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Loewen Group, Inc. v. United States. ICSID Case No. ARB(AF) /98/3.42ILM 811 (2003)

Published online by Cambridge University Press:  27 February 2017

William S. Dodge
William S. Dodge*
Affiliation:
University of California, Hastings College of the Law
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Type
International Decisions
Information
American Journal of International Law , Volume 98 , Issue 1 , January 2004 , pp. 155 - 163
Copyright
Copyright © American Society of International Law 2004 

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References

1 North American Free Trade Agreement, Dec. 17, 1992, Can.-Mex.-U.S., 32 ILM 289 & 605 (1993) [hereinafter NAFTA].

2 Loewen Group, Inc. v. United States, ICSID Case No. ARB(AF)/98/3 (NAFTA Ch. 11 Arb. Trib.June 26, 2003), 42 ILM 811, at <http://www.state.gov/documents/organization/22094.pdf> [hereinafter Loewen award (merits)]. Publicly released documents on all NAFTA disputes are available online at <http://www.naftalaw.org>.

3 The tribunal initially comprised Sir Anthony Mason (president), Judge Abner J. Mikva, and L. Yves Fortier. After the award on jurisdiction but prior to the award on the merits, Fortier resigned from the tribunal and was replaced by Lord Mustill.

4 NAFTA, supra note 1, Art. 1101 (1).

5 Loewen Group, Inc. v. United States, Competence and Jurisdiction, ICSID Case No. ARB(AF)/98/3 (NAFTA Ch. 11 Arb. Trib. Jan. 5, 2001), at<http://www.state.gov/documents/organization/3921.pdf> [hereinafter Loewen award (jurisdiction)].

6 Id., paras. 39-54.

7 Id., para. 61.

8 See infra notes 59-62 and accompanying text.

9 Loewen award (jurisdiction), supra note 5, para. 61.

10 Id., para. 71.

11 Id., para. 74.

12 Loewen award (merits), supra note 2, para. 54.

13 Id., paras. 56-64.

14 Id., paras. 65-67.

15 Id., paras. 68-70. The tribunal excused LG’s failures to object to such comments, reasoning that “[i]n a jury trial,... counsel are naturally reluctant to create the impression, by continuously objecting, that they are seeking to suppress relevant evidence or that they are relying on technicalities,” id., para. 73, and found that LG had preserved its claims by requesting a jury instruction addressing nationality, racial, and class bias, id., paras. 84–87.

16 Id., paras. 88–114, 122.

17 Id., paras. 140-41.

18 NAFTA, supra note 1, Art. 1105 (1). On July 31, 2001, the NAFTA Free Trade Commission, comprising representatives from the three NAFTA parties, issued an interpretation of Article 1105(1), limiting “international law” to customary international law and stating that “fair and equitable treatment” and “full protection and security” were not meant to go beyond the protections of customary international law:

B. Minimum Standard of Treatment in Accordance with International Law

  1. 1.

    1. Article 1105 (1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party.

  2. 2.

    2. The concepts of “fair and equitable treatment” and “full protection and security” do not require treatmentin addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.

  3. 3.

    3. A determination that there has been a breach of another provision of the NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105(1).

Free Trade Commission Clarifications Related to NAFTA Chapter 11 (July 31, 2001), at <http://www.ustr.gov/regions/whemisphere/nafta-chapterl1.PDF>. Although claimants had argued that the interpretation amounted to an unauthorized amendment of Chapter 11, they did not press the argument. The tribunal concluded that the interpretation was binding on it under NAFTA Article 1131(2). Loewen award (merits), supra note 2, paras. 124–28; compare Pope & Talbot, Inc. v. Canada, Damages, para. 47 (NAFTA Ch. 11 Arb. Trib. May 31, 2002), 41 ILM 1347, 1356 (2002) (“were the Tribunal required to make a determination whether the Commission’s action is an interpretation or an amendment, it would choose the latter”).

