Domestic Law in International Investment Arbitration-Oxford University PENTING DR MBA ALDA PDF

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D O M E S T I C L AW I N I N T E R N AT I O N A L
I N V E S T M E N T A R B I T R AT I O N
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INTERNATIONAL ECONOMIC LAW SERIES

International Economic Law series, established by the late Professor John
H. Jackson, addresses a range of issues in international economic law, which
includes international trade law, international investment law, and the global
financial order. The series aims to encourage interest in the broad contours of
international economic law, heightening awareness of its significance across
the globe as well as its continuous interactions with other areas. The series edi-
tors encourage quality submissions from a wide range of perspectives, includ-
ing doctrinal, theoretical, empirical, and interdisciplinary viewpoints. Novel
and cutting edge research is particularly welcome, as are contributions from
both emerging and established scholars from around the world.
Series Editors
Andrew D. Mitchell
Professor at Melbourne Law School, The University of Melbourne
Tania Voon
Professor at Melbourne Law School,
The University of Melbourne
recent titles in the series

Treaty Shopping in International Law
Jorun Baumgartner
Good Faith and International Economic Law
Edited by Andrew D. Mitchell, M Sornarajah, and Tania Voon
Development at the WTO
Sonia E. Rolland
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Domestic Law
in International
Investment Arbitration
by
J A R RO D H E P B U R N
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© Jarrod Hepburn 2017
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Series Editor’s Preface
The question of domestic law in international investment arbitration as addressed

in this volume by Jarrod Hepburn is of growing importance in both theoretical
and practical terms, as reflected in both investment treaty awards and, increasingly,
international investment agreements (‘IIAs’). The 2015 decision of the majority in
Clayton/Bilcon v Canada, according to the dissenting arbitrator Professor Donald
McRae, controversially equated a breach of Canadian law with a breach of the fair
and equitable treatment standard under c hapter 11 of the North American Free
Trade Agreement. In late 2016, the tribunal in the long-running dispute of Pac Rim
Cayman v El Salvador, constituted under the ICSID Convention on the Settlement
of Investment Disputes, confirmed its jurisdiction to rule on a matter arising under
Salvadoran investment law. After hearing considerable expert evidence on the cen-
tral issue of the correct interpretation of Salvadoran law, the tribunal found no
breach of either Salvadoran or international law. Perhaps partly in response to these
kinds of disputes, countries such as Colombia, Canada and the European Union
have attempted in some of their IIAs to limit the jurisdiction of investment tribu-
nals in determining the legality of a measure under the domestic law of the host
State, including in the now signed Comprehensive Economic and Trade Agreement
between Canada and the European Union.
These kinds of attempts by States to curtail the jurisdiction and power of invest-
ment tribunals with respect to domestic law appear consistent with the traditional
view of domestic law as a question of mere ‘fact’ rather than ‘law’ for the purposes
of public international law. However, as Hepburn explains, that traditional ‘rule’
is subject to uncertainty, exceptions and blurred edges, both in international law
in general and in international investment law in particular. Some IIAs specifically
identify domestic law as part of the applicable law for an investment treaty tribunal,
while in other circumstances tribunals must in any event turn to domestic law to
delineate contractual or property rights, in the absence of relevant international law
rules. In the World Trade Organization (WTO), a parallel realm of international
economic law, the Appellate Body has also refused to treat domestic law purely as
fact, by insisting on its capacity to review WTO panels’ examination of such law.
In his conclusion, Hepburn cites Calvo in recalling the disconnect between
domestic law and international investment law, and in particular the debate over
whether foreign investors can properly demand greater protections under inter-
national law than local investors receive under domestic law. This debate becomes
more complicated in the context of well-established domestic judicial systems that
would ordinarily not be expected to discriminate against foreign investors. This vol-
ume makes an important contribution to the debate in revealing the myriad ways in
which domestic law infiltrates international investment arbitration, with the poten-
tial to (as he puts it) ‘shorte[n]‌the distance’ between domestic and international
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protections for investors. Such interactions are only likely to increase, if moves con-
tinue towards imposing obligations on investors in IIAs (as seen, for example, in the
2015 Indian Model Bilateral Investment Treaty), particularly where accompanied
by the possibility of host States bringing counterclaims or even direct claims against
investors for, say, failing to comply with host State law.
Unfortunately, as this volume demonstrates, many tribunals have not grappled
well with questions of domestic law in international investment arbitration. Soft
law instruments have developed in other areas of international arbitration, such as
the 2008 report of the International Law Association on ascertaining the contents
of the applicable law in international commercial arbitration, and the guidelines
of the International Bar Association on conflicts of interest in international arbi-
tration (revised in 2014). However, similar guidance does not yet exist to assist
tribunals in determining issues of domestic law in international investment arbitra-
tion. In that context, Hepburn’s recommendations have the potential to form the
basis for enhanced soft law on the determination of the content of domestic law in
international investment arbitration. Those recommendations include interpreting
and applying domestic law as it exists in its own jurisdiction, that is, with reference
to relevant domestic interpretations, principles, statutes and caselaw, as well as to
experts called by the parties or the tribunal itself. The detailed analysis and justifica-
tions underlying these recommendations as set out in this volume provide a crucial
reference for future discussions and disputes.
Andrew D. Mitchell and Tania Voon
November 2016
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Acknowledgements
This book is a revised version of my DPhil thesis defended at the University of

Oxford in 2014. I was fortunate to have Paul Craig as my supervisor at Oxford; his
knowledge of an immensely wide range of areas of law was invaluable in shaping
the original thesis. I am also grateful to Vaughan Lowe and Nancy Eisenhauer for
their assistance with my DPhil confirmation process, to Dan Sarooshi and Federico
Ortino for their incisive comments as my DPhil examiners, and to the anonymous
reviewers at Oxford University Press for their very helpful feedback and suggestions
in revising the work for publication.
I am indebted to the McKenzie Postdoctoral Fellowship at Melbourne Law
School for giving me the time needed to finalize the book. At Melbourne I owe
much to Jürgen Kurtz, who generously agreed to grant me his expert attention on
elements of the book and his mentorship on the McKenzie Fellowship.
I thank participants in various seminars at which parts of this work were pre-
sented, including at the University of Luxembourg, Singapore Management
University, Melbourne Law School, and All Souls’ College, Oxford.
I have also benefited from conversations with many other people on the fas-
cinating landscape of investment law over several years. In particular, I thank
Farrah Ahmed, Eirik Bjorge, Jonathan Bonnitcha, Govert Coppens, Rishab Gupta,
Jonathan Ketcheson, Gashahun Lemessa, Kubo Macak, Campbell McLachlan,
Martins Paparinskis, Luke Peterson, Sergey Ripinsky, and Matteo Vaccaro Incisa.
Parts of the book were written while I was a visiting researcher at the Max Planck
Institute for Comparative and International Private Law in Hamburg, and I thank
Stefan Vogenauer (formerly) at Oxford and the Max Planck staff for enabling this
visit. Geraldine Malloy at the Oxford Law Faculty, and Glynis Price and Nicola
Trott at Balliol College, also provided support at key administrative moments dur-
ing the DPhil process.
My studies at Oxford were funded by the Chevening Scholarship, the Rae and
Edith Bennett Travelling Scholarship, Allan Myers QC, and the UK Foundation
for International Uniform Law. Their faith in my abilities was essential to the com-
pletion of the project’s foundations.
Lastly, I am eternally thankful to my family for supporting my work in many
ways. I hope that this book offers at least something in return.
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Table of Contents
Table of Cases xv
1 Introduction 1
1.1 Legitimacy and the ‘Backlash’ against Investment Arbitration 4
1.2 Overview of the Book 8
PA RT I I D E N T I F Y I N G D O M E S T I C L AW I S S U E S
I N I N V E S T M E N T A R B I T R AT I O N
2 Domestic Law and Fair and Equitable Treatment 13
2.1 Introduction 13
2.2 Domestic Law and Direct FET Breaches 17
2.2.1 Domestic legality contributing to FET compliance 17
2.2.2 Domestic illegality contributing to FET breach 20
2.2.3 Domestic legality as a determinative factor? 21
2.3 Domestic Law and Legitimate Expectations under
the FET Standard 26
2.4 Domestic Law and Arbitrariness under the FET Standard 31
2.4.1 Domestic legality as irrelevant 33
2.4.2 Domestic legality as contributory factor 34
2.4.3 Domestic legality as a proxy for (non-)arbitrary measures 36
2.5 Conclusion 39
3 Domestic Law and Expropriation 41

3.1 Introduction 41
3.2 Domestic Law and the ‘Police Powers’ Doctrine 42
3.3 Domestic Law and the International Lawfulness of Expropriation 46
3.3.1 Formulations of the ‘due process’ requirement in IIAs 47
3.3.2 First set—a textual link to domestic law 48
3.3.3 Second set—‘due process of law’ 51
3.3.4 Third set—due process as domestic judicial review 57
3.3.5 Conclusion 58
3.4 Limitations on Lawfulness: The Effect of the Compensation
Requirement 58
3.5 Legality and the Public Nature of Investment Law 62
3.6 Conclusion 67
4 Domestic Law and Remedies 69

4.1 Uncertainty in International Law on Remedies 70
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4.2 Application of Domestic Law when Determining Remedies 73
4.2.1 Local failure to act 74
4.2.2 Validity of the investment affecting compensation 78
4.2.3 Temporal extent of claimant’s rights 81
4.2.4 Conclusion 82
4.3 Relevance of Domestic Law Rules on Interest Payments 82
4.3.1 Reference to municipal legal systems generally 83
4.3.2 Reference to host state law specifically 84
4.3.3 Reference to host state law on interest determinations 85
4.3.4 Conclusion 90
4.4 Compliance with Domestic Law as a Factor in Remedies
Determinations 91
4.4.1 Factors allowing consideration of compliance with domestic law
in remedies determinations 94
4.4.2 Domestic legality and non-monetary remedies 96
4.4.3 Conclusion 98
4.5 Conclusion 99
PA RT I I R E S O LV I N G D O M E S T I C L AW I S S U E S
I N I N V E S T M E N T A R B I T R AT I O N
5 Ascertaining the Contents of Domestic Law in Investment Arbitration 103
5.1 Introduction 103
5.2 Domestic Law as Fact in International Investment Arbitration 104
5.3 Tribunals’ Attitude towards Domestic Law 108
5.4 The Practicalities of Ascertaining the Contents of Domestic Law 112
5.4.1 Guidance in arbitral rules 112
5.4.2 Arbitrators’ knowledge of domestic law 113
5.4.3 Guidance from international courts 114
5.4.4 Guidance from national courts 116
5.4.5 Guidance from international commercial arbitration 117
5.5 The Principle of Iura Novit Curia in Investment Arbitration 120
5.6 Weighting Domestic Case-law and Other Domestic
Law Materials 125
5.6.1 Fear of host state manipulation of local case-law 126
5.6.2 No binding res judicata for local case-law 129
5.6.3 Resolving conflicts or uncertainties in domestic case-law 133
5.7 Expert Evidence on Domestic Law 134
5.8 Conclusion 137
6 Applying the Framework—Preliminaries 139

6.1 Introduction 139
6.2 What Counts as Domestic Law? 139
6.2.1 All host state law, or only fundamental laws? 140
6.2.2 Any laws, or only laws related to investment? 147
6.2.3 Only laws that are rule-of-law compliant? 151
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Table of Contents xiii
6.3 Estoppel as a Means to Avoid Consideration of Domestic Law 155

6.3.1 An alternative view: the rule of law and investment law 157
6.3.2 Limits on estoppel 160
6.4 Conclusion 161
7 Applying the Framework—In Practice 163

7.1 A Taxonomy of Errors 163
7.1.1 Failure to appreciate role of domestic law 163
7.1.2 Failure to investigate domestic law sources 166
7.1.3 Failure to engage with available domestic law sources 169
7.1.4 Unreasoned assertions of legality 177
7.1.5 Reliance on improper sources 181
7.2 Positive Models of Domestic Law Reasoning 182
7.2.1 Emulating domestic judges 182
7.2.2 Reliance on domestic materials 183
7.2.3 Reliance on expert witnesses 186
7.3 Conclusion 192
8 Conclusion 193
Bibliography 199
Index 209
xiv
xv
Table of Cases
Accession Mezzanine Capital LP v Hungary (ICSID Case No ARB/12/3), Award,
17 April 2015�� 1, 184
ADC Affiliate Ltd v Hungary (ICSID Case No ARB/03/16), Award of the Tribunal,
2 October 2006�� 53, 57, 85, 155
Adel al Tamimi v Oman (ICSID Case No ARB/11/33), Award, 3 November 2015��15, 133
Adem Dogan v Turkmenistan (ICSID Case No ARB/09/9), Award, 12 August 2014 ��82
Adem Dogan v Turkmenistan (ICSID Case No ARB/09/9), Decision on Annulment,
15 January 2016��108
ADF Group Inc v USA (ICSID Case No ARB(AF)/00/1), Award, 9 January 2003�� 21, 28
AES Summit Generation Ltd v Hungary (ICSID Case No ARB/07/22), Award,
23 September 2010 ��34, 104
Ahmadou Sadio Diallo (Guinea v DRC) (Compensation) [2012] ICJ Rep 324��95
Ahmadou Sadio Diallo (Guinea v DRC) (Judgment) [2010] ICJ Rep 639 ��32, 114
Alasdair Anderson v Costa Rica (ICSID Case No ARB(AF)/07/3), Award, 19 May 2010�� 157, 184
Al-Bahloul v Tajikistan (SCC Case No V 064/2008), Partial Award on Jurisdiction and
Liability, 2 September 2009�� 15, 22, 26, 128, 171
Albert Jan Oostergetel v Slovakia (UNCITRAL), Decision on Jurisdiction, 30 April 2010 ��195
Albert Jan Oostergetel v Slovakia (UNCITRAL), Final Award, 23 April 2012��122
Alex Genin v Estonia (ICSID Case No ARB/99/2), Award, 25 June 2001 ��31, 34, 35, 178-9
Alpha Projektholding GmbH v Ukraine (ICSID Case No ARB/07/16), Award,
8 November 2010�� 29, 61, 78, 146, 156
Amco Asia Corporation v Indonesia (1993) 1 ICSID Rep 413��87, 132
Anaconda-Iran Inc v Iran (Case No 167, Award No ITL 65-167-3), Interlocutory
Award, 10 December 1986��89
Antoine Goetz v Burundi (ICSID Case No ARB/95/3), Award, 10 February 1999�� 47, 49–51,
97, 98, 124, 152, 167, 169,183
Ares International srl v Georgia (ICSID Case No ARB/05/23), Award, 28 February 2008 ��132
ATA Construction, Industrial and Trading Company v Jordan (ICSID Case No ARB/08/2),
Award, 18 May 2010 ��97
Azurix Corp v Argentina (ICSID Case No ARB/01/12), Award, 14 July 2006��38–9, 45
Azurix Corp v Argentina (ICSID Case No ARB/01/12), Decision on the Application for
Annulment of the Argentine Republic, 1 September 2009 ��108
Bayindir Insaat Turizm Ticaret ve Sanayi AŞ v Pakistan (ICSID Case No ARB/03/29), Award,
27 August 2009��104
Bayview Irrigation District v Mexico (ICSID Case No ARB(AF)/05/1), Award,
19 June 2007�� 107, 185–6
Bernardus Funnekotter v Zimbabwe (ICSID Case No ARB/05/6), Award, 22 April 2009��60
Bernhard von Pezold v Zimbabwe (ICSID Case No ARB/10/15), Award, 28 July 2015 ��57, 67,
72, 95, 97, 98, 105
Beyeler v Italy App No 33202/96 (ECHR, 5 January 2000)��153
Binder v Czech Republic (UNCITRAL), Award on Jurisdiction, 6 June 2007��195
Biwater Gauff (Tanzania) Ltd v Tanzania (ICSID Case No ARB/05/22), Award,
24 July 2008�� 19, 61
Bosh International Inc v Ukraine (ICSID Case No ARB/08/11), Award, 25 October 2012��186
BP Exploration Co (Libya) Ltd v Libya (1979) 53 ILR 297��123
British Caribbean Bank Ltd v Belize (PCA Case No 2010-18), Award, 19 December 2014 ��183
xvi
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Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC BV v Paraguay (ICSID
Case No ARB/07/9), Further Decision on Objections to Jurisdiction, 9 October 2012��87
Buyan v Greece App No 28644/08 (ECHR, 3 July 2012) ��153
Carbonara and Ventura v Italy App No 24638/94 (ECHR, 30 May 2000)��153

Cargill Inc v Mexico (ICSID Case No ARB(AF)/05/2), Award, 18 September 2009 �� 16, 34, 39
Centro Europa srl v Italy App No 38433/09 (ECHR, 7 June 2012) ��59
Certain German Interests in Polish Upper Silesia (Germany v Poland) Series A No 7 (1926)��104
Chemtura Corporation v Canada (UNCITRAL), Award, 2 August 2010��43, 177
Chevron Corporation v Ecuador (PCA Case No 2009-23), Decision on Track 1B,
12 March 2015��128
Chevron Corporation v Ecuador (PCA Case No 2009-23), First Partial Award on Track I,
17 September 2013 ��190
Chevron Corporation v Ecuador (PCA Case No 2009-23), Opinion of Jan Paulsson,
12 March 2012��105
Chevron Corporation v Ecuador (PCA Case No 2009-23), Third Interim Award on Jurisdiction
and Admissibility, 27 February 2012 ��190
Chevron Corporation v Ecuador (PCA Case No 2009-23), Track 2 Supplemental Rejoinder on
the Merits of the Republic of Ecuador, 17 March 2015��97
Chevron Corporation v Ecuador (UNCITRAL), Final Award, 31 August 2011��75
Chevron Corporation v Ecuador (UNCITRAL), Partial Award on the Merits,
30 March 2010�� 74, 76, 175
Citibank v Ceylon Petroleum Corporation (LCIA), First Partial Award, 1 August 2011 ��159
CME Czech Republic BV v Czech Republic (UNCITRAL), Comments Relating to Applicable
Law on the Stockholm Tribunal’s Final Award of 14 March 2003, 30 March 2003��120
CME Czech Republic BV v Czech Republic (UNCITRAL), Final Award, 14 March 2003��87, 121
CME Czech Republic BV v Czech Republic (UNCITRAL), Legal Opinion of Christoph
Schreuer and August Reinisch, 20 June 2002��106
CME Czech Republic BV v Czech Republic (UNCITRAL), Partial Award, 13 September 2001��43
CMS Gas Transmission Company v Argentina (ICSID Case No ARB/01/8), Award,
12 May 2005��82
Comingersoll SA v Portugal App No 35382/97 (ECHR, 6 April 2000)��76
Compania de Aguas del Aconquija SA v Argentina (ICSID Case No ARB/97/3),
Award, 20 August 2007 ��60
Copper Mesa Mining Corporation v Ecuador (PCA Case No 2012-2), Award, 15 March 2016 ��92
Cyprus v Turkey App No 25781/94 (ECHR, Judgment of 12 May 2014, Concurring Opinion
of Judge Pinto de Albuquerque)��93
Dan Cake (Portugal) SA v Hungary (ICSID Case No ARB/12/9), Decision on Jurisdiction and
Liability, 24 August 2015��14
David Minnotte v Poland (ICSID Case No ARB(AF)/10/1), Award, 16 May 2014��20
Desert Line Projects LLC v Yemen (ICSID Case No ARB/05/17), Award,
6 February 2008�� 14, 140–2, 144–6, 155
Deutsche Bank AG v Sri Lanka (ICSID Case No ARB/09/02), Award, 31 October 2012��159
Duke Energy Electroquil Partners v Ecuador (ICSID Case No ARB/04/19), Award,
18 August 2008�� 36, 39, 88, 173
Eastern Sugar BV (Netherlands) v Czech Republic (SCC No 008/2004), Partial Award,

27 March 2007��88, 90,195
EDF (Services) Ltd v Romania (ICSID Case No ARB/05/13), Award, 8 October 2009 �� 21, 34, 184
El Paso Energy International v Argentina (ICSID Case No ARB/03/15), Award,
31 October 2011�� 16, 27, 31, 71, 86, 119
Electrabel SA v Hungary (ICSID Case No ARB/07/19), Decision on Jurisdiction, Applicable
Law and Liability, 30 November 2012 ��104
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Table of Cases xvii

Elettronica Sicula SpA (ELSI) (US v Italy) [1989] ICJ Rep 15 ��32, 105
Elettronica Sicula SpA (ELSI) (US v Italy) [1989] ICJ Rep 15, Dissenting Opinion of Judge
Schwebel ��32
Eli Lilly v Canada (ICSID Case No UNCT/14/2), Government of Canada, Rejoinder
Memorial, 8 December 2015��132
Emmis International Holding BV (ICSID Case No ARB/12/2), Award,
16 April 2014�� 1, 2, 41, 110, 184
Emmis International Holding BV v Hungary (ICSID Case No ARB/12/2), Request for
Arbitration, 28 October 2011��1
EnCana Corporation v Ecuador (LCIA), Award, 3 February 2006 ��133
Energoalians SARL v Moldova (UNCITRAL), Arbitral Award, 23 October 2013�� 16, 17
Enron Corporation Ponderosa Assets LP v Argentina (ICSID Case No ARB/01/3), Award,
22 May 2007��33
Enron Corporation v Argentina (ICSID Case No ARB/01/3), Decision on the Application for
Annulment of the Argentine Republic, 30 July 2010 ��121
Eureko BV v Poland (ad hoc arbitration), Partial Award, 19 August 2005��4
Eureko BV v Slovakia (UNCITRAL), Award on Jurisdiction, Arbitrability and Suspension,
26 October 2010��195
Europe Cement Investment & Trade SA v Turkey (ICSID Case No ARB(AF)/07/2), Award,
13 August 2009��186
Factory at Chorzow (Germany v Poland) Series A No 17 (1928)��67, 71, 74, 76, 78, 86, 92–3, 95
Fireman’s Fund Insurance Company v Mexico (ICSID Case No ARB(AF)/02/01), Award,
17 July 2006��45
Fisheries Case (United Kingdom v Norway), Judgment of 18 December 1951 [1952]
ICJ Rep 116��156
Fisheries Jurisdiction Case (Germany v Iceland) (1974) ICJ Rep 175��123
Flughafen Zürich AG v Venezuela (ICSID Case No ARB/10/19), Award, 18 November 2014 ��132
Forminster Enterprises Ltd v Czech Republic App No 38238/04 (ECHR, 9 October 2008)��153
Franck Charles Arif v Moldova (ICSID Case No ARB/11/23), Award,
8 April 2013�� 95, 97, 98, 155, 160–1, 188
Franz Sedelmayer v Russia (ad hoc), Arbitration Award, 7 July 1998��51, 85
Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID Case No ARB/03/25),
Award, 16 August 2007 ��161,127, 131–2, 144–5, 151, 155–6, 157, 161, 176
Decision on the Application for Annulment of Fraport AG Frankfurt Airport Services
Worldwide, 23 December 2010�� 110, 131–2, 144, 176
Dissenting Opinion of Bernardo Cremades, 19 July 2007�� 146, 156, 158, 175, 176
Award, 10 December 2014�� 106, 141, 185
F-W Oil Interests Inc v Trinidad and Tobago (ICSID Case No ARB/01/14), Award, 3 March
2006�� 167, 182–3
GAMI Investments Inc v Mexico (UNCITRAL), Final Award, 15 November 2004�� 16–7, 26, 28
Gavazzi v Romania (ICSID Case No ARB/12/15), Decision on Jurisdiction, Admissibility
and Liability, 21 April 2015��92
GEA Group Aktiengesellschaft v Ukraine (ICSID Case No ARB/08/16), Award,
31 March 2011�� 31, 80, 164, 179
Generation Ukraine Inc v Ukraine (ICSID Case No ARB/00/9), Award, 16 September 2003��27
Glamis Gold Ltd v USA (UNCITRAL), Award, 8 June 2009�� 17–8, 28, 34, 40, 178
Gold Reserve Inc v Venezuela (ICSID Case No ARB(AF)/09/1), Award, 22 September 2014 ��184
Government of the Province of East Kalimantan v PT Kaltim Prima Coal (ICSID
Case No ARB/07/3), Award on Jurisdiction, 28 December 2009 ��63
xviii
xviii Table of Cases

Grand River Enterprises Six Nations Ltd v USA (UNCITRAL), Award,
12 January 2011��28–9, 166–7
Gustav F W Hamester GmbH & Co KG v Ghana (ICSID Case No ARB/07/24), Award,
18 June 2010�� 141, 165
H&H Enterprises Investments Inc v Egypt (ICSID Case No ARB/09/15), The Tribunal’s
Decision on Respondent’s Objections to Jurisdiction, 5 June 2012��180
Havala v Slovakia App No 47804/99 (ECHR, 12 November 2002)��76
Helnan International Hotels A/S v Egypt (ICSID Case No ARB/05/19), Award, 3 July 2008 ��132
Hentrich v France App No 13616/88 (ECHR, 22 September 1994) ��153–4
Hochtief AG v Argentina (ICSID Case No ARB/07/31), Decision on Liability,
29 December 2014��147
Hussein Nuaman Soufraki v UAE (ICSID Case No ARB/02/7), Decision of the ad hoc
Committee on the Application for Annulment of Mr Soufraki, 5 June 2007�� 108, 110, 132
Iatridis v Greece App No 31107/96 (ECHR, 25 March 1999)��65

İçkale İnşaat Limited Şirketi v Turkmenistan (ICSID Case No ARB/10/24), Award,
8 March 2016��65, 123
Inceysa Vallisoletana SL v El Salvador (ICSID Case No ARB/03/26), Award,
2 August 2006��127–33, 163–5
Inmaris Perestroika Sailing Maritime Services GmbH v Ukraine (ICSID Case No ARB/08/8),
Award, 1 March 2012��92, 149–50
Inmaris Perestroika Sailing Maritime Services GmbH v Ukraine (ICSID Case No ARB/08/8),
Decision on Jurisdiction, 8 March 2010�� 155, 170, 171
International Thunderbird Gaming Corporation v Mexico (UNCITRAL), Arbitral Award,
26 January 2006�� 27, 104, 107, 161
International Thunderbird Gaming Corporation v Mexico (UNCITRAL), Separate Opinion of
Thomas Waelde, December 2005�� 15–6, 27, 161, 196
Ioan Micula v Romania (ICSID Case No ARB/05/20), Decision on Jurisdiction and
Admissibility, 24 September 2008��123
Ioannis Kardassopoulos v Georgia (ICSID Case No ARB/05/18), Award,
3 March 2010�� 52, 54, 55, 56, 66
Ioannis Kardassopoulos v Georgia (ICSID Case No ARB/05/18), Decision on Jurisdiction,
6 July 2007��156
Iurii Bogdanov v Moldova (SCC), Arbitral Award, 22 September 2005 ��59, 121
James v UK App No 8793/79 (ECHR, 21 February 1986)��153

Joseph Lemire v Ukraine (ICSID Case No ARB/06/18), Award, 28 March 2011 ��77
Joseph Lemire v Ukraine (ICSID Case No ARB/06/18), Decision on Jurisdiction and Liability,
14 January 2010�� 2, 31,37–9, 74, 77, 98, 174, 179
Kemal Uzan v Turkey App No 18240/03 (ECHR, 29 March 2011)��130

Klauz v Croatia App No 28963/10 (ECHR, Judgment of 18 July 2013)��111
Klöckner Industrie-Anlagen GmbH v Cameroon (ICSID Case No ARB/81/2), Decision on
Annulment, 3 May 1985 ��120, 169
Kononov v Latvia App No 36376/04 (ECHR, 17 May 2010)��133
Kopecký v Slovakia App No 44912/98 (ECHR, Judgment of 28 September 2004)�� 111, 115, 129
Kopp v Switzerland App No 23224/94 (ECHR, Judgment of 25 March 1998)��111
Legal Status of Eastern Greenland (Norway v Denmark) PCIJ Series A/B No 53 (1933)��8
LESI SpA and Astaldi SpA v Algeria (ICSID Case No ARB/05/3), Decision on Jurisdiction,
12 July 2006�� 140–2, 145–6
LG&E Energy Corporation v Argentina (ICSID Case No ARB/02/1), Decision on Liability,
3 October 2006��31
xix
Table of Cases xix

Libananco Holdings Co Ltd v Turkey (ICSID Case No ARB/06/8), Award, 2 September 2011��184
Libananco Holdings Co Ltd v Turkey (ICSID Case No ARB/06/8), Decision on Annulment,
22 May 2013��123
Libyan American Oil Company (LIAMCO) v Libya (1981) 20 ILM 1��86–7
LLC AMTO v Ukraine (SCC Case No 080/2005), Final Award, 26 March 2008 �� 19, 40, 130,177
Lone Pine Resources Inc v Canada (ICSID Case No UNCT/15/2), Counter-Memorial of the
Government of Canada, 24 July 2015��30
Luigiterzo Bosca v Lithuania (PCA Case No 2011-05), Award, 17 May 2013 �� 2, 131
M Meerapfel Söhne AG v Central African Republic (ICSID Case No ARB/07/10), Arbitral

Award, 12 May 2011 ��92
Malone v Metropolitan Police Commissioner [1979] Ch 344��51
Malone v UK App No 8691/79 (ECHR, 17 December 1982)��51
Mamidoil Jetoil Greek Petroleum Products Societe SA v Albania (ICSID Case No ARB/11/24),
Award, 30 March 2015�� 15, 133, 135, 146–8
Marvin Feldman v Mexico (ICSID Case No ARB(AF)/99/1), Award,
16 December 2002�� 45, 61, 107, 133, 157–8, 185
Masson and van Zon v Netherlands App No 15346/89 (ECHR, Judgment of
28 September 1995)�� 111, 114, 115
Mesa Power Group LLC v Canada (PCA Case No 2012-17), Canada’s Observations on the
Award on Jurisdiction and Merits in Clayton/Bilcon v Canada, 14 May 2015��25
Mesa Power LLC v Canada (PCA Case No 2012-17), Second Submission of the United States
of America, 12 June 2015��30
Metalclad Corporation v Mexico (ICSID Case No ARB(AF)/97/1), Award, 30 August 2000 ��44
Metalpar SA v Argentina (ICSID Case No ARB/03/5), Decision on Jurisdiction,
27 April 2006��146
Metal-Tech Ltd v Uzbekistan (ICSID Case No ARB/10/3), Award,
4 October 2013�� 122, 141, 150–1, 160
Methanex Corporation v USA (UNCITRAL), Final Award of the Tribunal on Jurisdiction and
Merits, 3 August 2005 ��44
Middle East Cement Shipping and Handling Co SA v Egypt (ICSID Case No ARB/99/6),
Award, 12 April 2002�� 20, 45, 53, 81, 88, 152–3, 170
Military and Paramilitary Activities in and against Nicaragua (Nicaragua v USA) (1986)
ICJ Rep 14��123
Mobil Investments Canada Inc v Canada (ICSID Case No ARB(AF)/07/4),
Decision on Liability and on Principles of Quantum, 22 May 2012��107
Mohamed Abdulmohsen Al-Kharafi & Sons Co v Libya (ad hoc), Final Arbitral Award,
22 March 2013��95
MTD Equity Sdn Bhd v Chile (ICSID Case No ARB/01/7), Award, 25 May 2004 ��27
MTD Equity Sdn Bhd v Chile (ICSID Case No ARB/01/7), Decision on Annulment,
21 March 2007��107
Mytilineos Holdings SA v Serbia and Montenegro (UNCITRAL), Partial Award on Jurisdiction,
8 September 2006 �� 146, 181
Nations Energy Inc v Panama (ICSID Case No ARB/06/19), Award,

24 November 2010��45
Nemec v Slovakia App No 48672/99 (ECHR, 15 November 2001)��76
Noble Ventures Inc v Romania (ICSID Case No ARB/01/11), Award,
12 October 2005�� 31, 35, 40, 178–9
Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11), Award,

5 October 2012�� 79–80, 88, 92, 125, 135, 191, 194
Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11),
Decision on Annulment of the Award, 2 November 2015��80
xx
xx Table of Cases
Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11), Dissenting
Opinion, 20 September 2012�� 80, 81
OI European Group BV v Venezuela (ICSID Case No ARB/11/25), Award, 10 March 2015��55
Parkerings-Compagniet AS v Lithuania (ICSID Case No ARB/05/8), Award,

11 September 2007 ��45
Patrick Mitchell v DRC (ICSID Case No ARB/99/7), Award, 9 February 2004��85
Patrick Mitchell v DRC (ICSID Case No ARB/99/7), Decision on the Application for
Annulment of the Award, 1 November 2006 ��121
Payment in Gold of Brazilian Federal Loans Contracted in France (France v Brazil)
Series A No 21 (1929) �� 110, 140, 171, 185
Payment of Various Serbian Loans Issued in France (France v Serbia) Series A No 20 (1929)��114
Perenco Ecuador Ltd v Ecuador (ICSID Case No ARB/08/6), Decision on Remaining Issues of
Jurisdiction and on Liability, 12 September 2014��106
Perenco Ecuador Ltd v Ecuador (ICSID Case No ARB/08/6), Interim Decision on the
Environmental Counterclaim, 11 August 2015��92
Petrobart Ltd v Kyrgyzstan (SCC), Award, 29 March 2005��104
Philippines v China (PCA Case No 2013-19), Award, 12 July 2016��124
Phoenix Action Ltd v Czech Republic (ICSID Case No ARB/06/5), Award,
15 April 2009�� 127, 141, 161
Plama Consortium Ltd v Bulgaria (ICSID Case No ARB/03/24), Award,
27 August 2008�� 141, 149, 157, 172–3, 184
Pope & Talbot Inc v Canada (UNCITRAL), Award in Respect of Damages, 31 May 2002��91
Pope & Talbot Inc v Canada (UNCITRAL), Interim Award, 26 June 2000 ��45
PSEG Global Inc v Turkey (ICSID Case No ARB/02/5), Award,
19 January 2007�� 22, 24, 31, 40, 170, 178
PSEG Global Inc v Turkey (ICSID Case No ARB/02/5), Decision on Jurisdiction,
4 June 2004��24, 186
Quasar de Valores SICAV SA v Russia (SCC), Award, 20 July 2012�� 15, 61, 159, 196
Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Award,
16 September 2015 ��21, 45, 49, 84, 86, 88, 120, 134
Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Decision on Jurisdiction,
27 September 2012 �� 145–6, 150, 155, 184, 188
Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Partially Dissenting Opinion of Brigitte
Stern, 7 September 2015 ��67
Railroad Development Corporation v Guatemala (ICSID Case No ARB/07/23), Second

Decision on Objections to Jurisdiction, 18 May 2010��155
Renée Rose Levy de Levi v Peru (ICSID Case No ARB/10/17), Award, 26 February 2014��43
Robert Azinian v Mexico (ICSID Case No ARB(AF)/97/2), Award,
1 November 1999�� 107, 128, 132
Roche v United Kingdom App No 32555/96 (ECHR, Judgment of 19 October 2005)��111
Ronald Lauder v Czech Republic (UNCITRAL), Final Award, 3 September 2001 �� 35, 40, 170, 186
RosInvestCo UK Ltd v Russia (SCC Case No V 079/2005), Final Award,
12 September 2010 ��60, 62,159
RSM Production Corporation v Grenada (ICSID Case No ARB/05/14), Decision on RSM
Production Corporation’s Application for a Preliminary Ruling of
29 October 2009��123
Rumeli Telekom AS v Kazakhstan (ICSID Case No ARB/05/16), Award,
29 July 2008�� 31, 140–2, 145–6
Saba Fakes v Turkey (ICSID Case No ARB/07/20), Award, 14 July 2010 �� 135, 143, 148, 190
Salduz v Turkey App No 36391/02 (ECHR, 27 November 2008)��76
xxi
Table of Cases xxi

Salini Costruttori SpA v Morocco (ICSID Case No ARB/00/4), Decision on Jurisdiction,
16 July 2001��181
Saluka Investments BV v Czech Republic (UNCITRAL), Partial Award,
17 March 2006�� 31, 43, 64, 143, 184
SAUR International SA v Argentina (ICSID Case No ARB/04/4), Award, 22 May 2014��82
SAUR International SA v Argentina (ICSID Case No ARB/04/4), Decision on Jurisdiction
and Liability, 6 June 2012��141
SD Myers v Canada (UNCITRAL), Second Partial Award, 21 October 2002 ��71
Sempra Energy International v Argentina (ICSID Case No ARB/02/16), Award,
28 September 2007 �� 33, 39
Sergei Paushok v Mongolia (UNCITRAL), Award on Jurisdiction and Liability,
28 April 2011�� 19, 156
Seventhsun Holding Ltd v Poland (SCC Case No V 2012/138), Partial Award,
13 October 2015��131
SGS Société Générale de Surveillance SA v Philippines (ICSID Case No ARB/02/6), Decision of
the Tribunal on Objections to Jurisdiction, 29 January 2004��17
Siag v Egypt (ICSID Case No ARB/05/15), Award, 1 June 2009��14, 24, 47, 49, 52, 53, 54, 57,
152, 154, 184
Silver v UK App No 5947/72 (ECHR, 25 March 1983)��154
Southern Pacific Properties (Middle East) Ltd v Egypt (ICSID Case No ARB/84/3), Award on
the Merits, 20 May 1992 �� 60, 87
Southern Pacific Properties (Middle East) Ltd v Egypt (ICSID Case No ARB/84/3), Decision on
Jurisdiction, 14 April 1988��108
Suez, Sociedad General de Aguas de Barcelona SA v Argentina (ICSID Case No ARB/03/17),
Separate Opinion of Arbitrator Pedro Nikken, 30 July 2010�� 30, 76
SwemBalt AB v Latvia (UNCITRAL), Decision by the Court of Arbitration,
23 October 2000�� 61,87–8, 90, 156
Swisslion DOO Skopje v Macedonia (ICSID Case No ARB/09/16), Award,
6 July 2012�� 134, 187–8, 191
Tecnicas Medioambientales Tecmed SA v Mexico (ICSID Case No ARB(AF)/00/2), Award,

29 May 2003��27
Teinver SA v Argentina (ICSID Case No ARB/09/1), Decision on Jurisdiction,
21 December 2012��144, 160
Temple of Preah Vihear (Cambodia v Thailand), Judgment on the Merits [1962] ICJ Rep 6��158
Tenaris SA and Talta –Trading e Marketing Sociedade Unipessoal LDA v Venezuela (ICSID
Case No ARB/11/26), Award, 29 January 2016��49
The Rompetrol Group NV v Romania (ICSID Case No ARB/06/3), Award, 6 May 2013 ��95
Tidewater Investment SRL v Venezuela (ICSID Case No ARB/10/5), Award, 13 March 2015��67
Tokios Tokeles v Ukraine (ICSID Case No ARB/02/18), Award,
26 July 2007�� 142, 143, 146, 147, 149, 150
Total SA v Argentina (ICSID Case No ARB/04/1), Concurring Opinion of Luis Herrera
Marcano, 12 December 2010�� 14, 30
Total SA v Argentina (ICSID Case No ARB/04/1), Decision on Liability, 27 December 2010��108
Trail Smelter Case (US v Canada) RIAA Volume III (1941) 1905 ��105
United States: Anti-Dumping Act of 1916—Report of the Panel (31 March 2000) WT/DS136/R �� 111
United States: Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products
from Germany—Report of the Appellate Body (28 November 2002) WT/DS213/AB/R��116
United States: Sections 301-310 of the Trade Act of 1974—Report of the Panel
(22 December 1999) WT/DS152/R��133
Vannessa Ventures Ltd v Venezuela (ICSID Case No ARB(AF)/04/6), Award,

16 January 2013�� 54, 139, 144, 146, 150
xxii
xxii Table of Cases

Venezuela Holdings BV v Venezuela (ICSID Case No ARB/07/27), Award,
9 October 2014�� 56, 67, 84
Vestey Group Ltd v Venezuela (ICSID Case No ARB/06/4), Award, 15 April 2016��57
Vigotop Ltd v Hungary (ICSID Case No ARB/11/22), Award, 1 October 2014��131, 191
Vincent Ryan v Poland (ICSID Case No ARB(AF)/11/3), Award, 24 November 2015��104
Vito Gallo v Canada (UNCITRAL), Award, 15 September 2011 ��134, 186–7,191
Walter Bau AG (in liquidation) v Thailand (UNCITRAL), Award, 1 July 2009��191

Waste Management Inc v Mexico (ICSID Case No ARB(AF)/00/3), Award, 30 April 2004��26
Wena Hotels Ltd v Egypt (ICSID Case No ARB/98/4), Award, 8 December 2000�� 20, 88, 181
Wena Hotels Ltd v Egypt (ICSID Case No ARB/98/4), Decision on Annulment,
28 January 2002��89
White Industries Australia Ltd v India (UNCITRAL), Final Award, 30 November 2011�� 28, 75, 174
William Clayton v Canada (PCA Case No 2009-04), Award on Jurisdiction and Liability,
17 March 2015�� 25, 29, 38, 40
William Clayton v Canada (PCA Case No 2009-04), Dissenting Opinion of Professor Donald
McRae, 10 March 2015�� 25, 30, 38
William Nagel v Czech Republic (SCC), Final Award, 9 September 2003�� 170, 188–9
World Duty Free Company Ltd v Kenya (ICSID Case No ARB/00/7), Award,
4 October 2006��63, 160
X v Austria App No 19010/07 (ECHR, Judgment of 19 February 2013)�� 111, 115

X v United Kingdom App No 6840/74 (ECHR, Decision on Admissibility of 12 May 1977)��111
Yukos Universal Ltd v Russia (PCA Case No AA 227), Final Award, 18 July 2014 �� 92, 141, 159
1
1
Introduction
During the 1990s, the Republic of Hungary adopted a range of policies designed
to attract foreign investment. As part of this, in 1997, Hungary conducted a tender
for the operation of two national commercial FM radio stations. Following the
tender, broadcasting licences for the two stations were awarded separately to two
foreign investors. The investors operated the stations with some degree of success
until 2009, when the licences were due for renewal. In a 2009 tender process, how-
ever, the investors failed to have their licences renewed, despite enjoying what they
viewed as a legally guaranteed incumbent operator advantage. Instead, the licences
were transferred to inexperienced new operators with close ties to the ruling politi-
cal party. Concern over the tender process, and over later changes in Hungary’s
media laws, was expressed by a range of countries and organizations, including the
European Union, the Council of Europe, various European states, Japan, and the
United States.1
Affronted by the 2009 tender outcome, in October 2011 the investors lodged
notices of arbitration at the International Centre for Settlement of Disputes
(ICSID), relying on the UK–Hungary, Netherlands–Hungary, and Switzerland–
Hungary bilateral investment treaties (BITs). According to the investors, the ‘scan-
dalously flawed’ tender process amounted to an unlawful expropriation of their
investment in Hungary, violating the BITs and deserving compensation.2 Two sep-
arate tribunals were constituted to hear the claims. In April 2014 and 2015, the two
tribunals rendered their final decisions on each claim. Both tribunals hinted that
the investors had a reasonable case on the merits, and that Hungary’s conduct left
much to be desired.3 However, both tribunals rejected jurisdiction over the claims,
and the investors received no compensation.
As a dispute brought under treaties relating to rights granted in interna-
tional law, the radio investors’ claims were largely governed by international law.
However, despite the international framework of the dispute, unavoidable and
crucial questions of domestic (Hungarian) law lay at the heart of the expropria-
tion claim. As one of the tribunals observed, an investor cannot be expropriated
1 Emmis International Holding BV (ICSID Case No ARB/12/2), Award, 16 April 2014 [42]–[44];
Accession Mezzanine Capital LP v Hungary (ICSID Case No ARB/12/3), Award, 17 April 2015 [55].
2 Emmis International Holding BV v Hungary (ICSID Case No ARB/12/2), Request for Arbitration,
28 October 2011 [3]‌.
3 Emmis (n 1) [261]; Accession Mezzanine (n 1) [190], [200].
Domestic Law in International Investment Arbitration. First Edition. Jarrod Hepburn. © Jarrod
Hepburn 2017. Published 2017 by Oxford University Press.
2
2 Introduction
if it has no property in the first place.4 Importantly, whether or not the investors
had any property required a determination of whether Hungarian law granted a
property right in the outcome, or the process, of the 2009 tender (as the inves-
tors had argued). Applying Hungarian law, the tribunals in both cases ruled that,
while the investors might have been well placed to win the tender, and while they
had a right to expect the tender to be conducted fairly and transparently, they had
no property rights that could have been expropriated by Hungary. Because of this
fundamental question of domestic law, the tribunals denied jurisdiction, and the
investors’ claims failed.5
The investors’ claim of expropriation under BITs governed by international
law, then, ultimately depended almost entirely on the answer to a question
of Hungarian domestic law.6 This scenario is not by any means unusual. The
Hungarian radio investor cases are only one instance of a commonplace phenome-
non in international investment law: claims made under BITs, ostensibly governed
by international law, depend in various respects on questions of domestic law.7
Such questions include the attribution of conduct to the state, the nationality of
an investor, the existence of property rights under host state law, the breach of an
‘umbrella’ clause, and an investor’s compliance with domestic law when making
an investment.8 All these questions call for consideration of the law of the host
state in order to resolve some issue relevant for the remainder of the international
law claim.
In spite of the significant role of domestic law, however, much of the academic
discussion in the field of investment law has concentrated on questions of inter-
national law. Several authors have examined the meaning of the guarantee of ‘fair
4 Emmis (n 1) [159].
5 As the Emmis tribunal observed (at [144]), the cases might well have ended differently if the rel-
evant BITs had included consent to arbitration over alleged breaches of another common investment
treaty protection, the fair and equitable treatment standard. This standard would not require the strict
proof of property rights called for by an expropriation claim. Other cases relating to flawed tender
processes, such as Lemire v Ukraine or Bosca v Lithuania, have indeed succeeded on claims of breach of
fair and equitable treatment.
6 The term ‘domestic law’ in this book is considered to be equivalent to the potential alternatives
of ‘municipal law’, ‘local law’, ‘internal law’, or ‘national law’. While J Crawford, Brownlie’s Principles
of Public International Law (8th edn, OUP 2012) 48, considers the various terms to have ‘slightly dif-
ferent connotations’, this book treats the terms as interchangeable, as do HE Kjos, Applicable Law in
Investor-State Arbitration: The Interplay between National and International Law (OUP 2013) 14, and G
Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (CUP 2015)
187. The intention is to encompass all products of a state’s legal system, including laws adopted at fed-
eral, state/provincial, or city/municipality levels, as well as judicial precedents where these constitute a
source of law, as in common law systems.
7 The general problem of interaction between domestic law and international law in international
courts and tribunals is certainly not a new one. For instance, CW Jenks, ‘The Interpretation and
Application of Municipal Law by the Permanent Court of International Justice’ (1938) 19 BYIL 67,
describes many situations in which the PCIJ was, or might have been, required to apply municipal law.
8 See, e.g., A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of
Treatment (Kluwer 2009) 92–5; C McLachlan, L Shore and M Weiniger, International Investment
Arbitration: Substantive Principles (OUP 2007) 69–70, 182–4; M Sasson, Substantive Law in Investment
Treaty Arbitration: The Unsettled Relationship between International and Municipal Law (Kluwer 2010)
xxviii–xxx.
3
Introduction 3
and equitable treatment’ commonly found in investment treaties.9 The definition

of indirect or regulatory expropriation in international law has been extensively
analysed.10 Other writers have delved into controversies over the extension of the
most-favoured-nation (MFN) clause to dispute settlement,11 or over the scope of
the ‘necessity’ defence (which has been relevant in many claims against the Republic
of Argentina).12 More recent literature has turned to the utility of proportionality
arguments,13 the role of human rights in investment arbitration,14 and the poten-
tial for a doctrine of ‘margin of appreciation’ to assist arbitrators in balancing the
public and private interests that are often in tension in investment treaty disputes.15
Meanwhile, the place of domestic law in these highly charged, sensitive arbitrations
9 M Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (OUP
2013); A Diehl, The Core Standard of International Investment Protection: Fair and Equitable Treatment
(Kluwer 2012); R Kläger, ‘Fair and Equitable Treatment’ in International Investment Law (CUP 2011);
I Tudor, The Fair and Equitable Treatment Standard in the International Law of Foreign Investment
(OUP 2008).
10 S López Escarcena, Indirect Expropriation in International Law (Edward Elgar 2014); J Dalhuisen
and A Guzman, ‘Expropriatory and Non-Expropriatory Takings under International Investment Law’
(2012) UC Berkeley Public Law Research Paper 2137107 <ssrn.com/abstract=2137107>; T Gazzini,
‘Drawing the Line between Non-Compensable Regulatory Powers and Indirect Expropriation of
Foreign Investment: An Economic Analysis of Law Perspective’ (2010) 7 Manchester J Intl Econ L 36;
Y Fortier and S Drymer, ‘Indirect Expropriation in the Law of International Investment: I Know It
When I See It, or Caveat Investor’ (2004) 19 ICSID Review 293.
11 Z Douglas, ‘The MFN Clause in Investment Arbitration: Treaty Interpretation off the Rails’
(2011) 2 JIDS 97; K Hobér, ‘MFN Clauses and Dispute Resolution in Investment Treaties: Have
We Reached the End of the Road?’ in C Binder and others, International Investment Law for the
21st Century: Essays in Honour of Christoph Schreuer (OUP 2009); Y Radi, ‘The Application of
the Most-Favoured-Nation Clause to the Dispute Settlement Provisions of Bilateral Investment
Treaties: Domesticating the “Trojan Horse” ’ (2007) 18 EJIL 757.
12 K Chubb, ‘The State of Necessity Defense: A Burden, Not a Blessing to the International
Investment Arbitration System’ (2013) 14 Cardozo J Conflict Resolution 532; A Kent and A
Harrington, ‘The Plea of Necessity under Customary International Law: A Critical Review in Light of
the Argentine Cases’ in C Brown and K Miles (eds), Evolution in Investment Treaty Law and Arbitration
(CUP 2011); A Reinisch, ‘Necessity in Investment Arbitration’ (2010) 41 NYIL 137.
13 G Bücheler, Proportionality in Investor- State Arbitration (OUP 2015); C Henckels,
Proportionality and Deference in Investor-State Arbitration (CUP 2015); E Leonhardsen, ‘Looking for
Legitimacy: Exploring Proportionality Analysis in Investment Treaty Arbitration’ (2012) 3 JIDS 95;
A Stone Sweet, ‘Investor-State Arbitration: Proportionality’s New Frontier’ (2010) 4 Law and Ethics
of Human Rights 47.
14 LW Mouyal, International Investment Law and the Right to Regulate: A Human Rights
Perspective (Routledge 2016); J Calamita, ‘International Human Rights and the Interpretation of
International Investment Treaties: Constitutional Considerations’ in F Baetens (ed.), Investment Law
within International Law: Integrationist Perspectives (CUP 2013); E de Brabandere, ‘Human Rights
Considerations in International Investment Arbitration’ in M Fitzmaurice and P Merkouris (eds),
The Interpretation and Application of the European Convention of Human Rights: Legal and Practical
Implications (Martinus Nijhoff 2012); B Simma, ‘Foreign Investment Arbitration: A Place for
Human Rights?’ (2011) 60 ICLQ 573; T Nelson, ‘Human Rights Law and BIT Protection: Areas of
Convergence’ (2011) 12 JWIT 27; PM Dupuy, EU Petersmann, and F Francioni (eds), Human Rights
in International Investment Law and Arbitration (OUP 2009); J Fry, ‘International Human Rights
Law in Investment Arbitration: Evidence of International Law’s Unity’ (2007) 18 Duke J Comp &
Intl L 77.
15 C Henckels, ‘Balancing Investment Protection and the Public Interest: The Role of the Standard
of Review in Investor-State Arbitration’ (2013) 4 JIDS 197; A Katselas, ‘Do Investment Treaties
Prescribe a Deferential Standard of Review?’ (2012) 34 Mich J Intl L 87; A Roberts, ‘The Next
Battleground: Standards of Review in Investment Treaty Arbitration’ (2011) 16 ICCA Congress Series
4
4 Introduction
has received somewhat less attention, notwithstanding its frequent centrality to the
outcome of the case (as the Hungarian radio investors’ claims show).
At first glance, it might not be surprising that questions of domestic law are
largely ignored by commentators. With more than one hundred states having
now faced at least one investment treaty claim,16 commentators in the global
environment of international law are keen to focus on issues of common impor-
tance across the claims rather than the peculiarities of one hundred legal sys-
tems. This will naturally mean a focus on the portions of tribunals’ awards that
relate to issues of international law. The substance of Polish law might have been
highly relevant to Dutch insurance firm Eureko’s 2005 claim against Poland,
for instance,17 but scholars may not see how its relevance would extend to other
investment treaty claims.18 The substance of domestic law might be significant
for individual disputes, but it is not necessarily significant for the system of
investment arbitration.
As will be explained further below, however, the concern of this book is not with
the substance of domestic law in host states around the world. Rather, the book’s
first concern is with the range of situations in which domestic law is relevant in an
investment arbitration. The book’s second concern is with the process and meth-
odology used by international arbitrators to determine the substance of domes-
tic law when necessary to resolve an international law claim. These two process
questions—of when, and how, tribunals should deal with domestic law issues—
have significant ramifications. Both questions relate to the appropriate interaction
between domestic and international law in this area. As the next section explains,
disagreement over this interaction plays a large role in the ‘legitimacy crisis’ cur-
rently said to be plaguing investment arbitration.
1.1 Legitimacy and the ‘Backlash’

against Investment Arbitration
Tensions between domestic prerogatives and international oversight are at the heart
both of historical doctrines on the treatment of aliens and of modern investment
treaty arbitration. For most of the twentieth century, debates over the customary
international law on foreign investment centred on the existence of an international
170; W Burke-White and A von Staden, ‘Private Litigation in a Public Law Sphere: The Standard of
Review in Investor-State Arbitrations’ (2010) 35 Yale JIL 283.
16 UNCTAD, World Investment Report 2016 (UN 2016) 104.
17 See Eureko BV v Poland (ad hoc), Partial Award, 19 August 2005; for analysis of the domestic law
aspects, see Z Douglas, ‘Nothing If Not Critical for Investment Treaty Arbitration: Occidental, Eureko
and Methanex’ (2006) 22 Arb Intl 27.
18 Apart from further claims against Poland in respect of the same domestic legal measures.
Certainly, many cases against Argentina have related to the same legal measures taken by that state
at the height of its 2001 financial crisis. For background, see, e.g., W Burke-White, ‘The Argentine
Financial Crisis: State Liability under BITs and the Legitimacy of the ICSID System’ in M Waibel and
others (eds), The Backlash against Investment Arbitration (Kluwer 2010).
5
Introduction 5
minimum standard of treatment of aliens. Capital-exporting countries, keen to

protect the interests of their nationals abroad, argued that such a universal standard
existed and that all states were bound to accord it to aliens conducting business
within them. Other countries, largely Latin American ones, argued that foreign-
ers in a host state could expect no better treatment than the standards that were
accorded by domestic law to locals in that state.19
More recently, this Latin American position, the so-called ‘Calvo Doctrine’,20
appeared to have been rejected, with the emergence of the extensive BIT network.
Apart from enshrining an international minimum standard in their provisions,
BITs also eschew the usual international law requirement to exhaust local rem-
edies in the host state before pursuing an international remedy.21 This would seem
to deny the relevance of domestic standards and place the analysis firmly on the
international plane.
However, in recent years many writers have questioned the legitimacy of the new
investment treaty regime.22 Although the bases for the criticisms are varied, one
common theme among them relates to a perceived failure of investment tribunals
to pay sufficient attention to domestic policy concerns.23 Thus, when interpreting
investment treaties, arbitrators have in some cases privileged the treaties’ narrow
objectives of foreign investor protection, while downplaying other broader domes-
tic objectives of sustainable development and general welfare.24 Writers have noted
the typical absence of health or environmental exceptions in investment treaties,
unlike in the frequently compared World Trade Organization (WTO) system.25
Some have expressed concern over tribunals’ narrow interpretations of the excep-
tions that do exist, such as the ‘necessity’ exception.26 Similar concerns are seen
regarding the effects of wide interpretations of the substantive investor protec-
tions.27 Other authors (and even courts) have commented on the discrimination
19 See generally Newcombe and Paradell (n 8) ch. 1.

20 See generally D Shea, The Calvo Clause: A Problem of Inter-American and International Law
and Diplomacy (University of Minnesota Press, Minneapolis 1955); W Shan, ‘From “North-South
Divide” to “Private-Public Debate”: Revival of the Calvo Doctrine and the Changing Landscape in
International Investment Law’ (2007) 27 Northwestern J Intl L and Bus 631.
21 R Dolzer and C Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 264–7.
22 See generally Waibel (n 18) and sources cited at D Desierto, ‘Human Rights and Investment
in Economic Emergencies: Conflict of Treaties, Interpretation, Valuation Decisions’ (Third Biennial
Global Conference of the Society of International Economic Law, Singapore, July 2012) fns 12–
15 <ssrn.com/abstract=2101795>.
23 J Alvarez, ‘The Public International Law Regime Governing International Investment’ (2009)
344 RdC 193, 246–252; S Spears, ‘The Quest for Policy Space in a New Generation of International
Investment Agreements’ (2010) 13 JIEL 1037; M Sornarajah, Resistance and Change in the International
Law on Foreign Investment (CUP 2015). For a more supportive view of the system’s legitimacy, see, e.g.,
D Krishan, ‘Thinking About BITs and BIT Arbitration: The Legitimacy Crisis That Never Was’ in T
Weiler and F Baetens (eds), New Directions in International Economic Law (Martinus Nijhoff 2011).
24 Newcombe and Paradell (n 8) 64.
25 A Newcombe, ‘General Exceptions in International Investment Agreements’ in MC Cordonier
Segger, M Gehring, and A Newcombe (eds), Sustainable Development in World Investment Law (Kluwer
2011) 357.
26 A Bjorklund, ‘The Necessity of Sustainable Development’ in Cordonier Segger, Gehring, and
Newcombe (n 25).
27 Alvarez (n 23) 248.
6
6 Introduction
inherent in granting relatively strong protections to foreign investors under inter-
national law while leaving domestic investors with often weaker protections under
local law.28
Some commentators have developed sophisticated critiques of the reasoning of
investment tribunals underpinned by democratic and political theory.29 Andreas von
Staden, for instance, has argued that principles of normative subsidiarity should push
international investment tribunals to show significant degrees of deference to the deci-
sions of host states before responsibility can be found for breach of an investment
treaty.30 Armin von Bogdandy and Ingo Venzke question the democratic legitimacy of
international adjudicators, and suggest their re-orientation towards the ‘cosmopolitan
citizen’.31 Gus van Harten has advocated comprehensive reform of the system based on
the view that investment tribunals perform roles analogous to domestic courts in judi-
cial review actions, and should therefore be bound by similar standards of review and
notions of deference to the decisions of the (domestic) political branches.32 A range
of other authors, including Stephan Schill and Benedict Kingsbury, have emphasized
the role of investment tribunals in global governance, with arbitrators ruling on the
public law obligations of states under broadly worded standards; these authors call for
appropriate standards of review and deference to fit with that role.33
Despite being the original authors of BITs and facilitating instruments such
as the ICSID Convention, states themselves have taken many of these criticisms
to heart. Countries including South Africa, Ecuador, Indonesia, Venezuela, and
Bolivia have withdrawn from the ICSID Convention and/or terminated existing
investment treaties.34 Venezuela, Argentina, and Zimbabwe have refused to pay
many awards rendered against them.35 Australia resolved to exclude the mechanism
28 V Lowe, ‘Changing Dimensions of International Investment Law’ (2007) Oxford Legal Studies
Research Paper No. 4/2007, 48–9 <ssrn.com/abstract=970727>; M Sornarajah, The International
Law on Foreign Investment (3rd edn, CUP 2010) 338; Colombian Constitutional Court, Case No
C-358/96 <www.corteconstitucional.gov.co/relatoria/1996/C-358-96.htm>. See also A de Mestral
and R Morgan, Does Canadian Law Provide Remedies Equivalent to NAFTA Chapter 11 Arbitration?
(CIGI 2016).
29 See generally Roberts (n 15).
30 A von Staden, ‘Democratic Legitimacy of Judicial Review Beyond the State: Normative
Subsidiarity and Judicial Standards of Review’ (2012) 10 ICON 1023; Burke-White and von Staden
(n 15). Nollkaemper has made a similar subsidiarity-based argument in respect of the relations between
the ICJ and domestic law, suggesting that ‘national authorities are better positioned [than international
bodies] to assess the factual and legal context of a dispute’: A Nollkaemper, ‘The Role of Domestic
Courts in the Case Law of the International Court of Justice’ (2006) 5 Chinese JIL 301, 318.
31 A von Bogdandy and I Venzke, ‘In Whose Name? An Investigation of International Courts’
Public Authority and its Democratic Justification’ (2012) 23 EJIL 7.
32 G van Harten, Investment Treaty Arbitration and Public Law (OUP 2007).
33 B Kingsbury and S Schill, ‘Investor- State Arbitration as Governance: Fair and Equitable
Treatment, Proportionality and the Emerging Global Administrative Law’ (2009) IILJ Working Paper
2009/6 <www.iilj.org/publications/documents/2009-6.KingsburySchill.pdf>. See also Dolzer and
Schreuer (n 21) 24–5.
34 Sornarajah (n 23) 1. Various EU states have also terminated (intra-EU) BITs, although not neces-
sarily out of dissatisfaction with the system: UNCTAD (n 16) 102.
35 J Dahlquist and LE Peterson, ‘Analysis: As Venezuela’s ICSID Debt Hits $4.6 Billion (Before
Interest), Two Ad Hoc Committees Offer Differing Approaches to Requests that Stays of Enforcement
Be Lifted’ (2016) 9(10) Investment Arbitration Reporter <tinyurl.com/hwebcbs>; LE Peterson,
7
Introduction 7
of investor–state arbitration from future investment treaties that it signs (although

it later partially back-tracked).36 Many states, including Canada, the United States,
India, and the European Union, have produced new model BITs or new provisions
in concluded treaties aimed at allowing greater deference to host states and their
legitimate social and other objectives.
These criticisms relate to the substance of the international law guarantees in
typical BITs. So far, commentators have not connected these criticisms to the
role of domestic law in investment arbitration, perhaps leaving that issue aside
as a purely technical or procedural matter (as explained further in Chapter 5).37
However, the international adjudicators’ treatment of questions of domestic
law—(usually) the law of the respondent state in the proceedings—raises all these
same concerns of legitimacy. Whenever an investment tribunal is called on to (or
chooses to) construe a question of domestic law, an opportunity for direct engage-
ment with the host state presents itself. The manner in which the arbitrators han-
dle this engagement will have great ramifications for the reception of their award
in the domestic polity.38 Many states and their citizens already feel slighted by the
perceived disregard of their interests and circumstances when tribunals apply the
standards of international law enshrined in investment treaties. If tribunals adopt
the same high-handed approach to questions of the state’s own law, this can only
further diminish any respect for the tribunal’s decision among those to whom it
applies.
The extensive critiques levelled at investment treaty arbitration in recent years,
no more than briefly sketched here, highlight the importance of the issues addressed
in this book. When questions of domestic law arise in an investment arbitration,
the tribunal has an opportunity to counter these criticisms. Tribunals must be clear
about the relations between international and domestic law in the disputes that
they are resolving. In particular, this book argues, they must be clear about the
process that they use: how and when they resolve questions of domestic law. Failing
to do so would risk further perceived alienation between these international tribu-
nals and the objects of their adjudication: host states and their citizens. As already
demonstrated by reprisals in many states, the future of investment treaty arbitration
‘Zimbabwe Not Paying ICSID Award’ (2010) 3(7) Investment Arbitration Reporter <tinyurl.com/
px5pmc8>; LE Peterson, ‘How Many States Are Not Paying Awards under Investment Treaties?’
(2010) 3(7) Investment Arbitration Reporter <www.iareporter.com/articles/20100507_3>.
36 Australian Government, Department of Foreign Affairs and Trade, ‘Government Trade Policy
Statement’ (April 2011) <pandora.nla.gov.au/pan/126547/20110502-1209/www.dfat.gov.au/
publications/trade/trading-our-way-to-more-jobs-and-prosperity.pdf>; L Trakman, ‘Investor-
State
Arbitration: Evaluating Australia’s Evolving Position’ (2014) 15 JWIT 152.
37 Some recent EU agreements have, however, included new provisions on domestic law, likely
sparked by perceived overreach of tribunals in dealing with questions of domestic (here meaning EU)
law: J Hepburn, ‘CETA’s New Domestic Law Clause’ (EJIL:Talk!, 17 March 2016) <www.ejiltalk.org/
cetas-new-domestic-law-clause/>.
38 R Ahdieh, ‘Between Dialogue and Decree: International Review of National Courts’ (2004)
79 NYU L Rev 2029, 2093; B Klafter, ‘International Commercial Arbitration as Appellate
Review: NAFTA’s Chapter 11, Exhaustion of Local Remedies and Res Judicata’ (2006) 12 UC Davis J
Intl L & Policy 409, 409–410, 437.
8
8 Introduction
may well be in doubt without such a careful approach to an issue directly connected
to the expression of state sovereignty—the elaboration of domestic law.39
1.2 Overview of the Book
The book’s first claim, in Part I, is that domestic law is relevant to investment
treaty arbitration in more ways than is currently appreciated. As noted in sec-
tion 1.1, prior authors have identified a range of areas in which domestic law
appears, despite the international law context, in an investment treaty claim.40
Broad ‘choice-of-law’ theories have also been offered to explain the application of
domestic law in international investment arbitration proceedings.41 Part I of this
book builds on this by identifying three other specific, and perhaps unexpected,
situations of substantive liability and damages, and by arguing that domestic law is
relevant also in these situations. Part I therefore contends that domestic law affects
an even wider set of issues in a typical investment arbitration than has so far been
acknowledged.
Chapter 2 first analyses the case-law on the fair and equitable treatment (FET)
standard, the major substantive protection of a typical investment treaty. The analy-
sis demonstrates that, despite the international law origins of the standard, tribu-
nals can consider a state’s compliance with domestic law as relevant to a finding of
FET breach.
Chapter 3 then examines the ‘due process’ condition for lawful expropriation in
international law. The chapter argues that, in most circumstances, this condition
will require review of the state’s alleged expropriatory conduct against domestic law.
Chapter 3 acknowledges the often limited relevance of the ‘due process’ condition
in practice. However, the chapter contends that greater attention must be paid to
the condition and its implications of review of domestic legality, in light of the
nature of investment treaty arbitration as a system of public law.
Chapter 4 continues the first claim in the area of remedies for breach of an
investment treaty. As with Chapters 2 and 3, it identifies a further international
law question—the determination of remedies—to which domestic law is relevant.
The chapter acknowledges that there is limited scope for using a state’s compli-
ance with domestic law to affect the remedy ordered for its breach of international
law. Nevertheless, the chapter identifies other situations and issues in the area of
remedies in which domestic law can validly play (and has already played) a role.
Again, despite the basic objective of applying international law principles to award
compensation, domestic law can appear in the analysis at certain points, unsettling
the traditional separation between international and domestic.
39 Legal Status of Eastern Greenland (Norway v Denmark) PCIJ Series A/ B No 53 (1933)
48: ‘Legislation is one of the most obvious forms of the exercise of sovereign power’.
40 See n 8.
41 Z Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 BYIL 151;
T Begic, Applicable Law in International Investment Disputes (Eleven 2005); Sasson (n 8); Kjos (n 6).
9
Introduction 9
Arbitrators enjoy broad discretions under international law particularly on the

issues addressed in Chapters 2 and 4: the interpretation of the FET standard and
the determination of remedies. Many writers (including arbitrators themselves)
have lamented the poorly understood and ill-defined nature of FET, and of appli-
cable compensation standards, in international law. Not surprisingly, this view has
led to recognition of significant unpredictability in the outcomes of arbitrators’
application of these standards. Part I aims to reduce this unpredictability by laying
clear one aspect of arbitrators’ exercise of their discretions on these standards. The
book seeks to systematize and make explicit the fact that tribunals are now justifi-
ably drawing on domestic law to resolve these interpretive ambiguities, providing a
comprehensive assessment of the case-law from this perspective.
Part II of the book makes the second main claim: that, despite the widespread
relevance of domestic law, investment tribunals have often paid inadequate atten-
tion to it. In particular, tribunals have either found ways to ignore or limit the
relevance of questions of domestic law, or have resolved these questions in an inap-
propriate manner.
Chapter 5 begins by reviewing an issue not examined in any detail by previous
authors on investment treaty arbitration—namely, how tribunals should resolve
such questions of domestic law. It addresses the practical problem of domestic
law: how is an arbitral tribunal, constituted under a treaty and versed in inter-
national law, expected to apply the law of a domestic legal system with which it
is entirely unfamiliar? Chapter 5 draws on a range of sources to develop a broad
outline in response to this question. The chapter concludes that, while arbitrators
enjoy discretion in this respect, making prescription difficult, a normative standard
for arbitral conduct can be constructed, informed further by the concerns over
legitimacy and interference with host states discussed in section 1.1.
Chapter 6 then considers certain preliminary issues that tribunals have raised,
which in certain circumstances would purport to reduce the need for the normative
standard established in Chapter 5. These issues arise most notably in cases relating
to claims of investor illegality, a major area implicating domestic law in investment
treaty arbitration. The issues also resonate in cases relating to the due process condi-
tion for expropriation, and potentially in other areas as well. Chapter 6, however,
finds that these issues can have only a limited effect on tribunals’ consideration of
domestic law questions. Instead, domestic law remains prominent, and construct-
ing a suitable methodology for dealing with it remains essential.
Chapter 7 supports the second claim by means of an empirical assessment of the
case-law of investment tribunals in certain key areas where questions of domestic
law commonly arise. Thus, Chapter 7 examines the case-law on investor illegality,
the definition of property or other private rights under host state law, and the three
areas considered in Part I in which tribunals have drawn on domestic law (FET,
expropriation, and remedies).42 The chapter establishes a taxonomy of errors made
42 As noted earlier, Sasson (amongst others) has examined tribunals’ approach to domestic law in
other areas, including investors’ nationality, the rights of shareholders, the contract/treaty distinction,
breach of the umbrella clause, and attribution of conduct to the state: Sasson (n 8). Due to space
10
10 Introduction
by a broad range of tribunals on domestic law questions, but balances this against
examples of other tribunals’ use of domestic law that better accord with Chapter 5’s
normative framework. By reference to existing cases, Part II thus concludes by dem-
onstrating how tribunals can apply the proposed normative framework in practice.
The book’s first claim—that domestic law is relevant in more ways than is cur-
rently appreciated—becomes even more significant in light of the book’s second
claim: that investment tribunals have paid inadequate attention to questions of
domestic law. If investment treaties are being, or should be, interpreted to require
even more frequent reference to domestic law in one form or another, the appro-
priateness of the methodology adopted by arbitrators to make these references will
become even more important. Moreover, as noted earlier, the intimate connections
of international and domestic law in this field will not simply diminish over time.
Opportunities for tribunals’ engagement with domestic law are likely to be wide-
spread in future arbitrations. An analysis of tribunals’ record so far on this issue,
and the development of guidance for tribunals in this enterprise, is therefore timely
and vital.
As the evaluation in Part II suggests, investment tribunals are failing to meet
the demands of political legitimacy in the eyes of stakeholders and, perhaps, the
demands of the technical legal framework of international arbitration in which
they operate. On top of the extensive existing criticisms of investment treaty arbi-
tration, the book therefore adds the further concern that, in failing to embrace
domestic law, investment arbitration risks being viewed as weighted too strongly
towards international uniformity, hindering the possibility of legitimate dif-
ferentiation between states on key matters of domestic policy. When domestic
law is not taken seriously, tribunals ignore an obvious possibility for sensitive
engagement with domestic institutions, further damaging their legitimacy in the
eyes of critics. In addition, tribunals risk breaching their legal mandate to apply
domestic law in the framework of international arbitration. Although there are
certainly instances of a more sensitive approach to domestic law in some of the
cases reviewed, the book argues overall that investment arbitration has not yet
fully come to terms with the inescapable role of domestic law.
constraints, cases from these areas are not included in Chapter 7’s analysis. However, while these other
areas might add further examples of good or bad tribunal practice, the range of cases examined here is
sufficient to build a general picture.
11
PA RT I
IDENTIFYING DOMESTIC
L AW I S S U E S I N I N V E S T M E N T
A R B I T R AT I O N
12
13
2
Domestic Law and Fair
and Equitable Treatment
2.1 Introduction
This chapter commences Part I by addressing the role of domestic law in relation
to a clause found among the investor’s substantive protections in essentially every
investment treaty: the guarantee of fair and equitable treatment (FET).
The FET clause found in a typical investment treaty is highly general and
abstract.1 The clause usually specifies simply that states must grant ‘fair and equita-
ble treatment’ to foreign investors protected by the treaty. The exact meaning of this
phrase, therefore, has become one of the most contentious issues in the field, with
several entire monographs now dedicated to the matter.2 Arbitrators have exercised
significant discretion in adopting varied views of the protections offered by FET
and applying them to the claimant’s situation. The main issue for consideration
in this chapter is the role that domestic legality might play in the FET standard.
In particular, can it be said that a state’s compliance with its own law, in taking
measures that adversely affected the claimant investor, is relevant to the tribunal’s
determination of whether the FET guarantee has been breached?
The question has attracted the attention of some key commentators in the field.
In his 2009 Hague Academy lecture, José Alvarez raised a number of questions
about the connections between domestic legality and FET:
Is it relevant to finding a violation of FET whether a State is violating its own law or its own
administrative practices …? Is there a presumption that FET is not violated when the host
State has acted in accord with its own law or public administrative practices? Even though
these FET clauses usually make no reference to national law, is such reference implicit in the
notion of unfairness or perhaps in the international minimum standard itself, to the extent
that guarantee embraces the concept of legitimate expectations based on existing law?3
1 R Dolzer and C Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 133.
2 See, e.g., I Tudor, The Fair and Equitable Treatment Standard in the International Law of Foreign
Investment (OUP 2008); M Paparinskis, The International Minimum Standard and Fair and Equitable
Treatment (OUP 2013); A Diehl, The Core Standard of International Investment Protection: Fair and
Equitable Treatment (Kluwer 2012); R Kläger, ‘Fair and Equitable Treatment’ in International Investment
Law (CUP 2011).
3 J Alvarez, ‘The Public International Law Regime Governing International Investment’ (2009) 344
RdC 193, 324.
14
14 Identifying Domestic Law Issues

