Enabling Private Ordering - the University of Minnesota Law School

28 MINNESOTA JOURNAL OF INT’L LAW [Vol. 18:1
following:
[W]hile mere breach by a State of a contract with an alien (whose
proper law is not international law) is not a violation of international
law, a “non-commercial” act of a State contrary to such a contract may
be. That is to say, the breach of such a contract by a State in ordinary
commercial intercourse is not, in the predominant view, a violation of
international law, but the use of the sovereign authority of a State,
contrary to the expectations of the parties, to abrogate or violate a
contract with an alien, is a violation of international law. 67
This limited scope of protection of investor-State contracts
under customary international law leaves important gaps in
stabilizing investor-State relations ex post against breaches of
contract and thus limits the scope of the host State’s capacity to
make credible commitments and participate in efficient
investor-State cooperation. Apart from disputes regarding
changes in the governing law caused by the host State’s
sovereign conduct, disputes about the proper scope of a
contractual obligation as well as disputes involving the simple
nonperformance of contractual obligations outside the State’s
sovereign conduct were disregarded by the scope of
international law. Customary international law therefore not
only left islands of non-protection against the change of law by
the host State; it also failed to protect against (alleged) breaches
based on the opportunistic behavior arising out of the host
State’s commercial conduct.
3. Insufficiencies of Alternative Investment Protection under
Investor-State Agreements
Certainly, large-scale investment contracts have always
contained contractual arbitration clauses as well as choice of
law clauses subjecting a contract to a foreign law as governing
the contractual relations, 68 stabilization clauses that isolate an
investor-State contract from future changes of the law
governing a contract, 69 or internationalization clauses that
67. Schwebel, supra note 65, at 408–09.
68. The choice of a foreign law is often used in contracts involving foreign debt
where States regularly subject bonds to one of the laws in force at the locations of
the principle financial centers, such as New York, London, Frankfurt, or Paris.
69. Specifically on stabilization clauses, see HANNO MERKT,
INVESTITIONSSCHUTZ DURCH STABILISIERUNGSKLAUSELN (1990); F. V. Garcia-
Amador, State Responsibility in Case of “Stabilization” Clauses, 2 TRANSNAT’L. L. &
POL’Y 23 (1993). On choice of law and internationalization clauses in investor-State
contracts see KARL-HEINZ BÖCKSTIEGEL, DER STAAT ALS VERTRAGSPARTNER