Environmental and Human Rights Counterclaims in International Investment Arbitration: at the Crossroads of Domestic and International Law

Recently, environmental and human rights (EHR) counterclaims in investment arbitration have attracted much attention as a vehicle to recalibrate the investor–state relationship. However, until now, successful instances of EHR counterclaims have been admittedly rare. As explained in this paper, some of the major barriers to EHR counterclaims in investment arbitration, and some of the concerns associated with them, are rooted in the domestic law basis of such counterclaims. Contrary to the position of several commentators, this paper argues that the grounding of EHR counterclaims on international law is neither practical nor beneficial, and EHR counterclaims are necessarily based on domestic law. Therefore, when investment arbitral tribunals adjudicate EHR counterclaims, they essentially act as an alternative to domestic courts. This has several implications. First, on questions of jurisdiction and admissibility of EHR counterclaims, decisions of states and arbitral tribunals essentially turn on the pros and cons of having these claims adjudicated by investment arbitral tribunals as opposed to domestic courts. Second, weaknesses in domestic rules, including the difficulty of holding shareholders accountable, would carry over to EHR counterclaims. Such problems can only be efficiently tackled at the level of domestic law. Third, as revealed from the inconsistent decisions in Perenco and Burlington on the merits of the environmental counterclaims, having investment arbitral tribunals adjudicate domestic law-based EHR counterclaims may cause certain concerns. For EHR counterclaims to play a more beneficial role, decision-makers must bear in mind these factors and concerns when taking their policy choices.