STATE CONTRACTS: NATIONAL VERSUS INTERNATIONAL LAW?

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STATE CONTRACTS: NATIONAL VERSUS INTERNATIONAL LAW?

in The Italian Yearbook of International Law Online

References

  • 1 The bibliography is extensive. Of particular importance are: Mnrrrr, "The Law Go- verning State Contracts", 21 BYIL (r9qa.), p. II ff.; VERDROSS, `'Die Sicherung von auslan- dischen Privatrechten aus Abkommen zur wirtschaftlichen Entwicklung mit Schiedsklauseln", 18 ZAORV (1957-58), p. 653 ff.; JErtrnNCS, "State Contracts in International Law", 37 BYIL (1961), p. 161 ff.; SURATGAR, "Considerations Affecting Choice of Law Clauses in Contracts Between Governments and Foreign Nationals", 2 IndianJIL (1962), p. 311 ff.; AMEBA SINGHE, "State Breaches of Contracts With Aliens and International Law", 58 AJIL (1964), p. 881 ff.; CASSONI, "I contratti di concessione stipulati tra Stati o enti pubblici statali e societa commerciali straniere", 19 DI (1965), p. z35 ff.; SACERDOTI, I contra!ti fra Stati e stranieri nel di,-itto internazionale, Milano, 1972; WENGLER, "Les accords entre Etats et entreprises etrangeres sont-ils des traites de droit international?", 76 RGDIP (1972), p. 313 ff.; .; BorrELL, Le regole oggettive del commercio internazioszale, Milano 1976; B6CKSTIEGEL, "Die Bestimmung des andwendbaren Rcchts in der Praxis Internationaler Schiedsgerichtsverfahren", Festscbrift Beitzke, 1979, p. 443 ff. 2 For example: LALIVE (J. F.), "Contracts between a State or a State Agency and a Foreign Company", 13 ICLQ (1964), p. 981 ff.; KAHN. "The Law Applicable to Foreign Investments: The Contribution of the World Bank Convention on the Settlement of In vestment Disputes", 44 Indians Law fuzz (1968), p .1 ff.; SMEDRESMAN, "Conflicts of Law in International Commercial Arbitration: A Survey of Recent Developments", 7 Cali fornia Western International Law Journal (1977), p. 263 ff.; VEttHOEVEV, "Droit international des contrats et droit des gens", 14 RBeIDI (1978-79), p. 2096.; RIGAUX, "Des deux et des h6ros", 67 RCDIP (1978), p. 435 ff.

  • 3 Reference is particularly made: to the British Petroleum case between BP and the Libyan Government settled by the arbitrator Langergren: award of 10 October 1973, in Revue de l'Arbritrage (1980), p. �q. ff.; to the Liamco case between the same company and the Libyan Government settled by the arbitrator Mahmassani: award of 12 April 1977, ibidem (1980), p. 132 ff.; to the Texaco-Calasiatic case, between the same company and the Libyan Government: award of 19 January 1977 by the the arbitrator Prof. Dupuy, 104 Clunet (1977), p. 350 ff. For comparative comments on these arbitral decisions: STERN, "Trois arbi- trage, un meme probleme, trois solutions. Les nationalisations petrolieres libyennes devant 1'arbitrage international", Revue de l'Arbitrage (ig8o), p. 5 ff.; White (R.), "Expropriations of the Libyan Oil Concessions. Two Conflicting International Arbitrations", 30 ICLQ (1981), p. 1 ff.; VoN IVIEHREN (R.) and KOURIDF.S, "International Arbitrations Between States and Foreign Private Parties: The Libyan Nationalization Cases", 75 AJIL (1981), p. q.76 ff. See also the award delivered by the Washington Centre for the settlement of disputes regarding investments (ICSID) in the AGIP v. Gotlvernement de la Republique Populaire du Congo case of 30 November 1979' cf. BERNARDINI (P.), "Le prime esperienze arbitrali del Centro internazionale per il regolamento delle controversie relative agli investimenti", 16 RDIPP (1980), p. 29 ff. 4 The Convention of 18 March 1965 setting up the ICSID (International Centre for Settlement of Investment Disputes) had 79 States as contracting parties on i August 1981; another 6 countries only signed the Convention. Pertinent data in ICSID, Fifteenth Annual Report (1980-81), Washington, and the legal bibliography regarding the Centre in the preceding issues of the series. In Italy besides BERNARDINI (P.) cit. at note 3 above see, SACERDOTI, "La Convenzione di Washington del 1965 per la soluzione delle controversie fra Stati e nazionali di altri Stati in materia di investimenti", 5 RDIPP (1969), p. 614 ff. 5 Namely, Art. 42 of the Convention. In addition to the quoted article by KAHN: GOLDMAN, "Le droit applicable selon la Convention de la BIRD du 18 mars 1965 pour le reglement des differends relatifs aux investissements entre Etats et ressortissants d'autres Etats", in Investissementr etrangers et arbitrage entre Etats et personnes privees, Paris, 1969, p. 133 ff.; FEUERLE, "International Arbitration and Choice of Law Under Article 42 of the Convention on the Settlement of Investment Disputes", 4 Yale Studies in World Public Order (i977), p. 89 ff.

  • 6 PCIJSeries A, Nos 20/21, p. 41. On the decision numerous comments have appeared; up to a certain time, at least, they were generally in favour of the solution given to the specific point. The alternative put forward by the Court between public international law and national laws is declared "offenkundig falsch" by VERDROSS, "Die Sicherung von auslandischen Privatrechten", cit., p. 638, since it takes no account, for example of the possibility of a contract being governed by canon law of by an international organization's internal law. As will be seen below, VERDROSS proposes to submit contracts between States and foreign undertakings to an ad hoc system created by each individual contract.

