Public International Law - Diplomatic Protection Vs Delocalization In Public International Law
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Category: General Law
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PUBLIC INTERNATIONAL LAW: DIPLOMATIC
PROTECTION VS DELOCALIZATION IN PUBLIC
INTERNATIONAL LAW
Harshita Verma & Meharnit Bhamrah, Maharashtra National Law University, Mumbai
1. INTRODUCTION
Diplomatic protection allows a state to advocate for its citizens who have suffered harm due to the actions of another state, thereby reinforcing the principle of nationality and the legal bond between individuals and their home country. This mechanism serves as a safeguard for individuals against injustices encountered abroad, ensuring that states uphold their obligations to protect their nationals. In Vattel's famous words: "an injury to a citizen is an injury to the state”. 1 Conversely, delocalization refers to the practice of resolving disputes outside the jurisdiction of national courts, often through international arbitration. This approach is particularly prevalent in international investment agreements, where parties seek neutral forums to address grievances,minimizing the risks of bias inherent in domestic legal systems.
Delocalization allows for greater flexibility in the choice of applicable law and arbitration procedures, catering to the needs of multinational investors who may face challenges in host countries. The concepts of diplomatic protection and delocalization represent two pivotal aspects of public international law, each addressing the complexities of state responsibilities towards their nationals and the jurisdictional challenges in international disputes. The interplay between diplomatic protection and delocalization raises critical questions about the effectiveness of state advocacy in the context of international arbitration. As states navigate the complexities of protecting their nationals while facilitating international trade and investment, understanding the dynamics between these two concepts becomes essential. The International Law 1 Muchlinski, P.
, Max Planck Institute for Comparative Public Law and International Law, & Oxford University Press. (2012); Corporations in international law, In Max Planck Encyclopedia of Public International Law. https://www. uio. no/studier/emner/jus/jus/JUS5851/v13/undervisningsmateriale/muchlinski-(2009)- corporationsin-international-law-max-planck-enc. -of-pil-co-1. pdf.
Commission's Articles on Diplomatic Protection (2006) have codified this principle. There are certain characteristics, firstly It is discretionary in nature, not obligatory; it is up to the state to decide whether they want to exercise diplomatic protection. Secondly, there must be a strong link or genuine connection to the state, the injured individual or company must be a national of the state for eg. in the case of Nottebohm Case (Liechtenstein v. Guatemala, 1955)2 Liechtenstein attempted to exercise diplomatic protection over a national whose effective link to the country was weak, ultimately resulting in its dismissal and lastly the state will only step in if all the other local remedies have been exhausted. In addition to this, there are two mechanisms which help correctly apply the principle and assess whether the claims are admissible.
Nationality of claims: This principle seeks to provide a relatively simple criterion for establishing responsibility and according protection in the international realm, where in the end responsibility and protection are conceived with respect to states as only subjects of international law. Therefore, the state is held accountable for the harm suffered by aliens within its territory as well as it is accorded legal standing to seek redress for the harm suffered by its nationals abroad. Although nationals, that is, individuals, are responsible for and harmed by these acts or omissions, the positivist vision of states as it only views them as subjects of international law, prevents them from directly enforcing their rights or being held liable on the international law level; rather, it is for the states of which they are nationals to settle the issue.
It is imperative to note that the rules on whose basis the nationality link can be established are rules of both municipal and international law, in the sense that states are free, as an expression of their sovereignty, to set forth the criteria under which they confer nationality (i. e. ius sanguinis or jus soli), but at the same time they may agree to comply with criteria set forth on the international law level through bilateral or multilateral treaties. States have, in fact, gradually strayed from a narrow application of the nationality of claims through international agreements. This has resulted in a growing acceptance that in certain circumstances, a state may also pursue the claim of a nonnational. Departures from the rule agreed by treaty had allowed in a number of cases to sponsor claims of persons who did not have the nationality of the claimant State.
2 Nottebohm Liechtenstein v. Guatemala (1955), available at: https://www.icj-cij.org/case/18.
Another significant development that has resulted from the case laws of the PCIJ/ICJ on the subject of nationality is the transition from formal to effective nationality in the context of the singular nationality of natural persons, as articulated by the ICJ in the Nottebohm case. The focus is now on the "genuine link" between the person and the state taking up their claim. This shift, however, does not necessarily result in a more liberal interpretation of the nationality principle; while it is true that nationality can be established under the genuine link test even if the formal criteria applicable under the claimant state's law are not met, meeting such criteria may not be sufficient because the international tribunal may still find that there is no genuine link between the individual and the state he is claiming to be a national of.
