In this chapter, Eric De Brabandere zeroes in on the settlement of disputes in the context of investment arbitration. This chapter accepts that the case law of the current investor-State dispute settlement system is inconsistent and unpredictable and requires reform. However, this chapter claims that the problems associated with the dispute settlement system for investment arbitration cannot be isolated from broader questions on the coherence of general international law, the determinacy of legal norms, and the role of arbitral tribunals in the interpretation of these norms. The chapter argues that coherence is a matter of degrees and that a ‘middle ground’ might be to consider that international investment law forms part of international law, which is a coherent legal system from the perspective of the sources or the secondary norms of international law. Consistency, on the other hand, is not completely achievable in the current investment landscape, given its lack of uniformity in terms of substantive law and ad hoc method of dispute settlement. Consistency must be sought through different options, such as redrafting investment treaties to ensure better balance and predictability of outcomes.

The growth and development of the United Nations as the major universal organisation has been accompanied by a no less dramatic increase in the number and range of organisations with membership drawn from the states of a particular region. Such regional organisations frequently become involved in the resolution of disputes.1 Sometimes this is because dispute settlement has been defined as a goal of the organisation. Article 4(e) of the Constitutive Act of the African Union, for example, lays down as one of its aims the peaceful resolution of conflicts between member states, and similar provisions can be found in the constitutions of other organisations. But even organisations whose primary concern is with matters of no present relevance may find themselves involved in some form of settlement activity. For bringing states together in an institutional setting provides the parties to a dispute with an opportunity to settle their differences and regional neighbours with the chance to add their encouragement, assistance and pressure as an incentive.

The eclectic character of the method is at once apparent. The Conciliation Commission in the ‘Timor Sea Conciliation’ explained that conciliation ‘seeks to combine the function of a mediator with the more active and objective role of a commission of inquiry’.2 If mediation is essentially an extension of negotiation, conciliation puts third-party intervention on a formal legal footing and institutionalises it in a way comparable, but not identical, to inquiry or arbitration. For the fact-finding exercise that is the essence of inquiry may or may not be an important element in conciliation, while the search for terms ‘susceptible of being accepted’ by the parties, but not binding on them, provides a sharp contrast with arbitration and a reminder of the link between conciliation and mediation.

When the parties to an international dispute are unable to resolve it by negotiation, the intervention of a third party is a possible means of breaking the impasse and producing an acceptable solution. Such intervention can take a number of different forms. The third party may simply encourage the disputing states to resume negotiations, or do nothing more than provide them with an additional channel of communication. In these situations, the intermediary is said to be contributing ‘good offices’. On the other hand, the assignment may be to investigate the dispute and to present the parties with a set of formal proposals for its solution. As we shall see in Chapter 5, this form of intervention is called ‘conciliation’. Between good offices and conciliation lies the form of third-party activity known as ‘mediation’.1

Having reviewed the various ways of attempting to resolve international disputes individually, we are now in a position to consider what this survey as a whole demonstrates about the possibilities open to a state when confronted with a dispute, the factors which influence decisions on whether to use a particular procedure and the prospects for improving this situation in the future. To deal with these issues it will be necessary to consider separately some of the legal and political factors which form the context in which decisions relating to the conduct of disputes are taken, and then to suggest some ways of modifying or developing current methods of settlement with a view to making them more effective and easier to use. First, however, it may be useful to recall in brief outline what our study has revealed about the present situation.

When a disagreement between states on some issue of fact, law or policy is serious enough to give rise to an international dispute, their views on the matter in question may be difficult or impossible to reconcile. In such a case, either or both of the parties may refuse to discuss the matter on the ground that their position is ‘not negotiable’. Alternatively, negotiations may drag on for years until one side abandons its claim or loses patience and attempts to impose a solution by force. It follows that negotiation, even if assisted by good offices or mediation, cannot be regarded as an adequate means of resolving all international disputes.

Disputes are an inevitable part of international relations, just as disputes between individuals are inevitable in domestic relations. Like individuals, states often want the same thing in a situation where there is not enough of it to go round. Moreover, just as people can disagree about the way to use a river, a piece of land or a sum of money, states frequently want to do different things, but their claims are incompatible. Admittedly, one side may change its position, extra resources may be found, or, on looking further into the issue, it may turn out that everyone can be satisfied after all. But no one imagines that these possibilities can eliminate all domestic disputes and they certainly cannot be relied on internationally. Disputes, whether between states, neighbours, or brothers and sisters, must therefore be accepted as a regular part of human relations and the problem is what to do about them.

So far we have been concerned largely with arbitration between states and such disputes are, of course, the focus of this book. However, in some circumstances it is possible for private persons, who may be individuals or corporations, to engage in litigation with states. This is the situation in international investment arbitration when the home state of an investor and the host state (where the investment is located), are parties to an investment treaty containing a dispute settlement clause. Such a treaty may be a bilateral investment treaty (BIT), or a multilateral investment treaty (MIT) such as the Energy Charter Treaty (ECT), but in either case arbitration may be employed by the private investor without the involvement of the investor’s state. Although this is obviously not inter-state litigation, since this use of arbitration is now increasingly important, it merits discussion in a separate chapter. Since investment arbitration is a specific form of arbitration, much of what has been discussed in Chapter 6 is also applicable to this chapter. For example, the questions relating to the terms of reference, and how the proceedings are to be conducted and the definition of the issues to be decided by the arbitral tribunal are similarly decided by the parties.

The reference of disputes to international political institutions has a history as long as that of arbitration. For present purposes, however, it is unnecessary to go further back than 1919, when, with the creation of the League of Nations as a reaction to the First World War, the first attempt was made to establish a universal organisation with broad responsibilities in this area. Following the failure of the League, or more accurately its member states, to take effective action to forestall a second bloodbath, a fresh effort to bring disputes within the field of operations of a world organisation was made with the creation of the United Nations Organisation in 1945.1

Judicial settlement involves the reference of disputes to permanent tribunals for a legally binding decision. It developed from arbitration, which accounts for the close similarity between the two, and in various forms is now available through a number of courts of general or specialised jurisdiction. Examples of the latter will be considered when we examine the Law of the Sea Convention in a later chapter, but the advantages and limitations of tribunals of specialised jurisdiction will be more readily appreciated if we first consider the International Court.

The means available for the settlement of international disputes are commonly divided into two groups. Those considered so far, namely, negotiation, mediation, inquiry and conciliation, are termed diplomatic means because the parties retain control of the dispute and may accept or reject a proposed settlement as they see fit. Arbitration and judicial settlement, on the other hand, are employed when what is wanted is a binding decision, usually on the basis of international law, and hence these are known as legal means of settlement.

Article 33(1) of the UN Charter lists the various methods of peaceful settlement. The methods listed are not set out in any order of priority, but the first mentioned, negotiation, is the principal means of handling all international disputes.1 In fact in practice, negotiation is employed more frequently than all the other methods put together. Often, indeed, negotiation is the only means employed, not just because it is always the first to be tried and is often successful, but also because states may believe its advantages to be so great as to rule out the use of other methods, even in situations where the chances of a negotiated settlement are slight.

The development of special arrangements to deal with disputes involving international trade began in the middle of the last century and has now produced one of the most effective, as well as one of the most important, systems of international dispute settlement. Thus, in contrast to law of the sea disputes, which we have seen are subject to a system which came into force in 1994, trade disputes can be dealt with through arrangements which have been progressively refined, based on regional as well as general agreements. Since limitations of space preclude examining this complex network in detail, this chapter focuses on the central element and outlines the dispute settlement system of the World Trade Organization (WTO).