International Investment Law Exam Review
Week 1: Introduction and Jurisdictional Foundations
Chapter XII: Settling Investment Disputes
7: Consent to Investment Arbitration
● Consent to arbitration by host state and investor is an indispensable requirement for a tribunal’s jurisdiction
● Treaties themselves cannot establish jurisdiction
● Both parties need to express consent
● Consten can be given in 3 ways:
○ Consent clause in a direct agreement between State and Investor
○ Provision in the national legislation
○ Treaty between the host state and investor’s state of nationality (most frequently used)
A: Consent by Direct Agreement
● An agreement between the parties recording consent to arbitration can be achieved through a clause in an investment
agreement between the state and the investor
● Consent may be given in respect to existing or future disputes
● The agreement on consent doesn’t need to be recorded in a single instrument
● An agreement between the parties may record their consent by reference to another legal instrument (e.g. BIT that never
came into force)
● Parties are free to delimit their consent to arbitration
● In practice, broad consent clauses are the norm
● Investment agreements usually refer to ‘any dispute’ or to ‘all disputes’
B: Consent Through Host State Legislation
● Not every reference to investment arbitration in national legislation amounts to consent to jurisdiction
● Some national investment laws provide unequivocally for dispute settlement by international arbitration
● Other provisions are less explicit but still indicate that they express the state’s consent
● Other references in national legislation do not amount to consent —> Require further action by the host state to establish
consent
○ E.g. ‘parties may agree’ to settle investment dispute through arbitration
● A legislative provision containing consent is merely an offer by the state to the investor
● To perfect an arbitration agreement, the investor must accept the offer by state
● Investor may accept the the offer by instituting proceedings or in writing
● The host state may repeal its offer at any time unilaterally until the investor has accepted it
● An investor is well advised to accept the offer of consent to arbitration through a written communication as early as possible
● Host state’s offer may be subject to certain conditions, time limits, or formalities
C: Consent Through Bilateral Treaties
● Most investment arbitration cases are based on jurisdictions established through BITs
● FTAs may also contain clauses providing for a Briton
● Mutual consent is perfected through the acceptance of the offer by an investor
● Treaties can provide a basis for consent only if they are in force
, ● Majority of BITs contain clauses offering unequivocal consent
● Not all references to investor/state arbitration in BITs constitute binding offers of consent
● Some references to arbitration in BITs merely provide that the host state will give sympathetic consideration to the request
but it does not amount to consent
● Many dispute settlement clauses in BITs offer several alternatives (e.g. domestic courts, ICSID arbitration, ICC arbitration)
● An investor may accept an offer of consent contained in a BIT by instituting arbitration proceedings
● The investor may express its consent in writing at any time during the BITs validity even before a dispute arises
● An offer of arbitration in a treaty remains valid notwithstanding an attempt to terminate it unless there is a basis for the
termination under the law of treaties
E: The Irrevocability of Consent
● The binding and irrevocable nature of consent is a manifestation of the maxim Pacta sunt servanda
● Principles applies to direct agreements, national legislations and treaties
● The Irrevocability of consent operates operates only after the consent has been perfected
● A mere offer of consent may be withdrawn
● The investor must have accepted the consent in writing to make it irrevocable (legislation and treaties)
● The Irrevocability of consent applies only to unilateral attempts at withdrawal
● The parties may terminate their consent by mutual agreement
● Article 25(1) ICSID reflects irrevocability: When the parties have given their consent, no party may withdraw its consent
unilaterally
● Article 71 and 72 ICSID: Denouncing the Convention
○ State may denounce ICSID at 6 month notice
○ Art. 72 blocks indirect way of withdrawing consent —> Denunciation shall not affect the rights and obligations
arising out of consent given before receipt of the notice to denunciation
● If a direct agreement is alleged to be invalid or is terminated, can be argued that the arbitration clause is also invalidated or
ceases to exist
● But a unilateral invocation or invalidity of that agreement cannot defeat the consent clause
● The doctrine of separability of the arbitration agreement
○ The agreement providing for arbitration assumes a separate existence, which it automatically and legally
independent of the agreement containing it
● A host state is free to change its investment legislation
● An offer of consent that has not been taken up by the investor will pass when the legislation is repealed
● Once the investor has accepted the offer in writing, while the legislation was in force, the consent clause remains valid
● Consent based on treaties, once perfected by its acceptance by the investor, becomes irrevocable
● BITs may be terminated unilaterally subject to ‘sunset clauses’
○ The BIT will continue to apply for a certain period to investments made before its termination
F: The Scope of Consent
● Parties are free to circumscribe their consent
● Broad and inclusive consent clauses are the norm
● Offers of consent to investment arbitration in national investment legislations are given on general, narrow terms or subject
to specific subject matters
● The scope of consent in treaties also varies considerably
● An umbrella clause in a BIT should extend the jurisdiction of tribunals to violations of contracts even if the consent to
arbitration was restricted to claims arising from breaches of the treaty
● Consent is given only for disputes concerning specific standards
8: Conditions for the Institution of Proceedings
, A: Waiting Periods for Amicable Settlement