Naturally, this principle has rightfully attracted criticism as there is no concrete criteria to establish in the particular field of international claims, the resultant difficulties have stirred a good deal of controversy which has touched, but so far failed to effect any significant erosion of, the customary law rule that a claimant must have the nationality of the espousing state at the time of loss, espousal and settlement. "At the time of sustaining the injury and conserving that nationality until the claim is adjudicated".
Critics argue that while it was meant to be useful in the traditional sense, it introduced instabilities and uncertainties this rule is problematic as it can lead to unjust outcomes, particularly in cases where individuals involuntarily change their nationality or are rendered stateless, this can create legal hindrances even for legitimate claims especially when persons have been forced to escape or have had their legal status altered due to circumstances beyond their control (due to marriage or new laws). Whether this rule will be universally accepted is questionable because of its inherent nature. Exhaustion of local remedies:
effectively address this issue like nature and essence of the claim and whether the existing local remedies are adequate enough to cater to the interests similar to those which are provided internationally. When does the state intervene? under the definition of Harvard Research Draft, justice is denied on the grounds when there is a refusal, unreasonable delay or obstruction in accessing courts, a judgment is manifestly unjust or essential guarantees for proper justice are not provided however it is pertinent to note that a mere error by a national court will not amount to outright injustice. International treaties like the European Convention on Human Rights and the International Covenant on Civil and Political Rights require exhaustion of local remedies before claims can be made.
Ideally international treaties that provide individuals direct access to international courts and tribunals do not follow this rule.
2. HOW TO DETERMINE THE NATIONALITY OF CORPORATIONS
The basis of nationality is incorporation, that is the place of its establishment; domicile usually follows this but can also be assessed on separate factors. Alternate criterias of determining nationality are the principal place of business (the seat) and the nationality of controlling interests (who effectively controls the company) however the application of these principles was clearly rejected in relation to international laws. While there is no legal framework or rules to determine nationality of corporations mentioned in the domestic framework, international institutions bank on previous judgments, precedents, place of incorporation and “genuine links” to a particular state. In international law, numerous treaty articles designate 'nationals' as businesses for certain reasons.
Treaty provisions may directly or tacitly accept the conflict of laws rule, which states that an association's legal personality is determined by the law of the place of establishment. Unincorporated groups, including partnerships, may be treated as companies under certain treaties. Public corporations might also be included. 3 2. 1. Role of Customary International Law and Treaties In Barcelona Traction, Belgium tried to defend claims of its shareholders in a canadian-owned
company with its assets located in Catalonia, they contested that its nationals were entitled to diplomatic protection due to alleged wrongful acts by Spain affecting the company. However ICJ held this claim inadmissible for two reasons. Firstly, the shareholders do not have rights to directly claim damages against a company unless it ceases to exist, the Barcelona Traction being very much in existence and fully operational. Secondly, as the company was not legally established in Belgium, it was unfit for bringing a claim before it; only Canada could do that. It affirmed that the nationality of a corporation is primarily determined by the place of its incorporation and irrespective of foreign shareholding, Belgium had a 75% stake in the company.
The proposal of using a generic effective link nationality test—which is comparable to the one with dual nationality use, as used in Nobottam case (1955)4 was rejected by ICJ. This meant that the nationality of controlling shareholders could not be used to "lift the corporate veil" and claim diplomatic protection. Although removing the corporate veil is recognised under international law, the court noted that it was not relevant in this particular case. Subsequently in the Diallo case,5 the court affirmed the right to diplomatic protection of shareholders provided the claim originates from the state of incorporation, Ahmadou Sadio Diallo, a Guinean national, and the Democratic Republic of the Congo (DRC).
