In response to an earlier post on the 31-year gap between the first investment investment agreement (IIA) and the first investor-state dispute, an astute reader notes that the early deals (like the 1959 Germany-Pakistan agreement) didn’t include investor-state dispute settlement.
It wasn’t until a decade later that investors got that right, in Italy’s bilateral investment treaty with Chad. And it wasn’t until 1993 that a majority of developing countries had even one IIAs with strong investor-state procedural protections, and Germany didn’t begin transitioning its treaties to this model until 1988 (Yackee, 2007: 31-35). Meanwhile, the first award rendered under an IIA came only in 1990, in a challenge by a UK investor against Sri Lanka (Parra, 2012: 183).
That said, marrying the substantive and procedural rights of IIAs are not some latterly innovation. In 1958, a commission led by Deutsche Bank chairman
Hermann Abs and former UK Attorney General Hartley Shawcross proposed a draft international convention that gave investors both.
A quick perusal of the text reveals the following article:
Article VII1. Any dispute as to the interpretation or application of the present Convention may, with the consent of the interested Parties, be submitted to an Arbitral Tribunal set up in accordance with the provisions of the Annex to this Convention. Such consent may take the form of specific agreements or of unilateral declarations. In the absence of such consent or of agreement for settlement by other specific means, the dispute may be submitted by either Party to the International Court of Justice.2. A national of one of the Parties claiming that he has been injured by measures in breach of this Convention may institute proceedings against the Party responsible for such measures before the Arbitral Tribunal referred to in paragraph 1 of this Article, provided that the Party against which the claim is made has declared that it accepts the jurisdiction of the said Arbitral Tribunal in respect of claims by nationals of one or more Parties, including the Party concerned.
“in some countries there has been a tendency to disregard them… However, international trade and commerce cannot thrive and prosper in an atmosphere of doubt and uncertainty. The need, therefore, arises of restating rules of mutual conduct of states in a convention which will assure to the nationals of the participating countries such measure of security and protection of their property, rights, and interests as is indispensable to encourage the flow of foreign investments.”
“The result is a curiously incoherent doctrine which is ad hoc and survives only because it is such… To avoid utopianism, we must establish the law’s content so that it corresponds to concrete State practice, will and interest. But to avoid apologism, we must argue that it binds the State regardless of its behaviour, will or interest. Neither concreteness nor normativity can be consistently preferred… international law is singularly useless as a means for justifying or criticizing international behavior. Because it is based on contradictory premises it remains both over- and underlegitimizing: it is overlegitimizing as it can be ultimately invoked to justify any behavior (apologism), it is underlegitimizing because incapable of providing a convincing arument on the legitimacy of any practices (utopianism)…” (at 63-67)
“It has, moreover, been felt to be important to make some provision enabling the private investor himself to pursue an international remedy. The notion that an individual may enjoy a right of access directly to an international tribunal is not new. Procedural capacity of this character was enjoyed by individuals in relation to the Central American Court of Justice and certain mixed arbitral tribunals, and is enjoyed by them today in relation to such diverse bodies as the Court of the European Community, the European Commission of Human Rights, and the administrative tribunals of the international organisations. It is, therefore, no real departure from legal tradition to suggest that similar rights be conferred on individuals in connection with investment matters.”
“The concession agreements between Arab states and Western MNCs that were the subject of the disputes contained arbitration clauses that provided, in the event of a dispute, for the resolution of the dispute by an arbitral tribunal that was to be established in the manner provided for in the clause. It was uncontested that in usual circumstances, the agreements would be governed by the laws of the host state. Thus, in the words of the arbitrator, Lord Asquith of Bishopstone, in the  Ruler of Abu Dhabi Case: “What is the ‘Proper Law’ applicable in construing this contract? This is a contract made in Abu Dhabi and wholly to be performed in that country. If any municipal system of law were applicable, it would prima facie be that of Abu Dhabi.”This position, which is no more than a restatement of the classic principles of international law, was, however, rejected by Lord Asquith,
who magisterially pronounced that the domestic law of Abu Dhabi was inapplicable because no such law can reasonably be said to exist: “The Sheikh administers a purely discretionary justice with the assistance of the Koran; and it would be fanciful to suggest that in this very primitive region there is any settled body of legal principles applicable to the construction of modern commercial contracts.” ” (at p. 226-227)