-
stone in the understanding of counterclaims in investment arbitration, whereby the
legal basis of counterclaims should not be a sole obstacle for their viability.

26
Steingruber (2020), pp. 626–627.
27
See Sect. 4.3.3.1.
4.1 Justifications for the Requisite Connection in Counterclaims: Beyond. . . 169

4.1.2 Connection as an Inherent Requirement

for Counterclaims

Unlike the instruments discussed in the section above, all other arbitration rules used
for the settlement of investment disputes do not contain a connection requirement.
For instance, neither Article 5(5) ICC Arbitration Rules28 nor Article 9(1) SCC
Arbitration Rules29 mentions that a counterclaim must be connected to the main
claim. In this context, one may question whether a counterclaim formulated under
these arbitration rules must comply with the requisite connection.30
Considering that arbitration is based on the parties’ consent, choosing a set of
rules that ignores the requirement of connection for counterclaims could be seen as a
manifestation of the will of the parties. Thus, it could be argued that if the arbitration
rules do not impose a connection requirement for counterclaims, the tribunal should
not impose such requirement by its own motion, unless the said requirement is
deemed an inherent element of counterclaims.31 The latter seems to be the position
of the Saluka v Czech Republic tribunal, which after assessing the instrument of
counterclaims in other frameworks32 concluded that the condition, according to
which a counterclaim ought to be closely connected with the main claim, reflected

28
ICC Arbitration Rules (2021), Art 5(5): (‘. . . Any counterclaims made by the respondent shall be
submitted with the Answer and shall provide: a) a description of the nature and circumstances of the
dispute giving rise to the counterclaims and of the basis upon which the counterclaims are made; b)
a statement of the relief sought together with the amounts of any quantified counterclaims and, to
the extent possible, an estimate of the monetary value of any other counterclaims; c) any relevant
agreements and, in particular, the arbitration agreement(s); and d) where counterclaims are made
under more than one arbitration agreement, an indication of the arbitration agreement under which
each counterclaim is made. The respondent may submit such other documents or information with
the counterclaims as it considers appropriate or as may contribute to the efficient resolution of the
dispute’).
29
SCC Arbitration Rules (2017), Art 9(1): (‘The Secretariat shall send a copy of the Request for
Arbitration and any attached documents to the Respondent. The Secretariat shall set a time period
within which the Respondent shall submit an Answer to the SCC. The Answer shall include: . . . (iii)
a preliminary statement of any counterclaims or setoffs, including an estimate of the monetary value
thereof; (iv) where counterclaims or set-offs are made under more than one arbitration agreement,
an indication of the arbitration agreement under which each counterclaim or set-off is made’).
30
For instance, given the absence of a connection requirement for ancillary claims in the ICSID
Additional Facility Rules, Henri Alvarez speculates whether such rules provide a broader scope for
counterclaims see Alvarez (2000), p. 412. Similarly, Laura Rees-Evans posits that if neither the
treaty provisions nor arbitration rules foresee the connection requirement, an investor could
theoretically circumvent such requirement see Rees-Evans (2020), pp. 378 et seqq.
31
de Nanteuil (2018), p. 386: (‘if the parties refer to arbitration rules that do not introduce the
connection requirement for counterclaims, it is not certain that such a requirement could be imposed
by the tribunal. The only possibility to re-introduce it would be to consider that it is inherent to
counterclaims and that there is no need to formally state it to make it applicable’).
32
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) paras. 65 et seqq.

Licensed to Dymas Satrioprojo ([email protected])

170 4 The Assessment of the Connection Requirement for Environmental Counterclaims

a ‘general legal principle’.33 In the same vein, the Amto v Ukraine tribunal consid-
ered in obiter dictum that the admission of a counterclaim hinges upon, among other
requirements, the relationship with the main claim,34 despite the fact that the
underlying SCC Arbitration Rules did not provide for the requisite connection.
The requirement of connection for counterclaims is deeply rooted in the purpose
of such a procedural mechanism. Counterclaims strive to provide procedural or
judicial economy in a particular dispute settlement mechanism,35 and the connection
requirement epitomises such objective.36 The idea of a close link between the claim
and the counterclaim is to create a procedural synergy for a more efficient resolution
of both claims in a single proceeding. Although not explicitly, the same consider-
ations permeate all procedural rules which contemplate the procedural mechanism of
counterclaims.37 Arbitral tribunals must therefore assess the connection requirement
irrespective of the existence of a treaty provision or an arbitration rule in that
regard,38 particularly because such requisite is inherent to the underlying purpose
of counterclaims.

4.2 The Characterisation of the Connection Requirement:

An Unsettled Debate

The proper characterisation of the connection requirement begets an inexorable

debate: while the majority of tribunals seem to hold this requirement as a jurisdic-
tional matter, most authors seem prompt to categorise it as an admissibility issue. In
this vein, this section seeks to puzzle out the relevance of the jurisdiction/admissi-
bility distinction in investment arbitration [Sect. 4.2.1], and explores the appropriate
classification for the requisite connection in counterclaims as a non-jurisdictional
requirement [Sect. 4.2.2].

33
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 76.
34
Limited Liability Company Amto v Ukraine, SCC Case No 080/2005, Award (26 March 2008)
para. 118.
35
For the full discussion on the rationale behind counterclaims, see Sect. 2.2.2.
36
Kjos (2007), p. 621; Marisi (2020), p. 245.
37
Renteln (1987), p. 390.
38
For a different opinion, considering that tribunals, vested with jurisdiction to adjudicate counter-
claims, should be reluctant to dismiss a counterclaim that failed the connection requirement see
Anning (2021), p. 1313. Such proposition might nevertheless have a deleterious effect since there
might be situations in which a tribunal should decline the exercise of properly vested jurisdiction,
which is precisely what the connection requirement seeks to preserve.
4.2 The Characterisation of the Connection Requirement: An Unsettled Debate 171

4.2.1 Jurisdiction and Admissibility in Investment

Arbitration: A Square Peg in a Round Hole?

The concepts of ‘jurisdiction’ and ‘admissibility’ are certainly well entrenched in

domestic procedural laws and in the practice of the ICJ, however, their applicability
in investment arbitration is at least subject to contentions.39 The differentiation
between these two concepts is not only absent in IIAs and procedural arbitration
rules used for investment arbitration,40 but also their malleable content creates a
‘twilight zone’ between them.41 Accordingly, this section streamlines the reasons
motivating the importation of the jurisdiction/admissibility distinction [Sect.
4.2.1.1], and the challenges of using such distinction in investment arbitration
[Sect. 4.2.1.2].

4.2.1.1 Reasons for Introducing the Distinction Between Jurisdiction

and Admissibility

The discourse at the ICJ may elucidate the juxtaposition of jurisdiction and admis-
sibility. Here, a plea of lack of jurisdiction prevents the Court from rendering any
decision at all, whereas a plea of inadmissibility aims at the dismissal of the claim on
a ground different than its merits.42 In other words, jurisdiction rests on the require-
ment of consent and admissibility lies in other requirements for the submission of a
claim that stem either from general rules of public international law or specific
agreements between the parties.43 The Court has reaffirmed this distinction in
decisions such as Oil Platforms44 and Certain Questions of Mutual Assistance.45
The ICJ has certainly a statutory basis for this distinction since, for instance,
Article 79 of the Rules of Court46 expressly mentions the concepts of jurisdiction
and admissibility in the context of preliminary objections. Yet, neither the Rules of

39
Pauker and Winston (2021), p. 189; Scherer et al. (2021), p. 424.
40
Gouiffès and Ordonez (2015), p. 111.
41
The first description of jurisdiction and admissibility in investment arbitration as constituting a
twilight zone was coined by Jan Paulsson see Paulsson (2005), pp. 608 et seqq.
42
Fitzmaurice (1986), pp. 438–439.
43
Tomuschat (2012), para. 119.
44
Oil Platforms (Iran v United States of America) (Merits) [2003] ICJ Rep 161, para. 29.
45
Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v France) (Judgment)
[2008] ICJ Rep 177, para. 48.
46
ICJ Rules of Court, Art 79: (‘1. Following the submission of the application and after the
President has met and consulted with the parties, the Court may decide, if the circumstances so
warrant, that questions concerning its jurisdiction or the admissibility of the application shall be
determined separately. 2. Where the Court so decides, the parties shall submit pleadings concerning
jurisdiction or admissibility within the time-limits fixed, and in the order determined, by the Court.
Each pleading shall contain the party’s observations and submissions, including any evidence on
which it relies, and shall attach copies of supporting documents’).
172 4 The Assessment of the Connection Requirement for Environmental Counterclaims

Court, the Statute of the ICJ nor any other instrument offers a definition for those
concepts, which might guide their interpretation. The Court holds admissibility as a
safeguard to its judicial function,47 or for avoiding an undue prejudice on a disputing
party.48 This in theory could help to differentiate between jurisdictional and admis-
sibility concerns, though in practice, the borderline becomes blurred.49
Unlike the ICJ, investment treaties, arbitration rules, and other pertinent instru-
ments for investment arbitration fail to mention the jurisdiction/admissibility divide.
Nevertheless, this has not prevented the two concepts from pervading the jargon and
deliberations of investment tribunals and scholars. Some suggest that while juris-
diction concerns the authority of a tribunal to adjudicate, admissibility pertains to the
tribunal’s power to decline the adjudication of the case despite having the authority
to rule upon it.50 Accordingly, an objection to jurisdiction questions the adjudica-
tor’s power to decide.51 Whereas an objection to admissibility confronts the suit-
ability of a particular case for adjudication on the merits,52 either for temporary or
permanent defects of the claim.53
In this context, Jan Paulsson has proposed as a ‘lodestar’ for the differentiation
between jurisdiction and admissibility the following question: ‘is the objecting party
taking aim at the tribunal or at the claim?’54 If the objection aims at challenging the
tribunal’s power to adjudicate, it is a jurisdictional objection, whereas if the objec-
tion aims at the suitability of the claim to be adjudged, it is an objection on
admissibility.55 Some authors prefer to frame the distinction in the following
terms: all conditions agreed upon by the parties are jurisdictional, once fulfilled,
they vest the tribunal with the power to adjudicate; conversely, questions of admis-
sibility entail an exercise of discretion for refusing to adjudicate.56 Yet, the question
remains: is there a legal basis upon which a tribunal might refuse to exercise properly
vested jurisdiction? Three scenarios could be conceived: when there is an explicit/
implicit rule granting discretion in this regard; when there is an inherent power; or
when a rule of public international law demands it.57
In arbitral practice, Keith Highet in his dissenting opinion to the Waste Manage-
ment v Mexico case is hallmarked as the first arbitrator expounding the

47
Case concerning the Northern Cameroons (Cameroon v United Kingdom) (Preliminary Objec-
tions) [1963] ICJ Rep 15, 38.
48
Certain Phosphate Lands in Nauru (Nauru v Australia) (Preliminary Objections) Judgment of
26 June 1992, ICJ Reports 1992, p 240, para. 35.
49
Tomuschat (2012), para. 120.
50
Shany (2014), p. 796.
51
Williams (2008), p. 919.
52
Douglas (2009), para. 310.
53
Waibel (2015), p. 1213.
54
Paulsson (2005), p. 616.
55
Paulsson (2005), p. 617.
56
Shany (2014), p. 787; Fontanelli (2018), p. 124.
57
Shany (2014), p. 796.
4.2 The Characterisation of the Connection Requirement: An Unsettled Debate 173

differentiation in the following terms: ‘[j]urisdiction is the power of the tribunal to

hear the case; admissibility is whether the case itself is defective—whether it is
appropriate for the tribunal to hear it.’58 The distinction between jurisdiction and
admissibility seems to have gained traction in other tribunals, such as in Hochtief v
Argentina and the seminal Abaclat v Argentina. Whilst in the former, the tribunal
drew the distinction in terms of attributes (jurisdiction is an attribute of the tribunal
and admissibility is an attribute of the claim),59 the latter tribunal considered that
lack of jurisdiction and inadmissibility bring about different consequences with
regards to the defect, the reviewability of the decision, and the possibility of
resubmission.60
Consequently, the jurisdiction/admissibility divide in investment arbitration has
led some authors to propose far reaching consequences for the disputing parties
when classifying certain objections as to the tribunal’s jurisdiction or the claim’s
admissibility.61 Nevertheless, there are two points worth expanding upon in this
regard: the reviewability of decisions, and the tribunal’s discretion on admissibility
decisions. With respect to reviewability, it is argued that a decision on jurisdiction
can be challenged before a reviewing authority (ad hoc annulment committee in
ICSID Arbitration; court at the seat of arbitration; court at the place of enforcement),
whereas a decision on admissibility is final and not subject to review.62 Yet, the
tribunal’s classification on jurisdictional/admissibility objections does not curtail the

58
Waste Management Inc v United Mexican States, ICSID Case No ARB(AF)/98/2, Dissenting
Opinion of Keith Highet (08 May 2000) para. 58.
59
Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Decision on Jurisdiction
(24 October 2011) para. 90: (‘Jurisdiction is an attribute of a tribunal and not of a claim, whereas
admissibility is an attribute of a claim but not of a tribunal. A distinction may also be drawn between
questions of admissibility and questions of receivability. A tribunal might decide that a claim of
which it is seised and which is within its jurisdiction is inadmissible (for example, on the ground of
lis alibi pendens or forum non conveniens); or it might refuse even to receive and become seised of a
claim that is within its jurisdiction because of some fundamental defect in the manner in which the
claim is put forward’).
60
Abaclat and Others v Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction
and Admissibility (04 August 2011) para. 247: (‘Although a lack of jurisdiction or admissibility
may both lead to the same result of a tribunal having to refuse to hear the case, such refusal is of a
fundamentally different nature and therefore carries different consequences: (i) While a lack of
jurisdiction stricto sensu means that the claim cannot at all be brought in front of the body called
upon, a lack of admissibility means that the claim was neither fit nor mature for judicial treatment;
(ii) Whereby a decision refusing a case based on a lack of arbitral jurisdiction is usually subject to
review by another body, a decision refusing a case based on a lack of admissibility can usually not
be subject to review by another body; (iii) Whereby a final refusal based on a lack of jurisdiction
will prevent the parties from successfully re-submitting the same claim to the same body, a refusal
based on admissibility will, in principle, not prevent the claimant from resubmitting its claim,
provided it cures the previous flaw causing the inadmissibility’).
61
For instance, Michael Waibel identifies seven consequences of the distinction between jurisdic-
tion and admissibility, including, whether new developments after the date of the request for
arbitration may be taken into account, whether objections may be waived, whether the tribunal
can analyse objections proprio motu, among others see Waibel (2015), pp. 1274 et seqq.
62
Paulsson (2005), p. 601; Douglas (2009), para. 307; Gouiffès and Ordonez (2015), p. 108.
174 4 The Assessment of the Connection Requirement for Environmental Counterclaims

reviewing authority’s power to reclassify the objections as it deems appropriate and

correspondingly to revise otherwise mislabelled jurisdictional decisions.63
Some authors considered that in the ICSID framework the reviewability of
decisions in terms of jurisdiction does not mark any difference since annulment
lies in the gravity of the mistake rather than on the classification of such mistake.64 In
this sense, admissibility decisions would still be reviewable if the tribunal has
mistakenly exercised its jurisdiction with respect to the admissibility issue, for
instance, by failing to state reasons or departing from a fundamental rule of proce-
dure. Conversely, in non-ICSID proceedings, admissibility decisions may not fall
within the scope of review in domestic laws or under the grounds for refusal of
enforcement pursuant to Article V New York Convention.65 Here, a distinction
between jurisdiction and admissibility requirements might in fact affect
reviewability of the decision.
With respect to the tribunal’s discretion on admissibility decisions, it is posited
that an international adjudicator enjoys certain flexibility when rendering a ruling on
admissibility since the tribunal would refrain from exercising its properly vested
jurisdictional powers.66 Besides serving as case filter, admissibility matters may
operate as a policy tool, which balances the adjudicator’s legal powers, the institu-
tional interests of the dispute settlement mechanism and other prevailing concerns.67
This explains that admissibility decisions, as with procedural decisions, are rooted in
principles such as procedural fairness and efficiency,68 in contrast to jurisdictional
decisions centred at the scope of parties’ consent.

4.2.1.2 Challenges to the Jurisdiction/Admissibility Divide: Beyond

the ‘Admissibility’ Label

The utilisation of the distinction between jurisdiction and admissibility in investment

arbitration has nevertheless found some resistance. Some investment tribunals have
even questioned the usefulness of such distinction.69 Some authors argue that
admissibility is a ‘chameleonic’ concept, which may have a different meaning

63
Waibel (2015), p. 1277; Fontanelli (2018), p. 126.
64
Reinisch (2017), p. 25; Fontanelli (2018), p. 164.
65
Fontanelli (2018), pp. 164 et seqq.
66
Shany (2014), p. 800; Waibel (2015), p. 1219.
67
Shany (2014), p. 780.
68
Hwang and Lim (2018), p. 267.
69
See for instance: CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No
ARB/01/8, Decision on Jurisdiction (17 July 2003) para. 41; Enron Corporation and Ponderosa
Assets LP v Argentine Republic, ICSID Case No ARB/01/3, Decision on Jurisdiction (14 January
2004) para. 33; Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur
Partzuergoa v The Argentine Republic, ICSID Case No ARB/07/26, Decision on Jurisdiction
(19 December 2012) paras. 112 et seqq.
4.2 The Characterisation of the Connection Requirement: An Unsettled Debate 175

under similar situations,70 and which confers a degree of discretion upon arbitral
tribunals affecting the consistency of the investor-state dispute settlement system.71
Even if there might be some reasons according to which a tribunal vested with
jurisdiction should refuse to hear a claim (inadmissibility), there is no clarity on how
to identify those conditions or requirements that might render a claim inadmissible,
which in turn affects the predictability of investment arbitration.72 Some others argue
that the distinction is normatively useless or inessential since not only there are
requirements passing (rebranded) equally as jurisdiction or admissibility issues,73
but also given the difficulties drawing a line between the two concepts.74
Those concerns evince some of the underlying problems with dividing objections
into jurisdiction and admissibility. Hence, it is necessary to explore the major flaws
of the jurisdiction/admissibility divide. First, one of the reasons of the ‘twilight
zone’ between jurisdiction and admissibility lies in the disagreement among tri-
bunals about the proper categorisation of some matters.75 For instance, tribunals in
Lauder v Czech Republic, SGS v Pakistan, and Bayindir v Pakistan have deemed the
requirement of engaging in consultations with the host state before submitting to
arbitration as a procedural (admissibility) rule,76 whereas tribunals in Impregilo v
Argentina and Daimler v Argentina regarded the same requirement as pertaining to a
tribunal’s jurisdiction.77 This brings about a common occurrence for the disputing
parties, who find plenty support in case law and literature: the claimant would argue
that any missing requirement for submitting a claim pertains to admissibility and can
be consequently obviated, and the respondent would contend that such missing
requirement has a jurisdictional character and must consequently bar the claim.78
Accordingly, some detractors of the jurisdiction/admissibility divide argue that
most of the issues typically framed as admissibility objections may be reshuffled into
either jurisdictional aspects or merits. In the majority of cases, a tribunal should
assess objections pertaining to, for instance, cooling off periods, denial of benefits,
or exhaustion of local remedies as jurisdictional issues, and only in limited cases,
such as objections concerning reflective losses or absence of damages, the tribunal

70
Hwang and Lim (2018), p. 265.
71
Söderlund and Burova (2018), p. 559.
72
Reinisch (2017), pp. 41–43.
73
Fontanelli (2018), p. 123.
74
Gouiffès and Ordonez (2015), p. 117.
75
Waibel (2015), p. 1274.
76
Ronald S Lauder v The Czech Republic, UNCITRAL Case, Final Award (03 September 2001)
paras. 187 et seqq; SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID
Case No ARB/01/13, Decision on Jurisdiction (06 August 2003) para. 184; Bayindir Insaat Turizm
Ticaret Ve Sanayi AS v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Decision on
Jurisdiction (14 November 2005) para. 100.
77
Impregilo SpA v Argentine Republic, ICSID Case No ARB/07/17, Award (21 June 2011) paras.
79 et seqq; Daimler Financial Services AG v Argentine Republic, ICSID Case No ARB/05/1,
Award (22 August 2012) paras. 192 et seqq.
78
Fontanelli (2018), p. 171.
176 4 The Assessment of the Connection Requirement for Environmental Counterclaims

would decide on the merits stage.79 Even if the tribunal decides those latter objec-
tions at an earlier stage, the decision would be ‘properly speaking a decision on the
merits of the case, which the tribunal exercised its case management discretion to
hear at a preliminary stage’.80
Second, resorting to the concepts of jurisdiction and admissibility, their discourse
and application by the ICJ might not be appropriate in investment arbitration. If
considered from the perspective of reviewability of decisions, certainly the ICJ does
not provide a fitting example since there is no reviewing authority to the Court’s
decisions in contrast to the possibility of challenging arbitral awards before ad hoc
annulment committees or domestic courts.81 Furthermore, and perhaps more impor-
tantly, the permanency of the ICJ compared with the ad hoc nature of arbitral
tribunals is a differentiating factor that cannot be ignored. Once the arbitral tribunal
has declined to decide a case, it becomes functus officio and will cease to exist,
regardless whether its decision is grounded on lack of jurisdiction or inadmissibility
of the claim.82 Thus, in arbitration, the resubmission of a claim, which previously
was not ripe for adjudication (admissibility), would have to undergo once again the
process of constitution of the tribunal, and likely different arbitrators as the ones
previously dismissing the case.
Such concern is nevertheless surmountable in some cases. Arbitral tribunals may
avail themselves of their powers on case management to avoid an outright dismissal
of a claim, whose only missing requirement could be subsequently complied with.
For example, in case of uncompleted waiting periods, it is suggested a staying of
proceedings or suspension until such requirement is met, unless the underlying IIA
provides otherwise.83 By this means, the tribunal does not bypass or ‘downgrade’
jurisdictional requirements by labelling them as admissibility issues, nor does it
become functus officio preventing it from entertaining the case after the requirement
is fulfilled.84 Certainly, a staying of proceedings would be unsuitable for other
requirements such as the nationality of the investor, but it is arguably an efficient
solution for ‘curable’ unmet requirements to avoid an unnecessary resubmission and
reconstitution of the tribunal.85
Third, Jan Paulsson’s lodestar of dividing objections aimed at the tribunal
(jurisdiction) and at the claim (admissibility) might be insufficient in practice.
Arguably, there is no clear guidance on how to identify each objection, which

79
Söderlund and Burova (2018), p. 556.
80
Hwang and Lim (2018), p. 268.
81
Paulsson (2005), pp. 603–604.
82
Söderlund and Burova (2018), p. 528; Fontanelli (2018), p. 11.
83
Pauker and Winston (2021), pp. 198–199.
84
Pauker and Winston (2021), pp. 199–201.
85
Pauker and Winston (2021), pp. 201–205. For a different opinion, considering that the discretion
to halt proceedings is not given for objections to the tribunal’s jurisdiction see Hwang and Lim
(2018), p. 267. In this author’s view, the possibility of staying proceedings responds to the inherent
powers of an adjudicator on case management in order to preserve the integrity of the proceedings,
which has nothing to do with a jurisdiction/admissibility divide.
4.2 The Characterisation of the Connection Requirement: An Unsettled Debate 177

renders the division ambiguous at best.86 Some authors propose instead to assess
whether the objection targets the consent of the parties as expressed in the jurisdic-
tional title.87 Otherwise, it is feasible that Jan Paulsson’s test could potentially
produce conflicting results, for instance, by interpreting whether a waiting period
pertains to the tribunal’s jurisdiction or admissibility.88
Fourth, and perhaps more critically, the distinction on jurisdiction and admissi-
bility in investment arbitration may impinge on the parties’ consent. According to
Christer Söderlund and Elena Burova, this distinction entails a pernicious effect by
giving ‘leeway for tribunals to apply a measure of discretion to issues which are in
fact jurisdictional or to stop at something which is less than dispositive of the
particular issue’.89 Consequently, a tribunal would enjoy discretion to ignore
parties’ consent as expressed in the dispute settlement clauses in total disregard of
the ordinary meaning of the treaty provisions.90
Understandably, either through a successful objection to jurisdiction or to admis-
sibility, the practical result is the same, ‘which is that the tribunal withholds itself
from examining the merits of the claim’.91 One may thus argue that, although there is
no restriction on labelling some procedural issues as admissibility, the ultimate
finding should be framed as a jurisdictional decision, whereby the tribunal decides
to exercise its adjudicative power or not.92 Yet, the rationale behind a category of
‘admissibility decisions’ might be worth preserving. Essentially, as the ad hoc
annulment committee in Orascom v Algeria recently stated: ‘[e]ven when the
consent has been granted, there may be situations in which it would be inappropri-
ate for an international court or tribunal to exercise its jurisdiction’.93
Admissibility decisions reflect an ideal of judicial propriety. In other words,
aiming at preserving the legitimacy of the proceedings, the rule of law, or even the
effectiveness of the decisions rendered.94 For instance, tribunals should decline to
adjudicate a case submitted through abusive tactics such as multiplication of claims
or nationality shopping. This has a sanctioning effect to some dubious claims and it
might deter future claimants from engaging in similar practices.95 These are ‘genuine
admissibility issues’ because they ‘touch upon the integrity of investment treaty
arbitration as a dispute resolution system, being a considerable factor to be taken

86
Hwang and Lim (2018), p. 277.
87
Hwang and Lim (2018), p. 278.
88
Velarde Saffer and Lim (2014), pp. 90–91.
89
Söderlund and Burova (2018), p. 527.
90
Söderlund and Burova (2018), p. 538.
91
Hwang and Lim (2018), p. 266.
92
Söderlund and Burova (2018), pp. 556–557.
93
Orascom TMT Investments Sàrl v People’s Democratic Republic of Algeria, ICSID Case No
ARB/12/35, Decision on Annulment (17 September 2020) para. 256.
94
Shany (2014), p. 801.
95
Fontanelli (2018), p. 98.
178 4 The Assessment of the Connection Requirement for Environmental Counterclaims

into account when a tribunal considers whether to exercise its existing

jurisdiction’.96
Therefore, admissibility decisions encompass considerations of procedural fair-
ness and efficiency, which pervade a variety of procedural decisions.97 In this vein,
one may wonder if it is necessary to carve out some procedural decisions and to label
them as admissibility issues. Some authors doubt there is anything to gain from the
classification of certain procedural decisions as admissibility.98 However,
irrespective of the classification as admissibility or simply as procedural decisions,
preserving the legitimacy of the proceedings and the rule of law, or promoting
procedural fairness are sufficient reasons to decline properly vested jurisdiction.

4.2.2 The Connection Requirement for Counterclaims

as a Non-Jurisdictional Requirement: Entering Into
the Tribunal’s Discretion

The distinction between admissibility and jurisdiction remains a tug of war, which
has permeated the discourse on the requirement of connection between the main
claim and the counterclaim. Accordingly, this section firstly explores the evolution
of the connection requirement as regards to its classification [Sect. 4.2.2.1], and
secondly revises the appropriateness of such classification [Sect. 4.2.2.2].

4.2.2.1 The Evolution of the Connection Requirement

Arbitral tribunals in early cases of counterclaims in investment arbitration did not

take a stance as to the characterisation of the connection requirement in terms of
jurisdiction or admissibility. A first indication in this regard appeared only in 2004
with the Saluka v Czech Republic case. After a profuse examination of the connec-
tion requirement, the tribunal considered that some of the counterclaims failed to
meet this requirement, and consequently, it declined jurisdiction over them.99
Similarly, in an effort to assess its jurisdiction over counterclaims, the Paushok v
Mongolia tribunal found indispensable to determine whether there was a close
connection between the claim and the counterclaim.100 Understandably, some

96
Pauker and Winston (2021), p. 205.
97
Hwang and Lim (2018), p. 267.
98
Hwang and Lim (2018), p. 268.
99
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) paras. 79–80.
100
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) para.
693: (‘In considering whether the Tribunal has jurisdiction to consider the counterclaims, it must
therefore decide whether there is a close connection between them and the primary claim from
which they arose or whether the counterclaims are matters that are otherwise covered by the general
law of Respondent’).
4.2 The Characterisation of the Connection Requirement: An Unsettled Debate 179

authors deemed these decisions to be an initial classification of the connection

requirement as a jurisdictional issue instead of admissibility.101
Tribunals in the Fraport v The Philippines case and in the Oxus v Uzbekistan case
have endorsed such conception of the connection requirement and declined juris-
diction over counterclaims that failed to prove a sufficient link with the main claim or
subject-matter of the dispute.102 More recently, the Iberdrola v Guatemala tribunal
held a similar view. Although this tribunal never went into the intricacies of the
requisite connection, it laid down its jurisdiction over counterclaims in two prongs:
it does not appear seriously disputed – and rightly so – that an investment tribunal has
jurisdiction over a counterclaim if two requirements are satisfied, i.e. the disputing parties
have given their consent to arbitrate counterclaims and there is a close connection between
the claims and the counterclaim103

There is a minority of cases considering that the connection requirement constitutes

an admissibility rather than a jurisdictional issue. The Antoine Goetz v Burundi
tribunal distinguished between the jurisdictional requirements pursuant to Article
25 ICSID Convention (la competénce du Centre) and the connection requirement for
counterclaims according to Article 46 ICSID Convention (la recevabilité des
demandes reconventionnelles).104 Similarly, the Metal-Tech v Uzbekistan tribunal
held that one of the requirements for entertaining counterclaims under the ICSID
Convention was the connection between the claim and the counterclaim, which ‘is
generally deemed an admissibility and not a jurisdictional requirement’.105 Even-
tually, the tribunal refrained from assessing the connection requirement in depth
because it found no jurisdiction over the counterclaims.106
In contrast to the prevailing practice of considering the connection requirement as
a jurisdictional issue, authors have framed this requirement as a matter of admissi-
bility. In this sense, the enquiry on whether a tribunal may entertain a counterclaim
branches into two parts: firstly, on the scope of consent as the jurisdictional threshold
and secondly on the connection between claim and counterclaim as the admissibility
threshold.107 Particularly in the ICSID framework, whereby Article 25 ICSID

101
Kalnina and Godbole (2019), mn. 4.458.
102
Fraport AG Frankfurt Airport Services Worldwide v Republic of The Philippines, ICSID Case
No ARB/11/12, Award (10 December 2014) para. 468; Oxus Gold v Republic of Uzbekistan,
UNCITRAL Case, Award (17 December 2015) paras. 954 et seqq.
103
Iberdrola Energía SA v The Republic of Guatemala (II), PCA Case No 2017-41, Award
(24 August 2020) para. 384.
104
Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June
2012) para. 283.
105
Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (04 October 2013)
para. 407.
106
Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (04 October 2013)
para. 413: (‘. . . this Tribunal has no jurisdiction over the counterclaims. It will thus abstain from
reviewing whether the counterclaims meet the second requirement of Article 46 dealing with
admissibility and demanding a connection with the claims’).
107
Kendra (2013), p. 593. Similarly, Anning (2021), p. 1292.

Licensed to Dymas Satrioprojo ([email protected])

180 4 The Assessment of the Connection Requirement for Environmental Counterclaims

Convention conveys the requirements for the ‘jurisdiction of the Centre’, one may
argue that the requisite connection for counterclaims under Article 46 ICSID Con-
vention must reflect a different kind of requirements namely one of admissibility.108
Even Article 46 ICSID Convention itself distinguishes between the requirements
of connection, the scope of consent and ‘otherwise within the jurisdiction of the
Centre’. As mentioned above, the latter two arise from the drafters’ extreme caution
as preventing ancillary claims from overstepping the tribunal’s jurisdictional
limits,109 whereas the connection requirement on the other hand seems to have a
different nature. Otherwise, a terminological absurd would occur if a counterclaim
fails in jurisdiction given the lack of connection, notwithstanding having been found
within the scope of consent and ‘the jurisdiction of the Centre’.110 The lack of
connection might preclude the particular tribunal to adjudge the ancillary claim but it
would not necessarily prevent other tribunals from entertaining it as a separate claim
in other proceedings.111
To illustrate the difference between the jurisdictional requirements and the
requisite connection, Christoph Schreuer envisages a counterclaim that fulfils the
requirements of Article 25 ICSID Convention but does not arise from the subject-
matter of the dispute, for instance, because it pertains to a different investment
operation between the same parties.112 Accordingly, given that the connection
requirement might hardly be deemed as a jurisdictional issue, authors fall back
into the admissibility characterisation.113
The characterisation of the connection requirement for counterclaims under the
Resolution on the ‘Equality of Parties before International Investment Tribunals’ of
the 18th Commission of the Institut de Droit International is perhaps more complex.
On a first note, Article 6(2) sets forth that ‘[i]n order to be admissible, such a
counterclaim must’ be within the tribunal’s jurisdiction and arise out of the subject-
matter of the investment. Here, the term ‘admissible’ is not loaded with legal
constructions on reviewability or discretion discussed above, but it rather reflects
the general idea of permissibility. In other words, when a counterclaim is allowed.

108
Lalive and Halonen (2011), p. 144; Sharpe and Jacob (2018), pp. 356 et seqq.
109
See Sect. 3.3.1.3.4.
110
Kalnina and Godbole (2019), mn. 4.458.
111
Atanasova et al. (2014), pp. 379–380: (‘The authors consider that the criterion of close connec-
tion is conceptually better viewed as an admissibility requirement (. . .) In international dispute
settlement, it is generally understood that once a counterclaim is not sufficiently connected to the
main claim, the respondent is not precluded from lodging a separate claim in other proceedings
(assuming other conditions are met). This suggests that jurisdiction would normally exist for the
issues raised by the counterclaim, if they were brought in separate proceedings. This conclusion is
not affected by the fact that in the investment treaty context, this scenario is not likely to occur due
to the usual lack of consent on the part of the investor before the claim is lodged’) (footnotes
omitted).
112
Schreuer et al. (2009), Art 46, mn. 73.
113
de Nanteuil (2018), p. 385. Similarly, Bubrowski (2013), pp. 226–227.
4.2 The Characterisation of the Connection Requirement: An Unsettled Debate 181

The 18th Commission might have mistakenly introduced two connection require-
ments: one arising directly out of the subject matter of the investment (Article 6(2)
(b)); another arising out of the subject matter of the dispute (Article 6(5)). As stated
above, the 18th Commission might have strived to redefine the connection require-
ment and to steer the discussion towards the same investment.114 Considering that
the existence of a protected investment has a jurisdictional character, one may argue
that under the Resolution on the ‘Equality of Parties before International Investment
Tribunals’ of the 18th Commission of the Institut de Droit International, the
connection requirement for counterclaims also has a jurisdictional character.115
Yet, considering the connection requirement as a jurisdictional issue is not entirely
satisfactory. In fact, the Resolution’s preparatory work evinces that the members of
the 18th Commission were of the opinion that the connection between claim and
counterclaim ‘is properly to be regarded as a requirement of admissibility’.116

4.2.2.2 Revising the Classification of the Connection Requirement

The lack of connection between claim and counterclaim will necessarily lead to the
counterclaim’s dismissal. One may thus wonder whether classifying this require-
ment as jurisdictional or not has any consequence at all.117 Yet, the (proper)
classification of this requirement influences the tribunal’s analysis, which in turn
might lead to a more lenient approach with respect to counterclaims in general and to
environmental counterclaims in particular. Thus, this monograph posits that the
connection requirement does not have a jurisdictional character.
On the one hand, jurisdiction pertains to the parties’ consent to arbitration,
whereas admissibility (or procedural decisions for critics of the terminology) entails
the overall preservation of the proceedings’ legitimacy.118 Whilst parties’ consent is
either complied with or not, a tribunal needs certain degree of discretion to assess
whether a particular aspect might affect judicial propriety. On the other hand, the
requisite connection epitomises the principles of procedural or judicial economy and
even a better administration of justice.119 Therefore, a tribunal would not determine
whether there is connection, but rather whether the existing connection (or lack
thereof) has an effect on procedural efficiency and due process. Such analysis
requires a balancing exercise that jurisdictional questions do not permit. A tribunal

114
See Sect. 4.1.1.3.1.
115
Steingruber (2020), p. 603.
116
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Profes-
sor Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’
para. 191 <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-parties-
before-international-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf> accessed
10 January 2023.
117
For instance see Sinha and Fusea (2021), p. 63.
118
See Sect. 4.2.1.2.
119
See Sect. 4.1.2.
182 4 The Assessment of the Connection Requirement for Environmental Counterclaims

should thus enjoy certain flexibility for assessing the connection requirement, and
ultimately for allowing the counterclaim120 (insofar it has found jurisdiction over it).
As a result, the connection requirement plays the role of filtering out those
counterclaims, which do not serve procedural economy or the administration of
justice.121 The reasoning of the Urbaser v Argentina tribunal is apposite in this
regard. Argentina submitted a counterclaim for alleged failure to sufficiently invest
in the water concession (investment).122 After finding jurisdiction over the counter-
claim and while assessing the sufficient nexus between the claim and the counter-
claim, the tribunal held:
It would be wholly inconsistent to rule on Claimants’ claim in relation to their investment in
one sense and to have a separate proceeding where compliance with the commitment for
funding may be ruled upon in a different way. Reasonable administration of justice cannot
tolerate such a potential inconsistent outcome.123

This reasoning evinces that when assessing the connection requirement, an arbitral
tribunal considers the overall impact of admitting the counterclaim on the adminis-
tration of justice. Such an analysis demands certain discretion, not offered when
assessing jurisdictional issues. One may thus conclude that the connection require-
ment escapes a characterisation as a jurisdictional matter and rather falls into the
territory of admissibility or procedural decisions.
This classification of the connection requirement suggests three consequences for
counterclaims: first, as reasoned by the Alemanni v Argentina tribunal, logic dictates
that jurisdictional objections are analysed before any admissibility objections
(or procedural issues for that matter).124 This does not vary for the case of counter-
claims. Whilst the jurisdictional enquiry will determine whether a tribunal is entitled
to adjudicate the particular counterclaim at all, the connection analysis hinges on the
tribunal’s discretion to admit a counterclaim, which is certainly delimited by its
jurisdictional powers. Thus, a tribunal ought to assess whether it has jurisdiction
over a counterclaim and only if it does, it may analyse the connection requirement as

120
Kjos (2013), p. 153; Anning (2021), p. 1307. Similarly, Philippe Fouchard, Emmanuel Gaillard
and Berthold Goldman endorse a flexible assessment of the connection requirement pursuant to
Article 46 ICSID Convention given the risks of an unnecessary multiplication of proceedings see
Fouchard et al. (1999), para. 1222.
121
Kjos (2013), p. 147.
122
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 36.
123
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1151.
124
Giovanni Alemanni and Others v The Argentine Republic, ICSID Case No ARB/07/8, Decision
on Jurisdiction and Admissibility (17 November 2014) para. 260.
4.2 The Characterisation of the Connection Requirement: An Unsettled Debate 183

a second step.125 Interestingly, the Tethyan v Pakistan tribunal ignored this order and
proceeded with its analysis on the connection requirement in the first place.126
Certainly, the order of the factors does not alter the result, but such change is
procedurally inefficient and methodologically erroneous. Procedurally inefficient
because the assessment of the connection requirement is heavily fact-based,127
warranting a critical analysis of the evidence, which is normally left to the merits
stage of the proceedings. Switching jurisdiction with connection might then entail
double work for the arbitrators. Methodologically erroneous because when assessing
the connection requirement, the tribunal would exercise a judicial discretion, which
may not exist according to the jurisdictional title.
Second, given the order of analysis over counterclaims, should a tribunal find lack
of jurisdiction over a counterclaim, it would usually dismiss it without delving into
the connection requirement. Nevertheless, some authors and even tribunals have
hypothesised whether a closely connected counterclaim could overcome any juris-
dictional restriction. For instance, some commentators on the ICSID Convention and
the proceedings thereunder observe that closely connected counterclaims may
always fall within the parties’ consent, even in cases of narrow or limited dispute
settlement provisions.128 Similarly, Zachary Douglas concedes that limitations upon
the scope of consent in IIAs, eg referring to treaty breaches exclusively, should not
apply to a host state’s counterclaims, as long as the latter’s factual matrix directly
relates to the main claim.129
In the same vein, the tribunals in Oxus v Uzbekistan and Naturgy v Colombia
have considered the possibility that a closely connected counterclaim could over-
come jurisdictional restraints. Such hypothesis is not only untenable but is also
caused by a misinterpretation of the Saluka v Czech Republic case. Initially, the Oxus
v Uzbekistan tribunal discussed an alleged principle, according to which a closely
connected counterclaim may be adjudged by a tribunal, even if the underlying IIA
does not cover claims of the state against the investor.130 The Oxus v Uzbekistan
tribunal attributed the conception of such a principle to the Saluka v Czech Republic
case.131 Similarly, after finding no jurisdiction over respondent’s counterclaim, the
Naturgy v Colombia tribunal explored the possible exception that ‘an international
tribunal can accept jurisdiction over state counterclaims that are closely connected
to the investor’s main claim, even if the applicable treaty does not expressly extend

125
Kendra (2013), p. 590.
126
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) paras. 1412 et seqq.
127
See Sect. 4.3.3.1.3.
128
Shihata and Parra (1999), p. 320; Schreuer et al. (2009), Art 46, mn. 94.
129
Douglas (2013), p. 433.
130
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 948.
131
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 952.
184 4 The Assessment of the Connection Requirement for Environmental Counterclaims

jurisdiction over such counterclaims’. 132 The Naturgy v Colombia tribunal relied
both on the Oxus v Uzbekistan and Saluka v Czech Republic cases for justifying such
possible exception. However, the Saluka v Czech Republic tribunal never conceived
this exception for the tribunal’s jurisdiction over counterclaims. Instead, the Saluka v
Czech Republic tribunal held:
The Tribunal is satisfied that those provisions [referring to the connection requirement
under different instruments], as interpreted and applied by the decisions which have been
referred to, reflect a general legal principle as to the nature of the close connexion which a
counterclaim must have with the primary claim if a tribunal with jurisdiction over the
primary claim is to have jurisdiction also over the counterclaim.133

Such passage does not suggest that the connection requirement may replace a
narrowly drafted dispute resolution provision. It rather ascertains the existence of
the requisite connection as a matter of principle, while explicitly underscoring that
the tribunal ought to have jurisdiction over both claim and also counterclaim.
Certainly, both tribunals in Oxus v Uzbekistan and Naturgy v Colombia did not go
as far as admitting the existence of a closely connected counterclaim upon which
they did not have jurisdiction. However, it cannot be overstated that, given the
different nature of the requirements of consent and connection for counterclaims, the
latter cannot remedy the lack of the former.
Third, and closely related to the previous point, parties’ consent over a particular
counterclaim might obviate the requirement of connection. This is equally true for
cases of explicit or tacit consent after the dispute arose. Accordingly, in the cases of
Benvenuti v Congo, RSM v Grenada and Balkan Energy v Ghana (for contract-based
arbitration), and in Alex Genin v Estonia, Desert Line v Yemen, Occidental v
Ecuador, and Perenco v Ecuador (for treaty-based arbitration), where tacit consent
to counterclaims was granted,134 the respective tribunals omitted any enquiry about
the connection requirement and analysed directly the merits of each counterclaim.
Arguably, in the Burlington v Ecuador case, where the parties had explicitly
agreed on counterclaims, the tribunal took the same path. The tribunal, by enumer-
ating the other conditions for counterclaims under Article 46 ICSID Convention,
simply stated that those conditions, including the connection requirement, were
met.135 One may critique that the tribunal oversimplified its task, and regarded the
parties’ consent as equally satisfying the connection requirement.136 Yet, this is
nothing to frown upon. The tribunal’s considerations for the connection requirement
hinge on procedural or judicial efficiency, which explains the tribunal’s discretion in

132
Naturgy Energy Group SA and Naturgy Electricidad Colombia SL (formerly Gas Natural SDG
SA and Gas Natural Fenosa Electricidad Colombia SL) v Republic of Colombia, ICSID Case No
UNCT/18/1, Award (12 March 2021) para. 622.
133
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 76.
134
See Sect. 3.1.2.
135
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) para. 62.
136
Anning (2021), p. 1299.
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 185

its analysis. Whereas consent is the overriding principle in international arbitration

which might dispense of the tribunal’s discretion. Even if a counterclaim is not
sufficiently connected to the main claim, the disputing parties may nevertheless
agree to submit both counterclaim and main claim to the same tribunal. Thus, in
cases of explicit or tacit consent to counterclaims, a tribunal might obviate any
analysis on the connection requirement.

