How Can a State Protect Its Nationals Abroad When Their Rights Are Violated by a Foreign State?

When individuals or corporations venture abroad, they operate under the laws and jurisdiction of the host state. However, what happens when their rights under international law are violated by that foreign state, and local avenues for justice prove inadequate? In such circumstances, the national's home state may step in to protect their interests on the international plane through a mechanism known as diplomatic protection. This article explores the nature of diplomatic protection, the stringent conditions that must be met for its exercise, and its evolving role in contemporary international law.

The Nature of Diplomatic Protection: A State's Right

Diplomatic protection is a well-established concept in customary international law. It refers to the invocation by a State, through diplomatic action or other means of peaceful settlement, of the responsibility of another State for an injury caused by an internationally wrongful act of that other State to a natural or legal person that is a national of the former State with a view to implementing such responsibility. This definition, largely reflected in Article 1 of the International Law Commission's (ILC) 2006 Draft Articles on Diplomatic Protection, encapsulates its core function.

Historically, the prevailing view, famously articulated by the Permanent Court of International Justice (PCIJ) in the Mavrommatis Palestine Concessions case (Judgment of August 30, 1924), is that in exercising diplomatic protection, "the State is in reality asserting its own rights – its right to ensure, in the person of its subjects, respect for the rules of international law." This classic doctrine means:

1. It is the State's Right, Not the Individual's: The right to exercise diplomatic protection belongs to the state. While the injury is suffered by the national, the claim on the international level is that of the state.
2. State Discretion: Consequently, the state has complete discretion in deciding whether or not to exercise diplomatic protection. It can refuse to take up a case, abandon it after having taken it up, or settle it on terms that the injured national might find unsatisfactory, without any legal recourse for the national under international law. A state might make this decision based on broader foreign policy considerations or the merits of the case.
3. Damages Belong to the State: Any compensation obtained through diplomatic protection technically belongs to the state, although states often pass on such compensation to the injured national.

While this traditional view remains the formal legal position, there is a growing acknowledgment of the individual's interest at the heart of diplomatic protection. Modern human rights law and the increasing focus on individual remedies in international law are leading to a re-evaluation, with some suggesting that diplomatic protection also serves as a vital, albeit subsidiary, means of redressing individual rights violations when other avenues are insufficient. The scope of injuries covered by diplomatic protection has also expanded to implicitly include violations of internationally guaranteed human rights of nationals.

It is also important to distinguish diplomatic protection from direct remedies available to investors under International Investment Agreements (IIAs), such as Investor-State Dispute Settlement (ISDS), which typically provide more direct and often more potent avenues for redress for foreign investors.

Conditions for the Exercise of Diplomatic Protection

A state cannot exercise diplomatic protection arbitrarily. Customary international law, largely codified in the ILC's Draft Articles, imposes two main conditions that must be satisfied:

1. The nationality of the claim.
2. The exhaustion of local remedies.

A. Nationality of Claims: The Link Between the Individual and the State

The primary condition for diplomatic protection is that the injured person or entity must be a national of the state seeking to exercise protection.

1. Natural Persons (Individuals):
For an individual, nationality is the legal bond between a person and a state.

• Continuous Nationality: The individual must have been a national of the claimant state at the time of the injury and must generally remain a national continuously until at least the date of the official presentation of the claim. Some also argue for continuity up to the date of the judgment or award. This rule, affirmed in cases like the Panevezys-Saldutiskis Railway Case (Estonia v. Lithuania) (Judgment of February 28, 1939), aims to prevent individuals from "nationality shopping" to find a state willing to espouse their claim after the injury has occurred. There are limited exceptions, such as when nationality changes involuntarily.
• Dual or Multiple Nationality:
  • Against a Third State: If an individual holds the nationality of two or more states, any of these states may exercise diplomatic protection against a third state. The old "effective nationality" or "genuine link" principle, famously discussed in the Nottebohm Case (Liechtenstein v. Guatemala) (Second Phase, Judgment of April 6, 1955) in the context of the admissibility of a claim, is generally not considered a condition for the exercise of diplomatic protection by a state of nationality against a third state according to the ILC Draft Articles (Article 6). The Nottebohm "genuine link" test was context-specific and its broader applicability as a general condition for diplomatic protection for individuals is debatable.
  • Against a State of Nationality: A state generally cannot exercise diplomatic protection on behalf of a national against another state of which that person is also a national. However, the ILC Draft Articles suggest an exception where the nationality of the claimant state is "predominant," both at the date of injury and at the date of the official presentation of the claim (Article 7). This remains a developing area.

