International Investment Law and Arbitration Commentary, Awards and other Materials

CHAPTER OUTLINE

This chapter deals with investment contracts and their protection through internationalisation. Internationalisation refers to the conversion of contractual obligations to international obligations, so that every breach of an investment contract amounts to a violation of international law. Section 1 excerpts the main arbitral awards on investment contract internationalisation, while Section 2 outlines the main objections to investment contract internationalisation. Section 3 addresses a subsidiary concern – different types of investment contracts and their respective characteristics.

INTRODUCTION

Most foreign investments begin life with investment contracts concluded between foreign investors and host States or State entities. Investment contracts are also a source of investor–State disputes. This is because investors crave stability in investment contracts, while States cherish the freedom to modify or even terminate investment contracts in accordance with their prevailing economic policy. As States tend to initiate contractual modification or termination, which are often to the detriment of investors, the quest for investment protection necessarily included attempts at shielding investment contracts from State interference. The most remarkable of these attempts, and the focus of this chapter, is the internationalisation of investment contracts. Internationalisation is the equation of contractual obligations to international obligations, so that every breach of an internationalised investment contract by a State constitutes a violation of international law.

International law only sanctions State breaches of international obligations, not contractual obligations. Internationalisation is thus highly controversial because it erases the deeply entrenched distinction between obligations governed by international law and obligations – such as contractual obligations – which are traditionally governed by domestic law. Whether a State breaches international law by breaching an investment contract is a recurrent yet unresolved issue in international investment law.

The idea of internationalisation surfaced in the 1930 arbitration between English company Lena Goldfields and the USSR. Although the term ‘internationalisation’ gained prominence with the writings of Frederick Mann and Wolfgang Friedmann in the 1960s, the allusion to internationalisation was sufficiently strong in Lena Goldfields v. USSR for it to be credited as the award from which the notion of internationalisation grew.