4.3 The Dilution of the Connection Requirement

in Investment Arbitration and its Impact
on Environmental Counterclaims

Probably the most controversial requirement for counterclaims across the different
mechanisms of international dispute resolution is the connection between a coun-
terclaim and the main claim. This section thus seeks to decipher the content of such
requirement in investment arbitration and its impact on environmental counterclaims
raised by the respondent host state. In this context, this section firstly focuses on the
differentiation between ‘legal’ and ‘factual’ connection, whose origins hearkens
back to the jurisprudence of the ICJ and the IUSCT [Sect. 4.3.1]. Subsequently, it
analyses the (possible) effects of the connection requirement in contract-based
investment arbitration and the respective viability of environmental counterclaims
[Sect. 4.3.2]. Finally, it delves into the shifting trend towards balancing factors for
the requisite connection in treaty-based investment arbitration and the respective
viability of environmental counterclaims [Sect. 4.3.3].

4.3.1 A Dichotomy of Legal and Factual Connection:

Looking at Its Origins

Only few investment arbitration tribunals have delved into the content of the
connection requirement for counterclaims. However, the distinction between legal
and factual connection seems to be borrowed from the ICJ framework and buttressed
by the jurisprudence of the IUSCT. For instance, the Antoine Goetz v Burundi
tribunal asserted that Article 46 ICSID Convention was inspired by Article 80 of
the ICJ Rules of Court,137 and by analogy, relied on the development of the requisite

137
Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June
2012) para. 273: (‘Le Tribunal observe que l’article 46 de la Convention et l’article 40 du
Règlement d’arbitrage sont directement inspirés de l’article 80 du Règlement de procédure de la
Cour internationale de Justice qui, à l’époque de l’élaboration du Règlement d’arbitrage, disposait
qu’«[u]ne demande reconventionnelle peut être présentée pourvu qu’elle soit en connexité directe
avec l’objet de la demande de la partie adverse et qu’elle relève de la compétence de la Cour»’).
This opinion is shared by Kendra (2013), p. 577. However, there is no record in the ICSID travaux
préparatoires or elsewhere supporting this position.
186 4 The Assessment of the Connection Requirement for Environmental Counterclaims

connection at the ICJ.138 Similarly, in the Saluka v Czech Republic case, given the
absence of previous awards based on the UNCITRAL Arbitration Rules and similar
treaty provisions, the tribunal sought guidance from the jurisprudence of the IUSCT
with respect to the requirement of connection between a counterclaim and the main
claim.139 The Paushok v Mongolia tribunal followed suit.140 This suggests that the
distinction between legal and factual connection might have permeated investment
arbitration from other frameworks of international dispute settlement.
Interestingly, the requirement of connection between a counterclaim and the main
claim can be traced back to the PCIJ.141 However, only during the drafting of the
PCIJ Rules of Court of 1936 the content of such requirement was discussed, but the
judges could not agree on whether it implied a connection in fact, in law or both.142
Thus, until date, the ICJ Rules of Court simply provide that the counterclaim must be
‘directly connected with the subject-matter of the claim’. The Court usually con-
strues this requirement as demanding a connection in fact and in law.143 Yet, the
debate is not completely settled as for instance Judge Caron considered that the
Rules of Court demand connection either in fact or in law.144 Factual connection
with the main claim may be proven if the facts occurred during the same time, in the
same geographical area, or when the claim and the counterclaim refer to the same
type of conduct.145 Legal connection, on the other hand, requires that the claim and

138
Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June
2012) paras. 284–285.
139
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) paras. 68 et seqq.
140
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) paras.
690 et seqq.
141
See Sect. 2.1.1.1.
142
Series D, Acts and Documents concerning the Organization of the Court, Third Addendum to No
2, Elaboration of the Rules of Court of March 11th, 1936, Fourteenth Meeting (29 May 1934), 111.
143
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, para. 33;
Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ Rep 190, para.
37; Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda)
(Order on Counterclaims) [2001] ICJ Rep 660, para. 36; Certain Activities Carried Out by
Nicaragua in the Border Area (Costa Rica v Nicaragua), Construction of a Road in Costa Rica
along the San Juan River (Nicaragua v Costa Rica) (Order on Counterclaims) [2013] ICJ Rep
200, para. 32.
144
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v
Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Dissenting Opinion of Judge ad hoc
Caron, para. 18.
145
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, para. 32; Alleged Violations of Sovereign Rights and Maritime
Spaces in the Caribbean Sea (Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep
289, para. 25. Similarly, Oil Platforms (Iran v United States of America) (Order on Counterclaim)
[1998] ICJ Rep 190, paras. 38–39.
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 187

counterclaim seek the same legal remedy or rely on the same legal principles or
instruments.146
The connection requirement in the context of the IUSCT has been addressed as
well.147 However, the provision referring to this requirement reads differently since
pursuant to Article II(I) of the Claims Settlement Declaration a counterclaim must
arise ‘out of the same contract, transaction or occurrence that constitutes the subject
matter of that national’s claim’. Accordingly, in the TCSB Inc v Iran case, the
IUSCT drew a differentiation between a legal relationship arising out of the appli-
cation of the law, and a contractual relation arising out of the contract, and concluded
that only the latter falls within the scope of the Claims Settlement Declaration as an
admissible counterclaim.148 Such distinction has been followed in subsequent
cases,149 which may be portrayed as a characterisation of legal connection.

4.3.2 Environmental Counterclaims in Contract-Based

Investment Arbitration: The Content of the Connection
Requirement

Environmental counterclaims in contract-based investment arbitration necessitate to

fulfil the requirement of connection. However, the aforementioned distinction
between legal and factual connection might undermine the compliance with such
requirement in cases where the environmental obligation does not arise from the
same investment contract underlying the main claim. Accordingly, this section
critically explores the content and effects of the connection requirement in
contract-based investment arbitration [Sect. 4.3.2.1] and subsequently provides an
assessment on the viability of environmental counterclaims [Sect. 4.3.2.2].

146
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua),
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v Costa Rica) (Order on
Counterclaims) [2013] ICJ Rep 200, para. 32; Alleged Violations of Sovereign Rights and Maritime
Spaces in the Caribbean Sea (Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep
289, para. 25. Similarly, Oil Platforms (Iran v United States of America) (Order on Counterclaim)
[1998] ICJ Rep 190, paras. 38–39.
147
See Sect. 2.1.2.4.
148
TCSB Inc v The Islamic Republic of Iran, Case 140, Chamber 2, Award No 114-140-2 (16 March
1984) 5 Iran-US CTR 160.
149
Sylvania Technical Systems Inc v The Islamic Republic of Iran, Case 64, Award No 180-64-1
(27 June 1985) 8 Iran-US CTR 298; Questech Inc v The Ministry of National Defence of the Islamic
Republic of Iran, Case 59, Award No 191-59-1 (20 September 1985) 9 Iran-US CTR 170;
International Technical Products Corporation and ITP Export Corporation v The Islamic Republic
of Iran and others, Case 302, Chamber 3, Award No 196-302-3 (24 October 1985) 9 Iran-US CTR
206; Houston Contracting Company v National Iranian Oil Company, National Iranian Gas
Company, and the Islamic Republic of Iran, Case 173, Chamber 3, Award No 378-173-3
(22 July 1988) 20 Iran-US CTR 3, paras. 117 et seqq.
188 4 The Assessment of the Connection Requirement for Environmental Counterclaims

4.3.2.1 The Effects of the Connection Requirement in Contract-Based

Investment Arbitration

Given that contract-based investment arbitration is akin to international commercial

arbitration, it is feasible that the same considerations on the permissibility of
counterclaims apply.150 Thereby, considerations on procedural efficiency, reduction
of transaction costs and avoidance of contradictory decisions demand an assessment
on the connection between the counterclaim and the main claim.151 This certainly
reflects the premise of this Chapter as characterising the connection requirement as
inherent to the procedural mechanism of counterclaims. This seemingly undisputed
premise however does not address the distinction between ‘legal’ and ‘factual’
connection and how it affects counterclaims in contract-based investment
arbitration.
In principle, the connection requirement presents no complexity in the context of
contract-based investment arbitration when the investor and the host state claim on
the basis of the same investment contract.152 This common source of claims and
counterclaims would necessarily satisfy both legal and factual connection. Even if
the counterclaim is based on a different but related investment contract as the main
claim, it is possible that the connection requirement is nonetheless fulfilled without
much hurdles. For instance, in the Klöckner v Cameroon case, despite the fact that
the claim and the counterclaim were based on different contracts appertaining to a
fertiliser factory in Cameroon, the tribunal deemed such contracts to be constituting
‘one and the same bilateral relationship’, thus, all obligations arising of those
contracts ‘had a common origin, identical sources, and an operational unity’.153
Accordingly, the tribunal found no qualms about allowing the counterclaims given
the interdependency of the investment contracts. This approach is similar to the
practice of the IUSCT, according to which claims and counterclaims may arise from
different contracts as long as they represent a single transaction.154
Only recently, by directly citing the Klöckner v Cameroon award on this point,
the tribunal in Grenada Private Power v Grenada considered that when it is

150
See Sect. 2.2.1.1.
151
Koller (2008), p. 83.
152
See for instance: Rivas (2015), p. 784; Asteriti (2015), p. 261; Clodfelter and Tsutieva (2018),
para. 17.35. Similarly with respect to the ICSID Convention see Fouchard et al. (1999), para. 1222.
153
Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société
Camerounaise des Engrais, ICSID Case No ARB/81/2, Award (21 October 1983) 65 [reproduced
in R Rayfuse (ed), ICSID Reports vol 2 (CUP 1994) 3-163].
154
American Bell International Inc v The Islamic Republic of Iran, The Ministry of Defense, The
Ministry of Post, Telegraph and Telephone, and the Telecommunications Company of Iran, Case
48, Chamber 3, Interlocutory Award No ITL 41-48-3 (11 June 1984) 6 Iran-US CTR 74; Westing-
house Electric Corporation v The Islamic Republic of Iran, The Islamic Republic of Iran Air Force,
Iran Air, The National Iranian Oil Company, Case 389, Chamber 2, Interlocutory Award No ITL
67-389-2 (12 February 1987) 14 Iran-US CTR 104, paras. 7 et seqq.
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 189

impractical to “unbundle” claim and counterclaim arising from the same contractual
relationship, counterclaims were to be allowed.155 Certainly, the Klöckner v Cam-
eroon tribunal did not address the distinction between legal and factual connection
and rightly so since such categorisation does not find place in the ICSID Convention.
The tribunal simply referred to ‘a common origin, identical sources, and an oper-
ational unity’, which suggests a balancing exercise of connecting factors rather than
a check list for assessing the requirement of connection.
However, the situation may differ when the counterclaim is based either on a
source other than the contract, for instance, on domestic law. In the Amco v
Indonesia case, the respondent based its counterclaim on its domestic law regarding
tax fraud rather than on the same contract. Admittedly, the Amco v Indonesia tribunal
framed the discussion into the requirement of ‘within the jurisdiction of the Centre’
rather than into the connection requirement, but its reasoning has influenced subse-
quent tribunals with respect to legal connection between the claim and the counter-
claim by stating that:
it is correct to distinguish between rights and obligations that are applicable to legal or
natural persons who are within the reach of a host State’s jurisdiction, as a matter of general
law; and rights and obligations that are applicable to an investor as a consequence of an
investment agreement entered into with that host state.156

Since the prohibition of committing tax fraud was considered to arise out of general
law, the tribunal rejected the counterclaim. Interestingly, such classification of
obligations arising out of general law and obligations arising out of an investment
agreement evokes the prior jurisprudence of the IUSCT,157 which nevertheless
might not be an appropriate comparator given the specific wording of Article II
(1) of the Claims Settlement Declaration. Even if the classification was appropriate,
the Amco v Indonesia tribunal acknowledged that general law could generate an
investment dispute and be within the jurisdiction of ICSID.158 This caveat has been
often overlooked by subsequent tribunals as elaborated below.159 In the same vein,
the Elsamex v Honduras tribunal refrained from adjudging counterclaims based on

155
Grenada Private Power Limited and WRB Enterprises, Inc v Grenada, ICSID Case No ARB/17/
13, Award (12 March 2020) para. 359.
156
Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1,
Decision on Jurisdiction in Resubmitted Proceeding (10 May 1988) para. 125.
157
See Sect. 2.1.2.4.
158
Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1,
Decision on Jurisdiction in Resubmitted Proceeding (10 May 1988) para. 125.
159
See Sect. 4.3.3.

Licensed to Dymas Satrioprojo ([email protected])

190 4 The Assessment of the Connection Requirement for Environmental Counterclaims

tort or otherwise outside the contract relationship, while admitting the counterclaims
based on the same investment contract as the main claim.160
Despite the fact that both the Amco v Indonesia and Elsamex v Honduras tri-
bunals framed their analyses as jurisdictional issues, rejecting a counterclaim simply
on the basis of its legal source does not seem tenable since such strict limitation finds
no place in the ICSID Convention. Instead, an approach closer to the reasoning of
the Klöckner v Cameroon tribunal is recommended, whereby the tribunal may
balance different connecting factors before reaching a conclusion. Thus, a ‘legal’
connection by itself cannot be the only determinative factor for the admissibility
of counterclaims, especially if a ‘factual’ connection inclines the balance in favour of
adjudging both claim and counterclaim in the same proceedings for the purpose of
procedural or judicial economy. This suggests a dilution of this requirement’s
content ousting a strict binary classification. In practice, tribunals would enjoy
considerable leeway to explore what factors may indicate connection and what
factors do not do so, and balance them against each other to determine whether a
close connection of the counterclaim with the main claim exists (or is warranted).

4.3.2.2 Assessing the Viability of Environmental Counterclaims

with Respect to the Connection Requirement

While Chap. 5 will elaborate on the legal source to an environmental counterclaim,

this section advances that the dilution of the connection requirement facilitates the
admissibility of environmental counterclaims in contract-based investment arbitra-
tion. In principle and despite the scarcity of contract-based investment tribunals
analysing the connection requirement for counterclaims, it seems unassailable that
environmental counterclaims based on contractual obligations would not face much
(if any) hurdles on the requisite connection in contract-based investment arbitration.
The situation is however less clear in cases where the respondent host state does not
base its environmental counterclaim on the investment contract, but rather, for
instance, on domestic law.
In this context, by assuming that the connection requirement entails the assess-
ment of a series of factors linking the main claim with the counterclaim, such as the
origin of the obligations, the geographic impact, the timing of the alleged breaches,
the centrality (or importance) of the obligations, among others, environmental
counterclaims have better prospects. Should the environmental obligation arise
from a different instrument than the contract, this will be a factor to consider, but
it would not necessarily defeat the counterclaim by itself since many other factors
may play in its favour.

160
Elsamex SA v Republic of Honduras, ICSID Case No ARB/09/4, Award (16 November 2012)
para. 304.
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 191

4.3.3 Environmental Counterclaims in Treaty-Based

Investment Arbitration: The Content of the Connection
Requirement

The connection requirement might be one of the major obstructions to counterclaims

in treaty-based investment arbitration. Nevertheless, the reformulation of this
requirement’s content may influence a tribunal’s decision on environmental coun-
terclaims. For this reason, this section investigates a dilution of the connection
requirement starting from a strict legal connection as an indispensable requirement
to a more nuanced approach whereby various factors are balanced to determine
connection [Sect. 4.3.3.1]. Afterwards, the effects of this new conception of the
requisite connection are scrutinised vis-à-vis the viability of environmental counter-
claims [Sect. 4.3.3.2].

4.3.3.1 The Requisite Connection: A Shifting Trend Towards Balancing

Factors

The connection requirement of counterclaims in treaty-based investment arbitration

has been a serious bone of contention. The discussion started with the Saluka v
Czech Republic tribunal, whose decision has been both followed and heavily
criticised. Therefore, this section explores the initial line of case law, which required
that a counterclaim and the main claim ought to be based on the same legal
instrument [Sect. 4.3.3.1.1]. Then, it presents the criticisms of such a strict concep-
tion of the connection requirement [Sect. 4.3.3.1.2]. This section concludes by
elaborating a more flexible perspective, whereby a series of balancing factors
determine whether a sufficient connection between claim and counterclaim exists
[Sect. 4.3.3.1.3].

4.3.3.1.1 A Strict Legal Connection: An Initial Line of Case Law

The Saluka v Czech Republic decision constitutes a milestone for counterclaims in

treaty-based investment arbitration, especially for its analysis on the connection
requirement. After seeking guidance from other frameworks with respect to coun-
terclaims, ie ICSID and IUSCT cases,161 the tribunal relied on the Klöckner v
Cameroon decision and rejected a set of counterclaims given the absence of a
‘common origin, identical sources, and an operational unity’.162 In addition, the
tribunal held that those counterclaims were based on obligations applicable as a

161
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) paras. 64 et seqq.
162
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 79.
192 4 The Assessment of the Connection Requirement for Environmental Counterclaims

matter of general law, thus, they were inadmissible,163 which evokes the Amco v
Indonesia reasoning mentioned above. The Saluka v Czech Republic decision on
counterclaims suggests that the connection requirement demands a legal connection
between the counterclaim and the main claim.164 This forces respondent host states
to identify a legal basis within the respective IIA,165 which brings to mind the ICJ
distinction between connection in fact and in law.
This approach has been adopted by other tribunals. For instance, in the Paushok v
Mongolia case, the respondent raised seven counterclaims based on its domestic
law—eg windfall profit taxes, fees, levies, environmental violations among
others.166 Since the main claim was based on the violation of the underlying BIT,
whereas the counterclaims were based on the violation of Mongolia’s domestic
legislation, the tribunal considered that no ‘reasonable nexus’ existed that could
justify the admission of the counterclaims.167 The tribunal added that the counter-
claims covered issues of public law, which were of the exclusive jurisdiction of
domestic courts.168
Interestingly, from this initial line of case law, there was a seemingly divergent
opinion on the connection requirement by the Antoine Goetz v Burundi tribunal. The
main claim sought redress for damages suffered by the investors, inter alia, given the
indirect expropriation of the African Bank of Commerce (ABC). The respondent
counterclaimed that ABC had failed to comply with the conditions of operation in
the free economic zone, hence causing economic damages to the state.169 Given that
the counterclaim arose out of the same investment and the failure to comply with the
conditions of the free economic zone, which led to the suspension of the bank licence
and subsequent closure, the tribunal considered that the connection requirement was
fulfilled.170 As such, the counterclaim’s legal source was the licence, whereas the
claim’s legal source was the underlying treaty, but this did not prevent the tribunal
from admitting the counterclaim. However, the Antoine Goetz v Burundi decision

163
Saluka Investments BV v The Czech Republic, UNCITRAL Case, Decision on Counterclaims
(07 May 2004) para. 79.
164
See for instance: Lalive and Halonen (2011), p. 154; Ng (2018), p. 4; Urbaser SA and Consorcio
de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine Republic, ICSID Case No
ARB/07/26, Award (08 December 2016) fn. 425.
165
Gleason (2021), p. 430.
166
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) para. 678.
167
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) para. 694.
168
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The
Government of Mongolia, UNCITRAL Case, Jurisdiction and Liability (28 April 2011) para. 694.
169
Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June
2012) para. 267.
170
Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June
2012) paras. 282–285.
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 193

did not echo in other tribunals, and the appraisal that identity of source between the
claim and the counterclaim is necessary has largely prevailed.
Subsequently, the Gavazzi v Romania tribunal confirmed the prevailing view on
legal connection by rejecting a counterclaim because, among other reasons, it was
based upon Romanian law, whereas the claimant’s claims were based on breaches of
the underlying BIT.171 The Anglo American v Venezuela tribunal also considered the
identity of legal basis between the main claim and the counterclaim as an added
factor for the adjudication of the counterclaim. Here, since the main claim was based
on alleged treaty violations, whereas the counterclaim was based on the violation of
Venezuelan domestic law, the tribunal dismissed the counterclaim.172 In sum, these
cases conceived a legal connection between the claim and the counterclaim as a sine
qua non requirement for counterclaims, which is fulfilled only when claim and
counterclaim are based on the same legal instrument/legal source (a ‘strict legal
connection’).
Such conception would virtually exclude all counterclaims in treaty-based invest-
ment arbitration cases, whereby the claimant investor submits its claim based on a
treaty obligation.173 Having in mind that there exists usually a ‘vacuum of justiciable
obligations of the investor’ in investment treaties,174 counterclaims based on con-
tractual obligations or the respondent’s domestic legislation would automatically
become inadmissible before a treaty-based arbitral tribunal.175 However, the identity
of legal source as the only decisive element is a misconception of the requisite
connection.

4.3.3.1.2 Criticisms to the Strict Legal Connection

There are three criticisms to the abovementioned strict conception of legal connec-
tion for counterclaims, which undermine its validity. First, the initial reliance on the
IUSCT jurisprudence and on early ICSID cases does not do justice to the specific
context of treaty-based investment arbitration. Second, there is a complete lack of
textual support in IIAs, the ICSID Convention or any set of arbitration rules
indicating that counterclaims require a ‘strict’ legal connection. Third, requiring
identity of legal source for the claim and the counterclaim might undermine broadly
worded dispute resolution provisions.

171
Marco Gavazzi and Stefano Gavazzi v Romania, ICSID Case No ARB/12/25, Decision on
Jurisdiction, Admissibility and Liability (21 April 2015) para. 161: (‘. . . the subject-matter of the
counterclaim, i.e., violations of Romanian domestic law, do not directly arise from the breaches of
the BIT, being the subject-matter of the present proceedings’).
172
Anglo American PLC v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/14/1,
Award (18 January 2021) paras. 529–530.
173
Lalive and Halonen (2011), p. 154; Douglas (2013), p. 431; Atanasova et al. (2014), p. 382;
Kalnina and Godbole (2019), mn. 4.470.
174
Amado et al. (2018), pp. 15–16.
175
Anning (2021), p. 1306.
194 4 The Assessment of the Connection Requirement for Environmental Counterclaims

First, the uncritical reliance on the IUSCT jurisprudence, and on the ICSID cases
of Klöckner v Cameroon and Amco v Indonesia might be incorrect.176 Certainly, one
may argue that the cited decisions were contract-based, whereas the Saluka v Czech
Republic and Paushok v Mongolia cases were treaty-based,177 or that the applicable
instruments both in the IUSCT and ICSID explicitly demanded the connection
requirement in contrast to the UNCITRAL Arbitration Rules.178 However, the
major flaw consists of the tribunals’ lack of context when referring to other frame-
works of international dispute resolution. For instance, despite the explicit wording
of Article II(I) of the Claims Settlement Declaration requiring counterclaims to arise
out of the same contract, the IUSCT has interpreted that related contracts could also
serve as the legal basis for an admissible counterclaim.179 That was the case in
American Bell v Iran180 or Westinghouse Electric v Iran,181 where the IUSCT
suggested certain flexibility when assessing the connection requirement. Moreover,
the Saluka v Czech Republic tribunal obviated an important caveat of the Amco v
Indonesia decision, whereby it is acknowledged that general law could create an
investment dispute.182 Thus, simply dismissing a counterclaim for its legal source
does not precisely reflect the Amco v Indonesia reasoning.
The Paushok v Mongolia tribunal added fuel to the fire by excluding counter-
claims arising out of domestic public law from ever being connected to treaty-based
investment claims.183 To support its decision, the tribunal relied on the IUSCT case

176
Atanasova et al. (2014), p. 380.
177
Lalive and Halonen (2011), p. 153: (‘In the authors’ opinion Saluka’s reliance on Klöckner was
incorrect, as a the latter was a contractual arbitration, and different considerations thus applied. The
language in the Klöckner decision referring to claims and counterclaims that are aimed at the
‘accomplishment of a single goal’ is simply misplaced and inappropriate in an investment treaty
context where the parties to the arbitration have rarely been engaged in a joint enterprise in the way
that contractual parties often have’). In the same sense see Kendra (2013), p. 582: (‘This test appears
strict when viewed alongside the UNCITRAL rules, which on their face do not include any such
requirement of a closeness of relationship with the principal claims’).
178
Clodfelter and Tsutieva (2018), para. 17.93: (‘However, in the absence of an express require-
ment in Article 21(3) UNCITRAL, there is no reason to insist on the narrow approach of requiring
the identity of legal basis of the counterclaim. At the same time, there is a problem with applying the
expansive approach to the connection test’).
179
In the same sense, arguing a flexible interpretation of Article II of the Claims Settlement
Declaration IUSCT see Ben Hamida (2003), para. 281.
180
American Bell International Inc v The Islamic Republic of Iran, The Ministry of Defense, The
Ministry of Post, Telegraph and Telephone, and the Telecommunications Company of Iran, Case
48, Chamber 3, Interlocutory Award No ITL 41-48-3 (11 June 1984) 6 Iran-US CTR 74.
181
Westinghouse Electric Corporation v The Islamic Republic of Iran, The Islamic Republic of Iran
Air Force, Iran Air, The National Iranian Oil Company, Case 389, Chamber 2, Interlocutory Award
No ITL 67-389-2 (12 February 1987) 14 Iran-US CTR 104, paras. 7 et seqq.
182
Douglas (2009), para. 499.
183
Atanasova et al. (2014), p. 382: (‘The tribunal in Paushok v. Mongolia created further confusion
on the matter . . . [t]he decision seems to deny that matters covered by general domestic law can ever
be closely connected, thus views the issue in a mutually exclusive, binary perspective. The tribunal
in effect reformulated the test on admissibility of counterclaims by adding yet another formal
criterion: the counterclaims cannot arise out of general domestic law’).
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 195

of Computer Sciences v Iran, where a counterclaim on a tax clearance certificate was

dismissed holding that tax laws are limited to domestic court’s jurisdiction since they
‘are manifestations of jus imperii which may be exercised only within the borders of
a state’ and are ‘typically enormously complex, so much so that their enforcement is
frequently assigned to specialized courts or administrative agencies’.184 This might
reflect the position of domestic courts in states such as Canada and Switzerland,
where courts will most likely find judgments based on foreign criminal and tax laws
unenforceable.185
Such uncritical ‘importation’ from the IUSCT’s decisions to treaty-based invest-
ment arbitration is nevertheless inappropriate because: (i) the IUSCT jurisprudence
is not as strict as depicted, since in cases such as Houston Contracting Company v
Iran and TCSB Inc v Iran, contractual stipulations creating tax-related obligations
(or public law-related obligations for that matter) gave rise to valid counterclaims186;
(ii) the very concept of ‘foreign’ domestic law is alien to international arbitration
since, unlike national courts, arbitral tribunals do not have lex fori187; (iii) by its
nature, treaty-based investment arbitration deals with the exercise of sovereign
authority188 (or acts jus imperii), where even taxation measures have been
adjudged.189 In fact, it is questionable that a ‘generally accepted principle’ exists
prohibiting international tribunals from adjudicating domestic public law issues,
such as those related to environmental damages.190 Even in states where the rule
of refusing enforcement of judgments based on foreign criminal or tax laws consti-
tutes precedent, the justification for such a rule is unconvincing and should not be
expanded to other public law areas such as environmental matters.191 In addition,

184
Computer Sciences Corporation v The Government of the Islamic Republic of Iran and others,
Case 65, Chamber 1, Award No 221-65-1 (16 April 1986) 10 Iran-US CTR 269, 56; Houston
Contracting Company v National Iranian Oil Company, National Iranian Gas Company, and the
Islamic Republic of Iran, Case 173, Chamber 3, Award No 378-173-3 (22 July 1988) 20 Iran-US
CTR 3, para. 120.
185
Strebel (1999), pp. 69 et seqq., and 90 et seqq.
186
TCSB Inc v The Islamic Republic of Iran, Case 140, Chamber 2, Award No 114-140-2 (16 March
1984) 5 Iran-US CTR 160. Similarly, Houston Contracting Company v National Iranian Oil
Company, National Iranian Gas Company, and the Islamic Republic of Iran, Case 173, Chamber
3, Award No 378-173-3 (22 July 1988) 20 Iran-US CTR 3, para. 120.
187
Kaufmann-Kohler (2005), p. 633.
188
See Sect. 2.2.1.2.2.
189
See for instance: Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB
(AF)/99/1, Award (16 December 2002) paras. 7 et seqq.; RosInvestCo UK Ltd v The Russian
Federation, SCC Case No V079/2005, Final Award (12 September 2010) paras. 456 et seqq.; Tza
Yap Shum v The Republic of Peru, ICSID Case No ARB/07/6, Award (07 July 2011) paras.
173 et seqq.
190
Shao (2021), p. 170.
191
Neither public policy of the host state (since it would always be assessed) nor territorial
sovereignty (since there is not exercise of sovereignty on a different state’s territory but rather a
submission to the court) seem to justify the reliance on the rule of non-enforcement of foreign
judgements based on foreign public law see Strebel (1999), pp. 112 et seqq.
196 4 The Assessment of the Connection Requirement for Environmental Counterclaims

this should not present a problem at the enforcement stage either. Should the
counterclaim succeed, the tribunal would impose pecuniary obligations on the
claimant investor for its breach. The enforcing court would neither apply nor enforce
the underlying obligation the investor has breached but rather enforce the obligation
imposed in the award to pay damages to the respondent host state.192 Thus, the
Paushok v Mongolia tribunal has misconstrued the role of domestic public law in
treaty-based investment arbitration and thereby overly restricting the possibility of
counterclaims.
Second, there is no reference in IIAs, the ICSID Convention, or any set of
arbitration rules suggesting that the connection requirement implies exclusively or
determinatively the identity of sources grounding the claim and the counterclaim.
For instance, Article 19(3) UNCITRAL Arbitration Rules (1976) required counter-
claims to arise ‘out of the same contract’, which some authors suggested that must be
read as ‘out of the same investment’ in treaty-based arbitration.193 This certainly
implies a connection requirement, but without suggesting an identity of legal source
between the claim and the counterclaim. In turn, Article 21(3) UNCITRAL Arbitra-
tion Rules (2013) rephrased the abovementioned article on counterclaims and
introduced ‘that the arbitral tribunal has jurisdiction over [the counterclaim]’.194
Whilst the requirement of connection need not be explicitly mentioned to be
applicable,195 but once again, nothing suggests that connection is only achieved
via claim and counterclaim having the same legal source. Thus, the connection
requirement under the UNCITRAL Arbitration Rules (2013) must be considered
neither narrowly nor expansively.196
Article 46 ICSID Convention contemplates the connection requirement by stating
that a counterclaim must arise ‘directly out of the subject-matter of the dispute’.
However, no reference to the identity of legal source between the claim and the
counterclaim is found. Accordingly, some authors have propounded that a require-
ment of legal connection cannot be read into Article 46 ICSID Convention, other-
wise the drafters would have explicitly included it.197 Instead, in the ICSID
framework the connection requirement would be fulfilled if the counterclaim arises
out of the same investment,198 or pertains to the same rights and obligations involved
in the main claim.199 Additionally, one may argue that the Explanatory Notes to the
ICSID Arbitration Rules of 1968 suggest that only a factual connection is required.
Particularly, Note B to Rule 40 ICSID Arbitration Rules of 1968 states:

192
Bubrowski (2013), pp. 225–226. Similarly, Asteriti (2015), pp. 262–263.
193
Douglas (2009), para. 494; Clodfelter and Tsutieva (2018), paras. 17.82–17.87.
194
See Sect. 4.1.1.2.
195
See Sect. 4.1.2.
196
Clodfelter and Tsutieva (2018), para. 17.93.
197
Lalive and Halonen (2011), p. 144.
198
Clodfelter and Tsutieva (2018), para. 17.36. Similarly, Douglas (2009), para. 501.
199
Kalnina and Godbole (2019), mn. 4.470.
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 197

B. Consequently, ancillary claims are subject to three preliminary conditions (the first two of
which appear in Article 46 of the Convention)
(a) To be admissible such claims must arise “directly” out of the “subject-matter of the
dispute” (French version: “l’objet du différend”; Spanish version: “la diferencia”). The test
to satisfy this condition is whether the factual connection between the original and the
ancillary claim is so close as to require the adjudication of the latter in order to achieve the
final settlement of the dispute, the object being to dispose of all the grounds of dispute
arising out of the same subject matter.200

This Note B to Rule 40 ICSID Arbitration Rules of 1968 was invoked by Pakistan in
the Tethyan v Pakistan case to argue that its counterclaim need not arise out of the
same legal instrument as the main claim.201 Although the tribunal did not address the
non-binding nature of the Explanatory Notes, it considered that the ICSID Conven-
tion simply referred to a ‘sufficient nexus’ requirement,202 without further qualifi-
cation. Accordingly, the requisite connection in Article 46 ICSID Convention does
not reveal a narrow conception of legal connection demanding an identity of legal
source between the claim and the counterclaim.
Additionally, the Resolution on the ‘Equality of Parties before International
Investment Tribunals’ of the 18th Commission of the Institut de Droit International
also rejects the strict conception of legal connection since, pursuant to Article
6(5) thereof, it is not necessary that ‘the counterclaim be founded upon the same
legal instrument or cause of action asserted by the claimant’. The Commission
considered the view of barring counterclaims that were based in an instrument other
than the treaty,203 but it opted for an explicit rule on connection, which could be met
by a counterclaim arising out of the same investment.
Third, equating the requirement of connection between the counterclaim and the
main claim with the identity of legal source/instrument undermines the scope of
broad treaty provisions on dispute settlement, whereby ‘any kind of dispute’ arising
out of an investment may be submitted to arbitration.204 In such cases the treaty-
based arbitral tribunal has been conferred a wide range of powers to adjudge issues
even if arising out of domestic legislation. The requisite nexus would thus be simply

200
Rules of Procedure for Arbitration Proceedings in effect on 1 January 1968, Arbitration Rule
40, Note B(a) (adopted by Administrative Council on 25 September 1967) <https://icsid.
worldbank.org/sites/default/files/ICSID%20Regulations%20and%20Rules%201968%20-%20
ENG.pdf> accessed 10 January 2023 (emphasis added).
201
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) para. 1413.
202
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) paras. 1413–1414.
203
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Profes-
sor Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’
paras. 207–211 <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-
parties-before-international-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf>
accessed 10 January 2023.
204
Douglas (2009), paras. 496; Waibel (2015), p. 1240.
198 4 The Assessment of the Connection Requirement for Environmental Counterclaims

fulfilled if the counterclaim refers to the investment rights at dispute,205 regardless of

the disparity of legal source. Otherwise, imposing a strict legal connection require-
ment between the counterclaim and the main claim for the admissibility of the
former, would be inimical to such broad consent given by the parties. In sum, the
foregoing analysis reveals that a strict conception of legal connection requiring
identity of legal source between the claim and the counterclaim must be revaluated.

4.3.3.1.3 Balancing of Factors

Although a strict conception of legal connection might not be appropriate, this does
not mean that the entire connection requirement is composed of a ‘factual’ connec-
tion. Accordingly, one may suggest that the tribunal must indeed consider both legal
and factual elements of connection in order to determine whether the requisite
connection between claim and counterclaim exists.206 Those factual and legal
elements however constitute only factors for the tribunal’s analysis rather than an
exhaustive list of elements that the counterclaim must fulfil.207 In other words, a
legal connection alone represents only an element to look at, rather than a determi-
native prerequisite for counterclaims.208
Accordingly, the requirement of connection begets a mixed analysis of both facts
and law, whose weight would be balanced by the tribunal and whose only limitation
is set by the same investment at the core of the dispute.209 Thus, it is conceivable that
even in the complete absence of a legal connection, a strong factual connection could
tip the scales in favour of admitting a counterclaim, as long as it preserves the
purpose of judicial/procedural economy among others.210 The Urbaser v Argentina
tribunal rendered the first award in this direction. This tribunal certainly addressed
both aspects namely connection in fact and in law. However, it also recognised that
the sole analysis of the factual link between claim and counterclaim might have been
enough. In this regard, it stated:
The Tribunal observes that the factual link between the two claims is manifest. Both the
principal claim and the claim opposed to it are based on the same investment, or the alleged

205
Douglas (2009), para. 501.
206
Kalnina and Godbole (2019), mn. 4.470.
207
Shao (2021), p. 169.
208
Clodfelter and Tsutieva (2018), para. 17.35.
209
Atanasova et al. (2014), pp. 386–387.
210
Kjos (2007), p. 626; Hoffmann (2013), p. 452. Similarly, Douglas (2013), p. 433: (‘It follows
from this discussion that the legal basis of the claim is not dispositive for determining the scope of
the tribunal’s jurisdiction over counterclaims. So long as the factual matrix for the counterclaim
directly relates to the dispute between the parties concerning the investment in question, the legal
basis for the host state’s counterclaim could be a contractual obligation, a domestic regulatory
obligation and so on’).
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 199

lack of sufficient investment, in relation to the same Concession. This would be sufficient to
adopt jurisdiction over the Counterclaim as well.211

The Urbaser v Argentina tribunal also highlighted that legal connection is fulfilled
by the counterclaim insofar is not grounded on domestic law exclusively.212 This
brings to mind the traditional conception of legal connection as entailing an identity
of legal sources between the claim and the counterclaim. Yet, the tribunal’s decision
of admitting the counterclaim went beyond the simple dichotomy of legal/factual
connection. Rather, the tribunal profusely elaborated on the nature of the right to
water, which was at the core of the concession (investment), and its alleged violation
by the investor, which gave rise to the counterclaim.
The Tethyan v Pakistan tribunal took a step further. In this case, whilst the main
claim arose out of the underlying Australia-Pakistan BIT (1998), one of the coun-
terclaims was based on the terms of a joint venture agreement. With respect to the
requisite connection, the tribunal stated that ‘there is no general rule pursuant to
which there cannot be a sufficient nexus within the meaning of Article 46(1) of the
ICSID Convention and Rule 40(1) of the ICSID Arbitration Rules between an
investor’s treaty claims and a host State’s non-treaty counterclaims’.213 The tribunal
further asserted that such connection exists if the treaty claim required the exami-
nation of other instruments, upon which the counterclaims were grounded.214 This
shows a clear detachment from the strict legal connection view, granting some
leeway to the admission of counterclaims.
Finally, the Naturgy v Colombia tribunal, albeit rejecting the counterclaims,
seems to have comprehensively analysed different factors for the determination of
connection. The tribunal first stated that the counterclaims are not related to the main
claims since they only referred to the general operation of the investment and it
summarised its findings as follows:
None of Respondent’s claims are based on the Treaty, much less on the Treaty obligations
asserted by Claimants. Moreover, the compensation sought by the Respondent in its
counterclaims is different in nature and based on different factual and legal grounds than
the compensation sought by Claimants in the main claims. In the circumstances, the Tribunal
does not find that Respondent’s counterclaims bear a sufficiently close connection. 215

This decision on counterclaims in treaty-based investment arbitration provides

different factors, which in the tribunal’s view, rebut a close connection between

211
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1151.
212
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1151.
213
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) para. 1414.
214
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) para. 1414.
215
Naturgy Energy Group SA and Naturgy Electricidad Colombia SL (formerly Gas Natural SDG
SA and Gas Natural Fenosa Electricidad Colombia SL) v Republic of Colombia, ICSID Case No
UNCT/18/1, Award (12 March 2021) para. 623.

Licensed to Dymas Satrioprojo ([email protected])

200 4 The Assessment of the Connection Requirement for Environmental Counterclaims

the main claim and the counterclaim. This may be deemed as a more comprehensive
analysis in contrast to the initial line of case law, where the tribunals simply relied on
the distinction between legal and factual connection. Yet, identity of legal source
between the claim and the counterclaim still plays an important role.
Without falling into the truism of affirming that the connection requirement must
thus be ascertained on a case-by-case basis, this section posits that a binary differ-
entiation between legal and factual connection adds nothing to the debate. Indeed,
one may argue that a clear-cut distinction between those two concepts is only
theoretical, considering that such issues would most probably be intertwined in
most of the cases.216 However, this view would leave the requirement of connection
deprived of any apparent content, which should not be simply up to each tribunal to
define.
In this regard, there are certain standards or guidelines, which may steer the
analysis of connection including: a temporal and geographic link between claim and
counterclaim; a counterclaim need not be based on the same legal instrument as the
main claim; the centrality of the investor’s obligation in the investment project is to
be considered; among others.217 In any case, an exhaustive list of connecting factors
is neither conceivable nor desirable. Tribunals should be mindful that the fulfilment
of the connection requirement would hinge on the weight of each of the possible
factors found in the particular case. This should provide the tribunal with some
flexibility. Accordingly, counterclaims’ underlying purpose of promoting judicial/
procedural economy would finally prompt the admission of counterclaims provided
there is an overwhelming amount of connecting factors between the main claim and
the counterclaim.