2. Corporations and Other Legal Persons:
The nationality of corporations for the purpose of diplomatic protection has been a complex issue, significantly clarified by the ICJ in the Case Concerning the Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain) (Second Phase, Judgment of February 5, 1970).

• General Rule (State of Incorporation): The ICJ in Barcelona Traction held that the right of diplomatic protection for a company belongs to the state under whose laws it is incorporated and in whose territory it has its registered office. This is the generally accepted rule and is reflected in Article 9 of the ILC Draft Articles. The idea of a "genuine link" for corporations, similar to that discussed in Nottebohm for individuals, has not found general acceptance as a condition for determining corporate nationality for diplomatic protection.
• Protection of Shareholders: A fundamental principle is that an injury to a company does not equate to an injury to its shareholders, as the company has a separate legal personality. Therefore, the state of nationality of the shareholders generally cannot exercise diplomatic protection in respect of an injury suffered by the company. The Barcelona Traction judgment was very clear on this point.
  However, there are limited exceptions where shareholders may be protected by their national state:
  1. Direct Injury to Shareholder Rights: If the act complained of is aimed at the direct rights of the shareholders as such (e.g., the right to dividends, the right to attend and vote at general meetings), their state of nationality may intervene.
  2. Defunct Company: If the company has ceased to exist in its state of incorporation for reasons unrelated to the injury, the shareholders may be protected by their state(s) of nationality (ILC Draft Articles, Article 11(a)).
  3. Company's National State Unable or Unwilling: More controversially, the ILC Draft Articles (Article 11(b)) also suggest that shareholders may be protected by their state of nationality if the company was incorporated in the respondent state, and that state's wrongful act caused the injury, and local remedies have been exhausted. This is a nuanced exception seeking to prevent a state from injuring foreign shareholders through a company incorporated under its own laws and then blocking redress.

B. Exhaustion of Local Remedies

Before a state can bring an international claim on behalf of its national, the national must have first exhausted all available and effective legal remedies in the state alleged to have committed the internationally wrongful act. This rule was affirmed by the ICJ in cases like the Interhandel Case (Switzerland v. United States of America) (Preliminary Objections, Judgment of March 21, 1959).

Rationale:

• Respect for Sovereignty: It gives the respondent state an opportunity to redress the wrong within its own legal system, thus avoiding premature international litigation and respecting its sovereignty.
• Efficiency: Local courts are often better placed to determine the facts and apply their own law.
• Filtering Claims: It helps to filter out unmeritorious claims and ensures that international tribunals are not overburdened.

Scope of "Local Remedies":
The term "local remedies" refers to all available judicial and administrative remedies of a legal nature that are open to the injured person before the competent organs of the respondent state. This primarily means recourse to courts and administrative tribunals but can also include administrative review processes if they offer a possibility of effective redress.

Effectiveness and Availability:
The injured national is only required to exhaust remedies that are both available (legally and practically accessible) and effective (offering a reasonable prospect of success or redress). Remedies that are obviously futile, unduly delayed, or offer no genuine prospect of remedying the wrong need not be exhausted. For example, if past jurisprudence clearly indicates that the local courts will not provide a remedy for the type of injury alleged, or if the judicial system is under the control of the executive alleged to have committed the wrong, the local remedies may be deemed ineffective. The PCIJ considered aspects of this in the Finnish Shipowners Arbitration (Finland v. Great Britain) (1934).