  • 7 The International Court of Justice's line of reasoning with reference to the United Nations in the opinion of 11 April 1949 on injuries suffered in the service of the UN are well known. Cf. ICJReports, 1949, esp. p. 178ff. The Court's subsequent case-law, up to the recent opinion of 20 December 1980 con- cerning the interpretation of the agreement of 25 March 1951 between the World Health Organization and Egypt (esp., No. 37, p. 20 ff,.), confirms the Court's attitude in favour of recognising organizations as subjects of international law albeit to a different extent from States. 8 In defence of this view, from a general stand point: QUADRI, "Cours general de droit international public", in Hague Recueil (r96.�), I, p. 373 ff., esp. p. 375 where the author states that: "l'idee abstraite de sujet de droit... doit etre tiree de 1'ordre juridique international dans son ensemble, de sa structure et de son esprit, s'agissant de mettre en relief un point de vue general de cet ordre". By the same author: Diritto Internaxionale Pubblico, 5th ed., Napoli, 1968, p. 3936. As regards State contracts this is an argument that prevents the majority of doctrine from submitting these contracts to international law, as individuals are not subjects of this legal order. For all, SERENI, "International Economic Institutions and the Municipal Law of the States", 96 Hague Recueil (1959), I, p. 130ff., esp. p. 2°7 ff. 9 This approach, on the contrary, enables Prof. Dupuy to "internationalize" contracts between States and private persons in the aforementioned award of 19 January 1977 on the Texaco - Calasiatic case, Clunet, cit., p. 350ff. The point is stressed and specifically endorsed by COHEN JONATHAN, "L'arbitrage Texaco-Calasiatic contre le Gouvernement Libyen", 23 AFDI (1977), p. 452ff., esp. p. 458 and by WHITE (R.), "Expropriations of the Libyan Oil Concessions", cit., p. 10. For a critical view: RIGAUX, "Des dieux et des h6ros", cit., esp. p. 442 ff., who states at p. 445: "L'anarchie est deja suffisonte pour ne pas envisager qu'un seul Etat puisse passer a 1'un de ses partenaires, enterprise privee, une carte de membre du club et lui permettre ainsi de se prevaloir plus tard d'une pretendue limitation de souve- rainete". 10 COHEN JONATHAN, "L'arbitrage Texaco-Calasiatic", cit., refers explicitly to constitutive recognition (cf. CARPENTIER, Lea reconnaissance internationale et l'evolution du droit des gens, Paris, 1956), to which however, he attributes a merely functional character with limited effects; confined, i.e., to each individual case. Similarly: FISHES, Die internationale Korr-

  • zession, Wien - New York, 1974, esp. p. 441 ff. and SEIDL HOH�rrvELDExrr, "The Theory of Quasi-International and Partly International Agreements", II RBelDI (1975), P- 567 ff� SACERDOTI'S standpoint is typical in this regards; in I contratti Ira Stati e stranieri nel diritto internazionale, cit., p. 215 ff., the author rejects the view according to which the foreign contracting party would become an international subject through ccnstitutive recognition, yet subjects state contracts to the international legal order. In his words States that are subjects to international law must necessarily participate in agreements governed by interna- tional law, yet other entities that do not normally enjoy such subjectivity may also, as an exceptional case, take part to them (op. cit., p. 253)- 11 A re-reading of the Permanent Court's Judgment in the Serbian loans case suggested by the arbitrator in the Texaco-Calasiatic case, Clunet; cit., p. 354, is shared by LALIVE (J. F.), "Un grand arbitrage petrolier entre un Gouvernement et deux societes privees 6trang�res", 104 Clunet (1977), p. 319, P. 334 ff., and perhaps by CoHErr JONATHAN, "L'arbitrage Texacd- Calasiatic", cit., p. 445. Rightly critical is instead, STERN, "Trois arbitrages, un meme pro- bleme, trois solutions", cit., p. 21 ff. 12 In the Serbian and Brazilian loans cases the Permanent Court did indeed refer to a mere presumption in favour of the applicability of the law of the State with which the loan contracts had been stipulated. But the presumption affected the choice among various state legal systems coming into play, once the application of (public) international law had been categorically excluded. Actually the Court conceded that: "Les regles (en) peuvent etre communes a plusieurs Etats et meme etre etablies par des conventons internationales ou des coutumes et, dans ce dernier cas, avoir le caractere d'un vrai droit international". Yet, the Court referred not to rules directly governing loan contracts but to state conflict rules on the law to be applied. 13 ICJReports, 1952, p. 93 ff. The agreement of 29 April 1933 between the Persian Government and the Anglo-Persian Oil Company was defined by the Court as "nothing more than a concessionary contract between a government and a foreign company" (loc. cit., p. 112).

  • 14 The Aramco v. Sarsdi Arabia award is reported in 27 IntLR (1963). p. 117 fi. In 52 RCDIP (1963), pp. 272-363, the quoted passage is at p. 313. The applicable law was chosen by arbitrators on the basis of "principes du droit international prive". In this regard: vered by S. Mahmassani as arbitrator may be found in Revue de l'Arbitrage (1980), p. 132 ff. BASTID (S.), "lie droit international public dans le sentence arbitrale de 1'Aramco", 7 AFDI (1961), p. 30o ff. 15 The Libyan American Oil Company (Liamco) c. Libyan Arabian Republic, award deli- vered by S. Mahmassani as arbitrator may be found in Revue de l'Arbitrage (1980), p. 132 ff. At p. 137, Mahmassani stated that, "le tribunal saisi doit se guider sur les principes generaux regissant les conflits de lois en droit international prive". On this particular point: STERN, "Trois arbitrages, un meme probleme, trois solutions", cit., p. 27. 16 References to authors may be very broad. Obviously, the most recent standpoints are of greatest interest as they coincide with an ever-increasing criticism of the traditional approach. See: SERENI, "International Economic Institutions", cit., p. i3o ff.; VEDEL, "Le probleme de 1'arbitrage entre gouvernements ou personnes de droit public et personnes de droit prive", Revue de l'Arbitrage (1961), esp. p. 127 ff.; SURATGAR, "Considerations Affecting Choice of Law Clauses", cit., p. 311 ff.; AMERASINGHE, "State Breaches", cit., p. 905; FERRARI BRAVO, "Le operazioni finanziarie degli enti internazionali", 1 Annuario di diritto internazionale (1965), p. 8o ff., spec. at p. 120 f.; WENGLER, "Les accords entre Etats et en- terprises etrangeres", cit., p. 313 ff.; .JIMENEZ DE ARECHAGA, "International Law in the Past Third of a Century", 159 Hague Recueil (1978), I, p. 305 ff.; BROWNLIE, Principle of Public International Law, 3rd ed., Oxford, 1979, p. 547 ff. 17 The legal conscience of the vast majority of States is shown by their support of the provision (Art. 2) of the Charter of Economic Rights and Duties of States (see more fully para. 5 below) which most directly concerns contracts between States and foreign private persons. On that occasion discussion essentially focused on the role played by international law in restricting the host State's municipal law. For all: CASTANEDA, "La Charte des droits et devoirs economiques des Etats", 20 AFDI (1974), p. 5i ff. Mention should also be made of the fact that even the practice of capital exporting countries (such as the United States and Great Britain) does not imply that a State's unilateral cancellation of a concession contract with a private person of foreign nationality is an international unlawful act. For this conclusion cf. BROWNLIE, Principles, cit., p. 549.

