The Call for the Exhaustion of Local Remedies for the Resolution of Disputes Arising from the Extraction and Utilization of  Ghana’s Natural Resources.

The Call for the Exhaustion of Local Remedies for the Resolution of Disputes Arising from the Extraction and Utilization of Ghana’s Natural Resources.

Introduction

When negotiating international contracts involving the extraction of natural resources, the parties (the Investor and the State) carefully consider their choice of governing law and dispute resolution clauses (arbitration agreements) which are expressly set out in the contract. For example, Article 24 of the Petroleum Agreement between the Government of the Republic of GhanaGhana National Petroleum Corporation, Tullow Ghana Limited, Sabre Oil and Gas Limited, Kosmos Energy Ghana HC in respect of the Deepwater Tano Contract Area provides that a party to the agreement has the right to have any dispute or difference finally settled through international arbitration under the auspices of the International Chamber of Commerce ( the ICC) and adoption of the Rules of Arbitration of the International Chamber of Commerce (the ICC Rules).[1]

There have been some debates on Investor–State Dispute Settlement Systems (ISDS) concerning the relationship between domestic judicial systems and international dispute settlement. Most prominent in this regard is the call for a requirement of the exhaustion of local remedies before initiating international arbitral proceedings. For instance, there are indications of significant support for the local remedies rule within the European Union (EU). In 2011, the European Parliament adopted a resolution on the EU’s international investment policy that stated that “changes must be made to the present [investor-state] dispute settlement regime, including recognizing the obligation to exhaust local judicial remedies where they are reliable enough to guarantee due process”.[2](Emphasis added)

Also, the National Centre for State Courts in the United States has urged the United States Trade Representative and Congress not to approve trade agreement provisions unless they:

“Recognise and support the sovereignty of state judicial systems and the enforcement and finality of state court judgments …”[3]

Furthermore, the Court of International Justice has determined that this rule is part of international custom. Thus, in the 1959 Interhandel case,[4] involving a controversy between Switzerland and the United States, the International Court of Justice decided as follows:

“The rule that local remedies must be exhausted before international proceedings may be instituted is a well-established rule of customary international law; the rule has been generally observed in cases in which a State has adopted the cause of its national whose rights are claimed to have been disregarded in another State in violation of international law. Before resort may be had to an international court in such a situation, it has been considered necessary that the State where the violation occurred should have an opportunity to redress by its own means, within the framework of its own domestic legal system”.[5] (Emphasis added)

It bears noting that under this principle, the validity of an international claim depends on the existence of a final judgment from the highest competent authority within a State. Therefore, to be effective, the exhaustion of local legal proceedings requires that a foreigner must not only have access to the substantive remedies available, but also that he or she takes advantage of procedural facilities within his reach under the State’s domestic law.

In Ghana, one of the campaigners championing the cause of exhaustion of local remedies with regards to Ghana’s natural resources is the Constitutional Review Commission of Ghana (hereinafter referred to as the Commission). The Commission in its recommendations to the Government of Ghana posited that the exercise of Ghana’s sovereignty over and interest in its natural resources cannot be complete without making the Courts of Ghana, primary arbiters in the resolution of disputes arising from the extraction and utilization of Ghana’s natural resources. As the Commission puts it:

“Ghanaian courts must be the primary arbiter in all disputes relating to natural resources in Ghana although decisions may be appealable to dispute resolution mechanisms outside of Ghana particularly to regional, continental and global judicial bodies”.[6] (Emphasis added)

There is an issue of general significance illuminated by this particular recommendation, namely; if the rule of exhaustion of local remedies were to be included in any Investor – State dispute settlement system, international arbitration would function in effect as a second-level remedy (an appeal) at an international level after domestic redress has been sought and therefore challenging or calling into question the decisions of the National Courts. This paper seeks to discuss the recommendation (supra) by the Commission and also show the extent to which this recommendation is agreed upon.

