UNIT 1 SETTLEMENT OF DISPUTES

Amicable (Peaceful) and coercive modes of settlement of International disputes

1. Introduction:

The main Purpose of United Nations shall be to maintain peace and Security and to
take effect and collective measure for the suppression of breaches of the peace. In order to
achieve this purpose, the United Nations Organization shall prevent or remove the threat to
the peace, breach of the peace or acts of aggression by taking effective collective measures.
Article 2 para 3 of the United Nations Charter provides that all members shall settle their
international disputes by peaceful means in such a manner that international peace, security,
and Justice are not endangered.

2. Definition of International Dispute :

There is no universally acceptable' precise and perfect definition of International

Dispute. In a wide sense, International dispute means a "disagreement on a point of law or
fact a conflict of legal views or of interest between the States." This disagreement between
the parties may arise either on legal(justifiable) or political grounds (non-justifiable).

Legal Differences: According to Prof. Oppenheim, legal differences are those in which the
parties to the dispute base their respective claims and contentions on grounds recognized by
International Law

Political Differences: All other differences are usually referred to as political disputes or as
conflicts of Interests.
Political or legal differences depends more or less upon the attitude of the [Link]
is, therefore, difficult to distinguish the dispute from legal to political.

3. Settlement of International Dispute

As above mentioned the Dispute may be political (non-justifiable) or legal (justifiable).

There are various modes of settlement of the political and legal differences between the
nations. Such differences may be resolved either by amicable means or by Compulsive means
short of war.

A) Amicable or Peaceful Means:

The various amicable means of settling disputes may be enumerated as follows :

(1) Negotiation (2)Good Offices (3) Mediation (4) International Commission of Inquiry (5)
Conciliation (6) Arbitration (7) Machinery of the United Nations Organization - i) General
Assembly ii) Security Council. (8) Judicial Settlement through International Court of Justice
(ICJ)
(1) Negotiation :

When disputant States settle their disputes themselves by discussion or by adjusting

their differences, the procedure is called Negotiation. Negotiation may be carried on by their
Heads of the States or by their accredited representatives or by diplomatic agents. It is the
simplest form of settlement of disputes. It helps the disputant State Parties to bring about
necessary change by mutual consent. The success of negotiation depends largely upon the
degree of acceptability of claims of one party by other and the spirit of accommodation which
the negotiations are conducted. Negotiations has certain weakness also, On many occasions it
becomes difficult for the disputant State to ascertain the precise facts of the
[Link], when the parties are unequal it is likely that the small power may be
subjected to the will of big power.

Examples :

Here are some examples of Negotiation

a) India and Pakistan Settled their outstanding differences in the Shimla Conference
(1976).
b) India and Bangladesh Settled Farraka Barrage (gunfire) Issue through Negotiation.
(1977)
c) Inda and Sri-Lanka Settled their Boundry dispute through Negotiation. (1974)
d) Australia and Newsland Settled their disputes by Neotiation (1965)

(2) Good Offices :

When the Parties refuse to negotiate, or when they fail to Negotiation, they may take
the assistance of a third party. The third party may be appointed by the parties themselves or
by the security council. The third party may be a State or an Individual. To settle the Kashmir
dispute between India and Pakistan the Security Council had appointed McNaughton in 1949,
Mr. Dixon in the year 1950, Graham in the year 1951 and Jarring in the year 1957 as
representative of United Nations.
The term "Good Offices" connotes the bringing about the conflicting parties
together and the counseling of advice or the suggesting of a settlement without participating
in the negotiation. Such suggestions or advices may be disregarded by a party to a dispute
without any compunction or breach of the law.

Example :

The Prime Minister of United Kingdom, Mr. Wilson provided his good offices to India
and Pakistan which resulted in the parties to reach an agreement to refer Kutch issue to an
Arbitral Tribunal.
In the year 1949, the Security Council rendered good offices in the dispute between the
Netherland Government and Republic Indonesia.
(3) Mediation :

Mediation is the conducting of negotiation between the disputing States through the
agency of the third party. In simple words, when the third party participates in the discussion
along with the disputant States and also gives its own proposals or suggestions in resolving
the dispute, it is called as Mediation. The Mediation presupposes the active participation of
the third State in Negotiations, but the mediator's suggestions have no binding force and the
parties are free to accept or reject or modify them.

Article 34 and 35 of the Charter also provide for collective mediation on the part of United
Nations whenever there is a situation which might lead to international friction.

