The uneasy delegation: conditional judicialization of international investment dispute settlement

Abstract

This article explores the paradoxes between judicialization and de-judicialization in the reform of Investor-State Dispute Settlement (ISDS). It critically assesses reform proposals from four dimensions relating to the judicialization of the mechanism: binding precedents, scope of jurisdiction, independence of investment tribunals, and accessibility of dispute settlement. It introduces the concept of ‘conditional judicialisation’, a phenomenon that reflects the increasing demand of states for the rule of law on the one hand and political control over ISDS tribunals’ decision-making on the other. Drawing insights from the delegation theory, it argues that conditional judicialization arises from an imbalanced delegation relationship, where states have delegated excessive power to investment tribunals and subsequently expose themselves to significant risk.

Judicialization of international politics generally refers to the expansion of the role of international courts and tribunals in global governance. The reform of the investor-state dispute settlement (ISDS) mechanism has presented intriguing paradoxes between judicialization and de-judicialization. States generally agree that certain judicial features of ISDS tribunals should be reinforced, such as independence and impartiality; some further advocate establishing regional or multilateral appellate mechanisms that might enhance the law-making power of ISDS tribunals. On the other hand, states are also seeking to tame the power of the ISDS mechanism by strengthening the use of decentralized avenues of dispute resolution (e.g. dispute prevention through treaty committees or local institutions) and imposing ex-post control mechanisms (e.g. binding joint interpretations). I call this phenomenon ‘conditional judicialisation’.

Drawing insights from international law and international relations theories, this article critically assesses the existing reform proposals regarding the judicialization of ISDS and canvasses the reasons behind the selective (de)judicialization of the functions of ISDS tribunals in the discourse of investment law reform. It argues that ‘conditional judicialisation’ reflects states’ increasing demand for political control over investment tribunals’ decision-making. The demand arises from the imbalanced delegation relationship in the existing ISDS mechanism: states have delegated excessive power to investment tribunals on a task that may expose themselves to significant risk. To be more specific, it first explains the notion of judicialization in international law and international relations literature. Then, it critically reviews the reform proposals relating to the judicialization and de-judicialization of ISDS and categorizes them into four dimensions: binding precedents, scope of jurisdiction, independence of investment tribunals, and accessibility of dispute settlement. The last section subsequently explains the reasons for the phenomenon of ‘conditional judicialisation’ through the lens of the delegation theory.

THE JUDICIALIZATION OF INTERNATIONAL POLITICS

It is widely recognized that the functions of international courts and tribunals extend beyond the settlement of disputes. As Lauterpacht succinctly highlighted, ‘judicial activity is essentially the last link in the chain of the crystallization of the rule of law’.¹ By applying abstract laws to concrete facts, international adjudicatory bodies simultaneously shape the evolution of international norms.

The proliferation of international courts and tribunals in recent decades gives rise to the notable judicialization of international politics. In brief, judicialization depicts the trend of expanding the role of international adjudicatory bodies in global governance.² From the perspective of institutionalists, judicialization refers to the phenomenon wherein states delegate a portion of their sovereign decision-making authority to international courts and tribunals.³ Here, delegation means ‘a grant of authority by two or more states to an international body to make decisions or take actions’.⁴ The functions of international adjudicatory bodies are multi-faceted: they are ‘agents’ acting on behalf of states to resolve disputes and ensure the enforceability of legal obligations⁵; at the same time, they inevitably act as ‘trustees’ or ‘fiduciaries’ that make independent decisions in light of the interests of broader beneficiaries.⁶ Typical features of a highly judicialized dispute settlement mechanism include broad jurisdiction of the adjudicatory body, independent judges with tenure, binding decisions, locus standi of private actors, and effective enforcement mechanisms.⁷

The delegation relationship between states and international adjudicatory bodies is dynamic. Daniel Abebe and Tom Ginsburg succinctly name this relationship ‘feedback politics’. If the benefit of delegating to courts is dramatically lower than that anticipated at the time of institutional design, states may take actions to de-judicialize the dispute settlement mechanism or take more radical measures such as refusing to comply with the judgements, denouncing or quitting the dispute settlement mechanism.⁸ The authors precisely point out that ‘judicialisation should not be viewed as a teleological process but subject to reversals’.⁹ International relations constructivist theorists, adopting a fundamentally distinctive approach, highlight that judicial decision-making relies upon the normative and social structure against which judicial practice takes place and, in turn, shapes the discursive and material substance of the legal regime.¹⁰

