When Reinforced Self-Judgment Meets Judicial Review: Insights from Seda v. Colombia

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On 27 June 2024, the tribunal in the investment dispute Seda v Colombia delivered a long-awaited award. The decision, hailed by Colombia as ‘historic’, represents the first publicly available award where an investment tribunal accepted the ‘self-judging’ character of a provision within an investment agreement. Additionally, it is the first public award to dismiss an entire claim based on the invocation of a security exception (though see the partially successful invocation in Devas v India and the unpublished Tenoch v India).

After briefly outlining the facts, this post analyses the tribunal’s detailed engagement with the issue of self-judgment. It argues that a lasting significance of the award will lie in the fact that the tribunal conducted any review at all, despite the provision being framed as what I describe as a ‘reinforced self-judgment’ clause.

The Facts: Luxury Real Estate and the Colombian Fight against Organized Crime

At its heart, the dispute in Seda v Colombia was about the seizure of a luxury real estate property by Colombian authorities because of the historic connection of the property to organized crime. In the region near Medellín, drug cartels are known to have laundered money through property acquisitions in the past and remain active in such practices. To combat organized crime, Colombian law allows courts to forfeit assets that are suspected to have been used for money laundering.

Mr Seda, a U.S. national, invested in several Colombian real estate projects from 2008 onwards. One of the investments, involving funds from several other juridical and natural persons, was the Meritage project, intended as a luxury hotel and residential complex. The investors’ company acquired the land for Meritage from a local firm through several agreements between 2012 and 2015. Prior to the acquisition, the investors had conducted due diligence, including a title study, and obtained a certificate from the Attorney General’s Office, to ensure that the property was not involved in any criminal cases or investigations.

In 2016, the Colombian Asset Forfeiture Unit seized the Meritage property, citing irregular property transfers linked to a crime syndicate prior to its acquisition by the investors. In addition to still ongoing and unsuccessful attempts to challenge the seizure in Colombian courts, the claimants initiated arbitration under the 2006 Colombia-U.S. Trade Promotion Agreement (TPA) in 2019 seeking over $255 million in compensation for the sequestering of the property. Colombia’s measures, according to the claimants, violated the guarantees protecting against unlawful expropriation, and guaranteeing fair and equitable treatment, national treatment and full protection and security.

The ‘Reinforced’ Self-Judgment Essential Security Interests Exception

The decisive issue in the proceedings was the interpretation of the essential security interests exception in Article 22.2.(b) of the TPA. It reads:

Nothing in this Agreement shall be construed: to preclude a Party from applying measures that it considers necessary for […] the protection of its own essential security interests.

The clause is a classic example of what is commonly referred to as an explicit ‘self-judging’ or ‘self-judgment’ provision. The self-judgment element of the clause arises from the phrase ‘it considers necessary’ which places the invoking state in a position of particular authority when relying on the exception.

A series of decisions by international judicial bodies, including the landmark cases by the International Court of Justice in Djibouti v France, and a World Trade Organization Panel in Russia – Traffic in Transit, have established in recent years that the explicit self-judgment elements of a provision are still subject to good faith review by a competent judicial body. It is a standard of review denoting that a reviewing body shall not assess the invocation of a self-judgment norm as to its ‘correctness’ but only determine whether or not the invocation occurred in ‘good faith’.

However, Article 22.2 of the TPA extends beyond a classic self-judgment provision. A footnote to the provision specifies that

“[f]or greater certainty, if a Party invokes Article 22.2 in an arbitral proceeding […] the tribunal or panel hearing the matter shall find that the exception applies.”

This addition makes the exception part of a newer generation of self-judgment provisions that especially the U.S. and India have increasingly incorporated into some of their investment agreements (see section 4.4 here). These ‘reinforced self-judgment’ provisions go beyond classic self-judgment by further emphasising, or reinforcing, the state’s authority to decide on the application of the clause.

To defend the sequestration, Colombia invoked the reinforced self-judgment exception in Article 22.2(b) of the TPA. This was, to my knowledge, the first time that a reinforced self-judgment provision was invoked.

‘No doubt about the non-justiciability’?

