Public Private Partnerships: No Investment without an Investor State Dispute Settlement or Investment Court System

• Author: Samson Paschal
• Profession: University of Bucharest
• Pages: 88-103

Public-Private Partnerships: No Investment without an Investor-

State Dispute Settlement or Investment Court System

PhD. student Samson Masalu Peter PASCHAL

1

Abstract

Investor-state dispute settlement (ISDS) is arguably a neutral procedure that is

used for international arbitration. Similar to other types of labour, judicial or commercial

arbitration, ISDS is also designed to resolve conflicts through the use of impartial ap-

proaches that are founded in law. This arbitration alternative has become increasingly

commonplace in recent years and there are currently more than 3 ,000 such ISDS agree-

ments in place around the world. It is important to note, though, that ISDS is an umbrella

term that subsumes a number of different types of approaches, varying in terms of process

and scope. The role played by ISDS in problems solving has made entities claim that there

is no international investment without ISDS. This paper seeks to examine the role of ISDS

to resolve problems in procurement contracts such as PPP.

Keywords: PPP, ISDS, NAFTA, dispute settlement, investment.

JEL Classification: K23, K33, K41, K42.

1. Introduction

Although definitions vary, a useful definition provided by Deye states

that public-private partnerships (PPPs) are “long-term, performance-based ap-

proach to procuring public infrastructure where the private sector assumes a ma-

jor share of the risks in terms of financing and construction and ensuring effective

performance.”

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In recent years, PPPs have assumed new importance and rele-

vance for many countries seeking viable alternative strategies for economic de-

velopment, and many of these initiatives have met or exceeded expectations. In

order to realize the full benefit of PPPs, however, it is vitally important to have

an investor-state dispute settlement (ISDS) and an investment court system (ICS)

in place. To determine the facts as well as the importance and relevance of these

institutions and their implications for PPPs, this study presents a review of the

literature to describe the purposes of ISDSs and ICSs for the purposes of PPPs,

and a discussion concerning prevailing discriminatory practices in Romania, the

United Kingdom (UK), the European Union (EU) and elsewhere. In addition, a

comparison of ISDS and the World Bank’s International Centre for Settlement of

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Samson Masalu Peter PASCHAL - University of Bucharest, sammy250309@yahoo.co.uk

2

Andrew Deye (2015, Annual), “US Infrastructure Public-Private Partnerships: Ready for

Takeoff?” Kennedy School Review, 15, p. 6.

Diversity and Interdisciplinarity in Business Law 89

Investment Disputes (ICSID) for the purposes of PPPs is followed by an exami-

nation of foreign investment protection in the EU, UK and Romania, as well as a

comparison of methods and practises used on how PPP investor could be pro-

tected. In addition, an examination of the circumstances under which a host state

could be sued by investor state for infringement of investment clauses at host

state is followed by a comparison of current regulatory approaches and their as-

sociated criticisms. Finally, a summary of the research and important findings

concerning investor-state dispute settlement and the investment court system as

they apply to public-private partnerships are provided in the study’s conclusion.

2. What is investor-state dispute settlement and investment court sys-

tem (ICS) for the purposes of PPP (Public Private Partnerships)?

Investor-state dispute settlement (ISDS) is a neutral procedure that is used for

international arbitration. Similar to other types of labor, judicial or commercial

arbitration, ISDS is also designed to resolve conflicts through the use of impartial

approaches that are founded in law. This arbitration alternative has become in-

creasingly commonplace in recent years and there are currently more than 3,000

such ISDS agreements in place around the world. It is important to note, though,

that ISDS is an umbrella term that subsumes a number of different types of ap-

proaches, varying in terms of process and scope. Although ISDSs differ in these

respects, they all share some common reasons for governments using them, in-

cluding the following:

1. To resolve investment conflicts without creating state-to-state conflict;

2. To protect citizens abroad; and,

3. To signal to potential investors that the rule of law will be respected.

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While these outcomes appear desirable on their face, ISDS agreements

have also been the source of criticisms from opponents who maintains that do-

mestic courts are the more appropriate venue for these types of conflict resolu-

tions.

4

Likewise, and as discussed further below, opponents of ISDS agreements

cite the provisions of NAFTA Chapter 11 which “are primarily concerned with

its invocation by corporate entities and its potential to effectively overturn or sig-

nificantly weaken NAFTA states' ability to legislate or regulate in the public in-

terest.”

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Yet other critics argue that ISDS places an inordinate demand on national

resources and that some cases brought before ISDS arbiters are frivolous and a

3

“Investor-State Dispute Settlement (ISDS)” (2017), Office of the U.S. Trade Representative

[online] available: https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2015/march/

investor-state-dispute-settlement-isds, (consulted on 1.11.2017), p. 1.

4

“Investor-State Dispute Settlement” (2017), p. 2.

5

William L. Owens and Andrew R. Fitzpatrick (2015, Annual), “Investment Arbitration under

NAFTA Ch apter 11: A Threat to Sovereignty of Member States?” Canada-United States Law

Journal, 39, p. 55.