  • 18 As the arguments are widely known, no specific reference to authors needs be given. Worthy of note, however, because of its strong characterization, is Lord Asquith of Bishop- stone's line of reasoning in the Petroleum Development Ltd v. Sheikh of Abu Dhabi case 18 IntLR (1951), p. 144: "If any municipal system of law were applicable, it would prima facie be that of Abu Dhabi. But no such law can reasonably be said to exist. The Sheikh administers a purely discretionary justice with assistance of the Koran; and it would be fanciful to suggest that in this very primitive region there is any settled body of legal principles applicable to the construction of modern commercial instruments" (op. cit., p. rq.9). This line of reasoning is taken up again in Rules of Quasar v. International Marine Oil Company Ltd, 20 IntLR (1953), p. 53=� ff., esp. p. 544. 19 For all: WEIL, ''Problems relatifs aux contrats passes entre un Etat et un particulier" 128 Hague Recueil (a969), III, p. 101 ff., at p. 120 off. (with refetences). On the possible damage to developing countries due to the sense of insecurity shared by capital exporters, see the award on the Texaco-Calasiatic case, cit., esp. p. 380, par. 91. Recently in doctrine: VELLAS, "Droit de propriete, investissements etrangers et nouvel ordre economique inter- national", 106 Clunet (1979), p. 22 off. 20 VERDROSS, "Die Sicherung von auslandischen Privatrechten", cit., p. 635 ff. 21 For example, BOURQUIN, '`Arbitration and Economic Development Agreements'', The Business Lawyer (1960), p. 86o ff. An exaustive analysis of this doctrine can be found in BONELL, Le regole o3gettive, cit., p. 166ff,. and 190 ff.

  • 22 In particular: Zweigert, "Vertrage zwischen staatlichen und nichtstaatlichen Partnern", in Berichte der deutschen Gesellschalt f2�r Volkerrecbt, Heft 5, Karlsruhe, 1964, p. 194 ff., esp. p. 198 ff.; WEIL, "Problemes relatifs aux contrats passes entre un Etat et un parti- culier", cit., p. 181; COHEN JONATHAN, "L'arbitrage T�xaco-Calasiatic", cit., p. 456. � The arbitration Court went on: "Sans un droit qui preside a sa creation, la con- vention n'est pas meme concevable. La volonte ne peut engendrer un rapport conventionel que si le droit dont elle releve lui en donne prealablement le pouvoir", 52 RCDIP (1963), p. 312. 24 VERDROSS, "Die Sicherung von auslandischen Privatrechten", cit., p. 364 ff. 25 See in this regard the report by P. Lever and the ensuing debate in Travaux du Comite Prançais de Droit International Prive jc)6�-66, Paris, 1967, p. zo9 ff.; the similarity - as regards results - between the two theories of contract as contrat sans loi or subject to lex mercatoria emerges fairly clearly from both the report and the debate. 26 JESSUP, Transnational Law, New Haven, 1956, passim, esp.. p. r3 ff., 81 ff., io6 ff. The author's view is summarized as follows (op. cit., p. 106) "Transnational law ...includes both civil and criminal aspects. It includes what we know as public and private international law, and includes national law, both public and private. There is no inherent reason why a judicial tribunal, whether national or international, should not be authorized to choose from all of these bodies of law the rule considered to be most in conformity with reason

  • and justice for the solution of any particular controversy". Also in favour of subjecting State contracts to transnational law: FATOUROS, Government Guarantees to Foreign Investors, New York and London, 1962, p. 283. Recently by the same author "International Law and the International Contract", 74 AJIL (1980), p. 134 ff. 27 For the main exponents of this line, GoLDMAN, "Les conflicts de loi dans l'arbitrage international de droit prive", 1°9 Hague Recueil (1963), II, p. 474 ff.; IDEM, "La lex mer- catoria dans les contrats et l'arbitrage internationaux, realite et perspectives", 106 Clunel (I979)� p. 475 ff.; KAHN, La venle commerciale Internationale, Paris 1961; FOUCHARD, L'arbi- trage commercial international, Paris 1965, p. 401 ff.; SCHMITTHOFF, "The Law of Inter- national Trade, its Growth, Formulation and Operation", in IDEM (ed)., The Sources ol the Law of International Tirade, London, 1964, p. 33 ff.; IDEM, "Das Neue Recht des Welt- handels", 28 RabelsZ (1964), p. 47 ff.; RENGELING, Privatvolkerrechtliche Vertrdge, Berlin, 1971, (worthy of note not cnly as regards the outline of the legal order that he calls "Privatvolkerrecht", but also for the painstaking critical survey of the trends in doctrine); LEW, Applicable Law in International Commercial Arbitration, Dobbs Ferry, 1978, esp. p. z87 ff. See besides the reports by DAVID and POPESCU as well as the ensuing exhaustive debate in UNIDROIT, New Directions in (International Trade Law, Dobbs Ferry, 1977, and the work of BERMAN and KAUFMAN, "The Law of International Commercial Transactions (Lex Mercatoria)", in 19 HarvILJ (1978), p. 221 ff. 28 Information in GOLD:v1-AN, "La lex rrercatoria dans les contrats et I'arbitrage", cit. 29 For example, as regards "force majeure", "hardship", limitation of responsibility, cf. BERMAN and KAUFMAN, "The Law of International Commercial Transactions", cit. One of the most interesting points under discussion as regards "force majeure" is to what extent a governmental act (usually by the national State of one of the contracting parties) which makes it impossible to implement a contract may be invoked as "force majeure" by the party having its nationality. In the affermative the USSR Arbitration Commission for Foreign Trade in its decision of 6 June 1958 on the Jordan Investments Limited case concerning the export of Russian oil to Israel, 53 AJIL (1959), p. 800 Œ.; in this regard DOMKE, "The Israeli Soviet Oil Arbitration", ibidem, p. 787 ff. For other examples of the rules commonly used in international commercial practice, cf. BONELL, Le regole oggettive, cit., p. 21 ff. This