The tension between judicialization and de-judicialization has come to the forefront in the discourse of ISDS reform. The existing international investment dispute settlement mechanism is subject to various criticisms, for example, the alleged lack of impartiality of arbitral tribunals,¹¹ the lack of consistency between arbitral awards, and the insufficient consideration of the public interests in arbitral decision-making.¹² The shortcut to resolving many of the legitimacy flaws is to replace the existing ad hoc arbitration mechanism with a highly judicialized dispute settlement body, that is, an investment court with standing judges and an appellate mechanism. This approach is also adopted by influential political actors like the European Union.¹³ On the other hand, the more intriguing phenomenon is that states, including the EU itself, are also showcasing their perpetual demand for reinforced political control over dispute settlement procedures and decision-making. The question then arises as to how to reconcile—if reconciliation is possible—the competing demands for judicialization and de-judicialization in the reform of the legal system.

THE REFORM OF INTERNATIONAL INVESTMENT LAW BETWEEN JUDICIALIZATION AND DE-JUDICIALIZATION

This section will examine the proposed ISDS reform options from four dimensions of judicialization pertinent to international investment law. They cover various aspects of the dispute settlement procedure that determine the scope and depth of influence of investment tribunals on decision-making and law-making within the regime. The first dimension concerns the prospective effect of the tribunal’s judgements, that is, whether tribunals’ decisions will become binding precedents and thus exert a profound influence on the development of jurisprudence. The second dimension is the scope of jurisdiction of investment tribunals: the broader the scope, the more power a tribunal enjoys in deciding on issues within the legal regime. The third dimension is the independence of tribunals in terms of institutional settings and decision-making: a high level of independence ensures adjudicators the discretion in making judgements according to rules of law and minimizes political interference in decision-making. The fourth dimension is the accessibility of the dispute settlement mechanism, that is, the preconditions for potential claimants to submit disputes to the tribunal. The greater the accessibility of the dispute settlement mechanism, the more comprehensive the range of disputes that tribunals can adjudicate, resulting in a broader impact of their influence.

Binding precedents

The proposed multilateral investment court with an appellate tribunal epitomizes a highly judicialized dispute settlement mechanism since the decisions of the appellate tribunal will, de jure or de facto, become binding precedents and thus exert a profound influence on the development of norms within the legal regime. Unsurprisingly, it is one of the most controversial issues in the discourse of ISDS reform. The EU and its trade partners are the leading proponents of the court mechanism,¹⁴ while several other states are sceptical of or have different visions about the idea.¹⁵ For some countries, it is tempting to establish an appellate body to review the merits of arbitral decisions and correct ‘errors’ in law; conversely, they are reluctant to relinquish the power to nominate arbitrators.¹⁶ It is also debatable whether establishing appellate mechanisms for bilateral or regional treaties is more desirable than a multilateral court.¹⁷

Notably, in February 2024, the UNCITRAL WGIII issued the ‘Draft statute of a standing mechanism for the resolution of international investment disputes’, setting out the rules and procedures for the two-tiered dispute settlement mechanism.¹⁸ Under this draft statute, the appellate tribunal may hear appeals on both procedural grounds and substantive grounds (including both errors of fact and errors of law).¹⁹ While the draft statute is silent on whether decisions of the appellate tribunals are binding precedents, it can be expected that they will exert greater influence on the development of relevant jurisprudence than the existing ISDS mechanism.

In a multilateral court system, states can arguably tame the precedents by controlling the appointment of judges. This, however, can be delicate given states’ role as both potential respondents in ISDS and home states of investors.²⁰ Given their different positions in global investment flow, some may object to nominating adjudicators who are labelled as ‘pro-states’, and others may object to ‘pro-investors’ adjudicators. Although it is unclear how ‘balanced’ the composition of the judges will eventually be, the court mechanism at least gives states more ex-ante control over the selection of decision-makers compared to that in the existing ISDS mechanism, where one of the arbitrators will be nominated by investors.