Examples:

Soviet Union President Kosygin mediated in the Dispute between India and Pakistan
which resulted in the conclusion of Tashkant agreement in 1966.

(See..... Distinction between Good Offices and Mediation )

(4) International Commission of Inquiry:

An inquiry is also a method which is often resorted to for the settlement of disputes.
It may be noted that it is not an independent method and is often applied along-with other
methods. The main objective of the inquiry is to make an investigation of the relevant matters
so as to establish facts which may hold the ultimate solution of the problem. For example,
often inquiry Commissions are appointed in relation to the settlement of border disputes. The
commission clarifies the facts after making inquiry into the relevant facts.
The first convention of the Hague Conference of 1899 suggested the establishment
of the international commission of inquiry for the international disputes involving
neither honor nor vital interests and relating to points of fact with a view to elucidating the
facts and dispelling ignorance that ultimately leads to hostilities. The conference provided
that such Commission might be constituted by special agreement between the parties, the
members of such Commissions being appointed in accordance with the scheme laid down in
Article 32 of the Convention for the appointment of the members of Arbitral Tribunals.

Examples :
 The North Sea Incident Inquiry, the Tavignano, Camouna Gaulois Inquiry and the
Tubantia are instances of such Commissions of Enquiry

(5) Conciliation:

When a dispute is referred to a Commission of persons to investigate the basis of

dispute and to make a report containing proposals for settlement after finding out the facts,
this process is known as conciliation. Such proposals have no binding force on the parties to
the dispute.
According to Hudson, "Conciliation is a process of formulating proposals of settlement
after an investigation of the facts and an effort to Reconcile opposing contentions, the parties
to the dispute being left free to accept or reject the proposals formulated."

The term implies various methods adopted by the third party to amicably settle the
dispute between two or more States. It involves the formulation of proposals for settlement
after an investigation of the facts. The dispute may be referred to a Commission for the favor
of proposals to the parties for the settlement.

(6) Arbitration :

Arbitration is the most important method of settling International difference (disputes)

by amicable means. According to Lawrence, " Its value resides in its judicial or quasi-judicial
character. It signifies the reference of the dispute to an individual, or small groups of
individuals, to whom the parties state their respective cases, and whose decision they are in
honour bound to obey, and in fact have always obeyed, the only instance to the contrary
being due to the fact that the arbitrator had exceeded his powers... When a dispute is
submitted to arbitration, the matter takes on the semblance of a trial before a Court ". States
are however under no obligation to submit their dispute to arbitration unless they have bound
themselves beforehand by a Treaty. But once they have referred the matter to arbitration, they
disregard to the award means a breach of promise and the award is final, unless it is vitiated
by fraud, collusion and the like, or the arbitrator, as pointed out above, has exceeded his
powers.

Examples:

The settlement of the dispute by arbitration in Alabama of Claims between the United
States and Great Britain went a long way in emphasizing the importance of arbitration as a
means of settlement of the dispute.

(7) Machinery of the United Nations Organization -

According to Article 2 para, 3 of the United Nations General Assembly and the
Security Council have been empowered to discharge certain functions in this regard.
 i) General Assembly: General assembly may make a recommendation after the
discussion to the disputant parties under Article 14 of The United Nations Charter. Thus the
assembly has a general power for the peaceful settlement of the dispute. The general
assembly has been insisting from time to time, to the disputant parties to settle their disputes
peacefully.

ii) Security Council: Under Article 24 para 1 of the United Nations Charter, maintenance
of International Peace and Security is the responsibility of Security Council. Charter provides
various modes by which the council settles the dispute which is likely to endanger
international peace and security. Security Council can take the following Action to settle
disputes.

(a) Investigation of the Disputes

(b) recommendation for appropriate procedure or methods of adjustment

(c) recommendation for the terms of the settlement

Judicial Settlement
Judicial settlement is the process of solving a dispute by the ‘international tribunal’ in
accordance with the rules set by International Law. Here it is important to understand the
expression ‘international tribunal.’ A tribunal acquires an international status because of its
jurisdiction. At the present day, the International Court of Justice, although not the only
tribunal but it is indeed the most important tribunal around the globe. There are ad hoc
tribunals and mixed commissions also. It is important to note that the International Tribunal
is different from the Municipal Tribunal. As the name suggests, International Tribunal applies
International Law and similarly Municipal Laws are applied by Municipal Tribunal. To what
extent can International Laws be applied by the Municipal tribunal depends entirely on the
relationship between the fields of law. Arbitration and settlement of disputes by International
Law have become two very important modes of settlement of disputes today.

