Treatment of Aliens and Diplomatic Protection

Denial of justice

The commonest form the wrong takes. It is not simply losing a case.

The usual elements are a refusal of access to the courts, an unreasonable delay, a manifestly unjust judgment, a failure to enforce a judgment, or a procedure so defective as not to amount to a trial. What is required is a defect in the administration of justice as a system, and a mere error of law or fact by a court is not enough.

The two conditions

Article 44 of the ILC Articles makes both conditions of admissibility: the responsibility of a State may not be invoked if the claim is not brought in accordance with any applicable rule relating to the nationality of claims, or if the claim is one to which the rule of exhaustion of local remedies applies and any available and effective local remedy has not been exhausted.

Nationality of claims

The injured person must be a national of the claiming State. That is what makes the claim the State's own.

Two refinements. The nationality must ordinarily exist both at the date of the injury and at the date of the claim, which is called the continuous nationality rule. And the nationality must be effective, which is [Nationality] and the Nottebohm requirement of a genuine link.

Exhaustion of local remedies

The alien must first pursue the remedies available in the respondent State's own legal system, to the highest level that can give relief.

Why. It gives the State the chance to put the matter right in its own way, and it respects its jurisdiction over events in its territory.

Exceptions. The rule does not apply where there are no remedies, where the remedies are ineffective or obviously futile, where there is undue delay attributable to the respondent State, where the injured person is manifestly precluded from pursuing them, or where the State has waived the requirement. Nor does it apply where the injury is a direct injury to the State itself rather than to its national.

Who may claim for a company

This is where MU's textbooks spend most of their space on this topic, and it is where the case below governs.

Facts. Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), Second Phase, ICJ Reports 1970, page 3, judgment of 5 February 1970. Barcelona Traction was incorporated in 1911 in Toronto, where it had its head office, and formed subsidiaries to build and run an electric power system in Catalonia. Belgium said its share capital was very largely held by Belgian nationals; Spain disputed that. Spanish courts adjudicated the company bankrupt, its principal management were dismissed and Spanish directors appointed, and new shares in the subsidiaries were sold by auction in 1952 to a newly formed Spanish company which thereby acquired complete control. Canada, the company's national State, made representations from 1948 or 1949 and ceased entirely in 1955. Belgium claimed reparation for the damage to its nationals as shareholders.

Held. By fifteen votes to one, Belgium lacked jus standi. When a State admits foreign investments or foreign nationals it is bound to extend to them the protection of the law and assumes obligations concerning their treatment, but those obligations are not absolute, and a State must first establish its right to bring a claim. In municipal law the company and its shareholders are distinct persons, and international law authorises the national State of the company alone to make a claim. Whatever the reasons for Canada's change of attitude, that could not justify the exercise of protection by another government. A right to claim for prejudice to national economic resources could arise only from a treaty or special agreement, and none was in force between Belgium and Spain. Adopting a theory of diplomatic protection of shareholders as such would open the door to competing claims by different States and create an atmosphere of insecurity in international economic relations.

Why it matters. The nationality of a company is that of the State of incorporation and of the registered office, and it is that State alone which may protect it. The shareholders' States may not, however large their holdings, unless a treaty provides otherwise. That result has been criticised as leaving investors unprotected where the company's own State declines to act, which is exactly what happened to Barcelona Traction, and the practical answer has been the network of bilateral investment treaties which give the investor a direct right to arbitrate, bypassing diplomatic protection altogether.

The other half of the same judgment is the passage distinguishing obligations owed to the international community as a whole, which are the concern of all States and are obligations erga omnes, from those arising in the field of diplomatic protection. The ILC Articles turned that into article 48, dealt with in [Circumstances Precluding Wrongfulness, and Reparation].

The Calvo clause

A provision inserted in a contract between a State and a foreign national by which the national agrees to be treated as a national of that State for the purposes of the contract, to submit any dispute to the local courts, and not to seek the diplomatic protection of his own government.

Named after Carlos Calvo, the Argentine jurist, and widespread in Latin American concession contracts.

