International Rule of Law and Investment Law: A Critical Analysis

This project provides a critical analysis of international investment law and arbitration, focusing on the intersection of international rule of law and constitutional justice. It examines the evolution of investment treaties, the rise of investor-state arbitration, and the challenges to the legitimacy of this system. The project explores the role of judicial administration in interpreting and applying legal principles, highlighting concerns about procedural justice, confidentiality, and the potential for overlooking the interests of affected parties. It investigates the relationship between investment treaties and the rule of law, addressing questions about the implementation of rule of law standards, access to investor-state arbitration, and the balance between investor rights and government obligations. The project employs doctrinal research methodology, drawing on primary and secondary sources, including scholarly articles, books, and online resources, to critically evaluate the existing framework and offer suggestions for improvement. The project also discusses how international investment law is creating a dominant position, while also highlighting the shortcomings of the International Rule of Law.

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FINAL PROJECT SUBMISSION
PROJECT TITLE: INTERNATIONAL RULE OF LAW AND CONSTITUIONAL
JUSTICE IN INTERNATIONAL INVESTMENT LAW AND ARBITRATION: A
CRITICAL ANALYSIS.
TEAM MEMBERS:
PARVATHI SUBASH (160401402092)
MUHAMMED ANEES (16040142080)
COURSE: BBA LLB (2016-2021)
SESSION: JAN-JUNE 2021
SUBJECT: International Investment Law.
SUBJECT COORDINATOR: Prof. Gyanashree Dutta
Alliance School of Law
Alliance University, Bangalore.
Submitted Date: 27th May, 2021.
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ABSTRACT
One of the oldest paradigms of constitutional justice is judicial administration of justice
through reasoned interpretation, implementation, and explanation of legal principles and
laws. The procedural justice principles that underpin investor-state arbitration are still up for
debate, particularly if confidentiality and party autonomy, which regulate commercial
arbitration, risk overlooking adversely affected parties. There are also concerns that rule-
following and formal equality of foreign investors and home states may not guarantee
substantive justice in the settlement of investment disputes unless arbitrators and courts take
their customary law responsibilities of resolving disputes in accordance with governments'
human rights obligations and other standards of justice requiring judicial balancing more
seriously. Judges' constitutional duty to enforce the law and resolve disputes in accordance
with justice principles which necessitate a review of whether judicial logic is still consistent
with redistributive principles of case-specific fairness, social justice, and corrective justice.
Keywords: Judicial Administration, Arbitration, Customary Law and Constitutional Duty.
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TABLE OF CONTENTS
1. CHAPTER 1- INTRODUCTION.
a. BACKGROUND.
b. RESEARCH PROBLEM
c. LITREATURE REVIEW
d. HYPOTHESIS
e. RESEARCH QUESTION
f. SCOPE AND LIMITATION
g. RESEARCH OBJECTIVE
h. RESEARCH METHODOLOGY
1. CHAPTER 2- TENTATIVE CHAPTERS
a) Introduction and History International Rule of Law, Arbitration and
International Investment law.
b) Investment Treaties and the Rule of Law and Rule of Law Objectives
of Investment Treaties.
c) Investment Treaty Arbitration as Judicial Review.
d) The Rule of Law as a Benchmark for Investment Law
e) Whether the Human Rights is playing a part in International
Investment Law and Dispute Resolution?
f) Constitutional justice is appropriate paradigm for commercial
investor-state arbitration.
g) Conclusion and Suggestion.
3. CHAPTER 3: BIBLIOGRAPHY
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INTERNATIONAL RULE OF LAW AND CONSTITUIONAL JUSTICE IN
INTERNATIONAL INVESTMENT LAW AND ARBITRATION : A CRITICAL
ANALYSIS
Introduction
International investment law became mainstream in the international law community just in
the previous decade. This was mostly due to the rapid growth of investment treaty-based
dispute resolution, which went from its first application in the late 1980s in Asian
Agricultural Products v Sri Lanka to over 560 treaty-based investment conflicts in 2013.
Despite their numerous numbers, investment treaties have a relatively uniform structure,
establish relatively uniform principles for the treatment of foreign investors, and rely on a
common dispute resolution mechanism, resulting in a regime that is arguably comparable to
that of a multilateral system. Investors normally have the right not to be expropriated without
compensation, to be treated fairly and equitably, to have complete protection and security,
and to be treated no less favorably than national or third-country investors under investment
treaties. Furthermore, investment treaties normally provide foreign investors with recourse to
arbitration against the host state in order to file claims for breach of the treaty's provisions,
usually in the form of damages. This allows them to bypass domestic courts and file a claim
under international law without the necessity for diplomatic protection from the investor's
home country. This has the potential to have a significant impact on the behaviour of all
branches of domestic government, including the legislative, administrative, and judicial
branches. As a result, international investment law provides a unique level of protection for
foreign investors, combining public law limits with private-public arbitration as a means of
resolving disputes. The rise of investment treaties and investment treaty arbitration has
sparked a heated debate regarding the benefits, justifications, and challenges of this unique
regime for foreign investors in a relatively short period of time. Indeed, this argument has
morphed into what is commonly referred to as an international investment law "legitimacy
issue." The departure of some states from the (BITs) and the International Centre for
Settlement of Investment Disputes (ICSID); the efforts of many nations to re-calibrate their
investment treaty duties and reassess investment treaty arbitration; and, by now, a more
widespread public debate about the potentially negative effects of investment treaties on
states' authority to regulate are all symptoms of this crisis.