Arbitration
Arbitration is the process of using the help, advice and recommendation of a third party
called arbitrator to settle disputes. The International Law Commission defines it as ‘a
procedure for the settlement of disputes between states by a binding award on the basis of law
and as a result of a voluntarily accepted undertaking’. Owing to its tendency to blend civil
law procedure and common law procedure, International arbitration is sometimes also
referred to as a hybrid form of international dispute resolution. The International Court of
Justice in the case of Qatar v. Bahrain, stated that the word arbitration for the purpose of
international law, usually refers to ‘the settlement of disputes between states by judges of
their own choice’.
An agreement was concluded between India and Pakistan to refer the Kutch dispute to an
arbitral tribunal. Consent of the parties is also obtained before a dispute comes into existence.
There are four main characteristics of arbitration:

A tribunal is constructed to hear a particular case only and its composition is also majorly
determined by the parties to the dispute.
An arbitral tribunal does not determine its own jurisdiction but has to decide the dispute as
submitted by the parties.
It is required to make its award with reference to the rules adopted for that purpose or by
rules which are otherwise binding.
The parties are known to have control over the procedure to be followed.
The best-known rules of arbitration include those of the International Chamber of Commerce
(“ICC”), the London Court of International Arbitration (“LCIA”), the International Centre for
Dispute Resolution of the American Arbitration Association (“ICDR”), and the rules of the
Singapore International Arbitration Centre (“SIAC”) and the Hong Kong International
Arbitration Centre (“HKIAC”). Although the award in the Kutch case was vehemently
criticised on the ground that it has political overtones, it was accepted by India.

International Court of Justice

The headquarters of the International Court of Justice is situated in Hague, Netherlands. It
was founded on 26th June, 1945 San Francisco. Originally the purpose of Article 34, para 1
was to exclude individuals from bringing claims against States before the Permanent Court of
Justice. However a proposal was made in 1929 to the Committee of jurists that Article 34
must be amended. However, presently although they still do not have access to the Court in
contentious cases they can seek advisory opinion.

The Permanent Court of International Justice is known to be the predecessor of the ICJ.
Which means before the creation of the International Court of Justice, disputes of the parties
were to be settled by the Permanent Court of International Justice. Its jurisdiction depends
entirely on the willingness of the parties involved. This along with arbitration is commonly
known as the judicial way of settling a dispute. Consent of the parties is a prerequisite for the
cases to be heard in the ICJ. While the judges of the court are appointed by the General
Assembly and the Security Council of the United Nations, the arbitrators are appointed by the
parties themselves. There are three ways by which the International Court of Justice resolves
the cases are that brought before it:

Parties can settle their dispute by themselves and cases can be withdrawn by the state or the
court can give the verdict.
International Court of Justice uses International Laws are it’s guiding light.
Writing by experts is also referred to.
ICJ’s primary function is known to be resolving disputes between sovereign states. Only
States can be parties to the dispute that is brought before it. The International Court of Justice
has recently decided the Kulbhushan Jadav case. India and Pakistan were the parties to the
dispute in this case. Jadhav was a retired Indian Navy Officer and was sentenced to death by
the Pakistani Military Court. The charges that were pressed against him were of terrorism and
espionage. In a major win for India, after a 4 year long battle from being arrested on 3rd
March, 2016, he finally sought relief after the suspension orders of his hanging were
delivered by ICJ in 2019.

B) Compulsive / Coercive means of settlement of International disputes

The Compulsive or Coercive means for the settlement of the dispute are non-peaceful
methods. Such methods involve a pressure or a force on a State to Settle dispute. However,
the use of compulsive/ coercive measures does not mean the use of armed forces in all the
cases. Following are some of those measures.

(1) Complaints :

Before proceeding to discuss compulsive means, it will be desirable to advert to

another amicable means of settling disputes employed in course of hostilities by commanders
of Forces, who often lodge complaints with each other in respect of acts of illegitimate
warfare committed by members of their forces. Such acts may either be abuses of the flag or
truce, violations of the Geneva Convention or the Like. Such complaints are sent to the
enemy under the protection of the flag of truce, and it becomes the duty of the enemy to
investigate such complaints and punish the offenders if the complaints be justified.