The objection to it is the fiction with which this chapter opened. If the right of diplomatic protection belongs to the State and not to the individual, the individual cannot renounce it, because it is not his to give away. On that reasoning the clause is void so far as it purports to bind the national State.

What survives. The clause is generally treated as effective to require the alien to exhaust local remedies, which he must do anyway, and as a promise not to seek protection prematurely. What it cannot do is deprive his State of a right it holds in its own name.

Expropriation

A State may take foreign property, and the argument has always been about the conditions.

The classical position of capital-exporting States is that a taking is lawful only if it is for a public purpose, non-discriminatory, and accompanied by compensation, and the compensation formula pressed was prompt, adequate and effective.

Newly independent States pressed a different position through the General Assembly, resting on permanent sovereignty over natural resources and on compensation determined by the taking State's own law, which is the New International Economic Order episode dealt with in [Resolutions of the General Assembly]. That position did not become custom, because the specially affected States neither voted for it nor followed it.

The practical position today is that the argument has been overtaken. Investment is governed by thousands of bilateral treaties which state the conditions expressly and give the investor direct access to arbitration, so the customary standard matters mainly where no treaty applies.

A worked example

Ms V, a national of State W, is a shareholder in a company incorporated in State X. She also owns a hotel in State Y in her own name. State Y's officials seize the hotel without compensation, and State Y's courts refuse to register her suit at all. Meanwhile State Y expropriates the company's factory.

The hotel. The injury is to Ms V personally, so State W may protect her. It must show the nationality of claims, that she was and remains its national, and the effectiveness of that nationality on the Nottebohm test. It must then show the exhaustion of local remedies, and here the refusal to register the suit engages the exception for remedies that are unavailable or obviously futile, and it is separately a denial of justice.

Is the seizure itself wrongful? On the classical conditions, a taking must be for a public purpose, non-discriminatory and compensated. A seizure without compensation fails. If State W and State Y have an investment treaty, its terms govern and Ms V may be able to arbitrate directly without troubling her government.

The factory. Different answer, and this is the Barcelona Traction point. The injured person is the company, whose nationality is State X's. State X alone may protect it. State W cannot claim for Ms V's shareholding, however large, unless a treaty provides otherwise, and if State X declines to act she is without a remedy at the level of diplomatic protection.

Suppose Ms V's contract with State Y contained a Calvo clause. It does not deprive State W of its right, because that right is the State's and not hers. It reinforces her obligation to exhaust local remedies, which she must do anyway, and it is why she must show the refusal to register her suit.

Suppose State W simply refuses to take up her case. She has no remedy in international law. The right to protect is the State's, and it may decline for any reason. That is the doctrine's oldest and sharpest criticism.

Distinctions table

What it does NOT mean

Diplomatic protection is not a right of the individual. The State may claim, settle, abandon and keep the proceeds.

Exhaustion of local remedies does not mean pursuing hopeless ones. Remedies that are unavailable, ineffective or obviously futile need not be exhausted, and undue delay attributable to the respondent State excuses it.

Denial of justice is not losing. An error by a court is not enough; the defect must be in the administration of justice as a system.

A Calvo clause does not bar a State's claim. It cannot, because the right is not the individual's to renounce.

Shareholders' States cannot claim for injury to the company. Barcelona Traction is explicit, and the practical answer is a treaty.

Limits and criticism

The whole doctrine rests on a fiction that no longer fits. International law now confers rights on individuals directly, as [Subjects of International Law] shows, and treating an injury to a person as an injury to his State was a device for a world in which it could not.

It leaves the individual dependent on politics. A State may decline to protect for reasons that have nothing to do with the merits, and the national has no answer.

Barcelona Traction produces hard cases. Where a company's own State will not act, the shareholders who bear the loss have no standing, and the Court's reasons, competing claims and insecurity in economic relations, are reasons of policy rather than of principle.

Investment treaty arbitration has largely replaced it in the commercial field, giving the investor a direct right and removing the State from the picture. That solves the problem of dependence and creates others, chiefly that a small number of arbitrators decide questions of public policy for States.

