International Scenarios (7) for International Sanctions: 6th Landscape, 'Two Hats on One Head'.

(published Sep 15th; updated Nov 10th, 2024)

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Shall the EU sanction decision framework be fair and appropriate for accepting conveying made by a party that was both a judge and a party in the controversy?

It is undoubtedly, as a rule, that it would not be fair or appropriate for the EU sanction decision framework to allow a party to act as both a judge and a disputant in a controversy. Such a practice would violate fundamental principles of fairness and impartiality, both in EU law and international arbitration and mediation processes. Instead, decision-makers in sanctions frameworks must be neutral to ensure the legitimacy and effectiveness of the decisions made. In the context of international law and principles of fairness and impartiality, the case of the EU making sanction decisions raises significant concerns about impartiality, due process, and the rule of law. Let's break down the four implications I think there are:

1. Impartiality and Fairness: One of the fundamental principles of international law is the requirement for impartiality in adjudicative processes. When a party involved in a dispute also has the authority to make decisions affecting the outcome of that dispute, it undermines the perception of fairness and impartiality. This is because the party making the decision may have a vested interest in the outcome, potentially leading to bias or unfair treatment.

2. Conflict of Interest: The situation already described could constitute a conflict of interest, where the party making the decision has competing interests that may influence their judgment. This undermines the integrity of the decision-making process and may violate principles of due process and equality before the law.

3. Rule of Law: The rule of law requires decisions based on established legal principles without arbitrary or discriminatory interference. They allow a party to act as both a judge and a party in a controversy, which undermines the rule of law by creating a situation where the party's interests may supersede legal principles and procedural fairness.

4. Protectionism Policy: While the setting situation could be seen as a form of protectionism, where a party seeks to advance its interests at the expense of others, it is more fundamentally a violation of fairness and due process principles. Protectionist policies often involve discriminatory treatment or favouritism toward domestic industries or entities, whereas the described situation involves the party directly influencing legal decisions affecting international disputes. However, there is much to do in sharing apart one setting from another in a context where public and private entities collaborate to perform a position in the international chess game.

As a conclusion at stake, allowing a party involved in a controversy to make decisions that affect that controversy raises severe concerns about impartiality, due process, and the rule of law. Such a situation undermines the integrity of the legal system and may lead to perceptions of bias and unfair treatment. Therefore, legal systems need to ensure the separation of powers and independence of decision-making bodies to uphold principles of fairness and justice—a matter about to dissertate long and deep in a different stage than this.

But the latter makes me call the next big issue to the floor, which is also related to the institutional accent of this part of the list of Big Issues: the leading players' roles and performances by the side of tribunals.

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The principle of fairness is central to EU sanction policies and international arbitration or mediation. There are almost three key considerations to take into account. The first one is very relevant.

1. Impartiality in the light of Conflict of Interest: A fundamental principle of any adjudicative or mediation process is that the decision-maker should be impartial and free from conflicts of interest. If a party acts both as a judge and a party, it compromises the integrity of the process. This would violate the principle of "natural justice," which demands that no one should be a judge in their cause ("Nemo iudex in causa sua"). It undermines confidence in the fairness of the outcome.

2. The International Arbitration and Mediation Standards: International arbitration and mediation require neutral and independent third parties to assess or help resolve disputes. Under typical arbitration or mediation rules, such as those of the UNCITRAL Arbitration Rules or the International Chamber of Commerce (ICC), one party serving both as an adjudicator and a disputant would not be acceptable. Such dual roles would violate ethical standards in dispute resolution.

3. The Impact on Legitimacy and Compliance: Decisions made under such biased circumstances would likely be viewed as illegitimate by the affected party and other stakeholders. This could lead to non-compliance with the sanctions or further disputes, ultimately undermining the effectiveness of the sanctions regime. It could also erode the credibility of sanctions and dispute-resolution mechanisms in the geopolitical context of the EU's san.

4. The EU Legal Framework: The EU's commitment to the rule of law and human rights, enshrined in its foundational treaties, would make it unlikely that a system allowing such dual roles could be considered appropriate. EU decision-making processes emphasise transparency, fairness, and impartiality. Accepting such a practice would contradict these principles and could face legal challenges in EU courts.

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Case Laws with relevance to this issue and the general themes involved in them

Case law from international tribunals clearly illustrates that fairness, impartiality, and avoiding conflicts of interest are foundational principles. Whether in investment arbitration, sanctions, or state regulation, tribunals consistently reject any scenario where a party could serve as both a judge and a litigant. Such actions lead to findings of bias, illegitimacy, and violations of international legal standards.

