[This is my draft review – for the Manchester Journal of International Economic Law – of an excellent new book (Cambridge University Press, 2023, ISBN 978-1-316-51397-2) by one of Japan’s leading international investment law and dispute resolution scholars, Professor Tomoko Ishikawa of Nagoya University’s Graduate School of International Development. She was previously Associate Professor at Tsukuba University and Assistant Professor at Waseda University. Unusually for a Japanese academic, Prof Ishikawa also served as a judge of the Tokyo District Court (2002-5) and working on international law matters in the Ministry of Foreign Affairs (2010-12). She has been appointed to the Panel of Conciliators by the Chairman of ICSID over 2017-23. Her research intersects with my current book project with Nobumichi Teramura and Bruno Jetin on corruption and investor illegality in Asian investment arbitration.]
This thought-provoking, extensively researched and well-argued book combines two hot topics for international economic law experts as well as the general public: corporate environmental responsibility, comprising both hard law and voluntary Corporate Social Responsibility (CSR) and investor-state dispute settlement (ISDS). It is highly recommended for scholars, practitioners and policy-makers, including national delegates, observers and the Secretariat of the United Nations Commission on International Trade Law (UNCITRAL) engaged in ongoing multilateral reform deliberations on ISDS since 2019.
Chapter 1 outlines how ISDS arbitration reinforces substantive protections offered through international investment agreements (IIAs) to foreign investors typically going beyond customary international law, notably against discrimination, uncompensated indirect as well as direct expropriation, and violation of fair and equitable treatment (FET) including denial of justice in national courts and administrative procedures. Yet burgeoning IIAs and ISDS cases have highlighted how foreign investment can adversely impact the environment and often related human rights in host states. The book’s key concern is how the ISDS system, which seems “asymmetrical” in only allowing foreign investors to claim against host states, also does or can significantly allow counterclaims by host states to offer relief against environmental degradation.
Professor Tomoko Ishikawa’s well-structured book (pp17-21) devotes the first part of chapter 2 (pp 24-48) to the challenges of regulating and pursuing the responsibility of transnational corporations (TNCs) in domestic legal orders (including poor governance capacity and access to impartial justice), but also the persistent lack of effective general mechanisms internationally. Ishikawa examines the paucity of customary and treaty-based international law obligations and enforcement mechanisms, recent attempts to expand the international human rights obligations of corporations, and some “soft law” instruments to promote corporate social responsibility (including private initiatives involving CSR). The second part analyses 1000 randomly selected IIAs and Model IIAs (pp 49-55). There is a trend especially over 2010-19 to add express provisions reinforcing the host state’s general “right to regulate” (such as “no lowering of standards” or general exceptions clauses). Yet very few IIAs (39) set express investor obligations (plus six out of 56) Model IIAs), although somewhat more (54) refer to voluntary CSR in the preamble or especially main text (plus 11 Model IIAs), and both types of provisions have also emerged particularly over the last decade or so.
Chapters 3-5 delve into the procedural mechanism of counterclaims potentially under IIAs. Chapter 3 outlines the benefits compared to pursuing investor responsibility under domestic law (pp 60-65). These include problems with the rule of law (such as judicial corruption, mentioning some notable cases) and cross-border enforceability, which I would add are essentially the flipside of problems faced by foreign investors without (especially ISDS-backed) IIAs.
In addition, Ishikawa deals with a fascinating and little-discussed issue, pointing out that in some cases the actual victims of environmental harm may not benefit from the host state proceeding with a counterclaim. A primary conclusion is that ISDS arbitral tribunals should be able to rule it inadmissible based on due process concerns (as a general principle of international law) if allowing the counterclaim “would result in effective deprivation of remedy for the victims” (p84). One factor in this determination will be the host “state’s representation of the interests of its people” (p84), presumed if it has representative democracy but rebutted for example if the host state colluded with the investor in causing the damage. A second suggested factor is doubts about the distribution to victims of compensation potentially awarded. Nonetheless, Ishikawa rightly concludes that in proving such matters, the investor faces “a difficult task. After all, there is a strong presumption that the host state acts on some public purpose, and tribunals would be very reluctant to interfere with internal political affairs by second-guessing the issues of representation and fair distribution” (p85, footnotes omitted).