Quick revision

In taking up its national's case a State asserts its own right. So the claim is the State's to bring, settle or abandon, and the individual cannot compel it.

Standards: national treatment against the international minimum standard. The minimum standard prevails, and human rights law has taken over much of the ground.

Denial of justice: refusal of access, undue delay, a manifestly unjust judgment, failure to enforce, or a procedure that is no trial. Not a mere error.

Article 44 ILC Articles: responsibility may not be invoked where the claim is not brought in accordance with the rule on the nationality of claims, or where local remedies that are available and effective have not been exhausted.

Continuous nationality, and an effective nationality on the Nottebohm test.

Exceptions to local remedies: no remedy, ineffective or futile remedies, undue delay, manifest preclusion, waiver, and direct injury to the State.

Barcelona Traction, ICJ Reports 1970, page 3: the national State of the company alone may claim; the shareholders' State may not, absent a treaty; a contrary rule would produce competing claims and insecurity. The same judgment distinguishes obligations erga omnes.

Calvo clause: cannot deprive the national State of a right that is its own; effective only as to exhaustion of local remedies.

Expropriation: public purpose, non-discriminatory, compensated; prompt, adequate and effective against the developing-country position; in practice displaced by investment treaties.

Test yourself

1. Whose right is diplomatic protection, and what follows?

The State's. In taking up the case of one of its nationals a State asserts its own right to ensure respect for international law in the person of its subjects. Three consequences follow: the State may bring, settle or abandon the claim and may retain any compensation; it may decline to act for any reason and the national has no remedy; and the national cannot renounce the right, because it is not his, which is the answer to the Calvo clause.

2. State the two conditions of admissibility and their source.

Article 44 of the ILC Articles on State Responsibility provides that the responsibility of a State may not be invoked if the claim is not brought in accordance with any applicable rule relating to the nationality of claims, or if the claim is one to which the rule of exhaustion of local remedies applies and any available and effective local remedy has not been exhausted. The nationality condition requires that the injured person be a national of the claiming State, ordinarily both at the date of injury and at the date of claim, and that the nationality be effective on the Nottebohm test.

3. When is the exhaustion of local remedies excused?

Where there are no remedies to exhaust; where the remedies available are ineffective or obviously futile; where there is undue delay attributable to the respondent State; where the injured person is manifestly precluded from pursuing them; where the respondent State has waived the requirement; and where the injury complained of is a direct injury to the claiming State rather than to its national, in which case the rule does not apply at all.

4. Can a State protect its nationals who are shareholders in a foreign company?

Not in general. Barcelona Traction holds that in municipal law the company and its shareholders are distinct, that international law authorises the national State of the company alone to make a claim, and that a right founded on prejudice to national economic resources could arise only from a treaty or special agreement. The Court reasoned that protecting shareholders as such would open the door to competing claims by different States and create insecurity in international economic relations. The practical answer to the hardship this causes has been the network of bilateral investment treaties conferring on the investor a direct right to arbitrate.

5. What is a Calvo clause and is it effective?

A clause in a contract between a State and a foreign national by which the national agrees to be treated as a national of that State for the purposes of the contract, to submit disputes to the local courts, and not to seek the diplomatic protection of his own government. It is ineffective so far as it purports to bar the national State's claim, because the right of diplomatic protection belongs to the State and not to the individual, and what is not his cannot be renounced by him. It is generally treated as effective in requiring the alien to exhaust local remedies, which he is bound to do in any event.

6. Distinguish the national treatment standard from the international minimum standard, and say which prevails.

National treatment entitles an alien to the same treatment as the State's own nationals and no more, and was pressed by Latin American and later by newly independent States on the ground that a foreigner accepts the conditions of the country he enters. The international minimum standard sets a floor below which no State may go, whatever it does to its own nationals, and was pressed by capital-exporting States on the ground that consistent mistreatment is no excuse. The minimum standard prevails, and the argument has in any case been overtaken, because human rights obligations now run to everybody within a State's jurisdiction, and because investment treaties state the applicable standard expressly wherever they apply.