It is noted that it is not unusual for claimants to challenge the decisions of Domestic Courts by characterising those decisions as breaches by the respondent State of its treaty obligations. A leading case in this respect is Eli Lilly And Company V. Government Of Canada,[7] where Eli Lilly challenged the interpretation of the term “useful” in Canada’s Patent Act by the Canadian courts, including the Supreme Court of Canada, between 2002 and 2008, on grounds that it violated Canada’s obligations under NAFTA. The Government of Canada had argued that Eli Lilly’s claims were beyond the jurisdiction of the Tribunal and were wholly without merit as a matter of both fact and law. In particular, Canada argued that the interpretations of its domestic laws by its Domestic Courts were only subject to Investor-State arbitration if those interpretations amounted to a denial of justice.  

The Tribunal’s jurisdiction in this matter related only to alleged breaches of NAFTA Chapter Eleven obligations. Article 1105 of NAFTA which contains provisions for Minimum Standard of Treatment provides that:

“each party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security”.[8]

On the issue of review of Domestic Courts decisions by an international arbitration, the Tribunal noted as follows:

“decisions by courts regarding the existence of a right pursuant to domestic law are not subject to review by international investment tribunals, save in the extraordinary circumstance of gross procedural misconduct amounting to a denial of justice, or where court power to make such determinations is exercised in bad faith to mask a violation of international law”.[9](Emphasis added)

In his leading text on denial of justice in international law, Jan Paulsson states that denial of justice:

“occurs when the instrumentalities of a state purport to administer justice to aliens in a fundamentally unfair manner”.[10]

He further notes that:

“denial of justice covers all situations where a foreigner has been deprived of a proper judicial process, whether he is seeking to establish or to preserve legal interests”.[11]

The applicable standard of denial of justice was also discussed in Robert Azinian, Kenneth Davitian & Ellen Baca V. United Mexican States (Azinian Award).[12] The Tribunal held that:

“A denial of justice could be pleaded if the relevant courts refuse to entertain a suit, if they subject it to undue delay, or if they administer justice in a seriously inadequate way… There is a fourth type of denial of justice, namely the clear and malicious misapplication of the law.This type of wrong doubtless overlaps with the notion of ‘pretence of form’ to mask a violation of international law. In the present case, not only has no such wrongdoing been pleaded, but the Arbitral Tribunal wishes to record that it views the evidence as sufficient to dispel any shadow over the bona fides of the Mexican judgments. Their findings cannot possibly be said to have been arbitrary, let alone malicious”.[13](Emphasis added)

Significantly, NAFTA Chapter Eleven Tribunals have repeatedly emphasized that they are not courts of appeal. As a NAFTA tribunal pointed out in the Azinian Award (supra):

“The possibility of holding a State internationally liable for judicial decisions does not, however, entitle a claimant to seek international review of the national court decisions as though the international jurisdiction seised has plenary appellate jurisdiction. This is not true generally, and it is not true for NAFTA.[14]  (Emphasis added)

Also, in International Thunderbird Gaming Corporation V. United Mexican State(Thunderbird Award),[15] the Tribunal held as follows: 

“It is not the Tribunal’s function to act as a court of appeal or review in relation to the Mexican judicial system regarding the subject matter of the present case… rather the Tribunal shall examine whether the conduct of Mexico… were consistent with Mexico’s obligations under Chapter Eleven of the NAFTA”. (Emphasis added)[16]

Furthermore, in Mondev International Ltd. V. United States Of America,[17] the Tribunal noted, inter alia:

“… in applying the international minimum standard, it is vital to distinguish the different factual and legal contexts presented for decision. It is one thing to deal with unremedied acts of the local constabulary and another to second-guess the reasoned decisions of the highest courts of a State. Under NAFTA, parties have the option to seek local remedies. If they do so and lose on the merits, it is not the function of NAFTA tribunals to act as courts of appeal”.[18] (Emphasis added)

It is therefore noted with concern the choice of words used in the recommendation by the Commission (supra) with regards to dispute resolution mechanisms outside of Ghana. In the said recommendation, the Commission indicates that decisions of Ghanaian Courts relating to natural resources in Ghana:

… may be appealable to dispute resolution mechanisms outside of Ghana particularly to regional, continental and global judicial bodies. (Emphasis added)

As established by the aforesaid authorities (supra), it is not the function of International Arbitral Tribunals to act as courts of appeal. In other words, International Arbitration Tribunals has no plenary appellate jurisdiction and therefore are not appellate bodies of Domestic Courts decisions. It is therefore submitted with respect that the Commission erred when in its recommendations to the Government of Ghana, it indicated that the Ghanaian Courts decisions may be “appealable to dispute resolution mechanisms outside Ghana particularly to regional, continental and global judicial bodies”.