● Many BITs contain the condition that a negotiated settlement must be attempted before resorting to arbitration
● Requirements are usually subject to certain time limits
● Tribunals have found that non-compliance with the waiting periods did not affect their jurisdictions, while others did not
● Some tribunals found that the non-observance of the waiting period was inconsequential since further negotiations would
have been pointless
● Some tribunals found that waiting periods for amicable settlement were merely procedural, not a condition for jurisdiction
B: The Requirement to Resort to Domestic Court
● Where there is consent to investor-state arbitration, there is generally no need to exhaust local remedies
● Article 26 ICSID: Specifically excludes the requirement to exhaust remedies unless stated otherwise
● It is open to a host state to make the exhaustion of local remedies a condition of its consent to arbitration
C: The Fork in the Road
● Fork in the road clause
● Such a clause provides that the investor must choose between litigation in the host state’s domestic courts and international
arbitration
● Once the choice is made, it is considered final
● Not every appearance before a court/tribunal will constitute a choice under the clause
○ While such disputes may relate in some way to the investment, they are not necessarily identical to the dispute before
the international tribunal
● Triple identity test must be satisfied
○ The same dispute involving the same cause of action;
○ The same object; and
○ The same parties has been submitted to the domestic courts of the host state
● Tribunals have held that domestic proceedings related to proceedings before the international tribunal but dealing with a
different basis of a claim or cause of action did not constitute the choice foreseen under the clause
10: Treaty Claims and Contract Claims
A: The Selection of Domestic Courts in Contracts
● Contract between host states and investors frequently invoke forum selection clauses referring to domestic courts
● When disputes in connection to BITs arise, investors would invoke the provisions of the treaties granting them access to
international arbitration
● In turn, the host state will rely on the forum selection clauses of the contracts arguing that the investors had waived their
right to international arbitration
● Umbrella clauses will convert contract breaches into treaty breaches
B: Jurisdiction of International Tribunals over Contract Claims
● The scope of jurisdiction as determined by treaty clause providing for consent to arbitration varies
● Many BITs contain clauses such as ‘all disputes concerning investments’ —> These consent clauses encompass disputes that go
beyond the interpretation and application of the BIT itself and include disputes that arise from a contract and other rules of
law in connection with the investment
● A clear cut separation between treaty and contract claims is difficult and hinges on the facts of each case
● A particular course of action by the host state may well constitute a breach of contract as well as a violation of international
law
● 2 different standards must be applied
Week 1: Introduction and Jurisdictional Foundations
Chapter XII: Settling Investment Disputes
7: Consent to Investment Arbitration
● Consent to arbitration by host state and investor is an indispensable requirement for a tribunal’s jurisdiction
● Treaties themselves cannot establish jurisdiction
● Both parties need to express consent
● Consten can be given in 3 ways:
○ Consent clause in a direct agreement between State and Investor
○ Provision in the national legislation
○ Treaty between the host state and investor’s state of nationality (most frequently used)
A: Consent by Direct Agreement
● An agreement between the parties recording consent to arbitration can be achieved through a clause in an investment
agreement between the state and the investor
● Consent may be given in respect to existing or future disputes
● The agreement on consent doesn’t need to be recorded in a single instrument
● An agreement between the parties may record their consent by reference to another legal instrument (e.g. BIT that never
came into force)
● Parties are free to delimit their consent to arbitration
● In practice, broad consent clauses are the norm
● Investment agreements usually refer to ‘any dispute’ or to ‘all disputes’
B: Consent Through Host State Legislation
● Not every reference to investment arbitration in national legislation amounts to consent to jurisdiction
● Some national investment laws provide unequivocally for dispute settlement by international arbitration
● Other provisions are less explicit but still indicate that they express the state’s consent
● Other references in national legislation do not amount to consent —> Require further action by the host state to establish
consent
○ E.g. ‘parties may agree’ to settle investment dispute through arbitration
● A legislative provision containing consent is merely an offer by the state to the investor
● To perfect an arbitration agreement, the investor must accept the offer by state
● Investor may accept the the offer by instituting proceedings or in writing
● The host state may repeal its offer at any time unilaterally until the investor has accepted it
● An investor is well advised to accept the offer of consent to arbitration through a written communication as early as possible
● Host state’s offer may be subject to certain conditions, time limits, or formalities
C: Consent Through Bilateral Treaties
● Most investment arbitration cases are based on jurisdictions established through BITs
● FTAs may also contain clauses providing for a Briton
● Mutual consent is perfected through the acceptance of the offer by an investor
● Treaties can provide a basis for consent only if they are in force
, ● Majority of BITs contain clauses offering unequivocal consent
● Not all references to investor/state arbitration in BITs constitute binding offers of consent
● Some references to arbitration in BITs merely provide that the host state will give sympathetic consideration to the request
but it does not amount to consent
● Many dispute settlement clauses in BITs offer several alternatives (e.g. domestic courts, ICSID arbitration, ICC arbitration)