  • author, given his costruction of such rules as common principles and features of national legal orders, cannot be assimilated without qualification to the previous writers. � The point is frequently raised by critics of the transnational law theory. For all: SURATGAR, "Considerations Affecting Choice of Law Clauses", cit.. p. 311; CURTI GIALDINO, "La volonte des parties en droit international priv�", 137 Hague Recueil (1972), III, p. 795; similarly, POPESCU, "Le droit du commerce international: une nouvelle tache pour les 16gi slateurs nationaux ou une novelle lex mercatoria ?", in UNIDROIT, New Directions in Inter- national Trade Law, cit., I, p. 21 ff., who stressed the common-legislation aspect of the so-called lex mercatoria, rather than that of independent customary law. 3t Such negative conclusions concerning the status of lex mercatoria as an internal or international legal order are confirmed by a survey of the Paris Chamber of Commerce's wide case·law; yet this is the body which has looked most favourably upon the lex merca- toria approach. Pertinent awards are for example reported in Clunet: 102 (1975), p. 9r6ff.; 103 (1976), p. 969ff.; 104 (1977), p. 931 ff.; 105 (1978), p. 976ff.; 106 (1979), p. 982ff. 3z For such criticism, essentially, CURTI GIALDINO, "La volonte des parties en droit international prive", cit., p. 79q f., who highlights that such a social group cannot be singled out with reference, for example, to a vague "societe internationale des vendeurs et des acheteurs''. See also the comments by RATIFFOL on the report by LEVFL, "Le contrat dit 'sans loi' ", in Tra.vaux du Comit6 français de droit interrrational prive 1964-66, cit., p. 231 f., and BONELL, in New Directions in International Trade Law, cit., p. 119 f. Only formally does this criticism spare the theory of RENGELING, Privatvolkerrec!�t!iche Vertrage, cit., concerning the so-called Privatvolkerrecht to which, by definition, both States and individuals as well as international non-governmental organizations would be subject. It should be noted that the theory in point lays itself open at times to the same objections as those levelled at the lex rnercatoria in its most common construction, and at others to the objections met by the "international law of contracts" approach. Moreover, the author fails to provide any convincing proof as to the existence in the international community of a legal system that would include both public international law and the so called international law of private persons.

  • � The problem is sharply felt nowadays. Well-known are the cases in which foreign entities have invoked immunity from jurisdiction on the ground of their being governmental bodies. See, for example, the judgment of 23 January 1978 of the U. S. District Court S. D. New York that granted the two Soviet press agencies, Novosti and Tass, immunity under the 1976 Sovereign Immunities Act: i7 I1.M (1978), p. 720ff. In the French Cour de Cas- sation's Judgment of 2 May 1978, 105 Clunet (1978), p. 904 ff., immunity was acknowledged to Alco and others Algerian companies, on the ground that the claim was in fact aimed at the Algerian State. In its judgment of 19 May 1976, on the Banque du japon case, 66 RCDIP (1977), P. 359 ff., the French Cour de Cassation had granted the Japanese Central Bank immunity insofar as it was carrying out acts of "puissance publique ou accomplis dans l'int6ret d'un service public". Equally well-known are those cases where property belonging to foreign entities and difficult to characterize as private or public was attacked to meet claims brought against the State of origin of these entities. Mention should be made first and foremost of the action taken by Liamco against a series of Libyan companies operating in France. This action was based on the aforesaid award made on 12 April 1977 by the arbitrator Mahmassani which held that the Libyan Arab Republic ought to pay certain sums of money to Liamco. For an interim decision, see Trib. Gr. inst. Paris, 5 March 1979, ro6 Clunet (1979), p. 859 ff. In the United States the exequatur of the Liamco award was denied by the U.S. District Court for the District of Columbia by decision of 18 January 1980 on reasons drawn from the Act of State Doctrine: cf. 75 AJIL (1981), p. 148. The appeal against the decision was never decided upon, the case having been settled between the parties (cf. Vorr MEHREN (R.) and KOURIDES "International Arbitrations", cit., p. 547). The exequatur of the Liamco award was granted in Sweden and Switzerland. In the latter country, an attempt at actually enforcing the award on Libyan property was, however. dismissed by the Federal Tribunal because of the lack of sufficient "contact" of the case in point with the Confederation: cf. 20 ILM (1981), p. 152 ff. The problem of the international legal status of foreign "public" entities had already been noticed after the 195 Iranian oil nationalization and the setting up of NIOC. On this point: WALL, "The Iranian-Italian Oil Agreement of 1957", 7 ICLQ (1958), p. 736 ff.; SURATGAR, "Considerations Affecting Choice of Law Clauses", cit., p. 309 ff. � For the features of this type of agreements, above all, HYDE, "Economic Development