He was the sole shareholder of two companies incorporated in the DRC, the Congolese government unlawfully expelled him from the country and seized his companies as he was accused of multiple infractions related to his business operations. He was granted compensation for the damages incurred by him however, it was held that since his companies had Congolese Nationality. The court also went to clarify the scope of claims that can be made on behalf of shareholders. It ruled that while shareholders can seek protection for their interests, such claims must be pursued through the state where their companies are incorporated. The ICJ remained indifferent to the idea of substitutional protection by national states. Under the 1965 Washington Convention on the Settlement Investment Disputes between States
‘investment’ under applicable Bilateral Investment Treaties (BITs). Under Article 25 (2) (a) of the convention, an individual upon consenting to take the arbitration dispute at the center, must possess nationality of the contracting state and also uphold it when the case is finally registered, pertinently in case of dual nationality, a claim cannot be brought against your own state; a foreign nationality does not warrant you to bring a claim against your own country. Further definitions of nationality are permissible under Article 25(2)(b) with respect to juristic persons (corporations). If a corporation has foreign control and is deemed to be a "national of another contracting state" by agreement, or if it is incorporated in that state, then it qualifies as such.
However there has been a shift from the traditional municipal law approach to a more flexible model, as held in the case of Vacuum Salt v. Ghana, the court illustrated an imperative need to treat nationality of a company differently based on foreign control. In a similar vein, the ICJ permitted the US to make a claim on behalf of US shareholders in an Italian subsidiary company in the Elettronica Sicula Case (1989),6 thus distinguishing it from previous cases like Diallo and Barcelona Traction because it was based on specific treaty provisions rather than general international law. 7 Issue of foreign control has stirred controversy in recent times, in the case of Tokios Tokeles v. Ukraine (2004),8 under the terms of their BIT, Ukrainian nationals who owned a firm in Lithuania, filed a claim against it.
The ICSID Tribunal held that the definition of "investor" in the BIT, which was established in Lithuania, was consistent with article 25(2)(b) of the ICSID Convention. In allowing the case to proceed, the panel held that there was no need to pierce the corporate veil in order to establish nationality, while the dissenting opinion stated that that since ICSID procedures are meant to settle disputes involving foreign investors, they should not apply to owners who have the same nationality as the respondent state. In 2008, TSA Spectrum de Argentina SA v. Argentine Republic,9 when the tribunal lifted the corporate veil, it was revealed that the Dutch claimant company was predominantly owned by Argentine nationals. As a result, the ICSID Tribunal determined it lacked jurisdiction under Article 25(2)(b) of the
6 Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy (1989), available at:
https://www.icjcij.org/case/76#:~:text=On%2020%20July%201989%2C%20the,the%20Agreement%20Supple menting%20that %20Treaty.
7 Supra note 1.
8 Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, available at:
https://jusmundi.com/en/document/decision/en-tokios-tokeles-v-ukraine-decision-on-jurisdiction-thursday-29thapril- #:~:text=The%20Claimant%2C%20Tokios%20Tokeles%2C%20alleges,%22%20or%20%22Treaty%22
9 TSA Spectrum de Argen2na S.A. v. Argen2ne Republic, ICSID Case No. ARB/05/5, available at:
hEps://www.italaw.com/cases/1118.
ICSID Convention. 10 This underscores the tribunal’s willingness to scrutinize ownership and control closely when assessing jurisdiction. 2. 2. Potential for abuse “Treaty shopping” as known as nationality planning, which an investor channels its investment through a country other than the investor’s home State in order to gain access to the more favorable standards of protection available for investors of such third country vis-à-vis the intended host State. 11 Companies manipulate their corporate structures to exploit favorable provisions in free trade agreements (FTAs). This practice raises serious legal and ethical concerns regarding the integrity of international investment protection regimes.
Treaty shopping can impair nations' capacity to control foreign investments in accordance with their domestic laws and regulations, since businesses may use loopholes for preferential treatment. However, some treaties include limits to nationality planning in practice. They do so, for instance, (i) by narrowing down the definition of investor or (ii) by allowing States to deny benefits to companies owned or controlled by nationals of third States and/or which do not have substantial commercial activity in their State of registration. 12 This was, for example, exemplified in the so-called Panama Papers and Paradise Papers that revealed wealthy individuals and multinationals creating fictitious subsidiaries to evade taxes (Economist, 2017b).