Exceptions to the Rule:
The requirement to exhaust local remedies is not absolute. Exceptions include:

• Futility: If local remedies are clearly and demonstrably futile or offer no reasonable prospect of success. The burden of proving futility generally lies with the claimant state.
• Undue Delay: If the local remedies are subject to undue delay in their administration.
• Waiver by the Respondent State: The respondent state may expressly or implicitly waive the requirement.
• Direct Injury to the Claimant State: If the internationally wrongful act causes a direct injury to the rights of the claimant state itself (as distinct from an injury to its national), the exhaustion of local remedies rule does not apply to the state-to-state claim.
• No Relevant Connection: If there is no relevant voluntary link between the injured individual and the respondent state (e.g., injury caused by transboundary harm where the individual was never in the respondent state's territory), the applicability of the rule is debatable.

The ILC Draft Articles (Article 15) outline these exceptions.

The Calvo Clause: An Attempt to Limit Diplomatic Protection

In the late 19th and early 20th centuries, Latin American states, concerned about frequent and sometimes forceful diplomatic interventions by powerful capital-exporting states on behalf of their nationals (often corporations with concessions), sought to limit such interventions. One method was the "Calvo Clause," named after the Argentine jurist Carlos Calvo.

A Calvo Clause is a provision inserted into a contract between a foreign national (or company) and a host state, whereby the foreigner agrees to waive diplomatic protection from their home state and to submit all disputes arising from the contract exclusively to the jurisdiction of the host state's courts.

The general international law position on the Calvo Clause is that while an individual can agree to limit their own procedural options and to exhaust local remedies, they cannot, through a private contract, waive or extinguish the distinct right of their state of nationality to exercise diplomatic protection. This is because diplomatic protection is the right of the state, not the individual. This was affirmed in the North American Dredging Company of Texas Case (USA v. Mexico) (General Claims Commission, March 31, 1926), where the Commission held that the Calvo Clause was effective in requiring the exhaustion of local remedies but could not prevent the U.S. from espousing a claim if a denial of justice occurred at the local level. Thus, Calvo Clauses are generally interpreted as reinforcing the exhaustion of local remedies rule rather than as a complete bar to diplomatic protection.

Diplomatic Protection in the Modern Landscape: Interplay with Other Mechanisms

While diplomatic protection remains a relevant tool, its practical significance has been affected by the development of other international mechanisms for protecting individuals and corporate interests:

• Consular Assistance: This is distinct from diplomatic protection. Consular officials provide various forms of assistance to their nationals abroad (e.g., in case of arrest, accident, or death), but this does not usually involve taking up an international claim against the host state for a breach of international law.
• International Human Rights Mechanisms: Individuals whose human rights have been violated can sometimes directly petition international or regional human rights bodies (e.g., UN treaty bodies, regional human rights courts), bypassing the need for their state to espouse their claim.
• Investor-State Dispute Settlement (ISDS): The proliferation of bilateral investment treaties (BITs) and free trade agreements (FTAs) with investment chapters has provided foreign investors with direct access to international arbitration against host states for breaches of investment protection standards. ISDS is generally a more direct, specialized, and often preferred route for investors compared to the discretionary and often politically charged process of diplomatic protection. Indeed, many BITs contain "fork-in-the-road" clauses requiring an investor to choose between pursuing local remedies/ISDS or seeking diplomatic protection, but not both simultaneously or sequentially for the same claim.

The ILC's Contribution: Clarification and Codification

The International Law Commission's work culminating in the 2006 Draft Articles on Diplomatic Protection has made a significant contribution to clarifying and codifying the customary international law rules in this area. While not a treaty, the Draft Articles and their commentaries are highly influential and frequently cited by tribunals and states. They address many of the complexities discussed, including nationality of natural and legal persons, continuous nationality, exhaustion of local remedies, and the protection of shareholders.

Conclusion

Diplomatic protection serves as a residual but important mechanism for states to safeguard the rights of their nationals abroad when those rights are violated by another state in breach of international law and local remedies have been exhausted. While traditionally viewed as a discretionary right of the state, its exercise is increasingly seen through the lens of protecting fundamental individual and corporate interests, including human rights. The stringent conditions of nationality and exhaustion of local remedies, along with the rise of direct international remedies for individuals and investors, shape its contemporary relevance. For businesses operating in the complex global environment, understanding the principles, possibilities, and limitations of diplomatic protection remains a key aspect of managing international legal risk.