On first impression, it might well be thought that a state’s domestic legality is obvi-
ously relevant. As Alvarez indicates, it is not difficult to include within the plain
meaning of ‘fairness’ the idea that a state will abide by its own laws. According to
the concurring arbitrator in Total v Argentina, ‘it seems evident that, pursuant to
the ordinary sense of the term, a State’s conduct cannot be considered to provide
fair and equitable treatment when that conduct does not comply with the State’s
own laws’.4 Similarly, as Alvarez also suggested, it might well be ‘relatively easy’ for
an investor to argue that compliance with law forms part of an investor’s legitimate
expectations of a state’s conduct.5 On this view, it is not surprising to read Alvarez’s
assertion that ‘it is nearly impossible for an investor to prevail in an investor-State
claim when the host State is able to show that its actions are consistent with its law’.6
There are further situations in which a link between breaches of domestic law and
a breach of FET is readily apparent. Situations in which the domestic executive fails
to abide by rulings of the domestic judiciary, for instance, would uncontroversially
be analysed as a denial of justice,7 forming one of the accepted central elements of
the FET standard.8 In Siag v Egypt, the tribunal found the Egyptian government’s
continued failure to abide by Egyptian court rulings to be an ‘extraordinary viola-
tion of the rule of law’ and a ‘twelve-year denial of justice’, and thus a clear FET
breach.9 Similarly, in Desert Line Projects v Yemen, the tribunal found a violation of
FET when the Yemeni President refused to abide by a domestic arbitral award.10
Assuming no suggestion of impropriety in the local adjudications themselves,11
these cases demonstrate a relatively obvious connection between the state’s respect
for domestic law and the violation of the FET standard.
In addition, in situations where local courts have committed a clear and malicious
misapplication of domestic law, the resulting domestic illegality will constitute a
denial of justice and breach of FET. A recent example is Dan Cake v Hungary, where
the tribunal held that a local court had issued a ruling ‘in flagrant violation of the
Bankruptcy Act’, and had ordered the investor to submit certain documents which
were unnecessary to the case and not required by law.12 In these circumstances of
4 Total SA v Argentina (ICSID Case No ARB/04/1), Concurring Opinion of Luis Herrera

Marcano, 12 December 2010 [10]. Choudhury similarly suggests that a ‘clear demonstration of a
violation of FET can also be shown by demonstrating that the host State … acted beyond the scope of
its legal authority’: B Choudhury, ‘Evolution or Devolution? Defining Fair and Equitable Treatment in
International Investment Law’ (2005) 6 JWIT 297, 314.
5 Alvarez (n 3) 331. However, the discussion of legitimate expectations below raises a possible dif-
ficulty with this suggestion.
6 ibid 465. 7 J Paulsson, Denial of Justice in International Law (CUP 2005) 168–70.
8 Dolzer and Schreuer (n 1) 178.
9 Siag v Egypt (ICSID Case No ARB/05/15), Award, 1 June 2009 [453].
10 Desert Line Projects LLC v Yemen (ICSID Case No ARB/05/17), Award, 6 February 2008 [171].
11 In Siag, the tribunal did not consider the quality of the domestic courts, perhaps assuming that
they met some minimum standard (above which their rulings automatically deserved deference) on
the grounds that the courts had ruled against the state. In Desert Line, the tribunal made some effort
to note that the domestic arbitration had been conducted fairly, highlighting the parties’ free choice of
arbitrators that they trusted and the assistance of a Yemeni magistrate: ibid [179]. This meant that the
state’s failure to comply with its own law was all the more clear, influencing the tribunal’s FET finding.
12 Dan Cake (Portugal) SA v Hungary (ICSID Case No ARB/12/9), Decision on Jurisdiction and
Liability, 24 August 2015 [142], [145].
15
Domestic Law and Fair and Equitable Treatment 15
serious breaches by the local judiciary,13 the connection between domestic illegality
and FET breach is again relatively straightforward.14
On the other hand, taking a different first impression, the fundamental prin-
ciples and rationales of international (investment) law might suggest that a state’s
domestic legality is obviously not relevant to the FET analysis. It is well established
that a state’s breach of an international obligation is not affected by whether its
conduct might have been legal in its own municipal law. Article 27 of the Vienna
Convention of the Law of Treaties encapsulates the principle as follows:
A party may not invoke the provisions of its internal law as justification for its failure to
perform a treaty.
Article 3 of the International Law Commission’s (ILC) Articles on State
Responsibility confirms the principle again:
The characterization of an act of a State as internationally wrongful is governed by interna-
tional law. Such characterization is not affected by the characterization of the same act as
lawful by internal law.
Apart from constituting a long-standing principle, the traditional international
law principle of the irrelevance of domestic law fits well with the policy underlying
the investment treaty regime, and particularly the FET guarantee. From its begin-
nings only a few decades ago, the regime of around 3,000 bilateral investment
treaties now in existence has often been justified on the grounds that alien investors
should not be subjected to the vagaries of their host state’s laws, but should—both
as a matter of principle and as an incentive to attract investment in the first place—
benefit from a universal, international minimum standard of protection applicable
in any state. Enjoying no political rights and little familiarity with local laws and
customs, foreigners would not send their highly desired capital abroad, so the jus-
tification goes, without the protection of a standardized international system that
enables them to avoid protracted, biased, or corrupt domestic judicial processes.15
The FET standard is particularly relevant in this respect, since—in contrast to
other common bilateral investment treaty (BIT) provisions such as the national
treatment clause and the most-favoured-nation (MFN) clause—the FET clause
sets out an absolute standard.16 National treatment guarantees investors only
treatment that is no less favourable than that provided to local investors in similar
13 Adel al Tamimi v Oman (ICSID Case No ARB/11/33), Award, 3 November 2015 [390] confirms
that minor misapplications of domestic law by host states will not amount to FET breaches.
14 Conversely, where the local court’s decision was not ‘clearly improper, discreditable or in shock-
ing disregard of Albanian law’, an ICSID tribunal found no denial of justice: Mamidoil Jetoil Greek
Petroleum Products Societe SA v Albania (ICSID Case No ARB/11/24), Award, 30 March 2015 [769].
See also Mohammad Al-Bahloul v Tajikistan (SCC Case No V 064/2008), Partial Award on Jurisdiction
and Liability, 2 September 2009 [237].
15 International Thunderbird Gaming Corporation v Mexico (UNCITRAL), Separate Opinion of
Thomas Waelde, December 2005 [12], [33]. See Quasar de Valores SICAV SA v Russia (SCC), Award,
20 July 2012 [21]–[23] for a restatement of this rationale.
16 N Gallus, ‘The Influence of the Host State’s Level of Development on International Investment
Treaty Standards of Protection’ (2005) 6 JWIT 711, 712.
16

circumstances, while MFN ensures that no one group of foreigners is treated bet-
ter than another. These are only relative standards, in that their precise content
must be determined by reference to the domestic treatment. Moreover, the stand-
ard of domestic treatment in some countries may well be extremely low, and so a
guarantee of equal treatment with nationals is unlikely to give much comfort to a
foreigner. The aim of the FET standard, then, is to complement the national treat-
ment and MFN guarantees by offering a minimum but absolute standard, deter-
mined autonomously at the international level.17 In determining the content of
this standard, domestic law would thus appear to be irrelevant. The tribunal in the
North American Free Trade Agreement (NAFTA) case Cargill v Mexico recognized
this explicitly, noting that the separation between domestic legality and FET breach
was ‘the very rationale for the customary international law minimum standard of
treatment of aliens’.18
The content of the FET standard might also suggest, at first glance, that consid-
eration of domestic legality is not relevant. In one prominent view, one of the key
roles of the FET standard in investment law is, as with domestic administrative law,
to control exercises of executive discretion. Some commentators have conceived of
international investment law, and particularly the FET standard, as akin to domes-
tic administrative law, and indeed a foundational element of a global administrative
law.19 They observe that the FET standard is said to include principles such as due
process, natural justice, proportionality, and reasonableness, and they note that
these are also common core principles of domestic administrative law.20 If invest-
ment tribunals are indeed already fulfilling very similar roles to domestic courts in
this respect, then it might be surprising that a tribunal would spend time consid-
ering domestic law, since this would simply replicate analysis that it was already
tasked with performing under international law principles. Rather than consider-
ing an FET violation by reference to whether a state met its domestic law transpar-
ency and consultation requirements, for instance, a tribunal would just assess the
state’s conduct immediately by reference to international law rules of due process.21
In this situation, domestic law would have little role to play.
17 As the tribunal in GAMI v Mexico put it, a ‘dearth of able administrators or deficient culture
of compliance’ in a particular country does not excuse states from the absolute standards of invest-
ment treaty obligations: GAMI Investments Inc v Mexico (UNCITRAL), Final Award, 15 November
2004 [94].
18 Cargill Inc v Mexico (ICSID Case No ARB(AF)/05/2), Award, 18 September 2009 [303]. See also
El Paso Energy International Company v Argentina (ICSID Case No ARB/03/15), Award, 31 October
2011 [337] and Energoalians SARL v Moldova (UNCITRAL), Arbitral Award, 23 October 2013 [347].
19 Thunderbird, Separate Opinion of Thomas Waelde (n 15); S Montt, State Liability in Investment
Treaty Arbitration: Global Constitutional and Administrative Law in the BIT Generation (Hart 2012); S
Schill (ed.), International Investment Law and Comparative Public Law (OUP 2010), esp. ch. 5; G van
Harten and M Loughlin, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’
(2006) 17 EJIL 121.
20 C McLachlan, L Shore, and M Weiniger, International Investment Arbitration: Substantive
Principles (OUP 2007) 234.
21 This is not to say that the concept of due process in international law is any clearer, or even
as clear, as in domestic law. On one commonly accepted element of due process, the duty to give
reasons, international jurisprudence has not yet settled on the rationales underpinning the duty and
thereby defining its extent: J Hepburn, ‘The Duty to Give Reasons for Administrative Decisions in
17
On top of this, unlike other common investment treaty clauses—such as those

requiring an investor to invest in accordance with host state law,22 or those requir-
ing the state to expropriate under due process of (national) law23—there is almost
never any explicit textual direction to consult domestic law in FET clauses.24 To the
extent that FET is a stand-alone treaty clause that ‘means what it says’,25 considera-
tion of domestic legality is not relevant. Finally, although Alvarez relied on ‘numer-
ous arbitral decisions’ for the assertion that it is nearly impossible for investors to
win claims where states have complied with domestic law, he did not give further
details of these decisions.26
For these reasons, then, an initial reaction to Alvarez’s suggestion that domestic
legality is relevant to an FET violation might be that, in fact, the position is entirely
the opposite. Given that the arguments from first principles appear to point in both
directions, it is useful to turn to the case-law, to build a picture of how tribunals
have, in practice, treated domestic law compliance when assessing claimed FET
breaches.
2.2 Domestic Law and Direct FET Breaches
There are in fact numerous cases in which consideration of domestic legality has
affected the tribunal’s FET finding in some way. This section contends that tri-
bunals have generally not rejected the relevance of domestic legality outright, but
nor have they embraced it as an outcome-determinative feature for an FET claim
(despite comments suggesting this in certain cases). Instead, it is argued here, tribu-
nals in these cases have drawn on domestic law compliance or breach as a contribut-
ing factor to an overall assessment of FET breach.27
2.2.1 Domestic legality contributing to FET compliance

Glamis Gold v USA raised a range of interactions between domestic and inter-
national law in relation to FET. The claimant, a large Canadian-owned mining
conglomerate, alleged among other things a breach of NAFTA Article 1105 when
International Law’ (2012) 61 ICLQ 641. Schill (n 19) also questions this, arguing that international
principles need to be drawn from comparative analyses of domestic public law regimes.
22 Cases relating to these ‘investor legality’ clauses are addressed in Chapters 6 and 7.
23 See Chapter 3.
24 One rare exception is Article VI of the 2001 CARICOM-Cuba BIT, which provides: ‘Each Party
shall ensure fair and equitable treatment of Investments of Investors of the other Party under and sub-
ject to national laws and regulations.’
25 cf SGS Société Générale de Surveillance SA v Philippines (ICSID Case No ARB/02/6), Decision of
the Tribunal on Objections to Jurisdiction, 29 January 2004 [119], in relation to the umbrella clause.
26 Alvarez (n 3) 465. Energoalians (n 18) [347] is one counter-example, where the tribunal found a
breach of FET despite being explicitly unconvinced of any breach of domestic law.
27 The early case of GAMI viewed the situation in similar terms: ‘a government’s failure to imple-
ment or abide by its own law in a manner adversely affecting a foreign investor may but will not neces-
sarily lead to a violation of Article 1105. Much depends on context.’ GAMI (n 17) [91].
18

US mining authorities refused to approve its plan of operation for a proposed
gold mine in California, citing concerns over both public safety and proximity
of the mine to Native American sacred sites. Glamis argued that the authorities
in fact had no discretion to refuse the plan; rather, a long-standing interpretation
of the relevant domestic law had the effect of entitling the investor to be granted
permission.28 In Glamis’ view, the interpretation adopted in an internal legal opin-
ion commissioned by the authority, and the subsequent decision adopted on the
basis of that opinion, went ‘beyond merely applying existing criteria in an impre-
cise fashion’ but constituted an attempt to create ‘a new discretionary mine-veto
authority never previously known to exist’.29 For Glamis, this represented a breach
of both domestic administrative law and the mining law itself,30 and thus a breach
of Article 1105.
In response, as well as citing the ELSI case of the International Court of Justice
(discussed further in section 2.4) to support the view that ‘mere domestic illegal-
ity’ could not breach international law,31 the US also took the effort to deny that
there was a breach of domestic law. It argued that the mining authority was faced
with an entirely new issue—namely, a mining project that would impact on Native
American sacred sites. Given this, the US said, reliance on existing interpretations
of the law would be misplaced, since those interpretations did not address the issue
faced by the authority in the circumstances.32
The tribunal rejected the investor’s claim on this point for a variety of reasons.
In part of its reasoning, though, the tribunal noted that the legal opinion ‘inter-
preted existing statutory and regulatory language, an act arguably within the scope
of [the internal lawyer’s] powers and foreseeable actions’.33 This is essentially a sug-
gestion that the authority’s opinion was intra vires and did not violate domestic law.
Alongside other factors,34 the domestic legality indicated here thus contributed to
the tribunal’s finding of no Article 1105 breach.
Another aspect of Glamis centred on a cultural review of the investor’s mining
project. Following the review, the project had been declared culturally significant,
with the result that it was subject to more onerous regulations. The claimant took
issue with what it saw as various procedural deficiencies in the review process, argu-
ing that it violated the arbitrariness, transparency, and due process elements of
the NAFTA Article 1105 standard.35 The tribunal considered a number of fac-
tors in addressing this claim. One factor was that, as the US highlighted in its
defence,36 the review had been conducted in accordance with the governing domes-
tic law.37 For the tribunal, this appeared to raise a presumption that the review did
not breach Article 1105. It then fell to the claimant to ‘prove that these processes
and the decisions based upon them were either arbitrary or manifestly lacking in
28 Glamis Gold Ltd v USA (UNCITRAL), Award, 8 June 2009 [633]. 29 ibid [638].
30 ibid [639]. 31 ibid [596]. 32 ibid [654]. 33 ibid [763].
34 ibid [772]. 35 ibid [645]–[650]. 36 ibid [663].
37 The tribunal ‘notes that the Respondent submitted evidence that the decisions were reached
based upon Section 106-mandated cultural studies’: ibid [781]. The process of a ‘Section 106’ review
under the applicable legislation is outlined at ibid [76]–[78].
19
reasons’—a task which the claimant was found not to have fulfilled.38 Compliance
with domestic law thus exerted a push towards the finding of a lack of investment
treaty violation.
In LLC AMTO v Ukraine, the tribunal rejected a claim of FET breach in relation
to bankruptcy proceedings commenced by Ukrainian authorities against the inves-
tor’s local subsidiary. The investor alleged that authorities had deliberately targeted
it due to its foreign ownership, and had also breached the Ukrainian Bankruptcy
Law.39 However, the tribunal found insufficient evidence of deliberate targeting.40
In addition, the tribunal accepted Ukraine’s submission41 that the authorities
had acted in accordance with Ukrainian law, with their decisions being properly
reviewed by local courts.42 Domestic legality was thus a further factor in the tribu-
nal’s holding that the FET guarantee had not been breached.
In Paushok v Mongolia, the claimants argued that the imposition of a new tax
violated FET because it was enacted in a non-transparent manner, ‘in less than one
week and [with] no consultation’.43 However, the tribunal observed that there was
‘no evidence’ that the Mongolian Parliament contravened any of its own rules in the
process that it used to impose the tax. In particular, there was no suggestion in the
Mongolian Constitution or the Parliament’s rules that consultation with affected
sectors, or even any ‘meaningful analysis of the implications of proposed legisla-
tion’, was required before adoption.44 Together with other factors,45 the fact that
Mongolia had not breached domestic law was therefore important for the tribunal
in finding that there was no FET breach on this point in the case.
The investor in Biwater Gauff v Tanzania complained that the state had
appointed its Minister of Water and Livestock Development as an interim water
regulator, pending the appointment of an independent regulator. In the investor’s
view, this politicized appointment violated domestic regulatory laws, as well as the
legal agreements between the investor and the state. The tribunal held that, ‘in prin-
ciple’, Tanzania’s failure to appoint an independent and impartial regulator would
constitute an FET breach.46 However, the tribunal also found that the Minister had
in fact fulfilled his regulatory duties under domestic law, acting reasonably and in
good faith in the same way as an independent regulator would have.47 In practice,
then, the Minister’s compliance with the substance of the domestic regulatory laws
saved Tanzania from breach of the FET standard in this respect.
38 ibid [781].
39 LLC AMTO v Ukraine (SCC Case No 080/2005), Final Award, 26 March 2008 [27], [98].
40 ibid [99]. 41 ibid [30]. 42 ibid [99].
43 Sergei Paushok v Mongolia (UNCITRAL), Award on Jurisdiction and Liability, 28 April
2011 [304].
44 ibid.
45 The tribunal also noted that laws are adopted very quickly in many countries in the world in situ-
ations of urgency or unanimity in the Parliament: ibid.
46 Biwater Gauff (Tanzania) Ltd v Tanzania (ICSID Case No ARB/05/22), Award, 24 July
2008 [615].
47 ibid [616].
20

Last, the tribunal in David Minnotte v Poland also appeared to suggest that the
lack of evidence of any illegality in the state’s conduct contributed to its finding that
the FET standard was not breached.48
2.2.2 Domestic illegality contributing to FET breach

Conversely, cases also illustrate the proposition that a breach of domestic law con-
tributes to a finding of breach of FET.
In Middle East Cement v Egypt, for instance, part of the claimant’s arguments
related to the alleged expropriation of a ship that was seized and auctioned without
adequate notice. According to the applicable Greece–Egypt BIT, an expropriation
was lawful only if it was carried out ‘under due process of law’. In the course of
determining this, the tribunal assessed whether the state had followed the correct
notification procedures under domestic law. It considered that ‘it seems doubtful’
that Egypt’s actions complied with the relevant domestic law.49 The tribunal applied
this finding of probable breach of domestic law not only to its expropriation analy-
sis, but also to a seemingly obiter ruling on the FET clause in the Greece–Egypt
BIT. Although the award does not refer to any actual claim by the investor of an
FET breach, the tribunal nevertheless held that the FET clause had ‘particular rel-
evance’ here. ‘[A]‌matter as important as the seizure and auctioning of a ship of the
Claimant should have been notified by a direct communication for which the law
No. 308 provided.’50 Thus, the tribunal found that ‘the procedure in fact applied
here does not fulfil the requirements of [the FET clause] and [the expropriation
clause] of the BIT’.51 Had Egypt followed the procedure set out in domestic law,
then, the finding of an FET breach here seems much less likely.52
In another case against Egypt, Wena Hotels, the tribunal found that the state had
breached FET because of the government’s acquiescent role in the seizure of the
investor’s luxury hotels by a state corporation (EHC). The tribunal’s FET analysis
focused largely on the conduct of the state following the seizure, with the arbitrators
condemning the lack of any effort towards reparations to the investor, or investiga-
tion and prosecution of those officials responsible for the seizure.53 A further fac-
tor discussed by the tribunal, though, was the fact that the government permitted
EHC to operate one of the seized hotels despite a violation of domestic fire-safety
laws.54 Two days before the hotel was eventually returned to Wena, the government
48 David Minnotte v Poland (ICSID Case No ARB(AF)/10/1), Award, 16 May 2014 [199].
49 Middle East Cement Shipping and Handling Co SA v Egypt (ICSID Case No ARB/99/6), Award,
12 April 2002 [143].
50 ibid. 51 ibid.
52 It is, admittedly, possible to view this finding not as a situation of domestic non-compliance
influencing the tribunal’s FET finding, but instead as the tribunal finding a breach of the distinct inter-
national law requirements of the FET standard which, in this particular case, happened to be aligned
with the requirements of the relevant domestic law. But, given the arbitrators’ specific reference to the
domestic law procedures, it appears that they considered the non-compliance significant.
53 Wena Hotels Ltd v Egypt (ICSID Case No ARB/98/4), Award, 8 December 2000 [84].
54 ibid [92].
21
finally enforced the fire-safety laws and revoked the hotel’s operating licence, leav-
ing the foreign investor without permission to continue operating its newly recov-
ered hotel. For the tribunal, this selective enforcement of domestic law—allowing
the state’s own entities to violate the law while requiring the foreign investor to
comply with it—was further evidence of unfair treatment, contributing to an FET
breach.55
Domestic illegality also contributed to a finding of an FET breach in Quiborax
v Bolivia. There, the tribunal recalled that it had already held Bolivia’s revocation
of certain mining concessions to be ‘discriminatory and unjustified under Bolivian
law’, in the context of ruling on the claimant’s expropriation claim.56 ‘By the same
token’, the tribunal said, ‘it also violates the fair and equitable treatment stand-
ard’.57 This one-paragraph analysis of the claimants’ FET claim gave no explana-
tion of the grounds for connecting the breach of Bolivian law to a breach of FET,
but it was clearly a contributing factor for the tribunal, alongside the finding of
discrimination.
2.2.3 Domestic legality as a determinative factor?

Some tribunals have appeared to go beyond the position that domestic legality
plays only a contributory role in assessing breaches of FET. At first glance, the
language used in these tribunals’ awards might suggest that domestic legality can
play a more determinative role in certain circumstances. Closer examination sug-
gests, however, that these cases do not place domestic legality in such prominence
as to make it the sole basis, without ‘something more’58 or without meeting a high
threshold, on which responsibility for FET breach was imposed.
EDF v Romania is one such case. One argument raised in the case related to the
actions of the Financial Guard, a Romanian regulatory body. In EDF’s view, the
Financial Guard’s seizure of the revenues of EDF’s local subsidiary represented
the ‘culmination … of the destruction of its investment’,59 and a breach of FET.
Interestingly, the tribunal began its analysis of this claimed FET breach by com-
menting that ‘the Financial Guard’s conduct is first and foremost to be examined
in the light of Romanian law’.60 In the next sentence, the tribunal appeared to
revert to a more traditional position, downplaying any relevance of domestic law
and warning that, ‘[e]‌ven if consistent with Romanian law, the Financial Guard’s
conduct is in any case to be examined as well under international law’.61 Despite
this, the tribunal proceeded to find that the Financial Guard’s actions were part of
its duties under the relevant domestic law, and that the seizure was ‘in conformity
with the applicable legal provisions’.62 Furthermore, all the other domestic authori-
ties that became implicated in the matter, including a state corporation, the Trade
55 ibid. 56 This aspect of the decision is considered in Chapter 3.

57 Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Award, 16 September 2015 [292].
58 ADF Group Inc v USA (ICSID Case No ARB(AF)/00/1), Award, 9 January 2003 [190].
59 EDF (Services) Ltd v Romania (ICSID Case No ARB/05/13), Award, 8 October 2009 [279].
60 ibid [280]. 61 ibid. 62 ibid [283].
22

Registry, and the competent domestic court, had acted ‘in accordance with their
respective duties’.63 After this consideration of the domestic law position, the tribu-
nal concluded its analysis, finding no basis for the claim of FET violation.
The EDF tribunal thus appeared to pose a relatively direct link between the
domestic lawfulness of the state’s conduct and the lack of FET breach. However,
although the domestic law analysis is most prominent, the tribunal also gave other
reasons for refusing the FET claim. In particular, the tribunal briefly noted that
there were no improper motives behind the Financial Guard’s actions64 and no evi-
dence of a ‘concerted attack’ on the claimant.65 Further, the Financial Guard’s sei-
zure ‘did not lack proportionality, transparency and good faith, was not improper
and discreditable and was far from constituting “an act that shocks or at least sur-
prises a sense of judicial propriety” ’.66 The tribunal was also influenced by evi-
dence of unlawful activity carried out by the claimant itself,67 which provided a
substantive justification (aside from the formality of domestic legal compliance)
for the Financial Guard’s actions. Thus, despite the attention given to domestic law
by the tribunal, it may not have been the outcome-determinative feature for this
argument.
Similarly, domestic laws on due process were apparently central to the tribunal’s
findings on an alleged FET breach in Al-Bahloul v Tajikistan. Despite extensively
setting out passages from other arbitral tribunals in elaborating the international
due process standard contained within FET,68 the Al-Bahloul tribunal then relied
on Tajik law to determine the breach. Contrary to the investor, who maintained
that certain claims brought to a domestic court should have been rejected as out
of time, the tribunal found that domestic law in fact imposed no time limit on the
claims.69 Notably, the tribunal did not assess whether the actual period of delay in
bringing the claims might in itself breach FET standards; the domestic compli-
ance was enough to reject the investor’s claims of FET breach on grounds of due
process. However, it appears that the claimant did not allege any inherent breach
of FET caused by the period of delay apart from the claimed breach of ‘applicable
procedural and substantive laws’,70 perhaps lessening the relevance of the tribunal’s
conclusions here.
Conversely to EDF and Al-Bahloul, other cases seemingly draw on domestic state
illegality to support a finding of FET breach.
PSEG Global v Turkey presents a good example of domestic law considerations
ostensibly affecting a tribunal’s decision on FET. The case related to the termina-
tion of a power station concession contract. One of the ‘most prominent’ breaches
of FET identified by the tribunal was that the Ministry of Energy and Natural
Resources, responsible for the investor’s project, had abused its authority in its
dealings with the investor.71 At issue was a domestic statute, Law 4501, which
63 ibid [285].
64 There was no suggestion that the Financial Guard had acted for ‘reasons foreign to its authority
and duty as a public body’: ibid [284].
65 ibid [285]. 66 ibid [286]. 67 ibid [281], [283].
68 Al-Bahloul (n 14) [221]. 69 ibid [225]. 70 ibid [219], [224].
71 PSEG Global Inc v Turkey (ICSID Case No ARB/02/5), Award, 19 January 2007 [252].
23
permitted the conversion of state contracts from administrative or public law status
to private law status. When the investor sought to take advantage of this permis-
sion, the Ministry responded that it would allow the conversion only if the project
contract was renegotiated, and only if a local corporation was established.
PSEG objected to these new terms before the International Centre for Settlement
of Investment Disputes (ICSID) tribunal, claiming that no local corporation was
required for its project under Turkish law. In addition, in PSEG’s view, the new
contract conversion process was intended to be automatic upon request—that is,
the Ministry did not have the authority under Law 4501 to request a renegotia-
tion before the converted contract would be approved by the Turkish Council of
Ministers (the cabinet). Turkey, interestingly, argued in part that it had complied
with domestic law and that, as a result, no FET breach could be found.72
In its award, the tribunal acknowledged that investment treaties are intended to
protect against ‘possible vagaries of the host-Party’s national laws and their admin-
istration’,73 suggesting that the tribunal was preparing to disclaim the relevance of
domestic law. However, the PSEG award ultimately displays significant elements of
domestic law analysis.
To determine whether the Ministry had indeed exceeded its discretion under
Law 4501 in requesting a renegotiation, the tribunal assessed the purpose and the
terms of the domestic statute. It concluded that conversion of the contract was not
automatic and that the Minister did have discretion to request renegotiation.74
However, the tribunal noted that the law’s purpose was to improve international
financing conditions for projects in Turkey by allowing project contracts to be con-
verted to private law status, rather than falling under domestic public law.75 The
claimant had produced evidence indicating that the amendments requested by the
Ministry would have the effect of making it more difficult to obtain international
financing for the project. In the tribunal’s view, Law 4501 could not be interpreted
to permit ‘a renegotiation that could have ended with the opposite result’ of the
law’s purpose.76 The Ministry’s discretion thus only extended to ensuring that a
contract met the criteria set by international finance bodies. The tribunal thus ruled
that the Ministry’s request for renegotiation was ultra vires, going beyond its law-
ful powers under domestic law, and therefore breached the FET guarantee in the
US–Turkey BIT.77
The PSEG tribunal also found a breach of FET in other conduct, again essentially
stemming from breaches of domestic law. First, as mentioned earlier, the claimant
took issue with the Ministry’s demands to incorporate a local company to undertake
the project, in light of the domestic law approving of its foreign ownership struc-
ture. The tribunal sided with the claimant, ruling that ‘the law, the Implementation
Contract … and the Danıştay [the Turkish Conseil d’État]’ recognized that no local
company was required, and that this was simply ignored by the Ministry.78 Second,
the Turkish Constitutional Court had invalidated a law purporting to remove the
72 ibid [237]. 73 ibid [253]. 74 ibid [189]–[190]. 75 ibid [194].

76 ibid [194]. 77 ibid [247]. 78 ibid [248].
24

investor’s rights to a Treasury guarantee over the project. The Court had cited the
grounds that the rights were vested in the concession contract and must be pro-
tected by ‘the contract, the rule of law and the Turkish Constitution’.79 Again, this
domestic court decision was ‘simply ignored by the [Ministry] in its dealings with
the Claimants’.80 On these two examples, the tribunal ultimately held that the
Ministry’s actions ‘might be unlawful under Turkish law, but … are also in breach
of the standard of fair and equitable treatment’.81 Despite the conditional ‘might’,
the tribunal clearly viewed the conduct as domestically unlawful, and appeared to
connect this directly to the FET breach.
In another brief discussion, the tribunal recorded that the Ministry’s actions
would violate the Turkish Constitution on a second ground. After citing a consti-
tutional provision that the state ‘shall take measures to ensure [that] private enter-
prises operate … under conditions of security and stability’,82 the tribunal noted
that Turkey’s ‘handling of the case shows the exact opposite’.83 Because of this, there
had been an ‘evident breach’ not only of the FET standard but also of ‘Turkish
law’.84 It is slightly unclear which Turkish law is being referring to here, but the
context certainly suggests that it is the Constitution. Although brief, the tribunal
nevertheless apparently felt obliged to respond to this constitutionality argument
of the claimant to bolster its findings on FET.
All these instances of domestic law analysis in PSEG might suggest a stronger
link between domestic unlawfulness and breach of FET than the general position
of the cases in the previous sections. However, PSEG can also be read more consist-
ently with the general position if certain other aspects of the tribunal’s reasoning
are highlighted. In particular, the domestically unlawful conduct was framed by
the tribunal as inconsistent state action, which it took to be outlawed by the FET
standard.85 On this view, the illegality was perhaps not relevant in itself; instead,
the inconsistent behaviour—the executive acting at odds with the directions of
the judiciary and legislature—grounded the FET breach. Furthermore, the tribu-
nal also held that Turkish authorities had displayed ‘evident negligence’ in deal-
ing with the investors, in failing to respond quickly, ignoring communications,
and hiding disagreements.86 An additional element of the FET breach was found
in a ‘roller-coaster’ of legislative changes that were not accommodated within the
negotiations.87 For the tribunal, the ‘aggregate’ of these factors removed any sem-
blance of the ‘stable and predictable business environment’ that FET demanded.88
Ultimately, the domestic illegality of the respondent’s conduct was important, but
was probably no more than a vehicle for findings of instability and inconsistency of
governance that breached FET.
79 PSEG Global Inc v Turkey (ICSID Case No ARB/02/5), Decision on Jurisdiction, 4 June
2004 [46].
80 PSEG Global, Award (n 71) [249]. In this respect, the case recalls Siag (n 9).
81 PSEG Global, Award (n 71) [249]. 82 In the claimant’s arguments at ibid [225].
83 ibid [254]. 84 ibid [256]. 85 ibid [240], [247]–[249], [252].
86 ibid [246]. 87 ibid [250]. 88 ibid [253].
25
Last, the more recent case of Clayton/Bilcon v Canada raises the role of domes-
tic legality in FET perhaps most squarely of all the cases discussed here. Indeed,
as discussed below, the major point of criticism of the Clayton/Bilcon majority’s
award coming from the dissenting arbitrator was that the majority had impermis-
sibly equated a breach of Canadian law with a breach of FET. The case related to a
decision by Canadian and Nova Scotia authorities to deny permission for a quarry,
following a recommendation from an environmental review panel convened to
assess the project. The panel found that the quarry should not be approved because
it would have contravened ‘community core values’.89 Since it considered that the
project should not proceed at all, the panel also refrained from recommending any
mitigation measures that could be implemented.90
In the majority’s view, the concept of ‘community core values’ was not part of
Canadian environmental law, and the review panel’s emphasis on this concept
meant that the panel had breached domestic law.91 Furthermore, the majority held
that the panel was legally obliged to consider mitigation measures even if it deter-
mined that the project should not proceed.92 The majority accepted that ‘the mere
breach of domestic law … does not violate the international minimum standard’,
even where ‘outright mistakes’ or ‘substantial errors’ are made.93 However, while
also accepting that a high threshold must be reached before states will breach the
FET element of the international minimum standard, the tribunal held that the
panel’s conduct met that threshold. A range of distinct (if related) bases was offered
for this conclusion throughout the award: violations of due process and rights of
defence including fair notice,94 upset of expectations,95 arbitrariness stemming
from breaches of domestic law,96 inconsistency of conduct between different state
officials,97 and a ‘fundamental departure’ from the requirements of domestic law.98
Ultimately, the majority suggested that it was the ‘distinctive and exceptional over-
all set of facts that came together’, in the ‘particular and unusual circumstances of
this case’, to produce a violation of FET.99
Meanwhile, the dissenting arbitrator viewed the majority’s opinion as imposing
international responsibility for a mere breach of domestic law. The dissenter sug-
gested that compliance with domestic law was a ‘relevant consideration’ in assessing
a breach of NAFTA Article 1105, but considered that it was not sufficient.100 (The
89 William Clayton v Canada (PCA Case No 2009-04), Award on Jurisdiction and Liability, 17
March 2015 [503].
90 ibid [504]. 91 ibid [600], [602]. 92 ibid [546].
93 ibid [436]–[437], [738].
94 ibid [451], [534], [543], [590], [591], [594], [603], [740].
95 ibid [447]–[449], [453], [571], [592], [594], [603], [740]. In submissions in Mesa Power v
Canada, both Canada and the US criticized the Clayton/Bilcon tribunal for considering the investor’s
expectations, an element which the states contend is not part of the customary FET standard: Mesa
Power Group LLC v Canada (PCA Case No 2012-17), Canada’s Observations on the Award on
Jurisdiction and Merits in Clayton/Bilcon v Canada, 14 May 2015 [18] and Second Submission of the
United States of America, 12 June 2015 [18].
96 Clayton, Award (n 89) [591]. This element of the award is discussed further below in section 2.4.3.
97 ibid [592], [593]. 98 ibid [452], [594], [600]. 99 ibid [740], [741].
100 William Clayton v Canada (PCA Case No 2009-04), Dissenting Opinion of Professor Donald
McRae, 10 March 2015 [31].
26

dissenter found in any event that an examination of ‘community core values’ was
part of the panel’s mandate, and therefore that the panel had actually complied with
domestic law.)101 While a deliberate or wilful disregard of domestic law would suf-
fice, the dissenter found no evidence of this; instead, the panel clearly thought that
it was acting lawfully.102
Breaches of domestic law were undoubtedly a major part of the Clayton/Bilcon
majority’s reasoning. However, while the dissenter claimed that the majority
simply equated breach of domestic law with breach of FET (or NAFTA Art.
1105), the majority were at pains to indicate that other factors were also in
play, as previously mentioned. The difference between the majority and dissent
could plausibly be explained as differing appreciations of the severity of the
domestic law breaches and the relevance of the other factors.103 Without explic-
itly saying so, the majority perhaps viewed the circumstances as a sufficiently
extreme instance of maladministration, when combined with the other factors,
to amount to the ‘outright and unjustified repudiation’ of domestic law envis-
aged in GAMI v Mexico.104 Even if the majority made no finding of bad faith,
they also concluded that the panel had discriminated against the claimants con-
trary to NAFTA Article 1102,105 and this may have influenced the FET decision
as well. Any opposition to the majority’s position might lie not in any suggestion
that domestic unlawfulness itself sufficed to breach FET, but more likely in the
conclusion that the unlawfulness combined with other factors contributed to
push Canada’s conduct over the high threshold for breach of Article 1105 in the
circumstances.
Thus, like EDF, Al-Bahloul, and PSEG, Clayton/Bilcon does not pose the chal-
lenge to the more traditional position of domestic legality as a contributory factor
that, at a glance, it might appear to.
2.3 Domestic Law and Legitimate Expectations under

the FET Standard
Section 2.2 demonstrates that investment tribunals have not found any determina-
tive link between domestic legality and compliance with FET as a whole, instead
treating it as a contributory factor. However, as Alvarez suggested in the extract
quoted previously, one possible means by which compliance with domestic law
might be more directly incorporated in the FET standard is via the doctrine of
legitimate expectations. This doctrine has, for some tribunals and commentators,
101 ibid [14], [26], [53]; cf [30]. 102 ibid [38].

103 For a similar view, see J Harrison, ‘Significant International Environmental Law Cases: 2014–
15’ (2015) 17 JEL 541, 552–53.
104 GAMI (n 17) [103], citing Waste Management Inc v Mexico (ICSID Case No ARB(AF)/00/3),
Award, 30 April 2004 [115].
105 Clayton, Award (n 89) [731].
27
become the key element of the FET standard in investment law.106 Typically, the
doctrine is employed to protect investors against the upset of expectations that the
host state has generated in them,107 often relating to the stability of the surround-
ing legal framework or the continued availability of particular state incentives. It is
at least plausible to consider that one such expectation that investors may hold is
that the state will comply with its own law in its dealings with the investor. If this
is true, a breach of domestic law could lead to a breach of the investor’s legitimate
expectations, which in turn leads to a breach of FET. This would go beyond treating
domestic legality as merely contributory, and would question the traditional posi-
tion on the relevance of compliance with domestic law in FET claims.
The often cited general formulation of the FET standard in Tecmed v Mexico
supports the view that investors have a general expectation that a host state will
comply with domestic law. The tribunal there considered that ‘[t]‌he foreign inves-
tor expects the host State to act in a consistent manner’, and that ‘[t]he investor also
expects the State to use the legal instruments that govern the actions of the investor
or the investment in conformity with the function usually assigned to such instru-
ments’.108 One aspect of consistency, it might be thought, is that a state would act
in accordance with the prior binding pronouncements of its entities—including its
legislature and judiciary, and, hence, its laws.109 In a similar vein, the MTD v Chile
tribunal held that, although investors could not expect states to change their laws
in order to create more favourable conditions, they could expect that the extant law
be applied properly.110
However, tribunals in some cases have appeared to adapt the protection of
the legitimate expectations doctrine to the circumstances of the host state.111 In
Generation Ukraine, for instance, the tribunal rejected the investor’s claims of BIT
breach, stating that, despite suffering ‘bureaucratic incompetence and recalcitrance
in various forms’, the investor must ‘consider the vicissitudes of the economy of
the state’ and was aware of ‘both the prospects and potential pitfalls’ of invest-
ing in the particular host state.112 On this view, the argument that investors can
legitimately expect states to comply with their domestic law might apply only in
relation to states with clear records of good governance and adherence to the rule of
106 See M Potestà, ‘Legitimate Expectations in Investment Treaty Law: Understanding the Roots
and the Limits of a Controversial Concept’ (2013) 28 ICSID Rev 88; M Paparinskis, The International
Minimum Standard and Fair and Equitable Treatment (OUP 2013) 251 and sources there cited.
107 See Thunderbird, Separate Opinion of Thomas Waelde (n 15) for one example of this analysis.
The majority in Thunderbird considered that the investor had misled Mexican authorities, and that it
could not reasonably rely on a representation obtained from a state entity by virtue of its misrepresenta-
tion. See International Thunderbird Gaming Corporation v Mexico (UNCITRAL), Arbitral Award, 26
January 2006 [164].
108 Tecnicas Medioambientales Tecmed SA v Mexico (ICSID Case No ARB(AF)/00/2), Award, 29
May 2003 [154].
109 The claimant in El Paso v Argentina (n 18) made this argument at [328].
110 MTD Equity Sdn Bhd v Chile (ICSID Case No ARB/01/7), Award, 25 May 2004 [205].
111 Gallus (n 16).
112 Generation Ukraine Inc v Ukraine (ICSID Case No ARB/00/9), Award, 16 September 2003
[20.37]. The relevant claim was for expropriation rather than FET breach, but the tribunal nevertheless
commented on the investor’s legitimate expectations.
28

law. Investors operating in countries blighted by war or poverty, meanwhile, could
perhaps not expect perfect legal compliance by barely functioning state authorities.
Many cases emphasize that investors must conduct their own due diligence before
investing in a country, and must take host state law as they find it.113
A larger problem with an argument that investors can legitimately expect com-
pliance with domestic law is that cases on this point have tended to hold that the
FET standard requires the existence of a specific representation by the state to the
investor. A general expectation that states will comply with their laws, it appears, is
not enough to ground an FET breach.114
The claimant in Glamis Gold attempted to make this argument, suggesting that
the existence of a long-standing and stable interpretation of relevant domestic
law created a legitimate expectation that this interpretation would continue to be
applied.115 However, the tribunal rejected this view. It held that, if a violation was
to be based on ‘the unsettling of reasonable, investment-backed expectation[s]‌’,
there would need to be a ‘quasi-contractual’ relationship between the state and the
investor involving specific inducement of the investment, which was not present
in the case.116
In ADF Group v USA, the investor argued that US case-law generated expecta-
tions about the application of a domestic statute to its highway interchange pro-
ject in the state of Virginia. When the Federal Highway Administration refused to
follow and apply that case-law, the investor alleged that this constituted a breach
of NAFTA Article 1105 by virtue of the frustration of its legitimate expectations
about the domestic law’s application. The tribunal rejected the claim, but it did so
principally on the grounds that the case-law relied on by the investor in creating
its expectations did not actually relate to the domestic statute in question. Thus,
the tribunal did not deny the possibility that pre-existing case-law could generate
expectations in an appropriate case. As with Glamis Gold, though, the tribunal
added that for any expectations to be relevant in this context, they must have been
specifically engendered by ‘representations made by authorized officials of the US
Federal Government’.117
This issue of specificity was again taken up in Grand River Enterprises v USA.118
The claimant, a Canadian member of a Native American tribe, sought to argue
that he held a legitimate expectation, created on the basis of US federal Indian law,
that certain US laws would not apply to his cross-border business operations. The
tribunal commented that the domestic law relied on by the claimant was not the
kind of ‘targeted representations or assurances’ covered by what it understood as
113 McLachlan, Shore, and Weiniger (n 20) 236–37; Dolzer and Schreuer (n 1) 148–9; cf GAMI v
Mexico (n 17) [94].
114 In addition to the cases discussed here, see also White Industries Australia Ltd v India
(UNCITRAL), Final Award, 30 November 2011 [10.3.7].
115 Glamis Gold (n 28) [633]. 116 ibid [766]. 117 ADF Group (n 58) [189].
118 Grand River Enterprises Six Nations Ltd v USA (UNCITRAL), Award, 12 January 2011. The
expectations argument here is addressed by the tribunal under the heading of a NAFTA Article 1110
expropriation claim, but the tribunal notes at [126] that it is also applicable to the investor’s Article
1105 claim.
29
the concept of legitimate expectations.119 Nevertheless, it was somewhat willing to

consider that general domestic laws might constitute a source of legitimate expecta-
tions. The problem for the tribunal here was not so much the specificity issue, but
rather the fact that the domestic law in question was not settled enough to create a
stable base to ground any expectations. US Indian law, it said, was a ‘complex and
not altogether consistent mixture of constitutional provisions, federal statutes and
judicial decisions’.120 Given this lack of clarity, it was ‘implausible to find that [the
investor] could have reasonably expected … that [US] states would refrain from
applying [the relevant domestic law] to him’.121 Grand River thus suggests that, if
general domestic law can indeed ground expectations, only well-settled domestic
law will do so.
A clearer case of domestic law creating legitimate expectations in an investor
is the 2010 case Alpha Projektholding v Ukraine. The tribunal there found that a
state-owned hotel corporation had acted beyond the authority set out by law in its
articles of association. These actions had the result of effectively negating certain
agreements between the state-owned corporation and the foreign investor relating
to the management of a Kiev hotel. The tribunal determined that these ultra vires
actions, taken in violation of domestic law, ‘thereby undermined the Claimant’s
legitimate expectations in violation of Article 2(1) [the FET clause] of the Ukraine–
Austria BIT’.122 The interesting point here is that the tribunal did not find a direct
violation of FET because of the domestic law breach; rather, it framed the violation
in terms of the investor’s expectations. The investor was said to ‘possess a legitimate
expectation that the government would not interfere with the contractual relation-
ship between Claimant and the Hotel, and that the agreements would be hon-
oured’.123 Domestic law was doubly relevant here: the initial violation of domestic
law, in the hotel acting beyond its legal authority, then led to a further violation of
domestic law, in the failure to honour legal agreements between the investor and
the state entity. This, in turn, frustrated the investor’s expectations, and caused an
FET breach. Alpha Projektholding may differ from Glamis, ADF, and Grand River,
though, in that there was a specific agreement between the investor and the state in
that case. This meant that the failure to comply with domestic law was more easily
taken to upset the targeted expectations of the investor.
Last, and most recently, various comments of the tribunal majority in Clayton/
Bilcon v Canada might tend to support the connection between legitimate expec-
tations and compliance with domestic law. As discussed earlier, the case involved
a claim that Canada had breached NAFTA Article 1105 when an environmental
review panel assessed the investor’s project by reference to ‘community core values’,
a factor which the majority held was not part of Canadian environmental law. The
majority noted that the investor ‘could reasonably expect that its project would
be considered within the context of the laws of the day’.124 Conversely, it ‘had no
119 ibid [141]. 120 ibid [137]. 121 ibid [142].

122 Alpha Projektholding GmbH v Ukraine (ICSID Case No ARB/07/16), Award, 8 November
2010 [422].
123 ibid. 124 Clayton, Award (n 89) [571]. See also ibid [480].
30

reason to expect, under the law … that “community core values” would be an over-
riding factor’ in the panel’s decision.125 At the same time, though, the majority also
emphasized the numerous specific representations given to the investor, including
some made ‘directly by elected officials and civil servants’, which ‘created the expec-
tation in the Investors … that an environmental impact assessment of [the project]
would be carried out fairly and impartially within the legislative framework’.126 In
any case, the lens of legitimate expectations was not the only element of the major-
ity’s findings of breach, which also applied concepts of due process and arbitrariness
to the ‘distinctive and exceptional overall set of facts’.127 It is thus difficult to con-
clude that any clear link between general legitimate expectations and compliance
with domestic law emerges from the case. The Clayton/Bilcon dissenter, meanwhile,
was clearer on this question: in his view, every investor in Canada expects that
Canadian law will be applied properly to it, meaning that this expectation, while
legitimate, is far too general to assist in any Article 1105 claim.128
Ultimately, the cases indicate that the argument for making domestic legality
relevant to an FET breach via the doctrine of legitimate expectations is a limited
argument. Although the basic principle (at least, as formulated at its ‘high water
mark’129 in Tecmed) might suggest such a link, evidence for connections between
domestic legality and the FET standard are better found in other areas of the FET
case-law, as demonstrated in the rest of this chapter. Indeed, this throws some doubt
on Alvarez’s suggestion that it would be ‘relatively easy’ for an investor to argue that
compliance with law forms part of the investor’s relevant expectations of state con-
duct.130 As the doctrine has developed, it appears that tribunals are in fact reluctant
to credit this argument, finding such an expectation too general to count for the
doctrine.
The preceding discussion has assumed, of course, that the doctrine of legitimate
expectations forms part of the fair and equitable treatment standard. Certain states,
arbitrators, and commentators have all doubted this assumption, at least in relation
to the customary standard.131 Naturally, even the limited argument for connection
between domestic legality and FET via legitimate expectations falls away entirely if
the legitimate expectations doctrine is not part of FET. It has been suggested instead
that the concept of arbitrariness, a more established part of the FET standard,
largely already fulfils the role of legitimate expectations in this area.132 Section 2.4,
therefore, considers whether arbitrariness might represent a more fruitful method
of finding a determinative link between domestic legality and FET.
125 ibid [590]. 126 ibid [470]; see also [589].

127 ibid [590], [591], [594], [740]. 128 Clayton, Dissenting Opinion (n 100) [5]‌, [33].
129 B McGrady, ‘International Investment Law’ in T Voon, A Mitchell, and J Liberman (eds),
Regulating Tobacco, Alcohol and Unhealthy Foods: The Legal Issues (Routledge 2015) 118.
130 Alvarez (n 3) 331.
131 See, e.g., Mesa Power LLC v Canada (PCA Case No 2012-17), Second Submission of the United
States of America, 12 June 2015 [18]; Lone Pine Resources Inc v Canada (ICSID Case No UNCT/15/
2), Counter-Memorial of the Government of Canada, 24 July 2015 [351]; Suez, Sociedad General de
Aguas de Barcelona SA v Argentina (ICSID Case No ARB/03/17), Separate Opinion of Arbitrator Pedro
Nikken, 30 July 2010; Paparinskis (n 2) 259; Total, Concurring Opinion (n 4).
132 Paparinskis (n 2) 259.
31
2.4 Domestic Law and Arbitrariness under the FET Standard
Whether the FET standard is taken as an ‘autonomous’ treaty-based standard or is

seen as connected to customary international law, analyses of the standard routinely
agree that it protects investors against arbitrary host state conduct.133 As well as
the ubiquitous FET clause, some BITs also contain a prohibition on ‘arbitrary or
discriminatory measures’ or ‘unreasonable or discriminatory measures’.134 There
is debate over the effectiveness of this prohibition when placed alongside an FET
clause. Certain tribunals have taken the view that, since the FET standard already
encompasses arbitrary, discriminatory, or unreasonable conduct, a specific clause
outlawing such conduct has no substantive effect.135 On this view, both clauses are
simultaneously breached by the same conduct; alternatively, once a breach of FET
is found, there is no need to consider an alleged breach of an ‘arbitrary measures’
clause.136 Others have suggested that the states parties to the investment treaty
must have intended such a separately worded ‘arbitrary measures’ clause to have
an independent effect. These tribunals have therefore assessed breach of the arbi-
trary measures clause as a separate matter to breach of the FET clause, even if
the substantive content of the two standards might be very similar.137 For present
purposes, it is not necessary to clarify the relations between the ‘arbitrary measures’
clause and the FET clause further. The concept of arbitrariness embodied in these
clauses can plausibly be taken as equivalent to the concept that forms part of the
FET standard.138
These prohibitions on arbitrary conduct might represent another possible means
by which to connect a breach of domestic law to a breach of FET (or compliance
with domestic law to compliance with FET). At first glance, conduct by states that
breaches the very prescriptions that the state has set for itself (i.e. its domestic law)
133 Dolzer and Schreuer (n 1) 194; Paparinskis (n 2) 239; Tudor (n 2) 177; P Dumberry, ‘The
Prohibition against Arbitrary Conduct and the Fair and Equitable Treatment Standard under NAFTA
Article 1105’ (2014) 15 JWIT 117; Kläger (n 2) 290; S Vasciannie, ‘The Fair and Equitable Treatment
Standard in International Investment Law and Practice’ (1999) 70 BYIL 99, 133.
134 Although A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of
Treatment (Kluwer 2009) 303, note differences between these two common formulations of the prohi-
bition, they will be treated together here under the label of ‘arbitrary measures’ clauses.
135 Joseph Lemire v Ukraine (ICSID Case No ARB/06/18), Decision on Jurisdiction and Liability,
14 January 2010 [259]; Rumeli Telekom AS and Telsim Mobil Telekomikasyon Hizmetleri AS v
Kazakhstan (ICSID Case No ARB/05/16), Award, 29 July 2008 [681]; El Paso (n 18) [230]; GEA
Group Aktiengesellschaft v Ukraine (ICSID Case No ARB/08/16), Award, 31 March 2011 [329]. See
also discussion of Impregilo v Pakistan, MTD v Chile, Saluka v Czech Republic, and CMS v Argentina in
C Schreuer, ‘Protection against Arbitrary or Discriminatory Measures’ in C Rogers and R Alford (eds),
The Future of Investment Arbitration (OUP 2009) 191.
136 PSEG (n 71) takes the latter approach at [261]; see also Lemire (n 135) [259].
137 Noble Ventures Inc v Romania (ICSID Case No ARB/01/11), Award, 12 October 2005 [182];
Alex Genin v Estonia (ICSID Case No ARB/99/2), Award, 25 June 2001 [367]–[368]; LG&E Energy
Corporation v Argentina (ICSID Case No ARB/02/1), Decision on Liability, 3 October 2006 [162];
see also Schreuer (n 135) 192.
138 Paparinskis (n 2) 239.
32

might be considered the epitome of the arbitrariness that the FET and arbitrary
measures clauses seek to prevent.139
Indeed, certain authors have suggested support for this view. In Tudor’s opinion,
for instance, ‘[o]‌ne of the possible illustrations of arbitrariness is a decision taken
in violation of the law or at least not grounded on a legal basis’.140 For Montt,
‘any meaningful test of arbitrariness must … consider the legal or illegal character
of state behaviour in accordance with domestic law’.141 Paparinskis suggests that
the classical law of expropriation required that measures comply with domestic
law under the banner of arbitrariness, and that this logic ‘seems mutatis mutandis
applicable to those instances of mistreatment with [a] lesser degree of interference’
(including breaches of the FET standard).142
However, such suggestions must be reconciled with prominent statements on arbi-
trariness, including those of a Chamber of the International Court of Justice (ICJ) in
the ELSI case. As is well known, the ICJ indicated in ELSI that ‘[a]‌finding of the local
courts that an act was unlawful may well be relevant to an argument that it was also
arbitrary; but by itself, and without more, unlawfulness cannot be said to amount to
arbitrariness’.143 Further, in another frequently quoted passage, the Chamber added
that ‘[a]rbitrariness is not so much something opposed to a rule of law, as something
opposed to the rule of law … It is a wilful disregard of due process of law, an act which
shocks, or at least surprises, a sense of juridical propriety’.144 Illustrating the proposi-
tion, while the relevant act of an Italian official (the requisition of a factory) was found
to have been unlawful under Italian law in the case, the Chamber held that it did not
violate a treaty-based prohibition on arbitrary measures.
In dissent in ELSI, Judge Schwebel would have held the act to be arbitrary for
a range of procedural and substantive reasons—including the act’s domestic ille-
gality, but also including the apparently improper purpose lying behind the req-
uisition and the fact that the requisition was anyway incapable of achieving this
purpose.145 Judge Schwebel did comment that the official’s ‘failure to abide by his
own decree suggest[s]‌capriciousness’ and arbitrariness.146 However, the dissenter
also accepted the majority’s definition of arbitrariness,147 and his differences with
the majority appeared to lie solely in the appreciation of the facts, rather than a
point of principle.148
139 The concept of transparency, another element of FET, has also been used in this sense, ‘some-
times criticizing conduct for being in apparent breach of domestic law’: ibid 248.
140 Tudor (n 2) 179. 141 Montt (n 19) 310 (emphasis original).
142 Paparinskis (n 2) 225–6 (even if ‘minor breaches did not render interference wrongful’); cf ibid
241–2, which appears to suggest that arbitrariness and failure to comply with formal and procedural
safeguards (perhaps via breach of domestic law) would not in itself violate FET but would permit a
tribunal to scrutinize the substantive reasonableness of the measures more closely. Similarly, Paparinskis
elsewhere states that breach of domestic law would ‘probably’ not lead to breach of FET: ibid 248.
143 Elettronica Sicula SpA (ELSI) (US v Italy) [1989] ICJ Rep 15 [124]. See also Ahmadou Sadio
Diallo (Guinea v DRC) (Judgment) [2010] ICJ Rep 639 [81].
144 ELSI (n 143) [128].
145 Elettronica Sicula SpA (ELSI) (US v Italy) [1989] ICJ Rep 15, Dissenting Opinion of Judge
Schwebel 114–15.
146 ibid 114. 147 ibid 96. 148 ibid 115.
â•‡ 33
Just as for FET in general, then, long-â•‰standing authority would suggest that a
breach of domestic law does not automatically translate to arbitrariness without
‘something more’. Even Montt, while supporting reference to domestic legality in
assessing arbitrariness (as previously noted), does not treat it as determinative but
merely as exerting a strong pull towards or away from arbitrariness.149 The follow-
ing sections test whether this position is borne out by investment tribunals.
2.4.1â•‡Domestic legality asÂ€irrelevant

Two cases on arbitrariness, Sempra v Argentina and Enron v Argentina, hew closely
to the result in ELSI, finding that the respondent had not acted arbitrarily despite
breaching domestic law, and thus indicating the irrelevance of domestic legality in
the analysis. Like most of the cases against Argentina, Sempra and Enron (heard by
the same presiding arbitrator almost as companion cases) both related to claims
arising out of the measures taken to address the country’s 2001 economic crisis.
After finding FET breaches in both cases on grounds of the evisceration of the legal
certainty and stability that the investors had expected,150 the tribunals turned to
assess claims of arbitrariness. The parties exchanged arguments on domestic legal-
ity. The two claimants alleged arbitrariness in part because the impugned measures
‘were in violation of the law’.151 Argentina, in each case, countered that its measures
were ‘consistent with the law’ and demonstrated ‘no intention to breach the rule
of law’.152
However, the tribunals in both cases declined to enter into the parties’ debates
over the domestic legality of the measures. They recalled their earlier conclusions
in each case that the measures ‘were inconsistent with domestic and the Treaty legal
frameworks’—â•‰that is, that the measures were unlawful under both domestic and
international law.153 But, rather than concluding from this alone that Argentina
had acted arbitrarily, the tribunals took a more substantive view of arbitrariness.
In the tribunals’ view, the measures adopted were by no means desirable, but were
the best response available to the government in the context of the unfolding crisis.
Indeed, the measures were ‘not entirely surprising’, and thus lacked an ‘important
measure of impropriety’ that would be required for arbitrariness to be found.154
The Sempra and Enron tribunals thus refrained from relying on domestic illegality
as an indicator of arbitrariness.
149â•‡ In his view, domestic legality is ‘sometimes, but not always, a necessary factor in the applica-
tion of the FET clause’: Montt (n 19) 154. See also S Montt, ‘The Award in Thunderbird v Mexico’
in G Aguilar-â•‰Alvarez and WM Reisman (eds), The Reasons Requirement in International Investment
Arbitration: Critical Case Studies (Brill 2008) 261.
150â•‡ Sempra Energy International v Argentina (ICSID Case No ARB/â•‰02/â•‰16), Award, 28 September
2007 [303]; Enron Corporation Ponderosa Assets LP v Argentina (ICSID Case No ARB/â•‰01/â•‰3), Award,
22 May 2007 [266].
151â•‡ Sempra (n 150) [315]; Enron (n 150) [278] (emphasis added).
152â•‡ Sempra (n 150) [316]; Enron (n 150) [279].
153â•‡ Sempra (n 150) [318]; Enron (n 150) [281].
154â•‡ibid.
34

Other cases, particularly under NAFTA, have somewhat similarly suggested
that, if arbitrariness is to be relevant, a high threshold is needed. Glamis Gold v
USA, for instance, considered that ‘a finding of arbitrariness requires a determina-
tion of some act far beyond the measure’s mere illegality’.155
2.4.2 Domestic legality as contributory factor

Meanwhile, other cases on arbitrariness demonstrate that domestic legality has
been used as at least a contributory factor in deciding a breach.
In AES v Hungary, the respondent had argued that it was required by EU law
to implement the electricity market measures that were being challenged by AES.
Treating EU law as equivalent to domestic law in this context,156 the tribunal con-
sidered that compliance with EU law could assist in determining the arbitrariness
(and the ‘rationality’, ‘reasonableness’, and ‘transparency’) of Hungary’s meas-
ures.157 The tribunal ultimately found that the introduction of the measures was
not (or at least not primarily) motivated by a concern to comply with EU law,
meaning that the relevance of domestic legality was not considered further in the
case.158
More concretely, in a brief analysis in EDF v Romania, the tribunal approved of a
definition of arbitrary measures set out by Schreuer in an expert opinion. The defi-
nition covers measures having no legitimate purpose, taken with ulterior motives,
or in wilful disregard of due process. The definition also covers measures ‘not based
on legal standards but on discretion, prejudice or personal preference’.159 In apply-
ing this definition to the facts, the tribunal held that Romania’s challenged meas-
ures were ‘justified either by the terms of the contract binding the Parties or by the
exercise of the State’s police power in the public interest’.160 Furthermore, none
of the measures were found to be based on discretion, prejudice, or preference,
implying that they were indeed ‘based on legal standards’.161 Here, then, Romania’s
compliance with domestic law (including a contract) contributed to a finding of
no arbitrariness.
The tribunal in Genin v Estonia cited a number of reasons to justify its finding
that Estonia did not breach the arbitrary measures provision in revoking the claim-
ant’s banking licence. These reasons largely related to the fact that the tribunal
viewed the state’s decision as substantively justified. The ‘circumstances of political
and economic transition prevailing in Estonia at the time’ were found to justify
‘heightened scrutiny of the banking sector’, which gave the revocation decision
a ‘clear and legitimate public purpose’.162 Furthermore, the ‘serious and entirely
reasonable misgivings’ about the investor’s management and operations added to
155 Glamis (n 28) [626]. See also Cargill (n 18) [293], requiring an act that ‘grossly subverts a
domestic law … for an ulterior motive’ to constitute arbitrariness.
156 AES Summit Generation Ltd v Hungary (ICSID Case No ARB/07/22), Award, 23 September
2010 [7.6.6]–[7.6.12].
157 ibid [7.6.9]. 158 ibid [10.3.18]. 159 EDF (n 59) [303].
160 ibid [305]. 161 ibid.
162 Genin (n 137) [370].
35
the state regulatory authorities’ reasons for taking action against the investor.163
However, the tribunal also held that ‘the Bank of Estonia acted within its statutory
discretion’, suggesting that the conduct was domestically lawful. This strengthened
the tribunal’s finding that the licence revocation was not arbitrary.164
Noble Ventures v Romania revolved partly around a decision by entities of the
respondent state to institute bankruptcy proceedings against Noble’s local subsidi-
ary. Noble alleged that the decision had been taken not for any sound economic or
commercial reasons, but rather in order to destroy the foreign investor’s control over
its investment in Romania, a steel mill, and then to take the mill into state owner-
ship.165 Romania, on the other hand, argued that the proceedings were the only
way to rescue the mill from insolvency. Although the claimant had not specifically
suggested otherwise, Romania emphasized that the bankruptcy had been carried
out according to domestic law.166 The tribunal dismissed the investor’s claims of
arbitrariness, finding the bankruptcy decision substantively justified given the grave
economic situation.167 The tribunal then added that the bankruptcy was ‘initiated
and conducted according to the law and not against it’, and that ‘[a]‌rbitrariness
[wa]s therefore excluded’.168 Noble thus again demonstrates a contributory link: the
domestic legality of the bankruptcy proceedings added to the weight of the tribu-
nal’s reasons for ruling out a breach of the arbitrary measures clause.
In Lauder v Czech Republic, one of the investor’s claims related to the decision
of the Czech media regulator to prevent a direct investment by the foreign inves-
tor in a local company holding a broadcasting licence. Despite having initially
accepted the principle of direct investment—and despite the Czech Media Law,
which appeared to expressly envisage direct shareholdings in licensed broadcasting
companies by foreign entities169—the media regulator later imposed a requirement
that the claimant form a local corporation, which would in turn own shares in the
licensed company. The claimant alleged that this decision breached the arbitrary
measures clause in the BIT. Lauder argued that a violation of domestic law was not
necessary to breach the arbitrary measures clause; rather, the clause simply cov-
ered regulatory actions without a good-faith purpose.170 In response, the Czech
Republic notably argued that domestic illegality was necessary, but not necessarily
sufficient, to breach the clause.171 The Czech Republic denied any domestic illegal-
ity in its actions. Nevertheless, the tribunal found a breach of the arbitrary measures
standard because the media regulator’s decision was ‘not founded on reason or fact,
nor on the law’, but on fear reflecting a preference for nationally owned broadcast-
ers.172 Conversely to EDF, Genin, and Noble, this breach of domestic law then
formed a part of the Lauder tribunal’s finding of arbitrariness.
A second claim of arbitrariness raised by Lauder related to a decision by the
media regulator to commence administrative proceedings against the investor’s
local subsidiary for suspected breach of its licence conditions. While the investor
163 ibid [361]. 164 ibid [363]. 165 Noble Ventures (n 137) [170].

