1.1 Introduction

There is increased economic participation of various investors all over the world. This has resulted in an increased rate of investment with the trend expected to continue. Investors have gone further to expand their investments across borders. This has resulted in foreign direct investments and it has been recommended for playing a part in the growth in the gross domestic product of the host states. The contribution of foreign direct investments to the economic growth of a country is highly remarkable as it raises the living standards of the host citizens. The impact has mostly been felt in the less developed and developing states. The developed countries have also had their large share of the benefits that accrue to foreign direct investments. The increased international investment necessitates application of certain guidelines and rules to ensure an effective and efficient inter-trading system.

Foreign direct investment is what constitutes the international investments. To regulate the operations of investors in the international investments trade, a law was developed to respond to the needs of different investors. The law is applied in the international arena and takes into considerations the laws and guidelines in the host countries. In Teenicas Medioambientales Tecmed SA v. Mexico, Spanish company, which was the claimant, entered into a contract through bidding to operate a landfill that was dealing in waste. The Spanish company was denied renewal of the license. On clear examination, a tribunal held that there was expropriation of the contract. This resulted in deprivation of the rights of the company. According to the first tribunal, the economic value of the investment was denied. The first tribunal did not, however, determine whether the Spanish company had the right for renewal of the contract. It did not even consider the Mexican law but held the decision on expropriation as valid. The tribunal also considered the issue on the equitable and fair treatment and held that the decision by the Mexican government violated this principle. Another case was brought against Mexico by Marvin Feldman. The measures taken by the Mexican government showed the country had breached the contracts it had put in place with the foreign investors. The question on legitimacy of expectation was raised in the tribunal dealing with the Mexican case by the Spanish company (Ripinsky & Williams, 2008).

As regard to the fair and equitable treatment, a case in the International Centre for Settlement of Investment Dispute (ICSID) by Siemens A.G concerning an investment dispute. The defendant was Argentina. The investor had suffered loss as a result of the policies taken by the republic of Argentina in a bid to revive its deteriorating economic situation. This case was one out of the many cases brought against the republic of Argentina in the tribunal. The international law on investment was to apply with the concept of fair and equitable treatment in solving this dispute that was never subjected to the traditional arbitration process. Siemen was awarded damages for the loss suffered.

The international laws on investment are supreme to other laws in situations where domestic laws on investments are inconsistent with the international law. In this essence, therefore, if a dispute emerges between an investor and a state where the investor is convicted under the domestic law, the international tribunal on investment can invoke the international law if there is a differing opinion on the judgment passed. The supremacy of international law on investment in dispute solving is unquestionable.

As regards to the environment, the foreign direct investments have a greater role to play. The various investments by the international investments have an impact on the environment in certain ways. The suggestion by Kyoto Protocol to have increased rights and freedom to the investor has great influence on the kind of decision they will make in choosing the type of investment to start. Some plants operated by the foreign investors release harmful effluent into the atmosphere. In the industrialized world, the environmental pollution has been a major problem due to the development of industries. Coupled with the automobile emissions the chances of environmental degradation are high. There is an increased danger due to the effects of greenhouse gases. The concentration of the greenhouse gases like the carbon (IV) oxide into the atmosphere results in an increased rate of absorption of heat radiation causing increases in the average temperatures.

Most of the international investments in most of the times move from the developed countries to the developing ones. This means that the developed countries generate an outward Foreign Direct Investments into the developing countries. Rules, therefore, need to be put in place to safeguard the environment from degradation and in so doing protect the developing countries from exploitation by the developed ones. The role that international laws on investment play in safeguarding the rights of the investor and that of the host country is critical since measures need to be put to effect in protecting the environment (Schwebel, 1987).

