Attempts at resolving investor-state disputes by ad hoc arbitration in a conventional manner seem to have drastically failed. Since the conventional method of international commercial arbitration, it has resulted in being a bridge too far. Churchill claimed that investment arbitration has mostly resulted in being seen as one of the worst alternatives except for all others.
Up until most of the last quarter of the twentieth-century international law was deemed to be law primarily pertaining to the international conduct of states and not in turn of citizens. More than a hundred years ago in April 1910, in his presidential address to the American Society of International law, Elihu Root had claimed that the considerable accumulation of capital in the money centers of the world, far in excess of the opportunities for home investment, has resulted in a massive increase of international investment which has extended over the entire length and breadth of the earth, and these investments have naturally resulted in citizens from various investing countries ending up prosecuting and caring for the enterprises in other countries where these particular investments were previously made. All these forms of peaceful interpenetration among the nations of the earth have naturally contributed towards instances of citizens justly or even unjustly being wholly dissatisfied with the treatment meted out to them from foreign countries and have called upon their respective governments for protection.
Elihu Root’s analysis was reflected presciently in a judgment of the Permanent Court of International Justice in the Mavrommatis Palestine Concessions case. Wherein, the Government of the Republic of Greece had instituted proceedings at the PCIJ arising out of the refusal on the part of the government of Palestine than a virtually mandated territory administered by the Government of the United Kingdom to recognize to the full extent the rights acquired by a particular greek subject, namely M. Mavrommatis, in lieu of the contracts and agreements concluded by him with the Ottoman authorities in regard to particular specific public works to be constructed in Jaffna.
Article 26 of the Palestine mandate, by handing over jurisdiction to the Permanent Court of International Justice does not in fact, solely lay down that there should be a dispute which is required to be settled eventually. The article goes on to state that the dispute must be between the mandatory and another member of the League of Nations. It is an elementary and fundamental principle of international law that a particular state is entitled to protect its subjects when injured by acts that are in contravention to international law committed by another state.
The question henceforth arose regarding whether the present dispute originates in an injury to a private interest, which in point of fact is the case in various international disputes, it is wholly irrelevant from this particular standpoint. Once a state has taken up a case on behalf of one of its subjects before a particular international tribunal, in the eyes of the latter the state is mainly its sole claimant. The very fact that Great Britain and Greece are the opposing parties to the dispute arose from Mavrommatis concessions it is sufficient to make hence it a dispute between two states within the meaning of Article 26 of the Palestine mandate on the whole.
What was judicially recognized and acknowledged as an “elementary principle of international law” was deemed mainly ineffective in the form of investment protection, since as and when the claimant’s investor-state was unwilling to take up its case for the reasons which in itself had nothing to do with the merits the claimant was left without any possible remedy.
Source: Harmony amidst Disharmony: The International Framework: Fali S Nariman