1.1 BACKGROUND:
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Part I of this article explains how multilevel constitutional constraints on abuses of authority
and multilevel judicial enforcement of constitutional justice, such as in the review and
acceptance of foreign arbitral awards and court judgments, international annulment
proceedings, and appellate review of disputes, have led to the emergence of rule of law in
international trade and investments.1 Part II claims that a number of alternative dispute
resolution mechanisms, such as private commercial arbitration, national courts, investor-state
arbitration based on regional agreements, regional economic or human rights courts,
worldwide courts, and alternative dispute resolution bodies, can be used to resolve
international investment disputes.2 International investment treaties are one of the most
important tools for promoting the rule of law in investor-state relationships. For a long time,
these were little-known and little-used international law tools by which governments, usually
on a bilateral basis, but increasingly often also regionally and in some circumstances even in
multilateral instruments, negotiated agreements. Critics doubt arbitrators' democratic
accountability, independence, and impartiality, object to the ambiguity of treaty criteria,
criticise arbitrators' interpretations of these requirements for restricting host governments'
power to regulate in the public good, and reject the institution of investor-state dispute
settlement. On the other hand, proponents of investment law have done a poor job of
explaining the system's merits for years. One of the advantages of investment treaties and
investment treaty arbitration is that they help to provide a rule of law framework for
investment relations based on international law, which domestic regulation of foreign
investment may not be able to do. Investment treaties, particularly in nations with a weak
domestic rule of law, can help build the legal and institutional infrastructure needed to attract
foreign investment into businesses and projects that help the host state grow, as indicated, for
example, in Agenda 21 of the United Nations Conference on Environment and Development.
1.4 RESEARCH PROBLEM
That rule of law in international investment law and arbitration requires multilevel judicial
cooperation and more comprehensive judicial balancing of private rights and corresponding
constitutional obligations of governments. During the last decade that international
investment law became mainstream in the international law community. This was principally
due to the growing dispute settlement practice under investment treaties.
1.2 LITERATURE REVIEW
1 Werner,M. Meldelson, ‘The Journal of World Investment and Trade’ [2005].
2 Ibid.
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 Surya P. Subedi, ‘International Investment Law, Reconciling Policy And Principal,
‘https://www.google.co.in/books/edition/International_Investment_Law/x-
PrDwAAQBAJ?hl=en&gbpv=.0’, Accessed on 1st March, 2021.
In this paper, the researcher has pointed out that tension between the law of foreign
investment, incorporating an overview of the care available to foreign investors in
international law, and ways to achieve a balance between these values and the need to
preserve foreign investors' legitimate rights and expectations on the one hand, and the
need not to limit host governments' ability to enforce their public policies unduly on
the other.
 Francesco Francioni “Access to Justice, Denial of Justice and International
Investment
Law” (2009), < https://doi.org/10.1093/ejil/chp057 > accessed 29th February 2020.
This article stressed the importance of a dialogue between national courts as a
condition for a shared understanding of the reach and limits of sovereign immunity as
a persistent
Obstacle to the effective exercise of the right of access to justice with regard to the
unique problem of access to justice of extraterritorial investors, as in the case of
Argentine bonds.
 Pierre-Marie Dupuy, ‘Human Rights in International Investment Law and Arbitration’
(2009), <
https://www.google.co.in/books/edition/Human_Rights_in_International_Investment/
i98VDAAAQBAJ?hl=en&gbpv=0> accessed 12th May,2021. In this book, It
examines the relationship between international investment law, investment
arbitration, and human rights, including the role of national and international courts,
investor-state arbitral tribunals, and alternative jurisdictions, the dangers of legal and
jurisdictional fragmentation, and the human rights components of investment law and
arbitration. the connections between substantive and procedural justice principles and
international investment law, it highlights the main results of the 24 book chapters and
contextualizes them in terms of justice principles, global administrative law, and
multilevel constitutionalism.
 Rudolf Dolzer (jurist), Christoph Schreuer, ‘Principles of International Investment
Law’(2012), <
https://www.google.co.in/books/edition/Principles_of_International_Investment_L/
qS0UDAAAQBAJ?hl=en&gbpv=0> accessed on 2nd May,2021. This book explains
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the foundations that underpin international investment law. The legislation governed
by bilateral and multilateral investment treaties is the main topic. It examines the
purpose, context, and evolution of the standard clauses and provisions found in
today's investment treaties, as well as case law interpreting the issues addressed by
standard clauses. Broad treaty rules are given special attention, as their interpretation
and application by international tribunals has largely defined their understanding in
practice. In addition, the book outlines the operation of Investor vs. State arbitration
and introduces the dispute resolution methods for implementing investment law.
 Yannick Radi, ‘Rules and Practices of International Investment Law and
Arbitration’(2020), <
https://www.google.co.in/books/edition/Rules_and_Practices_of_International_Inv/
fdj8DwAAQBAJ?hl=en&gbpv=0> accessed on 1st May,2021. This textbook teaches
readers how to master and understand the universe in motion. It provides an up-to-
date, thorough, and in-depth examination of the rules and practices that make up
international investment law and arbitration, including substantive, institutional, and
procedural aspects. It makes analyses accessible to readers by employing analytical
and practice-oriented methodologies. International investment law and arbitration is a
'galaxy' in and of itself, with thousands of treaties to read and hundreds of awards to
consider. It's also diversified, with nuances and disparities in treaty and arbitration
practices on a variety of subjects.
 Andrea Gattini, Attila Tanzi, Filippo Fontanelli, ‘General Principles of Law and
International Investment Arbitration’ (2018), <
https://www.google.co.in/books/edition/General_Principles_of_Law_and_Internatio/
KmhjDwAAQBAJ?hl=en&gbpv=0> accessed on 26th April,2021. In this book it saya
that, The authors of General Principles of Law in Investment Arbitration examine a
number of general principles of law and assess their utility in investment arbitration.
The image that emerges is of a vibrant source that defies ideological constraints while
remaining relevant.