166 ibid [10], [173]. 167 ibid [177]. 168 ibid [178].
169 Ronald Lauder v Czech Republic (UNCITRAL), Final Award, 3 September 2001 [48].
170 ibid [214]. 171 ibid [215]. 172 ibid [232] (emphasis added).
36

saw this decision as part of an attempt to oust it from the national media indus-
try, the Czech Republic argued that it was simply aiming to enforce its licens-
ing laws and ensure that the claimant was in compliance, given its reasonable
suspicions of breach. On this second claim, the tribunal sided with the state. It
noted that the commencement of the administrative proceedings was a ‘normal
exercise of the regulatory duties’ of the media authorities. Therefore, the tri-
bunal said, the decision was not arbitrary.173 The finding of a ‘normal exercise
of regulatory duties’ perhaps suggests that the tribunal viewed the regulator’s
actions as complying with domestic law, and that it was this compliance that
led to its finding of no arbitrariness. In addition, the tribunal noted that the
investor never suggested at the time that the administrative proceedings might
have violated domestic law.174 This afterthought from the tribunal might indi-
cate that, if the proceedings did violate domestic law, the tribunal might have
decided differently—strengthening the link between domestic illegality and
arbitrariness.
2.4.3 Domestic legality as a proxy for (non-)arbitrary measures

In a third category of case, tribunals have appeared—at least at first glance—to
propose an even stronger link between domestic legality and arbitrariness, beyond
simply contribution to a finding.
Duke Energy Electroquil v Ecuador saw the US investor claim that Ecuador’s ‘bla-
tant disregard for domestic … law’ and acts ‘outside the scope of any discretion’
(and thus, presumably, also in violation of domestic law) constituted conduct in
violation of the BIT’s arbitrary measures clause.175 These claims related to two sets
of actions.176 The first set encompassed allegations of violation of contractual com-
mitments between Ecuadorean state entities and Duke subsidiaries. The second set
revolved around the conduct of the Ecuadorean Attorney-General and the Ministry
of Energy and Mines, which had challenged the jurisdiction of a domestic arbitral
tribunal constituted earlier in the matter.177
Although the tribunal agreed that the state had breached certain contractual obli-
gations, it rejected the suggestion that basic breaches of contract could constitute
arbitrary behaviour. In its view, a disagreement going beyond a ‘normal contractual
dispute’ would be required for the arbitrary measures clause to be activated.178
On this point, then, the tribunal disclaimed the relevance of domestic law for the
arbitrary measures clause. However, on the second set of actions, the tribunal was
clearer, if brief. The conduct of the Attorney-General and Ministry ‘complied with
local law’—namely, the domestic arbitration law—and ‘can thus not be regarded as
173 ibid [255].
174 ibid [259].
175 Duke Energy Electroquil Partners v Ecuador (ICSID Case No ARB/04/19), Award, 18 August
2008 [370].
176 ibid [311]. 177 ibid [51]–[55]. 178 ibid [381].
37
arbitrary’.179 This finding is somewhat surprising given that, only four paragraphs
earlier, the tribunal had explicitly adopted the ELSI definition of arbitrariness,
which would seem to moderate the relevance of domestic legality.180 Nevertheless,
without further indication of its reasoning, the tribunal here appeared to tie the lack
of BIT breach clearly to the state’s compliance with domestic law.
Lemire v Ukraine provides several examples of connections between domestic
legality and arbitrariness, with varying nuances applying to each example. The US
claimant complained about the tender processes used by Ukrainian broadcasting
authorities to award a range of radio frequencies to bidding companies.
One tender, the tribunal found, had been tainted by the interference of the
Ukrainian President, who had effectively ordered the regulators to grant the tender
to a competitor of the claimant. The tribunal first held that this conduct violated
Ukrainian media laws. Because of this, the conduct in turn violated requirements
of ‘consistency, transparency, even-handedness and non-discrimination’ which the
tribunal considered to underpin the arbitrary measures clause in the US–Ukraine
BIT.181 Political interference in the decisions of a supposedly independent regula-
tor would seem to violate an arbitrary measures clause (and indeed FET) by itself.
There appeared to be little need for the tribunal in Lemire to connect the Ukrainian
President’s conduct to a violation of domestic law in order to find a BIT breach;
the tribunal could surely have found a breach even if no domestic law prohibited
the conduct. Nevertheless, the tribunal detailed the applicable law and standards of
decision-making governing the broadcasting regulator,182 and, in making its find-
ing of breach, explicitly noted that the conduct violated Ukrainian legislation.183
In its analysis of a second tender, the tribunal appeared to impose a higher
threshold for the relevance of domestic law. This tender hinged on a requirement
in domestic law to award radio frequencies to the tenderer best able to fulfil the
applicable criteria. The investor was unsuccessful in its bid, while a much less well-
equipped competitor won the tender. The tribunal began by commenting that ‘not
every violation of domestic law necessarily translates into an arbitrary or discrimi-
natory measure under international law and a violation of the FET standard’.184
However, in its view, a ‘blatant disregard of applicable tender rules, distorting fair
competition among tender participants, does [translate into an arbitrary meas-
ure]’.185 Such a ‘blatant disregard’ was found in the circumstances, giving rise to
a treaty violation. With this holding, the arbitrators demanded that the violation
of domestic law be ‘blatant’ before it will violate the treaty standard. However,
presumably the President’s interference in the first tender also constituted a blatant
violation of domestic law; ultimately, then, the standard set out here may be no
more stringent than that set out in the first tender analysis.
Unlike the first and second tenders, a third tender saw domestic law used by
the tribunal as a shield, to prevent a treaty breach given no domestic breach. Here,
179 ibid [382]. 180 ibid [378]. 181 Lemire (n 135) [356].

182 ibid [342]–[343]. 183 ibid [356]. 184 ibid [385].
185 ibid (emphasis added).
38

the investor complained that it was not awarded the tender despite being the only
competitor, and despite no reasons being given for its rejection. For the tribunal,
domestic law was highly relevant: ‘[t]‌he starting point of the Tribunal’s analysis
must be whether the … decision violated Ukrainian Law.’186 It was found that,
in fact, the media regulator was under no domestic obligation to award a tender
even to a sole competitor. The regulator was also not required to give any reasons
for its decision. In light of the lack of any breach of domestic law, and absent any
‘additional element of lack of probity’, the tribunal found no arbitrariness in the
third tender.187
A final salient element of Lemire is the investor’s claim that broadcasting licences
continued to be issued by political bodies during a period in which the regulator
was not operating (due to a failure to appoint its staff).188 The tribunal concluded
that licences had been issued during this period in violation of domestic law. This
practice ‘facilitates the secret awarding of licences, without transparency, with total
disregard of the process of law and without any possibility of judicial review’.189
Once again, the violation of domestic law appeared to lead quite directly to a find-
ing of breach of the arbitrary measures clause. As with the second tender, the ‘total
disregard of the process of law’ may be equivalent to a ‘blatant violation of domestic
law’, meaning that the tribunal’s findings can be reconciled into the suggestion that
a high threshold is required before the violation will become relevant to an analysis
of treaty breach.
In Azurix v Argentina, the tribunal adopted the ELSI definition of arbitrariness,
noting that it ‘emphasises the element of willful disregard of the law’.190 With this
in place, the tribunal moved quickly on to find that the actions of the Argentine
provincial authorities were arbitrary, because they were ‘without base’ in the legisla-
tion governing Azurix’s water services operations or the relevant concession agree-
ment between Azurix and the provincial government.191 Whether the tribunal was
concluding that the impugned actions actively breached the domestic law (as the
reference to ‘willful disregard of the law’ in its definition of arbitrariness probably
suggests), or whether the actions were merely not specifically permitted (i.e. ‘with-
out base’) under domestic law, the tribunal clearly appeared to tie its finding of
arbitrariness directly to an appraisal of the actions’ domestic legality.
Finally, the recent Clayton/Bilcon case could also be analysed in this section, as
a suggestion that breach of domestic law creates arbitrariness, which suffices to
breach FET.192 Indeed, in the dissenter’s view, the majority’s central holding was
that ‘any departure from Canadian law is arbitrary and thus … meets the threshold
of arbitrariness under the Waste Management standard’, breaching NAFTA Article
1105.193
On their face, Duke, Lemire, Azurix, and Clayton/Bilcon might thus suggest that
domestic unlawfulness is, at least sometimes, sufficient for arbitrariness and BIT

190 Azurix Corp v Argentina (ICSID Case No ARB/01/12), Award, 14 July 2006 [392] (sic).
191 ibid [393]. 192 Clayton, Award (n 89) [591].
193 Clayton, Dissenting Opinion (n 100) [37].
39
breach. However, it is possible to read the cases more consistently with ELSI and
the general position on arbitrariness. In Duke, for instance, the tribunal may have
regarded the Attorney-General and Ministry’s conduct as falling within the ordi-
nary exercise of their powers, in defence of state interests. Although there is very
little indication of this in the award,194 the real reason for the lack of arbitrariness
might have been the substantive acceptability of the authorities’ actions, rather
than the domestic law compliance. Similarly, it is possible that the Azurix tribunal
viewed the Argentinian authorities’ actions as substantively unjustifiable, given the
language that it used to describe those actions.195 Alternatively, on the facts, the
tribunal may have seen not only a breach of domestic law but also a wilful disregard
of the law, meeting the ELSI test, even if this conclusion was not spelled out. In
Lemire, meanwhile, the tribunal’s reference to a ‘blatant’ disregard of domestic law
might have provided the additional element beyond a simple breach of domestic
law, coming closer to ELSI. The fact that there was no such ‘additional element
of lack of probity’ in relation to the third tender might indicate that it would be
needed to find a breach, and that domestic illegality itself would not be sufficient.
Finally, the ‘secret awarding of licences’ which denied judicial review possibilities
might suggest more substantive condemnation of the Ukrainian authorities’ pro-
cesses beyond merely breaching domestic law. In addition, the requirement for
a ‘total disregard of the process of law’ might again set the bar higher than mere
domestic illegality. As for Clayton/Bilcon, as suggested earlier, the majority high-
lighted other factors alongside the domestic illegality that pushed them to find a
violation. In the end, these cases may not pose a challenge to the traditional posi-
tion, but instead may be more accurately viewed as (somewhat poorly expressed)
examples of it.
2.5 Conclusion
This chapter has examined the role of domestic law in an investment tribunal’s
analysis of the FET guarantee. There are strong reasons to expect that consideration
of compliance with domestic law would not form part of a tribunal’s FET analy-
sis. Indeed, cases such as Cargill, Sempra, and Enron196 have explicitly denied the
relevance of domestic law at all in FET or arbitrariness analyses. Moreover, many
cases involving claims of FET breach have not even addressed the question of the
host state’s compliance with domestic law, thus implying that domestic legality is
not relevant.197 However, the chapter demonstrates that tribunals in fact do often
examine the domestic legality of the respondent state’s conduct. Certainly, domestic
194 See Duke (n 175) [303] for the strongest indication, the tribunal finding that there was no
domestic law preventing the state from objecting to the validity of an arbitration clause to which it
had agreed.
195 Azurix (n 190) [393]. 196 See also the cases mentioned at n 18.
197 See Paparinskis (n 2) 248, who suggests that ‘the general trend … seems to be to evade the issue
of technical breach of domestic law and focus [instead] on broader improprieties’.
40

legality has not become an outcome-determinative feature in FET analyses, despite
some cases appearing to make it so. Nevertheless, it is clear that consideration of
domestic law plays an important contributory role for tribunals attempting to give
content to the often nebulous FET standard. States themselves have similarly paid
attention to domestic legality: rather than (or as well as) pleading that domestic
legality is not a relevant factor for the tribunal to consider, states have in some cases
argued that their conduct was domestically lawful.198
In some cases, domestic legality has formed a contributory factor for assessing an
FET violation directly, without resort to any component elements of the standard.
A notable feature of these cases is that arbitrators have not always explained why
domestic law was referred to in ruling on the FET standard. It may be, as Alvarez
suggests, that domestically lawful state action is ‘implicit in the notion of unfairness
or perhaps in the international minimum standard itself ’.199 But this interpretation
of the FET clause has been left implicit; arbitrators have not quite made clear that
they are reviewing domestic legality because they consider this factor to be part of
the FET standard.
One purpose of this chapter, then, is to highlight the prominence of this factor in
FET analyses, and to consider possible justifications for it. The chapter has shown
that tribunals have been reluctant to justify an examination of domestic legality
by reference to one possibility, the doctrine of legitimate expectations. Even if this
doctrine forms part of the FET standard, tribunals have not treated the generalized
expectation of state legal compliance as sufficiently specific to activate the doctrine.
Instead, a second possibility, the prism of arbitrariness, has been more promising
for tribunals to explain reference to domestic law. Cases demonstrate that domestic
legality can serve as a contributory factor for arbitrariness (and hence FET) deter-
minations, with a high threshold required for illegality to translate to arbitrariness
in the absence of other factors.
198 See, e.g., arguments of the US in Glamis (n 28) [654]; Ukraine in AMTO (n 39) [30]; Turkey
in PSEG (n 71) [237]; Romania in Noble Ventures (n 137) [10], [173]; Czech Republic in Lauder (n
169) [215]; Canada in Clayton/Bilcon (n 89) [215].
199 Alvarez (n 3) 324.
41
3
Domestic Law and Expropriation
3.1 Introduction
Chapter 2 discussed one area of investment arbitration to which domestic law is

relevant, without widespread appreciation of this role. This chapter introduces a
second such area of relevance of domestic law to tribunals’ analyses on another
major substantive protection of a bilateral investment treaty (BIT): the protection
against expropriation.
It is well recognized that domestic law will be relevant to the question of an
investor’s property rights, and to the tribunal’s task in determining the existence of
such rights.1 This question usually constitutes the first of three stages of a tribunal’s
analysis of a claim for expropriation under an investment treaty.2 In particular, an
investor claiming to be expropriated must first prove that it owns the property,
investment, or rights that it claims have been expropriated.
This chapter moves on to examine the role of domestic law in the two subse-
quent stages of an expropriation analysis—namely, whether an expropriation of
the investor’s proven rights has in fact occurred (or instead whether the rights
are merely subject to ordinary regulation), and whether the expropriation is
lawful or unlawful in international law. The chapter argues that domestic legal-
ity is relevant at both stages. In particular, section 3.2 argues that domestically
unlawful conduct cannot rely on the ‘police powers’ doctrine to escape being
characterized as expropriation. Conversely, domestic legality is a necessary (but
perhaps not sufficient) condition for a state to succeed in pleading a ‘police pow-
ers’ defence.
Section 3.3 turns to the question of lawful and unlawful expropriation, the third
stage of an expropriation analysis. It notes that the majority of investment treaties
contain some formulation of a ‘due process’ requirement that must be fulfilled for
an expropriation to be internationally lawful. Section 3.3 reviews different textual
1 See, e.g., Emmis International Holding BV (ICSID Case No ARB/12/2), Award, 16 April 2014
[162]; C McLachlan, L Shore, and M Weiniger, International Investment Arbitration: Substantive
Principles (OUP 2007) 182–4; S Montt, State Liability in Investment Treaty Arbitration: Global
Constitutional and Administrative Law in the BIT Generation (Hart 2012) 243–51; Z Douglas,
‘Nothing If Not Critical for Investment Treaty Arbitration: Occidental, Eureko and Methanex’ (2006)
22 Arb Intl 27, 44.
2 R Dolzer and C Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 99.
42

formulations of the requirement, and discusses the differing interpretations that
the case-law has placed on these. The section argues that, depending partly on the
exact formulation used, this due process requirement often demands compliance
with domestic law. As a result, domestic law should be expected to play a large role
in expropriation analyses when the tribunal comes to decide whether the expropria-
tion was internationally lawful or unlawful.
The due process requirement is, however, only one of several conditions for
the international lawfulness of an expropriation. Because of the predominance of
another such requirement—the payment of compensation—section 3.4 notes that
the practical effect of the due process requirement has been limited. Section 3.5
challenges this, arguing that important ‘public law’ features of the investment treaty
regime are overlooked when domestic legality is ignored. Section 3.5 finally sug-
gests that questions of legality should be analysed by an investment treaty tribunal
before questions of compensation.
3.2 Domestic Law and the ‘Police Powers’ Doctrine
As noted above, an expropriation analysis contains three stages. The first is deter-
mining whether property rights exist that are susceptible to expropriation. The sec-
ond stage of the analysis addresses the question of whether an expropriation has
indeed taken place. This stage is usually the most significant within expropriation
cases. In situations of claimed direct expropriation, it is often relatively clear that
the claimant’s property has been taken by the state. However, most expropriation
claims in the modern era of investment arbitration relate to indirect, or de facto or
regulatory, expropriation.3 In these situations, the issue is whether the state’s meas-
ures or actions have crossed the ill-defined boundary from permissible regulation to
impermissible, compensable expropriation.
In most cases where discussion at the second stage predominates—a sizeable
portion of all expropriation cases—tribunals’ analyses have centred on elucidating
the international law requirements for an indirect expropriation. No attempt will
be made to define these requirements here, since they remain highly contested in
international law.4 However, at a very general level, findings of expropriation have
revolved around the degree of interference with investments. This has included
consideration of factors such as how much control an investor retains over the
investment, or how much value remains in the investment.5
Domestic law enters the analysis at this second stage by virtue of the police pow-
ers doctrine. This doctrine, now well accepted in international law,6 holds that
3 ibid 101.
4 Domestic jurisdictions have similarly confronted and struggled with the same issue of defining the
boundary between regulation and expropriation: McLachlan, Shore, and Weiniger (n 1) 267.
5 ibid 298– 304; UNCTAD, Expropriation (UNCTAD/DIAE/IA/2011/7, July 2012) 57–78;
S López Escarcena, Indirect Expropriation in International Law (Edward Elgar 2014). Alongside the
degree of interference, the purpose or intent of the measure is sometimes considered relevant.
6 UNCTAD, Expropriation (n 5) 85: ‘support for the police powers doctrine appears to be
overwhelming.’
43
Domestic Law and Expropriation 43
the boundary between regulation and expropriation can sometimes be determined

by reference to whether the state’s impugned measure constitutes an exercise of
‘police powers’. For instance, ‘legislation restricting the use of property, including
planning, environment, safety, health and the concomitant restrictions to property
rights’ may qualify as a police power measure, and thus as regulation rather than
expropriation.7 The criteria that a measure must meet to become a police power
measure have been defined in different ways by different cases. However, following
a review of relevant cases, it can be seen that the domestic legality of the measure
is a necessary, if not sufficient, condition for a state to rely on the police powers
doctrine.8
For example, in Saluka v Czech Republic, the tribunal noted that a particular
measure taken by the Czech Republic was legal in domestic law, as well as being
reasonable in itself, reasoned, and displaying no other improprieties.9 The tribunal
therefore concluded that the measure was a valid exercise of the Czech Republic’s
regulatory powers. Because of this, the measure was not found to constitute expro-
priation,10 and so the tribunal’s analysis stopped at the second stage without dis-
cussion of the third stage. Although the tribunal does not set out particularly full
reasoning as to its conclusion that the measure complied with domestic law, it
makes a number of relevant statements. After reviewing ‘the totality of the evi-
dence’, it found itself to be ‘of the view that the [Czech Republic] was justified,
under Czech law’ in adopting the measure.11 The relevant state agency ‘applied the
pertinent Czech legislation to [the] facts … in a manner that the Tribunal consid-
ers reasonable’.12 Furthermore, the tribunal noted that the challenged measure was
upheld on an internal appeal, and then twice by the Prague City Court.13 Saluka
thus indicates that domestic legality can contribute to a finding that no expropria-
tion has occurred.
Similarly, in Chemtura v Canada, the tribunal found that Canada’s measure
banning the use of lindane, a pesticide, was ‘a valid exercise of the Respondent’s
police powers’.14 Specifically, the measure was held to be within the ‘mandate’
of the relevant environmental agency, as well as being implemented in a non-
discriminatory manner and motivated by proper environmental concerns.15
These factors were enough to bring the measure within Canada’s police power,
7 ibid 79.
8 Alongside the cases discussed here, see also Renée Rose Levy de Levi v Peru (ICSID Case No
ARB/10/17), Award, 26 February 2014 [475]–[476]; CME v Czech Republic (UNCITRAL), Partial
Award, 13 September 2001 [603] (expropriation is to be distinguished from ‘ordinary measures’
of state agencies taken ‘in proper execution of the law’). Classical cases on indirect expropriation
also appear to have required compliance with domestic law in order to avoid an expropriation find-
ing: M Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (OUP
2013) 225.
9 Saluka Investments BV v Czech Republic (UNCITRAL), Partial Award, 17 March 2006
[271]–[275].
10 ibid [267] suggests there was a ‘deprivation’, but [265] and [275] are clearer that no expropriation
was found to activate the BIT’s provisions. cf Montt (n 1) 276.
11 Saluka (n 9) [271]. 12 ibid [272]. 13 ibid [274].
14 Chemtura Corporation v Canada (UNCITRAL), Award, 2 August 2010 [266].
15 ibid.
44

and so no expropriation was found. The reference to the ‘mandate’ of the rel-
evant domestic agency represents a connection to domestic legality, since it sug-
gests that the tribunal determined the measure to be within the lawful powers
of that agency. Again, then, the domestic legality contributed to the Chemtura
tribunal’s finding of no expropriation.
For the Methanex v USA tribunal, it was clear that ‘as a matter of general interna-
tional law, a non-discriminatory regulation for a public purpose, which is enacted
in accordance with due process … is not deemed expropriatory’.16 ‘Due process’
was taken at least to mean that a ban on MTBE, a gasoline additive produced by
the claimant, must have been regularly enacted according to the forms prescribed
in domestic (Californian) law. Thus, the tribunal noted that the state governor ‘fol-
lowed the protocol established in California Senate Bill 521; there is no indication
in the record that he varied from it in any way’.17 This compliance with domestic
law in passing the measure permitted the US to rely on the police powers doctrine,
with the result that no expropriation was found.
Furthermore, several cases illustrate the position that a state cannot claim an
exercise of police powers if it has not complied with its own law, and, indeed, that
a tribunal will be more likely to find expropriation if a measure is domestically
illegal.
In Metalclad v Mexico, the tribunal summarized its finding of indirect expropria-
tion as being driven by a combination of three factors, two of which related to the
state’s compliance with domestic law.18 One factor was the ‘absence of a timely,
orderly and substantive basis for the denial by the Municipality [in which the
investment was located] of the local construction permit’,19 while another, related
factor was the Municipality’s ultra vires action in purporting to deny the permit
on grounds that fell outside its authority.20 This factor, and the reference to the
lack of a substantive basis for the permit denial in the first factor, suggest that the
Municipality’s domestic illegalities (attributable to Mexico) themselves contributed
to a finding of expropriation.21
As explained in Chapter 2, domestic law played a role in the tribunal’s finding
in Middle East Cement v Egypt. The dispute there related in part to a ship leased to
16 Methanex Corporation v USA (UNCITRAL), Final Award of the Tribunal on Jurisdiction and
Merits, 3 August 2005 , pt IV ch D [7]‌.
17 ibid, pt IV ch D [12].
18 Metalclad Corporation v Mexico (ICSID Case No ARB(AF)/97/1), Award, 30 August 2000.
The third factor was the representations of the Mexican federal government on which Metalclad had
relied: ibid [107]. It could perhaps be argued that this factor carries an implicit reference to Mexican
administrative law, which might well have made it domestically unlawful for the federal government
to resile from a representation relied on by a private party. However, there is no discussion in the award
of this possibility; instead, the tribunal purports to be applying a doctrine of legitimate expectations in
international law, not domestic law.
19 ibid [107]. 20 ibid [106].
21 The reference in Metalclad to a ‘timely and orderly basis for the denial’, though, less clearly ties
the finding of expropriation to a violation of domestic law. There, the tribunal appears to be criticizing
Mexico for the failure of its domestic law to provide for certain due process standards applicable to
its administrative entities. This finding is of a different nature, relating to the content of domestic law
rather than the state’s compliance with existing domestic law.
45
the claimant and, in the claimant’s view, unlawfully expropriated by Egypt when
it was seized and auctioned without adequate notice. The tribunal nodded to the
police powers doctrine by noting that, ‘normally, a seizure and auction ordered by
the national courts do not qualify as a taking’.22 However, it then held that a taking
would be found where the impugned measure did not meet the BIT’s requirement
of being taken under due process of law, which in this case meant compliance
with the relevant domestic law.23 The tribunal found that this law had not been
complied with, and therefore found an expropriation.24 The case thus shows the
connections between domestic law and a finding of expropriation: if Egypt had
followed its domestic statute, the tribunal may have relied on its view that judicially
ordered seizure and auction of property do not normally qualify as expropriation
at all.
More recently, the tribunal in Quiborax v Bolivia explicitly noted that the
state’s ability to rely on a police powers defence would depend on whether the
measure in question (there, Bolivia’s termination of a mining concession) com-
plied with domestic law. After reviewing the relevant Bolivian law, the tribunal
concluded that the decree terminating the concession ‘finds no justification in
Bolivian law’25 and also failed to meet domestic law due process guarantees.26 ‘As
a result’, the tribunal said, the measure was ‘not a legitimate exercise of Bolivia’s
police powers’.27
The police powers doctrine does have its critics. In particular, some tribunals and
commentators have expressed concern about the criteria suggested in Methanex,
earlier in this section—due process, non-discrimination and public purpose—for
identifying an exercise of police powers.28 Since these are the same criteria that
distinguish a lawful from an unlawful expropriation (as discussed further in section
3.3), the possibility of a lawful expropriation is removed; either a measure is an
exercise of police powers, if it satisfies the criteria, or it is an unlawful expropriation,
if it fails to satisfy the criteria.29
However, resolution of the proper place of the police powers doctrine is beyond
the scope of this chapter. Instead, the objective here is only to argue that domestic
12 April 2002 [139].
23 ibid. 24 ibid [143].
25 Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Award, 16 September 2015 [214].
26 ibid [226]. 27 ibid [227].
28 Mostafa observes that this definition captures a wide range of state conduct, which potentially
opens up a wide loophole in expropriation analyses by allowing most state regulation to be classified
as an exercise of ‘police powers’: B Mostafa, ‘The Sole Effects Doctrine, Police Powers and Indirect
Expropriation under International Law’ (2008) 15 Aust ILJ 267, 274. See also Pope & Talbot Inc v
Canada (UNCITRAL), Interim Award, 26 June 2000 [99].
29 A Hoffmann, ‘Indirect Expropriation’ in A Reinisch (ed.), Standards of Investment Protection
(OUP 2008) 166; Marvin Feldman v Mexico (ICSID Case No ARB(AF)/99/1), Award, 16 December
2002 [98]. See also discussions of the circularity of this interpretation in Azurix Corp v Argentina
(ICSID Case No ARB/01/12), Award, 14 July 2006 [311]; Fireman’s Fund Insurance Company v
Mexico (ICSID Case No ARB(AF)/02/01), Award, 17 July 2006 [174]; Parkerings-Compagniet AS v
Lithuania (ICSID Case No ARB/05/8), Award, 11 September 2007 [441], [456]; Nations Energy Inc
v Panama (ICSID Case No ARB/06/19), Award, 24 November 2010 [680].
46

legality affects a state’s ability to rely on the doctrine as a defence. Based on the main
police powers cases just reviewed, this indicates an important role for domestic law
in an expropriation analysis.
3.3 Domestic Law and the International Lawfulness

of Expropriation
The police powers doctrine, raised at the second stage of an expropriation analysis,
is not the only point at which domestic law is relevant to the claim. This section
argues that domestic law also plays a crucial role at the third stage.30 This last stage
of an expropriation analysis relates to the conditions for international lawfulness
that are imposed on expropriatory measures by most investment treaties.
Reflecting customary international law,31 investment treaties typically do not
prohibit expropriation outright. Rather, they accept the right of states to expropri-
ate foreign-owned private property, but they subject the right to four conditions.32
The first is that the measure be taken for a public purpose, while the second is that
the measure not be discriminatory (usually on grounds of nationality). The third
requirement is often given the short-hand label that the measure must meet due
process standards, although (as will shortly be discussed) its formulation in various
international instruments differs in important ways. The fourth requirement is that
compensation must be paid to the expropriated party.33 The conditions must be
met cumulatively, meaning that the violation of any one condition in relation to
an alleged expropriatory measure will lead to a breach of the treaty, and a finding of
unlawful expropriation.34
This section argues that a state’s compliance with the third requirement, due
process, entails compliance with domestic law. In other words, if an expropriation
is to be found lawful in international law, the tribunal in most cases must find
that the state complied with its domestic law in taking the alleged expropriatory
30 Domestic law may well have general relevance in several ways to the third stage of expropriation
analyses. For instance, it may be necessary to look into the domestic measures that are said to consti-
tute the expropriation in order to determine whether a public purpose lies behind them. Similarly,
whether the alleged expropriatory measure is discriminatory may well depend on its effect as char-
acterized by the relevant domestic law. However, the focus here is on situations in which a tribunal
must determine a state’s compliance with domestic law. This is where the due process condition has
most relevance.
31 Reinisch, ‘Legality of Expropriations’ in Reinisch (n 29) 173–6.
32 ibid 176. Not all of the four conditions appear in every BIT; as noted in section 3.3.1, the due
process condition is sometimes omitted.
33 This fourth requirement was heavily contested in customary international law during the twen-
tieth century, in relation to both its existence and its formulation: see ibid 174–5. However, the new
era of investment treaties has essentially settled these debates for states parties to such treaties, by uni-
versally imposing the requirement.
34 The predominance of the compensation condition in this cumulative assessment is discussed in
section 3.4.
47
measure. Although several interpretations of the due process requirement might be

taken depending on the differing formulations used across investment treaties, it is
argued here that most of these formulations will require the tribunal to assess the
state’s compliance with domestic law. In this manner, subject to the discussion in
sections 3.4 and 3.5, domestic law will often play a crucial and unavoidable role in
expropriation analyses.
3.3.1 Formulations of the ‘due process’ requirement in IIAs

The due process condition is formulated in a variety of ways in different investment
treaties. In some treaties, such as the 2005 UK Model BIT and the 2000 UK–Sierra
Leone BIT, it does not appear at all: expropriation is simply prohibited ‘except for a
public purpose … on a non-discriminatory basis and against prompt, adequate and
effective compensation’.35 However, the condition is certainly popular, appearing
in the large majority of investment treaty provisions on expropriation.36
Three broad sets of wording of the condition can be observed.37 The first
set makes some reference to domestic law or domestic legal procedures, some-
times accompanied by mention of ‘due process of law’ itself. For instance, the
US–Morocco BIT states that expropriatory measures ‘shall only be taken under
legal procedures which afford due process of law’.38 The reference to ‘legal pro-
cedures’ must represent a reference to domestic laws in the expropriating state.
Similarly, the Italy–Egypt BIT, at issue in the Siag v Egypt case discussed in
section 3.3.2, requires states to expropriate ‘according to legal procedures’.39
Again, the Belgium–Burundi BIT at issue in Goetz v Burundi, also discussed
in section 3.3.2, calls for expropriations ‘according to a legal procedure’.40 In
the Singapore–Mongolia BIT, expropriations must be conducted ‘in accordance
with [the expropriating state’s] laws’,41 while in the Russia–Thailand BIT, takings
must be ‘in accordance with the procedure established by the laws of the [expro-
priating] Contracting Party’.42 The China–Poland BIT, meanwhile, calls for ‘due
process of national law’ in conducting expropriations.43
The second set of treaties, representing the majority of international invest-
ment agreements (IIAs),44 uses only the phrase ‘due process of law’. For instance,
the Energy Charter Treaty and the Australia–Egypt BIT require expropriations to
35 Article 5(1) of both instruments. 36 UNCTAD, Expropriation (n 5) 37.

37 This categorization of formulations of the due process condition does not come from any com-
prehensive study of the text of all several thousand BITs, which would be a formidable task beyond the
scope of this book. Instead, it represents a collection of formulations collated from the literature cited
in this section relating to the due process requirement.
38 Article III(1). The text of this Article is different in the two versions of this treaty that are
publicly available: one at the US State Department’s website <www.state.gov/e/eb/ifd/43304.htm>,
and the other in UNCTAD’s database at <investmentpolicyhub.unctad.org/Download/TreatyFile/
2052>.
39 Article 5(1)(ii). 40 Article 4(1)(a). 41 Article 6(1).
42 Article 4(1). 43 Article 4(1). 44 UNCTAD, Expropriation (n 5) 37.
48

be carried out ‘under due process of law’.45 The 2016 Trans-Pacific Partnership
and the 2009 ASEAN Comprehensive Investment Agreement similarly permit
expropriations ‘in accordance with due process of law’.46 The draft Multilateral
Agreement on Investment, shelved in 1998, would also have imposed the condi-
tion that expropriations be conducted ‘in accordance with due process of law’.47
A slightly different approach is taken by US-model treaties, including the North
American Free Trade Agreement (NAFTA), which bans expropriations not carried
out ‘in accordance with due process of law and Article 1105(1) [that is, in accord-
ance with international law, including fair and equitable treatment and full protec-
tion and security]’.48 Similarly, the US–Bolivia BIT requires expropriations to be
done ‘in accordance with due process of law and [the fair and equitable treatment
standard]’.49
A third set of treaties takes a different approach.50 Alongside or sometimes instead
of an explicit due process requirement, they elaborate a requirement that states must
provide for local review of any expropriation. Thus, the 2004 Germany Model BIT
provides: ‘The legality of any such expropriation … and the amount of compensa-
tion shall be subject to review by due process of law.’51 Without mentioning due
process, the Angola–UK BIT provides that the ‘national or company affected shall
have a right, under the law of the Contracting Party making the expropriation, to
prompt review, by a judicial or other independent authority of that Party, of his or
its case’.52 The Canada–Trinidad and Tobago BIT includes nearly identical word-
ing.53 In some Austrian BITs, such as the 2001 Austria–Georgia treaty, ‘due process
of law’ is provided for, but the treaty goes further to (inclusively) define the term to
cover judicial review. Thus, ‘[d]‌ue process of law includes the right of an investor …
which claims to be affected by expropriation … to prompt review of its case … by
a judicial authority or another competent and independent authority’.54 As noted,
the China–Poland treaty calls for ‘due process of national law’, but it also somewhat
weakly provides: ‘If an investor considers the expropriation … incompatible with
[host state] laws … the competent court … may, upon the request of the investor,
review the said expropriation.’55
What effect do these different phrasings of the due process condition have on its
ultimate meaning? In particular, what do they entail in relation to the state’s com-
pliance with domestic law?
3.3.2 First set—a textual link to domestic law

The connection to domestic legality is clear under the first set of treaties. To recall,
these BITs provide that expropriations must be conducted ‘in accordance with the
45 Article 13(1) and Article 7(1)(a) respectively.

46 Article 9.7(1)(d) and Article 14(1)(d) respectively.
47 OECD, The Multilateral Agreement on Investment: Draft Consolidated Text (DAFFE/MAI(98)7/
REV1, 22 April 1998) 56, <www1.oecd.org/daf/mai/pdf/ng/ng987r1e.pdf>.
48 Article 1110(1). 49 Article III(1). 50 Reinisch (n 31) 191.
51 Article 4(2). 52 Article 5. 53 Article 8(2). 54 Article 5(3).
55 Article 4(3) (emphasis added).
49
host state’s laws’, ‘according to legal procedures’, or under ‘due process of national
law’. This represents an explicit direction to a tribunal that it must verify compli-
ance with domestic law in order to confirm the international legality of the expro-
priation. Several cases arising under BITs, including Quiborax v Bolivia, Tenaris v
Venezuela, Siag v Egypt, and Goetz v Burundi, have demonstrated this connection
to domestic law.
As discussed in section 3.2, the Quiborax tribunal refused to permit Bolivia to
rely on a police powers defence in light of the state’s violations of domestic law.
The tribunal drew on the same violations in its expropriation analysis, swiftly
determining that the expropriation was unlawful because it had not been carried
out ‘in accordance with the law’, as the Chile–Bolivia BIT required.56 Similar
findings were made in Tenaris v Venezuela, where the tribunal held that the state
had failed to comply with its own legislation on nationalization when carry-
ing out the expropriation in question. This failure was sufficient to breach the
‘explicit renvoi to Venezuelan domestic law’ in the two BITs underpinning the
claimants’ case.57
In Siag v Egypt, both parties had accepted the fact of a direct expropriation, and
discussion in the award focused on the international legality conditions attached to
expropriations by the relevant BIT. This treaty imposed a condition that any expro-
priation must be done ‘according to legal procedures’.58 The tribunal connected
this requirement to the domestic legality of Egypt’s measures. At the outset, the
tribunal noted that the state’s decree effecting the expropriation was ‘in a techni-
cal sense’ a legal procedure as required by the BIT. However, this decree was later
annulled by domestic courts. The tribunal noted that, at that point, the investor’s
property should have been returned. No restitution had occurred, and so the tri-
bunal found that no legal procedure ultimately governed the expropriation.59 The
arbitrators acknowledged that a later resolution again purported to authorize the
taking, and that this resolution had not been annulled by domestic courts. But this
resolution had been issued in entirely the same terms as previous ones which, like
the decree, had earlier been annulled in domestic proceedings. For the tribunal, it
was not possible to recognize these domestically illegal resolutions and decrees as
‘legal procedures’.60 Thus, the ‘due process’ condition—here expressed under the
first formulation identified previously—was not satisfied, and the expropriation
was found unlawful.
In Goetz v Burundi, the tribunal also assessed the due process condition via the
respondent state’s compliance with its own laws. The case related to the revocation
of the investor’s certificate of operation, which obliged it to cease business. The tri-
bunal quickly found that the revocation constituted a measure equivalent to expro-
priation, and thus prima facie prohibited by the Belgium/Luxembourg–Burundi
56 Quiborax (n 25) [245].

57 Tenaris SA and Talta—Trading e Marketing Sociedade Unipessoal LDA v Venezuela (ICSID Case
No ARB/11/26), Award, 29 January 2016 [493]–[495].
58 Article 5(1) of the Italy–Egypt BIT.
60 ibid [437].
50

BIT. The tribunal then moved to consider the conditions of international legality
imposed by the BIT, including the requirement to conduct expropriations ‘accord-
ing to a legal procedure’. It found that Burundi’s compliance with this had been
‘established above’.61 Although the award does not indicate where ‘above’ the exist-
ence of a legal procedure had been established, it is likely a reference to the tribu-
nal’s analysis, earlier in the award, of the state’s alleged breach of Burundian law.62
As part of this earlier analysis, the tribunal had determined that a government
decree existed which purported to authorize the revocation of the investor’s certifi-
cate. It had then determined that the decree was not illegal under domestic law.63
It is not clear from the award whether the tribunal relied solely on the fact that the
government decree existed, which in itself might constitute a legal procedure, or
whether the finding that the decree was not illegal was also important in its conclu-
sion that a legal procedure was present. However, the award itself noted that ‘the
international lawfulness of the measure … depends on its lawfulness with regard to
national law’.64 It therefore seems that the mere presence of a government decree
purporting to authorize the taking was not sufficient for the tribunal; rather, a
decree that was in compliance with domestic law was required.
It is worth observing, however, that the Goetz tribunal’s finding was not that the
decree was lawful, but instead that it was not unlawful. Of course, there is a concep-
tual distinction between these two positions. The investor’s claims under domestic
law largely attempted to demonstrate that Burundi had no legal power to revoke
the operating certificate. In rejecting these claims, the tribunal did not explicitly
determine that Burundi did in fact have the required legal power. This is probably
not surprising, since the analysis was primarily done for the purpose of ruling on
an alleged violation of domestic law, and so the tribunal only needed to find that
no violation had occurred. Nevertheless, in applying this analysis wholesale to its
discussion of the ‘legal procedure’ condition for expropriation under the BIT, the
tribunal appeared to suggest that the absence of legal impediments to a state action
is sufficient for a ‘legal procedure’ to exist.
This does not necessarily go without saying. Indeed, it could be argued that ‘legal
procedure’ requires a positive act on the part of the state, not only a formal measure
of expropriation (such as the decree in fact issued by the Burundian government)
but also a domestic law authorizing the government to take the measure, or even
constitutional authorization for the government’s measure. For the Goetz tribunal
to be content with the absence of legal impediments suggests a view of the state
that sits uneasily with the idea of controlled government at the heart of the rule of
61 Antoine Goetz v Burundi (ICSID Case No ARB/95/3), Award, 10 February 1999 [127].
62 The breach of domestic law was a separate claim made by the investor. Article 8(2) of the BIT
contained a wide jurisdictional clause covering any ‘dispute relating to an investment’, while Article
8(5) provided that tribunals constituted under the BIT were to apply both Burundian law and inter-
national law: see ibid [90] and [94].
63 ibid [119].
64 ibid [127] (‘La licéité internationale de la mesure … dépend là encore de sa licéité au regard du
droit national’).
51
law, and the notion that the state’s authority must be justified.65 If the aim of inter-
national investment law is to regulate the exercise of discretionary power by host
state executives, the reverse view might be more appropriate—thus, governments
cannot act without clear authorization in law to act. As the European Commission
of Human Rights has said, in a similar context of executive interference with indi-
vidual rights, ‘[i]‌t is not sufficient merely that an interference should be lawful in
the sense that it is not unlawful’.66 Rather, specific authorization must be required,
eschewing a ‘residual’ approach to state powers. Regardless of this debate, however,
Goetz demonstrates the connections between domestic legality and the due process
condition.
Sedelmayer v Russia provides a final brief example here. In that case, the
Germany–Russia BIT included text placing it in the first set of treaties analysed
here. The BIT’s Article 4(1) required expropriations to be done ‘in accordance with
procedures established in accordance with the laws of [the host state]’. Although the
tribunal ultimately did not apply this provision, it confirmed that compliance with
it would entail compliance with ‘the relevant [Russian] legislation’.67
Therefore, BITs adopting some formulation of the due process condition that
makes explicit reference to domestic law will call for investment tribunals to verify
the state’s compliance with domestic law. As shown by the cases reviewed, there is a
strong role for domestic law analysis here.
3.3.3 Second set—‘due process of law’

The second set of treaties formulates the due process condition only with a reference
to ‘due process of law’. Does this wording similarly require host state compliance
with domestic law? While commentators are fairly clear on the answer to this, the
cases indicate mixed approaches. The answer may ultimately depend on whether
any relevant domestic law exists. If the host state legal system is inadequate to the
extent that it makes no provision for due process in the event of expropriation, a
tribunal’s task does not involve verifying compliance with domestic law, but rather
finding a treaty violation due to the absence of domestic law. However, where rel-
evant domestic law does exist, it is argued that the state’s compliance with it is
required to fulfil ‘due process of law’.
65 A similar question arises within domestic public law, where authors have expressed concerns
about the compatibility with the rule of law of a position maintaining that the state is permitted to do
anything that is not prohibited. See (in relation to the common law notion of the Crown), e.g., A Lester
and M Weait, ‘The Use of Ministerial Powers without Parliamentary Authority: The Ram Doctrine’
[2003] PL 415; cf A Perry, ‘The Crown’s Administrative Powers’ (2015) 131 LQR 652.
66 Malone v UK App No 8691/79 (ECHR, 17 December 1982) [124]. On appeal, the ECtHR
agreed with the Commission’s conclusions, though without reiterating this ‘residual’ view: see the
Court’s judgment of 2 August 1984. The Commission’s view contrasts, however, with the view of the
English High Court, which heard the case before it reached Strasbourg. There, the Court rejected
the position that ‘nothing is lawful that is not positively authorised by law’: Malone v Metropolitan
Police Commissioner [1979] Ch 344, 366–7.
67 Franz Sedelmayer v Russia (ad hoc), Arbitration Award, 7 July 1998, 73.
52
3.3.3.1 Due process as domestic legality

Several commentators have argued that an inherent aspect of due process is consti-
tuted by legality—that is, compliance by the state with its own laws. In this con-
text, Newcombe and Paradell write that ‘[d]‌ue process requires, first and foremost,
compliance with local law’.68 The commentary to the OECD Draft Convention on
the Protection of Foreign Property notes that the due process condition on expro-
priation calls for ‘[s]afeguards existing in [the expropriating state’s] Constitution or
other laws or established by judicial precedent [to] be fully observed’.69 Similarly,
a 2007 UNCTAD report identifies one major category of investment treaties that
equate the due process condition with ‘the principle of legality, requiring that the
expropriation procedure comply with domestic legislation’.70
As well as this, some cases provide support for the view that ‘due process of
law’ requires domestic legality. Together with the requirement for ‘legal proce-
dures’, the Italy–Egypt BIT at issue in the Siag case, discussed in section 3.3.2, also
required ‘due process of law’ for expropriatory measures. In assessing Egypt’s com-
pliance with this condition, the tribunal offered some comments on the lack of
notice or hearing given to the investor before the seizure of his property occurred,
and it found a procedural violation of the due process condition.71 More important
for present purposes, though, was the tribunal’s interpretation of the condition as
also encompassing a substantive element. The tribunal noted that Egypt attempted
to justify its taking on the grounds that the investor had failed to perform its
investment contract on time, and the contract was consequently terminated. For
the tribunal, first, a delay in contractual performance was not a valid reason for
the expropriation of the investor’s property. Second, Egypt had determined this
failure to meet contractual timelines seven months before the applicable deadline.
In the tribunal’s view, it was not justifiable to determine at that early stage that
the investor had failed to perform. Egypt had thus failed to accord the investor
substantive due process.72
In coming to this conclusion, the tribunal found it ‘important to note that the
Supreme Administrative Court of Egypt held the same view’.73 Indeed, the tribunal
commented that the Supreme Administrative Court had found Egypt’s conduct to
be ‘without any legal basis, in all respects’.74 Following this comment, the tribunal
stated that the claimants ‘accordingly suffered a denial of substantive due process’.75
This indicates that the Siag tribunal treated the state’s violation of domestic law,
confirmed by the local courts, as a violation of the ‘due process of law’ required by
the BIT.
68 A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of Treatment
(Kluwer 2009) 376.
69 Cited in Ioannis Kardassopoulos v Georgia (ICSID Case No ARB/05/18), Award, 3 March
2010 [378].
70 UNCTAD, Bilateral Investment Treaties 1995– 2006: Trends in Investment Rulemaking
(UNCTAD/ITE/IIT/2006/5, February 2007) 47.
71 Siag (n 59) [442]. 72 ibid [441].
73 ibid. 74 ibid. 75 ibid.
53
Domestic law also played a role in the tribunal’s due process finding in Middle
East Cement v Egypt. The Greece–Egypt BIT there required an expropriation to be
conducted ‘under due process of law’. The dispute related in part to a ship leased to
the claimant and, in the claimant’s view, unlawfully expropriated by Egypt when
it was seized and auctioned without adequate notice. The tribunal began by not-
ing that, ‘normally, a seizure and auction ordered by the national courts do not
qualify as a taking’.76 However, it then held that a taking would be found where the
impugned measure did not meet the BIT’s requirement of being taken under due
process of law.77 The tribunal assessed this requirement of due process by reference
to Egypt’s compliance with the relevant domestic law. The arbitrators’ assessment
of this domestic law concluded that it was ‘doubtful’ that Egypt’s actions complied
with it, because the procedures for notifying the claimant of the seizure of its ship
had not been followed.78 Importantly, for the tribunal, ‘a matter as important as
the seizure and auctioning of a ship of the Claimant should have been notified by
a direct communication for which the law No. 308 provided’.79 Thus, the tribunal
found that ‘the procedure in fact applied here does not fulfil the requirements of …
[the expropriation clause] of the BIT’.80 Middle East Cement, then, indicates that a
violation of relevant domestic laws in the course of an expropriation will violate a
BIT’s due process condition.
3.3.3.2 Due process as existence of domestic legal guarantees including

judicial review
But what if the host state has no relevant domestic law that might have been violated
by the state’s conduct? In this situation, a tribunal would not be able to verify the
state’s compliance with domestic law, because that law is inadequate and does not
provide the kinds of guarantees that were assessed in Siag or Middle East Cement.
This situation arose in ADC v Hungary, and appeared to push the tribunal into
finding that ‘due process of law’ did not relate to compliance with domestic law,
but instead required verification that domestic legal guarantees, including judicial
review, actually existed.
The ADC v Hungary case related to the alleged expropriation of an investment
in airport operations. The Cyprus–Hungary BIT at issue contained a requirement
that expropriations be conducted under ‘due process of law’.81 In defence of the
measures claimed to be expropriatory, Hungary argued that the measures met the
due process requirement because they were ‘carefully considered and formulated
in accordance with Hungarian laws and policies’, as well as relevant EU law (given
Hungary’s pending EU accession at the time).82 Hungary thus directly posed a rela-
tionship between compliance with domestic law and the due process requirement.
76 Middle East Cement (n 22) [139]. 77 ibid.

78 ibid [143]. 79 ibid. 80 ibid.
81 Article 4(1)(a).
82 ADC Affiliate Ltd v Hungary (ICSID Case No ARB/03/16), Award of the Tribunal, 2 October
2006 [393].
54

In some respects, the claimants also suggested this relationship. They argued that
the due process requirement for expropriation was linked to the BIT’s fair and equi-
table treatment (FET) clause.83 One element of this clause, the claimants indicated,
mandated compliance with contractual rights. This indication from the claimants
would therefore mean compliance with the body of law expressed to govern the
contract—in this case, Hungarian domestic law.84
The tribunal, though, took a different approach to the due process requirement.
Rather than tying due process to compliance with domestic law, the tribunal held
that the requirement meant that the state must provide legal procedures which an
investor can employ to determine whether the expropriation conforms to domestic
law. In order to make these procedures meaningful, mechanisms must exist includ-
ing ‘reasonable advance notice, a fair hearing and an unbiased and impartial adjudi-
cator to assess the actions in dispute’.85 In general, the legal procedures must grant
an investor ‘a reasonable chance within a reasonable time to claim its legitimate
rights and have its claims heard’.86 The tribunal added that, ‘[i]‌f no legal procedure
of such nature exists at all, the argument that “the actions are taken under due process
of law” rings hollow’.87 Ultimately, the tribunal held that Hungarian law did not
‘provide methods for the Claimants to review the expropriation’, meaning that ‘due
process of law’ was not satisfied.88
A similar situation of non-existent domestic law guarantees arose in the 2010
case Kardassopoulos v Georgia. As in ADC, the respondent sought to draw a con-
nection between the applicable investment treaty’s ‘due process of law’ requirement
and its compliance with domestic law in conducting a direct expropriation. Thus,
Georgia argued that ‘the government orders had a “legal basis” and therefore can-
not properly be considered to be in breach of due process’.89 The award did not
directly respond to this attempt to link the state’s (alleged) domestic legality and
its consequent compliance with due process. Instead, ruling that the expropriation
did violate due process, the tribunal approved the analysis in ADC. The arbitrators
indicated that a ‘due process of law’ requirement called for domestic law to contain
a reasonable mechanism for review of expropriation decisions within a reasonable
time.90 They held that no such procedure had been available to the investor.91
In the situation illustrated by ADC and Kardassopoulos, it is understandable that
the ‘due process of law’ formulation was interpreted differently from the tribu-
nals in Siag and Middle East Cement. Naturally, an investment tribunal can only
be interested in whether a state has complied with its own law in conducting an
expropriation if some law actually exists with which the state could comply. In this
situation, the due process condition will not call for an analysis of domestic law
compliance.
83 ibid [378].
84 ibid [475]. But see Vannessa Ventures Ltd v Venezuela (ICSID Case No ARB(AF)/04/6), Award,
16 January 2013, where the term ‘law’ in a BIT was held not to include contractual obligations.
85 ADC (n 82) [435]. 86 ibid. 87 ibid (emphasis in original).
88 ibid [438]. 89 Kardassopoulos (n 69) [379]. 90 ibid [396].
91 ibid [396], [404].
55
3.3.3.3 Due process as general principle

The Kardassopoulos case suggests another possible interpretation of ‘due process of
law’. Despite connecting the phrase to the availability of legal guarantees and review
mechanisms in domestic law, the tribunal’s analysis centred largely on the substance
of the treatment given to the investor. This treatment was measured against ideal-
ized or universalized standards of due process, such as the transparency and open-
ness of the state’s communication with the investor.92 In particular, the tribunal
found that the state had not told the investor that his rights were to be expropriated,
that key documents were not sent to the investor, and that reassurances were given
even after the investor discovered the planned expropriation from media sources.93
The tribunal did not appear to be interested in whether this conduct breached any
domestic law (probably because it had also found that no relevant law existed, as
discussed previously), or in whether the possibility of domestic judicial review of
the conduct would itself be sufficient to meet the due process condition.
This suggests that meeting ‘due process of law’ involves demonstrating that,
regardless of the content or even existence of domestic law safeguards, the conduct
actually engaged in by the state meets the requirements of due process at the level of
general principle, in the abstract. The Kardassopoulos tribunal suggested that these
requirements might include matters such as ‘reasonable advance notice and a fair
hearing’.94
This interpretation finds support in OI European Group v Venezuela, where the
tribunal distinguished the Netherlands–Venezuela BIT, which required ‘due pro-
cess of law’, from BITs in the first set analysed here, which make an explicit link
to domestic law. For the OI European Group tribunal, the lack of an explicit link
meant that Venezuelan law was not relevant. Instead, the state’s behaviour was to be
assessed against the ‘generic concept’ of due process as understood in international
law.95 The interpretation might find further support from the fact that certain BITs
within this category, such as NAFTA and many BITs based on the US model, con-
nect ‘due process of law’ to the international law standard of fair and equitable treat-
ment. This might be thought to exclude reference to domestic law, instead directing
the tribunal to look for due process principles in international law.
But this interpretation is problematic. First, the argument a contrario in OI
European Group can easily be reversed: states might have omitted an explicit link to
domestic law simply because this link was already entailed by the reference to ‘due
process of law’. Second, the condition does not require that investors be granted
‘due process’; it requires ‘due process of law’.96 The reference to ‘law’ must be given
some effect, and its ordinary meaning would appear to call on the tribunal to ver-
ify that the state organs have conducted the expropriation through law, and not
92 ibid [397]. 93 ibid [397]– [404]. 94 ibid [397].

95 OI European Group BV v Venezuela (ICSID Case No ARB/11/25), Award, 10 March 2015
[387]–[388].
96 Notably, in its analysis on the point, the OI European Group tribunal appeared to ignore the
words ‘of law’ (‘jurídico’, in the Spanish-language award), instead focusing on ‘due process’ (‘debido
proceso’).
56

through a simple exercise of power.97 As a result, the tribunal must verify that there
is (domestic) law before it can conclude that ‘due process of law’ was afforded. If no
relevant law exists, the situation is as in the ADC case discussed previously, and the
tribunal would find a breach on that basis. If relevant law does exist, granting ‘due
process of law’ will mean compliance by the state with that law. If there is no such
compliance, the state’s actions were necessarily not actions according to law, and the
state cannot be said to have acted under ‘due process of law’.
Third, it is not necessarily clear what ‘due process’ means in an abstract, uni-
versal setting. Exactly what is required under many of the classic principles of
due process, such as the notice and hearing principles cited by the Kardassopoulos
tribunal, will depend greatly on context, circumstances, and the rationale used to
underpin due process. Domestic courts have long struggled to elaborate a checklist
for due process that can apply in all situations.98 In international law, it appears
that this goal is (at present) even more elusive. Principles of due process are only
recently beginning to appear in international case-law, and the full contours of
these principles at the international level still remain to be examined.99 On one
such principle, for instance—the duty to give reasons—international adjudicators
have shown particular uncertainty about the competing rationales said to support
the duty. Consequently, the duty’s scope in international law remains somewhat
unclear.100
This uncertainty provides another reason to tie ‘due process of law’ in an invest-
ment treaty to a domestic due process law, where it exists, that sets out more
concrete standards against which state conduct can be meaningfully tested. The
Kardassopoulos tribunal’s approach on this point grants a large degree of discretion
to arbitrators to fill in the content of ‘due process’ themselves. When a more pre-
dictable and grounded alternative exists in the form of domestic law, there is little
reason for tribunals to ignore it and instead opt for abstract principles as the basis
of their assessment.
Naturally, the concern underlying the Kardassopoulos/OI European Group inter-
pretation is that states’ domestic laws might contain only very minimal due process
protections, for instance by providing that no more than one hour’s notice of any
hearing will be given. Although a state might comply with this domestic law provi-
sion, it might be doubtful whether the provision affords real ‘due process of law’.
BITs referring to ‘due process of law’ (i.e. the second set of treaties analysed here),
then, could grant tribunals slightly more scope to exercise an international correc-
tive function over domestic due process laws than BITs simply requiring expro-
priation ‘in accordance with the law’. Nevertheless, consideration of domestic law
should remain the starting point. Furthermore, as argued in Chapter 2, domestic
97 Venezuela Holdings BV v Venezuela (ICSID Case No ARB/07/27), Award, 9 October 2014 [297].
98 C Harlow, ‘Global Administrative Law: The Quest for Principles and Values’ (2006) 17 EJIL
187; A Mitchell, Legal Principles in WTO Disputes (CUP 2008) 14.
99 B Kingsbury, N Krisch, and R Stewart, ‘The Emergence of Global Administrative Law’ (2005)
68 LCP 15.
100 J Hepburn, ‘The Duty to Give Reasons for Administrative Decisions in International Law’
(2012) 61 ICLQ 641.
57
law has a role to play in the FET standard as well. Therefore, even if the meaning of
‘due process of law’ can be filled in by reference to international law including the
FET standard, tribunals should still verify the state’s compliance with domestic law
as part of this inquiry.
3.3.4 Third set—due process as domestic judicial review

The third set of treaties takes the approach of spelling out a right to domestic judi-
cial review of expropriation decisions, either instead of or in addition to a reference
to ‘due process of law’. The particular wording used must affect the interpretation
of the provision. If ‘due process of law’ is referred to, the analysis will be the same
as for the second set of treaties, meaning that compliance with domestic law (where
relevant laws exist in the host state) will be required, as explained previously. If ‘due
process of law’ is not referred to and the provision only grants a right of domestic
judicial review, as in the Angola–UK BIT quoted in section 3.3.1, the position
must be different. Compliance with this provision will primarily require a tribunal
to verify that meaningful judicial review procedures exist in the host state.101 It
would not require any effort to assess the state’s conduct in light of domestic laws,
in the way that a ‘due process of law’ formulation would. Instead, as long as proce-
dures existed for the investor to challenge the expropriation, and as long as relevant
substantive laws also existed against which the expropriation would be tested by
domestic courts, the investment treaty tribunal would not need to verify the com-
pliance with domestic law itself.
Nevertheless, meaningful judicial review must also include actual, routine
compliance by the government with the orders of domestic courts. The stipula-
tion in ADC v Hungary that the legality condition required an ‘adjudicator to
assess the actions in dispute’,102 for instance, must surely also imply that the
government would comply with the outcome of the adjudication. It could not
have been enough for Hungary to claim that methods of domestic court review
were technically available to ADC if the evidence suggested that the Hungarian
government had no intention of complying with the review outcome, or was
highly unlikely to comply given past experience. (If the government did comply
with the review, it seems unlikely that an international claim would be brought.
The only relevant scenario, then, is one in which the government defies the
domestic courts.)
This means that, if a domestic court had already ruled the expropriation illegal,
the tribunal’s role under the third set of treaties may be different. In that situa-
tion, the state’s non-compliance with domestic law would become relevant to the
tribunal’s analysis because it would indicate that the state offered no meaningful
system of judicial review. In this sense, the situation in Siag v Egypt, involving
101 For examples, see Bernhard von Pezold v Zimbabwe (ICSID Case No ARB/10/15), Award, 28
July 2015 [499]–[500]; Vestey Group Ltd v Venezuela (ICSID Case No ARB/06/4), Award, 15 April
2016 [301]–[309].
102 ADC (n 82) [435].
58

non-compliance by the Egyptian government with orders of domestic courts,
could be analysed under either a ‘due process of law’ formulation or a more specific
domestic judicial review formulation, as in the third set of treaties.
Thus, depending on the particular wording in the treaty and the factual circum-
stances, BITs prescribing rights of domestic judicial review in lieu of ‘due process of
law’ may still require tribunals to determine the state’s compliance with domestic
law. Typically, this would be done by reference to a prior determination on the mat-
ter by domestic courts.
3.3.5 Conclusion
In a 2012 report, UNCTAD recognized the role of treaty wording in interpret-
ing the due process condition for the international lawfulness of expropriation.
However, UNCTAD also asserted that an assessment of compliance with domestic
law will be required ‘whether explicitly referred to or not’ in the treaty’s formula-
tion.103 Based on the analysis here, UNCTAD’s conclusion on this may be going too
far. For investment treaties in the third set which do not refer to ‘due process of law’
but provide only for the availability of domestic judicial review, it is difficult to argue
that tribunals must always assess compliance with domestic law in order to meet this
provision. Nevertheless, under many of the sets of wording and many of the conse-
quent interpretations of the ‘due process’ condition, compliance with domestic law
will play a crucial role in the tribunal’s analysis of an expropriation claim.
3.4 Limitations on Lawfulness: The Effect of

the Compensation Requirement
This conclusion, however, is potentially limited in important respects. As demon-

strated by the previous discussion, the arbitral case-law on the due process condi-
tion is relatively small. This is largely because of the overbearing role of another
condition for the lawfulness of expropriation—namely, the payment of compensa-
tion. In practice, the compensation condition has come to dominate arbitrators’
examination of the international lawfulness conditions.
Whether or not the payment of compensation is required by customary inter-
national law, the compensation requirement is essentially universal in the texts of
IIAs, the legal instruments underpinning most contemporary investment disputes.
Of course, it is somewhat strange to impose a compensation requirement as a pre-
condition of the lawfulness in international law of a particular state measure. This is
because, if no compensation is paid, a breach of international law will be found—
and the consequence of this may be that damages must be paid.104 In the terms of
103 UNCTAD, Expropriation (n 5) 37.

