The efficacy of renegotiation and stabilization clauses in investor state contracts to protect foreign investments.

Investor-state contracts (ISCs) are the foundation of many foreign investment ventures.[1] These contracts interact with a number of tools including general principles of law, international law and bilateral international treaties which are identified in strong ISCs.[2]

This paper will assess renegotiation and stabilization clauses. These clauses impact the economic equilibrium of the contracts, to provide effective protection against trigger events and inform the arbitration process where applicable. However, the inclusion of these clauses may not equate to the prevention of economic loss. Arbitration is meant to assist in recuperation and lack of clarity as these clauses may contribute to more costly and unintended arbitral decisions. Furthermore, the internationalization of contracts are considered as an influential factor.

Renegotiation and stabilization clauses are not the ‘silver bullet’ to foreign direct investment (FDI) in ISCs. By dissecting the components of renegotiation clauses into trigger events, obligations of the renegotiation process and the consequences of failure to renegotiate, the strengths and weaknesses are analyzed. In stabilization clauses, the types of clauses, political risks and unique ‘freezing’ ability are assessed for their efficacy.

The effectiveness of these two clauses are influenced by external and internal factors including legislative changes, acts of nationalism, unrest and instability and the sovereignty of the host state. In assessing the overall efficacy of foreign investment protection, all of the factors should be balanced. Absolute protection can never be guaranteed but there are global monitoring bodies that seem to be, through unification, seeking to strengthen the remedies available to breach of contract.[3]

The assessment in this paper focuses specifically on ISCs with brief references to Bilateral Investment Treaties (BIT) and with less emphasis on other ISC clauses such as the arbitration, choice-of-law, force majeure, hardship and umbrella clauses.

Renegotiation Clauses

Gotanda states that “Renegotiation clauses are provisions in contracts that, upon the happening of a certain event or events, require all parties to return to the bargaining table and renegotiate the terms of their agreements”[4] Renegotiation clauses could have a neutral effect or balance, giving power to both parties.[5] These clauses are constructed with key elements; 1- trigger events, 2- the stated obligations of the renegotiation process, 3- the legal consequences of failure, 4- arbitration clause.

According to Salacuse, contractual instability is a major cause for the need to draft renegotiation clauses.[6] This contractual instability he attributes to 1- imperfect contracts and 2- fluctuating circumstances.[7] Salacuse suggests that the key to foreign investment protection is in the ability for renegotiation clauses to “provide stability on the one hand, yet give the parties the flexibility to face the unknown on the other”[8] However, instead Dubajić suggests that renegotiation contracts may be perceived as an indicator that the present contract has issues relating to enforcement mechanisms.[9] Not all ISCs contain renegotiation clauses. The omission of renegotiation clauses according to Gotanda, are a result of “fears that these clauses will make the contractual relationship unpredictable, raise the overall costs of the transaction, and be unenforceable…”[10] He further alludes to issues of interpretation by tribunals possibly “modifying the contract in a way that neither party intended”. [11] To further understand the dynamics of a renegotiation clause there must be a breakdown of the clause itself.

Trigger Events

The protection offered by a renegotiation clause is activated by trigger events. The challenge in drafting these clauses is to most accurately define a trigger event.[12] Berger notes that “trigger events evade a detailed definition as they are complex, unforeseen, and influenced by naturally volatile economic determinants.”[13] Taking this into consideration, analysis can be made on the trigger event phrases in both the Kuwait v AMINOIL[14] (article 9) contract and the Ghana contract Article 47 (b).[15] In Kuwait v AMINOIL[16] the tribunal directly addressed the efficacy of the clause in answering the question, “did the two parties respect the letter and spirit of Article 9 in these negotiations?”[17] Berger posits that the generality of the AMINOIL clause contributes to its ineffectiveness.[18] Equally, in order to mitigate the risks associated with general definitions of trigger events, other clauses should be linked to trigger events so that the trigger point becomes more precise.[19] This may include the use of “tax increases, price changes for raw materials etc.”[20] More precise drafting is noted in the Ghana[21] renegotiation clause which directly references “changes in the financial and economic circumstances relating to the petroleum industry” as a defining factor of an event triggering renegotiation.[22]

Renegotiation clauses consider the power dynamics between the contracting parties. If the trigger event is within the control of the host state it may be unwise to include a renegotiation clause based in that event.[23] This may disadvantage the foreign investment. Renegotiation agreements should not be commercially preferential to one party but aim to make necessary adjustments to restore the economic equilibrium that existed at the commencement of the contract.[24]

1. Obligations of the Renegotiation process

Salacuse dissects the renegotiation process into three distinct sections; “a) post-contract renegotiations, b) intra-contract renegotiations and c) extra-contract renegotiations.”[25] Each of these kinds of renegotiations have been encouraged because they help curb the loss of investment and  can improve investor interests. Parliament understood that the Dahol[26] project was for the benefit of its citizens in Maharashtra and although initially refusing to negotiate, eventually renegotiated their agreement with Enron. The question of whether contracted parties are obligated to renegotiate seems to be inferred by the tribunal in AMINOIL[27]. They noted the importance of the parties obligations in asking the question “Do the negotiations throw light on the situation of the Parties in regard to their contractual relations generally?”[28]

• The Legal Consequences of failure to fulfil the contractual obligation to negotiate.

Berger gives guidance where renegotiations have broken down to the principal of “hic et nunc” or that a fair decision should be sought.[29] This is in contrast to a situation where the restoration of the economic equilibrium is sought.[30] Another limiting factor in the fulfillment of stated obligations, is that the entire contract should not be renegotiated; but instead only the pertinent clauses relating to the “changed circumstances”.[31] Finally Berger suggests that neither of the parties should be exploited as exemplified in the matter where the cost of transporting a “rolling machine from France to Africa”, based on a delicate equilibrium was determined.[32] In essence, the process of renegotiation between both parties should be in good faith. It may seem primitive and although fairness is to be sought, “status quo ante”[33] the restoration to “the initial spirit of the contract”[34] should be prioritized. The inclusion of a renegotiation clause will not automatically ensure foreign investment security.

Stabilization Clauses

Stabilization clauses are frequently used in contracts to reduce the risks associated with changes in circumstances that may affect the investor or the host state.[35] They serve the purpose of protecting the parties by solidifying terms including applicable legislation that should govern the contract.[36] This is particularly important in the oil and gas industry as exemplified in the case of Sapphire v NIOC[37], where extensive investment was undertaken in the prospecting phase. Stabilization clauses are legal and binging both contractually and recognized under international law.[38] Where the clauses are clear and specific it may be tempting to rate its use as having a high rate of efficacy to protect foreign investments. However, there are other factors that should be considered.

Key Elements

1. Types of stabilization clauses

The construction of stabilization clauses showcase differences that may affect the efficacy of protection towards the investor. A stabilization clause focused on the economic equilibrium affords the investor compensation, in the case where it has to abide to new legislation and incurring costs as a result.[39] Additionally, there may be a delayed time period for compliance to legislative or public policy changes afforded to the investor.[40] Concerns that the host state may change public policies may be quelled through reliance on the initially established public law frameworks and principle of estoppel, actioned by rights, where the state has granted legislative immunity to the investor.[41] Faruque suggests that intangible stabilization clauses mandate mutual agreement for the stabilization and references its frequent use in Petroleum contracts.[42]

Hybrid stabilization clauses may “stabilize changes in health, safety, labor, environmental[43] and security law and foreseeable labor law changes”[44] This may be initially comforting for investors, but they should be cautions of mounting efforts to restrict the power[45] of stabilization through exposed disparities among equilibrium, freezing and hybrid clauses, in addition to the OECD’s social and environmental laws.[46]

• Limiting ‘Political Risk’

Political risk through nationalization contributes to the failure of ISCs and loss of foreign investments.  Nationalization of investments were popular in the 1950s and 60s where states asserted their rights to national sovereignty and natural resources.[47] Under 14 Deeds of Concession the Government of Libya had decreed to “nationalize all of the rights, interests and property of Texaco Overseas Petroleum Company and California Asiatic Oil Company”.[48] The companies brought the case before an arbitrator who found that Libya’s nationalistic approach was in breach of its obligations under the Deed of Concession. This case however, fails to show the strength or versatile use of a stabilization clause albeit the nature of the contract was scrutinized to consider its administrative qualities and whether “it could give rise, under certain conditions, to amendments or even abrogation on the part of the contracting State.”[49] To circumvent the lack of efficacy in some stabilization clauses, the investor may consider entering into a joint venture with the state in the hopes that the stated vested interest will help protect the integrity of the agreement.[50]

• ‘Freezing’ the regulatory framework

Stabilization clauses freeze the applicable laws enforced at the time of signing the contract and exclude new legislation from applicability.[51] This may apply to tax and labour laws but Halabi notes that where ‘limited freezing clauses’ are used, this “renders only a narrow class of laws or regulations inapplicable to an investment.”[52]

Coal examines alternative stabilization clauses in ‘stricto sensu’ which would mandate that “the governing law of the contract shall be that of the contracting state at the time the contract was executed.”[53] An agreement to this clause could in theory reduce risks related to legislative changes by the host state and possibly give more power to the investor. Limiting governments unilateral ability to “modify or terminate the contract” has been noted by Coale as an “intangibility clause” within stabilization clauses.[54] Clauses established in “good will” or “good faith”[55] are common, particularly in contracts over the use of natural resources[56] and where care of the environment is expected.[57] Contracts of this nature often attract the principle of state nationalism, where in international law the state has sovereignty over the natural resources of the country in the protection of same for the citizens.[58] Faruque adds that an “investor cannot challenge the host states national sovereignty over natural resources”.[59] While some still argue that the state’s freedom remains intact in  jus cogens.[60]

Conclusion

In modern times, renegotiation clauses allow parties to re-adjust the contract rather than terminate that can lead to high costs and extensive loss of foreign investment.[61] Relative to risks to foreign investments, “international law does not prohibit expropriation but does require some form of compensation and a stabilization clause can give the company some type of protection in the event of appropriation.”[62]

To access protection under ISCs, stabilization clauses can be interpreted as attempts to guarantee fair and equitable treatment (FET). [63]This principle of protection is offered in most bilateral investment treaties (BITs), multilateral trade agreements[64] and free trade agreements.[65] A threat to stabilization clauses however are environmental concerns which have become priorities.[66] Human[67] and environmental rights, put pressure on states who otherwise upheld stabilization agreements in order to remain compliant to treaty resolutions.[68]

In protecting foreign investments, the investor will want to retain as much control over eventualities. Renegotiation introduces uncertainty. Uncertainty in long-term ISCs is a negative factor.[69] In this way the efficacy of renegotiation clauses is reduced.

Stabilization clauses can be more applicable depending on the type and size of investment.[70] Relative to the frequency of use in contracts, Halabi noted that “the difference corresponds with the greater political risk associated with a natural resources project than with a private sector public service project.”[71] While other clauses may be infrequently used in ISCs, stabilization clauses continue to be included in contracts showing that there is still an intention and higher efficacy to be protected likewise.[72]

Authorities and Cases

Associated British Ports v. Tata Steel UK Ltd [2017] EWHC 694 (Ch)

G.A. Res 1803, U.N. GAOR, 17th Sess, Supp. No. 17 at 15, U.N Doc. A/5217 [1962]

ICC Award No. 2291 [1975]

Kuwait v. Aminoil [1982] 21 I.L.M. 976

Sapphire International Petroleums Ltd. v. National Iranian Oil Company, [1963] ILR 136

Texaco v Libya [1978]17 I.L.M. 1

United Nations Paris Agreement, <https://unfccc.int/sites/default/files/english_paris_agreement.pdf> accessed May 12th 2021

University of Minnesota, ‘Permanent Sovereignty over Natural Resources, G.A. res. 1803 (XVII), 17 U.N. GAOR Supp. (No.17) at 15, U.N. Doc. A/5217 (1962)’

Human Rights Library [2021] <http://hr, <http://hrlibrary.umn.edu/instree/c2psnr.htm> [2021] accessed May 11, 2021

Academic Journals and Articles

Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

Andrea Shemberg, ‘Stabilization Clauses and Human Rights’ IFC/SRSG Research Paper, May [2009]

Dusan Dubajić D, ‘Status of Foreign Investment Agreements During Renegotiation of the Receiving Country and the Foreign Investor’ Legal Records [2017] 8 (1): 34-48.

JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461

Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347

Margarita Coale, ‘Stabilization Clauses In International Petroleum Transactions’ 30 Denv. J. Int’l & Pol’y [2001-2002] 217

Piero Bernardini, ‘Stabilization and Adaptation In Oil and Gas Investments’ Journal of World Energy Law & Business [2008] Vol 1, No. 1, 111

Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261

Text

Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013]

M Sornarajah, ‘The International Law on Foreign Investment’ Cambridge University Press [2010] <https://ebookcentral.proquest.com/lib/salford/detail.action?docID=803195> accessed April 28, 2021

Websites

Garrigues, ‘International Arbitration Newsletter – April [2021 | Regional Overview: The Americas’ April [2021] <https://www.lexology.com/library/detail.aspx?g=9e871239-6bca-4d32-9227-c40a909afed1> accessed May 12th 2021

Herbert Smith Freehills LLP, ‘How Investment Treaties Can Protect Foreign Investments Against State Action’ September [2020] <https://www.lexology.com/library/detail.aspx?g=1b5af03d-8154-4f01-b53b-d027900f3da1> accessed May 8, 2021

Lorenzo Cotula, ‘BRIEFING 4: Foreign Investment Contracts’ International Institute for Environment and Development [2007] <www.jstor.org/stable/resrep01405> Accessed 12 May 2021

UNCTAD, ‘State Contracts; Series On Issues In International Investment Agreement’ UNCTAD/ITE/IIT/2004/11, United Nations Publication [2004] <https://unctad.org/system/files/official-document/iteiit200411_en.pdf> accessed May 12th 2021

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[1] UNCTAD, ‘State Contracts; Series On Issues In International Investment Agreement’ UNCTAD/ITE/IIT/2004/11, United Nations Publication [2004] <https://unctad.org/system/files/official-document/iteiit200411_en.pdf> accessed May 12th 2021

[2] Garrigues, ‘International Arbitration Newsletter – April [2021 | Regional Overview: The Americas’ April [2021]< https://www.lexology.com/library/detail.aspx?g=9e871239-6bca-4d32-9227-c40a909afed1 > accessed May 12th 2021

[3]  M Sornarajah, ‘The International Law on Foreign Investment’ Cambridge University Press [2010] <https://ebookcentral.proquest.com/lib/salford/detail.action?docID=803195> accessed April 28, 2021

[4] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461

[5] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461, 1462

[6]  Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013]

[7] ibid.   