 Borzu Sabahi, Ian A. Laird, Giovanna E. Gismondi, ‘International Investment Law
and Arbitration History, Modern Practice, and Future Prospects’(2018), <
https://www.google.co.in/books/edition/International_Investment_Law_and_Arbitra/
K-t5DwAAQBAJ?hl=en&gbpv=0> accessed on 15th April,2021. In this book,
International Investment Law and Arbitration: History, Modern Practice, and Future
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Prospects delves into the origins, operation, and history of international law governing
foreign investment.
1.3 HYPOTHESIS
Arbitration poses International Investment Law behaviour and International Rule of Law
which explains why constitutional justice is also an appropriate paradigm for commercial
investor-state arbitration.
1.5 RESEARCH QUESTION
1. Whether the rule of law reflected in the objectives of investment treaties to the
substantive standards of protection?
2. Whether the investment treaty arbitration serves as a mechanism to implement the
rule of law standards laid down in investment treaties?
3. Whether the existence of treaties that provide for special protection to foreign
investors can be squared with the concept of the rule of law and the idea of “equality
before the law” also to which extent the substantive standards of investment treaties
reflect the content of the rule of law as defined and how access to investor-state
arbitration can be seen as part of the rule of law?
1.6 SCOPE AND LIMITATION
This research paper aims to
1. Understand and criticize Judicial administration of justice through reasoned
interpretation, application and clarification of legal principles and rules is among
the oldest paradigms of constitutional justice.
2. Point out the lack of proper regulations in the state-investor arbitration.
3. Discuss the International Rule of Law and its shortcomings.
4. Highlight how the International Investment Law are creating a dominant position.
5. Do a critical analysis and give suggestions for the same.
1.7 RESEARCH OBJECTIVE
This paper aims to discuss about The growth of investment treaties and investment treaty
arbitration has sparked a heated debate regarding the benefits, justifications, and challenges
of this unique regime for foreign investors in a short period of time.
1.7 RESEARCH METHODOLOGY:
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The doctrinal method of research will be used, which involves the collection of data from
primary and secondary sources. The Primary sources include Indiana Journal of Global Legal
Studies Vol. 16 and Convention: The Role of International Law in the ICSID Choice of Law
Process, 18 FOREIGN INVESTMENT. And the secondary sources include various sources
like books written by various eminent authors, articles found in journals, websites and e-
journals and also internet to find out the latest developments. The paper will utilize analytical
and interpretative method of study.
1.8 TENTATIVE CHAPTERS
Chapter 1: Introduction and History International Rule of Law, Arbitration and
International Investment law.
Investor-state dispute settlement (ISDS) has perhaps become the most contentious form of
international litigation today (very recently rivalled perhaps by the International Criminal
Court, which is facing a stark legitimacy challenge from a number of African states).
Arbitration under the International Centre for the Settlement of Investment Disputes (ICSID)
or UNCITRAL (The United Nations Commission on International Trade Law) permits an
investor to sue a host state in front of an ad hoc arbitral tribunal for violations of bilateral
investment treaties (BITs) or trade and investment agreements (for example, the North
American Free Trade Agreement (NAFTA)). This regime has been portrayed as a network of
secret or "shadow" courts ruled by a clique of elite arbitrators driven not by justice but by
personal wealth accumulation, a system in which multinational corporations unleash blue
chip legal firms on some of the world's poorest countries, demanding multimillion dollar
settlements or winning much greater verdicts For health, education, and public safety, it can
cost more than an impoverished country's whole annual budget. The threat of such
settlements has had an understandable chilling effect on legitimate government regulation in
many nations; arbitrators have construed the general principles of investment treaties to go
far beyond compensation for takings in a variety of circumstances. Its goal is to capture rents
from investors and is likely inefficient, extending to regulatory changes that address many
legitimate policy concerns but have a detrimental economic impact on a specific foreign
investment.3
These accusations have made headlines and affected globalization debates at the highest
levels of government in the United States and Europe. Over 200 law and economics
3 Stephan W Schill, The Multilateralization of International Investment Law (Cambridge University Press, 2009)
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academics, including Laurence Tribe and Joseph Stiglitz, wrote a letter to members of
Congress criticizing ISDS:
The federal government allows foreign investors, and only foreign investors, to bypass that
sophisticated, sophisticated, and democratically responsive legal framework through ISDS.
Foreign investors can frame domestic constitutional and administrative law issues as treaty
claims and take them to a panel of private international arbitrators, bypassing municipal,
state, and federal domestic administrative bodies and courts. Foreign corporations, freed from
the fundamental principles of domestic procedural and substantive law that would have
normally guided their litigation against the government, can prevail in ISDS courts even
when local law would have clearly rejected their claims. Corporations can even retry cases
that have already been decided in domestic courts. ISDS arbitrators, not domestic courts,
have the final say on what constitutes proper administrative, legislative, and judicial
behavior.4 This system jeopardizes the vital duties of our domestic and democratic
institutions, jeopardizes domestic sovereignty, and erodes the rule of law. There are several
faults in the manner ISDS procedures are supposed to be conducted in the TPP, in addition to
the fundamental defects that come from a parallel and privileged set of legal rights and
procedures for foreign economic entities. In short, ISDS lacks many of the basic legal
safeguards and procedures that can be found in a court of law. There are no methods for
domestic persons or entities harmed by ISDS cases to intervene in or meaningfully participate
in the disputes; there is no appeals procedure, thus there is no method to challenge arbitral
rulings based on errors of law or fact; and there is no monitoring or accountability of the
private lawyers who serve as arbitrators, many of whom rotate between becoming arbitrators.
Arbitrators in ISDS proceedings are not bound by the same codes of judicial conduct that
apply to domestic judges.