Tribunals, in certain circumstances have accepted nationality planning, (i) since the company was incorporated under the host state laws, no further provisions were required according to the provision of the BIT. (ii) Apart from providing treaty benefits, restructuring also had other objectives such as achieving a better state of financing. (iii) Subsequent to restructuring of the company, it started investing heavily in the host state. The change took place when there was no disagreement in sight, however the foreseeability of the disagreement is a matter of debate amongst tribunals, some expect high probability of a disagreement, while others are okay with a reasonable probability.
10 Ibid.
11 Demirkol Berk, Exhaustion of local remedies (2024)
https://jusmundi.com/en/document/publication/enexhaustion-of-local-remedies.
12 Olmedo, J. G., RECALIBRATING THE INTERNATIONAL INVESTMENT REGIME THROUGH NARROWED
JURISDICTION,
International and Comparative Law Quarterly, 69(2), 301–334 (2020) https://doi.org/10.1017/s0020589320000044.
2. 3. Addressing the issue: Legal redressal To address conflicts of multiple nationalities for corporations and access international protection, possible resolutions for resolving conflict;- Bilateral Investment treaties (BITs) and Free trade Agreements (FTAs) must clearly establish the terms between the contracting parties, eliminating chances of ambiguities or vagueness. For example, under NAFTA (North American Free Trade Agreement) defines “enterprises” as any entity organized or constituted under applicable law, whether it is for profit or not, and whether it is owned by the government or privately. Which includes Partnerships, Joint Ventures, Sole Proprietorship and other associations. In addition to this, FTA places an obligation on the host country to treat foreign investors at par with domestic investors, ensuring equal treatment and a level-playing field.
This is in contravention to the challenges mentioned above, in order to combat “forum shopping” states must adopt stricter definitions of “investor” and “enterprises” or limit their access to ISID (Investor-State Dispute Settlement) ISDS is usually integrated into FTAs to ensure MNEs directly against host states carry their complaints. This enables MNEs to prosecute violations of their rights under the agreement without necessarily having to use diplomatic means. There are arguments that states can negotiate treaties that will restrain access to ISDS for entities which do not have significant business presence or reasonable commercial presence in the host country however there are no internationally standard methodology or criteria to qualify this. There is a need to carefully define the scope of application of ISDS.
The carve-outs or limitations could be adopted just specifically for certain specified obligations. For example, many older BITs signed by China limit ISDS only to disputes involving the amount of compensation for expropriation: “If a dispute involving the amount of compensation for expropriation cannot be settled within one year resort to negotiations as specified in Paragraph 1 of this Article, it may be submitted at the request of either party to an ad hoc arbitral tribunal. (China-Syria BIT, Article 9. 3. )13 Making access to ISDS contingent on the investor’s behavior, clarifying that investors may only file claims if they have "clean hands" sends a strong signal to investors to act properly.
13 China - Syrian Arab Republic BIT (1996), available at:
https://investmentpolicy.unctad.org/internationalinvestment-agreements/treaties/bilateral-investmenttreaties/979/china---syrian-arab-republic-bit-1996-
For example “For greater certainty, a claimant may not submit a claim under this Section if its investment has been made through fraudulent misrepresentation, concealment, corruption or conduct amounting to an abuse of process. ”(Vietnam-EU FTA, Chapter 8, Section 3, subsection 1, Article 1). 14 By using a standard based on actual control and not just incorporation, nationality disputes can be addressed. This is a test that inquires where the central management and control of the corporation are, therefore local laws about residence may also contain source rules (Hampton at p. 124). Countries have varying criteria for determining the nationality of corporations, often based on incorporation, management location, or ownership; this inconsistency can lead to confusion and disputes.
International organizations could adopt a more pragmatic approach towards jurisdiction, which would enable shareholders or controlling entities to file charges regardless of nationality if there was effective foreign control. Harmonizing domestic corporate nationality rules can help to simplify these processes, eliminating disputes and improving legal clarity for multinational enterprises. Resolving issues between multiple nationalities for businesses necessitates a multifaceted approach that includes precise definitions in treaties, flexible jurisdictional norms, and the possibility of piercing the corporate veil when necessary. Legal remedies under the ICSID Convention, BITs, FTAs, and international arbitration enable businesses to seek international protection and remedies for abuses of their rights.
