P ROJECT R EPORT ON

S ETTLEMENT OF INTERNATIONAL
INVESTMENT DISPUTES

Submitted to:
Mr. Atif Khan
(Faculty Trade and Investment Law)

Submitted by:
Prashasti Janghel
Roll no. 97
Semester VII (B)

Hidayatullah National Law University, Raipur

Submitted on:10 th October, 2014

International Investment Law

Settlement of International Investment disputes

CONTENTS
A CKNOWLEDGEMENTS

II

A N I NTRODUCTION

III

R ESEARCH M ETHODOLOGY

IV

C HAPTER 1:I NTERNATIONALISATION

OF INVESTMENTS

C HAPTER 2:I NVESTOR S R IGHTS

C HAPTER 3: I NVESTOR S ATE

4-7

DISPUTE SETTLEMENT

C HAPTER 4: T HE H ISTORY

OF DISPUTE RESOLUTION METHODS

C HAPTER 5: T HE

D ISPUTE

VARIOUS

1-3

RESOLUTION FO RUMS

8-10
11-12
13-22

C ONCLUSION

23

B IBLIOGRAPHY

24

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ACKNOWLEDGEMENTS
I feel highly elated to work on the topic DISPUTE

SETTLEMENT IN INTERNATIONAL

INVESTMENT LAW The practical realization of this project has obligated the assistance
and help of many people. I express my deepest regard and gratitude to my teacher, Mr.
Atif Khan for his unstinted support. His consistent supervision, constant inspiration and
invaluable guidance have been of immense help in understanding and carrying out the
nuances of the project report.
My gratitude also goes out to the staff and administration of HNLU for the
infrastructure in the form of our library and IT Lab that was a source of great help for
the completion of this project.
Prashasti Janghel
Roll no. 97
(Semester VII)

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INTRODUCTION
Investor-State dispute resolution relates to the process of decision-making that transnational
corporations undergo when analyzing whether to invest their capital in a particular country.
The international community has created a variety of devices, such as the Washington
Convention for Settlement of Investment Disputes ("Washington Convention or the ICSID
Convention") and the International Centre for the Settlement of Investment Disputes
("ICSID"), that enable the developing countries to signal the rest that they are willing to
adopt a system that provides for protection of foreign direct Investment ("FDI") 1 These
signals transform into 'credible commitments' to treat foreign investors fairly

and

presumably increase the appeal of these countries to foreign investors.

The developing economies and their attitude towards the ICSID Convention and the ICSID
have been complex. During the first decades of ICSID's existence, most of the Association of
Southeast Asian Nations ("ASEAN") countries adopted it, but virtually all Latin American
countries avoided it, preferring to adopt a system of "internationalisation" of foreign
investment contracts, which was inherently weak. In the 1990's, developing countries started
to open up their economies and steps were taken in order to attract foreign capital.
Developing countries' contempt for FDI largely disappeared and a vast majority of the Latin
American countries became member States of the ICSID. Other developing countries like
Russia and China joined in the 1990's. India never joined the ICSID. Though all the BRIC
(Brazil, Russia, India and China) countries have entered into a lot of BITs for the promotion
of trade, there seems to be a variety in the attitude of these countries when it comes to dispute
resolution.
Conversely, the attitude of the developing countries towards ICSID in the recent past has
been bordering the negative. . This seems to be the case especially with Latin America.
This research project looks at the reasons developing economies entered into Bilateral
Investment Treaties ("BITs"), the settlement of disputes though investment arbitration, the
frustration of developing economies with arbitration and possible outcomes in the future for
the settlement of disputes.

Ignacio A. Vincentelli, The Uncertain Future of ICSID in Latin America, 16(3) LAW & BUS. REV. AM. 409
(2010).
2

Zachary Elkins, Andrew T. Guzman and Beth A. Simmons, Competing for Capital: The Diffusion of Bilateral
Investment Treaties, 1960-2000, 60(4) INTERNATIONAL ORGANIZATION 822 (2006).

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OBJECTIVES
The specific objectives of the study are as follows:
1) To understand the establishment of ICSID for settlement of disputes.
2) To look into the history of Investor state Dispute settlement.
3) To understand the various dispute resolution forums.
4) Analyse the treaties and dispute resolution mechanisms.

RESEARCH METHODOLOGY
This project report is based on analytical and descriptive Research Methodology. The
research problem has been provided by our faculty keeping in view the needs of the topic.
Secondary and Electronic resources have been largely used to gather information and data
about the topic.
Books and other reference as guided by Faculty have been primarily helpful in giving
this project a firm structure. Websites, dictionaries and articles have also been referred.

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C HAPTER 1: I NTERNATIONALISATION OF
I NVESTMENTS
The term "transnational law" was first used by the American jurist Phillip Jessup. He used
this term to refer to law which regulates actions or events that transcend state borders, but
which is not international law strictly speaking because it is not dealing with the relations of
one state or intergovernmental organisation with another. Transnational situations may
involve individuals, corporations, states, organisations of states, or other groups.3 According
to Jessup, both private and public international law were implicated in these situations, as
well as other rules that did not fit neatly into the categories of international or municipal law.
The internationalisation of foreign investment contracts was premised on an assumption of
inequality between developed and developing countries. It was assumed that developing
states did not have sophisticated legal systems that could deal with disputes arising out of
foreign investment contracts. Although not distant in time from awards such as Aramco
which gave primacy to the laws of the host state 4, the more recent Sapphire and Texaco
awards have used ingenious arguments to suggest that international law is automatically
applicable to foreign investment contracts.5
Today, virtually all states have indigenous laws on foreign

investment. The case for

reference to general principles of international law or other systems of law, based on the
justifications advanced in the early arbitrations, therefore no longer exists. 6 At least two
arguments may be advanced to suggest that reference to general principles of international
law has no place in modern law relating to the settlement of foreign

investment disputes: (i)

Aramco stated explicitly that the position in international law was that general principles of
international law would apply only if the laws of the host state could not deal with the issues
under consideration.7 If this was indeed the position in international law, then it could not
have been modified by a few subsequent arbitral awards, which are at best subsidiary sources
of international law. (ii) The continuous and consistent assertion of the principle of
3

W. Friedman. The Changing Structure of International Law 34 (New York: Columbia University Press, 1964.
Lord McNair, 'The General Principles of Law Recognised by Civilised Nations", 33 British Yearbook of
International Law 9 (1957).
5
See Judge Cavin in National Iranian Oil Company (NIOC) v. Sapphire International Petroleum Ltd. (Sapphire
Award), 16 June 1968, 35 ILR 136 (1968), and Professor Dupuy in Texaco Overseas Petroleum Co. v. Libyan
Arab Republic (Texaco Award)
6
American Independent Oil Company (AMINOIL) v. Kuwait (Aminoil Award), 24 March 1982, 21 ILM
(1982).
7
Supra note 4.
4