● An investor may accept an offer of consent contained in a BIT by instituting arbitration proceedings
● The investor may express its consent in writing at any time during the BITs validity even before a dispute arises
● An offer of arbitration in a treaty remains valid notwithstanding an attempt to terminate it unless there is a basis for the
termination under the law of treaties
E: The Irrevocability of Consent
● The binding and irrevocable nature of consent is a manifestation of the maxim Pacta sunt servanda
● Principles applies to direct agreements, national legislations and treaties
● The Irrevocability of consent operates operates only after the consent has been perfected
● A mere offer of consent may be withdrawn
● The investor must have accepted the consent in writing to make it irrevocable (legislation and treaties)
● The Irrevocability of consent applies only to unilateral attempts at withdrawal
● The parties may terminate their consent by mutual agreement
● Article 25(1) ICSID reflects irrevocability: When the parties have given their consent, no party may withdraw its consent
unilaterally
● Article 71 and 72 ICSID: Denouncing the Convention
○ State may denounce ICSID at 6 month notice
○ Art. 72 blocks indirect way of withdrawing consent —> Denunciation shall not affect the rights and obligations
arising out of consent given before receipt of the notice to denunciation
● If a direct agreement is alleged to be invalid or is terminated, can be argued that the arbitration clause is also invalidated or
ceases to exist
● But a unilateral invocation or invalidity of that agreement cannot defeat the consent clause
● The doctrine of separability of the arbitration agreement
○ The agreement providing for arbitration assumes a separate existence, which it automatically and legally
independent of the agreement containing it
● A host state is free to change its investment legislation
● An offer of consent that has not been taken up by the investor will pass when the legislation is repealed
● Once the investor has accepted the offer in writing, while the legislation was in force, the consent clause remains valid
● Consent based on treaties, once perfected by its acceptance by the investor, becomes irrevocable
● BITs may be terminated unilaterally subject to ‘sunset clauses’
○ The BIT will continue to apply for a certain period to investments made before its termination
F: The Scope of Consent
● Parties are free to circumscribe their consent
● Broad and inclusive consent clauses are the norm
● Offers of consent to investment arbitration in national investment legislations are given on general, narrow terms or subject
to specific subject matters
● The scope of consent in treaties also varies considerably
● An umbrella clause in a BIT should extend the jurisdiction of tribunals to violations of contracts even if the consent to
arbitration was restricted to claims arising from breaches of the treaty
● Consent is given only for disputes concerning specific standards
8: Conditions for the Institution of Proceedings
, A: Waiting Periods for Amicable Settlement
● Many BITs contain the condition that a negotiated settlement must be attempted before resorting to arbitration
● Requirements are usually subject to certain time limits
● Tribunals have found that non-compliance with the waiting periods did not affect their jurisdictions, while others did not
● Some tribunals found that the non-observance of the waiting period was inconsequential since further negotiations would
have been pointless
● Some tribunals found that waiting periods for amicable settlement were merely procedural, not a condition for jurisdiction
B: The Requirement to Resort to Domestic Court
● Where there is consent to investor-state arbitration, there is generally no need to exhaust local remedies
● Article 26 ICSID: Specifically excludes the requirement to exhaust remedies unless stated otherwise
● It is open to a host state to make the exhaustion of local remedies a condition of its consent to arbitration
C: The Fork in the Road
● Fork in the road clause
● Such a clause provides that the investor must choose between litigation in the host state’s domestic courts and international
arbitration
● Once the choice is made, it is considered final
● Not every appearance before a court/tribunal will constitute a choice under the clause
○ While such disputes may relate in some way to the investment, they are not necessarily identical to the dispute before
the international tribunal
● Triple identity test must be satisfied
○ The same dispute involving the same cause of action;
○ The same object; and
○ The same parties has been submitted to the domestic courts of the host state
● Tribunals have held that domestic proceedings related to proceedings before the international tribunal but dealing with a
different basis of a claim or cause of action did not constitute the choice foreseen under the clause
10: Treaty Claims and Contract Claims
A: The Selection of Domestic Courts in Contracts
● Contract between host states and investors frequently invoke forum selection clauses referring to domestic courts
● When disputes in connection to BITs arise, investors would invoke the provisions of the treaties granting them access to
international arbitration
● In turn, the host state will rely on the forum selection clauses of the contracts arguing that the investors had waived their
right to international arbitration
● Umbrella clauses will convert contract breaches into treaty breaches
B: Jurisdiction of International Tribunals over Contract Claims
● The scope of jurisdiction as determined by treaty clause providing for consent to arbitration varies
● Many BITs contain clauses such as ‘all disputes concerning investments’ —> These consent clauses encompass disputes that go
beyond the interpretation and application of the BIT itself and include disputes that arise from a contract and other rules of
law in connection with the investment
● A clear cut separation between treaty and contract claims is difficult and hinges on the facts of each case
● A particular course of action by the host state may well constitute a breach of contract as well as a violation of international
law
● 2 different standards must be applied
