Brooklyn Journal of International Law

First Page



This article analyzes litigation and arbitration as commonly used methods for dispute resolution, more particularly between foreign investors and host states. It compares investor-state dispute settlement (ISDS) via investor-state arbitration with dispute resolution via domestic courts in the host state. The article adopts a goal-based approach for assessing the effectiveness of international adjudication and analyzes the extent to which the current ISDS system is aligned with its predetermined goals. The article starts by identifying four goals of ISDS: 1) fair and efficient dispute resolution, 2) norm compliance, 3) facilitating the objectives of the investment law regime, and 4) legitimizing the investment treaty regime. The identification process is followed by an examination of the extent to which ISA in its current form is able to serve these goals. In this regard, the paper examines systematically the traditional theoretical assumptions underlying the goals of ISDS as well as the assumptions on the basis of which ISA is often advanced to reach those particular goals. For every separate topic, a reality check is performed to verify the extent to which ISA is able to reach the expressed goals in practice. The analysis of each of the four goals concludes with a summary where the strengths and weaknesses of ISA are compared to the functioning of domestic courts. Finally, the article comes to nuanced conclusions pointing at the complicated reality concerning the dynamics between investment tribunals and domestic courts, arguing that investment arbitration does have its unique advantages over domestic courts in advancing the goals of ISDS, but that for some aspects (such as awarding primary remedies) domestic courts may have particular advantages as well. It is for this reason that this article argues for a refined smart mix of court litigation and investment arbitration as an updated form of ISDS, allowing for example foreign investors to proceed to investment arbitration should court proceedings fail to resolve investment disputes. The unique and innovative character of the paper therefore consists of taking a different approach than the traditional one where investment arbitration and court litigation are often opposed. The article argues in favor of a smart mix of both systems by relying on a goal-based approach focusing on which smart mix of investment arbitration and court litigation could constitute an ideal institutional choice to meet the expected goals of ISDS.