[8]  ibid.

[9]  Dusan Dubajić D, ‘Status of Foreign Investment Agreements During Renegotiation of the Receiving Country and the Foreign Investor’ Legal Records [2017] 8 (1): 34-48, 47

[10] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461

[11] ibid. 

[12] Associated British Ports v Tata Steel UK Ltd [2017] EWHC 694 (Ch)

[13] Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1362

[14]Kuwait v. Aminoil [1982] 21 I.L.M. 976-1010

[15] Petroleum production agreement between the Government of Ghana and Shell Exploration and Production Co of Ghana Ltd of 1974 (clause 47b) in Piero Bernardini, ‘Stabilization and Adaptation in Oil and Gas Investments’ Journal of World Energy Law & Business [2008] Vol 1, No. 1, 111

[16] Kuwait v. Aminoil [1982] 21 I.L.M. 976-1010

[17] ibid.

[18] Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1362

[19] ibid.

[20] ibid.

[21] Petroleum production agreement between the Government of Ghana and Shell Exploration and Production Co of Ghana Ltd of 1974 (clause 47b) in Piero Bernardini, ‘Stabilization and Adaptation in Oil and Gas Investments’ Journal of World Energy Law & Business [2008] Vol 1, No. 1, 111

[22] Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1359

[23] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461, 1462

[24] Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1365

[25] Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013] 276

[26] The Dabhol Power Project in India in Salacuse, J, The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital, Oxford University Press 2013

[27] Kuwait v. Aminoil [1982] 21 I.L.M. 976-1010

[28] ibid.

[29] Klaus Peter Berger, Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators, 36 Vanderbilt J Trans’l L [2003] 1347, 1363

[30] ibid.

[31] Ibid.

[32] ICC Award No. 2291 [1975]

<https://www.trans-lex.org/202291/_/icc-award-no-2291-clunet-1976-at-989-et-seq/#1a,> accessed May 8, 2021

[33] Preserving the status quo in Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1363

[34] Wolfgang Peter, Arbitration and Renegotiation of International Investment Agreements [1995] 322, in Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1353

[35] Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 290

[36] ibid.

[37] Sapphire International Petroleums Ltd. v. National Iranian Oil Company, [1963] ILR 136

[38]  Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 300

[39] Waelde & Ndi supra note 28 at 218-19 in Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 293

[40] ibid.

[41] Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336, 323 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

[42] Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336, 319 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

[43] Lorenzo Cotula, ‘BRIEFING 4: Foreign Investment Contracts’ International Institute for Environment and Development [2007] <www.jstor.org/stable/resrep01405> Accessed 12 May 2021

[44] Andrea Shemberg, ‘Stabilization Clauses and Human Rights’ IFC/SRSG Research Paper, May [2009]

[45] United Nations Paris Agreement, <https://unfccc.int/sites/default/files/english_paris_agreement.pdf> accessed May 12th 2021

[46]  Andrea Shemberg, ‘Stabilization Clauses and Human Rights’ IFC/SRSG Research Paper, May [2009]

[47] Texaco v Libya [1978]17 I.L.M. 1

[48] ibid.

[49] Texaco v Libya [1978]17 I.L.M. 1

[50]Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 276

[51] Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 292

[52] Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 293

[53]  Margarita Coale, ‘Stabilization Clauses In International Petroleum Transactions’ 30 Denv. J. Int’l & Pol’y [2001-2002] 217, 223

[54] ibid.

[55] Ibid.

[56] University of Minnesota, ‘Permanent Sovereignty over Natural Resources, G.A. res. 1803 (XVII), 17 U.N. GAOR Supp. (No.17) at 15, U.N. Doc. A/5217 (1962)’

Human Rights Library [2021] <http://hr, <http://hrlibrary.umn.edu/instree/c2psnr.htm> [2021] accessed May 11, 2021

[57] Margarita Coale, ‘Stabilization Clauses In International Petroleum Transactions’ 30 Denv. J. Int’l & Pol’y [2001-2002] 217, 223

[58] State national rights are recognized by international law. “There is general recognition that states have the right to nationalize, “expropriate or requisition these natural resources as long as the owner is paid appropriate compensation” G.A. Res 1803, U.N. GAOR, 17th Sess, Supp. No. 17 at 15, U.N Doc. A/5217 [1962] [hereinafter General Assembly Resolution]

[59]  Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336, 323 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

[60] Ibid.

[61] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461, 1469

[62] Stephen Schwebel, Justice In International Law 401-15 (1994)  in Margarita Coale, ‘Stabilization Clauses In International Petroleum Transactions’ 30 Denv. J. Int’l & Pol’y [2001-2002] 223

[63] Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013] 276

[64] Herbert Smith Freehills LLP, ‘How Investment Treaties Can Protect Foreign Investments Against State Action’ September [2020] <https://www.lexology.com/library/detail.aspx?g=1b5af03d-8154-4f01-b53b-d027900f3da1> accessed May 8, 2021

[65] Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013] 276

[66] United Nations Paris Agreement, https://unfccc.int/sites/default/files/english_paris_agreement.pdf accessed May 12th 2021

[67] Shemberg, Stabilization Clauses and Human Rights, IFC/SRSG Research Paper, 27 May 2009

[68] Cotula, Lorenzo. BRIEFING 4: Foreign Investment Contracts. International Institute for Environment and Development, 2007, http://www.jstor.org/stable/resrep01405. Accessed 12 May 2021.

[69] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461, 1463

[70]  Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261. 294

[71] Waelde & Ndi, supra note 28, at 224 in Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 296

[72] Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

Date: May 15, 2021

Written by: Gillian Rowe

EU Competition Law and the regulation of Intellectual Property Rights

_Introduction

Competition in economic markets allows consumers to benefit from a gradient of prices across products; and businesses to constantly create strategies to widen their consumer base. The Directorate General for Competition in the European Union states that “competition encourages companies to offer consumers goods and services at the most favourable terms. It encourages efficiency and innovation and reduces prices. To be effective, competition requires companies to act independently of each other, but subject to the competitive pressure exerted by the others.”^[1] This definition sets parameters between the use of Intellectual Property Rights (IPRs) and the limits of these rights for ‘big businesses.’

Competition Law and IPRs exist in connection with the internal market. The internal market as defined in Art 26 Treaty on the Functioning of the European Union (TFEU)², sets the parameters for the application of IPRs. Articles 101 and 102 of TFEU expand the market through the European Economic Area to shift IPRs compliance with the wider mandate of the freedom of movement of goods. The preservation of fundamental rights and fundamental freedoms must be balanced by the European Court of Justice (ECJ).^[2]

Through the courts interpretations of Art 26 and Art 345 of the TFEU, individual member states rights can be preserved^[3]. However, competition law outlines limits on these rights through the parameters in Art 101 and 102 strengthening a more healthy and fair

European internal market.

_{Intellectual property, licences and their effect on competition law.}

IPRs include the patents, copyrights and trademarks to materials such as car parts, designs and software programs. The right ‘prevents’ the unauthorised use and has therefore been termed a “negative in nature”.^[4] If these rights are exercised in a monopolistic way the courts through competition law try to provide a balance in the exercise of these rights. IPRs are however important as through their registration, companies can secure their product’s market advantage by preventing duplication or unauthorised reproduction.

The exploitation of IPRs opens avenues for authorised use in the market. This occurs through licences, agreements with ‘like’ companies or unrelated third parties. Business mergers, joint ventures, settlement agreements, technological transfer arrangements and research and development collaborations may capitalise on the authorised exploitation of IPRs for certain gains.⁶ Licences can run afoul of free trade when they restrict the use of IPRs in an anti-competitive manner.

According to Willis, the courts have found restrictive licences to conflict with Art 86 European Community (EC) Treaty where companies operate in a way to “1-  grant territorial exclusivity, 2-export bans, 3-tying and bundling products or licences, where the licensor makes the grant of a licence to use one particular IP right conditional upon the licensee also paying to use a separate IP right, 4- restrictions on prices or customers,5- non-compete clauses.^[5] Not all exclusive rights conflict with Art 86 as in the case of Coditel v Cine Vog Films^[6] where the exclusive right to a film was not found in contravention of Art 81 EC Treaty on the premise that the infinite royalties received from the film needed to be protected by an exclusive licence.⁹ This ruling serves as an example where in balancing IPRs and monopolistic behaviours, competition law granted the continuance of IPRs.

Competition law and anti-competitive conduct are not automatically applied where they may be a licence or agreement. Additional factors are considered in defining anticompetitive behaviour. The applicability includes whether there are adverse effects of the activity, market control and whether there are existing IPR licences among the parties.

The adverse effects of anti-competitive activities in Oscar Bronner GmbH & Co KG v

Mediaprint Zeitungs^[7] address the fact that a home-delivery service developed by Mediaprint was to be excluded from an agreement with Oscar Bronner as it relates to the publication of a television catalogue. On the one hand, the home-delivery service was argued to be an expansive, heavily administrative and logistical operation which Media print should not have been obliged to extend the benefits of to Bronner. Alternatively, it was argued that due to the extensive operation of the home-delivery service “refusal of access to the home-delivery scheme could have the effect of completely excluding Oscar Bronner from the daily newspaper market…”^[8] The court however held that there were alternative methods such as sale in shops that could be used to sell the catalogues and that despite the size of the home- delivery system, there were no legal adverse obstacles to trade.

Special obligations are placed on companies that command a significant measure of market control. The concern towards a sizable control of the market is correlated with the effects that the control of same will cause towards trade between member states.^[9] In the case of AB Volvo v Erik Veng^[10]  the court put the application of market control in context by stating with reference to the application of Article 86 EC Treaty “it is … necessary that three elements shall be present together: the existence of a dominant position, the abuse of this position and the possibility that trade between member-states

may be affected thereby”^[11] Therefore in this case where IPR licences excerpted a measure of control over the markets, “proprietorship of a registered design is not of itself sufficient automatically to create a dominant position in every case.”^[12]

_{EU functions of Art 101 and 102}

The functions of art 101 and 102 of the TFEU are tools through which competition law can regulate IPRs. In the application of either of these articles, the market share must be defined. If the companies in question only hold a small market share, then price fixing and manipulation will be restrained by other companies. Likewise, concerted practices or agreements amongst companies in the market may not affect the functioning of trade unless they hold a significant market share. Peter Willis¹⁶ explained the definition of relevant markets by borrowing the economics principle of a ‘Small but Significant Non-transitory Increase in Price (SSNIP) test. This test, when applied, aids in determining the market share. However, the application of art 101 and 102 have not been straightforward.

Article 101

Of concern when assessing the balance between competition law and IPRs, both horizontal and vertical agreements should be analysed. Horizontal agreements function between companies operating in the same market whereby vertical agreements operate

amongst companies at different points of the product or service’s supply chain.^[13] The application of the use of IPRs to specific segments of an industry or a supply chain through licences or agreements would be interpreted as an effort to collude by restricting production, technical development, sources of supply, fixing purchase or selling prices in contravention of Art 101 sec. (a), (b), and (c). 

Cartels are therefore a mechanism which comes into conflict with competition law. The Organisation for Economic Co-operation and Development (OECD) defines cartels as “an anti-competitive agreement, anti-competitive concerted practice or anti-competitive arrangement by competitors to fix prices, make rigged bids (collusive tenders) establish bilateral restrictions or quotas, or share and divide markets by allocating customers, suppliers, territories or liners of commerce”.^[14]

The case of Truck Cartel II (LKW-Kartell II)^[15] is a practical example where the EC found the defendant had infringed Art 101 of the TFEU through an agreement which fixed price increases and integrated the cost of implementing emission reducing technologies into the fixed prices. The horizontal price fixing was set by the companies head offices and implemented “for all participating truck manufacturers; thereupon, the transfer of prices for importing the trucks into different markets by company or third-party distributors and then the prices to be paid by the dealers on national markets were

set”.^[16]According to Franz, “commercial management and joint warehouse arrangements, shared customer service and agreement on hours of business”^[17], fall outside the scope of a cartel by definition.

It must be noted that under Art 101 sec 2 all agreements that are not compliant with the article are automatically voided. This provision therefore disallows any IPRs agreements as well.

Finally, art. 101 sec 3 (a) and (b) provide a wider perspective as to the intentions of limiting anti-competitive behaviour. The limits form exceptions whereby, if consumers can still access a ‘fair share’ of benefits the actions may be allowed. Peter Willis adds that the application of the ‘de minimis rule’ helps to quantify the effects on trade by “a) assessing the aggregate market share of the parties on any relevant market within the Community affected by the agreement which does not exceed 40 million euros and b) the aggregate annual Community turnover of the undertaking(s) concerned in the products covered by the agreement does not exceed 40 million euros.”^[18]

Article 102 

Art 102 places an emphasis on companies who occupy and abuse a dominant position in the market. While IPRs exist and serve to encourage or compensate a company for their research and development and innovation, anti-competitive behaviour will limit

these rights. However, merely holding or owning an IPR does not create a position of dominance.^[19] Case law presents examples as to how the courts have applied art 102.

The Michelin^[20] case sets out the ECJ’s interpretation of ‘dominance’ as “a position of economic strength enjoyed by an undertaking which enables it to prevent competition being maintained on the relevant market by giving it the power to behave to an approachable extent independently of its competitors, customers and ultimately of its consumers”.^[21] Initially, it is clear that occupying a position of dominance does not in itself equate to contravention of art 102.^[22] The abuse of a dominant position must occur. The Magill^[23] case as affirmed in Bronner^[24] provides a template to determining abusive behaviour mandating three conditions where in the context of withholding access to a product or service, “that the refusal was preventing the emergence of a new product for which there was a potential consumer demand, that it was unjustified and such as to exclude any competition on a secondary market.” Per the Centre Belge d’Etude de Marche-Telemarketing^[25] case, the abuse does not need to occur in the jurisdiction where the company has dominance but can be applied to another jurisdiction once the

‘non-dominant’ jurisdiction is still adequately connected to the company’s operations.^[26]

Parke, Davis & Co. v. Probel, Centrafarm and Others^[27] show that there must be a convergence of three elements to create a dominant position, namely “the existence of a dominant position, the abuse of this position and the possibility that trade between member-States may be affected thereby”.^[28]

Not all IPRs can be extinguished or voided by art 102. Art 102 sec (a) regulates imposing unfair purchase or selling prices. The existence of IPRs that may result in higher product costs versus unprotected products can be allowed.^[29] The CICRA and

Another v Renault ^[30]case offers a specific analysis by the courts on 1- whether art 30 –

36 EEC should be interpreted as prohibiting the protection of IPRs and 2- whether art 86 EEC should be applied to prohibit the abuse of a dominant position.³⁵ These questions effectively show the divergent interest, and the case examines the application of same. In this case the exclusive rights towards the car manufacturer’s ornamental designs were upheld.

