II History and Limitations of the Traditional System for Resolving Investment Disputes

Subject(s):

Foreign Direct Investment — Investor — Choice of law — Host state law

This chapter discusses the history and limitations of the traditional system for resolving investment disputes. Foreign investors often encounter serious obstacles to obtaining redress in the host country’s courts. These include local bias, state immunity, inefficient judiciaries, and the Calvo Doctrine. As a result of these potential shortcomings, foreign companies frequently look to courts in other countries with a factual connection to the dispute, most often the investor’s domicile. However, they then face an entirely different, but no less challenging, series of obstacles. These include jurisdiction, foreign sovereign immunity, the act of the state doctrine, and choice of law. In addition, foreign investors have at times met with political hostility in response to attempts to recover their investments. Foreign investors historically had little choice in terms of available judicial remedies. A more common and less extreme channel of recourse, and one still occasionally used today, was diplomatic espousal by the investor’s home state.