(2) Retorsion

The word retorsion means retaliation. It is base, to the certain extent, on the principle of
tit for tat. But the affected State can take only those means or measures as retorsion which are
otherwise permitted under International Law. For example, in retorsion diplomatic relations
may be ended. privileges of diplomatic agents may be withdrawn and economic facilities may
be stopped.

The purpose of Retorsion is to take retaliation but those actions cannot legitimately be
taken which are likely to endanger international peace and security. Such actions if taken
shall be illegal

(3) Reprisals:
 The term reprisal is a wide one and covers all coercive measures adopted by a State for
the purpose of obtaining redress. It is different from retorsion in this respect that it may
consist acts which are otherwise illegal but are validated under particular circumstances (i.e
in view of a prior illegal act by the other State); whereas in the case of restoration there can
be no legal objection to the retaliatory measures as they are only unfriendly acts within the
competence of the aggrieved State.
Lawrence defines reprisals as the mode of putting stress upon an offering state
which are of a violent nature, though they fall short of actual war. He divides reprisals into
positive, negative, special and general.
It is generally believed that the right of reprisal can be validly used only when the
other State has committed an International crime or violation any rule of International Law.
Moreover, the Reprisal will be justified only when its object is to settle the International
disputes. otherwise, it (Reprisal) will be treated illegal. so it can say that -

a) Reprisals are illegal unless they are based on a previous act contrary to
International Law.

b) There must be certain proportion between the offense and reprisal,

c) Reprisal can be justified only when the force is used for necessary.

(4) Other sub divisions of reprisals

Two important subdivision of Reprisals are Hostile Embargo and Pacific Blockade.

(a) Hostile Embargo :

Hostile embargo means the provisional seizure or detention of the merchant's ships or
property of the offending State in the ports of the State that seeks redress.

(b) Pacific Blockade :

Specific blockade consists of the temporary suspension of the commerce of an

offending or recalcitrant State by the closing of access to its coats, or some particular part of
its coats, but without recourse to other hostile measures, save in so far as may be necessary to
enforce the restriction.

(See... Short Note on... Specific Blockade )

(7) Intervention :

It is another compulsive means of settling disputes between States short of war.

According to Professor Oppenheim, it is the dictatorial interference by a State in the affairs of
another State for the purpose of maintaining or altering the actual condition of things.
Profesor Winfield has Classified intervention in three categories :

1. Internal Intervention
2. External Intervention
3. Punitive Intervention

(8) War

When a dispute between a State is not settled even by coercive/ compulsive mean, they
may resort to war. War is an ultimate means of Settling International Disputes. By resorting a
war a State seek to impose their will on each other.

UNIT 2 THE PERMANENT COURT OF ARBITRATION

What is Permanent Court of Arbitration (PCA)

The Permanent Court of Arbitration (PCA) is an international institution that
conducts or facilitates the resolution of disputes through arbitration,
mediation, conciliation, and other means of dispute resolution between
states, state organisations, and investors. In order to carry out this
facilitation, PCA provides certain services, such as the appointment of
arbitrators, providing a procedure for hearings, providing a team to look after
the needs of the proceedings per hearing, and ensuring an unbiased manner
for conducting arbitration. In exchange for PCA’s services, the disputing
parties may also agree to abide by the PCA procedural rules.

Origin of Permanent Court of Arbitration (PCA)

First Peace Conference, 1899

In the year 1899, the First Peace Conference was convened in The Hague,
Netherlands, at the initiative of the then ruler, Czar Nicolas II of Russia. The
conference had been held with the object of “seeking the most objective
means of ensuring to all peoples the benefits of a real and lasting peace and,
above all, of limiting the progressive development of existing armaments.” In
other words, the First Peace Conference was convened in order to find a
rather real and lasting method of maintaining peace between the nations of
the world, with a special focus on resolving disputes through the mechanism
of arbitration. The said conference led to the passing of The Hague
Convention for the Pacific Settlement of International Disputes (PSID), 1899,
containing various provisions for maintaining general peace between the
signatory countries. One of the most important outcomes of this Convention
was the establishment of the Permanent Court of Arbitration (PCA). The PCA
was established in 1900, and it started functioning in 1902. It was situated at
the Peace Palace in the Netherlands.

Shortly after the First Peace Conference, 1899, was the Second Peace
Conference held in 1907, in order to revise and re-adopt the Convention for
the Pacific Settlement of International Disputes, 1907. Through the
Convention of 1907, the countries of Central and South America were also
invited to become contracting parties. Both the 1899 and the 1907
conventions became the founding conventions of the Permanent Court of
Arbitration. The states that wish to become members of the PCA have to sign
and ratify any of these conventions, either the 1899 one or the 1907 one.