Organizations such as the United Nations Commission on International Trade Law (UNCITRAL) could develop model laws that countries can adopt or adapt to their legal systems, ensuring a baseline standard. 3.
REGULATORY
FRAMEWORK
OF
INTERNATIONAL
ECONOMIC
ACTIVITIES
International economic activities are subject to regulation on three different law levels: national, regional, and international. It comes natural to submit that it is on the international law level that these activities could be better regulated. Indeed, national and regional legal systems have proven incapable of regulating these activities, particularly the phenomena of MNEs, due to the issue of extraterritoriality, or a state's unilateral exercise of authority outside
14 Liberalisa2on of Investment, Trade in Services and Electronic Commerce, available at:
hEps://eurlex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2020:186:FULL&from=EN#page=46.
its territorial limits. 15 This has frequently occurred in domains such as antitrust, torts, environmental law, taxes, trade sanctions, disclosure, and discovery, among others. The reasons for this extraterritorial exercise of jurisdiction include nationality linkages, national interest protection, objective territoriality, the effects doctrine, and ownership and control links. physical borders of a state or a regional bloc nonetheless make a valid exercise of authority outside those bounds exceedingly difficult, because territoriality, although connected to the oldfashioned idea of sovereign state, still offers the only grounds for which exercise is clearly lawful and not overreaching. Historically the legal isolation of the organizational divisions of an MNE meant that separation based on incorporation was honored between these entities.
However, there is a tendency to increase their consolidation as separate entities of a single economic group. This shift goes in renovation of the corporate veil concept which usually shields individual entities from legal ramifications. Thus, there is a necessity in the international regulation rather than applying the legislation of the certain state for the MNEs operating all over the world. This can assist with concerns to do with group accountability and responsibility for wrong doings. Foreign information protection based on the fact that the MNEs should be regulated on the international level is gradually emerging, so it is possible to better protect and control them. These include new models of regulation, such as multilateral through international economic organizations (WTO and others) that seem more comprehensive in terms of the subjects covered.
With the emerging practices and technologies such as Digital trade and Blockchain, there is a need to upgrade the existing legal framework.
3.1. Digital Trade:
It refers to the commercial exchange of goods and services through cyberspace including electronic commerce, virtual services and digital products. It has a key importance with relation to the international economy through intermediation of international transactions, providing market access and stimulating innovation. Presently, Many countries have passed legislation
15 Olmedo, J. G, RECALIBRATING THE INTERNATIONAL INVESTMENT REGIME THROUGH NARROWED
JURISDICTION,
International and Comparative Law Quarterly, 69(2), 301–334 (2020) https://doi.org/10.1017/s0020589320000044.
regarding cross-border electronic commerce, consumer protection and electronic commerce. For example, the EU e-Commerce Directive lays down code for online service companies. The General Data Protection Regulation (GDPR) has raised the bar for data protection in the EU affecting the management of personal data in digital trade. Since this is a nascent concept, laws related to digital trade are rapidly evolving, countries should create policies to promote data transfer with efficient transformations at the same time respecting individuals’ privacy rights. The creation of guidelines for rules governing e-commerce can help with the creation of easier business sales and decrease compliances for a firm with operations in various countries.
It is possible to open the necessary channels for discussion between countries where they can understand each other and regulate the corresponding tendencies in digital trade. 3. 2. Blockchain Technology It is an open synchronized register that mirrors the transactions made on a number of computers without the interference of a significant intermediary center. Some of the uses of blockchain in international trade include; supply chain, smart contracts, and secure payments. Smart contracts, executed on the blockchain, are fully automated, yet the legal acceptance is countryspecific. Concerns exist in relation to how legally binding the new laws are as well as the level of compliance with the developed contract laws.
Cryptocurrency has generated legal ambiguity over the usage and classification of the novel tender against use in commerce, taxation, and the effortless identification of unlawful funds. Governments should set legally non-negotiable rules that are anchored on modern contract laws to accept and hold smart contracts as legally binding. Developing regulations to define crypto currencies and their use in international business while mitigating security issues. E. g. The Indian government does not recognise it as a currency but only as a medium of exchange as it does not have a legal tender while it is recognised by USA as a form of property for tax purposes, EU also recognises it under various financial regulations. The standards for blockchain technology if adopted internationally can help bring integration thereby improving the confidence placed in the technology by users. 3. 3.
