Dodging Bullets

AFirst Lookat theFinalAwardin The Loewen Group and Raymond Loewen v. U.S.A.

in The Journal of World Investment & Trade
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The Journal of World Investment & Trade

Law • Economics • Politics


I While there appears to have been no arguments on this issue, it appears that Loewen and his companies did not exactly conform to the requirements of NA�TA Articles 1119 to 1121 in commencing the arbitration. The Tribunal's Jurisdictional Award, issued on 5 January 2001 (and available at: «�>) states at paras. 14-17 that the investors attempted to deliver both the Notice of Intent to Submit a Claim to Arbitration and the Statement of Claim on 29 July 1998. Under NAFTA Articles 1 120 and 1121, a claim cannot be submitted until at least 90 days have elapsed since the delivery of the Notice of Intent. Moreover, the Tribunal writes that the waivers required under Articles 1120 and 1121 were not submitted until 30 October 1998, after the 60-day period had elapsed.

2Loewen Final Award, para. 119. The full text of the Final Award is published in this issue of Thc Journal of World Investment and is also available online at: «» ' Loewen Jurisdictional Award, paras. 39-60. 4 Loewen Final Award, para. 137. 5 Loewen Final Award, paras. 215-217. Loewen Final Award, paras. 225 and 235-237. 7 Loewen Final Award, para. 239.

I This is obviously not to say that the national treatment obligation only extends to overt measures taken against a foreign investor with intent to harm him/her because the investor is foreign. I Loewen Final Award, para. 70.

'" Lt�'f�ff; Final Award, para. 140. See ÚJ/,11'l'1I Final Award, paras. 132-135. 12 Liiewai Final Award, para. 132. The Tribunal's reference to the Nafi Commission Statement is a reference to an attempt made by the three NAFTA Parties to narrow the application of Article 1105 to cases in which a particular rule of customary international law (of which there are very few) is breached. The tribunals which have been called upon to interpret Article 1105 since the issuance of this binding interpretation have complied with the specific terms of the Commission Statement, although certainly not with its spirit. They have concluded that the Statement confirms the position of the standards noted in Article 1105 as being required under customary international law (i.e. that they represent the modern standard of treatment under customary international law). This does not mean that these tribunals have seen themselves limited to considering only hardened and clearly defined rules of customary international law in deciding what the content of this "international law standard of treatment" should be. Rather, they have concluded that, in order to apply the new customary international law standard of treatment in any given case, recourse may be made to any of the available and applicable sources of international law (including custom, general principles, treaty provisions and doctrine evidenced in the decisions of international tribunals and writings of learncd commentators). 11 See Loewen Final Award, paras. 119-123.

LO<'ll'clI Final Award, paras. 241-242. " Loewell Final Award, para. 143. '6 These objectives can be found in NAFTA Article 102.

17L"'lJlt'1l Final Award, para. 1 h 1. Im Such an interpretation of the term "measure" is clearly permissible under the customary international law rules ofinterpretation (particularly as recalled in Article 31(l)(c) of the Vienna Convention on the Law of Treaties). 19 Loewen Final Award, para. 174. =° Loewen Final Award, paras. 175, 178 and 199. zr Loewell Final Award, paras. 172-214.

=zLoewen Final Award, para. 174. z3 This is the language used by the Loewen Tribunal at para. 242 of the Final Award.

24 In a similar vein, it is inappropriate for a tribunal to be asked to determine whether the option of sccking extraordinary relief before the Federal Court or Supreme Court was likely to achieve success. The Tribunal clearly struggled with this chore (as it noted at para. 211 of the Final Award), finding itself unable to choose between the opinions of two pre-eminent scholars of U.S. law. It should have been sufficient for Loewen to have demonstrated to the Tribunal that it seriously considered the option, rather than having casually abandoned it for the NAFTA remedy. 2' Given the fact that the parties were paying each Tribunal member for this added consideration, one wonders if they will be as happy to foot the bill for the Tribunal's deliberations on an issue which was clearly obiter (to use the common-law expression).