Agenda behind the formation of PCA

The Permanent Court of Arbitration (PCA) was introduced with the objective
of providing an immediate recourse to arbitration and thereby facilitating
international disputes between the signatory countries, i.e., inter-
governmental organisations, where diplomatic talks failed. For this purpose,
the PSID also formulated certain rules, laying down the procedure to be
followed while resolving disputes through arbitration. The summary of this
agenda was also provided under PSID 1899.

The most distinguishing feature of PCA was that it was established as a

mechanism different from the traditional courts. PCA did not force its
jurisdiction upon the contracting parties and kept it rather flexible for parties
to choose PCA as a neutral third party administrator or facilitator. Unlike the
courts in different countries, where disputes had to be referred to in case of
domestic disputes, in case of international disputes, between two countries
as well as private parties of two countries, the PCA was established as an
unbiased platform with its independent set of rules and arbitrators that could
ultimately amicably resolve the disputes. The PCA was not supposed to have
a permanent structure where its panel of arbitrators could be stationed, but
instead it made it flexible for the parties to give nominations and mutually
appoint the arbitrators from the panel maintained by the PCA. It, however,
provides for an office at the Peace Palace in The Hague, the Netherlands.

Constitution of Permanent Court of Arbitration (PCA)

The Permanent Court of Arbitration comprises a three-part structure

consisting of the Administrative Council, Members of the Court, and the
International Bureau.
Administrative Council

The Administrative Council of the PCA consists of the diplomatic

representatives of the contracting parties. These diplomats are accredited to
the Netherlands. The Council is presided over by the Minister of Foreign
Affairs of the Netherlands.

The main work of the Administrative Council is to help in making and shaping
all the policies of PCA from time to time. Another very important function of
the Administrative Council is that it takes care of the financial budgeting and
expenditures on behalf of the PCA. Additionally, when a request is made for
administering a case through PCA, the request has to be approved by the
Administrative Council. The Administrative Council is also responsible for the
appointment of a Secretary General, who then heads the International
Bureau, the third wing of the PCA. It is the task of the Council to make
annual reports of the workings of PCA.

Members of the Court

The Members of the Court formed that wing of the Permanent Court of
Arbitration, which contains the panel of arbitrators that preside over disputes
referred to arbitration at PCA. These arbitrators are selected from every
contracting state of the PCA. Each contracting country is required to
nominate up to four persons in this panel. The members of the panel are
appointed for a period of six years, subject to renewal by PCA. These
panellists form the potential arbitrators, from whom the disputing parties
then get to nominate and appoint their arbitrators.

International Bureau

The International Bureau assists the parties in selecting the arbitrators. It

acts as the ‘appointing authority’ of PCA. This department is the actual
driving force of PCA and consists of a team of well-qualified and experienced
legal and administrative staff, headed by a Secretary General. The staff of
the bureau belong to various nationalities. The Secretary General is
appointed for a fixed period of 5 years by the Administrative Council of the
PCA and essentially holds legal, managerial, and diplomatic experience.

The main objective of the International Bureau is to administer and facilitate

the disputes referred to the PCA and assist the arbitral tribunal in handling
disputes by providing a list of arbitrators to appoint arbitrators. In addition,
the Bureau also acts as a medium of communication between the parties and
the tribunal and ensures safe custody of the documents in the dispute. It
provides all sorts of administrative, logistical, technical, hospitality, and
linguistic support and asserts the conduct of arbitration proceedings before
the tribunal in a smooth manner.
The Bureau was originally assigned to provide all such services for
arbitrations conducted within the Netherlands; however, eventually it
branched out to aid contracting parties in PCA arbitration held even outside
the Netherlands.

All questions and queries related to the PCA and the conduct of dispute
resolution under the PCA are answered by the International Bureau of the
PCA.

Famous cases

The Pious Fund of the Californias (United States v. Mexico) (1902)

Facts of the case

In the late 1600s, a charity by the name of ‘The Pious Fund’ was established
in California to promote the interests of the California Catholics in the region.
At that point of time, California was a part of Mexico, which was a Spanish
colony. In 1842, after the independence of Mexico from Spain, the Fund
passed on to the treasury of the Mexican Republic, and Mexico decided to sell
the assets of the Fund and agreed to pay 6% of the revenue generated from
the sale of the Fund’s properties to the California Catholic missions. However,
nothing was paid.