International Standards for Responsibility and Accountability of MNCs International guidelines on MNEs play a crucial role in determining their corporate social responsibilities, entail mechanisms for holding MNEs accountable in case of human rights or
labor law violations for e. g the OECD guidelines for responsible business conduct, establish an international system of government-backed grievance mechanisms to help resolve disputes between companies covered by the OECD Guidelines and individuals or groups harmed by irresponsible business conduct. These guidelines cover both extraterritorial and international scope, covering a broad range of issues, business models and sizes and business sectors. Though not legally binding companies, they are binding on signatory governments, which are required to ensure the Guidelines are implemented and observed.
16 UN Guiding Principles on business and human rights: There are three pillars namely:- (i) To protect human rights against third party abuses through effective laws, (ii) due diligence processes to identify and mitigate risks (iii) access to effective remedies like judicial and nonjudicial remedies. Both of these existing frameworks are non-binding in the international realm, but nonetheless are considered the most authoritative international statements on responsibilities of businesses. There is a need for binding international treaties, currently governments are negotiating the UN Binding treaty that would require states to ensure companies respect human rights and are held accountable for their actions.
Common problems faced by MNEs in accessing fair and timely remedies, they may face obstacles navigating through varying rules of Investor State Dispute Settlement or United Nations commission on International Trade Law. Some can drag on for years because of processes associated with the dispute with arbitration cases lasting over five years. As we’ve discovered, costs involved in arbitration and legal representation could easily reach millions before coming to a consensus. Arbitration processes are confidential; the public cannot easily monitor or challenge the arbitrators. Where this is the case, perceptions of bias or unfairness can be an outcome. Compliance with the awards of arbitrators can be unique to the country in question.
For instance, an MNC that gets an award against a state in arbitration may find it extremely difficult to enforce the award if the host country declines to honor the award or if the laws of that country make it difficult for the award to be enforced. 16 The OECD Guidelines - OECD Watch (2023), available at: https://www. oecdwatch. org/oecd-ncps/theoecdguidelines-for mnes/#:~:text=The%20OECD%20Guidelines%20for%20Multinational,do%20business%20sustainably%20and %20responsibly.
Local political factors can influence the process of dispute resolution where the dispute involves a state and a foreign investor, especially where the latter is operating in a sensitive area such as state-owned enterprise as seen in the Diallo case,17 under the garb of suspicious business activities Ahmadou Sadio Diallo, a Guinean national was unlawfully deported with the true motive of rising political tensions between the Congolese Government and foreign investors, infringed upon his legal rights in international law. Effective remedies are paramount to address such issues, in the case of Philip Morris v. Uruguay,18 settled in 2016 highlights the state’s right to upholding the legality of measures adopted by Uruguay thus recognising the importance of public health, prioritizing it over the corporation's interests. Similarly, in Vantell AB v.
Germany,19 a Swedish energy company, claimed compensation from Germany for the elimination of nuclear energy. The decision of the tribunal for investors can be seen in providing agency to states in regulating their businesses while also ensuring that investors are protected when adjustments injure their business by requiring states to compensate for any losses.
4. CALL FOR DELOCALISATION
Delocalization is the process whereby an international dispute is settled before an international ad hoc or institutional tribunal and under a set of procedural and substantive rules agreed by the parties to the dispute (and/or provided by the relevant institution in case of institutional arbitration), a dispute is delocalized when it is not submitted to the laws and the courts of any particular state. In case of disputes between MNEs and Host countries, delocalisation in a sense safeguards private entities against application of municipal laws of host countries for the purpose of resolution of the dispute, rather it brings the dispute before an unbiased, neutral forum following a neutral substantive law. Whilst, it was initially rejected by traditionalists and protectionists, over a period of time it has garnered massive support through judicial decisions.
In the recent years, there has been strong support for delocalisation, specifically concerned with enforcing locally annulled awards. 20 By delocalisation, the arbitrator and parties can ensure
17 Supra note 5.
18 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7(2016), available at: https://www.italaw.com/cases/460.