104 Marboe distinguishes ‘compensation’ (for lawful expropriation) from ‘damages’ (for breaches
of treaties, including unlawful expropriation) in this respect: I Marboe, ‘Compensation and Damages
59
the International Law Commission (ILC), the payment of money can be both a
primary and a secondary obligation.105
In addition, recognizing a compensation condition contributes to an impression
that the other three conditions are inutile. Since nearly every investment dispute
involves a situation in which compensation has not been paid, and since the four
conditions must all be met for lawfulness to be satisfied, it is hard to imagine any
expropriation being found internationally lawful.
Certainly, a claimant might have received compensation but nevertheless want
to dispute the fact of expropriation, either where they feel that the compensation
provided was insufficient or where they have other attachments to the property
taken (perhaps such as cultural, personal, or strategic attachments) which suggest
that only restitution of the property would constitute a full remedy. The nature of
investment disputes, though, suggests that the latter scenario is unlikely to arise,
given that the property in question generally represents no more to the claimant
than an economic asset which can be replaced by monetary compensation. The
cost of bringing a full investment arbitration to contest the expropriation of some
asset deemed to have merely nostalgic or sentimental value to the investor is likely
to deter any such claim.106 The former scenario, by contrast, is more likely to
arise.107 However, the compensation requirement is not simply an obligation to
pay some compensation, but an obligation to pay compensation meeting a specific
test, often expressed as ‘prompt, adequate and effective’ compensation.108 A dis-
pute could still arise if this threshold amount has not been paid. Thus, it still seems
likely that any case that proceeds as far as arbitration is essentially guaranteed to
fail the compensation condition, meaning that it is automatically unlawful with
no need ever to consider the other three conditions. This has led some authors,
in International Law: The Limits of “Fair Market Value” ’ (2006) 7 JWIT 723, 725. Other rem-
edies might be ordered as well or instead of monetary remedies; see Chapter 4 for discussion of this
possibility.
105 International Law Commission (ILC), Draft Articles on Responsibility of States for Internationally
Wrongful Acts, with commentaries, UN Doc A/56/10 (2001) 65.
106 However, it is possible that non-economic considerations have motivated certain claims, such
as perhaps the numerous cases brought by Russian investor Iurii Bogdanov against the Republic
of Moldova: see J Hepburn, ‘Moldova Prevails in Two Treaty Arbitrations: Ukrainian Firm Loses
ECT Case, As Russia Investor’s Investments Fall Outside of Treaty’s Scope’ (2015) 8(4) Investment
Arbitration Reporter <tinyurl.com/o7ob97f>. Similarly, the claim in Dialasie v Vietnam (UNCITRAL)
may have been brought largely because of the personal significance of the ‘humanitarian’ investment
for the CEO of the French claimant himself. See J Hepburn and LE Peterson, ‘Shuttered Health Care
Clinic in Vietnam Spawns UNCITRAL Treaty Arbitration as Claims Start to Mount in South-East
Asia’ (2012) 5(2) Investment Arbitration Reporter <tinyurl.com/qc9rvwo>. Non-economic considera-
tions would also likely lie behind any investment treaty claim by an NGO, to which treaty protection
may extend: N Gallus and LE Peterson, ‘International Investment Treaty Protection of NGOs’ (2006)
22 Arbitration International 527.
107 One example comes from the European Court of Human Rights in Centro Europa srl v Italy App
No 38433/09 (ECHR, 7 June 2012), where Judges Popovic and Mijovic dissented on the grounds that
the compensation already paid to the claimant at domestic level was sufficient.
108 UNCTAD, Expropriation (n 5) 40. S Ripinsky with K Williams, Damages in International
Investment Law (BIICL 2008) 68, suggests that the compensation condition should be deemed met if
the state has made a good-faith effort to pay compensation.
60

such as Brownlie, to distinguish in this context ‘unlawfulness per se’ from ‘unlaw-
fulness sub modo’.109 The former term captures expropriation that fails to meet one
of the three accepted conditions, while the latter term covers expropriation that is
found unlawful only because compensation was not paid.
The predomination of the compensation condition in expropriation analyses has
tangible effects on the extent to which tribunals consider issues of domestic legal-
ity under the due process condition. Of course, in many cases, no expropriation
is found, so there is no discussion of the lawfulness of the expropriation. When
expropriation has been found, tribunals have relied on the fact that the lawful-
ness conditions are cumulative such that a breach of any one is enough to find the
expropriation unlawful. Since, in almost every case, the dispute has arisen because
no compensation was paid, it is tempting for a tribunal to adopt an ‘unlawfulness
sub modo’ approach, focus on the lack of compensation, and rule the expropriation
unlawful without considering the other conditions.110 This means that, as seen in
the previous section, case-law on the due process condition in expropriation is even
further limited.
An example of this is found in Funnekotter v Zimbabwe. In that case, the land-
reform measures at issue were found to be internationally unlawful as soon as the
tribunal recognized that the obligation to pay compensation had not been met.111
No further consideration was given to the condition that expropriations be con-
ducted ‘under due process of law’ in the Netherlands–Zimbabwe BIT.112 Similarly,
in RosInvest v Russia, the tribunal saw no need to consider the alleged discrimina-
tory nature of the taking and the alleged lack of public purpose, relying simply on
the lack of compensation to declare the expropriation unlawful.113 In Vivendi III,
the tribunal stated that an expropriation will be unlawful if no compensation is
paid, regardless of any public purpose attaching to the measure. It reasoned that, if
the existence of a public purpose automatically immunized a state’s measure, then
there would never be a compensable taking for a public purpose.114 In the arbitra-
tors’ view, the purpose of a measure could not alter the requirement to pay compen-
sation for its effects on a protected investor. The measure in the case was ultimately
found unlawful (sub modo), on the sole grounds that no compensation had been
paid; the measure’s purpose was not examined.
109 I Brownlie, Principles of Public International Law (7th edn, OUP 2008) 538. Ripinsky notes that
the ECtHR distinguishes between ‘inherently illegal’ takings and takings that are only illegal due to the
non-payment of compensation: Ripinsky (n 108) 67. UNCTAD, Expropriation (n 5) 43–4 similarly
argues that mere failure to pay compensation should not lead to unlawfulness.
110 cf Southern Pacific Properties (Middle East) Ltd v Egypt (ICSID Case No ARB/84/3), Award on
the Merits, 20 May 1992, where the tribunal found a lawful expropriation even though no compensa-
tion was paid. However, the parties in that case agreed that the expropriation was lawful, so the issue
was essentially not in dispute.
111 Bernardus Funnekotter v Zimbabwe (ICSID Case No ARB/05/6), Award, 22 April 2009 [107].
112 Article 6(a).
113 RosInvestCo UK Ltd v Russia (SCC Case No V 079/2005), Final Award, 12 September 2010
[631]–[633].
114 Compania de Aguas del Aconquija SA v Argentina (ICSID Case No ARB/97/3), Award, 20
August 2007 [7.5.21].
61
This reasoning could be applied to the due process/domestic legality require-

ment. It might be thought that, if a state could avoid paying compensation to an
investor adversely affected by an expropriatory measure simply by ensuring that
the state’s acts complied with its domestic law, this would undermine the pro-
tection granted by investment treaties. As with the FET standard, the objective
of international law in this area is to provide a guaranteed, absolute minimum
standard of protection regardless of the standards that might be contained in
domestic law. On this view, ultimately the compensation condition is the only
meaningful condition imposed by international law on a state’s expropriation of
private property. Once an expropriation has been found, any other conditions (of
public purpose, non-discrimination, or due process/domestic legality) become
irrelevant.
This depends, though, on the consequences of a finding of lawful expropria-
tion. Importantly, such a finding does not typically mean that no compensa-
tion is payable. The traditional position is that a lawful expropriation simply
requires a lower standard of compensation, equivalent to the fair market value
of the property at the time of its expropriation. An unlawful expropriation, by
contrast, is said to require full reparations for the wrong suffered, which would
normally include additional heads of loss such as consequential losses, and also
any increase in the value of the property between the date of taking and the date
of the award.115
However, some commentators have pointed out that tribunals quite frequently
ignore any distinction in compensation standards between lawful and unlawful
expropriations. Instead, if no compensation has been paid (as in most cases), the tak-
ing is found unlawful, and the appropriate standard of compensation is applied.116
Sheppard points to various situations in which the three ‘conduct requirements’ of due
process, non-discrimination, and public purpose might be relevant, but concludes
that, ‘[f ]‌or the most part, the conduct requirements would appear to be otiose’.117
Feldman v Mexico labelled NAFTA’s legality requirements as ‘of limited relevance’,118
while the US Restatement (cited in Feldman) considers the legality conditions to be
‘not of major importance’.119 In other cases, tribunals have found expropriation and
proceeded directly to compensation calculations, without any discussion of the con-
ditions of international lawfulness to characterize the taking as lawful or unlawful.120
On this view, as with the previous police powers discussion,121 the only two possibili-
ties are a finding of unlawful expropriation, or of no expropriation.122
115 CN Brower and M Ottolenghi, ‘Damages in Investor-State Arbitration’ (2007) 4(6) TDM 7–8;
J Crawford, Brownlie’s Principles of Public International Law (8th edn, OUP 2012) 625.
116 A Sheppard, ‘The Distinction between Lawful and Unlawful Expropriation’ in C Ribeiro (ed.),
Investment Arbitration and the Energy Charter Treaty (JurisNet 2006) 169.
117 ibid 199. 118 Feldman (n 29) [98]. 119 ibid [99].
120 SwemBalt AB v Latvia (UNCITRAL), Decision by the Court of Arbitration, 23 October 2000;
Biwater Gauff (Tanzania) Ltd v Tanzania (ICSID Case No ARB/05/22), Award, 24 July 2008; Alpha
Projektholding GmbH v Ukraine (ICSID Case No ARB/07/16), Award, 8 November 2010.
121 Section 3.2.
122 Nevertheless, see Quasar de Valores SICAV SA v Russia (SCC), Award, 20 July 2012 [6]‌, [215] for
a reaffirmation of the possibility of both lawful and unlawful expropriation.
62

The result of this approach to the compensation condition is that the cases
reviewed previously, which highlight the connections between the due process con-
dition and the domestic lawfulness of the state’s action, are quite rare. In practice,
the relevance of domestic law is at present minimized by tribunals’ typical unwill-
ingness to focus on the due process condition.
3.5 Legality and the Public Nature of Investment Law
It is certainly understandable that arbitrators might take the approach described

in Funnekotter, RosInvest, or Vivendi. The arbitrators may well view themselves
simply as being hired by the parties to resolve a dispute between them as effi-
ciently as possible. Not wishing to incur more time or money than necessary to
resolve the matter, they may find the shortest route possible through the positive
law to come to a conclusion. As a consequence of this judicial (or arbitral) econ-
omy, tests that do not have to be satisfied—such as the due process condition,
given a lack of compensation—will fall by the wayside. Similarly, arbitrators may
be concerned about delivering decisions that appear to pass too much judgment
on a respondent state. As Paulsson has said, ‘national sentiment could be offended
when international adjudicators presume to apply national norms understand-
able only to those who are part of the national community’.123 If there is a per-
missible way around a finding that the state has violated its own law, this may be
an attractive option for a tribunal already beset by concerns over its legitimacy (as
outlined in Chapter 1).
Furthermore, it is often stated that the objective and rationale of the BIT regime
is fundamentally to protect investors. The stereotype of the grand bargain of BITs
is that host states offer generous protections to foreign investors in return for the
entry of the investors’ much-needed capital into the host state, ultimately leading
to economic benefits for both parties.124 In practice, under this view, investor
protection is about providing a legally enforceable right to obtain monetary com-
pensation for interference with investments. Without this guarantee of compen-
sation should something go wrong, according to the basic theory, investors will
not enter risky environments such as developing country economies, or even any
foreign economy outside the familiarity and security of their home state. From
this perspective, whether the state acted legally or according to a public purpose
is irrelevant to protecting the investor. It is then entirely appropriate to focus on
compensation, and futile to lament the supposed insignificance of the due process
condition.
123 J Paulsson, ‘Unlawful Laws and the Authority of International Tribunals’ (2008) 23 ICSID Rev
215, 232.
124 J Salacuse and N Sullivan, ‘Do BITs Really Work? An Evaluation of Bilateral Investment Treaties
and Their Grand Bargain’ (2005) 46 Harv ILJ 67; A Guzman, ‘Why LDCs Sign Treaties That Hurt
Them: Explaining the Popularity of Bilateral Investment Treaties’ (1998) 38 Va JIL 639; Newcombe
and Paradell (n 68) 48–49.
63
But these positions ignore or downplay crucial features of the international invest-
ment law regime, and it is unfortunate that they appear to be prevailing. Although
many of the forms and procedures adopted by the regime have aspects of private,
commercial arbitration, they also display prominent public aspects.125 Most obvi-
ously, the respondent is (almost) always a state.126 The conduct at issue is conduct
of government officials, being tested against broadly worded standards agreed to
and possibly drafted by the state itself. The dispute may be instigated by a private
party, but—just as in domestic administrative law systems—the dispute becomes
a public one after that point. Investment disputes typically relate to large sums of
public money, which could have serious effects on the financial standing of many
of the less developed host states that have appeared as respondents. Investment
arbitrators are not only resolving a dispute; they are also providing the public good
of (quasi-)judicial, reasoned decisions that hold state officials to account for their
actions in the public sphere.127 The well-known World Duty Free case brought to
the International Centre for Settlement of Investment Disputes (ICSID) in 2006,
for instance, publicly revealed bribe-taking by former Kenyan President Daniel
arap Moi.128 The arbitral award issued by a tribunal to close a dispute may formally
bind only the state and the investor in question, and does not officially contribute
to precedent. In practice, though, tribunals routinely rely on previous awards and
appear to actively strive for coherence in their output.129 The award also carries a
degree of expressive value:130 it does not simply resolve a dispute but also serves as a
public statement of values, either condemning the state for discriminatory, unfair,
inequitable, or otherwise unjustified treatment of private parties, or exonerating the
125 A Kulick, Global Public Interest in International Investment Law (CUP 2012) ch. 4; G van Harten,
Investment Treaty Arbitration and Public Law (OUP 2007); A Roberts, ‘Clash of Paradigms: Actors
and Analogies Shaping the Investment Treaty System’ (2013) 107 AJIL 45; A Mills, ‘Antinomies of
Public and Private at the Foundations of International Investment Law and Arbitration’ (2011) 14
JIEL 469. For a more wary view of the ‘public law’ model of investment arbitration, see C Foster,
‘A New Stratosphere? Investment Treaty Arbitration as “Internationalized Public Law” ’ (2015) 64
ICLQ 461.
126 Jurisdiction over a claim by an Indonesian provincial government against various min-
ing companies, including Rio Tinto and BP, was rejected in Government of the Province of East
Kalimantan v PT Kaltim Prima Coal (ICSID Case No ARB/07/3), Award on Jurisdiction, 28
December 2009. But see G Laborde, ‘The Case for Host State Claims in Investment Arbitration’
(2010) 1 JIDS 97.
127 C Rogers, ‘International Arbitration’s Public Realm’ in A Rovine (ed.), Contemporary
Issues in International Arbitration and Mediation: The Fordham Papers (2010) (Martinus Nijhoff
2011) 165.
128 World Duty Free Company Ltd v Kenya (ICSID Case No ARB/00/7), Award, 4 October 2006.
Although the basis of this case was a contract rather than an investment treaty, it demonstrates the real
potential for such issues to arise in international arbitration.
129 See, e.g., P Bernardini, ‘International Commercial Arbitration and Investment Treaty
Arbitration: Analogies and Differences’ in D Caron and others (eds), Practising Virtue: Inside International
Arbitration (OUP 2015) 59; J Commission, ‘Precedent in Investment Treaty Arbitration: A Citation
Analysis of a Developing Jurisprudence’ (2007) 24 J Intl Arb 129.
130 It is true that the ILC Articles on State Responsibility (n 105) 99 provide that compensation
has no expressive value and is purely a monetary payment. But this is more of a normative statement
than a descriptive one.
64

state, declaring the claims baseless.131 Indeed, states have been known to trumpet
their victories in investment treaty arbitration even where the financial impact of a
loss would have been minimal for those states.132
In this context, a finding that a state violated due process by breaching its own
law sends a public message beyond any compensation awarded to the investor, and
might provide more useful guidance to domestic administrators than a bare find-
ing of expropriation. Rather than trying to understand the imprecise distinction
between regulation and expropriation, domestic administrators can minimize the
risk of investment treaty liability simply by adhering to their own (presumably bet-
ter understood) law, if compliance with this law will be relevant to the tribunal’s
expropriation ruling. A more detailed discussion of compliance with the due pro-
cess condition, by reference to domestic law, could additionally make a resulting
adverse award more palatable to host state citizens: less a violation of an (appar-
ently) externally imposed international obligation than a violation of a pre-existing
obligation in the state’s own law.
Apart from the public aspects and expressive functions of investment awards,
the focus on compensation as a result of an approach centred purely on investor
protection is also questionable. The objectives of the investment law regime are
in fact wider than purely protecting investors.133 Rather, the objectives extend to
encouraging the development of the host state, promoting respect for the rule of
law, and increasing general welfare. These objectives are often made explicit in the
preamble or operative provisions of BITs, and have been found implicit in other
provisions of key instruments such as the ICSID Convention.134 Arbitrators have
questioned an interpretive approach that construes every clause of a BIT in the
manner most favourable to the investor, instead placing emphasis on the quid pro
131 Admittedly, this depends on whether the arbitral award is made public. State practice varies on
this; the NAFTA parties, for instance, generally disclose all arbitrations, while other states reveal as little
as possible. Recent developments, such as the 2014 United Nations Convention on Transparency in
Treaty-Based Investor-State Arbitration, are encouraging greater disclosure of investment awards and
related documents, although even Member States of the European Union—which claims that transpar-
ency is ‘at the core’ of its investment policy—have been recalcitrant in releasing awards. See European
Commission, ‘EU Contributes €100,000 to Increase Transparency in Investor-to-State Disputes’ (6
January 2015), <trade.ec.europa.eu/doclib/press/index.cfm?id=1428>; F Balcerzak and J Hepburn,
‘Publication of Investment Treaty Awards: The Qualified Potential of Domestic Access to Information
Laws’ (2015) 3 Groningen JIL 147.
132 See, e.g., Ministry of Treasury, Republic of Poland, ‘Poland Will Not Pay EUR 8 Mln’ (11
September 2012), <msp.gov.pl/en/media/news/3625,Poland-will-not-pay-EUR-8-mln.html>.
133 As one tribunal put it, ‘[t]‌he protection of foreign investments is not the sole aim of the
[BIT] … an interpretation which exaggerates the protection to be accorded to foreign investments
may serve to dissuade host States from admitting foreign investments’: Saluka Investments BV (The
Netherlands) v Czech Republic (UNCITRAL), Partial Award, 17 March 2006 [300].
134 See, e.g., C Schreuer and U Kriebaum, ‘From Individual to Community Interest in International
Investment Law’ in U Fastenrath and others (eds), From Bilateralism to Community Interest: Essays in
Honour of Bruno Simma (OUP 2011) 1079. This is reflected in the debate over the role of development
in the definition of investment: see O Garcia-Bolivar, ‘Economic Development at the Core of the
International Investment Regime’ in C Brown and K Miles (eds), Evolution in Investment Treaty Law
and Arbitration (CUP 2011) 586; M Jezewski, ‘Development Considerations in Defining Investment’
65
quo of investment treaty negotiation and the fact that host states also expect to
receive benefits from the regime.135 Others go further, arguing that it is not at all
clear why host states sign investment treaties, given the entirely mixed economic
evidence of their role in encouraging foreign investment flows.136 On this view,
it would make little sense to rely on the regime’s objectives to justify arbitrators’
focus on compensation at the expense of the due process condition, particularly as
it relates to legality.
Of course, additional scrutiny of states’ due process compliance might well only
heighten concerns that tribunals favour investors over states. However, focus on
due process and domestic legality would at least permit states an opportunity to
show that an expropriation is lawful rather than unlawful. In any case, a balanced
approach to investment law is not one in which states always win; it is one in which
states are given all proper opportunities to have relevant considerations, including
the legality of their conduct in domestic law, taken into account.
Thus, investment law would benefit from a new approach to the relationship
between the four conditions of lawfulness, and in particular between the due pro-
cess requirement and the compensation requirement. In Article 1 of Protocol 1
(A1P1), the European Convention on Human Rights (ECHR) provides that ‘no
one shall be deprived of his possessions except … subject to the conditions provided
for by law and by the general principles of international law’. As interpreted by
the European Court of Human Rights (ECtHR), this provision takes a different
approach to domestic legality and expropriation, and its interpretation may hold
some lessons for investment law.137
In one of the leading cases on A1P1, in Iatridis v Greece the ECtHR ruled that
the assessment of compliance with the Convention’s legality requirement must
come before any assessment of the Court’s ‘fair balance’ test.138 Importantly, it is
under this latter test that compensation is determined. This highlights a point of
difference between the ECtHR approach on this issue and the approach taken
by investment tribunals. As seen earlier, the due process condition and the con-
sequent consideration of domestic legality are often sidelined in international
investment law cases, because the compensation condition is placed at an equiva-
lent level in a tribunal’s analysis. In the ECtHR, however, Iatridis demonstrates
that consideration of domestic legality must come before consideration of com-
pensation, thus placing greater emphasis on the legality condition than is the case
in investment law.
in MC Cordonier Segger, M Gehring, and A Newcombe (eds), Sustainable Development in World

Investment Law (Kluwer 2011) 211.
135 See, e.g., İçkale İnşaat Limited Şirketi v Turkmenistan (ICSID Case No ARB/10/24), Award, 8
March 2016 [270].
136 K Sauvant and L Sachs, The Effect of Treaties on Foreign Direct Investment (OUP 2009).
137 In a similar vein, see the pleadings of Bolivia in South American Silver Ltd v Bolivia (PCA Case
No 2013-15), Counter-Memorial on the Merits, 31 March 2015 [397].
138 Iatridis v Greece App No 31107/96 (ECHR, 25 March 1999) [58].
66

The ECtHR instantiates a different approach to the relationship between legal-
ity and compensation. This approach, it is submitted, would better accord with
the nature and objectives of the investment law regime than an approach that
stops the inquiry once the compensation condition has been breached. However,
it must be acknowledged that the textual underpinnings of the ECtHR’s approach
are much vaguer than a typical BIT. Indeed, A1P1 does not contain any explicit
compensation condition at all; the requirement for compensation has been found
implied in the provision by the Court.139 Given this textual framework, it is
much easier for the ECtHR to adopt a more flexible approach to the relationship
between legality and compensation than for an investment tribunal faced with the
stipulations of a treaty that places legality (via due process) and compensation on
the same analytical level.
Nevertheless, certain tribunals have taken the time to address the conduct require-
ments, and have done so either before or at least alongside their acknowledgement
that the compensation condition has also been violated. The Kardassopoulos tribu-
nal stands out in this regard, in light of its focus on the breach of the due process
condition rather than the lack of compensation. Indeed, the tribunal did not out-
right reject the respondent Georgia’s argument that the failure to pay compensation
‘does not in itself render an expropriation unlawful’.140 This was so even though the
treaty contained a clear provision making the lawfulness of expropriation contin-
gent on the payment of ‘prompt, adequate and effective compensation’.141 Instead,
the tribunal found it ‘unnecessary to decide whether the Respondent’s argument
is valid’ because Georgia’s conduct ‘also fail[ed] to meet another criterion set out
in Article 13(1) of the [Energy Charter Treaty], namely the requirement that any
expropriation be carried out in accordance with due process of law. Such a failure …
would in any event render the expropriation unlawful.’142 When an easier path to
an unlawfulness finding would have been simply to note the lack of compensation,
the tribunal’s willingness to focus on due process as a meaningful criterion suggests
that commentators seeing little contemporary relevance in the condition may be
mistaken.143 Kardassopoulos also suggests a way in which investment law jurispru-
dence could make more of the due process condition, essentially by adopting the
ECtHR approach: to consider the conduct requirements before turning, if neces-
sary, to the compensation requirement.
A renewed focus on the due process condition, and its connections to compli-
ance with domestic law, would also renew the relevance of the distinction between
lawful and unlawful expropriations. As noted above, a singular focus on the com-
pensation condition means that expropriations must essentially always be found
139 D Harris and others, Law of the European Convention on Human Rights (2nd edn, OUP
2009) 680.
140 Kardassopoulos (n 69) [389]. 141 Article 13(1)(d) of the Energy Charter Treaty.
142 Kardassopoulos (n 69) [390].
143 This is notwithstanding the criticisms made earlier of the Kardassopoulos tribunal’s interpretation
of the due process condition: see section 3.3.3.3.
67
unlawful. Restoring respect for the other legality conditions—due process of law,
as well as non-discrimination and public purpose—would help to distinguish
between expropriations that are unlawful purely because compensation was not
paid (unlawful sub modo, as noted earlier) and expropriations that are unlawful
per se. As UNCTAD recently noted, ‘[i]‌t is important not to confuse the question
whether there has been an expropriation with that of whether the conditions [for
its lawfulness] have been satisfied’.144 The basic rationale for the distinction—
recognized as long ago as the 1928 Chorzow Factory judgment—is the injustice
of allowing both lawful and unlawful conduct to carry the same financial conse-
quences.145 This rationale remains valid, and properly acknowledging the condi-
tions for lawfulness in a typical BIT would help to confirm this. In fact, several
recent cases have recognized this, finding that a mere failure to pay compensation
does not itself make an expropriation unlawful, and moving to assess the legality
conditions despite the absence of compensation.146 These developments suggest
that the prevailing view on the legality conditions may be in the process of shift-
ing. Acknowledging the role of the due process condition, in particular, would
also confirm the role of domestic legality as a key element of that condition. As a
result, the importance of tribunals’ analyses of the state’s compliance with its own
law would be reaffirmed, as part of the guarantee against expropriation in invest-
ment treaties.
3.6 Conclusion
To date, the role of domestic law in expropriation claims has not been made clear,
with much of the debate in this area centring on the distinction in international
law between permissible regulation and impermissible expropriation.147 However,
this chapter confirms that consideration of domestic law will have a place in the
analysis of a claim of expropriation under an investment treaty. This may occur in
two ways: either by affecting the state’s ability to rely on a police powers defence,
or by affecting the state’s fulfilment of the due process condition for lawfulness
typically imposed in BITs. The exact role of domestic legality in the due process
condition may depend on factors such as the wording used in the treaty and the
existence of any relevant domestic law to be complied with. Nevertheless, there is
scope for greater consideration of the state’s conduct against domestic law than is
presently appreciated.
144 UNCTAD (n 5) 27.

145 Factory at Chorzow (Germany v Poland) Series A No 17 (1928) 47; Brower and Ottolenghi
(n 115) 5.
146 Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Partially Dissenting Opinion of Brigitte
Stern, 7 September 2015, 2–7; Tidewater Investment SRL v Venezuela (ICSID Case No ARB/10/5),
Award, 13 March 2015 [129]–[146]; Venezuela Holdings (n 97) [301]; cf von Pezold (n 101) [497]–[498].
147 See the sources cited at n 8 in Chapter 1.
68
Tribunals’ tendencies both to focus on the compensation condition and to

downplay distinctions between lawful and unlawful expropriations have lessened
the potential impact of domestic legality considerations in the existing case-law.
However, this chapter has argued, these tendencies do not square with the nature
and objectives of investment treaties. A better approach, therefore, would be to
follow cases including Kardassopoulos in restoring consideration of the due process
condition alongside compensation.
69
4
Domestic Law and Remedies
Chapters 2 and 3 highlighted some areas of investment arbitration in which the

role of domestic law has been underappreciated. This chapter turns to another such
area—namely, the determination of remedies. Connections between the remedies
stage of an investment arbitration and reference to domestic law have not so far
been prominent in the literature or cases. As the earlier chapters of this book dem-
onstrated, the major flashpoints of interaction between domestic law and interna-
tional law have arisen at other junctures, either on jurisdictional or merits issues.
The determination of remedies appears as an issue purely of international law, a self-
contained question that does not call for external reference. It has been construed
simply as the flipside of a breach of international law: if the breach is defined by
international law, the remedy must be defined also by international law.1
However, as discussed in section 4.1, the determination of remedies in interna-
tional law remains quite vague, guided only by very loose principles at the inter-
national level. In practice, international adjudicators (including arbitrators on
investment tribunals) enjoy a large degree of discretion in their remedial orders.
This chapter demonstrates that, on occasion, investment arbitrators have exercised
this discretion by referring to domestic law in various ways.
In particular, section 4.2 analyses cases in which tribunals have applied the law
of the host state in order to resolve a question deemed essential for determining
the appropriate remedy.2 For instance, in certain cases relating to excessive delay
in local courts, tribunals have taken the view that the international law remedy
should be premised upon the resolution of the domestic law issue that was delayed
by the local courts. In other cases, tribunals have ruled on the duration of contracts
under domestic law as a means of determining the time period over which to award
compensation. Unlike other situations in which tribunals were either directed or
essentially forced to consult domestic law to resolve an issue, such as on questions
1 A Nollkaemper, ‘The Power of Secondary Rules to Connect the International and National Legal
Orders’ in T Broude and Y Shany (eds), Multi-Sourced Equivalent Norms in International Law (Hart
2011) 61; C Gray, Judicial Remedies in International Law (OUP 1990) 9–10; A Newcombe and L
Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer 2009) 99.
2 The cases reviewed in this section are somewhat similar in nature to cases in which the existence
of an investment for jurisdictional purposes or the extent of interference for merits purposes has been
examined. The difference lies in the fact that, in the cases in this chapter, the tribunal itself has char-
acterized the relevant question as one of remedies or compensation, rather than one of jurisdiction or
breach on the merits.
70

of investor legality or nationality, the discretion enjoyed by arbitrators on remedies
means that the remedies in these cases could well have been decided in other ways.
The fact that tribunals have chosen to refer to domestic law here marks out remedies
as an additional area of investment law where domestic law plays some role.
Section 4.3 turns to another set of cases in which domestic law has appeared: those
involving the determination of interest payable on compensation. Here again, arbi-
trators enjoy significant discretion to calculate and award interest. Just as inter-
national law does not contain rules on contracts or property rights, thus pushing
arbitrators to apply domestic law, international law also does not contain specific
rules on interest payments. When international law runs out, arbitrators have been
encouraged in some cases to exercise their considerable discretion on interest awards
by relying on relevant provisions of domestic (almost always host state) law. While
objections have been raised to this tying of international interest determinations to
host state legal provisions, section 4.3 argues that, as with many of the other areas
examined in this book, there are grounds for arbitrators to pay respect to local legal
positions on the payment of interest.
Section 4.4 addresses a more hypothetical role for domestic law in remedies. It
starts again from the recognition of arbitrators’ discretion in this area. It then can-
vasses the argument for considering the respondent state’s compliance with its own
law as relevant to the tribunal’s remedial order. In other words, if a state has com-
plied with domestic law while nevertheless breaching its international law obliga-
tions to an investor, could that reduce the compensation ordered against the state,
or affect the likelihood of a non-monetary order? Although at present the argu-
ments in this respect are not strong, there are increasing calls for a more nuanced
approach to compensation and remedies in investment tribunals.3 It is therefore
worth reviewing the possibility of tying domestic legality more closely to the inter-
national law remedial analysis.
Together with Chapters 2 and 3, this chapter thus forms part of the first main
claim of this book, arguing that domestic law has relevance to investment arbitra-
tion beyond the familiar situations mentioned in existing literature.
4.1 Uncertainty in International Law on Remedies
Determinations of damages in general international law have traditionally been

highly opaque. The field is marked by an absence of clear rules4 and a proliferation
3 See, e.g., A van Aaken, ‘Primary and Secondary Remedies in International Investment Law and
National State Liability: A Functional and Comparative View’ in S Schill (ed.), International Investment
Law and Comparative Public Law (OUP 2010) 721; D Desierto, ‘Human Rights and Investment
in Economic Emergencies: Conflict of Treaties, Interpretation, Valuation Decisions’ (Third Biennial
Global Conference of the Society of International Economic Law, Singapore, July 2012), <ssrn.com/
abstract=2101795>.
4 CN Brower and M Ottolenghi, ‘Damages in Investor-State Arbitration’ (2007) 4(6) TDM;
S Ripinsky with K Williams, Damages in International Investment Law (BIICL 2008) 45, noting that
international law on damages is ‘far from settled’.
71
Domestic Law and Remedies 71
of decisions displaying little clear reasoning or drawing on policy-based extensions

of vague general principles.5
The starting point for most discussions of remedies in international law is the 1928
judgment of the Permanent Court of International Justice (PCIJ) in the Chorzow
Factory case. In that judgment, the PCIJ set out the much-quoted proposition that
a breach of international law leads to an obligation to make ‘full reparation’ for the
loss caused to the injured state. This ‘full reparation’ requires the state held in breach
to ‘wipe out all the consequences of the illegal act and reestablish the situation which
would, in all probability, have existed if that act had not been committed’.6
Beyond this general principle, however, the Chorzow Factory judgment leaves
much unsaid. While it may be true that ‘full reparation’ is the touchstone of an
international law remedy, this standard has a broad range of meanings and does
not particularly assist a judge or arbitrator in a given case.7 Certainly, the judgment
does present an expanded formulation of the standard, requiring the remedy to
‘wipe out all the consequences of the illegal act’. But this still leaves the difficult
question of determining the exact consequences of the illegal act.8 Allied questions
of compensation, such as whether simple or compound interest is payable, the date
from which interest is calculated, and the appropriate interest rate to apply, are
also unsettled in international law, with determinations often appearing completely
discretionary.9
Furthermore, it is clear that ‘full reparation’ does not even mean entirely full
reparation. International law, like many other systems of law, limits the recover-
ability of damages through principles of causation and, more practically, through
requirements of factual proof. These principles themselves are not clearly defined in
international law. On the question of causation, for instance, while there are many
broad tests formulated by reference to concepts such as remoteness, proximity, or
foreseeability,10 these are not fully developed and are difficult to apply in practice.
To take one example, an investment tribunal held that the test for causation in
international law was that there was a ‘sufficient link’ between the damage and the
treaty violation.11 Clearly, the word ‘sufficient’ adds nothing in itself to an under-
standing of causation, since the key question is what counts as sufficient. A wide
discretion is thus left to the international judge or arbitrator to apply a chosen test,
which often masks an underlying policy choice on the recoverability of damages.12
5 Gray (n 1) 5.
6 Factory at Chorzów (Germany v Poland) Series A No 17 (1928) 47–48.
7 Gray (n 1) 8; cf SD Myers v Canada (UNCITRAL), Second Partial Award, 21 October 2002
[141] (‘the assessment of damages is not always a precise science’).
8 B Graefrath, ‘Responsibility and Damages Caused: Relationship between Responsibility and
Damages’ (1984) 185 RdC 9, 94.
9 Ripinsky (n 4) 361–5.
10 International Law Commission (ILC), Draft Articles on Responsibility of States for Internationally
Wrongful Acts, with commentaries, UN Doc A/56/10 (2001) 92–3; Gray (n 1) 23.
11 El Paso Energy International Company v Argentina (ICSID Case No ARB/03/15), Award, 31
October 2011 [682].
12 C McLachlan, L Shore, and M Weiniger, International Investment Arbitration: Substantive
Principles (OUP 2007) 335–6, citing Graefrath (n 8). See also Gray (n 1) 23.
72

Some clarity may have been brought to the field in 2001, with the adoption of
the International Law Commission (ILC) Articles on Responsibility of States for
Internationally Wrongful Acts. The Articles confirm that ‘full reparation for the
injury caused’ is the primary goal of international remedies.13 They elaborate on
the notion of injury, defining it as ‘any damage, whether material or moral’.14 Full
reparation is taken to mean ‘restitution, compensation and satisfaction, either sin-
gly or in combination’. Restitution involves ‘re-establish[ing] the situation which
existed before the wrongful act was committed’; compensation covers ‘any finan-
cially assessable damage including loss of profits insofar as it is established’; and
satisfaction includes ‘acknowledgement of the breach, an expression of regret, [or]
a formal apology’.15 Interest ‘shall be payable when necessary in order to ensure full
reparation’, with the interest rate and mode of calculation being set ‘so as to achieve
that result’.16 Interest must be paid ‘from the date when the principal sum should
have been paid’.17
Some commentators have doubted whether the ILC Articles are applicable to the
specific context of investor–state disputes under investment treaties.18 Indeed, the
primary relevance of the Articles is confined to state–state disputes, as confirmed
by Article 33(2) which notes that the secondary obligations on reparations set out
in the Articles are ‘without prejudice to any right, arising from the international
responsibility of a State, which may accrue directly to any person or entity other
than a State’. ILC Special Rapporteur James Crawford, who played a principal role
in bringing the Articles to fruition after around forty years of debate on the topic,19
has suggested that they do not apply to the investor–state context.20
Despite these relatively clear signs, both investment treaty tribunals and com-
mentators have often referred to the Articles without acknowledging the debate
over their applicability.21 Ripinsky and Williams offer several possible reasons for
this, including the simple fact that the Articles serve as some kind of guidance in the
absence of any clearer rules in customary international law.22
However, even if the Articles do apply to investor–state disputes, their defini-
tions do not necessarily assist. Apart from loss of profits, the Articles do not define
any specific heads of loss that might be used to elucidate ‘any financially assessable
damage’. The ILC commentary on the Articles acknowledges that the ‘appropriate
13 Article 31(1). 14 Article 31(2). 15 Articles 35–37. 16 Article 38(1).

17 Article 38(2).
18 OECD, Investor-State Dispute Settlement: Public Consultation, 16 May–9 July 2012 [56], <www.
oecd.org/dataoecd/61/29/50291642.pdf>; Z Douglas, The International Law of Investment Claims
(CUP 2009) 97.
19 D Bodansky and J Crook, ‘Symposium: The ILC’s State Responsibility Articles, Introduction
and Overview’ (2002) 96 AJIL 773.
20 J Crawford, ‘The ILC’s Articles on Responsibility of States for Internationally Wrongful
Acts: A Retrospect’ (2002) 96 AJIL 874, 881.
21 B Sabahi, Compensation and Restitution in Investor-State Arbitration: Principles and Practice (OUP
2011) ch. 3; Ripinsky (n 4) 31. See also M Paparinskis, ‘Investment Treaty Arbitration and the (New)
Law of State Responsibility’ (2013) 24 EJIL 617.
22 Ripinsky (n 4) 28–32. See also Bernhard von Pezold v Zimbabwe (ICSID Case No ARB/10/15),
Award, 28 July 2015 [691] and M Endicott, ‘Non-Pecuniary Remedies: The Impact of ARSIWA in
Investor-State Arbitration’ (2007) 4(4) TDM 5.
73
heads of compensable damage … will vary, depending on the content of particular

primary obligations and, more generally, a concern to reach an equitable and accept-
able outcome’.23 This appears to give great leeway to adjudicators. Elaboration of
causation principles is limited only to the observation that the damage must be
‘caused by’ the wrongful act.24 Guidance on applicable burdens of proof and evi-
dentiary requirements is non-existent, apart from the indication that loss of profits
must be ‘established’ to be compensable. While the Articles confirm that interest
is payable, they do not resolve questions of whether to award simple or compound
interest, or the rate to be applied in a particular case.25
As a result of this, investment tribunals are left with ‘considerable discre-
tion as to the choice of benchmarks to be used for estimating compensation in
the form of reparations within the general law of international responsibility’.26
Indeed, commentators have begun to express concerns over the adverse effects of
this extensive discretion on predictability for the parties in investment arbitra-
tion, and, consequently, for the legitimacy of international investment law as a
whole.27
4.2 Application of Domestic Law when Determining Remedies
In light of such uncertainty in international law, is there any role for the law of
the respondent host state in an investment treaty dispute to give content to the
‘full reparation’ standard? This section argues that tribunals will, in certain cases,
need to apply domestic law to determine the appropriate compensation for an
injured investor. Many of the cases examined later in Chapter 7 demonstrate that
the application of domestic law is often unavoidable to determine what rights the
investor actually holds, and whether those rights were held or obtained legally in
the host state. Even if the investor holds rights that constitute a valid ‘investment’
for the purposes of international law, however, not all of those rights are necessar-
ily compensable. Rather, as this section argues, further questions of domestic law
can arise at the remedies stage, and these questions must be properly resolved by
the tribunal.
This role for domestic law in remedies has arisen in three situations in the case-
law so far. The first is where local institutions have failed to act in some way relating
to the investment. Although this situation does not inexorably lead to the applica-
tion of domestic law, tribunals have taken it upon themselves to do so. They have
exercised their discretion in the remedial analysis to step into the shoes of domestic
institutions to resolve the local failure to act.
23 ILC (n 10) 100.

24 Articles 34, 36, 37. See ILC (n 10) 93 on causation, which, admittedly, does acknowledge that
the question of causation is just as difficult in domestic law as in international law.
25 Article 38. 26 Desierto (n 3) 41.
27 J Simmons, ‘Valuation in Investor-State Arbitration: Toward a More Exact Science’ (2012) 30
Berkeley JIL 196.
74

The second situation is where the validity of some part of the claimant’s invest-
ment is at issue. In these cases, for various reasons, the potential invalidity has
not affected the tribunal’s jurisdiction, in the sense of negating any investment.
However, it has meant that compensation for the invalid portion of the claimant’s
investment becomes an issue in the case. In the third situation, domestic law has
been used to resolve the temporal extent of the claimant’s rights, when calculating
compensation into the future. In particular, tribunals have ruled on the duration of
certain licences in order to conduct proper assessments of lost profits. Here again,
the cases demonstrate the wide role for domestic law in areas of investment arbitra-
tion that have not typically seen such analysis.
4.2.1 Local failure to act
The first situation is seen most clearly in Chevron v Ecuador and White Industries v
India, and also plays a role in Lemire v Ukraine.
In Chevron,28 the tribunal found that the state had breached a guarantee to pro-
vide ‘effective means for asserting claims and enforcing rights’ in the US–Ecuador
bilateral investment treaty (BIT). This ruling stemmed from a delay of thirteen
years suffered by the claimants in resolving a series of contractual disputes with
Ecuador in domestic courts. On the question of remedies, the claimant urged that
the principle of ‘full reparation’ in international law, as developed in the PCIJ’s
Chorzow Factory case, entailed placing Chevron in the hypothetical position it
would have been in if the cases had been decided in a timely manner. This meant
that the tribunal, in the claimant’s view, was required to decide the cases de novo but
independently of Ecuadorian law, and determine the result that Chevron would
have achieved. In doing so, the claimant argued that the tribunal was not bound by
the outcomes of judgments issued by local courts during the arbitration proceed-
ings, nor was it constrained by the fact that local courts may yet issue judgments at a
later date. Rather, the tribunal should make its own assessment of the cases on their
merits, and ‘it need not engage in the exercise of determining how an Ecuadorian
court might have decided those cases’.29 For Chevron, the cases would have been
resolved in its favour and would have resulted in an order for compensation of
nearly USD 700 million from Ecuador.
Contesting this, the state argued that Chevron had not suffered any loss solely
from the delays; any prejudice could be dealt with simply by local courts award-
ing interest on the amount due, when they eventually ruled on the cases.30 If the
tribunal nevertheless proceeded to decide the disputes itself, it was bound to decide
28 This discussion relates to the first of two investment treaty arbitrations brought by Chevron
against Ecuador in recent years, the so-called ‘Commercial Cases’ arbitration. The second arbitration
(Chevron Corporation and Texaco Petroleum Corporation v Ecuador, PCA Case No 2009-23) remains
pending.
29 Chevron Corporation v Ecuador (UNCITRAL), Partial Award on the Merits, 30 March
2010 [359].
30 ibid [365].
75
them as an Ecuadorian court would have. Furthermore, any amount determined as

compensation under this method should, according to Ecuador, be discounted to
account for the vagaries of litigation and the possibility that Chevron would have
lost the cases.31
The tribunal agreed largely with the claimant’s assessment of its task, ruling
that it would have to decide the cases itself rather than waiting for local courts.
The tribunal also agreed that the loss was not simply of a chance of success
in those cases, but was the particular amount that would have been ordered
in those cases. Importantly, though, the tribunal agreed with Ecuador on the
method of resolving the cases. Rather than applying its own interpretation of
the relevant legal instruments and the merits, it considered that it was bound to
apply Ecuadorian law. ‘The Tribunal must step into the shoes and mindset of an
Ecuadorian judge and come to a conclusion about what the proper outcome of
these cases should have been … applying Ecuadorian law … rather than directly
apply[ing] its own interpretation of the agreements.’32 Under this method, there
was no need to discount any compensation based on the probability of failure
in the cases, since a domestic judge would naturally not have ordered any such
discount.33 Then proceeding to analyse each of Chevron’s claims in the unre-
solved cases, the tribunal found that Chevron would have been successful, and
would have been granted nearly USD 700 million in compensation, including
interest.34
A similar situation of local court delay arose in White Industries v India. There,
India was found to have breached the Australia–India BIT by failing to resolve
local court proceedings aimed at enforcing a commercial arbitration award issued
by a panel of International Chamber of Commerce (ICC) arbitrators in favour of
White Industries. Once the tribunal had found that the excessive delays constituted
a treaty breach, it then turned to the question of what loss the unresolved proceed-
ings had caused to the claimant. In its view, this question depended on whether the
local courts would ultimately have granted enforcement of the award under Indian
law.35 Thus, as part of its analysis on compensation, the tribunal applied Indian law
to determine the enforceability of the award.
Under the Indian Arbitration and Conciliation Act 1996, which replicated the
New York Convention in this respect, enforcement could be denied if (among other
grounds) the original ICC tribunal was biased. The White tribunal agreed with
India’s submission that the appropriate test of bias to be used was the test which
a domestic court would have used.36 Relying on an expert opinion from a former
31 ibid [371].
32 ibid [375]. Note that there was no suggestion that the content of Ecuadorian law was question-
able from an international perspective, which might have meant that ‘stepping into the shoes’ of a
local judge would be misguided. The claimant’s concern was only with the processes of the local judicial
system and the excessive delays that it suffered.
33 ibid [378].
34 ibid [550]. This amount was later reduced to take account of Ecuadorian taxes: Chevron
Corporation v Ecuador (UNCITRAL), Final Award, 31 August 2011.
35 White Industries Australia Ltd v India (UNCITRAL), Final Award, 30 November 2011 [14.1.1].
36 ibid [14.2.37].
76

Indian Supreme Court judge, the tribunal accepted that this test was defined as a
‘reasonable apprehension in the minds of others that there is a likelihood of bias’.37
The tribunal specifically rejected the proposed approach of the claimant, which
relied on an earlier ruling of an International Centre for Settlement of Investment
Disputes (ICSID) tribunal in Suez v Argentina.38 Indeed, it commented that the
claimant’s ‘reference to the Suez case seems to ignore the fact that the Tribunal, in
determining the enforceability of the Award sits, in effect, as an Indian court which,
in considering bias, would do so from the perspective of bias under Indian law’.39
Having sided with India on the applicable test, however, the tribunal found for the
claimant on the facts, considering that the Indian law bias test was not satisfied and
enforcement of the award would not have been denied by an Indian court on this
ground.40
The point of interest in these cases for present purposes is the fact that these
tribunals felt that reference to domestic law was necessary at all. Indeed, in both
White and Chevron, the tribunals appealed to the Chorzow Factory principle of
restitutio in integrum in international law, purporting to do no more in their appli-
cation of domestic law than determine the claimant’s entitlements to ‘full repara-
tion’, via restoration to a position in which the wrongful act had not occurred.41
The conclusions drawn by the tribunals about their role under the Chorzow Factory
principle are not, however, inevitable. The approach of directly applying domestic
law to determine remedies following delayed local court judgments, as adopted in
Chevron and White, contrasts with the approach taken by the European Court of
Human Rights (ECtHR) in similar cases. Article 6(1) of the European Convention
on Human Rights (ECHR) contains a guarantee of a fair hearing in domestic
courts within a reasonable time. The ECtHR has noted that violation of this provi-
sion generally calls into play an obligation of restitutio under the Chorzow Factory
principle.42 The Court has found violations of Article 6(1) in many cases, following
excessively delayed local court judgments. In these cases, though, the Court has
typically not awarded compensation.43 The Court has connected this reluctance to
its position as an international court, finding it inappropriate to interpose itself into
a domestic dispute to the extent of ‘stepping into the shoes’ of local judges.44 It has
thus declined to rule on what might have happened if the cases had indeed been
resolved by domestic courts. Under the Court’s approach, any award of damages in
this circumstance would be speculative, apparently going beyond the requirements
of full reparation in Chorzow Factory.
As seen in section 4.2, such divergence over full reparation, a key concept of
remedies in international law, is widespread. A more precise meaning is often
37 ibid [14.2.38]. 38 ibid [14.2.38] fn 85. 39 ibid. 40 ibid [14.2.45].
41 Chevron (n 29) [374]; White (n 35) [14.3.3].
42 Salduz v Turkey App No 36391/02 (ECHR, 27 November 2008) [72]; see also the joint concur-
ring opinion of Judges Rozakis, Spielmann, Ziemele and Lazarova Trajkovska.
43 See, e.g., Nemec v Slovakia App No 48672/99 (ECHR, 15 November 2001); Havala v Slovakia
App No 47804/99 (ECHR, 12 November 2002).
44 Havala (n 43) [44]: ‘it is not for the Court to speculate on what the outcome of the proceedings
would be if they were in conformity with the requirements of Article 6 § 1.’ See also Comingersoll SA v
Portugal App No 35382/97 (ECHR, 6 April 2000) [30].
77
located only by reference to policy considerations,45 such as the appropriate role

of an international tribunal and, perhaps, the relative dispositions of arbitrators or
judges towards private (investor) or public (state) interests. Certainly, Chevron and
White represent significantly more activist uses of domestic law than other cases
have shown, and this may well have been deliberately done to resolve the dispute in
favour of the investor. Nevertheless, the extent of tribunals’ discretion in the area,
together with the important fact that—unlike in the ECHR—domestic law is often
part of the applicable law, means that this activism cannot be particularly criticized.
The principles of subsidiarity and deference discussed in Chapter 1 do not imply
that arbitrators should shy away from determining questions of domestic law. On
the contrary, this book illustrates that arbitrators are often inescapably required to
apply domestic law. Subsidiarity and deference apply most strongly where domestic
institutions have actively made decisions, which should not be lightly overturned
by remote international adjudicators. On the other hand, where local bodies fail
to act for extended periods of time, there is no threat to the tribunal’s legitimacy
to make such determinations itself if it does so with proper regard for the domestic
context of the laws that it is applying, as explained in Chapter 1 and more fully in
Chapter 5. These cases, then, only provide further evidence that the role of domes-
tic law in investment arbitration is an expanding one.
The third case in this area, Lemire v Ukraine, did not relate to a delayed local
decision, but instead to what the arbitrators viewed as a manifest failure by state
authorities to apply the relevant domestic law to the investor’s circumstances. Here
again, the tribunal took it upon itself to apply domestic law to calculate damages
and resolve the matter. The case centred on the operation of several tenders for
radio broadcasting licences. The claimant’s investment, for the purposes of the US–
Ukraine BIT, was his 100 per cent ownership of Gala, a Ukrainian company that
ran a successful radio station in Kiev.46 Gala submitted bids in the tenders for vari-
ous licences for other stations around Ukraine. However, despite being eminently
qualified, it was unsuccessful in its bids, and it took the matter to the ICSID. In a
2010 decision, the Lemire v Ukraine tribunal held Ukraine responsible for breaches
of fair and equitable treatment in its conduct of the tender process. In a 2011 deci-
sion, the tribunal quantified the compensation due to Lemire for the breaches. In
doing so, it applied the Ukrainian law governing the broadcasting tenders in order
to establish what it viewed as the correct results of the tender, had the criteria speci-
fied in the law been honestly applied. Its conclusion was that Gala would have met
the criteria, and thus should have been awarded the tenders.47 Damages were then
calculated on the basis of economic projections of the profit of the radio stations
that would have been set up under the tendered licences.
Like Chevron and White, Lemire represents another instance in which the tri-
bunal determined ‘full reparation’ under Chorzow Factory by means of direct
45 Gray (n 1) 23 (in the context of causation).

14 January 2010 [54].
47 Joseph Lemire v Ukraine (ICSID Case No ARB/06/18), Award, 28 March 2011 [179], [200].
78

application of domestic law.48 The Lemire tribunal implicitly declined the potential
alternative of claiming an inability to speculate on the outcome of the tender if the
domestic law had been properly applied. Instead, it actively applied the domestic
law to resolve the remedies question. While an alternative remedy might have been
an order to Ukraine to re-award the tenders,49 the tribunal’s decision to rule on the
tenders itself is, again, defensible as an approach to filling out the ‘full reparation’
standard of international law remedies.
4.2.2 Validity of the investment affecting compensation

Alpha Projektholding v Ukraine illustrates the second situation described at the
beginning of this section, in which the validity of the investment affects compen-
sation. The Austrian claimant had entered into various agreements with a state-
owned hotel in Kiev, with the aim of renovating the hotel to four-star standards.
The agreements included provisions for a long-term, minimum monthly payment
to be made to Alpha in return for its financing of the renovations and its contribu-
tion of management experience and know-how in hotel operations. Any further
profits from the hotel over the specified term were to be split between the parties.
When the hotel ceased making the monthly payments to Alpha after several years,
the investor claimed expropriation, alleging interference by Ukrainian authorities
in the hotel management.50
After concluding that Ukraine had violated the BIT and expropriated Alpha,
the tribunal moved to assess compensation. It noted that the amount of compensa-
tion would depend on whether the investment constituted a ‘joint activity’, a spe-
cial category of commercial relationship under Ukrainian law.51 This was because
Ukraine claimed that the minimum monthly payment provisions in the agreements
breached the relevant domestic law that governed ‘joint activities’ (the Civil Code).
In order to determine compensation, then, the tribunal considered that it would
have to decide first whether there was a ‘joint activity’, and second whether the
agreements did in fact breach the Civil Code.52
On the ‘joint activity’ question, the tribunal offered a relatively detailed analy-
sis. Appropriately, it guided itself by the provisions of the Ukrainian Civil Code
applicable at the time and by the views of both parties’ experts in Ukrainian law,
as well as the text of the agreements themselves.53 The agreements themselves were
titled ‘Joint Activity Agreements’ and made frequent references to a joint activity.
Earlier versions of the agreements had been amended to correct deficiencies arising
48 The tribunal cited Chorzow Factory as its baseline at ibid [149].

49 See below on non-monetary remedies.
50 Alpha Projektholding GmbH v Ukraine (ICSID Case No ARB/07/16), Award, 8 November 2010.
51 ibid [439].
52 The investor actually argued that the investment was a joint activity, in an effort to obtain
other advantages under domestic law that would result from this characterization: ibid [199]–[204].
However, Alpha apparently did not factor in the possibility that its agreements could become partly
invalid if they were ultimately considered joint activities.
53 Alpha (n 50) [207] and [440].
79
under the Civil Code’s provisions on joint activities. The substantive provisions of
the agreements established a framework that would be expected in a joint activity,
including the sharing of profits and the equal distribution of assets upon termina-
tion.54 Legal opinions given by lawyers for the hotel at the time had concluded that
the agreements constituted a joint activity.55 In light of all this, the tribunal found
that there was a joint activity.56
With this finding in place, the tribunal went on to clarify whether the minimum
monthly payment provisions violated Articles 1137 and 1139 of the Civil Code.57
Article 1137 stated that any joint activity contractual provision ‘under which a partici-
pant is fully exempt from participation in reimbursement for joint expenses and losses
shall be invalid’. Article 1139 similarly stated that a contractual provision ‘depriving
or refus[ing] the participant of the right for a part of the profit shall be invalid’.58
According to Ukraine, a guaranteed monthly payment to Alpha meant that Alpha was
effectively exempt from participating in the losses of the activity, and that the hotel was
effectively deprived of its rights to any profits.
The tribunal noted that neither party had submitted any case-law or materials on
the intended meaning of Articles 1137 and 1139 of the Civil Code.59 The parties’
experts, however, expressed their views on the Civil Code, and the tribunal relied both
on these and on its own reading of the provisions to conclude that the investor’s con-
tractual arrangements did violate the Code.60 The contractual provisions on minimum
monthly payments were thus held to be invalid as at the date of commencement of the
Code, 1 January 2004.61 This finding in turn affected the amount of compensation
due to the investor. Rather than foregoing the monthly payments under the contract
from 2004 onwards, the investor had lost only a smaller amount, a 50 per cent share of
the profits during the remainder of the contractual term.
Another case illustrating the second situation is Occidental Petroleum Corporation
v Ecuador. This 2012 case saw one of the largest ever awards of compensation in an
ICSID case, when Ecuador was ordered to pay around USD 1.7 billion to US oil
company Occidental, following the termination of the company’s oil concessions in
the state. Ecuador had terminated the concession contract after Occidental moved
to assign 40 per cent of its interest in the oil fields to another company. Such an
assignment required the consent of Ecuador’s Ministry of Energy under the con-
tract, and, when Occidental did not obtain this consent, Ecuador considered that
it was justifiable to terminate the contract.62
The arbitrators frowned upon Occidental’s conduct in breach of the contract,
but ultimately held that Ecuador’s termination was disproportionate and in breach
54 ibid [218]. 55 ibid [442]. 56 ibid.

57 The tribunal had earlier found that the claimant held an ‘investment’ under the BIT regardless of
whether its agreements were ‘joint activities’ or not: ibid [263], [309], [332]. Therefore, the legality of
the payment provisions did not affect the tribunal’s jurisdiction overall.
62 Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11), Award, 5 October
2012. For background, see LE Peterson, ‘Ecuador Must Pay $1.76 Billion US to Occidental for
Expropriation of Oil Investment; Largest Award Ever in Bilateral Investment Treaty Case at ICSID’
(2012) 5(19) Investment Arbitration Reporter <tinyurl.com/nnphmc7>.
80

of the US–Ecuador BIT.63 However, Ecuador tried to limit its liability to the inves-
tor by observing that, if Occidental had assigned away 40 per cent of its investment,
it could only logically claim compensation for the remaining 60 per cent of the
investment’s value. For the tribunal, the resolution of this claim—and the ultimate
determination of Occidental’s compensation—rested on the question of whether
the assignment, in breach of the contract, was nevertheless legally valid.64
Unlike the tribunal in GEA v Ukraine (discussed in Chapter 7),65 the Occidental
tribunal correctly appreciated that the validity of the assignment would depend
on domestic law, in particular the governing law of the contract, which was both
Ecuadorian law and New York law. Analysing Ecuadorian law, the tribunal majority
cited first a statute which appeared to clearly state that assignments without consent
were null and void and had ‘no validity whatsoever’.66 However, Ecuador then cited
provisions of its Civil Code which suggested that the assignment was only voidable,
and would become void only once an Ecuadorian judge had declared so. (It was
clear that no Ecuadorian or New York judge had in fact declared the assignment
void.) In response, the majority pointed to consistent case-law from the Ecuadorian
Supreme Court finding that, despite the Civil Code provisions, the local law did
recognize the possibility of automatic nullity (i.e. without requiring a judge’s dec-
laration). In the majority’s view, the requirements for automatic nullity or ‘inexist-
ence’ were satisfied here.67 Furthermore, the majority noted that Ecuador’s legal
experts also agreed that the nullity of the assignment was automatic and did not
require a judge’s declaration.68
On New York law, the majority cited case-law confirming that an assignment in
breach of contract would not be recognized.69 In addition, the majority held that
New York choice-of-law rules would mean that Ecuadorian law would be applied
to the assignment in any case, bringing the analysis back to the Ecuadorian law
position.70
The dissenting arbitrator, Brigitte Stern, disagreed with this conclusion, siding
with the view that the assignment remained valid until it was declared invalid by
a judge. For Stern, the majority had applied ‘not the real Ecuadorian law but an
inexistent and inchoate body of law’ to resolve this question.71 Acknowledging the
importance of domestic law on the point, Stern noted that this perceived mistake of
the majority meant that ‘the issue of the application of the proper law is at stake’.72
The problem, the dissenter held, was that the majority had taken selective citations
from the Ecuadorian case-law, and had also been confused by ‘serious problems of
63 Occidental (n 62) [452]. 64 ibid [614]. 65 See section 7.1.1.

66 Occidental (n 62) [618]. 67 ibid [626]. 68 ibid [639]–[640].
69 ibid [645]. 70 ibid [647].
71 Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11), Dissenting Opinion,
20 September 2012 [44].
72 ibid [78]. This raises the possibility of annulment, as discussed in Chapter 5 (at section 5.2).
Indeed, as foreshadowed by the dissenter, an ICSID annulment committee agreed with Ecuador in
November 2015 that the decision should be partly annulled due to the majority’s treatment of the
relevant domestic law: Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11),
Decision on Annulment of the Award, 2 November 2015.
81
translation’ from Spanish to English.73 Stern then proceeded to analyse the case-law
in great detail, concluding that the cases demonstrated a requirement for a judge’s
declaration before the assignment would become void.74 In terms of New York law,
the dissenter similarly found no evidence that this law provides for the automatic
invalidation of a contract, in the absence of a claim before a judge to that effect.75
Thus, for the majority, Occidental was entitled to compensation for 100 per cent
of the investment’s value,76 because the 40 per cent assignment was legally inef-
fective, while the dissenting arbitrator would have awarded only the remaining 60
per cent to the claimant. Although the dissenter did not quantify the difference in
compensation arising from her preferred result, given the overall award of USD 1.7
billion, the difference on this question of domestic law thus amounted to several
hundreds of millions of US dollars.
4.2.3 Temporal extent of claimant’s rights

The third situation of domestic law appearing in remedies analyses—the temporal
extent of the claimant’s rights—is demonstrated by Middle East Cement v Egypt.
There, the investment was constituted by a licence granted in 1983 to the investor
to import a certain kind of cement into Egypt. It was not disputed that the licence
was validly granted under domestic law. However, in resolving the investor’s claims
of expropriation following the cancellation of the licence in May 1989, the tribunal
was called on to determine the remaining duration of the licence, in order to estab-
lish exactly what rights of the investor had been interfered with.
The agreed translation of Article 9 of the licence read: ‘The period of this license
is the period of supply of the quantities which may be contracted for with the
Egyptian Cement Sale Office on condition that the duration of the project does
not exceed ten years.’77 Egypt focused on the first part of Article 9, observing that
the investor’s sole contract for supply to the Egyptian Cement Sale Office expired
in September 1989. This meant that the ‘period of supply’, and thus the ‘period of
this license’, was only a further four months after the licence cancellation.78 The
investor, on the other hand, focused on the second part of Article 9, arguing that
the licence had a fixed term of ten years and would not expire until 1993.79
The tribunal, interpreting the licence terms on their face, sided with the investor.
Article 9’s reference to quantities ‘which may be contracted for’ suggested to the
tribunal that the licence covered not only the term of the investor’s existing contract
73 Occidental, Dissenting Opinion (n 71) [68]. 74 ibid [113]. 75 ibid [53].

76 Subject to other issues not discussed here, such as a reduction for the claimant’s own unlawful
conduct in breaching the contract in the first place. For a review of the case and these other issues of
compensation see Peterson (n 62).
12 April 2002 [109].
78 ibid [110].
79 ibid [82]. The investor also appeared to suggest (at [82]) that Egyptian authorities had confirmed
that the licence’s term was ten years, thus estopping Egypt from arguing otherwise in the proceedings.
However, this possible claim was not addressed by the tribunal.
82

with the Cement Sale Office but also any future ones within the ten-year period
from 1983 to 1993. Furthermore, based on the licence’s authorization in Article 1
of cement imports for both ‘the Public and Private Sectors’, any potential contracts
with private sector parties (not just the Cement Sale Office) should also be included
within the licence’s scope.80 Rather than viewing the ‘on condition that’ phrasing
in Article 9 as expressing a maximum term for the licence, the tribunal viewed it in
fact as defining the term of the licence. The licence thus had another four years—not
four months—to run after its premature cancellation by Egypt, and the investor
was compensated accordingly.
Another case in this third situation is CMS v Argentina, which also involved a
ruling on the duration of the investor’s rights under its operating licence. The inves-
tor urged that the tribunal take into consideration an envisaged extension of the
licence for ten further years beyond its thirty-five-year term. The tribunal, in a brief
response to this, held instead that the ten-year extension was ‘conditional and sub-
ject to a number of steps, both substantive and procedural, which might or might
not take place’. Since it could not yet be determined whether the investor would
meet these additional requirements, the extension could not be considered, and the
investor’s rights were deemed to end after thirty-five years.81 Naturally, this conclu-
sion had a noticeable effect on the amount of damages subsequently calculated in
the investor’s favour.82
4.2.4 Conclusion
The cases analysed in this section show tribunals drawing on domestic law either to
clarify the underlying rights on the basis of which compensation would be deter-
mined, or in an effort to resolve the uncertainty of international law on remedies.
It is not obvious that domestic law will play any role at the remedies stage of an
arbitration, when breaches of international law are in issue. Despite this, these cases
demonstrate a wider than expected role for domestic law analysis.
4.3 Relevance of Domestic Law Rules on Interest Payments
The previous section examined case-specific uses of domestic law, where tribunals
have felt that an issue in that case required resolution in domestic law in order for
the international law damages analysis to proceed. What about broader uses of
domestic law to inform remedies issues that arise in every case? These might include
general approaches to causation, the burden of proof in damages, foreseeability
80 ibid [111].
81 CMS Gas Transmission Company v Argentina (ICSID Case No ARB/01/8), Award, 12 May
2005 [199].
82 ibid [439]. See also Adem Dogan v Turkmenistan (ICSID Case No ARB/09/9), Award, 12 August
2014 and SAUR International SA v Argentina (ICSID Case No ARB/04/4), Award, 22 May 2014
[365]–[373] for similar examples.
83
and remoteness of harm, and others. In many of these areas, as seen in section 4.1,
international law has ‘run out’ or is vague, leaving no clear principle to govern the
question. As this section demonstrates, there are grounds for reference to domestic
law on at least one such issue: the calculation of interest on compensation due.
4.3.1 Reference to municipal legal systems generally

One possible use of domestic law in this sense is by reference not to a particular domes-
tic law (such as the host state’s law) but to ‘domestic law’ in general—that is, general
principles of law drawn broadly from domestic legal systems. Domestic law is relevant
in clarifying ambiguities in international law doctrines by means of its connection to
the ‘general principles of law’ recognized as one of the sources of international law.83
Ripinsky and Williams, for instance, indicate that investment tribunals have already
drawn on principles in municipal legal systems (incorporated into international law as
general principles of law) relating to mitigation of loss and the burden of proof.84 They
recognize that international law remains ‘far from settled’, and that tribunals may need
to ‘resort to the experiences of national legal systems’ in order to clarify uncertainties.85
McLachlan, Shore, and Weiniger suggest that tribunals will need to look to domestic
private law systems in order to elaborate a workable definition of causation in interna-
tional law.86 As part of an edited collection on the role of comparative domestic public
law in clarifying various issues in international investment law, Marboe argues that,
since (in her view) the ILC Articles do not apply in the investor–state context, there is a
void of principles on remedies in investment law. Marboe advocates filling this void by
reference to situations in which governments are liable for damage to private interests
under domestic public law systems.87
Gray, however, has cautioned against an approach based on principles of rem-
edies in domestic legal systems. She observed that some early international arbitral
tribunals tended to assume that the remedies available to them were analogous to
municipal law remedies, and that arbitrators applied techniques of assessment of
damages similar to those used in domestic courts. However, she noted that such
an approach was the exception; there was no coherent theory on the relationship
between national law rules and international law rules on damages or remedies,
and no thorough comparative studies of national systems.88 Even where general
principles could be derived from domestic systems in a rigorous manner, the result-
ing principles—such as ‘full reparation’—would be too general to be of any real
assistance. For Gray, a principle would need widespread acceptance in domestic
83 G Gaja, ‘General Principles of Law’ in R Wolfrum (ed.), Max Planck Encyclopaedia of Public
International Law (OUP, n.d.); I Brownlie, Principles of Public International Law (7th edn, OUP
2008) 16.
84 Ripinsky (n 4) 44. 85 ibid 45.
86 McLachlan, Shore, and Weiniger (n 12) 336.
87 I Marboe, ‘State Responsibility and Comparative State Liability for Administrative and Legislative
Harm to Economic Interests’ in Schill (n 3).
88 Gray (n 1) 7. Gray was writing in 1990, but it appears that this is still largely the case today.
However, note Marboe (n 87) and van Aaken (n 3) in this context.
84

systems, and not merely existence in some domestic systems, before it could be
acceptable in international law.89
Thus, there may be reasons to be cautious in using domestic law generally in this
sense to resolve remedies issues, at least without widespread agreement amongst
domestic legal systems on a particular question. What about recourse to a more
specific domestic law—the law of the respondent host state? Section 4.3.2 considers
this possibility.
4.3.2 Reference to host state law specifically

Instead of referring to general principles of law, should the remedies principles
relating to interest (or equally to heads of loss, causation, burden of proof, mitiga-
tion of loss and other issues) that apply in the host state’s law be drawn on to resolve
the uncertainties in international law detailed previously? If this suggestion were
adopted, Gray’s objections outlined in section 4.3.1 would fall away. However,
there are also objections to the possibility of reference to a particular state. In par-
ticular, while certainty and intuitive fairness might result from adopting the host
state’s rules, these rules may be inadequate in international terms.90 If international
law in this area is to serve its function as a check on abhorrent domestic legal sys-
tems, it could not permit a situation in which, for instance, the host state’s rules on
causation were so restrictive that no loss could ever be proved to have been caused
by the state’s conduct.
As a second objection, adopting the remedies rules of the respondent state in
an international proceeding would mean that the state’s responsibility for breach
of its primary obligations would be governed by international law, but its second-
ary obligations following a finding of breach would be governed by domestic law.
One problem with this, in Gray’s view, is that liability and damages (or rights and
remedies) are too connected for them to be meaningfully governed by different
bodies of law. There is no clear separation between the two: ‘a question of damages
concerns the extent and measurement of liability.’91 Apart from this, it is a matter
of basic international law that the legal consequences of breach of an (investment)
treaty, including reparations and compensation, are governed by international law.
States’ secondary obligations to repair breaches of international law arise in the
international plane, and ‘[d]‌omestic law plays no part in any of these respects’.92
However, there are responses to these objections. First, as recognized in previ-
ous chapters, there are many situations in international investment law in which
international law ostensibly governs a question but where domestic law is relevant
to some degree. To take one obvious example, the umbrella clause in a typical BIT
conditions compliance with international law on compliance with domestic law
89 Gray (n 1) 28. 90 ibid 9. 91 ibid 10.

