International Legal Personality of Corporations: How Investment Law Answers the Supreme Court Question in Jesner

In Jesner v. Arab Bank, the US Supreme Court must decide a single question: can corporations violate international law? Answering this question first requires identifying the extent to which corporations are international actors with a distinct legal personality. In the discussions surrounding Jesner, there has been little analysis of the approach towards corporate personality in international investment law (IIL), which is problematic because IIL has a lot to offer on the issue. IIL delineates international rights and responsibilities for corporations, which, as a matter of public international law, are distinct from their shareholders. IIL also grants corporations independence from their home and host states, and allows corporations to enforce their rights through international tribunals. As such, corporations meet the elements of international legal personality in IIL. This suggests that the appropriate question is not whether corporations can violate international law, but only which obligations they have.

Understanding how corporations are treated under IIL can help clarify the Jesner question. The findings below are part of a larger book chapter I am currently completing that will help advance that understanding. (I appreciate Just Security and Beth van Schaack inviting me to share my research as part of this symposium.)

I first establish that IIL recognizes a clear international legal personality for corporations. I then consider the implications of this personality, concluding that corporations can have both explicit and implicit rights and obligations under international law.

Elements of International Personality

Several theories on the international legal personality of non-state actors exist, but the most salient jurisprudence is the ICJ’s Reparations for Injuries advisory opinion. From the 1949 opinion it is possible to identify four elements of international legal personality for non-state actors:

1) an independent or autonomous existence;
2) the ability to possess international rights or obligations;
3) the actual possession of those rights and obligations; and
4) the ability to enforce rights on the international plane.  (pp.177-179)

With this in mind, let’s take a deeper look at corporations’ rights, obligations and enforcement capabilities before returning to their independence and autonomy.

Corporations Can and Do Possess both Rights and Obligations

The relevant rights and obligations are found in customary international law, investor-state contracts, over 3,000 bilateral and multilateral investment treaties (or free trade agreements with investment protections). The rights range from the ability to freely transfer profits in and out of the host state (US Model BIT, art.7) to the expansive “fair and equitable treatment” standard, which has been interpreted as protecting procedural rights, such as due process, as well as substantive interests in the stability of a state’s regulatory standards.

While IIL has typically focused on the rights of investor companies, it also has a long history of states initiating counterclaims, asserting that companies have internationally enforceable obligations. As my colleague Anil Yilmaz-Vastardis has explained elsewhere, the tribunal in Urbaser v. Argentina, responded to a counter-claim by concluding that corporations can be liable for interfering in the realization of human rights. That decision largely comports with the UN Guiding Principles on Business and Human Rights. The Urbaser opinion was complemented by another significant development. In December, Morocco and Nigeria signed a bilateral investment treaty that requires corporations, inter alia, to “uphold human rights in the host state” and to “not manage or operate the investments in a manner that circumvents” the host state’s international human rights, environmental, or labor obligations (at art. 18). This suggests further counter-claims asserting corporate human rights obligations are on the horizon. These developments indicate that corporations can and do have wide-ranging obligations in international law.

Consequently, IIL clearly recognizes both rights and obligations on corporations.

These Rights and Obligations are Enforceable

Corporations can enforce their rights through what is arguably the most robust enforcement system in international law. Corporations often have a choice of venues in which they can seek enforcement, and generally need not exhaust domestic remedies. They usually help choose the arbitrators that will hear their dispute, and parties to the ICSID Convention and the New York Convention (currently 182 in total) are bound to enforce an arbitration award. There is very limited review over the procedural or substantive decisions of an IIL tribunal (as recognized by US Supreme Court in BG Group v. Argentina). With these standards, IIL presents a stronger enforcement mechanism than any international human rights or environmental tribunals, the ILO or WTO mechanisms, or the International Tribunal for the Law of the Sea.

Corporations Have Autonomy and Independence from Home States

With three of the four elements met, it is necessary to turn to the independence of corporations in IIL. States exercise domestic regulatory oversight of corporations, but at the international level corporations function independently from both the home and the host state. Under the ICSID Convention, corporations can supersede a state’s international legal rights. Recall that diplomatic protection is a right of the home state and represents the state’s interests. ICSID Convention Article 25 allows corporations to submit a claim. Once a claim is made, Article 27 prohibits a home state from engaging in diplomatic protection. Thus, by filing a claim, the corporation terminates the state’s ability to assert its own rights.