You can state as a fact that tribunals and courts handling international arbitration, mediation, and sanction disputes have repeatedly emphasised the importance of impartiality, independence, and the principle that no party should act as both a judge and a party in a controversy. Below are examples where tribunals have addressed these issues:

1. Methanex v. United States (NAFTA Arbitration, 2005), under UNCITRAL Arbitration Rules

Source.

The background goes as follows: Methanex, a Canadian corporation, brought a claim against the U.S. under NAFTA after California State imposed environmental regulations that affected its business. Regarding the Impartiality Issue, Methanex argued that the U.S. had acted in its interest by creating rules favouring domestic industries and unfairly targeting foreign competitors.

The Tribunal's Response emphasised the need for regulatory actions to be made fairly and transparently. However, it dismissed Methanex's claim, noting that governments have broad discretion in enacting environmental regulations unless they violate specific treaty obligations. The Key Point was that the Tribunal underscored the principle of fair regulatory treatment but deferred it to the government's discretion unless there was clear evidence of bias or self-dealing.

2. JSC BTA Bank v. Kazakhstan (SCC Arbitration, 2013), under the jurisdictions of The Stockholm Chamber of Commerce (SCC)

Source

The background concerns the Kazakh government's takeover of assets from JSC BTA Bank. The bank argued that the government had unfairly influenced the judicial process and acted as both regulator and beneficiary of the takeover.

The Tribunal's decision states that Kazakhstan's actions, including the state's involvement in judicial and regulatory matters, did not meet the standard of fairness required under international law. Kazakhstan was ordered to compensate the bank for its losses. The Key Point was that the Tribunal took a firm stance against a government acting as both a judge and party in a dispute, reiterating that such actions erode trust in the fairness of the proceedings.

3. Electricité de France (EDF) v. Romania (ICSID Case No. ARB/05/13, 2009), under the jurisdiction of The International Centre for Settlement of Investment Disputes.

Source

The background was this: EDF, a French energy company, filed a claim against Romania, alleging that it had been unfairly treated by cancelling its privatisation agreement. The Impartiality Issue consists of the EDF argument that the Romanian government, through its actions and involvement in the decision-making process, effectively acted as both a judge and a party by influencing the outcome of the investment dispute.

What was the Tribunal's Finding? The Tribunal noted that while Romania had the right to regulate and manage public resources, its involvement in the judicial process to further its interests was inappropriate and breached investment treaty obligations. The critical point in the case is that it reinforces the principle that a state cannot act as both an interested party and an adjudicator in investment disputes, as this compromises the impartiality and fairness of the legal process.

4. EnCana Corporation v. Ecuador (London Court of International Arbitration, 2006) - LCIA Case No. UN3481

Source

The background goes as this: EnCana, a Canadian energy company, filed a claim against Ecuador, alleging that Ecuador had imposed arbitrary tax measures that discriminated against foreign investors.

The Tribunal's Decision emphasised that tax regulations and sanctions must be applied impartially. It found that Ecuador's measures did not specifically target EnCana, so the claim was dismissed. The Key Point was that while states have broad discretion in taxation and regulation, the process must be applied fairly and without bias against foreign parties.

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In all of the above four Case Laws, there are three regular General Themes to face:

The Principle of Impartiality: The recurring theme in these cases is the critical role of impartiality in arbitration and mediation. A party acting as both judge and disputant is viewed as a violation of fundamental fairness.

International Standards: The tribunals emphasise international norms and principles, such as those in the New York Convention, the ICSID Convention, and the UNCITRAL Arbitration Rules, which demand neutrality and fairness in dispute resolution processes.

Sanctions and their Regulatory Discretion: Tribunals often respect states' right to impose sanctions or regulations. However, when those actions are carried out with partiality or in a manner that benefits the state directly, tribunals are quick to intervene and enforce compensation for unfair treatment.

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To run out with the subject, let's tackle what ideas better convey the idea of setting up a Systematic Approach to this theme. By focusing on impartiality, transparency, international norms, procedural fairness, and consistency, a systematic approach can effectively address the fairness concerns related to the EU sanction decision framework and international arbitration/mediation processes. These principles can provide a robust foundation for future policy and procedural reforms, ensuring legitimacy and trust in EU sanctions and international dispute resolution.

To develop a systematic approach to addressing the issue of impartiality and fairness in EU sanction policies and international arbitration/mediation processes, you can organise the key themes and lessons from case law into a structured framework. Here's a breakdown of ideas that convey a coherent, systematic approach set in seven nutshells:

1. About the Principle of Impartiality and Independence

Impartiality is the central premise to the fairness of any adjudicative or sanction decision-making process. The rule in international law is that no one should be a judge in their cause ("nemo iudex in causa sua"). The critical objective framework is ensuring that no party involved in a dispute or regulatory process should influence the decision in a way that benefits them directly, whether in arbitration or when imposing sanctions.