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permanent sovereignty over natural resources by developing countries in the 1960s and 70s
neutralizes the value of these arbitral awards and strengthens the earlier principle that laws of
the host state would apply to foreign

investment contracts (at least in so far as they relate to

natural resources).
It is interesting to note that when foreign investment disputes arose in developed countries,
the law of the host state was the only relevant law. Where the host state was a developing
country, its law was irrelevant. This differential treatment was sought to be justified on policy
considerations. It was argued that foreign investment would not flow into developing
countries unless such investment were given a higher standard of protection than was
available under the uncertain local law. Foreign

investment was considered unqualifiedly

beneficial to the host state and as a quid pro quo the host state would have to accord
international standards of protection to such

investment. 8 These unverified policy

prescriptions have become articles of faith and continue to be echod in the constitutive
documents of organisations dominated by developed countries, including instruments
establishing arbitral institutions. For instance, the preamble to the International Convention
on the Settlement of Investment Disputes (hereafter ICSID Convention) recognises the "role
of private investment in economic development". These ideological preferences couched in
legal terminology have a tremendous impact on the process of arbitration itself.
Developing states sought to counter the growing internationalisation of foreign investment
contracts with the ideology of the New International Economic Order and the assertion of
permanent sovereignty over natural resources. The latter was no more than a re-articulation of
the universally recognised principle of sovereignty. The very fact that something as selfevident as the sovereignty of states over the resources located within their borders had to be
articulated as a new principle of international law, attests to the strength of the forces of
internationalisation (or neo-colonialism as some saw it) that were sought to be overcome.9
However, these moves against internationalisation of the law governing foreign investment
were dismissed as contributing merely to lex ferenda in the Texaco award10. In this context, a
more liberal trend is evident in arbitrations such as Aminoil v. Kuwait11 where the fact that
there have been assaults on the notion of internationalisation was acknowledged.
8

M. Sornarajah. International Law on Foreign Investment, Cambridge University Press, 1994.

P. S. Songal, "Multinational Corporations and Developing Countries", New Horizons for International Law &
Developing Countries 417.
10
Supra note 8, at 112.
11
A. Redfern, 'The Arbitration between the Government of Kuwait and Aminoil", 55 British Yearbook of
International Law 65 (1984).
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Nevertheless, although these liberal trends seek to accommodate the interests of developing
states, they do not undermine significantly the notion that international law standards exist to
regulate foreign

investment transactions.

BRIEF OVERVIEW ON ICSID

The International Centre for the Settlement of Investment Disputes (hereafter ICSID) has
contributed substantially to the project of "internationalising" the foreign

investment

contract. The preamble to the ICSID Convention acknowledges that one of the motivations
for the establishment of the Centre was the understanding that in some instances
"international methods of settlement" might be appropriate in

investment disputes involving

state parties.
Clearly, ICSID is international in three senses. First, it was created by an international treaty.
Second, arbitration tribunals established under ICSID are independent of municipal legal
systems. Unlike domestic arbitration tribunals, ICSID tribunals are not subject to the law of
the place of arbitration; the arbitration proceedings are conducted in accordance with the
provisions of the Convention and the ICSID arbitration rules. The procedure for challenge
and annulment of ICSID awards is stipulated in the Convention and municipal laws play no
role in this regard.12 Third, the Convention permits ICSID tribunals to apply international law
in certain situations. The arbitral jurisprudence of ICSID tribunals has contributed towards
the trend of internationalisation of foreign investment contracts. Article 42 31 of the ICSID
Convention deals with applicable law. It recognises the principle of party autonomy in the
first subsection, thereby preserving the possibility of the internationalisation of the contract
by the express consent of the parties. By far the view that has received the most support in the
jurisprudence of ICSID tribunals is that international law has a larger role to play in that it
"corrects" any host state law that is inconsistent with the standards of international law. But
the lacunae still remains as there are no clear rules in international law to determine the
dispute resolution mechanism in cases of commercial contracts.

12

ICSID Convention Art. 5 & 54.

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CHAPTER 2: INVESTORS RIGHTS

Though Bilateral Investment Treaties are assumed to promote the interests of the foreign
investor, the underlying principles of such treaties emanate from sound principles entrenched
traditionally under international law. The right of equality and fair play are the basis from
which

investment treaties developed,13 in allowing not just the state parties to the treaties,

but the investors themselves to directly bring a claim before an international tribunal. Also, a
number of treaties are drafted to ensure that contracts concluded by the host state and a
foreign investor under the laws of the host state are also subject to the international
guarantees provided by the treaty, including the

dispute settlement mechanism under

Articles 25 and 26 of the ICSID Convention, which pose that states have to refrain from
requesting that local remedies be pursued. In turn, the investor's home state agrees not to
grant diplomatic protection. Because the guarantees contained in the treaty are placed outside
of the realm of diplomatic negotiations on the state-to-state level, the laws of the host state
are subject to international review at the will of a foreign investor. At the same time, the
classical stance of international law as inter-state law is modified in the field of foreign
investment by lifting individuals onto the international plane vis-'a-vis the host state 14 .
Further, under investment treaties, the host state's general consent and ratification of the
bilateral treaty entails a broad waiver of its immunity from suit, not only before an
international tribunal but also before a domestic court called upon to enforce an award. In
addition,

investment treaties authorize the enforcement of awards by investors under the

ICSID Convention or the New York Convention.

Further, investment treaties often obligate states in express terms to recognize and enforce an
award issued under the treaty, which allows an investor to seek enforcement in the courts of
any state party to the treaty itself. Most importantly, where an

investment treaty provides

for enforcement under the ICSID Convention, the Panama Convention or the New York
Convention, an investor can seek enforcement in the domestic courts of any state party to
these arbitration treaties. This method of enforcement, is exceptionally powerful as most
states have ratified at least one of these three treaties: for example, approximately 165 states
are party to either the New York Convention or the ICSID Convention Based on this
13

Dr. Stephan W. Schill for IOANA TUDOR. The Fair and Equitable Treatment Standard in the International
Law of Foreign Investment. Oxford: Oxford University Press, Pp. xxxii (2008)
14
Aishwarya Padmanabhan, Relationship Between FDI Inflows and Bilateral Investment Treaties/International
Investment Treaties in Developing Economies: An Empirical Analysis 22, (2011).