There are good policy reasons for Article 27. There are also instances where its application is problematic. During Argentina’s 2001 financial crisis, the state was forced to take measures to stabilize the economy and to protect human rights, most notably the right to water. These measures gave rise to at least 59 IIL disputes. Tribunals have come to conflicting decisions over whether Argentina’s crisis allowed the state to invoke the customary international law defense of “necessity.” The disagreement meant that some investors were awarded compensation and others were not. Rather than an ad hoc approach to this complex issue, there may have been good reasons for a state (or a group of states) to assert diplomatic protection in order to negotiate a systematic and collective resolution. This was a common practice before the ICSID Convention entered into force, and it is one that could have complemented Argentina’s debt restructuring. But, Article 27 effectively prevents states from undertaking such efforts. By foreclosing home states’ rights under international law, and privileging the rights of individual corporations, the ICSID Convention recognizes the corporation as a potent independent actor.

Corporations are also Independent from Host States

Corporations enjoy independence from the host state in two significant ways. First, in negotiating investor-state contracts, corporations become an autonomous and co-equal partner to the host state. The contracts are not treaties (the definition of which requires an agreement between two states), but tribunals have been clear that an investment contract is not between a state and its subordinate; it is between the state and its corporate partner. Some have even asserted that the contracts are “internationalized” agreements, making them somewhat akin to a treaty. An investor-state contract cannot be changed or altered without the corporation’s consent, and regulatory measures that infringe on the terms of the contract may give rise to an international claim under IIL.

Second, corporations are given the right to determine how particular disputes will be settled. States must agree to arbitrate, but written consent for arbitration is often contained in general IIL treaties or in national investment laws. The state’s consent often provides a corporation with a choice of venues for enforcing its rights (domestic or international; ICSID or another arbitration body). The corporation, on the other hand, is consenting to a specific arbitration over a particular dispute, and with the choice of venues the control over dispute resolution shifts from the state to the business. This gives the corporation a discretion and independence rarely enjoyed at the international level.

Through the treatment of the investor-host state relationship, IIL recognizes corporations as autonomous and independent; they are not a normal “subject” of a state’s regulatory oversight but are, at times, endowed with a personality and rights that are equal to that of the state.

International Personality Gives Corporations Implicit Obligations and Rights

Jesner presents a single question: can corporations violate international law? The answer from IIL is a clear yes. Corporations are treated as autonomous actors in IIL, distinct from and independent of both the home and host states. States recognize, in treaties and contracts, that corporations can and do enjoy international rights and obligations that can be readily enforced by international tribunals. As such, corporations enjoy legal personality in at least some areas of international law. The open question is therefore not whether they can violate international law, but which international obligations can they violate?

Here, the US Supreme Court would do well to return to the ICJ’s Reparations for Injuries decision. The opinion implies that corporations can have both explicit and implicit obligations. Non-state actors, like corporations, are “deemed to have those powers which, though not expressly provided … are conferred upon it by necessary implication as being essential to the performance of its duties” (p.182). These “necessary” rights do not appear in treaty law, but are found in international law. This suggests the rights stem from the other sources of international law – customary international law or general principles of law (ICJ Statute, Art.38). The specific rights accorded depend upon the actor’s “purpose and functions as specified or implied in its constituent documents and developed in practice” (p.180; emphasis mine). Corporations can therefore have rights that are explicitly granted, implicitly given, or develop through practice on the international plane. The determining factor is only whether the right is necessary in order for corporations to carry out their international purpose and function.

The ICJ in Reparations for Injuries was only asked to decide on the UN’s rights, not its responsibilities. But, if non-state actors are conferred rights by sources other than treaties, the logical conclusion is that those same sources can confer obligations. In fact, at the heart of the ICJ’s opinion was an implied obligation on the UN to provide agents with sufficient international protection in order that they may carry out their mission (p.183). Again, the focus of the Court was on what was necessary for the UN to fulfill its expressed purpose. While rights and responsibilities do not always develop in tandem, nothing in international law suggests that only rights can be implied. When examining corporate obligations, the question is the same as for their rights: what obligations are explicitly given, developed through practice, or implicitly granted because they are necessary for corporations to fulfill their international purpose? That is the outstanding question, but it is not yet before the Supreme Court. US courts can only answer that question once the Supreme Court rightly concludes in Jesner that corporations can breach at least some international obligations. 

About the Author(s)

Tara Van Ho

Assistant Professor in Aarhus University's Department of Law (Denmark) Follow her on Twitter (@TaraVanHo).