Introduction: There is no doubt that the question of state responsibility in the wake of bilateral investment treaties (BITs) is now well debated in the annals of judicial review by the International Tribunals such as Tribunal constituted under international convention on settlement of investment disputes. (ICSID) The Tribunal stands emerged as a major player in state responsibility related to settlement of investment disputes between States and nationals of other States. Today, many states are actively accepting and administering decisions of the ICSID Tribunal with several more states currently negotiating acceptance or voluntarily adhering to directions of the ICSID convention.
One particular area in which the ICSID has viewed as a visionary organisation has been the 'State responsibility' relating to arbitrary decision making of states while affecting the rights of individual investor with reference to BIT provisions. The ICSID considers state responsibility to be 'the search for an effective 'fit' between individuals and the state with reference to contractual obligations created under the Bilateral Investment Treaties. In what could be considered the first firm international step towards locating this 'fit'. The ICSID has been instrumental in the review of state actions through its Convention provisions on International Investments under BITs.
At their genesis, the ICSID convention is viewed as political commitment legally binding on states from or within these states. Today, however, the relationship between Member States and the convention regime has arguably been fundamentally altered, with perhaps the possible implications of such alterations having gone unnoticed or ignored. Although once viewed as non-binding on states, the implementation of the ICSID regime can now generally be viewed as binding on all trading States by virtue of its convention which is now being adopted as domestic law. This is true despite the fact that the convention provisions now have prima facie, become part of municipal law in many countries.1 The core obligation imposed under the convention to the adopting States is the consent, this consent to accept the authority rights under the treaty is basically the establishment and operation of a Judicial Review System with regard to state responsibility under BIT regime for the handling of complaints submitted to it concerning applicable law, compensation, counterclaim, damages, expropriation, jurisdiction, municipal law, nationality, procedures, recognition and enforcement.
Yet, important questions remain unanswered, such as: What duty stands imposed upon a party State by the BIT? To what extent is it as a state obligated to act accordingly to ensure its responsibility?; What does proper rules of action even entail?; and, does the state bear legal responsibility if its responsibility fails to act accordingly, and if so, does this lead to international responsibility?
In the current frenzy to rein in an investor or a state under the various initiatives, it is overlooked that without the support of states, such efforts are ultimately doomed. States remain the primary subjects of public international law, despite necessary efforts to extend this net to cover other actors, including corporations. It is states that endorse aspirational principles attempting to control the relationship between, inter alia, foreign investor and the states. It is states that agree to establish and implement bilateral obligations under the treaty. Perhaps, it is not only states but also investors who ought to remain ultimately accountable where treaty provisions are violated. Consequently, states, and more importantly what the international community asks of them, cannot be ignored in this process.
At all times, a state maintains a sovereign right to be aware of its obligations arising under international law, and a failure to inform states of such obligations is surely improper. With this in mind, the current trend is to consider the rights and obligation under the treaty as per se binding. Thus the character of the ICSID convention implementation regime in relation to BIT regime is somewhat unique. As the ICSID convention is the only existing multilaterally agreed responsibility instrument which forces the states to its adherence and the governments stand committed to promoting these rules in a global context.' Indeed, this regime is the only international liability creating structure with a built-in, state-based governance mechanism. Yet these obligations are often simply treated as not binding without actually examining the exact nature of the BIT obligations under treaty provisions and the function of their implementation regime at contemporary international law, as well as the coinciding nature of the obligations imposed upon the states by this regime.
This interesting subject has raised many questions for answers. These questions include: First, why did all developing countries adopt more or less the same substantive rules; that is, why did such a high level of uniformity prevail? Secondly, why did developing countries adopt the particular set of rules that we see today in BITs as opposed to others, be they more favourable or unfavourable for host states? Thirdly, why did those rules exist in the 'market' for more than 20 years without being widely adopted? And, fourthly, why did BIT substantive rules constitute a sub-optimal equilibrium, ie, why did states not erode all rents when concluding BITs?
ICSID convention is concerned to answer legal issues emerging from these questions. And it has given its findings on such issues. For example In one such case, where the state has rejected architectural plans of the investor, the Tribunal concluded that the plan submitted by the investor were all of an acceptable standard the claim relating to liquidated damages was unanswerable.2
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi)
1. This convention has become domestic law in Pakistan by virtue of Arbitration (International Investment Disputes) Ordinance, 2010. [Ordinance No VI of 2010] 2. Award, 25 February 1989: 2 ICSID Report 190
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