6 - Mechanisms for Dispute Settlement

Summary

Equally as important as the type of forum used in investment dispute settlement is the mechanism for dispute settlement. The two primary options discussed here are state-to-state dispute settlement, which encompasses the principle of diplomatic espousal, and ISDS, which encompasses the Calvo Doctrine. This chapter will discuss the fundamental aspects of both mechanisms, including the positives and negatives of each, from the perspective of developing states and foreign investors carrying out business in said states.

1. STATE-TO-STATE DISPUTE SETTLEMENT

State-to-state dispute settlement was, for a long time, the only means of resolving disputes that arose between an individual of one state, regardless of whether or not he or she was a state actor, and an individual of a foreign state, or that state itself. The principle of diplomatic espousal – the underlying principle giving rise to state-to-state dispute settlement – enshrines the idea that individuals with claims against a foreign country should rely on their home state to utilise diplomatic means to resolve the dispute with the foreign state. This was one of the primary principles of international law before the implementation of human and individual rights and was centred around the belief that only states were involved in international matters and, therefore, only states had rights by and between other states. Traditional international law, in other words, did not confer rights on individuals, regardless of nationality, and, therefore, individuals were unable to sue or be sued under international law. Instead, individuals had to rely on the intervention of their home governments to be heard.

It is important to note here that the state-to-state settlement mechanism relied heavily on the understanding that individuals with claims against a state, or other individuals from another host state, would first need to exhaust all domestic remedies before raising their claim to the international level. According to the International Law Commission, this principle is still applicable within the realm of diplomatic protection. In 2006, that body, in its Draft Articles on Diplomatic Protection, stated that a state “may not bring an international claim in respect of an injury to a national … before the injured person has … exhausted all local remedies”. This is important to note at this point, as it stands in stark contrast to the ISDS mechanism that will be discussed in the following pages, which has given rise to a great deal of angst among African nations.