19 Loewen award (merits), supra note 2, para. 138.

20 Id., para. 132.

21 Id. The tribunal also quoted with approval two other formulations of a standard for denial of justice: (1) the formulation of the Mondev tribunal, id. para. 133, see infra note 47 and accompanying text; and (2) a phrase from the ELSI case on which the tribunal in Pope & Talbot, para. 63, 41 ILM at 1358, had relied. See Loewen award (merits), supra note 2, para. 131 (quoting Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1989 Icj Rep. 15, 76 (July 20) (“It is a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety.”)).

22 Loewen award (merits), supra note 2, para. 137.

23 Id., paras. 158-59; see supra note 10 and accompanying text.

24 Loewen award (merits), supra note 2, paras. 142-56.

25 Id., para. 161. As a condition precedent to submitting a claim, Article 1121 requires the investor and the enterprise to

waive their right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach . . . , except for proceedings for injunctive, declaratory or other extraordinary relief, not involving the payment of damages, before an administrative tribunal or court under the law of the disputing Party.

NAFTA, supra note 1, Arts. 1121(l)(b) & 1121(2) (b). LG argued that Article 1121 “requires an arbitral claimant to waive its local remedies, not exhaust them.” Loewen award (merits), supra note 2, para. 145.

26 Loewen award (merits), supra note 2, para. 162.

27 Id., para. 168.

28 Id., para. 208. The tribunal concluded that the refusals of the trial judge and the Mississippi Supreme Court to reduce the bond were not themselves violations of Article 1105. Id., paras. 189, 197.

29 Id., para. 215.

30 This holding would seem to render the rest of the award unnecessary, but the tribunal explained: “As our consideration of the merits of the case was well advanced when Respondent filed this motion to dismiss [for lack of jurisdiction] and as we reached the conclusion that Claimants’ NAFTA claims should be dismissed on the merits, we include in this Award our reasons for this conclusion.” Id., para. 2.

31 NAFTA, supra note 1, Art. 1101 (1).

32 Loewen award (merits), supra note 2, para. 225.

33 Id., para. 229.

34 Id., para. 237.

35 Id., para. 242.

36 Mondev Int’l Ltd. v. United States, ICSID Case No. ARB(AF)/99/2 (NAFTA Ch. 11 Arb. Trib. Oct. 11, 2002), 42 ILM 85 (2003), at <http://www.state.gov/documents/organization/14442.pd£> [hereinafter Mondev award (merits)].

37 Lafayette Place Assoc, v. Boston Redevelopment Authority, 694 N.E.2d 820 (Mass. 1998).

38 Lafayette Place Assoc, v. City of Boston, 525 U.S. 1177 (1999).

39 The tribunal consisted of Sir Ninian Stephan (president), James Crawford, and Judge Stephen Schwebel.

40 Mondev award (merits), supra note 36, paras. 57-75. Alternatively, the tribunal suggested that these claims would have been barred by the three-year statute of limitations. See NAFTA, supra note 1, Art 1116(2) (“An investor may not make a claim if more than three years have elapsed from the date on which me investor first acquired, or should have first acquired, knowledge of the alleged breach and knowledge that the investor has incurred loss or damage.); see also id., Art 1117(2). The tribunal said it would not have accepted Mondev’s argument that it could not have had “knowledge of... loss or damage” prior to the court decisions denying it relief. Mondev award (merits), supra note 36, para. 87.

41 Mondev award (merits), supra note 36, paras. 121-22; see supra note 18.

42 Mondev award (merits), supra note 36, para. 125.

43 Neer (U.SA.) v. United Mexican States, 4 R.I.A.A. 60 (U.S.-Mexico Gen’l Claims Comm’n) (1926); see Mondev award (merits), supra note 36, paras. 114-17, 125.

44 Mondev award (merits), supra note 36, para. 126.

45 Id.

46 Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1989 ICJ REP. 15, 76 (July 20).

47 Mondev award (merits), supra note 36, para. 127. The tribunal conceded that” [t] his is admittedly a somewhat open-ended standard, but it may be that in practice no more precise formula can be offered to cover the range of possibilities.” Id.