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Settlement of International Investment disputes

investment treaty awards are more widely enforceable than the rulings of any

court or tribunal, international or domestic that has the authority to resolve individual claims
in regulatory disputes. For instance, the few human rights treaties that allow an international
court or tribunal to hear individual claims do not authorize enforcement by domestic courts,
whereas judgments of the International Court of Justice are enforceable only by the UN
Security Council. In contrast, awards issued by

investment treaty tribunals are enforceable

in the courts of as many as 165 countries, which gives them coercive power and force that is
unrivalled in public law adjudication. Thus, as a system, the treaties greatly expand state
liability in public law by extending it to legislative and judicial acts, and by allowing
damages to be awarded in the absence of fault.
By opening the door to parallel claims and forum-shopping under so many treaties, states,
specially developing economies, have moved too far to their detriment in international
business. It seems they have executed a transformation of international obligations and
adjudication without adequate consideration of the consequences.
THE TWO APPROACHES AVAILABLE WITH AN INVESTOR IN SETTLING DISPUTES:
A significant analytical difference between the approaches described below is the number of
fora that are made available to an investor in the context of a given dispute. Treaties that
require investors to make a final and exclusive choice between dispute settlement
mechanisms arguably allow only one attempt to obtain satisfaction. By contrast, other
categories of treaties allow investors to bring their case to two dispute settlement
mechanisms.
1. Choice
Almost all treaties concluded in the past decade give investors an explicit choice
whether to use domestic remedies or international arbitration to present their claims.
Variation is observed as to whether that choice is final and exclusive. Choice final
and exclusive More than a third of the treaties that provide a choice between domestic
judicial review and international arbitration specify that a choice, once made by the
investor, is final and exclusive (so-called fork-in-the road provision). Under that
approach, an investor could not initiate international arbitration proceedings once it
has brought its case to domestic courts, and vice versa.15 In addition, many treaties

15

South Africa-Zimbabwe BIT (2009), Article 7(2) and 7(3).

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contain provisions that make only one of the two possible choices explicitly final
These provisions exist in two forms: the large majority denies access to international
arbitration once an investor has chosen to bring its case to domestic courts (but
remains silent as to an investors right to bring a claim to domestic courts once it has
started arbitration and a few provide that an investor waive its right to access domestic
courts prior to initiating international arbitration proceedings. 58 treaties provide an
exception to fork-in-the-road provisions by allowing investors to seek interim relief in
domestic courts of the host state. There are two type of provisions, one allowing the
investor to seek interim relief with domestic courts only before the arbitration
proceedings are initiated,16the other allowing the investor to seek interim relief at all
times, including after arbitration proceedings are initiated. 17 Choice not final or
exclusive Some treaties leave the choice between international arbitration and
domestic court proceedings reversible until a specified event occurs, often but not
always a decision by the initially chosen adjudication body. 18 A few treaties
explicitly allow the simultaneous pursuit of the claim in domestic courts and
international arbitration until this moment.19

2. Chronological sequence
Another way that certain treaties specify includes those where the investor first
presents their dispute to domestic courts before they may, under certain conditions,
bring it to international arbitration. This type of provision was a common feature of
international investment agreements during the 1970s and the 1980s; since then, it is very
much less used, and has not appeared in treaties concluded from 2004 onwards.

3. Subject matter
Further, there were treaties which specify the dispute resolution mechanism as in relation to
the subject-matter of the investors claim. Most often, these treaties restrict access to
international arbitration to claims concerning alleged breaches of specific treaty provisions
such as the amount of compensation for expropriation, provisions on compensation for losses,
or free transfers.20 China and, to a much lesser extent, some other countries have used this
approach in a significant number of their treaties.
16

Peru-Singapore FTA (2008), Article 10.17(5).

Japan-Brunei Darussalam EPA (2007), Article 67.11.
18
Austria-Mexico BIT (1998), Austria-Slovenia BIT (2001).
19
Germany-Madagascar BIT (2006) Article 11(2).
20
Australia-China BIT (1988).
17

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4. Miscellaneous criteria
A few treaties use combinations of the aforementioned approaches or use entirely different
criteria to determine the available fora for the settlement of investment disputes. The
Australia-Czech Republic BIT (1993) for instance requires the home state of the investor to
agree ad hoc to a proposed submission to international arbitration. The China-Albania BIT
(1993), under which access to international arbitration is available for disputes involving the
amount of compensation, allows both the investor and the host State to bring the matter to an
international arbitral tribunal; the investor but not the host State loses this right once it has
brought the claim to domestic courts. Some treaties contain asymmetric provisions that
subject investors from one State party to different rules than investors from the other State
party. France-Jamaica BIT (1993) requires the parties in dispute to agree on whether they
settle their dispute through domestic review or international arbitration; international
arbitration is the default mechanism should the parties not find an agreement.

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CHAPTER 3: INVESTOR STATE DISPUTE

SETTLEMENT
Investor-State dispute settlement mechanisms (ISDS) are an important component of most
International Investment Agreements (IIAs) and have significant influence on how disputes
between States and investors are resolved. This statistical survey of a large sample of 1,660
bilateral investment treaties (BITs) identifies the main parameters of ISDS regulation in
BITs; traces their emergence, frequency and dissemination over time; and highlights past and
recent country-specific treaty practice. The survey finds among other things that many
countries define the procedural framework thinly compared to advanced domestic procedural
frameworks, despite a broad trend toward greater regulation in treaties of parameters of
ISDS. Many treaties offer foreign investors a range of procedural choices, such as a choice
between arbitration fora.21
ISDS provisions are a major component of investment treaties -- they provide fora for
investors to bring disputes regarding the treatys substantive provisions. ISDS provisions list
the institutions to which investors may present claims for remedy under the treaty, in most
cases domestic judicial proceedings, or international arbitration. States have adopted very
different approaches when it comes to providing ISDS to investors. ISDS provisions are
frequently included in the treaty sample 96% of the treaties in the sample contain such
provisions, including almost all of the recently concluded treaties.22 Even some of the oldest
treaties in the sample, dating back to 1960, provide for basic ISDS mechanisms. Of low
frequency in the sample is a first category of treaties (mostly early treaties) that only provide
access to domestic courts, and only to bring claims arising under the expropriation clause.
The ISDS language is then contained in the expropriation clause itself.23 A second category
of treaties provides for ISDS through international arbitration exclusively, and does not
include any mention of domestic judicial review as a means to settle investment disputes.
Only a small number of treaties, all concluded in the 1990s, include that type of language.24
21

www.oecd.org/daf/internationalinvestment/investmentpolicy/foi.htm. Last accessed on 19th Sep. 2014.