Another development that may constrain appellate tribunals’ influence on norm evolution is the increase in the precision of treaty language. Take the fair and equitable treatment clause, for example: earlier versions of investment treaties stipulate that host states should provide ‘fair and equitable treatment’, without further elaboration of the meaning of the term; by contrast, recent investment treaties attempt to clarify the meaning of the obligation by enumerating its contents (eg denial of justice, non-discrimination, harassment and coercion, etc) and even excluding elements like legitimate expectations from the scope of the obligation.²¹ A higher degree of precision narrows investment tribunals’ scope of discretion and thus is a critical step in de-judicializing international investment law.

Scope of jurisdiction

States have demonstrated the demand for narrowing down investment tribunals’ scope of jurisdiction ratione materiae (ie subject matters that fall within the tribunal’s jurisdiction), particularly about domestic measures taken to improve the economic and social well-being of its people.²² In response to states’ concerns over the right to regulate for public purposes, the UNCITRAL WGIII prepared a draft ‘right to regulate’ provision, which states that claims cannot be submitted to investment tribunals if the host state adopted the measures alleged to protect public interests (such as public health, public safety, the environment, and cultural diversity).²³ Such a provision can be expected to substantively limit the jurisdiction of investment tribunals and preserve states’ regulatory autonomy.

At the same time, some states expressed interest in reinforcing the use of the counter-claim mechanism against foreign investors.²⁴ This will allow states to bring claims in front of tribunals alleging that the investor violated treaty obligations, contracts, or even domestic laws.²⁵ This inevitably enlarges investment tribunals’ jurisdiction over domestic issues and creates more opportunities for tribunals to interpret domestic laws.²⁶ As it is not guaranteed that tribunals will adopt more deferential criteria and lend more weight to states’ regulatory demands in their assessment of domestic laws, it is uncertain whether introducing the counter-claim mechanism will eventually safeguard regulatory autonomy.

Apart from jurisdiction ratione materiae, states are also paying more attention to the denial of benefits clauses to exclude certain investors from the protection of investment agreements and consequently narrow jurisdiction ratione personae of investment tribunals.²⁷ The draft provisions prepared by the UNCITRAL WGIII include a broad range of grounds that may trigger a denial of benefits, including, among other things, the investor having no substantial business activities in the host state, the investment was made in violation of host state laws and regulations or the principles of good faith.²⁸ It remains to be seen to what extent these grounds will be adopted in future IIAs. Like the case of bringing counter-claims, although grounds like violation of host state laws appear to narrow the scope of investment tribunals’ jurisdiction, they also create more opportunities for investment tribunals to interpret national laws and do not guarantee more deferential outcomes.

As can be seen from the discussion above, it appears that states attach more importance to the likelihood of winning individual cases (including securing a favourable jurisdictional award) and are less concerned with the possibility of investment tribunals interpreting and applying domestic laws. In future treaty design, states should be more mindful of addressing issues such as investment tribunals’ limited familiarity with domestic laws as well as the insufficient deference given to domestic court’s interpretations.²⁹

Independence of investment tribunals

Investment arbitration has long been criticized for lacking independence and impartiality due to the mechanism of party-appointed arbitrators and the practice of ‘double-hatting’ by some arbitrators.³⁰ It is generally recognized that this legitimacy flaw should be addressed via judicialization. The UNCITRAL WGIII and the ICSID jointly drafted a Code of Conduct for Arbitrators in International Investment Disputes, which, among others, limits arbitrators’ practice of serving concurrently as legal representatives or expert witnesses.³¹ In addition, if established, the proposed investment court mechanism arguably guarantees a higher level of independence, given that the tribunals will be constituted by standing judges, thus entailing a lower risk of conflicts of interest.