  • Agreements", 105 Hagrse Recueil (1962), I, p. 271 ss. and VERDROSS, "The Status of Foreign Private Interests Stemming from Economic Development Agreements with Arbitration Clau- ses", 9 OstZOR (1959), p. 4998. �s To this effect the award on the 1'exaco-Calasiatic case in Clunet, cit., p. 350 ff.; the line of thought mentioned in the text is dealt with at p. 356 f. In doctrine: WEIL, "Pro- blemes relatifs aux contrats passes entre un Etat et un particulier", cit., esp. p. 189 ff.; IDEM, "Les clauses de stabilisation ou d'intangibilite dans les accords de developpement economique", in Melanges Rousseau, Paris, 1974, p. 311 and p. 316. � Especially: Mc NAIR, "The General Principles of Law Recognized by Civilized Na- tions", 33 BYIL (1957), p. 1 ff.; JF.NNINGS, "State Contracts", cit., p. 161 ff.; WEIL, "Problemes relatifs aux contrats passes entre un Etat et un particulier" cit., p. 101 ff.; IDEM. "Les clauses de stabilisation", cit., at p. 316 ff.; SACERDOTI, I contrattz tra Stati e stranieri nel diritti internaxionale, cit., esp. p. 195 ff., and 240. In German doctrine, see above all the followers of ZWEIGERT, Verträge, cit., who holds these contracts governed by the general principles "wenn die Struktur des Vertrages von solcher Art ist, dass sich eine Ausiedlung in einem nationalen Rechtsystem nach den jibe- reinstimmend Interessen beider Vertragspartner verbietet" (op. cit., p. 208). In ZwEIGERT'S view, the fact that the general principles appertain to international law does not, however, mean that other rules of this legal system apply to State contracts (op. cit., p. 210). And it is here that ZWEIGERT's thesis differs from that of other authors who consider international law is applicable in toto. B6CKSTIEGEL, Der Staat als Vertragspartrzer ausldndischer Privatunter- nehmen, Frankfurt am Main, 1971, gives weight to a further element, such as the form in which the contract is concluded. In order for such contracts, defined as "quasi-volkerrechtliche" or "beschrHnkt-v6lkerrechtliche", to be subject to international law, they should be stipulated, on behalf of the State, by bodies enjoying treaty-making power ar.cording to constitutional law. Add by the same author "Enteignungs- oder Nationalisierungsmassnahmen gegen auslandische Kapitalgescllschaften. Volkerrechtliche Aspekte", in Berichte der Deutschen Gesellschaft fur Volkerrecht, Heft 13, Karlsruhe, 1974, p. 7ff., at p. 26ff. Along the same lines proposed by BOCKS1'IEGEL: FISCHER, Die internationale Konzession, cit., esp. p. 345ff., and SEIDL HOHENVELDERN, "The Theory of Quasi-International and Partly International Agree- ments", cit., p. 567 ff.

  • 3� The award reads: "encore qu'ils ne se confondent pas avec les traites, les contrats entre Etats et personnes privees peuvent, neamoins, sous certaines conditions, relever d'une branche particuliere et nouvelle du droit international: le droit international des contrats" (Clunet, cit., p. 356). On the basis of such international law of contracts, the parties could then choose the law (even State law) to be actually applied: "Le Tribunal de ceans tiendra done pour acquis d'emblee que les contrats de concession litigieux se situent dans le domaine du droit international et que celui-ci leur donnait le droit de choisir la loi qui allait regir leurs relations contractuelles", ibidem, p. 357. 3e The award was delivered by Judges Stutzer and Scott on 2 September 1930 in the dispute raised by Lena Goldfields company against the Soviet Government (text partially reproduced in Annual Digest of Public IL Cases (1929-30) p. 3 f. and p. 42G ff.). 39 The award was delivered by Lord Asquith of Bishopstone in the Petroleum Develop- ment Ltd v. Sheikh of Abu Dahbi dispute and reported in 18 IntLR (1951), p. r44 ff. The arbitrator stated in particular (p. 149): "The terms of that Clause (on the interpretation and implementation of the agreement) invite, indeed prescribe, the application of principles rooted in the good sense and common practice of the generality of civilized nations - a sort of 'modern law of nature'. I do not think that on this point there is any conflict between the parties". 40 The award was given by the arbitrator Sir Alfred Bucknill in June 1953 in the Ruler of Quatar v. International Marine Oil Company Ltd dispute and is reported in 20 IntLR (1953), p. 3345. As to the applicable law, the arbitrator stated (p. 545): "In my opinion neither party intended Islamic law to apply, and intended that the agreement was to be governed by 'the principles of justice, equity and good conscience' as indeed each party pleads in Claim and Answer, alternatively to Islamic law, in the case of the Claimant". 41 Judgment was given by the arbitrator Cavin on 15 March 1963 in the Sapphire International Petroleums Ltd v. National Iranian Oil Company dispute and is reported in 35 IntLR (1967), p. i3G f. See p. 170 fit. for the argument of international law being the applicable law. For a recent critical survey of the decision, SORNARAJAH, "The Myth of Inter- national Contract Law", 15 Journal of World Trade Law (1981), p. Zo3 f. WHITE, "Expro- priations of Libyan Oil Concessions", cit., p. 7 points out that it was not Iran which was a party to the dispute but the National Iranian Oil Company: such consideration do not however seems decisive in differentiating this case from others. Indeed, the Iranian public authority's involvement in the concessionary contract appears patient from the very facts reported in the judgment (esp. p. 171). It should be recalled that the award was declared null and thus unenforceable in Iran by the Teheran Tribunal by its decision of 1 December 1963, 47 IntLR (r97,I), p. 306 ff. One of the grounds for its being null was found in the fact that the arbitrator Cavin held the contract under dispute governed by the general principles of law, rather than by Iranian law.

  • 42 The solution is proposed by F. A. MANN. Cf. by this author: "State Contracts in International Arbitration", 42 BYIL (1967), p. i ff., reprinted in Studies in International Law, London, 1973, p. 256 ff., and more recently "The Theoretical Approach Towards the Law Governing State Contracts Between States and Private Persons", II RBelDI (1975), p. 562 ff. In particular, bIANN, op. ult., cit., p. 565, states: "Just as by their will they [Foreign States and undertakings] can choose a given State order as their proper law, so it is their will, their choice, founded upon and permitted by the private International law of the forum, that may submit a contract to the law of States, to public international law" (italics added). a3 The problem should be faced and solved case by case, with reference to each single system of conflict. CASSONI, "I contratti di concessione", cit., p. 235 ff., esp. p. 245 f. states, in opposition to MnHrr's view, that private international law rules only refer to State system ot private law. This is a widely held opinion in private international law doctrine. For all: MORELLI, Elementi di diritto Internazionale privato italiano, ioth ed., Napoli, 1971, p. 66 ff.; VITTA. Diritto internazionale privato, I, Torino, 1972, p. 10 ff.; KEGEL, Internationales Privatrecht, 3d ed., Munchen, 1971, p. 8 f.; and esp. WoLFF, Private International Lay, 2nd ed., Oxford, 1950, p. 417. 44 The conclusion seems to be sound in view of the doctrine and arbitral practice con- sidered in the preceding paragraphs, provided that the contrat sans loi and lex mercatoria approaches are assessed as one, and that State contracts are subjected to public international law or general principles of law.

