Special Issue
Vol. II, No. 1
(Spring '10)

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This article examines five common justifications for the investment treaty system in order to highlight aspects of the system that give cause for concern. First, it examines whether investment treaties are a means to encourage foreign direct investment and concludes that this expectation is contradicted by common provisions in investment treaties and is unsupported by the preponderance of empirical evidence. If this justification was a factor in the decisions of states to conclude investment treaties – or of international organizations to promote them – then these decisions appear to have been based on incomplete knowledge and analysis of the anticipated benefits. Second, the article examines the claim that investment treaties respond to the bias and unreliability of domestic courts and criticizes investment treaties in this respect for being both underinclusive (by extending access to international adjudication to a narrow class of private actors only) and over-inclusive (by failing to account for situations where domestic courts offer justice to a foreign investor). Third, the paper examines the claim that investment treaty arbitration advances the rule of law in the resolution of investor-state disputes and questions this claim after considering how investment treaty arbitration fails to incorporate key institutional safeguards of judicial independence that are present in other adjudicative systems that resolve public law claims. Fourth, the paper examines the argument that investment treaties affirm the sovereignty and bargaining strategies of states and outlines tentative evidence that governments did not test carefully the anticipated benefits of the treaties, did not appreciate fully the risks of investor-state arbitration, and did not carry out sophisticated cost-benefit analyses prior to committing themselves to the investment treaty system. Finally, the paper examines the justification that investment treaties were endorsed by the democratic processes of states and draws attention both to the role of arbitrators in giving meaning to the treaties and to certain aspects of investment treaties that appear to undermine democratic choice. Based on this analysis, it is recommended that governments exercise greater care when considering entry into the system or, more likely, the maintenance or renewal of existing treaties, and that governments consider options for reform.

This article advances the paradoxical thesis that international investment law is developing towards a multilateral system of investment protection on the basis of bilateral treaties. Despite the formal fragmentation of substantive investment law in bilateral treaties, coupled with arbitration as a decentralized dispute settlement and compliance mechanism, international investment law does not constitute a disintegrated and unstructured body of law. Instead, one can observe convergence rather than divergence in this field of international law. Unlike genuinely bilateral treaties, bilateral investment treaties (BITs) do not stand isolated in governing the relation between two States; they rather develop multiple overlaps and structural interconnections that create a relatively uniform and treaty-overarching legal framework for international investments based on uniform principles with little room for insular deviation. The article therefore argues that BITs in their entirety function largely and increasingly analogously to a truly multilateral system. Elements of this thesis are the inclusion of most-favored-nation clauses, the possibilities of treaty-shopping through corporate structuring and the functioning of investor-State dispute settlement through the intensive use of precedent and other genuinely multilateral approaches to treaty interpretation.

International Centre for Settlement of Investment Disputes (ICSID) tribunals have consistently admitted claims by foreign shareholders based on the varying definitions of investment which often include shares and other forms of economic participation. The agreements referring to shareholdings as covered investment usually limit themselves to just that without further specification. The question may therefore arise: how far does protection accorded by the investment agreements extend? Does this protection allow the shareholder to claim for loss incurred by the local company in which the shareholder holds shares? Evidently, the mere inclusion of shares in the scope of protection of an investment agreement does not, per se, grant protection to the shareholder interests in a local company. The protection therefore remains limited to the "shares" in themselves as an economic unit and not to the underlying enterprise. However, some treaty rights, as applied by ICSID tribunals, may have this effect. Conversely, shareholders’ protection could generate multiple claims and a risk of double recovery. Given that shareholders are protected indirectly through the local company’s actions the shareholder would receive double protection. This risk is furthered by the fact that both direct and indirect shareholdings may be protected. This article seeks to analyze all these issues and more in greater detail.

There are International Center for Settlement of Investment Disputes (ICSID) protected investments and ICSID protected investors. What this means is that not all disputes on investments can be heard by ICSID. The same can be said about investors, i.e., not all investors are entitled to be heard by ICSID tribunals. Such is the case regardless of what the State parties have agreed in the relevant international investment agreements (IAAs). This note seeks to chart the outer limits of the ICSID, the purpose being to set up the limits beyond which the investment disputes could be heard by an ICSID tribunal and the limits beyond which a person cannot submit disputes to ICSID. References made to previous awards and to relevant ICSID documents suggest that there are criteria to define the jurisdiction of an ICSID tribunal ratione materiae and criteria to define the jurisdiction of an ICSID tribunal ratione personae. Therefore, tribunals should carefully consider such criteria in order to avoid abuse to the system of international law of foreign investment.

This note offers support for the view that all investment-related contracts are within the scope of bilateral investment treaty (BIT) protection under a typical umbrella clause; while ordinary commercial contracts are not. In this category of investment-related contracts, the author argues that the protection is wide and is not, at the jurisdictional threshold, subject to contractual dispute-settlement provisions outside the BIT. This view is based on distinguishing between a treaty breach and a contractual breach – though the latter may result in the former, the two are conceptually distinct and give rise to separate causes of action. Consequently, BIT tribunals have jurisdictions over treaty breaches and are not affected in this regard by contractual adjudicatory mechanisms. At the same time, this note recognizes the practical and efficacy-based difficulties of allowing simultaneous proceedings in both treaty and contract based forums; and possible abuses of turning to treaty-based adjudication simply to get around failure in contract-based adjudication. These difficulties – this note suggests – will best be solved not by treating the matter as one of jurisdiction of treaty-based tribunals, but rather by arriving at a coherent theory of deference to be granted by one tribunal to the other as a matter of merits.