The European Commission suggested in September 2015, as part of the Trans-Atlantic Trade
and Investment Partnership (TTIP) discussions between the European Union and the United
States, to address public indignation over investor-state arbitration by establishing an
alternative judicial system for the resolution of investment disputes. In bilateral EU accords
such as TTIP, the court system would be incorporated (rather than arbitration) at first, but
would eventually be replaced by a global tribunal for the resolution of investment issues. In
bilateral EU accords such as TTIP, the court system would be incorporated (rather than
arbitration) at first, but would eventually be replaced by a global tribunal for the resolution of
4 ibid
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investment issues.5 The European Commission proposal is based on an online consultation
the EU conducted on investor protection in the TTIP; the survey received an incredible
amount of responses—roughly 150,000—with a large proportion of them expressing
opposition to investor-state dispute settlement. The European Parliament urged in its
guideline to TTIP negotiators in July 2015 that investment disputes be resolved by a standing
judicial body rather than traditional procedures of investor-state arbitration under TTIP. More
recently, the EU has collaborated with Canada to build a multilateral investment court into
which existing bilateral judicial systems may be combined or that would supersede them, as
will be addressed further below. While many developing nations had already resisted ISDS
(for example, by signing fewer BITs or even outright rejecting them), the ISDS insider
community had been able to sideline detractors in serious policy talks in rich countries before
the EU proposal, dismissing them as outsiders who did not fully grasp how and why investor
state arbitration works.6 The European Parliament and Commission's rejection of investor-
state arbitration has given critics of the existing ISDS system unparalleled political
legitimacy, even though some of the opponents have countered that the EU solutions don't
fully address their concerns. The Commission and Parliament speak for a vast number of
nations, including some that have traditionally been among the more active ISDS users.
Cecilia Malmstrom, the EU Commissioner for Trade, stated flatly that the Commission
proposal's underlying premise is a "fundamental and widespread lack of trust" in the existing
ISDS system. Whatever demands arise from the arbitration bar and other sectors, it will be
extremely difficult to return to that system after such a statement, at least in the EU. Indeed,
far from retreating, the EU has already included the judicial model into agreements with
Canada and Vietnam, and may soon do so with Singapore and Japan, and the EU is currently
taking the lead in transforming the judicial model in these agreements into a global
investment court with Canada. Dozens of countries have expressed interest in this project,
and first conversations have taken place in Geneva and, more recently, at the 2017 World
Economic Forum in Davos.7
Chapter 2: Investment Treaties and the Rule of Law and Rule of Law Objectives of
Investment Treaties.
Rather than debating the merits of Gus Van Harten's and others' criticisms of international
investment, I'd like to present the positive argument for viewing international investment
5 Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford University Press, 2007).
6 Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford University Press, 2007)
7 Ibid
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legislation as a tool for advancing the rule of law. This portion of the chapter discusses how
investment treaties and investment treaty arbitration might be seen as expressions of the rule
of law on a conceptual level.8 I'd like to utilize a "thick" definition of the rule of law,
comparable to that created by Lord Bingham, as a definition and standard. Given that
international investment law is part of international law and so subordinates domestic legal
systems to its interpretation of the rule of law, it must be judged against an international
standard, the UN Secretary-2012 General's report, Delivering Justice: Programme of Action
to Strengthen the Rule of Law at the National and International Levels, contains a
transnational definition that appears particularly applicable in this situation. It explains what
the rule of law is:
as a principle of governance in which all public and private individuals, institutions, and
enterprises, including the state itself, are held accountable to laws that are openly publicized,
equally enforced, and independently judged, and are in accordance with international human
rights norms and standards. It also calls for safeguards to ensure that the supremacy of the
law, equality before the law, accountability to the law, justice in the application of the law,
separation of powers, involvement in decision-making, legal clarity, avoidance of
arbitrariness, and procedural and legal transparency be upheld.9
To return to the first argument, the presence of investment treaties is best understood in terms
of the rule of law by examining their purposes. These are closely related to the rule of law's
functions. Investment treaty aims can be divided into three categories, according to Jeswald
Salacuse: primary, secondary, and long-term. The protection and promotion of foreign
investment are the primary goals; subsidiary goals include market liberalization and the
development of closer economic and political ties among contracting governments. However,
none of this is a goal in and of itself; rather, it is aimed at improving the economic welfare of
contracting nations in the long run. In other words, the goal of investment protection and
promotion is to lead to economic progress and, ultimately, human development. The rule of
law's functions might be understood as a complement to these goals. The purpose of
protecting foreign investment correlates to the protection provided by the rule of law against
unlawful government behaviour.10
8 Stephan W Schill
(ed), International Investment Law and Comparative Public Law (Oxford University Press, 2010)
9 ibid
10 David Schneiderman, Constitutionalizing Economic Globalization: Investment Rules and Democracy’s
Promise(Cambridge University Press, 2008)
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The role of the rule of law in reducing political risk, that is, the danger of cooperating with a
state that has sovereignty over the law governing the investment and, in the absence of an
investment treaty, has complete judicial authority over any disputes that may emerge between
the investor and the host state, runs parallel to the role of the rule of law in reducing political
risk. Finally, the concept of the rule of law is widely regarded as a key factor for economic
growth and development, just as investment treaties eventually aim to contribute to the
development of host states. For example, Richard Posner cites "empirical evidence
demonstrating that the rule of law contributes to a nation's wealth and pace of economic
growth." 11Similarly, the World Bank's legal reform program and its good governance agenda,
which includes the rule of law as one of the basic ideas to help developing countries develop,
have both emphasized the link between the rule of law and economic development. However,
the question of how a system for the protection of a certain class of foreign investors can be
justified, rather than a system that creates rule-of-law institutions for all investors, both local
and international, remains critical from a rule-of-law standpoint. The major rationale for
investment treaties' limited personal scope of applicability stems from their origins in
international law of aliens, which was founded on the premise that interfering with a
foreigner's rights, including her property rights, constituted a breach of the foreigner's home
state's rights. Investment treaties are thought to have an impact on domestic investments as
well, notwithstanding the minimal protection ratione personae. This is particularly evident in
the case of investment projects carried out through joint ventures between a foreign and a
domestic investor, where the latter benefits indirectly from the former's protection. When the
primary, secondary, and long-term aims of investment treaties are compared to the function
of the rule of law, it becomes clear that investment treaties can be viewed as a tool for
advancing the rule of law. Investment treaties, in this context, serve as both substitutes for
domestic institutions and the rule of law, as well as incentives for governments to reform
their domestic legal regimes in order to lessen the likelihood of future international claims for
damages.