The effectiveness of any law is determined by how that law is efficient in offering justice. The principles of equitability and fairness are the core values in dispute resolution. If a dispute arises between the various parties to an agreement, the ruling made by invoking the law should demonstrate the aspect of fairness and equity to the parties. In this case, the discriminatory aspect of the law has no part to play. Through the various treaties that exist, the development of tribunals is inevitable as it serves in solving the disputes that may arise in case a given party violates the terms of an agreement. Since these treaties are made within the convention of international markets it becomes prudent that international laws on investment be invoked to solve these disputes. In a case where the laws of a domestic country that facilitated the formation of the treaty disagree with the international laws on investment, the tribunal is supposed to give a ruling as to what law should persist. The judgment offered should take into consideration the content in the agreement pact.

In case of any violation of the agreement in a concession, the aggrieved party seeks redress from the court or tribunals. The court and the tribunals invoke the laws in consolidating their decision. The relationship between a foreign investor and a host country need to be guarded by the international laws on investor. Damages on the party whose rights have been violated should be awarded in a manner that shows the correct course of justice has been followed. Where the terms of the agreement require that the dispute resolution should invoke the domestic laws then the agreement should be followed to the latter. However, if any of the parties is not satisfied with the decisions made in the judgment, the aggrieved party can seek redress from the international laws on investment. The existence of international laws on investment is thus critical for the proper co-existence between the foreign investor and the host country.

1.2 Background Information

The increased investment in conjunction with the rising cases of disputes between investors and the host states have led to the emergence of the international laws on investments. The existence of investment treaties is the basis under which cases always find their way into the international tribunal on investment. This is after the failure of the parties to the treaty to honor their agreements. Parties to the international treaty on investment can engage each other in the dispute resolution through arbitration mechanism without the investor’s government diplomatic intervention. Different cases have emerged concerning rising disputes amongst various investors and the respective states. Some of these cases that have found their way to the arbitration tribunal have seen the aggrieved parties being awarded damages worth a lot of money.

The parties to the treaty have to be engaged to each other in investment relations and the matter in dispute must be regarding investment. These are the conditions necessary for the international law on investment to apply. The bilateral agreement between the investor and the state forms the basis of dispute resolution. The international law on investments applies to state that hosts the investor. If any arm of government enters into a bilateral agreement or treaty with an investor, it is held that the state is a party to the treaty. The action by the state is constrained by the investment treaties. The attribution rules are used in determining the extent to which a state is responsible for acts of omission or failure to observe the obligation under the treaty.

In the case between Compania de AguasdelAconquija and Vivendi v Argentina, the Investment Centre for Settlement of Investment Dispute had to determine whether the Argentina Republic was responsible for the actions of the provincial government. The concession contract was between French Company with its constituent in Argentina with Tucuman. Tucuman was a province in Argentina, and the contract in dispute involved water and sewerage operations. The French company alleged that the government provision acted in a manner to undermine the agreements in the concession. The tribunal was to determine whether the state government was responsible for the actions of the provincial government. Under the attribution rule, the government of the Argentina Republic was to be held responsible for the actions of one of its arms of government.

In the case of LG&E Energy Corp et al v. Argentina, it was held by the tribunal that the Argentina Republic was responsible for the violation of the rights of the company. The agreements in the treaty gave the company freedom to adjust prices according to changes in the economic conditions. The tribunal had to apply the principle of equitable and fair justice in solving the dispute between the two parties. The core purpose of the international law on investment is to ensure proper rule of law as regarding bilateral treaties are observed to the latter. The Argentina Republic has been in the centre of various cases involving violation of bilateral agreements between the state and investor companies. The disputes arose as a result of the policies taken by the government of Argentina with an objective of reviving the economic status of the republic. The tariffs and restrictions imposed on the various actors of the economy contributed to the violation of these principles. In this case, the violations of the privatization agreements led to the claimant seek redress at the ICSID. The international law on investments is applied in solving disputes that arise between states and investors by ensuring fair and equitable treatment among the parties to the treaty.