4.3.3.2 Assessing the Viability of Environmental Counterclaims

with Respect to the Connection Requirement

While Chap. 5 will elaborate on the applicable law to the substance of an environ-
mental counterclaim, this part posits that the dilution of the connection requirement
facilitates environmental counterclaims in treaty-based investment arbitration. On
the one hand, it has been argued that the inclusion of environmental obligations upon
investors in IIAs may smooth the way for the admissibility of environmental
counterclaims based on those obligations since the claim and the counterclaim
would share the same legal source.218 However, and as mentioned above, there are
various reasons to suggest that environmental counterclaims may be viable even if
they are based on instruments other than the underlying IIA.
In this regard, the Burlington v Ecuador and Perenco v Ecuador cases are
apposite. In the Burlington v Ecuador case, the respondent raised, among others,

216
de Nanteuil (2018), p. 388.
217
Anning (2021), pp. 1313 et seqq.
218
Anning (2021), p. 1316.
4.3 The Dilution of the Connection Requirement in Investment Arbitration. . . 201

an environmental counterclaim based on tort liability for environmental harm in

accordance with Ecuadorian legislation,219 whereas claimant’s claims were based on
the US-Ecuador BIT (1993). In spite of this disparity of legal source, the tribunal
found no qualms with the connection requirement and simply asserted that ‘the
counterclaims arise directly out of the subject-matter of the dispute, namely
Burlington’s investment in Blocks 7 and 21’.220 The tribunal does not seem to
have balanced a series of connecting factors for reaching this conclusion, but this
certainly evinces that a ‘strict’ legal connection is not the utterly decisive factor for
the adjudication of environmental counterclaims.
In the Perenco v Ecuador case, the respondent also filed an environmental
counterclaim based on tort liability for environmental harm in accordance with
Ecuadorian legislation, whereas the claimant’s claims were based on Participation
Contracts and the France-Ecuador BIT (1994). Here, the tribunal did not expound its
jurisdiction over such counterclaim or any other requirement for the admissibility of
the same. However, it placed a great importance on the redress of environmental
damages in investment arbitration.221 Although the tribunal did not directly address
the requirement of connection, it is feasible that the value of environmental protec-
tion could have played a major role in this regard despite the disparity of legal source
between claims and counterclaims.
These two cases bring about three conclusions relevant for the viability of
environmental counterclaims with respect to the connection requirement. First, the
disparity of the legal source between claim and counterclaim should not be fatal for
the connection requirement. This suggests that a tribunal, instead of being restricted
to the binary distinction of legal/factual connection, enjoys a broader scope of
analysis to assess and balance the connecting factors tilting towards the admission
of environmental counterclaims.
Second, as suggested by Xuan Shao, the policy behind the protection of the
environment may militate in favour of the admissibility of environmental counter-
claims.222 This is drawn from the ICJ case Application of the Convention on
Genocide, particularly from Judge Lauterpacht’s Separate Opinion, where he opined
that the policy underlying the prohibition of genocide (which was the basis of the
counterclaim) supported a broader view on the connection requirement, thus, on the

219
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) para. 224.
220
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) para. 62.
221
Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the Environmental Counterclaim
(11 August 2015) para. 34: (‘Proper environmental stewardship has assumed great importance in
today’s world. The Tribunal agrees that if a legal relationship between an investor and the State
permits the filing of a claim by the State for environmental damage caused by the investor’s
activities and such a claim is substantiated, the State is entitled to full reparation in accordance
with the requirements of the applicable law’).
222
Shao (2021), p. 170.
202 4 The Assessment of the Connection Requirement for Environmental Counterclaims

ultimate admissibility of the counterclaim.223 Certainly, Judge Lauterpacht was not

referring to the identity of the legal source for the claim and the counterclaim since
both were based on the Convention on Genocide, but rather to the fact that there were
different victims, motivations, locations among others.224 Arguably, no procedural
efficiency could be served by admitting a counterclaim whose factual matrix greatly
differs to the main claim. Be that as it may, the protection of the environment and the
overall utility of environmental counterclaims225 should constitute connecting fac-
tors to consider and to be balanced out when assessing whether an environmental
counterclaim is closely connected to the main claim in treaty-based investment
arbitration.
Third, the fact that both tribunals in Burlington v Ecuador and Perenco v Ecuador
have ruled upon environmental counterclaims based on domestic principles of
constitutional law and environmental protection (albeit the main claims having a
different legal source) elucidates that treaty-based tribunals are equipped to admit
and adjudge environmental counterclaims.226 Conversely, one may argue that envi-
ronmental issues should be of domestic courts’ exclusive domain, impinging on the
connection requirement. Yet, such considerations rather appertain to the justifica-
tions for having investment tribunals adjudging environmental issues as a matter of
policy, which Chap. 5 will address below.

223
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, Separate
Opinion Judge Lauterpacht, para. 14: (‘it is not possible to require that the facts underlying a
counter-claim in respect of genocide must have their direct connection with the individual and
specific acts forming the basis of the principal claim of genocide. It is sufficient that the acts invoked
as constituting the basis of the counter-claim should be directly connected with the principal claim
by reason of their occurrence in the course of the same conflict. Indeed, it may be suggested that the
policy underlying the prohibition of genocide favours this broader view since the particular
obligations of respect for human rights embodied in the Genocide Convention are ones which
rest with equal weight upon all persons involved. It is upon this basis that I agree with the
conclusion of the Court that the Yugoslav counter-claim is admissible’).
224
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims) [1997] ICJ Rep 243, Separate
Opinion Judge Lauterpacht, paras. 8 et seqq.
225
See Sect. 2.2.3.
226
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Profes-
sor Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’
para. 211 <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-parties-
before-international-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf> accessed
10 January 2023.
4.4 Interim Conclusions 203

4.4 Interim Conclusions

While the scope of consent constitutes the centrepiece of a tribunal’s analysis on

environmental counterclaims, the requisite connection represents the tribunal’s
compass. Only few instruments in investment arbitration refer to the close connec-
tion between the counterclaim and the main claim. Yet, tribunals should always
scrutinise the connection requirement as an inherent feature of the procedural
mechanism of counterclaims. As such, it is of the utmost importance to consider
the proper characterisation of the connection requirement, its content and ultimate
relevance for environmental counterclaims.
With respect to the characterisation of the connection requirement, tribunals and
authors have unfortunately been engaged in a protracted tug of war framing the
requisite connection either as a jurisdictional or as an admissibility issue. One may
argue that a distinction between jurisdiction and admissibility in investment arbitra-
tion is theoretically flawed. However, it is clear that in certain cases a tribunal should
decline to exercise properly vested jurisdiction for reasons of procedural fairness or
judicial propriety, irrespective of such decision’s label as a non-jurisdictional,
admissibility, or procedural decision. This is precisely the scope of analysis on the
requisite connection because a tribunal would not determine whether there is
connection, but rather whether the existing connection is sufficient to promote
procedural efficiency. Such analysis requires a degree of judicial discretion and
flexibility that jurisdictional questions do not permit.
Thus, the proper characterisation of the connection requirement for counterclaims
is as a non-jurisdictional, admissibility, or procedural issue. This entails three
consequences: first, a tribunal must assess its jurisdiction over counterclaims prior
to an analysis on connection. Second, the requisite connection cannot remedy the
lack of jurisdiction. Third, parties’ consent may override any consideration on the
connection requirement.
With respect to the content of the connection requirement, there is a traditional
division between legal and factual connection. This division seems to be borrowed
from the ICJ and IUSCT jurisprudence, and its use in investment arbitration should
be taken with a pinch of salt. More critically, many tribunals have narrowed down
the content of the connection requirement to a strict legal connection, whereby a
counterclaim is connected to the main claim only if both are based on the same legal
instrument/legal source. Such position is incorrect for three reasons: first, the initial
reliance on the IUSCT jurisprudence and on early ICSID cases does not do justice to
the specific context of treaty-based investment arbitration. Second, there is a com-
plete lack of textual support in IIAs, the ICSID Convention or any set of arbitration
rules indicating that counterclaims require a ‘strict’ legal connection. Third, requir-
ing identity of legal source for the claim and the counterclaim might undermine
broadly worded dispute resolution provisions.
All in all, the identity of legal source by itself cannot be the only determinative
factor for the admissibility of counterclaims, especially if other connecting factors
incline the balance in favour of adjudging both claim and counterclaim in the same
204 4 The Assessment of the Connection Requirement for Environmental Counterclaims

proceedings. This suggests a dilution of the connection requirement into various

balancing factors. In this sense, tribunals enjoy considerable leeway to assess those
factors, and to balance them against each other to determine whether a close
connection of the counterclaim with the main claim exists. As such, this balancing
exercise should render environmental counterclaims more viable as environmental
protection with respect to the particular investment and the overall utility of envi-
ronmental counterclaims can play in favour of admitting the counterclaim.

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Chapter 5
Searching a Cause of Action
for Environmental Counterclaims

Once the arbitral tribunal has acknowledged jurisdiction over the environmental
counterclaim and established the sufficient connection with the main claim, finding
an appropriate cause of action (or legal basis) becomes crucial. Not only would the
cause of action define the scope of the respective environmental obligation, but it
might also set out the consequences for its breach. Arguably, an investor might be
subject to regulations, guidelines or standards of conduct embedded in international
or domestic law with respect to the protection of the environment. Yet, this does not
ensure the finding of an appropriate legal basis for an environmental counterclaim.
This Chapter assesses possible causes of action for an environmental counter-
claim in investment arbitration and the appropriateness of bestowing an arbitral
tribunal with the power to entertain such counterclaims. Accordingly, the first and
second sections analyse what environmental obligations could give rise to counter-
claims in contract-based investment arbitration [Sect. 5.1] and in treaty-based
investment arbitration [Sect. 5.2]. The third section delves into the appropriateness
of tribunals in investment arbitration deciding environmental counterclaims with
respect to technical/procedural issues and from a policy perspective [Sect.
5.3]. Finally, the last section presents some conclusions on an appropriate cause of
action for environmental counterclaims in investment arbitration [Sect. 5.4].

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 207
A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
EYIEL Monographs - Studies in European and International Economic Law 34,
https://doi.org/10.1007/978-3-031-46391-4_5
208 5 Searching a Cause of Action for Environmental Counterclaims

5.1 Investors’ Environmental Obligations

in Contract-Based Investment Arbitration

This section explores a viable cause of action for environmental counterclaims in

contract-based investment arbitration. As mentioned above, investment contracts
embody a synallagmatic relation between the foreign investor and the host state.1
Accordingly, the first and foremost obvious source of environmental obligations on
the investor consists of the investment contract itself [Sect. 5.1.1]. Nevertheless,
tribunals may also search possible environmental obligations out of the contractual
choice of law clause or (if different) the host state’s domestic law [Sect. 5.1.2]. Con-
sequently, domestic environmental law would delineate the scope of the respective
environmental obligation, which could be nevertheless affected by the application of
stabilisation clauses [Sect. 5.1.3].

5.1.1 Environmental Obligations within the Investment

Contract

An investment contract foresees reciprocal obligations between the investor and the
host state. Thus, a counterclaim by the host state may find its cause of action on one
(or more) of those obligations incumbent upon the investor in contract-based
investment arbitration.2 If such obligations impose certain duties on the investor
towards the environment (contractual environmental obligations), these may consti-
tute the legal basis for an environmental counterclaim.3
Those contractual environmental obligations may operate in three different ways:
first, they may create sui generis obligations to protect and preserve the environment
in accordance with the content of the investment contract. This sort of environmental
obligations would be subject to the same rules of contract interpretation as the
entirety of the contract. Thus, their content, scope and consequences for their breach
would be strictly guided by contractual principles. Second, they may reflect the
respective duties towards the environment already incorporated in domestic law. In
this case, the content of the environmental obligation would most likely be delin-
eated by the development of the similar provision in domestic law. Third, they may
incorporate international environmental standards. Although it is theoretically pos-
sible for an investment contract to explicitly include international environmental

1
See Sect. 2.2.1.1.
2
de Nanteuil (2018), p. 391.
3
Viñuales (2015), p. 1724.
5.1 Investors’ Environmental Obligations in Contract-Based. . . 209

obligations,4 the viability of an environmental counterclaim based upon such clauses

is less clear.
As will be discussed below,5 international environmental law does not seem to
impose obligations directly on investors. Thus, either by reference or direct tran-
scription in the investment contract, international environmental provisions might
not function as the basis for a counterclaim by the host state against the claimant
investor. Certainly, international environmental law could be reformulated/
operationalised within the contract, though in this case, it is not the international
environmental provision, but rather the newly reformulated (or sui generis) contrac-
tual environmental obligation serving as legal basis or cause of action.

5.1.2 The Interaction of Contractual Choice of Law Clauses

and the Host State’s Domestic Law on Environmental
Matters

Should the investment contract lack any environmental obligations upon the inves-
tor, there is still the possibility of finding such obligations in the law of the host state.
Based on the premise set out by the PCIJ in the Serbian Loans case, which stated that
‘[a]ny contract which is not a contract between States in their capacity as subjects of
international law is based on the municipal law of some country’,6 the law
governing the investment contract must be the domestic law of a state.7 The crucial
question is which domestic law applies to the investment contract. Certainly, an
explicit choice of law clause in the respective contract renders the quest on applica-
ble law quite straightforward. In the absence of such clause, the procedural rules
agreed by the parties may enable the tribunal to determine the applicable law,8 or the
tribunal could also apply the pertinent rules on conflict of laws.9
By means of choice of law clauses, investment contracts usually refer to the law
of the host state as the applicable law10 but they may also refer to the law of a third

4
This seems to be the view from authors such as Zachary Douglas and Arnaud de Nanteuil see
Douglas (2013), pp. 434–435; de Nanteuil (2018), p. 391.
5
See Sect. 5.2.2.2.
6
Case concerning the Payment of various Serbian Loans issued in France (France v the Kingdom
of Serbs, Croats and Slovenes) (Judgment) (12 July 1929) PCIJ Rep Series A No 20, 41.
7
Arguably, certain aspects of the investment contract could be subjected to a law other than national
law eg transnational law, UNIDROIT Principles, lex mercatoria, see Spiermann (2008),
pp. 106–107.
8
Viñuales (2015), p. 1722. Similarly, De Brabandere (2014), pp. 123–124.
9
Walter (2015), pp. 83–84.
10
Bjorklund (2014), p. 272.

Licensed to Dymas Satrioprojo ([email protected])

210 5 Searching a Cause of Action for Environmental Counterclaims

state.11 Similarly, the procedural rules or the pertinent rules of conflict of laws may
lead the tribunal to determine that the governing law of the investment contract is
either the host state’s law or, at least theoretically, a third state’s law. Yet, a choice of
law (or the determination by the tribunal on the governing law of the contract) does
not extend beyond the contractual relationship, thus, it would not cover matters such
as liability in tort.12
As such, tort for environmental damage would be governed by the appropriate
rules on conflict of laws. Instructively, various conflict rules in different states
designate the law of the state where the tort occurred (or lex loci rule) as the
appropriate applicable law for torts, although with certain modifications or excep-
tions.13 At the EU level and directly applicable to the EU member states, Article
7 Regulation (EC) No 864/2007 (Rome II) envisages an explicit rule for environ-
mental damage.14 However, this provision simply refers to the general rule: the law
of the state where the damage occurred. Since a respondent host state would raise an
environmental counterclaim due to environmental damage caused in its territory, the
applicable law ought to be the host state’s domestic law. Needless to say, the
arbitration clause must be broad enough to encompass counterclaims based on
tort, otherwise, such as in the Elsamex v Honduras case,15 the tribunal might reject
an environmental counterclaim based on tort.

5.1.3 Environmental Law Obligations and the Impact

of Stabilisation Clauses

A last point on contract-based investment arbitration pertains to the content of the

investor’s environmental obligations under domestic law and the impact of
stabilisation clauses. Some scholars suggest that domestic environmental law usually
implements international environmental law.16 One may thus argue that there is
certain harmonisation in this regard. However, there are two factors that hinder such
harmonisation of domestic environmental law: the diverse acceptance/ratification of

11
Dolzer et al. (2022), p. 416; Viñuales (2015), p. 1722. This option is however rare as many
elements of the investment would be connected to the host state’s law, but it may happen for
instance in cases of loan agreements, construction or in licensing arrangements see Begic
(2005), p. 17.
12
Douglas (2009), para. 260; Alvik (2019), p. 283. In the context of commercial contracts (arguably
comparable to investment contracts), Gary Born and Cem Kalelioglu hold a different opinion
suggesting that choice of law clauses should be interpreted expansively as presumptively including
non-contractual matters see Born and Kalelioglu (2021), pp. 108 et seqq.
13
For a comparative study on this issue see Symeonides (2021), pp. 35–62.
14
Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on
the law applicable to non-contractual obligations (Rome II), Art 4 and Art 7.
15
See Sect. 3.2.
16
Viñuales (2012), p. 392; Douglas (2013), p. 434.
5.1 Investors’ Environmental Obligations in Contract-Based. . . 211

international environmental instruments and their wording. As will be elaborated

below, those instruments of international law on environmental protection not only
have a diverse degree of ratification and accession, which results in a multitude of
standards, but also their wording can be extremely vague on terms of scope, which
results in different degrees of application.17
As such, the environmental obligations under domestic law vary from state to
state, rendering the content of such obligations highly fact-specific. For instance,
establishing permissible thresholds of pollution is a highly relative undertaking
depending on the time, ecosystem affected, technology available among others,
which requires a tailor-made legislative choice by the respective states.18 Even
within the same state, there might be different interpretations of the applicable
environmental law.19
This divergence is further exacerbated by the existence and application of
stabilisation clauses in investment contracts. In a nutshell, stabilisation clauses are
contractual commitments not to interfere with the regulatory framework an invest-
ment project was based upon.20 Thus, protecting the investment contract, and the
investor’s rights thereunder, from subsequent regulations or legislative acts.21 This
does not mean the state is prohibited from enacting such acts, but rather that their
effect on the particular contract is limited.22 There are two main categories of
stabilisation clauses: freezing clauses, which make new laws and regulations inap-
plicable to the contract or the investment, and equilibrium clauses, which oblige to
renegotiate the contract to restore the economic balance in light of the new laws or
regulations.23 Some of these clauses have appeared in contract-based investment
arbitrations were counterclaims have been filed, for instance, in the Klöckner v
Cameroon case,24 and in the Atlantic Triton v Guinea case.25 As the effects of

17
See Sect. 5.2.2.2.
18
de Sadeleer (2020), pp. 49–50.
19
For the examples of Perenco v Ecuador and Burlington v Ecuador, see Sect. 5.2.1.1.
20
Begic (2005), p. 84; Cotula (2006), p. 119.
21
Comeaux and Kinsella (1994), p. 23; Bernardini (1998), pp. 414–415.
22
It must be noted that in some states like Germany, stabilisation clauses might be unconstitutional
if they freeze the laws in a certain sector for the benefit of some investors, see Bungenberg (2023),
pp. 195–196.
23
Accordingly, these clauses reveal a procedural character rather than the substantive result of the
renegotiation see Luttrell and Murphy (2019), p. 16. Similarly, Alvik (2019), p. 293.
24
The tribunal considered that the Establishment Agreement assured stability in the terms of ‘no
legislative or regulatory disposition entering into force at a date subsequent to that of the signature
of the present Agreement shall have the effect of restricting its provisions’ see, Klöckner Industrie-
Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais,
ICSID Case No ARB/81/2, Award (21 October 1983) 25 [reproduced in R Rayfuse (ed), ICSID
Reports vol 2 (CUP 1994) 3-163].
25
The tribunal reproduced Article 14 of the Management Agreement as ‘[t]he term “law” in the
present Agreement refers to Guinean law. However, Guinean law would be applicable only insofar
as it is not incompatible with the terms of the present Agreement, and where it is not more restrictive
than the law in force at the date of entry into force of the present Agreement’ see, Atlantic Triton
212 5 Searching a Cause of Action for Environmental Counterclaims

those stabilisation clauses on the counterclaims had not been at stake, both tribunals
in Klöckner v Cameroon and Atlantic Triton v Guinea did not address the issue.
In any case, the relevance of stabilisation clauses appears more clearly with
respect to environmental legislation. New environmental obligations in domestic
law may be prompted by the availability of new technologies, new techniques in the
assessment of environmental damages, the emergence of new international environ-
mental standards, new perspectives on the environmental impact of certain indus-
tries, thus, an investor might wish to secure its position at the moment of conclusion
of the contract with a stabilisation clause.26 For instance, investors might strive to
shift the costs of implementing new environmental legislations to the host state.27
While this affects the development of environmental protection, it also impacts the
possible cause of action of an environmental counterclaim in contract-based invest-
ment arbitration.
Particularly, freezing clauses insulate the specific investment contract from more
stringent environmental laws. From a policy perspective, this excludes large seg-
ments of the economic activity (such as extractive industries) in detriment of the
aimed goal of environmental protection.28 In this context, counterclaims would need
to search for a cause of action on derogated environmental legislation, which most
likely will prove itself less rigorous than the newly implemented laws.
In case of equilibrium clauses, the higher costs on an investment project caused
by new environmental regulations might lead to the renegotiation of the investment
contract or the compensation of the investor.29 These considerations distort envi-
ronmental policies as the state may be persuaded to either refrain from enacting new
environmental legislation or to opt for lax regulations, which by the same token are
less effective at protecting the environment.30 Yet, a possibility to curb those effects
would be to include a caveat in the stabilisation clause for environmental laws.31 In
this context, counterclaims could be based on the stringent environmental laws.
However, the offsetting costs mandated by an equilibrium clause might frustrate the
expected gain from a successful environmental counterclaim.

Company Limited v People’s Revolutionary Republic of Guinea, ICSID Case No ARB/84/1, Award
(21 April 1986) 23 [reproduced in R Rayfuse (ed), ICSID Reports vol 3 (CUP 1995) 13–44].
26
Wälde and Ndi (1996), pp. 230–231.
27
Report for IFC and UN Special Representative of the Secretary-General for Business and Human
Rights (SRSG) on ‘Stabilization Clauses and Human Rights’ (27 May 2009) <https://www.ifc.org/
wps/wcm/connect/0883d81a-e00a-4551-b2b9-46641e5a9bba/Stabilization%2BPaper.pdf?MOD=
AJPERES&CACHEID=ROOTWORKSPACE-0883d81a-e00a-4551-b2b9-46641e5a9bba-
jqeww2e> accessed 10 January 2023.
28
Miles (2013), pp. 205 et seqq.
29
Cotula (2006), p. 128.
30
Cotula (2006), p. 129.
31
This proposal seeks to strike a balance between the evolution of environmental law and the
stability of an investment regime. However, as Lorenzo Cotula concedes, how would arbitrators
interpret such commitments remains to be seen, Cotula (2006), pp. 134 et seqq.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 213

Consequently, a stabilisation clause, in contrast to a choice of law clause, might

affect the legal source for environmental counterclaims in contract-based investment
arbitration. While the effect of such clause is not prohibitive of counterclaims, it
would impact the environmental legislation applicable to the counterclaim or the
resulting relief/compensation a host state may receive from an investor’s environ-
mental damage.

5.2 Investors’ Environmental Obligations in Treaty-Based

Investment Arbitration

Unlike investment contracts, treaty-based investment arbitration is based on the

premise of the asymmetrical relationship between foreign investors and host states.32
Accordingly, the search for a suitable cause of action for environmental counter-
claims in treaty-based investment arbitration does not appear straightforward.
Despite the entangled operation of international law and domestic law, this section
assesses the viability of incorporating environmental obligations an investor may
have as the legal basis for an environmental counterclaim in treaty-based investment
arbitration. In this context, the first section addresses the possibility of incorporating
environmental obligations of the investor arising from domestic law [Sect.
5.2.1]. The second section focuses on the possibility of finding environmental
obligations upon the investor in the broader spectrum of international law [Sect.
5.2.2].

5.2.1 Environmental Obligations from Domestic Law:

Outstripping the Role of Domestic Law?

Searching a cause of action in domestic law, particularly an investor’s environmental

obligations, might be the only way for counterclaims, considering the perceived
absence of such obligations either in public international law or in IIAs.33 Domestic
laws are well-placed to regulate the conduct of corporations and to develop criteria
of liability, exceptions or limitations, remedies among others.34 Understandably,
environmental counterclaims in treaty-based investment arbitration are often based
on compliance with the host state’s domestic law.35

32
See Sect. 2.2.1.2.
33
Krajweski (2021), p. 107. Similarly arguing in favour of domestic law as the basis for investors’
obligations see Shao (2021), p. 159.
34
Shao (2021), p. 164.
35
Tan and Chong (2020), p. 187; Gleason (2021), p. 430.
214 5 Searching a Cause of Action for Environmental Counterclaims

Certainly, the principle of territorial sovereignty imposes upon every investor the
obligation to comply with the host state’s domestic law.36 However, whether the
investor’s failure to comply with such obligation is actionable in treaty-based
investment arbitration is a different question.37 This section thus explores first the
traditional understanding of an investor’s breach of domestic law in treaty-based
investment arbitration with emphasis on domestic environmental laws [Sect.
5.2.1.1]. Subsequently, it analyses options for the operationalisation of domestic
law as a legal basis for an environmental counterclaim [Sect. 5.2.1.2].

5.2.1.1 Investors’ Breach of Domestic Law: Traditional Understanding

and the Potential for Domestic Environmental Laws

An investor may breach the host state’s domestic law either when making the
investment or afterwards during its operation.38 Whilst the former usually affects
the admissibility of the investor’s claim, the latter may influence the decision on
merits or the quantification of the damage.39 It is not uncommon that a respondent
host state argues some sort of investor’s misconduct as a defence, but it is usually
restricted to objections as to the tribunal’s jurisdiction.40
With respect to violations when making the investment, many IIAs require the
investment to be made in accordance with the domestic law of the host state (legality
requirement).41 Even though such provisions might not explicitly be framed as
obligations, they have been understood as obliging investors to comply with domes-
tic law.42 This is the case of, for example, Article 1 Germany-Philippines BIT
(1997), which includes in the definition of investment, the acceptance of such
investment ‘in accordance with the respective laws and regulations of either
Contracting State’. Based on this provision, the Fraport v The Philippines tribunal
considered that investments made in breach of domestic law were not protected
under the BIT as they fall short of the ratione materiae requirement for

36
Generally, on the principle of territorial sovereignty see Crawford (2019), pp. 191 et seqq. On the
foreign investor’s obligation to abide by domestic law stemming from territorial sovereignty see
Kryvoi (2012), p. 245.
37
Bjorklund (2013), fn. 24.
38
Kriebaum (2010), p. 329.
39
Diel-Glior and Hennecke (2015), p. 575. However, Anna Kozyakova criticises that the investor’s
misconduct in course of its investment activities as a matter for the merits is rather a merely obiter
dictum without any real elaboration by tribunals see Kozyakova (2021), p. 149.
40
Hussin (2019), p. 2.
41
See for instance: Turkey-Afghanistan BIT (2004), Art 1(2); Albania-Bosnia and Herzegovina BIT
(2008), Art 1(1); China-Argentina BIT (1992), Art 1(1); Barbados-Canada BIT (1996), Art I(f);
Croatia-Canada BIT (1997), Art I(d); Cyprus-Egypt BIT (1998), Art 1(1).
42
Bernasconi-Osterwalder (2021), p. 473.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 215

jurisdiction.43 This however does not mean that any breach of domestic law affects a
tribunal’s jurisdiction because, as highlighted by the Kim v Uzbekistan tribunal, the
investor’s illegal conduct must be assessed in light of its seriousness and the
significance of the breached obligation.44 As such, a balance emerges whereby
illegal investments should not be protected, but at the same time, host states cannot
use any kind of illegality to avoid their treaty obligations.45
Even in the absence of a treaty provision, some tribunals have opined that an
investment made contrary to the law is not protected.46 For instance, after finding
that the investor misrepresented its financial and managerial capacities, the Plama v
Bulgaria tribunal determined that the investor could not avail itself of investment
treaty protection.47 This has been labelled as the ‘clean hands’ doctrine.48
Conversely, violations of domestic law during the operation of the investment
may impact the decision on merits. For instance, in the Jan Oostergetel v Slovakia
case, the respondent argued that the investor breached its duty to pay taxes and
misled tax authorities, which the tribunal considered as allegations relating to the
management of the investment to be assessed at the merits stage.49 Consequently,
the tribunal referred to the investor’s misconduct as a factor to deny the existence of
any legitimate expectations, thus dismissing the claim on the merits.50
With respect to domestic environmental law in particular, it is apposite to
question what the consequences of a violation might be: would the breach of an
environmental obligation be assessed in light of its seriousness, would such a breach
affect the tribunal’s jurisdiction or have an impact on the merits of the claim, or could

43
Fraport AG Frankfurt Airport Services Worldwide v The Republic of The Philippines, ICSID
Case No ARB/03/25, Award (16 August 2007) paras. 396 et seqq.
44
Vladislav Kim and others v Republic of Uzbekistan, ICSID Case No ARB/13/6, Decision on
Jurisdiction (08 March 2017) para. 404. Similarly, Cortec Mining Kenya Limited, Cortec (Pty)
Limited and Stirling Capital Limited v Republic of Kenya, ICSID Case No ARB/15/29, Award
(22 October 2018), para. 320: (‘The Tribunal endorses the application of the Kim principle of
proportionality to an assessment of the impact of alleged illegalities. Omission of a minor regulatory
requirement, such as the act of Mr. Langwen on 8 July 2013 to issue an ordinary letter rather than
use Form 3 of Schedule 1 of the Environmental (Impact Assessment and Audit) Regulations, or
inadvertent misstatements, will not have the same impact as an investment “created” in defiance of
an important statutory prohibition imposed in the public interest’).
45
Kozyakova (2021), p. 134.
46
Phoenix Action Ltd v The Czech Republic, ICSID Case No ARB/06/5, Award (15 April 2009)
para. 101; SAUR International SA v Republic of Argentina, ICSID Case No ARB/04/4, Decision on
Jurisdiction and Liability (06 June 2012) para. 308; Yukos Universal Limited (Isle of Man) v The
Russian Federation, UNCITRAL, PCA Case No 2005-04/AA227, Award (18 July 2014)
para. 1352.
47
Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24, Award
(27 August 2008) paras. 143 et seqq.
48
Dumberry (2020), para. 4.103; Llamzon (2015), p. 316.
49
Jan Oostergetel and Theodora Laurentius v The Slovak Republic, UNCITRAL Case, Decision on
Jurisdiction (30 April 2010) paras. 174–176.
50
Jan Oostergetel and Theodora Laurentius v The Slovak Republic, UNCITRAL Case, Final
Award (23 April 2012) paras. 237 et seqq.
216 5 Searching a Cause of Action for Environmental Counterclaims

a breach of domestic environmental law serve as the cause of action for a counter-
claim in treaty-based investment arbitration?51 Practice shows that environmental
breaches can be raised ubiquitously.
For instance, in the Cortec v Kenya case, the tribunal found that the investor’s
mining license was void ab initio as it violated domestic environmental laws that
declared the mining site as protected.52 Taking into consideration the requirement
that protected investments must be made in accordance with Kenyan law, the
tribunal declined jurisdiction.53 Indicatively, the Quiborax v Bolivia tribunal found
that the environmental irregularities were ‘minor breaches of law’, which did not
merit the revocation of the concessions (expropriation).54 This suggests that serious
violations of environmental law may have justified the revocation.55
Finally, in the Burlington v Ecuador and Perenco v Ecuador cases, the tribunals
had recourse to Ecuadorian environmental law to assess the merits of the respective
environmental counterclaims.56 These tribunals received expert reports on the func-
tioning of Ecuadorian environmental law, deliberated on its content and decided on
issues such as the applicable legal framework,57 the definition of environmental
harm,58 the existence of time limits for environmental claims,59 or the switch from

51
Sullivan and Kirsey (2017), p. 124.
52
Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v Republic of
Kenya, ICSID Case No ARB/15/29, Award (22 October 2018) paras. 343 et seqq.
53
Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v Republic of
Kenya, ICSID Case No ARB/15/29, Award (22 October 2018) paras. 332 et seqq.
54
Quiborax SA, Non Metallic Minerals SA and Allan Fosk Kaplún v Plurinational State of Bolivia,
ICSID Case No ARB/06/2, Award (16 September 2015) paras. 219–220.
55
Sullivan and Kirsey (2017), p. 127.
56
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) paras. 72–74; Perenco Ecuador Ltd v Republic of
Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No ARB/08/6,
Interim Decision on the Environmental Counterclaim (11 August 2015) paras. 65 et seqq.
57
Both tribunals delved into the transition to the Constitution of 2008, the applicability of RAOHE
or Environmental Regulation for Hydrocarbon Operations [Reglamento Ambiental para las
Operaciones Hidrocarburíficas en el Ecuador de 2001], TULAS or Unified Text of Secondary
Environmental Legislation [Texto Unificado de Legislación Ambiental Secundaria] and the Envi-
ronmental Management Law [Ley de Gestión Ambiental de 1999] see, Perenco Ecuador Ltd v
Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No
ARB/08/6, Interim Decision on the Environmental Counterclaim (11 August 2015) paras. 317 et
seqq; Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) paras. 159 et seqq.
58
Both tribunals concluded that environmental harm required a significant loss, diminution, detri-
ment or impairment to the environment see, Perenco Ecuador Ltd v Republic of Ecuador and
Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No ARB/08/6, Interim
Decision on the Environmental Counterclaim (11 August 2015) paras. 327 et seqq; Burlington
Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on Ecuador’s Coun-
terclaims (07 February 2017) paras. 276 et seqq.
59
Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the Environmental Counterclaim
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 217

fault-based liability to strict liability.60 Accordingly, these cases evince that domestic
environmental law can serve as a legal basis for an environmental counterclaim in
treaty-based investment arbitration.

5.2.1.2 Domestic Environmental Law for Counterclaims

in Treaty-Based Investment Arbitration: Finding
the Appropriate Anchor

Before an investor’s breach of domestic environmental law may provide the cause of
action for a counterclaim, one may wonder whether the particular IIA needs to refer
to the use of domestic law in such a manner. To this point, the Oxus v Uzbekistan
tribunal held as a premise that ‘a mere breach of domestic law is not sufficient to
trigger an international liability’ of the claimant under the underlying treaty.61
Accordingly, some authors suggest that the IIA must incorporate an obligation
upon investors to respect domestic law stating that its violation constitutes a breach
of the treaty.62 Others further propose that if the investor does not dispute the
applicability of domestic law or if the treaty provision on applicable law refers to
domestic law, domestic environmental law might find its way to support a
counterclaim.63
If the investor does not dispute the applicability of domestic environmental law
for a counterclaim, tribunals should not have many qualms applying such law.
Indeed, this could be construed as implicit consent to the applicable law to the
environmental counterclaim. However, if the applicability of domestic environmen-
tal law is in dispute, the tribunal ought to investigate whether the investment treaty
provides any anchor for the incorporation of domestic environmental law as a cause
of action for a counterclaim. This section explores two possible options (or anchors)
for the application of domestic law serving as the legal basis for counterclaims in
treaty-based investment arbitration: treaty provisions on applicable law referring to
domestic law [Sect. 5.2.1.2.1], and the creation of treaty provisions with a direct
renvoi to domestic law obligations [Sect. 5.2.1.2.2].

(11 August 2015) paras. 360–364; Burlington Resources Inc v Republic of Ecuador, ICSID Case
No ARB/08/5, Decision on Ecuador’s Counterclaims (07 February 2017) para. 255.
60
Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the Environmental Counterclaim
(11 August 2015) paras. 353–359; Burlington Resources Inc v Republic of Ecuador, ICSID Case
No ARB/08/5, Decision on Ecuador’s Counterclaims (07 February 2017) paras. 247–248.
61
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 939.
62
Vohryzek-Griest (2009), p. 118; Scherer et al. (2021), pp. 428 et seqq.
63
Gleason (2021), p. 432.
218 5 Searching a Cause of Action for Environmental Counterclaims

5.2.1.2.1 Applicable Law Provisions: A False Anchor for Counterclaims

Based on Domestic Environmental Law

The Rusoro Mining v Venezuela award shows the potential effect of applicable law
provisions on counterclaims. Considering Article XII(7) Canada-Venezuela BIT
(1996), which restricted the applicable law to the treaty and principles of interna-
tional law,64 the Rusoro Mining v Venezuela tribunal dismissed a counterclaim on
alleged damage to natural resources and improper mining practices because, among
other things, such counterclaim ‘cannot be adjudicated by applying the Treaty or
principles of international law’.65
Therefore, authors quite often suggest that in treaty-based investment arbitration,
the availability of counterclaims, whose legal basis is domestic law, depends on the
treaty applicable law provision stipulating domestic law.66 Considering that a
claimant investor’s consent covers the dispute resolution method (arbitration) and
extends to the applicable law provisions,67 one may argue that treaty provisions
encompassing domestic law as part of the applicable law to the dispute are ‘coun-
terclaim-friendly’.68 On the other side of the debate, a perhaps more radical position
downplays applicable law provisions arguing that irrespective of the applicable law
embedded in the treaty, investors are always subject to the domestic law of the state,
thus, the latter could always base a counterclaim on its domestic law.69 Neither of
these positions seems to be correct.
As mentioned above, applicable law provisions are not ubiquitous to all IIAs.70
Investment treaties with applicable law provisions to the substance of the disputes
evince broadly two categories: some treaties foresee a comprehensive applicable law
rule indicating the domestic law of the disputing state, the treaty itself, and public
international law (broadly worded).71 Other treaties restrict the applicable law to the

64
Canada-Venezuela BIT (1996), Art XII(7): (‘A tribunal established under this Article shall decide
the issues in dispute in accordance with this Agreement and applicable rules of international law. An
interpretation of this Agreement to which both Contracting Parties have agreed shall be binding
upon the tribunal’).
65
Rusoro Mining Ltd v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/12/5, Award
(22 August 2016) para. 628.
66
Lalive and Halonen (2011), p. 150; Bjorklund (2014), pp. 262–263; Gleason (2021), p. 432;
Thomé (2021), p. 682.
67
De Brabandere (2014), p. 125.
68
Atanasova et al. (2014), p. 374.
69
Mitra and Donde (2016), p. 116.
70
See Sect. 3.3.1.2.
71
See for instance: BLEU-Burundi (1989), Art 8(5); Netherlands-Czech Republic BIT (1991), Art
8(6); Spain-Argentina BIT (1991), Art X(5); Italy-Bahrain BIT (2006), Art 10(4)(c); India-UAE
BIT (2013), Art 10(7)(d); Colombia-Turkey BIT (2014), Art 12(9); San Marino-Azerbaijan BIT
(2015), Art 12(5); Argentina-Chile FTA (2017), Art 8.36(1); Ethiopia-Qatar BIT (2017), Art 16(3);
Turkey-Cambodia BIT (2018), Art 9(5); UAE-Uruguay BIT (2018), Art 11(13); Kyrgyzstan-India
BIT (2019), Art 23.3.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 219

treaty itself and public international law (narrowly worded).72 Indicatively, domestic
law features in around 50% of applicable law provisions in IIAs.73
One could assume applicable law provisions (either narrow or broad) would
match the respective dispute settlement provisions (classified as well as narrow
and broad) in the same treaty, but in practice this is not always the case.74 Accord-
ingly, there are four categories that reflect either a match or mismatch: some treaties
contain both a narrow dispute resolution provision and a narrow applicable law
provision.75 Some others contemplate a broad dispute resolution provision and a
broad applicable law provision.76 Yet, there are treaties where there is a mismatch
either because they foresee a narrow dispute resolution provision with a broad
applicable law provision77 or they contain a broad dispute resolution provision
with a narrow applicable law provision.78
Applicable law provisions in investment treaties thus reveal a chaotic spectrum,
which may lead to consider these provisions as ‘midnight clauses’ meaning that they
‘are agreed upon hastily at the end of long negotiations over the substantive pro-
visions’, whose significance and interpretation challenges only surface when a
dispute arises.79 Be that as it may, one may question whether different wordings
of IIAs with respect to applicable law actually have an effect on the function both
public international law and domestic law play in treaty-based investment arbitra-
tion. As mentioned above, domestic law always plays a role notwithstanding the

72
See for instance: ECT (1994), Art 26(6); NAFTA (1994), Art 1131(1); China-Malta BIT (2009),
Art 9(5); Japan-Colombia BIT (2011), Art 31; Canada-Benin BIT (2013), Art 35; Canada-Côte
d’Ivoire BIT (2014), Art 32(1); Austria-Kyrgyzstan BIT (2016), Art 18(1); Israel-Japan BIT (2017),
Art 24(11); Singapore-Myanmar BIT (2019), Art 15(1); Japan-Georgia BIT (2021), Art 23(12).
73
This estimate follows a survey of over 1000 treaties (both of old and new) see Atanasova
(2019), p. 408.
74
Schreuer (2014), p. 13.
75
See for instance: NAFTA (1994), Arts 1116 and 1131; ECT (1994), Arts 26(1) and 26(6); China-
Malta BIT (2009), Arts 9(1) and 9(5); Japan-Colombia BIT (2011), Arts 27(2) and 31; Canada-
Benin BIT (2013), Arts 23 and 35; Austria-Kyrgyzstan BIT (2016), Arts 13 and 18(1); Israel-Japan
BIT (2017), Arts 24(2) and 24(11); Canada-Moldova BIT (2018), Arts 20 and 32.
76
See for instance: France-Argentina BIT (1991), Arts 8(1) and 8(4); Spain-Argentina BIT (1991),
Arts X(1) and X(5); Italy-Bahrain BIT (2006), Arts 10(1) and 10(4)(c); BLEU-Guatemala BIT
(2005), Arts 10(1) and 10(4); BLEU-Nicaragua BIT (2005), Arts 12(1) and 12(5); Moldova-Estonia
BIT (2010), Arts 11(1) and 11(3); Turkey-Cambodia BIT (2018), Arts 9(1) and 9(5).
77
See for instance: BLEU-Burundi (1989), Arts 8(1)(c) and 8(5); Argentina-Italy BIT (1990), Arts
8(1) and 8(7); Spain-El Salvador BIT (1995), Arts 11(1) and 11(3); Spain-Guatemala BIT (2002),
Arts 11(1) and 11(3); Colombia-Turkey BIT (2017), Arts 12(2) and 12(9); Ethiopia-Qatar BIT
(2017), Arts 16(1) and 16(3); Argentina-Chile FTA (2017), Arts 8.24(2) and 8.36(1); Turkey-
Burundi BIT (2017), Arts 10(1) and 10(6).
78
This rare combination is found in the Italy Model BIT (2003) and a handful of treaties based
thereupon see: Italy Model BIT (2003), Art X(1) and X(4); Guatemala-Italy BIT (2003), Arts
9(1) and 9(4); Nicaragua-Italy BIT (2004), Arts X(1) and X(4); Italy-Dominican Republic BIT
(2006), Arts XI(1) and XI(4); Italy-DRC BIT (2006), Arts X(1) and X(4)(a).
79
Atanasova (2019), p. 396.