Among the 1,660 bilateral treaties in the sample, only 4% do not mention any ISDS mechanism. Countries
that began their BIT programme early on have a large number of treaties that do not provide for ISDS. For
instance, 32% of Germanys treaties and around 28% of Switzerlands treaties do not provide for ISDS. Some
very recent treaties do not contain ISDS provisions either, for instance the Australia-United States FTA (2004)
and the Australia-New Zealand (ANCERTA Investment Protocol) (2011)
23
Korea-Bangladesh BIT (1986), Article 5.1.
24
Egypt-Netherlands BIT (1996), Article 9.1.
22

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Finally, a third category of treaties provides for both international arbitration and domestic
remedies. From 1970 onwards, full ISDS sections (or annexes) began to appear in the
treaties. These treaties featured two innovations: i) they provided recourse to international
arbitration as a dispute settlement mechanism, and ii) while ISDS was initially limited to
claims arising under the expropriation clause, those treaties provided ISDS for claims arising
under other substantive treaty provisions.25
Over time, ISDS through international arbitration has become a common feature of
investment treaties, only 108 treaties, or 6.5% of the sample, do not provide for international
arbitration. Moreover, the right to bring an investment-related claim to international
arbitration is now mainly provided in addition to the possibility of resort to domestic
proceedings. Domestic proceedings have since 1972 frequently been made available for
claims arising under all substantive treaty provisions not only, as in the early treaties, for
claims under the expropriation clause. Over 70% of recent treaties indeed explicitly mention
domestic judicial review as a dispute settlement mechanism in the ISDS clauses.26
Thus, the most often observed treaty practice is to provide a choice of forum to investors who
may bring their claims to international arbitration or domestic courts. International
investment agreements contain language to regulate that choice and set out rules to organize
the relationship between recourse to domestic courts and to international arbitration.

The conditions set to determine whether an investor may eventually bring its case to
international arbitration fall into three categories:
1. Some treaties allow an investor access to international arbitration if domestic courts
have failed to deliver a decision within a given period of time. Treaty language varies
as to whether a decision, or a final decision, or a decision on the merits by
domestic courts results in foreclosing the investors right to bring its claim to
arbitration.

For

instance,

some

treaties

concluded

by

Argentina

and

Belgium/Luxembourg, allow an investor to bring the claim to arbitration if the

domestic courts have not delivered a final decision within a specific period of time,
often 18 months.27
2. Other treaties limit the right of an investor to eventually bring its case to arbitration to
circumstances where the decision rendered by domestic courts fails to fully settle the
25

Belgium/Luxembourg-Indonesia BIT (1970), Morocco-Netherlands BIT (1971), France (France-Tunisia BIT

(1972).
26
www.oecd.org/daf/internationalinvestment/investmentpolicy/foi.htm last accessed on 1st Oct 2014.
27
Argentina-Netherlands BIT (1992) Article 10 (3).

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dispute.28
3. A third category of treaties allows recourse to international arbitration in case the
decision rendered by domestic courts is manifestly unjust or violates the provisions
of the [international investment] agreement.29

Dispute settlement has a central function in stabilizing the expectations of foreign investors
and enables them to counter opportunistic behavior by the host state, such as unreasonable
interferences with the investor's economic rights or even expropriations without
compensation. Recourse to a dispute settlement and enforcement mechanism empowers the
investor to effectively hold states liable for breaches of their promises in investment treaties
to not expropriate foreign investors without compensation, to treat them fairly and equitably,
to provide full protection and security, and so on. Conversely, from the host state's
perspective, the investor's right to initiate arbitration enables the host state to make credible
the commitments it made under its investment treaties.30 This, in turn, reduces the political
risk of foreign investment, lowers the risk premium connected to it, and therefore makes
investment projects more cost-efficient. This increased efficiency benefits not only investors,
but also the host state, as the products and services that a foreign investor offers become
cheaper. Certainly, the credibility of the host state's commitments does not solely rely on the
availability of dispute-settlement mechanisms. Reputation, community pressure, the moral
obligation to keep promises, or the host state's self-interest may also contribute to the host
state's adherence to its investment treaties. Reproachable conduct against one investor might
negatively impact the trust that other investors have in the political stability of the host state
and thus cause them to refrain from investing there. Equally, political pressure exercised by
other states might further incentivize host states to comply with promises they have made visa-vis foreign investors.

28

Argentina-Austria BIT (1993); Argentina-Italy BIT (1990); Austria-Philippines BIT (2002).

United Kingdom-Uruguay BIT (1991) Article 8 (2) (ii), Belgium/Luxembourg- Uruguay BIT (1991) Article
11(3).
30
Alan Schwartz and Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 Yale L J 541, 55662 (2003).
29

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CHAPTER 4: THE HISTORY OF DISPUTE

RESOLUTION METHODS
A major drawback in international investment law is, neither the courts of the host state nor
the courts of any third state are well-positioned to enforce the state's promises vis-A-vis
foreign investors, including those in investment treaties. The problem with most state courts
is that they are not-or at least they are not perceived to be-sufficiently neutral in resolving
disputes between foreign investors and host states. In many developing and transitioning
countries, independent courts that decide cases in accordance with pre-established rules of
law in a timely fashion are missing altogether. Corruption in the judiciary is a sad but daily
business in the courts of many countries. 31 Additionally, lengthy and inefficient court
proceedings dragging on over years, if not decades, remain too commonplace. Under such
circumstances, it is difficult to argue convincingly that dispute resolution in many host states'
courts constitutes a way for investors to make a recalcitrant host state comply with its
investment-treaty commitments.
Similarly, the courts of third states are not better placed to offer effective dispute settlement
between investors and host states. The judiciary outside the host state is often equally
reluctant to subject sovereign nations to full-fledged judicial scrutiny and control. Various
legal obstacles-including state immunity and doctrines of judicial restraint such as the act-ofstate doctrine-constitute significant limits to the subjection of host states to third-country
jurisdiction.32 The investor's options for the enforcement of host-state promises are not any
better under the framework established by customary international law. Here, investors are
denied standing to initiate proceedings in international courts and tribunals. Instead, only the
home state of an investor is able to espouse its claim and exercise diplomatic protection.33
Significant drawbacks, however, vitiate the effectiveness of diplomatic protection in making
host states comply with promises given to foreign investors. First, the investor has no right
vis--vis its government to a grant of diplomatic protection, and the latter no duty to accord it.
Instead, states remain free to decline diplomatic protection. 34 Second, the home state
exercises exclusive control over the rights of its nationals on the international level and hence
31

Banco National de Cuba v Sabbaino, 376 US 398, 421 (1964)

M. Sornarajah, The Pursuit of Nafionalized Property 253-301 (Martinus Nijhoff 1986)
33
Chittharanjan F. Amerasinghe, Diplomatic Protection,Oxford, 2008.
34
Barcelona Traction, L'ght and Power Company, Ltd (Belgium v Spain), 1970 ICJ 3, 4.
32

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is entitled to settle, waive, or modify them by agreement with the host state. In practice, this
has led to the settlement of international claims concerning the violation of the rights of
foreigners by lumpsum agreements.