  • 45 Recently for all: Bedjaout, "Non-alignement et droit international", 151 Hague Recueil (1976), III, esp. p. 428 ff.; Mc WHiNNEY, "The international Law-Making Process and the New International Economic Order", r4 CanYIL (1976), p. 57 ff.; ADEDE, "A Profile Trend in the State Contracts for Natural Resources Development Between African Countries and Foreign Companies", NY journal of Int. Law and Politics (1979-80), pp. 479-568. 46 In this regard see especially: PICONE, "Diritto internazionale dell'economia e costi- tuzione economica dell'ordinamento internazionale", 16 CS (1980), p. x39 ff.; Dolzer, "New Foundations of the Law of Expropriation of Alien Property", 75 AJIL (1981), p. 553ff.; WESTON, "The Charter of Economic Rights and Dutes of States and the Deprivation of Foreign-owned Wealth", 75 AJIL (1981), p. 437 5. 47 The drafting of the Charter is generally considered a significant phase in the con- frontation between the various economic and political stands taken by States. No conclusive view is, therefore, suggested here as regards the Charter's value as a binding legal instrument or at least declaratory of existing general law. On the contents of the Charter, besides the authors referred to in the works mentioned in the preceding footnote, cf. ToMUSCHAT, "Die Charta der wirtschaftlichen Rechte und Pf1icht�n der Staaten", 36 ZAORV (1976), p. 444 ff.; SALEM, "Vers un nouvel ordre economique international", 102 Clunet (1975), p. 753 ff.; MARTIN, "Le nouvel ordre economique international", 79 RGDIP (1975), p. 502 ff.; WHITE (R.C.A.), "A New International Economic Order", 24 ICLQ (1975), p. 542 ff.; GIARDINA, "Vers un nouvel ordre éccnomiquc international", in Studi in onore di Lelio Basso, Milano, 1979, p. 924 ff. On the broader issue of a new international economic order: BAGWATI (ed.), The New International Econonric Order: The North South Debate, Cambridge (Mass.), 1977; GUER- RERI-LUCIANI, L'Italia ed il nuovo ordine economico internaxionale, Milano 1979; Picone, "Diritto internazionale dell'economia", cit., esp. p. 175 ff.

  • 48 References by CASTANEDA, "La Charte", cit., p. 30 ff., esp. p. 46 ff. 49 Cf. again CASTAÑEDA, "La Charte", cit., p. 50 f. 50 As is well-known, out of the 136 member States of the U.N. General Assembly, 120 voted in favour, 6 against (USA, West Germany, Great Britain, Belgium, Luxemburg, and Denmark), 10 abstained (Austria, Canada, France, Ireland, Italy, Israel, Japan, Norway, Holland and Spain). On the attitude of Western countries regarding the drafting and adoption of these provisions: DE Waart, "Permanent Sovereignty over Natural Resources as a Cor- nerstone for International Economic Rights and Duties", 24 NedTIR (1977), p. 304 ff., at p. 3116.; WESTOrr, "The Charter", cit., p. 437 ff- 51 So again CASTAÑEDA, "La Charte", cit., p. 53 f. and DE WAART, "Permanent Sove- reignty", cit., p. 304 ff., esp. p. 314ff.

  • 52 This is the conclusion reached by CASTAREDA, "La Charte'', cit., p. 54 f. For a contrary view: WssTO�r, "The Charter", cit., esp. p. 448 f., who maintains that according to the Charter no control over State measures in the taking of foreign property is possible. Never- theless, the same author states that, at least as far as concerns the matter in hand, the Charter itself is no evidence of the law in force; it merely expressed the de lege lata opinion of the group of the States which voted in favour of it. 53 See para. above. 54 Cf. on this aspect esp. WENGLER, "Les accords entre Etats et enterprises etrangeres", cit., p. 313 ff., p. 322 ff. 55 Reference is once again, although in different terms, to the presumption referred to by the Permanent Court of International Justice as to the submission of State contracts to the national law of States contracting them. Cf. note 6 above. The Court had declared that a State could not "6tre presume avoir soumis la substance de sa dette et la validite des engagements pris par lui a ce sujet a une loi autre que sa propre lion" (PCIJSeries A, No. 20/21, p. 41). The presumption is justified in the present context, covering as it does economic development contracts, to a far greater extent than it would be justified as regards other contracts stipulated by States with foreign citizens. The basic reference to the host State's law does not prevent resort to other State legal systems, or to international law rules, or to rules of the so-called lex mercatoria. The point will be developed below in the text.

  • 56 Instances of such combined renvoi are numerous. Mention can be made of the system envisaged by art. 16 of 1955 Libyan Oil Law, as modified in 1966 and included in the concessionary contracts that gave rise to the B. P., Texaco-Calasiatic and Liamco arbitrations. The clause on the applicable law embodied in Art. 28 of the said contracts reads: "This Concession shall be governed bv and interpreted in accordance with the principles of law of Libya common to the principles of international law and in absence of such common prin- ciples then by and in accordance with the general principles of law, including such of those principles as may have been applied by international tribunals". Fer the text, and for the previous versions (1955 and 1961) of Art. 16 of the Libyan law, Cf. Vorr MEHREN (R.) and KOURIDES, "International Arbitrations", cit., p. 481 f. Another interesting clause is the one included in Art. n of the 1974 agreement between Egypt and Esso, worded as follows: "This Agreement shall be given effect and shall be interpreted and applied in conformity with principles of law common to the ARE and USA and, in absence of such common principles of law common to and recognized by civilized nations in general, including those which have been applied by International Tribunals" On this particular clause: ADEDE, "A Profile of Trends in the State Contracts", cit., p. 550. 57 On the matter, also for further references, BRONWLIE, "Legal Status of Natural Resources in International Law (Some Aspects)", 162 Hague Recueil (1979), I, p. 244 ff. 58 Authoritatively to this effect JIMENEZ DE ARECHAGA, "International Law", cit., p. 297: "The description of this sovereignty as permanent signifies that the territorial State can never lose its legal capacity to change the destination or the method of exploitation of those resources, whatever arrangements have been made for their exploitation and administration". 59 The jus cogent character of the principle of permanent sovereignty over natural resources is acknowledged by JIMENEZ DE ARECHAGA, "International Law", cit., when he states: "contemporary international law recognizes the right of every State to nationalize foreign-owned property, even if a predecessor State or a previous government engaged itself, by treaty or by a contract, not to do so" (emphasis added). Cf. also GIARDINA, "Nationalisation et indemnisation en droit international", in Le droit petrolier et la souverainete des pays pro- ducteurs (colloque AIJD, Alger, 1971), Paris, 1973, p. 44 ff., at p. 42 f.; IDEM, "Vers un nouvel ordre economique international", cit., p. 926 f.; RiGAUx, "Pour un autre ordre international", in Droit economique, II, Paris, 1979, p. 345 f. Permanent sovereignty is defined as a principle of international law by DE WAART, "Permanent Sovereignty", cit., esp. p. 3io fE.; see also Sornarajah, "The Myth of International Contract Law", cit., p. 178 ff. at 206 ff. To the