Licensed to Dymas Satrioprojo ([email protected])

220 5 Searching a Cause of Action for Environmental Counterclaims

applicable law provisions.80 Yet, by default, the role of domestic law is completely
different and limited in comparison to public international law.81 It is thus argued
that domestic law and public international law must apply to their own ambit and, for
instance, the former cannot justify the breach of the latter.82 Neither can public
international law solve questions eg of property law. Certainly, after establishing the
content of the host state’s domestic law, the tribunal can find whether such domestic
law needs to be supplemented or corrected by international law.83
Given the differentiated roles of public international law and domestic law, and
considering that tribunals might be forced to assess certain issues via a law that is not
part of the applicable law provisions, one may wonder what the actual role of
applicable law provisions in treaty-based investment arbitration is. One might
argue that applicable law provisions may exceptionally provide the permissible
legal bases for a claim only if the jurisdictional title has failed to do so.84 In this
sense, the applicable law provisions would have a sort of ‘feedback effect’ on the
scope of the jurisdictional title.85 However, it is difficult to imagine such situation as
the kind of disputes a tribunal may entertain is always described in the dispute
resolution provisions of the IIAs.
Then, one could consider that applicable law provisions in IIAs embody the law
for incidental determinations.86 The difference between incidental and principal
determinations is clarified by the following example: the principal determination is
to find whether there is a violation of the fair and equitable treatment standard,
whereas an incidental determination might be whether the investor legally acquired
the licence to operate (eg mining licence).87 The former would be governed by the
respective IIA and public international law, the latter would be governed by
domestic law.
As such, either by considering applicable law provisions as providing the per-
missible legal bases for a claim when the jurisdictional title has failed to do so, or as

80
See Sect. 3.3.1.2.
81
De Brabandere (2014), pp. 122 et seqq.
82
Bjorklund (2014), pp. 280–281.
83
Begic (2005), p. 163. Similarly in case law, see Southern Pacific Properties (Middle East) Ltd v
Arab Republic of Egypt, ICSID Case No ARB/84/3, Award (20 May 1992) para. 84; Compañia del
Desarrollo de Santa Elena SA v Republic of Costa Rica, ICSID Case No ARB/96/1, Final Award
(17 February 2000) para. 64.
84
Bartels (2011), pp. 120 et seqq. Similarly, Atanasova (2019), pp. 399–400.
85
Waibel (2015), p. 1222.
86
On this point, Lorand Bartels makes a distinction between ‘incidental norms’ and ‘principal
norms’ see Bartels (2011), p. 117: (‘Principal norms are those norms used by a tribunal to make
principal determinations. These determinations that a tribunal is authorized to make by its relevant
jurisdictional instruments. By contrast, incidental norms are norms used by a tribunal to make the
additional determinations necessary for it to be able to make principal determinations. To identify
whether a norm is principal or incidental, it is necessary to identify the precise question being asked
of a tribunal in any given case’). Similarly and based on Lorand Bartels’ distinction see Atanasova
(2019), pp. 403 et seqq.
87
Bjorklund (2014), pp. 275 et seqq.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 221

determining the law for incidental determinations, there seems to be a misunder-

standing among treaty drafters on the role of those provisions.88 On the one hand,
applicable law provisions usually replicate the law for principal determinations
embedded in the jurisdictional title.89 New treaties in particular elaborate in detail
the scope of tribunals’ jurisdiction, thus, applicable law provisions covering the
same issue become redundant.90 On the other hand, even if the applicable law
provision fails to mention the domestic law of the host state or excludes it
completely, this would not prevent tribunals from using such law for incidental
determinations as it might be necessary to solve the dispute. Therefore, overly
restrictive applicable law provisions become unworkable.91
Equally unworkable appears the emerging trend in treaty drafting that consists of
the characterisation of domestic law of the contracting party involved in the dispute
‘as a fact’ for the purposes of the settlement of investment disputes. Given the CETA
Opinion rendered by the Court of Justice of the European Union,92 this is one of the
fundamental aspects advanced by the EU in its new investment treaties with invest-
ment court systems, particularly for the compatibility with EU law.93 There are as
well some recent IIAs foreseeing traditional investment arbitration, which instruct
tribunals to consider domestic law exclusively as a matter of fact.94 This is hardly an
innovation. The classification of domestic law ‘as a fact’ has its origins in public
international law,95 and investment tribunals have sometimes adopted the same
position even in the absence of explicit treaty language in that direction.96 However,

88
Atanasova (2019), p. 415.
89
The only exception to this would be the Italy Model BIT (2003) and the handful of cases based
thereupon, see fn. 78 above.
90
Atanasova (2019), pp. 418–419.
91
Schreuer (2014), p. 25. Similarly, Atanasova (2019), pp. 417–418.
92
Opinion 1/17 (CETA Opinion) [2019] ECLI:EU:C:2019:341, paras. 130–131.
93
CETA (2016), Art 8.31(2); EU-Singapore IPA, Art 3.13(2); EU-Vietnam IPA, Art 3.42(2);
EU-Mexico Global Agreement, Resolution of Investment Disputes, Art 15(2).
94
See for instance: Lithuania-Turkey BIT (2018), Art 12(13); China-Mauritius FTA (2019), Art
8.29(1); Hungary-Cabo Verde BIT (2019), Art 9(7–8); Belarus-Hungary BIT (2019), Art 9(8);
Hungary-Kyrgyzstan BIT (2020), Art 9(8); Morocco-Japan BIT (2020), Art 16(7); Colombia-Spain
BIT (2021), Art 26(2).
95
Case concerning Certain German Interests in Polish Upper Silesia (Germany v Poland) (Merits)
(25 May 1926) PCIJ Rep Series A No 07, 19; Frontier Disputer (Benin v Niger) (Judgment) [2005]
ICJ Rep 90, para. 28.
96
See for instance: International Thunderbird Gaming Corporation v The United Mexican States,
UNCITRAL Case, Award (26 January 2006) para. 127; Bayindir Insaat Turizm Ticaret Ve Sanayi
AS v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Award (27 August 2009) para. 135;
AES Summit Generation Limited and AES-Tisza Erömü Kft v The Republic of Hungary, ICSID Case
No ARB/07/22, Award (23 September 2010) para. 7.6.6; Electrabel SA v Republic of Hungary,
ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November
2012) para. 4.129.
222 5 Searching a Cause of Action for Environmental Counterclaims

such classification is at least questionable97 and particularly inapt for investment law
as it trivialises the role of domestic law.98
All in all, applicable law provisions in IIAs seem trapped in a futile function and
their future inclusion in investment treaties should be reconsidered. This systematic
concern turns applicable law provisions into a false anchor for counterclaims seeking
to find a cause of action in domestic environmental law. Instead of a controversial
and broad applicable law provision, environmental counterclaims need a direct
renvoi to domestic law obligations upon the investor to find a suitable cause of
action as elaborated in the next section.

5.2.1.2.2 Treaty Provisions with a Direct Renvoi to Domestic Law

Obligations

The situation might be different when the treaty expressly refers to the investor’s
obligations in accordance with the host state’s domestic law. Whilst the tribunal in
the OSPAR Arbitration case was very protective of the scope of jurisdiction in its
interaction with the applicable law provision,99 it also considered that a direct renvoi
to different instruments other than the underlying treaty could potentially expand the
tribunal’s jurisdiction as to cover disputes over such other instruments.100 Yet,
neither the investment’s legality requirement nor provisions confirming the state’s
power to enact domestic law may fill the bill.
Particularly, in the Urbaser v Argentina case, the legality requirement embedded
in Article I(2) of the Spain-Argentina BIT (1992),101 which simply states that an
investment must be acquired or made in accordance with the host state’s laws, was
touched upon for the purpose of counterclaims. The tribunal concluded that such
provision only determines the treaty’s scope of application without containing ‘an
investor’s obligation to comply with the host State’s legislation when pursuing its
investment with the effect that the host State would have a right to trigger the

97
Crawford (2019), pp. 49–50; Trail smelter case (United States of America v Canada), Award
(16 April 1938 and 11 March 1941) III RIAA 1905, 1949.
98
Douglas (2009), paras. 115–120; Hepburn (2017), pp. 105 et seqq. For a different opinion
considering that domestic law as a ‘matter of fact’ might indeed be applied by an international
tribunal, for instance, by allocating burden of proof on the disputing parties see Scheu (2022),
mn. 63.
99
See Sect. 3.3.1.2.
100
Dispute Concerning Access to Information under Article 9 of the OSPAR Convention (Ireland v
United Kingdom of Great Britain and Northern Ireland), PCA Case No 2001-03, Final Award
(02 July 2003) para. 85.
101
Spain-Argentina BIT (1991), Art I(2) (‘El término “Inversiones” designa todo tipo de haberes,
tales como bienes y derechos de toda naturaleza, adquiridos o efectuados de acuerdo con la
legislación del país receptor de la inversion y en particular. . .’).
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 223

application of the BIT and its arbitration clause in case of a violation of its domestic
law’.102
Similarly, in the Tethyan v Pakistan case, the legality requirement figured once
again in the analysis of counterclaims, this time in the form of Article 1(1)(a)
Australia-Pakistan BIT (1998).103 Here, the tribunal construed such provision in
the following terms:
[It] cannot give rise to an obligation and a corresponding liability of the investor vis-à-vis the
host State. . .[it] does not give rise to an obligation of either the Contracting Parties or the
investor. An investment that violates the host State’s laws and investment policies and thus
does not fulfill the admission requirement is not an “investment” for the purposes of the
Treaty and is thus not subject to the standards of protection under the Treaty. Therefore, the
non-fulfillment can be invoked by the host State as a defense against claims of the investor
based on a violation of any standard of protection; however, it cannot give rise to a liability
of the investor for a loss of opportunity as Respondent claims.104

The David Aven v Costa Rica case evinces a similar situation with respect to
provisions confirming the state’s power to enact domestic law. Article 10.9(3)
(c)105 and 10.11106 CAFTA-DR (2004) were the relevant provisions, which in a
nutshell reaffirm the states’ power to adopt, maintain or enforce environmental
measures. The tribunal thus concluded that such provisions do not ‘provide that
any violation of state-enacted environmental regulations will amount to a breach of
the Treaty which could be the basis of a counterclaim’.107
The foregoing suggests that not any provision referring to domestic law may
serve as an anchor for environmental counterclaims. The provision must explicitly
address the investor as the bearer of obligations under domestic law and whose
compliance must go beyond acquiring and making the investment to also cover the

102
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1185.
103
Australia-Pakistan BIT (1998), Art 1(1)(a): (‘“investment” means every kind of asset, owned or
controlled by investors of one Party and admitted by the other Party subject to its law and
investment policies applicable from time to time and includes’).
104
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/
1, Decision on Jurisdiction and Liability (10 November 2017) paras. 1444–1445.
105
CAFTA-DR (2004), Art 10.9(3)(c): (‘Provided that such measures are not applied in an arbitrary
or unjustifiable manner, and provided that such measures do not constitute a disguised restriction on
international trade or investment, paragraphs 1(b), (c), and (f), and 2(a) and (b), shall not be
construed to prevent a Party from adopting or maintaining measures, including environmental
measures: (i) necessary to secure compliance with laws and regulations that are not inconsistent
with this Agreement; (ii) necessary to protect human, animal, or plant life or health; or (iii) related to
the conservation of living or non-living exhaustible natural resources.’).
106
CAFTA-DR (2004), Art 10.11: (‘Nothing in this Chapter shall be construed to prevent a Party
from adopting, maintaining, or enforcing any measure otherwise consistent with this Chapter that it
considers appropriate to ensure that investment activity in its territory is undertaken in a manner
sensitive to environmental concerns’).
107
David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Award
(18 September 2018) para. 743.
224 5 Searching a Cause of Action for Environmental Counterclaims

ensuing investment operation.108 In these terms, one may thus posit that such treaty
provision could elevate domestic law obligations to the international level, providing
an anchor for counterclaims.109 Such treaty provision would operate similarly to
umbrella clauses but with respect to investor’s obligations.110 Considering that the
investor giving its consent to treaty-based investment arbitration would be equally
bound by such treaty provision referring to domestic law obligations, this could open
the door for counterclaims based on those domestic law obligations.111
This possibility has been explored by the Al-Warraq v Indonesia tribunal. Here,
the underlying treaty ie Article 9 OIC Investment Agreement (1981) stated: ‘[t]he
investor shall be bound by the laws and regulations in force in the host state and
shall refrain from all acts that may disturb public order or morals or that may be
prejudicial to the public interest. He is also to refrain from exercising restrictive
practices and from trying to achieve gains through unlawful means’. Based on this
provision, the Al-Warraq v Indonesia tribunal concluded that the treaty obliged the
investor to respect the law of the host state, which raised ‘this obligation from the
plane of domestic law (and jurisdiction of domestic tribunals) to a treaty obligation
binding on the investor in an investor state arbitration’.112
This remains one of a kind decision as no other tribunal has followed the same
reasoning when deciding on counterclaims based on domestic law.113 One may
actually argue that the distinctiveness of the Al-Warraq v Indonesia case is ascribed
to the underlying Article 9 OIC Investment Agreement (1981), which was particu-
larly supportive for the tribunal’s conclusion.114 Certainly, no other counterclaim
has been based on an IIA with a similar provision compelling investors to comply
with domestic law. Thus, the question is whether, as a general rule, such type of
provisions could actually support the finding of a counterclaim’s legal basis in the
host state’s domestic law.
Even if not expressly set out in the IIA, investors are always obliged to comply
with the domestic law of the host state.115 Yet, treaty provisions imposing obser-
vance of domestic law, rather than being redundant, could strengthen investor’s
domestic law obligations and transform their violation into an issue for treaty-based

108
One may consider a provision on compliance with domestic law as insufficient and rather
suggest that treaties explicitly establish an obligation on investors to undertake their activities
consistent with international and domestic environmental law see Sattorova (2019), p. 25.
109
Asteriti (2015), p. 271: (‘if umbrella clauses can internationalise contractual undertakings and
place them under the umbrella of the treaty, by analogy the duty of the investor to comply with the
domestic legal obligations might equally be placed under the treaty and provide the jurisdictional
hook to allow a direct claim, or a counterclaim, by the state’). Similarly, Shao (2021), p. 164.
110
Krajweski (2021), p. 119.
111
Newcombe and Marcoux (2015), pp. 531–32. Similarly, Zin (2020), p. 244.
112
Hesham Talaat M Al-Warraq v The Republic of Indonesia, UNCITRAL Case, Award
(15 December 2014) para. 663.
113
Popova and Poon (2015), p. 235.
114
Magnarelli (2020), p. 117.
115
Bjorklund (2013), fn. 24; Mitra and Donde (2016), p. 116.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 225

investment arbitration.116 In this sense, IIAs could be modernised by explicitly

linking environmental obligations in domestic law to counterclaims,117 and the
scope of the investors obligations would certainly depend on the respective domestic
law.118 In practice, this sort of provisions have been increasingly included in IIAs,119
but disputes thereunder have not arisen yet.
Another anchor could be strictly procedural. Both Article 14(3) Slovak
Republic-Iran BIT (2016),120 and Article 43 PAIC (2016)121 regulate the possibility
for the respondent host state of filing counterclaims, and in both cases there is an
explicit reference to the investor’s obligations under domestic law as the legal basis
of a counterclaim. Arguably, in the case of PAIC (2016), the availability of legal
bases is larger by the reference to international law as well.122 Be that as it may, both
provisions foresee a direct renvoi to the investor’s obligations under the respective
domestic law, with the added advantage of already linking such obligations to the
host state’s counterclaims.
Finally, there are two concerns that would unfold with respect to the application
of domestic law as a legal basis for counterclaims in treaty-based investment
arbitration: first, with respect to the definition of ‘law’ as it may indicate a formal
approach (law is adopted by the parliament) or substantive approach (law may also
include decrees and regulations of the government or precedent set out by courts).123

116
Krajweski (2021), p. 119.
117
Gleason (2021), p. 440.
118
Krajweski (2021), p. 120.
119
See for instance: Kyrgyzstan-India BIT (2019), Art 11(i); Belarus-India BIT (2018), Art 11(i);
Argentina-UAE BIT (2018), Art 14(a); Ethiopia-Qatar BIT (2017), Art 14; Ethiopia-UAE BIT
(2016), Art 11(1); Argentina-Qatar BIT (2016), Art 11. This is also reflected in the newest version
of Model BITs, see for instance: The Netherlands Model BIT (2019), Art 7(1); Morocco Model BIT
(2019), Art 18(1); BLEU Model BIT (2019), Art 18(1); Canada Model BIT (2021), Art 16; India
Model BIT (2015), Art 11(i).
120
Slovak Republic-Iran BIT (2016), Art 14(3): (‘The respondent may assert as a defense,
counterclaim, right of set off or other similar claim that the claimant has not fulfilled its obligations
under this Agreement to comply with the Host State law or that it has not taken all reasonable steps
to mitigate possible damages. For avoidance of any doubt, if the tribunal does not dismiss the claim
under paragraph 2 above, it shall take such violations into account when assessing the claim if raised
as a defense, counterclaim, right of set off or other similar claim by the respondent’) (emphasis
added).
121
PAIC (2016), Art 43: (‘(1)Where an investor or its investment is alleged by a Member State party
in a dispute settlement proceeding under this Code to have failed to comply with its obligations
under this Code or other relevant rules and principles of domestic and international law, the
competent body hearing such a dispute shall consider whether this breach, if proven, is materially
relevant to the issues before it, and if so, what mitigating or off-setting effects this may have on the
merits of a claim or on any damages awarded in the event of such award. (2) A Member State may
initiate a counterclaim against the investor before any competent body dealing with a dispute under
this Code for damages or other relief resulting from an alleged breach of the Code’) (emphasis
added).
122
In this sense see Mbengue and Negm (2019), p. 266.
123
Steingruber (2020), p. 634.
226 5 Searching a Cause of Action for Environmental Counterclaims

Second, with respect to the timing of enactment as the state could pre-emptively
enact a new regulation with the sole purpose of filing a counterclaim.124 The former
would pertain to the functioning of the specific legal system and become a technical
issue of how to determine domestic law. Whereas the latter might be a too sweeping
suspicion, based on a presumption of misuse by the host state. In any case, should
that situation occur, the tribunal itself could resort to general principles of law such
as abuse of rights or more generally good faith to address the timing of enactment.
There is thus no need to curtail the applicability of domestic law from the outset.
All in all, treaty provisions imposing the obligation upon investors to comply
with the host state’s domestic law, or treaty provisions foreseeing counterclaims with
domestic law as a possible legal basis may theoretically provide a viable anchor for
counterclaims, whose legal basis is domestic environmental law. Possibly, a com-
bination of both treaty provisions might be necessary. Yet, since those provisions
have not been tested by an arbitral tribunal, their utilisation as an anchor for
counterclaims and the assessment of domestic law can only be speculated at this
point.

5.2.2 Environmental Obligations from International Law:

An Unexploited Opportunity

The second option for environmental counterclaims in treaty-based investment

arbitration is to find a cause of action in the broader spectrum of international law.
To this point, the Oxus v Uzbekistan tribunal held as a premise that the respondent
must establish ‘what are exactly the international obligations that Claimant is said
to have breached’ as well as ‘the specific actions of Claimants which are in breach of
such international obligations’.125 This option faces a first challenge consisting on
the general assumption that international law does not (or cannot) impose obligations
upon investors.126 Should such assumption prove correct, substantiating an envi-
ronmental counterclaim on international law would turn implausible.
Against this backdrop, this section firstly scrutinises whether public international
law may impose obligations upon non-state actors such as foreign investors [Sect.
5.2.2.1]. Secondly, it delves into international environmental law as a possible cause
of action for environmental counterclaims in treaty-based investment arbitration
[Sect. 5.2.2.2]. Thirdly, it explores the role of IIAs with respect to international
environmental obligations [Sect. 5.2.2.3].

124
Steingruber (2020), p. 634.
125
Oxus Gold v Republic of Uzbekistan, UNCITRAL Case, Award (17 December 2015) para. 939.
126
Kryvoi (2012), pp. 244–245; Sinha and Fusea (2021), p. 65.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 227

5.2.2.1 International Obligations on Non-State Actors: Legal

Foundations

The role of non-state or private actors in the international sphere has gained
increasing attention. Undoubtedly, non-state actors enjoy some substantive and
procedural rights granted directly by instruments of international law.127 Con-
versely, much ink has been spilled about the imposition of international obligations
upon such non-state actors without a satisfactory common understanding on this
issue. Although states might voice their commitment to strengthen control over
private actors, particularly multinationals, their domestic regulations and interna-
tional treaties often pay lip service to such commitment.
However, the legal foundations for international obligations exist and they
constitute the groundwork for fostering international environmental obligations
upon global actors such as foreign investors. Accordingly, this section first unravels
the traditional debate on international legal personality and international obligations,
which does nothing but obscure the possibility of imposing obligations upon
non-state actors from international law [Sect. 5.2.2.1.1]. Subsequently, the possible
sources of obligations on private actors are addressed [Sect. 5.2.2.1.2]. This brings
about the clarification of the concepts of ‘responsibility’, ‘accountability’ and
‘liability’ with respect to non-state actors, which unfortunately are often used
interchangeably [Sect. 5.2.2.1.3].

5.2.2.1.1 Unravelling the Mixture of International Legal Personality

and International Obligations

Originally, states were considered the only ‘subjects’ of international law, whereas
individuals and other entities recognised by domestic law (such as corporations)
were deemed merely as ‘objects’ of international law.128 Even in the realm of
international investment law, where claimant investors may directly claim against
the respondent state, some authors argue that this does not transform investors into
full or partial subjects of international law.129 Accordingly, the lack of international
obligations on corporate actors was linked to the perceived lack of international legal
personality of those actors.130 However, relegating private actors as mere ‘objects’ is
untenable131 and rather misconceives their status under international law.

127
For instance, the rights granted by investment treaties or the right to property and privacy under
human rights conventions, see Ben Hamida (2003), para. 298; Zerk (2006), pp. 75–76; Dörr
(2020), p. 137.
128
Zerk (2006), p. 73; Kryvoi (2012), p. 234.
129
Vöneky (2020), p. 372.
130
Muchlinski (2008), p. 655.
131
Douglas (2009), para. 7.
228 5 Searching a Cause of Action for Environmental Counterclaims

In the Reparations Case, the ICJ considered the international legal personality of
the United Nations to stem from the purpose assigned to the organisation by the UN
Charter, the possibility to conclude international agreements, the possibility to enjoy
rights and be subject to obligations in international law, as well as the right of action
to enforce its rights.132 In this sense, all these characteristics seem to comprise the
elements for considering an entity to enjoy international legal personality.133 The
ICJ further recognised that international legal personality does not equate an orga-
nisation to a state, nor does it mean that its legal personality and rights are the same
as a state.134 This already evinces that the division between subjects and objects
might be more nuanced than originally devised. Moreover, the role of non-state
actors in fields such as international economic law urges the reconsideration of
subjectivity in international law, perhaps towards an assessment of the degree to
which international law recognises the existence of other participants at the interna-
tional level.135
As such, one may argue that foreign investors’ right of action and protected rights
under IIAs would support the finding of the investors’ international legal personality
but only for the purpose of the respective IIA.136 Their international legal personality
is thus limited to the precise terms of the underlying IIA, derivative from the
contracting states’ will as expressed in said treaty, and passive, as investors are not
direct negotiators of IIAs.137
However, the international legal personality of investors does not reveal whether
they can be burdened with international obligations or whether they can be liable
before an international tribunal for the breach of those obligations.138 Given that
states create international law, there is no barrier for them to directly allocate certain
responsibilities to corporations and other non-state actors,139 including environmen-
tal obligations.140 In fact, already in the Danzig Case, the PCIJ had laid down that
states could create rights and obligations upon privates via an international agree-
ment.141 This understanding has already permeated treaty-based investment arbitra-
tion. The Urbaser v Argentina tribunal has famously stated:

132
Reparation for Injuries suffered in the Service of the United Nations (Advisory Opinion) [1949]
ICJ Rep 174, 178–179.
133
Zerk (2006), p. 73.
134
Reparation for Injuries suffered in the Service of the United Nations (Advisory Opinion) [1949]
ICJ Rep 174, 179.
135
Zerk (2006), p. 74.
136
Alvarez (2011), p. 12; Dumberry (2013), pp. 183–184.
137
Dumberry (2013), p. 186.
138
Karavias (2019), p. 64. Similarly, Alvarez (2011), p. 31.
139
Vazquez (2005), p. 930; Zerk (2006), p. 262; Dörr (2020), p. 138.
140
Nollkaemper (2006), p. 194.
141
Jurisdiction of the Courts of Danzig (Advisory Opinion) (03 March 1928) PCIJ Rep Series B No
15, 17–18: (‘But it cannot be disputed that the very object of an international agreement, according
to the intention of the contracting Parties, may be the adoption by the Parties of some definite rules
creating individual rights and obligations and enforceable by the national courts. That there is such
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 229

A principle may be invoked in this regard according to which corporations are by nature not
able to be subjects of international law and therefore not capable of holding obligations as if
they would be participants in the State-to-State relations governed by international law.
While such principle had its importance in the past, it has lost its impact and relevance in
similar terms and conditions as this applies to individuals.142

Subsequently, the David Aven v Costa Rica tribunal explicitly shared the same
view.143 This reasoning does not suggest that private actors such as investors and
states are subject to the same obligations, save for some exceptions, for instance, the
obligation to abstain from violating human rights equally applies to investors and
states.144 Consequently, for the purposes of counterclaims it is irrelevant to discuss
the international legal personality of investors, since the crux of the matter is rather
which international obligations investors are subject to.

5.2.2.1.2 Where to Find International Obligations on Non-State Actors?

Obligations on non-state actors under customary international law do not seem to

exist given the lack of uniform state practice in this regard.145 Some authors thus
argue that if states aim at subjecting foreign investors to international obligations,
they must establish so expressly.146 However, like with any other treaty provision,
there is an exercise of treaty interpretation, which will determine whether the treaty
does impose obligations on private actors147 or whether the treaty simply obliges the
contracting states to implement and enforce private obligations within their legal
systems.148 Accordingly, Markos Karavias proposes three conditions for finding
obligations of private corporations under international law149: first, the obligation
must stem directly from international law, this means no recourse to domestic
legislation is required. Second, the violation of such obligation by the corporation

an intention in the present case can be established by reference to the terms of the
Beamtenabkomen’).
142
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1194.
143
David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Award
(18 September 2018) para. 738.
144
Gleason (2021), p. 434. For a different opinion criticising the Urbaser v Argentina tribunal on
this regard see Crow and Escobar (2018), p. 99.
145
HRC, Report of the Special Representative of the Secretary-General (SRSG) on the issue of
human rights and transnational corporations and other business enterprises, ‘Business and Human
Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts’
(09 February 2007) UN Doc A/HRC/4/035, paras. 33–34.
146
Sinha and Fusea (2021), p. 73.
147
Dörr (2020), p. 138.
148
Vazquez (2005), pp. 940–941.
149
Karavias (2013), pp. 10 et seqq.

Licensed to Dymas Satrioprojo ([email protected])

230 5 Searching a Cause of Action for Environmental Counterclaims

must bring about its responsibility under international law. Third, liability ought to
be found via the application of international law.
Treaties imposing obligations on non-state actors have lagged behind in contrast
to instruments granting rights on those private actors, for instance, in human rights or
investment law.150 There are nevertheless, two examples worth mentioning151:
(i) Articles 101 and 102 of the Treaty on the Functioning of the European Union
(TFEU) which directly impose competition law obligations upon corporations
operating in the EU; (ii) the Rome Statute of the International Criminal Court,
which sets out the individual responsibility for crimes included thereunder.152
Even though international law may impose obligations upon corporations, it often
addresses the conduct of non-state actors either indirectly or through non-binding
instruments. An indirect regulation exists where international law compels states to
regulate the conduct of non-state actors within their national legal systems.153
Non-binding instruments are categorised as soft law and enjoy a political rather
than legal authority.154
With respect to indirect regulation, some examples are the Basel Convention on
the Control of Transboundary Movements of Hazardous Wastes and their Disposal
(1989) obliging states to prevent and punish the contravention of the convention,155
the Convention Criminalizing Bribery of Foreign Public Officials in International
Business Transactions (1997), which requires states to criminalise bribery when
occurring in their territory,156 or the United Nations Convention against Transna-
tional Organized Crime (2000) commanding states to implement legislative acts and
to sanction participation in criminal organisations or money laundering.157 As such,
international law heavily relies on domestic law for regulating the conduct of
corporations, and the failure to control non-state actors as commanded by those

150
Dörr (2020), p. 137. In the particular case of investment law, one may argue that the discussion
on possible investor’s misconduct was off the agenda during the creation of IIAs and the develop-
ment of treaty-based investment arbitration see Kozyakova (2021), pp. 60–64.
151
A third category of obligations on non-state actors is proposed by Oliver Dörr with respect to the
protection of human rights embedded in the Universal Declaration of Human Rights and some
regional instruments, however, by his own admission, those duties are too vague to be regarded as
actual obligations see Dörr (2020), p. 137.
152
During the negotiations of the Rome Statute, the possibility of including private entities in the
scope of application was discussed but rapidly dropped as it proved divisive see Karavias
(2019), p. 50.
153
Vazquez (2005), p. 930; Dörr (2020), p. 144.
154
Nollkaemper (2006), p. 191.
155
Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their
Disposal (1989), Art 4(4).
156
Convention Criminalizing Bribery of Foreign Public Officials in International Business Trans-
actions (1997), Art 1.
157
United Nations Convention against Transnational Organized Crime (2000), Arts 5–11.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 231

conventions entails the responsibility of the state rather than the responsibility of the
respective non-state actor under international law.158
With respect to non-binding instruments, some examples include the ILO Tri-
partite Declaration of Principles concerning Multinational Enterprises and Social
Policy of 1977 as amended in 2017, the Principles of the UN Global Compact 2000,
the Guidance on Social Responsibility (ISO 26000:2010), the OECD Guidelines for
Multinational Enterprises of 2011, or the UN Guiding Principles on Business and
Human Rights of 2011. Particularly in the field of human rights, the refusal to
incorporate direct obligations from international law to corporations has instead
resulted in the support of standard setting.159 These instruments do not bind corpo-
rations and on many occasions their adherence is voluntary, yet their significance
cannot be underestimated. Those guidelines or standards not only highlight that
international law may directly address the conduct of corporations but may also
inform the states’ new legislative efforts and judicial practice.160
Certainly, the breach or simple non-observance of those instruments does not
carry any legal consequence. However, there might be responsibility through recep-
tion, in other words, when those instruments are incorporated or referred to via
domestic or international law placing legal consequences for their violation.161
Indeed, one may argue that the implementation of soft law instruments applicable
to corporations may ‘blur the lines between the strictly voluntary and mandatory
spheres for participants’ creating a sort of ‘shared responsibility’ between states and
non-state actors.162

5.2.2.1.3 Distinguishing Responsibility, Liability and Accountability

of Non-State Actors

A final clarification on the legal foundations of international obligations on non-state

actors (particularly corporations) pertains to the distinction between the concepts of
‘responsibility’, ‘liability’ and ‘accountability’, which are often used interchange-
ably. Particularly, the concept of responsibility of corporations in international law
may refer either to the obligations applicable to corporations or to the legal conse-
quences for the failure to fulfil those obligations.163 By analogy of the terminology

158
Nollkaemper (2006), p. 186.
159
UNCHR, Interim Report of the Special Representative of the Secretary-General on the Issue of
Human Rights and Transnational Corporations and other Business Enterprises, ‘Promotion and
Protection of Human Rights’ (22 February 2006) UN Doc E/CN.4/2006/97, paras. 55 et seqq.
160
Morgera (2020), p. 288.
161
Dörr (2020), p. 154.
162
HRC, Report of the Special Representative of the Secretary-General (SRSG) on the issue of
human rights and transnational corporations and other business enterprises, ‘Business and Human
Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts’
(09 February 2007) UN Doc A/HRC/4/035, paras. 61–62.
163
Nollkaemper (2006), pp. 181–182.
232 5 Searching a Cause of Action for Environmental Counterclaims

adopted by the special rapporteur to the ILC, Roberto Ago, with respect to state
responsibility,164 the first understanding of corporate responsibility describes pri-
mary rules, whereas the second understanding of corporate responsibility relates to
secondary rules.
Accordingly, the first understanding of corporate responsibility refers to the
expectation that private companies should be more responsive to the society’s
needs in the broader sense rather than solely to their shareholders’ wishes.165 As
such, corporate behaviour should align to internationally recognised values.166 In
this sense, the concept of corporate social responsibility (CSR) is indicative. CSR
encompasses the idea of certain social obligations that should (or already do) attach
to corporations.167 Thus, ‘responsibility’ in this context defines obligations applica-
ble to corporations irrespective of their binding or non-binding status.
The second understanding of corporate responsibility concerns the legal conse-
quences for the failure to fulfil international obligations. However and until date,
international law does not conceive any rules in this regard.168 By comparison, the
Articles on the Responsibility of States for Internationally Wrongful Acts
(ARSIWA) reflect the customary rules on the legal consequences arising out of
states’ failure to fulfil their international obligations (state responsibility). However,
these rules on state responsibility as a whole are not well suited for corporate
responsibility.169 Given that the nature and purpose of state authority differs to the
nature and purpose of corporations, ARSIWA cannot be transplanted to the respon-
sibility of corporations170 or to the responsibility of any other non-state actor for that
matter.
Yet, there are two options to fill the gap of rules on the responsibility of
corporations: first, relying on the general principle delineated by the PCIJ in the
Chorzów Factory case, according to which ‘[i]t is a principle of international law,
and even a general conception of law, that any breach of an engagement involves an

164
ILC, Second Report on State Responsibility by Mr. Roberto Ago, Special Rapporteur, on ‘The
Origin of International Responsibility’ (20 April 1970) UN Doc A/CN.4/233, para. 11: (‘[i]n its
previous drafts, the Commission has generally concentrated on defining the rules of international
law which, in one sector of inter-State relations or another, impose particular obligations on States,
and which may, in a certain sense, be termed ‘primary’, as opposed to other rules – precisely those
covering the field of responsibility – which may be termed ‘secondary’, inasmuch as they are
concerned with determining the consequences of failure to fulfil obligations established by the
primary rules’).
165
Morgera (2020), p. 16.
166
Morgera (2020), p. 17.
167
Miles (2013), p. 217.
168
Karavias (2019), p. 60; Dörr (2020), p. 143. Similarly, referring to the absence of international
rules on civil or criminal responsibility of corporations see Nollkaemper (2006), pp. 191 et seqq.
169
Gattini (2016), p. 123.
170
Nollkaemper (2006), pp. 191 et seqq.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 233

obligation to make reparation’.171 Certainly, this principle provides a rudimentary

regime for corporate responsibility, but it could be further furnished with selected
and relevant rules of ARSIWA that fit the analysis on corporate behaviour.172
Second, examining what domestic laws provide on corporate responsibility in
similar circumstances.173
The concept of liability is of paramount importance with respect to environmental
damage caused by corporations. For instance, the Convention on Civil Liability for
Damage resulting from Activities Dangerous to the Environment of 1993, the
Convention on Third Party Liability in the Field of Nuclear Energy of 1960 (Paris
Convention), or Protocol to amend the International Convention on Civil Liability
for Oil Pollution Damage of 1984 (London Protocol)174 refer to ‘liability’ instead of
‘responsibility’ for environmental damage. But this does not mean that both con-
cepts are synonymous. In fact, the ILC clarified the use of both concepts with respect
to state responsibility and considered that ‘the term “responsibility” should be used
only in connexion with internationally wrongful acts and that, with reference to the
possible injurious consequences arising out of the performance of certain lawful
activities, the more suitable term “liability” should be used’.175 In the same light,
corporate liability should be confined to the obligation to repair damages arising out
of lawful acts, whereas corporate responsibility should be limited to the obligation to
repair damages arising of an unlawful conduct.
The concept of accountability of corporations alludes to transparency vis-à-vis the
society at large. This entails that the corporate decisions and operations are examined
and judged by the public, which creates a sort of ‘social direction’ of the corporation,
incentivised by this openness.176 With this purpose, there exist some monitoring
mechanisms or platforms for voicing complaints against corporations at the interna-
tional level, though without an adjudicatory nature. For instance, the UN Global
Compact Office may receive allegations that a participating corporation is abusing or
misrepresenting the principles and aims of the UN Global Compact, including the
involvement in severe environmental damage.177 If the Office considers the allega-
tions not to be frivolous, it establishes a dialogue platform with the concerned

171
Case concerning the Factory at Chorzów (Germany v Poland) (Merits) (13 September 1928)
PCIJ Rep Series A No 17, 29.
172
Dörr (2020), p. 144.
173
Alvarez (2011), p. 26.
174
The regimes of international civil liability for environmental damage will be discussed in more
detail below see Sect. 5.2.2.2.2.1.
175
ILC YB [1973] vol I, A/CN.4/Ser.A/1973, ‘Draft Report on State Responsibility’ (210–220)
211, para. 37.
176
Morgera (2020), pp. 19–20.
177
UN Global Compact Integrity Measures Policy & FAQ, ‘Frequently Asked Questions’ (2015)
<https://www.unglobalcompact.org/library/1831> accessed 10 January 2023.
234 5 Searching a Cause of Action for Environmental Counterclaims

participating company, but should the latter refuse to engage, it might be removed
from the list of participants.178
Another example is found in the International Finance Corporation (IFC), which
counts with the Compliance Advisor/Ombudsman (CAO) as an oversight authority
allowing individuals and communities affected by IFC-supported business activities
to raise their concerns.179 For this purpose, the CAO may engage in collaborative
dispute resolution, compliance and advisory functions related to the environmental
and social impacts of projects financed by the IFC.180 This type of accountability
mechanisms for private companies contributes to the credibility of international
standard setting as they strike a balance between the interests of the society at
large that may be affected by corporate environmental damages and the interests
of corporations to be protected from unfounded allegations.181

5.2.2.2 International Environmental Law: An Unfinished Cause

of Action?

Some authors consider the possibility of finding a cause of action for counterclaims
in treaty-based investment arbitration in international environmental law, as long as
the obligations thereunder apply directly to investors.182 Against this backdrop, this
section sheds some light on the underpinnings of international environmental law
[Sect. 5.2.2.2.1] and on whether international environmental law actively regulates
the conduct of private actors [Sect. 5.2.2.2.2]. Subsequently, this section casts some
doubts on the re-conceptualisation of environmental protection as a matter of human
rights or as transnational public policy for the purposes of counterclaims in treaty-
based investment arbitration [Sect. 5.2.2.2.3]. Finally, the evocative example of the
Alien Tort Claims Act in the US (ATCA) and its relation with international envi-
ronmental obligations will be touched upon [Sect. 5.2.2.2.4].