Apart from avoiding biased judgements, a higher level of independence also ensures that tribunals can interpret and apply norms according to pre-established rules and the rule of law with less interference by the disputing parties. Investment tribunals generally enjoy expansive discursive space in treaty interpretation because of the vague definitions of investment protection rules in investment treaties.³² With such a high degree of discretion, tribunals have interpreted investment protection obligations inconsistently and in numerous controversial disputes, broadly against host states’ regulatory autonomy.³³ To reinforce states’ control over treaty interpretation, in treaty practice, a notable trend is establishing the joint interpretation mechanism, where the joint committee, consisting of representatives from the treaty parties, is empowered to issue binding interpretation on a treaty issue and decide the date upon which the interpretations have binding effect.³⁴ This constitutes a significant constraint on tribunals’ independence in treaty interpretation because the joint interpretation clauses generally do not prohibit joint committees from imposing binding interpretations on issues in ongoing disputes.³⁵ The mechanism reinforces states’ control over the outcome of disputes. It may at the same time undermine fundamental principles of the rule of law, particularly the principle of non-retroactivity.³⁶ Overall, establishing the joint interpretation mechanism, in conjunction with the judicialized investment court mechanism, showcases states’ concern over—and intention to curtail—investment tribunals’ influence on law-making.

Accessibility of dispute settlement

Compared to diplomatic protection, ISDS is generally considered more judicialized because it allows investors to bring claims against host States on their own—rather than through the espousal of home states—in international tribunals.³⁷ For investors, it ensures that investment tribunals can fully hear their claims. At the same time, it broadens the range of cases to be decided by investment tribunals and thus enhances ISDS’s influence on investment treaty interpretation.

In the ongoing discourse of ISDS reform, several proposals and practices intend to, directly or indirectly, limit investors’ access to investment arbitration. The most extreme way is to abrogate international arbitration and retreat to resolution by local courts.³⁸ This unequivocally precludes investment tribunals’ interference in host states’ regulatory autonomy. On the other hand, it also frustrates the very purpose of concluding investment treaties, that is, to protect foreign investment by offering investors a neutral dispute resolution forum. If disputes are to be resolved by forums subject to doubts over neutrality, the actual enforceability of the investment protection obligations is also in peril.

Replacing ISDS with state-state arbitration, another notable proposal in investment law reform,³⁹ likewise precludes investors’ access to international tribunals. Under this mechanism, home states are empowered to filter the claims submitted to investment tribunals: they may refuse to espouse claims that they consider meritless, politically sensitive, or detrimental to their potential position as the host state in future disputes. In addition, theoretically, states have greater control over the interpretation of treaty norms: if the disputing states agree on how a norm should be interpreted, it is unlikely that the tribunal will impose a different interpretation.

Dispute prevention mechanisms (DPMs) may also limit investors’ access to international arbitration. Many investment treaties require investors to first resolve disputes through negotiation, consultation, or mediation within a cooling-off period.⁴⁰ In addition, some states have established specialized local ombuds mechanisms to tackle investors’ complaints.⁴¹ A more restrictive form of DPM is the requirement of the exhaustion of local remedies, that is, mandating investors to litigate in local courts before bringing the claim to international arbitration. In the UNCITRAL WGIII discussion of ISDS reform, several states expressed interest in enlarging the use of mandatory DPM in investment dispute settlement.⁴² The main purpose of DPMs is to resolve disputes amicably early and save time and cost.⁴³ Nevertheless, if a domestic DPM is inefficient, making it mandatory inevitably introduces additional hindrances to resolving disputes. DPMs also have an overarching impact on investment tribunals’ law-making ability: by resolving some disputes before they escalate into arbitration, it reduces the potential caseload decided by investment tribunals, offers a decentralized avenue of dispute resolution, and thus alleviates reliance on investment tribunals in decision-making. Therefore, the expansive employment of DPMs, like state-state arbitration and resolution in domestic courts, is an important development to de-judicialize investment dispute settlement.

To sum up, this section reviewed four aspects relating to the (de)judicialization of international investment dispute settlement: binding precedents, jurisdiction, independence, and accessibility of dispute settlement. Overall, it can be observed from the analysis above and the UNCITRAL WGIII submissions that while states generally acknowledge the need to judicialize certain aspects of ISDS to uphold the legitimacy of the legal regime, they also have strong concerns over their ability to constrain the decision-making power of investment tribunals and safeguard their domestic regulatory rights.