_{Has Competition law struck a balance in regulating intellectual property rights?}

Functioning in a position of dominance can contradict the IPRs as established in the 15/75 (Sterling Drug)^[31] case where the Merck^[32] case was examined stating that a company’s right to a patent “must be considered separately from it, since every patent proprietor is perfectly at liberty to market his inventions and forgo the recompense…”³⁸ 

It must be noted however that even a patent right as conferred by one jurisdiction will be subject to exhaustion if trade occurs with others in the European community. This shows that IPRs while initially exclusive, face challenges prior to the application of Art 101 and 102 or alternatively can have their rights extinguished thusly.

It may be argued that Art 101 and 102 have a larger objective to protect the interests of consumers and regulate fair and healthy competition as opposed to further regulating IPRs. In the Microsoft case^[33], the commission^[34] was concerned about the effects on the competitive structure although Microsoft arguments were based on upholding their own IPRs. The court’s decision on ‘tying’ where Microsoft tied the Windows Media Player to their Windows operating system, in a position of dominance, was held to be stifling

innovation. The focus on supporting a fair competitive market differs from an approach which intends to acknowledge or deny IPRs.

The commentary by Maria Volokn^[35] on Amazon and the abuse of a dominant position with reference to exclusionary conduct, refers to the position that the EC should take where they should “ensure that dominant undertakings do not impair effective competition by foreclosing their competitors in an anti-competitive way, thus having an adverse impact on consumer welfare”. This mandate was taken from the Commission Guidance on art 102.^[36] The objective is for the Commission to take a more broad view instead of a IPRs based approach. Maria Volokn’s article addressed a statement by the commission that cautioned Amazon against anti-competitive behaviour and argues that unless abuse is present the commission should be focused on whether or not abuse is occurring or measuring anti-competitive effects if any. In this instance, Amazon was cautioned about their reliance on third party sellers data that would inform their own position as both the marketplace and retailer. If a broader competition-based approach is applied, IPRs can remain intact and not considered under competition law.

_Conclusion

Licences and agreements allow exemptions for the use of IPRs and these rights will remain as long as they are compliant with Art 101 and 102 of the TFEU. Treaty law has shown where the courts have sought to protect rights even if the company in question under Art 101 exemptions through section 3 may apply. Through case law, the application of Art 102 provides qualifications that will allow IPRs to exist even when a company has been found to be in a dominant position^[37].

Competition law seems to have a larger overarching purpose to protect a healthy balance of competition in markets that give consumers the ability to choose their preferred products yet still support and validate companies’ rights to distinguish and protect their products, processes and designs.

Essentially, both IPRs and competition law as enforced through Art 101 and 102 TFEU can coexist to maintain a balance in market conditions.

_BIBLIOGRAPHY

Cases

-AB Volvo v Erik Veng (UK) Ltd 5 October 1988 ECR 1988, 06211, Case 238/87

-Bronner (C-7/97): [1998] ECR I-7791; [1999] 4 CMLR 112,

-Case 24/67, Parke, Davis & Co v Probel, Centrafarm and Others [1968] CMLR 47  

-Case 53/87, CICRA v Renault [1988] ECR 6039, [1990] 4 CMLR 265

-Case C 311/84, Centre Belge d’Etude de Marche-Telemarketing v CLT and IPB [1986]

2 CLMR 558

-Case C-241/91P, RTE v Commission [1995] 4 CMLR 718

-Case C-250/92, Gotrup-Klim [1994] ECR I-641 [1996] 4 CMLR 191

-Case C-322/81, Michelin NV v Commission [1985] 1 CMLR 380

-Case T-219/99, British Airways plc v Commission [2004] 4 CLMR 19

-Centrafarm BV v. Sterling Drug Co. Inc. (15/74), [1974] E.C.R. 1147, [1974] 2 C.M.L.R.

480

-Coditel SA v Cine Vog Films SA (262/81) EU:C:1982:334 (06 October 1982)

-Germany: Truck Cartel II (LKW-Kartell II), IIC 2022, 53(5), 819-844

-Merck & Co. Inc. v Stephar B.V. and Petrus Stephanus Exler [1981] 3 C.M.L.R 463 

-Magill (C-241/91): [1995] ECR I-743; [1995] 4 CMLR 325

-Microsoft Corp v Commission (2007; T-201/04

-Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH &

Co KG, Case C-7/97, 1998 ECR I-7791, [1999] 4 CMLR 112

-Procureur du Roi v Dassonville v S.A ETS Fourcroy and S.A. Breuval et Cie [1974] 2

C.M.L.R 436 

Text

-‘Commission Decision Relating to a Proceeding under Art 82 of the EC Treaty (Case

COMP/C-3/37.792 Microsoft) 24.03.2004’

-‘Commission Guidance on Its Article 102 Enforcement Priorities (Fn.35), Para.19.’ (2009) C45 Official Journal of the European Union https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:52009XC0224(01)&from=EN accessed July 15,

2022

-Frenz W and Aird C, Handbook of EU Competition Law, Springer Berlin/Heidelberg

2016

-‘Recommendation of the Council OECD Legal Instruments Concerning Effective Action against Hard Core Cartels’ Organisation for Economic Co-operation and Development

(OECD) <https://legalinstruments.oecd.org/public/doc/193/193.en.pdf&gt; accessed July 15, 2022

-Volokh M, ‘Keeping Up With The Enforcement Trends Against Digital Platforms:

Amazon Takes Yet Another Hit From The Commission’ (2022) 43 European

Competition Law Review 283

Willis P, Introduction to EU Competition Law (Informa Law 2005)

Websites

– https://ec.europa.eu/competition-policy/antitrust/antitrust-overview_en accessed July 15, 2022

---

[1] https://ec.europa.eu/competition-policy/antitrust/antitrust-overview_en accessed Jul 15, 2022 ² “Internal market shall compromise an area without internal frontiers in which the free movement of goods, person, services and capital is ensured in accordance with the provisions of the Treaties”

[2] Walter Frenz and Craig Aird, Handbook of EU Competition Law (Springer Berlin/Heidelberg 2016) 75.

[3] Except where there is conflict with the Treaty laws- Procureur du Roi v Dassonville v S.A ETS Fourcroy and S.A. Breuval et Cie [1974] 2 C.M.L.R 436 pg 6

[4] Peter Willis, Introduction to EU Competition Law (Informa Law 2005) 77. ⁶ ibid 78.

[5] ibid 79.

[6] Coditel SA v Cine Vog Films SA (262/81) EU:C:1982:334 (06 October 1982). ⁹ Willis (n 5) 80.

[7] Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG, Case C-7/97, 1998 ECR I-7791, [1999] 4 CMLR 112.

[8] ibid I–7822.

[9] AB Volvo v Erik Veng (UK) Ltd 5 October 1988 ECR 1988, 06211, Case 238/87. Pg 1

[10] ibid.

[11] Case 24/67 Parke, Davis & Co v Probel and Centrafarm [1968] ECR 55.

[12] AB Volvo v Erik Veng (UK) Ltd. 5 October 1988. E.C.R. 1988, 06211, Case 238/87. (n 12) 6. ¹⁶ Willis (n 5) 27.

[13] ibid 29.

[14] ‘Recommendation of the Council OECD Legal Instruments Concerning Effective Action against Hard

Core Cartels’ Organisation for Economic Co-operation and Development (OECD) 6

<https://legalinstruments.oecd.org/public/doc/193/193.en.pdf&gt;.https://legalinstruments.oecd.org/public/do c/193/193.en.pdf>. Accessed July 15, 2022

[15] Germany: Truck Cartel II (LKW-Kartell II), IIC 2022, 53(5), 819-844.

[16] ibid 3.

[17] Frenz and Aird (n 3).

[18] Willis (n 5) 51.

[19] Case C-241/91P, RTE v Commission [1995] 4 CMLR 718.

[20] Case C-322/81, Michelin NV v Commission [1985] 1 CMLR 380.

[21] ibid.

[22] Case C-250/92, Gotrup-Klim [1994] ECR I-641 [1996] 4 CMLR 191.

[23] Magill (C-241/91): [1995] ECR I-743; [1995] 4 CMLR 325.

[24] Bronner (C-7/97): [1998] ECR I-7791; [1999] 4 CMLR 112,.

[25] Case C 311/84, Centre Belge d’Etude de Marche-Telemarketing v CLT and IPB [1986] 2 CLMR 558.

[26] Case T-219/99, British Airways plc v Commission [2004] 4 CLMR 19.

[27] Case 24/67 Parke, Davis & Co v Probel and Centrafarm [1968] ECR 55. (n 14).

[28] Case 24/67, Parke, Davis & Co v Probel, Centrafarm and Others [1968] CMLR 47 at 59.

[29] Case 53/87, CICRA v Renault [1988] ECR 6039, [1990] 4 CMLR 265.

[30] ibid. ³⁵ ibid.

[31] Centrafarm BV v. Sterling Drug Co. Inc. (15/74), [1974] E.C.R. 1147, [1974] 2 C.M.L.R. 480

[32] Merck & Co. Inc. v Stephar B.V. and Petrus Stephanus Exler [1981] 3 C.M.L.R 463  ³⁸ Merck & Co. Inc. v Stephar B.V. and Petrus Stephanus Exler [1981] 3 C.M.L.R 463 -pg 8

[33] Microsoft Corp v Commission (2007; T-201/04.

[34] ‘Commission Decision Relating to a Proceeding under Art 82 of the EC Treaty (Case COMP/C3/37.792 Microsoft) 24.03.2004’.

[35] Maria Volokh, ‘Keeping Up With The Enforcement Trends Against Digital Platforms: Amazon Takes Yet Another Hit From The Commission’ (2022) 43 European Competition Law Review 283.

[36] ‘Commission Guidance on Its Article 102 Enforcement Priorities (Fn.35), Para.19.’ (2009) C45 Official

Journal of the European Union <https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:52009XC0224(01)&from=EN>. Accessed July 15, 2022

[37] Case 53/87, CICRA v Renault [1988] ECR 6039, [1990] 4 CMLR 265 (n 33).

Written: July 17, 2022

Author: Gillian Rowe

“The 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG) and the Common Law –Is there a problem?”

Introduction

Global trade is largely supported by international shipping and transport. The agreements and contracts which bind parties to what results in the movement of goods is a very complex process concerning nuances from across jurisdictions. The 1980 United Nations (UN) Convention on Contracts for the International Sale of Goods (CISG) was adopted on April 11, 1980 and entered into force on January 1, 1988 currently obtaining 95 signatories.^[1] The mandate of the CISG was arguably adopted from its predecessor the UNIDROIT Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods (ULFC).^[2] The stated purpose of the CISG is “to provide a modern, uniform and fair regime for contracts for the international sale of goods” with an objective of “introducing certainty in commercial exchanges and decreasing transaction costs”.^[3] With companies doing business in Europe having to conduct business with and/or across over 25 jurisdictions, the purpose and mandate of the CISG would seem prima facie to be the ultimate solution.^[4] With arguably the most successful “unification of contract law;”^[5] there are still dissentions.

The UK, as a major player in global trade, has not adopted the CISG convention.^[6] Interestingly, the UK had ratified the previous ULFC agreement.^[7] Further, the UK’s foundations in Common Law created rifts that act as a barrier to the harmonisation of laws and the full adoption of the convention articles.^[8] Another opinion as to why the UK has struggled with the harmonisation and ratification of laws has been lack of political interest towards primary legislation or the use of the Regulatory Reform Order (RRO). ^[9]Both the conflict of laws and the examination of legal principles and convention articles will be examined in this paper. In short, yes there is a problem between the CISG and the common law.

1.  Conflict of Laws

The initial starting point in identifying and assessing problems between the CISG and the common law at the conflict of laws. The ideal function would be to have British law harmonise with the international framework of the CISG so there is cohesivity in drafting, interpretation, and enforcement. The main issue against the harmonisation of laws according to Sally Moss is the lack of interest to ratify the convention through the passing of primary legislation in Parliament.^[10] She states that 1) there are no seriously adverse effects on the UK economy to push ratification to a priority 2) there has been a weak response to ratification in the formal consultation, 3) the possibility of enacting the provisions through the Regulatory Reform Act (RRO)^[11] would not be sufficiently satisfied as applying this act necessitates that any legislation in question be ‘removed or reduced’ which would not be the case in ratification. Finally, if the route of the (RRO) was attempted, it would only apply to England and Wales resulting in solutions to still be found for Scotland and Northern Ireland.^[12]

Moss also outrightly shows reasons in opposition to the ratification of the CISG. These include the belief that ratification of the CISG would be 1) ‘good news for lawyers but bad news for clients’, 2) increase the number of disputes 3) cause London to lose its competitive edge as it relates to international arbitration and litigation.^[13] There therefore is and has been a problem of substantial descent in the UK’s participation in CISG from a legislative perspective.

In theory however, English courts may apply CISG provisions although this has seldom been done.^[14] In Kingspan Environmental Ltd  and  Others  v  Borealis  AS, Clarke J held that Danish law, which incorporated the CISG, was the applicable law between the parties and not section 27 (2) of the Unfair Contract Terms Act^[15] under English law.^[16] In this indirect way, English courts may still apply the CISG provisions. The fact is that this option has only been selected in a few cases.

Both the CISG and Common Law fall short of adequately accounting for Software as a ‘good’. Djakhongir Saidov and Sarah Green make a case for software to be categorised as a good under the CISG and common law Sale of Goods Act^[17] and their analysis shows further areas of misalignment between the CISG and Common law. They posit that integration and harmonisation with CISG is important as firstly, the influence of the CISG through its uses and application is vast, secondly, the CISG is beneficial to the UK and its commercial community who may be bound by it and thirdly, that the UK system could be enriched in adopting the CISG.^[18]

Nathalie Hofmann^[19] offers deeper analysis as to why the common law has not found common ground with the CISG. She states that “the CISG is less suitable for commodity sales than the English Sale of Goods Act”^[20] further citing that “Art 25 and 49 of the CISG indicate that a fundamental breach is a precondition for avoidance of contract, whereas according to the English Sale of Goods Act, any non-conformity would be considered as a breach of condition.”^[21] In application therefore non-conformity has a more broad interpretation that can lead to the termination of a contract.

2. CIF and FOB Contracts in CISG

The general conflict of laws also includes the uncertainty surrounding the passing of risk as referred to in Articles 66-70 of the CISG International Commercial Terms (INCOTERMS).^[22] The contracts may either be Cost, Insurance and Freight (CIF) of Free On Board (FOB) in nature.

