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The development of “modern” investor-state dispute settlement by arbitration (often referred to as ISDS) can be traced in the second half of the twentieth century. It coincided with (or perhaps even emerged from) the beginning of the decolonisation: it is thought to have been brought about by concerns about protection of foreign property and, also, foreign direct investment (FDI) in fora other than national courts. With the wave of nationalisation of oil concessions from the 1950s to the 1970s pursuing claims against states before their own domestic courts was not an option attractive or acceptable to foreign investors. Arbitration was considered a fair, neutral and depoliticised method and the only viable option by which disputes could be resolved. All these disputes were arbitrated on the jurisdictional basis of arbitration agreements negotiated before or even after the dispute has arisen.
In March 1965 the Washington Convention was agreed upon and entered into force in October 1966. This Convention on the Settlement of Investment Disputes between Investors from a contracting state and another contracting state created (a) a procedural framework for the settlement of investment disputes, (b) a new international organisation within the World Bank Group and (c) an arbitral institution dedicated to investment disputes. While the Convention does not provide for consent to arbitration or conciliation / mediation it has emerged as the leading framework for the settlement of investment disputes. As per the most recent statistics ICSID has registered so far 888 cases. The overall number of known ISDS cases exceeds 1200. Over the years, ICSID, in its capacity as an international organisation and arbitration institution, has “expanded” its scope, especially via the introduction of the Additional Facility which gave a broader access to the ICSID case management. ICSID is universally acknowledged as an independent, cost-effective, and efficient centre for resolution of investment disputes. As a result, ICSID now has 165 signatory states of which 157 have also ratified the Convention.
In addition to the cases registered with ICSID, several ISDS cases have been registered with the International Chamber of Commerce (ICC), the Stockholm Chamber of Commerce Arbitration Institute (SCC) or the London Court of International Arbitration (LCIA) and other institutions. A substantial number of cases has been referred to ad hoc arbitration pursuant to UNCITRAL Rules.
The basis of substantive protection in ISDS is to be found in public international law of state responsibility, both customary international law and international treaties. Amongst them primary role is assumed by International Investment Agreements (IIAs) which can be either Bilateral Investment Agreements (BITs, at least 2872 are known, of which 2231 are currently in force) and Multilateral Agreements, whether Free Trade Agreements (FTAs) or other Treaties with Investment Provisions (TIPs, of which 429 are known and 335 are in force). Some more recent treaties include the so-called mega regional treaties, such as CPTPP.
There has been an undisputed evolution of IIAs. While the early ones were generally concise and focused primarily on investment promotion and protection more recent BITs are lengthier and, also, address investment admission and regulation and provide for counterclaims and state defences. While the majority of IIAs also provides for resolution of disputes by arbitration (ICSID, ICSID Additional Facility, other institutional or ad hoc arbitration), in recent years there has been suggestions to develop a multilateral investment court (or investment court system). It appears that the majority (but by no means all) of IIAs signed in 2022 contain a consent to arbitration and resort to arbitration remains the most common dispute resolution system pursuant to IIAs.
In the last 15 years there has also been an increased criticism of ISDS, partly by academic circles and partly by non-governmental organisations. ISDS has been labelled a secret justice system, driven by multinational corporations and exclusively for the benefit of law firms, lawyers and arbitrators. It has also been alleged that IIAs are one-sided and favour investors, that investors get a better chance of winning and that ISDS is costly for all states and even more so for developing countries. While ICSID and the ICSID Convention have not been directly criticised, the Energy Charter Treaty (ECT) has been the recipient of severe and unfair criticism. At the same time matters such as climate change and accountability and integrity of public officers have been discussed in ISDS cases. It is not uncommon, for example, that corruption is being discussed by investment tribunals while no (further) action is taking place in domestic courts. In addition, environmental protection and human rights have been raised as counterclaims by state parties.
No system is perfect, and every system is capable of improvement. Some of these criticisms are rather emotional and unsubstantiated. Hence, it comes as no surprise that ICSID adopted a series of procedural reforms and there are also reform projects within the United Nations Commission on International Trade Law (UNCITRAL) and the ECT.
