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International Law and the Internationalized Contract

Published online by Cambridge University Press:  27 February 2017

A. A. Fatouros
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American Journal of International Law , Volume 74 , Issue 1 , January 1980 , pp. 134 - 141
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Copyright © American Society of International Law 1980

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References

1 Texaco Overseas Petroleum Company and California Asiatic Oil Company v. The Government of the Libyan Arab Republic, award dated January 19, 1977, reprinted in 17 ILM 1 (1978) [Eng. trans.]. References hereinafter will be to the “Award,” followed by paragraph numbers. For the authentic French text of part III of the award, see 104 J. Droit Int’l (Clunet) 350 (1977).

2 But see now the valuable discussion in broader context by Venkata Raman, K., Transnational Corporations, International Law, and the New International Economic Order, 6 Syracuse J. Int’l L. & Com. 17 (1978)Google Scholar. The award was also cited and followed in the Revere arbitration, note 10 infra. For commentaries in French, see Lalive, J. F., Un grand arbitrage pétrolier entre un Gouvernement et deux sociétés priviés étrangères, 104 J. Droit Int’l (Clunet) 319 (1977)Google Scholar; Rigaux, Des dieux et des héros, 67 Rev. Critique Droit Int’l Privé 435 (1978); Cohen-Jonathan, L’arbitrage Texaco-Calasiatic contre Gouvernement Libyen, [1977] Annuaire Français de Droit Int’l 452.

3 Surfeit with the overabundant literature on state contracts with aliens may be one reason. References here are limited to those strictly necessary.

4 The nationalization occurred in two phases in 1973 and 1974. Both Libyan decrees provided for eventual compensation of the companies; Award, paras. 6 and 7. Libya did not participate in the proceedings, except for a memorandum objecting to the arbitration.

5 Among recent comprehensive studies, see the valuable survey and analysis in J. Kuusi, State Contracts with Foreigners: Considerations on Law and Policy (unpub. thesis, Oxford 1976), and the exhaustive comparative discussion of doctrine, legislation, and case law on the related issue of arbitration between states and private persons, in A. Vergopoulos-Michail, Problémes relatifs à l’arbitrage en matière d’investissements privés internationaux (unpub. thesis, Paris–II 1978). An original theoretical approach is found in F. Rigaux, Droit Public et Droit Privé dans les Relations Internationales 366 ff. (1977). For an impressionistic review of eminent opinions on the subject, see the reports and discussions in Institut de Droit International, 57 Annuaire 192–265 (1977 I), id. at 318–25 (1977 II) .

6 The point is not conceded by several eminent jurists and by the great majority of Third World states. See, e.g., Wengler, Les accords entre Etats et entreprises étrangères sont-ils des traites de droit international?, 76 Rev. Gén. Droit Int’l Pub. 313 (1972). There is a certain “bootstrapping” quality to the related argument in the award: Since, according to it, it is international law that authorizes the parties (particularly the state party to the contract, presumably) to choose freely the applicable law (para. 35), it must first be found that the contracts involved “are within the domain <5f international law” before proceeding to construe the relevant clause so as to declare international law the governing law. The assertion that the contracts are internationalized comes so early in the award (para. 22) that one is not certain how far each of the subsequent references to it justifies or merely qualifies (or describes) internationalization.

7 Award, paras. 40—45. For critical analysis of this section of the award, see Cohen-Jonathan, supra note 2, at 459–66; Rigaux, supra note 2, at 443–44, 446–49; Vergopoulos-Michail, supra note 5, at 98–109.

8 Compare Verhoeven, J., Contrats entre Etats et ressortissants d’autres Etats, in Le Contrat Économique International: Stabilité Et Évolution 115, 141 (1975)Google Scholar.

9 Award, para. 41. In the case at hand, the contract referred to “the principles of the law of Libya common to the principles of international law and in the absence of such common principles . . . the general principles of law, including such of those principles as may have been applied by international tribunals.” Award, para. 23. The award construed this clause as in essence a reference to international law. Libyan law was considered in 4 instances, at a high level of abstraction, and in no case was it found not to coincide with international law. Construing the same clause, Judge Lagergren, in the BP arbitration, emphatically rejected the general applicability of international law, insisting on the role of the general principles of law. See Wetteb, G., 1 The International Arbitral Process 432, 437–39 (1979)Google Scholar, and see infra notes 21, 26.