It is humbly submitted that the review of National Courts decisions of Investor – State dispute settlement systems by an International Arbitration Tribunal on grounds of denial of justice (abuse of right) or breaches of international law standards relating to the administration of justice finds supports under public international law rules of state responsibility, so as to determine whether a State is responsible for acts of a State company/corporation, ministry, organization, and indeed its judiciary. This is because state judiciaries come under the rubric of a State for purposes of State responsibility. The major source of authority of tribunals reviewing acts of a State, including domestic courts is the standing given to private parties to bring direct claims against States under international law.

Generally, in international law, a State is responsible for an injury arising from the taking or expropriation of the property of a foreign investor. Except for public purposes, any measures taken against foreigners to deprive them of their property are prohibited. Such measures must not be discriminatory or contrary to due process of law and there must be payment of compensation. These requirements are spelled out in a large number of international instruments, bilateral investments treaties and Arbitral awards. Under Ghanaian jurisprudence, these requirements for such expropriating acts by the government are provided for under articles 18 and 20 of the Constitution of the Republic of Ghana, 1992.[19]

Article 1 of the International Law Commission Articles (ILC) on the Responsibility of States for Internationally Wrongful Act, adopted in 2001 provides that every internationally wrongful act of a State entails the international responsibility of that State. There is an internationally wrongful act of a State when the conduct consisting of an action or omission: (a) is attributable to the State under international law; and (b) constitutes a breach of an international obligation of that State.[20] Article 4 (1) provides that:

“the conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions,whatever position it holds in the organization of the State, and whatever its character as an organ of the central government or of a territorial unit of the State”[21](Emphasis added)

The domestic Courts of a State are organs of the State and therefore the acts of the Courts which unfairly impinge on the investments of investors or constitute violations of protections contained in investment treaties can be attributable to the State.[22]

It is also necessary to define the nature and extent of the international responsibility of a State and note the consequences of its failure to keep its obligations. The simple violation of a contract signed between a State and a foreign citizen must be considered a violation of domestic law and not a State’s failure to uphold an international obligation. From this perspective, it is necessary to distinguish between the contractual obligations of a State and its international obligations. A State’s incapacitation or inability to satisfy a contractual obligation should not automatically result in an international claim. The State must be allowed to afford the injured party a collection of judicial remedies which allow him to rectify the infringement or indemnify him for the consequences of the breach.

From the foregoing, it is respectfully submitted that Domestic Courts and for that matter, Ghanaian Courts must be made the final arbiters where the Investor-State dispute is based on or involves general principles of contract law or a breach of Ghanaian law. The jurisdiction of the International Arbitration Tribunals must only be invoked where the Investor-State dispute deals with a breach of an international obligation which brings the issue under the purview of International Law.

Notwithstanding the emphasis on the fact that international arbitrational tribunals have no appellate jurisdiction or perform appellate functions, some experts do believe that international arbitration tribunals should not be made to override domestic judicial systems since it threatens the sovereignty of the State. As Robert Shenton French, the immediate former Chief Justice of the High Court of Australia (the highest Court in the Australian Court hierarchy) points out:

“… they have general implications for national sovereignty, democratic governance and the rule of law within domestic legal systems. Their long-term consequences for national judiciaries cannot be stated with confidence. They attract vigorous and articulate proponents and detractors, but their merits and demerits are not easy to assess”.[23] (Emphasis added)

The primacy of domestic laws and National Courts is one of the necessary expressions of sovereignty. States and advocates often argue that investment tribunal review of the domestic courts is an affront to the sovereignty of the State.  For instance, Ghanaian private legal practitioner, Yaw Oppong[24] takes the view that: 

