Not too long ago, conflicts between investors and foreign States were often resolved through the violent means of naval warfare. Today, arbitration – as a peaceful and binding means of dispute resolution – has largely replaced such so-called “gunboat diplomacy”.
Investment arbitration, also known as investor-State dispute settlement (ISDS) or investment treaty arbitration, is an efficient and fair international legal procedure through which investors can directly seek compensation for alleged violations of their rights by foreign governments. This typically occurs under bilateral investment treaties (BITs) or other agreements between States.
1. Who can bring a claim?
An investor, usually a corporation or individual, alleges that a host State has violated its obligations under an investment treaty. This could include actions such as expropriation without compensation, unfair or discriminatory treatment, or failure to provide adequate protection and security.
In order to bring a claim, an investor must own – or have owned – an “investment” (which typically includes any kind of asset) on the territory of the aggrieved State, and must be “foreign”, i.e. have the nationality of another State. While BITs constitute the most frequent basis for an investment claim, the existence of such a BIT is not always required.
Disputes typically arise from large infrastructure projects, public concessions, or regulatory State measures. The existence of a contract between the investor and the State is not required, as measures of general application, such as regulations of the energy market, may be sufficient to trigger State liability.
2. Who rules on arbitration claims?
Instead of resorting to domestic courts, the investor initiates arbitration proceedings against the host country. Arbitration is conducted by a panel of arbitrators, usually chosen by the parties involved or through established arbitration institutions. Arbitrators are highly specialized and independent legal professionals.
Investment arbitrations are frequently – but not always – conducted under the auspices of the International Centre for Settlement of Investment Disputes (ICSID). ICSID is an international arbitration institution established in 1965 and administered by the World Bank Group. Its primary mission is to ensure the smooth and efficient conduct of arbitration proceedings. Other relevant arbitral institutions include the International Chamber of Commerce (ICC), the Permanent Court of Arbitration (PCA), and the Stockholm Chamber of Commerce (SCC). In certain cases, arbitration may also be conducted on an ad hoc basis under the UNCTRAL arbitration rules.
3. Are arbitral awards binding?
The arbitral tribunal issues a final decision, known as an arbitral award. This decision may include monetary compensation for damages suffered by the investor or other remedies deemed appropriate.
Arbitral awards are typically binding on the parties involved. If a country fails to comply with the award, enforcement mechanisms such as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the ICSID Convention may be used to enforce the decision in multiple jurisdictions.
Conclusion
We hope this blog post has provided you with a useful introduction to investment arbitration. If you have any questions or need assistance regarding investment arbitration, please do not hesitate to contact us.
For more information about our arbitration experience, please visit our website.