92 Newcombe and Paradell (n 1) 99. See also Nollkaemper (n 1) 61; I Marboe, ‘Compensation
and Damages in International Law: The Limits of “Fair Market Value” ’ (2006) 7 JWIT 723, 754–5;
Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Award, 16 September 2015 [520] and Venezuela
Holdings BV v Venezuela (ICSID Case No ARB/07/27), Award, 9 October 2014 [399].
85
(that is, the investment contract, usually governed by host state law).93 Similarly,
the definition of a protected investment is governed by the BIT’s provisions, but
the underlying rights constituting the investment are necessarily governed by host
state law. Thus, in the investment treaty era, it is not inconsistent to say that a state’s
secondary obligations may be formally governed by international law while also
acknowledging that their extent will require analysis and application of domestic
law. This response applies equally to the connections between liability and damages.
Even if their inseparability is accepted, in a situation in which the state’s liability is
itself explicitly governed by a mix of domestic and international law, it is difficult
to say that the appropriate remedies should not also be governed by some mix of
the two.
There remains the first objection, relating to the ‘oversight’ function of inter-
national law. On this view, it remains important for international law to govern
questions of remedies, and no (or only very limited) weight should be given to
relevant domestic rules. However, there is scope for a reorientation towards domes-
tic law rules while retaining the possibility of international oversight in extreme
or outrageous cases. Thus, just as investment arbitrators are not bound to rely on
rulings of domestic courts where there are strong reasons to doubt the independ-
ence or quality of those courts,94 arbitrators could at least use domestic law rem-
edies rules as an important starting point while being prepared to override them in
appropriate cases.
Indeed, as demonstrated in section 4.3.3, some investment tribunals have argu-
ably already taken this approach on the determination of interest. Moreover, these
tribunals have observed that recourse to domestic law is the only logical choice,
given that international law does not specify interest rates.
4.3.3 Reference to host state law on interest determinations

BITs occasionally include provisions on interest payments in the expropriation
clause, sometimes specifying the applicable rate.95 However, this clause applies
only in the case of lawful expropriations, and does not strictly give guidance on
interest payments (or compensation more generally) for breaches of the treaty.96
In the more usual case in investment arbitration, where a treaty breach is found,
arbitrators must turn to general international law standards on remedies, including
the codification of these standards in the ILC Articles. As noted earlier, though,
the ILC Articles give only very general guidance on the payment of interest. Article
38(1) provides that interest ‘shall be payable when necessary in order to ensure full
93 See, e.g., Newcombe and Paradell (n 1) 437–79. 94 See Chapter 5 at section 5.6.1.
95 Ripinsky (n 4) 364–7.
96 As recognized in ADC Affiliate Ltd v Hungary (ICSID Case No ARB/03/16), Award of the
Tribunal, 2 October 2006 [483]. In Franz Sedelmayer v Russia (SCC), Arbitration Award, 7 July 1998,
115–16, a treaty clause on interest was applied, leading to use of a domestic law rate, where the expro-
priation appeared to be treated as lawful. Interest clauses have, nevertheless, sometimes been used in
preference to general international law standards to calculate compensation: see, e.g., Patrick Mitchell
v DRC (ICSID Case No ARB/99/7), Award, 9 February 2004 [76]–[77].
86

reparation’, with the interest rate and mode of calculation being set ‘so as to achieve
that result’. The major sets of arbitral rules used in investment treaty arbitration
(ICSID, UNCITRAL, ICC) also do not include any provisions on interest.97
One very common approach used by tribunals to fill in this void of legal guid-
ance is to determine the alternative uses to which the injured investor could have
put the compensation, had it been paid at the time of the treaty breach (sometimes
labelled the ‘investment alternatives’ approach).98 The rationale for this is that
interest is intended to compensate for the loss of use of the money during the
period in which it was owed to the investor (because of the breach of international
law) but not paid by the state.99 Of course, there are infinitely many alternative
investments which the claimant could have made with the unpaid money, includ-
ing the choice not to invest it at all. For this reason, when selecting an interest rate,
tribunals often choose a highly conservative, ‘risk-free’ international figure such as
the rate on US Treasury bills or the LIBOR rate. This approach grants some kind
of interest to the claimant while avoiding excessive speculation. Similarly, in recent
years tribunals have commonly opted for compound interest, reasoning that any
alternative investment that the claimant would have made would almost certainly
have paid compound interest.100 If the tribunal’s goal is to place the claimant in
a position as if no breach had occurred, wiping out all the consequences of the
internationally unlawful act, these approaches to interest might appear completely
logical and difficult to gainsay.101
Nevertheless, not all tribunals have followed this path. Instead, some have high-
lighted two factors: first, that international law contains no preferred interest rate
and expresses no preference for compound over simple interest, and second, that
domestic law often forms part of the applicable law in the case. In these circum-
stances, these tribunals have found it entirely appropriate to turn to domestic law
on this issue.
Two examples are found in the major international commercial arbitrations aris-
ing from nationalized oil concessions in the 1960s and 1970s. In LIAMCO v Libya
the arbitrator set an interest rate of 5 per cent as provided in the Libyan Civil Code,
rejecting the claimant’s proposed rate of 12 per cent.102 The concession contract
at issue there was expressed to be governed by the common principles of Libyan
and international law,103 meaning that Libyan domestic law would apply unless
inconsistent with international law. Nevertheless, the claimant’s basic entitlement
97 M Kantor, Valuation for Arbitration: Compensation Standards, Valuation Methods and Expert
Evidence (Kluwer 2008) 265.
98 Ripinsky (n 4) 368. 99 ibid.
100 ibid 379–87. One recent case, Quiborax v Bolivia, found that compound interest ‘comes closer
to achieving this purpose [i.e. full reparation] than simple interest’: Quiborax (n 92) [523]. See similarly
El Paso (n 11) [746].
101 Sabahi (n 21) 150, for instance, assumes that the Chorzow Factory standard requires tribunals to
adopt the ‘investment alternatives’ approach.
102 Libyan American Oil Company (LIAMCO) v Libya (1981) 20 ILM 1, 164.
103 ibid 64, 66–7.
87
to compensation arose in international law (as well as Libyan law),104 and yet the
applicable law on at least one issue of remedies was domestic law. In Amco Asia v
Indonesia, an early ICSID arbitration, the tribunal applied Indonesian law on inter-
est, noting only that this would ‘keep the interest on a moderate basis’ while also
coming ‘as close as possible to the full compensation prescribed by International
Law’.105 Under Article 42(1) of the ICSID Convention, applicable law in the case
was both Indonesian law and international law.106 The underlying breach found
was, as in LIAMCO, a breach of both international law and Indonesian law.107
A more recent example of a similar situation coming from an investment treaty
arbitration is CME v Czech Republic. In that case, the arbitrators observed that
both Czech law and international law were applicable.108 In the absence of any
specified interest rate in international law, the arbitrators looked to Czech law.109
Furthermore, since Czech law permitted only simple interest, the tribunal rejected
the claimant’s request to grant compound interest. Interestingly, the tribunal justi-
fied this by reference to the international law objective of awarding ‘full compensa-
tion’ for the damage sustained. Since the rate in Czech law was already quite high,
the tribunal held, compound interest was not necessary to achieve full compensa-
tion.110 This indicates that even compensation assessed according to domestic law
may still fulfil the flexible standards of international law.
SPP v Egypt offers a further example similar to CME. There, the ICSID tribunal
concluded that interest would need to be determined according to Egyptian law,
since ‘there is no rule of international law that would fix the rate of interest’.111
The tribunal noted that this result followed from the relevant applicable law clause,
Article 42(1) of the ICSID Convention (which calls for application of both host
state law and international law in the absence of an explicit choice by the parties).112
In Swembalt v Latvia, the tribunal found that international law alone was the
applicable law. Despite this, when calculating interest, observing that international
law provided no rules on interest rates, the tribunal considered that it should apply
either the lex loci delicti (that is, the law of the host state Latvia) or the lex fori of the
UNCITRAL rules arbitration (seated in Denmark). It declined to apply Latvian
law, since it considered that it did not have enough information on that law, and
104 ibid 130. 105 Amco Asia v Indonesia (1985) 24 ILM 1022, 1038.

106 ibid 1023. 107 ibid 1033.
108 CME Czech Republic BV v Czech Republic (UNCITRAL), Final Award, 14 March 2003, 156.
Note that the tribunal’s final award on damages in this case was more conciliatory on the relevance
of domestic law than its highly criticized partial award on merits: see V Igbokwe, ‘Determination,
Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitration’ (2006)
23 J Intl Arb 267, 291.
109 CME (n 108) 158. 110 ibid 159.
111 Southern Pacific Properties (Middle East) Ltd v Egypt (ICSID Case No ARB/84/3), Award on the
Merits, 20 May 1992 [222].
112 ibid. Similarly, Paraguay argued in Bureau Veritas, Inspection, Valuation, Assessment and Control,
BIVAC BV v Paraguay (ICSID Case No ARB/07/9), Further Decision on Objections to Jurisdiction,
9 October 2012 [206] that its law must be applied, under Article 42(1) of the ICSID Convention,
to determine the interest rate on compensation. The state also asserted that ‘the law of the host State
88

therefore turned to Danish law.113 In a ‘delocalized’ arbitration under ICSID rules,
where no legal seat is specified for the tribunal,114 the Swembalt approach would
leave only one real option—the law of the host state.
In Duke Energy v Ecuador, the applicable law on damages for breach of the US–
Ecuador BIT was international law.115 Nevertheless, although without particular
elaboration,116 the tribunal applied a local law prohibition on awarding compound
interest,117 and supported this by a finding that ‘the award of compound interest
is not a principle of international law’.118 An even more economical approach was
taken in Eastern Sugar v Czech Republic. The tribunal there observed that Czech law,
which was part of the applicable law, provided a statutory rate which did not con-
flict with international law. Without further reasoning, the tribunal then applied
the Czech law rate.119
By contrast, some cases have expressly rejected the relevance of domestic law on
interest. However, their reasons for doing so are somewhat questionable. In Middle
East Cement v Egypt, for instance, the tribunal expressly refused to apply Egyptian
law on interest. It held that ‘the provision in Egyptian law on which Respondent
relies is not applicable to claims based on the BIT, i.e. public international law’.120
applies to determine the amount of interest due’. No compensation was ultimately awarded in the case,
so the tribunal did not rule on the issue.
113 SwemBalt AB v Latvia (UNCITRAL), Decision by the Court of Arbitration, 23 October
2000 [46].
114 L Reed, J Paulsson, and N Blackaby, Guide to ICSID Arbitration (2nd edn, Kluwer 2010) 14.
115 Although the case was governed by both international and Ecuadorian law (Duke Energy
Electroquil Partners v Ecuador (ICSID Case No ARB/04/19), Award, 18 August 2008 [196] and,
more particularly on damages, [440]), the tribunal considered that Ecuadorian law would govern the
damages assessable for the state’s breach of that law and international law would govern damages for
Ecuador’s breach of the BIT: [467].
116 The tribunal did note that it would enforce the local law prohibition on compound interest
‘especially considering Article VIII of the BIT which specifies that the Treaty shall not derogate from
the laws and regulations of the host State’: ibid [473]. However, this may be a misreading of the US–
Ecuador BIT. Depending on how the formatting of the clause is interpreted in the English and Spanish
versions of the treaty, Article VIII arguably only specifies that the Treaty does not derogate from local
laws that are more favourable to the investor. Presumably a prohibition on compound interest is not
more favourable.
117 The tribunal stated that ‘the prohibition of compound interest contained in local law must be
enforced’: ibid [473].
118 ibid. The tribunal in Occidental v Ecuador (n 64) [838] dismissed the Duke tribunal’s application
of simple interest via reliance on domestic law on the grounds that compensation was only awarded
there for breach of domestic law (the investment contract), rather than international law. However,
this is doubtful. At [473], the Duke tribunal appeared to be considering whether any provisions of
international law might change its view that no further compensation was to be awarded beyond that
given for the domestic law breach. Ultimately, it appeared to conclude that its analysis under domestic
law held good under international law as well; i.e. that international law approved of the reference to
domestic law on that issue, in those circumstances. The tribunal in Quiborax also dismissed Duke’s
conclusions on simple interest, claiming that the Duke tribunal acknowledged that compound interest
may be awarded for expropriation claims (i.e. breaches of international law), although not for contract
claims (i.e. breaches of domestic law): Quiborax (n 92) [521]. However, this is also doubtful, since, in
the paragraph of Duke quoted by Quiborax, the Duke tribunal was merely recounting Ecuador’s argu-
ment rather than making its own findings.
119 Eastern Sugar BV (Netherlands) v Czech Republic (SCC No 008/2004), Partial Award, 27 March
2007 [373]–[374].
120 Middle East Cement (n 77) [174].
89
The tribunal applied a rate of 6 per cent interest ‘in view of the rates in financial
markets during the relevant period’.121 This rejection of host state law may perhaps
be explained by the tribunal’s finding that, based on the terms of the relevant BIT,
national law was only applicable in the case to the extent that it was more favourable
to the investor.122 Yet, given that international law contains no explicit determina-
tions of interest rates, it is arguable that the 4 per cent rate specified in Egyptian
law was not less favourable to the investor, and thus should have been given more
credence in the tribunal’s assessment.
In another case against Egypt, Wena Hotels v Egypt, the tribunal awarded interest
by reference to prevailing market rates in Egypt, without consideration of the relevant
Egyptian law on the matter.123 In the subsequent annulment proceedings, Egypt
argued that the tribunal should have relied on Egyptian law. The annulment com-
mittee, however, disagreed, apparently considering that the provisions for interest in
Egyptian law would not meet the BIT’s objectives of awarding ‘prompt, adequate
and effective’ compensation based on the ‘market value of the investment’.124 This
was because setting too low a rate would mean that the compensation would have
been ‘eroded by the passage of time’.125 While this may be true, it does not necessar-
ily mean that the compensation would therefore no longer meet the BIT’s objectives.
The word ‘adequate’, on its face, offers very little, and certainly says nothing about
which particular interest rate should be applied to a principal sum of compensation.
Others have observed that ‘prompt, adequate, and effective’ compensation can be
determined through a wide range of approaches.126 Furthermore, determining the
market value of an investment itself would seem to be a separate issue to determining
the interest rate applicable to the sum that was not paid. Although tribunals do enjoy
a large degree of discretion in this area, such that the Wena tribunal’s failure to refer
to Egyptian law may not amount to an annullable error, the annulment committee’s
justification of the tribunal’s approach is not convincing.
These cases leave open the possibility of a situation in which the host state law
on interest in some way conflicted with international law. This might arise where,
for instance, the domestic law prohibited interest entirely (perhaps on religious
grounds). Although Article 38(1) of the ILC Articles specifies only that interest
must be paid ‘when necessary in order to ensure full reparation’,127 the payment
of some interest is warranted wherever compensation has been awarded, since the
claimant has lost the use of that money in the time between the breach and the
state’s eventual payment on order of a tribunal.128 The host state’s preference for
121 ibid [175]. 122 ibid [86]–[87].

123 Wena Hotels Ltd v Egypt (ICSID Case No ARB/98/4), Decision on Annulment, 28 January
2002 [51]. The original award records only that the tribunal chose a rate of 9 per cent, citing the fact
that ‘long-term government bonds in Egypt are currently yielding 10%’: Wena Hotels Ltd v Egypt
(ICSID Case No ARB/98/4), Award, 8 December 2000 [128] and fn 289.
124 Wena Hotels, Decision on Annulment (n 123) [52]–[53]. 125 ibid [52].
126 McLachlan, Shore, and Weiniger (n 12) 317–18. 127 Emphasis added.
128 cf Anaconda-Iran Inc v Iran (Case No 167, Award No ITL 65-167-3), Interlocutory Award, 10
December 1986 [145], where the Iran–US Claims Tribunal awarded interest despite a prohibition in
Iranian law.
90

avoiding interest, though, could be taken into account by the arbitrators in setting
an appropriate rate to apply.129
Ripinsky cites CME and Swembalt as examples of cases in which reference to domes-
tic law was used because the tribunal was ‘influenced by the fact that international law
does not contain guidance on the applicable rate of interest’.130 Since the situation of
international law’s silence is not specific to those two cases, it can be argued that tribu-
nals should in every case be more influenced by this fact. Indeed, Ripinsky acknowl-
edges that international law is vague and that ‘the interest rate prescribed by domestic
law can be considered as an option’, particularly where domestic law applies in the
case (which, again, is true of many investment arbitrations), unless the local rate is
inadequate as just discussed.131 Ripinsky also notes that fixed rates (such as those often
established in domestic statutes) can lead to under-or over-compensation as they do
not reflect market conditions.132 But, given the acknowledged vagueness of the inter-
national law standards, the goal of achieving some perfect value of compensation seems
illusory in any case. The ‘much-needed uniformity to the practice and predictability
for the parties’133 that is said to follow from the ‘investment alternatives’ approach
previously described might thus be better served by a highly predictable reference to
predefined local law rules on interest.
4.3.4 Conclusion
As results from this analysis, there is no strict bar to the consideration of domestic
law on interest in an investment arbitration. Indeed, several cases have already done
so, reasoning that domestic law was applicable in the case, and that international
law contained no relevant rule. It is certainly true that domestic law would provide a
more concrete reference point than the currently prevailing method of selecting an
‘international’ rate such as LIBOR, at the discretion of the arbitrator, to represent
a hypothetical alternative investment. Reference to domestic law might even serve
as ‘deference to sovereignty’, providing political cover for a losing state to justify
acceptance of the award’s interest determination.134 Further, given the flexibility of
129 This position might well conflict with the position in international commercial arbitration.
There, arbitrators are loath to award interest where the substantive law of the contract forbids it:
G Born, International Commercial Arbitration (Kluwer 2009) 2505. However, such cases differ from
investment arbitration precisely because international law is not applicable. The claimant in an inter-
national commercial arbitration would have to bear the consequences of choosing the particular sub-
stantive law: N Blackaby and C Partasides, Redfern and Hunter on International Arbitration (5th edn,
OUP 2009) 543.
130 Ripinsky (n 4) 371. 131 ibid.
132 ibid 373. Similarly, Secomb observes the intimate connection between interest rates and cur-
rencies, and highlights the risk of over-or under-compensation by using a rate in national law when
the amount awarded is in a different currency: M Secomb, ‘A Uniform, Three-Step Approach to
Interest Rates in International Arbitration’ in S Kröll and others (eds), International Arbitration and
International Commercial Law: Synergy, Convergence and Evolution (Kluwer 2011) 436–9. However,
Secomb does indicate that arbitrators could apply a national rate where the rate is not inappropri-
ate: ibid 437. The tribunal in Eastern Sugar (n 119) [375] also recognised this.
133 Ripinsky (n 4) 371.
134 A Fellmeth, ‘Below-Market Interest in International Claims Against States’ (2010) 13 JIEL 423,
448–55.
91
the ‘full reparation’ standard in international law, it is difficult to say that reference
to a fixed rate in domestic law would not meet this standard. Naturally, arbitrators
must retain the possibility of overriding domestic law, perhaps where it specified
that no interest should be paid.135
4.4 Compliance with Domestic Law as a Factor

in Remedies Determinations
Section 4.3 discussed the determination of interest payments as a possible ques-

tion, relevant generally in investment arbitration, that implicates domestic law in
relation to remedies. Another such possibility is the host state’s compliance with its
own law. The relevance of the domestic legality of a state’s actions to findings on
the merits of a claimed breach of international law has been considered in previ-
ous chapters. This section proceeds to examine whether such compliance (or non-
compliance) with domestic law might affect an investment tribunal’s findings at the
stage of remedies.
The most obvious circumstance in which a state’s domestic illegality will affect
an investment tribunal’s remedy is the circumstance of an unlawful expropriation.
As discussed in Chapter 3, international law considers expropriation to be lawful
as long as certain conditions are fulfilled. One such condition, the ‘due process’
condition, often requires states to abide by their own laws in conducting the expro-
priation. If a state takes measures that amount to expropriation under international
law and, furthermore, breaches its domestic law in taking the measures, then the
expropriation will be characterized as unlawful. The result of this is largely accepted
to be that the monetary remedy ordered by the investment tribunal is likely to be
higher than it would be for a lawful expropriation.136
Another situation in which tribunals will find it difficult to avoid consideration
of the legality of conduct under host state law is when the respondent state raises
counterclaims against the investor. When counterclaims are made, it will be the
compliance of the investor’s conduct with domestic law that is at issue, rather than
compliance of the state’s conduct. These claims most often involve charges that
the investor has breached either some element of host state law or the investment
contract governed by host state law.137
135 As envisaged by the tribunal in Pope & Talbot v Canada (UNCITRAL), Award in Respect of
Damages, 31 May 2002 [89].
136 See the various views on the consequences of an unlawful expropriation in Chapter 3 at
section 3.4.
137 G Laborde, ‘The Case for Host State Claims in Investment Arbitration’ (2010) 1 JIDS 97; M
Toral and T Schultz, ‘The State, A Perpetual Respondent in Investment Arbitration? Some Unorthodox
Considerations’ in M Waibel and others (eds), The Backlash against Investment Arbitration (Kluwer
2010) 577. Investment treaties notoriously do not impose any obligations on investors, but only
on states. Thus, a state could not claim that an investor had breached international law, but would
be restricted to claiming that the investor had breached domestic law. See International Institute
for Sustainable Development, IISD Model International Agreement on Investment for Sustainable
92

As yet, there have been few instances of counterclaims in the investment treaty
case-law. Indeed, debate still exists as to whether arbitral tribunals necessarily have
jurisdiction to hear counterclaims at all.138 While the Inmaris tribunal found (in a
one-paragraph analysis) that it had such jurisdiction under the Germany–Ukraine
BIT,139 a separate ICSID tribunal reportedly held in April 2015 that the Italy–
Romania BIT did not grant it jurisdiction to hear counterclaims.140 Nevertheless,
when a counterclaims situation arises, as was the case most recently and extensively
in Perenco v Ecuador,141 the tribunal will be required to consider the domestic legal-
ity of the investor’s conduct in order to resolve the counterclaim. In such situations,
if the tribunal finds that the investor has indeed breached domestic law, the repara-
tion awarded to the investor for its primary claim—whether this takes the form of
financial compensation or a non-monetary remedy—may well be reduced.
Similarly to counterclaims, certain tribunals have taken the investor’s compli-
ance with domestic law into account when applying the principle of contribution
to injury in Article 39 of the ILC Articles on State Responsibility. In at least three
cases, tribunals have reduced compensation otherwise calculated to be due to the
investor by 25–30 per cent as a result of unlawful acts committed during the course
of the investment’s operation.142
Outside of the situations of unlawful expropriation, counterclaims, or contri-
bution to injury, though, compliance with domestic law has generally not been
suggested to have any impact on the remedy ordered by a tribunal for breach of an
investment treaty. Rather, once a breach has been found, the typical concern of an
investment tribunal is to apply the ‘full reparation’ standard from Chorzow Factory.
On its face, this formulation is precise and objective, and calls for a standard of
reparation of injury that is neither more nor less than ‘full’. Tribunals applying
this standard have simply taken it to entail a calculation of the monetary value of
Development (2005), <www.iisd.org/pdf/2005/investment_model_int_agreement.pdf> for propos-

als in this respect; see also J Hepburn and V Kuuya, ‘Corporate Social Responsibility in Investment
Treaties’ in M Gehring, MC Cordonier Segger, and A Newcombe (eds), Sustainable Development in
World Investment Law (Kluwer 2011) 589.
138 See Douglas (n 18) 255–63 on admissibility of counterclaims. The tribunal in M Meerapfel
Söhne AG v Central African Republic (ICSID Case No ARB/07/10), Arbitral Award, 12 May 2011
[447] commented that claims of breach of domestic law would ‘generally’ go to domestic courts, mean-
ing that an investment tribunal would not have jurisdiction to hear them. No reasoning was offered
for this suggestion, however.
139 Inmaris Perestroika Sailing Maritime Services GmbH v Ukraine (ICSID Case No ARB/08/8),
Award, 1 March 2012 [432].
140 Gavazzi v Romania (ICSID Case No ARB/12/15), Decision on Jurisdiction, Admissibility and
Liability, 21 April 2015. The decision is currently unpublished, but is described in LE Peterson, ‘Romania
Loses Another Intra-EU BIT Case, This Time Under a Treaty That Was Mutually Terminated—But
Whose Sunset Clause Provided Arbitral Footing’ (2015) 8(11) Investment Arbitration Reporter, <tiny-
url.com/noj2xp4>.
141 Perenco Ecuador Ltd v Ecuador (ICSID Case No ARB/ 08/6), Interim Decision on the
Environmental Counterclaim, 11 August 2015.
142 Copper Mesa Mining Corporation v Ecuador (PCA Case No 2012-2), Award, 15 March 2016
[6.99]–[6.102]; Yukos Universal Ltd v Russia (PCA Case No AA 227), Final Award, 18 July 2014
[1637]; Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11), Award, 5 October
2012 [687].
93
the damage caused to the claimant’s investment. This would seem to allow little
scope for factors that do not relate to the claimant’s loss to enter the analysis, since
they might leave the reparation either less or more than full. Any consideration of
factors other than the claimant’s actual loss in determining damages, on this view,
would bring the risk that remedies determinations become ‘even less transparent
and understandable’ than they are currently.143
In a similar fashion, consideration of additional, non-loss-related factors in a
damages analysis might carry the risk that the damages are labelled punitive. It is
relatively clear that punitive damages are outlawed in international law.144 This
is largely because they do not fit with the goals of the Chorzow principle of full
reparation, since punitive damages by their nature do not compensate for any par-
ticular loss but are intended as an additional element awarded purely to punish the
respondent. International law professes to operate on a theory of objective responsi-
bility, disregarding notions of fault or malice and blindly compensating for injuries
suffered.145 Increasing compensation to account for a state’s additional breach of
domestic law might therefore appear impermissibly punitive in an international
arbitral award. In any case, tribunals are sometimes banned from awarding puni-
tive damages by the terms of their constitutive investment treaty, as under NAFTA
Article 1135(3).
Furthermore, consideration of state legality sits in some tension with the over-
arching role and objective of international law in the domain of foreign investment.
International law and investment treaties in particular are thought to be needed
in order to provide a level of protection to foreigners that the law of the host state
may well not provide. The power of the absolute standards of protection in invest-
ment treaties (most relevantly the protection against expropriation and the fair and
equitable treatment guarantee) is that they do not depend for their content on the
domestic law of the host state. The domestic law of any given state could conceiv-
ably provide only minimal protection of property rights, or minimal levels of due
process in regulatory decision-making, or arbitrary criteria for the award of tenders,
concessions, or licences. The fact that a state has complied with its own law will be
of little comfort to an investor if that law allows the state to revoke long-standing
business licences for any reason without notice. A move towards greater respect for
domestic legality, and consequently lesser protection for foreign investors, could
therefore undermine the rationale of international law in this area. The corrective
function of international law exists precisely to avoid the effect of local laws that
are abhorrent, discriminatory, or unjust. Why should an investor receive less
143 I Marboe, Calculation of Compensation and Damages in International Investment Law (OUP
2009) [3.337], writing in the context of considering the economic situation of the host state in calcu-
lating an appropriate damages figure.
144 Ripinsky (n 4) 116–17; C Blake, ‘Moral Damages in Investment Arbitration: A Role for Human
Rights?’ (2012) 3 JIDS 371; Sabahi (n 21) 146–8; but cf Gray (n 1) 26–8, 46, and, in the context of
the European Court of Human Rights, Cyprus v Turkey App No 25781/94 (ECHR, Judgment of 12
May 2014, Concurring Opinion of Judge Pinto de Albuquerque).
145 A Pellet, ‘The Definition of Responsibility in International Law’ in J Crawford, A Pellet, and S
Olleson (eds), The Law of International Responsibility (OUP 2010); Blake (n 144) 398.
94

compensation, it might be asked, merely because a host state has acted according to
the terms of an unjust law? Indeed, the fact that the conduct was legal in domestic
law may only serve to rub salt into the wound.
4.4.1 Factors allowing consideration of compliance with domestic

law in remedies determinations
Nevertheless, there are a number of means within the existing doctrines by which
tribunals may already be empowered to consider factors not directly related to the
claimant’s loss, including domestic legality, when determining remedies.146
4.4.1.1 Discretions in valuation
Valuing an investment for the purposes of awarding compensation is a relatively
complex exercise. Often, the task of arriving at a precise figure to be ordered as
compensation involves a range of discretionary decisions made by the valuer.
These are perhaps most apparent in one of the commonly used valuation methods,
the Discounted Cash Flow (DCF) model. This method involves forecasting the
future profits of the investment, assuming that no breach of the investment treaty
occurred, and discounting these profits to present values in order to take account
of the time-value of money. It is well known that the choice of discount rate to be
applied in such models lies in the discretion of the valuer and may well differ, for
instance, from investor to investor depending on their specific circumstances, or
from state to state depending on surrounding macroeconomic circumstances.147
A tribunal which sought to acknowledge a respondent state’s good-faith compli-
ance with its own law (despite its eventual breach of international law) could
thus apply a discount rate that would reduce the value of the investment and
the compensation consequently payable for the breach.148 Conversely, a treaty
breach seen as all the more egregious due to an accompanying breach of domestic
law might encourage the choice of a more onerous discount rate, thus increasing
compensation.149
4.4.1.2 Equity
The general principle of equity may be another means by which tribunals could
choose to limit damages payable for an investment treaty breach. Tribunals have
applied this principle, albeit often implicitly, in certain cases.150 Sabahi suggests
146 It is worth noting at the outset that these are not affected by Article 32 of the ILC Articles. This
article, titled ‘Irrelevance of internal law’, only provides that states may not rely on their internal law
as justification for failure to comply with their obligations of reparation following a breach of interna-
tional law. It does not prohibit international courts or tribunals from considering the domestic legality
of a state’s conduct in ruling on remedies.
147 Ripinsky (n 4) 196–8.
148 ibid 212, noting the Himpurna v PLN tribunal’s alteration of the discount rate to this effect.
149 Newcombe and Paradell (n 1) 383.
150 Sabahi (n 21) 186–8.
95
that equity could infuse discretionary choices made by tribunals, including the
choice of discount rate just mentioned, but also other risk factors in DCF analyses.
A state’s compliance with domestic law could be an additional factor encourag-
ing the exercise of equity in calculating damages. Again, equity could also work
the other way, encouraging higher damages for states that have not only breached
international law but also failed to comply with the laws made by their own
institutions.
4.4.1.3 Moral damages
A somewhat more controversial means for the expression of non-economic fac-
tors in calculating damages is the award of moral damages. Such damages could
be awarded in addition to regular, compensatory damages in a situation where the
insult of a breach of the state’s own law was added to the basic injury caused by the
breach of international law. In contrast to punitive damages, moral damages are
accepted as a part of the Chorzow Factory standard, compensating for intangible
or non-monetary losses.151 The International Court of Justice (ICJ) made such an
award in 2012 in the Diallo case, granting the Republic of Guinea USD 85,000
for non-material injury suffered by its national, Mr Diallo.152 Typically, as Diallo
demonstrated, the loss claimed would be a loss of reputation and/or psychological
suffering.153 While their use in investment arbitration has so far been limited, there
is no reason why moral damages could not be more widely ordered, provided that
the award was intended to compensate for an actual non-monetary loss suffered
by the investor as a result of the breach of domestic law accompanying the treaty
breach.154 Indeed, an ad hoc tribunal in one 2013 case awarded USD 30 million
in moral damages for a ‘serious’ and ‘abusive’ breach of local law, alongside a breach
of treaty.155
In appropriate cases—perhaps where states have acted according to respect-
able domestic laws but their conduct nevertheless tipped over into a breach of
international law, or where the international breach was accompanied by a fla-
grant domestic breach—tribunals could use these discretionary factors to adjust
151 von Pezold (n 22) [908]; Blake (n 144); S Jagusch and T Sebastian, ‘Moral Damages in Investment
Arbitration: Punitive Damages in Compensatory Clothing?’ (2013) 29 Arb Intl 45.
152 Ahmadou Sadio Diallo (Guinea v DRC) (Compensation) [2012] ICJ Rep 324 [25].
153 Ripinsky (n 4) 308.
154 Blake offers some suggestions for quantifying such awards, drawing on case-law of the Inter-
American Court of Human Rights: (n 144) 401.
155 Mohamed Abdulmohsen Al-Kharafi & Sons Co v Libya (ad hoc), Final Arbitral Award, 22 March
2013, 369. This case was initiated pursuant to a contract but also implicated a treaty, the Unified
Agreement for the Investment of Arab Capital in the Arab States. For background, see LE Peterson,
‘Newly-Obtained Award Confirms that Libya Must Pay $935 Million to Kuwaiti Investor for Hotel-
Resort Complex that Never Got Built’ (2013) 6(14) Investment Arbitration Reporter <tinyurl.com/
phr7tea>. For more sceptical views from tribunals on moral damages, see The Rompetrol Group NV v
Romania (ICSID Case No ARB/06/3), Award, 6 May 2013 and Franck Charles Arif v Moldova (ICSID
Case No ARB/11/23), Award, 8 April 2013.
96

the monetary compensation awarded, while still remaining within the bounds
of the somewhat nebulous remedies analysis mandated by international law.156
4.4.2 Domestic legality and non-monetary remedies

An alternative, potentially more palatable approach to the connection between
domestic legality and remedies is to shift focus away from damages awards, where
the amount of the award is in issue, to non-monetary remedies, where the nature of
the award is in issue.
Non-monetary remedies may include remedies such as orders for ‘juridical
restitution’, to reinstate the claimant’s former legal situation by, for instance, re-
granting a revoked licence;157 orders to repeal legislation made in violation of inter-
national law; orders to prevent the state from pursuing some course of conduct, for
instance re-tendering rights already granted to the claimant; or orders to prevent
the enforcement of a domestic court judgment.158 They may also include the return
of property seized.
Investment arbitration tribunals have so far generally refrained from awarding
non-monetary remedies. Commentators suggest several reasons for this.159 One
reason stems from the forward-looking nature of most non-monetary remedies,
which aim to preserve a relationship that is expected to continue. However, a dis-
pute that has reached the stage of international arbitration often reflects a break-
down of the relationship between the investor and the host state to such a degree
that the investor is likely to be seeking only a financial pay-out and an exit from the
investment. Thus, non-monetary remedies are often not seen as a useful order for
aggrieved investors in investment treaty arbitration. A second, connected reason
is that investors usually do not themselves request non-monetary remedies, and
arbitral tribunals are in general bound by the ultra petita rule not to award remedies
that have not been requested.160 Third, at a more practical level, monetary rem-
edies are simpler to enforce against states, since state assets can potentially be seized
156 For similar arguments in slightly different contexts, see M Devaney, ‘Leave It to the Valuation
Experts? The Remedies Stage of Investment Treaty Arbitration and the Balancing of Public and Private
Interests’ (Society of International Economic Law, 3rd Biennial Global Conference, WP No 2012-06,
July 2012), <ssrn.com/abstract=2087777> (arguing that tribunals can consider ‘host state interests’ in
assessing damages, particularly in light of the flexibility of the relevant international law standards),
and Desierto (n 3) (arguing that tribunals could include a discount on damages to take host states’
human rights obligations into account, again remaining consistent with the remedial principles of
the ILC Draft Articles). Indeed, Ripinsky has suggested that tribunals have been guilty of settling on
a fair quantum, then reverse-engineering their reasoning to produce the desired result: S Ripinsky,
‘Damnum Emergens and Lucrum Cessans: Is it Relevant?’ (BIICL conference, London, 11 May
2007), <www.biicl.org/files/2803_sergey_ripinsky_-_damnum_emergens_and_lucrum_cessans_is_
it_relevant.pdf> 8.
157 Sabahi (n 21) 73; ILC (n 10) 97.
158 This last remedy is at issue in the second Chevron v Ecuador arbitration, where provisional meas-
ures to this effect have been ordered by the tribunal.
159 Ripinsky (n 4) 49–59; Sabahi (n 21) ch. 4. See also the sources cited by Devaney (n 156) fn 63.
160 Ripinsky (n 4) 119–20.
97
in any jurisdiction under the rules of the New York Convention and the ICSID
Convention itself (subject to rules on state immunity). Fourth, and connected to
this, states are thought to be more likely to comply with monetary remedies than
with non-monetary remedies which may require them to take positive measures
that are seen as infringing on sovereignty.161
Despite this, though, tribunals are usually not explicitly barred from awarding
non-monetary remedies.162 In fact, restitution (as opposed to financial compensa-
tion) is envisaged as the principal remedy for a breach of international law by the
ILC Articles.163 Such a remedy has indeed been ordered in at least four investment
treaty cases.164 Restitution, as a non-monetary alternative to compensation, may be
unpopular largely because ‘despite its primacy as a matter of legal principle, [it] is
frequently unavailable or inadequate’.165 This suggests, in turn, that the major fac-
tors to be considered in deciding whether to award a non-monetary remedy are the
availability (i.e. practicality) and adequacy of the proposed remedy. However, tri-
bunals would appear to have discretion to consider any other factors in fashioning
their remedy to achieve ‘full reparation’. Assuming that availability and adequacy
criteria are met, there is no reason why these extra factors could not include a state’s
compliance with its own law.
Indeed, domestic legality could well be a particularly appropriate factor to con-
sider in this context. In recent times, an increasing number of writers have argued
that tribunals should make greater use of non-monetary remedies.166 These argu-
ments generally draw on comparisons with domestic systems of public law, in which
primary (non-monetary) remedies are favoured by administrative courts, with sec-
ondary (monetary) remedies ordered only as a last resort.167 Comparisons with
other international systems of public law, mostly human rights systems, also
161 See Ecuador’s protests on sovereignty grounds against a non-monetary order of restitution in
Chevron Corporation v Ecuador (PCA Case No 2009-23), Track 2 Supplemental Rejoinder on the
Merits of the Republic of Ecuador, 17 March 2015 [423]. Still, it is not clear whether a monetary
award necessarily impinges sovereignty less than a non-monetary award, since the payment of financial
compensation may well have a far greater impact on the ability of certain respondent states to meet
their priorities and objectives than an order to reinstate a concession or licence. See E de Brabandere,
Investment Treaty Arbitration as Public International Law (CUP 2014) 185.
162 cf NAFTA Article 1135 which limits remedies to either monetary damages or restitution of
property. However the state may elect to pay monetary damages instead of complying with an order
to restore property.
163 Article 36(1): ‘in so far as such damage is not made good by restitution’, compensation may be
ordered.
164 von Pezold (n 22); Arif (n 155); ATA Construction, Industrial and Trading Company v Jordan
(ICSID Case No ARB/08/2), Award, 18 May 2010; Antoine Goetz v Burundi (ICSID Case No ARB/
95/3), Award, 10 February 1999.
165 ILC (n 10) 99.
166 G van Harten, Investment Treaty Arbitration and Public Law (OUP 2007) 102–9; van Aaken
(n 3); McLachlan, Shore, and Weiniger (n 12) 341; J Bonnitcha, ‘Submission to OECD Investor-
State Dispute Settlement Public Consultation’ (2012), <ssrn.com/abstract=2129311>; M Sattorova,
‘Investment Treaty Breach as Internationally Proscribed Conduct: Shifting Scope, Evolving Objectives,
Recalibrated Remedies?’ (2012) 4 Trade, Law and Development 315; OECD, ‘Roundtable on Freedom
of Investment 16’ (20 March 2012) 12–16 <www.oecd.org/daf/inv/investment-policy/50430878.
pdf>.
167 van Aaken (n 3); Bonnitcha (n 166) 2.
98

indicate that awards of compensation are in fact anomalous and confined largely to
the investment treaty context.168 From these perspectives, non-monetary remedies
would be a better first choice for investment tribunals.
Domestic legality provides a further perspective to support the greater use of
non-monetary remedies. In particular, non-monetary remedies could be seen as
more appropriate when a state has breached its own law. An order to (for instance)
reinstate a licence revoked lawfully under domestic law but in breach of an invest-
ment treaty could be politically or even legally difficult to implement.169 In this
situation, payment of compensation may be a more attractive alternative, and less
‘sovereignty-infringing’ for the host state. However, if the state is found by the
tribunal to have revoked the licence in breach also of domestic law,170 an order to
reinstate the licence (or even an order to reconsider the revocation decision)171 is
more likely to be effective. Much may depend here on the situation of the particular
host state in the proceedings. In certain cases, a developing country or a state with
limited financial resources may well prefer an order to reinstate a licence or conces-
sion, or to revoke discriminatory measures, instead of a large compensation award
payable immediately in full.172 Another possibility, as awarded in three cases,173
would be to order a primary remedy to be complied with by a specified deadline,
and then monetary compensation after that in lieu of compliance.
This approach remains constrained by the ultra petita rule, such that the claim-
ant would need to request such a non-monetary award before a tribunal would
likely contemplate ordering it. Nevertheless, in cases where investors do prefer such
an award, the state’s compliance with its own law is one appropriate factor for
the tribunal to consider in deciding whether to exercise its discretion to order the
non-monetary remedy. If the tribunal has already found it necessary to consider
the domestic legality of the state’s conduct in the course of its earlier analyses (for
instance, on a breach of due process in expropriation, as discussed in Chapter 3), no
additional analysis would be required for it to make this consideration.
4.4.3 Conclusion
Section 4.4 has suggested a number of ways in which a state’s compliance with
domestic law could be relevant to the remedies determination. Although domestic
legality might be thought to be irrelevant to the remedies stage of an investment
168 van Harten (n 166) 102–9.

169 Of course, this does not mean that the state is exempted from complying: Article 32 of the ILC
Articles provides that states may not rely on their internal law to avoid the performance of secondary
obligations following a breach of international law. Some treaties such as NAFTA (in Article 1135),
though, would permit the state to elect compensation in lieu of making the ordered restitution, which
a state might do if restitution was legally problematic in domestic law.
170 As in Lemire v Ukraine, discussed earlier in this chapter.
171 As Bonnitcha points out, municipal courts often do not have the power to order reinstatement
of administrative decisions such as a licence grant. They can only order reconsideration of the decision
to revoke the licence, this time in accordance with legal processes: (n 166) 2–3.
172 McLachlan, Shore, and Weiniger (n 12) 341.
173 von Pezold (n 22) [1020], Arif (n 155) [633], and Goetz (n 164) [136]–[137].
99
treaty claim, tribunals could, in appropriate cases, draw on the state’s (il)legality to
affect the remedy—whether by increasing or decreasing the compensation ordered,
or by ordering a non-monetary remedy in place of compensation.
4.5 Conclusion
The remedies stage of an investment arbitration provides the backdrop for three
uses of domestic law, both actual and potential. These include resolving questions
of domestic law as part of a calculation on full reparations, determinations of inter-
est, and non-monetary remedies. Taken together, these demonstrate the increasing
recognition that domestic law is relevant in investment arbitration, even in areas
not previously acknowledged in the literature or cases. As explained in Chapter 1,
this expanded role for domestic law highlights the need for tribunals to apply a
justifiable methodology when determining questions of domestic law. The develop-
ment of such a methodology, and an assessment of tribunals’ adherence with it to
date, forms the subject of analysis in Part II.
100
101
PA RT I I
R E S O LV I N G D O M E S T I C L AW
I S S U E S I N I N V E S T M E N T
A R B I T R AT I O N
102
103
5
Ascertaining the Contents of Domestic Law
in Investment Arbitration
5.1 Introduction
Part I of this book identified three areas of investment arbitration in which refer-
ence to domestic law has played an important but under-appreciated role. Part
I contended that, alongside more well-known roles for domestic law (for instance,
in underpinning the investment protected by an investment treaty, or in defin-
ing the investor’s nationality), the instances in which tribunals interpret and apply
domestic law are even more pervasive in investment arbitration than has previously
been understood. Part II of this book moves from the question of when domestic
law is relevant to the question of how it has been, and should be, dealt with by
investment tribunals. In Chapter 5, the book sets out a framework for ascertaining
the contents of the domestic law to be applied. Chapter 6 examines certain prelimi-
nary issues that arise in applying this framework, including purported ‘exceptions’
particularly relevant to the context of claims of investor illegality (where a tribunal
must review an investment for its compliance with host state law). Chapter 7 then
comprehensively tests the existing case-law against Part II’s framework, to build a
picture of practice by tribunals to date.
Chapter 5 commences Part II by investigating a number of issues that affect
how tribunals approach questions of domestic law in investment arbitration, and
how they determine what the applicable domestic law actually is. In particular,
Chapter 5 asks, should investment tribunals approach domestic law as fact or law
(section 5.2)? What general attitude should the tribunal adopt towards domestic
law (section 5.3)? How, in practice, can a tribunal find out about domestic law (sec-
tion 5.4)? Is the tribunal deemed to know the domestic law, in the sense of iura novit
curia (section 5.5)? How should it weight the various materials on which it relies,
including in particular domestic case-law (section 5.6)? How should it make use of
expert legal opinions on domestic law (section 5.7)?
104
104 Resolving Domestic Law Issues
5.2 Domestic Law as Fact in International

Investment Arbitration
According to a long-standing principle of public international law, domestic law has

the status of fact, rather than law, before international courts and tribunals.1 The
principle is usually traced to a comment of the Permanent Court of International
Justice (PCIJ) in Certain German Interests in Polish Upper Silesia, where the Court
said that ‘[f ]‌rom the standpoint of International Law and of the Court which is
its organ, municipal laws are merely facts’.2 Indeed, in a classic dispute between
two states of the kind that might be adjudicated by the PCIJ or its descendant, the
International Court of Justice (ICJ), international law will be the only applicable
and logically relevant law to govern the dispute. States typically interact with each
other on the plane of international law, whether through treaties or custom. The
domestic laws of disputing states in such cases represent no more (or less) than
background factual circumstances, which are to be tested against the standards of
international law. From this perspective, it is plausible to confine the role of domes-
tic law to a factual one in international cases.
Certain investment tribunals have viewed the situation similarly, reiterating the
principle.3 More recently, the European Union has explicitly endorsed the prin-
ciple in its trade agreements with Canada and Vietnam and in proposals for the
Transatlantic Trade and Investment Partnership. The agreement with Canada (the
Canada–EU Comprehensive Economic and Trade Agreement, or CETA), for
instance, declares in Article 8.31(2) that ‘the Tribunal may consider … the domes-
tic law of the disputing Party as a matter of fact’. Relatedly, the provision also adds
that a CETA tribunal ‘shall not have jurisdiction to determine the legality of a
measure … under the domestic law of the disputing Party’.4
However, despite its long pedigree, the principle of domestic law as fact has
also long been doubted by some observers. In 1938, for instance, Jenks wrote
that it would be ‘a mistake to attach undue importance’ to the PCIJ’s pronounce-
ment.5 For Jenks, the PCIJ often applied and interpreted domestic law, and the
1 I Brownlie, Principles of Public International Law (7th edn, OUP 2008) 38.

2 Certain German Interests in Polish Upper Silesia (Germany v Poland) Series A No 7 (1926) 19.
3 Bayindir Insaat Turizm Ticaret ve Sanayi AŞ v Pakistan (ICSID Case No ARB/03/29), Award, 27
August 2009 [135]; Petrobart Ltd v Kyrgyzstan (SCC), Award, 29 March 2005 [VII.1.B.7]; AES Summit
Generation Ltd v Hungary (ICSID Case No ARB/07/22), Award, 23 September 2010 [7.6.6]; Electrabel
SA v Hungary (ICSID Case No ARB/07/19), Decision on Jurisdiction, Applicable Law and Liability,
30 November 2012 [4.129]; International Thunderbird Gaming Corporation v Mexico (UNCITRAL),
Arbitral Award, 26 January 2006 [127]; Vincent Ryan v Poland (ICSID Case No ARB(AF)/11/3),
Award, 24 November 2015 [347].
4 Similar language appears in Article 16.2, Section 3, Chapter II, Chapter 8 of the EU–Vietnam
FTA, for which negotiations concluded in December 2015: <trade.ec.europa.eu/doclib/docs/2016/
february/tradoc_154210.pdf>.
5 CW Jenks, ‘The Interpretation and Application of Municipal Law by the Permanent Court of
International Justice’ (1938) 19 BYIL 67, 68.
105
Ascertaining the Contents of Domestic Law 105
line between treating this material as law or fact was ‘perilously indeterminate’.6
In 1968, Virally described the PCIJ’s position as a ‘disputable formulation’.7 The
essential problem with the position is that it ignores the special normative quality
of domestic law.8 In deciding questions of domestic law, courts or tribunals must
typically apply that law to underlying facts, and it is not entirely natural to treat
this process instead as an instance of applying facts to facts.9 A strict dichotomy
between law and fact is not always necessarily apparent in relation to international
law, either. After all, a party seeking to rely on a point of customary international
law must prove that point by reference to sufficient evidence (of state practice and
opinio juris), and yet custom is clearly law, not fact. Similarly, parties may need to
prove, as a (presumably) factual matter, that a treaty grounding their claim actually
exists and is in force.10 Investment tribunals have also been known to hear expert
witness evidence on questions of international law (e.g. on the availability of resti-
tution in von Pezold v Zimbabwe,11 and on denial of justice in Chevron v Ecuador),12
and yet the presence of expert witnesses did not remove the legal character of the
tribunal’s determination on those points.
Indeed, international courts have sometimes been quite flexible about treating
domestic law as fact. In ELSI, the ICJ appeared to see little consequence in treating
certain domestic court rulings as either fact or law.13 The Trail Smelter arbitral tri-
bunal openly admitted that ‘an international tribunal may, and, in fact, frequently
does apply national law’,14 a view difficult to square with confining domestic law
merely to the status of fact. In the World Trade Organization, while adjudicators
have formally adopted the traditional position, they have also addressed domestic
law as a very particular kind of fact, involving ‘an exercise that is entirely different
from the task of ordinary fact-finding’.15
Moreover, treating domestic law as fact seems particularly inapt in relation to
contemporary investment treaty arbitration. The position in international judicial
proceedings, such as those before the PCIJ or ICJ, differs in an important respect
from the arbitral process under which international investment disputes typically
occur. The difference lies in the parties’ ability, stemming from the general nature
6 ibid 68. Jenks proposed an addition to the PCIJ Statute explicitly acknowledging domestic law
as part of the Court’s applicable law, in order to give ‘constitutional authority to what is already the
practice of the Court’: ibid 101.
7 M Virally, ‘The Sources of International Law’ in M Sorensen (ed.), Manual of Public International
Law (Macmillan 1968) 171.
8 S Bhuiyan, National Law in WTO Law (CUP 2007) 216.
9 Thanks are due to Jonathan Ketcheson for raising several points discussed here.
10 For one recent example, see the discussion of Agility for Public Warehousing Company KSC v
Pakistan in LE Peterson, ‘After Obtaining a Jurisdictional Victory in 2013, Investor Later Concedes
that Pakistani Investment Treaty is Not in Force and Drops its Arbitration’ (2016) 9(20) Investment
Arbitration Reporter, <tinyurl.com/zmtpjsu>.
11 Bernhard von Pezold v Zimbabwe (ICSID Case No ARB/10/15), Award, 28 July 2015 [736].
12 Chevron Corporation v Ecuador (PCA Case No 2009- 23), Opinion of Jan Paulsson, 12
March 2012.
13 Elettronica Sicula SpA (ELSI) (US v Italy) [1989] ICJ Rep 15 [99].
14 Trail Smelter Case (US v Canada) RIAA Volume III (1941) 1905, 1949.
15 Bhuiyan (n 8) 41, 193.
106

of arbitration as opposed to litigation, to choose the substantive law that they wish
to have applied to their dispute.16 States often express a choice of law in invest-
ment treaties themselves,17 and investors accept this choice of law when they accept
a state’s standing offer to commence arbitration.18 In many investment treaties,
the parties agree to apply both domestic law and international law to determine
the dispute.19 Under one of the major institutional mechanisms for investment
arbitration, the ICSID Convention, tribunals are similarly directed to apply both
the domestic law of the host state and international law, in the absence of a specific
agreement on choice of law by the parties.20
This means that domestic law is often explicitly provided to be part of the
applicable law that investment tribunals must apply. Even where it is not so rec-
ognized, tribunals usually inescapably have to apply domestic law anyway.21 In
many situations where domestic law questions arise, international law has no role
to play. For instance, in determining the existence of the property rights claimed
by the investor, or in ruling on whether a contract has been breached for the pur-
poses of an umbrella-clause claim, international law will be of little assistance,
because it contains no rules on property rights or breach of contract.22 If a tri-
bunal attempted to apply international law to these questions, it would face an
impermissible stalemate—leaving domestic law as the only way forward.23 In other
situations, such as determining whether an investor has made its investment in
accordance with host state law, the treaty itself directs a renvoi to domestic law on
16 Two authors have provided extensive consideration of the ‘choice of law’ question of when
domestic law applies in investment arbitration: see M Sasson, Substantive Law in Investment Treaty
Arbitration: The Unsettled Relationship between International and Municipal Law (Kluwer 2010) and
HE Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and International
Law (OUP 2013).
17 OECD, Dispute Settlement Provisions in International Investment Agreements: A Large Sample
Survey (2012) 27, <www.oecd.org/investment/internationalinvestmentagreements/50291678.pdf>.
18 CME Czech Republic BV v Czech Republic (UNCITRAL), Legal Opinion of Christoph Schreuer
and August Reinisch, 20 June 2002 [187].
19 See, e.g., ibid. Z Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003)
74 BYIL 151, 194, notes that the application of both domestic and international law is ‘the common
denominator of the majority of express choice of law provisions in investment treaties’.
20 Article 42(1).
21 Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID Case No ARB/11/12),
Award, 10 December 2014 [298] (noting that the tribunal will have to ‘apply’ domestic law ‘whether
or not the BIT makes reference to [it]’); Kjos (n 16) 242; S Montt, State Liability in Investment Treaty
Arbitration: Global Constitutional and Administrative Law in the BIT Generation (Hart 2012) 325; V
Igbokwe, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment
Treaty Arbitration’ (2006) 23 J Intl Arb 267, 284. Partly for this reason, Guzman and Dalhuisen argue
that the parties to an investment dispute have relatively limited ability to choose the applicable law: A
Guzman and J Dalhuisen, ‘The Applicable Law in Foreign Investment Disputes’ (2013) 14–15, <ssrn.
com/abstract=2209503>.
22 Douglas (n 19) 204; A Bjorklund, ‘Applicable Law in International Investment Disputes’ in
C Giorgetti (ed.), Litigating International Investment Disputes: A Practitioner’s Guide (Brill 2014)
274; Perenco Ecuador Ltd v Ecuador (ICSID Case No ARB/08/6), Decision on Remaining Issues of
Jurisdiction and on Liability, 12 September 2014 [522].
23 In an ICSID case, Article 42(2) bars a finding of non liquet, so the tribunal is forced to find a
solution by application of some law. Most obviously, this will be host state law, by virtue of the residual
rule in Article 42(1): C Schreuer, The ICSID Convention: A Commentary (2nd edn, CUP 2009) 594.
107
the particular issue. Under one major investment treaty, the North American Free
Trade Agreement (NAFTA), the applicable law is specified to include only interna-
tional law, and domestic law is not mentioned at all.24 Despite this, NAFTA tribu-
nals themselves have acknowledged that domestic law must nevertheless be applied
on issues such as property rights definition.25
For instance, the Bayview tribunal is one of the few that has explicitly raised the
issue of the appropriate role for domestic law when the tribunal is directed to apply
solely international law, as NAFTA tribunals are.26 The award noted that the arbi-
trators called for submissions from the parties on the role (if any) of Mexican law,
Texan law, and private international law in the case.27 No further detail was provided
on the tribunal’s analysis of this role. However, since considerations of domestic law
were crucial to the tribunal’s ultimate findings on jurisdiction, it appears that, even
despite NAFTA’s applicable-law clause, the arbitrators considered domestic law to
be inescapably relevant when characterizing the rights owned by the claimant and
thus the existence of any investment protected by an investment treaty.28
This flexible approach—of first identifying the specific issue needing resolution
and then applying the law which properly applies to that issue—is in fact the pre-
vailing approach, and perhaps the only logical one.29 The flexible approach is also
endorsed under the frequently used UNCITRAL (2010) arbitration rules. Article
35(1) of those rules directs the tribunal to apply ‘the law which it determines to be
appropriate’ in the absence of any other direction by the parties themselves.
When domestic law is part of the applicable law of an international arbitration,
it makes little sense to persist with the traditional position that domestic law is only
fact in these international proceedings.30 To paraphrase the SPP v Egypt tribunal:
24 NAFTA Article 1131(1).

25 See, e.g., Bayview Irrigation District v Mexico (ICSID Case No ARB(AF)/05/1), Award, 19 June
2007 [109]–[118]; also Robert Azinian v Mexico (ICSID Case No ARB(AF)/97/2), Marvin Feldman
v Mexico (ICSID Case No ARB(AF)/99/1), and International Thunderbird Gaming Corporation v
Mexico (UNCITRAL), cited to this effect by C Lévesque, ‘Investment and Water Resources: Limits to
NAFTA’ in MC Cordonier Segger, M Gehring, and A Newcombe (eds), Sustainable Development in
World Investment Law (Kluwer 2011) 424. More recently, see Mobil Investments Canada Inc v Canada
(ICSID Case No ARB(AF)/07/4), Decision on Liability and on Principles of Quantum, 22 May 2012
[354], acknowledging that Canadian law must govern the question of whether a subordinate measure is
‘under the authority of ’ a principal measure for the purposes of NAFTA Article 1108. Douglas has also
made this general point at (n 19) 196. Outside the NAFTA context, see similarly Sasson (n 16) xxvii.
Schreuer suggests that NAFTA’s applicable law rule is ‘not advisable’ and ‘impractical’, because of the
unavoidable connections between investments and host state law: (n 23) 562.
26 See Lévesque (n 25) 422. 27 Bayview (n 25) [14].
28 C Schreuer, ‘The Relevance of Public International Law in International Commercial
Arbitration: Investment Disputes’ 21, <www.univie.ac.at/intlaw/wordpress/pdf/81_csunpublpaper_
1.pdf>.
29 Y Banifatemi, ‘The Law Applicable in Investment Treaty Arbitration’ in K Yannaca-Small (ed.),
Arbitration under International Investment Agreements: A Guide to the Key Issues (OUP 2010) 203–4;
Bjorklund (n 22) 278. See also MTD Equity Sdn Bhd v Chile (ICSID Case No ARB/01/7), Decision
on Annulment, 21 March 2007 [72]: it is ‘often necessary for BIT tribunals to apply the law of the host
State … the Tribunal should have applied Chilean law to those questions which were necessary for its
determination and of which Chilean law was the governing law.’
30 Z Douglas, The International Law of Investment Claims (CUP 2012) 40, 69; Douglas (n 19) 273;
A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer
2009) 95; Kjos (n 16) 256; A Nollkaemper, ‘The Role of Domestic Courts in the Case Law of the
108