“subjecting the final decision of Ghana Courts relating to the extraction of natural resources in Ghana to other adjudicating bodies outside Ghana’s Jurisdiction is itself an affront to the sovereignty of Ghana”.[25] (Emphasis added)

In my humble opinion, this argument is true to a limited degree. It must be noted that by signing up to these treaties, there is an implied agreement or consent to open up a considerable amount of sovereign space to international scrutiny where a State’s actions do not meet up to international standards. As was held by the Tribunal in the case Texaco Overseas Petroleum Company v. The Government Of Libya[26]: in the case of an international contract or agreement, the State places itself under international law.  In addition to that, in SS Wimbledon, Britain Et Al v. Germany[27] the Permanent Court of International Justice held that the right of entering into international engagements is an attribute of State sovereignty. Therefore, any limitations a State accepts when it enters into a treaty cannot later be renounced as an encroachment of their sovereignty. An analogy would be that one agreed to play in the international sphere, so he must abide by the rules that govern that sphere. In this instance, if a State operates and abides by international law standards relating to the administration of justice, then there would be no need for tribunal scrutiny, even if a foreign investor does not get desired results. 

Furthermore, it is instructive to note that international tribunals do not review domestic opinions for their correctness under domestic law. But arbitrators do review domestic opinions for adherence to international law. It is therefore respectfully submitted that subjecting the decisions of Domestic Courts to review at international arbitration tribunals on grounds of a breach of international law standards relating to the administration of justice (where there has been discrimination or severe impropriety) does not affect the sovereignty of a State. In Jan De Nul v. Egypt,[28] the Tribunal found that where there has not been a breach of an international law standards relating to the administration of justice, it would not review the scope of the jurisdiction of national authorities or the application of law. As was also rightly held in Eli Lilly and Company (supra):

save in the extraordinary circumstance of gross procedural misconduct amounting to a denial of justice, or where court power to make such determinations is exercised in bad faith to mask a violation of international law” (Emphasis added)

It has however been argued by some scholars that to accord respect to the sovereignty of States, there must be clearer guidelines for reviewing domestic judicial acts. They are of the opinion that where tribunals review based on, for example, international law requirements for a finding of denial of justice (substantive error, mere error, shocks the conscience, fundamental unfairness, and manifest injustice), in most cases, such standards are ambiguous and subject to any interpretation a tribunal gives it. The interpretation given to these ambiguous standards, and not review itself, may actually offend the concept of sovereignty. In this respect, Bjorklund notes that:

“an investment tribunal operating under a “shock the conscience” standard may similarly be expected to act in equity: when faced with a facially disturbing judicial or quasi-judicial decision the tribunal can adjudge the questionable act wrongful without thoroughly exploring the justifications the municipal decision maker might offer to support the decision and without explaining how international law supports such a conclusion”[29]

Standards must conform to the administration of justice and in reviewing domestic judicial acts, tribunals must apply standards which are unambiguous, and not open to different interpretations.[30]

Moreover, it has been argued that tribunals should also give detailed reasoning on the basis of standards and of their decisions because a review that criticizes a nations judicial process without giving reasoned arguments still intrudes on its sovereignty and leaves the State with no chance to examine why its judicial system does not meet international standards. For instance, addressing judicial fairness in the International Court of Justice, Thomas Franck, notes that:

“The final decisions of the Court are not its most important contribution. More significant is the rigorous and principled reasoning by which those decisions are reached. Through that reasoning the Court exercises a vital influence over the evolution of the international systems’ normative foundations”. [31](Emphasis added)

The Courts knowing that there is a potential for their decisions to be reviewed and measured against standards are more likely to get it right in the first instance. Bjorklund takes the opinion that:

“Establishing standards that create a strong international jurisprudence, which can then be referred to by national courts, is the best way to ensure that the goals of establishing supranational dispute settlement are met. Well-reasoned decisions based on transparent criteria should enhance resect for international dispute settlement and allay fears of impermissible, unexplained intrusions into a core area of sovereign authority. To the extent that decisions are well reasoned too, they are more likely to be perceived as persuasive and important arbiters of what constitutes justice even if they are not binding precedent on further international tribunals or no national courts”.[32] (Emphasis added)

In conclusion it is respectfully submitted that the recommendation be reviewed as:

Ghanaian courts must be the primary arbiter in all disputes relating to natural resources in Ghana although decisions may be subject to review by dispute resolution mechanisms outside of Ghana particularly to regional, continental and global judicial bodies on grounds of breaches of international law standards relating to administration of justice.


