THE RESURGENCE OF THE ‘OWN ACTS’ DOCTRINE: HISTORICAL ROOTS AND MODERN APPLICATIONS IN INVESTMENT ARBITRATION

The guest post* is authored by Sobiya Ameen, International Arbitration Lawyer and assisted by Hunar, 4th year BA LLB student at RGNUL.

1. INTRODUCTION

After the Ecuador Award II was issued, the Own Acts Doctrine—a legal principle protecting parties from contradictory behavior of subjects in bad faith —has once again gained the limelight as a discussion of Industry trends. Though the doctrine holds a long history and is firmly established in legal theory, its recent renown calls for a careful analysis of different tangents of its implications and application. Thus this renewed debate opens up space for reflection on the nuances of the doctrine as it is conceptualized in different legal systems in relation to the evaluation of its changing function and influence in investment arbitration.

2. HISTORICAL ORIGIN AND DEVELOPMENT OF DOCTRINE

The bedrock principle of the "Own Acts" Doctrine is that one cannot claim rights contradictory to his own previous acts understood objectively, according to law and good customs and in good faith or exercised subsequently contrary to law, good customs, or good faith. The concept was propounded by Marcelo J. Lopez Mesa and Carlos Rogel Vide, and claimed that certain rights must be restricted from being exercised, to ensure trust from past actions is maintained.[1] The same was later endorsed by Roman law which is known to be the origin source of the Doctrine. This mere concept, of restriction of exercising rights in contrary to one’s prior actions, took the shape of doctrine of ‘own acts’ especially when the Ulpianus made remarks with an example of pre-existing then practices. In Digest 1 fragment 25[2] where it was talked about a father's inability to challenge his emancipated daughter's status after her death, especially when such the status Sui Iuris was granted by the father.

But the 17th century upset the legal discourse and so a new theory pertaining to the doctrine emerged, which placed an emphasis upon the doctrine vis-à-vis good faith and sociability. This theory argued that trust between parties should be reinforced through contracts grounded in principles of natural reason. By the late 19th century, these ideas had gained prominence, albeit with exceptions allowing justified deviations from past conduct. This shift introduced a new interpretation of equitable principles in contracts, focusing on balancing competing interests through mutual agreement and conciliation. This diversion brought about a new interpretation of the equitable principle of contracts towards minimizing divergence into mutual weighing of interests and conciliation. The Doctrine of 'Own Acts' has hence evolved from its Roman origins in modern legal systems to become a more comprehensive idea of equity and trust.

3. JURISDICTIONAL APPLICABILITY IN VARIOUS LEGAL SYSTEMS

The Doctrine of Own Acts, which is based on good faith, protects reliance interests by prohibiting parties from acting in a way that is inconsistent with their previous behavior. Under German law[3] it is associated with Verwirkung, a principle that bars claims after a period of inaction. In contrast to Argentine[4] and Peruvian law[5] which emphasizes fairness and avoiding unjust outcomes from conflicting activities, especially in contracts. Spanish and Colombian law place more emphasis on protecting legitimate expectations generated by prior behavior.[6]

In Common Law jurisdictions, the doctrine can be seen in disguise of the prohibition against contradicting one's own behavior, known as venire contra factum proprium or estoppel. This concept originates from Roman law and protects commitment to loyalty by preventing actions that conflict with prior intentions. Conversely, in Civil law jurisdictions, the doctrine is based on objective good faith, requiring parties to honor expectations created by their prior conduct.

Things do not stand any different in India owing to the complex state of common-civil law jurisdictional status. The popularity of the doctrine is generally visible in the doctrine of Estoppel, defined in Section 115 of the Indian Evidence Act, of 1872, which states that If someone has convinced someone else to act on something they believe to be true by their act, omission, or declaration, they cannot later or their representative deny the truth of that later in the lawsuit or proceedings. To put it simply, estoppel means that one cannot refute, dispute, or declare something that was said in court to be untrue, which looks no different from the ethos of the Doctrine of ‘own acts’

4. DOCTRINE’S RELEVANCE IN INVESTMENT ARBITRATION

The recent case of Ecuador TLC v. Ecuador II has brought fresh perspectives to the doctrine, emphasizing its unique civil law origins, though the doctrine has long been recognized as a fundamental principle in international law as well as Investment Arbitration. The tribunal in this case not only employed the doctrine as a distinct concept but also showcased its relevance in contract-based investment disputes. This has sparked broader discussions about the scope of doctrine’s application and its implication in the field of Investment Arbitration.

●      Applicability: The following succinctly describes the prerequisites[7] for applying the doctrine of own acts, which also assists in establishing its applicability in Investment Arbitration :1) An existing legal circumstance.2) The subject's fully effective and legally relevant behavior raises reasonable expectations of future actions from the other party.3) A statement that disputes the behavior attributed to the Subject.

Fulfillment of the aforementioned prerequisites makes it easier to restrict parties from the unwanted and unfair assertion of rights in treaty breaches by creating legitimate expectations. Legitimate expectations tend to arise when investors have reasonable expectations regarding the stability and fairness of the regulatory environment. The ‘own acts’ doctrine reinforces these expectations by asserting that states cannot invoke conflicting measures to justify adverse actions against investors. When states alter regulations or violate agreements, investors may argue that such actions undermine their legitimate expectations, thus forming the basis for claims of state responsibility in investment arbitration.

