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Article: December 2016: International Arbitration Update

December 01, 2016
Business Litigation Reports

Non-Pecuniary Remedies in Investment Treaty Arbitration. Many of the popular criticisms of investment treaty arbitration are directed at its potential to interfere with the autonomy of sovereign States to make and apply their own policy choices. The frequent perception is that treaty arbitration provides a means for foreign investors to force their will upon a State—to authorise an activity that a State might prohibit, or to oblige a State to take measures that it might not choose. There is a perception that treaty Tribunals can and frequently do issue orders of specific performance. Yet the reality is that non-pecuniary remedies—restitution, specific performance or declaratory relief—are seldom granted in treaty cases. This is unfortunate for some claimants, who want to retain their investments, and bring treaty claims not as an exit strategy but as a tool of doing business and governmental relations. They want their rights upheld, not extinguished and paid out. One might ask “why?” non-pecuniary remedies are not more common, since any student of public international law learns from Chorzow Factory and Article 35 of the ILC Articles on State Responsibility that restitutio in integrum is the primary form of reparation for an internationally wrongful act, with monetary compensation being the alternative where restitution is not materially possible or disproportionately burdensome. The early Libyan oil concession arbitration, Texaco v. Libya, is held up as an example of this theory in practice.

Only a few treaties expressly control a tribunal’s power to award specific performance. Article 1135 of the NAFTA treaty provides that a NAFTA tribunal has the power to award specific performance so long as the award also provides that monetary damages may be paid in lieu of specific performance. Similar restrictions are found in the CAFTA-DR, the recently-signed EU-Canada CETA and the draft TPP. But such express provisions are the rare exception.

Likewise, the ICSID Convention does not limit the powers of ICSID tribunals to order non-pecuniary remedies. But the Convention does specify in Article 54(1) that Contracting States are obliged only to enforce “the pecuniary obligations imposed by [an] award.” ICSID tribunals may therefore order non-pecuniary relief, and such awards are binding, but ICSID Contracting States are not obliged to give effect to such orders.

Tribunals routinely confirm the power to award such remedies. The Micula v Romania tribunal held that ICSID tribunals have at their disposal all forms of relief required to redress the injuries suffered as a result of an internationally wrongful act, including definitive or final injunctive relief. Nevertheless, there is a widespread general reluctance on the part of tribunals to grant non-pecuniary relief. This can be explained by four factors:

Impossibility. Issues of “impossibility” are the most common. Article 35 of the ILC Articles makes clear that a State will not be obliged to provide restitution where it is “materially impossible.” For example, in Siag v Egypt, the Claimant requested the restitution of expropriated oceanfront land. The Tribunal found that restitution was impossible because the property had been conveyed to a third party some six years earlier. Impossibility is less persuasive in cases of unlawful expropriation however, where, by definition, it ought not be possible to pass good title.

Deference. Another concern is the deference tribunals consider due to sovereigns. To order a State to take a positive measure, such as ordering restitution, is perceived to involve a greater infringement of sovereignty than an order to pay money.

Unenforceability. Many tribunals express concern about their inability to police non-pecuniary orders once their mandate is over. A respondent’s refusal to comply with a non-pecuniary order diminishes the institution of arbitration, generally, but also would deprive the successful claimant of any effective relief.

The need for the parties to consent to a non-pecuniary remedy. A final theme appears to be the expectation that both parties should desire and consent to an award of a non-pecuniary remedy. This seems to combine elements of deference to sovereignty, as well as perhaps the need for the claimant to accept the instability of any such relief.

There are rare instances in which non-pecuniary remedies have been awarded as they are effectively the only possible means of relief. In ATA Construction v Jordan, a Tribunal ordered that the Claimant’s right to have a dispute referred to arbitration, which had been retroactively extinguished by decisions of the Jordanian courts, be reinstated and pending court proceedings terminated. Aside from cases of this nature, it is possible to point to a small number of cases—not yet an emerging trend, but perhaps a signifier of greater acceptance—in which tribunals have awarded restitution or other non-pecuniary relief, but always coupled with an award of monetary compensation in the alternative.

Thus, in Goetz v Burundi, the Tribunal suggested that the Respondent could provide either restitution of a tax-free zone certificate it had wrongly cancelled or monetary compensation. In Arif v Moldova, the respondent State requested that the Tribunal award it the “opportunity” to provide restitution instead of damages for the suspension of the Claimant’s lease of an airport duty-free shop. The Tribunal ordered “restitution and compensation as alternatives, with the remedy of compensation suspended for a period of ninety days.” Lastly, in von Pezold v Zimbabwe, the claimants had been deprived of large tracts of farmland. The Tribunal determined that Zimbabwe had unlawfully expropriated the claimants’ land and ordered Zimbabwe either to reissue title to the expropriated properties, or, in the alternative, to compensate the claimants. These exceptional decisions recognise non-pecuniary relief as the primary remedy in treaty arbitration but secure the efficacy of that award by an order to pay damages in the alternative.