[1]  Petroleum Agreement between the Government of the Republic of Ghana, Ghana National Petroleum Corporation, and Tullow Ghana Limited, Sabre Oil and Gas Limited, Kosmos Energy Ghana HC in respect of the Deepwater Tano Contract Area. Dated March 10, 2006

[2] European Parliament, Resolution of 6 April 2011 on the Future European International Investment Policy (2010/2203(INI)), P7_TA (2011)0141, at para. 31,  http://www.europarl.europa.eu/sides/

[3]National Centre for State Courts, Free Trade Agreements<htpp://www.ncsc.org/services-and-experts/government-relations/international/free-trade-agreements.aspx>.    

[4] Interhandel Case (Switz. v. U.S.), 1959 I.C.J. 6 (Mar. 21).

[5] The Ghana Constitutional Review Commission (hereinafter called ‘the Commission’). The Report is dated 20th December, 2011, at p. 27, available at www.crc.gov.gh< Accessed on 07. 01.17.

[6]    The Ghana Constitutional Review Commission (hereinafter called ‘the Commission’). The Report is dated 20th December, 2011, at p. 619, available at www.crc.gov.gh< Accessed on 07. 01.17.

[7]    UNCITRAL, ICSID Case No. UNCT/14/2

[8]   Article 11 of the North American Free Trade Agreement (NAFTA)

[9]   Ibid (n. 7), Para 9

[10]   Paulsson, J.Denial of Justice in International Law. Cambridge: Cambridge UniversityPress, (2005). p. 62

[11]   Ibid (n. 10), p. 63

[12]   ICSID Case No. ARB (AF)/97/2. Case type: International Investment Agreement

[13]   Ibid (n. 12) at pp. 552-3 (paras. 102-103).

[14]   Ibid (n. 12) at p. 552 (para. 99).

[15]   (UNCITRAL) Arbitral Award, 26 January 2006, (“Thunderbird Award”), para. 125, (RL-003)

[16]   Ibid (n. 15)

[17]   ICSID Case No. ARB (AF)/99/2, Final Award, 11 October 2002, para. 126

[18]   Ibid (n. 17)

[19]    Articles 18 (2) and 20 (1) (a) and (2) (a) of the Constitution of the Republic Ghana, 1992.

[20]    International Law Commission (ILC) Draft Articles on State Responsibility for International Wrongful Acts (2001), UN Doc. A/56/10 (2001), Article 2

[21]    Id ILC Draft; See Robert Rosenstock, (2002), The ILC and State Responsibility, American Journal of International Law, 96(4), 792-797.

[22] Christopher Greenwood (2004), State Responsibility for the Decisions of National Courts in Malgosia. Fitzmaurice and Dan Sarooshi (eds.), Issues of State Responsibility Before International Judicial Institutions, Hart Publishers. 

[23]  Chief Justice R.S. French AC, Investor-State Dispute Settlement – A cut Above the Courts? Supreme and Federal Courts Judges’ Conference. 9th July 2014, Darwin

[24]  LL.M. (Ghana); Private Legal Practioner & Lecturer in Law, Faculty of Law, Central University, Ghana.

[25]  Yaw Oppong, Domesticating Dispute Resolution in International Agreements, a case for Ghana. 5th April, 2014

[26]  YCA 1979, at 177

[27]  1923 P.C.I.J. (sen A) No. 1, at 25

[28]    ICSID Case No. ARB/04/13 paras. 199 and 201

[29]    Ibid (n. 10), p. 873

[30]    Jose Alvarez (2013), Crossing the “Public/Private” Divide, 423-424

[31]    Thomas Franck (1998), Fairness in International Law and Institutions, Oxford University Press, p. 318

[32]  Andrea Bjorklund (2006), The Cost of Deference: State Sovereignty and International Denials of Justice (Conference Paper, Berkeley)

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