178
UN Global Compact, ‘Integrity Measures Policy’ (2022), pp. 2–4 <https://ungc-communica
t i o n s - a s se t s. s 3 . a m a z o n a w s . c o m / d o c s / p ub l i c a t i o n s / P D F_ I nt e g r i t y % 2 0 M e a su r e s _
English_01.12.2022.pdf> accessed 10 January 2023.
179
IFC, ‘International Finance Corporation’s Policy on Environmental and Social Sustainability’
(01 January 2012) para. 55 <https://www.ifc.org/wps/wcm/connect/7141585d-c6fa-490b-a812-2
ba87245115b/SP_English_2012.pdf?MOD=AJPERES&CVID=kiIrw0g> accessed
10 January 2023.
180
IFC, ‘IFC/MIGA Independent Accountability Mechanism (CAO) Policy’ (28 June 2021) para.
8 <https://www.ifc.org/wps/wcm/connect/d3e7f1c4-fd6b-40fd-ae76-fb028916611d/IFC-MIGA-
Independent-Accountability-Mechanism-CAO-Policy.pdf?MOD=AJPERES&CVID=nFDGwP2
> accessed 10 January 2023.
181
Morgera (2013), p. 353.
182
Scherer et al. (2021), p. 431.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 235

5.2.2.2.1 Underpinnings of International Environmental Law

International environmental law is a relatively recent development in the broader

spectrum of public international law and subject to a state of steady dynamic
evolution.183 It reflects the developments in scientific knowledge, the use of new
technologies and their impacts on the environment as well as changes at the political
and institutional level.184 In general, environmental law does not seek to prohibit all
kinds of pollution generated by humankind, but rather to allow activities that might
be injurious to the environment within certain thresholds and adhering to certain
standards, given the environment’s capacity to regenerate.185
The milestones on international environmental law are the Declaration on the
Human Environment of 1972 (Stockholm Declaration)186 and the Rio Declaration.
Both declarations comprise a series of principles for the preservation of the envi-
ronment without legally binding force. Nevertheless, their role in the development of
international environmental law cannot be underestimated as they influence consis-
tent state practice, promoting the conclusion of binding treaty commitments.187 In
this line, there are a myriad of international instruments addressing issues of
environmental protection, which vary greatly in scope, normative character, accep-
tance or ratification, among others.
Some examples with widespread coverage are the Convention on International
Trade in Endangered Species of Wild Fauna and Flora188; the Convention on Long-
Range Transboundary Air Pollution189; the Convention on the Conservation of
Antarctic Marine Living Resources190; the Vienna Convention for the Protection
of the Ozone Layer191 and its associated Montreal Protocol on Substances that
deplete the Ozone Layer192; the Basel Convention on the Control of Transboundary

183
Boyle (1999), p. 62.
184
Sands et al. (2018), p. 21.
185
de Sadeleer (2020), p. 126.
186
Report of the United Nations Conference on the Human Environment (1973) UN Doc
A/CONF.48/14/Rev.1 (Declaration on the Human Environment).
187
Boyle (1999), p. 64.
188
Convention on International Trade in Endangered Species of Wild Fauna and Flora (adopted
03 March 1973, entry into force 01 July 1975) 993 UNTS 243, with 184 contracting parties.
189
Convention on Long-Range Transboundary Air Pollution (adopted 13 November 1979, entry
into force 16 March 1983) 1302 UNTS 217, with 51 contracting parties.
190
Convention on the Conservation of Antarctic Marine Living Resources (adopted 20 May 1980,
entry into force 07 April 1982) 1329 UNTS 47, with 32 contracting parties.
191
Vienna Convention for the Protection of the Ozone Layer (adopted 22 March 1985, entry into
force 22 September 1988) 1513 UNTS 293, with 198 contracting parties [Ozone Layer
Convention].
192
Montreal Protocol on Substances that deplete the Ozone Layer (adopted 16 September 1987,
entry into force 01 January 1989) 1522 UNTS 3, with 198 contracting parties [Montreal Protocol on
Ozone Layer].
236 5 Searching a Cause of Action for Environmental Counterclaims

Movements of Hazardous Wastes and their Disposal193; the Convention on Biolog-

ical Diversity194; the United Nations Convention to Combat Desertification in those
Countries Experiencing Serious Drought and/or Desertification, Particularly in
Africa195; the Stockholm Convention on Persistent Organic Pollutants196; the United
Nations Framework Convention on Climate Change (UNFCCC)197 and its associ-
ated instruments such as the Kyoto Protocol198 and the Paris Agreement.199
Despite this multitude of instruments, the underpinnings of international envi-
ronmental law seemingly lie in three main principles: the polluter-pays principle, the
principle of prevention and the precautionary principle. First, The polluter-pays
principle has been aptly condensed in the Rio Declaration in the following terms:
National authorities should endeavour to promote the internalization of environmental costs
and the use of economic instruments, taking into account the approach that the polluter
should, in principle, bear the cost of pollution, with due regard to the public interest and
without distorting international trade and investment.200

The polluter-pays principle thus seeks to protect the environment through the
internalisation of environmental costs by the polluter,201 thus preventing the society
at large to be burdened with those costs.202 It is argued that its application has a
multifaceted ripple effect: promoting the use of less-polluting technology,
establishing a fairer distribution of environmental costs, and having a pedagogical
effect both on producers and consumers.203 The polluter-pays principle certainly

193
Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their
Disposal (adopted 22 March 1989, entry into force 05 May 1992) 1673 UNTS 57, with
189 contracting parties.
194
Convention on Biological Diversity (adopted 05 June 1992, entry into force 29 December 1993)
1760 UNTS 79, with 196 contracting parties [Convention on Biological Diversity].
195
United Nations Convention to Combat Desertification in those Countries Experiencing Serious
Drought and/or Desertification, Particularly in Africa (adopted 14 October 1994, entry into force
26 December 1996) 1954 UNTS 3, with 197 contracting parties.
196
Stockholm Convention on Persistent Organic Pollutants (adopted 22 May 2001, entry into force
17 May 2004) 2256 UNTS 119, with 185 contracting parties [Convention on Persistent Organic
Pollutants].
197
United Nations Framework Convention on Climate Change (adopted 09 May 1992, entry into
force 21 March 1994) 1771 UNTS 107, with 197 contracting parties [UNFCCC].
198
Kyoto Protocol to United Nations Framework Convention on Climate Change (adopted
11 December 1997, entry into force 16 February 2005) 2303 UNTS 162, with 192 contracting
parties.
199
Paris Agreement to United Nations Framework Convention on Climate Change (adopted
12 December 2015, entry into force 04 November 2016) 3156 UNTS, with 193 contracting parties.
200
Rio Declaration, Principle 16.
201
Kulick (2012), p. 226.
202
Khan (2015), p. 640. Although this is the original understanding, one may consider that the
compensation for environmental damage is an extension of the polluter-pays principle see Atapattu
(2006), pp. 439–440 and 472.
203
Khan (2015), pp. 640–641.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 237

finds reflection in several environmental conventions, whereby the contracting

parties call for its application.204
However, the polluter-pays principle itself has an elusive meaning and it requires
legislative choices for its effective implementation. States must therefore define
‘pollution’ (whether linked to authorised thresholds of discharges or to the existence
of environmental damage), and the ‘polluter’ (whether operator, licence-holder,
representatives).205 Even if states furnish those concepts with a defined scope either
through an international convention or domestic law, the polluter-pays principle
leaves certain issues open: how much must be paid as compensation, which is
intrinsically difficult to calculate as environmental damage can only be approxi-
mately translated into monetary terms206; whether it is a strict or fault-based liability;
or how to address causation in cases of diffuse pollution, whereby the adequate
causality and the equivalence of conditions (joint and several liability) are the
dominant theories.207 For instance, the EU Directive 2004/35/CE conceives a regime
of strict liability for operators in the activities listed thereunder.208 However, with
respect to the causal link in diffuse environmental damage, there is ‘broad discre-
tion’ for the EU member states to determine how to establish such link, including
presumptions.209
Second, the principle of prevention compels states to take action at an early stage
and ensures that activities within their jurisdiction or control do not cause environ-
mental damage.210 Its origins can be traced back to the customary law principle of no
harm,211 formulated by the Trail Smelter tribunal in the following terms:

204
See for instance in the preamble of: International Convention on oil pollution preparedness,
response and cooperation (adopted 30 November 1990, entry into force 13 May 1995) 1891 UNTS
77; Convention on the Transboundary Effects of Industrial Accidents (adopted 17 March 1992,
entry into force 19 April 2000) 2105 UNTS 457; Convention on Civil Liability for Damage
Resulting from Activities Dangerous to the Environment (adopted 21 June 1993) ETS No 150.
Others conventions incorporate directly the principle as part of the treaty provisions, see for
instance: Convention on the Protection and Use of Transboundary Watercourses and International
Lakes (adopted 17 March 1992, entry into force 06 October 1996) 1936 UNTS 269, [Convention on
Transboundary Watercourses] Art 2(5)(b); Convention for the Protection of the Marine Environ-
ment of the North-East Atlantic (adopted 22 September 1992, entry into force 25 March 1998),
2354 UNTS 67, [OSPAR Convention] Art 2(2)(b).
205
de Sadeleer (2020), pp. 46 et seqq.
206
Various environmental resources do not have a market value, which turns their valuation into a
rough estimate at best see Hanley (2002), pp. 29 et seqq.
207
de Sadeleer (2020), pp. 53 et seqq.
208
Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004 on
environmental liability with regard to the prevention and remedying of environmental damage
[2004] OJ L143/56.
209
Case C-378/08 Raffinerie Mediterranee [2010] ERG Judgment (09 March 2010) ECLI:EU:
C:2010:126, paras. 54–58.
210
Kulick (2012), p. 228.
211
de Sadeleer (2020), p. 86.
238 5 Searching a Cause of Action for Environmental Counterclaims

Under the principles of international law, no state has the right to use or permit the use of its
territory in such a manner as to cause injury by fumes in or to the territory of another or the
properties or persons therein, when the case is of serious consequence and the injury is
established by clear and convincing evidence.212

The no harm principle was used as a primary norm to establish responsibility for
damage caused to another state,213 thus falling short of a preventive nature.214
However, the no harm principle was adopted in Principle 21 Stockholm Declaration
and Principle 2 Rio Declaration,215 whose formulations opened the door for the
principle of prevention. The difference between the principle of prevention and the
principle of no harm is that the latter focuses more on determination of liability for
damage already caused, whereas the former on the avoidance of environmental
damage.216 Thus, the principle of prevention is usually connected with a duty of
due diligence.217
As such, the principle of prevention finds reflection in various instruments of
international law.218 Similarly to the polluter-pays principle, the normative content
of the principle of prevention remains open-textured. This principle thus may beget a
plethora of instruments, from monitoring mechanisms to outright bans, including the
setting of nuisance thresholds of pollution, the mandate to use the best available
technology, the performance of an environmental impact assessment, among
others.219

212
The principle of no harm is usually formulated as in the wording of the Trail Smelter tribunal see,
Trail smelter case (United States of America v Canada), Award (16 April 1938 and 11 March 1941)
III RIAA 1905, 1965.
213
Dupuy and Viñuales (2018), p. 64.
214
de Sadeleer (2020), p. 87.
215
Stockholm Declaration, Principle 21 and Rio Declaration, Principle 2 state with an identical
wording: (‘States have, in accordance with the Charter of the United Nations and the principles of
international law, the sovereign right to exploit their own resources pursuant to their own environ-
mental and developmental policies, and the responsibility to ensure that activities within their
jurisdiction or control do not cause damage to the environment of other States or of areas beyond the
limits of national jurisdiction’).
216
Dupuy and Viñuales (2018), p. 66. One could even argue that the principle of prevention is not
limited to transboundary harm but also to damage within the state’s own jurisdiction see Sands et al.
(2018), p. 212.
217
Pulp Mills on the River Uruguay (Argentina v Uruguay) (Judgment) [2010] ICJ Rep 14, para.
101.
218
See for instance: UNCLOS, Arts 192 et seqq.; Ozone Layer Convention, Arts 2(2)(b); UNFCCC,
Art 3; Convention on the Conservation of Migratory Species of Wild Animals (adopted 23 June
1979, entry into force 01 November 1983) 1651 UNTS 333, Art III(4); Protocol on Environmental
Protection to the Antarctic Treaty (adopted 04 October 1991, entry into force 14 January 1998)
2941 UNTS 9, Art 3(2).
219
de Sadeleer (2020), pp. 125 et seqq.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 239

Third, the precautionary principle seeks to guide states on the application of

environmental law when there is scientific uncertainty.220 Its most famous formula-
tion is found in Principle 15 Rio Declaration, which states:
In order to protect the environment, the precautionary approach shall be widely applied by
States according to their capabilities. Where there are threats of serious or irreversible
damage, lack of full scientific certainty shall not be used as a reason for postponing cost-
effective measures to prevent environmental degradation.221

In an nutshell, the lack of scientific certainty on the environmental effects of an

activity does not excuse states from taking preventive measures.222 This implies that
there is a potential hazard, but the damage has not yet materialised and no incon-
testable proof attests that it will eventually materialise.223 However, the principle
does not cover situations where the risk of damage is insignificant or purely
hypothetical.224 The precautionary principle also finds reflection in various instru-
ments of international law.225 The difference between the principle of prevention
and the precautionary principle is that the former seeks to prevent foreseeable and
known harm, whereas the latter aims at preventing harm that cannot be fully assessed
given the scientific uncertainty.226
The precautionary principle endures a normative ambiguity. Particularly, its
application is defined by sectoral policies, for instance, fishing, food safety, climate
change among others, which renders the principle malleable depending on the
technological capabilities and the political needs in each specific field.227 In addition,
the precautionary principle is subject to a debate about its nature and normative
basis.228 Thus, its precise legal implications are difficult to delineate.229

220
Sands et al. (2018), p. 230.
221
Rio Declaration, Principle 15.
222
Atapattu (2006), p. 284; Kulick (2012), p. 229; Dupuy and Viñuales (2018), p. 70.
223
Atapattu (2006), p. 206; de Sadeleer (2020), p. 135.
224
Marisi (2020), p. 78.
225
See for instance: Montreal Protocol on Ozone Layer, Preamble; UNFCCC, Art 3(3); Convention
on Biological Diversity, Preamble; Convention on Persistent Organic Pollutants, Preamble; OSPAR
Convention, Art 2(a) and Annex I, Art 3(3)(c); Convention on Transboundary Watercourses, Art
2(5)(a).
226
Atapattu (2006), p. 207; Kulick (2012), p. 229.
227
de Sadeleer (2020), p. 359.
228
For instance, the WTO doubts that the precautionary principle is a general principle of law or
customary law see, European Communities — Measures Concerning Meat and Meat Products
(Hormones)—Appellate Body Report (16 January 1998) WT/DS26/AB/R and WT/DS48/AB/R,
para. 123; European Communities — Measures Affecting the Approval and Marketing of Biotech
Products—Panel Report (29 September 2006) WT/DS291/R, WT/DS292/R, WT/DS293/R, paras.
7.88–7.89. However, given its express inclusion in Article 191(2) TFEU, the precautionary
principle is considered a principle of EU law see, Case T-13/99 Pfizer Animal Health v Council
[2002] CFI Judgment (11 September 2002) ECLI:EU:T:2002:209, paras. 114–115.
229
Dupuy and Viñuales (2018), p. 70.

Licensed to Dymas Satrioprojo ([email protected])

240 5 Searching a Cause of Action for Environmental Counterclaims

All in all, the polluter-pays principle, the principle of prevention and the precau-
tionary principle appear abstract and indeterminate, requiring further specification
for their effective application. In this sense, Nicolas de Saladeer categorises them as
‘rules of indeterminate nature’, whose direct applicability necessitates
operationalisation (in international agreements or domestic law) in sufficiently
prescriptive terms.230

5.2.2.2.2 Does International Environmental Law Actively Regulate

the Conduct of Private Actors?

Undeniably, several international environmental law instruments have acknowl-

edged the crucial role of non-state actors when it comes to the protection of the
environment. The Stockholm Declaration opens with the recognition that citizens,
communities and enterprises bear responsibilities towards the environment.231 Sim-
ilarly, at the UN Conference on Environment and Development, it was stressed that
enterprises have responsibilities towards the environment to the extent their opera-
tion has an impact on it.232 Such mentions however remain highly aspirational.
It is therefore posited that the grip of international environmental law on enter-
prises is usually indirect: it addresses states, which subsequently need to implement
it into their respective domestic laws.233 This is the case of, for instance, the
obligation to undertake an environmental impact assessment under
international law: states are the addressees of such obligation, but its application
has an impact on the activities of corporations. Consequently, one may divide the
shortcomings of international environmental law vis-à-vis non-state actors into two
groups: upstream factors, which pertain to the nature of the obligations as
non-specific, ambiguous or non-self-executing; and downstream factors, such as
the lack of proper implementation or reduced local capacity to enforce such obliga-
tions.234 Nevertheless, there are two categories of instruments that directly address
the conduct of non-state actors and their impact on the environment. These are

230
de Sadeleer (2020), pp. 453 et seqq.
231
Stockholm Declaration, Preamble, para. 7: (‘To achieve this environmental goal will demand the
acceptance of responsibility by citizens and communities, and by enterprises and institutions at
every level, all sharing equitably in common efforts’).
232
UN Conference on Environment and Development, Resolution A/RES/44/228 adopted at the
85th plenary meeting (22 December 1989), I, para. 10: (‘Stresses that large industrial enterprises,
including transnational corporations, are frequently the repositories of scarce technical skills for the
preservation and enhancement of the environment, that they conduct activities in sectors that have
an impact on the environment and, to that extent, have specific responsibilities and that, in this
context, efforts need to be encouraged and mobilized to protect and enhance the environment in all
countries’).
233
Maljean-Dubois and Richard (2013), p. 71.
234
Maljean-Dubois and Richard (2013), pp. 77–78.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 241

international regimes on civil liability for environmental damage [Sect. 5.2.2.2.2.1],

and CSR instruments in the broader sense [Sect. 5.2.2.2.2.2].

5.2.2.2.2.1 International Regimes on Civil Liability for Environmental Damage

The international regimes on civil liability for environmental damage constitute a
segment of international environmental law, addressing the damages caused by
non-state actors. These regimes define in detail the responsibilities of natural and
legal persons, and the consequences for their breach, in specific fields or activities,
where there is a likelihood of environmental damage.235 This includes hazardous
activities, particularly if they may entail potential transboundary effects.236 The
rationale behind these regimes is to harmonise obligations and to establish minimum
standards.237
Some examples are the Vienna Convention on Civil Liability for Nuclear Dam-
age,238 whose original definition of ‘nuclear damage’ did not expressly cover
environmental damage, until its protocol changed the definition.239 The International
Convention on Civil Liability for Oil Pollution Damage240 and its amending proto-
col,241 the latter redefining the notion of ‘pollution damage’ to explicitly include
impairment to the environment. The Convention on the Protection of the Black Sea
against Pollution,242 which foresees pollution to the marine environment, but it
requires contracting parties to further elaborate rules on liability of natural and
juridical persons operating in the Black Sea.243 The Basel Protocol on Liability
and Compensation for Damage Resulting from Transboundary Movements of Haz-
ardous Wastes and their Disposal,244 whose Article 2 limits the concept of ‘damage’
with respect to the environment to loss of income deriving from the impairment of
the environment. The Protocol on Environmental Protection to the Antarctic

235
Nollkaemper (2006), p. 188; Morgera (2020), p. 44.
236
Mistura (2019), para. 23.29.
237
Dupuy and Viñuales (2018), p. 317; Sands et al. (2018), p. 736.
238
Vienna Convention on Civil Liability for Nuclear Damage (adopted 21 May 1963, entry into
force 12 November 1977) 1063 UNTS 265, with 42 contracting parties.
239
Protocol to amend the Vienna Convention on Civil Liability for Nuclear Damage (adopted
12 September 1997, entry into force 04 October 2003) 2241 UNTS 270, with 15 contracting parties.
240
International Convention on Civil Liability for Oil Pollution Damage (adopted 29 November
1969, entry into force 19 June 1975) 973 UNTS 3, with 66 contracting parties.
241
Protocol of 1992 to amend the International Convention on Civil Liability for Oil Pollution
Damage (adopted 27 November 1992, entry into force 30 May 1996) 1956 UNTS 255, with
42 contracting parties.
242
Convention on the Protection of the Black Sea against Pollution (adopted 21 April 1992, entry
into force 15 January 1994) 1764 UNTS 3, with 6 contracting parties [Black Sea Convention].
243
Black Sea Convention, Arts II(1) and XVI(2).
244
Basel Protocol on Liability and Compensation for Damage Resulting from Transboundary
Movements of Hazardous Wastes and their Disposal (adopted 10 December 1999, not entry into
force), with 12 contracting parties.
242 5 Searching a Cause of Action for Environmental Counterclaims

Treaty,245 whose Annex VI delineates the regime on liability for ‘environmental

emergencies’.
All these regimes evince a sectoral/regional application.246 Yet, they have many
features in common: the definition of damage is linked to the activity and limited to
certain items; liability is channelled to owners of the installation/ship or operators in
control of the activity; strict liability is usually the norm; liability is capped
(in amount and time); adequate insurance is required; complementing compensation
funds might be envisaged.247 As such, these instruments appear as a promising tool
to address the gap between international environmental law and the conduct of
investors, however, there are two major drawbacks. First, these regimes face a low
rate of ratification, and in most cases they have not even entered into force, which
affects their effectiveness.248 Some authors suggest that there is an inverse relation
between the scope of the instrument (activity/financial consequences) and the
likelihood to enter into force.249 Second, despite being international instruments,
all of them require transposition into domestic law.250
This shows states’ reluctancy to agree on civil liability regimes for environmental
damage at the international level. Even when there are some concluded instruments,
they might have not entered into force or their implementation through domestic law
would bring the discussion back to environmental obligations of investors under
domestic law. Therefore, international regimes on civil liability for environmental
damage cannot provide a cause of action for environmental counterclaims in treaty-
based investment arbitration.

5.2.2.2.2.2 CSR and the Dawn of Voluntary Standards

The concept of CSR has been subject to multiple definitions, but it essentially
embodies the idea that ‘each business enterprise, as a member of society, has a
responsibility to operate ethically and in accordance with its legal obligations and
to strive to minimise any adverse effects of its operations and activities on the
environment, society and human health’.251 Thus, the role of enterprises breaks
the traditional paradigm of solely maximation of profits to an extended social and
environmental involvement.252 Considering that there is no agreement on the scope

245
Protocol on Environmental Protection to the Antarctic Treaty (adopted 04 October 1991, entry
into force 14 January 1998) 2941 UNTS, with 32 contracting parties.
246
The only exception to this is the Convention on Civil Liability for Damage resulting from
Activities Dangerous to the Environment adopted in 21 June 1993. However, no state has ratified it,
which is very telling of the political will to create a comprehensive regime for different kinds of
environmental damage.
247
Dupuy and Viñuales (2018), pp. 319–322; Mistura (2019), paras. 23.32 et seqq.
248
Mistura (2019), para. 23.83; Morgera (2020), p. 45.
249
Sands et al. (2018), p. 771.
250
Nollkaemper (2006), p. 188; Morgera (2020), p. 44.
251
Zerk (2006), p. 32. Similarly, Chi (2018), p. 101.
252
Maljean-Dubois and Richard (2013), p. 82.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 243

and nature of obligations attached to the concept of CSR,253 it usually captures soft-
law commitments.254
Various actors such as states, international organisations, NGOs or industry
associations have developed CSR instruments, which, despite their soft law nature,
have exerted a great influence on enterprises by their internalisation, and on the
emergence of domestic regulations.255 One may argue that CSR instruments arose
from the pressure of civil society on the control of enterprises, but CSR seems to
hinge strongly on the idea of self-regulation.256 The most prominent examples have
already been mentioned above, including the Principles of the UN Global Compact
2000 and the OECD Guidelines for Multinational Enterprises of 2011. It must be
highlighted that the focus on the voluntary/mandatory nature of CSR is misplaced.
The focus on the voluntary/mandatory divide ignores that corporate behaviour is
motivated by many factors, the mandatory nature of law being only one of them, and
it also omits that CSR issues such as occupational health and safety, and environ-
mental protection are already regulated in detail in most jurisdictions.257
Moreover, even if CSR instruments are not directly binding on enterprises, this
does not mean that their non-compliance is entirely deprived of legal consequences.
In the Kasky v Nike case, the plaintiff claimed that Nike had falsely advertised that
the company’s subcontractors in Asia complied with regulations concerning mini-
mum wage, occupational health and safety, and environmental protection.258 The
Supreme Court of California determined that such voluntary statements constituted
commercial speech and an enterprise could be sanctioned for not upholding them.259
By the same token, if an enterprise commits to a CSR instrument, it should not be
allowed to walk away from such commitment under the pretext of voluntariness.260
As such, it is posited that the development of CSR instruments and their reference
in investment law foreshadow the balancing of investor protection with investor
responsibilities.261 However, from the viewpoint of public international law, as long
as the obligations on non-state actors are not defined in a more concrete, differen-
tiated and prescriptive manner, the protection of the environment with respect to
corporate activity will remain a task for the states.262 This by no means suggests that

253
Miles (2013), p. 217.
254
Morgera (2020), p. 15. Similarly, Thomé (2021), p. 658.
255
Miles (2013), p. 226.
256
Maljean-Dubois and Richard (2013), p. 89.
257
Zerk (2006), pp. 34–35.
258
Kasky v Nike Inc, Case No S087859, Judgment (2 May 2002), [2002] 27 Cal 4th 939.
259
Kasky v Nike Inc, Case No S087859, Judgment (2 May 2002), [2002] 27 Cal 4th 939.
260
Maljean-Dubois and Richard (2013), p. 92.
261
Miles (2013), p. 230.
262
Dörr (2020), p. 158. In this sense, Manjiao Chi suggests that soft-law “may be hardened”
through consistent state practice see Chi (2018), p. 165. However, this would only bring about
consistency instead of concrete and differentiated obligations. It is thus unlikely that this could serve
as a legal basis for counterclaims.
244 5 Searching a Cause of Action for Environmental Counterclaims

CSR instruments need be transformed into sets of precise obligations, as this might
stifle the flexibility (and evolution) of standards covered by the overly broad concept
of CSR.
Evidently, CSR instruments do not impose environmental obligations on inves-
tors by themselves. Yet, one may argue that the underpinnings of international
environmental law added to the CSR instruments addressing environmental protec-
tion constitute the foundations for investors’ obligation under international law to
refrain from conduct that undermines or places the environment at risk—a sort of
negative obligation.263 Such negative obligation could serve as a legal basis for an
environmental counterclaim in treaty-based investment arbitration, but only in clear
evidence of environmental degradation. Otherwise, the obligation remains broad in
its content, and its application may face difficulties when assessing the damage as no
nuisance thresholds of pollution, guidance on diffuse environmental damage,
reparatory measures or else are set.

5.2.2.2.3 A Case for the Re-Conceptualisation of Environmental Protection:

Much Ado about Nothing?

Another point on international environmental law pertains to the efforts to

reconceptualise environmental protection either as an issue of human rights [Sect.
5.2.2.2.3.1], or as an obligation emanating from transnational public policy [Sect.
5.2.2.2.3.2]. Irrespective of the advantages or disadvantages of fitting environmental
protection within either of those categories, this would not provide by itself a cause
of action for environmental counterclaims in treaty-based investment arbitration.

5.2.2.2.3.1 A Human Rights’ Perspective of Environmental Protection

The protection of the environment and human rights are interwoven. In this sense,
one may wonder whether the human being or the environment itself are the ultimate
object of protection of environmental laws. There are two theories embodying these
conflicting positions264: on the one hand, the ecologic anthropocentrism, which
suggests that the environment needs protection because it enables the full enjoyment
of human rights; on the other hand, ecocentrism, which advances that all forms of
life have an intrinsic value and deserve protection by themselves. Yet, since the
Brundtland Report in 1987 and the advent of the term ‘sustainable development’ it
seems that a mixture between both theories is dominant, whereby human kind and
the environment cannot be conceived separately reconciling human development
and environmental protection as two sides of the same coin.265

263
Scherer et al. (2021), p. 432.
264
Robles Ustariz (2020), pp. 17–19.
265
Toca Torres (2011), p. 203.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 245

Environmental protection is thus seen as a vital part of numerous human rights

such as the right to life or the right to health.266 In other words, there is a latent
environmental content within existing human rights.267 Human rights courts have
confirmed this on various occasions. In the López Ostra v Spain case, the European
Court of Human Rights sentenced that pollution affects wellbeing, private and
family life.268 In the SERAC v Nigeria case, the African Commission on Human
and Peoples’ Rights considered the right to health and the right to a satisfactory
environment to be intertwined.269 Thus, it determined that the uncontrolled oil
spillage was a violation of human rights of the Ogoni people. In the Maya Indige-
nous Community v Belize case, the Inter-American Commission on Human Rights
concluded that the environmental damage caused by development activities affected
the community rights to property, which in turn affected their physical, cultural and
spiritual well-being.270 Notably, in such cases, the courts do not tend to apply
environmental law, but rather acknowledge that an environmental damage could
harm human rights.271
This relation between human rights and environmental protection has begotten
the debate about the recognition of the human right to a healthy environment. Some
authors are critical of the practical utility of recognising a human right to a healthy
environment given the difficulties on defining, implementing and enforcing such a
right.272 Some stress the benefits of recognising the human right to a healthy
environment, albeit being cautious on the means of implementation.273 Some others
even suggest that there is already such a right under international law.274
From the viewpoint of international environmental law, recognising the human
right to a healthy environment might bring some positive results. For instance, it
would reinforce the idea that human rights necessitate environmental protection for
their full enjoyment.275 The environment would be captured in a separate right,
whose protection would not depend on the impairment to other human rights.276 It

266
Case concerning the Gabčíkovo-Nagymaros Project (Hungary v Slovakia) (Judgment) [1997]
ICJ Rep 7, Separate Opinion of Vice-President Weeramantry, 91–92.
267
Luke (2019), p. 161; Tan and Chong (2020), p. 195.
268
López Ostra v Spain, Application No 16798/90, ECtHR Judgment (09 December 1994) para. 51.
269
The Social and Economic Rights Action Center and the Center for Economic and Social Rights
(SERAC) v Nigeria, Case ACHPR/COMM/A044/1, ACHPR Commission Decision (27 May 2002)
para. 52.
270
Maya indigenous community of the Toledo District v Belize, Case 12.053, IACHR Report No
40/04, OEA/Ser.L/V/II.122 Doc 5 rev 1 at 727 (2004) paras. 148–150.
271
Brown (2021), p. 244.
272
Wirth (1995), p. 617.
273
In this regard see Downs (1993), pp. 351 et seqq.
274
Robles Ustariz (2020), pp. 37 et seqq.
275
UNGA, ‘Human Rights Obligations Relating to the Enjoyment of a Safe, Clean, Healthy and
Sustainable Environment’ (19 July 2018) UN Doc A/73/188, para. 39.
276
Atapattu (2006), p. 34.
246 5 Searching a Cause of Action for Environmental Counterclaims

could also steer the development of international environmental law and interna-
tional human rights in a more unified and integrated manner.277
Notably, various regional agreements on human rights have already incorporated
a human right to a healthy environment to some degree. The African Charter on
Human and Peoples’ Rights mentions a ‘general satisfactory environment’.278 The
ASEAN Human Rights Declaration refers to ‘a safe, clean and sustainable envi-
ronment’.279 Whereas both the Arab Charter on Human Rights and American
Convention on Human Rights conceive the right to ‘a healthy environment’.280
Based on such formulation of a human right to a healthy environment, the Inter-
American Court of Human Rights considered it as an autonomous right independent
from the environmental content that arise from the protection of other human rights
such as the right to life or health.281
At the national level, there are over 100 states recognising the right to a healthy
environment explicitly or implicitly via constitutions, domestic law or court deci-
sions.282 However, some of the most powerful and populous countries (China,
Japan, US, Australia, Canada) have not followed suit.283 As such, one may argue
that the right to a healthy environment is gaining traction, but there is no sufficient
state practice to elevate it as a norm of customary international law,284 or to
otherwise consider it as an universally recognised right.285 This explains the call
of the UN special rapporteur on human rights and the environment in 2018 for the
recognition of human right to a healthy environment via three possible avenues:
(i) the adoption of a treaty including such right by the UN; (ii) the adoption of a
protocol, for instance, to the International Covenant on Economic, Social and
Cultural Rights incorporating such right; (iii) a resolution of the UN General

277
Knox (2019), p. 45.
278
African Charter on Human and Peoples’ Rights (adopted 27 June 1981, entry into force
21 October 1986) 1520 UNTS 217, Art 24: (‘All peoples shall have the right to a general
satisfactory environment favourable to their development’).
279
Association of Southeast Asian Nations (ASEAN) Human Rights Declaration (adopted
18 November 2012), para. 28: (‘Every person has the right to an adequate standard of living for
himself or herself and his or her family including: . . .f) The right to a safe, clean and sustainable
environment’).
280
Arab Charter on Human Rights (adopted 22 May 2004), Art 38: (‘Every person has the right to
an adequate standard of living for himself and his family, which ensures their well-being and a
decent life, including food, clothing, housing, services and the right to a healthy environment’).
Additional Protocol to the American Convention on Human Rights in the Area of Economic, Social,
and Cultural Rights (Protocol of San Salvador) (adopted 17 November 1988, entry into force
16 November 1999), Art 11(1): (‘Everyone shall have the right to live in a healthy environment and
to have access to basic public services’).
281
IACHR Advisory Opinion OC-23/17 (15 November 2017) Series A No 23, paras. 62–63.
282
Boyd (2018), pp. 19–23.
283
Knox (2019), p. 42.
284
Atapattu (2006), p. 21.
285
Knox (2019), p. 45.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 247

Assembly recognising it, as with the right to water and sanitation in 2010.286 None of
these options has yet materialised.
Be that as it may, the recognition of a human right to a healthy environment may
not help in the search of a cause of action for an environmental counterclaim in
treaty-based investment arbitration. Human rights obligations are placed on the
states. Certainly, the theory of horizontality of human rights or Drittwirkung sug-
gests that human rights apply between private parties as well.287 However, this does
not place human rights obligations on non-state actors, but rather focuses state
responsibility on its failure to prevent or punish the private actor that violated
human rights.288
In this sense, in the López Ostra v Spain case, the European Court of Human
Rights held Spain liable for its failure to protect the applicant’s private and family
life and health affected by a privately-owned waste treatment plant.289 Similarly, the
Inter-American Court of Human Rights has held that a violation of human rights by a
private person may entail the state’s responsibility if the state lacked due diligence to
prevent or respond to the violation.290 This does not mean that corporations are not
susceptible to human rights. Arguably, they bear the negative obligation to respect
human rights of individual right holders, but this does not extend to positive
obligations such as to protect or fulfil human rights, otherwise, the non-reciprocal
nature of human rights could be altered.291
Interestingly, in investment arbitration, the Urbaser v Argentina tribunal
discussed at length whether corporations could have human rights obligations for
the purpose of a counterclaim. Here, the respondent submitted a counterclaim
arguing that the investor had failed to make further investments (expansion works)
required by the concession contract on water and sewage services, thereby violating
among other things, the human right to water and sanitation.292 By considering the
Universal Declaration of Human Rights of 1948,293 the International Covenant on

286
UNGA, ‘Human Rights Obligations Relating to the Enjoyment of a Safe, Clean, Healthy and
Sustainable Environment’ (19 July 2018) UN Doc A/73/188, paras. 46–48.
287
Vazquez (2005), p. 937.
288
Karavias (2013), p. 44; Morgera (2020), p. 56.
289
López Ostra v Spain, Application No 16798/90, ECtHR Judgment (09 December 1994) paras.
44–58.
290
See for instance: Case of Velásquez-Rodríguez v Honduras, IACHR Judgment (29 July 1988)
paras. 172 et seqq.; Case of the ‘Street Children’ (Villagrán-Morales and others) v Guatemala,
IACHR Judgment (19 November 1999) paras. 139 et seqq.
291
Karavias (2013), pp. 196–197. Similarly, Crow and Escobar (2018), p. 106.
292
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1156.
293
Particularly, the tribunal emphasised Article 30 of the Universal Declaration of Human Rights of
1948: (‘Nothing in this Declaration may be interpreted as implying for any State, group or person
any right to engage in any activity or to perform any act aimed at the destruction of any of the rights
and freedoms set forth herein’).
248 5 Searching a Cause of Action for Environmental Counterclaims

Civil and Political Rights of 1966,294 and the ILO Tripartite Declaration of Princi-
ples concerning Multinational Enterprises and Social Policy of 1977, the Urbaser v
Argentina tribunal held ‘[a]t this juncture, it is therefore to be admitted that the
human right for everyone’s dignity and its right for adequate housing and living
conditions are complemented by an obligation on all parts, public and private
parties, not to engage in activity aimed at destroying such rights’.295
However, with respect to the human right to water, the Urbaser v Argentina
tribunal conceded that neither the underlying BIT, nor other treaties or general
principles of international law impose an obligation on the investor with regards to
the human right to water.296 Whilst the state is obliged under international law to
ensure the right to water to its population, the investor’s obligations in this regard
stem only from the concession and the regulatory regime in the host state.297 The
Urbaser v Argentina tribunal added a final caveat with respect to the prohibition of
violating human rights (negative obligation) but dismissed it immediately as it was
not the case under analysis.298
Following the Urbaser reasoning, one may argue that environmental protection
could be indirectly subjected to a counterclaim, if the respondent host state submits
that an environmental damage constitutes an investor’s failure to abstain from
affecting human rights eg the right to health or life,299 or the human right to a
healthy environment for that matter. This might nevertheless be an overoptimistic
reading of the Urbaser decision. The tribunal certainly emphasised that the duty-
bearer of the human right to water is still the state, irrespective of being able to fulfil
such obligation through a concession.300 Notably, Markus Krawjeski criticises the
tribunal’s findings as neither Article 30 Universal Declaration of Human Rights nor
Article 5 International Covenant on Civil and Political Rights addresses the duty-

294
Particularly, the tribunal emphasised Article 5 of the International Covenant on Civil and
Political Rights of 1966: (‘Nothing in the present Covenant may be interpreted as implying for
any State, group or person any right to engage in any activity or perform any act aimed at the
destruction of any of the rights and freedoms recognized herein or at their limitation to a greater
extent than is provided for in the present Covenant’).
295
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1199.
296
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1207.
297
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) paras. 1208 et seqq.
298
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1210.
299
Gleason (2021), p. 436.
300
On the one hand, one may posit that the only possibility to find investor’s responsibility would
have been under the concession contract see de Nanteuil (2018), pp. 391–390. On the other one, one
may suggest that a simpler approach would have been to rely on domestic law implementing and
regulating the right to water see Viñuales (2020), para. 102. In either of both scenarios (concession
contract or domestic law) the cause of action for the counterclaim would no longer be international
law, which steers the discussion into a completely different direction.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 249

bearers of human rights obligations, and the tribunal failed to elaborate on any rule of
treaty interpretation to reach that conclusion.301
Irrespective of the legal soundness of the Urbaser decision, it is difficult to deny
that investors have at least a rudimentary negative obligation to respect human rights
under international law given the increasing affluence of corporate standards linked
to human rights. However, and for the sake of argument, considering that investors
have such negative obligation with respect to human rights actually reflects the
aforementioned negative obligation to refrain from conduct that undermines or
places the environment at risk.302 Thus, from the perspective of environmental
counterclaims, the reformulation of environmental protection as a human rights
issue becomes rather inconsequential.

5.2.2.2.3.2 A Transnational Public Policy’s Perspective of Environmental

Protection
Another point to consider is whether the re-conceptualisation of environmental
protection as an issue of transnational public policy would provide a viable cause
of action for environmental counterclaims in treaty-based investment arbitration.
Supporters of the concept of ‘transnational public policy’ hold that it alludes to
principles that are recognised by legal systems all around the world (reflecting broad
consensus) and need not be confused with the concept of ‘international public
policy’ as the latter refers to fundamental conceptions of legal order in a particular
state.303 A landmark case in the use of this concept in investment arbitration is the
World Duty Free v Kenya case, where the tribunal found that bribery was contrary to
transnational public policy and consequently declined jurisdiction.304
In this light, one may wonder whether the concept of transnational public policy
could be used as a source of investors obligation in investment arbitration.305
Arguably based on such a premise, some authors have theorised the possibility of
finding the cause of action for a counterclaim in transnational public policy.306 This
is however not viable for two reasons: first, the concept of transnational public policy
does not seem to be suitable for treaty-based investment arbitration. Second,

301
Accordingly, Markus Krajewski endorses the argument of Philippe Sands’ Dissenting Opinion
to Bear Creek v Peru, and suggests that an investor’s behaviour should be assessed in the
calculation of damages see Krajweski (2021), pp. 124–126.
302
See Sect. 5.2.2.2.2.2.
303
Hunter and Silva (2013), p. 367.
304
World Duty Free Company v Republic of Kenya, ICSID Case No Arb/00/7, Award (04 October
2006) paras. 138 et seqq.
305
Proposing that transnational public policy could impose human rights obligations upon inves-
tors, which, if violated, would bar the investor from resorting to investment arbitration see Marcoux
(2020), pp. 809 et seqq.
306
Huber (2020), p. 329. Going a step further, Ted Gleason suggests that the human right to a
healthy environment could constitute transnational public policy, and thereby it could open the
possibility of counterclaims for its violation see Gleason (2021), pp. 436–439.

Licensed to Dymas Satrioprojo ([email protected])

250 5 Searching a Cause of Action for Environmental Counterclaims

assuming arguendo that the characterisation of environmental protection as an issue

of transnational public policy is feasible, this by itself does not provide a cause of
action for environmental counterclaims.
First, the raison d’être of transnational public policy is that there are universally
recognised norms, which should always apply irrespective of the law applicable to
the case, thus, its applicability makes sense for a decentralised regime such as
international commercial arbitration.307 One may say that in public international
law the same function is fulfilled by jus cogens.308 As such, jus cogens norms might
apply to treaty-based investment arbitration as the treaty itself is an instrument of
public international law.
This in fact was addressed as obiter dicta both in the Urbaser v Argentina case
and in the David Aven v Costa Rica case. The Urbaser v Argentina tribunal simply
held that jus cogens norms should prevail over contrary provisions in the underlying
treaty.309 Whereas the David Aven v Costa Rica tribunal stated that investors are not
impervious to international law particularly with respect to ‘obligations that are the
concern of all States’,310 in other words, jus cogens. Consequently, there is then no
need to import the category of transnational public policy to serve the same function.
Either way, environmental protection has not reached the status of jus cogens.311
Second, the conceptualisation of an international norm as transnational public
policy does not change its application and limits.312 Thus, nothing would be gained
from framing an obligation under public international law as part of the vague
concept of transnational public policy. As elaborated above, there are no environ-
mental treaties directly applicable to investors and even the so-called principles of
international environmental law require implementation into domestic law. Consid-
ering norms of international environmental law as transnational public policy would
not change their addressees ie states, or their content, which often requires
operationalisation in domestic legislation.
Arguably, investors have the negative obligation not to impair the environment
under international law, but once again the broadness of such obligation would
render the viability of an environmental counterclaim rather limited. This would not
change for reconceptualising this negative obligation as an issue of transnational
public policy. Consequently, there is no benefit of considering environmental
protection as an issue of transnational public policy at least for the purpose of
counterclaims.

