Investment Arbitration has mainly developed post World War II. Following the independence of former Asian and African colonies, States began to include ISDS in treaties starting with the first bilateral investment treaty concluded between Germany and Pakistan in 1959.
Without ISDS, investors would only have the ability to sue the host-state in the latter’s domestic court, exposing foreign investors to the home-court advantage of the host States. The other option available to foreign investors was to seek diplomatic protection from their own home state. However, diplomatic protection would not always comprise an ideal solution due to the other political and economic interests of the host state, and the fact that only the host state may commence proceedings and settle such disputes. This means that any damages awarded would technically belong to the suing state instead of the foreign investor.