  • contrary are the conclusions reached by BROWNIE, "Legal Status of Natural Resources", cit., p. 309 ff., who maintains that the general principle in question does not have a cogent character and may thus be derogated by means of a treaty; see, however, what the same author states at p. 268 ff., esp., p. 271. 60 Worthy of mention is another approach that, in numerous albeit not in all cases, justifies disposal by States of their natural resources in contrast with previous contractual commitments. Reference is here to the international rebus sic stantibus principle that may, in certain cases, bring about the extinction of a treaty aimed at safeguarding foreign in- vestments. Cf. BOYE, L'acte de ncrtionalisation, Dakar, 1979, p. 8o ff., at p. 82. The same author also takes account of the fact that the principle cannot be invoked by the contracting party that has caused a radical change in circumstances, through unlawful contractual behaviour. Thus, in the specific case of Algerian nationalization the author points out that the change of circumstances having brought the 1962 and 1965 Franco-Algerian treaties to an end could not be ascribed to Algeria. 61 According to BROWNLIE, "Legal Status of Natural Resources'', cit., p. 263 f., the same conclusion may not be drawn as regards the Western States which voted against the adoption of the Charter of Economic Rights and Duties of States and which style themselves as persistent objectors as regards some of the rules contained in the said Charter. On the persistent objector and subsequent objector to customary international law, again BROWNLIE, Principles, cit., 1973, p. 10 f. Apart from the fact that the two stands recalled by BROwtvLIE, refer to customary law and not to general principles, the stands themselves do not appear to have been gaining a relevance of their own in international law and in the case-law of the International Court of Justice. 62 A solution based on the distinction between "eYercise'' and "enjoyment" (juissance) of permanent sovereignty over natural resources does not seem satisfactory, insofar as con- cessionary agreements constitute a proper form in which to "exercise" a right and do not impair the "enjoyment" of the same. To this effect is the oft-cited Texaco-Calasiatic award, 104 Clunet (1977), esp. p. 373 ff. Pertinent in this regard are the comments made by VERHOE- vErr, "Droit international des contracts et droit des gens", cit., p. 224, and by VARNA, "Petroleum Concessions in International Arbitration", 18 ColJTransLaw (1979), p. 259 ff., esp. p. 279, on the difficulty of distinguishing between acts amounting to sheer exercise and acts that actually impair the very title on which the right disposed of is founded. � Compensation will therefore not amount to reparation of an international breach on the part of a State that has violated its contractual undertakings towards private persons of

  • foreign nationality. At an international level, it is justified by ,J1MENLZ DE ARECHAGA, "Iriter- national Law", cit., p. 299 ff., in terms of non justified enrichment. 64 Criticism on ths point of the award have been put forward by: RIGAUX, "Des dieux et des heros", cit., esp. p. 440 f.; TESAURO, "Contratto internazionale di concessione e na- zionalizzazione di beni ed interessi stranieri", 101 ForoIt (1978), IV, p. 267 ff., esp. p. 268 f.; VERHOEVEN, "Droit international des contrats et droit des gens", cit., esp. p. z26 f£.; VARNA, "Petroleum Concessions", cit., p. 284 ff. 65 Doctrine, especially the oldest, has shared these lines. Yet similar standpoints may also be found in recent practice: see the U.S.'s and Great Britain's notes addressed to Libya following Libya's oil nationalization, reproduced by Vorr MEHREN and KOURIDES, "International Arbitrations", cit., p. 486 f. The British note of 23 December 1971 stated that: "Her Majesty's Government are bound to conclude that the measures in question amount to a breach of international law and are invalid" and that "Nationalisation measures which are arbitrary or discriminatory ...are illegal and invalid". The U.S. note of 27 March 1973 stated that the Libyan measures were "inconsistent with the terms of the concession contracts, and invalid under international law". According to VERHOEVEN, "Droit international des contracts et droit des gens", cit., p. 228, the restitutio in integrum would only be justified if the nationalization measures were deemed internationally null. The statement seems to prove too much as many forms of international breach envisage a return to the previous situation as a sanction. 66 See the broad review of practice in WALE, "Revision of Transnational Investment Agreements: Contractual Flexibiliy in Natural Resources Development", 10 Lawyer of the Americas (1978), p. 265 ff., and the comments by SoxrrARAJAH, "The Myth of International Contract Law", cit., p. 214 ff.

  • �7 For all the clear survey by CARREAU, JUILLARD, FLORY, Droit international economique, 2nd ed. Paris, r98o, p. 521 ff. 68 For the various forms of such contractual clauses and for an indication as to the possible different consequences ensuing therefrom, WEIL (P.), "Les clauses de stabilisation", cit., p. 301 ff. 69 The conclusion cannot be avoided being given the prevalence of general jus cogens rules (such as the principle of permanent sovereignty over natural resources is deemed to be) over conventional rules. This is the conclusion to be reached from the public international law point of view. A contradiction between possible measures of nationalization and contractual obligations undertaken by the State, may, of course, still be found on a different level which does not necessarily impose taking account of international law. Such may be the case, for instance, when the concessionary contract provides for arbitration to be conducted according to rules having different contents from those of public international law. 70 In a national legal order which provides for incorporation of the general rules of international law, merely contractual clauses may not be held to prevail over any such rule. The solution may, of course, change when a given concessionary contract is approved by law, and again when general international rules have constitutional status in the legal order governing the concessionary contract in point. 71 In favour of the view that violation of a State contract does not in itself constitute an international breach: BROWNLIE, Principles, cit., p. 547 ff.; AMERASLNGHE, "State Brea- ches", cit., p. 881 ff.; MANN, "State Contracts and State Responsibility", 54 AJIL (1960),