307
De Brabandere (2020), pp. 850 et seqq.
308
Gaillard (2010), para. 118.
309
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1203.
310
Admittedly, the tribunal did not use the term ‘jus cogens’, but it referred to the Barcelona
Traction case, where the ICJ mentioned the prohibition of acts of aggression, genocide and slavery
as obligations that concern all states see, David R Aven and Others v Republic of Costa Rica, ICSID
Case No UNCT/15/3, Award (18 September 2018) para. 738.
311
Fitzmaurice (2001), pp. 132 et seqq.; Viñuales (2012), p. 142.
312
De Brabandere (2020), p. 864.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 251

5.2.2.2.4 Excursus: The Example of the Alien Tort Claims Act

and Environmental Obligations

Finally, the experience of ATCA is illustrative with respect to international envi-

ronmental obligations upon non-state parties. In principle, states can establish
domestic law regimes to hold non-state actors responsible for the breach of interna-
tional obligations.313 In the US, this option was originally created by the Judiciary
Act of 1789 and allows aliens to claim on tort for the violation of the law of nations
or a treaty of the US.314 As such, one can identify three elements for the submission
of a claim under ATCA: (i) the plaintiff is an alien, (ii) suing for tort (iii) on the
violation of the law of nations or a US treaty.315 The last requirement proves fatal for
tort claims based on international environmental law as the US has not ratified many
environmental treaties, and the notion of ‘law of nations’ has been narrowly con-
strued.316 Case law consistently dismissing tort claims, whose cause of action was
international environmental law, supports this point.
In the Amlon Metals Inc v FMC Corp case,317 the plaintiffs argued that the
defendant violated the law of nations, particularly the principles of the Stockholm
Declaration by delivering goods contaminated with hazardous substances. The
District Court for the Southern District of New York dismissed the claim reasoning
that the Stockholm Declaration has no specific obligations, but rather it refers to the
states’ responsibilities towards the environment.318 In the Beanal v Freeport-
McMoran Inc case,319 the plaintiff submitted that the defendant’s mining activities
in Indonesia had resulted in environmental destruction, violating the polluter-pays
principle, the precautionary principle and the proximity principle. The District Court
for the Eastern District of Louisiana rejected the environmental tort claims given the
lack of consensus on the content and binding status of those principles of

313
Dörr (2020), p. 145.
314
Title 28 USC §1350: (‘The district courts shall have original jurisdiction of any civil action by an
alien for a tort only, committed in violation of the law of nations or a treaty of the United States’).
315
Bridgeman (2003), p. 5.
316
Morgera (2020), pp. 34 et seqq. An often-quoted case is the Sosa v Alvarez-Machain case,
whereby the US Supreme Court called for judicial restraint with respect to ‘the law of nations’ by
requiring that ‘any claim based on the present-day law of nations to rest on a norm of international
character accepted by the civilized world and defined with a specificity comparable to the features
of the 18th-century paradigms we have recognized’ see, Sosa v Alvarez-Machain and others [2004]
542 US 692, 725. However, even earlier cases under ATCA seem to have closed the possibility for
environmental tort claims.
317
Amlon Metals Inc v FMC Corp [2001] 775 F Supp 668 (SDNY).
318
Amlon Metals Inc v FMC Corp [2001] 775 F Supp 668 (SDNY) 671: (‘Plaintiffs’ reliance on the
Stockholm Principles is misplaced, since those Principles do not set forth any specific proscriptions,
but rather refer only in a general sense to the responsibility of nations to insure that activities within
their jurisdiction do not cause damage to the environment beyond their borders’).
319
Beanal v Freeport-McMoRan Inc [1997] 969 F Supp 362 (ED La).
252 5 Searching a Cause of Action for Environmental Counterclaims

environmental law, which were deemed to address states rather than corporations.320
On appeal, the US Court of Appeals of the 5th Circuit confirmed the judgment of
first instance, but also called for extreme caution when adjudicating environmental
claims under the ATCA as to not displace environmental policies of other states.321
In the Aguinda v Texaco Inc case,322 the plaintiffs claimed that the defendant’s
oil-related activities in Ecuador had contaminated the environment, thus violating
environmental norms of ‘customary international law’. The District Court for the
Southern District of New York focused on the doctrine of forum non conveniens and
concluded that Ecuadorian courts are capable of adjudicating such claims and that
under the ATCA (or otherwise) there was no special public interest to provide
plaintiffs with a forum for such claims, thereby rejecting the claim.323 In the Sarei
v Rio Tinto PLC case,324 the plaintiffs submitted that the defendant’s copper mining
activities in Papua New Guinea had polluted the environment, thus violating the
principle of sustainable development and UNCLOS with regards to marine pollu-
tion. The District Court for the Central District of California rejected the first
argument as the plaintiffs failed to identify ‘specific, universal, and obligatory’
norm of international law.325 With respect to the second argument, the court
recognised UNCLOS as representing the law of nations, despite of the US having
only signed but not ratified the convention.326 However, the claim on marine
pollution under UNCLOS was dismissed as well by the court given the involvement
of the state in the mining operation (act of state doctrine).327

320
Beanal v Freeport-McMoRan Inc [1997] 969 F Supp 362 (ED La) 384: (‘The three principles
relied on by Plaintiff, standing alone, do not constitute international torts for which there is universal
consensus in the international community as to their binding status and their content. . .More to the
point, those principles apply to “members of the international community” rather than non-state
corporations. . .A non-state corporation could be bound to such principles by treaty, but not as a
matter of international customary law’).
321
Beanal v Freeport-McMoRan Inc [1999] 197 F.3d 161 (5th Cir) 167: (‘federal courts should
exercise extreme caution when adjudicating environmental claims under international law to insure
that environmental policies of the United States do not displace environmental policies of other
governments. Furthermore, the argument to abstain from interfering in a sovereign’s environmental
practices carries persuasive force especially when the alleged environmental torts and abuses occur
within the sovereign’s borders and do not affect neighboring countries’).
322
Aguinda v Texaco Inc [2001] 142 F Supp 2d 534 (SDNY).
323
Aguinda v Texaco Inc [2001] 142 F Supp 2d 534 (SDNY) 553: (‘the actions in question occurred
overwhelmingly in Ecuador, where courts are fully capable of interpreting alleged violations of
international law. The United States therefore has no special public interest, under the ATCA or
otherwise, in providing a forum for plaintiffs pursuing an international law action against a United
States entity that plaintiffs can adequately pursue in the place where the violation actually
occurred’).
324
Sarei v Rio Tinto PLC [2002] 221 F Supp 2d 1116 (CD Cal).
325
Sarei v Rio Tinto PLC [2002] 221 F Supp 2d 1116 (CD Cal) 1160–1161.
326
Sarei v Rio Tinto PLC [2002] 221 F Supp 2d 1116 (CD Cal) 1161.
327
Sarei v Rio Tinto PLC [2002] 221 F Supp 2d 1116 (CD Cal) 1191.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 253

These cases evince the inherent difficulties of raising an environmental tort claim
under the ATCA on two fronts. Procedurally, as there are obstacles such as the
doctrine of forum non conveniens or the act of the state doctrine which might prevent
the court from adjudicating the environmental tort claim.328 Substantially, as inter-
national environmental law is composed of a variety of elements (soft law, rules on
inter-state relations, broad and vague language) that might undermine its applicabil-
ity as a cause of action under the ATCA.329
Drawing from this experience, one may conclude that international environmen-
tal law might not provide a cause of action against non-state actors given their
indeterminacy or their focus on state conduct,330 although the example of the
UNCLOS obligation seems to be a step forward. This confirms the conclusions
reached in the previous sections, whereby international environmental law may not
be suitable to provide a cause of action for a counterclaim in treaty-based investment
arbitration. Arguably, a negative international obligation not to undermine the
environment could fit the bill, yet only in cases of clear environmental degradation.

5.2.2.3 Investment Treaties and International Environmental

Obligations: An Ill-Fated Relation?

Considering that international environmental law and international investment law

have evolved quite independently from each other,331 the crux of the matter at this
point is whether IIAs can operationalise international environmental obligations for
the purposes of counterclaims in treaty-based investment arbitration. This section
thus analyses: first, the direct imposition of investors’ environmental obligations via
investment treaties [Sect. 5.2.2.3.1]. Second, whether the reference to international
environmental law in IIAs may provide a valid cause of action for counterclaims
[Sect. 5.2.2.3.2].

5.2.2.3.1 Direct Imposition of Investors’ Environmental Obligations Via

Investment Treaties

Some authors assumed that IIAs do not impose obligations upon foreign investors
because the purpose of those treaties is confined to the promotion and protection of

328
Abadie (2004), pp. 768 et seqq.; Jaeger (2010), pp. 525–526; Maljean-Dubois and Richard
(2013), p. 79.
329
Jaeger (2010), pp. 523–524; Maljean-Dubois and Richard (2013), p. 79.
330
Douglas (2013), pp. 438–440. For a slightly different opinion, considering that the principle of
prohibition of significant transboundary environmental harm constitutes customary international
law and is thereby enforceable under ATCA see Abadie (2004), pp. 775 et seqq.
331
Viñuales (2012), p. 134. Similarly, Chi (2018), p. 89.
254 5 Searching a Cause of Action for Environmental Counterclaims

investors and their investments.332 Moreover, some argue that IIA commitments
towards investors are unilateral and that consent to treaty-based investment arbitra-
tion neither incorporates substantive standards nor does it make them bilaterally
applicable.333 All this seems to render the search for a cause of action in IIAs for
counterclaims well-nigh impossible.334 From this point of view, it is understandable
that an investor’s misconduct is often raised as part of a defence on the scope of
application of the treaty or simply mentioned by an amicus curiae.335
As mentioned above, nothing prevents international law from directly imposing
obligations on non-state actors. Considering the benefits foreign investors enjoy
through IIAs and their active role in the development of international investment law
via investor-state dispute settlement, the same IIAs should as well impose certain
obligations upon those foreign investors.336 Furthermore, IIAs are becoming more
amenable to environmental protection and sustainable development by express
language in their preambles or operative provisions.337 This treaty language brings
sustainable development to the forefront of investment protection as a legitimate
goal to pursue through international investment law rather than a simple
by-product.338 This not only steers the conception of international investment law
into a different direction, but also paves the way for the inclusion of investors
obligations towards the environment directly in IIAs.
However, one must not confuse those references to sustainable development or
preambular wordings with obligations upon investors. In this regard, the David Aven
v Costa Rica case is apposite. As mentioned above, Articles 10.9(3)(c)339 and
10.11340 CAFTA-DR (2004) only reaffirm the states’ power to adopt, maintain or

332
Bubrowski (2013), p. 216; de Nanteuil (2018), p. 376; Sinha and Fusea (2021), p. 65.
333
Crawford (2007), p. 14.
334
Hoffmann (2013), p. 447.
335
For instance, Patrick Dumberry refers to concerns on human rights violations perpetrated by the
investor, which are raised by third parties see Dumberry (2013), pp. 189–190.
336
Miles (2013), p. 359. Similarly, with respect to environmental obligations see Bilanová
(2020), p. 411.
337
Boisson de Chazournes (2017), p. 380; Tan and Chong (2020), p. 191.
338
Schill and Djanic (2018), p. 40.
339
CAFTA-DR (2004), Art 10.9(3)(c): (‘Provided that such measures are not applied in an arbitrary
or unjustifiable manner, and provided that such measures do not constitute a disguised restriction on
international trade or investment, paragraphs 1(b), (c), and (f), and 2(a) and (b), shall not be
construed to prevent a Party from adopting or maintaining measures, including environmental
measures: (i) necessary to secure compliance with laws and regulations that are not inconsistent
with this Agreement; (ii) necessary to protect human, animal, or plant life or health; or (iii) related to
the conservation of living or non-living exhaustible natural resources’).
340
CAFTA-DR (2004), Art 10.11: (‘Nothing in this Chapter shall be construed to prevent a Party
from adopting, maintaining, or enforcing any measure otherwise consistent with this Chapter that it
considers appropriate to ensure that investment activity in its territory is undertaken in a manner
sensitive to environmental concerns’).
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 255

enforce environmental measures. Thus, the tribunal concluded that such provisions
‘do not -in and of themselves- impose any affirmative obligation upon investors’.341
Conversely, the International Institute for Sustainable Development (IISD)
crafted an early example for IIAs imposing obligations upon foreign investors in
the IISD Model Investment Agreement (2005). Part 3 of the Model Agreement is
titled ‘Obligations and Duties of Investors and Investments’ and contains general
obligations on the compliance with the host state’s domestic laws342 such as
pre-establishment obligations including the elaboration of environmental and social
impact assessments,343 and the prohibition to engage in corruption.344
Most importantly, Article 14 foresees a set of post-establishment obligations and
particularly Paragraph (d) thereof states: ‘[i]nvestors and investments shall not
manage or operate the investments in a manner that circumvents international
environmental, labour and human rights obligations to which the host state
and/or home state are Parties’. The rationale of this provision consists of thwarting
foreign investors from searching for havens of lax environmental regulation by
holding them to international standards.345 Furthermore, the effectiveness of this
provision is limited as the host state and/or home states must have adhered to the
referred international environmental obligations.
A similar approach was adopted in the SADC Model BIT (2012). Particularly
with respect to environmental obligations, Article 15.3 thereof foresees: ‘[i]nvestors
and their investments shall not [establish,] manage or operate Investments in a
manner inconsistent with international environmental, labour, and human rights
obligations binding on the Host State or the Home State, whichever obligations are
higher’. The last sentence of this provision pre-empts a possible conflict between
environmental obligations assumed by the host state on the one hand, and those
assumed by the home state on the other hand. This is certainly an improvement with
respect to the IISD Model Investment Agreement (2005).
The efforts made both in the IISD Model Investment Agreement (2005) and
SADC Model BIT (2012) are commendable for the balance they strive to achieve
between investment protection and environmental protection. However, one may
suggest that a sole negative obligation not to circumvent international environmental
obligations might not be sufficient and express references to principles of environ-
mental law and the inclusion of positive investors’ obligations towards the environ-
ment should be preferred.346
Be that as it may, there are three IIAs seemingly inspired by the IISD Model
Investment Agreement (2005) with respect to investors’ environmental obligations:

341
David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Award
(18 September 2018) para. 743.
342
IISD Model Investment Agreement (2005), Art 11.
343
IISD Model Investment Agreement (2005), Art 12.
344
IISD Model Investment Agreement (2005), Art 13.
345
Mann et al. (2006), p. 26.
346
Miles (2013), p. 361.
256 5 Searching a Cause of Action for Environmental Counterclaims

the CARIFORUM-EU EPA (2008), ECOWAS Supplementary Act on Investment

(2008), and the Morocco-Nigeria BIT (2016). Only the latter foresees treaty-based
investment arbitration.
With respect to the CARIFORUM-EU EPA (2008), Article 72 thereof mandates
the contracting states to ensure, under Paragraph (c), that ‘[i]nvestors do not manage
or operate their investments in a manner that circumvents international environ-
mental or labour obligations arising from agreements to which the EC Party and the
Signatory CARIFORUM States are parties’. This is deemed to create a level playing
field on the international plane among environmental obligations.347 Yet, there is a
slight difference in language between the IISD Model Investment Agreement (2005)
and CARIFORUM-EU EPA (2008) as the latter primarily addresses the contracting
states. This suggests that responsibility would befall the contracting states for failing
to ensure compliance rather than the investors.
The ECOWAS Supplementary Act on Investment (2008) follows more closely
the IISD Model Investment Agreement (2005) since its Article 14(2) foresees: ‘. . .
Investors shall not manage or operate the investments in a manner that circumvents
human rights obligations, labour standards as well as regional environmental and
social obligations, to which the host State and/or home State are Parties’. Similarly,
with respect to the Morocco-Nigeria BIT (2016), Article 18(4) thereof provides that
‘[i]nvestors and investments shall not manage or operate the investments in a
manner that circumvents international environmental, labour and human rights
obligations to which the host state and/or home state are Parties’.
These treaties are certainly at the forefront of innovation on the sought balance
between investment protection and the countervailing investor’s obligations.348
Nevertheless, it is doubtful whether the imposition of direct treaty obligations is a
viable option in the future. In fact, the innovative treaties mentioned above seem to
be quite isolated stories. For instance, Markus Krajewski questions the spotlight
hogged by the Morocco-Nigeria BIT (2016): he considers the willingness of states to
conclude investment treaties with investor’s obligations is rather overestimated.349
The lack of other IIAs adopting similar provisions may speak for itself, but this does
not mean future treaties cannot change course even in a piecemeal manner. Yet,
given the number of IIAs in force, the usual lengthy treaty negotiations, and the
existence of sunset/survival clauses, it is unrealistic to expect that treaty drafting may
single-handedly strike such balance between rights and obligations.350
Substantially, the IISD Model Investment Agreement (2005), SADC Model BIT
(2012), the CARIFORUM-EU EPA (2008), ECOWAS Supplementary Act on

347
Asteriti (2015), p. 255.
348
Considering that all these developments are fostered mainly by African states, Jackson Shaw
Kern provocatively ponders the question ‘[w]ill Africa be the savior of investor-State dispute
settlement?’ Jackson Shaw Kern, ‘Investors Obligations: Africa Leads the Way’ (Kluwer Arbitra-
tion Blog, 14 June 2020) <http://arbitrationblog.kluwerarbitration.com/2020/06/14/investor-
obligations> accessed 10 January 2023.
349
Krajweski (2021), p. 120.
350
Schill and Djanic (2018), pp. 43–44.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 257

Investment (2008), and the Morocco-Nigeria BIT (2016) evince a further issue: the
investor’s obligations are restricted to international environmental law, which does
not address private actors but rather states, except for international regimes on civil
liability for environmental damage and CSR instruments. As outlined above, the
normative value of those instruments is limited either because of their voluntary
nature or because of the necessity to be implemented through domestic law. Conse-
quently, the investor’s obligations foreseen in those treaties appear vague and
imprecise, and at best they can be construed as reflecting the negative obligation
not to undermine the environment.
Understandably, it becomes extremely cumbersome to draft a list of investors’
obligations in a treaty,351 addressing not only environmental issues, but also human
rights or labour standards, which may explain the limited attempts to include
investors’ obligations in IIAs. However, should states overcome their reluctance to
imposing investors’ obligations in IIAs, treaty drafters could further ensure certainty
by developing precise obligations with respect to the environment and the conse-
quences for their breach. One option explored by Alessandra Mistura is to incorpo-
rate certain features of the international regimes on civil liability for environmental
damage in investment treaties.352 As such, IIAs could define in detail environmental
damage, types of liability (for instance, strict liability for hazardous activities or
fault-based liability for other activities), preventive measures, the kind of reparation/
compensation, liability caps, establishment of causal link, among others.353 This
could be tailored for the purpose of environmental counterclaims, thereby providing
guidance to the tribunals on the operability of investors’ environmental obligations
and reducing (to certain extent) the risks of inconsistency.
Another remark with respect to direct environmental obligations upon investors
pertains to the use of the most-favoured nation treatment (MFN) clause. Particularly,
whether via an MFN provision in the respective treaty, an investor may seek to side-
step its environmental obligations in an investment treaty.354 For instance, Godwin
Tan and Andrea Chong envisage two scenarios: (i) reliance on MFN to request the
exclusion of treaty environmental obligations arguing there is a less favourable
treatment in comparison to other IIAs without such provisions; (ii) reliance on
MFN to narrow the dispute resolution provision that might permit the tribunal to
adjudge environmental counterclaims.355 The answer to this issue would require an
extensive exercise of treaty interpretation of the pertinent MFN provisions. Yet,
there are arguments for denying the possibility to either exclude substantive envi-
ronmental obligations through an MFN standard,356 or narrow down an otherwise

351
Dumberry (2013), p. 191.
352
Mistura (2019), paras. 23.108 et seqq.
353
Mistura (2019), paras. 23.111 et seqq.
354
Tan and Chong (2020), p. 196. Similarly, Thomé (2021), p. 667.
355
Tan and Chong (2020), p. 196.
356
Considering that the absence of provisions on third treaties cannot not be treated as ‘more
favourable treatment’ for the purpose of an MFN clause see for instance: CMS Gas Transmission
258 5 Searching a Cause of Action for Environmental Counterclaims

broad dispute resolution provision amenable to environmental counterclaims by the

same means.357 Moreover, newer IIAs may render the use of MFN standards for
side-stepping environmental obligations even more difficult. They increasingly
incorporate environmental considerations into the treaty text, which could be viewed
as to a treaty purpose intimately linked to environmental protection, and they tend to
devise more detailed MFN clauses with a limited scope of application.

5.2.2.3.2 The Incorporation of International Environmental Law by Referral:

A Distant Cause of Action for Counterclaims

Given the overwhelming absence of direct environmental obligations of investors in

IIAs, a possibility for finding a cause of action for environmental counterclaims
could be the referral from the investment treaty to an international environmental
norm. This referral could operate in two manners: either by explicit treaty provisions
referring to environmental considerations in CSR and other non-binding standards
[Sect. 5.2.2.3.2.1]; or by other means of treaty interpretation [Sect.
5.2.2.3.2.2]. None of these avenues provides a viable cause of action for environ-
mental counterclaims.

5.2.2.3.2.1 Treaty Provisions Mentioning CSR and Other Non-Binding Standards

In lieu of direct obligations on investors, IIAs have experimented with mentioning
international standards (including with respect to environmental protection), often in
terms of encouragement or best efforts.358 As early as 1994, concepts such as
sustainable development found their way into IIAs, as exemplified by the preamble
of the NAFTA (1994). This preambular inclusions are more pronounced in newer
treaties,359 which could be attributed to a demand of society for greater accountabil-
ity of the private sector.360 Yet, this trend is rather limited and in any case such
mentions cannot be considered as obligations upon the investors to comply with
international environmental standards.
More interesting in this regard are those treaty provisions addressing CSR
vis-à-vis investors, for instance, Article 9.17 CPTPP (2018),361 Article 16 Chile-

Company v The Republic of Argentina, ICSID Case No ARB/01/8, Award (12 May 2005) para.
377; Suleimenova (2019), p. 114.
357
Arguing that MFN clauses cannot alter the jurisdictional provisions see Douglas (2011),
pp. 97 et seqq. For a different opinion see Schill (2011), pp. 353 et seqq.
358
Choudhury (2020), p. 53; Krajweski (2021), p. 116.
359
See for instance the preambles in: Rwanda-UAE BIT (2017); Morocco-Nigeria BIT (2016);
Slovak Republic-Iran BIT (2016); Nigeria-Singapore BIT (2016); San Marino-Azerbaijan BIT
(2015); Canada-Cameroon BIT (2014).
360
Bernasconi-Osterwalder (2021), p. 465.
361
CPTPP (2018), Art 9.17: (‘The Parties reaffirm the importance of each Party encouraging
enterprises operating within its territory or subject to its jurisdiction to voluntarily incorpórate
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 259

Hong Kong BIT (2016),362 Article 12 Argentina-Qatar BIT (2016),363 Article

11 Nigeria-Singapore BIT (2016),364 Article 14 Canada-Mongolia BIT (2016),365
Article 10(3) Slovak Republic-Iran BIT (2016),366 or Article 16 Canada-Guinea BIT
(2015).367 One may argue that such provisions appear extremely generic, which
might provide a flexible approach to accommodate to emerging concepts in inter-
national environmental law, but that might as well undermine certainty in their
interpretation.368 Whether this concern is justified could only be assessed against
the background of arbitral awards deciding on this issue. Yet, two recent model BITs
and the USMCA (2019) pre-emptively seek to refer to specific instruments of
international law to avoid uncertainty.
While Article 17 The Netherlands Model BIT (2019) alludes to the multilateral
environmental agreements of the contracting states as well as the UNFCCC, Article

into their internal policies those internationally recognised standards, guidelines and principles of
corporate social responsibility that have been endorsed or are supported by that Party’).
362
Chile-Hong Kong BIT (2016), Art 16: (‘The Parties reaffirm the importance of each Party
encouraging enterprises operating within its area to voluntarily incorporate into their internal
policies those internationally recognised standards, guidelines and principles of corporate social
responsibility that have been endorsed or are supported by that Party’).
363
Argentina-Qatar BIT (2016), Art 12: (‘Investors operating in the territory of the host Contracting
Party should make efforts to voluntarily incorporate internationally recognized standards of corpo-
rate social responsibility into their business policies and practices’).
364
Nigeria-Singapore BIT (2016), Art 11: (‘(1) Singapore reaffirms the importance of encouraging
enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate into
their internal policies those international recognised standards, guidelines and principles of corpo-
rate social responsibility that have been endorsed or are supported by Singapore. (2) Nigeria is to
encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily
incorporate internationally recognised standards of corporate social responsibility in their practices
and internal policies such as statements of principles that have been endorsed or are supported by
Nigeria. These principles address issues such as labour, the environment, public health, human
rights, community relations and anti-corruption’).
365
Canada-Mongolia BIT (2016), Art 14: (‘Each Party should encourage enterprises operating
within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized
standards of corporate social responsibility in their practices and internal policies, such as state-
ments of principle that have been endorsed or are supported by the Parties. These principles address
issues such as labour, the environment, human rights, community relations and anti-corruption. The
Parties should remind those enterprises of the importance of incorporating such corporate social
responsibility standards in their internal policies’).
366
Slovak Republic-Iran BIT (2016), Art 10(3): (‘Investors and investments should apply national,
and internationally accepted, standards of corporate governance for the sector involved, in particular
for transparency and accounting practices. Investors and their investments should strive to make the
maximum feasible contributions to the sustainable development of the Host State and local
community through appropriate levels of socially responsible practices’).
367
Canada-Guinea BIT (2015), Art 16: (‘Each Party should encourage enterprises operating within
its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized
standards of corporate social responsibility in their practices and internal policies, such as state-
ments of principle that have been endorsed or are supported by the Parties. These principles address
issues such as labour, the environment, human rights, community relations and anti-corruption’).
368
Tan and Chong (2020), pp. 195–196.

Licensed to Dymas Satrioprojo ([email protected])

260 5 Searching a Cause of Action for Environmental Counterclaims

14.17 USMCA (2019) mentions the OECD Guidelines for Multinational Enter-
prises. The BLEU Model BIT (2019) goes a step further and in its Article 7(2) on
CSR refers to the OECD Guidelines for Multinational Enterprises, the United
Nations Guiding Principles on Business and Human Rights, and the Recommenda-
tion CM/REC(2016) of the Committee of Ministers to Member States on human
rights and business. Particularly with respect to these Model BITs, tribunals may
consider that those non-binding standards for investors become binding norms via
the explicit referral of the IIA.369 Accordingly, one may argue that these explicit
referrals may be used as a model for future treaties seeking to impose obligations on
investors.370 However, similar to preambular references to sustainable development
or environmental protection, provisions on CSR are not widespread in the network
of existing IIAs. One may argue that states are reluctant to include CSR references as
it would require that their domestic laws are equipped to compel investors’ compli-
ance with CSR.371
Most importantly, while all of these provisions aim at the incorporation of
international standards on CSR (some even explicitly outlining environmental
protection as part of CSR), they are all formulated in a non-binding manner for
investors: either the contracting states ought to ‘encourage’ investors, or the inves-
tors themselves ‘should’ voluntarily incorporate such standards. One could argue
that the analysis of investors’ behaviour might be easier under those provisions
addressing directly the investor instead of the state, otherwise, the tribunal ‘might
have to assess first if the state party adopted a policy of encouraging the relevant
standards’.372 This however does not change the fact that all provisions use an
hortatory language and it is hardly conceivable that tribunals would construe them as
an obligation to comply with international environmental standards.
Finally, CSR commitments could be reflected in the licence to operate, domestic
regulations or even voluntary adherence by the investors in a mandatory manner.
Accordingly, one may suggest that this would create a valid cause of action for
environmental counterclaims in treaty-based investment arbitration.373 In this case,
however, the cause of action would not be the investment treaty, but rather the
particular licence or domestic regulation. Thus, the legal analysis would switch from
international obligations to domestic obligations as a cause of action in treaty-based
arbitration and the aforementioned intricacies thereof. All in all, the reference to CSR
in investment treaties is unsuitable to provide a cause of action for environmental
counterclaims.

369
de Nanteuil (2018), p. 392; Krajweski (2021), p. 116.
370
Dumberry (2013), p. 191.
371
Bjorklund (2019), p. 52.
372
Krajweski (2021), p. 119.
373
Lahlou et al. (2019), p. 63.
5.2 Investors’ Environmental Obligations in Treaty-Based Investment Arbitration 261

5.2.2.3.2.2 Other Means of Incorporation of Obligations Under International

Environmental Law Into Investment Law
Another option to explore for the incorporation of international environmental
obligations is treaty interpretation. Particularly, either systematic integration or
evolutionary interpretation could arguably fill the gap of environmental obligations
in investment treaties. With respect to systematic integration, the Urbaser v Argen-
tina case is illustrative: the tribunal referred to Article 31(3)(c) VCLT to take into
account other rules of international law, including those on human rights, the latter
being relevant for the analysis of the counterclaim.374 As elaborated above, the
interpretation principle of systematic integration embedded in Article 31(3)
(c) VLCT conceives that treaties must be interpreted against the broader realm of
international law.375 However, this is an interpretative tool and cannot be used as a
back door for incorporating other obligations of international law.376
Moreover, even if possible to integrate international environmental obligations
into the particular investment treaty under consideration, this might not suffice for a
cause of action of an environmental counterclaim. Obligations under international
environmental law usually address the state or require their operationalisation
through domestic law.377 As such, using systematic integration for incorporating
investors’ obligations from the broader spectrum of international environmental law
into investment law is not only questionable from a methodological point of view,378
but also futile given the content of international environmental law itself.
With respect to evolutionary interpretation, some authors consider the potential
for international environmental norms to re-substantiate treaties with limited envi-
ronmental elements via an evolutionary interpretation.379 One may recall the Pulp
Mills case, whereby the ICJ considered that the treaty obligation to protect and
preserve the aquatic environment under Article 41(a) Statute of the River of Uruguay
(1975) had to be interpreted as including the obligation to undertake an environ-
mental impact assessment under international law.380 Similarly, the Iron Rhine
Railway tribunal made use of an evolutionary interpretation to incorporate into the
Treaty Between Belgium and the Netherlands relative to the Separation of their

374
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The
Argentine Republic, ICSID Case No ARB/07/26, Award (08 December 2016) para. 1200.
375
See Sect. 3.3.3.2.3.
376
Gardiner (2015), p. 330.
377
Tan and Chong (2020), p. 189.
378
Krajweski (2021), p. 107.
379
Brown (2021), p. 236. Confined to ‘sustainable development’, Virgine Barral argues that such
concept could open up the entire treaty for an evolutionary interpretation even if the term is located
in the preamble see Barral (2012), p. 395. For a similar point on the possibility to assume an
evolutionary interpretation from the context of the treaty provision, including but not limited to the
preamble see McRae (2019), p. 60.
380
Pulp Mills on the River Uruguay (Argentina v Uruguay) (Judgment) [2010] ICJ Rep 14, para.
204.
262 5 Searching a Cause of Action for Environmental Counterclaims

Respective Territories (1839) the contemporary costs related to environmental

protection for the reactivation of the railway.381 Albeit being an appealing proposi-
tion from the outset of public international law, its usefulness for environmental
counterclaims in treaty-based arbitration appears extremely limited.
Evolutionary interpretation has been described as an interpretation that favours
the contemporary reading (at the moment of interpretation) rather than a historical
reading (at the moment of conclusion) of a norm.382 Understandably, this only arises
in cases where there are ‘competing views on whether the meaning of the text of the
treaty has changed over time’, also known as the intertemporal question.383 How-
ever, there is nothing special about evolutionary interpretation as it is simply the
result of using the ordinary cannons of treaty interpretation in a particular case.384 To
say that the VCLT supports either evolutionary or static interpretation is thus
incorrect, as the rules of treaty interpretation are temporally neutral.385 Accordingly,
to determine whether a norm demands an evolutionary or static/historic interpreta-
tion, the ICJ in the Namibia Advisory Opinion,386 Aegean Sea case,387 Gabčíkovo-
Nagymaros case,388 and the Navigational and Related Rights case,389 has

381
Iron Rhine Railway Arbitration (Belgium v The Netherlands), Award (24 May 2005) XXVII
RIAA 35, paras. 80–84.
382
Kolb (2019), p. 16.
383
Djeffal (2019), p. 22.
384
For further elaboration on this idea see Bjorge (2014); Djeffal (2019), pp. 21–33; McRae (2019),
pp. 57–58.
385
Wyatt (2019), pp. 127–146.
386
Legal Consequences for States of the Continued Presence of South Africa in Namibia (South
West Africa) notwithstanding Security Council Resolution 276 (1979) (Advisory Opinion) [1971]
ICJ Rep 16, para. 53.
387
Aegean Sea Continental Shelf (Greece v Turkey) (Judgment) [1978] ICJ Rep 3, para. 77: (‘once it
is established that the expression “the territorial status of Greece” was used in Greece’s instrument
of accession as a generic term denoting any matters comprised within the concept of territorial status
under general international law, the presumption necessarily arises that its meaning was intended to
follow the evolution of the law and to correspond with the meaning attached to the expression by the
law in force at any given time’).
388
Case concerning the Gabčíkovo-Nagymaros Project (Hungary v Slovakia) (Judgment) [1997]
ICJ Rep 7, para. 112: (‘By inserting these evolving provisions in the Treaty, the parties recognized
the potential necessity to adapt the Project. Consequently, the Treaty is not static, and is open to
adapt to emerging norms of international law’).
389
Dispute Regarding Navigational and Related Rights (Costa Rica v Nicaragua) (Judgment)
[2009] ICJ Rep 213, para. 64: (‘there are situations in which the parties’ intent upon conclusion
of the treaty was, or may be presumed to have been, to give the terms used — or some of them — a
meaning or content capable of evolving, not one fixed once and for all, so as to make allowance for,
among other things, developments in international law’) and para. 66: (‘It is founded on the idea
that, where the parties have used generic terms in a treaty, the parties necessarily having been aware
that the meaning of the terms was likely to evolve over time, and where the treaty has been entered
into for a very long period or is “of continuing duration”, the parties must be presumed, as a general
rule, to have intended those terms to have an evolving meaning’).
5.3 How Appropriate Is It for Tribunals in Investment Arbitration to Decide. . . 263

emphasised the parties’ intention as reflected in the treaty as the crucial element to tip
the scales.
In this sense, there are two obstacles for an evolutionary interpretation to invoke
international environmental obligations as a cause of action for environmental
counterclaims: first, evolutionary interpretation could not incorporate environmental
norms if the particular treaty excludes by omission such category of norms as this
would be deemed to express the contracting parties’ intention.390 As such, although
the inclusion of environmental protection or related terms in new IIAs is noticeable,
the majority of IIAs remain impervious to environmental considerations by their
plain wording. Consequently, there is no room to invoke norms of international
environmental law in these treaties.
Second, tribunals and international courts prefer to base an evolutionary inter-
pretation on generic terms of the treaty.391 For instance, both in the Aegean Sea case
and the Navigational and Related Rights case, the ICJ found that the use of generic
terms is an indication of parties’ intention that those terms would most likely evolve
over time.392 Certainly, there are such terms in some IIAs, including international
standards of CSR, environmental protection, and even sustainable development.
However, these generic terms are either framed in the preamble of a treaty or in
voluntary provisions addressed to the investors. Thus, as part of the preamble, those
generic terms could only serve to incorporate contemporary environmental norms in
the relation between the contracting states. As a part of voluntary provisions
addressed to the investors, once again the hortatory language used in those pro-
visions might not be construed as an investor’s obligation serving as a cause of
action for environmental counterclaims irrespective of the contemporary reading of
those generic terms.

5.3 How Appropriate Is It for Tribunals in Investment

Arbitration to Decide on Environmental Matters?

After exploring the possible avenues for finding a cause of action for environmental
counterclaims in investment arbitration, this section delves into the appropriateness
of investment arbitral tribunals deciding environmental matters. First, it addresses
the technical and procedural issues an environmental counterclaim might create
[Sect. 5.3.1]. Second, it assesses the policy issues involved in the adjudication of
environmental matters by a tribunal in investment arbitration [Sect. 5.3.2].

390
Brown (2021), p. 253.
391
Brown (2021), p. 255.
392
Aegean Sea Continental Shelf (Greece v Turkey) (Judgment) [1978] ICJ Rep 3, para. 77; Dispute
Regarding Navigational and Related Rights (Costa Rica v Nicaragua) (Judgment) [2009] ICJ Rep
213, para. 66.
264 5 Searching a Cause of Action for Environmental Counterclaims

5.3.1 Technical and Procedural Issues

At the level of public international law, international arbitration appears as a suitable

option for settling environmental-related disputes given its flexibility and the possi-
bility to tailor the particular procedure.393 This represents a solid starting point for
environmental counterclaims in investment arbitration from the tribunal’s perspec-
tive. There are nevertheless a variety of technical and procedural issues exclusively
related to the environmental components of the dispute that might recurrently arise,
including: first, the analysis of the respective environmental law. Second, the
assessment of scientific evidence and expert witnesses. Third, the standard and
burden of proof for environmental damage.
First, with respect to environmental law, a preliminary concern pertains to the
arbitrators’ familiarity and expertise on environmental law and the science behind
it. However, it is assumed that arbitrators (and counsels) would adapt to any rising
demand on environmental expertise in investment disputes.394 That might be true for
environmental counterclaims based on international environmental law or environ-
mental obligations in investment treaties. Yet, for environmental counterclaims
based on domestic law the situation differs. Tribunals are usually not expected to
be acquainted with the domestic law of the host state.395 Even if such knowledge
could be required, this would only reduce the pool of qualified arbitrators, and in
case of nationals of the particular host state, their appointment may only be achieved
through agreement of both parties.396
In a context where the arbitrators might not be experts on the particular domestic
environmental law, there is a need to determine the scope and proper application of
such law. Here, the Brazilian Loans case397 becomes apposite. When reasoning on
the application of French law to the loans in dispute, the PCIJ held that domestic law
must be applied as it would be applied in the particular state.398 In other words, such

393
Cases such as the Indus Waters Kishenganga between Pakistan and India, or the South China
Sea Arbitration between The Philippines and China show the inclusion of arbitration in environ-
mental agreements such as the UNFCCC, and the adoption of the PCA Optional Rules for
Arbitration of Disputes relating to Natural Resources and/or the Environment see Miles and
Lawry-White (2019), p. 11.
394
Tan and Chong (2020), pp. 189–190.
395
Bilanová (2020), p. 410.
396
Hepburn (2017), p. 113.
397
Case concerning the Payment in Gold of Brazilian Federal Loans contracted in France (France
v Brazil) (Judgment) (12 July 1929) PCIJ Rep Series A No 21.
398
Case concerning the Payment in Gold of Brazilian Federal Loans contracted in France (France
v Brazil) (Judgment) (12 July 1929) PCIJ Rep Series A No 21, 124: (‘Once the Court has arrived at
the conclusion that it is necessary to apply the municipal law of a particular country, there seems no
doubt that it must seek to apply it as it would be applied in that country. It would not be applying the
municipal law of a country if it were to apply it in a manner different from that in which that law
would be applied in the country in which it is in force. It follows that the Court must pay the utmost
regard to the decisions of the municipal courts of a country, for it is with the aid of their
5.3 How Appropriate Is It for Tribunals in Investment Arbitration to Decide. . . 265

law must be placed in its domestic context, for instance, with resort to domestic
interpretations and interpretative principles.399 This approach to domestic law has
been followed as well by tribunals in investment arbitration.400 Accordingly, tri-
bunals may ascertain the scope and proper application of the relevant domestic law
relying on primary materials (such as the text of the regulation or law), judicial
decisions on their application, drafting history, academic texts, expert witnesses
among others.401 This does not mean, for instance, that the tribunal is bound by
domestic case-law on the determination of the content of the law, as in certain
circumstances it might be appropriate to depart from it or even to choose between
conflicting positions.402
Certainly, some newer applicable law provisions in investment treaties foresee
some guidance on how to determine domestic law,403 which could be seen as an
innovation in treaty drafting.404 Yet, the utility of such guidance is doubtful as it is
limited to repeat the standard set by the PCIJ in the Brazilian Loans case. Con-
versely, a perhaps more useful suggestion would be the introduction of a preliminary
reference from the arbitral tribunal to domestic courts over questions of domestic law
(akin to the preliminary ruling procedure in the EU legal order).405 However, this
might excessively stall the arbitral proceedings.
Second, the environmental component of a counterclaim would necessitate the
assessment of scientific evidence and expert witnesses. Experts may clarify issues
beyond the arbitrators’ purview such as the existence and extent of soil and water
pollution, the health and environmental risks posed by the investment, the biological
significance of the investment site among others.406 However, the assessment of
environmental damage may throw conflicting results as the valuation of environ-
mental resources is usually based on estimates and possibly different valuation
methods.407 Thus, the assessment of such evidence adds to the complexity of the

jurisprudence that it will be enabled to decide what are the rules which, in actual fact, are applied in
the country the law of which is recognized as applicable in a given case’).
399
Hepburn (2017), p. 109.
400
See for instance: Hussein Nuaman Soufraki v The United Arab Emirates, ICSID Case No
ARB/02/7, Decision on Annulment (05 June 2007) para. 96; Emmis International Holding BV,
Emmis Radio Operating BV, MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft v The
Republic of Hungary, ICSID Case No ARB/12/2, Award (16 April 2014) para. 175.
401
Hepburn (2017), pp. 117–119.
402
Hepburn (2017), pp. 132–133.
403
See for instance: CETA (2016), Art 8.31(2); EU-Singapore IPA, Art 3.13(2); Lithuania-Turkey
BIT (2018), Art 12(13); Hungary-Cabo Verde BIT (2019), Art 9(7–8); Belarus-Hungary BIT (2019),
Art 9(8); Hungary-Kyrgyzstan BIT (2020), Art 9(8); Colombia-Spain BIT (2021), Art 26(2).
404
Atanasova (2019), pp. 413–414.
405
Shao (2021), p. 177. A similar procedure exists in the US known as ‘certification’, whereby
federal courts refer questions of state law to the respective state court, which has also been
suggested for investment arbitration see Puig and Shaffer (2018), p. 405.
406
Levine and Peart (2019), pp. 222–223.
407
Hanley (2002), p. 35.
266 5 Searching a Cause of Action for Environmental Counterclaims

case.408 One strategy for the tribunal to streamline and better understand technical
issues is flagging questions to the expert in advance of and/or after a hearing.409 This
was the method deployed by the tribunal in the South China Sea Arbitration,
whereby the tribunal sent prior and post hearing questions to the marine biologists
(experts), who were reporting on the alleged damage to coral reefs.410
A more challenging issue appears when the party-appointed experts present
diverging or contradicting conclusions. This happened in the cases of Perenco v
Ecuador and Burlington v Ecuador. For instance, the Perenco v Ecuador tribunal
acknowledged a divergence between the respective party-appointed experts with
respect to strict or fault-based liability, on joint and several liability, on the
imprescriptibility of environmental claims and on remediation criteria.411 The Bur-
lington v Ecuador tribunal faced a similar problem as the respective party-appointed
experts disagreed on whether prior the 2008 Constitution there was a rebuttable
presumption of fault for environmental claims, whether environmental claims before
2008 were imprescriptible, and whether environmental harm involved permissible
limits or background values.412 Curiously, despite analysing the same legal frame-
work and similar facts, the tribunals in Perenco v Ecuador and Burlington v Ecuador
disagreed with each other on the liability regime for environmental damage appli-
cable prior the 2008 Constitution.413
These discrepancies may undermine the credibility of the award, which is trou-
bling considering the public interest involved in environmental protection.414 There-
fore, tribunals must address the conflicting expert evidence for instance, by directly
assessing the merits of each expert’s opinion, by assessing the form, logic and
structure of the report or by considering the credentials of each expert.415 Tribunals

408
Harrison (2016), p. 480.
409
Levine and Peart (2019), p. 224.
410
The South China Sea Arbitration (The Republic of Philippines v The People’s Republic of
China), PCA Case No 2013-19.
411
Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the Environmental Counterclaim
(11 August 2015) paras. 116 et seqq., 160 et seqq., 168 and 183 et seqq.
412
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) paras. 240, 250 et seqq., and 268 et seqq.
413
The Perenco v Ecuador tribunal considered a fault-based liability for environmental damage
with a rebuttable presumption that the regulatory exceedance constitutes a failure on the duty of
care, which could be disproven by force majeure, act of a third person or that there was not failure
on the duty of care see, Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos
del Ecuador (Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the Environmental
Counterclaim (11 August 2015) paras. 353–355 and 371 et seqq. For the Burlington v Ecuador
tribunal, before the 2008 Constitution and at least as from 2002, there was a strict-liability regime on
environmental damage, whereby proving the fulfilment of the duty of care would not be enough to
exempt the operator from liability see, Burlington Resources Inc v Republic of Ecuador, ICSID
Case No ARB/08/5, Decision on Ecuador’s Counterclaims (07 February 2017) paras. 247–248.
414
Shao (2021), p. 176.
415
Hepburn (2017), pp. 134 et seqq.
5.3 How Appropriate Is It for Tribunals in Investment Arbitration to Decide. . . 267

in investment arbitration could also follow the practice encouraged by the ICC and
provided for in the IBA Rules on the Taking of Evidence of ‘hot-tubbing’, which
basically entails the meeting of the experts to narrow the issues on which they
disagree.416
Another option is to fall back on the burden of proof as was the case in the Allard
v Barbados case.417 Thus, if the tribunal is not convinced by any of the conflicting
reports, it would draw negative inferences for the party that needed to prove the
particular issue. An alternative to avoid conflicting reports of party-appointed
experts consists of tribunal-appointed experts.418 Needless to say, the tribunal cannot
delegate its authority on the expert, but it must rather consider carefully the report
before reaching its own conclusions.419 Yet, the main risk with this option is the
circularity of expert evidence as parties may appoint their own experts to rebut the
tribunal-appointed expert, which would necessarily increase costs.420 Interestingly,
the Perenco v Ecuador tribunal acknowledged the issue of burden of proof, but
decided to appoint its own expert instead.421
For the assessment of scientific evidence, one may also suggest having a technical
expert siting as one of the arbitrators or site visits of the tribunal.422 The former
option is drawn from the Indus Waters Kishenganga case, where one of the
arbitrators was a ‘highly qualified engineer’ appointed by the Rector of the Imperial
College of Science and Technology (London).423 The latter option has taken place in
the Gabčíkovo-Nagymaros case424 and Burlington v Ecuador case,425 where the
adjudicators visited the site of the alleged environmental harm and gathered further
information for the respective record. Whilst site visits could be implemented in
agreement between the tribunal and the parties, having a technical expert as an

416
Hussin (2019), pp. 9–10. Similarly, Miles and Lawry-White (2019), p. 28.
417
Peter A Allard v The Government of Barbados, PCA Case No 2012-06, Award (27 June 2016)
para. 110: (‘given the differences in approach of the experts and the insufficiency of available data,
the Claimant has failed to discharge his burden of proof to establish that there was a decline in the
parameters of water quality (other than salinity) at the Sanctuary during the Relevant Period’).
418
Shao (2021), p. 177.
419
Blackaby and Wilbraham (2016), p. 664.
420
Hepburn (2017), pp. 136 et seq.
421
After acknowledging that the burden of proof might not be completely fulfilled given the
disagreements over highly technical issues, the tribunal held ‘[h]owever, as the Tribunal is satisfied
that there has been some damage for which it seems likely that Perenco is liable, the Tribunal is not
disposed to dismiss the counterclaim in limine’ see, Perenco Ecuador Ltd v Republic of Ecuador
and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No ARB/08/6, Decision
on Perenco’s Application for Dismissal of Ecuador’s Counterclaims (18 August 2017) para. 35.
422
Levine and Peart (2019), p. 228.
423
Indus Waters Kishenganga Arbitration (Pakistan v India), PCA Case No 2011-01, Partial Award
(18 February 2013) para. 14.
424
Case concerning the Gabčíkovo-Nagymaros Project (Hungary v Slovakia) (Judgment) [1997]
ICJ Rep 7, para. 10.
425
Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on
Ecuador’s Counterclaims (07 February 2017) paras. 18 et seqq.
268 5 Searching a Cause of Action for Environmental Counterclaims

arbitrator might be more complicated. For instance, in the Indus Waters

Kishenganga case, having a technical expert in the tribunal was a requirement in
the underlying treaty.426 In the absence of such provision is difficult to envisage that
the disputing parties would agree on such composition of the tribunal.
Third, the standard and burden of proof for environmental damage should be
flexible. In this regard, the ICJ in the Certain Activities Carried Out by Nicaragua in
the Border Area case recognised that there might be difficulties on proving the
existence of environmental damage or causation, however, even in the ‘absence of
adequate evidence as to the extent of material damage will not, in all situations,
preclude an award of compensation for that damage’.427 This suggests certain
flexibility on evidentiary rules with respect to environmental matters.428 Finally,
one of the major evidentiary problems with environmental damage is the existence
of contamination prior to the acts of the concerned party. In this sense, the Perenco v
Ecuador tribunal held:
Given the problems of proof when seeking to shift responsibility for tortious claims, it is
possible that an operator might end up being found liable for an act of contamination
possibly caused by its predecessor. The best way for the contractor to protect its legal
interests was for it to comprehensively document the environmental condition of the Blocks
at the time that it assumed responsibility for them.429

Accordingly, an investor setting out an operation with potential environmental

impacts might be advised to document the environmental conditions of the relevant
area once it has taken responsibility.430 As such, it could eventually argue that
contamination existed prior to its activity or that its contribution to the environmental
damage has been minimal with respect to the conditions preceding the investment.

