The Elastic Corporate Form in International Law

Abstract

The modern corporate form is marked by a set of basic hallmarks across national legal systems — such as separate personality, limited liability, and managerial control. These basic features are central to the success of the corporation as a vehicle for efficiently organizing capital at scale and managing risk. And their commonality across legal orders makes the corporate form reliable for stakeholders across borders, including owners, creditors, and governments. These features explain the prevalence of corporations in cross-border investment projects. \n \nYet in international law, the corporate form has begun to break down. This has been most surprising and impactful in the law of foreign investment, where one would expect the stability and efficiency of corporate formalities to matter most. The prime driver is investor-state dispute settlement (ISDS), a treaty-based system which allows corporate investors to sue sovereign states in independent and highly enforceable international arbitration. ISDS tribunals have varied wildly in their respect for basic corporate formalities. The cases exhibit a plasticity in the corporate form that undermines the basic expectations of, and relationships among, all stakeholders — with costs for shareholders, management, creditors, governments and peoples. \n \nThis Article makes four main contributions. First, it identifies a fundamental but overlooked elasticity in how international law grapples with corporate law. Second, I show how this distorts the corporate form, with inefficient and unfair consequences. Ex ante, it drives up the costs of doing business for all concerned — the opposite of what investment treaties are designed to achieve. Ex post, it tends to allow a privileged class to secure more than they paid for. Third, I offer a coherent, if troubling, account of ISDS’ inconsistent formalism. The pattern of cases cannot be explained doctrinally or functionally. The best account is rather an ex post story of tribunals consistently expanding claimants’ access to arbitration — at the expense of investors’ and states’ ex ante interests in enhancing transactional efficiency. Finally, I argue that this account points toward a broader divergence between the stated purposes of ISDS and its practical functions. This regime is regularly pitched as a vehicle for promoting efficient investment, but this goal has been gradually subordinated to concerns of expanding (privileged) access to justice through claims to damages. From the perspective of international law, the basic structure of the corporate form is being sacrificed at the altar of investors’ private right of action.