International Investment Arbitration: Summary.
Week 1: Introduction.
Derains & Sicard-Mirabal: Introduction to Investor-State Arbitration.
Investor-state arbitration (ISA): a legal mechanism allowing foreign
investors to sue host states directly, typically under bilateral or
multilateral investment treaties (BITs; MITs).
Reliance on domestic courts in the
state is bypassed.
Initially, disputes were resolved through diplomatic protection by home
states who were protecting their citizens, the investors → soon led to
gunboat diplomacy.
The introduction of international treaties and dispute settlement
mechanism modernized dispute resolution and emphasized to peaceful
legal processes.
i. 1958 New York Convention.
Facilitated recognition and enforcement of arbitral awards.
o Almost all countries are Contracting States to the Convention.
ii. 1965 ICSID Convention.
Established the International Centre for the Settlement of
Investment Disputes under the World Bank.
o Must be between one Contracting State and the National of
the other Contracting State (Art. 25 ICSID).
iii. UNCITRAL Arbitration Rules (1976).
Offered a framework for ad hoc arbitration.
Other objectives of investment treaties were:
- Protect investors from unfair treatment by host states.
Offer remedies for:
o Expropriation.
o Discrimination.
o Violations of fair and equitable treatment.
- Promote foreign investment.
There are different forms of IIA: (a) institutional arbitration and (b) ad
hoc arbitration.
a. Institutional arbitration.
Arbitration administered by specialized organizations like ICSID,
ICC or LCIA.
o Advantages.
Pre-established set of rules ensure procedural clarity
and expertise.
, Administrative support reduces logistical burdens.
Access to qualifies arbitrators.
Proven efficiency in starting and managing proceedings.
o Disadvantages.
High administrative fees.
Risk of delays due to institutional bureaucracy.
Rigid timelines might not suit complex disputes.
b. Ad hoc arbitration.
Arbitration without institutional oversight, parties are free to
design the process.
o Advantages.
Greater flexibility and potential cost saving.
Parties retain control over procedures and arbitrator
selection.
Can form the process as to fit their specific
dispute.
o Disadvantages.
Requires cooperation and expertise from parties.
However, there are always fallback clauses /
provisions.
Risk of procedural delays or complications without
institutional support.
Hidden costs.
Resolving procedural issues may require domestic
court intervention.
Investor-state arbitration is different from commercial arbitration that is
held between two private entities. Some of the main distinctions are:
- The legal basis.
o Commercial arbitration is contract based.
o Investor-state arbitration arises from treaties, investment
laws, or contracts.
- Transparency rules.
o Investor-state arbitration is subject to public scrutiny due to
state involvement.
Transparency rules, such as UNCITRAL Rules on
Transparency, apply.
- The enforcement of arbitral awards.
o ICSID awards: self-contained enforcement under the ICSID
Convention (Art. 52 etc. ICSID).
o Non-ICSID awards: enforced through domestic courts, often
under the New York Convention.
Limited exhaustive grounds for annulment.
, - Applicable law.
o Commercial arbitration applies laws chosen by the parties or
deemed appropriate by arbitrators.
o Investor-state arbitration applies treaty obligations,
investment laws, and international law.
Lately, international investment arbitration has been criticized more and
has faced severe challenges due to:
- Lack of legitimacy.
o Perception of bias favoring corporations over states / public
interest.
o Arbitrator conflict of interest.
- Transparency issues.
Historically, arbitration is confidential, but recent efforts (e.g.,
UNCITRAL Transparency Rules) aim to address this.
o Could be solved through greater public participation.
- Systematic problems.
o No comprehensive appeal mechanism for awards.
Could be solved through permanent investment courts
with appellate mechanism.
o Rising costs, time, and complexity.
- Political backlash.
More nationalist and protectionist policies.
o U.S. withdrawal from TPP.
o The EU’s move towards permanent courts (e.g., CETA)
(Achmea).
The foundation of arbitration is consent which can be expressed through
(a) treaties, (b) national laws, or (c) direct agreements between the
investor and the state.
a. Investment treaties.
o States offer arbitration in treaty dispute resolution clauses.