The action consists of establishing clear guidelines in EU sanction policy and arbitration frameworks to identify and mitigate conflicts of interest. This can be achieved by mandating independent decision-makers free from influence by any disputing party.

2. Transparency in Decision-Making Processes is a Must Have

Another central premise is that transparency in decision-making helps to ensure accountability and trust in the process's fairness. The key objective is transparency in the sanction decisions, arbitration, or mediation processes. The reasoning behind decisions, including the legal and factual bases, should be scrutinised.

The action consists of implementing mechanisms for publishing reasoned decisions and ensuring access to records of how those decisions were reached, including public reports and review mechanisms affected parties can use.

3. Separation of Roles in Sanction and Arbitration Processes is Mandatory

Separation of powers, even within regulatory bodies, is crucial to preventing any party from acting both as a judge and as an interested party in a decision. The critical objective cannot be blurred in cases where sanctions are imposed by a state or an organisation like the EU; there must be a clear delineation between the roles of those imposing the sanctions and those affected by them. In arbitration, tribunals should ensure neutrality, free from interference by any party involved.

The action consists of defining and enforcing a clear separation between regulatory, investigative, and decision-making bodies within the EU sanction framework and in arbitration tribunals. The roles should be allocated to ensure objective decision-making and avoid conflicts.

4. The Adherence to International Legal Standards

The central premise is that EU sanction policies and international arbitration must align with recognised international legal principles and standards, such as those outlined in the New York Convention, ICSID, and UNCITRAL rules.

Thus, the key objective is to ensure legitimacy and minimise the risk of challenges in international tribunals; the EU's sanction frameworks must be consistent with international treaties and precedents. The action driver regularly reviews the EU sanction policies and arbitration procedures against international conventions to ensure compliance. This includes ensuring that all parties receive fair treatment and that sanction decisions or arbitration awards are recognised and enforceable globally.

5. About the Neutral Dispute Resolution Mechanisms

The central premise for a fair system requires a neutral forum where disputes can be resolved impartially. The key objective for sanction disputes or arbitration cases and the decision-makers (e.g., tribunals, arbitrators) must be set as independent of the parties and the entities imposing sanctions. The action driver is to institutionalise the use of independent third-party arbitral institutions (e.g., ICSID, ICC, LCIA) in resolving sanction-related disputes. These institutions provide established frameworks to precisely guarantee neutrality, procedural fairness, and finality of the decision.

6. The Due Process Guarantees

This is a general central premise: every affected party should have a right to due process, including the opportunity to present its case, respond to evidence, and challenge decisions made in arbitration or sanctions contexts.

The key objective is to ensure that sanction decisions and arbitration processes uphold the fundamental rights to a fair hearing and an unbiased Tribunal. Thus, including the right action driver ensures that both the EU sanction framework and international arbitration procedures include provisions for affected parties to appeal or challenge decisions regarding concerns of bias, conflict of interest, or procedural unfairness.

7. The Role of Precedent and Consistency for Uncontroversial Decisions

Consistency in decision-making builds trust in the system and prevents perceptions of unfair treatment, which is the central premise. The critical objective regarding the Decisions related to sanctions and arbitration should be guided by established case law and precedents to ensure that they are predictable and transparent. So, the action driver consists of

developing and maintaining a repository of past sanction decisions and arbitration awards to guide future cases. Ensure decision-makers reference relevant precedents, thereby promoting consistency and legal certainty.

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For Your Final Countdown in a Systematic Framework Improvement, ten hints in five pairs to handle at your ease for a practical task list or in your process control:

I. Impartiality and Role Separation

- Ensure no entity acts as both judge and party.

- Maintain clear lines between investigative and adjudicative bodies in sanctions.

II. Procedural Fairness and Transparency

- Provide open access to the rationale behind sanctions and arbitral decisions.

- Introduce independent reviews and appeals.

III. International Norms Alignment

- Harmonise sanction frameworks with international conventions.

- Adhere to global arbitration standards (UNCITRAL, ICSID, etc.).

IV. Due Process and Neutral Forums

- Guarantee the right to a fair hearing.

- Use independent arbitration institutions for disputes.

V. Case Law Consistency

- Reference precedents from relevant cases to ensure decisions are predictable.

- Align the EU sanction policy with international arbitral case law.

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