A cursory look at waivers of foreign investors’ rights

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In these posts (here and here), I was wondering about the idea that it might be in the best interest of provincial governments to ask foreign investors to waive their rights under NAFTA Chapter 11 or similar treaty provisions.

I had a cursory glance at whether the issue of waivers has been studied, and it was. From Bart L. Smit Duijzentkunst, “Treaty Rights as Tradable Assets: Can Investors Waive Investment Treaty Protection?”, I understand that there are three competing approaches to the issue:

  • The derivative rights approach, which essentially argues that foreign investment treaty protection provides rights to the contracting states. Investors merely step in their state’s shoes when making a claim. Under this approach, investors cannot waive rights because the rights do not belong to them. Apparently, this approach relies on the “orthodox positivist theory” that considers states as the only subjects of international law. I wonder to what extent this orthodox positivist theory is still dominant in an international law context where human rights, which are recognized in myriad treaties and which surely are not held by states, have become such a prominent part of the discussion.
  • The direct rights approach, which recognizes that investment treaties vest rights directly in individual investors, who may therefore waive those rights. From my national law perspective, I have to admit I find this approach more coherent.
  • The intermediate approach, which threads a middle way between the two previous approaches. According to the intermediate theory, provisions granting foreign investment protection are substantive rights held by states (and therefore cannot be waived by investors), whereas the procedural rights to initiate claims against states that are granted in dispute resolution mechanisms belong to the investors. In principle, these rights could be waived by the investors, but an arbitral panel (see Archer Daniels Midland Co. and Tate & Lyle Ingredients Americas, Inc. v. Mexico, ICSID Case No. ARB(AF)/04/05, Award) has found that these rights materialize only at the point in time when investors actually present claims. This could imply that investors cannot waive their rights before that point in time. On this approach, Duijzentkunst writes:

it suffices to conclude that the separation of substantive and procedural rights does not aid in clarifying the question of a waiver, but rather confuses the matter. This confusion originates with the paradoxical premises on which the regime of investment treaty protection is founded, namely its public international sources and private enforcement mechanism. The system of investment treaty protection cannot be qualified as a traditional public international law regime of State responsibility, in which, as the derivative rights approach claims, only States enjoy enforcement powers. Nor is it a private liability regime, as the direct rights doctrine suggests, since the law derives from treaties rather than contracts. The compromise offered by the intermediate theory also fails to bring conceptual clarity. In sum, traditional rights-based approaches fail to adequately explain the system of investment treaty protection and the possibility of a waiver.

If this is still the lay of the law on this issue, it might not be possible to construct a fail-proof waiver that would prevent an arbitral panel to receive a claim – although a thorough analysis is required before reaching a conclusion. For his part, Duijzentkunst concludes “Only States can alter the direct effect of treaties, not investors. Accordingly, an investor cannot waive protection under an investment treaty”. In a blog post here, he unveils some of the normative values that underlie his position – the investors’ best interests (≠ to the best interest of provincial governments I started this post thinking about):

Allowing investors to waive investment treaty protection will eventually not be in their best interest, as it enables host states to force investors to give up their protection. Investment treaties on the whole are silent on the power to waive rights—creating such a new power may weaken the entire system of investment treaty protection. Maybe investors should be barred from waiving rights for their own good.

In that context, national law might offer better solutions to inure federal and provincial governments from potential claims by foreign investors. One can imagine a contract between a state and an investor with a penal clause triggered on the filing of a notice of claim by the investor. I suspect that whether it’s possible to make the issuance of a permit to extract natural resources conditional on the signing of such a contract is a question for administrative law that must be answered on a case by case basis depending on the specifics of each permit regime. Then there would be the question of whether the imposition of such a contract is in itself a breach of some of the protections afforded by national treatment clauses and non-discrimination clauses in investment treaties. So lots of interesting stuff to look at – I just have to find the time to dig in!

This content has been updated on June 29 2015 at 13 h 21 min.