Colombia argued that this invocation of the essential security interests exception meant that the tribunal ‘lacks jurisdiction’ and that the tribunal was ‘bound to apply the exception automatically’ (Respondent’s Rejoinder, paras 29, 27). According to Colombia, the treaty language left ‘no doubt about the non-justiciability’ (Respondent’s Rejoinder, para 35). Importantly, this also implied that the tribunal was not supposed to conduct a good faith review. In summary, although Colombia conflated non-justiciability and the jurisdiction of the tribunal in its submissions, it considered its unilateral decision as the only decisive factor for the application of the essential security interests exception.

The U.S. participated in the hearings as a non-disputing party and, in line with its long-standings views, supported Colombia’s arguments, drawing on the travaux préparatoires.

The claimants, on the other hand, argued that the tribunal was required to at least conduct a good faith review of Colombia’s invocation of Article 22.2(b) of the TPA, irrespective of the reinforced self-judgment language (Award, para 278). Unsurprisingly, they also contended that Colombia had failed to adhere to this good faith standard.

The Implications of the Footnote

The Tribunal engaged with the reinforced self-judgment provision in-depth. Regarding the ‘classic’ self-judgment language in the provision (‘it considers necessary’), the tribunal built on previous jurisprudence and held that the self-judgment character of a norm must be explicit. Given the use of the phrase ‘it considers necessary’, the tribunal found the language ‘leaving no doubt that this provision is self-judging’ (Award, para 638). As a result, a ‘margin of deference’ should be afforded (Award, para 640).

However, the tribunal gave little weight to footnote 2 to Article 22.2 of the TPA. It reasoned that, since it was required to make a ‘finding’ and the provision fell ‘short of the express language exempting the measure … from any review’ the matter was ‘not non-justiciable’ (Award, paras 659, 723-725). Instead, the provision left ‘an important matter open: what is the standard of review’ (Award, para 661).

For the tribunal, the decisive criterion was whether the measure taken was ‘plausible’ under the circumstances. To evaluate the nexus between the state’s measures and the security interest, the tribunal found that it was tasked to carry out a ‘“light-touch” good faith review – not too restrictive as to infringe on the explicit self-judging language’ (Award, para 655).

Applying this standard, the tribunal found that Colombia’s seizing of the property was plausibly related to its fight against organized crime, and there was no indication that the measure had been taken in bad faith (Award, paras 792-793). Consequently, the claim was dismissed.

The Latest Chapter in an Ongoing Struggle

Seda v Colombia has broken new ground by reviewing a reinforced self-judgment provision, marking the latest chapter in the ongoing debate over the meaning, implications, and limits of ‘self-judgment’ that has spanned decades.

The significance of the decision lies not so much in its outcome, but rather in the fact that the tribunal conducted a review of the provision at all, despite a footnote seemingly intended to preclude such scrutiny. States such as the U.S. or India, keen on establishing self-judgment as a tool to enshrine unfettered discretion vis-à-vis international judicial bodies, may view the decision as shifting the goalposts. While good faith review of ‘classic’ self-judgment provisions has become widely accepted, reinforced self-judgment clauses were long considered ‘entirely unreviewable’.

Following Seda v Colombia, states can no longer be certain that a clarification requiring a tribunal ‘to find that the exception applies’ upon a state’s invocation will actually result in the tribunal accepting that invocation.

Doctrinally, the central element of Seda v Colombia that critics may highlight is that the interpretation of the tribunal, however detailed, effectively renders the reinforcing footnote—stipulating that the tribunal ‘shall find that the exception applies’—meaningless. It is difficult to envision how the tribunal’s decision would have differed had the footnote not existed. In line with the well-established jurisprudence by the ICJ and WTO panels, as well as obiter dicta from investment tribunals, it likely would have conducted a good faith review.

One can easily sympathize with the tribunal. For many lawyers—especially those tasked with deciding disputes—it is challenging to accept that the state parties could seek to retain the unilateral right to avoid such review through what the claimants called a ‘get-out-of-jail-free card’. Nonetheless, states are neither obliged to submit to judicial dispute settlement, nor is the Kompetenz-Kompetenz of tribunals a matter of jus cogens.

At the same time, relegating international judicial bodies to bystanders that are merely authorised to rubber-stamp state decisions appears anachronistic. It remains to be seen if states adamant to safeguard space for unfettered discretion will adopt even stronger language in self-judgment clauses in the future. It appears unlikely that Seda v Colombia will be the final word in the ongoing struggle over self-judgment.

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