20 This is not to say that there is nothing objectionable in the Tribunal's legal reasoning concerning the bankruptcy issue. In fact, the Tribunal takes pains, in paras. 231-233 of the Final Award, to instruct puzzled "private lawyers" as to why this result can be acceptable to public international lawyers. The Tribunal's explanation is a classically positivist one that is anchored in the historic conception of international law as being a regime of rights exclusively designed by, and exclusively designed for, States. It puts forward the old orthodoxy that international law holds no rights for individuals other than those created under specific regimes with all the incumbent limitations. With respect, this analysis misses the mark. While this article is not the place for a full exposition of the topic, it should suffice to say that investment arbitration is on the forefront of a paradigmatic shift in which the existence of individual rights is increasingly recognized as an element of the international legal order. While it is theoretically possible that the individual rights enjoyed by private economic operators (vis-a-vis the State) under hundreds of trade treaties (including the NAF'�'A and the WTO Agreement) and thousands of investment protection treaties may vanish tomorrow, it is highly unlikely. These rights (or "obligations" from the States' perspective) are part of an increasingly coherent nquis which might be referred to as "the principles of international economic law". While it is still possible for States to control access to enforcement of these rights (by not concluding any more treaties with investor-State arbitration provisions and by issuing edicts such as the 31 July 2001 NAFTA Commission Statement mentioned supra, footnote 12), they no longer possess complete control over the content or form ofthose rights. That control has shifted to the international tribunals which have been entrusted to hear disputes involving the protection of these rights. Because the issue before the Loewen Tribunal was one of gaining access to those rights, it was not necessary for the Tribunal to go so far as to doubt their very existence, independent of any particular treaty which might permit their enforcement.

27Loewen Final Award, para. 225. 2" Loewen Final Award, para. 237. 29 This is an increasingly interesting aspect of investment planning: strategically incorporating in a location that provides corporate law and tax benefits while also preserving rights to enforce international obligations before an independent arbitral tribunal under an available investmcnt treaty.

j"Loewen hnal Award, para. 239. 31 Loeweu Final Award, para. 227. The above quotation is that of the Loewen Tribunal, paraphrasing the Tribunal in �l4ondev International v. United States oj America (whose Final Award is available at: «>J).

3= Under Article 1116, Ray Loewen was entitled to any losses that he suffered directly as a result of the treatment experienced by his investment in the United States (which he controlled indirectly through The Loewen Group). Had Ray Loewen been successful in his claim under Article 1116, The Loewen Group would probably have received nothing for its Article 1116 claim-as all of the losses would have been proved to flow through it to the ultimate investor, Ray Loewen. Alternatively, The Loewen Group may have been able to prove that any losses suffered by it as a result of the way its U.S. subsidiary was treated by the Mississippi judgment did not flow back to Ray, flowing only to it as the immediate investor. This would have been an evidentiary matter of timing and accounting practices. Normally, only one investor is chosen to bring a NAFTA claim, based upon the NAFTA lawyers' assessment of "how far up" the damages flowed to a qualifying investor. We see here the anomalous situation of two investors, with what turned out to be divergent interests, both making claims on their own behalf and on behalf of the investment. 11 This conclusion does not mean that in any case where a NAFTA investor sought extraordinary relief from a domestic court before, or during, the bringing of a NAFTA claim, the investor has no chance of success before a NAFTA tribunal. Such cases are distinguishable from cases such as L"ewf/1 because the underlying measure would not be a decision of the court. The measure which would have been the subject of the claim would normally be the government conduct for which the investor sought redress before that court. If the court denied redress because local law would not permit it, the NAFTA Tribunal would still be perfectly entitled to award damages, if such conducr-although saved under domestic law-constituted a breach of international economic law as reflected in the NAFTA's various provisions. 34 To the extent that Mexico's anti-NAFTA activists note the existence of this Award, it is likely to be within the context of alleging that a double standard exists when U.S. measures are reviewed by international tribunals as opposed to Mexican measures.

31 Using this spectrum, the most deference would be accorded to courts exercising their role as the primary means of dispute settlement in the domestic legal system; some degree of deference would be shown to officials involved in the design and imposition of sanitary and phyto-sanitary measures which were based on sound science; while little or no deference would be required in the review of decisions by political or administrative officials (particularly those involved in the administration of trade measures). For more discussion of this concept, please see Todd Weiler, The Treatment of 81's Measures under NAFTA Chapter 19: I'reliminary Atisivers to an Open-Ended Que,tion, 26 Boston College International & Comparative Law Review 229, 2003.


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