Enabling Private Ordering - the University of Minnesota Law School

78 MINNESOTA JOURNAL OF INT’L LAW [Vol. 18:1
interest. It presented a balanced approach, but also required the
host State to pay compensation for certain interferences. The
Tribunal explained that the good faith execution of contracts:
must not be equated with the principle pacta sunt servanda often
invoked by claimants in international arbitrations. To do so would
suggest that sovereign States are bound by contracts with private
parties exactly as they are bound by treaties with other sovereign
States. This would be completely devoid of any foundation in law or
equity and would go much further than any State has ever permitted
in its own domestic law. In no system of law are private interests
permitted to prevail over duly established public interest, making
impossible actions required for the public good. Rather private parties
who contract with a government are only entitled to fair compensation
when measures of public policy are implemented at the expense of
their contract rights. 214
Quite similarly, the European Court of Human Rights
recognized the specific prerogatives of the State in its
contractual relations with private individuals. In a case
concerning the unilateral termination of a construction contract
between a private contractor and Greece’s former military
government, the Court explained:
The Court does not doubt that it was necessary for the democratic
Greek State to terminate a contract which it considered to be
prejudicial to its economic interests. Indeed according to the case-law
of international courts and of arbitration tribunals any State has a
sovereign power to amend or even terminate a contract concluded with
private individuals, provided it pays compensation. This both reflects
recognition that the superior interests of the State take precedence
over contractual obligations and takes account of the need to preserve
a fair balance in a contractual relationship. 215
International courts and tribunals have therefore accepted
that under general international law the host State is entitled to
interfere with investor-State contracts, if this serves the host
State’s public interest. 216 This entitlement is, however, regularly
214. Amoco Int’l Fin. Corp. v. Iran, 15 Iran-U.S. Cl. Trib. Rep. 189, 242–243
(1987).
215. Stran Greek Refineries and Stratis Andreadis v. Greece, 19 Eur. H.R. Rep.
293, 328–29 (1994) (citing Shufeldt (U.S. v. Guat.), 2 R.I.A.A. 1079, 1095).
215. Similarly, international law scholarship accepts this prerogative of the
State under customary international law. IGNAZ SEIDL-HOHENVELDERN,
INVESTITIONEN IN ENTWICKLUNGSLÄNDERN UND DAS VÖLKERRECHT 39–40 (1963); see
also RUDOLF L. BINDSCHEDLER, VERSTAATLICHUNGSMAßNAHMEN UND
ENTSCHÄDIGUNGSPFLICHT NACH VÖLKERRECHT 39–40 (1950); FRICK, supra note 205,
at 52 (“dem besonders eng auszulegenden Prinzip der Opfergrenze, des
Selbsterhaltungsrechts des einzelnen Staates”); ALFRED VERDROSS, VÖLKERRECHT
412 et seq. (5th ed. 1964); A. F. M. Maniruzzaman, State Contracts with Aliens: The