The international investment law is applicable in many bodies. The North American Free Trade Agreement (NAFTA) observes the international laws on investment in the inter-states trade agreement. The wide acceptability of the international laws on investment serves to enhance the application of the laws in dispute resolution and provide an equitable and fair justice. Since 1980 countries and states have been negotiating on the trade agreements and investment relation. The states and investors had to enter into bilateral agreements to enable free relations. This meant that any party that felt the violation of the agreement was free to seek redress to any tribunal dealing dispute resolution. The emergence of the International Centre for Settlement of Investment Disputes was meant to solve disputes emerging from treaties between various governments and the respective investor. The PSEG Global Inc and Konya Llgin sued the Turkish government for the alleged violation of bilateral agreements.

The dispute resolution tribunal had to ensure justice is observed. In this case, the government of the United States of America had entered into a bilateral agreement with the Turkish government. The American government through its companies had the responsibility to generate and distribute electricity to the Turkish Republic. The Turkish parliament enacted laws that altered the agreement between the United States and the Turkish government. Redress was sought in the tribunal. The delay in negotiations as a result of bureaucratic measures led to the cancellation of the investment agreement and thus the project that was to be initiated in Konya province never matured. The government of Turkey had many pending cases regarding investment in the energy sector. The tribunals on dispute resolution have the role of delivering a fair and just ruling by the use of the international laws on investment.

Various cases have found their way to the tribunals and international courts with a major aim of seeking justice to the aggrieved parties. In most of the cases, the aggrieved parties are the investors who suffer violation of their rights when their host countries change their rules. The international laws on investments serve a critical role in solving these disputes and protecting the treaties entered by the host government and the investor. In the case of Enron Corporation and Ponderosa Assets v Argentina, the corporation sued the Argentina government for the violation of the consensus. Under the Bilateral Investment Treaty (BIT), a grace period of six months is given to the parties. The six months allow the parties an opportunity to solve their disputes before resorting to the international arbitration. The Bilateral Investment Treaty considers the international arbitration process as time-consuming and involves a lot of cost. The parties in this case have an opportunity to solve their disputes in a short period. If the grace period bears no fruits, then the parties can resort to the international arbitration process. The international law on investment is applied in this case.

The international law has a backing on environmental and social justice. As regards to investments that influences the social and environmental policies, disputes are likely to arise between the investor and the host country. The country will put rules and regulations to protect its’ citizens from injustices by a foreign investment. The criticality of the issue when it comes to the violation of social justice is of prime importance to the host government. The core value of a government is to protect its citizens from the violation of their rights. In Azurix Corp. v Argentina, the corporation was mandated to distribute the water. The American company had entered into a thirty year agreement with the Argentinean Republic to manage facilities relating to the water supply. The disputed arose when the state of Argentina planned to privatize one of the water facilities; this was driven by different aspects like the political influence. The issue of contaminated water resulted in the government warning its’ residents not to use the water. Consequently, imposed regulations on Azurix hindering them from charging residents for services rendered during the period under which the water was contaminated. The authority also imposed a penalty to the company for failure to comply with quality measures in the provision of water. The authority considered this unhealthy consumption. The American company filed a petition to the dispute resolution tribunal arguing that the local authorities had failed to provide the necessary infrastructural requirements and thus the reason why the water was contaminated. The tribunal found the Argentina government guilty of failure to observe the principle of equitable and fair treatment (Mayer, 1986).

There exists a clear cut difference between the environment law and the international laws on investment. Currently, the two laws have been overlapping and thus there is the need to intertwine the two laws. The environmental protection is a critical aspect in the field of climatic aspects. Certain mechanisms have been developed with the aim of preserving the environment. The development of these mechanisms has to a large extent affected the flow of the Foreign Direct Investments. Instances of conflict have been realized between the investment law and the environmental law. The policies on the climate protection contribute to hindering the better performance of the international investments. The Clean Development Mechanism is mandated to develop policies that serve in the environmental protection (Eric, 2004).

