To explain the law of state responsibility and diplomatic protection, it helps to distinguish between primary rules and secondary rules. The primary rules of international law provide that certain acts or omissions are unlawful – for example, the law on the use of force would be considered primary rules of international law, a breach of which would be an internationally wrongful act. When those primary rules are breached, it is the secondary rules – the law of state responsibility – that come into play, to determine inter alia the consequences of that initial wrongful act, whether the wrongful act was committed by a state (thereby entailing that state’s responsibility), and what action the ‘wronged state’ may take in reply. The rules on state responsibility cover wrongful acts committed against another state, as well as certain wrongful acts committed against nationals of the state, including corporations; the law of diplomatic protection solely concerns how a state may raise a claim against another state for a wrong committed against one of its nationals, rather than against the state itself.

Following the finding in Chapter 3 that reciprocity encounters limitations when the subjects of a legal relationship are not equal, this chapter analyses the role of reciprocity in rules pertaining to the treatment of individuals in international law, assessing how reciprocity functions differently depending on who rights are owed to in different substantive areas of law. First looking at historical standards of treatment including those based on reciprocity and the use of the minimum standard of treatment, the chapter goes on to examine how reciprocity functions in national treatment and the most-favoured nation clause. The chapter then goes on to examine the treatment of individuals under human rights, international humanitarian law, and international investment law, analyzing the differences that arise in the role of reciprocity when the legal obligations in question are owed directly to individuals. The chapter ends with an examination of recent developments in diplomatic protection.

This chapter sets the background of this study by discussing the development of the international investment agreements (IIAs) regime as a system to protect foreign investors, many of whom are transnational corporations (TNCs), the impact of TNCs’ activities on the host states, and the increasing criticism of the ’one-sidedness’ of the IIA regime, particularly the lack of a mechanism to hold investors accountable for their conduct and the call for ISDS reform to address this asymmetry. It explains that, against this background, this study examines ways to materialise investors’ responsibility within the current IIA-based dispute settlement mechanisms (investment arbitration and the Investment Court System (ICS)). This chapter also explains this study’s focus on corporate environmental responsibility and its inseparable link to human rights protection, the structure of the book, and methodology of this study.

Many countries have entered into international treaties that accord substantive protections to foreign investors. Such treaties often include clauses enabling investors to institute arbitral proceedings on the international level against the host state. A number of arbitral centers have been established around the world to manage investor-state disputes. Chief among these is ICSID, which was created in 1965 under the auspices of the World Bank. Many of the controversies that get arbitrated in these forums are governed by public law, since they raise questions about the way state authorities have exercised their governmental powers. The ability of investors to take a state before an international tribunal is a remarkable example of the tendency to give private persons an active role in international adjudication.

International investment law and arbitration has a long history dating back to the nineteenth century. It has since developed and adapted following the political and societal forces at work both domestically and internationally. The balance between the interests of developing States and developed States and, more fundamentally, between public and private interests have played a key role in this process. It can be seen that the balance struck between these interests at different periods of time explains to a large extent the evolutive features of this field of law. This holds true with regards to the set of rules governing both the relations of foreign investors with the States in which they invest and the settlement of the disputes between them.

To make sense of this evolution and for the purpose of contextualising the analysis of international investment law and arbitration provided in the textbook, Chapter 1 distinguishes between three key stages in its history and analyses the respective societal context and legal features pertaining to each. These stages are: (1) the origin of international investment law and arbitration; (2) its emergence as a proper field of international law; and (3) the rise and then crisis this field of law has known since the 1990s.

By way of context to the detailed analysis of investor–State arbitration conducted in Part III of the textbook, Chapter 10 examines in turn the types of investment-related disputes that can arise and the various dispute settlement mechanisms that can be availed of to settle such disputes. For the types of investment-related disputes, it distinguishes between the different types of State–State disputes and investor–State disputes. For the purpose of examining dispute settlement mechanisms, a distinction is made between the mechanisms made available in international investment agreements (IIAs) to settle investment-related disputes and those that have been used prior to or in parallel to the development of IIA practice to settle ‘single’ disputes or ‘sets’ of disputes. Specific attention is paid to the mechanisms that have been established or contemplated in the 2010s to replace investor–State arbitration in the settlement of investor–State disputes as a reaction to the criticism formulated across civil society against the latter.

The chapter addresses problems with the general rules of state responsibility from the perspective of functionality. The analysis follows the structure of the Articles on State Responsibility, which means that the critique is organized according to the elements of an international wrongful act, the content of responsibility, as well as its implementation. It is argued that the general rules of state responsibility struggle to respond to the heterogeneity of actors, subject-matters, and norms implicated in the governance of international affairs. It is further contended that state responsibility is marginalized in some situations; in situations of serious wrongs international criminal law has appeared as an alternative remedy, and significant harm is dealt with through rules on international liability. Thus, other forms and regimes of responsibility have appeared, making it necessary to understand responsibility in broader and more versatile terms than what is offered by the state responsibility doctrine.

This chapter analyses the regime for shareholders’ claims respectively in domestic regimes, under the customary international law of diplomatic protection and in human rights law. It begins with the analysis of domestic regimes and the very broad application of the no-reflective loss principle. This prohibition is justified by policy considerations such as the protection of creditors. In the context of diplomatic protection in the realm of international law, the International Court of Justice also opted for the prohibition of shareholders’ claims for reflective loss, as demonstrated by its landmark judgement in Barcelona Traction. This chapter explains, however, that the decisions of the ICJ addressing shareholders’ claims are not applicable by analogy to international investment law and arbitration as a consequence of the specific context in which they were generally adopted: the customary international law of diplomatic protection. Finally, this chapter provides a brief overview of the prohibition of shareholders’ claims for reflective loss which has generally been adopted by human rights courts and is applicable in human rights law.

By the eighteenth century, it was a fundamental precept of the law of nations that “whoever uses a citizen ill, indirectly offends the state, which is bound to protect this citizen; and the sovereign of the latter should avenge his wrongs, punish the aggressor, and, if possible, oblige him to make full reparation; since otherwise the citizen would not obtain the great end of the civil association, which is safety.” Put another way, states were forbidden from arbitrarily harming the subjects of another state. Over the nineteenth century, states developed a robust set of political and legal procedures to manage the conflicts that increasingly emerged as millions of people began to migrate across the Atlantic. But, just who was entitled to protection became a source of irreconcilable tension within the system. Were Italian immigrants who had lived in Argentina for decades entitled to Italian protection? What about Irish immigrants in America? Such questions befuddled policymakers and jurists.

The nature of developing countries’ resistance to the traditional BITs regime varies. Some states are withdrawing from existing agreements or related systems such as the World Bank’s International Center for the Settlement of Investment Disputes. Others call for changes in the scope of new BITs, and yet others promote radical alternatives. Recent BITs signed by emerging countries, and the Model BITs they have developed, offer a departure from the consensus of the 1990s and early 2000s, from the treaty coverage to the nature of the rights and obligations of host states and investors.The process for defining negotiating positions also has evolved to be more inclusive and more deliberative. This chapter focuses particularly on initiatives for investment regulation in South Africa, Brazil, India and China, and in Africa under the auspices of the SADC.