State liability

Abstract: We develop a game theoretic model of the conditions under which the European Court of Justice can be expected to take “adverse judgments” against European Union member governments and when the governments are likely to abide by these decisions. The model generates three hypotheses. First, the greater the clarity of EU case law precedent, the lesser the likelihood that the Court will tailor its decisions to the anticipated reactions of member governments. Second, the greater the domestic costs of an ECJ ruling to a litigant government, the lesser the likelihood that the litigant government will abide by it (and hence the lesser the likelihood that the Court will make such a ruling). Third, the greater the activism of the ECJ and the larger the number of member governments adversely affected by it, the greater the likelihood that responses by litigant governments will move from individual noncompliance to coordinated retaliation through new legislation or treaty revisions. These hypotheses are tested against three broad lines of case law central to ECJ jurisprudence: bans on agricultural imports, application of principles of equal treatment of the sexes to occupational pensions, and state liability for violation of EU law. The empirical analysis supports our view that though influenced by legal precedent, the ECJ also takes into account the anticipated reactions of member governments.

Abstract: Today there are more than 2,500 bilateral investment treaties (BITs) around the world. Most of these investment protection treaties offer foreign investors a direct cause of action to claim damages against host-states before international arbitral tribunals. This procedure, together with the requirement of compensation in indirect expropriations and the fair and equitable treatment standard, have transformed the way we think about state liability in international law. We live in the BIT generation, a world where BITs define the scope and conditions according to which states are economically accountable for the consequences of regulatory change and administrative action. Investment arbitration in the BIT generation carries new functions which pose unprecedented normative challenges, such as the arbitral bodies established to resolve investor/state disputes defining the relationship between property rights and the public interest. They also review state action for arbitrariness, and define the proper tests under which that review should proceed. "State Liability in Investment Treaty Arbitration" is an interdisciplinary work, aimed at academics and practitioners, which focuses on five key dimensions of BIT arbitration. First, it analyses the past practice of state responsibility for injuries to aliens, placing the BIT generation in historical perspective. Second, it develops a descriptive law-and-economics model that explains the proliferation of BITs, and why they are all worded so similarly. Third, it addresses the legitimacy deficits of this new form of dispute settlement, weighing its potential advantages and democratic shortfalls. Fourth, it gives a comparative overview of the universal tension between property rights and the public interest, and the problems and challenges associated with liability grounded in illegal and arbitrary state action. Finally, it presents a detailed legal study of the current state of BIT jurisprudence regarding indirect expropriations and the fair and equitable treatment clause.

Abstract: In recognition of the growing litigation crisis in the United States, the six largest accounting firms recently issued a historic joint statement of position titled The Liability Crisis in the United States: Impact on the Accounting Profession. Below is a resolution by the board of directors of the American Institute of CPAs urging tort reform, commending the work being done at the state level to reduce the threat posed by unwarranted liability and endorsing the joint statement. The statement itself begins on the facing page. AICPA BOARD RESOLUTION ON LEGAL LIABILITY WHEREAS: The AICPA, on behalf of the entire accounting profession, has been seeking judicial and legislative reforms responsive to the liability crisis affecting the United States; and WHEREAS: Unwarranted litigation affects new business ventures in their efforts to raise capital and also impacts local, national and global businesses; and WHEREAS: The cost of litigation ultimately is passed on to the general public; and WHEREAS: The accounting profession as a whole faces thousands of lawsuits claiming many billions of dollars in damages, far exceeding its proportionate share of responsibility; and WHEREAS: In 1991, the six largest firms spent $477 million on legal matters--9% of their domestic auditing and accounting revenues and an 18% increase over 1990 litigation costs; and WHEREAS: Litigation claims against other firms rose by two-thirds between 1987 and 1991 and 40% are "going bare" in light of the cost of liability insurance; and WHEREAS: A growing number of firms are avoiding "high-risk" audit clients and even whole industries and some small firms are dropping public clients or abandoning their auditing practices altogether; therefore BE IT RESOLVED: That the board of directors of the American Institute of CPAs endorses the position paper issued by the six largest accounting firms, The Liability Crisis in the United States: Impact on the Accounting Profession. The board believes the paper fairly reflects the nature of the litigation crisis in this country and appropriately emphasizes that in seeking litigation reform the profession is not attempting to avoid responsibility where accountants have breached their duty; and BE IT FURTHER RESOLVED: That the AICPA believes reform of the federal securities laws is essential to curb unwarranted litigation and would be an important first step toward instituting broader liability reforms; and BE IT FURTHER RESOLVED: That the AICPA also commends the work being done at the state level to reform state liability laws through legislative and judicial initiatives and to remove harmful regulatory and professional restrictions. The profession's ability to meet public expectations would be greatly enhanced by exploring all possible alternatives for reducing the threat unwarranted liability poses to the entire profession. THE LIABILITY CRISIS IN THE UNITED STATES: IMPACT ON THE ACCOUNTING PROFESSION The following statement was signed by J. Michael Cook, chairman and chief executive officer, Deloitte & Touche; Eugene M. Freedman, chairman, Coopers & Lybrand; Ray J. Groves, chairman, Ernst & Young; Jon C. Madonna, chairman and chief executive, KPMG Peat Marwick; Shaun F. O'Malley, chairman and senior partner, Price Waterhouse; and Lawrence A. Weinbach, managing partner and chief executive, Arthur Andersen & Co. The tort liability system in the United States is out of control. It is no longer a balanced system that provides reasonable compensation to victims by the responsible parties. Instead, it functions primarily as a risk transfer scheme in which marginally culpable or even innocent defendants too often must agree to coerced settlements in order to avoid the threat of even higher liability, pay judgments totally out of proportion to their degree of fault and incur substantial legal expenses to defend against unwarranted lawsuits. …

Abstract: This essay examines the jurisprudence of the International Center for the Settlement of Investment Disputes (ICSID) arbitral tribunals in a series of cases brought against the Republic of Argentina in the wake of the 2001-2002 Argentine financial collapse. The essay considers the ICSID tribunals' treatment of non-precluded measures provisions in Argentina's bilateral investment treaties (BITs) and the customary law defense of necessity and argues that the ICSID tribunals have sought to radically narrow the opportunities available to states to craft policy responses to emergency situations while strengthening investor protections beyond the intent of the states parties to the BITs under which these cases have been brought. The essay critiques this line of jurisprudence and suggests that the September 2007 Report of the Annulment Committee in the case of CMS v. Argentina may be read as an effort from within the ICSID system itself to question the legitimacy and structure of current investor-state arbitration.