10 The excessive looseness of the related argument, gently criticized in the otherwise favorable comment by Professor Cohen-Jonathan, supra note 2, at 466, and scathingly attacked by Rigaux, supra note 2, at 456–58, is confirmed by its use in the Revere arbitration, Revere Copper, Inc. v. O.P.I.C, August 24, 1978, reprinted in 17 ILM 1321 (1978). The majority opinion in that award found it possible to hold that a state contract was internationalized, in the absence of either a reference to international law or to general principles of law or an arbitration clause, merely because it involved the exploitation of natural wealth and resources. This holding formed the basis for a finding that the alleged breach by the host Government of a tax stabilization clause (a clause held to be unconstitutional and therefore ineffective by the national Supreme Court concerned) constituted an “expropriation,” under the terms of a guarantee contract between the company and the Overseas Private Investment Corporation. See, in this connection, the dissenting arbitrator’s opinion, id. at 1372 ff.

11 Compare Verhoeven, supra note 8, at 140—41. In fact, differing conceptions of the substantive rules to be applied underlie (and undermine) much of the apparent consensus among various writers on this topic. See Fatouros, The Administrative Contract in Transnational Transactions: Reflections on the Uses of Comparison, in Jus Privatum Gentium. Festschrift für Max Rheinstein 259, 262 (1969).

12 This is not the place, of course, for an elaboration of other approaches to this by no means novel question. For earlier attempts, see Fatouros, supra note 11; Fatouros, A., Government Guarantees to Foreign Investors 196–209, 261–301 (1962)Google Scholar. And compare Friedmann, W., the Changing Structure of International Law 200 ff. (1964)Google Scholar; Weil, Un nouveau champ d’influence pour le droit administratif français: le droit international des contrats, [1970] Etudes et Documents du Conseil d’Etat 13.

13 Award, para. 57. The sole arbitrator refers on this point to the discussion of “general principles of law” by the late Wolfgang Friedmann, citing page 196 of The Changing Structure of International Law (1964), while curiously failing to mention that a few pages later the same book strongly supports the application of the contrat administratif concept to concessions and similar state contracts (pp. 200 ff.). And see on the comparative law of public contracts, Mitchell, J. D. B., The Contracts of Public Authorities: A Comparative Study (1954)Google Scholar; Langrod, Administrative Contracts, 4 Am. J. Comp. L. 325 (1955); Bolgar, The Public Interest: A Jurisprudential and Comparative Overview of the Symposium on Fundamental Concepts of Public Law, 12 J. Pub. L. 13, 34–51 (1963).

14 Award, para. 69. Shades of Barcelona Traction! Compare [1970] ICJ Rep. 3, 40.

15 See, e.g., Award, paras. 65–69, where citation of 2 earlier investment arbitrations, a quotation from the late Charles de Visscher, and certain inferences from a PCIJ judgment and a UN General Assembly resolution are capped by the bald assertion: “Such is the present state of international positive law.”

16 One should note that, in many instances, the relevant passages in doctrinal writings are subject to differing interpretations. References to the standards for the assessment of compensation (e.g., “monetary compensation must, as far as possible, resemble restitution,” per Jiménez de Aréchaga, as quoted in the Award at para. 102) do not necessarily imply acceptance of the primacy of restitutio as a remedy.

17 A. Fatoubos, Government Guarantees, supra note 12, at 311–12. There is, moreover, no cogent reason in theory or policy to accept the traditional position; id. at 312–13. The award honors my book with quotation of an earlier passage, which it construes as descriptive (id. at 310–11, quoted in Award, para. 103); it does not address itself to the conclusions reached a page or two later.

18 See infra note 19.

19 The study in question is, Alvarez de Eulate, M. Bernad, La “restitutio in integrum” en la práctica y en la jurisprudencia internacionales, 11 Temis, Rev. Ciencia & Técnica Juridica 11–40 (Zaragoza, Nos. 29–32, 1971–72)Google Scholar. The article is a summary of the author’s doctoral thesis. In a prefatory footnote, Professor Dupuy, among others, is thanked for his help. Dr. Bernad goes over a long listing of cases, the overwhelming majority of which concern classical instances where compensation would have been manifestly insufficient: release of persons, delivery of ships, and restitution of works of art, documents (and sums of money (!)), and of territory. As to these, and as to some more problematic cases (involving, e.g., declarations of validity or invalidity of national measures), it is not clear from the necessarily brief summaries how far the outcome in each case was determined by the compromis, by the stipulations of the parties, etc. Apparently, none of the studies directly challenging the legal validity of the traditional formulation of the principle was available to Bernad.

