International Dispute Settlement

IIAs contain a number of protections designed to encourage foreign investment y reducing the risk
of excessive governmental interference. These include, guarantees against discrimination, FET,
FPS, Umbrella Clauses, guarantees against expropriation (direct and indirect) without
compensation. If such obligations are breached, host states may be required to pay compensation to
foreign investors, which are assessed based on their verifiable losses. Modern IIAs also include
exceptions for public policy matters which may allow host states to reduce the damages payable to
the foreign investor.

Introduction
The greatest advantage in international investment law to investors is access to neutral international
dispute settlement. Some form of investor-state dispute settlement (ISDS) is provided for in almost
every IIA. IIAs also tend to provide for state-to-state dispute settlement between signatories but this
is rarely used. International adjudication for investment disputes is seen as a major threat to national
sovereignty as it often bypasses local courts and gives foreigners greater rights, than are available to
local investors. Very controversial, many proposals for reform.

Role of Domestic Courts

Domestic courts (of home or host state) are often undesirable to hear investors’ claim because of
perceived bias of lack of competence. The Doctrine of State Immunity may prevent host states for
being sued for acts that are sovereign in nature. The Act of State Doctrine prevents courts from
questioning the legality of official acts of governments. Under international law, and some treaties,
investors must seek a remedy through domestic law before seeking an international rememdy
(exhaustion of local remedies). But most IIAs eliminate this requirement or else contain veru short
periods before ISDS can be triggered.

Maffezini v Spain
Maffezini claimed that Spain had mistreated his investment in a Spanish chemical company which
became insolvent following a failed environmental impact statement. The dispute resolution clause
in t he Argentina-Spain BIT required that disputes be submitted first to local courts. Maffezini
argued that he did not need to go to the local courts first – he could go directly to ISDS – by using
the MFN clause in the Arg-Esp BIT – which did not have an exhaustion of local remedies.
This enabled tribunal to take jurisdiction, ultimately ruling in favour of the investor.

Investor-State Dispute Settlement Clauses

Most IIAs (and investment contracts) specify that investor-state dispute settlement is available for
disputes. May be limited by type of dispute to exhaust local remedies, typically in conjunction with
waiting period. Or, “Fork in the Road” claises in contracts or treaties, allow investors to choose
domestic or international route for disputes, not both, and they can not change their mind. Such
clauses prevent the abuse of proceedings through litigation in multiple fora, which may pressure
settlement.

Investor – State Arbitration

Investor-State arbitration is now widely used – several hundred cases have been heard. Arbitration
is based on consent of the parties, which may be granted in a contract, a treaty, or disputes.
Arbitration must involve a legal issues, not a political one. Arbitrators are experts, the process is
believed to be quicker and cheaper, less adversarial and confidential. Most investment arbitration is
ad hoc but there are a number of institutional tribunals. Arbitral decisions have no status as
precedent. Generally confidential hearings with no right of participation by non-parties. Costs
normally born by the loser.
Churchill Mining v Indonesia
Churchill mining brought a claim against Indonesia for mistreatment under the UK-Indonesia and
Australia-Indonesia BITs because of license revocation. Indonesia argued that it had never given
consent to ICSID arbitration and therefore the tribunal had no jurisdiction. The tribunal disagreed,
translating from Indonesian to English, to interpret the phrase “readiness/preparedness/willingness”
to manifest sufficient consent to arbitrate through ICSID. There was additional contractual consent
by an Indonesia body which had governmental authority because it reported directly to the
President, who never challenged the authority. Churchill’s claims were dismissed any way because
of fraudulent documents.

Libananco Holdings v Turkey

Cypriot electricity company lost its case against Turkey – tribunal could not take jurisdiction over
dispute so Turkey wins. Tribunal considered award of costs in a very large claim (worth £10b),
emphasising its discretion in this regard under ICSID rules. Starts with the principle that loser
should pay winner’s costs (noting that would discourage frivolous claims) but also looked at:
• importance of matter to parties and value of money to them
• amount of factual and expert evidence presented
• conduct of parties during the proceedings
Tribunal exercised some restraint given that the claimant should not be held responsible for
Turkey’s massive legal bill – the largest ever in ICSID history (proportionality), and that the
tribunal does not have the expertise to assess costs as well as a national court (practicality). Tribunal
awards $15m for costs (legal fees and expenses).