Chapter 4 first deals with jurisdiction or consent to counterclaims. Again, Ishikawa makes good use of her empirical dataset. She agrees with some other commentators that treaties’ (typical) “absence of reference to the host state’s right to file a counterclaim, which is already responsive to the principal claim, is a logical choice and does not necessarily indicate the parties’ intention to exclude counterclaims” (p97, footnote omitted). She argues this conclusion is buttressed because 706 IIAs out of the 1000 sample contain seemingly narrow locus standi provisions (only expressly mentioning the investor’s right to claim) but 263 go on to provide narrow definitions of investment disputes and claims (pp 98-99). Only the latter subset of treaties, Ishikawa contends, impede tribunals taking jurisdiction over counterclaims because such IIAs allow only for disputes and claims over host state obligations assumed under the treaty. She further argues that a narrow applicable law clause (not expressly referring to domestic law, but only international law: 140 IIAs and 12 Model IIAs) does not imply exclusion of domestic law in ISDS as tribunals “always possess the incidental jurisdiction to apply domestic law to questions that cannot be answered by international law” (p101).
Nonetheless, the second half of Chapter 4 investigates whether tribunals, despite taking jurisdiction under (most) treaties, should rule counterclaims as inadmissible (pp 104-115). Ishikawa argues that there need only be a factual not legal nexus between the principal claims and counterclaims. More complicated is whether a parent’s counterclaim for damage caused by its subsidiary should be inadmissible due to the principle of limited liability. Ishikawa concludes otherwise, noting for example that investment treaties often allow conversely for parent companies to bring claims on behalf of local companies they control or (more controversially nowadays) have shareholdings in. She further concludes that “the question of whether the parent company directly owes a duty of care or is shielded from liability in a particular case must be considered at the merits stage, in accordance with a careful interpretation and application of the relevant domestic law” (p115). This sub-topic, and perhaps the arguments about jurisdiction presented in this Chapter, nonetheless will likely generate some significant divergences among other commentators and tribunals.
Chapter 5 turns to assessing the merits to be considered by tribunals for counterclaims (pp. Ishikawa first elaborates quite compellingly the argument that tribunals generally can and should apply aspects of domestic law, including those imposing responsibility for environmental harm. Concerns about the legitimacy of international adjudicators applying such laws can be addressed by them adopting a “domestic jurisprudence” approach (like the Permanent Court of International Justice), considering a wide range of domestic law sources (pp 128-9) and more use of local legal experts (although very few sampled treaties provide expressly for tribunals to appoint ex curia experts, and only for factual issues: p 131).
The second half instead considers counterclaims based on international law (pp 135-56). An interesting but ambitious argument is that for some instruments imposing liability on TNCs but not expressly providing for remedies or others not yet implemented into national laws, host states might seek to fill that gap through tribunals applying domestic law (as for example in some US case law). Ishikawa also argues that violation of proliferating CSR commitments through treaties (as well as national laws, evolving corporate practices and representations) might generate civil tort claims under at least some domestic laws.
Having considered an investor’s environmental responsibility as a ground for the host state’s counterclaim, Chapter 6 discusses the effects of such responsibility in assessing the investor’s principal claims. Problems usually arise with environmental harm during the performance phase, and Ishikawa argues that misconduct at that stage will usually have only a limited impact on a tribunal’s jurisdiction and even admission of the claim (pp 159-66). However, when considering the merits, host state liability for lack of FET (especially “legitimate expectations”) can arguably be obviated by the investor’s performance-phase misconduct as part of the principle’s balancing exercise and (more controversially) the evolving notion of a corporation’s “social licence to operate” (pp 166-191). More commonly found in investment arbitration and other international law for a is the application of contributory fault to reduce relief awarded, although Ishikawa urges sufficient reasoned explanation over percentages applied by ISDS tribunals (pp 191-98).
Chapter 7 concludes with “implications for reform”. Although the book mainly argues that there is already most scope for counterclaims under many IIAs than most have appreciated, Ishikawa suggests that more explicit rights to counterclaims in treaties would be useful. Substantively, moreover, treaties should expressly provide obligations on investors to comply with host state laws, but if and when extra international standards are set they should be “clearly specified so as to constrain the interpretative discretion of tribunals” (pp 204-5) and provide secondary rules determining consequences for breach (rather than tribunals having to invoke domestic law).
By contrast, a reform option of requiring exhaustion of local remedies before ISDS claims is unclear concerning the extent this “would contribute to advancing the victims’ interests” given “the known cases suggesting corruption and a lack of political independence in the judiciary in the context of TNCs’ misconduct” (p206). Ishikawa also suggests that the most drastic reforms, allowing host states and affected third parties to initiate claims against TNCs (rather than responding with counterclaims) is better pursued outside the IIA regime (eg through the 2019 Hague Rules on Business and Human Rights Arbitration). Otherwise, the regime including its legitimate interests for investors could unwind: “ISDS reform should strike a careful balance between the need to keep its value for the regime’s participants and the need to advance responsible investment” (p208).