For CIF contracts, the court in Comptoir dAchat et de Vente du Boerenbond Belge SA v Luis de Ridder Limitada^[23] , set out the process to include; the bill of laden covering the goods contracted to be sold followed by the insurance policy and invoice showing a deduction of the freight which is to be paid by the buyer.  In the CIF the seller prepares this paperwork. The principles of English common law’s duty of care and liability in Tort have been relied on in the case of Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd^[24] where in FIC contracts the risk is passed to the buyer prior to the property. In Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd^[25] the buyer suffered loss of a steel coil product caused by bad stowage. Lord Brandon’s judgement confirmed that buyers do not have a claim against the sellers where loss has been suffered due in the carriage goods^[26], a bill of lading is issued, endorsed and delivered by the seller, and duty of care should not exist as a parallel alternative to the recourse available through the then Bills of Lading Act 1855 and now Carriage of Goods By Sea Act 1992 as the distortion of a parallel process could open the floodgates to claims.^[27]

Liability and the burden of proof for CIF contracts is showcased in Compania Sud Americana de Vapores SA v Sinochem Tianjin Import & Export Corp^[28] where under a CIF contract, the seller was able to successfully advance an appeal in an instance of a chemical product exploding on a vessel during shipping.^[29] The court held that it was the responsibility of the buyer to establish that there was a breach of the seller’s obligation “and that it had some causative effect”.^[30] In this case, the buyer was unsuccessful in proving a breach in the seller’s obligation.

The legal principles, precedents and application in CIF contracts show a closeness to foundations in English Law and present a certainty in their application through the CISG. This certainty is however contrasted by the alternative FOB contract option.

One of the distinctive differences between the CIF and FOB contracts is that the obligations of the buyer are fewer as there are no insurance or freight costs that are set for them.^[31] The flexibility in choosing affordable or price competitive services for both insurance and freight can allow them to minimise overall shipping costs and possibly sell their products at a lower retail price in the final market and this strategy attracts the ‘risk of loss’.^[32] Liability under FOB is therefore at the buyer who either risks cost curing measures or carries the expenses for the insurance and freight. The uncertainty in FOB contracts is further compounded by the fact that they take several forms.

Olanrewaju and Wandua^[33] suggest that FOB contracts can be placed in three categories; 1) classic or strict FOB, 2) contracts with additional services and 3) simple FOB. The precedent for strict FOB contracts was set in Wimble v Rosenberg^[34]  as applied in Pyrene Co Ltd v Scindia Steam Navigation Co Ltd^[35].  In the Pyrene case the seller’s tender was dropped before it was loaded onto the ship and the court held that “it was the intention of all three parties that the sellers should participate in the contract of affreightment so far as it affected them;^[36]” per the FOB contract. Contracts with additional services are determined where the seller carries out the transportation arrangements and transfers the bill of lading to the buyer.^[37] Finally, the simple FOB is a more personal arrangement where the buyer, sometimes represented by a forwarder, is responsible for most of the duties leaving the seller to put the goods onboard and present the mate’s receipt to the seller.^[38] 

Olanrewaju and Wandua , argue that the flexibility and adaptability that FOB contracts have a basis in common law instead of a strict Intercoms interpretation.^[39] The diverse application of FOB contracts is explained by the court in  Mediterranee SpA v Chevron USA Inc^[40]  where “traders are constantly adapting and even changing traditional FOB contracts in the course of their business”. The flexibility may present challenges to the certainty of application and results.

Both the CIF and FOB present grey areas as to their application through CISG. In business practice it may be advised that CIF contracts are used because of the precedents that may provide more legal certainty. However, FOB contracts are oftentimes used. Although the CIF may align closely with concepts from the English law, the choice as to whether CIF is chosen is made by the parties. With FOB being a popular option in the CISG common law can make no stipulation to which should be used.

3. CISG, Articles & Relevant Provisions

The adoption of the CISG would necessitate the common law’s better uniformity with the international convention. The courts would have to work more closely with considering and accepting the intentions of Parliament using the purposeful approach.^[41] English courts have historically relied on precedent and English statues for interpretation. In order to avoid too strict an application of the CISG, parliamentary materials should be considered since Pepper v Hart^[42] in the court’s interpretations. In Fothergill v Monarch Airlines^[43] the purposive approach was used by the House of Lords with reference to the Warsaw Convention on International Carriage by Air demonstrating that interpretations of international conventions were undertaken.

The official languages of the CISG and potential concerns in interpretation has also been a concern. However, accounts from both the French and English translations were studied and there was found to be no substantial differences with both being very vague.

Article 7 is relevant to statutory rights. The problem with this article is that it may be seen as ‘too vague’ to compete with the cohesive and well-developed precedents in English case law and the Sale of Goods Act.^[44] The English approach to statutory interpretation it to apply either the literal, golden or mischief rules. The literal rule is the ordinary and natural interpretation.^[45] The golden rule is the application of intention where the ordinary meaning may have led to an ambiguous or absurd result^[46]. The mischief rule is the interpretation taking into consideration the mischief intended to be resolved.^[47] The Pace CISG database shows a growing number of cases from common law countries such as Australia and New Zealand which in theory could be taken into consideration for the future.^[48] At the moment, English lawyers may be hesitant to rely on the convention without the surety of interpretation at least comparable to current English Law. Philip Hackney offers a solution to uniformity through the common law principle of stare decisis therefore binding lower courts to an interpretation that is per Art 7 (1)” to keep in mind the international character, the need to promote uniformity… and the observances of good faith in international trade.”^[49]

Conclusion

The CISG has attempted to ‘do the impossible’ by bringing the world together under one agreement in order to help facilitate trade. On the basis that there have been several ratifications, many deemed the convention as a successful one. The CISG has founded a layer of predictability in an unpredictable industry. However, the convention failed to target the common law uniformity issues and therefore remains heavily influenced by civil law practices.^[50] Common law legal principles regarding the interpretation of the convention remain deficient in the comparatively rich English precedents’ history. The direct conflict with Acts of Parliament^[51] or the absence of ratification has presented further disparity. In the application of the CISG, there are questions as to whether CIF and FOB contracts really achieve the purpose of bringing surety and less risk in international shipping contracts and negotiations. Finally, Article 7 (1) of the CISG presents an issue surrounding interpretation and uniformity. The United Kingdom as a common law jurisdiction, may not be prepared to accept the CISG convention as a dispute settlement system. In their perspective, there may need not be any other than the English legal system that has been in place, which as a powerful world player in international trade, revels in the privilege of having other jurisdictions request through the adoption of the applicable law, be the determinant of justice.

Bibliography

Cases

Comptoir d’Achat et de Vente du Boerenbond Belge S/A Appellants; v Luis de Ridder Limitada Respondents. (the Julia) [1949] A.C. 293

ERG Raffinerie Mediterranee SpA v Chevron USA Inc (t/a Chevron Texaco Global Trading) [2007] EWCA Civ 494; [2007] 2 Lloyd’s Rep. 542 CA (Civ Div) at [816] pg 52

Fothergill v Monarch Airlines Ltd [1980] UKHL 6

Kingspan Environmental  Ltd  and  Others  v  Borealis  AS,  Borealis  UKLtd  [2012]  EWHC  1147  (Comm)

Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon [1986] AC 785

Margarine Union GmbH v Cambay Prince Steamship Co Ltd (The Wear Breeze) 1 QB 219 – Roskill J

Pepper (Inspector of Taxes) v. Hart, [1992] 3 W.L.R 1032

Pyrene Co Ltd v Scindia Steam Navigation Co Ltd[1954] 2 Q.B. 402 [1954] 2 W.L.R. 1005

Wimble v Rosenberg [1913] 3 K.B. 743 CA

Legislation

Regulatory Reform Act 2001

Legislative Reform Act 2006

Sales of Good Act 1979 (SGA)

Text

Anna Suzuki-Klasen, A Comparative Study of the Formation of Contracts in Japanese, English, and German Law (Nomos 2022)

Gary Slapper and David Kelly, English Legal System:2009-2010 (Taylor & Francis Group 2009).

Journals

Hackney, P., Is the United Nations Convention on the International Sale of Goods Achieving Uniformity? LA. Law Review 61 (2000/2001) 475

Nathalie Hofmann, ‘Interpretation Rules and Good Faith as Obstacles to the UK’s Ratification of the CISG and to the Harmonization of Contract Law in Europe’ (2010) 22 Pace International Law Review 145.

Oluwatobiloba Olanrewaju and Judy Wandua, “The Continuous Relevance and Validity of the Different Forms of Free on Board (FOB) Contracts Under English Common Law” (2021) 32 (11) I.C.C.L.R, 626-632

Sally Moss, ‘Why the United Kingdom Has Not Ratified the CISG’ (2005) 25 Journal of Law and Commerce 483-485.

Djakhongir Saidov and Sarah Green, ‘Software as Goods’ [2007] Journal of business Law 161,163. 

Websites

International Shipping Terms and Why FOB is so DEADLY, Harris Bricken

https://www.lexology.com/library/detail.aspx?g=c2298797-3607-4bc8-be4b-67add6c00534 accessed Oct 27, 2022

Institute of International Commercial Law (IICL), CISG: Table of Contracting States- https://iicl.law.pace.edu/cisg/page/cisg-table-contracting-states Accessed Oct 23, 2022

Pace CISG Database, Country Case Schedule, http://cisgw3.law.pace.edu/cisg/text/casecit.html accessed Oct 17, 2022.

United Nations Treaty Collection, United Nations Convention on Contracts for the International Sale of Goods, https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_no=X-10&chapter=10&clang=_en Accessed Oct 23, 2022

---

^[1] United Nations Treaty Collection, United Nations Convention on Contracts for the International Sale of Goods, https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_no=X-10&chapter=10&clang=_en , Accessed Oct 23, 2022

^[2] Anna Suzuki-Klasen, A Comparative Study of the Formation of Contracts in Japanese, English, and German Law (Nomos 2022) 54.

^[3] United Nations, United Nations Commission On International Trade Law, Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG) https://uncitral.un.org/en/texts/salegoods/conventions/sale_of_goods/cisg Accessed Oct 23, 2022

^[4] Nathalie Hofmann, ‘Interpretation Rules and Good Faith as Obstacles to the UK’s Ratification of the CISG and to the Harmonization of Contract Law in Europe’ (2010) 22 Pace International Law Review 145.

^[5] Nathalie Hofmann, ‘Interpretation Rules and Good Faith as Obstacles to the UK’s Ratification of the CISG and to the Harmonization of Contract Law in Europe’ (2010) 22 Pace International Law Review 145.

^[6] Institute of International Commercial Law (IICL), CISG: Table of Contracting States- https://iicl.law.pace.edu/cisg/page/cisg-table-contracting-states Accessed Oct 23, 2022

^[7] Anna Suzuki-Klasen, A Comparative Study of the Formation of Contracts in Japanese, English, and German Law (Nomos 2022) 54.

^[8] Nathalie Hofmann, ‘Interpretation Rules and Good Faith as Obstacles to the UK’s Ratification of the CISG and to the Harmonization of Contract Law in Europe’ (2010) 22 Pace International Law Review 145.

^[9] Sally Moss, ‘Why the United Kingdom Has Not Ratified the CISG’ (2005) 25 Journal of Law and Commerce 483.

^[10] Sally Moss, ‘Why the United Kingdom Has Not Ratified the CISG’ (2005) 25 Journal of Law and Commerce 483.

^[11] Regulatory Reform Act 2001, largely replaced by the Legislative Reform Act 2006

^[12] Sally Moss, ‘Why the United Kingdom Has Not Ratified the CISG’ (2005) 25 Journal of Law and Commerce 483

^[13] Ibid.

^[14] Anna Suzuki-Klasen, A Comparative Study of the Formation of Contracts in Japanese, English, and German Law (Nomos 2022) 55

^[15] Unfair Contract Terms Act 1977 c.50 s.27

^[16] Kingspan  Environmental  Ltd  and  Others  v  Borealis  AS,  Borealis  UKLtd  [2012]  EWHC  1147  (Comm)

^[17] Sales of Good Act 1979 (SGA)

^[18] Djakhongir Saidov and Sarah Green, ‘Software as Goods’ [2007] Journal of business Law 161,163. 

^[19] Nathalie Hofmann, ‘Interpretation Rules and Good Faith as Obstacles to the UK’s Ratification of the CISG and to the Harmonization of Contract Law in Europe’ (2010) 22 Pace International Law Review 152

^[20] Ibid.

^[21] Ibid.

^[22] Ibid

^[23] Comptoir d’Achat et de Vente du Boerenbond Belge S/A Appellants; v Luis de Ridder Limitada Respondents. (the Julia) [1949] A.C. 293

^[24] Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon [1986] AC 785

^[25] Ibid

^[26] Margarine Union GmbH v Cambay Prince Steamship Co Ltd (The Wear Breeze) 1 QB 219 – Roskill J

^[27] Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon [1986] AC 785

^[28] Compania Sud Americana de Vapores SA v Sinochem Tianjin Import & Export Corp (The Aconcagua) [2009] EWHC 1880 (Comm)

^[29] Ibid.

^[30] Compania Sud Americana de Vapores SA v Sinochem Tianjin Import & Export Corp (The Aconcagua) [2009] EWHC 1880 (Comm)

^[31] International Shipping Terms and Why FOB is so DEADLY, Harris Bricken

https://www.lexology.com/library/detail.aspx?g=c2298797-3607-4bc8-be4b-67add6c00534 accessed Oct 27, 2022

^[32] Ibid.

