The Draft United Nations Code of Conduct on Transnational Corporations provides rather broadly that adequate compensation is to be paid in accordance with applicable laws and rules, and thus avoids determining whether priority should be given to national or international law.402 Similarly, World Bank guidelines only point to the application of “applicable legal procedures”.403
Therefore, national law generally has priority in the event of a dispute between the host state and foreign investor. If the dispute cannot be resolved under national law, international law should be recognized as appropriate.
3.5.3 The duty to respect international law and treat foreign investors fairly
The main resolutions on permanent sovereignty require the states, as part of their permanent sovereignty, to respect the rights of other states and fulfill international commitments in good faith. Apart from bilateral and multilateral investment agreements, the duty to ensure fair treatment of foreign investors is seldom referred to directly in other acts of international law. The African Charter on Human and Peoples’ Rights confirms that the free management of wealth and natural resources should be exercised without prejudice to the duty of international economic cooperation based on mutual respect, fair exchange, and principles of international law.404 The UN Convention on the Law of the Sea also explicitly states that coastal states in the exercise of their rights in the exclusive economic zone should duly take into account the rights and obligations of other states.405 The rights of other states in the exclusive economic zone cover three of the four maritime freedoms.406 The exercise of rights by the coastal State with regard to the continental shelf shall not, however, affect or cause the disruption of navigation and other rights and freedoms of third states provided for in the Convention.407 What is more important are the general regulations of the Convention relating to the question of good faith and abuse of law.408
With regard to the multilateral agreements related to investments, the ICSID Convention contains one important reference to the application of international law and provides that in the event of disagreement regarding the law applicable to the interpretation and scope of the contract, the court applies the law of the host state party to dispute and such principles of international law that may apply.409 According to the Arab Investment Agreement, the host country undertakes only to protect the investor and to protect its investments and rights.410 Similarly, the ASEAN Investment Agreement,411 the NAFTA,412 and the Energy Charter Treaty413 guarantee investors and other contractors fair and equal treatment as well as full protection and safety.
Bilateral investment treaties as agreements to constitute an incentive for foreign investors also usually require the fulfillment of international obligations and fair treatment of investors.414
Judgments of international courts and tribunals offer a lot of evidence demonstrating that international law and the laws of other states should be respected. This is clear, for example, from the judgment of the ICJ in the Barcelona Traction case (1970), which states that if a state allows foreign investments on its territory, it is obliged to provide them with legal protection and ensure their proper treatment.415 This obligation also stems from a number of judgments regarding the delimitation of maritime areas, such as the North Sea shelf case (1969),416 the continental shelf issue between Tunisia and Libya (1982),417 the delimitation of the Gulf of Maine (1984),418 the continental shelf case (Libya v. Malta, 1985),419 and the case of marine delimitation between Greenland and Jan Mayen (Denmark v. Norway, 1993).420 In addition, arbitration judgments concerning the nationalization of oil, such as the Amoco ruling (1987), in which the Court explicitly referred to the Treaty on the mutual relations between Iran and the USA (as lex specialis), as well as to customary international law (as lex generalis), to fill any gaps and ensure proper interpretation of the unclear provisions of the treaty on mutual relations.421
The ICC guidelines explicitly urge the host state’s government to adhere to the recognized principles of international law, including equitable and equal treatment of foreign property.422 The OECD Declaration of 1976, in the text of the annex containing guidelines for multinational enterprises, refers to the obligations of states to treat entrepreneurs fairly and in accordance with international law.423 The Seul Declaration contains a number of appeals to the duty to comply with international law, indicating that permanent sovereignty means the jurisdiction of the state over natural resources, economic activity and wealth without exemption from the application of relevant rules and international law. Although permanent sovereignty is called “inalienable”, the state can accept obligations with regard to the exercise of sovereignty by means of a freely contracted relationship, meaning that a state that freely concludes contracts affecting its permanent sovereignty must must perform all obligations arising from it in good faith.424 The guidelines of the World Bank (1992) are intended to complement the existing bilateral and multilateral agreements and other international instruments425 and provide that each state shall fairly and equally treat investments carried out on its territory by nationals of other countries, in accordance with the standards set out in these guidelines.
3.5.4 Obligations related to the right to take over foreign ownership
The obligations related to the right of nationalization or expropriation, as indicated in Resolution 1803 (XVII) and subsequent resolutions of the General Assembly of the United Nations, are related to the following conditions of the lawfulness of action: in the public interest; without discrimination; with the payment of compensation; while maintaining the standard of compensation; in due proceedings; with retaining the right of appeal.
3.5.4.1 The requirement of acting in the public interest
UN resolutions stipulate that a nationalizing state has a wide margin of discretion in determining what is necessary for “public utility, security or the national interest”426 or for the purpose of “safeguarding the natural resources”.427 Protocol I to the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) explicitly states that no one may be deprived of property, except in the public interest.428 The US Convention on Human Rights refers to “public utility or social interest”,429 while the African Charter on Human and Peoples’ Rights indicates “public need” or “the general interest of the community”.430 Similarly, the OECD Convention on the Protection of Foreign Property,431 the Inter-Arab Agreement on mutual support and protection of investments,432 and the Investment Agreement of the Organization of the Islamic Conference433 state that it is permissible to expropriate investments in the public interest. The ASEAN Investment Agreement434 refers in this context to “public use… purpose, or… interest”, while the Energy Charter Treaty (1994) refers to “a purpose which is in the public interest”.435 Returning to the most traditional formula, NAFTA (1992) indicates in this aspect directly the “public purpose”.436
The public purpose requirement has been recognized by the Permanent Court of International Justice (PCIJ) in the case concerning certain German interests in Polish Upper Silesia, 1926;437 in the case concerning the Factory at Chorzow, 1928;438 in arbitration cases BP v. Libia (1974)439 and Aminoil (1982);440 as well as by the Iran-United States Claims Tribunal in the American International Group case,441 in the INA Corporation442 case, and in Amoco case.443
3.5.4.2 The requirement of acting without discrimination
The requirement of non-discrimination is ambiguous because in this legal situation two types of discrimination