Chapter 3: Investment Treaty Arbitration as Judicial Review.
Finally, when it comes to dispute resolution, investment treaty arbitration is a method for
enforcing the rule of law requirements set forth in investment treaties. Furthermore,
investment treaty arbitration can be viewed as a type of access to justice, serving as a neutral,
independent, and unbiased conflict resolution tool with the ability to influence government
11 ibid
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policy. In this regard, investment treaty arbitration fills the role that is generally filled by
domestic courts exercising judicial review.12 Indeed, this right is frequently backed up by a
constitutional right to judicial review of government actions, which is a feature of the rule of
law in and of itself. In this respect, investment treaty arbitration compensates for a number of
limitations that foreigners may have under domestic law in terms of access to justice. 13For
example, domestic law, particularly constitutional law, in Germany imposes a number of
significant restrictions on foreigners in this regard. For example, the German Constitution,
known as the "Grundgesetz," does not grant fundamental rights to foreign juridical persons.
Foreign firms cannot rely on fundamental rights given by the Constitution, and hence have no
access to the German Constitutional Court, according to Article 19(3) of the Grundgesetz.
Similarly, Article 12 of the Grundgesetz, which contains the freedom of enterprise, a right
that, among other things, guards against government intervention with economic enterprises
that does not violate the right to property, is a basic right that is solely granted to German
natural and juridical people, not to foreigners. Finally, even if domestic law provides access
to justice, the recourse given is not always neutral, the forum is not always independent of the
responding government, and the recourse given is not always efficient. Courts that are corrupt
or reliant on the government are only the top of the iceberg. Even the most well-developed
home systems might run into issues with their domestic court. The European Court of Human
Rights, for example, has issued repeated rulings finding that the duration of domestic court
processes in Germany violated Article 6(1) of the European Convention on Human Rights,
which states that “a fair and public hearing within a reasonable time by an independent and
impartial body established by law” is required. Furthermore, the European Judicial of Human
Rights found in a pilot case against Germany that excessively protracted court proceedings
and the lack of a home remedy to rectify them constituted a "systemic problem." In all of
these cases, investment treaty arbitration can provide foreign investors with access to justice
that would otherwise be denied by domestic courts.14
The rationale of a European Court of Human Rights judgement on whether Article 6(1) of the
European Convention on Human Rights requires access to a permanent court in order to
make claims, even against the government, can also be used to support investment arbitration
as a vehicle for providing judicial review. The applicants asserted in Lithgow and others v
United Kingdom that a "Arbitration Tribunal" was not a "lawful tribunal" in the meaning of
12 Tom Bingham,’ The Rule of Law’ Penguin Press (2010)
13 Ibid
14 Asian Agricultural Products Ltd. (AAPL) v Republic of Sri Lanka (2008)
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Article 6(1) of the Convention since it was "an extraordinary court, namely a tribunal
established up for the purpose of adjudicating a limited number of unique matters affecting a
limited number of firms." Despite the fact that the decision did not address recourse to an
investment treaty tribunal, its logic appears to be applicable in that situation as well. As a
result, submitting to investor-state arbitration can be viewed as a fulfilment of the host state's
commitment to provide a forum for judicial review and hence a dispute resolution
infrastructure that is required by the rule of law idea. Taking all of this into account,
investment treaties can be viewed as a compensation mechanism for difficulties that may
exist in host governments' domestic governance with respect to the domestic rule of law, both
in terms of substance and procedure. The rule of law elements that are often established in
domestic constitutional legislation are reflected in substantive investment treaty norms.
Although courts cannot overturn anti-investment policies or enforce verdicts requiring
specific performance, the primary remedy under investment treaties, damages as a result of
the host state's international obligation, arguably offers an incentive for governments to
follow the treaties' rule of law criteria. Additional tools to execute the rule of law criteria
contained in investment treaties could include promoting direct implementation of investment
treaties in domestic courts and by the domestic executive, as well as considering the adoption
of investment treaty impact assessment tools to decrease, or even avoid, host state
responsibility under investment treaties. Finally, it's worth analyzing how investment treaty
arbitration can encourage domestic court change under certain circumstances. After all, only
if local courts are as good as or better than investment treaty tribunals will foreign investors
contemplate using them instead of filing an arbitration complaint.15
Chapter 4: The Rule of Law as a Benchmark for Investment Law.
The rule of law is significant not only as an explanation of the structure and substance of
investment treaties, but also as a set of norms against which the practice of investment law,
and particularly investment arbitration, must be judged. Investment law, in and of itself, poses
numerous challenges to the rule of law. First, investment treaties implement an asymmetric
rule of law: they protect foreign investors without explicitly taking into account conflicting
national or international rights and interests. How investment treaties interact with human
rights, public health, environmental law, labor rights, and indigenous rights, as well as how
much room they provide host governments to regulate in the public interest, is a topic that
needs to be addressed in order to assess what kind of rule of law investment treaties are.