^[33] Oluwatobiloba Olanrewaju and Judy Wandua, “The Continuous Relevance and Validity of the Different Forms of Free on Board (FOB) Contracts Under English Common Law” (2021) 32 (11) I.C.C.L.R, 626-632

^[34] Wimble v Rosenberg [1913] 3 K.B. 743 CA

^[35] Pyrene Co Ltd v Scindia Steam Navigation Co Ltd[1954] 2 Q.B. 402 [1954] 2 W.L.R. 1005

^[36] Pyrene Co Ltd v Scindia Steam Navigation Co Ltd[1954] 2 Q.B. 402 [1954] 2 W.L.R. 1005

^[37] Olanrewaju Oluwatobiloba and Wandua Judy, “The Continuous Relevance and Validity of the Different Forms of Free on Board (FOB) Contracts Under English Common Law” (2021) 32 (11) I.C.C.L.R, 626-632 pg 3

^[38] Ibid

^[39] Olanrewaju Oluwatobiloba and Wandua Judy, “The Continuous Relevance and Validity of the Different Forms of Free on Board (FOB) Contracts Under English Common Law” (2021) 32 (11) I.C.C.L.R, 626-632 pg 3

^[40] ERG Raffinerie Mediterranee SpA v Chevron USA Inc (t/a Chevron Texaco Global Trading) [2007] EWCA Civ 494; [2007] 2 Lloyd’s Rep. 542 CA (Civ Div) at [816] pg 52

^[41] Nathalie Hofmann, ‘Interpretation Rules and Good Faith as Obstacles to the UK’s Ratification of the CISG and to the Harmonization of Contract Law in Europe’ (2010) 22 Pace International Law Review

^[42] Pepper (Inspector of Taxes) v. Hart, [1992] 3 W.L.R 1032

^[43] Fothergill v Monarch Airlines Ltd [1980] UKHL 6

^[44] Nathalie Hofmann, ‘Interpretation Rules and Good Faith as Obstacles to the UK’s Ratification of the CISG and to the Harmonization of Contract Law in Europe’ (2010) 22 Pace International Law Review 152

^[45] Per Inland Revenue Commission v Hinchy (1960) Gary Slapper and David Kelly, English Legal System:2009-2010 (Taylor & Francis Group 2009). Pg 82

^[46] Grey v Pearson (1857) Gary Slapper and David Kelly, English Legal System:2009-2010 (Taylor & Francis Group 2009). Pg 83

^[47] The mischief rule was first set out in the Heydon’s Case (1584). Gary Slapper and David Kelly, English Legal System:2009-2010 (Taylor & Francis Group 2009). Pg 86

^[48] Pace CISG Database, Country Case Schedule, http://cisgw3.law.pace.edu/cisg/text/casecit.html accessed Oct 17, 2022.

^[49] Hackney, P., Is the United Nations Convention on the International Sale of Goods Achieving Uniformity? LA. Law Review 61 (2000/2001) 475

^[50] Ibid.

^[51] Sales of Good Act 1979 (SGA)

Written: October 29, 2022

Author: Gillian Rowe

A Case for Shareholder Rights With Reference To The 2007-2008 Financial Crisis.

The 2007-2008 financial crisis has been termed “the Great Depression of 2007” with effects on a global scale. The US has faced financial and banking crises including the 1929 and 2007/2008. In reviewing the events of the past, compliance, market speculation and loop holes in regulation have played a role in these corporate failures. However the spotlight was turned to issues in corporate governance in a more major way after 2008. Corporate failures extended beyond the financial industry in the case or ENRON and in the UK with the failure of Maxwell Communications and the Mirror Group . This paper examines in part that legislation and codes are not sufficiently clear based on the lessons learned from the financial crisis of 2007-2008 and the implications for corporate governance across the US and UK. It will also address the balance of power between directors and shareholders in large publicly listed companies and show that multi-stakeholder accountability may be a solution to the director/shareholder primacy divide.

Functions of the Board

Bob Tricker provides an easy breakdown of the functions of the Board of Directors. He describes the roles as;
1- Strategy Formulation
2- Policymaking
3- Supervising Executive Activity
4- Accountability

Two of these in particular stand out when discussing the 2007-2008 financial crisis. Firstly, the supervision of executive activity, which Tricker describes as the need for board members to be “involved in the budgetary process and resultant motivation to achieve the planned performance”. In 2007-2008 corporate failures, the criteria and planned performance subsequent to the number subprime mortgages and risky debt purchased, should have come under scrutiny. The effects of the agency theory may be very relevant here. As directors and mangers proceeded to make their own decisions, the corporate entity as a whole may have lost sight of the cumulative detrimental effect of small of franchised decisions. An example is the collapse of Continental Illinois Bank. The Bank had divested itself acquiring speculative loans out of state (in Oklahoma) and outside the US in developing countries such as Mexico. Barings Bank suffered collapse after trader Nick Lesson was continually funded with minimal supervision and poor auditing which allowed him to retain an account that hid losses and trades he was making on behalf of the company. He was charged in 1995 and stated that the incompetence and lack of supervision of his activities by the board greatly contributed to the failure of the 259 year old bank.

Secondly, relative to accountability, Tricker not only identifies a responsibility owed to the Company but many other stakeholders including shareholders on behalf of the company, financial authorities, the city and the government. In the case of ENRON, the accountability mechanisms that were supposed to be in place via an independent auditing committee were broken. Arthur Anderson, public auditors, were working counter to the professional Generally Accepted Accounting Principles (GAAP) in issuing glorified statements on the positive performance of the company in its financial statements. This instance shows how even regulated committees such as the audit committee can still be misused for ulterior financial gain.

The term ‘Too Big Too Fail’ was coined as a result of the 1984 collapse of the Continental Illinois National Bank when the failure of the very large bank affect other “firma and sector of the economy” Regardless of how big these corporate entities were, the lack of accountability and misuse of powers of delegation would result in demise. In the UK model 5 allows for the delegation of power to board members and other company officers. In conjunction with the supervising executive not fulfilling their duties to monitor budgetary control and decision making , the delegation of power without accountability would support the poor decisions to offer loans to sub-prime customers.

The Responsibilities of Regulation

The Federal Reserve Act 1913 legislated many checks and balances. The US Federal reserve was created to;
1- “Conduct the nation’s monetary policy.
2- Supervise and regulate banks and other important financial institutions.
3- Maintain the stability of the financial system and containing systemic risk that may arise in financial markets.
4- Provide certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and play a major role in operating and overseeing the nation’s payments systems.”
The Federal Reserve has mandated that their focus is to “assess bank’s safety and soundness and compliance with laws and regulations through a formal commissioning program…”

The Emergency Economic Stabilization Act under s 111 and 104 gave guidance on executive compensation and corporate governance and the financial stability oversight board respectively. It was realised that regulatory authorities needed to pay closer attention to the actions of Directors and Shareholders. Therefore this act addressed issues such as limits on compensation and the prohibition of financial institutions making ‘golden parachute’ payments to senior executives.

Regulation of Directors

In the UK there are several sections of legislation that are meant to keep director powers in check. These include firstly mandating the position of a director in a company where in S154 (2) Public companies must have at least 2 directors.

Removal of Directors is regulated by ‘Retirement by Rotation’ at the 1st AGM and at each AGM after 1 third of the directors must retire and then put themselves up for re-election. These guidelines also introduce accountability where shareholders can vote on the Directors at the AGM. Although in practice, this action is largely ceremonial the power is there.

Regulation may also be enforced by the courts through the Company Directors Disqualification Act 1986. Where there has been fraud found on winding up the company, bankruptcy order issued against a director or if they reach a composition with creditors as in insolvency, in addition to if there are persistent defaults by the Company under the Companies Act. There is also regulation under s 18S where a director is physically or mentally incapable to carry out duties. Disqualification by the courts may also stop them from holding any future posts and suspend any currently held posts. In S168 , directors can be voted out by the shareholders in an ordinary resolution and while other provisions can be changed by amending the articles of association, this shareholders right cannot be amended.

Noting the existing regulation over directors provides a gauge as to how and if at all, they can abuse their powers. Checks and balances through regulation can limit the destructive patterns seen in some of the above mentioned corporate failures. Although the shareholders may appear to have veto power, in practice, the shareholders must release a 28 day special notice to the company and director to be replaced can make written representations to the shareholders- making a case at a meeting as to why they should not be removed (S 169 CA). After the 28 days the resolution can be made.

Directors powers according to the decision in Hogg v Cramphorn, must only be used for the purpose on which it has been conferred. In this case although the issuance of shares was a power held by the Directors, and they could not exercise that power to avoid a takeover.

Directors vs Shareholders

Director and shareholder roles must be kept separate. Part 2 Provision 9 UK Corporate Governance Code states that “the role of chairman should not be exercised by the same individual and therefore division of responsibilities between chairman and chief executive should be clearly established.” Problems where the same person acts as chair and CEO are evident in the case of Robert Maxwell of the Mirror Group where Maxwell as Chairman and CEO had very few people to account to especially as his board comprises of family and family friends. In the US case People ex. Rel. Manice v Powell, Chase J. stated that “the individual directors making up the board are not mere employees, but a part of an elected body of officers constituting the executive agents of the corporation”.

The nature of the director and shareholder relation must also be defined. The UK court decisions have progressed through historical decisions leading to the current position in Shaw & Sons (Salford) Ltd v Shaw where Geer LJ states that “If powers of management are vested in the directors, they alone can exercise these powers.” Mark and Petrin’s theory purports that through the UK Model Articles and in the US Delaware General Corporation Law “the power to ‘manage’ or direct the company is by default vested in the board of directors”. The nature of the connection between the two roles is significant. In Automatic Self-Cleansing Filter Syndicate Co. v Cunningham the court found that directors and shareholders had separate procedures and that one should not usurp the other. This ruling was referred to in Gramophone and Typewriter Co v Stanley where Buckley LJ for the Court Appeal stated “The Directors are not servants to obey directions given by the shareholders as individuals; they are not agents appointed by and bound to serve the shareholders as their principals”. This determination may distort an argument for greater shareholder primacy and powers.

An increase in shareholder powers would have to be carefully applied so to ensure that their individual interests do not become ‘directives’ to Directors. The roles and nature of the Director/Shareholder relationship may have been, as per the theories of Berle and Means, one where both parties collaborated together in the risky subprime lending practices. Both were in agreement to wildly disadvantageous practices and no morally upright separation between the nature or functioning of the roles. Mark Mizruchi also identify the dangers of ‘interlocking’ where directors in large US firms are also on the board of other firms . It has been termed by Louis Brandeis as “interlocking directorates is the root of many evils”. One can compare this interlocking behaviour to that of Robert Maxwell’s Chairman and CEO position while not an exact replica, can result in similar outcomes where decision making had little resistance.

Analysing the defined UK shareholder and director nature and roles, as a direct analysis or solution to the crisis of 2007/2008 is purely theoretical. In US corporate law the nature of the shareholder and director relationship is far different. Directors are granted their power from the state and not agents of shareholders as per Hoyt v Thompson’s Executor where Comstock J stated that “the board of directors of a corporation do not stand in the same relation to the corporate body which a private agent holds toward his principle.” With the considerations of directors and shareholders complete, is it fair to concentrate on government and government enforced regulatory bodies in the US as organs that should hold greater responsibility in the 2007-2008 crisis or be revised to prevent repeat occurrences. The fact is that legislative measures such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and Emergency Economic Stabilization Act were created after the crisis for these purposes.

Is Shareholder Primacy A Viable Solution?

The distinctions between institutional shareholders and other shareholders must be made clear. Institutional shareholders can bring short-termism behaviour which has been discouraged in the UK Corporate Governance Codes. The effects of short-termism is the instability of the share prices which in their fluxuations as large chunks of company stock that are traded may affect a company’s long term growth plans. Increased shareholder activism creates situations where large institutional shareholders are able to use their collective power for a common interest. This is exemplified in the case SHELL where shareholders were able to influence the board of directors to keep the company headquarters in London and therefore listed on the UK stock exchange instead of the less favourable Dutch stock exchange.

Other shareholders may be classified as minority shareholders who under UK law have protection through the right to legal action. These rights come as exceptions to the Foss v Harbottle right of majority rule. Minority shareholders can bring matters such as derivative action , action under the unfair prejudice rule or in the winding up process of the company. As opposed to Stephen Bainbridge’s theories, in the US, Christopher Burner is of the view that the UK has a “Shareholder centric system” . S 172 CA clearly supports shareholder empowerment but goes beyond this by listing obligations to employees, the community and the environment.
Director primacy purports the limiting of shareholder powers. Moore and Petrin note that Stephen Bainbridge’s theory of “director primacy is antithetical to shareholder empowerment.” Bainbridge however, is of the opinion that the “director primacy-based system of U.S. corporate governance has served investors and society well.” Cydney Posner makes note of the US Business Roundtable 1997 that published a ‘Statement on the Purpose of a Corporation which was executed by 181 ‘well-known high-powered CEOs’ who’s comment on Shareholder Primacy was that “corporations exist principally to serve shareholders”. Subsequent Roundtables have however moved away from this thinking evolving to a “more complete view of corporate purpose”. This view includes a wider stakeholder approach similar to considerations taken in the UK s 172 of the Companies Act.

Conclusion

The fallout and losses as a result of the 2007/2008 financial crisis caused great distress across the US. As questions were asked, the directors, shareholders and regulatory bodies found themselves in the center of an investigation aimed at preventing this kind of event from ever re-occurring. There are views that the US was a capitalist and director lead corporate society and that there had been little fault on the part of the directors to have causes the crisis. Yet others are of the opinion that if the shareholders who should be guiding the overall interests of the company were given more power, they would have halted the rapid decisions being made in the sub-prime loan markets. Others hold a view that both the directors and shareholders had contributes to the crisis and therefore regulations and legislation needed to be more clear in order to avoid exclusive power. In analysing the powers held by both shareholders and directors, the common solution seemingly being pursued in the US and UK is a wider stakeholder approach. Therefore in the future there may be less of a director/shareholder dichotomy but a blend of responsibilities to other stakeholders.

Bibliography

Authorities and Cases

Companies Act 2006

Cadbury Report 1992

Delaware Code Annotated, title 8 section 14 (a)

Directors Disqualification Act1986

Dodd-Frank Wall Street Reform and Consumer Protection Act 2010

Embargo Act 1807

The Emergency Economic Stabilization Act 2008

Insolvency Act 1986

UK Stewardship Code 2020

Automatic Self-Cleansing Filter Syndicate Co. v Cunningham [1906] 2 Ch 34

Foss v Harbottle [1843] 2 Hare 461

Gramophone and Typewriter Co Ltd v Stanley [1908] 2 KB 89

Hogg v Cramphorn Ltd [1967] Ch 254

Hoyt v Thompson’s Executor 19 N.Y. 207 [1859]

People ex. Rel. Manice v Powell, 201 N.Y. 194 [1911]

Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113 CA

Academic Journals and Articles

Bainbridge Stephen, ‘The Case for Limited Shareholder Voting Rights’ 53 UCLA Law Review 601, [2006]

Cunningham Gary and Harris Jean, ‘ENRON and Authur Anderson: The Case of the Crooked E and the Fallen A, Global Perspectives on Accounting Education’ Vol 3, [2006] Accessed August 23, 2021

Fisch J.E, ‘Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy’ 31 Journal of Corporation Law [2005]

Posner Cydney, ‘So Long to Shareholder Primacy’ Cooley LLP, [2019] https://corpgov.law.harvard.edu/2019/08/22/so-long-to-shareholder-primacy/ Accessed August 27, 2021

Roe Mark, ‘Stock Market Short-termism’s Impact’, Harvard School Forum on Corporate Governance, Harvard Law School [2018]
https://corpgov.law.harvard.edu/2018/05/31/stock-market-short-termisms-impact/ accessed August 22, 2021

Table A, ‘Articles of Association of a Company under Companies Act 1985,’ as amended by Companies Regulations for public companies October 1 [2007]

Text

Baums T, Buxbaum R, Hopt K,’ Institutional Investors and Corporate Governance’, De Gruyter Inc. [1993]

Burner Christopher, ‘Corporate Governance in the Common-Law World: The Political Foundations of Shareholder Power’, Cambridge University Press [2013]
https://ebookcentral.proquest.com/lib/salford/reader.action?docID=1139676&query=institutional+shareholders accessed August 22 2021

Justice Louis Brandeis of the U.S. Supreme court in his book “Other Peoples’ Money”. Brandeis Louis ‘Other Peoples’ Money’ Frederick A. Stokes, [1914].