48 Id., para. 133. After examining Mondev’s claims that the Massachusetts Supreme Judicial Court should have remanded the contract claim and considered whether its allegedly new rule should have been applied retrospectively, the tribunal concluded that these questions were matters of local practice and did not constitute denials of justice. Id., paras. 135–38.

49 Id., para. 154.

50 Id., paras. 153–54.

51 See supra notes 26, 35, 45, 47 and accompanying text; see also Loewen award (merits), supra note 2, para. 51 (“The Tribunal cannot under the guise of a NAFTA claim entertain what is in substance an appeal from a domestic judgment.”); id., para. 134 (“A NAFTA claim cannot be converted into an appeal against the decisions of municipal courts.”); Mondev award (merits), supra note 36, para. 136 (“On the approach adopted by Mondev, NAFTA tribunals would turn into courts of appeal, which is not their role.”).

52 Loewen award (merits), supra note 2, para. 162.

53 Mondev award (merits), supra note 36, para. 127.

54 Id., para. 126.

55 Loewen award (merits), supra note 2, para. 156.

56 Id., para. 162. LG could, for example, have challenged the punitive damages award as excessive under Mississippi law, see Miss. Code Ann. §11-1-65 (2001), Andrew Jackson Life Ins. Co. v. Williams, 566 So. 2d 1172 (Miss. 1990), and under the Due Process Clause of the U.S. Constitution, see State Farm Mut Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003), BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996), TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443 (1993).

Domestic appeals could be made more effective ireredressing Chapter 11 violations if U.S. and Canadian implementing legislation were changed to make NAFTA enforceable in domestic court. See 19 U.S.C.A. §3312 (c)(2) (“No person other than the United States... may challenge, in any action brought under any provision of law, any action or inaction by any department, agency, or other instrumentality of the United States, any State, or any political subdivision of a State on the ground that such action or inaction is inconsistent with the [NAFTA].”); North American Free Trade Agreement Implementation Act, ch. 44, 1993 S.C. 1924-25 (Can.) (“Subject to Section B of Chapter Eleven of the Agreement, no person has any cause of action and no proceedings of any kind shall be taken, without the consent of the Attorney General of Canada, to enforce or determine any right or obligation that is claimed or arises solely under or by virtue of the Agreement.”). Investors may raise Chapter 11 claims in Mexican courts but are subsequently precluded from raising the same claims before a NAFTA tribunal. See NAFTA, Annex 1120.1 (a) (“an investor of another Party may not allege that Mexico has breached an obligation under [NAFTA] . . . both in an arbitration under this Section and in proceedings before a Mexican court or administrative tribunal”).

57 William S. Dodge, Loewen v. United States.- Trials and Errors Under NAFTA Chapter Eleven, 52 Depaull. Rev. 563, 570–71 (2002) (published before the Loewen tribunal’s award on die merits); see also Charles H. Brower II, Structure, Legitimacy, and NAFTA’s Investment Chapter, 36 Vand. J. Transnat’l L. 37 (2003) (discussing legitimacy of Chapter 11 review).

68 Dodge, supra note 57, at 575-77. This discussion assumes that domestic courts provide adequate remedies. U.S. and Canadian courts certainly do, and the same is probably true of Mexican courts. Customary international law excuses a claimant from exhausting local remedies when doing so would be futile. See C. F. Amerasinghe, Local Remedies in International Law 193–94 (1990).

59 Interhandel (Switz. v. U.S.), 1959 ICJ REP. 5, 27 (Mar. 21) (“The rule that local remedies must be exhausted before international proceedings may be instituted is a well-established rule of customary international law.”); see generally Amerasinghe, supra note 58.

60 Elettronica Sicula S.p.A. (ELSI) (United States v. Italy), 1989 ICJ REP. 15, 42 (July 20) (expressing “no doubt that the parties to a treaty can therein either agree that the local remedies rule shall not apply to claims based on alleged breaches of that treaty”); see Amerasinghe, supra note 58, at 251–75.