Around 1846, a war broke out between the United States of America and
Mexico, which concluded with a peace treaty by the name of the Guadalupe
Hidalgo Treaty (1848). The upper portion of California was transferred to the
USA, and the lower portion remained with Mexico. Under this Treaty, it was
decided that all the previously arisen claims by Mexico would be discharged.
The new California government began investigating the Pious Fund. On
approaching Mexico, they were refused payments. Thus, in 1868, a
commission was set up to decide on the payment of annuities from the Pious
Fund. It was the claim of the USA that, being a beneficiary of the Pious Fund,
California was entitled to half of 21 years (right till 1868) of the promised 6%
payments. Mexico, on the other hand, contended that California had no right
to claim the 6% payment, and, in any case, all claims against Mexico were
discharged, thanks to the Guadalupe Hidalgo Treaty. The Commission,
however, awarded in favour of California and directed Mexico to make the
6% payments until 1868.

Soon thereafter, the USA initiated another claim against Mexico for the 6%
payments to be made for the period after 1868. Mexico refused this claim,
and the dispute was referred to the Permanent Court of Arbitration. Thus, in
1902, by virtue of a Treaty of Washington between the USA and Mexico, the
dispute was referred to the Permanent Court of Arbitration at the Peace
Palace, The Hague.
Issues involved

Whether the USA was entitled to the annual interest of the Pious Fund,
accrued right from the date of the Guadalupe Hidalgo Treaty (1868) by
Mexico.

Judgement

Four arbitrators, appointed by the PCA, presided over the arbitration

proceedings. In the light of an earlier arbitral award passed in 1875 and
amended in 1876, the principle of res judicata was applied. However, for the
period after 1868, all the arbitrators unanimously decided in favour of the
USA and against Mexico. As a result, Mexico was ordered to pay the United
States of America a sum of Mexican $1,4 million, along with a sum of
Mexican $43,050.99 as future payments. Thus, the claims were settled once
and for all.

Role of PCA: Since PCA was established in 1899 and this case was referred to
in 1902, it was the first dispute to be referred to the PCA. PCA administered
the entire case, along with acting as the appointing authority.

United States v Netherlands (1928) – Island of Palmas (or Miangas) Case

Facts of the case

This case was an inter-state arbitration initiated by the United States of

America against the Netherlands, which claimed its sovereign rights over the
Island of Palmas.

Palmas was an island located between the islands of Mindanao in the

Philippines and Nanusa in the Netherlands; however, it bordered the
boundaries of the Philippines. The island of the Philippines was a Spanish
colony until 1898. By the Treaty of Paris, on 10th December, 1898, Spain
ceded the sovereignty of Palmas to the USA. However, in 1907, an American
General, by the name of Leonard Wood visited the Island of Palmas and
discovered that the Netherlands also claimed its sovereign right over the
Island of Palmas. In order to clear the sovereignty over the Island of Palmas,
America and the Netherlands entered into an agreement in 1925 to refer the
disputes to arbitration before the Permanent Court of Arbitration.
Issue involved

Whether the Island of Palmas belonged to the territory of the USA, by virtue
of the treaty of accession between the USA and Spain, or to the Netherlands,
which claimed its continuous sovereign right over it?

Judgement

While delivering its judgement, the Ld. Judge observed that it was true that
the Island of Palmas belonged to Spain. It was also true that, through the
Treaty of Paris, Spain had ceded its right over Palmas to the USA and also
informed about the same to the Netherlands. At that point, no objection or
claim to the Palmas was raised by the Netherlands. Thus, the USA had an
ipso jure territorial jurisdiction over the palmas and not merely an ‘inchoate
jurisdiction’, meaning a right that was established on paper but yet to be
completed through actually taking possession of the land.

It was, however, also observed that by exercising continuity of rights, there

was a presumption of sovereignty over the Palmas in favour of the
Netherlands. It was further observed that the native states and islands of
that area belonged to the East India Company, which were then given to the
Netherlands around the 1700s, whereby the Netherlands exercised suzerain
(sovereign) powers over these islands, which included the Island of Palmas.
So technically, the Islands of Palmas belonged to the Netherlands, much
before they could belong to Spain and the USA. Thus, a distinction was made
between the creation of rights and the existence of rights over the Palmas.

Therefore, even though the USA had acquired sovereign rights over the
Palmas, the actual display of possession over the islands was showcased by
the Netherlands, and no evidence was produced to show any display of
sovereign rights by Spain or the USA over the Palmas ever. During the time
of the arbitration, the Dutch had substantially developed the island of
Palmas.

