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  • Print publication year: 2017
  • Online publication date: June 2018

7 - Settlement of Investment Disputes: Contract-based Arbitration


The previous chapters have indicated how efforts have been made through diplomatic means and through treaty means to bring about the protection of foreign investment. Diplomatic means are the older of the two. There are definite rules on the basis of which diplomatic intervention to protect the interests of the foreign investor could be made. They are the genesis of what some states regard as customary international law. Where diplomatic intercession fails, the same rules become the basis on which litigation could be brought against the recalcitrant state before an international tribunal or the International Court of Justice. There have been very few cases that have been brought before the International Court of Justice or its predecessor. Where a large number of foreign investment disputes arise from a single incident, states may choose to set up Claims Commissions to deal with them. In these circumstances, an international tribunal is established pursuant to an instrument akin to a treaty with clear means of enforcing the awards it makes.

Investment treaties, as has been seen, have also devised their own methods of dispute settlement. They usually enable the foreign investor to invoke remedies through arbitration at his own instance, the state being taken to have expressed its consent through the treaty provision. In a sense, an attempt has thus been made to create a regime of investment protection. But, in the absence of a multilateral treaty, such a regime will not come about. Investors currently receive protection under a system of bilateral or regional treaties which may apply to them.

But, well before the emergence of the investment treaty system in 1959, there was an earlier system of investment protection which the multinational corporations had virtually devised by themselves for the protection of their investments. This system worked entirely on the basis of contractual structures of protection that were negotiated with the host state at the time of the entry of the investment. Virtually every foreign investment entry is accomplished through a contract, except where entry is made through a merger or acquisition. The contract is negotiated with the host state or its agency at the time of entry.

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The International Law on Foreign Investment
  • Online ISBN: 9781316459959
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