35

Third, under customary international law the

entitlement to receive compensation for the violation of international law protecting foreign
nationals is vested not in the alien but in his or her home state. Compensation received
therefore need not be paid to the investor by the home state espousing the claim.36 Finally,
diplomatic protection and interstate dispute settlement are subject to the requirement that
local remedies first be exhausted. While this affords the host state an opportunity to redress a
violation of a foreign investor's rights, it also hardly affords efficient dispute settlement
between investors and host states if the host state's courts are not impartial and independent
enough in addressing that state's opportunistic behavior. The foregoing factors thus illustrate
the insufficiency of diplomatic protection as a procedural means for efficiently enforcing
host-state promises vis- -vis foreign investors and for enabling host states to make fully
credible commitments.

Defenses of the legitimacy of international investment law and investment dispute resolution
have not, however, kept pace with the enormous development of this field of international
law and the accompanying critical attention it has received. Indeed, investment treaties have
proliferated to an unprecedented degree, having surged from less than 400 in 1989 to well
over 2,500 bilateral, regional, and sectoral treaties today. This rise of international investment
law and its dispute settlement mechanisms does not, however, take place in a void. It is a
consequence of equally unprecedented increases in transborder investment flows, a necessary
concomitant of the increasing globalization that has taken place since the end of the Cold
War.' It is this change in the world's social and economic environment that has created the
need for legal institutions that structure and stabilize foreign investment activities and help to
regulate conflicts that unavoidably arise out of increases in investment cooperation. Equally
unavoidably, the rise of investment treaties and investment-treaty arbitration has attracted
critical attention from the users of the dispute settlement mechanism (that is, investors and
host states) as well as various interest groups that claim to represent "civil society" and the
"public interest."

35

Rudolf Dolzer and Christoph Schreuer, Principles of International Investment law, Oxford University
Press,2008 at 1013.
36
Chittharanjan F. Amerasinghe, Local Remedies in International L aw 200-03 , Cambridge 2d ed 2004.

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CHAPTER 5: THE VARIOUS DISPUTE RESOLUTION

FORUMS
This approach advocates for increasing resort to so-called alternative dispute resolution
(ADR) methods and dispute prevention policies (DPPs), both of which have formed part of
UNCTADs technical assistance and advisory services on IIAs. ADR can be either enshrined
in IIAs or implemented at the domestic level, without specific references in the IIA.
Compared to arbitration, non-binding ADR methods, such as conciliation and mediation,37
place less emphasis on legal rights and obligations. They involve a neutral third party whose
main objective is not the strict application of the law but finding a solution that would be
recognized as fair by the disputing parties. ADR methods can help to save time and money,
find a mutually acceptable solution, prevent escalation of the dispute and preserve a workable
relationship between the disputing parties. However, there is no guarantee that an ADR
procedure will lead to resolution of the dispute; an unsuccessful procedure would simply
increase the costs involved. Also, depending on the nature of a State act challenged by an
investor (e.g., a law of general application), ADR may not always be acceptable to the
government.
ADR could go hand in hand with the strengthening of dispute prevention and management
policies at the national level. Such policies aim to create effective channels of communication
and improve institutional arrangements between investors and respective agencies (for
example, investment aftercare policies) and between different ministries dealing with
investment-related issues. An investment ombudsman office, or a specifically assigned
agency that takes the lead should a conflict with an investor arise, can help resolve
investment disputes early on, as well as assess the prospects of, and, if necessary, prepare for
international arbitration.18
In terms of implementation, this approach is relatively straightforward, and much has already
been done by some countries. Importantly, given that most ADR and DPP efforts are
implemented at the national level, individual countries can proceed without the need for their
treaty partners to agree. However, ADR and DPPs do not solve key ISDS-related challenges.
The most they can do is to reduce the number of fully-fledged legal disputes, which would
37

UNCTAD, Investor-State Disputes: Prevention and Alternatives to Arbitration (United Nations, New York
and Geneva, 2010.

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render this reform path a complementary rather than standalone avenue for ISDS reform. In
many cases foreign investors have used ISDS claims to challenge measures adopted by States
in the public interest (for example, policies to promote social equity, foster environmental
protection or protect public health). Questions have been raised whether three individuals,
appointed on an ad hoc basis, can be seen by the public at large as having sufficient
legitimacy to assess the validity of States acts, particularly if the dispute involves sensitive
public policy issues. In addition, even though the transparency of the system has improved
since the early 2000s, 38 ISDS proceedings can still be kept fully confidential if both
disputing parties so wish even in cases where the dispute involves matters of public interest.
Arbitral decisions: problems of consistency and erroneous decisions. Those arbitral decisions
that have entered into the public domain have exposed recurring episodes of inconsistent
findings. These have included divergent legal interpretations of identical or similar treaty
provisions as well as differences in the assessment of the merits of cases involving the same
facts. Inconsistent interpretations have led to uncertainty about the meaning of key treaty
obligations and lack of predictability of how they will be applied in future cases. Erroneous
decisions are another concern: arbitrators decide important questions of law without a
possibility of effective review. Existing review mechanisms, namely the ICSID annulment
process or national-court review at the seat of arbitration (for non-ICSID cases), operate
within narrow jurisdictional limits. It is noteworthy that an ICSID annulment committee may
find itself unable to annul or correct an award, even after having identified manifest errors of
law.39 Furthermore, given that annulment committees like arbitral tribunals are created
on an ad hoc. basis for the purpose of a single dispute, they may also arrive (and have
arrived) at inconsistent conclusions, thus further undermining predictability of international
investment law.
Arbitrators: Concerns about party appointments and undue incentives Arbitrators
independence and impartiality.
An increasing number of challenges to arbitrators may indicate that disputing parties perceive
them as biased or predisposed. Particular concerns have arisen from a perceived tendency of
each disputing party to appoint individuals sympathetic to their case. Arbitrators interest in
being re-appointed in future cases and their frequent changing of hats (serving as
arbitrators in some cases and counsel in others) amplify these concerns. Cost- and time38

ICSID Arbitration Rules, 2006 Amendment.

CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the
ad hoc Committee on the application for annulment, 25 September 2007, paras. 97, 127, 136, 150, 157-159.
39

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intensity of arbitrations. Actual ISDS practice has put into doubt the oft-quoted notion that
arbitration represents a speedy and low-cost method of dispute resolution. On average, costs,
including legal fees (which on average amount to approximately 82% of total costs) and
tribunal expenses, have exceeded $8 million per party per case. For any country, but
especially for poorer ones, this is a significant burden on public finances. Even if the
government wins the case, tribunals have mostly refrained from ordering the claimant
investor to pay the respondents costs. At the same time, high costs are also a concern for
investors, especially those with limited resources. The fact that many legal issues remain
unsettled contributes to the need to invest extensive resources to develop a legal position by
closely studying numerous previous arbitral awards. Some of the same reasons are also
responsible for the long duration of arbitrations, most of which take several years to
conclude.
International Investment Arbitration has drawn the ire of the developing countries as it is seen
as one sided and favouring the investors. Interpretation of contracts by arbitral tribunals vary,
but the assumption of developing countries is that tribunals look only into the business aspect
of contracts and seldom look into overall picture for which the BIT was signed. This pushes
countries to prefer local jurisdiction over international investment arbitration.
Countries that plunge into economic crises get affected the most. A few examples are
Argentina, Indonesia and Venezuela.
A. Case Study - Argentina40
More than 30 cases of the cases presently pending before ICSID have been brought against
the Republic of Argentina and assert that the Argentine Government's response to the
catastrophic financial crisis that hit the country in late 2001 and 2002 impaired investor rights
secured under several of Argentina's BITs/IIAs. These cases are of extraordinary importance,
not just because of the immense financial liability to which they expose Argentina, but also
because, in response, Argentina has invoked a broad set of legal arguments about the rights of
states to craft policy responses to extraordinary situations such as a massive financial
collapse.
It all started in the last weeks of 2001 when Argentina experienced a financial collapse of
magnum proportions. In one day alone, the peso lost 40% of its value. In response to the
crisis, which some likened to the Great Depression of the 1930s in the United States,
40

Rudolf Dolzer and Christoph Schreuer, Principles of International Investment law, Oxford University
Press,2008 at 1013.

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Argentina adopted several measures to stabilize the economy and restore political confidence.
Among these efforts was a significant devaluation of the peso through terminating the
currency board, which pegged the peso to the US dollar, the pacification of all financial
obligations, and the effective freezing of all bank accounts through a series of measures
known collectively as the Corralito.
Though these measures offered a long-term prospect of restored economic confidence and
stability, they also imposed immediate and painful costs on all participants in the Argentine
economy, including foreign investors. While the Argentine citizens had little recourse legally,
many foreign investors, who were harmed by Argentina's response to the crisis, sought legal
protection under the regime of BITs which Argentina had entered in to the 1980s and 1990s;
(UNCTAD, 2000) apart from offering investors guarantees including the internationalisation
of contractual breached ("umbrella clauses"), national treatment and most favoured nation
protections, these treaties often provided investors the possibility of direct investor-state
arbitration.
For investors harmed by Argentina's response to the economic crisis, the possibility of direct
arbitration against the Argentine government for breaches of BITs offered a potentially
promising means to recoup losses suffered during the crisis. Claims framed as a violation of a
BIT could be brought directly against Argentina through ICSID. Only limited means are
available to challenge ICSID awards and such awards are generally enforceable in national
courts.
Argentina asserted two separate arguments that go to the heart of the sovereign prerogative of
states to develop policies to address exceptional circumstances. This first is based on treaty
law and the second, on customary international law. Argentina's treaty law argument invokes
the non- precluded measures ("NPM") provisions of Argentine BITs that exempt certain
actions taken by states in response to extraordinary circumstances from the substantive
protections of the treaties. According to Argentina's customary international law argument,
the doctrine of necessity precludes the wrongfulness of Argentina's actions in response to the
crisis. These arbitrations, thus, test both the limits of state freedom of action and investor
protections under the BIT regime in exceptional circumstances. The resulting jurisprudence
of the ICSID tribunals in the four cases against Argentina decided as of early 2008 is deeply
problematic, due to poor legal reasoning and questionable treaty interpretations. In fact, these
litigations have cost Argentina very dearly as it has been made responsible for harms to
investors notwithstanding the severe financial crisis it faced.

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From the case studies stated above, a reasonable amount of apprehension and caution must be
applied as conflicting decisions have arisen from the tribunals in these cases and establish no
precedent and hence there is no stability or certainty that could comfort developing and
emerging economies that could face a catastrophic crisis.
Companies have certain options that countries are not endowed with, which in turn permit
companies to excuse themselves for dishonouring contracts. An option for a company that
goes through bankruptcy can end up with rescheduled or even discharged debt, renegotiated
union contracts and relief from contractual pension obligations. Surely, it is not surprising
that a backlash occurs when a host country fails to receive similar relief from obligations to
direct investors when it faces severe economic problems.
Further, States have increasingly relied on customary public international law as a defence to
excuse investment treaty breached. Argentina, in particular, has recently invoked the doctrine
of necessity to excuse any breaches of its investment treaty obligations in the numerous
disputes that arose from the economic crisis of 1999-2002. Such public international law
defences, collectively called state defences, excuse a state's actions if specific preconditions
are met. These include force majeure, necessity, bribery or international public policy,
legitimate exercise of sovereignty, including other several defences based on customary
public international law. Though these defences can be invoked even in the absence of a
specific provision in an investment treaty, they are subject to strict limitations. Only a limited
number of investment arbitration tribunals have accepted state defences.41
Moreover, it needs to be pointed out that even when these defences are successful; their effect
is often merely to suspend the state's obligation for a short period of time. In practice, that
means that the state defence will only reduce the amount of compensation payable and the
state will not be fully excused for its behaviour. Thus, state defences are not an easy way for
a state to escape its international responsibility. Even the defense of "legitimate use of
sovereign power" has not yet been established in the realm of investment arbitration - only
three tribunals have relied on this defence to date. However, the trend is beginning to look as
if the tribunals are now more willing to consider the specific circumstances faced by states
and less perceptive to the plight of investors. This is arguably a symptom of the backlash
against investment arbitration.
Venezuela has settled four of the six cases already concluded before ICSID. The only two
41

Dr. Stephan W. Schill,. The Fair and Equitable Treatment Standard in the International Law of Foreign
Investment. Oxford: Oxford University Press, (2008).