Considering these arguments, it was concluded that, due to continuous and

peaceful authority of sovereignty shown by the Netherlands over the Palmas,
the Island of Palmas (or Miangas) formed a part of Netherlands territory, in
its entirety.

Role of PCA: In this case, the PCA acted as the administrative institution.
Under the administration of PCA, a Swiss jurist, Max Huber, came to be
appointed as the sole arbitrator, who then passed the award. The procedural
rules followed were the 1907 Convention for the Pacific Settlement of
International Disputes (PSID).

Murphy Exploration & Production Company – International vs. Republic of

Ecuador (2017)

Facts of the case

This case was an investor-state arbitration initiated by an American based

company against the Republic of Ecuador in violation of the USA- Ecuador
Bilateral Investment Treaty (BIT).

In 1993, a treaty was entered into between the United States of America and
the Republic of Ecuador concerning the Encouragement and Reciprocal
Protection of Investment. On the basis of this, Murphy Exploration &
Production Company – International, an American registered company,
established its Ecuador subsidiary by the name of Murphy Ecuador Oil
Company Ltd. (“Murphy Ecuador”). Murphy Ecuador was a part of a
“consortium” of foreign investors that entered into an agreement with the
Republic of Ecuador under “the Participation Contract”. As per this
participation contract, the consortium was entitled to receive a share of the
production of oil in Ecuador, and the calculation was to be done on the basis
of the volume of the production of oil in the country and without any regard
to the oil prices. However, when the oil prices in Ecuador spiked, the
government enacted new legislation, by the name of “Law 42”, which
provided that the Ecuador government would participate in the consortium’s
profits received from the sale of crude oil if the market value of the oil
exceeded a certain price. Initially, the Ecuador government’s participation
was set at 50%, but later on, the government raised the level to 99%.
Ecuador gave the justification that the legislation was passed due to the
unexpected rise in oil prices, and keeping in mind the larger public interest.
Murphy then raised a grievance that Law 42 was unilateral and unlawful, and
it violated the BIT between the two countries. After passing this legislation,
the government gave an option to the Consortium investors to either accept
it, or negotiate it with the government or take a portion for their investment,
and leave. Murphy, initially, tried to negotiate with the government, along
with the other investors, but the terms were not acceptable to Murphy, who
then ultimately ended up selling its interest in the consortium altogether.

Thereafter, Murphy initiated a claim against Ecuador for breach of BIT, loss
of profit that it could have received otherwise, and for interests. When the
arbitration was unsuccessful, the second time Murphy initiated arbitration
under the UNCITRAL Rules, and the administrative body was the PCA.

Issues involved

Whether the foreign investors in the consortium had a legitimate expectation

that the terms of the Participation Contract would not be changed against the
investors?

Whether Law 42, when increased to 99%, breached Murphy’s legitimate

expectations and the USA-Ecuador BIT?

Judgement

For the first issue, it was held that the enactment of Law 42 did not breach
the FET standard of the Treaty, and despite the enactment of Law 42, the
basic structure of the agreement remained in place. However, the Tribunal,
for the second issue, held that while the 55% participation of Ecuador was
not a breach, but when the 50% increased to 99%, it definitely did breach
the legitimate expectations of the investors, including that of Murphy.
Ecuador’s enactment was considered as the government’s coercive conduct
in negotiations, and it was further held that pursuant to such rise, the basic
terms of the Participation Contract changed and the legitimate expectation of
Murphy that it would be treated fairly in a business-like manner as a
contractual business partner was also breached by Ecuador. As a result, the
Tribunal directed Ecuador to pay compensation for damages to Murphy,
along with pre-award interest, post-award interest, and costs of arbitration.
Role of PCA: In this case, PCA played the role of only an administrative
institution, while the arbitration proceedings were conducted as per the
UNCITRAL Arbitration Rules.

India and Permanent Court of Arbitration (PCA)

India ratified the 1899 Hague Convention in 1950. Since then, India has been
a contracting state and member of the PCA having the liberty to refer
disputes to PCA for arbitration. From the time of its ratification, there have
been a few cases wherein India has been either the claimant or the
respondent. Some of these prominent cases are as follows:

Case laws

Indus Waters Treaty Arbitration (2013)

This was a PCA-led arbitration between the Republic of India and the Islamic
Republic of Pakistan.