The most detailed reform proposal, not really prefigured in the preceding chapters, involving promoting third party participation in investor-state mediation. This more consensus driven dispute resolution procedure has been promoted in recent years by various institutions and commentators due to growing concerns about ISDS arbitration, including its costs and delays. Ishikawa interestingly highlights how some UNCITRAL reform discussions have mentioned that participation by affected third parties through mediation could allow more public interest to be represented, while some scholars support including “non-disputant” stakeholders in mediation (p213). Various suggestions are made to make this process work well for cases involving alleged environmental harms, including appointing co-mediators with relevant expertise, partially lifting confidentiality and reporting and establishing best practices through capacity building and other initiatives.
However, Ishikawa shares scepticism with some other commentators about reforming IIAs by mandating mediation before arbitration – including through a multilateral instrument retrofitting such a step to old treaties, along the lines of the UN’s 2019 Mauritius Convention on transparency (pp 214-5). She notes only a few treaties currently provide a mandatory mediation step, while acknowledging the 2019 Indonesia-Australia FTA (Art 14.23), 2019 Hong Kong – UAE BIT (Art 8), and the Investment Agreement for the COMESA Common Investment Area (Art 26(4) of the 2007 version). Nonetheless, the general argument that mandating mediation goes against its consensual essence is challenged by developments in domestic legal systems (with courts often requiring some initial good faith mediation attempt) and cross-border resolution (with many contracts now committing to mediation before arbitration). Recent empirical research into investment dispute settlement patterns also challenges other concerns often expressed about mediation. Ishikawa’s proposals for mediation, to involve third parties in resolving disputes involving environmental issues, could therefore be bolder on this point. Overall, this book is comprehensive, erudite and balanced, articulating many compelling insights for a variety of legal experts interested in counterclaims and other mechanisms to reassess ISDS and the IIA system. It richly deserves to inform ongoing debates on ISDS reform in UNCITRAL and other fora internationally and domestically, treaty negotiators, future academic research, and investment arbitration practice – even if some of Ishikawa’s more innovative arguments do not prevail among investment tribunals.
 See also eg Claxton, James and Nottage, Luke R. and Williams, Brett G. and Williams, Brett G., Mediating Japan-Korea Trade and Investment Tensions (December 3, 2019). in Nottage, Luke; Ali, Shahla; Jetin, Bruno; Teramura, Nobumichi (eds), “New Frontiers in Asia-Pacific International Arbitration and Dispute Resolution”, Wolters Kluwer, (2021), https://ssrn.com/abstract=3497299 (with an earlier version in Journal of World Trade).
 The relevant provision in the latter treaty, as revised in 2017, is Art 34(4)). Ishikawa also refers to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (Art 9.18) but that does not mandate mediation (emphasis added): “(1) … the claimant and the respondent should initially seek to resolve the dispute through consultation and negotiation, which may include the use of non-binding, third party procedures, such as good offices, conciliation or mediation”. See further: Ubilava, Ana and Nottage, Luke R., Novel and Noteworthy Aspects of Australia’s Recent Investment Agreements and ISDS Policy: The CPTPP, Hong Kong, Indonesia and Mauritius Transparency Treaties (March 4, 2020). in Nottage, Luke; Ali, Shahla; Jetin, Bruno; Teramura, Nobumichi (eds), “New Frontiers in Asia-Pacific International Arbitration and Dispute Resolution”, Wolters Kluwer, (2021) https://ssrn.com/abstract=3548358; and (with James Claxton) http://arbitrationblog.kluwerarbitration.com/2020/09/05/pioneering-mandatory-investor-state-conciliation-before-arbitration-in-asia-pacific-treaties-ia-cepa-and-hk-uae-bit/ (updated and elaborated in Volume XIII of the Indian Journal of International Economic Law (2022) via https://ijiel.in/volume-xiii).
 Ubilava, Ana, Amicable Settlements in Investor-State Disputes: Empirical Analysis of Patterns and Perceived Problems (March 13, 2019). Journal of World Investment and Trade, Vol. 21, 2020, pp. 528-557, https://ssrn.com/abstract=3352181; incorporated into her PhD thesis based book (2022) https://brill.com/display/title/63844?rskey=uPsqiO&result=6.