20 Baade, Indonesian Nationalization Measures Before Foreign Courts—A Reply, 54 AJIL 801 (1960).

21 The award in question is BP v. Libya, G. Lagergren, sole arbitrator, award rendered October 10, 1973; supplementary award, August 1, 1974. The award has not yet been published in full; relevant information and excerpts are printed in G. Wetter, supra note 9, at 408–10, 432–40. See also infra note 26.

22 Rigaux, supra note 2, at 439–40. It does not appear that the plaintiffs had claimed such compensation or had argued that whatever Libya offered or proposed to offer was unfair or inadequate. Several months after the award was rendered, a settlement for $152 million in crude oil was agreed upon; see R. von Mehren, Introductory Note, 17 ILM 1, 2 (1978).

23 UNGA Res. 3201 (S–VI), May 1, 1974, Declaration on the Establishment of a New International Economic Order, 13 ILM 715 (1974); UNGA Res. 3202 (S–VI), May 1, 1974, Program of Action on the Establishment of a New International Economic Order, id. 720; UNGA Res. 3281 (XXIX), Dec. 12, 1974, Charter of Economic Rights and Duties of States, 14 id. 251 (1975).

24 R. von Mehren, supra note 22, at 1.

25 On its “delegitimizing” impact, in the areas we are here concerned with, see Schachter, The Evolving International Law of Development, 15 Colum. J. Transnat’l L. 1, 7–8 (1976); Castañeda, La Charte des Droits et Devoirs économiques des Etats du point de vue du droit international, in Flores Caballero, R., Castañeda, J., et al., Justice Économique Internationale 75, 112–13 (1976)Google Scholar; and more comprehensively, Meagher, R., An International Redistribution of Wealth and Power: A Study or the Charter of Economic Rights and Duties of States (1979)Google Scholar.

29 Such one-sided proceedings are hardly likely to lead to full investigation of the issues, however sensitive to the problem the arbitrator may be, as Professor Dupuy demonstrably was; see, e.g., Award, para. 74. The sole arbitrator’s failure to mention the Lagergren award, supra note 21, which had reached differing conclusions on several of the issues raised in the Texaco/Calasiatic case, is best seen as an illustration of the inherent limitations of such proceedings. Indeed, if the arbitrator undertakes to consider too critically the plaintiff’s submissions, by taking into account the possible legal arguments and approaches of the nonparticipating defendants, he runs the risk of being accused of overstepping the bounds of (nominally) adversary proceedings.

27 A possible opening of an inquiry along such “relative” lines might be offered by the discussion of the right to nationalize in paras. 76–79 of the award.

28 This element was stressed in a seminal article on the subject, McNair, The General Principles of Law Recognized by Civilized Nations, 23 Brit. Y.B. Int’l L. 1 (1957).

29 A standard, however, that would be genuinely minimal and not reflect the strictest property-protection norms of market economies, as the traditional “international minimum standard of treatment of aliens” tended to do, as far as the economic interests of aliens were concerned. The position here referred to is that associated with the late Wolfgang Friedmann and others.

30 For an excellent summary of the situation, see the conclusions in Kuusi, supra note 5,’at 258–64.

31 The UN General Assembly Resolution 1803 (XVII) of December 14, 1962, is the most durable remnant of these efforts at compromise, through linguistic ambiguity as much as through genuine concessions on all sides.

32 See Kuusi, supra note 5, at 239–51. It is characteristic in this respect that several of the Iranian and other petroleum arrangements, whose references to “general principles of law” are cited in the award (e.g., paras. 41—42), have been amended so as to exclude such language since the early 1970’s. See Kuusi, at 239–51; Vergopoulos-Michail, supra note 5, at 100–03. And see now, the revised version of the thesis by J. Kuusi, supra note 5, The Host State and the Transnational Corporation. An Analysis of Legal Relationships (1979).