15 Jeswald Salacuse, The Law of Investment Treaties (Oxford University Press, 2010)
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Second, arbitral award anomalies pose a threat to legal clarity and predictability, and thus to
the rule of law.16 Third, there is a question of arbitrators' accountability in how they develop
law, because there are no supervisory mechanisms comparable to those at the domestic level,
namely a supreme or constitutional court at the apex of the court system and a legislature that
can act against judicial decisions that it deems unfavorable by amending the law that the
courts must apply. Fourth, the issue of arbitrators' independence and impartiality, the question
of an alleged pro-investment bias in their jurisprudence, and the so-called "double-hat
problem," in which one person can act as arbitrator in one proceeding and counsel in another,
are all issues that need to be addressed from the perspective of the rule of law. All of these
issues must be discussed, and they are now being discussed. However, the problems posed to
the rule of law in this context should be viewed as such: they are issues that necessitate
adaptation of the existing system of international investment law and investor-state dispute
settlement, but they do not, in my opinion, militate against the system of investment law
being abandoned in principle, as some say. Investment treaties are not inherently anti-
democratic, but, as previously said, they can actually promote it. At the same time, we must
utilize the concept of the rule of law as a standard for the investment treaty system itself,
despite the good influence investment legislation can have on domestic rule of law. After all,
the outcome of arbitral jurisprudence will only be regarded legal if investment treaties and
investor-state arbitration itself match the universally accepted requirements enshrined in the
rule of law. In this way, the concept of the rule of law can be useful in the present debates
over international investment law reform. With the UNCITRAL Rules on Transparency in
Treaty-based Investor-State Arbitration coming into force on 1 April 201448 and the
acceptance of the United Nations Convention on Transparency in Treaty-based Investor-State
Arbitration by the General Assembly, the concept of the rule of law can be utilized to demand
more transparency and third-party engagement, a process that is well underway. Similarly,
discussion on the implementation of standards of behavior for arbitrators and counsel should
be informed by the rule of law, a matter that the EU has raised, among other things, in its
investment treaty negotiations with Canada and the United States. The rule of law could also
serve as a guiding principle in discussions of enhanced corporate social responsibility in
international investment relations, emphasizing not just foreign investors' rights but also their
responsibilities. Similarly, governments' efforts to recalibrate investment treaty obligations in
16 Noah
Rubins and N Stephan Kinsella, International Investment, Political Risk and Dispute Solution (Oxford University
Press, 2005)
16

17
order to strike a better balance between investment protection and competing concerns, as
well as to implement a thick rule of law, can be informed by the concept of the rule of law.
As a result, contracting nations are concretizing substantive norms of treatment in investment
treatment, such as the idea of indirect expropriation or fair and equitable treatment, in order
to implement a thick version of the rule of law in treaty-making that considers competing
interests and the host states' power to regulate,proposing general exceptions to allow some
public-interest interferences with investor rights; defining the term "protected investment";
improving the integration of alternative dispute resolution processes and recalibrating access
to investor-state arbitration; ... exploring the establishment of arbitration control measures,
such as appeals processes or joint interpretation commissions, that contracting states might
use to counteract the precedential effect of arbitral rulings that they don't like. Finally,
governments must be reminded of their position as enforcers of duties that serve conflicting
interests: they must not only refrain from illegitimately interfering with foreign investment,
but they must also regulate investment effectively in order to defend competing interests.17
However, the rule of law should not be limited to treaty-making. It must also provide
guidance to arbitrators on how to conduct arbitrations, use procedural authorities, and
interpret investment treaties. Consequently, even while conflicting rights and interests are
rarely explicitly referenced in investment treaties – unlike human rights treaties, which
contain provisions defining for what reasons and under what situations states may interfere
with protected rights– investment arbitrators have adequate interpretive powers to realize the
idea of a thick rule of law. Arbitrators can employ comparative law analysis to concretize the
interpretation of imprecise standards of treatment in investment treaties, as I have indicated
previously, in order to link the implementation of these standards with universally recognized
legal analysis and the outcomes of comparable domestic conflicts. The use of proportionality
analysis is a public law notion that can influence the interpretation of investment treaty norms
and is particularly potent in striking a balance between investment protection and conflicting
rights and interests of host governments and their populations; notably, such reasoning is an
interpretative tool that arbitrators are increasingly using. Finally, investment tribunals can
protect policy space by determining the appropriate standard of review for government
actions, that is, whether specific conclusions of fact and law made by the host state prior to
taking action against a foreign investor can be examined by an investment tribunal or whether
deference is acceptable. Finally, all of these tools and approaches should be utilized to
accomplish the aims of the rule of law, as articulated by Joseph Raz: “After all, the rule of
17 Jeswald Salacuse, The Law of Investment Treaties (Oxford University Press, 2010)
17

18
law is designed to enable the law to promote social good, and should not be casually
exploited to indicate that it should not.” 18Too many social aims sacrificed on the altar of the
rule of law may render the rule of law barren and empty.” This should be the driving vision
for investor-state relations and their contribution to development that investment treaties and
investment treaty arbitration help to implement.
Chapter 5: Whether the Human Rights is playing a part in International Investment
Law and Dispute Resolution?
The legal obligations of all 192 United Nations member nations to respect and preserve
human rights, as well as the more comprehensive, multilayered legal regulation and judicial
protection of individuals' rights in their transnational economic cooperation, characterize
international law at the turn of the twenty-first century. Human rights and investment law are
both aimed at legal protection of individual rights through legal and judicial restraints on
government powers, such as anti-discrimination prohibitions, substantive safeguards of
individual freedoms and private property rights, and judicial remedies at national and
international levels, thereby protecting individuals from power abuses. Private foreign
investors have direct access to international arbitral tribunals under international investment
law, often without exhausting local remedies, to challenge governmental restrictions on
investor rights and claim damages for governmental breaches of investment law. Investors
and host states rarely invoke human rights in investment disputes because the substantive and
procedural guarantees of investor rights in international investment treaties and investor-state
concession contracts tend to go beyond those provided by human rights law. Human rights
arguments are rarely examined by investor-state arbitral tribunals on their own initiative or
when raised in amicus curiae submissions unless the parties have also raised them.