[A]‌contention that … municipal law should be treated as a ‘fact’ is not helpful. [When
disputing parties] are in fundamental disagreement as to what [a provision of domestic
law] means … the Tribunal therefore must interpret [that provision] and determine its legal
effect.31
Treating domestic law as law, not fact, has consequences for its status in invest-
ment arbitration. A failure to apply the proper law in an investment arbitration
constitutes grounds for annulment of the award.32 While a mere error in applica-
tion of domestic law would not be sufficient for annulment,33 the application of
international law to an issue that is properly governed by domestic law is equivalent
to the application of no law at all, thus grounding an annulment claim.34 Tribunals
therefore need to take care in characterizing issues and determining the appropriate
law to apply.
5.3 Tribunals’ Attitude towards Domestic Law
Having determined that investment tribunals should apply domestic law as law,
rather than fact, the next issue that arises is the attitude that tribunals should take
towards questions of domestic law. The issue arises because, despite being part of the
applicable law, domestic law is clearly in a different position to international law. In
particular, the international arbitrators usually appointed in investment treaty cases
have typically been nominated for their expertise in international law, and cannot
be expected to know anything about the law of the particular respondent host state
(or the law of any other jurisdiction that might be relevant) in the dispute at hand.35
International Court of Justice’ (2006) 5 Chinese JIL 301, 321; O Spiermann, ‘Applicable Law’ in P
Muchlinski, F Ortino, and C Schreuer (eds), The Oxford Handbook of International Investment Law
(OUP 2008) 112–13; Total SA v Argentina (ICSID Case No ARB/04/1), Decision on Liability, 27
December 2010 [39]. Grisel even maintains that ‘most investment tribunals consider domestic law
as an applicable “law” rather than as a “fact” ’: F Grisel, ‘The Sources of Foreign Investment Law’ in Z
Douglas, J Pauwelyn, and J Viñuales (eds), The Foundations of International Investment Law: Bringing
Theory into Practice (OUP 2014) 223.
31 Southern Pacific Properties (Middle East) Ltd v Egypt (ICSID Case No ARB/84/3), Decision on
Jurisdiction, 14 April 1988 [58].
32 Bjorklund (n 22) 262; Azurix Corp v Argentina (ICSID Case No ARB/01/12), Decision on the
Application for Annulment of the Argentine Republic, 1 September 2009 [136].
33 Hussein Nuaman Soufraki v UAE (ICSID Case No ARB/ 02/
7), Decision of the ad hoc
Committee on the Application for Annulment of Mr Soufraki, 5 June 2007 [98]; Adem Dogan v
Turkmenistan (ICSID Case No ARB/09/9), Decision on Annulment, 15 January 2016 [105]. In
Dogan, Turkmenistan complained that the tribunal had failed to apply Turkmen law on certain issues.
Despite characterizing this complaint as one of failure to apply the applicable law, the Dogan tribunal
then appeared to treat it as a claimed failure in evaluating the facts (ibid [129]). The committee rejected
this on the basis that ICSID annulment committees cannot review tribunals’ appreciation of facts.
However, this is strictly a separate principle from the principle that mere errors in application of the
applicable law do not justify annulment.
34 G Cordero-Moss, ‘Tribunal’s Powers versus Party Autonomy’ in Muchlinski, Ortino, and Schreuer
(n 30) 1216, citing Z Douglas, ‘Nothing If Not Critical for Investment Treaty Arbitration: Occidental,
Eureko and Methanex’ (2006) 22 Arb Intl 27. See also Kjos (n 16) 56–7.
35 G Kaufmann-Kohler, ‘The Arbitrator and the Law: Does He/She Know It? Apply It? How?
And a Few More Questions’ (2005) 21 Arb Intl 631: ‘I have resolved disputes under [the laws of
109
They are therefore called on to resolve questions of unfamiliar law that come from
legal systems essentially external to the one in which the arbitrators are operating.
Arbitrators might adopt several attitudes to these questions. One approach
might be for arbitrators to resolve questions of domestic law according to whatever
general tools and principles of interpretation and legal reasoning they can draw
from international law, or from the legal system of their home jurisdictions, or from
a comparative survey of such tools in major jurisdictions.36 An alternative approach
might be for arbitrators to adopt an attitude of complete deference to the state’s
submissions on its domestic law in the case, reasoning that they are not equipped to
make their own determinations on the state’s law.
However, neither of these two approaches is attractive. The first approach
unwisely attempts to divorce domestic law from its domestic context, instead inter-
preting it in an alien legal environment. Among other problems, the outcome of
such a process risks being unrecognizable to observers in the host state, decreasing
the likelihood of acceptance of and compliance with the ruling. Meanwhile, the
second approach abdicates the tribunal’s responsibility to decide the case, unthink-
ingly siding with one party over the other. The discussion in the introduction to this
book points instead to a third attitude that tribunals might adopt towards questions
of domestic law. In Chapter 1, it was suggested that tribunals ought to show signifi-
cant concern for domestic institutions and context when they deal with domestic
law. In the eyes of some critics, at least, these tribunals’ legitimacy depends on
how much deference they show to domestic decision-making—including decision-
making about the elaboration and meaning of domestic law. This would indicate
that, when fulfilling their responsibility to interpret and apply domestic law, arbi-
trators should adopt an attitude of placing the law in its domestic context, with
reference to local interpretations and interpretive principles to inform the tribunal’s
own analysis.
Importantly, such an attitude is already entailed by long-standing principles of
international law. In 1929, the PCIJ was called on to apply French law in a claim
between Brazil and France relating to the payment of certain loans. In considering
the appropriate process to use in order to apply French law, the PCIJ observed:
Once the Court has arrived at the conclusion that it is to apply the municipal law of a par-
ticular country, there seems no doubt that it must seek to apply it as it would be applied in
that country. It would not be applying the municipal law of a country if it were to apply it
in a manner different from that in which that law would be applied in the country in which
it is in force.
It follows that the Court must pay the utmost regard to the decisions of the municipal courts
of a country, for it is with the aid of their jurisprudence that it will be enabled to decide what
twenty-two different jurisdictions]. Do I know these laws? … the answer is clearly no.’ See also P
Landolt, ‘Arbitrators’ Initiatives to Obtain Factual and Legal Evidence’ (2012) 28 Arb Intl 173, 185;
Ali Assareh, ‘Iura Novit Curia’, <blogs.law.nyu.edu/transnational/2011/12/iura-novit-curia>.
36 cf P Stephan, ‘International Investment Law and Municipal Law: Substitutes or Complements?’
(2014) 9 CMLJ 354, 359.
110

are the rules which, in actual fact, are applied in the country the law of which is recognized
as applicable in a given case.37
The Brazilian Loans case thus encapsulates the principle of respect for host state
legal systems that is so important to the legitimacy of an international adjudicatory
body. While it was established long before the modern era of investment arbitra-
tion, the Brazilian Loans principle appears to reflect these modern worries by con-
straining international adjudicators’ discretion on matters of domestic law. It calls
on adjudicators to pay serious attention to the particularities of a host state’s law,
allowing for a diversity of legal approaches to issues according to the preferences of
each state.
Furthermore, although this principle was elaborated in the context of an interna-
tional court, there are strong reasons—perhaps even stronger reasons—to think that
it applies to the context of international arbitration that is prevalent in investment
treaty disputes. According to the Brazilian Loans principle, an international court
must ‘apply [a state’s domestic law] as it would be applied in that country’ and ‘pay
the utmost regard to the decisions of the municipal courts’. If this is true in judicial
proceedings in which domestic law is (often) not even part of the applicable law,
then surely it is true in arbitral proceedings in which domestic law is to be applied
directly by the tribunal. Indeed, both tribunals and commentators have recognized
the Brazilian Loans principle to be applicable in investment arbitration.38 The
Soufraki v UAE annulment committee, for instance, held that ‘[a]‌n international
tribunal’s duty to apply [domestic] law is a duty to endeavour to apply that law
in good faith and in conformity with national jurisprudence and the prevailing
interpretations given by the State’s judicial authorities’.39 Similarly citing Brazilian
Loans, the Emmis v Hungary tribunal held that it was required to examine ‘the man-
ner in which the law would be understood and applied by the municipal courts’.40
The Brazilian Loans principle has also been endorsed, whether explicitly or not,
by other international courts. Like investment tribunals, the European Court
of Human Rights (ECtHR), for instance, commonly faces questions of domes-
tic law that it must resolve. Such questions can arise in a number of contexts in
the European Convention on Human Rights (ECHR) regime. Examples include
deciding whether an applicant has a right in domestic law that is protected by fair
37 Payment in Gold of Brazilian Federal Loans Contracted in France (France v Brazil) Series A No 21
(1929) 124. See also ELSI (n 13) 47.
38 Soufraki (n 33) [96]; Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID
Case No ARB/03/25), Decision on the Application for Annulment of Fraport AG Frankfurt Airport
Services Worldwide, 23 December 2010 [236]; O Spiermann, ‘Applicable Law’ in Muchlinski, Ortino,
and Schreuer (n 34) 114. The principle has been considered applicable also in the domain of inter-
national commercial arbitration: J Waincymer, Procedure and Evidence in International Arbitration
(Kluwer 2012) 784.
39 Soufraki (n 33) [96].
40 Emmis International Holding BV v Hungary (ICSID Case No ARB/12/2), Award, 16 April 2014
[175]. This emphasis on what domestic courts would do in practice might even lead tribunals to apply
potentially unconstitutional domestic laws, if those laws come from legal systems where courts do not
exercise powers of judicial review: P Mayer, ‘L’arbitre international et la hiérarchie des normes’ (2011)
2 Rev Arb 361.
111
hearing guarantees in Article 6(1) of the Convention;41 deciding whether an appli-

cant enjoys effective remedies in domestic law that should have been exhausted
before petitioning the European Court;42 and establishing the meaning and inter-
pretation of a domestic law to determine whether it constitutes discrimination
under Convention Article 14.43
Although without expressly citing Brazilian Loans, the European Court has
adopted a position very close to the PCIJ’s view on the appropriate use of domestic
authorities when determining points of domestic law. In Masson and van Zon v
Netherlands, the Court was required to decide whether the applicants had a right in
domestic law to compensation for legal costs following their acquittal in a criminal
trial.44 To resolve this question, the Court held that it ‘must have regard to the
wording of the relevant legal provisions and to the way in which these provisions
are interpreted by the domestic courts’.45 The Court has elsewhere confirmed that
‘it is in the first place for the national authorities, and notably the courts, to inter-
pret and apply domestic law’.46 Because of this, it has also held that it ‘would need
strong reasons to differ from the conclusion reached by those courts by substitut-
ing its own views for those of the national courts on a question of interpretation
of domestic law’.47 Furthermore, any relevant domestic legislation ‘must be inter-
preted in its context and with the legislative intent and purpose in mind’.48
WTO jurisprudence has similarly referred to the Brazilian Loans principle, in
confirming the need to examine domestic authorities when determining whether
a domestic law is in compliance with WTO obligations.49 In US—1916 Act I, a
WTO panel held that it could not merely review the text of a US law on its face,
since this might lead to ‘an understanding of that law different from the way it is
actually understood and applied by the US authorities’.50 Citing Brazilian Loans,
the panel considered that it would instead need to ‘weigh the jurisprudence of
municipal [US] courts’, also taking account of the US court hierarchy and the
operation of stare decisis between those courts.51
41 See, e.g., Masson and van Zon v Netherlands App No 15346/89 (ECHR, Judgment of 28
September 1995).
42 See, e.g., X v United Kingdom App No 6840/74 (ECHR, Decision on Admissibility of 12
May 1977).
43 See, e.g., X v Austria App No 19010/07 (ECHR, Judgment of 19 February 2013).
44 The existence or otherwise of a right to compensation in domestic law determined the ques-
tion of whether Article 6(1) of the Convention applied. This provision guarantees a fair hearing in
ECHR member-state courts in the determination of individual rights, but it only applies where there
is indeed an arguable right, and not a mere discretion or hope. See R White and C Ovey, The European
Convention on Human Rights (5th edn, OUP 2010) 254–9.
45 Masson and van Zon (n 41) [49].
46 Among many authorities, see, e.g., Klauz v Croatia App No 28963/10 (ECHR, Judgment of 18
July 2013) [86]; Kopp v Switzerland App No 23224/94 (ECHR, Judgment of 25 March 1998) [59].
47 Roche v United Kingdom App No 32555/96 (ECHR, Judgment of 19 October 2005) [120]. One
such reason might be ‘arbitrariness’ in the domestic courts’ rulings: Kopecký v Slovakia App No 44912/
98 (ECHR, Judgment of 28 September 2004) [56].
48 Roche (n 47) [123]. 49 See Bhuiyan (n 8) 223–5.
50 WTO, United States: Anti-Dumping Act of 1916—Report of the Panel (31 March 2000) WT/
DS136/R [6.48].
51 ibid [6.53]–[6.59].
112
5.4 The Practicalities of Ascertaining the Contents

of Domestic Law
The general attitude and objective that should be adopted by investment tribunals
in principle, in relation to domestic law, is therefore clear enough. But this still
leaves practical questions. How exactly can investment treaty tribunals ascertain
the contents of applicable domestic law from the respondent country (or another
country), in order to fulfil their Brazilian Loans mandate of applying that law ‘as it
would be applied in that country’? Which sources can be consulted by tribunals,
and from where should information on these sources come? This section examines a
range of possibilities, including arbitration rules, arbitrators themselves, principles
from other international courts, principles from the conflict of laws in national
courts, and principles from international commercial arbitration.
5.4.1 Guidance in arbitral rules
One starting point might be to consult the arbitral rules under which most invest-
ment treaty arbitrations are conducted. In roughly decreasing order of promi-
nence, these are the International Centre for Settlement of Investment Disputes
(ICSID, including the ICSID Additional Facility), United Nations Commission
on International Trade Law (UNCITRAL), Stockholm Chamber of Commerce
(SCC), International Chamber of Commerce (ICC), and London Court of
International Arbitration (LCIA) rules. However, a brief review of these sources
reveals that, while they all address ‘macro’ choice-of-law questions (i.e. which law
should apply), only the LCIA rules give any guidance to arbitrators on ‘micro’
choice-of-law questions (i.e. how to determine the contents of the applicable
law).52 Article 22.1(c) of the LCIA Arbitration Rules grants the tribunal power to
conduct such enquiries as may appear … to be necessary or expedient, including whether
and to what extent the Arbitral Tribunal should itself take the initiative in identifying the
issues and ascertaining … the law(s) or rules of law applicable to the arbitration [and] the
merits of the parties’ dispute.
Even this provision does not provide any specifics, for instance on the sources
to be consulted in ascertaining the applicable law, or the research method to be
used by the tribunal in finding these sources. As Lew notes, Article 14(2) of the
LCIA Arbitration Rules also specifies that the tribunal ‘shall have the widest
discretion to discharge its duties’.53 Similarly, all the other arbitral rules used
52 J Lew, ‘Iura Novit Curia and Due Process’ (2010) Queen Mary School of Law Legal Studies
Research Paper 72/2010, 1, 7, <ssrn.com/abstract=1733531>. The same generally applies to national
arbitration laws: J Karton, The Culture of International Arbitration and the Evolution of Contract Law
(OUP 2013) 155.
53 Lew (n 52) 8.
113
in investment arbitration grant wide discretion to the tribunal to conduct its

procedure.54
5.4.2 Arbitrators’ knowledge of domestic law

A second possibility for a tribunal seeking information on domestic law (usually
the respondent state’s law) is to consult any of its own members who already have
knowledge of this law. However, this possibility carries with it several problems.
First, even if the need for expertise in the respondent state’s law can often be fore-
seen at the time of tribunal composition, imposing a requirement to ensure the
presence of this expertise on the tribunal would restrict the pool of arbitrators that
can sit on investment treaty tribunals. Although the most commonly used arbitral
rules do not impose requirements of knowledge, skill, or experience in any par-
ticular area of law before a person may be selected as an arbitrator,55 in practice the
arbitrators appointed are required to be highly knowledgeable in international law.
Naturally, this means that only a limited number of persons worldwide have the
necessary skills to serve as arbitrators in the complex disputes typically arising under
international investment agreements. The imposition of an additional requirement
that the proposed arbitrator be knowledgeable in the law of the host state would
place even further practical restrictions on parties’ ability to find suitable arbitrators.
Second, even if people with knowledge of both the respondent state law and
international law were available, their appointment to an arbitral tribunal might in
some circumstances breach nationality requirements. Under Article 39 of the ICSID
Convention, a majority of the arbitrators on a tribunal must not be nationals of the host
state, unless both parties agree otherwise. More particularly, Rule 1(3) of the ICSID
Arbitration Rules prevents a national of either the home or host state being appointed
by a party without agreement from the other party. Furthermore, under Article 38 of
the ICSID Convention, if the parties fail to appoint all arbitrators within ninety days,
the ICSID Chairman is obliged to appoint the remaining arbitrators at the request of
either party. However, the Article provides that any arbitrators appointed in this way
must not be nationals of the host state. As a result of these provisions, and assuming
that nationals of a particular state are the most likely (or at least are significantly more
likely) to have knowledge of that state’s law compared to nationals of other states, it
may be difficult to appoint arbitrators with this knowledge.
Therefore, it will most often be impractical to appoint arbitrators that are com-
petent in host state law in investment disputes. As a result, it can be assumed in
the majority of cases that the tribunal has no actual knowledge of the details of the
respondent’s law before the arbitration commences.
54 ICSID Arbitration Rules, Rule 19 (‘The Tribunal shall make the orders required for the conduct
of the proceeding’); UNCITRAL Rules Article 15(1); SCC Rules Article 19; ICC Rules Article 22.
55 The UNCITRAL, ICC, and SCC Arbitration Rules impose no requirements of knowledge, skill,
or experience in international law or any other field. The ICSID Convention does place ‘particular
importance’ on a proposed arbitrator’s ‘[c]‌ompetence in the field of law’, but does not specify any kind
of law, whether domestic or international: Article 14(1).
114
5.4.3 Guidance from international courts
In the absence of relevant arbitral rules, and of actual knowledge of domestic
law among the arbitrators, guidance on ascertaining the contents of domestic law
must be found elsewhere. In fact, the approaches taken by international courts,
including the PCIJ in Brazilian Loans itself, are again instructive for investment
tribunals.
In the Brazilian Loans case, the PCIJ commented that, although it applied
solely international law and was ‘not obliged … to know the municipal law of
the various countries’, it ‘may possibly be obliged to obtain [such] knowledge …
by means of evidence furnished it by the Parties or by means of any researches
which the Court may think fit to undertake’.56 The PCIJ thus proposed two
sources of information on domestic law: the submissions of the parties, and the
judges’ independent research. To resolve the question of French law before it,
the PCIJ relied on the first source, ‘information furnished by the Parties’, in the
form of French case-law. It held that the French doctrine, ‘after some oscillation,
has now been established in the manner indicated by the French Government’.57
In Diallo, the ICJ relied largely on the text of relevant Congolese laws, but
also examined actual practice in the implementation of one law and deferred
to the respondent’s interpretation of its constitution, which the Court found
plausible.58
At the ECtHR, meanwhile, Masson and van Zon v Netherlands provides an
example of that court’s approach to domestic authorities in practice. The Court
identified two legal situations that were potentially applicable in the claim (relat-
ing to an alleged right to compensation for legal costs following a criminal acquit-
tal). In one situation, a right to compensation purported to be recognized in
domestic law for unlawful detention. Consulting recent Dutch Supreme Court
judgments, the Court concluded that detention before a subsequent acquittal did
not amount to unlawful detention for the purposes of the Dutch statute.59 The
Court acknowledged prior academic debate on this question, but held that the
question had now been settled by the Supreme Court rulings.60 In another situa-
tion, domestic courts were empowered by the Dutch Code of Criminal Procedure
to grant compensation if satisfied that ‘reasons in equity’ existed to do so. The
Court viewed this conditional wording as granting a discretion to the domestic
court, but as clearly not creating any right for the applicants.61 It supported this
reasoning by again citing a Supreme Court judgment, which described this route
to compensation as a ‘limited possibility’ in view of the conditional wording used
in the statute.62
56 Brazilian Loans (n 37) 124.

57 Payment of Various Serbian Loans Issued in France (France v Serbia) Series A No 20 (1929) 47. The
PCIJ’s analysis of the domestic law question in the parallel Serbian Loans case was cross-referenced in
Brazilian Loans (n 37) at 123.
58 Ahmadou Sadio Diallo (Guinea v DRC) (Judgment) [2010] ICJ Rep 639 [69]–[74], [78]–[79],
[104]–[159].
59 Masson and van Zon (n 41) [51]. 60 ibid [34]. 61 ibid [51].
62 ibid [32].
115
The Court in Masson and van Zon thus relied on primary materials from the
Dutch legal system, including a statute and case-law interpreting this statute.
However, it is not clear from the judgment whether the Court found these materi-
als through its own research or whether they were presented by the parties. This
lack of clarity is a common feature of ECtHR judgments. The Court will typically
present a statement of facts and relevant domestic law and practice which purports
to be an objective, uncontroversial summary of the domestic law.63 This may not be
surprising, since a significant difference in this context between the ECHR regime
and investment treaty arbitration is the requirement to exhaust local remedies for
ECHR claims.64 This requirement prevents applicants from pursuing a claim at the
Court for breach of the European Convention before they have attempted to seek
redress in local courts. Because of this, for every ECHR case, there will naturally
exist prior domestic case-law which is likely to relate to the question of domestic law
in issue at the European Court.65 This case-law will be readily in evidence, since the
applicant will be obliged to demonstrate to the Court that their local court efforts
have not succeeded. The availability of this case-law will often make the Court’s task
easier than the task faced by an investment treaty tribunal. One of the major revolu-
tionary aspects of the investment law regime is the fact that, unlike all other claims
made under international law by individuals (or their home states, via diplomatic
protection), the requirement to exhaust local remedies does not exist.66 This raises
the possibility that issues of domestic law are presented for decision for the first time
by the international tribunal itself.67
Moreover, the European Court is presumably assisted in its deliberations on
domestic law by the requirement in the Convention that the Chamber or Grand
Chamber hearing a case must include the judge elected in respect of the respond-
ent state.68 This judge is therefore well placed to advise his or her colleagues on
the interpretation of any relevant domestic law. Again, such a requirement does
not exist in investment treaty arbitration; indeed, as discussed earlier, choosing
an arbitrator of the same nationality as one of the parties is prohibited in some
circumstances.
Nevertheless, Masson and van Zon—as one illustrative ECHR case—serves to
confirm the Brazilian Loans approach to domestic law, and to highlight two natural
sources of information on domestic law, namely domestic statutes and case-law.
63 In Masson and van Zon (n 41) itself, see [26]–[34]. For one of many other examples, see Kopecký
(n 47) [12]–[24].
64 Article 35(1) European Convention on Human Rights; White and Ovey (n 44) 34.
65 For one example of this, see X v Austria (n 43), where the Court’s Grand Chamber relied exten-
sively on domestic case-law to make a determination of the legality in Austrian law of adoption by
same-sex couples.
66 R Dolzer and C Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 264–7.
67 S Montt, State Liability in Investment Treaty Arbitration: Global Constitutional and Administrative
Law in the BIT Generation (Hart 2012) 324. See also Douglas (n 19) 241; C McLachlan, L Shore, and
M Weiniger, International Investment Arbitration: Substantive Principles (OUP 2007) 221.
68 Article 26(4) ECHR. There is no requirement that the judge elected in respect of each ECHR
contracting state be a national of that state, but in practice this is usually true.
116

Within WTO adjudication, the Appellate Body has identified several catego-
ries of information on domestic law: ‘the text of the relevant legislation or legal
instruments … evidence of the consistent application of such laws, the pronounce-
ments of domestic courts on the meaning of such laws, the opinions of legal experts
and the writings of recognized scholars’.69 In his own analysis of WTO case-law,
Bhuiyan has identified seven elements used in practice by WTO panels and the
Appellate Body to ascertain the contents and meaning of domestic laws relevant
to a WTO claim. These elements comprise the relevant legal text or statutory lan-
guage, domestic judicial decisions, legislative history, the object and purpose of the
law, context (including related legal provisions in the same or other laws), adminis-
trative criteria and practice, and representations made before WTO panels.70 This
information would typically come to the WTO adjudicator through the parties’
submissions in the case, presented as ‘evidence’ of the domestic law in question.71
The WTO thus provides further useful guidance to investment arbitrators on the
general sources of information on domestic law.
5.4.4 Guidance from national courts
The problem of dealing with a body of law that is somehow external to the adju-
dicator’s ‘home’ legal system is not unique to the relations between international
and domestic law (whether in investment tribunals, the ECHR, the WTO, or else-
where). The problem also arises in national courts, in the field of conflict of laws or
private international law. This field addresses situations in which the courts of one
country are required to apply the law of another country. This might arise when the
courts are called on to resolve, for instance, a contractual dispute where the con-
tract is expressed to be governed by a foreign law. Different countries take different
approaches to this situation.72 In civil law countries, the iura novit curia maxim
typically applies,73 such that the national court is deemed to be competent to apply
the contents of the foreign law to resolve the dispute. Clearly, ‘the court does not
know the law—other than its own’.74 In practice, the real effect of the maxim in
civil law jurisdictions is that ‘there is an assumption that … the court will research
and find the “foreign” law’ on its own motion.75 In common law countries, on
the other hand, foreign law is taken as a fact that must be proved by the parties.76
A common law court would not typically go beyond the submissions made by the
parties to request further submissions or undertake its own research. If the foreign
69 WTO, United States: Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat
Products from Germany—Report of the Appellate Body (28 November 2002) WT/DS213/AB/R [157].
70 Bhuiyan (n 8) 222–38. 71 US—Carbon Steel (n 69) [157].
72 Waincymer (n 38) 1056.
73 The role of iura novit curia in investment arbitration is discussed further in section 5.5.
74 Lew (n 52) 3 (emphasis added). 75 ibid 3.
76 ibid 4; F de Ly, M Friedman, and L Radicati di Brozolo, ‘International Law Association
International Commercial Arbitration Committee’s Report and Recommendations on “Ascertaining
the Contents of the Applicable Law in International Commercial Arbitration” ’ (2010) 26 Arb Intl
193, 200.
117
law is not proven, there is often a default position to apply local law to the point
instead.77
However, commentators have expressed wariness over the use of analogies from
national court systems in international arbitration.78 Lew notes that ‘different
legal systems … take widely different approaches as to the appropriate method
for acquiring and proving the content of the applicable law’.79 This suggests that
it is difficult to extract general principles to transport to international arbitration,
where the problem is ‘manifestly amplified’.80 In international arbitration, there is
no ‘local’ and ‘foreign’ law; there is only applicable law, meaning that there can be
no default position similar to the one adopted by common law courts.81 Even if
international law were taken to constitute the ‘local’ law to be applied by default,
this would leave the tribunal in an untenable position, since (as noted in section
5.2) in most situations international law does not contain any relevant, equivalent
rules that could be applied in place of the unproven ‘foreign’ (domestic) law. In
addition, arbitral tribunals do not have the support infrastructure of national laws
that constrain the conduct of judges.82 Furthermore, arbitration has a different
institutional mandate compared to litigation.83 Arbitrators are tasked by the par-
ties with a duty to decide the dispute, and—at least in ICSID disputes, by virtue of
Article 42(2) of the ICSID Convention—cannot claim that no relevant law exists
and return a finding of non liquet.84
The usefulness of the civil law approach to conflict of laws, drawing on iura novit
curia, is discussed further in section 5.5. Apart from this, however, the unique fea-
tures of international arbitration mean that any simple transportation of conflict of
laws principles (to the extent that common ones can be identified) from national
courts to international arbitration would be unwarranted.
5.4.5 Guidance from international commercial arbitration

A final potential source of assistance in developing principles for ascertaining the
contents of domestic law in investment treaty arbitration is the related field of
international commercial arbitration. International investment arbitration forms
part of public international law in its substance and in the major norms enshrined
in treaties and used to resolve disputes between investors and states. However, in
its unique method of dispute resolution, it adopts the form of private arbitration,
transferring many principles and institutional frameworks from the field of interna-
tional commercial arbitration. This latter field, therefore, is perhaps the best source
of analogies on the issue of determining the contents of applicable law.
77 Lew (n 52) 5.

78 C von Wobeser, ‘The Effective Use of Legal Sources: How Much is Too Much and What is the
Role for Iura Novit Curia’ in AJ van den Berg (ed.), Arbitration Advocacy in Changing Times (Kluwer
2011) 207.
79 Lew (n 52) 7. 80 ibid 7; de Ly, Friedman, and Radicati di Brozolo (n 76) 204.
81 de Ly, Friedman, and Radicati di Brozolo (n 76) 205; Waincymer (n 38) 1058.
82 de Ly, Friedman, and Radicati di Brozolo (n 76) 204. 83 Assareh (n 35).
84 See Landolt (n 35) 218 and de Ly, Friedman, and Radicati di Brozolo (n 76) 205.
118

As in investment arbitration, as well as determining which law applies to
the merits of a commercial arbitration, ‘[t]‌he need to ascertain the content of
the applicable law is an essential task of the international [commercial] arbi-
tral tribunal’.85 Discussion of exactly how this should be done in commercial
arbitration is not extensive in the mainstream literature.86 However, in 2008,
the International Commercial Arbitration Committee of the International Law
Association (ILA) produced a report and recommendations on the issue. The
ILA Report provides a number of useful suggestions that can be drawn on to
develop a framework for investment treaty arbitrators faced with determining
the contents of domestic law.
Notably, the Report opens with the following caveat:
[T]‌his Report deals with the ascertainment of the applicable law and its contents in interna-
tional commercial arbitration and does not cover international investment arbitration where
the issues and solutions may be at least in part different, although certain references are made
to the practice of international investment tribunals.87
One issue that may well be different in investment arbitration compared to com-
mercial arbitration is the greater public interest in the former context, and the
corresponding potential to limit the extent of party autonomy in investment arbi-
tration.88 Beyond this, however, the discussion here largely proceeds on the grounds
that close analogies can be drawn in this area between the two fields.
One reason for this is that, with the exception of the ICSID, international com-
mercial arbitration utilizes the same arbitral institutions and rules (UNCITRAL,
SCC, ICC, and LCIA) as investment treaty arbitration. As noted earlier, these rules
give little or no guidance to arbitrators on the issue. Indeed, the ILA Report notes
at the outset that there are no strict rules governing the answer to the question.
Instead, ‘arbitrators have considerable freedom to operate within broad parame-
ters’, constrained only by fundamental principles such as fairness to the parties and
due process.89 Since it appears that both fields enjoy a clean slate in this respect, the
considerations used to develop principles in one can be adopted in the other, sub-
ject to any identifiable differences such as party autonomy and the public interest.
The ILA Report identifies a range of sources of information on applicable law.
These include primary materials such as statutes or regulations from the juris-
diction concerned, together with judicial decisions interpreting these materials.
85 Lew (n 52) 2 (emphasis added).

86 Indeed, beyond brief references, two major texts on international commercial arbitration do not
raise the issue of ascertaining the contents of the applicable law at all: see N Blackaby and C Partasides,
Redfern and Hunter on International Arbitration (6th edn, OUP 2015) 219 and G Born, International
Arbitration: Law and Practice (Kluwer 2012).
87 de Ly, Friedman, and Radicati di Brozolo (n 76) 196. The caveat also implies that the issue
remains unclear in investment treaty arbitration; otherwise, the solution adopted there might have
been drawn on to give guidance to commercial arbitrators.
88 See the discussion in section 3.5; also E de Brabandere, Investment Treaty Arbitration as Public
International Law (CUP 2014) 49–54.
89 de Ly, Friedman, and Radicati di Brozolo (n 76) 196.
119
They also include secondary sources such as academic texts, drafting histories,
evidence of application of the law in practice, or expert witness evidence.90 The
Report also suggests that the parties themselves should be the principal provid-
ers of information about applicable law.91 If this information is insufficient, the
Report recommends that arbitrators are not confined to it and may take further
steps to ascertain the contents of the applicable law.92 As other commentators
suggest, these steps most likely include calling for additional information from
the parties, conducting independent research, or appointing a neutral expert to
assist the tribunal.93
Suggestions on the topic have been offered by several international commercial
arbitrators who, notably, have also served on investment treaty tribunals. One such
prominent arbitrator, Gabrielle Kaufmann-Kohler, has recommended that the best
approach is to encourage the parties to submit legal expert opinions, together with
translations of the relevant domestic law.94 Another, Claus von Wobeser, has sug-
gested a broad range of methods, including conferral with co-arbitrators who may
have greater knowledge of the relevant domestic law,95 examination of legal expert
witnesses at hearings, presentation of specific questions to the parties, and inde-
pendent study of the relevant law.96 Giuditta Cordero-Moss, citing Jan Paulsson,
agrees that ICSID tribunals are not bound to base their awards on the arguments
of the parties, but must ascertain and apply the relevant law themselves.97 Cordero-
Moss notes tribunals’ power, under the most common arbitral rules used in invest-
ment arbitration, to request parties to provide additional documentation and to
take the initiative to appoint an expert.98
90 ibid 198. See also Landolt (n 35) 179; cf the very similar sources of information identified by the
WTO, discussed in section 5.4.3.
91 de Ly, Friedman, and Radicati di Brozolo (n 76) 218. Other commentators agree with
this: Lew (n 52) 14; M Kurkela, ‘ “Iura Novit Curia” and the Burden of Education in International
Arbitration: A Nordic Perspective’ (2003) 21 ASA Bull 486, 495; Landolt (n 35) 198; Waincymer (n
38) 784.
93 Lew (n 52) 14; Kurkela (n 91) 495; Landolt (n 35) 179; Waincymer (n 38) 1089.
94 Kaufmann-Kohler (n 35) 637.
95 This suggestion may be difficult to adopt in practice, as discussed previously, since it essentially
requires arbitrators of the same nationality as the respondent state. However, it proved useful in one
investment treaty case, Walter Bau v Thailand, discussed in Chapter 7.
96 von Wobeser (n 78) 218–19.
97 Cordero-Moss (n 34) 1210, but also noting there that this may not apply to other, non-
ICSID tribunals. However, sitting as sole arbitrator in one investment treaty case under SCC
rules, Cordero-Moss appeared to take a similar position as the one stated here for ICSID
tribunals: see n 113.
98 ibid 1224. Indeed, tribunal-appointed experts have been used in ICSID cases on questions of
damages: see, e.g., El Paso v Argentina (ICSID Case No ARB/03/15), Award, 31 October 2011 [698].
The tribunal in that case did not elaborate on the exact source of its power to appoint an expert. Neither
the ICSID Convention nor the ICSID Arbitration Rules explicitly grant such a power. However, it
can probably be inferred from the width of the powers that are granted: see Rules 19 and 34(2) of the
Arbitration Rules, and Article 44 of the Convention. Nevertheless, Kaufmann-Kohler has doubted the
practicality of a tribunal-appointed expert, considering it ‘most often … excessively cumbersome’: (n
35) 636.
120
5.5 The Principle of Iura Novit Curia in Investment Arbitration
The discussion in section 5.4 alluded to a potential role for the principle of iura
novit curia in investment arbitration. This principle, familiar from civil law juris-
dictions, states that the court (or tribunal) is deemed to know the law that it must
apply.99 Most relevantly, the principle gives the court or tribunal a broadly proac-
tive mandate in the management of the proceedings, shifting its role from that of
umpire (merely deciding between two viewpoints) to inquisitor (actively searching
for a ‘correct’ answer).100 Under iura novit curia, then, an adjudicator could poten-
tially apply particular laws to resolve the dispute at hand even if the parties have not
themselves pleaded their case on the basis of those laws.101
The exact application of iura novit curia in international investment arbitration is
sometimes disputed. If iura novit curia does impose some obligation on investment
arbitrators, however, this obligation must extend to all of the applicable law—both
international law and, notably, any relevant domestic law.102 This has important
consequences for the practicalities of ascertaining the contents of the applicable
(domestic) law. Under iura novit curia, as discussed presently, an investment tribu-
nal will be expected to go beyond the parties’ pleadings where necessary to clarify a
point of domestic law, and to take a proactive role in conducting its own research
or even appointing its own experts where information from the parties themselves
is insufficient to resolve an unavoidable question of domestic law.
It is largely agreed that an investment tribunal has at least a power to take such
proactive steps as researching elements of applicable law itself and applying them
on its own motion to facts presented by the parties. This much flows from the fact
that the various arbitral rules used in investment treaty disputes generally grant
tribunals wide powers to conduct their procedure as they deem fit.103 In ICSID
arbitration, there are several instances of failed attempts at annulment of awards
where the losing party has complained that their reasoning was based on legal argu-
ments not presented by the parties.104 Moreover, one author has concluded that the
same is true for non-ICSID arbitration.105
99 Kurkela (n 91).

100 See Cordero-Moss on the conceptions of tribunals as ‘umpires’ or ‘inquisitors’: (n 34) 1209.
101 cf Newcombe and Paradell (n 30) 90.
102 Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Award, 16 September 2015 [92]; CME
Czech Republic BV v Czech Republic (UNCITRAL), Comments Relating to Applicable Law on the
Stockholm Tribunal’s Final Award of 14 March 2003, 30 March 2003, 6; Newcombe and Paradell (n
30) 95; Spiermann (n 38) 90; P Bernardini, ‘International Commercial Arbitration and Investment
Treaty Arbitration: Analogies and Differences’ in D Caron and others (eds), Practising Virtue: Inside
International Arbitration (OUP 2015) 57; cf J Crawford, Brownlie’s Principles of Public International
Law (8th edn, OUP 2012) 52 and de Brabandere (n 88) 109.
103 ICSID Arbitration Rules 19, 34(2), and 42(4); UNCITRAL Rules Article 15(1); SCC Rules
Article 19; ICC Rules Article 22; LCIA Rules Article 14(2).
104 Cordero-Moss (n 34) 1210, citing Klöckner v Cameroon, MINE v Guinea, Wena Hotels v Egypt,
and Vivendi v Argentina.
105 Cordero-Moss (n 34) 1213.
121
However, the disputed point is whether investment tribunals also have an obli-
gation to take initiatives to clarify the substance of applicable law.106 In Brazilian
Loans, the ICJ went only so far as to say that it ‘may possibly be obliged’ to conduct
its own research into applicable law.107 One prominent arbitrator has suggested
that ‘a fair restatement of the rule that is progressively emerging’ in international
arbitration is that tribunals ‘have the power, but not the obligation, to make [their]
own inquiries’.108 In the ICSID case Mitchell v Congo, the ad hoc annulment com-
mittee commented that a tribunal was not required to apply relevant international
law that was not pleaded by the parties; ‘this is but an option’ for the tribunal.109 The
earlier CME v Czech Republic tribunal took a similar view in relation to domestic
law, part of the applicable law in the case. It held that it was not ‘bound to research,
find and apply national law which has not been argued or referred to by the par-
ties and has not been identified by the parties or the Tribunal to be essential to the
Tribunal’s decision’.110
Despite this apparent lack of support for a iura novit curia obligation, the CME
tribunal’s statement could be confined on its face to situations in which the tribu-
nal has not identified a particular law as essential for the decision. If a law is not
essential to a tribunal’s decision, it seems uncontroversial that the tribunal need not
research and apply it. But this says nothing about laws, including domestic laws,
that are essential for the decision because they (for instance) resolve preliminary
questions of jurisdiction, such as the existence of an investment under domestic
law or the nationality of a claimant. Moreover, in Enron v Argentina, the ad hoc
annulment committee held that the tribunal (whose award it was reviewing) was
required to apply the applicable law, and that this central task entailed an obligation
to consider issues on which the parties had not made submissions.111 One writer
(and frequent arbitrator) agrees that a tribunal’s obligation to ascertain and apply
the applicable law is simply part of its mandate to decide the dispute.112 Comments
of the sole arbitrator in the SCC case Bogdanov v Moldova also suggest such an
obligation. The arbitrator there had invited the parties to make submissions on an
issue of jurisdiction. When they failed to do so, the arbitrator held that ‘this can-
not prevent the tribunal from applying the law as it deems appropriate’, and that
‘[t]‌his conclusion is confirmed by ICSID practice’.113 Further, in the ICSID case
106 D Bigge, ‘Iura Novit Curia in Investment Treaty Arbitration: May? Must?’ (Kluwer Arbitration
Blog, 29 December 2011), <kluwerarbitrationblog.com/blog/2011/12/29/iura-novit-curia-in-
investment-treaty-arbitration-may-must>; von Wobeser (n 78).
107 Brazilian Loans (n 37) 124.
108 Kaufmann-Kohler (n 35) 636. See also C Alberti, ‘Iura Novit Curia in International Commercial
Arbitration: How Much Justice Do You Want?’ in S Kröll and others (eds), International Arbitration
and International Commercial Law: Synergy, Convergence and Evolution (Kluwer 2011) 25.
109 Patrick Mitchell v DRC (ICSID Case No ARB/99/7), Decision on the Application for Annulment
of the Award, 1 November 2006 [57] (emphasis added). The law in question was a particular provision
of the applicable BIT.
110 CME Czech Republic BV v Czech Republic (UNCITRAL), Final Award, 14 March 2003 [411].
111 Enron Corporation v Argentina (ICSID Case No ARB/01/3), Decision on the Application for
Annulment of the Argentine Republic, 30 July 2010 [385]–[395].
112 von Wobeser (n 78) 211.
113 Iurii Bogdanov v Moldova (SCC), Arbitral Award, 22 September 2005 [2.2.1].
122

Metal-Tech v Uzbekistan, the tribunal explicitly endorsed the principle in relation
to both international and domestic law.114 In the UNCITRAL case Oostergetel v
Slovakia, the tribunal noted that the arbitral rules offered no guidance on ascer-
taining the contents of the applicable law (including domestic law), but that iura
novit curia should be applied under the Swiss law governing the Geneva-seated
arbitration.115
Landolt has argued that arbitrators’ duty to resolve the dispute or to apply the
applicable law does not necessarily imply any obligation to take initiatives to ascer-
tain that law. Instead, the duty might be fulfilled simply by applying whatever law
has been presented in submissions by the parties. Otherwise, Landolt contends, the
duty would become a duty to apply the law to some minimum objective standard
of correctness.116 In his view, arbitration differs from litigation in this respect; arbi-
trators are seen as merely private adjudicators employed to resolve a single dispute,
unlike judges, who are agents of the state and the public interest.117
However, Landolt also admits that his doubts about iura novit curia and tri-
bunals’ obligations are weaker when applied to investment treaty arbitration.
Referring to Enron v Argentina, he suggests that ICSID tribunals may well have
an obligation to take initiatives on the applicable law, or risk annulment of their
awards.118 Landolt also concedes that the public interest plays a much larger role
in investment arbitration, pushing arbitrators to be more proactive in ascertaining
and applying the law.119 Furthermore, he refers to the injunction against findings of
non liquet in Article 42(2) of the ICSID Convention, again meaning that (at least
within the ICSID framework) investment arbitrators must, in one way or another,
find some law and apply it.120
Other case-law from international courts and tribunals, notably the ICJ itself,
would support this view. In the Fisheries Jurisdiction case, the ICJ held that ‘[t]‌he
Court … as an international judicial organ, is deemed to take judicial notice of
international law, and is therefore required … to consider on its own initiative all
114 Metal-Tech Ltd v Uzbekistan (ICSID Case No ARB/10/3), Award, 4 October 2013 [287].
Notably, two of the arbitrators in this case—Gabrielle Kaufmann-Kohler (presiding) and Claus von
Wobeser—have written elsewhere on issues of iura novit curia in international arbitration: see e.g. nn
35 and 78.
115 Albert Jan Oostergetel v Slovakia (UNCITRAL), Final Award, 23 April 2012 [141] (with
Gabrielle Kaufmann-Kohler again as presiding arbitrator).
116 Landolt (n 35) 182–3.
117 ibid 186. On investment arbitrators as agents (of either treaty parties or disputing parties), see
A Roberts, ‘Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’ (2013)
107 AJIL 45.
118 Landolt (n 35) 195.
119 ibid 215–16. See also J Waincymer, ‘International Arbitration and the Duty to Know the Law’
(2011) 28 J Intl Arb 201, 218; Cordero-Moss (n 34) 1211; N Rubins, ‘ “Observations” in Connection
with Swembalt AB v Republic of Latvia’ (2004) 2 Stockholm Arb Rep 123; cf A Mills, ‘Antinomies of
Public and Private at the Foundations of International Investment Law and Arbitration’ (2011) 14
JIEL 469, 485, observing that the more an arbitrator adopts a ‘private’ model of investment arbitration,
the more they are likely to confine themselves to ‘the facts and arguments presented by the particular
parties’.
120 Landolt (n 35) 221.
123
rules of international law which may be relevant to the settlement of the dispute’.121
Of course, it is debatable whether an investment treaty tribunal is ‘deemed to take
judicial notice’ of all parts of the applicable law, including domestic law. However,
if the ICJ’s point was that the Court is expected to investigate ‘all rules of … law’
that it is required to apply, then investment tribunals might be thought to have the
same obligation in relation to all the rules of the applicable law, including domes-
tic law, that they must apply. Similarly, in the Nicaragua case, the ICJ held that it
was still required to satisfy itself that one party’s claims were ‘well founded in law’
even though the other party chose not to appear or present submissions before the
Court.122 The Court commented that ‘the principle jura novit curia signifies that the
Court is not solely dependent on the argument of the parties before it with respect
to the applicable law’.123 These two judgments were cited with approval in relation
to iura novit curia by the ICSID ad hoc annulment committee in RSM Production
Corporation v Grenada.124 Last, in a comparable situation of the respondent state’s
absence from the proceedings, the arbitrator in BP v Libya, a 1979 case based on a
concession contract, held that he was ‘both entitled and compelled to undertake an
independent examination of the legal issues deemed relevant by it, and to engage in
considerable legal research going beyond the confines of the materials relied upon
by the Claimant’.125
As various writers and tribunals have suggested, an obligation to investigate
applicable law would make most sense at the jurisdictional stage of an arbitra-
tion.126 This is because the principle of party autonomy implies that tribunals
must be convinced that the parties have both validly given consent for the tribu-
nal to decide the dispute before they can proceed any further. An essential part
of clarifying this consent might therefore involve raising questions, on the tribu-
nal’s own motion, to ensure that all jurisdictional requirements are fulfilled.127
Indeed, recognition of a stronger role at the jurisdictional stage has particular
consequences for investment treaty arbitration. Jurisdictional requirements are
becoming more important as states become less tolerant of frivolous claims,128
121 Fisheries Jurisdiction Case (Germany v Iceland) (1974) ICJ Rep 175, 181 (emphasis added).
122 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v USA) (1986) ICJ Rep
14, 24.
123 ibid.
124 RSM Production Corporation v Grenada (ICSID Case No ARB/05/14), Decision on RSM
Production Corporation’s Application for a Preliminary Ruling of 29 October 2009 [23].
125 BP Exploration Co (Libya) Ltd v Libya (1979) 53 ILR 297 (emphasis added), cited in Bigge
(n 106).
126 Landolt (n 35) 192; Waincymer (n 38) 1090; Ioan Micula v Romania (ICSID Case No ARB/
05/20), Decision on Jurisdiction and Admissibility, 24 September 2008 [65]; İçkale İnşaat Ltd Şirketi
v Turkmenistan (ICSID Case No ARB/10/24), Award, 8 March 2016 [239].
127 This does not necessarily mean searching for alternative grounds for jurisdiction not pleaded by
the parties: Libananco Holdings Co Ltd v Turkey (ICSID Case No ARB/06/8), Decision on Annulment,
22 May 2013 [222]–[223].
128 The ICSID Arbitration Rules were amended in 2006 to permit tribunals to dismiss cases that
are ‘manifestly without legal merit’: see M Potestà and M Sobat, ‘Frivolous Claims in International
Adjudication: A Study of ICSID Rule 41(5) and of Procedures of Other Courts and Tribunals to
Dismiss Claims Summarily’ (2012) 3 JIDS 137.
124

and tribunals must correspondingly be careful not to accept jurisdiction where
none exists. Many of the central questions that entail application of domestic law
in an investment treaty dispute are in fact questions of jurisdiction. For instance,
whether or not the claimant validly owns its purported investment in the host
state is a question of domestic law, but it is also a question of jurisdiction. If the
claimant does not own the investment claimed in the host state, the tribunal has
no jurisdiction to hear a dispute over that investment. Similarly, if the claimant
has not made its investment in accordance with domestic law, the tribunal is also
likely to find that it has no jurisdiction.129 In these areas, then, it is particularly
important for the tribunal to adopt a proactive, iura novit curia approach on
questions of domestic law.
The ILA Report refers to several other considerations that might increase arbi-
trators’ obligations to be proactive. These include situations where the solution or
arguments offered by the parties appears to be ‘manifestly wrong’, where one party
(or their counsel) knows more about the applicable law than the other, or where
it is ‘evident that the arbitrators (or some of them) have been appointed particu-
larly in consideration of their knowledge of the applicable law’.130 While the ILA
Committee felt unable to recommend a more forthright role in these situations, it
equally made no criticism of such a role.131 One further situation in which a more
active role for the tribunal on applicable law is appropriate is when one party does
not appear or cooperate in the proceedings.132 (Chapter 7 of this book discusses
one ICSID case in which this situation arose.)133 In this circumstance, according
to the ILA Report, the tribunal is still required to decide according to applicable
law, rather than merely ‘the untested submissions of just one party’.134 This would
therefore involve some effort by the tribunal to counter the cooperating party’s sub-
missions, presumably by way of additional independent research or the assistance of
a tribunal-appointed expert. The extra cost entailed by these steps could be placed
upon the defaulting party.135
129 Some authors, however, treat this question as one of admissibility or merits rather than juris-
diction. See A Newcombe, ‘Investor Misconduct: Jurisdiction, Admissibility, or Merits?’ in C Brown
and K Miles (eds), Evolution in Investment Treaty Law and Arbitration (CUP 2011) 187; C Miles,
‘Corruption, Jurisdiction and Admissibility in International Investment Claims’ (2012) 3 JIDS 329;
S Schill, ‘Illegal Investments in Investment Treaty Arbitration’ (2012) 11 LPICT 281; R Moloo and A
Khachaturian, ‘The Compliance with the Law Requirement in International Investment Law’ (2011)
34 Fordham Intl LJ 1473; C Knahr, ‘Investments “In Accordance with Host State Law” ’ (2007)
4(5) TDM.
130 de Ly, Friedman, and Radicati di Brozolo (n 76) 212. 131 ibid.
132 Alberti (n 108) 29; de Ly, Friedman, and Radicati di Brozolo (n 76) 211; L Franc-Menget, ‘Iura
Novit Curia vs The Right to be Heard: How to Strike the Balance? The Civil Law View’ (ASA Below 40,
29 October 2010), <www.arbitration-ch.org/pages/en/asa/asa-below-40/presentations>.
133 See the discussion of Goetz v Burundi in section 7.1.2. Outside the investment arbitration con-
text, the South China Sea arbitration is of course another recent, prominent example, confirming the
additional duties on the tribunal due to the respondent’s non-appearance: Philippines v China (PCA
Case No 2013-19), Award, 12 July 2016 [116]–[144].
134 de Ly, Friedman, and Radicati di Brozolo (n 76) 211; Cordero-Moss (n 34) 1235.
135 Of course, in investment arbitration, it is more likely to be the respondent state than the investor
claimant that fails to appear or cooperate. Although it may be difficult to recover a costs order against
a state, this is no more difficult than recovery of the primary amount due.
125
Certain constraints on arbitrators’ obligation to find and apply domestic law have
also been identified. However, these constraints may be less onerous than they appear.
First, due process suggests that any materials located by the tribunal itself, or any
expert appointed by the tribunal, should also be made available to the parties for
comment.136 This may be wise in practice, but—for ICSID arbitrations at least—the
prevailing view is that awards are unlikely to be annulled even if they are based on
reasons that come as a surprise to the parties.137 Alongside this, the principle of ultra
petita (a manifestation of party autonomy in arbitration) holds that tribunals can-
not go beyond the parties’ requests, for instance by ordering a remedy that was not
sought. Nevertheless, the principle is generally taken to relate only to the ultimate
relief sought by the claimant, and not the submissions of the parties.138 As long as
some relief has been requested, then, ultra petita would not prevent the tribunal apply-
ing the full extent of the applicable law to grant this relief if deemed appropriate.
It may well remain the case that an investment award runs little risk of being annulled
or refused enforcement on the grounds that it failed to take proactive steps to ascertain
the contents of applicable domestic law. The bar for annulment of ICSID awards is
generally very high,139 and national courts are reluctant to intervene in non-ICSID
arbitral awards.140 Arbitrators’ personal backgrounds in either civil or common law
systems may also affect their comfort with iura novit curia approaches. However, based
on the foregoing discussion, there are good reasons for arbitrators in investment treaty
cases to consider that they are under a normative obligation to ascertain the contents of
domestic law. Importantly, advocating for such an obligation is consistent with com-
bating the concerns about the international legitimacy of investment tribunals that
were outlined in Chapter 1. The more tribunals make efforts to demonstrate that they
have taken domestic law seriously—by ascertaining its contents appropriately, and by
applying it in the manner indicated in the PCIJ’s Brazilian Loans judgment—the more
criticisms of investment arbitration will be quelled.
5.6 Weighting Domestic Case-law and Other

Domestic Law Materials
The preceding sections have discussed the potential sources of information on

domestic law, including primary and secondary legal materials from the relevant
136 Cordero-Moss (n 34) 1242; von Wobeser (n 78) 213; de Ly, Friedman, and Radicati di Brozolo
(n 76) 218; Waincymer (n 38) 1089.
137 Cordero-Moss (n 34) 1241; Schreuer (n 23) 987–91.
138 Landolt (n 35) 192; von Wobeser (n 78) 212–13.
139 Of forty-two concluded applications for annulment in ICSID’s history to August 2012, only
six resulted in full annulment of the award. The ratio of annulments to ICSID awards rendered also
decreased in the decade 2001–2011 compared to ICSID’s earlier history: ICSID, Background Paper
on Annulment for the Administrative Council of ICSID (10 August 2012) 24, 27–8. Since August
2012, no awards have been entirely annulled, and only two awards (Occidental v Ecuador and TECO v
Guatemala) have been partially annulled.
126

jurisdiction, and the extent of a tribunal’s duty to investigate these sources itself
in the absence of information from the parties. The Brazilian Loans principle sug-
gests that, having obtained these sources, the tribunal’s objective is to interpret and
apply them as they would be applied in the relevant jurisdiction. However, this still
leaves various questions in relation to two particular sources: domestic case-law,
and domestic legal expert witness evidence. This section, and the next, consider the
question of the appropriate weight to be given to these two sources.
The ILA Report reviewed in section 5.3.5 contains a number of helpful sug-
gestions on ascertaining the contents of applicable law, but says relatively little on
the question of weight. The ILA Committee’s Recommendation 9, for instance,
encourages tribunals to give ‘appropriate weight’ to reliable sources of information
on domestic law, while Recommendation 12 suggests giving ‘due regard’ to infor-
mation about the application of particular rules in their local context.141 However,
the Report does not elaborate on what these phrases mean, presumably preferring
to leave the matter to tribunals’ discretion.
Indeed, it is difficult to be prescriptive on the question of weighting of sources,
since much will depend on the particular combination of materials available in
each case. Nevertheless, there is a natural hierarchy of sources on which tribunals
can rely. This hierarchy is perhaps implicit in the order in which the proposed
sources of information on applicable law are listed in the ILA Report: ‘statutes,
case law, submissions of the parties’ advocates, opinions and cross-examination of
experts, scholarly writings and the like’.142 This would imply that if, for instance, an
expert opinion submitted in the case conflicted with the ruling of a local court, the
court ruling should be given greater weight as a more authoritative statement of the
domestic law. Similarly, rulings from higher courts in the domestic system should
carry more weight than those from lower courts.143
The question of reliance on domestic case-law has, however, raised problems for
investment tribunals. Certain tribunals have contended that they must avoid refer-
ence to domestic case-law entirely, giving to it no weight at all as a source of infor-
mation on domestic law. Two concerns have been expressed in this regard. The first
is that domestic institutions cannot be trusted, since a state might be tempted to
procure from them an interpretation of domestic law enabling the state to escape an
international tribunal’s jurisdiction, or an interpretation otherwise favourable to the
state (section 5.6.1). The second is that domestic case-law is not binding res judicata
for an international tribunal, and should therefore be ignored (section 5.6.2). In
addition, even if domestic case-law should be referred to, the question of how to deal
with conflicting or contradictory case-law (section 5.6.3) remains to be addressed.
5.6.1 Fear of host state manipulation of local case-law

One of the primary rationales said to underpin the concept of international arbitra-
tion of foreign investment disputes is that, in many countries, domestic courts suffer
141 ibid 218–19. 142 ibid 218.

143 This approach is confirmed in WTO jurisprudence as well: Bhuiyan (n 8) 224.
127
from corruption and bias, or even from a simple lack of training and equipment
necessary to produce good-quality judgments within reasonable timeframes.144 In
order to encourage foreign investors into such economies despite the likelihood of
ineffectual local court protection, external, unbiased, and speedy dispute resolution
in the form of international arbitration must be available. If worries about domestic
courts form part of the rationale for the very existence of international arbitration,
it would not make sense for arbitrators to consult those same domestic courts when
resolving an investor’s claim. On this view, arbitrators should ignore rulings from
local courts, and preserve an untainted international forum for supervision.
This argument was raised in one investment treaty case, Inceysa Vallisoletana v El
Salvador. In this case, the investor won the tender for a vehicle inspection conces-
sion from the state after allegedly submitting false financial information, misrep-
resenting its qualifications, and concealing its relationship with another bidder.
El Salvador argued that, because of these improprieties, the investment had not
been made ‘in accordance with the laws of the host state’.145 The tribunal held that
it would make the assessment of compliance with domestic law itself, giving no
weight to pre-existing domestic determinations. It reasoned that, since determining
the investor legality question was a prerequisite to the tribunal’s jurisdiction over
the remainder of the case, the question must be fully investigated by the tribunal
itself at the initial stage.146 The tribunal in the Fraport I case took a similar view,
approving of the holding in Inceysa that ‘the legality of the investment is a premise
for this Tribunal’s jurisdiction’ and that, therefore, ‘the determination of such legal-
ity can only be made by the tribunal’ itself.147
This investigation by the tribunal itself should not mean turning a deliberate
blind eye to decisions of local courts. It is certainly open to a tribunal to offer
its own view on questions of domestic law, but this view must be premised on
domestic law itself, with reference to relevant domestic sources (clearly including
judgments of domestic courts). However, the Inceysa tribunal dismissed this path.
It took the view that states must not be allowed to alter or withdraw their con-
sent to international arbitration after having given it in a BIT. In its opinion, if
a tribunal were to rely on the decisions of domestic courts to determine investor
legality, a state would be able to unilaterally withdraw its consent by ruling that an
investment was not made legally.148 This meant that, in Inceysa, the tribunal con-
sidered itself obliged to ignore the decisions of local courts—even decisions which
144 Dolzer and Schreuer (n 66) 235–7; J Salacuse and N Sullivan, ‘Do BITs Really Work?: An
Evaluation of Bilateral Investment Treaties and Their Grand Bargain’ (2005) 46 Harv ILJ 67; A
Guzman, ‘Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment
Treaties’ (1998) 38 Va JIL 639.
145 Inceysa Vallisoletana SL v El Salvador (ICSID Case No ARB/03/26), Award, 2 August 2006 [141].
146 ibid [209].
Award, 16 August 2007 [391].
148 A point also made in Phoenix Action Ltd v Czech Republic (ICSID Case No ARB/06/5), Award,
15 April 2009 [103].
128

had found that the investment was legal, and which were therefore adverse to El
Salvador’s argument.149
This view espoused by the Inceysa tribunal is a pessimistic take on the independ-
ence of domestic courts. It suggests that domestic courts would willingly respond
to the call of a government, seeking to remove the jurisdiction of an international
investment tribunal convened against it, to rule an investment illegal. The tribunal
may perhaps have had in mind the domestic courts of El Salvador, the respondent
state in the case, if it had particular concerns about the quality of the domestic
judgments (even though the Salvadoran courts ruled the investment legal, arguably
against the interests of the state). But it phrased its point generally, without refer-
ence to the specific situation of El Salvador. This reasoning is too sweeping to be
correct. Certainly, if particular independence concerns are identified in evidence,
a tribunal may need to downplay the weight of a domestic judicial ruling. It is not
argued here that tribunals must give any significant weight to domestic authorities
where there are justifiable doubts about the quality or integrity of those authori-
ties:150 indeed, the ‘malicious misapplication of the law’ by local courts, part of
the typical investment treaty’s guarantee of fair and equitable treatment, may well
be the trigger of an investor’s dispute.151 It would make little sense to rely on the
rulings of domestic courts when the international lawfulness of those rulings them-
selves is at issue. The Inceysa tribunal was correct in its general observation on this
point. However, it wrongly applied the concern over local courts to hold that the
mere possibility of tainted verdicts (even in the absence of any evidence of specific
problems with El Salvador’s courts) meant that no domestic court ruling could ever
be given any weight by a tribunal.152
Naturally, it is not the simple possibility of poor-quality local courts that matters,
but instead actual evidence of concerns. In this vein, Nollkaemper has suggested
that the principle of judicial independence can be used as a ‘rule of recognition’,
to help international adjudicators identify those domestic determinations that can
be relied on.153 Nollkaemper has observed that, while principles of comity and
149 Inceysa (n 145) [209]–[212].

150 In this context, see Douglas, ‘Hybrid Foundations’ (n 19) 274: it is ‘more of an affront to
ignore domestic courts than to scrutinise them first before deciding whether to abide by their rulings’.
See also Y Shany, Regulating Jurisdictional Relations Between National and International Courts (OUP
2007) 171.
151 I Tudor, The Fair and Equitable Treatment Standard in the International Law of Foreign Investment
(OUP 2008) 161, citing Robert Azinian v Mexico (ICSID Case No ARB(AF)/97/2), Award, 1
November 1999 [102]. See Chevron Corporation v Ecuador (PCA Case No 2009-23), Decision on
Track 1B, 12 March 2015 [140]–[144], where the tribunal noted that, while ordinarily respect would
be due to Ecuadorian court decisions, the investor’s claims of ‘extremely gross misconduct’ amounting
to denial of justice precluded direct reliance on such decisions. Mohammad Al-Bahloul v Tajikistan
(SCC Case No V 064/2008), Partial Award on Jurisdiction and Liability, 2 September 2009 [237]
provides an example of the opposite, where the tribunal held that a domestic court interpretation was
not ‘malicious or clearly wrong’, and therefore could be relied upon.
152 Dodge also appears to make the problematic assumption that national courts will always be
partial: W Dodge, ‘National Courts and International Arbitration: Exhaustion of Remedies and Res
Judicata under Chapter Eleven of NAFTA’ (2000) 23 Hastings Intl & Comp L Rev 357, 381. Based on
this, he concludes that tribunals must never be bound by domestic court rulings: ibid 383.
153 A Nollkaemper, ‘The Independence of the Domestic Judiciary in International Law’ (2006) 17
FYBIL 261.
129
subsidiarity might dictate deference by international tribunals to domestic courts,

an additional condition of judicial independence must be added to make this com-
ity meaningful.154 Of course, it is not necessarily straightforward to determine the
threshold at which a local court will be considered sufficiently independent or com-
petent to make it credible for international purposes. However, an obvious lack of
domestic judicial independence will certainly temper an investment tribunal’s obli-
gations to investigate the local context.155 In any event, as will be seen in Chapter 7,
the cases that have arisen so far have rarely involved any suggestion that local courts
were not reliable, and yet—this book argues—tribunals have often still failed to
give domestic law the consideration that it deserves. Based on the case-law, these
failings are largely not presently attributable to any disinclination towards defer-
ence because of concerns about the quality of domestic courts.
5.6.2 No binding res judicata for local case-law

Apart from the fear of host state manipulation of local court rulings, tribunals have
suggested a second reason for active avoidance of reliance on local case-law. This
is that local court rulings do not constitute res judicata decisions binding on the
international tribunal.
In addition to the reason discussed in section 5.6.1, the tribunal in Inceysa called
on this res judicata argument to reject reliance on domestic authorities. The inves-
tor in the case had argued that, since the domestic courts had already ruled (in its
favour) on the legality of its investment, the issue was now res judicata and could
not be addressed again by the tribunal. The arbitrators, on the other hand, found
that res judicata would only apply if there was identity of parties and claims. The
domestic claim had been brought not by Inceysa itself, but by two of its competi-
tors who were unsuccessful in the tender process that led to Inceysa’s investment.
Furthermore, the domestic courts had ruled only on the legality of the administra-
tive act awarding the tender to Inceysa, and not on the legality of the company’s
investment as a whole. For the tribunal, these two points meant that identity of
parties and claims was not satisfied.156
Although this finding itself may have been justifiable on the facts, there is a risk
that such reasoning falls into formalism. The Inceysa award does not provide detail
on the precise claims or rulings made in the domestic courts, noting only that
the Ministerial resolutions awarding the tender to Inceysa were held to be valid.
However, the investment flowed entirely from the tender award: Inceysa’s claims
of breach of the Spain–El Salvador BIT related to alleged breaches of the contract
154 ibid.
155 Foster proposes a standard of ‘clear and convincing evidence’ that the national court decision was
unreliable: G Foster, ‘Striking a Balance Between Investor Protections and National Sovereignty: The
Relevance of Local Remedies in Investment Treaty Arbitration’ (2011) 49 Col J Transnatl L 201, 260.
The ECtHR has suggested that ‘arbitrariness’ in domestic court rulings would give the Court reason to
depart from the domestic position: Kopecký (n 47) [56].
156 Inceysa (n 145) [217].
130

arising out of the successful tender bid, and El Salvador’s response that the invest-
ment was illegal related to the investor’s misconduct during the tender process. It
thus seems possible that the domestic ruling on the validity of the tender grant to
Inceysa did, in essence, determine the legality of the investment. It may well have
been a formally different cause of action in domestic law—an action in admin-
istrative law against the relevant Ministry, rather than a prosecution for fraud or
misrepresentation against the investor—but it may still have covered very similar
legal territory. Without further detail in the award, it is difficult to know on which
grounds the tribunal rejected the identity of claims and thus the relevance of the
domestic decisions.
As for identity of parties, it was clear enough that parties entirely unrelated to
Inceysa had brought the domestic cases. However, tribunals have been tempted
in other cases to reject identity of parties even where a challenge to some state
measure was brought by the local subsidiary of the foreign investor bringing the
investment treaty claim.157 Again, this distinction appears too formalistic to pre-
vent all relevance of a domestic decision for a question coming before an inter-
national tribunal. At the least, the domestic rulings should have served as useful
starting points in an analysis of whether any domestic laws had been breached by
the investor.158
A similar res judicata argument appeared in Fraport I as well. The case revolved
around a domestic law (the Anti-Dummy Law, or ‘ADL’), which aimed at reserv-
ing the ownership and control of key public infrastructure to Philippine nationals.
The state alleged that the German investor had breached this law in making its
investment in a Philippine airport, and therefore that the tribunal lacked juris-
diction because the investment had been made illegally. The Fraport I tribunal
reviewed a legal opinion on the correct interpretation of the ADL, given by the
Philippine Special Prosecutor, a domestic official charged with enforcing the ADL.
However, the tribunal rejected the relevance of the Prosecutor’s opinion, for a
range of reasons. As in Inceysa, it held first that the opinion was not res judicata,
and therefore not required to be considered, because of a lack of identity of par-
ties and claims. The opinion had been issued following a request by two unrelated
157 See, e.g., LLC AMTO v Ukraine (SCC Case No 080/2005), Final Award, 26 March 2008
[71], where the tribunal rejected the relevance of a parallel claim by the local entity at the European
Court of Human Rights. See similarly arguments made before the ECtHR in Kemal Uzan v Turkey
App No 18240/03 (ECHR, 29 March 2011), in which parallel claims brought to investment treaty
tribunals by foreign parent companies were said to prevent the ECHR claim by local subsidiary
companies.
158 Bottini also makes this point: G Bottini, ‘Legality of Investments under ICSID Jurisprudence’ in
M Waibel and others (eds), The Backlash against Investment Arbitration: Perceptions and Reality (Kluwer
2010) 303. See P Martinez-Fraga, ‘Adam, How About a Second Bite at the Apple? Revisiting the
Need for Uniformity in the Application of Res Judicata to International Commercial and Treaty-Based
Arbitration’ in A Rovine (ed.), Contemporary Issues in International Arbitration and Mediation: The
Fordham Papers 2011 (Martinus Nijhoff 2012) 182, arguing for an ‘expansive iteration’ of res judicata
that relaxes the ‘identity of parties’ test. Shany also argues that ‘instances of absolute identity of parties
before national and international courts are bound to be rare’, and instead supports a substantive rather
than formal identity test: Shany (n 150) 134–7.
131
individuals seeking to have an ADL prosecution brought against Fraport, in a

kind of actio popularis claim permitted by Philippine law. This was enough for the
tribunal to conclude that the identities were not satisfied—‘[t]‌he parties were dif-
ferent, the claim (initiation of a criminal action) and the issues that were the ratio
of the [opinion] were different from those which engage this Tribunal’.159 This rea-
soning seems questionable; indeed, more so than the res judicata issue in Inceysa.
Certainly, the parties to the domestic claims were clearly not related to Fraport.
However, their request for prosecution was targeted directly at Fraport, and the
Prosecutor was thus asked to consider directly whether Fraport (and not any local
subsidiary) had breached the ADL. The consequences of the breach may have been
different in each case—for the domestic parties, a criminal prosecution would
result, while for the Philippines as respondent before ICSID, a lack of jurisdiction
would result. But the essential claim at issue was surely the same: namely, that
Fraport had breached the ADL. Only on a highly formalistic view could the find-
ing of no res judicata be correct. More importantly, though, even if the Prosecutor’s
opinion was not res judicata, to reject it on this ground ignores its close relevance
for the issue facing the tribunal.
Furthermore, the reasoning seems inconsistent with a second reason given by the
tribunal for rejecting the opinion. It found that, ‘[m]‌oreover, holdings of municipal
legal institutions cannot be binding with respect to matters properly within the
jurisdiction of this Tribunal’.160 In other words, because the tribunal itself had been
tasked with determining the legality of Fraport’s conduct—by virtue of its duty to
rule on its own jurisdiction—it could not abandon this task simply by adopting a
municipal legal ruling. However, the tribunal’s statement implies that the issue con-
sidered in the municipal ruling here, the Prosecutor’s opinion, was the same as the
issue faced by the tribunal. Otherwise, there would be no need to hold that it was
not binding as a merely domestic opinion. If the issues were indeed the same, then
the tribunal’s previous finding (of no identity of claims for res judicata purposes)
looks less well founded.
In any case, even if the municipal holding is not binding, this does not mean
that it should be ignored completely.161 Rather, as this chapter has argued, interna-
tional tribunals are obliged to consider (‘pay the utmost regard to’, as the PCIJ put
it) the interpretations of domestic law given by municipal institutions.162 Indeed,
the tribunal purported to recognize this at least partially, noting that its interpreta-
tion of the ADL was to be made ‘in the light of the [Philippine] Constitution and
159 Fraport I (n 147) [390]. 160 ibid [391].

161 cf Luigiterzo Bosca v Lithuania (PCA Case No 2011-05), Award, 17 May 2013 [163]; Vigotop
Ltd v Hungary (ICSID Case No ARB/11/22), Award, 1 October 2014 [509] (local court decision was
not res judicata for the tribunal, but should be given ‘due consideration’); Seventhsun Holding Ltd v
Poland (SCC Case No V 2012/138), Partial Award, 13 October 2015 [120] (local court ruling would
not have ‘automatic and unconditional effect’ for the arbitration, but it was ‘necessary’ for the tribunal
to ‘take account’ of the ruling).
162 As the annulment decision in the Fraport I case recognized: Fraport AG Frankfurt Airport Services
Worldwide v Philippines (ICSID Case No ARB/03/25), Decision on the Application for Annulment of
Fraport AG Frankfurt Airport Services Worldwide, 23 December 2010 [236].
132

the ensemble of legislation of which [the ADL] is a part’163 (without, however,
mentioning domestic adjudicatory rulings). In practice, though, the Prosecutor’s
opinion was given little weight.
As the Inceysa tribunal recognized, it is certainly permissible for a tribunal to treat
the opinion of a local official with some caution, in circumstances in which the
official might be tempted to rule in a particular way to avoid the jurisdiction of an
international tribunal over his state. But the Prosecutor’s opinion here was adverse
to the interests of the state, and thus was more likely to have been an independent
assessment than one made as a puppet of the Philippine government.164 The Fraport
I tribunal attempted to justify its approach to domestic law on similar grounds to
the Inceysa tribunal, arguing that the determination must be made by the tribunal
itself. Neither tribunal, however, offers convincing reasons for the diversion from
principles of international law and the disregard of domestic authorities concerning
the interpretation of local law.
The preceding discussion also highlights a further problem with the new word-
ing of the CETA and the EU–Vietnam FTA (discussed in section 5.2). The CETA
provides that tribunals ‘shall follow the prevailing interpretation given to the domes-
tic law by the courts or authorities of [the host state]’, while the EU–Vietnam FTA
provides that ‘the Tribunal shall be bound by the interpretation given to the domes-
tic law by the courts or authorities who are competent to interpret the relevant
domestic law’.165 This position represents the opposite of the Inceysa and Fraport
I views: far from deliberately ignoring domestic case-law, the CETA and the EU–
Vietnam FTA declare that arbitrators are bound by that case-law. Writers have on
occasion supported such a position.166 However, as this chapter has demonstrated,
such an apparently categorical view finds little support elsewhere in the literature or
within international courts and tribunals. The more typical, and more defensible,
view is that, while domestic case-law should be given considerable weight in ascer-
taining the contents of relevant domestic law, exceptional circumstances might call
for departure from this, and domestic case-law cannot therefore be strictly binding
on an international tribunal.167
163 Fraport I (n 147) [349]. 164 Fraport Annulment (n 162) [242]–[243].