61 NAFTA, supra note 1, Arts. 1121 (l)(b), 1121 (2) (b).

62 See Feldman v. Mexico, ICSID Case No. ARB(AF)/99/1, para. 73 (NAFTA Ch. 11 Arb. Trib. Dec. 16, 2002), 42 ILM 625, 639 (2003) (“Article 1121 (2) (b) and (3) substitutes itself as a qualified and special rule on the relationship between domestic and international judicial proceedings, and a departure from die general rule of customary international law on die exhaustion of local remedies.”); Waste Management, Inc. v. Mexico, Mexico’s Preliminary Objection Concerning the Previous Proceedings, ICSID Case No. ARB(AF)/00/3, para. 30 (NAFTA Ch. 11 Arb. Trib. June 26, 2002), 41 ILM 1315, 1321 (2002) (“In common with almost all investment treaties, there is no requirement of exhaustion of local remedies.”); Metalclad Corp. v. Mexico, ICSID Case No. ARB (AF) / 9 7 / 1 , para. 97 n.4 (NAFTA Ch. 11 Arb. Trib. Aug. 30, 2000), 40 ILM 36, 49 n.4 (2001) (“Mexico does not insist that local remedies must be exhausted. Mexico’s position is correct in light of NAFTA Article 1121 (2) (b) “); see also William, S. Dodge, National Courts and International Arbitration: Exhaustion of Remedies and Res Judicata Under Chapter Eleven of NAFTA, 23 Hastings Int’l & Comp. L. Rev. 357, 373–76 (2000)Google Scholar (arguing that Article 1121 waives the local remedies rule).

63 See supra notes 24-25 and accompanying text.

64 Mondev award (merits), supra note 36, para. 96 (quoting C. Eagleton, The Responsibility of States in International Law 113 (1928)).

65 Id., para. 126.

66 Id. (quoting Azinian v. Mexico, ICSID Case No. ARB(AF)/97/2, para. 99 (NAFTA Ch. 11 Arb. Trib. Nov. 1, 1999), 39 ILM 537, 552 (2000)).

67 Azinian v. Mexico, paras. 96-100, 39 ILM at 551-52. The rule in customary international law is that the decisions of domestic courts do not bind international tribunals as res judicata. See, e.g., Amco Asia Corp. v. Republic of Indonesia (Nov. 20, 1984), 1 ICSID Rep. 413, 460 (1993) (“an international tribunal is not bound to follow the result of a national court”). For further discussion, see Dodge, supra note 62, at 365-370, 376–83.

68 Loewen award (merits), supra note 2, para. 162; see also Azinian v. Mexico, para. 86, 39 ILM at 550 (“it would be unfortunate if potential claimants under NAFTA were dissuaded from seeking relief under domestic law from national courts, because such actions might have the salutary effect of resolving the dispute without resorting to investor-state arbitration under NAFTA”).

69 Dodge, supra note 57, at 575.

70 See supra notes 65-67 and accompanying text.

71 Mondev award (merits), supra note 36, paras. 119, 127.

72 Id., para. 127.

73 See supra note 43 and accompanying text. The Loewen tribunal’s standard—” [m]anifest injustice in the sense of a lack of due process leading to an outcome which offends a sense of judicial propriety”—seems substantively identical to Mondev’s. Moreover, the Loewen tribunal both quoted and applied Mondev’s standard. See supra notes 21–22 and accompanying text.

74 See supra notes 23-26 and accompanying text.

75 See Dodge, supra note 57.

76 See, e.g., Interhandel (Switz. v. U.S.), 1959 ICJ Rep. 5, 27 (Mar. 21) (“The rule that local remedies must be exhausted before international proceedings may be instituted is a well-established rule of customary international law.”); Amco Asia Corp. v. Republic of Indonesia (Nov. 20, 1984), 1ICSIDREP. 413, 460 (1993) (“an international tribunal is not bound to follow the result of a national court”); see generally Dodge, supra note 62, at 360–70.