Facts of the case

In 1960, the Indus Water Treaty (IWT) was signed between the Republic of
India and the Islamic Republic of Pakistan over the Indus rivers. The Treaty
laid down the rights and obligations of the two states with respect to the use
of the Indus system of rivers, since the river crossed through both states and
was used for purposes of domestic use, non-consumptive use, agricultural
use, and the generation of hydro-electric power by both states. For this
purpose, the eastern side of the rivers was allotted to India, which included
the rivers Beas, Sutlej and Ravi, whereas the western side, which included
the rivers Indus, Chenab, and Jhelum was allotted to Pakistan.

India had two hydroelectric power projects: one was the Kishanganga project
on the tributary of the Jhelum river, and the other was the Ratle project on
the Chenab river. In order to go on with the development of these power
projects, India proposed to modify the terms of the IWT, since that was
allowed under the Treaty. However, Pakistan did not agree to this. The
Treaty also provided that in case of disputes, the same shall be placed before
highly-qualified engineers and to a court of arbitration or to a Court of
Arbitration (CoA). Accordingly, in 2016, disputes were raised by Pakistan and
referred to the Permanent Court of Arbitration by initiating a request for
arbitration.

Issues involved

Whether PCA was competent to consider and determine the disputes referred
to by Pakistan?

Judgement

Pakistan’s claim mainly concerned the interpretation and application of the

IWT to certain design elements of the two hydroelectric projects. It was the
contention of Pakistan that India’s plan was not in line with the IWT. On the
other hand, India raised an objection to the jurisdiction of PCA and argued
that PCA was not the competent court to decide on the disputes between
India and Pakistan under the IWT, and instead the disputes should be
decided by the neutral experts, as provided in the IWT. According to India,
Pakistan’s reference to the PCA was absolutely unilateral.

The PCA rejected India’s claims and held that it is competent to decide on
disputes referred to by Pakistan under the request for arbitration. It further
ruled that this decision on jurisdiction shall be binding on both parties
without any appeal.

Note: The final decision on the dispute is still pending.

Enrica Lexie Case (2020)

This was a PCA-led arbitration between the Republic of India and the
Republic of Italy wherein the PCA was used to resolve a dispute between
India and Italy over the killing of two Indian fishermen by Italian marines.
Facts of the case

On 15 February, 2012, about 20.5 nautical miles from the coast of India and
in the Exclusive Economic Zone (EEZ) of India, an Indian vessel named ‘St.
Antony’, was returning from a fishing expedition. The two Indian fishermen
onboard were shot and killed while the vessel was in international waters.
The captain of the Indian vessel claimed that when their vessel was returning
from a fishing expedition in the Laccadive Sea, an Italian vessel by the name
of ‘Enrica Lexie’ began firing at St. Antony, without any provocation, which
led to the deaths of the two Indian fishermen on board. Enrica Lexie was an
oil tanker flying the Italian flag.

Shortly after the incident, the Indian navy intercepted Enrica Lexie and
detained the two Italian marines at the Kochi port. Despite being detained for
years, no charges were brought against them by the Indian government, and
ultimately the two marines were released and sent back to Italy. A dispute
was raised by the Italian government on the ground that detention without
charges was a serious breach of the human rights of the Italian marines.

The dispute was referred to the High Court of Kerala, then the Supreme
Court of India. The Italian Government referred the dispute to the
International Tribunal for the Law of the Sea (ITLOS) in 2015, and thereafter
the dispute was then referred to the Permanent Court of Arbitration by
invoking Article 287 (Annex VII, appointing authority) of the UNCLOS.

Issues involved

Whether the Indian courts had jurisdiction to try the two Italian marines in
their court?

Judgement

The Supreme Court of India found that Kerala had no jurisdiction to hear the
dispute, as the incident occurred beyond 12 nautical miles from the Indian
coast, which constituted international waters, and therefore a special federal
court would be the right court for trying the case. The ITLOS gave a neutral
decision ruling that both India and Italy should refrain from initiating any
judicial or administrative measures against the Italian marines.
The PCA finally ruled in favour of the Italian marines and held that the Italian
marines were entitled to immunity and that India did not have any right to
exercise criminal jurisdiction over the Italian marines in the incident.
Accordingly, the PCA ordered the Indian Government to pay compensation to
the captain of St. Antony and the other crew members for the loss of life,
physical harm, material damage to the property, and moral harm

UNIT 3 THE INTERNATIONAL COURT OF JUSTICE