165 CETA Article 8.31(2); EU–Vietnam FTA Article 16.2, Section 3, Chapter II, Chapter 8
(emphases added).
166 I Brownlie, Principles of Public International Law (7th edn, OUP 2008) 39; R Bernhardt, ‘The
Convention and Domestic Law’ in R Macdonald, F Matscher, and H Petzold (eds), The European
System for the Protection of Human Rights (Martinus Nijhoff 1993) 31 (in relation to the ECtHR).
Brownlie’s position is somewhat curious given that he cites Brazilian Loans, among other authorities.
The parties’ compromis in that case specified that ‘the Permanent Court of International Justice shall
not be bound by the decisions of [domestic courts]’, and the Court held that it was ‘authorized to
depart from the jurisprudence of the municipal courts’ (even if, as emphasized in this chapter, it was to
‘pay the utmost regard’ to that jurisprudence): Brazilian Loans (n 37) 123–5.
167 See, e.g., Soufraki Annulment (n 33) [59], citing SPP v Egypt (ICSID Case No ARB/84/3),
Decision on Jurisdiction, 14 April 1988 [38]; Amco Asia Corporation v Indonesia (1993) 1 ICSID Rep
413, 460; Azinian (n 151) [86]; Fraport Annulment (n 38) [236], [242]; Ares International srl v Georgia
(ICSID Case No ARB/05/23), Award, 28 February 2008 [5.4.13]; Flughafen Zürich AG v Venezuela
(ICSID Case No ARB/10/19), Award, 18 November 2014 [193]; Helnan International Hotels A/S v
Egypt (ICSID Case No ARB/05/19), Award, 3 July 2008 [106]; Eli Lilly v Canada (ICSID Case No
133
5.6.3 Resolving conflicts or uncertainties in domestic case-law

A final issue on the matter of weight is how tribunals should proceed when materials
on domestic law—in particular, case-law—are uncertain or divided. The discussion
so far has assumed that reference to domestic law, however this is achieved, will give a
clear answer to the question confronting the tribunal. But this may not always be the
case. Instead, it may be that the position in domestic law is simply unclear, and that
there is contradictory case-law from different local courts. In this situation, a cautious
tribunal may feel hamstrung, not wishing to seemingly overstep its authority by mak-
ing new law on behalf of the host state courts. In one 2006 case involving application
of domestic law, the EnCana v Ecuador tribunal held that it could not ‘pick and choose
between different and conflicting national court rulings in order to arrive at a view as to
what the local law should be’.168 Other tribunals have been similarly reluctant to wade
into complex debates in domestic law.169
However, the discussion in this chapter would suggest that this is precisely what
a tribunal must do in some circumstances, if iura novit curia pertains to all of the
applicable law, including domestic law.170 Writing about the PCIJ in 1938, Jenks
considered it ‘clear that when necessary the Court will not merely take steps to
ascertain what rule would be applied by municipal law to a given situation, but will
[contrary to the position of the EnCana tribunal] even itself settle a dispute as to
the position under municipal law’.171 Indeed, the PCIJ had confirmed in Brazilian
Loans that, where the domestic case-law is ‘uncertain or divided, it will rest with
the Court to select the interpretation which it considers most in conformity
with the law’.172 If this could be clearly said of the PCIJ, which was tasked solely with
applying international law, it is surely also true for an arbitral tribunal tasked with
applying both international and municipal law.173 Resolving debates in domestic
law does not impermissibly transform the tribunal into an appellate court, but is
simply part of the tribunal’s inherent jurisdiction, fulfilling its mandate to resolve
the dispute.174 At least one investment treaty case, Feldman v Mexico (discussed
UNCT/14/2), Government of Canada, Rejoinder Memorial, 8 December 2015 [4]‌; Adel al Tamimi
v Oman (ICSID Case No ARB/11/33), Award, 3 November 2015 [358]; Crawford (n 102) 53;
WTO, United States: Sections 301–310 of the Trade Act of 1974—Report of the Panel (22 December
1999) WT/DS152/R [7.19]; Diallo (n 58) [70]; Kononov v Latvia App No 36376/04 (ECHR, 17 May
2010) [189]; Bhuiyan (n 8) 218; H Wehland, The Coordination of Multiple Proceedings in Investment
Treaty Arbitration (OUP 2013) 162.
168 EnCana Corporation v Ecuador (LCIA), Award, 3 February 2006, 56.
169 Mamidoil Jetoil Greek Petroleum Products Societe SA v Albania (ICSID Case No ARB/11/24),
Award, 30 March 2015 [768] (offering a questionable perspective on the judicial function: ‘[i]‌t is
not the Tribunal’s role to take sides’); L Boisson de Chazournes and B McGarry, ‘What Roles Can
Constitutional Law Play in Investment Arbitration?’ (2014) 15 JWIT 862, 874–5.
170 Spiermann (n 38) 113.
171 CW Jenks, ‘The Interpretation and Application of Municipal Law by the Permanent Court of
International Justice’ (1938) 19 BYIL 67, 69.
172 Brazilian Loans (n 37) 124; ELSI (n 13) [62].
173 C McLachlan, ‘Investment Treaties and General International Law’ (2008) 57 ICLQ
361, 391.
174 Spiermann (n 38) 112; A Diehl, The Core Standard of International Investment Protection: Fair
and Equitable Treatment (Kluwer 2012) 263. Importantly, there is no suggestion that findings by the
134

in Chapter 7),175 has adopted this approach in a situation of uncertain domestic
case-law.
5.7 Expert Evidence on Domestic Law
Finally, the weighting of various sources of information on domestic law must also
consider the weight to be given to expert witness evidence. This weight may be
quite significant in situations in which it does not conflict with primary materials
such as statutes or cases. While the meaning of a statute or the interpretation of a
case may not be apparent at a glance by the arbitrators, expert testimony might
clarify the meaning and propose an interpretation of domestic law that is consistent
with other sources before the tribunal. As noted earlier, if the parties do not submit
such evidence themselves,176 it lies within the tribunal’s power to order the parties
to provide it. Once received, though, expert evidence can raise a range of problems
for a tribunal.
One is the perception that such experts will merely be the mouthpieces of the
party that appointed them, and will give an opinion on domestic law that best suits
their party’s case, regardless of the merits of that opinion.177 Such a perception
might be strengthened if, for instance, the expert was known to appear frequently
on behalf of the same party, thus lessening the weight of that expert’s opinion.178
However, as shown in discussion of certain investment treaty cases later in this
book, this perception might also create a reason to add weight to an expert’s view,
when their evidence is adverse to their own party’s case.179
Even if an expert witness is not perceived to be biased, though, the use of expert
evidence can raise a broader problem. This is that, in situations where the two par-
ties offer conflicting expert opinions, the tribunal may have difficulty in deciding
which expert’s view to accept. Writers in the area of the philosophy of expertise
have recognized this problem, and have discussed a range of ways in which a rela-
tive novice can meaningfully decide between two experts on a particular topic.180
tribunal would be binding on domestic courts or within the domestic legal system (as already noted by
Jenks (n 171) 71). Instead, the finding on domestic law is made solely for the purposes of the arbitration.
This demonstrates a further curiosity of the language used in CETA (discussed in section 5.6.2), which
redundantly declares that ‘any meaning given to domestic law by the Tribunal shall not be binding upon
the courts or the authorities of [the host state]’ (and similar language in the EU–Vietnam FTA).
175 See section 7.2.2.
176 Daly and Poon describe one (unnamed) case in which the respondent state was alleged to have
created obstructions against serving as an expert witness for all the appropriate domestic law experts
from that state, thus preventing the investor from engaging an expert: B Daly and F Poon, ‘Technical
and Legal Experts in International Investment Disputes’ in C Giorgetti (ed.), Litigating International
Investment Disputes: A Practitioner’s Guide (Brill 2014) 346.
178 A Goldman, ‘Experts: Which Ones Should You Trust?’ (2001) 63 Philosophy and
Phenomenological Research 85, 103–4; Daly and Poon (n 176) 347.
179 See discussion of Quiborax v Bolivia, Gallo v Canada and Swisslion v Macedonia in Chapter 7.
180 Goldman (n 178); S Brewer, ‘Scientific Expert Testimony and Intellectual Due Process’ (1998)
107 Yale LJ 1535.
135
One method, most obviously, is a direct assessment of the merits of each expert’s
opinion. In relation to most kinds of expert evidence, this approach will be prob-
lematic, since by definition the novice cannot understand or assess the substantive
merits of the experts’ views in their area of expertise.181 However, in the particular
case of legal expert opinions in investment arbitration, the ‘relative novice’ adju-
dicator is typically a highly experienced lawyer themselves, with extensive knowl-
edge of international law and (often) of the domestic legal system of their home
state, if not other states as well. This means that, although the arbitrators may not
be experts in the domestic legal system at issue, they are at least experts in ‘law’.
This expertise equips them, to some degree, to make a substantive assessment of
two competing domestic law experts, using general tools of legal reasoning. For
instance, similar to one investment treaty case discussed in Chapter 7, the arbitra-
tors might observe that one expert has neglected to consider a potential distinction
between void and voidable contracts, which might affect the validity of a contract
in dispute.182 Such an omission might mean that the opinion of the other expert is
viewed more favourably.
A second method for deciding between competing experts is to assess not the
substantive content of the opinions but other aspects such as their form, logic,
and structure. This might involve checking for any self-contradictory statements
in one opinion, which would lessen the weight of that opinion.183 Similarly, an
adjudicator might look for one expert’s ability to offer a rebuttal of points made by
the other, regardless of whether the adjudicator has any understanding of the sub-
stantive argument on each side.184 If the expert evidence is being given in person
before the tribunal, speed of response could be used as an indicator of familiarity
with the issues being discussed and as evidence of prior thought, marking out the
superior expert.185
A third method is to assess the competing experts’ credentials, and give greater
weight to the opinion of the better-credentialed expert. However, this method sim-
ply raises the problem of deciding between credentials.186 Perhaps in some cases
it will be clear which expert is better qualified such that the decision-maker can
‘weed out cranks’,187 but to a relative novice, this problem may be just as difficult
as substantively assessing the experts’ views in the first place. There is reason to
think, though, that the problem will be lessened in the present context of determin-
ing issues of domestic law in investment arbitration. This is, again, because both
the experts and the arbitrators are lawyers, meaning that the arbitrators’ relative
181 Brewer (n 180) 1539; Goldman (n 178) 90.

182 See the discussion of Occidental v Ecuador in Chapter 7, where this distinction was exten-
sively analysed by both the majority and a dissenting arbitrator, based on differing views of domestic
(Ecuadorian) law.
183 Brewer (n 180) 1618.
184 Goldman (n 178) 95. An example of this kind of approach to competing experts might be found
in Saba Fakes v Turkey, discussed in Chapter 7; or in Mamidoil (n 169) [767]–[769].
185 Goldman (n 178) 95. However, speed of response could also simply indicate which expert has
a better demeanour, a factor which writers on expertise agree is not a useful way of deciding between
experts: ibid; Brewer (n 180) 1620.
186 Brewer (n 180) 1627. 187 ibid 1631.
136

‘novice-ness’ on legal matters is less than on other matters involving expert evi-
dence, such as scientific or technical questions. Even if not knowledgeable in the
relevant domestic law, an arbitrator may well be aware of the prominent and cred-
ible institutions or thinkers in that jurisdiction, and may therefore be able to appor-
tion weight between the competing experts on this basis.
A fourth method is to compare the weight of expert numbers on each side of a
particular issue. As long as other experts have come to their views independently
of the competing two experts (having not been influenced in their own view by,
for instance, the perceived prestige of one expert), whichever view is supported
by a greater number of experts could validly be upheld by the adjudicator.188 This
approach may have been used in at least one investment treaty case.189 A problem
with the approach, though, is that it would provide an advantage to the better-
resourced party—often the respondent state, but not necessarily—to procure more
experts’ views than their opponent.
Because of the general problems with expertise, one author concludes that non-
experts can never do better than merely tossing a coin when deciding between appar-
ently evenly matched experts.190 His only envisaged solution is the simple ‘two-hat’
approach of ensuring that adjudicators also have sufficient knowledge of the relevant
area (whether biology, civil engineering, or Ecuadorian law) to be able to make sub-
stantive decisions between experts.191 As already mentioned, this approach is proba-
bly unworkable in practice in investment arbitration. In any case, the discussion here
indicates that there is reason to believe that, in the present context of determining
questions of domestic law in investment treaty arbitration, relative novice arbitrators
can often make meaningful such decisions using the methods just described.
Alternatively, the problem of competing experts might be resolved through the
appointment of a tribunal expert. At first glance, this course of conduct is attractive.
It removes the possibility of conflict between the parties’ experts (or at least provides a
neutral expert with sufficient substantive knowledge to decide between the two com-
peting party experts).192 If only one tribunal expert is appointed rather than two party
experts, the arbitral costs may be reduced.193 Concerns that key decision-making
would be inappropriately delegated to a party external to the tribunal194 can be less-
ened by recognizing that the tribunal would not be bound by the expert’s view.195
On the other hand, writers have identified problems with tribunal-appointed
experts which may caution their use in investment arbitration. In particular, practi-
cal problems might arise in transmitting information from the parties to the expert,
since the expert would report only to the tribunal itself.196 The expert may come
188 Goldman (n 178) 97. 189 Nagel v Czech Republic, discussed in Chapter 7.

190 Brewer (n 180) 1670. 191 ibid 1677.
192 D Freyer, ‘Assessing Expert Evidence’ in L Newman and R Hill (eds), The Leading Arbitrators’
Guide to International Arbitration (2nd edn, Juris Publishing 2008) 441; A Riddell and B Plant,
Evidence Before the International Court of Justice (BIICL 2009) 339.
193 J Simmons, ‘Valuation in Investor-State Arbitration: Toward a More Exact Science’ (2012) 30
Berkeley JIL 196, 246.
195 ibid 946; Simmons (n 193) 247. 196 Waincymer (n 38) 933.
137
with ideological pre-commitments, such that their very appointment might pre-
judge the matter in dispute.197 If the parties were not themselves planning to call
on experts, the appointment of a tribunal expert might be viewed as an unnecessary
additional expense, or the parties might then decide to appoint their own experts to
critique the views of the tribunal expert, again adding further expense.198
These problems can partly be managed by the tribunal itself, through directions
to the parties on modalities for expert appointments. Nevertheless, tribunals must
still be careful in taking such proactive steps as appointing an expert. As already
noted, the parties should be primarily responsible for providing the information
needed on the applicable law, whether as primary materials, secondary analysis, or
expert opinions. However, if they fail to do so even despite requests from the tri-
bunal, a tribunal expert could at that point appropriately be appointed. Principles
of due process would require that the parties be kept informed of the tribunal’s
actions, and that time be given for comment on the tribunal expert’s opinion.199
5.8 Conclusion
This chapter has sought to set out a framework for arbitrators when applying
domestic law—as law, not fact—in the course of an investment treaty dispute.
The chapter focused on the less examined, ‘micro’ choice of how to ascertain the
substantive contents of domestic law, subsequent to the initial, ‘macro’ choice of
when to apply it. In line with other international courts and tribunals, the chapter
suggested that investment arbitrators should follow the Brazilian Loans indication
to strive to discover and apply domestic law in its full domestic context. Although
in most cases the arbitrators will not actually know the contents of domestic law,
the chapter found good reasons for arbitrators to consider that they are bound
by a iura novit curia obligation to discover these contents. This is particularly rel-
evant to jurisdictional issues, including the issues of compliance with host state law
and domestic property rights that arise in many cases analysed in Chapters 6 and
7. Except where concerns exist about the local legal system, strong weight must be
given to domestic case-law, and tribunals must be prepared to resolve uncertainties
in this case-law when needed. Expert evidence on domestic law can assist in this
process, as long as tribunals are equipped to manage ‘duelling experts’.
Tribunals’ obligations to be proactive on domestic law are, nevertheless, flexible.
It was seen that the arbitral rules governing investment tribunals’ conduct do not
place any strict duties on arbitrators in this respect. On the contrary, arbitrators
are explicitly given wide discretion to conduct proceedings in any manner they
see fit. As the ILA Report notes, ‘there is a great deal that [arbitrators] can do and
197 ibid; Brewer (n 180) 1681. 198 Simmons (n 193) 107–8.

199 de Ly, Friedman, and Radicati di Brozolo (n 76) 216. See also D Roney and A Müller,
‘Chapter 4—The Arbitral Procedure’ in G Kaufmann-Kohler and B Stucki (eds), International
Arbitration in Switzerland: A Handbook for Practitioners (Kluwer 2004) 64–5.
138

not much that they must do’.200 The obligations are also constrained by the prac-
ticalities of arbitration in the real world. There are limitations on parties’ ability to
educate the arbitrators in the necessary material, or arbitrators’ ability to learn it.
Two obvious such limitations are time and cost, including the cost of translations
into the language of the arbitration.201 Host state law may also be scarcely publi-
cized, or not readily available due to the technological constraints of a developing
country. As one writer notes, ‘[f ]‌inding the law could place “excessive demands”
on international arbitrators’.202 In any case, although issues of domestic law may
well be common in investment arbitration, they are nevertheless only one part of
a much larger dispute revolving mostly around doctrines of treaty interpretation
and international law. It is quite likely that most of the parties’ time will be spent
in making submissions on more familiar (if no less contested) points of investment
law, such as the meaning of fair and equitable treatment or the borderline between
regulation and expropriation.
Given this, investment tribunals cannot be expected always to make extensive
investigations of domestic law, increasing the cost and time of the proceedings, or
always to consult specific sources or experts. Much will depend on factors such as
the materials already presented by the parties, the particular question in issue, or
the centrality of the point for the parties’ respective cases. Nevertheless, this does
not by any means absolve tribunals from criticism of their approach to domestic
law.203 As will be seen in Chapter 7, tribunals’ reasoning on points of domestic law
has often fallen far short of the standards discussed in this chapter, and well outside
any concessions to arbitral discretion or practicality.
200 de Ly, Friedman, and Radicati di Brozolo (n 76) 199. 201 Landolt (n 35) 185.
202 Lew (n 52) 11.
203 ‘Although researching the national law of the host state may sometimes be daunting, it is not a
legal justification for ignoring it’: Igbokwe (n 21) 293.
139
6
Applying the Framework—Preliminaries
6.1 Introduction
Chapter 5 set out a theoretical framework for use by tribunals when resolving ques-
tions of domestic law in investment treaty arbitration. However, in certain cases in
which domestic law issues have arisen, tribunals have reviewed arguments that mostly
tend to minimize the relevance of domestic law, downplaying the need for the careful
examination advocated by Chapter 5. First, tribunals have questioned what counts as
domestic law, narrowing the scope of the subsequent domestic law analysis. Second,
tribunals have suggested that examination of (an investor’s) compliance with domestic
law can sometimes be avoided entirely, by reference to estoppel. This chapter examines
these issues that are preliminary to applying Chapter 5’s framework, finding the argu-
ments to be largely limited.
6.2 What Counts as Domestic Law?
Chapter 5’s framework assumed that the scope of the tribunal’s inquiry into domestic
law (that is, which areas of domestic law must be consulted) was clear. However, this
may not always be the case. There are some situations in which it is potentially unclear
whether a particular domestic law is one against which the conduct of an investor or
state must be tested. Effectively, in these situations, tribunals must determine what
counts as ‘domestic law’. These situations have arisen most prominently in two areas of
investment treaty case-law: the due process condition for expropriation, discussed in
Chapter 3 (where the state’s compliance with domestic law is in issue), and questions
of investor illegality (where the investor’s compliance with domestic law is in issue).
The issue here, in practice, is not whether a purported legal instrument does
indeed form part of host state law; a situation has not so far arisen in which either
party has disputed this.1 Rather, three other issues have arisen in the case-law.
The first is whether the bilateral investment treaty (BIT) demands (the investor’s)
1 But note Vannessa Ventures Ltd v Venezuela (ICSID Case No ARB(AF)/04/6), Award, 16 January
2013, in which the slightly different issue arose as to whether ‘law’ included contractual obligations.
If the issue of an instrument’s status as part of the public law of the country (as opposed to private
contractual obligations) were to arise, it would provide a practical context in which analytical juris-
prudence would be brought to bear, as the tribunal would be required to answer the question ‘what
is (host state) law?’. This might perhaps be answered by a Hartian inquiry into the prevailing rules
140

compliance with all host state law, or only important, serious or fundamental laws.
The second issue is whether only laws relevant to investment are in play (whether or
not these laws are considered serious or fundamental), or whether any law on any
topic must be considered. The third issue is whether the purported laws must have
particular qualities—such as meeting ‘rule of law’ requirements—before compli-
ance with them is demanded. Treaty text typically does not provide any immediate
clear answer to these issues, leaving the matter to tribunals.
Tribunals’ answers to these questions affect the significance of their approach to
the central issue of determining compliance with domestic law. A broad answer to
the question ‘what counts as domestic law?’ will increase the scope of the domestic
law that is pertinent to investment arbitration, and thereby increase the signifi-
cance of an inquiry into tribunals’ approach to that law. Whether or not tribu-
nals are making these rulings appropriately then becomes all the more important.
Furthermore, although this section most directly considers investor illegality and
the due process condition for expropriation, its findings could be relevant to other
areas of investment arbitration as well. For instance, to the extent that compliance
with domestic law may affect remedies, as examined in Chapter 4, such compliance
might be disregarded where the domestic law in question failed to meet rule of law
requirements. Similarly, trivial, non-serious failures by a state to comply with its
own law might affect whether that non-compliance is considered in a tribunal’s fair
and equitable treatment (FET) analysis, as examined in Chapter 2.
6.2.1 All host state law, or only fundamental laws?

The first issue identified in the previous section that affects what counts as domestic
law arises in the context of investor illegality cases. In those cases, the question has
arisen whether the BIT demands the investor’s compliance with all host state law,
or only important, serious, or fundamental laws.
The earliest discussion of this question appears to have come in 2006 in LESI and
Astaldi v Algeria, in which the arbitrators considered that investments would lose
their BIT protection when made ‘in violation of fundamental principles in force’.2
In Desert Line v Yemen, two years later, the tribunal commented that references in
BITs to investor legality ‘are intended to ensure the legality of the investment by
excluding investments made in breach of fundamental principles of the host State’s
law, e.g. by fraudulent misrepresentation or the dissimulation of true ownership’.3
Similarly, the tribunal in Rumeli v Kazakhstan found that investments would only
of recognition in the host state, aiming to determine, as the PCIJ said in Brazilian Loans, ‘what are
the rules which, in actual fact, are applied in the country’: Payment in Gold of Brazilian Federal Loans
Contracted in France (France v Brazil) Series A No 21 (1929) 124.
2 LESI SpA and Astaldi SpA v Algeria (ICSID Case No ARB/05/3), Decision on Jurisdiction, 12 July
2006 [83]. While the later Desert Line tribunal translated the relevant passage of the French-language
LESI award as ‘fundamental governing principles’, the translation used here is closer to the original text
of the LESI award (‘principes fondamentaux en vigueur’).
3 Desert Line Projects LLC v Yemen (ICSID Case No ARB/05/17), Award, 6 February 2008 [104],
also citing LESI.
141
Applying the Framework—Preliminaries 141
be excluded from BIT protection if they were made ‘in breach of the fundamental
legal principles of the host country’.4
This would suggest that, when a state raises the alleged illegality of the invest-
ment, the tribunal’s first task is to determine whether the laws allegedly breached
constitute ‘fundamental principles’. On this view, if the relevant laws do not con-
stitute fundamental principles, the state’s objection cannot possibly succeed. But
this suggestion runs into several immediate problems, raising some doubts over this
interpretation of investor legality clauses. As will be seen, the interpretation offered
by the Desert Line, LESI, and Rumeli tribunals is not incorrect, but it is under-
inclusive: investors must indeed comply with the fundamental principles of host
state law, but they must comply with the rest of host state law as well.
6.2.1.1 No foundation in treaty text

The first problem with the Desert Line/LESI/Rumeli suggestion is that it lacks
any foundation in investment treaty text. None of the BITs applicable in Desert
Line, LESI, or Rumeli make any explicit reference to ‘fundamental principles’. The
Oman–Yemen BIT from Desert Line protects investments ‘accepted … according
to [the host state’s] laws and regulations’.5 The Italy–Algeria BIT from LESI uses
a range of different formulations, including ‘in accordance with the laws of the
[host state]’, ‘in accordance with the legislation of the [host state]’, and ‘in accord-
ance with the laws and regulations applicable in the [host state]’.6 The Turkey–
Kazakhstan BIT from Rumeli protects investments ‘in conformity with the hosting
Party’s Laws and Regulations’.7 Indeed, these examples of investor legality clauses
reflect the typical phrasing of such a clause, where it exists, in investment treaties
generally.8 The most obvious way of reading these provisions is that they refer to the
positive provisions of host state law, rather than abstract, ‘fundamental’ principles.
This absence of textual support provides cause for initial hesitation over the exist-
ence of a ‘fundamental principles’ limitation on investor legality.
Some tribunals have considered that an investor legality requirement can
be implied into a BIT even in the absence of any relevant text.9 When this
occurs, criticism of a ‘fundamental principles’ limitation based on lack of textual
4 Rumeli Telekom AS v Kazakhstan (ICSID Case No ARB/05/16), Award, 29 July 2008 [319].

5 Article 1(1). 6 Articles 1(1) and 11; see LESI (n 2) [80]. 7 Article I(2).
8 To the author’s knowledge, no BIT imposes an explicit textual restriction of investor legality to
fundamental principles only.
9 Plama Consortium Ltd v Bulgaria (ICSID Case No ARB/03/24), Award, 27 August 2008 [138]–
[139]; Phoenix Action Ltd v Czech Republic (ICSID Case No ARB/06/5), Award, 15 April 2009 [101];
reaffirmed in SAUR International SA v Argentina (ICSID Case No ARB/04/4), Decision on Jurisdiction
and Liability, 6 June 2012 [308] (implied that investors will not commit ‘serious violations of the [host
state] legal order’); Gustav F W Hamester GmbH & Co KG v Ghana (ICSID Case No ARB/07/24),
Award, 18 June 2010 [124]; Yukos Universal Ltd v Russia (PCA Case No AA 227), Final Award, 18 July
2014 [1349]; Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID Case No ARB/11/
12), Award, 10 December 2014 [332]. cf Metal-Tech Ltd v Uzbekistan (ICSID Case No ARB/10/3),
Award, 4 October 2013, where the question of whether a legality requirement could be implied in the
absence of wording in a BIT was expressly left undecided: [163].
142

support naturally has limited force. However, even when the requirement is
implied, there are reasons to doubt that it comes with a limitation to the effect
that only fundamental principles must be complied with, as detailed in the fol-
lowing sections.
6.2.1.2 Proposed limitation only obiter

A second reason for doubt is that the limitation did not prove to be relevant in
any of the cases mentioned above where it was supposedly introduced. Indeed, in
Desert Line, there was no allegation that the investment had even breached host
state law.10 The tribunal was therefore not actually required to apply the limitation
on investor legality that it proposed. In LESI, the tribunal made its reference to
‘fundamental principles in force’ only in the course of explaining that references to
host state law in the BIT did not imply that host state law should define what quali-
fies as an investment under the BIT, but instead related only to the legality of the
investment.11 Again, there was no claim in LESI that the investment had breached
Algerian law.12
In Rumeli, it is unclear how strongly the investor’s illegality was argued by the
respondent state. The claimants observed that Kazakhstan had not cited any spe-
cific domestic law alleged to have been breached.13 Instead, the claimants said, the
state was attempting to rely on certain findings of fraud made by a US court under
US law, in relation to the financing of the investment. These findings had no effect,
for the claimants, on the investment’s legality under Kazakh law.14 As noted previ-
ously, the tribunal did state that it was only interested in breaches of ‘fundamental
legal principles’. However, the tribunal’s ultimate finding was not that the local laws
breached by the claimant did not represent ‘fundamental legal principles’; instead,
the finding was simply that there was no breach of Kazakh law at all.15
In the parlance of the common law, then, the tribunals’ statements about funda-
mental principles in Desert Line, LESI, and Rumeli were no more than obiter dicta.16
10 Desert Line (n 3) [93(c)], [104], [118]. There was much discussion in the case about the
relevance of the investor’s failure to obtain a certificate of investment envisaged under local law.
However, Yemeni law did not require the investor to obtain the certificate; the investor’s failure to
obtain it only (arguably) led to an inability to rely on the provisions of the BIT. Further, the tribunal
rejected this argument not on the grounds that the certificate requirement was not a fundamental
principle of Yemeni law, but on the grounds that it was a mere formality that could be ignored
for the purposes of ICSID jurisdiction (following Tokios Tokeles v Ukraine: ibid [114]), and that
the state was estopped from denying the investment’s acceptance: ibid [106], [118]. As discussed
further below, there is a distinction between laws that are mere formalities and laws that are not
fundamental.
11 LESI (n 2) [83(iii)]. On this broader issue, see E Gaillard, ‘Identify or Define? Reflections on the
Evolution of the Concept of Investment in ICSID Practice’ in C Binder and others (eds), International
Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP 2009).
12 Similarly to Yemen in Desert Line, Algeria claimed only that the investment contract did not meet
the requirements for formal recognition under domestic law: LESI (n 2) [83(iii)].
13 Rumeli (n 4) [169]. 14 ibid [172]. 15 ibid [320].
16 On the use of the ratio/obiter distinction in investment arbitration, see OK Fauchald, ‘The Legal
Reasoning of ICSID Tribunals—An Empirical Analysis’ (2008) 19 EJIL 301, 315.
143
This adds some further doubt as to whether the proposed requirement can be taken
as the prevailing interpretation of the investor legality clause.17
6.2.1.3 No support in other cases

On top of this, and apart from the obiter statements in the three cases just discussed,
the proposed ‘fundamental principles’ limitation has not been applied or even men-
tioned in almost any other case in which the investor’s compliance with domestic
law has been raised.
For instance, in Saluka v Czech Republic, the state sought to argue that the inves-
tor’s acquisition of shares in a private Czech bank had violated domestic law. The
Czech Republic cited provisions of its Banking Act and an Official Communication
of the Czech National Bank, which required the investor to submit a ‘business plan’
with its application for state approval of the share purchase.18 The tribunal was thus
required to determine whether the investor had fulfilled the domestic legal require-
ment to submit the business plan. However, in ruling on this point, the tribunal did
not consider whether the requirement was a fundamental principle of Czech law;
instead, it simply held that the investor had provided the necessary business plan
and complied with the law.19
In Fakes v Turkey, the state argued that the investor had failed to comply with a
law requiring two authorized signatures on share certificates, on the grounds that
the investor’s certificates bore only one signature. However, the tribunal ruled that
the particular share certificates in question did not need to comply with the law.20
Notably, the tribunal did not discuss whether the double-signature requirement was
a fundamental principle of Turkish law.21 If the requirement is not a fundamental
principle, the tribunal could well have dismissed Turkey’s argument at the outset,
regardless of whether the law applied to the investor’s certificates or not. It might
be argued that the tribunal simply assumed the requirement to be a fundamental
principle, perhaps fulfilling an important verification and cross-checking purpose
on valuable elements of personal property. But there is no indication of this in the
award. Fakes more likely provides further evidence for the view that the purported
‘fundamental principles’ limitation has not been accepted by other tribunals.
Teinver v Argentina also involved various claims of investor illegality in acquir-
ing the relevant investment in Argentina. The claims were rejected by the tribunal,
but not on the grounds that the host state laws in question did not constitute
17 One writer has observed that ‘ICSID decisions seem in general to attach the same significance
to obiter dicta as to ratio decidendi’: ibid 335. Nevertheless, a direct application of the purported ‘fun-
damental principles’ limitation as ratio would surely allow a much stronger conclusion about its status
than the off-hand statements made by the various tribunals discussed here.
18 Saluka Investments BV v Czech Republic (UNCITRAL), Partial Award, 17 March 2006
[213]–[214].
19 ibid [214].
20 Saba Fakes v Turkey (ICSID Case No ARB/07/20), Award, 14 July 2010 [128]–[129].
21 Interestingly, the tribunal also did not take the opportunity to follow Tokios Tokeles v Ukraine and
hold that the alleged violation, even if proved, would be too minor to affect the tribunal’s jurisdiction.
See the discussion of this case in section 6.2.4.
144

fundamental principles. Instead, the claims were again rejected simply on the
grounds that no breaches had been proven.22 Indeed, the tribunal noted particularly
that there was no evidence suggesting any breach of, among other laws, ‘bidding or
other procurement requirements’.23 At first glance, technical bidding requirements
seem unlikely candidates to be part of the fundamental principles of a legal system,
but the Teinver tribunal nevertheless envisaged them as laws with which compliance
was demanded by the BIT’s investor legality requirement.
Last, the claimant in Vannessa Ventures v Venezuela argued in favour of the
limitation, explicitly contending that ‘the “legality requirement” is limited in its
application to breaches of fundamental principles of law’.24 However, the tribunal
said nothing about this argument, finding only that no Venezuelan laws had been
breached.25
The tribunals thus rejected claims of investor illegality in those cases not by hold-
ing that the law in question was not part of the ‘fundamental principles’ of the state
and that any violation of it would therefore be irrelevant, but instead by holding
that the law had not been violated.
One further case deserves attention here. When setting out the fundamental
principles limitation, the Desert Line tribunal referred to the Fraport v Philippines
I case.26 However, as with the other cases just discussed, it is not clear that the
Fraport I tribunal applied the limitation either. As examined in Chapter 5, the
Fraport I case revolved around a domestic law (the Anti-Dummy Law, or ‘ADL’)
which aimed at reserving the ownership and control of key public infrastructure to
Philippine nationals. The Philippines had alleged that the investor had violated this
law in making its investment. Importantly, before analysing whether the ADL had
been breached, the tribunal did not consider whether it constituted a fundamental
principle of Philippine law. Certainly, in summarizing its conclusions, the tribunal
commented that the investor had received legal advice that its investment would
breach ‘a serious provision of Philippine law’.27 However, throughout the rest of its
analysis, the tribunal referred only to simple compliance with the domestic law, and
the potentially serious or fundamental nature of the law in question did not play
any obvious role in the tribunal’s reasoning.28
Like Fakes, it might be argued that the Fraport I tribunal simply assumed the
fundamental nature of the ADL. After all, the Philippine Constitution itself set out
the basic rule underlying the ADL, stating that public utilities could be operated
only by Philippine corporations that were at least 60 per cent owned by Philippine
22 Teinver SA v Argentina (ICSID Case No ARB/09/1), Decision on Jurisdiction, 21 December

2012 [324].
23 ibid [327]. 24 Vannessa Ventures (n 1) [132].
25 ibid [135], [154], [160], [164], [167] 26 Desert Line (n 3) [104].
Award, 16 August 2007 [398].
28 The Fraport award was later annulled: see Fraport AG Frankfurt Airport Services Worldwide v
Philippines (ICSID Case No ARB/03/25), Decision on the Application for Annulment of Fraport AG
Frankfurt Airport Services Worldwide, 23 December 2010. However, this development does not affect
the present discussion of the tribunal’s reasoning on investor legality.
145
citizens.29 Although precisely identifying the fundamental principles of any state’s

legal system is not necessarily an easy task, an examination of the state’s constitution
is highly likely to represent one of the initial steps. This might suggest that the fun-
damental nature of the ADL was so obvious that it did not require specific clarifica-
tion by the tribunal, but could safely be assumed. This assumption may then have
provided the basis for the reference to Fraport I by the Desert Line tribunal, when
the latter explicitly set out the ‘fundamental principles’ limitation.
But it does not go without saying that a prohibition on foreign ownership of
key national infrastructure would be a fundamental legal principle of a state. It
is perhaps not an unreasonable prohibition, but many contemporary states take
a different view, having few qualms about foreign ownership or management of
airports, public transport systems, electricity grids, and the like. Furthermore, not
every provision of a state’s constitution can necessarily be considered to establish
a fundamental principle of that state. The Philippine Constitution also provides,
for instance, that ‘all educational institutions shall undertake regular sports activi-
ties throughout the country’.30 An investment tribunal called on to assess whether
an investor had breached this provision by establishing a school in the Philippines
without a sports programme might well consider that the provision does not repre-
sent a fundamental legal principle.31
If the foreign ownership prohibition’s fundamental nature was important to the
Fraport I tribunal, it ought to have stated this significantly more clearly than it did.
It is problematic to construct such a limitation on states’ abilities to challenge an
investment tribunal’s jurisdiction by relying only on an unclear assumption of the
Fraport I tribunal, opaquely read into the Fraport I award by the later Desert Line
tribunal.
Therefore, most other cases apart from LESI, Desert Line, and Rumeli do not
appear to have mentioned or assumed the fundamental principles limitation.
Moreover, one relatively recent jurisdictional decision—in Quiborax v Bolivia—
goes even further than this, explicitly rejecting the limitation. In Quiborax, the
claimants argued directly in favour of it, citing Desert Line.32 The tribunal labelled
this interpretation of the investor legality clause as ‘too narrow’, going ‘beyond the
terms of the BIT, in an attempt to further the investor’s protection without due
regard for the State’s interests’.33
The statements in Quiborax do not in themselves mean that the limitation has
now disappeared from investment treaty law, following its emergence in the Desert
29 Fraport I (n 27) [309].

30 Article XIV, section 19(2), Philippine Constitution 1987, <www.gov.ph/the-philippine-
constitutions/the-1987-constitution-of-the-republic-of-the-philippines/the-1987-constitution-of-
the-republic-of-the-philippines-article-xiv/>.
31 In this vein, the potential for indeterminacy in the notion of ‘fundamental principles’ of a legal
system might constitute a further reason to reject the fundamental principles limitation. The argument
here, however, is only that the potential indeterminacy provides doubt that the Fraport tribunal simply
assumed that the ADL was a fundamental law.
32 Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Decision on Jurisdiction, 27 September
2012 [248].
33 ibid [263].
146

Line/LESI/Rumeli trio. Claimants continue to argue for the limitation, as shown by
Vannessa Ventures34 and Quiborax itself, suggesting that the issue is still in debate.
Furthermore, given the lack of binding precedent in investment law, any future
tribunal would be free to pick up on the limitation, perhaps reasoning that it was
supported by three different tribunals. However, this section demonstrates that the
better doctrinal view is in fact the reverse: most tribunals have chosen to ignore
the limitation when they might have addressed it, and one tribunal has explicitly
rejected it.
6.2.1.4 Caveat: de minimis breaches

There is one limitation on the idea of compliance with the positive terms of
domestic law, however, that is widely accepted in the cases. This limitation is
that tribunals will overlook minor, de minimis breaches of domestic law, and
will not reject jurisdiction purely on the grounds of a trivial breach. The Tokios
Tokeles v Ukraine case is usually cited in support of this position. In that case, the
tribunal noted that the investor’s business was not illegal in itself, but that the
investor had used the wrong legal title in the registered name of its corporation
and had omitted signatures on certain documents. The arbitrators were prepared
to overlook these deficiencies, holding that ‘[t]‌o exclude an investment on the
basis of such minor errors would be inconsistent with the object and purpose of
the [BIT]’.35 Alpha Projektholding v Ukraine relied on this reasoning from Tokios
to conclude that certain minor defects in paperwork registered by the investor
would not be serious enough to prevent a finding of jurisdiction.36 Similarly,
Quiborax v Bolivia applied the Tokios position to reject various claims of inves-
tor illegality on the grounds that they related to accidental minor mistakes and
omissions in company records.37 Other tribunals have also supported Tokios on
this point.38
Some cases and writers have appeared to treat Tokios and Desert Line as reflec-
tions of each other, with each case setting out the same principle that the focus of
an investor legality clause is on breaches of fundamental principles and not trivial
34 Vannessa Ventures (n 1) [132].

35 Tokios Tokeles v Ukraine (ICSID Case No ARB/02/18), Award, 26 July 2007 [86]. See also
Quiborax (n 32) [263].
36 Alpha Projektholding GmbH v Ukraine (ICSID Case No ARB/07/16), Award, 8 November
2010 [297].
37 Quiborax (n 32) [280]–[281].
38 Desert Line (n 3) [114]; Metalpar SA v Argentina (ICSID Case No ARB/03/5), Decision on
Jurisdiction, 27 April 2006 [84]; Mytilineos Holdings SA v Serbia and Montenegro (UNCITRAL), Partial
Award on Jurisdiction, 8 September 2006 [151]; Fraport AG Frankfurt Airport Services Worldwide v
Philippines (ICSID Case No ARB/03/25), Dissenting Opinion of Bernardo Cremades, 19 July 2007
[36]; Mamidoil Jetoil Greek Petroleum Products Societe SA v Albania (ICSID Case No ARB/11/24),
Award, 30 March 2015 [483]. Serbia’s dissenting arbitrator in Mytilineos, by contrast, would have
denied jurisdiction over the investor’s claim due to various relatively minor violations of domestic laws,
such as the investor’s failure to register its investment and failing to specify in the project agreements
the amount of money invested into the host states.
147
matters.39 However, as others have recognized,40 there are clearly violations of law
that are not trivial but that are also not violations of fundamental principles. The
law allegedly broken may not be a fundamental principle of the host state, but that
does not mean that the alleged breach is therefore only trivial and can be ignored.
It is thus possible to reject the ‘fundamental principles’ limitation while accepting
the ‘trivial breaches’ limitation.
Of course, there is no stronger foundation in investment treaty text for excluding
trivial breaches than for limiting compliance to fundamental principles. The phras-
ing typically used does not require investments to be ‘in substantial accordance
with’ host state law, but only to be ‘in accordance with’ host state law. However,
as shown, the Tokios position has been much more widely accepted in subsequent
case-law than the fundamental principles limitation. It is also more easily justified
in normative terms. Investors ought not to be penalized to the extent of losing their
ability to claim under investment treaties when they have breached only minor
formalities in local laws. States may also be tempted to abuse very technical rules
in their own laws to unfairly catch out investors.41 If trivial breaches must be sanc-
tioned in some way, there are other mechanisms to do this outside of an investment
treaty dispute, and even within one if the breaches are to be considered at the merits
or quantum stage of an arbitration.
6.2.1.5 Conclusion
The analysis in this section casts doubt on the cases proposing that only violations
of ‘fundamental principles’ of host state law can affect an investment tribunal’s
jurisdiction. Instead, it suggests that investors must invest in compliance with all
positive domestic laws, barring only trivial breaches.42
6.2.2 Any laws, or only laws related to investment?

This section moves to address a second proposed limitation on what counts as
the domestic law with which an investor must comply. The question at issue is
whether investors must comply with host state laws on any topic whatsoever, or
39 Hochtief AG v Argentina (ICSID Case No ARB/07/31), Decision on Liability, 29 December

2014 [199]; C Knahr, ‘Investments “In Accordance with Host State Law” ’ (2007) 4(5) TDM 24; A
Carlevaris, ‘The Conformity of Investments with the Law of the Host State and the Jurisdiction of
International Tribunals’ (2008) 9 JWIT 35, 47.
40 U Kriebaum, ‘Illegal Investments’ in C Klausegger and others (eds), Austrian Arbitration Yearbook
2010 (Beck, Stämpfli & Manz 2010) 319, speaks of a spectrum from ‘very important norm’ to ‘minor
formality’, with positions in the middle also being possible.
41 Mamidoil (n 38) [483]; Carlevaris (n 39) 47.
42 Importantly, there may also be other forms of investor misconduct, not directly involving assess-
ment of compliance with domestic law, that can affect a tribunal’s jurisdiction (or the admissibility of a
claim), such as breaches of public policy, fraud, bad faith, or corruption: see J Hepburn, ‘In Accordance
with Which Host State Laws? Restoring the “Defence” of Investor Illegality in Investment Arbitration’
(2014) 5 JIDS 531.
148

whether it is only laws inherently related to investment that are relevant to the
tribunal’s inquiry.
In Saba Fakes v Turkey, the tribunal considered that the investor legality require-
ment was limited by subject matter only to laws ‘governing the admission of invest-
ments in the host State’. The tribunal purported to draw this finding from the
‘plain language’ of the applicable Netherlands–Turkey BIT, which covered ‘invest-
ments … established in accordance with the laws and regulations’ of Turkey.43 The
object and purpose of BITs in general was said to contribute to this view, con-
straining these ‘laws and regulations’ only to laws ‘related to the very nature of
investment regulation’.44 If investors breached any other kinds of laws, the tribunal
commented, states themselves should pursue these breaches by way of domestic
legal action against investors.45 Because of this position, Turkey was not allowed to
rely on the investor’s alleged breaches of competition law and telecommunications
regulatory law; only breaches of the domestic law encouraging foreign investment
would be considered.46
6.2.2.1 No support in treaty text

However, the tribunal’s reading of the legality requirement is difficult to sup-
port. As noted, the tribunal relied on the BIT’s stipulation that investments
must be ‘established in accordance with the laws and regulations [of the host
state]’.47 Whatever the object and purpose of the treaty might be, it is not obvi-
ous, contrary to the tribunal’s view, that the ordinary meaning of this wording
is that its application is limited only to the specific law governing admission of
foreign investments.48 If laws on telecommunications and competition affect
new players’ entry to a state’s telecommunications market, it is hard to see why
these are not laws in accordance with which an investment must be established.
The argument on this issue may certainly depend on the wording of the relevant
BIT; states are naturally free to prescribe that investors must only comply with
particular categories of host state law in order to benefit from investment trea-
ties. But, as with the discussion in the previous section, the absence of clearer
43 Fakes (n 20) [119]. 44 ibid. 45 ibid.

46 ibid [120]. The Mamidoil tribunal appeared to interpret Fakes not as described here but as hold-
ing that the investor’s illegality must have a ‘material connection to the investment’; that is, that some
breach of law by the investor entirely unrelated to the investment would not affect the investor’s BIT
claim: Mamidoil (n 38) [481]. Such a holding would be quite plausible, but it is difficult to conclude
that this was the Fakes tribunal’s point. The breaches of competition and telecommunications laws
alleged in Fakes were directly related to the specific investment, but their relevance was dismissed
because the laws were not directly related to investment generally.
47 Article 2(2) of the Netherlands–Turkey BIT.
48 cf C McLachlan, L Shore, and M Weiniger, International Investment Arbitration: Substantive
Principles (OUP 2007) 181 (‘[t]‌he plain meaning of this phrase is that investments which would be
illegal upon the territory of the host State are disqualified from the protection of the BIT’); R Dolzer
and C Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 93 (‘the words “in
accordance with the laws” relate not just to the laws on admission and establishment but also to other
rules of the domestic legal order’).
149
text provides an initial reason to doubt that the inquiry is limited to investment-
related laws.49
This is further confirmed by consideration of the tribunal’s reference to the
object and purpose of BITs. The tribunal’s desire to limit the investor legality
requirement appeared to be influenced by a concern that an overly wide legality
requirement would permit states to escape investment treaty obligations too easily,
by manufacturing a breach of some obscure domestic law entirely unconnected to
the investor’s activities in the state.50 The tenor of the tribunal’s suggestion is that
BITs are aimed at strong investor protections, with liberal access to international
arbitration that serves to enforce these protections. A wide ‘defence’ for states, via
a finding of investor illegality, would run counter to this aim.
But this reasoning looks very similar to the tribunal’s reasoning in Tokios, given
in that case as a reason to exclude minor, technical breaches of host state law from
the investor legality requirement.51 If the object and purpose of investment trea-
ties is to grant fulsome protection for investments, with correspondingly limited
methods for states to avoid the jurisdiction of an international tribunal, the Tokios
principle sufficiently fulfils this without needing to add the Fakes subject-matter
limitation. Furthermore, almost by definition, any host state law that an invest-
ment might breach is a law ‘related to the very nature of investment regulation’, as
the Fakes tribunal itself put it. If a law does not regulate investment, it seems quite
unlikely that an investment could breach it. The tribunal’s proposed constraint may
therefore not even serve its own stated purpose.
Unfortunately, the award does not explain the nature of the alleged breaches of
Turkish telecommunications law and competition law. This information may have
assisted in clarifying why these alleged breaches were not thought to be significant
enough to deny access to international arbitration. In any case, if the laws in ques-
tion go beyond the minor formalities addressed in Tokios and the investor is alleged
to have breached them in the course of making their investment, the strict subject
matter of the laws should not prevent their consideration as part of the investor
legality inquiry.
6.2.2.2 No support in other cases

Moreover, like Desert Line’s ‘fundamental principles’ requirement, Fakes’ subject-
matter limitation has also not been applied by other tribunals. The domestic law
at issue in Plama v Bulgaria and Inmaris v Ukraine, for instance, was general con-
tract law. In Anderson v Costa Rica and Hamester v Ghana, the domestic law at
issue related to fraud. Both general contract law and the criminal law on fraud
are highly likely to affect any investment, whether domestic or foreign. But if—as
49 Again, as with the previous discussion, the textual argument has less force where the investor
legality requirement is found implied, rather than expressly contained in the BIT text. However, as
before, the discussion in the remainder of this section provides reasons to think that the limitation is
doubtful regardless of its express or implied nature.
50 Fakes (n 20) [119]. 51 Tokios (n 35) [86].
150

Fakes found—competition law is not law ‘related to the very nature of investment
regulation’ (perhaps because its relevance extends beyond the context of invest-
ment), then surely neither contract law nor criminal law meets this test either.
Nevertheless, none of the tribunals in Plama, Inmaris, Anderson, or Hamester sug-
gested that they did not need to consider compliance with contract or criminal law
on the grounds that those laws did not relate to investment.
Furthermore, while the claimant in Vannessa Ventures specifically argued that ‘the
“legality requirement” is limited in its application to breaches of … laws concerning
foreign investments’,52 the tribunal gave no comment on this argument, and did
not apply it in its reasoning on investor legality, finding only that no Venezuelan
laws had been breached.53
The arbitral case-law does not, therefore, seem to have picked up on the pro-
posed limitation in Fakes. Indeed, even in Fakes itself, the tribunal ultimately had
no need to apply the limitation that it set out, since it concluded that the claimant
had made no investment in Turkey at all, whether legal or not.54 As a doctrinal
matter, limiting the investor legality requirement only to investment-related laws
looks doubtful.
Fakes does find some support in Quiborax and Metal-Tech. In these cases, both
chaired by the same arbitrator, the award included an identical summary of the
scope of the legality requirement. The requirement was said to cover three situa-
tions: ‘non-trivial violations of the host State’s legal order’, ‘violations of the host
State’s foreign investment regime’ (citing Fakes), and ‘fraud … to secure the invest-
ment … or to secure profits’.55 However, this clearly does not suggest that investor
legality is confined to compliance with a state’s foreign investment regime. The
obvious result of the Quiborax and Metal-Tech tribunals’ categorization is that vio-
lation of domestic laws other than the state’s foreign investment regime would be
captured anyway, under the tribunals’ first proposed situation.
In addition, it is not clear why violation of a state’s foreign investment regime
is different to violation of a state’s legal order; presumably the former is contained
within the latter. Since the phrase ‘non-trivial’ appears in the tribunals’ first situ-
ation but not the second, the two tribunals may have intended to suggest that,
while only non-trivial violations of host state law would fall foul of a BIT’s legality
requirement (a nod to Tokios), both non-trivial and trivial violations of a state’s
foreign investment regime would do so. This might then be the factor that dis-
tinguishes the two situations. However, Fakes—the source of the subject-matter
limitation—does not indicate this. The Fakes tribunal noted that the parties were in
disagreement over ‘whether there exists a threshold below which a violation would
not be considered as relevant for the purposes of the BIT’s application’ (that is,
whether non-trivial violations count).56 The tribunal found itself ‘not convinced by
52 Vannessa Ventures (n 1) [132]. 53 ibid [135], [154], [160], [164], [167].
54 Fakes (n 20) [148].
55 Quiborax (n 32) [266]; Metal-Tech (n 9) [165] (Gabrielle Kaufmann-Kohler presiding in both
cases).
56 Fakes (n 20) [116].
151
[Turkey’s] position that any violation of any of the host State’s laws would result in
the illegality of the investment within the meaning of the BIT’.57 Thus, Fakes itself
suggests that it is only non-trivial violations of a state’s foreign investment regime
that would breach the legality requirement. Because of this, it is not clear what
distinction the Quiborax and Metal-Tech tribunals were intending to make between
their first and second situations.
A further problem with considering Quiborax and Metal-Tech as support for
Fakes’ subject-matter limitation is that, as with the other cases just mentioned
(including Fakes itself ), the proposed limitation was not actually decisive for those
tribunals’ reasoning on investor legality. This naturally lessens the potential rel-
evance of the cases in forming a settled line of jurisprudence on the issue.
6.2.2.3 Conclusion
For these reasons, it cannot be said that a subject-matter limitation on what counts
as domestic law currently exists to condition the investor legality requirement, nor
can it be said that such a limitation should exist.
6.2.3 Only laws that are rule-of-law compliant?

The third issue in this section relates to the qualities that the domestic law is
required to have before compliance with it will be demanded. Might it be said that
investors must only comply with host state laws to the extent that those laws are
‘good’ laws—for instance, that they display qualities of formal legality such as those
expressed in Lon Fuller’s well-known list?58 If a law is continually changing to the
point of arbitrariness, or is expressed to be applicable only to a particular investor,
could the investor’s violation of this law when making its investment still jeopardize
the jurisdiction of a tribunal in a later investment treaty claim? Similarly, if states
claim that they have complied with domestic law in expropriating an investor, thus
potentially satisfying the due process condition for lawful expropriation, would a
tribunal find a violation of the condition if the domestic law in question does not
display rule-of-law qualities?
There is very little suggestion in the investor legality case-law that tribunals will
explicitly concern themselves with the rule-of-law qualities of any putative domes-
tic law. One possible instance of such concern arises in Fraport v Philippines I,
where the tribunal noted certain situations that might excuse an investor’s failure
to comply with local law. One of these situations was that the local law ‘may not be
entirely clear’.59 Although this is hardly strong evidence, it might suggest that a lack
of clarity in domestic law, violating the formal legality requirements of the rule of
57 ibid [119] (emphasis added).

58 L Fuller, The Morality of Law (Yale UP 1969) 39, setting out a list of features under which laws
must be stable, general, prospective, clear, accessible, consistent, capable of compliance, and congru-
ently applied.
59 Fraport I (n 27) [396].
152

law, would permit an investor to escape compliance with it. But beyond this refer-
ence, it appears that rule-of-law qualities are not prominent in tribunals’ analyses
on the question of investor legality.
Of course, this is not necessarily a failing on the part of tribunals. Most likely,
there has been no suggestion from parties so far that the laws in question fell short
of rule-of-law requirements. This may well be understandable. Temptations to cir-
cumvent the rule of law in state conduct are likely to be higher when the state is
acting ex post to regulate private activity than when, as is the case here, it is passing
laws ex ante that regulate a foreign investor’s entry to and behaviour in the state.
Given this, little more can be said here than that tribunals ought to be mindful of
rule-of-law considerations for application in an appropriate case.
What about states’ compliance with the due process condition for expropriation?
The ‘jurisprudential’ stance that a tribunal takes towards the meaning of ‘law’ is
one important aspect that will determine the strength of its review. On a minimal
conception of the rule of law, compliance with law will mean only that the state
complies with instruments generally accepted as law, regardless of the qualities of
those instruments. On this view, it will be easier for a state to meet the due process
condition. Conversely, a more searching assessment, reviewing a purported law
against, for instance, Fuller’s criteria for formal legality, would increase the likeli-
hood of breach of the due process condition.
There is little consideration of this issue in the expropriation cases reviewed in
Chapter 3. However, in line with the public law nature of investment treaty dis-
putes, tribunals should be prepared to analyse rule-of-law compliance where rel-
evant in a particular case. Notably, as reviewed later in this section, the European
Court of Human Rights (ECtHR) has taken this approach in its jurisprudence on
the right to property in Article 1, Protocol 1 (A1P1), which serves as a useful indica-
tion of how investment tribunals should deal with the issue.
Starting with the investment treaty case-law, the Siag v Egypt tribunal suggests
a short answer to the rule-of-law question. In assessing the state’s compliance with
domestic law, the tribunal relied on prior decisions of domestic courts on the mat-
ter. It did not analyse the qualities of the underlying domestic laws, but instead
accepted the local courts’ application of those laws.60 In Goetz v Burundi, the issue
was muddied by the lack of much domestic law available to review, and the conse-
quent application of only general principles by the tribunal.61 ‘Domestic law’ was
thus largely determined by these general principles. A legal system consisting only
of general principles, with no specific rules, might well fail to meet formal legality
tests of certainty and congruence. However, the Goetz tribunal did not make any
explicit assessment of this.
The Middle East Cement tribunal took perhaps the strongest approach to assess-
ing the rule-of-law qualities of the domestic law in question. Even there, though,
only inferences may be drawn from a fleeting discussion. As previously discussed,

153
the case related to the seizure of the claimant’s ship, and domestic law provided for
certain procedures to be followed before seizures occurred. The tribunal appeared
to conduct a minimal analysis of the due process substance of the domestic law,
rather than simply accepting that the law was ostensibly relevant to the situation
and verifying compliance with it. Thus, the tribunal expressed a view on the appro-
priate procedures to be followed, in general, in a matter of such importance to
the investor as the seizure of its property, and it then noted that the domestic law
in question did provide for these procedures.62 This discussion did not adopt the
language of formal legality or the rule of law, but it hints that the tribunal accepted
the qualities of the domestic law, particularly since the law was to the benefit of the
affected individual, which might encourage a lesser degree of scrutiny than a law
burdening individuals.
The equivocal approach of investment tribunals can be contrasted with a firmer
approach from the ECtHR. The right to property in A1P1 requires expropriations
to be ‘subject to the conditions provided for by law’. This phrase is similar to phrases
appearing in other articles of the Convention.63 The ECtHR has interpreted these
phrases to represent a concern to avoid arbitrary state action that interferes with
these rights. Importantly, the Court does not simply look for the basic presence of
a measure cloaked in law authorizing the interference with rights. Instead, it looks
into the Fullerian ‘formal legality’ of the law, to determine whether it complies with
certain basic requirements.
This approach has also been applied by the Court in property rights cases. Thus,
in James v United Kingdom, in relation to a claim under A1P1, the Court noted:
The Court has consistently held that the terms ‘law’ or ‘lawful’ in the Convention ‘[do] not
merely refer back to domestic law but also [relate] to the quality of the law, requiring it to be
compatible with the rule of law’.64
More specifically, the rule-of-law requirement in A1P1 means that the national law
in question must be precise, accessible, and foreseeable.65
Hentrich v France provides an example of this. The applicant in that case com-
plained about a law which allowed domestic tax authorities to exercise a right of
pre-emption over her property, deemed to have been purchased in 1979 at less than
12 April 2002 [143].
63 Article 8 (permitting limitations on the right to respect for private and family life if the limita-
tion is ‘in accordance with law’) and Articles 9–11 (permitting limitations on the freedoms of religion,
expression and assembly when ‘prescribed by law’).
64 James v UK App No 8793/79 (ECHR, 21 February 1986) [67]. While emphasizing the role of
a searching assessment of domestic law, the James case simultaneously downplayed the role of inter-
national law under A1P1. By ruling that the ‘general principles of international law’ referred to in the
text of A1P1 were not applicable to a dispute between a national and his own state, James has in effect
rendered these words in the Convention a dead letter. Even in later cases of aliens claiming against
other ECHR member states, these words have strangely not played any role in the ECtHR’s delib-
erations: see, e.g., Forminster Enterprises Ltd v Czech Republic App No 38238/04 (ECHR, 9 October
2008); Buyan v Greece App No 28644/08 (ECHR, 3 July 2012).
65 See, e.g., Carbonara and Ventura v Italy App No 24638/94 (ECHR, 30 May 2000); Beyeler v Italy
App No 33202/96 (ECHR, 5 January 2000).
154

market value. In finding a violation of the legality requirement of A1P1, the Court
looked beyond the mere existence of a domestic legal instrument purporting to
authorize the property-taking. It considered that the foreseeability requirement was
not met, because the pre-emption rights were exercised by the state ‘arbitrarily and
selectively’, according to an opaque policy the details of which were not clear.66 The
Court noted that the pre-emption right had been exercised only once during 1980
in the applicant’s region of Lower Rhine, against the applicant herself; in addition,
the right had not been exercised at all since a 1987 Cour de Cassation judgment
(ruling against the applicant). It appeared that this infrequent invocation of the pre-
emption rights suggested to the Court that the power was being used in a ‘scarcely
foreseeable’ manner.67
Certainly, as other ECtHR cases indicate, laws cannot hope to achieve com-
plete precision and foreseeability in their terms, or even in their application. The
Court has ‘recognised the impossibility of attaining absolute certainty in the fram-
ing of laws and the risk that the search for certainty may entail excessive rigidity’.68
Nevertheless, domestic laws authorizing expropriations, and particularly those
granting discretion to the executive in relation to the takings, must indicate the
scope of the discretion as precisely as possible, to ensure ‘effective control’ of inter-
ferences with individual rights.69
Based on Siag, it might be thought that the ‘rule of law’ question is only relevant
for an investment tribunal in which there is no prior domestic court ruling on the
particular question of domestic law.70 In this situation, the tribunal will need to
rule on the matter itself, and will be more squarely presented with the issue of what
to consider as ‘domestic law’. However, in Hentrich the ECtHR demonstrated that
rule-of-law issues can be relevant also in the Siag situation, where there is a specific
ruling on the matter. In Hentrich, despite the Cour de Cassation ruling which con-
sidered the state’s action legal under domestic law,71 the Court found that the legal-
ity condition was violated because of the relevant law’s failure to meet rule-of-law
requirements. Thus, reliance on local rulings is only warranted when the laws to be
ruled on by the domestic courts display sufficient rule-of-law qualities, which for
the ECtHR means a formal legality conception.
These considerations of the ECtHR on the meaning of ‘law’ are equally applica-
ble to tribunals constituted under investment treaties. Investment disputes typically
display many features of a public law regime, with at least some investment treaties
recognizing promotion of the rule of law as a target objective in their preambles.
In this context, applying the criteria of formal legality when verifying compliance
66 Hentrich v France App No 13616/88 (ECHR, 22 September 1994) [42]. 67 ibid.

68 Silver v UK App No 5947/72 (ECHR, 25 March 1983) [88]. Even a formal legality view of
the rule of law might need sacrificing to other goals, since excessive clarity is sometimes counterpro-
ductive: see, e.g., P Craig, ‘Formal and Substantive Conceptions of the Rule of Law: An Analytical
Framework’ [1997] PL 467, 469.
69 Silver (n 68) [90].
70 As is often the case, in the general absence of a duty on investors to exhaust local remedies before
bringing an investment treaty claim.
71 Hentrich (n 66) [18].
155
with domestic law is entirely consistent with the goals of international investment
law. Indeed, the formal legality conception of the rule of law remains relatively
weak compared to other competing visions of the rule of law, such as those under
which not only the form but also the substance of a putative law is investigated
for its compatibility with fundamental rights, dignity, social welfare, or justice.72
Merely reviewing laws for their commitment to stability, certainty, and accessibil-
ity is ultimately relatively minimal, and ought to be acceptable even to those that
emphasize the private aspects of the investment law regime. Furthermore, such a
review may simply be part of an international tribunal’s mandate to apply national
law where appropriate.73
On this question, then, investment tribunals could learn again from the ECtHR
and be prepared to excuse investor violations, or to find state violations of the ‘due
process of law’ condition and thus find unlawful expropriations, through a failure
to meet rule-of-law requirements. Rather than rejecting limitations on what counts
as ‘domestic law’ as in the previous two sections, such an approach here would
embrace a limitation on scope, while entailing a more searching review of quality.
6.3 Estoppel as a Means to Avoid Consideration

of Domestic Law
Investors have sometimes argued that the question of their compliance with domes-
tic law does not require an answer at all. In these cases, the investors suggest that, as
a result of representations of legality made to the investor by state officials, the state
is estopped from denying the investor’s compliance. Although investment treaties
make no mention of estoppel, the principle finds its application in investment law
as a general principle of law within the meaning of Article 38(1) of the Statute of
the International Court of Justice.74
Tribunals have indeed rejected states’ claims of investor illegality following
the state’s acquiescence in (or even overt approval of ) the investment.75 Thus, in
72 M Bennett, ‘ “ ‘The Rule of Law’ Means Literally What It Says: The Rule of Law”: Fuller and Raz
on Formal Legality and the Concept of Law’ (2007) 32 Aust J L Phil 90, 94.
73 J Paulsson, ‘Unlawful Laws and the Authority of International Tribunals’ (2008) 23 ICSID Rev
215, 224: ‘In all legal systems worthy of the name, courts may annul or disregard laws which violate
the rule of law … International courts and tribunals must have at least equally great authority if their duty
to apply the national law is to have its full meaning’ (emphasis in original).
74 Dolzer and Schreuer (n 48) 18.
75 Apart from the cases discussed here, see also several cases where contracts were deemed to be valid
based on de facto treatment over time: Railroad Development Corporation v Guatemala (ICSID Case No
ARB/07/23), Second Decision on Objections to Jurisdiction, 18 May 2010 [144]; Inmaris Perestroika
Sailing Maritime Services GmbH v Ukraine (ICSID Case No ARB/08/8), Decision on Jurisdiction, 8
March 2010 [140]; ADC Affiliate Ltd v Hungary (ICSID Case No ARB/03/16), Award of the Tribunal,
2 October 2006; Franck Arif v Moldova (ICSID Case No ARB/11/23), Award, 8 April 2013. Estoppel
was found based on de facto approval of an investment despite lack of a required formal certificate
in Desert Line (n 3) [105]. The possibility of estoppel in this respect was also recognized in Quiborax
(n 32) [257] and Fraport I (n 27) [346] but not found on the facts in either case.
156

Kardassopoulos v Georgia, the state tried to claim, somewhat counter-intuitively,
that the investment was unlawful because its officials did not have the authority to
enter into the underlying investment agreements.76 Apart from finding that a state
could not plead its own illegality to escape jurisdiction,77 the tribunal also noted
that the Georgian government had approved of the investment for many years, giv-
ing frequent reassurances to the investor. This meant that it was estopped from rely-
ing on the illegality to prevent the investor’s claim from proceeding.78 Similarly, in
SwemBalt v Latvia, the tribunal found that the state could not rely on the investor’s
allegedly illegal mooring of a ship, since the state had tolerated the mooring for four
months.79 In Alpha Projektholding v Ukraine, the state was not permitted to claim
investor illegality when its State Tourist Administration had explicitly approved of
an extension to the investment contracts.80
Such estoppel claims, both within investment law and elsewhere in international
law, have typically been justified on the grounds that principles of fairness, good
faith, and consistency should outweigh any strict concerns about legality of con-
duct.81 The 1930 Shufeldt claim, before an ad hoc arbitral tribunal, provides an
early example of estoppel in a case that looks similar to claims of investor illegality
under BITs. There, the tribunal accepted the USA’s argument that the respondent
state, Guatemala, was estopped from denying the domestic legal validity of a con-
cession contract in international proceedings after treating the contract as valid, by
performing obligations under it, for six years.82 Other cases have similarly accepted
estoppel arguments even where the effect of the estoppel is to contradict the express
legal position of the parties (rather than clarifying an unclear legal position). For
instance, in Anglo-Norwegian Fisheries, Norway succeeded in claiming sovereignty
over certain waters before the International Court of Justice (ICJ), by virtue of a lack
of protest from neighbouring states for many years. The Court acknowledged that
Norway’s ‘jurisdiction over these waters must be recognised although it constitutes a
derogation from the rules in force’.83 The Eritrea-Ethiopia Claims Commission has
76 Ioannis Kardassopoulos v Georgia (ICSID Case No ARB/05/18), Decision on Jurisdiction, 6 July
2007 [50].
77 ibid [182].
78 ibid [191]–[192]. In any case, the tribunal also relied on Article 7 of the ILC Draft Articles on
State Responsibility, which provide that domestically unlawful acts can still be attributable to a state
if they are, in the words of the SPP v Egypt tribunal, ‘cloaked with the mantle of government author-
ity’: ibid [193]–[194]. See similarly Sergei Paushok v Mongolia (UNCITRAL), Award on Jurisdiction
and Liability, 28 April 2011 [603]–[608].
79 SwemBalt AB v Latvia (UNCITRAL), Decision by the Court of Arbitration, 23 October 2000
[34]–[35]. See further F Yala, ‘Observations on Swembalt v Latvia’ [2004] Stockholm Arb Rep 119.
80 Alpha Projektholding (n 36) [302].
81 R Moloo and A Khachaturian, ‘The Compliance with the Law Requirement in International
Investment Law’ (2011) 34 Fordham Intl LJ 1473, 1497 and Fraport I (n 27) [346] cite fairness in
support of the application of estoppel in this context. On good faith and consistency, see J Crawford,
Brownlie’s Principles of Public International Law (8th edn, OUP 2012) 234; D Bowett, ‘Estoppel
Before International Tribunals and its Relation to Acquiescence’ (1957) 33 BYIL 176, 186; Fraport I,
Dissenting Opinion (n 38) [28].
82 Bowett (n 81) 186.
83 Fisheries Case (United Kingdom v Norway), Judgment of 18 December 1951 [1952] ICJ Rep 116,
130, 138–9 (emphasis added).
157
also accepted estoppel arguments to recognize certain individuals as dual nationals

of those two states, even though dual nationality was not permitted by either state’s
domestic law.84
6.3.1 An alternative view: the rule of law and investment law

An alternative view on the desirability of estoppel arguments to avoid consideration
of domestic law might, though, be taken. As noted, when it applies, estoppel is said to
privilege fairness and consistency over objective legality85 and respect for law. However,
several of the investor legality cases have emphasized the central importance of respect
for law and the rule of law in the context of investment treaties.86 Indeed, tribunals
have explicitly drawn on the rule of law to underpin the investor legality requirement.
In Plama v Bulgaria, the tribunal implied the investor legality requirement into
the Energy Charter Treaty (ECT) in the absence of any text requiring an invest-
ment to be domestically legal. It justified this implication on the grounds that part
of the objective of the ECT was to secure respect for the rule of law.87 Similarly, in
Anderson v Costa Rica, the tribunal observed that ‘[t]‌he assurance of legality with
respect to investment has important, indeed crucial, consequences for the public
welfare and economic well-being of any country’.88 Furthermore, Costa Rica was
considered to have a ‘fundamental interest in securing respect for its law’.89 The
Fraport I tribunal also observed that, alongside mere economic value, ‘[r]espect for
the integrity of the law of the host state is also a critical part of development and
a concern of international investment law’.90 In a similar vein, Feldman v Mexico
highlighted the importance of the rule of law in preference to the value of cer-
tainty in tax arrangements, noting that states were always justified in pursuing tax
liabilities regardless of any contrary promises made by particular officials.91 These
statements suggest that the legality of private action is a highly important objective,
and perhaps one that ought to outweigh the certainty and fairness that would be
achieved by allowing investors to rely on states’ representations as to an investment’s
legality.92 As Judge Spender warned in Temple of Preah Vihear before the ICJ, since
84 Crawford (n 81) 521.

