Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 21
to shield the State against interferences by other States and to
justify internally the State’s power to impose binding decisions
and, if necessary, enforce them. When understood broadly as the
State’s ultimate power, sovereignty clashes with the necessity
for the host State to make credible and enforceable
commitments so as to enter into binding agreements vis-à-vis
foreign investors. It constitutes an impediment to efficient
investor-State cooperation, instead of empowering States in
their relationship with foreign investors. As will be argued in
this section, effective third-party dispute settlement and
enforcement mechanisms for host State promises are often
lacking, both on the domestic level and under the traditional
customary international law framework. As will be shown, the
latter is particularly incapable of stabilizing investor-State
contracts both substantively and procedurally. Finally, this
section argues that these shortcomings can only be alleviated
imperfectly in the absence of efficient enforcement mechanisms
based on contractual arrangements between investors and host
States.
1. Enforcement of Host State Promises in Domestic Courts
The courts of the host State will often not be well positioned
to enforce the State’s promises as they relate to foreign
investors. Existing or perceived bias against foreign investors,
or even the lack of an independent and efficient judiciary, may
diminish the ability of the courts of the host State to serve as
efficient and effective institutions to enforce host State promises
and counter opportunistic host State behavior. Judicial
independence is particularly compromised by close institutional
ties between courts and the executive, and missing safeguards
against political influence on court proceedings. Furthermore,
particularly in many developing countries, the low income of
judges and the insufficient financial support of courts often not
only aid and abet corruption, 43 but also result in lengthy and
ineffective dispute resolution. Such factors may compromise the
ability of the host State’s domestic courts to function as
independent and efficient dispute resolvers that effectively back
43. On corruption in the judiciary, see Eduardo Buscaglia & Maria Dakolias,
An Analysis of the Causes of Corruption in the Judiciary, 30 LAW & POL’Y INT’L BUS.
95 (1999); Maria Dakolias & Kimberley Thachuk, The Problem of Eradicating
Corruption from the Judiciary: Attacking Corruption in the Judiciary: A Critical
Process in Judicial Reform, 18 WIS. INT’L L.J. 353 (2000).