Mizruchi Mark, ‘Berle and Means revisited: the governance and power of large
U.S. corporations’ University of Michigan, [2004]

Moore Marc, and Martin Petrin. ‘Corporate Governance : Law, Regulation and Theory’, Macmillan Education UK [2017] ProQuest Ebook Central August 22, 2021

Tricker Bob, ‘Corporate Governance Principles, Policies and Practices’ Oxford University Press [2012]

Websites

Amadeo Kimberly and Estevez Eric, ‘Great Depression Timeline 1929-1941’ The Balance [2020] https://www.thebalance.com/great-depression-timeline-1929-1941-4048064 accessed August 27, 2021

‘Barings collapse at 20: How rogue trader Nick Lesson broke the bank’ < https://www.theguardian.com/business/from-the-archive-blog/2015/feb/24/nick-leeson-barings-bank-1995-20-archive > accessed August 23, 2021

‘The Board of Governors of the Federal Reserve System’ https://www.federalreserve.gov/faqs/about_12594.htm accessed August 22, 2021

‘The Federal Reserve of Cleveland’ < https://www.clevelandfed.org/newsroom-and-events/multimedia-storytelling/recession-retrospective.aspx > accessed August 22, 2021

Rhee Robert, University of Florida ‘A Legal Theory of Shareholder Primacy’ University of Florida [2017] https://corpgov.law.harvard.edu/2017/04/11/a-legal-theory-of-shareholder-primacy/ accessed August 27, 2021

Singh Manoj, ‘The 2007–2008 Financial Crisis in Review’ [2021]
Accessed August 27 2021

Written: Aug 29, 2021

A Review of Two Frequently Recurring Clauses In Investor-State Contracts and Their Efficacy for Protecting Foreign Investments

Investor-state contracts (ISCs) are the foundation of many foreign investment ventures.[1] These contracts interact with a number of tools including general principles of law, international law and bilateral international treaties which are identified in strong ISCs.[2]

This paper will assess renegotiation and stabilization clauses. These clauses impact the economic equilibrium of the contracts, to provide effective protection against trigger events and inform the arbitration process where applicable. However, the inclusion of these clauses may not equate to the prevention of economic loss. Arbitration is meant to assist in recuperation and lack of clarity as these clauses may contribute to more costly and unintended arbitral decisions. Furthermore, the internationalization of contracts are considered as an influential factor.

Renegotiation and stabilization clauses are not the ‘silver bullet’ to foreign direct investment (FDI) in ISCs. By dissecting the components of renegotiation clauses into trigger events, obligations of the renegotiation process and the consequences of failure to renegotiate, the strengths and weaknesses are analyzed. In stabilization clauses, the types of clauses, political risks and unique ‘freezing’ ability are assessed for their efficacy.

The effectiveness of these two clauses are influenced by external and internal factors including legislative changes, acts of nationalism, unrest and instability and the sovereignty of the host state. In assessing the overall efficacy of foreign investment protection, all of the factors should be balanced. Absolute protection can never be guaranteed but there are global monitoring bodies that seem to be, through unification, seeking to strengthen the remedies available to breach of contract.[3]

The assessment in this paper focuses specifically on ISCs with brief references to Bilateral Investment Treaties (BIT) and with less emphasis on other ISC clauses such as the arbitration, choice-of-law, force majeure, hardship and umbrella clauses.

Renegotiation Clauses

Gotanda states that “Renegotiation clauses are provisions in contracts that, upon the happening of a certain event or events, require all parties to return to the bargaining table and renegotiate the terms of their agreements”[4] Renegotiation clauses could have a neutral effect or balance, giving power to both parties.[5] These clauses are constructed with key elements; 1- trigger events, 2- the stated obligations of the renegotiation process, 3- the legal consequences of failure, 4- arbitration clause.

According to Salacuse, contractual instability is a major cause for the need to draft renegotiation clauses.[6] This contractual instability he attributes to 1- imperfect contracts and 2- fluctuating circumstances.[7] Salacuse suggests that the key to foreign investment protection is in the ability for renegotiation clauses to “provide stability on the one hand, yet give the parties the flexibility to face the unknown on the other”[8] However, instead Dubajić suggests that renegotiation contracts may be perceived as an indicator that the present contract has issues relating to enforcement mechanisms.[9] Not all ISCs contain renegotiation clauses. The omission of renegotiation clauses according to Gotanda, are a result of “fears that these clauses will make the contractual relationship unpredictable, raise the overall costs of the transaction, and be unenforceable…”[10] He further alludes to issues of interpretation by tribunals possibly “modifying the contract in a way that neither party intended”. [11] To further understand the dynamics of a renegotiation clause there must be a breakdown of the clause itself.

Trigger Events

The protection offered by a renegotiation clause is activated by trigger events. The challenge in drafting these clauses is to most accurately define a trigger event.[12] Berger notes that “trigger events evade a detailed definition as they are complex, unforeseen, and influenced by naturally volatile economic determinants.”[13] Taking this into consideration, analysis can be made on the trigger event phrases in both the Kuwait v AMINOIL[14] (article 9) contract and the Ghana contract Article 47 (b).[15] In Kuwait v AMINOIL[16] the tribunal directly addressed the efficacy of the clause in answering the question, “did the two parties respect the letter and spirit of Article 9 in these negotiations?”[17] Berger posits that the generality of the AMINOIL clause contributes to its ineffectiveness.[18] Equally, in order to mitigate the risks associated with general definitions of trigger events, other clauses should be linked to trigger events so that the trigger point becomes more precise.[19] This may include the use of “tax increases, price changes for raw materials etc.”[20] More precise drafting is noted in the Ghana[21] renegotiation clause which directly references “changes in the financial and economic circumstances relating to the petroleum industry” as a defining factor of an event triggering renegotiation.[22]

Renegotiation clauses consider the power dynamics between the contracting parties. If the trigger event is within the control of the host state it may be unwise to include a renegotiation clause based in that event.[23] This may disadvantage the foreign investment. Renegotiation agreements should not be commercially preferential to one party but aim to make necessary adjustments to restore the economic equilibrium that existed at the commencement of the contract.[24]

1. Obligations of the Renegotiation process

Salacuse dissects the renegotiation process into three distinct sections; “a) post-contract renegotiations, b) intra-contract renegotiations and c) extra-contract renegotiations.”[25] Each of these kinds of renegotiations have been encouraged because they help curb the loss of investment and  can improve investor interests. Parliament understood that the Dahol[26] project was for the benefit of its citizens in Maharashtra and although initially refusing to negotiate, eventually renegotiated their agreement with Enron. The question of whether contracted parties are obligated to renegotiate seems to be inferred by the tribunal in AMINOIL[27]. They noted the importance of the parties obligations in asking the question “Do the negotiations throw light on the situation of the Parties in regard to their contractual relations generally?”[28]

• The Legal Consequences of failure to fulfil the contractual obligation to negotiate.

Berger gives guidance where renegotiations have broken down to the principal of “hic et nunc” or that a fair decision should be sought.[29] This is in contrast to a situation where the restoration of the economic equilibrium is sought.[30] Another limiting factor in the fulfillment of stated obligations, is that the entire contract should not be renegotiated; but instead only the pertinent clauses relating to the “changed circumstances”.[31] Finally Berger suggests that neither of the parties should be exploited as exemplified in the matter where the cost of transporting a “rolling machine from France to Africa”, based on a delicate equilibrium was determined.[32] In essence, the process of renegotiation between both parties should be in good faith. It may seem primitive and although fairness is to be sought, “status quo ante”[33] the restoration to “the initial spirit of the contract”[34] should be prioritized. The inclusion of a renegotiation clause will not automatically ensure foreign investment security.

Stabilization Clauses

Stabilization clauses are frequently used in contracts to reduce the risks associated with changes in circumstances that may affect the investor or the host state.[35] They serve the purpose of protecting the parties by solidifying terms including applicable legislation that should govern the contract.[36] This is particularly important in the oil and gas industry as exemplified in the case of Sapphire v NIOC[37], where extensive investment was undertaken in the prospecting phase. Stabilization clauses are legal and binging both contractually and recognized under international law.[38] Where the clauses are clear and specific it may be tempting to rate its use as having a high rate of efficacy to protect foreign investments. However, there are other factors that should be considered.

Key Elements

1. Types of stabilization clauses

The construction of stabilization clauses showcase differences that may affect the efficacy of protection towards the investor. A stabilization clause focused on the economic equilibrium affords the investor compensation, in the case where it has to abide to new legislation and incurring costs as a result.[39] Additionally, there may be a delayed time period for compliance to legislative or public policy changes afforded to the investor.[40] Concerns that the host state may change public policies may be quelled through reliance on the initially established public law frameworks and principle of estoppel, actioned by rights, where the state has granted legislative immunity to the investor.[41] Faruque suggests that intangible stabilization clauses mandate mutual agreement for the stabilization and references its frequent use in Petroleum contracts.[42]

Hybrid stabilization clauses may “stabilize changes in health, safety, labor, environmental[43] and security law and foreseeable labor law changes”[44] This may be initially comforting for investors, but they should be cautions of mounting efforts to restrict the power[45] of stabilization through exposed disparities among equilibrium, freezing and hybrid clauses, in addition to the OECD’s social and environmental laws.[46]

• Limiting ‘Political Risk’

Political risk through nationalization contributes to the failure of ISCs and loss of foreign investments.  Nationalization of investments were popular in the 1950s and 60s where states asserted their rights to national sovereignty and natural resources.[47] Under 14 Deeds of Concession the Government of Libya had decreed to “nationalize all of the rights, interests and property of Texaco Overseas Petroleum Company and California Asiatic Oil Company”.[48] The companies brought the case before an arbitrator who found that Libya’s nationalistic approach was in breach of its obligations under the Deed of Concession. This case however, fails to show the strength or versatile use of a stabilization clause albeit the nature of the contract was scrutinized to consider its administrative qualities and whether “it could give rise, under certain conditions, to amendments or even abrogation on the part of the contracting State.”[49] To circumvent the lack of efficacy in some stabilization clauses, the investor may consider entering into a joint venture with the state in the hopes that the stated vested interest will help protect the integrity of the agreement.[50]

• ‘Freezing’ the regulatory framework

Stabilization clauses freeze the applicable laws enforced at the time of signing the contract and exclude new legislation from applicability.[51] This may apply to tax and labour laws but Halabi notes that where ‘limited freezing clauses’ are used, this “renders only a narrow class of laws or regulations inapplicable to an investment.”[52]

Coal examines alternative stabilization clauses in ‘stricto sensu’ which would mandate that “the governing law of the contract shall be that of the contracting state at the time the contract was executed.”[53] An agreement to this clause could in theory reduce risks related to legislative changes by the host state and possibly give more power to the investor. Limiting governments unilateral ability to “modify or terminate the contract” has been noted by Coale as an “intangibility clause” within stabilization clauses.[54] Clauses established in “good will” or “good faith”[55] are common, particularly in contracts over the use of natural resources[56] and where care of the environment is expected.[57] Contracts of this nature often attract the principle of state nationalism, where in international law the state has sovereignty over the natural resources of the country in the protection of same for the citizens.[58] Faruque adds that an “investor cannot challenge the host states national sovereignty over natural resources”.[59] While some still argue that the state’s freedom remains intact in  jus cogens.[60]

Conclusion

In modern times, renegotiation clauses allow parties to re-adjust the contract rather than terminate that can lead to high costs and extensive loss of foreign investment.[61] Relative to risks to foreign investments, “international law does not prohibit expropriation but does require some form of compensation and a stabilization clause can give the company some type of protection in the event of appropriation.”[62]

To access protection under ISCs, stabilization clauses can be interpreted as attempts to guarantee fair and equitable treatment (FET). [63]This principle of protection is offered in most bilateral investment treaties (BITs), multilateral trade agreements[64] and free trade agreements.[65] A threat to stabilization clauses however are environmental concerns which have become priorities.[66] Human[67] and environmental rights, put pressure on states who otherwise upheld stabilization agreements in order to remain compliant to treaty resolutions.[68]

In protecting foreign investments, the investor will want to retain as much control over eventualities. Renegotiation introduces uncertainty. Uncertainty in long-term ISCs is a negative factor.[69] In this way the efficacy of renegotiation clauses is reduced.

Stabilization clauses can be more applicable depending on the type and size of investment.[70] Relative to the frequency of use in contracts, Halabi noted that “the difference corresponds with the greater political risk associated with a natural resources project than with a private sector public service project.”[71] While other clauses may be infrequently used in ISCs, stabilization clauses continue to be included in contracts showing that there is still an intention and higher efficacy to be protected likewise.[72]

Authorities and Cases

Associated British Ports v. Tata Steel UK Ltd [2017] EWHC 694 (Ch)

G.A. Res 1803, U.N. GAOR, 17th Sess, Supp. No. 17 at 15, U.N Doc. A/5217 [1962]

ICC Award No. 2291 [1975]

Kuwait v. Aminoil [1982] 21 I.L.M. 976

Sapphire International Petroleums Ltd. v. National Iranian Oil Company, [1963] ILR 136

Texaco v Libya [1978]17 I.L.M. 1

United Nations Paris Agreement, <https://unfccc.int/sites/default/files/english_paris_agreement.pdf> accessed May 12th 2021

University of Minnesota, ‘Permanent Sovereignty over Natural Resources, G.A. res. 1803 (XVII), 17 U.N. GAOR Supp. (No.17) at 15, U.N. Doc. A/5217 (1962)’

Human Rights Library [2021] <http://hr, <http://hrlibrary.umn.edu/instree/c2psnr.htm> [2021] accessed May 11, 2021

Academic Journals and Articles

Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

Andrea Shemberg, ‘Stabilization Clauses and Human Rights’ IFC/SRSG Research Paper, May [2009]

Dusan Dubajić D, ‘Status of Foreign Investment Agreements During Renegotiation of the Receiving Country and the Foreign Investor’ Legal Records [2017] 8 (1): 34-48.

JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461

Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347

Margarita Coale, ‘Stabilization Clauses In International Petroleum Transactions’ 30 Denv. J. Int’l & Pol’y [2001-2002] 217

Piero Bernardini, ‘Stabilization and Adaptation In Oil and Gas Investments’ Journal of World Energy Law & Business [2008] Vol 1, No. 1, 111

Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261

Text

Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013]

M Sornarajah, ‘The International Law on Foreign Investment’ Cambridge University Press [2010] <https://ebookcentral.proquest.com/lib/salford/detail.action?docID=803195> accessed April 28, 2021

Websites

Garrigues, ‘International Arbitration Newsletter – April [2021 | Regional Overview: The Americas’ April [2021] <https://www.lexology.com/library/detail.aspx?g=9e871239-6bca-4d32-9227-c40a909afed1> accessed May 12th 2021

Herbert Smith Freehills LLP, ‘How Investment Treaties Can Protect Foreign Investments Against State Action’ September [2020] <https://www.lexology.com/library/detail.aspx?g=1b5af03d-8154-4f01-b53b-d027900f3da1> accessed May 8, 2021

Lorenzo Cotula, ‘BRIEFING 4: Foreign Investment Contracts’ International Institute for Environment and Development [2007] <www.jstor.org/stable/resrep01405> Accessed 12 May 2021

UNCTAD, ‘State Contracts; Series On Issues In International Investment Agreement’ UNCTAD/ITE/IIT/2004/11, United Nations Publication [2004] <https://unctad.org/system/files/official-document/iteiit200411_en.pdf> accessed May 12th 2021

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[1] UNCTAD, ‘State Contracts; Series On Issues In International Investment Agreement’ UNCTAD/ITE/IIT/2004/11, United Nations Publication [2004] <https://unctad.org/system/files/official-document/iteiit200411_en.pdf> accessed May 12th 2021

[2] Garrigues, ‘International Arbitration Newsletter – April [2021 | Regional Overview: The Americas’ April [2021]< https://www.lexology.com/library/detail.aspx?g=9e871239-6bca-4d32-9227-c40a909afed1 > accessed May 12th 2021

[3]  M Sornarajah, ‘The International Law on Foreign Investment’ Cambridge University Press [2010] <https://ebookcentral.proquest.com/lib/salford/detail.action?docID=803195> accessed April 28, 2021

[4] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461

[5] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461, 1462

[6]  Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013]

[7] ibid.   

[8]  ibid.

[9]  Dusan Dubajić D, ‘Status of Foreign Investment Agreements During Renegotiation of the Receiving Country and the Foreign Investor’ Legal Records [2017] 8 (1): 34-48, 47

[10] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461

[11] ibid. 

[12] Associated British Ports v Tata Steel UK Ltd [2017] EWHC 694 (Ch)

[13] Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1362

[14]Kuwait v. Aminoil [1982] 21 I.L.M. 976-1010

[15] Petroleum production agreement between the Government of Ghana and Shell Exploration and Production Co of Ghana Ltd of 1974 (clause 47b) in Piero Bernardini, ‘Stabilization and Adaptation in Oil and Gas Investments’ Journal of World Energy Law & Business [2008] Vol 1, No. 1, 111

[16] Kuwait v. Aminoil [1982] 21 I.L.M. 976-1010

[17] ibid.

[18] Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1362

[19] ibid.

[20] ibid.

[21] Petroleum production agreement between the Government of Ghana and Shell Exploration and Production Co of Ghana Ltd of 1974 (clause 47b) in Piero Bernardini, ‘Stabilization and Adaptation in Oil and Gas Investments’ Journal of World Energy Law & Business [2008] Vol 1, No. 1, 111

[22] Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1359

[23] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461, 1462

[24] Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1365

[25] Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013] 276

[26] The Dabhol Power Project in India in Salacuse, J, The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital, Oxford University Press 2013

[27] Kuwait v. Aminoil [1982] 21 I.L.M. 976-1010

[28] ibid.

[29] Klaus Peter Berger, Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators, 36 Vanderbilt J Trans’l L [2003] 1347, 1363

[30] ibid.

[31] Ibid.

[32] ICC Award No. 2291 [1975]

<https://www.trans-lex.org/202291/_/icc-award-no-2291-clunet-1976-at-989-et-seq/#1a,> accessed May 8, 2021

[33] Preserving the status quo in Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1363

[34] Wolfgang Peter, Arbitration and Renegotiation of International Investment Agreements [1995] 322, in Klaus Peter Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’ 36 Vanderbilt J Trans’l L [2003] 1347, 1353

[35] Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 290

[36] ibid.

[37] Sapphire International Petroleums Ltd. v. National Iranian Oil Company, [1963] ILR 136

[38]  Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 300

[39] Waelde & Ndi supra note 28 at 218-19 in Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 293

[40] ibid.

[41] Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336, 323 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

[42] Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336, 319 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

[43] Lorenzo Cotula, ‘BRIEFING 4: Foreign Investment Contracts’ International Institute for Environment and Development [2007] <www.jstor.org/stable/resrep01405> Accessed 12 May 2021

[44] Andrea Shemberg, ‘Stabilization Clauses and Human Rights’ IFC/SRSG Research Paper, May [2009]

[45] United Nations Paris Agreement, <https://unfccc.int/sites/default/files/english_paris_agreement.pdf> accessed May 12th 2021

[46]  Andrea Shemberg, ‘Stabilization Clauses and Human Rights’ IFC/SRSG Research Paper, May [2009]

[47] Texaco v Libya [1978]17 I.L.M. 1

[48] ibid.

[49] Texaco v Libya [1978]17 I.L.M. 1

[50]Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 276

[51] Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 292

[52] Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 293

[53]  Margarita Coale, ‘Stabilization Clauses In International Petroleum Transactions’ 30 Denv. J. Int’l & Pol’y [2001-2002] 217, 223

[54] ibid.

[55] Ibid.

[56] University of Minnesota, ‘Permanent Sovereignty over Natural Resources, G.A. res. 1803 (XVII), 17 U.N. GAOR Supp. (No.17) at 15, U.N. Doc. A/5217 (1962)’

Human Rights Library [2021] <http://hr, <http://hrlibrary.umn.edu/instree/c2psnr.htm> [2021] accessed May 11, 2021

[57] Margarita Coale, ‘Stabilization Clauses In International Petroleum Transactions’ 30 Denv. J. Int’l & Pol’y [2001-2002] 217, 223

[58] State national rights are recognized by international law. “There is general recognition that states have the right to nationalize, “expropriate or requisition these natural resources as long as the owner is paid appropriate compensation” G.A. Res 1803, U.N. GAOR, 17th Sess, Supp. No. 17 at 15, U.N Doc. A/5217 [1962] [hereinafter General Assembly Resolution]

[59]  Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336, 323 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

[60] Ibid.

[61] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461, 1469

[62] Stephen Schwebel, Justice In International Law 401-15 (1994)  in Margarita Coale, ‘Stabilization Clauses In International Petroleum Transactions’ 30 Denv. J. Int’l & Pol’y [2001-2002] 223

[63] Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013] 276

[64] Herbert Smith Freehills LLP, ‘How Investment Treaties Can Protect Foreign Investments Against State Action’ September [2020] <https://www.lexology.com/library/detail.aspx?g=1b5af03d-8154-4f01-b53b-d027900f3da1> accessed May 8, 2021

[65] Jeswald Salacuse, ‘The Three Laws of International Investment: National, Contractual, and International Frameworks for Foreign Capital’ Oxford University Press [2013] 276

[66] United Nations Paris Agreement, https://unfccc.int/sites/default/files/english_paris_agreement.pdf accessed May 12th 2021

[67] Shemberg, Stabilization Clauses and Human Rights, IFC/SRSG Research Paper, 27 May 2009

[68] Cotula, Lorenzo. BRIEFING 4: Foreign Investment Contracts. International Institute for Environment and Development, 2007, http://www.jstor.org/stable/resrep01405. Accessed 12 May 2021.

[69] JY Gotanda, ‘Renegotiation and Adaptation Clauses in Investment Contracts Revisited’ [2003] 36 Vand. J. Transnat’l 1461, 1463

[70]  Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261. 294

[71] Waelde & Ndi, supra note 28, at 224 in Sam Halabi, ‘Efficient Contracting Between Foreign Investors and Host States: Evidence From Stabilization Clauses’ [2011] Northwestern Journal of International Law & Business 31:261, 296

[72] Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses Legal Protection vs. Functional Value’ Journal of International Arbitration [2006] 23(4) :  317–336 <https://www.researchgate.net/publication/333433993_Validity_and_Efficacy_of_Stabilisation_Clauses_Legal_Protection_versus_Functional_Value>   accessed May 8, 2021

Date: May 15, 2021

Written by: Gillian Rowe

Wake-up call re: Internet Dependency

If we are a functioning group, we should be responding to the curve. We should disseminate information to the public on online meeting tools-> sizing up the service providers to give them a visual analysis of each ones differences and the nuances. We should be monitoring the use and reliance on telecommunications and position ourselves to comment on phone storage, data usage, USSD codes and systems for people to 1- stay connected 2-report their situations 3- be used as helplines. We should have strategy meetings to assess the best and worst case scenarios. We should remind people of how data protection impacts their lives as they rely even more on the internet; and address the importance of weeding out fake news online. We should, shouldn’t we?

 

We should apply the global ISOC efforts in Internet Governance, Community Networks, IoT etc NOW because there are certainly many points of reference and cases to prove WHY these topics are so critical. The world is leaning on the internet again in a way that it has not since the initial big boom. We should have comments on the teacher training completed at some schools giving each teacher and student a school email address which helps to, in light of the current affairs, ease the transfer to online learning. Students have previously been required to submit assignments and practice note taking on online platforms. We should have comments on GOOGLE Classroom. What can it provide in the immediate term? Should the government consider building its own national network in the future?

 

Many of these questions should be asked for the healthcare -> Blockchain move, regulations and regulatory bodies, the agricultural sector, government statistics and tracking. How should, if at all, the relationship among technology, the internet and government develop? Based on the main points alluded to throughout this article, topics can be identified and expanded into full assessments. Choose what is most relevant to you and write, share and connect with others about it. Hopefully this is a wake-up call for whomever it was intended.

 

Reference- https://www.politico.com/news/magazine/2020/03/19/coronavirus-effect-economy-life-society-analysis-covid-135579

Gender Inequality in IVF Treatments and Women’s Reproductive Autonomy

Author: Gillian Rowe

The concept of gender inequality has been widely discussed and applied across a varied number of situations. The United Nation assembly on 10th December 1948 adopted that “All human beings are born free and equal in dignity and rights” and that “everyone is entitled to all the rights and freedoms set forth in this declaration, without distinction of any kind such as race, colour, sex, language, religion… birth or other status.” Gender equality can be defined as ” equal rights, responsibilities and opportunities of women and men and girls and boys,” and every country in their own niche areas, will try to resolve gender inequality issues. One relevant area is in vitro fertilization (IVF) treatments relative to women’s reproductive autonomy. This essay seeks to examine the components of gender inequality, in vitro fertilization, women’s reproductive autonomy and the influence that the law and regulation has on the woman.

The first child born after the use of IVF was Louise Brown whose mother Lesley Brown was under the care of Doctors Robert Edwards and Patrick Steptoe in the UK, 1978. Another successful IVF claim was made in Calcutta India by physicians Subhas Mukerji and SK Bhattacharya. The press reported that the baby was born on the 3rd October 1978 and while the events surrounding the birth and the procedures were highly contested at the time, well respected Dr. T. C. Anand Kumar posthumously confirmed the authenticity of Dr. Mukerji’s claim.

The IVF treatment occurs in three stages according to Melissa Fraser , 1- Egg retrieval, 2- Implantation and fertilization and 3- Storage. During egg retrieval the woman is given medications to increase the number of eggs produced (also known as ‘superovulation’). The eggs are then gathered. Implementation and fertilization occurs when the eggs are placed in a petri dish with sperm and are fertilized until the egg develops into the 4 cell stage. At this stage the cell is then implanted into the woman’s uterus to continue natural growth. The final stage of storage is utilized when there have been multiple unused eggs resulting from the superovulation stage. The eggs are frozen through cryopreservation and stored.

Effects of International and Local Legislation on Gender Inequality
If the definition of gender equality as provided by the European Institute of Gender Equality is used, then children should also be included. The case of Mckay v Essex Area Health Authority 1982 considers the interests of a child and the way in which the courts view the life of a child. In this case, an appeal allowed by Lawson J was reversed in a judgment where a mother had contracted Rubella plague in the early stages of her pregnancy which subsequently lead to the disability of her unborn child. The claim was that but for the doctors negligence and omission to advise on the abortion of the child, entrance into life of the severely disable child would not have occoured. Stephenson LJ stated that “I am therefore compelled to hold that neither defendant was under any duty to the child to give the child’s mother an opportunity to terminate the child’s life. That duty may be owed to the mother, but it cannot be owed to the child. To impose such a duty towards the child would, in my opinion, make a further inroad on the sanctity of human life which would be contrary to public policy.”

It must not be assumed that all assisted reproductive treatments are legally available to those that may prima facie meet legislative or codes of practice requirements. Artificial insemination is not available to every person. In Dickson v UK the court refused to provide a prisoner who was serving a life sentence access to artificial insemination facilities. The couple who were both in prison at the time of their union wanted to utilize artificial insemination after the release of the wife. The husband would have remained imprisoned serving a 15 year sentence. They brought the case before the European Court of Human Rights contesting their rights under articles 8 and 12 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. The court found by a 4 to 3 majority that there had been no violations of the couples rights.

There are opinions that the Human Fertilisation and Embryology Act 1990 section 13 (5) may affect gender inequality. Section 13 (5) addresses the conditions and licenses for treatment stating that “A woman shall not be provided with treatment services F1… unless account has been taken of the welfare of any child who may be born as a result of the treatment (including the need of that child for [F2supportive parenting]), and of any other child who may be affected by the birth. ” This provision creates another barrier that must be overcome through proof. The Human Fertilisation and Embryology Authority is the regulating body that has published codes of practice derived from the legislative requirements. This not only indicates inequality between fertile and infertile couples but for the single parent (normally seen as the mother) it becomes yet another barrier to be overcome. The state cannot stop fertile individuals from conceiving yet through the welfare requirement it may withhold access to treatment for infertile individuals. The intentions of parliament may be to ensure that ‘good’ parents conceive children. These obligations are developed under the subject of reproductive autonomy.

