When parties agree to apply national law, it will automatically apply to the contract. This is because the host state’s sovereignty over its own law will apply to the claim. National law also has more neutral effects on the choice of law than state sovereignty. For example, claims of breach of contract are considered national in nature. However, this is not always the case. Nonetheless, if the parties are unable to agree on a common law rule, the parties can agree on an independent law for the contract.
Although it is not mandatory for a national court to apply international law in an investment dispute, this does not prevent the tribunal from doing so. In the case of an investment dispute, the tribunal can apply national law if this is consistent with its own jurisdiction. But it is unlikely that an investment tribunal will apply this interpretation in a case involving international investment. This distinction may be significant if the investor has been awarded a settlement based on international law.
There are cases highlighting the tension between the legitimate interest of foreign investors in the national economy and the right to protect their interests under international law. One recent example is Cable TV v. Federation of St. Christopher (St. Kitts and Nevis) (which has since been resubmitted).