Introduction

In investment treaty arbitration, at the forefront of adjudicators' minds is whether the host State's treatment of foreign investors falls short of the protection afforded by the investment treaties (BITs) in question, according to standards such as fair and equitable treatment and protection from unlawful expropriation. As such, host States' counterclaims on the basis of human rights have not hitherto played a significant role. In two decisions, Urbaser v Argentina and Burlington v Ecuador, the respective host States counterclaimed on the bases of human rights and environmental law, which introduced elements beyond the infringement of the investors' property rights - the primary consideration of investment tribunals. Furthermore, contrary to the view that counterclaims in investment arbitration always fail, Burlington demonstrated that this is not the case, and this is despite the well-established position of non-State actors such as multinational corporations (MNCs) not having enforceable human rights obligations under international law. Whilst Argentina's counterclaim in Urbaser was unsuccessful, the Tribunal's extensive discussion of human rights obligations of MNCs was a progressive departure from tribunals' reluctance to engage with human rights issues in the past. Additionally, it is encouraging that the Tribunal's reasoning has since been considered in the more recent decision of Bear Creek v Peru in the context of assessment of damages for contributory fault.

This paper argues that, so long as certain legal requirements are fulfilled, it is possible for host States to hold foreign investors to account for human rights violations in investment treaty arbitration. Specifically, in the absence of positive international human rights obligations on the part of MNCs, applicable laws in the host States covering aspects of human rights, such as environmental law and labour law, can assist host States in successfully pursuing counterclaims. Indeed, counterclaims are underutilised in investment arbitration; they can be a useful tool in balancing the asymmetry caused in part by responding States being always on the defence in investment disputes, and that tribunals ought not to shy away from proper consideration of human rights counterclaims where legal conditions allow.

Section I discusses the relevance of human rights in investment arbitration; section II analyses the legal framework of counterclaims in investment arbitration and the application of the key elements thereof in Burlington and Urbaser; section III discusses the tribunals' consideration of human rights in Urbaser and Bear Creek in the context of how previous tribunals have approached this issue; section IV discusses the difficulties highlighted by Urbaser with recommendations on how these challenges can be overcome, with a view of enabling human rights counterclaims in investment arbitration.

Footnotes omitted from this introduction.