The policies developed by this mechanism under the Kyoto Protocol serves to regulate investments that contribute to environmental degradation. There was a disagreement between the Clean Development Mechanism and the World Trade Organization regarding the agreement arrived at in the Trade Related Investment Measures (TRIMS). Certain criticisms have been made regarding the existence of flaws in the Clean Development Mechanism. However, there has been a wide acceptance of the market-based approach in addressing issues regarding the environment. These issues are perceived to be a major threat as far as humanity is concerned with. The Trade Related Investment Measures impose certain restrictions on the foreign investments. Certain requirements regarding the production content may be imposed on the foreign firm requiring the foreign investment to produce certain content and the rest given to the local investor.

Under the international law, the parties who engage in actions that are not in the treaty and the other party to the agreement seems to accept the actions then he / she is estopped to deny the inclusion of such a clause to the treaty. The law of estoppels is applicable in the international law and is highly applied in the treaties. Tribunals use the doctrine of estoppels in deciding cases brought before it. ADC Affiliate and AMC & ADMC Management v Hungary challenged in the tribunal the validity of the agreement in the airport operations. In deciding the case, the tribunal listened to all submissions by the parties and used the doctrine of estoppels in solving the dispute that existed between the parties. The tribunal held that since the parties entered into an agreement they acted in a manner that suggested everything was well. The protection is accorded to foreign investors in safeguarding the rights of the investors from violation by the other party to the agreement. Arbitration has been a major aspect in dispute resolution and grants the parties aggrieved the right to protection.

1.3 Problem Statement      

The development of the international law on investments came as a major boost to the investors. The increased foreign direct investment has resulted in the increased international relations between various states. The different states in the international market engage each other in trades. There have been many treaties developed by various states to facilitate trade between those countries. The treaties often result in the removal of trade barriers by various countries to allow inter-trade between citizens of different states. The economic conditions of these countries have received a major boost from the foreign direct investments as they bridge the gap in the provision of services by creating employment, thus improving the living standards of the citizens. On the other hand, the gross domestic product rises creating a favorable environment for the host countries. The need to have the international laws on investment is to enable regulations of the actions of various within the treaties created. The bilateral agreements between various states also form the basis for international investments and thus need for protection from the exploitation and violation of rights. Various treaties like the North American Free Trade Agreement resulted in opening up of markets that allowed participatory of various investors in the North American states. The states involve each other in free trade by opening up their markets with certain agreements put in place.

In situations where investors engage in the international investments, there have to be agreements between the investor and the host country regarding the operations of the investor. Some countries have entered into agreements with foreign companies in supplying various services and products to the host country. Countries can also engage each other in the provision of goods and services. In regard to the treaties and agreements entered, there are chances that disputes are likely to arise. In this case, there is a need for dispute resolution. Various tribunals have been established to assist in the dispute resolution by the use of international laws on investment or through arbitration. The International Centre for Settlement of Investment Dispute is an example of the tribunals set to assist in the determination of cases of disputes. The tribunal serves to ensure the international laws on investments are adhered to. In case of disputes arising between the parties to the treaty, the tribunals invoke the laws on investments to resolve the dispute and to award justice to the aggrieved party.

The various parties to the treaty result in the tribunals for justice. In most of the cases, it’s the investors who are aggrieved by the actions of the state. This study has the objective of determining whether the use of the international laws on investment acts in an equitable and fair manner to the parties involved. The supremacy of the international laws on investment at times is seen to constrain the actions of the state in coming up with policies and legislations that govern the operations of the various states. The principle of equitability and fairness as depicted by the international laws on investments is a core tenet in guiding the relationship between the parties to the treaty. Do the principle of equity and fairness under the international laws on investment restrict the actions of the state? This study gives an insight to the policymakers on the necessary recommendations that should be applied to make adjustments to the international laws. The working and inter-relation between the international laws on investment and the laws on the environment at times seem to constrain each other. The environmental laws put certain restrictions on the investment laws and on the rights and freedom of an investor. There thus seems to be a major problem as far as the performance of the foreign investment is concerned. The environmental laws seem to constrain the inward flow of foreign investments, especially in the developing countries.

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