The Path of Investor-State Disputes: From Compensation Commissions to Arbitral Institutions
ICSID Review - Foreign Investment Law Journal, Volume 33, Issue 3, Fall 2018, Pages 743–765, DOI: 10.1093/icsidreview/siy022
22 Pages Posted: 7 Jan 2019 Last revised: 8 May 2019
Date Written: 2018
The protection of aliens under international law has progressed from the alien being a ‘clanless’ individual or outlaw completely at the mercy of the local lord, with no entitlement to the peace and protection of the locality in the earliest times to the modern, sophisticated investor–State dispute settlement mechanisms. It was only after the end of the Cold War, when foreign investments grew dramatically and hundreds of major investor–State disputes emerged, that interest in investor–State disputes sharpened.
This essay demonstrates that several fundamental changes in the legal landscape have occurred since the constitution of the early compensation commissions of the eighteenth century leading to the modern system of resolution of investor-State disputes.
First, a growing number of multinational enterprises operating globally have become major actors on the international public law plain, in areas that in the past were reserved only for States. Second, international organizations and other non-State actors have dramatically strengthened their influence with efficient international arbitration institutions dominating the system of investor-State dispute resolution after the end of the Cold War.
The methods for resolving investor-State disputes have evolved primarily along the lines of creating specialised institutionalised forms. While early commissioners relied on their subjective understanding of justice and fairness, today the expectation is applying agreed set of rules (‘‘precept imposed from outside’’ using Hersch Lauterpacht’s language), so that failure to do so may result in annulment of the award.
The evolution of various methods of international dispute settlement and the emergence of new methods, such as international investment courts, does not necessarily mean that the older forms of dispute resolution will die like the dinosaurs. They will continue to function, albeit with modifications and will inform the future models of international dispute settlement.
Two recently published books represent the most sophisticated attempts to address the complex questions of the evolution of investor–State arbitration from a historical perspective.
In The Evolution of International Arbitration: Judicialization, Governance, Legitimacy, Alec Sweet and Florian Grisel (hereinafter Sweet & Grisel) argue that a consolidation of arbitration power has occurred over the past century, and although the structure of authority in international arbitration remains nonhierarchical and pluralist, the regime has gradually acquired the properties of stable legal system.
International Investment Law and History is a volume edited by University of Glasgow professor Christian Tams, University of Amsterdam professor Stephan Schill and University of Frankfurt professor Rainer Hofmann that includes contributions from academics discussing a broad variety of issues.
Part II of this essay examines the evolution of investor–State dispute settlement mechanisms from compensation commissions dominated by sovereigns to current legal institutions. Part III traces the evolution of approaches to those who resolve the disputes and appointment mechanisms, which changed from political appointees to legal experts. Part IV shows that when it comes to the applicable law, it has evolved from almost unlimited discretion of adjudicators based on fairness and equity to formal external sources of law.
Each part of this review essay starts with an overview of the relevant sections of both volumes and ends with my analysis of a large number of historical documents to give a more comprehensive understanding of the historical evolution of international investment law.
Keywords: ICSID, compensation commissions, international investment law, dispute settlement, arbitration, tribunals, ISDS, history
JEL Classification: K33, K4, K39, F51, F53
Suggested Citation: Suggested Citation