The International Centre for the Settlement of Investment Disputes (ICSID)

Investment arbitration tribunal established by Convention by the World Bank to promote
international investment. Provides institutional and procedural framework for settlement of
investment disputes between foreign investors and host states (investor-state). Art. 25 of the ICSID
Convention establishes jurisdiction of disputes between MS and investors of other MS.
Art. 25: investors and Members must specifically give consent for ICSID arbitration in writing
(ratification of the Convention does not count as consent). ICSID has its own system of procedural
rules.

Key Features
Art 53: the award of and ICSID tribunal is binding and not subject to appeal.
Art. 51 and 52: although there is no appeal system, an award can be revised or annulled if new facts
are discovered or if there was a procedural error (excess of powers, failure to state reasons for
decision).
Art. 42: the law that applied to this dispute is the law that the parties have chosen to apply, where
parties have done so the Tribunal applies the law of the state party.
There is no formal system of precedent but later tribunals often rely on earlier tribunal’s decisions.
Awards are confidential but many are reported on the ICSID website. Art 54: Awards are
automatically recognised and enforceable in all ICSID signatory states.

CMS Gas Transmission v Argentina

CMS brought claims against Argentina for measures it took during the financial crisis which
harmed its investment – CMS won and Argentina applied for an Annulment on the basis of manifest
excess of tribunal’s powers. Original tribunal ruled that US-Argentina BIT emergency provision had
a very high threshold (doctrine of necessity). Annulment committee considered this decision to be a
“manifest error of law” (there are actually two separate emergency standards) but reiterated that it
not a court of appeal – so an error of law does not matter. There was no manifest excess of the
tribunal’s power – the tribunal applied the law even though it.
UNCITRAL Procedural Rules
After ICSID, UNCITRAL rules are most popular. UNCITRAL was established by the UN to
harmonise international trade laws and has model system of rules for international arbitration.
UNCITRAL rules are not binding but can be used by adhoc investment arbitration tribunals. Ad hoc
arbitrations are cheaper and more flexible than institutional procedures (like ICC or ICSID).
UNCITRAL has a default rule of loser pays costs. UNCITRAL Rules of Transparency in ISDS
(2014) growing in popularity: default rules on disclosure of key docs.

Investment Court System (ICS)

New system of ISDS will form part of EU IIAs (will feature in CETA and the EU-Veitnam FTA).
Consists of a first tier investment tribunal with arbitrators chosen by state parties (not by investors).
Includes Appellate Court composed of permanent appointed judges who can hear appeals from
lower tribunal. Intended to achieve consistency and legitimacy. Default transparency rules and
availability of third part participation. Restrictions on third party funding and cost-shifting (loser
pays). EU considering a multilateral investment court based on the same type of system.

Iran-US Claim Tribunal

Following the Islamic Revolution in Iran, in 1970, many American enterprises in Iran were
expropriated. A tribunal was set up in The Hague in 1981 to settle disputes arising from these events
(US investors vs Iran). A massive amount of case law was generated (more than 4000 claims) with
an effort to achieve consistency and uniformity. UNCTIRAL Procedural Rules were used. 9
member panels (3 US, 3 Iranian, 3 by agreement). Closed to new claims in 1982 and issued its first
judgement in the early 2000.

State-to-state dispute settlement

Most IIAs contain provisions for State-to-State dispute settlement between treaty parties. May be
used to clarify meaning of terms or obligations of parties. Tend to specify international arbitration
without reference to specific fora. Methodology for selection of arbitrators specified, with reference
to the ICJ to resolve in the event of conflict. This feature of dispute is rarely used. Relevant WTO
agreements are enforced through the WTO Dispute Settlement System.

Informal Dispute Settlement

Most IIAs contain provisions on mandatory consultation for both investor-state and state-to-state
dispute settlement. This is believed to save time and cost and to preserve the integrity of the
relationship between the parties. Structured diplomacy in order to prevent the escalation of conflict.
The extent to which informal dispute settlement actually works is unclear. Some home states
maintain mandatory information dispute settlement procedures for complaints against their
investors. (e.g. Canada’s CORE).