Choice of Law in State Contracts in Economic Development Sector: is there Party Autonomy

  • Oyunchimeg Bordukh

Student thesis: Doctoral Thesis


A state contract is a common mode of entry for foreign direct investment, especially in developing states. It can form the legal basis of the investment relationship between a foreign investor and a host government. But, like any other contract, it cannot stand itself covering all aspects of the legal relationship. The contract thus must belong to a specific legal system or a body of rules or principles which is usually called “applicable law “or “governing law”. Historically, a “concession contract” in the natural resources sector was the predominant form of a state contract and it used to be governed by the domestic law of each host state. However, since the 1950s, international investment arbitrations have abandoned the tradition and advanced a theory subjecting state contracts in the foreign investment sector to an external legal system, ie public international law. One of the bases of the theory of internationalisation was the principle of party autonomy that allows parties to a state contract to select any law of whatever country they like. Then, the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention)1 formally adopted the principle of party autonomy in Article 42 (1) as the primary choice of law rule in disputes arising out a foreign investment contract concluded between a state and a national of another state. The object of this thesis is to prove that the fundamental problems of party autonomy in foreign investment contracts involving considerations of public and private law issues remain unsettled. It explores the main controversies and confusions in the theory of internationalising state contracts, looking at its historical context. It examines the extent of the application of party autonomy in state contracts such as natural resource exploitation contracts and construction of a plant and infrastructure contracts which reflect important economic development policies of developing countries. In considering past and current problems in the field of international investment law, the thesis argues that arbitral tribunals resolving disputes between a state and a foreign private individual should abandon the party autonomy approach because contractual freedom to choose the law of the contract would disregard the objectives which host states normally pursue through economic regulations such as development, environment and human rights concerns of foreign investment. It suggests a consensus-based approach similar to the rule adopted in the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities (Hague Securities Convention)2 and which would produce the desired effect. It recommends that the choice of law provisions found in Article 42 of ICSID Convention would need to be either modified or repealed. In doing so, this thesis attempts to contribute to the positive development of international investment law balancing state authority and private property rights.
Date of Award27 Sept 2008
Original languageEnglish
SupervisorMary Hiscock (Supervisor)

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