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cases that have reached an arbitral award did not involve large amounts. Recently, Venezuela
has taken some measures that are unfriendly towards ICSID arbitration, directly targeted to
potential claims that may arise out of the recent expropriations and nationalizations. Aside
from the hostile political discourse against ICSID, the two most important "anti-arbitration"
steps taken by the government are the denunciation of the Venezuela-Netherlands BIT, and
the Supreme Tribunal's Decision number 1541 of October 17, 2008. Yet, it remains to be
seen what will be the effects of these "anti- arbitration" measures in the other four cases
against Venezuela currently outstanding before ICSID, and in any other potential claim that
may be filed in the near future.42
Moreover, investor-state arbitration has been infamous for attracting calumny regarding
arbitrators' integrity. Arbitrators tend to favour the claimant- investor in order to increase
prospects of reappointment. ICSID arbitrations receive most of the slander in this regard.
This perceived apprehension on behalf of the host state, on the bias of the arbitrators, also
makes Investment arbitration an unfavourable option. These contentions and perceived bias
apprehensions have been also offset by the number of decisions of tribunals that have been in
favour of the host states
INTERNATIONAL INVESTMENT COURT
There is also a case for an international investment court. One of the chief proponents of this
argument is Gus van Harten. This argument is presented relative to existing arrangements that
use a treaty-based arbitration mechanism to resolve disputes between states and investors.
This argument presents a narrow central distinction between judges and arbitrators: the secure
tenure of the former and the insecure tenure (case- by-case appointment) of the latter. This
orientation of the argument leads by implication to the assertion that there is something
wanting in terms of the independence and impartiality of arbitrators in the existing
arrangements based on investment treaty arbitration. Given this, the present case is meant to
respond to a critical flaw in an existing arrangement for international adjudication by
elaborating upon an alternative.
It should be made clear from the outset that apparent bias in investment treaty arbitration is
just that: it is a reasonable suspicion of bias (not actual bias) arising from structural failings of
arbitration when used to determine matters of public law. The critique of investment treaty
arbitration should thus not be taken as a condemnation of anyone involved in investment
42

Ignacio A. Vincentelli, The Uncertain Future of ICSID in Latin America, 16(3) LAW & BUS. REV. AM. 409
(2010).

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arbitration; there are many jurists, lawyers, academics, and business people of skill and
integrity who sit as arbitrators and whose reputation is not sullied by an objective critique of
the structure of the system and, in particular, its lack of objective guarantees of independence
and impartiality. The difficulty is that the current structure of investment treaty arbitration
casts a pall over all awards, and all legal interpretations, that emerge from the system in spite
of the experience, qualifications, integrity, etc. of the arbitrators, for reasons quite unique to
this system and not to others where arbitration is used.
There is a possibility of other alternatives that could be better at providing impartial and
independent awards. This system could also take into account various stakeholders including
countries, governments, investors, and even other systems that rely properly on arbitration to
resolve disputes, especially commercial arbitration. The clearest alternative to the present
arrangement is to establish an international investment court.
One of the prime bases of this argument is that International Investment Law is a subject
matter of Public International Law and hence investment treaty arbitration is a form of public
law adjudication in which the meaning of public law is resolved finally by adjudication.
Second, for this reason, it should be evaluated according to standards that apply historically
in public law. Third, the current system's failure to satisfy these standards, especially security
of tenure, calls for an institutional arrangement that does satisfy them. Lastly, various
counter-arguments that have been offered or that might be offered in opposition to an
international investment court, founded on the principle of security of tenure in public law
adjudication, do not warrant maintaining investment treaty arbitration as an alternative to
such a court. For this reason, States should be encouraged to establish an international
investment court in accordance with well-known principles of judicial decision- making in
public law.
The argument remains grounded in the theoretical distinction between the use of arbitration
to resolve regulatory disputes and its use to resolve commercial or other private disputes.
There are powerful criticisms of public-private distinctions from various perspectives and
elucidate specific differences in casting the major types of adjudication, while acknowledging
the possibility that the distinction may leave gray areas or be simply inappropriate in some
circumstances. The public- private distinction rests in turn on a concept of the state as
sovereign.
The concept of state as sovereign has received some stick in the recent past. For purposes of a
public adjudication system, the reference to sovereignty is as an instrument for identifying

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and analysing certain activities of states as activities that states alone are able to engage in;
for example, the passage of general rules accepted as binding in society and ultimately
enforceable by the state's coercive power. Recognising this uniqueness of the state as
sovereign, arising from its role as the representative of a political group associated with a
particular territory, is useful in that it helps to reveal the distinctiveness of the relationship
between the state and those who are subjected to or affected by regulatory activity of the
state. As a concept, sovereignty is a means of social ordering that is important (though of
course not beyond challenge or doubt) and that has sufficient probative value here, it is
suggested, to enable an elaboration of the sorts of disputes that arise between investors and
states and how those disputes differ from disputes arising between parties that are equally
capable of possessing legal rights and obligations.
An important aspect of disputes arising between a sovereign state and a foreign investor is
that they are one-sided in that the powers and obligations of the entity on one side, the state,
has a different set of powers and obligations in law than the entity on the other side, the
investor. In some respects, the state will possess rights that private parties cannot hold such
that the state will have powers that are specifically sovereign. In other respects, the state may
be bound by sovereign obligations that a private party cannot possess or that a private party is
in a unique position legally to avoid or abbreviate (by for example declaring bankruptcy).
Where a dispute between a state and a private party occurs in relation to the state's exercise of
these uniquely sovereign powers or its assumption of uniquely sovereign obligations, the
dispute is described here as a 'regulatory dispute' and the adjudication of that dispute as a
form of 'public law adjudication'.
Thus, for present purposes, the public-private distinction entails recognition of the state as an
entity with unique characteristics and of this concept of the state as the basis for public law as
a category of study, enabling (even if roughly or with doubt) a distinction between instances
in which adjudication is used to resolve regulatory disputes and instance in which it is used to
resolve disputes originating in a reciprocal relationship between juridical equals.
EXHAUSTION OF LOCAL REMEDIES AND INVESTMENT TREATIES
The rule of exhaustion of local remedies requires that the foreign investor exhaust all local
remedies (i.e. remedies under the law of the host state), unless they are illusory, before
resorting to remedies under international law such as diplomatic protection, etc. It is

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recognised as a principle of customary international law.43 It may, however, be waived by

treaty. Article 26 of the ICSID Convention excludes the applicability of the rule where there
is an agreement to submit the dispute to arbitration by ICSID. For the exclusion of the local
remedies rule, an arbitration agreement between the host state and the foreign investor is
necessary. Conversely, where there is no arbitration agreement, the foreign investor is
expected to pursue local remedies. Where an express waiver of the need to exhaust local
remedies is given in a bilateral or multilateral treaty before the dispute arises it is normally
irrevocable, although it may be revoked by the agreement of the parties or with the consent of
the State of the alien affected. In the case of the ICSID Convention, the express terms of the
waiver permit revocation by unilateral act of the respondent or host State at any time before it
submits to arbitration under the Convention, which has to be done by a separate act of
consent in writing and with the agreement of the other party, after it has become a party to the
Convention. Thus, while agreement to arbitrate raises a presumption that there has been an
express waiver of the rule of local remedies, that presumption is refutable by a unilateral act
by the host or respondent State, or by agreement between the alien and the State who are
parties to the dispute, provided the revocation is done before or at the time that the consent to
arbitration is given by the host or respondent State.44
UNILATERAL PROMISE TO ARBITRATE
States make several unilateral promises in the hope of attracting foreign investment. They
may promise, for example, not to expropriate foreign investment except on payment of full
compensation and to submit all disputes to ICSID for arbitration. The most widely accepted
view is that these unilateral promises are of little validity as the giver can always revoke
them. The doctrine of estoppel could be argued to hold the state up to its promise. However,
few legal systems restrain a sovereign through such a doctrine and estoppel generally does
not prevent a state from violating its promises in the municipal sphere. There is certainly no
such doctrine in international law. At best, one could regard a unilateral promise to settle
disputes by arbitration as an invitation to treat rather than as an agreement to arbitrate, for no
definite party was in contemplation at the time the unilateral promise was made. In the
alternative, it must be regarded as an announcement of state policy to the effect that it would
favour submitting disputes arising out of foreign

investment contracts to ICSID for

arbitration. No legal significance can be attached to these statements unless further steps are
43
44