●      Implications: After a prolonged series of scholarly work, the doctrine paved a new way for the tribunals to decide over the liability of the state in matters of exercising rights. Most of the time, the go-to approach had been that of the doctrine such as in the matter of Carlos Sastre and Others v. Mexico, where the Mexican government unlawfully seized beachfront properties, violating NAFTA obligations. The tribunal invoked the ‘own acts’ doctrine, highlighting the creation of legitimate expectations through both state and investor conduct. It was inferred that the country of Mexico cannot, at this point in time, reject its past commitments completely without consequences as it operated through the principle of good faith in international investment law and decided in favor of the investors. Similarly, in Nova Scotia Power Incorporated v. Venezuela, the tribunal recognized the 'own acts' doctrine, emphasising that a party cannot act to the detriment of its prior commitments. The tribunal observed that such actions by Venezuela undermined the legitimate expectations of investors.

A series of several judgments by the tribunal added to the shelf of the vast meaning of the doctrine, which narrows down with the relevant legal context of the case. As a result of which, now in the matter of Investment arbitration specifically, the doctrine creates a spectrum to analyse the limitation of exercising the rights by the state.

●      Advancements: The advance among all is Ecuador TLC II ruling, where the doctrine is invoked straight from civil law traditions without specifically mentioning both estoppel principles and international law. By doing this, the tribunal created a unique standard based on the "circle of interest" approach (indication of the relevant legal context of the case), which was strongly influenced by Spanish jurist Luis Díez-Picazo's writings.

This brought a shift from the traditional views of international investment law, which frequently depended on basic principles of international law, common law estoppel, or even reasonable expectations under the fair and equitable treatment test. This method acknowledges "own acts" as a doctrinal tool, in contrast to previous cases that frequently regarded them as a component of estoppel. It is important to consider the own acts doctrine apart from estoppel because this doctrine commits states to their obligations without necessitating reliance by the investor or proving direct harm, as is the case with estoppel.

●      Criticism: Critics argue that the ‘own acts’ doctrine may undermine state sovereignty by imposing international obligations on states that conflict with their domestic policies. This can create tension between a state's right to regulate and the protections offered to foreign investors. Additionally, there are concerns regarding fairness, as the doctrine might favor investors over states in disputes, potentially leading to an imbalance in international investment law where states may appear excessively constrained in their regulatory freedoms.

5. CONCLUSION

In essence, the Own Acts Doctrine, which harks back to the Roman understanding of law, has evolved into a cornerstone of legal and equitable principles and is becoming much more relevant for investment arbitration. It forbids a party from acting inconsistently with its past behaviour and thereby fostering trust and upholding legitimate expectations. This notion is known by different names such as estoppel or verwirkung but contains a core idea recognized both in civil and common law jurisdictions. The doctrine has been rediscovered through the recent case of Ecuador TLC II, highlighting its flexibility and nuanced approach to conflicts in international investment law.

The doctrine's application in investment arbitration essentially seems to balance the legitimate expectations of investors with state sovereignty. It means to secure consistency in regulation while protecting the reliance interests of investors by narrowing state possibilities of contradicting their commitments. This is its very strength and what makes it vulnerable-thus it may inhibit state's latitude in regulation, therefore creating a disbalance within international investment law.

Recent developments in the doctrine also reflect a forward-looking approach to its interpretation and application of the doctrine. Therefore, as investment arbitration continues to develop and proliferate, the Own Acts Doctrine remains a cornerstone in juxtaposing contesting interests for purposes of equity and trust in international legal systems.

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ENDNOTES:

1. López Marcelo J López Mesa, 'The Doctrine of Own Acts: Essence and Requirements for Application' (2009) no 119 Vniversitas Journal of the Pontifical Javeriana University 189, 191 <http://www.redalyc.org/pdf/825/82515353014.pdf>accessed 2 January 2025.

2. Ulpian, 'Book V' in Corpus Juris Civilis: Digest, fragment 25.

3. Border, op cit, p. 41.

4. César Minoprio, ‘The Bill of Sale, the Abusive Exercise of the Right and the Prohibition of Going Against One's Own Acts’ Revista del Notariado no 742, 1248 (July–August 1975).

5. César Aníbal Fernández Fernández, ‘The Theory of Own Acts and Its Application in Peruvian Legislation’ Lumen Magazine of the Faculty of Law of the Sacred Heart Women's University no 51, <http://revistas.unife.edu.pe/index.php/lumen/article/view/571/486> accessed 2 January 2025.

6. Fernando Fueyo Laneri, cited in Marcelo J López Mesa, ‘The Doctrine of One's Own Acts’ [2009] Vniversitas Journal of the Pontifical Javeriana University no 119, 192.

7. César Aníbal Fernández Fernández, 'The Theory of Own Acts and its Application in Peruvian Legislation' [n.d.] Lumen Magazine of the Faculty of Law of the Sacred Heart Women's University no 51 <http://revistas.unife.edu.pe/index.php/lumen/article/view/571/486> accessed 2 January 2025.

   
   

*The views expressed by the author are personal and not linked to her affiliation.