Investors in the Formation of Customary International Law — An Insight from the 'Futility Exception' to the Local Remedies Rule in Investor-State Arbitration

Abstract

International investment agreements orient to skip the local remedies by inserting investor-state dispute settlement clause which allows investors’ direct access to international arbitrations against the host State of the investment, whereas the exhaustion of local remedies is a well-established rule of CIL. In practice, a large number of investors file international arbitrations before exhausting local remedies by claiming exceptional situations where the local remedies rule does not apply. Against this background, this paper studies the role and impact of investors in the formation of CIL concerning the local remedies rule with a special focus on the “exceptions”. Unlike the local remedies rule itself, the exceptions to the rule are not yet fully established. In addition, the most IIAs do not mention the exceptions in explicit way, such arguments are necessarily based on the rule of CIL. Here arises a question: how and to what extent these cross-references are justified and may influence the contents of CIL? Based on a structural analysis on the exceptions to the local remedies rule CIL as lex lata of diplomatic protection, this paper scrutinizes emerging interpretations in ISDS. The second section scrutinizes how CIL exceptions are integrated into ISDS practices and vice versa.

Keywords: investor, ISDS, IIAs, customary international law, diplomatic protection