Consequently, despite the fact that the United Nations High Commissioner for Human Rights
has urged member states to take a "human rights approach" to the interpretation and
application of international trade and investment law, investor-state arbitration awards have
done little to reduce fragmentation in the development of human rights and international
investment law.19 Investor-state arbitration can be based on commercial contracts and
privately agreed arbitration rules (such as those of the United Nations Commission on
International Trade Law (UNCITRAL), the International Chamber of Commerce's Court of
Arbitration (ICC), and the London Court of International Arbitration), as well as international
treaties and legislation. Private commercial arbitration procedures, applicable law, publicity,
18 ibid
19 ibid
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19
and international legal consequences for contract claims may differ significantly from those
for treaty claims. Because investor-state arbitrations typically involve not only private
business interests but also the host state's public policies and the rights of workers,
consumers, and taxpayers affected by foreign investments, the commercial arbitration
paradigms of private party autonomy and confidentiality among private parties may not be
appropriate. Arbitral awards in investor-state disputes risk losing their credibility and
democratic legitimacy if they ignore the legitimate interests of adversely affected third parties
or overrule democratically legitimate government decisions on the basis of investor-state
contracts in secretive proceedings. The majority of international investment disputes and
investor-state arbitrations concern legal claims arising from investment contracts and
international investment treaties that contain choice of law and jurisdictional clauses that
refer, directly or indirectly, to the host state's domestic law and "such rules of international
law as may be applicable." The sovereign freedom of states to regulate their domestic
economy and investment regime, the diversity of national legal and democratic traditions, and
the private autonomy of investors and legal protection of their property rights all imply that
national investment laws, the more than 2,500 bilateral investment treaties (BITs), and related
arbitration awards will inevitably differ between countries and jurisdictions. Despite the lack
of a unified international judicial system and explicit legal requirements among ad hoc
arbitral tribunals or rival arbitral institutions, a rising number of investment-related national
and international court judgements, arbitral awards, and other dispute settlement reports
continue to identify and explain common procedural law of international dispute settlement
bodies. They also advocate for mutually consistent interpretations of internationally agreed-
upon substantive legal protection, regulation, expropriation, and dispute resolution
standards.20
Contextual, systematic, dynamic, and effective interpretations of investment law in
accordance with appropriate non-investment law allow judicial harmonization. International
investment treaties frequently indicate explicitly that tribunals should use international law.
This is in contrast to the WTO Dispute Settlement Understanding's narower relevant law
clauses in Articles 7 and 17.21 For example, a rising number of investor-state arbitral
judgements consider whether investment restrictions should be interpreted in accordance with
the state's relevant WTO responsibilities. Private commercial arbitration, national and
international courts, investor-state arbitration based on international investment treaties, and
20 ibid
21 ibid
19

20
alternative dispute resolution proceedings all have dynamically growing case law. Despite the
lack of a centralized international legal structure and an integrated judicial system to
coordinate competing and frequently conflicting jurisdictions. For resolving investment
disputes, courts are increasingly using the traditional approaches of systematic treaty
interpretation, general principles of law, and constitutional interpretation by interpreting
investment contracts and investment treaties in the context of national and international law.
Chapter 6: Constitutional justice is appropriate paradigm for commercial investor-state
arbitration.
Furthermore, rather than governmental breaches of international law obligations toward
foreign investors, commercial arbitration concentrates on claimed breaches of an
international commercial contract or a related non-contractual dispute. Investment treaties, on
the other hand, frequently require an amicable negotiation period prior to arbitration as a
procedural requirement. While a commercial arbitral tribunal typically "applies the rules of
law that it determines to be appropriate," public law investment arbitration typically states
that the "tribunal shall decide a dispute in accordance with such rules of law as may be
agreed." In the absence of such an agreement, the Tribunal will apply any applicable
international law rules. Investment treaties frequently feature umbrella clauses that elevate
investor-state contracts to BIT breaches.22 These investment treaties are acta jure imperii with
clear public law and public interest features, as opposed to concession contracts made by a
state jure gestionis (though without prejudice to state immunity from execution). Despite the
increased visibility of investment arbitration, commercial arbitration maintains its
confidentiality and seclusion of proceedings. Unlike commercial arbitration rulings, which
are kept confidential unless expressly consented to or challenged in national courts, public
investment arbitration procedures and verdicts are becoming more widely publicized,
contributing to the development of legal precedent. Although the lex arbitri may be
significant in commercial arbitration for acquiring evidence and for national courts' support
or annulment, investment arbitration creates a self-contained regime that is not subject to
local courts. Finally, the international legal obligation to enforce commercial awards under
Article III of the New York Convention is subject to limited judicial scrutiny by domestic
courts; awards made under ICSID procedures must be executed without further investigation
by domestic courts and are only subject to ICSID annulment processes. 23The ideas of
contractual justice are reflected in the commercial law principles of party autonomy,
22 Chorzow Factory Case (Germany v Poland) (1928)
23 ibid
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21
contractual independence, agreed-upon mediation, and secret arbitration. Private arbitrators
have a clear vested interest in interpreting the law.