BEHIND THE DILEMMA: SWEEPING DELEGATION AND THE PURSUIT OF CONTROL

The reform proposals favouring judicialization reflect states’ demand for a higher degree of predictability and higher quality of judgements, as arguably appellate tribunals are under more pressure to stay sensitive to states’ preferences and avoid undermining the overall legitimacy of the dispute settlement mechanism. Proposals for de-judicialization, on the other hand, reflect states’ unease arising from investment tribunals’ interpretive power that may frustrate their regulatory rights. To make a probably improper analogy, the relationship between states and investment tribunals resembles an ‘anxious-avoidant attachment’ relationship, signified by reliance, insecurity, mistrust, overreaction (exaggerating the flaws), and reinforced control.⁴⁴ I argue that the root of the anxiety is that states have delegated excessive power to investment tribunals on a task that may expose themselves to significant risk.

The demand for delegation

As explained in above, the relationship between states and international tribunals can be depicted as a delegation relationship. The primary purpose of the delegation is to resolve disputes, during which process tribunals inevitably engage in a secondary function, that is, rule interpretation and thus de facto law-making. In the context of international investment law, tribunals have enjoyed particularly extensive discretion in exercising the secondary function.

Given the unavoidable vagueness of many international norms, there is an inherent demand for international courts and tribunals to resolve disputes and fill gaps in the law.⁴⁵ In most investment treaties, key investment protection obligations like fair and equitable treatment are vague, causing significant uncertainty in treaty interpretation. An important reason for the vagueness is that the contents of these obligations are inherently ambiguous and, thus, are difficult to define from the outset. The interpretation of these obligations relies heavily on the context of each case. Additionally, investment treaties—especially those concluded in the earlier days—can hardly be said to be the product of entirely rational deliberation. Lauge Poulsen points out that states’ treaty-making pattern presents an ‘excessive reliance on default rules’ (ie following existing BIT templates) rather than careful consideration of alternatives.⁴⁶ States tend to overlook the litigation risks brought by vague obligations like fair and equitable treatment and indirect expropriation until investors sue them.⁴⁷ In the meantime, they overestimate the economic benefits of signing investment treaties.⁴⁸

Another important factor accounting for the vagueness is the difficulty in reaching agreements on notions of key investment protection obligations. In the past decades, all the attempts to conclude a multilateral investment protection agreement failed, not only because developed countries and developing countries had different expectations on degrees of protection, but because developed countries themselves disagreed with each other on key protection standards.⁴⁹ The division showcases states’ heterogenous normative understandings of investment protection obligations and is aggravated by the fact that developed and developing countries hold different positions in global capital flow: developing countries, which mainly play the role of host states in the regime, naturally prefer fewer commitments on investment protection obligations, while developed countries generally expect higher standards of protection.

In a word, the vagueness of treaty standards, either because of deliberate choice or acquiescence, gives rise to the inherent demand for the delegation of law-making power to investment tribunals. Ideally, to maximize their self-interests, states should impose well-crafted constraints on tribunals’ exercise of power to avoid ‘excessive sovereignty costs’.⁵⁰ Nevertheless, as the subsection below will discuss, there has been a longstanding deficiency in investment law regarding effective controlling mechanisms to tame tribunals’ law-making power.

Investment tribunals: the overpowered delegate

ISDS is ostensibly a less judicialized form of dispute settlement mechanism, given that it is based on ad hoc arbitration. Nevertheless, it is highly powerful considering the low degree of political constraints and the profound influence of its decisions on norm evolution and domestic regulations. For example, in terms of institutional settings, under ISDS, investors have the unilateral power to initiate claims against host states. Additionally, states do not have complete control over the constitution of tribunals, as investors are entitled to nominate their arbitrators. The arbitral awards are directly enforceable through the ICSID Convention⁵¹ or by application to local courts based on the New York Convention.⁵² There are no appeal mechanisms to scrutinize the merits of awards; nor is there a doctrine of precedent binding on tribunals’ decision-making.