5.3.2 Policy Issues

The policy issues involved in the adjudication of environmental matters by a tribunal

in investment arbitration unfold in two categories: on the one hand, an international
dimension, which pertains to the direct imposition of international environmental
obligations on investors. On the other hand, a domestic dimension, which refers to

426
The Indus Waters Treaty 1960 between the Government of India, the Government of Pakistan
and the International Bank for Reconstruction and Development (adopted 19 September 1960, entry
into force 12 January 1961) 419 UNTS 215, Annexure G, para. 4(b)(ii).
427
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v Nicaragua)
(Compensation) [2018] ICJ Rep 15, paras. 34–35.
428
Miles and Lawry-White (2019), p. 28.
429
Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the Environmental Counterclaim
(11 August 2015) para. 378.
430
Hussin (2019), pp. 9–10.
5.3 How Appropriate Is It for Tribunals in Investment Arbitration to Decide. . . 269

the adjudication of counterclaims based on domestic environmental law by invest-

ment tribunals.
With respect to the international dimension, there is a structural imbalance in
treaty-based investment arbitration that goes beyond the investor’s exclusive right to
initiate proceedings: investors enjoy substantive standards of protection under IIAs
without corresponding obligations under international law.431 This has often resulted
on a further legitimacy concern, whereby an investor’s misconduct is ruled upon
exclusively as ‘contributory negligence’ instead of responsibility.432 With respect to
international environmental law there is an added problem: as seen above, interna-
tional environmental law is usually formulated in CSR standards for its application
to non-state actors. Yet, one may argue that reliance on self-regulation and voluntary
standards undermines the rule of law as investors may be uncapable or unwilling to
adhere to those international standards.433 This might cause discontent among the
receiving communities of foreign investment risking the viability of investment
projects in the future.434 Therefore, one may be inclined to support the inclusion
of direct obligations on non-state actors, particularly investors in international law.
However, such obligations ought to be sufficiently clear and precise.435
Since nothing impedes international law to do so, states’ reluctance to regulate the
conduct of non-state actors under international law appears as a political choice
rather than an inherent constraint of the legal system.436 One reason could be that
directly imposing international obligations on private actors would disempower
states with respect to control and compliance with those obligations.437 As such,
the application of precise international obligations on investors by arbitral tribunals
remains a ‘noble dream’,438 but this does not mean that the current state practice
cannot switch direction.
With respect to the domestic dimension, there are innumerable concerns over
investment tribunals adjudging issues of domestic environmental law, which might
not always be justified. For instance, one may suggest that counterclaims in treaty-
based investment arbitration should be limited to those grounded in law that the
tribunal is acquainted with, particularly with respect to domestic public laws, in
order to enhance the legitimacy of the process.439 This however may represent a
skewed perspective of arbitration. In practice, arbitrators decide disputes applying
domestic law even if they are not experts on that particular law.440 Moreover, as

431
Sattorova (2019), p. 26.
432
Ho (2019), p. 14.
433
Ho (2019), p. 15.
434
Sattorova (2019), p. 26.
435
Krajweski (2021), p. 128.
436
Nollkaemper (2006), p. 194; Dörr (2020), p. 142.
437
Vazquez (2005), p. 950.
438
Krajweski (2021), p. 128.
439
Bjorklund (2013), p. 479.
440
Kaufmann-Kohler (2005), p. 631.

Licensed to Dymas Satrioprojo ([email protected])

270 5 Searching a Cause of Action for Environmental Counterclaims

mentioned above, arbitrators have a variety of tools to ascertain the scope and
application of domestic law eg relying on judicial decisions, drafting history,
academic texts or expert witnesses. As such, the arbitrator’s knowledge on domestic
law by itself does not create legitimacy issues. Thus, restricting counterclaims to
only those based on (domestic) law the tribunal has knowledge thereof does not
seem to serve any purpose.
One may further caution that by narrowing the function of domestic law in newer
applicable law provisions in IIAs, states are becoming more defensive of their
courts’ jurisdiction to solve domestic law issues.441 This argument is buttressed if
the domestic law confers exclusive jurisdiction to domestic courts to decide envi-
ronmental matters.442 Yet, such view may not necessarily be correct. On the one
hand, the role and design of the applicable law provisions in IIAs is at least
questionable as outlined above. On the other hand, any state concern on the
exclusive jurisdiction of its courts over environmental matters seems to fade away
with the willing submission of the environmental counterclaim to investment arbi-
tration. In any case, legitimacy concerns about investment tribunals adjudging public
interests reflected in public domestic law, eg environmental issues, are misplaced,
since from the outset, those tribunals are conceived to entertain the state’s exercise of
sovereign authority.443
A more troublesome point pertains to whether the claimant investor is subject to
the respective domestic law, which provides the cause of action for the environmen-
tal counterclaim. Considering that investors normally operate through subsidiaries,
this might be the main challenge for counterclaims based on domestic law, unless
there are some reasons for piercing the corporate veil.444 By analogy of the issue on
non-consenting third parties mentioned in Chap. 3, a possibility would be to consider
the parent company and its subsidiary as a single economic entity.445 However, the
intricacies of third companies in counterclaims require a deeper analysis that exceeds
this book’s purview.
Be that as it may, from a policy perspective, there are plenty of reasons for
supporting the adjudication of environmental counterclaims based on domestic law
by investment tribunals. First, environmental considerations are more integrated in
the reasoning of investment tribunals, which evinces an understanding of investment
law more amenable to environmental protection.446 This suggests that tribunals are
fully receptive to consider the implications on sustainable development of their
decisions.447 Second, investment tribunals might be better placed to decide
connected environmental counterclaims in lieu of domestic courts because of the

441
Shao (2021), p. 167.
442
Douglas (2013), p. 434.
443
See Sect. 2.2.1.2.2.
444
Atanasova et al. (2014), p. 390.
445
See Sect. 3.3.2.3.
446
Tan and Chong (2020), p. 197.
447
Bjorklund (2019), p. 64.
5.4 Interim Conclusions 271

disparity of power between the state and the investor in domestic proceedings, the
inadequate capacity of some domestic court systems to assess environmental issues
and the procedural flexibility embedded in arbitration.448 Most importantly, by
arbitrating environmental counterclaims the risk of circularity (challenge of domestic
judgments before investment arbitration) might be lessened, thereby reducing pos-
sible costs and avoiding further strain on the domestic judicial systems.449 Third, the
examples of Perenco v Ecuador and Burlington v Ecuador illustrate that investment
tribunals are capable of deciding environmental counterclaims based on domestic
law,450 without major inconveniences.

5.4 Interim Conclusions

The assessment of a possible cause of action or legal basis for an environmental

counterclaim in investment arbitration constitutes the last step of this monograph.
Investors might be subject to a myriad of regulations or guidelines both at the
international and domestic level but this does not guarantee the existence of an
appropriate cause of action for environmental counterclaims. Certainly, the structure
and operation of investment contracts facilitate the possibility of finding
(or imposing in the future) environmental obligations upon the investor, whose
breach could ground an environmental counterclaim in contract-based investment
arbitration. In the absence of such obligations, domestic law of the host state could
provide the legal basis necessary for an environmental counterclaim.
In treaty-based investment arbitration, both domestic law and international law
enjoy the potential for imposing environmental obligations that serve as a cause of
action for environmental counterclaims. In case of environmental obligations stem-
ming from domestic law, they need to be operationalised in the respective IIA via a
treaty anchor that brings a domestic law violation to the international level. Appli-
cable law provisions in IIAs referring to domestic law of the host state are not
suitable for this purpose. Instead, environmental counterclaims might require treaty
provisions imposing the obligation upon investors to comply with the host state’s
domestic law, treaty provisions foreseeing counterclaims based on domestic law or a
combination of both.
In case of environmental obligations stemming from international law, they
engender a more complex discussion. Preliminary, one must bear in mind that the
debate about international legal personality of non-state actors is irrelevant for

448
Anning (2021), pp. 1318–1322.
449
Shao (2021), p. 173.
450
Report of the Eighteenth Commission of the Institut de Droit International (Rapporteur Profes-
sor Campbell McLachlan) on the ‘Equality of Parties before International Investment Tribunals’
paras. 207–211 <https://www.idi-iil.org/app/uploads/2019/06/Commission-18-Equality-of-
parties-before-international-investment-tribunals-McLachlan-Travaux-La-Haye-2019.pdf>
accessed 10 January 2023.
272 5 Searching a Cause of Action for Environmental Counterclaims

finding international environmental obligations upon investors. Moreover, while the

concepts of ‘responsibility’, ‘liability’ and ‘accountability’ are often used inter-
changeably, those concepts have a defined content in international law with respect
to corporations. Against this backdrop, one could theorise about two sources of
international law for environmental obligations upon investors: international envi-
ronmental law and investment treaties.
On the one hand, international environmental law does not actively regulate the
conduct of private actors. For instance, the well-established principles of the
polluter-pays principle, the principle of prevention and the precautionary principle
are abstract and indeterminate, thus falling short of imposing environmental obliga-
tions on investors. Certainly, international environmental law instruments might
highlight the crucial role of non-state actors for the protection of the environment
but they usually address states or require subsequent implementation into domestic
legislation such as the international regimes on civil liability for environmental
damage. Even CSR instruments do not impose environmental obligations on inves-
tors by themselves.
Yet, one could conceive that international environmental law as a whole creates a
negative obligation upon the investors, according to which, they are prohibited from
severally deteriorating the environment. This negative obligation could support an
environmental counterclaim in treaty-based investment arbitration but only in clear
evidence of environmental degradation. This evinces the intrinsic difficulties of
finding a cause of action in international environmental law for environmental
counterclaims in investment arbitration. This does not change by the
re-conceptualisation of environmental protection as a matter of human rights or as
transnational public policy.
On the other hand, IIAs could directly provide for investors’ obligations towards
the environment, but only if they are sufficiently clear on their scope and conse-
quences. In contrast, IIA provisions referring to CSR and other non-binding stan-
dards cannot provide a viable cause of action for environmental counterclaims.
Neither can treaty interpretation supply an IIA with environmental obligations
upon investors where the plain wording of the treaty does not establish such
obligation. This is so because, first, references to CSR and other non-binding
standards in IIAs are worded in a hortatory or voluntary manner. Second, neither
systematic integration nor evolutionary interpretation could incorporate investors’
obligations from the broader spectrum of international environmental law into
investment law. Systematic integration is an interpretative tool and cannot introduce
substantive obligations through the back door. Even if it could, such exercise is futile
given that international environmental law does not impose positive obligations on
non-state actors. Evolutionary interpretation could not incorporate environmental
norms if the particular treaty excludes such category of norms by omission or if the
generic terms subject to interpretation are worded in hortatory rather than prescrip-
tive language.
All in all, there might be certain hesitance in all stakeholders on the adjudication
of environmental counterclaims in investment arbitration. However, the advantages
might outweigh the possible concerns. From a technical perspective, arbitration
References 273

would provide the necessary tools to properly address the respective environmental
issues, and from a policy perspective, investment arbitration might exalt environ-
mental protection at the international level.

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Licensed to Dymas Satrioprojo ([email protected])

Chapter 6
Conclusions

The conflicting relation between investment law and environmental protection

cannot always be avoided. But the instrument of environmental counterclaims in
investment arbitration might alleviate such relation. As outlined in Chap. 1, the study
of environmental counterclaims poses questions about the societal and practical
relevance of seeking redress for environmental damage in investment arbitration,
the functioning of such instrument both in contract-based and treaty-based invest-
ment arbitration, the suitability of arbitral tribunals to rule upon environmental
issues, and the kind of environmental damages that could be redressed. Throughout
its Chapters, this monograph sought to address all these questions. Most importantly,
given the development of environmental protection in international law, this book
seeks to stimulate future discussions, tribunals’ analyses, and perhaps the
reformulation of jurisdictional, procedural and substantive provisions in investment
arbitration.
In this context, the main takeaways from this monograph are summarised as
follows: theoretical underpinnings for environmental counterclaims in investment
arbitration [Sect. 6.1]. The jurisdiction of arbitral tribunals to adjudge environmental
counterclaims [Sect. 6.2]. The connection between an environmental counterclaim
and the main claim [Sect. 6.3]. The cause of action for an environmental counter-
claim [Sect. 6.4].

6.1 The Theoretical Underpinnings for Environmental

Counterclaims

A comparative analysis of counterclaims in various frameworks for international

dispute settlement has evinced some common features shared by counterclaims in
each of the analysed frameworks. This includes for instance that the underlying
instrument of consent must vest the adjudicatory body with jurisdiction to adjudicate

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 281
A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
EYIEL Monographs - Studies in European and International Economic Law 34,
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282 6 Conclusions

the counterclaim. Similarly, a close connection between the counterclaim and the
main claim shall exist. Furthermore, it appears that belated counterclaims could
exceptionally be admitted by the adjudicatory body. However, a comparative anal-
ysis of the requirements for counterclaims must nevertheless be tested through the
particular characteristics and functioning of investment arbitration.
In this sense, the most evident differentiation appears between contract-based and
treaty-based investment arbitration. On the one hand, the synallagmatic structure of
investment contracts places international commercial arbitration and the operation of
counterclaims therein as a key point of reference when assessing counterclaims in
contract-based investment arbitration. On the other hand, despite the multiple
conceptualisations of treaty-based investment arbitration, three overarching charac-
teristics delineate the analysis of counterclaims: the unique process for achieving
consent; the adjudication of regulatory disputes; the interaction of multilevel norms.
With respect to the rationale behind the availability of counterclaims, one may
consider procedural economy, the proper administration of justice, the equality of
parties, or due process, which are similarly displayed by all different frameworks for
international dispute settlement as the objectives pursued by counterclaims. How-
ever, in investment arbitration, counterclaims are supported by procedural or judicial
economy considerations, whereas due process and the rule of law appear immaterial
for the availability of such procedural instrument.
Furthermore, although counterclaims constitute a neutral instrument through
which the state can advance a variety of interests, the intricate relation between
investment law and environmental protection has paved the way for the support of
environmental counterclaims in investment arbitration, as a means to address
instances of ‘pure’ environmental damage. This theoretical framework ultimately
serves for the deconstruction of the requirements of jurisdiction, connection between
main claim and counterclaim, and of cause of action.

6.2 Jurisdiction Over Environmental Counterclaims

The scope of consent constitutes the centrepiece of a tribunal’s analysis over its
jurisdiction to adjudge environmental counterclaims. Neither a tribunal’s inherent
powers nor the applicable arbitration rules can confer jurisdiction over environmen-
tal counterclaims on an arbitral tribunal. On the one hand, the functioning of
contract-based investment arbitration seems particular supportive of finding juris-
diction over environmental counterclaims. On the other hand, treaty-based invest-
ment arbitration faces two kinds of obstacles: the restrictive appraisal of IIAs
vis-à-vis counterclaims and the prima facie exclusion of contractual counterclaims.
On the one hand, in several occasions, arbitral tribunals have misconceived
jurisdictional requirements over counterclaims, especially with respect to the lack
of the state’s legal standing to submit claims and the applicable law provisions in
IIAs. At the same time, the kind of disputes subject to arbitration might function as
an indication of the tribunal’s lack of jurisdiction over environmental counterclaims.
6.3 Connection Between an Environmental Counterclaim and the Main Claim 283

This is so even in the framework of the ICSID Convention, where consent for
counterclaims is constantly underscored.
On the other hand, the exclusion of contractual counterclaims from treaty-based
investment arbitration derives from the existence of limited dispute resolution pro-
visions in IIAs or the existence of a forum selection clause in the respective
investment contract. Another potential obstacle for contractual counterclaims in
treaty-based investment arbitration is the difference between parties to the dispute
and parties to the investment contract. Yet, tribunals could resort to an analysis of a
single economic unity (for investors) or the attribution criteria in public international
law (for the respondent) to overcome the different legal personalities.
Limitations as to the kind of disputes subject to treaty-based investment arbitra-
tion have played a decisive role on the tribunals’ jurisdiction over counterclaims.
Thus, this book has advanced a critical revision on the interpretation of treaty
provisions on dispute settlement. This brings about the assessment of the provision’s
context and the respective treaty’s object and purpose, as well as the possibility for
tribunals to avail themselves of systematic integration. Such exercise could provide
the tribunal with several indications in favour of the adjudication of environmental
counterclaims. For instance, in the form of exclusion of certain types of counter-
claims by the treaty, explicit objectives towards environmental protection or sus-
tainable development found in the treaty, and international environmental law
applicable between the treaty parties.
Prospective solutions remove the inherent problems of treaty interpretation,
particularly by means of authentic or authoritative interpretations, treaty drafting
and modification, or perhaps by imposing the requisite consent over counterclaims in
domestic law. Whilst based upon these prospective options, tribunals might be more
receptive to finding jurisdiction over counterclaims, most of those options would
constitute a long-term endeavour and do not appear feasible at this moment.

6.3 Connection Between an Environmental Counterclaim

and the Main Claim

While the scope of consent constitutes the centrepiece of a tribunal’s analysis on

environmental counterclaims, the requisite connection represents the tribunal’s
compass. In this sense, despite the few instruments in investment arbitration refer-
ring to the close connection between the counterclaim and the main claim, tribunals
should always scrutinise the connection requirement as an inherent feature of
counterclaims. This brings about the proper characterisation of the connection
requirement, its content and its relevance for environmental counterclaims.
The characterisation of this requirement is not settled: some frame it as a
jurisdictional issue, whereas others frame it as an admissibility issue. Certainly,
this monograph does not intend to resolve the disagreements on the appropriateness
of the jurisdiction/admissibility divide in investment arbitration. But procedural
284 6 Conclusions

fairness or judicial propriety may undisputedly prompt tribunals to decline the

exercise of properly vested jurisdiction over a claim in certain cases. In such
situations, the tribunal must exercise judicial discretion that a strict jurisdictional
assessment cannot provide.
Given that the analysis on the requisite connection would be guided by the
principle of procedural or judicial economy, a tribunal requires a certain degree of
judicial discretion and flexibility only available in non-jurisdictional, admissibility,
or procedural decisions. This characterisation of the connection requirements entails
that the assessment on jurisdiction over counterclaims precedes the analysis on
connection. As such, the requisite connection cannot remedy the lack of a tribunal’s
jurisdiction over counterclaims. Moreover, parties’ explicit consent to counterclaims
may obviate an analysis on connection.
The content of the connection requirement usually displays a division between
legal and factual connection. Irrespective of the merits of such division, it is
concerning that several tribunals have limited themselves to find connection only
if the counterclaim and the main claim are based on the same legal instrument/legal
source. Such limitation on the connection requirement is incorrect because: first, it
stems from an uncontextualised initial reliance on the IUSCT jurisprudence, and on
early ICSID cases. Second, it lacks textual support in IIAs, the ICSID Convention or
any set of arbitration rules. Third, it might undermine broadly worded dispute
resolution provisions in IIAs.
This ultimately suggests a dilution of the connection requirement into various
balancing factors. Accordingly, the identity of legal source is only one of various
connecting factors, which must be balanced out to determine whether there is a close
connection between the counterclaim and the main claim. Thus, this provides tri-
bunals with flexibility in their assessments of the requisite connection, which should
render environmental counterclaims more viable, for instance, if the environmental
issue stems directly from the investment’s operation.

6.4 Cause of Action for an Environmental Counterclaim

The assessment of a possible cause of action or legal basis for an environmental

counterclaim in investment arbitration constitutes the last step of this book. Whilst
investors might be subject to a myriad of norms both at the international and
domestic level, this does not necessarily provide an appropriate cause of action for
environmental counterclaims. Once again, the division between contract-based and
treaty-based investment arbitration entails different conclusions. In contract-based
investment arbitration, investment contracts can provide for obligations upon the
investor, whose breach could support an environmental counterclaim. Even in the
absence of such obligations in the investment contract, domestic law of the host state
could provide the legal basis necessary for an environmental counterclaim.
In treaty-based investment arbitration, domestic law and/or international law
could potentially impose environmental obligations on investors that serve as a
6.4 Cause of Action for an Environmental Counterclaim 285

cause of action for environmental counterclaims. With respect to environmental

obligations in domestic law, this monograph argues that such law would necessitate
operationalisation via a treaty anchor that brings a breach of domestic law to the
international level. In this sense, applicable law provisions in IIAs mentioning
domestic law cannot serve this purpose. Rather, one may consider treaty provisions
obliging the investor to comply with the host state’s domestic law and/or treaty
provisions foreseeing counterclaims based on domestic law.
With respect to environmental obligations in international law, the irrelevance of
considering the legal personality of non-state actors instead of assessing interna-
tional obligations actually imposed on those actors should be noted. Furthermore,
when searching for international environmental obligations on investors, one ought
to be cautious of concepts such as ‘responsibility’, ‘liability’ and ‘accountability’
given their interchangeable use. Be that as it may, international environmental
obligations upon investors could stem from international environmental law or
investment treaties.
In international environmental law, there is no positive obligation on non-state
actors towards the environment. This is so because: first, the polluter-pays principle,
the principle of prevention and the precautionary principle must be incorporated (eg
in international agreements or domestic law) in sufficient prescriptive terms in order
to create obligations. Second, international environmental law instruments usually
address states or require subsequent implementation into domestic legislation. This
is the case of international regimes on civil liability for environmental damage,
which not only face a low ratification rate but must also be implemented into
domestic law. Third, given that CSR instruments are drafted in an hortatory manner,
they fail to create obligations on investors as well.
Arguably, international environmental law comprises a negative obligation not to
undermine environmental protection, which could serve as a legal basis for an
environmental counterclaim but only in clear evidence of environmental degrada-
tion. All these obstacles for international environmental law to provide a cause of
action for environmental counterclaims in treaty-based investment arbitration would
not be solved by the re-conceptualisation of environmental protection as a matter of
human rights or as transnational public policy.
In investment treaties, clear environmental obligations could be devised, which
could serve as a cause of action for environmental counterclaims. Conversely, a
renvoi to an international environmental norm or the incorporation of such norm via
treaty interpretation cannot serve as a cause of action for environmental counter-
claims. On the one hand, IIA provisions referring to international environmental law
are drafted in a non-prescriptive manner. On the other hand, systematic integration
and evolutionary interpretation as means of treaty interpretation cannot incorporate
investors’ environmental obligations from international law. All in all environmental
obligations stemming from international law may not readily provide a cause of
action for environmental counterclaims in treaty-based investment arbitration.
In any case, it must be stressed that from a technical perspective, investment
arbitration can provide the necessary technical and procedural tools to properly
address the respective environmental issues arising from an environmental
286 6 Conclusions

counterclaim. Furthermore, from a policy perspective, investment arbitration might

exalt environmental protection at the international level.
Overall, environmental counterclaims in investment arbitration appear as a viable
instrument for addressing the tensions between investment law and environmental
protection. Undeniably, this instrument has faced (and might continue to face) a
multitude of obstacles for its effective use. Yet, by deconstructing the requirements
of jurisdiction, connection between main claim and counterclaim, and cause of
action, this book provides the tools for the re-conceptualisation of the instrument
of counterclaims with the hope of harnessing its utility to achieve appropriate redress
for environmental damages caused by foreign investors.
Annexes

Annex 1: Counterclaims with an Environmental Related

Issue

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 287
A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
EYIEL Monographs - Studies in European and International Economic Law 34,
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288 Annexes
Annexes 289

Annex 2: Other Counterclaims in Chronological Order

290 Annexes

Licensed to Dymas Satrioprojo ([email protected])

Annexes 291
292 Annexes
Annexes 293
294 Annexes
Annexes 295

Annex 3: Counterclaims in Numbers

Decisions on Counterclaims
Contract-Based Treaty-Based Domestic Law-Based
16
14
12
10
8
6
4
2
0

Succes Rate
Contract-Based Treaty-Based Domestic Law-Based
20 18
18
16
14
12 11
10
8 7
6 4 4
4
2 1 1 1
0
0
Dismissed on Jurisdiction Upheld (or partially Successful (or partially
(or similar) upheld) in Jurisdiction but successful) on Merits
rejected on Merits
296 Annexes

Annex 4: Article 6 of the Resolution on the ‘Equality

of Parties before International Investment Tribunals’
of the 18th Commission of the Institut de Droit International

Article 6
Counterclaims
(1) The ability of a respondent to assert a counterclaim that is admissible before a
tribunal ensures the procedural equality of the parties.
(2) In order to be admissible, such a counterclaim must:
(a) Be within the jurisdiction of the tribunal; and,
(b) Arise directly out of the subject matter of the investment.
(3) The jurisdictional requirement is met when, by virtue of the instrument of
consent invoked by the respondent, the tribunal would have had jurisdiction
over the counterclaim had it been asserted as a primary claim. Whether or not the
tribunal has jurisdiction over a counterclaim does not depend upon the respon-
dent invoking the same ground of jurisdiction as that relied upon by the claimant
for its claim, nor is the tribunal’s jurisdiction limited by the scope of the dispute
as framed by the claimant in its Request for Arbitration.
(4) Where the dispute is submitted to arbitration under the ICSID Convention, the
requirement in Article 46 that the counterclaim must also be ‘otherwise within
the jurisdiction of the Centre’ means that it must fall within the criteria of Article
25(1) of the Convention by being a ‘legal dispute arising directly out of an
investment, between a Contracting State. . .and a national of another Contracting
State.’
(5) The requirement of sufficiency of connection with the subject matter of the
dispute is met where the counterclaim concerns the same investment that gave
rise to the claim. It does not require that the counterclaim be founded upon the
same legal instrument or cause of action asserted by the claimant.
(6) The tribunal may find a counterclaim to be admissible, whether it is founded
upon international law or host State law, provided that it fulfils the other
requirements set out in this Article and concerns a subject matter that is capable
of submission to arbitration.
List of Cases

Arbitral Decisions in Investment Arbitration (Except

Counterclaims)

Abaclat and Others v Argentine Republic, ICSID Case No ARB/07/5, Decision on

Jurisdiction and Admissibility (04 August 2011).
Adel A Hamadi Al Tamimi v Sultanate of Oman, ICSID Case No ARB/11/33, Award
(03 November 2015).
AES Summit Generation Limited and AES-Tisza Erömü Kft v The Republic of
Hungary, ICSID Case No ARB/07/22, Award (23 September 2010).
Aguas del Tunari, SA v Republic of Bolivia, ICSID Case No ARB/02/3, Decision on
Jurisdiction (21 October 2005).
Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No
ARB/81/1, Decision on Annulment in Resubmitted Proceeding
(17 December 1992).
Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No ARB/87/3,
Award (27 June 1990).
Astrida Benita Carrizosa v Republic of Colombia, ICSID Case No ARB/18/5,
Award (19 April 2021).
Azurix Corp v The Argentine Republic, ICSID Case No ARB/01/12, Decision on
Jurisdiction (08 December 2003).
Azurix Corp v The Argentine Republic, ICSID Case No ARB/01/12, Award
(14 July 2006).
Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan, ICSID
Case No ARB/03/29, Decision on Jurisdiction (14 November 2005).
Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan, ICSID
Case No ARB/03/29, Award (27 August 2009).
Bayview Irrigation District et al v United Mexican States, ICSID Case No ARB
(AF)/05/1, Award (19 June 2007).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 297
A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
EYIEL Monographs - Studies in European and International Economic Law 34,
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298 List of Cases

BG Group Plc v Republic of Argentina, UNCITRAL Case, Award

(24 December 2007).
Ceskoslovenska Obchodni Banka AS v The Slovak Republic, ICSID Case No
ARB/97/4, Procedural Order No 4 (11 January 1999).
Chemtura Corporation v Government of Canada, UNCITRAL Case, Award
(02 August 2010).
CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No
ARB/01/8, Decision on Jurisdiction (17 July 2003).
CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No
ARB/01/8, Award (12 May 2005).
Compañía de Aguas del Aconguija SA and Vivendi Universal SA v Argentine
Republic, ICSID Case No ARB/97/3, Decision on Annulment (03 July 2002).
Compañia del Desarrollo de Santa Elena SA v Republic of Costa Rica, ICSID Case
No ARB/96/1, Final Award (17 February 2000).
Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v
Republic of Kenya, ICSID Case No ARB/15/29, Award (22 October 2018).
Daimler Financial Services AG v Argentine Republic, ICSID Case No ARB/05/1,
Award (22 August 2012).
Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka, ICSID Case No
ARB/09/2, Award (31 October 2012).
Electrabel SA v Republic of Hungary, ICSID Case No ARB/07/19, Decision on
Jurisdiction, Applicable Law and Liability (30 November 2012).
Emilio Agustín Maffezini v The Kingdom of Spain, ICSID Case No ARB/97/7,
Decision on Jurisdiction (25 January 2000).
Emmis International Holding BV, Emmis Radio Operating BV, MEM Magyar
Electronic Media Kereskedelmi és Szolgáltató Kft v The Republic of Hungary,
ICSID Case No ARB/12/2, Award (16 April 2014).
Empresas Lucchetti SA and Lucchetti Peru SA v The Republic of Peru, ICSID Case
No ARB/03/4, Decision on Annulment (05 September 2007).
EnCana Corporation v Republic of Ecuador, LCIA Case No UN3481, Award
(3 February 2006).
Enron Corporation and Ponderosa Assets LP v Argentine Republic, ICSID Case No
ARB/01/3, Decision on Jurisdiction (14 January 2004).
Fraport AG Frankfurt Airport Services Worldwide v The Republic of The Philip-
pines, ICSID Case No ARB/03/25, Award (16 August 2007).
Giovanni Alemanni and Others v The Argentine Republic, ICSID Case No ARB/07/
8, Decision on Jurisdiction and Admissibility (17 November 2014).
Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Decision on
Jurisdiction (24 October 2011).
Hussein Nuaman Soufraki v The United Arab Emirates, ICSID Case No ARB/02/7,
Decision on Annulment (05 June 2007).
ICS Inspection and Control Services Limited v The Republic of Argentina, PCA Case
No 2010-9, Award on Jurisdiction (10 February 2012).
Impregilo SpA v Argentine Republic, ICSID Case No ARB/07/17, Award
(21 June 2011).
List of Cases 299

Impregilo SpA v Argentine Republic, ICSID Case No ARB/07/17, Concurring and

Dissenting Opinion of Professor Brigitte Stern (21 June 2011).
Impregilo SpA v Islamic Republic of Pakistan, ICSID Case No ARB/03/3, Decision
on Jurisdiction (22 April 2005).
International Thunderbird Gaming Corporation v The United Mexican States,
UNCITRAL Case, Award (26 January 2006).
Jan Oostergetel and Theodora Laurentius v The Slovak Republic, UNCITRAL
Case, Decision on Jurisdiction (30 April 2010).
Lanco International Inc v The Argentine Republic, ICSID Case No ARB/97/6,
Decision on Jurisdiction (08 December 1998).
Loewen Group Inc and Raymond L Loewen v United States of America, ICSID Case
No ARB(AF)/98/3, Award (26 June 2003).
Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/
1, Award (16 December 2002).
Mathias Kruck and others v Kingdom of Spain, ICSID Case No ARB/15/23,
Decision on Jurisdiction (16 April 2021).
Methanex Corporation v United States of America, UNCITRAL Case, Award
(03 August 2005).
Mobil Investments Canada Inc and Murphy Oil Corporation Inc v Canada, ICSID
Case No ARB(AF)/07/4, Decision on Liability and on Principles of Quantum
(22 May 2012).
Orascom TMT Investments Sàrl v People’s Democratic Republic of Algeria, ICSID
Case No ARB/12/35, Decision on Annulment (17 September 2020).
Peter A Allard v The Government of Barbados, PCA Case No 2012-06, Award
(27 June 2016).
Philip Morris Brands Sàrl, Philip Morris Products SA and Abal Hermanos SA v
Oriental Republic of Uruguay, ICSID Case No ARB/10/7 (formerly FTR Hold-
ing SA, Philip Morris Products SA and Abal Hermanos SA v Oriental Republic of
Uruguay), Request for Arbitration (19 February 2010).
Phoenix Action Ltd v The Czech Republic, ICSID Case No ARB/06/5, Award
(15 April 2009).
Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24,
Order (06 September 2005).
Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24,
Award (27 August 2008).
Quiborax SA, Non Metallic Minerals SA and Allan Fosk Kaplún v Plurinational
State of Bolivia, ICSID Case No ARB/06/2, Award (16 September 2015).
Ronald S Lauder v The Czech Republic, UNCITRAL Case, Final Award
(03 September 2001).
RosInvestCo UK Ltd v The Russian Federation, SCC Case No V079/2005, Final
Award (12 September 2010).
Saipem SpA v The People's Republic of Bangladesh, ICSID Case No ARB/05/07,
Decision on Jurisdiction and Recommendation on Provisional Measures
(21 March 2007).
300 List of Cases

Salini Impregilo SpA v Argentine Republic, ICSID Case No ARB/15/39, Decision

on Jurisdiction and Admissibility (23 February 2018).
SAUR International SA v Republic of Argentina, ICSID Case No ARB/04/4, Deci-
sion on Jurisdiction and Liability (06 June 2012).
SD Myers, Inc v Government of Canada, UNCITRAL Case, Partial Award
(13 November 2000).
SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID
Case No ARB/01/13, Procedural Order No 2 (16 October 2002) [reproduced in
(2003) 18(1) ICSID Review 293-306].
SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID
Case No ARB/01/13, Decision on Jurisdiction (06 August 2003).
SGS Société Générale de Surveillance SA v Republic of The Philippines, ICSID Case
No ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction
(29 January 2004).
SGS Société Générale de Surveillance SA v The Republic of Paraguay, ICSID Case
No ARB/07/29, Decision on Jurisdiction (12 February 2010).
Southern Pacific Properties (Middle East) Ltd v Arab Republic of Egypt, ICSID
Case No ARB/84/3, Decision on Jurisdiction (14 April 1988).
Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18, Order No 1 (01 July 2003).
Tza Yap Shum v The Republic of Peru, ICSID Case No ARB/07/6, Award
(07 July 2011).
Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur
Partzuergoa v The Argentine Republic, ICSID Case No ARB/07/26, Decision
on Jurisdiction (19 December 2012).
Vladislav Kim and others v Republic of Uzbekistan, ICSID Case No ARB/13/6,
Decision on Jurisdiction (08 March 2017).
Waste Management Inc v United Mexican States, ICSID Case No ARB(AF)/98/2,
Dissenting Opinion of Keith Highet (08 May 2000).
Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Decision
on Annulment (05 February 2002).
World Duty Free Company v Republic of Kenya, ICSID Case No Arb/00/7, Award
(04 October 2006).
Yukos Universal Limited (Isle of Man) v The Russian Federation, UNCITRAL, PCA
Case No 2005-04/AA227, Award (18 July 2014).
Yuri Bogdanov and Yulia Bogdanova v Republic of Moldova, SCC Case No V091/
2012, Award (13 April 2013).

PCIJ Decisions

Case concerning Certain German Interests in Polish Upper Silesia (Germany v

Poland) (Merits) (25 May 1926) PCIJ Rep Series A No 07.
Case concerning the Factory at Chorzów (Germany v Poland) (Merits)
(13 September 1928) PCIJ Rep Series A No 17.

Licensed to Dymas Satrioprojo ([email protected])

List of Cases 301

Case concerning the Payment in Gold of Brazilian Federal Loans contracted in

France (France v Brazil) (Judgment) (12 July 1929) PCIJ Rep Series A No 21.
Case concerning the Payment of various Serbian Loans issued in France (France v
the Kingdom of Serbs, Croats and Slovenes) (Judgment) (12 July 1929) PCIJ Rep
Series A No 20.
Jurisdiction of the Courts of Danzig (Advisory Opinion) (03 March 1928) PCIJ Rep
Series B No 15.
Rights of Minorities in Upper Silesia (Minority Schools) (Germany v Poland)
(Judgment) (26 April 1928) PCIJ Rep Series A No 15.
Status of Eastern Carelia (Advisory Opinion) (23 July 1923) PCIJ Rep Series B No
05.
The Diversion of Water from the Meuse (The Netherlands v Belgium) (Judgment)
(28 June 1937) PCIJ Rep Series A/B No 70.
The Mavrommatis Palestine Concessions (Greece v United Kingdom) (Judgment)
(30 August 1924) PCIJ Rep Series A No 02.
The Panevezys-Saldutiskis Railway Case (Estonia v Lithuania) (Judgment)
(28 February 1939) PCIJ Rep Series A/B No 76.