The investor still needs to accept.
By initiating proceedings (AAPL v. Sri Lanka).
By expressing its consent in writing.
o Some treaties limit arbitration to specific investor categories
or investments.
b. Host state legislation.
Domestic laws may include arbitration offers.
o The offers only become binding when this has been accepted
by the investor (SPP v. Egypt).
Before acceptance, the host state can change its laws
and revoke its offer.
, The offer lapses when it has not been accepted
yet.
o The law must be explicit to amount to an offer.
May include conditions like time limits / formalities.
c. Direct agreement.
Consent can be included in contracts or through a ‘compromis’
after a dispute has arisen.
d. Choice of forum.
Conflict may arise when contracts include exclusive dispute
resolution clauses alongside treaty provisions.
o The arbitral tribunal should decide if it has jurisdiction:
assesses what clause is most clear and extensive.
The moment consent becomes perfected the agreement to arbitrate is
irrevocable and satisfies jurisdictional conditions.
This is different when the agreement is
terminated by mutual agreement
between the parties.
The consent to arbitration can also be limited in other ways, such as
obliging the claimant to comply with certain preconditions to
arbitration.
i. Cooling off period.
ii. Exhaustion of local remedies.
Such strict conditions can be avoided by invoking MFN Clauses as
claimants can import more favourable procedural provisions from other
investment treaties (Maffezini v. Spain).
This is also contested by some
tribunals, as the host state did not
consent to this (Plama v. Bulgaria).
If the investor does not comply with preconditions, it may affect the
jurisdiction of the tribunal, as there is not a valid arbitration agreement
to immediately jump to arbitration.
However, it may be regarded as a
matter of admissibility rather than
jurisdiction (Abaclat v. Argentina).
Originally, disputes were resolved through diplomatic protection by the
investor’s home state. With globalization, arbitration became a
preferred method for neutrality and efficiency.
i. Neutrality as it is independent of host state’s courts.
Week 1: Introduction.
Derains & Sicard-Mirabal: Introduction to Investor-State Arbitration.
Investor-state arbitration (ISA): a legal mechanism allowing foreign
investors to sue host states directly, typically under bilateral or
multilateral investment treaties (BITs; MITs).
Reliance on domestic courts in the
state is bypassed.
Initially, disputes were resolved through diplomatic protection by home
states who were protecting their citizens, the investors → soon led to
gunboat diplomacy.
The introduction of international treaties and dispute settlement
mechanism modernized dispute resolution and emphasized to peaceful
legal processes.
i. 1958 New York Convention.
Facilitated recognition and enforcement of arbitral awards.
o Almost all countries are Contracting States to the Convention.
ii. 1965 ICSID Convention.
Established the International Centre for the Settlement of
Investment Disputes under the World Bank.
o Must be between one Contracting State and the National of
the other Contracting State (Art. 25 ICSID).
iii. UNCITRAL Arbitration Rules (1976).
Offered a framework for ad hoc arbitration.
Other objectives of investment treaties were:
- Protect investors from unfair treatment by host states.
Offer remedies for:
o Expropriation.
o Discrimination.
o Violations of fair and equitable treatment.
- Promote foreign investment.
There are different forms of IIA: (a) institutional arbitration and (b) ad
hoc arbitration.
a. Institutional arbitration.
Arbitration administered by specialized organizations like ICSID,
ICC or LCIA.
o Advantages.
Pre-established set of rules ensure procedural clarity
and expertise.
, Administrative support reduces logistical burdens.
Access to qualifies arbitrators.
Proven efficiency in starting and managing proceedings.
o Disadvantages.
High administrative fees.
Risk of delays due to institutional bureaucracy.
Rigid timelines might not suit complex disputes.
b. Ad hoc arbitration.
Arbitration without institutional oversight, parties are free to
design the process.
o Advantages.
Greater flexibility and potential cost saving.
Parties retain control over procedures and arbitrator
selection.