Norwegian Loans Case. [1957] ICJ Rep. 9

S. Schwebel & G. Wetter, "Arbitration and Exhaustion of Local Remedies", 60 AJIL 484 (1966).

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taken to convert them into a legally significant form. The award in SPP v. Egypt 45does not
appear to have taken these considerations seriously. In that case the issue was whether Article
8 of the Egyptian Law on Foreign Investment, 1974, which contained a unilateral promise to
all foreign investors to submit disputes to ICSID arbitration, created jurisdiction in an ICSID
tribunal in respect of an agreement made after that law had been enacted. The ICSID tribunal
inferred jurisdiction from this unilateral promise. There has been no exhaustive consideration
of the possible arguments against such a position, such as the effect of the local remedies rule
on a unilateral promise.46

In addition, the legitimacy of investment-dispute arbitration rests, to a large extent, on the

fact that the parties to the proceedings can participate in the appointment of the arbitrators.
This ensures that the decision-making process is not perceived as something wholly
extraneous to the parties, but instead as a legitimate mode of resolving disputes. Participation
in the appointment of those who decide disputes is particularly important when states are
involved in international dispute settlement. Thus, even when submitting a dispute to the ICJ,
states that do not have one of their nationals as a titular judge of the court are entitled to
appoint a judge ad hoc in order to be represented among the decision makers. Furthermore,
the possibility of appointing decision makers in investment treaty arbitrations by no means
favors the interests of investors over the interests of states. Instead, it ensures that states have,
by means of appointing an arbitrator, a certain degree of control over the future direction of
investment arbitration. They can thereby react to jurisprudential developments of which they
disapprove by appointing individuals who support a line of thinking and reasoning that is
aligned with the understanding states have of the way investment treaties should be applied
and interpreted. The possibility of influencing the appointment of arbitrators on an ad hoc
basis is all the more important for states as it is one of the few ways in which they can
influence the direction of investment jurisprudence after an investment treaty has been
signed.

45

SPP v. Egypt (Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt), 32 ILM 933
(1993), corrected at 32 ILM 1470 (1993); 19 Yearbook of Commercial Arbitration 51 (1994).
46
Martin Domke, The Settlement of International Investment Disputes, Chicago Business Lawyer, 276 (1957).

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CONCLUSION
Investment arbitration seemed to be the answer to protect capital and also to provide the
much need control that host countries needed over the capital. Investment arbitration
appeared to fill the gap in the Barcelona Traction case. In that case, the ICJ held that a State
could make a claim when investment by its nationals abroad were prejudicially affected in
violation of the right of the State itself to have nationals enjoy certain standards of treatment
previously agreed in a treaty or special agreement ("diplomatic protection"). Yet, the
common situation when no such treaty or special agreement existed, thereby covering the
particular conflict, was that investors would be left unprotected. Though conventions like
ICSID try fill the lacunae left by the Barcelona Traction case, they are incomplete Investment
arbitrations appear to work well when the economy is growing, domestic institutions at host
countries are transparent and corruption free and there is political will to honour international
commitments. But when there is deficit in any of the conditions prescribed above,
investment arbitration fails. . The "internationalisation" of foreign

investment contracts has

made the law of the host state largely irrelevant to such contracts. This trend originated in the
mistaken assumption of early arbitrators that developing country host states did not possess
sufficiently sophisticated indigenous legal systems to deal with the complex issues arising out
of foreign

investment contracts. Although that assumption is clearly no longer warranted

today given that most states have "modern" laws on issues relating to foreign
the "internationalisation" of foreign

investment,

investment contracts is treated as having crystallised

into a norm of international law. The "general" principles of international law that arbitrators
pull out of a hat to suit the needs of foreign investors, therefore turn out to be proxies for
concepts derived from the legal systems of developed countries. Furthermore, host states are
increasingly being dragged into arbitrations that they never consented to as a result of the
tendency of arbitrators to infer jurisdiction from general provisions in unilateral undertakings
given by states or in bilateral

investment treaties.

The alternatives to investment arbitration like Multilateral Investment Treaties and

International Investment Court seem farfetched at this point, but not entirely impossible.
Though there are various grievances within the present system of investment arbitration, this
system is there to stay in the light of lack of alternatives. If the current system is tweaked a
little, with a wholesome approach, taking all stakeholders into account, the system is there to
say for some time.

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B IBLIOGRAPHY
W EBSITES :
www.oecd.org/daf/internationalinvestment/investmentpolicy/foi.htm

B OOKS :

M. S ORNARAJAH . I NTERNATIONAL L AW

ON

F OREIGN I NVESTMENT ,C AMBRIDGE

U NIVERSITY P RESS , 1994.

R UDOLF D OLZER

AND

I NVESTMENT

O XFORD U NIVERSITY P RESS ,2008.

LAW ,

C HRISTOPH S CHREUER , P RINCIPLES

C HITTHARANJAN F. A MERASINGHE , L OCAL R EMEDIES

200-03, C AMBRIDGE 2 D

ED

IN

OF

I NTERNATIONAL

I NTERNATIONAL L AW

2004

M. S ORNARAJAH , T HE P URSUIT

OF

N AFIONALIZED P ROPERTY ,M ARTINUS

N IJHOFF 1986.

D R . S TEPHAN W. S CHILL , T HE F AIR

THE

I NTERNATIONAL L AW

OF

AND

E QUITABLE T REATMENT S TANDARD

F OREIGN I NVESTMENT , O XFORD U NIVERSITY

P RESS , 2008.
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BRYAN AND GARNER, BLACK'S LAW DICTIONARY 1504 (7th Ed. Sweet &
Maxwell 2008).

IN

OXFORD DICTIONARY OF ENGLISH (2010, Oxford University Press)

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