  • p. 572 ff. and in Studies in (International Law, cit., p. 302 ff., esp. p. 3r3 ff.; WENGLER, "Les accords entre Etats et entreprises etrangers", cit., esp. p. 328 f. 72 On the subject: DUBOUIS, "L'embargo dans la pratique contemporaine", 13 AFDI (1967), p. 99 ff.; BILDER,"East-V�IPSt Trade Boycotts: a Study in Private, Labor Union, State and Local Interference with Foreign Policy", Univ. of Penza. Law Review (1978), p. 841 ff.; CowLES, �`Expott Controls: A National Security Standard?", Virginia Jour. of Int. Law (1971), p. 92 ff.; POLIER "Western European Sovereignty and American Export and Trade Controls", 9 ColJTransLaw (1970), p. 109 ff. See also the studies reported in LILLICH (ed.), Economic Coercion and the New International Economic Order, Charlottesville, 1976, and the work by Lindemeyer, Scbiffsembargo und Handelsembargo, Baden-Baden, 1975, on which see PICONE's review in 63 Rivista (1980), p. 869 ff.

  • CARREAU, TUILLARD, FLORY, Droit international economique, cit., p. 376 f., recall U.S. Government's opposition to the sale of "Caravelle" aircraft to Communist China by a French company, on the ground that certain electronic equipment, built in France under U.S. licence, was qualified as strategic material. Further examples, mainly concerning the working of the co-ordinating committees among Western countries (Cocom and CHINCOM) in relation to Socialist countries, cf. DRUBOUIS, L'embargo dans lay pratique contemporaine, cit., esp. p. z34 ff. 74 See particularly, the Soviet oil embargo on Israel in 1956 and the arms supply embargo on Israel by France in 1967/69. On these: LINDEMEYER, Schi/fsembargo und Handelsembargo, cit., p. 248 ff. The Soviet embargo on oil exportation against Israel made it impossible to implement a previously stipulated supply contract between an Israeli company and a Soviet enterprise. The ensuing dispute was settled by the Soviet Arbitration Commission for Foreign Trade on the basis of the "force majeure" principle. The decision is reported in 53 AJIL (1959), p. 800 ff., and commented by DOMKE, ibidem, p. 787 ff. and by KHADJAVI - GONTARD, HAUSMAN, "Zurechenbarkeit von Hoheitsakten und subsidiärc Staatshaftung bei Vertragen mit auslan- dischen Staatsunternehmen", Recht der internationalen l:f�irtscbaft 1981, p. 535 f. On the Arab boycott towards Israel from 1950 cf. Rousseau, "Le boycottage dans les rapports internationaux", 6z RGDIP (1958), p. 11 ft 75With the Executive Orders No. 12170 of 14 November 1979 and No. 12211 of 17 April 1980 (cf. 18 ILM (1979), p. 549 ff. and 1980, p. 1234 ft) the President of the United States had decided to freeze Iranian assets in the U.S.A. and held by U.S. bodies operating abroad, as well as to ban a whole series of contracts with Iran and Iranian nationals. In implementing the Algiers Agreements of 19 January 1981, the President issued the Executive Order No. 12278, on the same day, abrogating the previous freeze and ban. Cf. 20 ILM (1981), p. 286 ft For an initial assessment of U.S. measures, cf. LINDE!�IEYER, "Das Handelsembargo als wirtschaftliches Zwangsmittel der staatlichen Aussenpolitik. Das Iran-Embargo", Recht der internationalen Wirtschaft (1981), p. 10 ff.; RADIC:4TI Di BROZOr.o, "La prima fase del contenzioso degli averi iraniani bloccati dagli Stati Uniti", 64 Rivista (1981), p. 328 ff. As is well-known, one of the features of the U.S. measures, which gave rise to most heated di- scussion and criticism concerned the freeze of Iranian assets in the hands of American citizens, wherever they were. This claim to extra-territorial application of U.S. law was bound to particularly affect State contract concluded by Iran even with citizens of third States. 76 Resolutions No. 232 of 16 December 1966 and Nc. 253 of 29 May 1968. For all Ruzig, "Les sanctions economiques contre la Rhodesie", 97 Clunet (1970), p. 20 fit 77 Besides the many recommendations against South Africa, mention should be made of the arms embargo decided by AG Resolution No. 418 of 4 November 1977. Cf. CONFORTI, Le Naxioni Unite, 3rd ed., Padova 1979, p. 180. For the implementation of these measures

  • and those concerning Rhodesia, within States cf. GIARDINA, "La mise en oeuvre au niveau national des arrets et des decisions internationaux", 165 Hague Recueil (1979), III, p. 26z f., 288 f. 78 At the time of the League of Nations an arms embargo had been decided on Bolivia and Paraguay in 1934 and sanctions against Italy in 1935. In the framework of the United Nations, there have been many recommendations of embargo by both the Security Council and the General Assembly. See LINDEMEYER, Schiffsembargo mad Handelsembargo cit., p. 306 ff. 79 For the embargo on Cuba by the U.S.A. and later by the Organization of American States cf. again: LINDEInEYER, Schigsembargo und Handelsembargo, cit., p. 347. 80 There had already been an oil embargo by some Arab countries against certain Western States having backed Israel, at the time of the 1973 Egypt-Israeli war. In 1975 the oil embargo was organized on a larger and more effective scale. See especially the works by PAUST, BLAUSTEIN, SHII-IATA reported in LILLICH (ed.), Economic Coercion and the New International Economic Order, cit. 8I On a general level the problem arises as to the scope of the ban on the use of force laid down by Art. 2 para. 4 of the United Nations Charter. If such a ban is extended beyond the mere us? of armed force, it may also cover measures of boycott and embargo. Cf., e. g., ZOUREK, "La Charte des Nations Unies interdit-elle le recours a la force en general ou seulement a la force armee?", in Melanges H. Rolin, Paris 1964, p. 517; JIMENEZ DE ARECHAGA, "International Law", cit., p. 88.

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