19 Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12,
https://www.italaw.com/cases/1654. 20 Access of Private Parties to International Dispute Settlement: A Comparative Analysis - Part II: Diplomatic Protection v. Delocalization, https://jeanmonnetprogram.org/archive/papers/97/97-13-Part-2.html.
effective implementation of their award without local courts posing a threat to interfere and sabotaging the enforcement of the award in case of non-compliance with local laws. Delocalisation can be achieved best under a multilateral framework, where legal certainty and predictability can be enhanced; both developing and developed countries can devise methods to establish an equilibrium between local laws and other diverse legal systems. It occurs through arbitration, an Ad Hoc model provides flexibility but may have potential gaps or difficulties. 2122 To tackle this issue, international arbitration was established where pre-set rules govern the procedure, though it provides agency to parties over aspects like appointing arbitrator and governing law, in case the parties fail to reach a consensus, international arbitration provides for the dispute to go ahead in any case.
Another two major elements of institutional arbitration are the high degree of worldliness and skill, as well as the high possibility of recognition and execution of the arbitral ruling before municipal courts that it ensures. Naturally, this model is preferred over the ad hoc model because of its inherent nature; it brushes off the indecisiveness of parties by maintaining a strict standard while the ad hoc model, in the name of providing flexibility, ends up compromising on other important aspects. Arbitration between host states and MNEs has been historically subjected to lex loci árbitri, with constant intervention of local courts if the place of arbitration is the host state; governing substantive law would be of the host state.
The principle of lex loci arbitri significantly reduces the autonomy of parties to choose governing substantive law suitable to their needs thus resulting in an unfavorable outcome for the MNEs. Several scholars view delocalization as a solution to break the shackles of lex loci arbitri; parties are free to exercise their autonomy . International arbitration advocates for party autonomy, the prevailing trend is toward the firm recognition of the principle, there are no concrete reasons for applying local laws unless the dispute is vital to the state or public interests. There are issues with its enforcement as it does not fall under the ambit of “ foreign award “ under New York convention, however with the prevailing interpretation, it should ideally be enforceable under the New York convention.
It can be seen that, like the procedural rules, the substantive law relating to the actual dispute can also be delocalised. Originally the law of the place of arbitration (loci arbitri) used to govern 21 Pippa Read, Delocalization of International Commercial Arbitration: Its Relevance in the New Millennium, American Review of International Arbitration, Vol. No. 2, available at: https://aria. law. columbia. edu/issues/10-2/delocalization-of-international-commercial-arbitration-its-relevanceinthe-new-millennium-vol-10-no-
22 /#:~:text=In%20its%20most%20simplistic%20form,where%20the%20arbitration%20takes%20place.
the choice of the applicable substantive law of the dispute but this is becoming more and more supplanted by contractual choice of law. At present, one can state that, in most cases, the parties themselves select the applicable substantive law with or without the use of conflict-of-law rules. It can be the national law, International law, the general principles or some specially recognized Commercial law known as Lex Mercatorum used in international commerce. Many arbitrators stress to some extent the dependence of the contract on the laws of the host state, international law or other legal norms. Thus more probably, a solution will be the integration of different systems of law into the conflict of interests.
For instance, by applying only the host state’s law may entail detrimental consequences for the foreign investor in that the exposed legal system may have an unfavorable view of foreign investments.
5. CONCLUSION
Understanding the interplay between these concepts is important as one seeks to appreciate the challenges of the current sophisticated world in the realm of Public International Law and the globalized economy. In the chapters, we showed to what extent diplomatic protection can take into account the new realities of the delocalisation of the business and can help states to protect their citizens and their business while encouraging international trade and investments. While they may seem at odds—diplomatic protection focusing on state responsibility for its nationals and delocalization advocating for a more flexible understanding of corporate nationality—they can actually complement one another in addressing international disputes and protecting individual rights.
While treaties and conventions are present internationally to safeguard the interests of corporations, it does not absolve them of the responsibility to practice due diligence on their part and keep a check on their economic activities especially in the fields of prevailing technologies, which have little to no standard regulations. We have examined through various case laws, how disputes related to nationality of corporations and individuals is dealt with in the international realm, along with possible suggestions and recommendations to combat the current issues, while there cannot be a universal blueprint to tackle all the possible disputes arising, delocalisation attempts to establish a standard mechanism for addressing resolving disputes between host states and MNEs fairly and justly.