Their mission as being confined to resolving disputes for the advantage of their clients and
ignoring human rights considerations that were not made by the parties. Privately negotiated
arbitration, on the other hand, implies responsibilities to behave "judicially" by ensuring a
fair trial and due process of law, as well as maintaining public order. In some jurisdictions,
concurrent court control is not possible; as a result, the aggrieved party must wait until the
processes are completed before challenging the award. Investor-state disputes are frequently
included in public law instruments, which recognize investor-state disputes, even if they
entail contract claims rather than treaty claims.24 Many additional aspects of investor-state
arbitration reflect the public law components of investor-state conflicts. For example, they
could be used to substitute domestic court litigation and diplomatic protection, provide
remedies for violations of international law, or make it easier for amici curiae petitions to be
accepted by arbitral tribunals. The famous Liith case by the German Constitutional Court in
1958, which involved a private boycott against a film directed by a former Nazi film director,
exemplifies the potential importance of constitutional law and human rights for the
interpretation and legal protection of private law. The ECJ prioritizes respect for fundamental
economic freedoms and labor rights in private-sector relationships, just as the ECtHR
emphasizes the European Convention on Human Rights' objective constitutional order. The
fact that commercial investor-state arbitration is based on mutual consent does not mean that
concession contracts are exempt from constitutional law, regulatory state authorities, and
human rights. The stated acknowledgement in the EU Charter of Basic Rights that European
fundamental rights "entail responsibilities and duties with regard to other persons, the human
community, and future generations," as well as the case law of European courts, shows how
"principles of fairness" and other constitutional limitations in international law can affect and
limit private and commercial law procedures, such as investor-state arbitration based on BITs
between EU member states.25
Chapter 7: Conclusion and suggestions
24 Jeswald Salacuse, The Law of Investment Treaties (Oxford University Press, 2010
25 ibid
21

22
There is no compelling economic case for paying private economic actors as a result of
regulatory reform. Still, there is a credible argument that treaty protection might encourage
FDI by insulating the investor from a "hold-up" situation in which the host state takes rents
from the investor ex post through regulatory change after the investor has invested significant
expenditures into asset-specific investments. Due to the exorbitant processing costs of
establishing comprehensive contracts, it is nearly difficult to anticipate every possible
regulatory intervention that could be used to “hold up” the investor ex post in a contract ex
ante. However, it is unclear why treaty protection is required to resolve the backlog. In many
cases, a contractual solution may be superior since the host state may tailor the protection to
the investors it wants to attract; contracts can also cope with the incomplete contract problem
by containing not only fully detailed regulatory change obligations, but also generic criteria
typical of investment treaties, to which the adjudicator is given the job of appointing. The
concerns of regulatory freeze and accountability for essential regulatory adjustments should
make nations think twice about investment treaties and ISDS unless they have powerful
public policy exceptions and are construed and administered in the manner of a public law
court, attentive to the issues of public law and the political preferences of host nations. Anti-
protectionism is another reason for investment treaties that is rarely highlighted. The
application of traditional trade theory in economics to FDI under settings where global supply
networks work through the interdependence of trade (external contracting) and FDI appears
to be rather robustly supported (internal contracting). Discriminatory protective measures on
investment have the same effect on domestic and global welfare as discriminatory protective
measures on trade, misallocating resources and raising consumer prices. However, this
justification for investment protection suggests to a non-discrimination system with strong
public policy exceptions to address circumstances when there is a market failure or
overriding moral political concern that would justify discrimination, enforced primarily
through state-to-state dispute settlement, ideally in a multilateral forum. Arbitration of
investment disputes was originally conceived as a rule of law substitute with the goal of
depoliticizing disputes between “Western” investors and their governments, as well as
countries ideologically opposed to contractual and property rights protection and direct
access to justice for capital in their domestic systems. With the fall of communism and the
general move to liberal democracy in many parts of the world, this explanation has only
minor relevance. Using investment protection principles as a substitute for rule of law in
general, i.e., in developing or transitional countries with poor governance and legal
22

23
institutions, does not change the fact that what is required for development is rule of law. In
any event, critics of ISDS have identified severe rule of law flaws in the current system of
arbitration, making it particularly difficult to argue that investor-state arbitration is superior to
domestic rule of law in developing or transitional economies. The EU ICS model performs a
positive function in substituting for domestic rule of law shortcomings to the extent that ISDS
plays a positive function in substituting for domestic rule of law shortcomings. A multilateral
court system is best adapted to providing standing or intervention to a diverse variety of
actors with international justice concerns involving foreign investment.
1.9 BIBLIOGRAPHY
PRIMARY SOURCE
Case:
 Asian Agricultural Products Ltd. (AAPL) v Republic of Sri Lanka
 Chorzow Factory Case (Germany v Poland) (1928)
 Kressin v Germany (2009)
 Spaeth v Germany
 Rumpf v Germany
 Lithgow and Others v United Kingdom
Legislations:
 Convention on the Settlement of Investment Disputes between States and Nationals
Of
Other States (1965).
 Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
 ICSID Convention
 United Nations Commission on International Trade Law
 Transatlantic Trade and Investment Partnership Agreement
SECONDARY SOURCES
Books:
 Mantilla Blanco , Sebastian-Full Protection and Security in International
Investment Law (2019)
 Sangwani Patrick Ngambi , Resource Nationalism in International Investment Law
(2015)
23

24
 Stephan W Schill, The Multilateralization of International Investment Law
(Cambridge University Press, 2009)
 Laurence Shore and Matthew Weiniger, International Investment Arbitration –
Substantive Principles (Oxford University Press, 2007)
 Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford University
Press, 2007)
 Jeswald Salacuse, The Law of Investment Treaties (Oxford University Press, 2010)
Website and Blogs
 Giovanna E Gismondi, International Investment Law and Arbitration: History,
Modern Practice, and Future Prospect, <
https://www.researchgate.net/publication/323024291_International_Investment_L
aw_and_Arbitration_History_Modern_Practice_and_Future_Prospects> accessed
on 3rd MAY,2021.
 Perry E. Wallace, International Investment Law and Arbitration, Sustainable
Development, and Rio+20: Improving Corporate Institutional And State
Governance, < https://core.ac.uk/download/pdf/235407946.pdf> accessed on 12th
May,2021.
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