Due to the lack of institutional constraints, investment tribunals enjoy extensive autonomy to interpret rules and examine host states’ laws and regulatory activities. They have profoundly influenced the development of norms within the regime, while their decisions are frequently controversial. A typical example is the development of the norm legitimate expectations. Earlier tribunals interpret it broadly as requiring host states to ensure stability in regulatory practice,⁵³ thus significantly constraining states’ rights to make regulatory changes. The norm has been developed inconsistently by later tribunals: some follow the aforementioned broad approach, while others adopt a more restrictive understanding, focusing on whether there exist specific representations by government officials that might give rise to legitimate expectations.⁵⁴ The lack of consistency is another problem that has been heavily criticized by commentators and aggregates states mistrust of the ISDS mechanism.⁵⁵

The ISDS mechanism was not anticipated to exert such a profound impact when it was first created. Post-WWII, several international organizations (eg the UN, OECD, and the World Bank), endeavoured to promote foreign investment to boost the global economy.⁵⁶ Recognizing the difficulty in reconciling the division between developing and developed countries in terms of substantive investment protection obligations, the International Bank for Reconstruction and Development (IBDR) decided to focus on the procedural aspect, that is, dispute settlement, as it ‘appeared to be the least controversial approach and would not require a large organisation or much money’.⁵⁷ Considering the flaws of the long-practised diplomatic protection mechanism, there were proposals to create a specialized arbitral body to hear foreign investors’ claims against host states.⁵⁸ These proposals were endorsed by the IBDR, which later drafted relevant rules and subsequently established the ICSID to facilitate the resolution of disputes between investors and states. In the initial vision of Aron Broches—the main drafter of the ICSID Convention—the tribunal’s power was carefully confined. He highlighted that ‘the tribunal would have no compulsory jurisdiction, and access to it would be voluntary’.⁵⁹ At that time, the drafters were not anticipating that, in later decades, there would be a proliferation of BITs that contain states’ unilateral consent to arbitrate without reference to specific contracts or disputes.⁶⁰

Therefore, it seems that the excessive power of investment tribunals is a result of the accumulation of several factors overlooked by states at the time of designing the mechanism, including the proliferation of BITs since the 1990s, the active usage of ISDS by investors, and the central role of vague obligations like fair and equitable treatment in future disputes. It is thus unsurprising that the mechanism is now subject to widespread criticisms and backlashes.

States: the uneasy delegator

Delegation inherently entails sovereignty costs, including various unintended consequences while implementing the pre-designed rules and procedures.⁶¹ The excessive power of investment tribunals discussed above is a typical example of an unintended consequence. Particularly, tribunals’ expansive interpretation of investment obligations has caused severe pain to states, especially developing countries. Investment protection obligations inevitably intertwine with sensitive domestic regulatory issues. In ISDS practice, it is not rare for states to attract massive ISDS disputes due to employing or modifying domestic regulatory policies. A recent example is the reform of renewable energy remuneration schemes in European countries: Spain alone has been sued in more than fifty ISDS cases due to its repeal of the renewable energy subsidy regimes.⁶² In these disputes, states are highly likely to be found to violate investment treaties on the grounds of frustrating investors’ legitimate expectations, even if their exercise of power is consistent with domestic rules and procedures.

To mitigate the cost caused by an imbalanced delegation relationship, delegators (ie states) may employ three types of strategies (all of which have been proposed or practised in the initiative of ISDS reform). The first is to quit the delegation relationship and retain the autonomy to resolve disputes domestically. As discussed in the section above, there are arguments to abandon international adjudication and retreat to domestic courts as the primary forum for resolving investment disputes. The second strategy is to change the delegate, that is, replacing ISDS with a different adjudicative mechanism, for example, state-state arbitration or an investment court with an appellate mechanism.⁶³ These approaches, often characterized as ‘backlashes’ in the international law literature,⁶⁴ represent the most direct expressions of states’ concerns regarding the legitimacy of the dispute resolution mechanism.