A T20 Working Group I led during the G20 in Saudi Arabia suggested a more holistic approach towards reform of ISDS by looking at IIAs as a whole rather than just focus extensively on dispute resolution. It is effectively the idea of “not putting the cart before the horse”. Moreover, in 2019/2020 Queen Mary University of London conducted a survey with the support of Corporate Counsel International Arbitration Group (CCIAG) to ascertain the views of business and in-house lawyers in respect of ISDS reforms.
It is therefore a fair conclusion that in the current (“modern”) ISDS system we have a system of governance of IIA which although still quite young it appears to work well for both states and investors. It is depoliticised and legal dispute settlement method which has slowly developed a body of case law and substantial academic commentary. While there is no strict doctrine of precedent in international law the existing corpus of case law can provide useful guidance to both parties and tribunals. Consequently, there is an independent and anational forum to discuss issues of state responsibility and breaches of treaties in relation to investments; states can also raise defences (such as corruption) and counterclaims and fair quite well on balance.
Every reform or recalibration effort is and ought to be welcome. There are four main options to states and international organisations: (a) they may decide to do nothing and simply keep the ISDS system as is; (b) they may decide to incorporate several improvements towards efficiency and transparency and objectively we are already moving in that direction; (c) they may decide that we need some additional layer to ensure consistency and enhance legitimacy, most likely in the form of an appellate body, that is keep arbitration as the primary ISDS form but introduce a permanent appellate body to deal with appeals on limited grounds as finality is an important aspect of ISDS; and (d) states may decide to opt for a nuclear option and stop all form of arbitration either by introducing a permanent investment court system or simply have all disputes referred to national courts.
All the evidence suggests that ISDS works and hence option (d) appears to have more flaws and drawbacks rather than advantages: if national courts were the only option, then investors would avoid courts as much as they can. If a permanent court was the only option, then there are issues of selection of judges, efficiency, funding of the whole process and it is probable that investors would also reject such option. Hence the only viable proposals are either (b) or (c) and there are merits for both. Opting for one or the other is a matter of ideology: more party autonomy in (b) or more centralised control of outcomes in (c). Still, both provide for ample respect of party autonomy (an appellate body is a potential useful Damocles sword to be used sparingly) and hence are welcome.
Ultimately, ISDS and IIAs promote investment (and not investors) and foreign direct investment is acutely needed in times of financial downturns or crises so that IIAs and ISDS are critical for a well-functioning global economy. So why fix something which is not broken? Hence, recalibration and reform are in this respect better than revolution.
 The most recent statistics are from summer 2022: ICSID Releases New Caseload Statistics for the 2022 Fiscal Year | ICSID (worldbank.org)
 IIA Issues Note, No. 1, 2022 - Facts on Investor-State arbitrations in 2021: With a special focus on tax-related ISDS cases (unctad.org)
 The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11 or TPP-11, is a trade agreement among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. See Home - CPTPP.
 The revised ICSID Rules entered into force on 1 July 2022. More at ICSID Rules and Regulations Amendment | ICSID (worldbank.org)
 Working Group III: Investor-State Dispute Settlement Reform | United Nations Commission On International Trade Law
 Reforming investor-state dispute settlement and promotion of trade and investment cooperation - G20 Insights (g20-insights.org)
 2020 International Arbitration Survey: Investor-State Dispute Settlement (ISDS) - School of International Arbitration (qmul.ac.uk)
 UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (effective date: 1 April 2014) | United Nations Commission On International Trade Law
 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) (the "Mauritius Convention on Transparency") | United Nations Commission On International Trade Law. The treaty entered into force in 2017 and only has 9 parties.
 Loukas Mistelis, "Efficiency. What Else? Efficiency as the Emerging Defining Value of International Arbitration: between Systems theories and party autonomy", in Thomas Schultz and Federico Ortino (eds.), The Oxford Handbook of International Arbitration, Oxford University Press 2020, 349-376. An earlier version was published in Queen Mary School of Law Legal Studies Research Paper No. 313/2019, at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3372341
 Loukas Mistelis et al, “Duration of Investor-State Dispute Settlement Proceedings, Journal of World Investment & Trade 21 (2020) 300–335 (co-author with Alvarez-Zarate et al).
 Code of Conduct for Adjudicators in International Investment Disputes | ICSID (worldbank.org) and Code of conduct | United Nations Commission On International Trade Law. Both sites contain additional resources.
 Vienna Convention on the Law of Treaties (1969) (un.org) and articles 31-33.