directly to the defendant state or to bring it before an international tribunal.381
The Inter-Arab Agreement on the mutual promotion and protection of investments (1980)382 established the Arab Investment Court, which is competent to resolve any dispute between states-parties or between Arab investors and host countries. Article 31 of the Agreement states that the Arab investor first addresses the justice system of the state in which he made the investment. In the event of conflicts of jurisdiction between the Arab Investment Court and national courts, international jurisdiction of the Court shall prevail.383
The dispute settlement regulations included in the Investment Agreement of the Organization of the Islamic Conference (1981, now under the name Organization of Islamic Cooperation) offer the opportunity to present disputes for national or international arbitration, without having to exhaust local remedies.384 The same applies to the international arbitration procedure specified in the ASEAN Investment Agreement.385 NAFTA includes an arbitration procedure for settling disputes between the state and the investor.386 ICSID also defines its own procedures for settling disputes between the state and the investor.387 The Energy Charter Treaty discusses dispute settlement mechanisms, distinguishing between the investor and state disputes and the disputes between states-parties to the agreement. The investor may decide to submit the dispute to the courts or administrative tribunals of a state that is a party to the dispute or in accordance with any applicable, previously agreed dispute resolution procedure, and may decide to submit the dispute for international arbitration or conciliation. Recourse to administrative courts is therefore treated as an option, not as an obligation.388
Despite the controversy and uncertainty indicated, almost all of the above-mentioned acts emphasize the right of states to freely choose dispute resolution measures for nationalization and compensation. This freedom includes the right to demand the exhaustion of local resources in the context of a dispute between the host country and the foreign investor, as well as the freedom to resort to other peaceful means, to which interested parties freely agreed. This position is also reflected in the Seoul Declaration, which states that disputes must be settled by peaceful means chosen by the interested parties and that the principle of local remedies should be respected, if applicable.389 The use of the phrase “interested parties” indicates that it also includes international arrangements between the states and foreign investors.
3.5.2.5 The right to resolve disputes based on national law
Although both Resolution 1803 (XVII)390 and the Charter of Economic Rights and Duties of States (CERDS)391 provide that compensation should be “appropriate”, they differ essentially in the law applicable to its determination. The first relates primarily and the second exclusively to the national law of the nationalizing state. Resolution No. 1803 (XVII) also refers to international law,392 while CERDS only adds, after expressing “its relevant laws and regulations”, the phrase “and all circumstances that the State considers pertinent”.393 It is obvious that such formulation may result in wide discretionary state powers, but according to CERDS, the state of nationalization remains bound by its national law, in accordance with the Calvo doctrine. The situation is different in Resolution No. 3171 (XXVIII)394 and UNCTAD Resolution No. 88 (XII),395 which do not indicate the applicable law. The arbitration rules of the UN Commission on International Trade Law UNCITRAL (1976)396 define in Article 33 that arbitration tribunals must apply the law determined by the parties as relevant to the substance of the dispute.397 In the absence of such an agreement, the court must apply the law determined by the conflict-of-law rules it deems appropriate, and rule in accordance with the terms of the contract, taking into account the commercial usage applicable to the transaction.
Article 42 of the ICSID Convention (1965) indicates that arbitration tribunals should settle disputes in accordance with such law as the parties to the dispute have agreed. In the absence of an agreement on this subject, the court applies the law of the host state (including its conflict rules) and the rules of international law that may apply in a given case. The Inter-Arab agreement on the mutual support and protection of investments also makes provision for the law applicable to dispute resolution and provides that compensation for expropriation is to be paid in accordance with the generally applicable legal regulations governing expropriation.398 The Energy Charter Treaty, on the other hand, provides that arbitration tribunals resolve disputes in accordance with this Treaty and the relevant rules and principles of international law.399
The issue of law selection has been included in a number of arbitral awards. Most of them recognize the freedom of the parties to choose the law to which the contracts and procedures applicable to arbitration are subject. An example of this can be the three Libyan oil concessions which included clauses of the applicable law.400
Non-binding instruments other than UN resolutions contain only general indications on the subject matter. The ICC guidelines require respect for international law in reference to the treatment of foreign property.401 The Draft United Nations Code of Conduct on Transnational Corporations provides rather broadly that adequate compensation is to be paid in accordance with applicable laws and rules, and thus avoids determining whether priority should be given to national or international law.402 Similarly, World Bank guidelines only point to the application of “applicable legal procedures”.403
Therefore, national law generally has priority in the event of a dispute between the host state and foreign investor. If the dispute cannot be resolved under national law, international law should be recognized as appropriate.
3.5.3 The duty to respect international law and treat foreign investors fairly
The main resolutions on permanent sovereignty require the states, as part of their permanent sovereignty, to respect the rights of other states and fulfill international commitments in good faith. Apart from bilateral and multilateral investment agreements, the duty to ensure fair treatment of foreign investors is seldom referred to directly in other acts of international law. The African Charter on Human and Peoples’ Rights confirms that the free management of wealth and natural resources should be exercised without prejudice to the duty of international economic cooperation based on mutual respect, fair exchange, and principles of international law.404 The UN Convention on the Law of the Sea also explicitly states that coastal states in the exercise of their rights in the exclusive economic zone should duly take into account the rights and obligations of other states.405 The rights of other states in the exclusive economic zone cover three of the four maritime freedoms.406 The exercise of rights by the coastal State with regard to the continental shelf shall not, however, affect or cause the disruption of navigation and other rights and freedoms of third states provided for in the Convention.407 What is more important are the general regulations of the Convention relating to the question of good faith and abuse of law.408
With regard to the multilateral agreements related to investments, the ICSID Convention contains one important reference to the application of international law and provides that in the event of disagreement regarding the law applicable to the interpretation and scope of the contract, the court applies the law of the host state party to dispute and such principles of international law that may apply.409 According to the Arab Investment Agreement, the host country undertakes only to protect the investor and to protect its investments and rights.410 Similarly, the ASEAN Investment Agreement,411 the NAFTA,412 and the Energy Charter Treaty413 guarantee investors and other contractors fair and equal treatment as well as full protection and safety.
Bilateral investment treaties as agreements to constitute an incentive for foreign investors also usually require the fulfillment of international obligations and fair treatment of investors.414
Judgments of international courts and tribunals offer a lot of evidence demonstrating that international law and the laws of other states should be respected. This is clear, for example, from the judgment of the ICJ in the Barcelona