Denial of justice (political risk)
A state's wrong committed through its courts: no access to a judge, extreme delay, a plainly arbitrary decision. It is argued before investment arbitration.
Jackson, Mississippi, 1995: a jury ordered Canadian funeral home group Loewen to pay about $500 million to a local competitor, after a trial in which opposing counsel played without restraint on the defendant's foreign nationality. Loewen brought a claim under NAFTA, before a tribunal administered by ICSID. The 2003 award in Loewen v. United States acknowledged the trial's serious flaws, then dismissed the claim, in part because Loewen had not exhausted reasonable local remedies before settling. That is the lesson of the case: denial of justice is judged on the judicial system as a whole, appeals included. In international investment law, a state answers for its courts when they refuse access to a judge, drag on without reason or issue a plainly arbitrary decision, one no good-faith court could have reached. The grievance is argued under the fair and equitable treatment standard of bilateral investment treaties. For a political risk underwriter, denial of justice comes in two ways. First as a condition: under breach of contract cover against a state, the insured usually has to obtain an arbitral award. Denial of justice (a state that blocks the proceedings) sometimes allows payment without one, after a waiting period set in the policy. Then as a downstream loss: a state's failure to pay an award is often covered, provided the award has been obtained first. One qualification: most policies do not name denial of justice as a stand-alone peril. Not to be confused with immunity from execution, which shields state assets once the award is rendered.
Textbook case: a foreign port concession holder has an arbitration clause in its contract with the state. After the concession is terminated, the state goes to its own courts, which stay the arbitration and leave the case without a hearing for four years. The breach of contract policy provides that if no award is rendered within three years, the state's obstruction counts as a loss. The insured files for $80 million of net investment value, and the insurer is subrogated to its rights against the state.
- ICSID, The Loewen Group, Inc. and Raymond L. Loewen v. United States, ARB(AF)/98/3, award of 26 June 2003
denial of justice, judicial denial of justice, denial of justice claim, international denial of justice
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