Reproductive Autonomy vs Reproductive Liberty
Medical ethics normally encompass the four principals of 1-Aoutonomy, 2- Beneficence, 3- Malfeasance and 4-Justice. Autonomy is very important to the analysis of this topic. Herring 2012 identifies the difference between reproductive liberty and reproductive autonomy which is integral in understanding potential barriers of inequality. He states that reproductive liberty is a ‘negative concept preventing state interference while reproductive autonomy has a positive obligation and therefore encourages the state to treat infertile individuals.” Therefore in the example of section13 (5)of the Human Fertilisation and Embryology Act 1990 the state should not use welfare to interfere with the decision by prospective parents. Its role in reproductive autonomy should be to remove withholding measures that interfere with the positive treatment of infertile individuals. This could result in the removal of a barrier for single women who are attempting to conceive and would otherwise have had to provide satisfactory evidence. In the case of Dickson v UK there was a positive obligation to protect the child which negated the parents right to conceive. The concept of reproductive liberty would have prevailed over reproductive autonomy.

Psychological and Physiological Effects of IVF
The World Health Organisation (WHO) defines infertility as “a disease of the reproductive system defined by the failure to achieve a clinical pregnancy after 12 months or more of regular unprotected sexual intercourse.” Wagner and Stephenson state that infertility has become a “new kind of morbidity, a medical reconstruction of a social problem that is involuntary childlessness”. This creates a dichotomy in the minds of the hopeful being both a measurable self-diagnosed disorder and societal judgement on a woman.

Medical technology through IVF and other forms of assisted reproductive treatment (ART) focus on by-passing any solutions for the correction or curing infertility. The Feminist International Network of Resistance to Reproductive and Genetic Engineering (FINRRAGE) view that adopting this kind of definition of infertility may lead to unnecessary exposure to medical issues, psychological distress and financial burdens.

Delayed Child birth may attract increased psychological pressure. This can be imposed on women in society especially when they are desirous of having a child but are beyond the normal child bearing age. Büchler and Parizer explore this topic and are of the opinion that the ‘setting of a maternal age limit is related to the cultural context and is influenced by social representations of motherhood”. However this should still be balanced with the intentions of Parliament in making the law. Inequality can therefore exist between young and more senior women. Western societies may have a shorter child bearing age ranges while India has recorded mother such as Bhateri Devi Singh with triplets at age 66, Omkari Panwar with twins at age 70 and Daljinder Kaur bearing a child at age 72.

Further threats reflected as inequality relate to the health contamination risks. Fraser cites an incidence where a “culture medium was contaminated with Hepatitis B virus” . Further, psychological distress was noted to the extent that 49% of 200 pre-treatment couples were of the opinion that infertility treatment was the most upsetting experience of their lives as compared to 15% of the men who were interviewed.

Doctor Patient Control
When Leslie Brown gave birth in 1978 she did not know that she was involved in an IVF experiment and was under the impression that there were other mothers who were going through the same treatment. She was made to sign an agreement with her doctors which included her not discussing the procedure with others and consenting to an abortion if the doctors deemed it necessary. For whatever reasons, the doctors reinforced their control over the procedure.
According to Fraser, “Women lose autonomy when they begin IVF treatment.” This begins a period where women surrender their bodies to the sovereign control and guidance of a doctor programming technology. Women surrendering their bodies could occour less if cryopreservation were as functional for eggs as it is for sperm. There is therefore further inequality in this area.

Voluntary and Involuntary Consent
The overall control held by the doctors in IVF situations purport the question of whether informed consent occurs. Immaculada Melo-Marting with reference to literature from the legal and regulatory sources outline 4 elements for informed consent. These are 1- Disclosure, 2-Understanding 3- Voluntariness and 4-Competence. For example, Leslie Brown was not informed by her doctors that she was participating in an experiment.

Conclusion
IVF has become synonymous with infertility. However the scientific procedure can be considered specifically for those wanting multiple births or arguably those wanting to select a certain sex for their child. Gender selection is very important in some cultures. This kind of sex selection fuels another form of gender inequality that affects the population on a larger scale. The 2001 national statistics in India found that there were 933 females to 1000 males. The Pre-Conception and Pre-Natal Diagnostic Techniques (PCPNDT) Act, 1994 is an Act of the Parliament to address the declining sex ratio in India. Gender inequality needs no opposite gender as a comparator. Female autonomy should therefore be considered as an equal part in any reproductive discussion. This means that the influencing factors of societal or cultural views, medical professionals, financial, legal and other barriers should be balanced and one not supersede any other. Articles 8 and 12 of the United Declaration on Human Rights should be upheld and supported.

Bibliography

Cases
Dickson v UK App. No. 44362/04 2007
Mckay v Essex Area Health Authority 1982 QB 1166
Legislation & Authority
-Human Rights Act 1998- Article 8 and 12
-Pre-Conception and Pre-Natal Diagnostic Techniques (PCPNDT) Act, 1994
-Human Fertilisation and Embryology Authority (HFEA)
-Human Fertilisation and Embryology Act 1990
Text and Articles
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Regulation and the Development of Internet Governance

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The telecommunications industry in many parts of the world was initiated as state-owned or privatized monopolies. Building and maintaining a telecommunications operation could be seen as a venture demanding such a high investment that only a government should undertake those costs or a private grouping intent on making their investments highly profitable. One need only imagine a highly competitive game of Monopoly to agree that monopolies can have negative effects on all other player while competition gives every person a chance to succeed. Regulation therefore plays a big role in keeping the balance.

Regulation can be implemented through 1- liberalization of the markets, governments support of methods that ensure competition thrives, 2- any forms of licensing is not restrictive. Although government will have a prominent role is the effectiveness of regulation and increased usage, transparency, accountability, objectivity, efficiency and independence will greatly determine the success of the regulatory body.

Regulation is reliant on an existing foundation to initiate its operation. There should be 1- basic telecommunication law, 2- a national information and communication policy and strategy and 3- a multistakeholder process. These principles would have had to contend with a governments domestic agenda and be shaped of constrained to bi-lateral agreements, international agreements and international law. Examples of these ‘positive forces’ have resulted in the USA’s telecommunications industry’s liberalization in 1994, EU’s in 1995 and international liberalization for the signatories under the General Agreement on Trade in Services (GATS) 1996 at the World Trade Organisation (WTO).

Regulations therefore play a very important role in bridging the digital divide. The digital divide can be described as the disparity between those who, for technical, political, social or economic reasons have access and the capability to use the internet and those who do not. Regulation issues that would affect this are 1- the availability of a communications infrastructure, 2- The degree to which interconnection arrangements are inhibiting communications 3- the issue of donor/international financing.

However, regulation can be a positive toll in helping to bridge the digital divide. Craig Barett, Chairman of GAID states that ” Governments have an important role in creating the right environment. That means clear and stable regulatory frameworks to allow for investment, innovation and entrepreneurship.” In the UK where the Office of Communicattions (OFCOM) is the government-approved regulatory and competition authority for broadcasting, the House of Lords select committee on communications proposed that “user-generated content should be subject to a statutory duty of care that OFCOM should have responsibility for enforcing this duty of care particularly in respect of the vulnerable in society.” Regulation has become recognized as being so important in the digital age that the Regulating In A Digital World report recommended a digital authority in the UK to regulate regulators. The adoption of a multi-stakeholder approach was recommended to help bridge the digital divide.

Due to the fact that the digital divide is not specific to underdeveloped countries and spreads across all sectors, genders and classes of society, striking the right regulatory balance is vital. Neither censorship nor a regulatory-free environment are favoured. Solutions to bridging the digital divide are included in the Sustainable Development Goals no. 9- to build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovations, no.4- Education, no. 5- Gender Equality, no.7- Energy, no.16 to promote peace justice and strong institutions.

Regulation of the internet remains a crucial step in the development of the internet. As innovations push the use of the internet and widens the gap of the digital divide regulatory methods must adapt in order to remain effective.

Internet Ecosystem Actors: Local, National, Regional and Global Policy Development

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Crucial to understanding the internet as an ‘ecosystem’ is the difference between the multi-stakeholder and multilateral approaches. A definition of the multi stakeholder approach in internet governance is contained in paragraph 34 of the Tunis Agenda. It states that “Internet Governance is the development and application by governments, the private sector and civil society in their respective roles, of shared principles, norms, rules, decision making procedures and programmes that shows the evolution and use of the internet. This is opposed to multilateralism which although also shares collaboration components, the representatives are sanctioned by governments instead of a wider and more independent array of stakeholders. Internet governance operates through the multi-stakeholder approach.
This essay comments on the actors of local, national, regional and global policy development. The actors in this group are divided into governments, governmental regional organisations, multilateral institutions, the internet society and other policy discussion forums. This area is therefore closely linked to multilateralism and intergovernmental organisations. Although internet governance uses a multi stakeholder approach there is an overlap due to the inclusion of interests from local government. This is essential in ensuring there is representation from a national perspective which may be unique and different as compared to other nations. At the same time, in the case for example with CARICOM, as a regional entity there will be contributions that they will make based on the treaty of Chaguaramas in the best interest of the signatories. International intergovernmental organisations such as the UN, WIPO and WTO who support multilateralism are heavily involved in this area as their international agreements influence policy development. The private sector, civil society, the technical community and intergovernmental and international organisations included in the multi stakeholder approach.
The internet society’s role is divided into the chapters, individual members and organization members contributions. Other policy discussion forums may be multi stakeholder groups who table discussion on policy development and lobbying organization that also provide forums.

The Classification of Internet Governance

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There is no one governing body that has been able to provide a cohesive list of issues to classify the components of Internet Governance. Neither has there been an international document or agreement establishing these. However, the Working Group on Internet Governance (WGIG), the DiploFoundation, IGF Forum and Commission on Science and Technology for Development have all offered a number of criteria for the classification of Internet Governance. Although many are similar, there are differences that help to define the overall scope of the topic.

The working Group on Internet Governance was founded in 2004 by then UN Secretary-General Kofi Annan. It was charged with 1- Developing a working definition of internet governance, 2-Identifying the public policy issues that are relevant to Internet Governance and 3- Developing a common understanding of the respective roles and responsibilities of governments, existing international organisations and other forums as well as the private sector and civil society from both developing and developed countries. Between 2004 and 2005 the working group identified 4 key policy areas being 1- infrastructure and management, 2-the use of the internet, 3-issues relevant to the internet and 4-developmental aspects.

The DiploFoundation which was established by the governments of Malta and Switzerland and has as one of its mandates to improve global governance and international policy development. In their mapping process they have identified 1- infrastructure and standards, 2- legal, 3- development, 4- economic and 5- socio-cultural as the main areas of internet governance. The DiploFoundation has a very extensive research focus and has developed an interconnected cube to apply the 5 functioning components.

The IGF of Internet Governance Forum resulted from the World Summit on the Information Society (WSIS) The WSIS was a two-phase United Nations Summit. The IGF was formed in the second phase as a forum for multi-stakeholder policy dialogue. The first IGF meeting was held in Athens 2006 where the themes of 1- openness, 2-security, 3-diversity and 4-access were discussed. In 2007 the theme of critical internet resources was added.

The final major organization that will be discussed here is the Commission on Science and Technology for Development (CSTD). The CSTD is a subsidiary body of the economic and Social Council (ECOSOC) During the commissions 17th sitting in 2014 the CSTD published a ‘mapping of 7 international internet policy issues’. These were 1- legal, 2- security, 3-socio-cultural, 4-development, 5-economic, 6- human rights and 7- infrastructure and standardization.

Each of the classifications provided by the organisations above can be expanded into much greater detail. Out rightly however infrastructure its management and standardization are common issues identified by all of these organisations. Infrastructure and management includes areas such as the need for agreements on technical standards, telecommunications infrastructure the administration of the root server system, internet protocol addresses and the domain naming system. The WGIG included the topic of multi-lingualization which has always been an issue considering that the internet is a global participatory network. The IGF’s addition of ‘critical internet resources’ at the 2007 session in Rio de Janeiro was added to specifically encompass issues relating to infrastructure and its management.

Another commonality is the area of security and legal issues. Security relates to network security, spam and privacy issues. The DiploFoundation groups the legal area in the ‘issues’ quadrant of their cube analogy of internet governance classifications. They list jurisdiction as a concern, rightly because actions in law must be grounded in a particular jurisdiction. Several jurisdictions can become involve due to the fact that the internet, its users and servers can be based in many locations across the world. This heavily impacts international law and the definitions of ‘cybercrime’.

There are many areas that will overlap. The CSTD states that most internet policy issues are ‘intersectional’ and consequently they could also be classified in other clusters depending on the context. The DiploFoundation identifies the issue of ‘Network Neutrality’ as being interrelated. Flexibility can cause issues to overlap and cross sectors in addition to the creation of linked issues. An example of priority changes would be the IGFs ‘critical internet resource’ addition. Other factors that may affect current priorities are 1-global events, 2-policy priorities of various stakeholders and 3-shifting classifications of sub themes in agenda meetings.

Taking into consideration the flexibility of the stated characteristics, there are some areas of divergence on internet governance issues. Socio cultural and diversity classifications were not out rightly identified by the WGIG whereas the DiploFoundation lists cultural diversity as an issue. The classification of development and aspects of development are also approached differently. Although development is a sub foundation to the IGF, it was not proposed directly in 2000 or 2007. Characteristics relating to economics is named by the DiploFoundation and the CSTD. The WGIG itemizes it somewhat indirectly through their area identified as ‘issues related to the internet’. In that classification they go further to also consider international trade.

Contrasts also occur where only the CSTD takes into consideration human rights as a major characteristic of the internet. The Association for Progressive Communications (APC) who lobby the IGF and CSTD through the Human Rights Council and Universal Periodic Review purports that internet rights are human rights. The human rights that are linked to the internet include freedom of expression, association and the right to information.

Finally, the characteristic of ‘access’ may appear to be an obvious issue but is only explicitly notes by the IGF. Access to the internet has been further developed by the Internet Society through the subject of ‘community networks’. The 2018 report from the ‘Indigenous Connectivity Summit’ showcases the efforts and concerns surrounding issues of access to the internet. The principles of 1-consultation, 2-advocacy, 3-capacity building and 4-strategic partnerships were identified as being crucial to supporting inclusion.

In conclusion, each of these 4 institutions have greatly contributed to the content of internet governance. They have collectively broadened areas of classification, included relevant topics, addressed technical and social aspects and encouraged overlapping and the interrelating of issues. Therefore in comparing and contrasting these classifications the result is that the better defining of internet governance bears the greatest developmental benefit.