Can form the process as to fit their specific
dispute.
o Disadvantages.
Requires cooperation and expertise from parties.
However, there are always fallback clauses /
provisions.
Risk of procedural delays or complications without
institutional support.
Hidden costs.
Resolving procedural issues may require domestic
court intervention.
Investor-state arbitration is different from commercial arbitration that is
held between two private entities. Some of the main distinctions are:
- The legal basis.
o Commercial arbitration is contract based.
o Investor-state arbitration arises from treaties, investment
laws, or contracts.
- Transparency rules.
o Investor-state arbitration is subject to public scrutiny due to
state involvement.
Transparency rules, such as UNCITRAL Rules on
Transparency, apply.
- The enforcement of arbitral awards.
o ICSID awards: self-contained enforcement under the ICSID
Convention (Art. 52 etc. ICSID).
o Non-ICSID awards: enforced through domestic courts, often
under the New York Convention.
Limited exhaustive grounds for annulment.
, - Applicable law.
o Commercial arbitration applies laws chosen by the parties or
deemed appropriate by arbitrators.
o Investor-state arbitration applies treaty obligations,
investment laws, and international law.
Lately, international investment arbitration has been criticized more and
has faced severe challenges due to:
- Lack of legitimacy.
o Perception of bias favoring corporations over states / public
interest.
o Arbitrator conflict of interest.
- Transparency issues.
Historically, arbitration is confidential, but recent efforts (e.g.,
UNCITRAL Transparency Rules) aim to address this.
o Could be solved through greater public participation.
- Systematic problems.
o No comprehensive appeal mechanism for awards.
Could be solved through permanent investment courts
with appellate mechanism.
o Rising costs, time, and complexity.
- Political backlash.
More nationalist and protectionist policies.
o U.S. withdrawal from TPP.
o The EU’s move towards permanent courts (e.g., CETA)
(Achmea).
The foundation of arbitration is consent which can be expressed through
(a) treaties, (b) national laws, or (c) direct agreements between the
investor and the state.
a. Investment treaties.
o States offer arbitration in treaty dispute resolution clauses.
The investor still needs to accept.
By initiating proceedings (AAPL v. Sri Lanka).
By expressing its consent in writing.
o Some treaties limit arbitration to specific investor categories
or investments.
b. Host state legislation.
Domestic laws may include arbitration offers.
o The offers only become binding when this has been accepted
by the investor (SPP v. Egypt).
Before acceptance, the host state can change its laws
and revoke its offer.
, The offer lapses when it has not been accepted
yet.
o The law must be explicit to amount to an offer.
May include conditions like time limits / formalities.
c. Direct agreement.
Consent can be included in contracts or through a ‘compromis’
after a dispute has arisen.
d. Choice of forum.
Conflict may arise when contracts include exclusive dispute
resolution clauses alongside treaty provisions.
o The arbitral tribunal should decide if it has jurisdiction:
assesses what clause is most clear and extensive.
The moment consent becomes perfected the agreement to arbitrate is
irrevocable and satisfies jurisdictional conditions.
This is different when the agreement is
terminated by mutual agreement
between the parties.
The consent to arbitration can also be limited in other ways, such as
obliging the claimant to comply with certain preconditions to
arbitration.
i. Cooling off period.
ii. Exhaustion of local remedies.
Such strict conditions can be avoided by invoking MFN Clauses as
claimants can import more favourable procedural provisions from other
investment treaties (Maffezini v. Spain).
This is also contested by some
tribunals, as the host state did not
consent to this (Plama v. Bulgaria).
If the investor does not comply with preconditions, it may affect the
jurisdiction of the tribunal, as there is not a valid arbitration agreement
to immediately jump to arbitration.
However, it may be regarded as a
matter of admissibility rather than
jurisdiction (Abaclat v. Argentina).
Originally, disputes were resolved through diplomatic protection by the
investor’s home state. With globalization, arbitration became a
preferred method for neutrality and efficiency.
i. Neutrality as it is independent of host state’s courts.