The third strategy is to keep the existing delegation structure and rectify the imbalance by reinforcing the delegator’s control and weakening the delegate’s power; in other words, reducing the extent of delegation. This can be realized via two avenues, namely diminishing the legal effect of the delegate’s decision-making, and increasing control over the delegate.⁶⁵ Regarding the first avenue (legal effect), in the context of investor-state arbitration, awards are final and binding on the disputing parties, enforced through the ICSID Convention or the New York Convention. Generally, the enforcement mechanisms in these two instruments are less challenged—although at the time of drafting Article 54 of the ICSID Convention, there were debates as to whether to include ‘public policy’ as a ground to refuse enforcement of awards.⁶⁶ The locus of reform lies in the second avenue. Most of the de-judicialization institutional settings discussed in the section above relate to this avenue, for example, narrowing down the scope of tribunals’ jurisdiction, establishing joint interpretation committees, and reinforcing the use of dispute prevention mechanisms.

It is interesting to note that the three strategies echo the three reform approaches categorized by Anthea Roberts, namely incremental, systemic, and paradigmatic reforms.⁶⁷ As the author highlights, the three strategies are not exclusive; actors might combine the approaches and attach different weights to them at different stages of reform.⁶⁸ Discussion in this subsection, zooming into the dynamic delegation relationship between states and tribunals, offers a new angle to understand the rationale behind these reform approaches.

Revisiting the notion of ‘judicialization’

Judicialization is an elastic concept. The phenomenon of ‘conditional judicialization’ in the discourse of ISDS reform shows that judicialization is a means rather than an end. It undertakes the task of promoting good governance and the rule of law⁶⁹; simultaneously, it provides certainty to the enforcement of norms and thus makes treaty commitments credible.⁷⁰ These are the primary considerations behind the proposals to judicialize ISDS: states seek to address the legitimacy flaws of the mechanism (e.g. lack of consistency and impartiality) by imbuing some aspects of the dispute settlement procedure with attributes akin to a court system. On the other hand, the degree of judicialization is constrained by and contingent upon states’ demand for political control. Various factors, including the sensitivity of legal issues subject to adjudication,⁷¹ the domestic regulatory goals of states, ideologies and values, influence the demand. As a result of these factors, the phenomenon of ‘uneven judicialisation’ becomes evident across different international regimes.⁷² Consequently, viewing judicialization as an end risks overlooking the plural demands of different actors and thus may cause further dissatisfaction and backlashes against the legal regime.⁷³

The phenomenon of conditional judicialization has another important implication for the reform of international investment law: states should adopt a more holistic perspective on what they expect from the investment dispute settlement mechanism—or, more broadly, from this delegation relationship. The current ISDS reform agenda is largely problem-driven, that is, states and commentators identify legitimacy flaws in the existing system and focus on potential solutions. By contrast, delegation theory urges states to consider a more fundamental, systemic question: where on the spectrum—ranging from a purely dispute settlement mechanism to a body resembling an international constitutional court—should the ISDS system be positioned? To answer this question, states need to consider not only the design of the dispute settlement but also how to coordinate with the efforts to modernize investment treaties (e.g. clarifying the scope of jurisdiction, adding more carve-outs, elaborating on the content of some investment protection obligations).

CONCLUSION

This article reviewed the proposals relating to ISDS reform. It showed that the evolution and reform of ISDS cannot be characterized as a binary between ‘judicialization’ or ‘de-judicialization’. States intend to reinforce some judicial features of investment dispute settlement while strengthening their control over investment tribunals’ decision-making. Historically, the transition from diplomatic protection to ISDS marked a significant stride towards judicialization, granting tribunals the authority to interpret vague treaty obligations and adjudicate on various issues with limited ex-ante or ex-post constraints. This caused an imbalanced delegation relationship between states and investment tribunals. The phenomenon of ‘conditional judicialization’ thus reflects states’ endeavour to rectify the excessive delegation of power to investment tribunals. In this context, delegation theory provides a valuable ‘external’ perspective to understand the underlying concerns driving diverse reform proposals. It compels states to form a more holistic vision of what functions they expect the ISDS mechanism to perform in this delegation relationship.

The author is grateful for Prof. Mamadou Hébié’s helpful comments at the Common Interests and Common Spaces: Institutional Approaches to Dispute Settlement Workshop held by the Grotius Centre for International Legal Studies, Leiden University.

Footnotes