ICJ Decisions

Aegean Sea Continental Shelf (Greece v Turkey) (Judgment) [1978] ICJ Rep 3.
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea
(Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep 289.
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea
(Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Decla-
ration of Vice-President Yusuf.
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea
(Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Dissent-
ing Opinion of Judge ad hoc Caron.
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea
(Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Joint
Opinion of Judges Tomka, Gaja, Sebutinde, Gevorgian and judge ad hoc Daudet.
Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea
(Nicaragua v Colombia) (Order on Counterclaims) [2017] ICJ Rep 289, Separate
Opinion of Judge Greenwood.
Ambatielos Case (Greece v United Kingdom) (Merits: Obligation to Arbitrate)
[1953] ICJ Rep 10.
Application of the Convention on the Prevention and Punishment of the Crime of
Genocide (Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims)
[1997] ICJ Rep 243.
Application of the Convention on the Prevention and Punishment of the Crime of
Genocide (Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims)
[1997] ICJ Rep 243, Declaration of Judge ad hoc Kreca.
302 List of Cases

Application of the Convention on the Prevention and Punishment of the Crime of

Genocide (Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims)
[1997] ICJ Rep 243, Dissenting Opinion Judge Weeramantry.
Application of the Convention on the Prevention and Punishment of the Crime of
Genocide (Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims)
[1997] ICJ Rep 243, Separate Opinion Judge Koroma.
Application of the Convention on the Prevention and Punishment of the Crime of
Genocide (Bosnia and Herzegovina v Yugoslavia) (Order on Counterclaims)
[1997] ICJ Rep 243, Separate Opinion Judge Lauterpacht.
Application of the Convention on the Prevention and Punishment of the Crime of
Genocide (Croatia v Serbia) (Merits) [2015] ICJ Rep 3.
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v
Uganda) (Order on Counterclaims) [2001] ICJ Rep 660.
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v
Uganda) (Order on Counterclaims) [2001] ICJ Rep 660, Declaration of Judge
Verhoeven.
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v
Uganda) (Merits) [2005] ICJ Rep 168.
Case Concerning Armed Activities on the Territory of the Congo (New Application:
2002) (Democratic Republic of Congo v Rwanda) (Jurisdiction) [2006] ICJ
Rep 6.
Case concerning Certain Phosphate Lands in Nauru (Nauru v Australia) (Judg-
ment) [1992] ICJ Rep 240.
Case Concerning the Aerial Incident of July 27 th, 1955 (Israel v Bulgaria) (Pre-
liminary Objections) [1959] ICJ Rep 127, Joint Dissenting Opinion by Judges Sir
Hersch Lauterpacht, Wellington Koo and Sir Percy Spender.
Case concerning the Gabčíkovo-Nagymaros Project (Hungary v Slovakia) (Judg-
ment) [1997] ICJ Rep 7.
Case concerning the Gabčíkovo-Nagymaros Project (Hungary v Slovakia) (Judg-
ment) [1997] ICJ Rep 7, Separate Opinion of Vice-President Weeramantry.
Case concerning the Northern Cameroons (Cameroon v United Kingdom) (Prelim-
inary Objections) [1963] ICJ Rep 15.
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v
Nicaragua), Construction of a Road in Costa Rica along the San Juan River
(Nicaragua v Costa Rica) (Order on Counterclaims) [2013] ICJ Rep 200.
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v
Nicaragua), Construction of a Road in Costa Rica along the San Juan River
(Nicaragua v Costa Rica) (Order on Counterclaims) [2013] ICJ Rep 200, Decla-
ration of Judge ad hoc Guillaume.
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v
Nicaragua) (Compensation) [2018] ICJ Rep 15.
Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v France)
(Judgment) [2008] ICJ Rep 177.
Colombian-Peruvian Asylum Case (Colombia v Peru) (Judgment) [1950] ICJ Rep
266.
List of Cases 303

Corfu Channel Case (United Kingdom v Albania) (Judgment on Preliminary Objec-

tion) [1948] ICJ Rep 15.
Dispute Regarding Navigational and Related Rights (Costa Rica v Nicaragua)
(Judgment) [2009] ICJ Rep 213.
Frontier Disputer (Benin v Niger) (Judgment) [2005] ICJ Rep 90.
International Status of South-West Africa (Advisory Opinion) [1950] ICJ Rep
128, Separate Opinion by Sir Arnold McNair.
Interpretation of Peace Treaties with Bulgaria, Hungary and Romania (Advisory
Opinion) [1950] ICJ Rep 65.
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim)
[2010] ICJ Rep 310.
Jurisdictional Immunities of the State (Germany v Italy) (Order on Counterclaim)
[2010] ICJ Rep 310, Dissenting opinion of Judge Cançado Trindade.
Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nige-
ria) (Order) [1999] ICJ Rep 983.
Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nige-
ria, Equatorial Guinea intervening) (Counterclaims) [2002] ICJ Rep 303.
Land, Island, and Maritime Frontier Dispute (El Salvador v Honduras: Nicaragua
intervening) (Judgment) [1992] ICJ Rep 351.
Legal Consequences for States of the Continued Presence of South Africa in
Namibia (South West Africa) notwithstanding Security Council Resolution
276 (1979) (Advisory Opinion) [1971] ICJ Rep 16.
Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ
Rep 190.
Oil Platforms (Iran v United States of America) (Order on Counterclaim) [1998] ICJ
Rep 190, Separate Opinion Judge Higgins.
Oil Platforms (Iran v United States of America) (Merits) [2003] ICJ Rep 161.
Pulp Mills on the River Uruguay (Argentina v Uruguay) (Judgment) [2010] ICJ Rep
14.
Question of the Delimitation of the Continental Shelf between Nicaragua and
Colombia beyond 200 Nautical Miles from the Nicaraguan Coast (Nicaragua v
Colombia) (Preliminary Objections) [2016] ICJ Rep 100.
Reparation for Injuries suffered in the Service of the United Nations (Advisory
Opinion) [1949] ICJ Rep 174.

IUSCT Decisions

American Bell International Inc v The Islamic Republic of Iran, The Ministry of
Defense, The Ministry of Post, Telegraph and Telephone, and the Telecommuni-
cations Company of Iran, Case 48, Chamber 3, Award No 255-48-3
(19 September 1986) 12 Iran-US CTR 170.
American Bell International Inc v The Islamic Republic of Iran, The Ministry of
Defense, The Ministry of Post, Telegraph and Telephone, and the
304 List of Cases

Telecommunications Company of Iran, Case 48, Chamber 3, Interlocutory Award

No ITL 41-48-3 (11 June 1984) 6 Iran-US CTR 74.
Computer Sciences Corporation v The Government of the Islamic Republic of Iran
and others, Case 65, Chamber 1, Award No 221-65-1 (16 April 1986) 10 Iran-US
CTR 269.
Houston Contracting Company v National Iranian Oil Company, National Iranian
Gas Company, and the Islamic Republic of Iran, Case 173, Chamber 3, Award
No 378-173-3 (22 July 1988) 20 Iran-US CTR 3.
International Technical Products Corporation and ITP Export Corporation v The
Islamic Republic of Iran and others, Case 302, Chamber 3, Award No 196-302-3
(24 October 1985) 9 Iran-US CTR 206.
Questech Inc v The Ministry of National Defence of the Islamic Republic of Iran,
Case 59, Award No 191-59-1 (20 September 1985) 9 Iran-US CTR 170.
Request for Interpretation: Jurisdiction of the Tribunal with respect to claims by the
Islamic Republic of Iran against nationals of the United States of America, Case
A/2, Decision No DEC 1-A2-FT (13 January 1982) 1 Iran-US CTR 101.
Request for Interpretation: Jurisdiction of the Tribunal with respect to claims by the
Islamic Republic of Iran against nationals of the United States of America, Case
A/2, Decision No DEC 1-A2-FT (13 January 1982) 1 Iran-US CTR 101, Dissent-
ing opinion of Mahmoud Kashani, Shafie Shafiel and Seyyed Hossen Enayat.
Sylvania Technical Systems Inc v The Islamic Republic of Iran, Case 64, Award No
180-64-1 (27 June 1985) 8 Iran-US CTR 298.
Sylvania Technical Systems Inc v The Islamic Republic of Iran, Case 64, Award No
180-64-1 (27 June 1985) 8 Iran-US CTR 298, Dissenting Opinion of Seyyed
Mohsen Mostafavi.
TCSB Inc v The Islamic Republic of Iran, Case 140, Chamber 2, Award No 114-140-
2 (16 March 1984) 5 Iran-US CTR 160.
The Islamic Republic of Iran v The United States of America, Case B1, Interlocutory
Award ITL 83-B1-FT (counterclaim) (9 September 2004) 38 Iran-US CTR 77.
The United States of America and the Federal Reserve Bank of New York v The
Islamic Republic and Bank Markazi, Case A28, Decision No DEC 130-A28-FT
(19 December 2000) 36 Iran-US CTR 5.
Westinghouse Electric Corporation v The Islamic Republic of Iran, The Islamic
Republic of Iran Air Force, Iran Air, The National Iranian Oil Company, Case
389, Chamber 2, Interlocutory Award No ITL 67-389-2 (12 February 1987) 14
Iran-US CTR 104.
William L Pereira Associates, Iran v the Islamic Republic of Iran, Case 1, Chamber
3, Award No 116-1-3 (19 March 1984) 5 Iran-US CTR 198, Concurring Opinion
of Richard M Mosk.
List of Cases 305

Decisions of Domestic Courts

Aguinda v Texaco Inc [2001] 142 F Supp 2d 534 (SDNY).

Amlon Metals Inc v FMC Corp [2001] 775 F Supp 668 (SDNY).
Baron v Sunderland Corporation (10 December 1966) [1966] 2 QB 56 (CA).
Beanal v Freeport-McMoRan Inc [1997] 969 F Supp 362 (ED La).
Beanal v Freeport-McMoRan Inc [1999] 197 F.3d 161 (5th Cir).
Bundesgerichthof (BGH) [Federal Court of Justice] (Germany) Az: X ZR 23/87,
Judgment (26 January 1989).
Kasky v Nike Inc, Case No S087859, Judgment (2 May 2002), [2002] 27 Cal 4th
939.
Occidental Exploration & Production Company v The Republic of Ecuador [2005]
EWCA Civ 1116.
Peters Fabrics Inc v Jantzen Inc [1984] 582 F.Supp 1287 (SDNY).
RTK v Sony Ericsson, Case No 1831/12, Supreme Arbitrazh Court (Russia) Decision
(19 June 2012).
Sarei v Rio Tinto PLC [2002] 221 F Supp 2d 1116 (CD Cal).
Sosa v Alvarez-Machain and others [2004] 542 US 692.
Stooke v Taylor, Decision (7 August 1880) [1880] 5 QBD 569.
Supreme Court of Cassation (Bulgaria) Case No 1193/2010, Judgment
(02 September 2011).
Tote Bookmakers Ltd v Development Property Holding Co Ltd (21 December 1984)
[1985] 49 P & CR 232 (Ch).

Other Decisions

Case C-378/08 Raffinerie Mediterranee [2010] ERG Judgment (09 March

2010) ECLI:EU:C:2010:126.
Case of the ‘Street Children’ (Villagrán-Morales and others) v Guatemala, IACHR
Judgment (19 November 1999).
Case of Velásquez-Rodríguez v Honduras, IACHR Judgment (29 July 1988).
Case T-13/99 Pfizer Animal Health v Council [2002] CFI Judgment (11 September
2002) ECLI:EU:T:2002:209.
Dispute Concerning Access to Information under Article 9 of the OSPAR Conven-
tion (Ireland v United Kingdom of Great Britain and Northern Ireland), PCA
Case No 2001-03, Final Award (02 July 2003).
Dombo Beheer v The Netherlands, ECtHR Judgment (27 October 1993) Series A No
274.
European Communities — Measures Affecting the Approval and Marketing of
Biotech Products—Panel Report (29 September 2006) WT/DS291/R,
WT/DS292/R, WT/DS293/R.
306 List of Cases

European Communities — Measures Concerning Meat and Meat Products

(Hormones)—Appellate Body Report (16 January 1998) WT/DS26/AB/R and
WT/DS48/AB/R.
IACHR Advisory Opinion OC-23/17 (15 November 2017) Series A No 23.
Indus Waters Kishenganga Arbitration (Pakistan v India), PCA Case No 2011-01,
Partial Award (18 February 2013).
Iron Rhine Railway Arbitration (Belgium v The Netherlands), Award (24 May 2005)
XXVII RIAA 35.
LFH Neer and Pauline Neer (United States of America v United Mexican States),
Award (15 October 1926) IV RIAA 60.
López Ostra v Spain, Application No 16798/90, ECtHR Judgment
(09 December 1994).
M/V ‘Virginia G’ (Panama v Guinea-Bissau), Order (02 November 2012) ITLOS
Reports 39, Dissenting Opinion of Judge ad hoc Treves.
M/V ‘Virginia G’ (Panama v Guinea-Bissau), Order (02 November 2012) ITLOS
Reports 39.
Maya indigenous community of the Toledo District v Belize, Case 12.053, IACHR
Report No 40/04, OEA/Ser.L/V/II.122 Doc 5 rev 1 at 727 (2004).
Mexico: Tax Measures on Soft Drinks—Report of the Panel (07 October 2005)
WT/DS308/R.
Opinion 1/17 (CETA Opinion) [2019] ECLI:EU:C:2019:341.
Radio Corporation of America v the National Government of the Republic of China,
Award (13 April 1935) III RIAA 1621.
The Pious Fund of the Californias (United States of America v United Mexican
States), Award (14 October 1902) IX RIAA 1.
The Prosecutor v Dusko Tadic, ICTY Case No IT-94-1-A, Appellate Judgment
(15 July 1999).
The Social and Economic Rights Action Center and the Center for Economic and
Social Rights (SERAC) v Nigeria, Case ACHPR/COMM/A044/1, ACHPR Com-
mission Decision (27 May 2002).
The South China Sea Arbitration (The Republic of Philippines v The People’s
Republic of China), PCA Case No 2013-19.
Trail smelter case (United States of America v Canada), Award (16 April 1938 and
11 March 1941) III RIAA 1905.
BITs, IIAs and Other Investment-Related
Agreements

Year of
Referred to as Name of the Agreement Signature
Italy-Chad BIT (1969) Agreement between the Italian Republic and the 1969
Government of the Republic of Chad for the Protec-
tion and Promotion of Investment of Capital
Netherlands-Kenya BIT Agreement on Economic Co-operation between the 1970
(1979) Government of the Kingdom of the Netherlands and
the Government of the Republic of Kenya
Netherlands-Malaysia BIT Agreement on Economic Co-operation between the 1971
(1971) Government of the Kingdom of the Netherlands and
Malaysia
Central African Republic- Agreement of Commerce, Promotion and Protection 1973
Switzerland BIT (1973) of Investments between the Swiss Confederation and
the Central African Republic
UK-Singapore BIT (1975) Agreement Between the Government of the United 1975
Kingdom of Great Britain and Northern Ireland and
the Government of the Republic of Singapore for the
Promotion and Protection of Investments
Korea-UK BIT (1976) Agreement between the Government of the Republic 1976
of Korea and the Government of the United Kingdom
of Great Britain and Northern Ireland for the Pro-
motion and Protection of Investments
Japan-Egypt BIT (1977) Agreement between Japan and the Arab Republic of 1977
Egypt concerning the Encouragement and Reciprocal
Protection of Investment
Sweden-Egypt BIT (1978) Agreement between the Government of Sweden and 1978
the Government of the Arab Republic of Egypt on the
Mutual Protection of Investments
Sweden-Serbia BIT (1978) Agreement between the Government of Sweden and 1978
the Government of the Socialist Federal Republic of
Yugoslavia on the mutual Protection of Investments
(continued)

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 307
A. E. Alvarado-Garzón, Environmental Counterclaims in Investment Arbitration,
EYIEL Monographs - Studies in European and International Economic Law 34,
https://doi.org/10.1007/978-3-031-46391-4
308 BITs, IIAs and Other Investment-Related Agreements

Year of
Referred to as Name of the Agreement Signature
Singapore-BLEU BIT Agreement between the Government of the Republic 1978
(1978) of Singapore and the Belgo-Luxemburg Economic
Union on the Promotion and Protection of
Investments
Netherlands-Senegal BIT Agreement concerning the Encouragement and the 1979
(1979) Protection of Investments between the Kingdom of
the Netherlands and the Republic of Senegal
UK-Sri Lanka BIT (1980) Agreement between the Government of the United 1980
Kingdom of Great Britain and Northern Ireland and
the Government of the Democratic Socialist Repub-
lic of Sri Lanka for the Promotion and Protection of
Investments
OIC Investment Agreement Agreement for the Promotion, Protection and Guar- 1981
(1981) antee of Investment among Member States of the
Organisation of the Islamic Conference
Romania-Sri Lanka BIT Agreement between the Government of the Socialist 1981
(1981) Republic of Romania and the Government of the
Democratic Socialist Republic of Sri Lanka on the
Mutual Promotion and Guarantee of Investments
US-Panama BIT (1982) Treaty between the United States of America and the 1982
Republic of Panama concerning the Treatment and
Protection of Investment
France-Pakistan BIT (1983) Agreement between the Government of the French 1983
Republic and the Government of the Islamic Repub-
lic of Pakistan on the Encouragement and the
Reciprocal Protection of Investments
Senegal-Tunisia BIT (1984) Agreement between the Government of the Republic 1984
of Senegal and the Government of the Tunisian
Republic concerning the Promotion and the Recip-
rocal Protection of Investments
US-Congo (Zaire) BIT Treaty between the United States of America and the 1984
(1984) Republic of Zaire concerning the Reciprocal
Encouragement and Protection of Investment
St Lucia-Germany BIT Treaty between St Lucia and the Federal Republic of 1985
(1985) Germany concerning the Encouragement and Recip-
rocal Protection of Investments
Sri Lanka-China BIT (1986) Agreement between the Government of the Demo- 1986
cratic Socialist Republic of Sri Lanka and the Gov-
ernment of the People’s Republic of China on the
Reciprocal Promotion and Protection of Investments
UK-Jamaica BIT (1987) Agreement between the Government of the United 1987
Kingdom of Great Britain and Northern Ireland and
the Government of Jamaica for the Promotion and
Protection of Investments
Malta-BLEU BIT (1987) Agreement between the Republic of Malta and 1987
Belgo-Luxembourg Economic Union concerning the
Reciprocal Encouragement and Protection of
Investments
(continued)
BITs, IIAs and Other Investment-Related Agreements 309

Year of
Referred to as Name of the Agreement Signature
Hungary-Denmark BIT Agreement between the Government of the Hungar- 1988
(1988) ian People's Republic and the Government of the
Kingdom of Denmark for the Encouragement and the
Reciprocal Protection of Investments
Korea-Italy BIT (1989) Agreement between the Government of the Republic 1989
of Korea and the Government of the Republic of Italy
concerning the Encouragement and the Reciprocal
Protection of Investments
BLEU-Burundi (1989) Convention between the Belgian-Luxembourgish 1989
Economic Union and the Republic of Burundi
concerning the Encouragement and the Reciprocal
Protection of Investments
Germany-Russia (USSR) Agreement between the Federal Republic of Ger- 1989
BIT (1989) many and the Union of Soviet Socialist Republics
concerning the Promotion and Reciprocal Protection
of Investments
France-Nigeria BIT (1990) Agreement Between the Government of the French 1990
Republic and the Government of the Federal
Republic of Nigeria on the Encouragement and the
Reciprocal Protection of Investments
Poland-Kuwait BIT (1990) Agreement between the Republic of Poland and the 1990
State of Kuwait for the Promotion and Protection of
Investments
UK-Czech and Slovak Agreement between the Government of the United 1990
Republic BIT (1990) Kingdom of Great Britain and Northern Ireland and
the Government of the Czech and Slovak Federal
Republic for the Promotion and Protection of
Investments
Argentina-Italy BIT (1990) Agreement between the Republic of Argentina and 1990
the Republic of Italy on the Promotion and Protection
of Investments
Italy-Romania BIT (1990) Agreement between the Government of the Italian 1990
Republic and the Government of Romania for the
Promotion and Protection of Investments
Netherlands-Czech Republic Agreement on Encouragement and Reciprocal Pro- 1991
BIT (1991) tection of Investments between the Kingdom of the
Netherlands and the Czech and Slovak Federal
Republic
Germany-Argentina BIT Treaty Between Federal Republic of Germany and 1991
(1991) the Argentine Republic on the Promotion and Mutual
Protection of Investments
France-Argentina BIT Agreement between the Government of the French 1991
(1991) Republic and the Government of the Argentine
Republic on the Encouragement and the Reciprocal
Protection of Investments
Spain-Argentina BIT (1991) Agreement for the Promotion and the Reciprocal 1991
Protection of Investments between the Kingdom of
Spain and the Argentine Republic
(continued)
310 BITs, IIAs and Other Investment-Related Agreements

Year of
Referred to as Name of the Agreement Signature
Norway-Lithuania BIT Agreement between the Government of the Kingdom 1992
(1992) of Norway and the Government of the Republic of
Lithuania on the Promotion and Mutual Protection of
Investments
China-Argentina BIT (1992) Agreement between the Government of the People’s 1992
Republic of China and the Government of the
Argentine Republic on the Promotion and Reciprocal
Protection of Investments
Turkey-Turkmenistan BIT Agreement between the Republic of Turkey and 1992
(1992) Turkmenistan concerning the Reciprocal Promotion
and Protection of Investments
Germany-Belarus BIT Agreement between the Federal Republic of Ger- 1993
(1993) many and the Republic of Belarus on the Promotion
and Reciprocal Protection of Investments
Germany-Ukraine BIT Agreement between the Federal Republic of Ger- 1993
(1993) many and the Ukraine on the Promotion and the
Reciprocal Protection of Investments
UK-Uzbekistan BIT (1993) Agreement between the Government of the United 1993
Kingdom of Great Britain and Northern Ireland and
the Government of the Republic of Uzbekistan for
the Promotion and Protection of Investments
US-Ecuador BIT (1993) Treaty between the United States of America and the 1993
Republic of Ecuador concerning the Encouragement
and Reciprocal Protection of Investments
US-Estonia BIT (1994) Treaty Between the Government of the United States 1994
of America and the Government of the Republic of
Estonia for the Encouragement and Reciprocal Pro-
tection of Investment
ECT (1994) The Energy Charter Treaty 1994
NAFTA (1994) North American Free Trade Agreement 1994
Israel-Uzbekistan BIT Agreement between the Government of the State of 1994
(1994) Israel and the Government of the Republic of
Uzbekistan for the Promotion and Reciprocal Pro-
tection of Investments
France-Ecuador BIT (1994) Agreement between the Government of the French 1994
Republic and the Government of the Republic of
Ecuador concerning the Encouragement and the
Reciprocal Protection of Investments
Russia-Mongolia BIT (1995) Agreement between the Government of the Russian 1995
Federation and the Government of Mongolia on the
Promotion and Mutual Protection of Investments
Peru-Germany BIT (1995) Agreement between the Republic of Peru and the 1995
Federal Republic of Germany on the Promotion and
Mutual Protection of Investments
Germany-Ghana BIT (1995) Agreement between the Federal Republic of Ger- 1995
many and the Republic of Ghana on the Promotion
and Reciprocal Protection of Capital Investments
(continued)

Licensed to Dymas Satrioprojo ([email protected])

BITs, IIAs and Other Investment-Related Agreements 311

Year of
Referred to as Name of the Agreement Signature
Pakistan-Turkey BIT (1995) Agreement between the Islamic Republic of Pakistan 1995
and the Republic of Turkey Concerning the Recip-
rocal Promotion and Protection of Investments
UK-Venezuela BIT (1995) Agreement between the Government of the United 1995
Kingdom of Great Britain and Northern Ireland and
the Government of the Republic of Venezuela for the
Promotion and Protection of Investments
Spain-El Salvador BIT Agreement for the Promotion and Reciprocal Pro- 1995
(1995) tection of Investments between the Kingdom of
Spain and the Republic of El Salvador
China-Saudi Arabia BIT Agreement between the People’s Republic of China 1996
(1996) and the Kingdom of Saudi Arabia on the Reciprocal
Promotion and Protection of Investments
Ghana-Malaysia BIT (1996) Agreement between the Government of the Republic 1996
of Ghana and the Government of Malaysia for the
Promotion and Protection of Investments
Barbados-Canada BIT Agreement between the Government of Canada and 1996
(1996) the Government of Barbados for the Reciprocal Pro-
motion and Protection of Investments
Canada-Venezuela BIT Agreement between the Government of Canada and 1996
(1996) the Government of the Republic of Venezuela for the
Promotion and Protection of Investments
Croatia-Canada BIT (1997) Agreement between the Government of the Republic 1997
of Croatia and the Government of Canada for the
Promotion and Protection of Investments
Greece-Romania BIT (1997) Agreement between the Government of the Hellenic 1997
Republic and the Government of Romania for the
Promotion and Reciprocal Protection of Investments
Germany-Philippines BIT Agreement between the Federal Republic of Ger- 1997
(1997) many and the Republic of The Philippines for the
Promotion and Reciprocal Protection of Investments
Indonesia-Bangladesh BIT Agreement between the Government of the Republic 1998
(1998) of Indonesia and the Government of the People's
Republic of Bangladesh concerning the Promotion
and Protection of Investment
France-Mexico BIT (1998) Agreement between the Government of the Republic 1998
of France and the Government of the United Mexican
States on the Reciprocal Promotion and Protection of
Investments
Egypt-Cyprus BIT (1998) Agreement between the Arab Republic of Egypt and 1998
the Republic of Cyprus for the Promotion and
Reciprocal Protection of Investments
Australia-Pakistan BIT Agreement between Australia and the Islamic 1998
(1998) Republic of Pakistan on the Promotion and Protec-
tion of Investments
Oman-Yemen BIT (1998) Agreement for the Reciprocal Promotion and Pro- 1998
tection of Investments between the Government of
the Sultanate of Oman and the Government of the
Republic of Yemen
(continued)
312 BITs, IIAs and Other Investment-Related Agreements

Year of
Referred to as Name of the Agreement Signature
Netherlands-Georgia BIT Agreement on Encouragement and Reciprocal Pro- 1998
(1998) tection of Investments between Georgia and the
Kingdom of the Netherlands
UK-El Salvador BIT (1999) Agreement between the Government of the United 1999
Kingdom of Great Britain and Northern Ireland and
the Government of the Republic of El Salvador for
the Promotion and Protection of Investments
Israel-Armenia BIT (2000) Agreement between the Government of the State of 2000
Israel and the Government of the Republic of Arme-
nia for the Promotion and Reciprocal Protection of
Investments
Turkey-Greece BIT (2000) Agreement between the Republic of Turkey and the 2000
Hellenic Republic concerning the Reciprocal Pro-
motion and Protection of Investments
Austria-Iran BIT (2001) Agreement on the Reciprocal Promotion and Protec- 2001
tion of Investments between the Government of the
Republic of Austria and the Government of the
Islamic Republic of Iran
Finland-Uruguay BIT (2002) Agreement concerning the Promotion and Protection 2002
of Investments between the Republic of Finland and
the Oriental Republic of Uruguay
Kazakhstan-Netherlands Agreement on Encouragement and Reciprocal Pro- 2002
BIT (2002) tection of Investments between the Republic of
Kazakhstan and the Kingdom of the Netherlands
Spain-Guatemala BIT (2004) Agreement between the Kingdom of Spain and the 2002
Republic of Guatemala for the Promotion and
Reciprocal Protection of Investments
Spain-Albania BIT (2003) Agreement between the Kingdom of Spain and the 2003
Republic of Albania on the Promotion and Recipro-
cal Protection of Investments
Italy Model BIT (2003) Italy Model Bilateral Investment Agreement 2003
Guatemala-Italy BIT (2003) Agreement between the Government of the Republic 2003
of Guatemala and the Government of the Italian
Republic for the Promotion and Protection of
Investments
India-Bahrain BIT (2004) Agreement between the Government of the Republic 2004
of India and the Government of the Kingdom of
Bahrain for the Promotion and Protection of
Investments
Turkey-Afghanistan BIT Agreement between the Republic of Turkey and the 2004
(2004) Transitional Islamic State of Afghanistan Concerning
the Reciprocal Promotion and Protection of
Investments
Nicaragua-Italy BIT (2004) Agreement between the Government of the Republic 2004
of Nicaragua and the Government of the Italian
Republic on the Promotion and Protection of
Investments
(continued)
BITs, IIAs and Other Investment-Related Agreements 313

Year of
Referred to as Name of the Agreement Signature
CAFTA-DR (2004) Free Trade Agreement between Central America, the 2004
Dominican Republic and the United States of
America
Cyprus-Libya BIT (2004) Agreement on the Promotion and the Reciprocal 2004
Protection of Investments between the Government
of the Republic of Cyprus and the Great Socialist
People's Libyan Arab Jamahiriya
Thailand-Jordan BIT (2005) Agreement between the Government of the Kingdom 2005
of Thailand and the Government of the Hashemite
Kingdom of Jordan for the Promotion and Protection
of Investments
US-Uruguay BIT (2005) Treaty Between the United States of America and the 2005
Oriental Republic of Uruguay concerning the
Encouragement and Reciprocal Protection of
Investment
Spain-Colombia BIT (2005) Agreement between the Kingdom of Spain and the 2005
Republic of Colombia for the Promotion and Recip-
rocal Protection of Investments
BLEU-Guatemala BIT Agreement between the Belgo-Luxemburg Eco- 2005
(2005) nomic Union and the Government of the Republic of
Guatemala on the Reciprocal Promotion and Protec-
tion of Investments
BLEU-Nicaragua BIT Agreement between the Belgo-Luxemburg Eco- 2005
(2005) nomic Union and the Republic of Nicaragua on the
Reciprocal Promotion and Protection of Investments
IISD Model Investment International Institute for Sustainable Development 2005
Agreement (2005) (IISD) Model International Agreement on Invest-
ment for Sustainable Development
Mexico-Trinidad and Agreement between the Government of the United 2006
Tobago BIT (2006) Mexican States and the Government of the Republic
of Trinidad and Tobago for the Promotion and
Reciprocal Protection of the Investments
Colombia-US TPA (2006) Trade Promotion Agreement between the Republic 2006
of Colombia and the Government of the United
States of America
Peru-US TPA (2006) Trade Promotion Agreement between the Republic 2006
of Peru and the Government of the United States of
America
Italy-Dominican Republic Agreement between the Government of the Italian 2006
BIT (2006) Republic and the Government of the Dominican
Republic on the Promotion and Protection of
Investments
Italy-DRC BIT (2006) Agreement between the Government of the Italian 2006
Republic and the Government of the Democratic
Republic of Congo on the Promotion and Protection
of Investments
(continued)
314 BITs, IIAs and Other Investment-Related Agreements

Year of
Referred to as Name of the Agreement Signature
Italy-Bahrain BIT (2006) Agreement between the Government of the Italian 2006
Republic and the Government of the Kingdom of
Bahrain on the Promotion and Protection of
Investments
Netherlands-Algeria BIT Agreement on the Encouragement and the Reciprocal 2007
(2007) Protection of Investments between the Kingdom of
the Netherlands and the People’s Democratic
Republic of Algeria
Korea-US FTA (2007) Free Trade Agreement Between the Government of 2007
the Republic of Korea and the Government of the
United States of America
COMESA Investment Investment Agreement for the Common Market for 2007
Agreement (2007) Eastern and Southern Africa (COMESA) Common
Investment Area
Panama-Sweden BIT (2008) Agreement between the Government of the Republic 2008
of Panama and the Government of the Kingdom of
Sweden on the Promotion and the Reciprocal Pro-
tection of Investments
US-Rwanda BIT (2008) Treaty Between the Government of the United States 2008
of America and the Government of the Republic of
Rwanda concerning the Encouragement and Recip-
rocal Protection of Investment
Albania-Bosnia and Agreement between Bosnia and Herzegovina and the 2008
Herzegovina BIT (2008) Council of Ministers of the Republic of Albania on
the Reciprocal Promotion and Protection of
Investments
CARIFORUM-EU EPA Economic Partnership Agreement between the 2008
(2008) Caribbean Forum (CARIFORUM) States of the one
Part and the European Community and its Member
States of the other Part
ECOWAS Supplementary Supplementary Act A/SA.3/12/08 Adopting Com- 2008
Act on Investments (2008) munity Rules on Investment and the Modalities for
their Implementation with the Economic Community
of West African States (ECOWAS)
China-Malta BIT (2009) Agreement between the Government of the People’s 2009
Republic of China and the Government of Malta on
the Promotion and Protection of Investments
Canada-Czech Republic BIT Agreement between Canada and the Czech Republic 2009
(2009) for the Promotion and Protection of Investments
Japan-Switzerland FTA Agreement on Free Trade and Economic Partnership 2009
(2009) Between Japan and the Swiss Confederation
Moldova-Estonia BIT Agreement between the Government of the Republic 2010
(2010) of Moldova and the Government of the Republic of
Estonia on the Promotion and Reciprocal Protection
of Investments
Israel-Ukraine BIT (2010) Agreement Between the Government of the State of 2010
Israel and the Government of Ukraine for the Recip-
rocal Promotion and Protection of Investments
(continued)
BITs, IIAs and Other Investment-Related Agreements 315

Year of
Referred to as Name of the Agreement Signature
Japan-Colombia BIT (2011) Agreement between Japan and the Republic of 2011
Colombia for the Liberalization, Promotion and
Protection of Investment
Switzerland-Tunisia BIT Agreement between the Swiss Federal Council and 2012
(2012) the Government of the Republic of Tunisia on
Reciprocal Promotion and Protection of Investments
Armenia-Iraq BIT (2012) Agreement between the Government of the Republic 2012
of Armenia and the Government of the Republic of
Iraq for the Encouragement and Reciprocal Protec-
tion of Investments
Canada-China BIT (2012) Agreement between the Government of Canada and 2012
the Government of the People’s Republic of China
for the Promotion and Reciprocal Protection of
Investments
SADC Model BIT (2012) Southern African Development Community (SADC) 2012
Model Bilateral Investment Treaty Template
Canada-Benin BIT (2013) Agreement between the Government of Canada and 2013
the Government of the Republic of Benin for the
Promotion and Reciprocal Protection of Investments
Korea-Cameroon BIT (2013) Agreement between the Government of the Republic 2013
of Korea and the Government of the Republic of
Cameroon for the Promotion and Protection of
Investments
India-UAE BIT (2013) Agreement between the Government of the Republic 2013
of India and the Government of the United Arab
Emirates on the Promotion and Protection of
Investments
Mexico-Kuwait BIT (2013) Agreement between the Government of the United 2013
Mexican States and the Government of the State of
Kuwait on the Promotion and Reciprocal Protection
of Investments
Guatemala-Trinidad and Agreement between the Republic of Guatemala and 2013
Tobago BIT (2013) the Republic of Trinidad and Tobago on the Recip-
rocal Promotion and Protection of Investments
Turkey-Gambia BIT (2013) Agreement between the Government of the Republic 2013
of Turkey and the Government of the Republic of the
Gambia concerning the Reciprocal Promotion and
Protection of Investments
Colombia-France BIT Agreement between the Government of the Republic 2014
(2014) of Colombia and the Government of the French
Republic on the Encouragement and the Reciprocal
Protection of Investments
Canada-Côte d’Ivoire BIT Agreement between the Government of Canada and 2014
(2014) the Republic of Côte d’Ivoire on Protection of
Investments
Canada-Cameroon BIT Agreement between Canada and the Republic of 2014
(2014) Cameroon for the Promotion and Protection of
Investments
(continued)
316 BITs, IIAs and Other Investment-Related Agreements

Year of
Referred to as Name of the Agreement Signature
Israel-Myanmar BIT (2014) Agreement between the Government of the State of 2014
Israel and the Government of the Republic of the
Union of Myanmar for the Reciprocal Promotion and
Protection of Investments
Colombia-Turkey BIT Agreement between the Government of the Republic 2014
(2014) of Colombia and the Government of the Republic of
Turkey concerning the Reciprocal Promotion and
Protection of Investments
Switzerland-Georgia BIT Agreement between the Swiss Confederation and 2014
(2014) Georgia on the Promotion and Reciprocal Protection
of Investments
Mexico-Panama FTA (2014) Free Trade Agreement between the United Mexican 2014
States and the Republic of Panama
Russia-Cambodia BIT Agreement between the Government of the Russian 2015
(2015) Federation and the Government of the Kingdom of
Cambodia on the Promotion and Reciprocal Protec-
tion of Investments
Kyrgyzstan-Kuwait BIT Agreement between the Government of the Kyrgyz 2015
(2015) Republic and the Government of the State of Kuwait
for the Encouragement and Reciprocal Protection of
Investments
San Marino-Azerbaijan BIT Agreement between the Government of the Republic 2015
(2015) of San Marino and the Government of the Republic
of Azerbaijan on the Promotion and Reciprocal Pro-
tection of Investments
Australia-China FTA (2015) Free Trade Agreement between the Government of 2015
Australia and the Government of the People’s
Republic of China
Canada-Burkina Faso BIT Agreement between the Government of Canada and 2015
(2015) the Government of Burkina Faso for the Promotion
and Protection of Investments
Canada-Guinea BIT (2015) Agreement for the Promotion and Reciprocal Pro- 2015
tection of Investments between Canada and the
Republic of Guinea
Japan-Uruguay BIT (2015) Agreement Between Japan and the Oriental Republic 2015
of Uruguay for the Liberalization, Promotion and
Protection of Investment
India Model BIT (2015) India Model Bilateral Investment Agreement 2015
Austria-Kyrgyzstan BIT Agreement for the Promotion and Protection of 2016
(2016) Investment between the Government of the Republic
of Austria and the Government of the Kyrgyz
Republic
Morocco-Nigeria BIT (2016) Reciprocal Investment Promotion and Protection 2016
Agreement between the Government of the Kingdom
of Morocco and the Government of the Federal
Republic of Nigeria
(continued)
BITs, IIAs and Other Investment-Related Agreements 317

Year of
Referred to as Name of the Agreement Signature
Ethiopia-UAE BIT (2016) Agreement between the Government of the Federal 2016
Democratic Republic of Ethiopia and the Govern-
ment of the United Arab Emirates concerning the
Promotion and Reciprocal Protection of Investment
Slovak Republic-UAE BIT Agreement between the Slovak Republic and the 2016
(2016) United Arab Emirates for the Promotion and Recip-
rocal Protection of Investments
Canada-Mongolia BIT Agreement Between Canada and Mongolia for the 2016
(2016) Promotion and Protection of Investments
Slovak Republic-Iran BIT Agreement Between the Slovak Republic and the 2016
(2016) Islamic Republic of Iran for the Promotion and
Reciprocal Protection of Investments
Argentina-Qatar BIT (2016) The Reciprocal Promotion and Protection of Invest- 2016
ments between the Argentine Republic and the State
of Qatar
Nigeria-Singapore BIT Investment Promotion and Protection Agreement 2016
(2016) between the Government of the Federal Republic of
Nigeria and the Government of the Republic of
Singapore
Chile-Hong Kong BIT Investment Agreement between the Government of 2016
(2016) the Hong Kong Special Administrative Region of the
People’s Republic of China and the Government of
the Republic of Chile
PAIC (2016) Pan African Investment Code 2016
CETA (2016) Comprehensive Trade and Economic Agreement 2016
between Canada and the European Union
Israel-Japan BIT (2017) Agreement between the State of Israel and Japan for 2017
the Liberalization, Promotion and Protection of
Investment
Ethiopia-Qatar BIT (2017) Agreement between the Government of the Federal 2017
Democratic Republic of Ethiopia and the Govern-
ment of the State of Qatar for the Promotion and
Reciprocal Protection of Investments
Argentina-Chile FTA (2017) Free Trade Agreement between Argentina and Chile 2017
Colombia Model BIT (2017) Colombia Model Bilateral Investment Treaty 2017
Colombia-UAE BIT (2017) Bilateral Agreement for the Promotion and Protec- 2017
tion of Investments between the Government of the
Republic of Colombia and the Government of the
United Arab Emirates
Rwanda-UAE BIT (2017) Agreement between the Republic of Rwanda and the 2017
United Arab Emirates on the Promotion and Recip-
rocal Protection of Investments
Turkey-Burundi BIT (2017) Agreement between the Government of the Republic 2017
of Turkey and the Government of the Republic of
Burundi concerning the Reciprocal Promotion and
Protection of Investments
(continued)
318 BITs, IIAs and Other Investment-Related Agreements

Year of
Referred to as Name of the Agreement Signature
Turkey-Cambodia BIT Agreement between the Government of the Republic 2018
(2018) of Turkey and the Government of the Kingdom of
Cambodia on the Reciprocal Promotion and Protec-
tion of Investments
Kazakhstan-Singapore BIT Agreement between the Government of the Republic 2018
(2018) of Kazakhstan and the Government of the Republic
of Singapore on the Promotion and Mutual Protec-
tion of Investments
UAE-Uruguay BIT (2018) Agreement between the United Arab Emirates and 2018
the Oriental Republic of Uruguay for the Promotion
and Reciprocal Protection of Investments
Canada-Moldova BIT Agreement between the Government of Canada and 2018
(2018) the Government of the Republic of Moldova for the
Promotion and Protection of Investments
Belarus-India BIT (2018) Treaty between the Republic of Belarus and the 2018
Republic of India on Investments
Argentina-UAE BIT (2018) Agreement for the Reciprocal Promotion and Pro- 2018
tection of Investments between the Argentine
Republic and the United Arab Emirates
CPTPP (2018) Comprehensive and Progressive Agreement for 2018
Trans-Pacific Partnership
Lithuania-Turkey BIT Agreement between the Government of the Republic 2018
(2018) of Lithuania and the Government of the Republic of
Turkey on the Reciprocal Promotion and Protection
of Investments
USMCA (2019) Agreement between the United States of America, 2019
the United Mexican States, and Canada
Uzbekistan-Korea BIT Agreement between the Government of the Republic 2019
(2019) of Uzbekistan and the Government of the Republic of
Korea for the Reciprocal Promotion and Protection of
Investments
Nicaragua-Iran BIT (2019) Agreement on Promotion and Reciprocal Protection 2019
of Investments between the Government of the
Republic of Nicaragua and the Government of the
Islamic Republic of Iran
Singapore-Myanmar BIT Agreement between the Government of the Republic 2019
(2019) of Singapore and the Government of the Republic of
the Union of Myanmar on the Promotion and Pro-
tection of Investments
China-Mauritius FTA (2019) Free Trade Agreement between the Government of 2019
the People’s Republic of China and the Government
of the Republic of Mauritius
(continued)

19c45970-2f48-4131-8122-a808d4c4502e
BITs, IIAs and Other Investment-Related Agreements 319

Year of
Referred to as Name of the Agreement Signature
Kyrgyzstan-India BIT Bilateral Investment Treaty between the Government 2019
(2019) of the Kyrgyz Republic and the Government of the
Republic of India
Australia-Uruguay BIT Agreement between Australia and the Oriental 2019
(2019) Republic of Uruguay on the Promotion and Protec-
tion of Investments
Hungary-Cabo Verde BIT Agreement between the Government of Hungary and 2019
(2019) the Government of the Republic of Cabo Verde for
the Promotion and Reciprocal Protection of
Investments
Belarus-Hungary BIT (2019) Agreement between the Government of the Republic 2019
of Belarus and the Government of Hungary for the
Promotion and Reciprocal Protection of Investments
BLEU Model BIT (2019) Belgium-Luxembourg Economic Union Model 2019
Bilateral Investment Agreement
The Netherlands Model BIT The Netherlands Model Bilateral Investment 2019
(2019) Agreement
Morocco Model BIT (2019) Morocco Model Bilateral Investment Agreement 2019
Hungary-Kyrgyzstan BIT Agreement between the Government of Hungary and 2020
(2020) the Government of the Kyrgyz Republic for the
Promotion and Reciprocal Protection of Investments
Morocco-Japan BIT (2020) Agreement between the Kingdom of Morocco and 2020
Japan for the Promotion and Protection of Investment
Israel-UAE BIT (2020) Agreement between the Government of the State of 2020
Israel and the Government of the United Arab Emir-
ates on Promotion and Protection of Investments
Colombia-Spain BIT (2021) Agreement between the Republic of Colombia and 2021
the Kingdom of Spain for the Promotion and Recip-
rocal Protection of Investments
Japan-Georgia BIT (2021) Agreement between Japan and Georgia for the 2021
Liberalisation, Promotion and Protection of
Investment