85 For the view that investor legality is normally an objective matter, unaffected by protestations
that the investors did not know the relevant domestic law or intended to comply with it, see Alasdair
Anderson v Costa Rica (ICSID Case No ARB(AF)/07/3), Award, 19 May 2010 [52]. See also A Joubin-
Bret, ‘Admission and Establishment in the Context of Investment Protection’ in A Reinisch (ed.),
Standards of Investment Protection (OUP 2008) and Knahr (n 39) 17 discussing the objective approach
to investor legality.
86 On the wider rule-of-law goals of investment law, see also, e.g., S Schill (ed.), International
Investment Law and Comparative Public Law (OUP 2010) chs 1 and 5; J Wouters and N Hachez,
‘The Institutionalisation of Investment Arbitration and Sustainable Development’ in MC Cordonier
Segger, M Gehring, and A Newcombe (eds), Sustainable Development in World Investment Law (Kluwer
2011) 633.
87 Plama (n 9) [139]. 88 Anderson (n 85) [53]. 89 ibid [58].
90 Fraport I (n 27) [402].
91 Marvin Feldman v Mexico (ICSID Case No ARB(AF)/99/1), Award, 16 December 2002 [61].
92 This could be true even where it was objectively reasonable for the investor to rely on the repre-
sentation. Of course, certainty and predictability could be themselves seen as elements of the rule of
158

estoppel ‘substitutes relative truth for the judicial search for the truth, it should be
applied with caution’.93
In Fraport I, dissenting arbitrator Bernardo Cremades argued at length that the
respondent Philippines was bound by an estoppel in relation to the existence of
the investment in domestic law.94 In supporting his argument based on estoppel,
Cremades commented:
The epitome of the abuse of law is its inconsistency or arbitrariness. Where rules are applied
to one person, and not to another, or at one time and not another, or at the discretion of
one official or another, or recognised and enforced by one organ of the State and ignored by
another, then there is an inconsistency contrary to the nature of law. As regards the forma-
tion of an arbitration agreement, the principle of good faith or estoppel prevents the State
from taking a legal position that is inconsistent with its internal law, or the position it has
previously taken with the investor regarding the proper application of its internal law.95
Although Cremades made these comments to support estoppel-based arguments,
they could equally be taken to undermine the use of estoppel—particularly if the
‘assurance of legality’ and ‘respect for law’ are as central to investment treaties
as Anderson, Plama, and Feldman suggest. When state officials give personalized
assurances to a particular foreign investor of the validity of a contract despite their
knowledge to the contrary, as in Kardassopoulos, is this not potentially the applica-
tion of rules to one person but not another? Is it not an instance of rules being
recognized by one organ of the state (namely, the legislature or judiciary, in setting
out the law) but ignored by another (namely, the executive)? Is it not an instance of
the state taking a legal position that is inconsistent with its own law? On Cremades’
view, if investment tribunals seek to avoid condoning ‘inconsistency and arbitrari-
ness’, they might be well advised to reject investors’ estoppel-based arguments that
representations from the executive should override any claimed illegality in their
investment.
Of course, the uncomfortable result of this is that states would be permitted to
avoid investment treaty claims against them by relying on illegality, despite hav-
ing encouraged the illegal conduct at the time that the investment was made. This
apparent unfairness to investors is precisely what underlies estoppel claims in this
context. But foreign investors must also conduct their own due diligence when
investing, and part of this process should naturally entail taking advice on the legal-
ity of their proposed investment under host state law. If their legal advice con-
tradicts statements by government officials, investors could consider abandoning
the investment, or seeking a declaratory ruling, where available, from a domestic
law, such that preferring a status quo generated under an estoppel for reasons of certainty, in prefer-
ence to the strict terms of the law, could be seen as supporting the rule of law. See Total SA v Argentina
(ICSID Case No ARB/04/1), Decision on Liability, 27 December 2010 [129]. However, the notion
of certainty in the rule of law usually relates to the law itself, not the conduct of officials surrounding
it. The certainty achieved through claims of estoppel is thus perhaps factual, in contrast to the legal
certainty sought by the rule of law.
93 Temple of Preah Vihear (Cambodia v Thailand), Judgment on the Merits [1962] ICJ Rep 6, 141.
94 Fraport I, Dissenting Opinion (n 38) [28]–[34]. 95 ibid [30].
159
court. Undoubtedly, this would be a burdensome and commercially unsuitable

approach,96 but it may be the only way to give objective legality the prominence
that certain tribunals suggest.
A similar view was taken in 2011 by a tribunal established under contract at the
London Court of International Arbitration (LCIA) in the case of Citibank v Ceylon
Petroleum Corporation.97 Although not an investment treaty case,98 the tribunal
ruled on a defence raised by CPC (a Sri Lankan state entity) that it did not have
the statutory power to enter into the disputed contracts, meaning that any claims
under the contracts had no legal base. The tribunal there noted that, while it was
‘commercially unattractive’ for CPC to avoid Citibank’s claims by relying on the
transaction’s illegality after having agreed to it, the statutory body was nevertheless
constrained to act within the law.99 Any unfairness to Citibank was therefore sub-
ordinated to respect for Sri Lankan law.
Not every tribunal, however, has taken such a clear line on the importance of
respect for the law. In RosInvestCo v Russia, one of the many cases relating to Russian
authorities’ seizure of assets of the Yukos oil company, the tribunal appeared to give
some weight to the fact that Yukos had suffered the enforcement of tax laws against
it while its competitors, arguably no less deserving of enforcement proceedings,
had escaped liability. The tribunal concluded, on the merits, that Yukos’ treatment
was ‘discriminatory in view of the treatment of other comparable companies using
similar methods to avoid taxes’.100 Moreover, ‘no other Russian oil company was
subjected to the same relentless and inflexible attacks as Yukos’.101 Although the
tribunal’s ultimate conclusion on Russia’s responsibility was determined by a wide
range of factors, this reasoning suggests that the unfairness of Russia’s discrimina-
tory conduct overshadowed Yukos’ apparent failure to respect domestic tax laws.102
In a similar vein, the tribunal in Teinver v Argentina was called on to determine
the significance of alleged breaches of the Spanish investor’s home state law, as well
as Argentine law. If respect for law and legality is such a crucial principle underly-
ing foreign investment, the tribunal might have been expected to place weight on
the state’s allegations of illegalities connected to the investment, regardless of their
source. However, Article I(2) of the Spain–Argentina BIT referred to investments
96 cf, in a domestic law context, S Schønberg, Legitimate Expectations in Administrative Law (OUP
2000) 14.
97 Citibank v Ceylon Petroleum Corporation (LCIA), First Partial Award, 1 August 2011.
98 The same conduct of Sri Lanka at issue in the Citibank case did, however, trigger a claim at the
ICSID: Deutsche Bank AG v Sri Lanka (ICSID Case No ARB/09/02), Award, 31 October 2012.
99 ‘Ruling of the Arbitration Panel Dismissing the Claim in the Oil Hedging Case: Citibank vs
CPC’ Sunday Times, 14 August 2011, <www.sundaytimes.lk/110814/BusinessTimes/bt44.html>.
100 RosInvestCo UK Ltd v Russia (SCC Case No V 079/2005), Final Award, 12 September
2010 [620].
101 ibid [621].
102 A different perspective on this lack of concern for Yukos’ illegality is provided by Quasar de
Valores SICAV SA v Russia (SCC), Award, 20 July 2012, where the tribunal held that Yukos did not
act illegally at all, but was merely enjoying the benefits of the tax avoidance mechanisms provided in
domestic law: [67]–[69]. Meanwhile, the most recent Yukos majority shareholders case offered a third
perspective, finding that Yukos’ conduct was of doubtful legality, but that Russia’s response was dispro-
portionate and hence in breach of the Energy Charter Treaty: Yukos Universal Ltd (n 9) [1575]–[1585].
160

‘acquired or effected in accordance with the legislation of the country receiving the
investment’. Relying closely on this text, the tribunal had little doubt that Spanish
law was excluded and that only violations of Argentine law would affect its juris-
diction.103 No grand appeals to the rule of law are evident in this reasoning; the
tribunal simply applied the plain meaning of the treaty text, and refused to extend
the scope of the jurisdictional ‘defence’ in Argentina’s favour.
Ultimately, it may simply be that the fairness-based rationale of estoppel takes
precedence over objective legality, and that estoppel arguments are acceptable for
this reason. However, there is a curious tension in this position, particularly where
(as in Plama) the investor legality requirement is found implied: the requirement
is implied by virtue of a commitment to the rule of law, only to be discarded a
moment later by virtue of a commitment to fairness.
6.3.2 Limits on estoppel
But even if fairness to investors trumps legality, and estoppel arguments are
accepted, it is clear that there are, nevertheless, some limits on the use of this
principle to get around a requirement to investigate an investor’s compliance
with domestic law. This stems from the recognition that estoppel has only been
raised in the case-law in relation to claims of violations of specific host state
laws by investors. Its application to broader claims of violations of, for instance,
international public policy or general principles of fraud or corruption, on the
other hand, is more doubtful. This position is quite intuitive. In a situation
where an investment has been procured by corruption or bribery of state offi-
cials, the investor could hardly be permitted to argue that the state acquiesced in
its investment or gave representations of its legality, since the covert acquiescence
forms the whole basis of the corruption finding. In Metal-Tech v Uzbekistan,
where jurisdiction was denied because the investment was procured via bribery,
the investor did not even attempt to make an estoppel claim, perhaps knowing
that it could not possibly succeed.104
This is implicitly confirmed by the 2013 case of Arif v Moldova. Although with-
out referring to estoppel, the Arif tribunal held that state officials had treated par-
ticular investment contracts as valid over a period of time, and that Moldova was
therefore prevented from now claiming their illegality to contest the tribunal’s juris-
diction.105 In these circumstances, the ‘mutual assumption of legality’ could not be
ignored.106 However, the tribunal listed a number of other circumstances in which
it thought that this estoppel-based ‘temporal limitation’ on a state’s illegality claim
103 Teinver (n 22) [323].

104 cf the contract-based case of World Duty Free v Kenya at the ICSID, where the tribunal did
consider a similar claim of waiver in a situation of bribery. The claim was rejected on the substan-
tive grounds that Kenya had no knowledge of the bribery of its President and ‘could not waive a
right which [it] does not know to exist’: World Duty Free Company Ltd v Kenya (ICSID Case No
ARB/00/7), Award, 4 October 2006 [184]–[185]. See also J Yackee, ‘Investment Treaties and Investor
Corruption: An Emerging Defense for Host States?’ (2012) 52 Va JIL 723, 742.
105 Arif (n 75) [376]. 106 ibid.
161
would not apply, including cases where the investment was made ‘fraudulently or
on the basis of corruption’, as well as cases of ‘concealed illegality’.107
Thus, investments that involve breaches of international public policy, by means
of fraud or corruption, cannot be deemed legal via estoppel. Any investor that has
bribed or defrauded the state in making its investment cannot rely on assurances
of legality from the state to ground an investment treaty tribunal’s jurisdiction. In
relation to fraud, the Thunderbird v Mexico case from 2006 demonstrated a very
similar point, albeit on an issue of merits rather than jurisdiction. In that case, the
investor claimed a breach of NAFTA’s ‘fair and equitable treatment’ guarantee, on
the grounds that its legitimate expectations about gaining regulatory approval for
its gambling investment had been frustrated by the subsequent denial of approval.
The tribunal rejected this argument, noting that the investor could not rely on the
representations of the Mexican gambling regulator that its investment was legal,
because the investor knew that its proposed business was in fact illegal and had
provided false information to the regulator in order to gain apparent approval.108
Although not labelled as fraud by the Thunderbird tribunal, the investor’s conduct
clearly deceived the regulator and vitiated any claim to reasonable reliance on assur-
ances from the state.
The Arif tribunal’s suggestion of ‘concealed illegality’, as another situation in
which estoppel claims cannot be entertained, appears to rephrase the same point.
Concealed illegality could be treated in the same way as fraud, as in Thunderbird,
in the sense that the investor has defrauded the state by hiding its illegal conduct.
Policy arguments would therefore permit the state to rely on this illegality at a later
stage even despite any acquiescence or assurances given in the meantime. Concealed
illegality could also be treated as removing the basis for reliance on the state’s repre-
sentations, as the Fraport I tribunal also observed.109 These situations identified by
Arif represent instances in which consistency or fairness to investors is subordinated
to other values, such as probity of state conduct, the ‘clean hands’ of the investor,110
and the rule of law.111
6.4 Conclusion
The review of investment treaty case-law in this chapter has revealed that investors
must be held to comply with all of host state law, barring only trivial breaches, rather
107 ibid.
108 International Thunderbird Gaming Corporation v Mexico (UNCITRAL), Arbitral Award, 26
January 2006 [164]–[166].
109 Fraport I (n 27) [347].
110 R Moloo, ‘A Comment on the Clean Hands Doctrine in International Law’ (2011) 8 TDM.
111 Arif may be read to suggest that estoppel claims will also be unsuccessful where the law breached
by the investor is of particular national importance or forms part of the fundamental principles of the
host state. For instance, an investor could perhaps not rely on estoppel to avoid objections of illegality
in relation to an agreement to operate a military prison for a host state and to carry out routine acts of
torture on the inmates (cf Phoenix Action (n 9) [78]). See Hepburn (n 42) 554–8.
162

than complying only with the fundamental principles of host state law. Similarly,
laws on any topic must be in consideration, not only laws related to investment.
Furthermore, where estoppel arguments are accepted (in favour of strict respect
for objective legality), the limits of estoppel must also be appreciated. In the area
of investor legality, this position will mean that the scope of a tribunal’s examina-
tion of domestic law is widened, adding significance to the framework established
in Chapter 5 for conducting this examination. Further, in appropriate cases, tri-
bunals must be prepared to find that an investor’s compliance with domestic law
is not required—or that a state’s purported compliance with domestic law is not
relevant—where that law does not meet minimal rule-of-law requirements. This
position would lead to a narrower, but deeper, examination of domestic law by
tribunals.
163
7
Applying the Framework—In Practice
Chapter 6 found that certain proposed limitations on the relevance of domestic law
in investment treaty arbitration largely do not, in fact, work to limit this relevance.
Instead, the framework established in Chapter 5 for dealing with domestic law
questions (including those identified in Part I) retains its importance. Having dis-
posed of these preliminary considerations, this chapter moves to an assessment of
the investment treaty case-law against Chapter 5’s framework. This chapter draws
on case-law from a range of issues implicating domestic law, including the ques-
tion of the investor’s compliance with host state law for jurisdictional purposes, the
existence or nature of the investor’s claimed investment as a bundle of domestic
law rights, and the issues of fair and equitable treatment (FET), expropriation, and
remedies identified in Part I. The chapter analyses the common faults of tribunals
when dealing with questions of domestic law. In many instances, as seen in sec-
tion 7.1, tribunals have displayed insufficient reasoning to satisfy what is required
by both the concerns of legitimacy and the concerns of the arbitral framework, as
examined in Chapters 1 and 5. Section 7.2, by contrast, analyses examples of posi-
tive practice by tribunals, when questions of domestic law have been dealt with in
a more appropriate manner according to Chapter 5’s standards. These examples are
presented as models of good practice for future tribunals to follow.
7.1 A Taxonomy of Errors
7.1.1 Failure to appreciate role of domestic law

In some cases, tribunals have simply failed to appreciate the role of domestic law in
determining the question before them.
As discussed in Chapter 5, the Inceysa tribunal determined that it would assess
the investor’s compliance with domestic law itself, deliberately avoiding reference
to domestic materials. Following this dubious determination, however, the Inceysa
tribunal then took quite a strange approach to this assessment.1 It did not actually
review Salvadoran law, but instead observed that international law, including the
1 See also S Schill, ‘Illegal Investments in Investment Treaty Arbitration’ (2012) 11 LPICT
281, 300–1.
164

bilateral investment treaty (BIT), was incorporated into domestic law under El
Salvador’s constitution. For the tribunal, this meant that the general principles of
international law were effectively part of domestic law.2 The investor’s conduct was
then assessed with respect to various general principles, including good faith, the
‘clean hands’ principle, and international public policy. None of these principles was
found satisfied, and so the tribunal declined jurisdiction. This approach—or lack of
approach—to domestic law is misguided. First, it ignores the relevance of domes-
tic materials on the question, an approach that—as this chapter demonstrates—is
relatively widespread but problematic. Second, as others have noted,3 the tribunal
failed to explain why it chose the particular principles that it did to assess the inves-
tor’s conduct. It took a highly circuitous route, little supported by the text of the
relevant BIT, towards finding a violation of host state law.
In GEA v Ukraine, the tribunal was urged by the state to find that the claimant
had never obtained rights under a contract by assignment from the original party.4
This finding would mean that the claimant had no rights in domestic law that
would constitute an investment for the purposes of the Germany–Ukraine BIT.
On this claim, the tribunal observed that there was no conclusive document dem-
onstrating that the assignment had occurred. However, for the tribunal, the evi-
dence as a whole suggested that the original party had indeed been replaced by the
claimant.5 First, a later agreement between the claimant and the same state entity
(‘Oriana’) that was counterparty to the main contract acknowledged that the claim-
ant had assumed the rights of the original party. Second, Oriana officials had made
statements acknowledging the claimant’s rights under the original contract. Third,
the claimant was party to a large number of amendments to the contract, with no
protest from Oriana. This all suggested to the tribunal that the assignment had
occurred, grounding the claimant’s investment for the purposes of its treaty claim.
The problem with the tribunal’s reasoning here is that whether or not a party has
validly been assigned contractual rights is a question of domestic law. It ought to
have been resolved by reference to principles of Ukrainian law on contract forma-
tion and assignment of rights.6 Instead of this, the tribunal relied on the essentially
circumstantial evidence of both contractual and extra-contractual statements made
by Ukrainian officials, and on the absence of complaint when the claimant executed
amendments to the contract. This factual evidence may well meet the legal tests
provided for in Ukrainian contract law, but no reference was made to these tests,
making it difficult to confirm that they were met. In its defence, the GEA tribunal
noted that its analysis was only based on the material presented to it, and that
2 Inceysa Vallisoletana SL v El Salvador (ICSID Case No ARB/03/26), Award, 2 August 2006 [224].

3 C Knahr, ‘Investments “In Accordance with Host State Law” ’ (2007) 4(5) TDM 8; A Carlevaris,
‘The Conformity of Investments with the Law of the Host State and the Jurisdiction of International
Tribunals’ (2008) 9 JWIT 35, 43.
4 GEA Group Aktiengesellschaft v Ukraine (ICSID Case No ARB/08/16), Award, 31 March 2011
[94]. See Part III of the award for a discussion of the complicated range of parties involved.
5 ibid [101]–[105].
6 This assumes that the investment contract between the claimant and Oriana was governed by
Ukrainian law. The award does not appear to clarify this.
165
Applying the Framework—In Practice 165
it would decide the dispute solely ‘as pleaded between the Parties’.7 However, as
explained in Chapter 5, this is not enough to absolve the tribunal from the respon-
sibility to apply the applicable law to claims actually made by the parties—here
including the claim that the investor enjoyed no domestic law rights. This may well
involve further research or evidence on domestic law, if necessary to resolve the
question. On a jurisdictional matter such as the existence of rights in domestic law
constituting an investment, as also discussed in Chapter 5, a proactive approach
from the tribunal is particularly important. The tribunal’s circumstantial approach
in GEA is therefore insufficient.
A third example comes from Hamester v Ghana, which involved an allegation
of fraud committed by the investor in obtaining the state’s approval of a joint ven-
ture agreement. Specifically, Ghana claimed that the investor had ‘committed the
felony of obtaining property by false pretences, in contravention of section 131 of
Ghana’s Criminal Code of 1960’. Ghana also claimed breaches of ‘common law
rules against fraud and the statutory fiduciary duties under the Companies Code
1963’.8 Strangely, rather than respond to these specific allegations of violation
of Ghanaian law, the tribunal couched its analysis in the general, abstract terms
of whether the investor had committed fraud. It did not offer any examination of
the terms of Ghanaian law, or the interpretation at domestic level of the Criminal
Code, Companies Code, or Ghanaian common law. Instead, it reviewed the facts
and decided that there was not enough evidence of any fraud, simply stated.
Admittedly, the state’s claim in this regard was often cast in the light of fraud in
general—the tribunal noting that the state’s pleadings had used the word ‘fraud’ or
a synonym more than one hundred times.9 This might indicate that Ghana sought
to characterize the investor’s conduct as fraudulent according to universalized
standards, detached from domestic law (of the kind that brought down the inves-
tors’ claims in Inceysa). However, there are enough specific references to Ghanaian
law to permit Ghana’s claim to be characterized not as universalized but as a par-
ticularized claim of breach of domestic law. This was, after all, the requirement of
the Germany–Ghana BIT underpinning the case: Article 10 provided that the BIT
would apply to investments made ‘consistent with the [host state’s] legislation’.10 At
the beginning of its analysis of this issue, the tribunal noted that this provision was
one example of the common condition imposed in BITs, namely an ‘express require-
ment that the investment comply with the internal legislation of the host State’.11
The claimant, for its part, also acknowledged that its investment was required to be
‘in substantial compliance with the substantive provisions of Ghanaian law’, and
argued that it was indeed ‘in full compliance with Ghanaian law’.12 It viewed the
claims of fraud in any case as ‘matters of company law which must be contested in
Ghanaian courts’, thus squarely presenting the claim as pertaining to the domestic
law instantiations of fraud rather than a universalized notion.
7 GEA (n 4) [90].
8 Gustav F W Hamester GmbH & Co KG v Ghana (ICSID Case No ARB/07/24), Award, 18 June
2010 [130].
9 ibid [97]. 10 ibid [126]. 11 ibid [125]. 12 ibid [114]–[115].
166

Nevertheless, as noted, the tribunal’s analysis did not make reference to the
substance of domestic law. Its conclusion was that the investor’s conduct may not
have fulfilled ‘l’ethique des affaires’, but ‘did not amount to … a fraud that would
affect the Tribunal’s jurisdiction’.13 The finding of at least some impropriety in the
investor’s conduct is potentially significant. It seems possible that the acknowl-
edged impropriety could have raised a prima facie case of violation at least of the
Companies Code, as alleged by Ghana, if not of the probably higher standards of
the Criminal Code. However, the tribunal did not address this possibility. This
failure seems to pass over the treaty’s requirement to verify that the investment
was made consistent with Ghanaian legislation. The tribunal should have applied
domestic law, in light of relevant municipal interpretations, to consider the inves-
tor’s compliance with Article 10 of the BIT.
7.1.2 Failure to investigate domestic law sources

In other cases, while acknowledging the role of domestic law, tribunals have
found reason to avoid reference to it because evidence was not submitted by the
parties.
The tribunal in the 2011 North American Free Trade Agreement (NAFTA) case
of Grand River Enterprises v USA raised this issue. The claimants sought to prove
that their investment included ownership of an ‘enterprise’ in the US under NAFTA
Article 201, which was defined as ‘any entity constituted or organized under appli-
cable law’. According to the claimants (who were indigenous Canadians), the
Seneca Nation of Indians Business Code was the applicable law under which they
had constituted or organized their enterprise, as NAFTA Article 201 required.
However, examining the Code, the tribunal found no provisions that dealt with
constituting ‘enterprises’. It noted that the claimants had tried to obtain an opinion
from an expert in Seneca law, but were unable to do so.14
Thus, the tribunal was left only with ‘general assertions about the existence of
Seneca law and custom’,15 rather than any specific evidence of the requirements for
constituting an enterprise under Seneca law. It did not doubt the legal legitimacy
of Seneca law as a possible means of establishing an enterprise in the US, to satisfy
the definition of ‘investment’ in NAFTA. But it held simply that no evidence had
been provided to demonstrate the elements required for an enterprise under Seneca
law, or to show that the claimants’ cultural business practices were enough to meet
these requirements.16
The Grand River tribunal appeared to treat the question of domestic law in the
case—whether the claimants’ business operations were validly constituted as an
13 ibid [138].
14 Grand River Enterprises Six Nations Ltd v USA (UNCITRAL), Award, 12 January 2011 [102]. The
claimants had presented an expert opinion from the public international lawyer Maurice Mendelson
QC, who found that the claimant’s operations did constitute an enterprise under the Seneca Business
Code. However, the tribunal discounted this, noting that (as Professor Mendelson acknowledged) he
was not an expert in US or Seneca law: ibid.
15 ibid [103]. 16 ibid [103].
167
enterprise under applicable domestic (Seneca) law—as a question of fact.17 This

was perhaps influenced by the ostensible requirement that NAFTA tribunals apply
solely international law.18 The claimants failed because they had not proved the
content of the legal requirements that they were obliged to meet. But this approach
contrasts with the approach taken in, for instance, F-W Oil Interests v Trinidad &
Tobago, presided over by the same arbitrator (and discussed in section 7.2). In that
case, in the absence of any evidence of the position in domestic law, the tribunal
made an assessment of how a domestic court might rule, informed by submissions
from both parties on the position in comparable jurisdictions. It is not enough for
the Grand River tribunal to admit defeat on an issue of domestic law (particularly
one determinative of the tribunal’s jurisdiction) and declare it unproven merely
because the claimants have not provided any expert evidence. The award does not
indicate whether the respondent, the United States—who must surely be taken to
understand its own law (including Seneca law) better than the claimants—provided
or was even asked to provide a view on the formation of enterprises in Seneca law.
Admittedly, there are probably few obvious analogies to Seneca law from which
the tribunal could have formed an opinion itself.19 But, as explained in Chapter 5,
NAFTA tribunals cannot escape the role of domestic law in their awards merely
because of that treaty’s direction to apply solely international law. The tribunal here
apparently did little to look into the Seneca law issue, such as appointing its own
expert, ordering the US to provide an opinion, or making its own academic inquir-
ies into Seneca law.
A similar problem arose in Goetz v Burundi, where very little information on
domestic law was available in the proceedings. Burundi did not participate in its
defence in the arbitration, and thus did not provide any evidence on the written
terms of Burundian law.20 Although one can sympathize with the difficult position
of the tribunal, the considerations in Chapter 5 suggest that the Goetz arbitrators
ultimately failed to make sufficient efforts to apply Burundian law as required by
the relevant BIT. As noted in Chapter 5, a tribunal cannot decide purely on the
basis of the ‘untested submissions of just one party’. However, it appears that the
Goetz tribunal took precisely this approach.
In analysing questions of Burundian law, the tribunal proceeded on the basis of
the investors’ proposition that Burundian law was inspired by the same principles
as the law of its former colonial power, Belgium, and of France.21 Much of the
analysis then focused on these general principles and their application in the case,
rather than on the tribunal’s interpretation of formal texts of domestic law. With
one exception, no evidence was given for the existence of the principles relied on in
either Belgian or French law. Furthermore, the one exception related to a principle
in French law, without any consideration of the principle’s existence in Belgian law.
17 ibid. 18 NAFTA Article 1131(1).

19 In contrast to the relationship between English law and Trinidadian law in F-W Oil Interests, as
discussed in section 7.2.1.
21 ibid [101].
168

More particularly, the tribunal reviewed the one relevant domestic law that was
available in evidence. This was the statute establishing the Free Economic Zone
(FEZ) in which the investor’s business operated. Mr Goetz firstly argued that a
decree, issued by the government to revoke his certificate of operation in the FEZ,
was illegal because it interfered with an acquired right granted by the statute. In
response, the tribunal noted that the statute merely established the FEZ, leaving it
to certain regulations to specify which particular economic activities were permit-
ted within the FEZ. Those regulations acknowledged that the permitted activities
may change, but did not clarify how any changes would be applied to existing busi-
nesses.22 Applying a general principle (but with no clarification of its source), the
tribunal considered that acquired rights could only flow from legislation, not regu-
lations. It thus found no abuse of power by Burundi in changing the regulations
to exclude the investor’s activity (the import and export of gold) from the FEZ.23
Next, the investor suggested that his operating certificate could only be revoked
on grounds specified in the granting legislation. The legislation envisaged revoca-
tion as a sanction following various possible breaches by the certificate-holder. None
of those breaches existed in the case, and so, in the investor’s view, there was no basis
for revoking the certificate. The tribunal instead considered that the revocation in
the case at hand fell logically outside the legislation’s specified grounds. The tribunal
characterized the situation as being that the legal grounds for the existence of the
certificate had been removed (by the government’s decree excluding eligibility of
minerals businesses for FEZ operation), and so the certificate itself automatically
fell away. This was not a sanction under the legislation, but an entirely different
situation.24
The tribunal’s reasoning on this point is quite formalistic, and it carries prob-
lematic implications for the foreseeability and certainty of investors’ legal situa-
tions under the FEZ statute. It might be argued that the tribunal found an implied
ground of revocation of the certificate, in the fact that the regulations made it clear
that the permitted FEZ activities may change by further regulation. However, it
seems possible that the investor would have expected that a change to permitted
FEZ activities would only apply to the grant of new operating certificates, rather
than the revocation of existing ones. But the tribunal backed up its reasoning with
an appeal to another—uncited—general principle. In its view, an agreement grant-
ing a range of privileges to an investor, such as the agreement to permit opera-
tion within a FEZ, could not possibly be irrevocable. Instead, Burundi must be
permitted to determine that certain activities no longer fell within the intended
purposes of its FEZ, and thus to revoke (prospectively) any related certificates of
FEZ operation.25
In two final points, the tribunal shortly rejected the investor’s own attempt at
formalism in his claim that the decree, relating to ‘minerals’, was not applicable to
his business dealing in gold, a ‘precious metal’. Reviewing the dealings between the
22 ibid [106] (the instrument ‘précisait en termes exprès que cette liste pouvait être modifiée ulté-
rieurement par une ordonnance du Ministre’).
23 ibid [107]. 24 ibid [111]. 25 ibid [112].
169
parties, the tribunal found abundant evidence that gold could be and was intended
to be classed as a mineral, whether or not it was also a precious metal.26 Last, the
tribunal noted that French law excluded state responsibility for damage caused
by administrative acts without fault when the decision is in the national interest
and no special burden has been placed on an individual. This meant that, even if
Burundian law contained a general principle imported from French law of state
responsibility for interference with private activities, this exclusion would also be
imported, and there would be no violation here and no compensation payable
under Burundian law.27 Although this French law principle was supported by refer-
ences to case-law of the French Conseil d’État, the tribunal gave no consideration to
whether it existed also in Belgian law, and whether any differences or absence there
would affect its status in Burundian law.
The Goetz reasoning comes very close to the earlier case of Klöckner v Cameroon. In
that International Centre for Settlement of Investment Disputes (ICSID) case, the
applicable law was ‘Cameroonian law based on French law’.28 The tribunal’s award
was annulled because the tribunal determined Cameroonian law by ‘postulat[ing]
rather than demonstrat[ing]’ the existence of various principles of French law,29
which were then taken to be part of Cameroonian law. Similarly, apart from the
state responsibility principle in French law just discussed, the Goetz tribunal gave
no explicit evidence of the principles that it applied. Furthermore, comments from
the Klöckner annulment committee highlight the questionable nature of the Goetz
tribunal’s position that merely applying general principles of law is sufficient. The
committee doubtfully queried ‘whether the arbitrator’s duty under Article 42(1)
to apply “the law of the Contracting State” is or can be fulfilled by reference to
one “basic principle” ’.30 Instead, the committee held, further investigation would
be needed: ‘how, by what rules and under what conditions is [the principle] imple-
mented and within what limits?’31
Goetz is thus highly problematic in its approach to domestic law. A better
approach, as explained in Chapter 5, would have been for the tribunal to seek fur-
ther information itself, or move to appoint an expert on Burundian law to counter
the claimant’s own submissions.
7.1.3 Failure to engage with available domestic law sources

Even when tribunals acknowledge the role of domestic law in their analyses, and
have (or could readily obtain) information on domestic law, they have in many
cases simply ignored relevant domestic law sources. Instead, tribunals have resolved
the matter by reading the terms of a statute or contract on their face and declaring
an interpretation of those terms without any reference to local context. Although
26 ibid [114]. 27 ibid [118].
28 Klöckner Industrie-Anlagen GmbH v Cameroon (ICSID Case No ARB/81/2), Decision on
Annulment, 3 May 1985 [65].
29 ibid [73]. 30 ibid [68] (emphasis in original).
31 ibid [72] (emphasis in original).
170

this course may be attractive to arbitrators pressed for time and keen to move on
to other issues in the case, it falls far short of the quality of reasoning demanded by
the framework for ascertainment of domestic law set out in Chapter 5. This section
demonstrates the extent of tribunals’ failings in this respect.
In Nagel v Czech Republic, for instance, the tribunal explicitly recognized the
role of domestic law in defining the investment protected by investment treaties.32
However, in determining whether a contract granted any valuable rights to the
investor, the tribunal simply reviewed the contract on its face, making no reference
to Czech principles of contractual interpretation, and apparently not discussing
evidence from various Czech law experts submitted by the parties.33 Contractual
provisions were also interpreted by the Middle East Cement v Egypt tribunal. The
provision in issue there read: ‘The period of this license is the period of supply of
the quantities which may be contracted for with the Egyptian Cement Sale Office
on condition that the duration of the project does not exceed ten years.’ Without
reference to principles of interpretation in Egyptian law, the tribunal interpreted
the provision to read ‘The period of this license is … ten years’, effectively rendering
all the intervening words meaningless. In the absence of an analysis better grounded
in interpretive principles (perhaps including discussion of any principle in Egyptian
law similar to effet utile), it is not obvious that the tribunal’s position is the most
defensible.
In Lauder v Czech Republic, PSEG v Turkey, and Inmaris v Ukraine, tribunals
similarly interpreted domestic statutes based on facial readings of their texts, with-
out reference to any domestic principles of statutory interpretation or other mate-
rial giving guidance on the provisions in question.34 As in Nagel, the PSEG tribunal
also appeared to ignore various legal opinions submitted by the parties.35 Any
potential alternative interpretations of the relevant laws in each case were not can-
vassed, leaving the preferred view to be supported by very little authority beyond
the tribunals’ own declarations.
Chapter 5 noted the additional need for proactive concern from tribunals where
one party (namely, the respondent) in a case does not appear. Such a situation arose
in Al-Bahloul v Tajikistan, but seemingly did not affect the tribunal’s decision to
take the text of a particular law at face value. The investor had argued that, under
Tajik law, a claim for annulment of a company board decision must be brought
within two months, and that the local courts had failed to respect this deadline.
However, the tribunal considered that the provision cited to support this argu-
ment applied only to decisions made by company shareholders in general meeting,
rather than decisions of the board. The tribunal then cited a provision purporting
32 William Nagel v Czech Republic (SCC), Final Award, 9 September 2003 [299]–[300], [316].
33 ibid [326]–[329]. The tribunal ultimately found that the contract might have given some hope of
business success to the investor, but granted no valuable rights amounting to an investment.
34 Ronald Lauder v Czech Republic (UNCITRAL), Final Award, 3 September 2001 [232]; PSEG
Global Inc v Turkey (ICSID Case No ARB/02/5), Award, 19 January 2007 [194]; Inmaris Perestroika
Sailing Maritime Services GmbH v Ukraine (ICSID Case No ARB/08/8), Decision on Jurisdiction, 8
March 2010 [138]–[139].
35 PSEG (n 34) fns 74, 75, and 77.
171
to govern board decisions, which did not prescribe any time limitation on claims.36
Although the text of the two provisions appears clear, the award did not record any
efforts by the tribunal to establish how they would have been interpreted by a Tajik
court. For instance, there was no evident discussion of the existence of other general
limitations laws outside of Tajik company law, or of principles equivalent to laches
or the implication of a ‘reasonable time’ requirement in asserting claims.
A similar situation arose in relation to another aspect of Inmaris v Ukraine, already
mentioned earlier in this section. In this case, the tribunal attempted to justify its
interpretation of a Ukrainian law without reference to domestic materials by observ-
ing that the parties had not presented any such materials. As Chapter 5 notes, a lack
of materials on domestic law cannot always absolve a tribunal from any obligation
to investigate the law—particularly on crucial jurisdictional issues such as the legal-
ity of the investment. The contended illegality in the case was that the investment
contract was ‘fictitious’. Under Article 58 of Ukraine’s 1963 Civil Code, transactions
were expressed to be void when they had been ‘entered into for the sake of form,
without intention to create any legal effect (a fictitious transaction)’. In response to
this argument, the tribunal began by noting that the contract was in fact governed
by ‘English law, if it (law) does not come into contrary with Ukrainian law (mate-
rial and procedural)’.37 It then observed that neither side had presented evidence
on whether English law recognized the concept of a ‘fictitious contract’. ‘On the
Tribunal’s own research’, though, English law did contain related concepts, ‘such
as defects in contract formation where the parties do not intend to create bona fide
legal relations’.38 This presumably should have meant that English law was to be
considered as the governing law, since it apparently did not conflict in this respect
with Ukrainian law.39
Nevertheless, the tribunal did not take this approach. It noted that Ukraine had
given no further explanation or interpretation of its reliance on Article 58 under
Ukrainian law, nor had the investor provided any legal citations of its own on
the provision. Thus, the tribunal was ‘left to assess Respondent’s objection on its
face’.40 The tribunal’s unwillingness to investigate this Ukrainian law further is both
curious and concerning. It is curious because the tribunal admitted to doing its
own research on a point of English law, but declined to do so for Ukrainian law.
It is concerning for the reasons discussed in Chapter 5: the tribunal must confirm
its own jurisdiction before it can proceed, and if this involves the application of
Ukrainian law, then this law must be applied ‘as it would be applied in that coun-
try’.41 Needless to say, the tribunal cannot claim to have fulfilled this without some
effort to determine how Article 58 was interpreted and applied in Ukraine.
36 Mohammad Al-Bahloul v Tajikistan (SCC Case No V 064/2008), Partial Award on Jurisdiction
and Liability, 2 September 2009 [225].
37 Inmaris (n 34) [69] (sic). 38 ibid fn 49.
39 This point may, however, depend on Ukrainian conflict-of-law rules.
40 Inmaris (n 34) [69]. The tribunal found that no fictitious contract was present because the parties
did intend the contract to have legal consequences.
41 Payment in Gold of Brazilian Federal Loans Contracted in France (France v Brazil) Series A No 21
(1929) 124.
172

In Plama v Bulgaria, the investor’s representative, Mr Vautrin, had failed to
inform Bulgarian authorities that his two major corporate partners in the invest-
ment had decided not to remain involved. Instead, Mr Vautrin proceeded with the
negotiations and contract-signing while representing that the partners were still
involved. Bulgaria raised various objections to the legality of this conduct in mak-
ing the investment. One of these objections maintained that the contract was void-
able under the domestic Obligations and Contracts Act (OCA).42 On this claim,
the tribunal cited three provisions of the OCA, providing that ‘contracts concluded
under … fraud … shall be subject to invalidation’ (Article 27); that ‘fraud shall con-
stitute grounds for invalidating a contract provided that one of the parties has been
misled by the other party into concluding the contract through intentional mis-
representation’ (Article 29); and that ‘parties must negotiate and enter contracts in
good faith’ (Article 12).43 The tribunal then largely ignored Articles 27 and 29, and
offered only one sentence of interpretation of Article 12. It noted that, according to
Bulgaria’s legal expert, Article 12 covered ‘the obligation to inform the other party
of all facts relevant to making a decision concerning the conclusion of the con-
tract’.44 The tribunal found that, if Bulgaria had known that the major experienced
partners had exited the project, it would not have contracted with the investor—a
shell company solely owned by Mr Vautrin, who had no relevant experience or
financial resources. Applying its interpretation to these facts, the tribunal quickly
ruled that the investment contract was ‘in flagrant violation of these provisions of
Bulgarian law’,45 and that the investor’s claim could not proceed.
Thus, the Plama tribunal did not offer any significant examination of domestic
authorities on the interpretation of the OCA, and engaged in a relatively minimal
analysis. On the tribunal’s description, the investor’s behaviour is certainly not
commendable, and it is perhaps not difficult to concur with the tribunal’s find-
ing that the behaviour amounted to a factual misrepresentation.46 However, the
tribunal never offered any definition of fraud or intentional misrepresentation as
they are understood in Bulgarian law. Given that the OCA uses both phrases,47
it is at least possible that they are different concepts, perhaps distinguished by
degree, dishonesty, or consequences. The investor’s conduct may have amounted
to an intentional misrepresentation but not to fraud, and so Article 27 (which
only mentions fraud) may not be relevant. Above all, it seems that further analysis
of the Bulgarian law concepts of fraud and misrepresentation would be necessary
before a tribunal could conclude that the investor on the facts in Plama did indeed
breach Article 27 or 29.
In addition, it could be even argued that Articles 27 and 29 are not capable
of being breached, since they are expressed as power-conferring rules.48 Article
29 simply states one permitted ground of invalidation of a contract; that is, it
appears to permit a party to invalidate a contract, if the party chooses to invoke
42 Plama Consortium Ltd v Bulgaria (ICSID Case No ARB/03/24), Award, 27 August 2008 [96].
43 ibid [136]. 44 ibid. 45 ibid [137]. 46 ibid [116].
47 At least, in the English translation of the OCA used by the tribunal.
48 On which, see HLA Hart, The Concept of Law (3rd edn, OUP 2012) 81.
173
this power, on grounds of fraud. Similarly, it is unclear exactly to whom Article

27 is addressed, and on whom it imposes any obligation. It appears simply as a
declaration that fraudulent contracts are ‘subject to invalidation’. Indeed, does
‘subject to invalidation’ mean ‘automatically terminated’, or does it merely permit
an aggrieved party to terminate (if it chooses) a fraudulent contract? The provision
does not itself create any rule prohibiting fraud; it only sets out the consequences
of fraud for a contract. Given this, is it possible for the investor to have breached
this provision? There may well be clear and obvious answers to these questions
under Bulgarian law, but the tribunal did not address them. This suggests, again,
that further analysis would be required before a tribunal could rule that a breach
had occurred.
The Plama tribunal’s conclusion that the investment in question was ‘contrary to
domestic law’—a provision it implied into the Energy Charter Treaty (ECT)49—is
thus methodologically questionable. Very little consultation of domestic authori-
ties was shown, and the tribunal instead relied on its own views of the meaning of
relevant domestic laws, without offering a justification for this.50
Tribunals have even relied on their facial analysis of domestic law despite recog-
nizing, or being made aware, that alternative positions on the law existed, which
might have called for further inquiry. Duke v Ecuador provides one example. The
Duke tribunal examined the Ecuadorian Attorney-General’s alleged breach of
domestic law in respect of earlier local arbitration proceedings by reviewing the
domestic law on its face. Article 4 of the Mediation and Arbitration Law provided
that (domestic) arbitrations could not be commenced by private entities (such
as Duke’s subsidiary) against public bodies without the consent of the Attorney-
General.51 When such an arbitration was commenced in 2001 allegedly without
this consent, the Attorney-General challenged the local tribunal’s jurisdiction.52
The claimant pointed to a 1998 letter from the Attorney-General to the rele-
vant public body, which, the claimant said, provided the consent to arbitration.
However, the tribunal noted that this letter came before the dispute in question
had arisen,53 and held that it did not ‘lift the requirements of the Arbitration
Law’.54 Instead, the law was ‘clear’, and, ‘on the face of Article 4’, there could be
no violation since the Attorney-General was simply enforcing the requirement for
consent.55
After this conclusion, the tribunal did proceed to ‘ask … itself whether it
should go further and review whether Ecuadorian law contains other provisions
which would lead to a different conclusion’, such as an equivalent to the concept
49 Plama (n 42) [138]–[139].

50 Schill suggests that this might be because the ECT does not include domestic law as applica-
ble law, and so the Plama tribunal was required to find an international ‘hook’ to justify its reason-
ing on investor illegality: S Schill, ‘Illegal Investments in Investment Treaty Arbitration’ (2012) 11
LPICT 281, 313. Nevertheless, the tribunal did explicitly declare that the investor’s conduct violated
Bulgarian law.
51 Duke Energy Electroquil Partners v Ecuador (ICSID Case No ARB/04/19), Award, 18 August
2008 [299].
52 ibid [52]. 53 ibid [298]. 54 ibid [302]. 55 ibid.
174

of estoppel. However, it noted that the claimants had not alleged the existence of
any such principle, and did not take its analysis any further.56 This is a curious
approach, since the tribunal both raised the issue of its own powers to investi-
gate domestic law and then declined to exercise those powers, instead relying
only on the claimant’s pleadings. Even if Article 4 was clear on its face that such
arbitrations could be halted for lack of consent, it is possible—as the tribunal
itself suggested—that the Attorney-General could be estopped from objecting,
by virtue of either the 1998 letter or the arbitration agreement that underpinned
the proceedings between the claimant’s subsidiary and the public body in the first
place. If a domestic court might have made this inquiry, then the tribunal failed
in its duty by ignoring it.
Similarly, the Lemire v Ukraine tribunal persisted with a prima facie reading
of a statute despite hearing an argument in favour of an alternative view. The tri-
bunal decided that the Ukrainian President’s efforts to influence the award of a
broadcasting tender breached domestic law. This finding relied on the Ukrainian
regulator’s governing statute, which provided that its activities ‘shall be based on
the principles of … independence [and] impartiality’.57 Without further referring
to domestic interpretation or authority on this statute, the tribunal appeared to
take the view that even an appearance of bias in the regulator’s decisions was suf-
ficient to violate these principles.58 This was significant because it proved difficult
to determine the true reasons for the regulator’s decision, since it had failed to give
any reasons.59 However, as Ukraine itself argued to the tribunal, it is possible that
a Ukrainian court might have focused more on actual bias or influence, and might
have held on the facts that the regulator decided impartially despite the President’s
overtures.60 This possibility was not discussed by the tribunal, indicating that it
drew its own view of the domestic law and eschewed an inquiry into the Ukrainian
legal context.61
Going beyond even Duke and Lemire, other tribunals have offered only sparsely
reasoned analyses of domestic law despite explicitly acknowledging the need for
consultation of domestic materials. In the Chevron v Ecuador ‘commercial cases’
dispute, as discussed in Chapter 4, the tribunal held that it would move to determine
the outcome of several commercial disputes left pending in Ecuadorian courts for
many years. The tribunal was keen to reiterate its awareness of the Brazilian Loans
56 ibid [303].
14 January 2010 [342].
58 The regulator was held to have an ‘apparently politically motivated preference’ for the claimant’s
competitor: ibid [356] (emphasis added).
59 This failure to give reasons itself contributed to a finding of FET breach in the case: see J Hepburn,
‘The Duty to Give Reasons for Administrative Decisions in International Law’ (2012) 61 ICLQ 641.
60 Lemire (n 57) [341], [353]. This is not to downplay the regulator’s structural problems, including
the possibility of dismissal by the President, that created a likelihood of actual political influence: ibid
[288]–[292].
61 cf White Industries v India, discussed in Chapter 4, where the tribunal inquired into the applicable
test for bias in Indian law.
175
principle (though without citing the case), confirming before reviewing the domes-
tic court cases that it would resolve them as would an Ecuadorian judge.62 However,
the analysis on each of the claims is very short—surprisingly so, for claims of USD
354 million before interest. This may simply reflect the tribunal’s own view that the
resolution of the issues under Ecuadorian law presented ‘no exceptional difficul-
ties’.63 On one issue, the tribunal referred to the claimant’s legal expert witness to
interpret a term under Ecuadorian contract law.64 But, otherwise, the tribunal did
not overtly apply any Ecuadorian law, or recount the general principles of interpre-
tation to be applied to give meaning to particular contracts and decrees. Instead
the tribunal reviewed the text of the relevant agreements and determined the text’s
meaning according to its own logic. The claimants’ proposed interpretation was sup-
ported in two cases because it was held to be ‘more reasonable’ in light of the parties’
practice and other contextual evidence.65 There was no discussion of whether such
contextual evidence would have been used by an Ecuadorian judge in a contract law
case. In one case, the tribunal referred to UNIDROIT and European contract law
materials to interpret the concept of force majeure, despite having set out Ecuador’s
arguments on the concept’s meaning in Ecuadorian law only a few paragraphs ear-
lier.66 Furthermore, the award does not appear to (at least directly) address Ecuador’s
claim that one of the contracts at the heart of the dispute was illegal and unen-
forceable in Ecuadorian law.67 Ultimately, the award demonstrates a curious lack of
reference to domestic law, which flies entirely in the face of the tribunal’s frequent
reminders that it must not ‘directly apply its own interpretation of the agreements’.68
Another instance of arbitrators directly applying their own interpretation of
legal instruments comes from the dissenting opinion in Fraport v Philippines I.
Some concerns with the approach of the tribunal majority in this case were already
outlined in Chapter 5. In a dissent, however, arbitrator Bernardo Cremades took
further issue with the majority’s approach to domestic law. The dissenter ques-
tioned the majority’s finding that Fraport had breached the ‘Anti-Dummy Law’
(ADL), a Philippine law preventing foreigners from holding control of key public
infrastructure. Cremades noted that the purpose of the ADL, based on its title,
was to prevent the use by foreigners of a Philippine sham entity, or a ‘dummy’.69
Cremades then held that the ADL criminalized not the conduct of the foreign
investor but the conduct of the ‘dummy’—that is, the Philippine entity—if the
dummy had allowed itself to be used or exploited by foreigners.70 In the dissent’s
62 Chevron Corporation v Ecuador (UNCITRAL), Partial Award on the Merits, 30 March 2010
[467], [484], [496].
63 ibid [382]. 64 ibid [453]. 65 ibid [450]–[451], [470]–[471].
66 ibid [482], [489]. On the use of the UNIDROIT Principles in investment arbitration generally,
see J Hepburn, ‘The UNIDROIT Principles of International Commercial Contracts and Investment
Treaty Arbitration: A Limited Relationship’ (2015) 64 ICLQ 905.
67 Chevron (n 62) [433]. 68 ibid [375].
Dissenting Opinion of Bernardo Cremades, 19 July 2007 [18].
70 ibid [19].
176

view, PIATCO, the Philippine entity allegedly managerially controlled by Fraport,
never did allow itself to be controlled by Fraport. Importantly, Fraport’s liability
under the ADL, according to Cremades, was expressed to be only accessory. Thus,
Fraport could only violate the ADL if the dummy, PIATCO, had violated it. Given
this, Cremades found no violation of the ADL. However, the dissent appeared to
base its conclusions almost solely on the pure text of the ADL. No reference was
made to domestic jurisprudence or travaux relating to the ADL in order to clarify
the question of Fraport’s accessory liability or the nature of the dummy’s own liabil-
ity. Instead, the dissenter offered an interpretation of the local law based on his own
direct reading of it.71
Cremades also took the Fraport I majority to task for ignoring a decision of the
Philippine Supreme Court, which had held that the concession contract underpin-
ning Fraport’s whole investment was void ab initio due to irregularities in the tender
process.72 Following the Supreme Court verdict, then, Fraport effectively never
had any investment at all. This ruling agreed with prior legal advice from executive
legal authorities (the Philippine Solicitor-General and the Department of Justice),
and was publicly supported also by the President.73 The same reasoning had even
formed an additional part of the Prosecutor’s reasoning in rejecting the two indi-
viduals’ claims for initiation of an ADL prosecution against Fraport.74 In the face of
such evidence from domestic institutions, Cremades found it unjustifiable for the
majority to rule that Fraport had breached the ADL in relation to an investment
that it never made. He granted that the tribunal was not bound to adopt decisions
of the domestic courts wholesale, even those of the Supreme Court. But he con-
sidered that the tribunal’s ‘own judgment on Philippine law must be premised on
Philippine law itself ’.75 The dissenter is of course correct to urge closer attention to
domestic authorities when international tribunals are confronted with a question
of domestic law—a point highlighted also by the subsequent ICSID annulment
committee that set aside the Fraport I decision.76 However, the Fraport II award was
71 This approach contrasts with the dissenter’s ready reliance on an opinion from a domestic legal
officer, the Special Prosecutor, to rebut another finding of the majority (relating to whether actual
control or formal shareholding was the crucial factor for ADL violations): ibid [16]. As argued in
Chapter 5, the Fraport I majority dismissed the relevance of this opinion for dubious reasons, while the
dissenter more properly gave it consideration.
72 The majority in fact deliberately ignored this decision, claiming, as discussed in Chapter 5, that
they were required to assess compliance with domestic law themselves and disregard the views of local
institutions: Fraport AG Frankfurt Airport Services Worldwide v Philippines (ICSID Case No ARB/03/
25), Award, 16 August 2007 [391].
73 Fraport I, Dissenting Opinion (n 69) [31]. 74 ibid [27]. 75 ibid [26].
Decision on the Application for Annulment of Fraport AG Frankfurt Airport Services Worldwide,
23 December 2010 [117], [236]. The ad hoc annulment committee annulled the Fraport award,
finding serious deficiencies relating largely to the tribunal’s treatment of domestic law and in par-
ticular the Prosecutor’s opinion. Specifically, the committee found that the tribunal had not given
the claimants a sufficient right to be heard in relation to the effect of the Prosecutor’s opinion: ibid
[218]. The committee was careful to note, though, that it did not find that the tribunal’s decision on
the investor’s compliance with domestic law was wrong, nor that the dissent determined this issue
more accurately: ibid [116]. The fact that the Fraport I award was annulled, thus, does not affect the
discussion here.
177
rendered in 2014, seven years after Fraport I, following the investor’s resubmission
of its claim to a new tribunal at the ICSID. This decision made clear that, accord-
ing to the investor, the Supreme Court ruling amounted to a denial of justice by
the Philippines.77 When such an allegation is made (and assuming that the investor
also planned to make this allegation in Fraport I, had the case reached the merits), it
is less justifiable to rely on domestic case-law, as explained in Chapter 5. The Fraport
I decision thus evinces problematic approaches to domestic law both in the major-
ity and in the dissent.78 (Perhaps learning from the saga, the approach adopted by
the Fraport II tribunal deserves much more support, as reviewed in section 7.2.)
7.1.4 Unreasoned assertions of legality

A further set of cases has seen various tribunals simply asserting that particular con-
duct of the state was lawful (or not) under domestic law, with no reasoning offered
at all for this.
The Chemtura v Canada tribunal assessed the actions of a Canadian regulatory
body, determining that the actions fell within the body’s ‘mandate’ and were there-
fore legal in domestic law. However, it did not offer specific reasoning on how it
determined this. Rather, it reviewed the decision-making process adopted by the
body in some detail, finding it to have been conducted substantively fairly.79 The
tribunal then, it seems, assumed that the mandate of a Canadian regulatory agency
would be to make decisions in the way that it did. This may well be an intuitive pre-
sumption, but it was not tested against the relevant Canadian laws constituting the
regulatory body.80 A Canadian court may well be unlikely to engage in particularly
searching review of a complex, scientifically based decision made by a specialized
environmental agency. However, to come to this conclusion, a tribunal is expected
to cite relevant discussions of Canadian administrative law, or face the charge that
it has invented the contents of local law.
In a second case, AMTO v Ukraine, it is unclear on what basis the tribunal accepted
Ukraine’s submission that its tax authorities had acted in accordance with domestic
law. The award did not cite any domestic authorities confirming this point, nor did
it elaborate on the contents of Ukraine’s submission.81 On the contrary, the award
noted that a local court had held the tax authorities’ decision to be ‘not grounded’.82
Given this, it is difficult to see how the tribunal concluded that the tax authorities’
77 Neither the Fraport I award nor the annulment decision contained any significant detail on the
investor’s claims on the merits. The Fraport II award did outline these claims, despite also dismissing
the case on jurisdiction.
78 cf M Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between
International and Municipal Law (Kluwer 2010) 48, who comments on the ‘lucidity’ of the Fraport I
tribunal’s approach to domestic law.
79 Chemtura Corporation v Canada (UNCITRAL), Award, 2 August 2010 [139]–[163].
80 cf Douglas criticizing the Mihaly v Sri Lanka tribunal for making an ‘intuitive presumption’ that
was ‘never tested against Sri Lankan law’: Z Douglas, ‘The Hybrid Foundations of Investment Treaty
Arbitration’ (2003) 74 BYIL 151, 208.
81 LLC AMTO v Ukraine (SCC Case No 080/2005), Final Award, 26 March 2008 [99].
82 ibid [97].
178

actions were domestically legal. Meanwhile, the methodology used by the PSEG v
Turkey tribunal in expressing its view of the constitutionality of a Turkish Ministry’s
actions was similarly thin. The tribunal considered that ‘stability’, as used both in
the tribunal’s elaboration of the FET standard and in the Turkish Constitution, did
not permit continuous changes either of law or of ‘the attitudes and policies of the
administration’.83 This may be an appropriate position on the concept of stability
as seen by international law, but the Turkish Constitution may well take a different
view in the light of domestic policy concerns. The tribunal strangely felt able to sug-
gest (in obiter) a breach of the host state constitution without any detailed analysis
of Turkish constitutional law.
The Glamis Gold v USA tribunal reviewed a legal opinion issued by a government
authority, finding that the opinion was ‘arguably’ within the relevant authority’s
powers to make.84 However, the tribunal chose not to investigate US administra-
tive law to determine exactly what powers the authority had under domestic law.
Indeed, the tribunal considered that ‘it is not for an international tribunal to delve
into the details of … domestic law’.85 At a basic level, this is of course correct;
the tribunal is established to rule on an alleged breach of international law, not
domestic law. However, as this book demonstrates, there are many points at which
domestic law must or may be considered in the course of ruling on a breach of
international law. In Glamis, the tribunal clearly felt that the intra vires nature of
the authority’s actions was relevant to its deliberations on the international law
breach, since it explicitly mentioned this in its analysis. But if the domestic legality
is relevant, then it is not enough for the actions to be ‘arguably’ legal; the tribunal
must decide. The award should thus have reviewed the powers and discretions
available to the authority to determine whether it was, in fact, empowered to give
its own interpretations of statutory language.
There is no evidence in the Noble Ventures v Romania award that the tribunal
reviewed domestic law to back up its finding that certain bankruptcy proceedings
were initiated lawfully. Although this issue was only a small part of the award’s over-
all reasoning, the award does not cite or discuss the relevant Romanian law estab-
lishing the circumstances in which bankruptcy proceedings may be commenced
against a company. Instead, it appears that the tribunal simply accepted Romania’s
assertion of lawfulness.86
In Genin v Estonia, the tribunal reviewed certain actions by Estonian banking
authorities, including terminating the investor’s operating licence. The tribunal pre-
sented the relevant provisions of the domestic Bank of Estonia Act, which granted
power to the authorities to terminate a banking licence in certain circumstances.87
It also set out Estonia’s substantive arguments on its reasons for deciding to revoke
the licence.88 However, the tribunal did not actually examine the proper width or
83 PSEG (n 34) [254].

84 Glamis Gold Ltd v USA (UNCITRAL), Award, 8 June 2009 [763]. 85 ibid [762].
86 Noble Ventures Inc v Romania (ICSID Case No ARB/01/11), Award, 12 October 2005 [178].
87 Alex Genin v Estonia (ICSID Case No ARB/99/2), Award, 25 June 2001 [62].
88 ibid [158]–[167], [189], [298].
179
interpretation of the authorities’ discretion under the Act. There was no discussion
of the factors likely to be considered by a domestic court in ruling on whether the
discretion was properly exercised. The tribunal may have been influenced by its
earlier reference to a ruling of the domestic courts that dismissed a challenge to the
licence revocation.89 If so, though, this influence may be questionable—the courts
dismissed the challenge on the grounds that the claimant was by then in liquida-
tion, but the claimant was in liquidation only because another court had ordered
it on the grounds that the claimant’s licence had been revoked.90 This circular rea-
soning called at least for further examination before it could influence the tribu-
nal’s position on domestic legality. Instead, like Noble Ventures, the Genin tribunal
merely ‘accept[ed] Respondent’s explanation that it took the decision to annul [the
claimant’s] licence in the course of exercising its statutory obligations to regulate the
Estonian banking sector’.91
Lemire v Ukraine involved findings that Ukrainian authorities had breached
domestic tendering laws in the award of several broadcasting licences. The tribu-
nal’s finding of a domestic law breach revolved around a provision requiring the
regulator to award a tender to applicants ‘capable to fulfil the licence conditions
to the best extent’.92 The tribunal did not investigate domestic interpretations of
this provision, or the extent of the regulator’s discretion. Also left unaddressed
was Ukraine’s argument that the provision focussed on an applicant’s future pros-
pects for meeting licence conditions rather than their present abilities or past track
record.93 The tribunal found a ‘blatant’ breach of the tendering laws,94 but did not
sufficiently clarify the meaning of these laws to support the finding. In relation to
another tender, the tribunal relied solely on the text of the broadcasting regulatory
scheme in assessing whether the tender process had been lawfully conducted. This
text was, apparently, held to be clear that the regulator was not required to award
any licence (even when the investor was the only applicant for the licence) or to give
any reasons for its denial.95 However, the tribunal did not even quote the text of
the law, let alone any secondary analysis, making it difficult to confirm its assertion
that even an applicant with no competition was not guaranteed success in a tender.
Apart from the main investment contract in GEA v Ukraine (discussed in sec-
tion 7.1.1), the claimant also contended that it held two other investments in
Ukraine. These consisted of a settlement agreement, concluded with the state
entity Oriana following an alleged expropriation, and a repayment agreement,
concluded also with Oriana to establish a means of repayment of debts owed to the
claimant. These agreements were said to embody the new form of GEA’s invest-
ment following its expropriation by Ukraine. The tribunal, however, found that
these agreements created no new rights in Ukrainian law.96 Instead, the underlying
contract was the real source of domestic law rights and was thus the only ‘invest-
ment’. The tribunal did not elaborate on the reasons for its conclusion that the
settlement and repayment agreements did not create any rights. Although the two
89 ibid [61]. 90 ibid [92]–[94]. 91 ibid [370].

92 Lemire (n 57) [384] (sic). 93 ibid [376], [381]. 94 ibid [385].
95 ibid [394]. 96 GEA (n 4) [157].
180

agreements could well be seen simply as restating elements of the underlying con-
tract, they could also clarify elements of it, thus adding new concrete obligations
for the parties. For instance, the means of repayment established in the repayment
agreement is, it would seem, an obligation agreed on by the parties that a domes-
tic court might have enforced. Interference with this obligation might well have
created some actionable claim beyond interference with the underlying contract
rights. The reasoning does at least acknowledge the link made in BITs between
protected international investments and rights in domestic law.97 Despite this, it
leaves much to be desired in its conclusion that no domestic law rights were cre-
ated by the two agreements, without any particular analysis of the contracts’ effect
in Ukrainian law.
In H&H Enterprises v Egypt, the respondent state disputed the ICSID tribunal’s
jurisdiction on various grounds. One of these grounds relied on Californian law, as
the place of incorporation of the claimant. Around a year after making its invest-
ment in Egypt, in 1990, the claimant’s registration was suspended in California
following its failure to pay US taxes.98 Its dispute with Egypt, however, appeared
to arise only in 1993, when the Egyptian state tourism entity commenced domes-
tic arbitration against it, leading to its eventual eviction from its investment.99 In
the subsequent ICSID arbitration, Egypt argued that the suspension in California
meant that the claimant possessed no powers under its constitutive law to own or
control its investment at the time of the alleged breach. No damage could thus
have been caused to an entity ‘shorn of all rights, powers and privileges’ and unable
to ‘exercise corporate will’.100 In response, the claimant argued that nothing in
Egyptian law (which governed its contractual rights in Egypt) provided that con-
tracts would be terminated merely because a party was unable to exercise its con-
tractual rights.101
On this jurisdictional objection, the tribunal noted that the claimant had made
use of a procedure in Californian law purporting to revive itself retroactively in
2008, by paying eighteen years of back taxes to US authorities.102 The retroactive
nature of the revival appeared to rebut Egypt’s suggestion of a lack of corporate
capacity at the relevant times. In any case, the tribunal considered, the relevant
Californian law did not purport to apply extraterritorially. Any suspension of legal
capacity in California could therefore not have any effect on the validity of foreign
contracts made by the suspended entity, according to the tribunal.103
However, the tribunal came to this conclusion without recording in the award
any reference to the text of the Californian revival law, or to any Egyptian law
which might have affected the validity of the suspended claimant’s acts in Egypt.
There was no further discussion of the concepts of extraterritoriality or retroactiv-
ity. It is unsatisfactory that the tribunal felt able to rule on a crucial jurisdictional
97 The tribunal’s treatment of domestic law here was ultimately not decisive in the case, since it later
concluded that, even if the two agreements did create rights and constitute investments, Ukraine had
not violated the BIT with respect to them: ibid [367].
98 H&H Enterprises Investments Inc v Egypt (ICSID Case No ARB/09/15), The Tribunal’s Decision
on Respondent’s Objections to Jurisdiction, 5 June 2012 [4]‌.
99 ibid [5]‌. 100 ibid [59]. 101 ibid [63]. 102 ibid [67]. 103 ibid.
181
issue without taking Egypt’s objections more seriously and analysing the possible
effect of Egyptian and Californian law in the circumstances. As with the GEA case,
tribunals must be particularly clear on questions of jurisdiction, since that is what
grounds their authority to decide the dispute between the parties. When necessary,
this will involve a proactive effort to clarify the contents and effect of the applicable
law, with consideration of the issues discussed in Chapter 5.
Last, one of the earlier cases often cited as involving an investor illegality claim is
equivocal on the question of how to determine compliance with domestic law. The
tribunal in Salini v Morocco stated simply that the claimants ‘took part in the ten-
der process in conformity with the legal rules applicable to invitations to tender’.
Furthermore, the claimants ‘won the bid and concluded the corresponding con-
tract for services in conformity with the laws in force at that time’.104 Based on this
statement alone, it is not clear whether the legality of the investment was raised
and accepted by both parties, whether the issue was not even raised by the parties
and the tribunal here assumed that there was no dispute on the point, or whether
this statement is in fact a finding of compliance by the tribunal. One author takes
the first view, suggesting that Salini therefore does not assist with determining how
to verify compliance with domestic law.105 A later tribunal, though, took the third
view, describing the Salini tribunal as having ‘found that the service contract …
did not infringe the laws and regulations of the host State’.106 If this was indeed
a finding of the Salini tribunal, no reasoning or reference to domestic authori-
ties was provided, meaning that the tribunal simply asserted the legality of the
investment.
7.1.5 Reliance on improper sources

One final, if small, category of errors displayed by tribunals is represented by Wena
Hotels v Egypt. The Wena tribunal’s analysis of Egypt’s liability in the case appeared
to rely on the position that state entity EHC’s seizure of the hotels was unlawful
(otherwise there would be no reason to condemn a lack of investigation into it,
as the tribunal did). The award had indeed noted earlier, in reviewing the facts,
that the Chief Prosecutor of Egypt had ruled that both seizures were illegal,107
and that Egypt accepted in the arbitration that the seizures were ‘wrong’.108 It is
unclear whether it considered the issue, but the tribunal was right not to express
its own view on the seizures’ lawfulness in the face of such evidence from domestic
institutions. By contrast, though, the tribunal also relied on evidence of violation
of domestic fire safety laws. This evidence was apparently restricted to a statement
from an EHC legal official.109 As a state-owned corporation, EHC was not an
104 Salini Costruttori SpA v Morocco (ICSID Case No ARB/00/4), Decision on Jurisdiction, 16 July
2001 [46].
105 Knahr (n 3) 19.
106 Mytilineos Holdings SA v Serbia and Montenegro (UNCITRAL), Partial Award on Jurisdiction, 8
September 2006 [149] (emphasis added).
107 Wena Hotels Ltd v Egypt (ICSID Case No ARB/98/4), Award, 8 December 2000 [54], [57].
108 ibid [32]. 109 ibid [55], [92].
182

Egyptian judicial authority, nor was it even the executive agency responsible for
enforcing the laws.110 It is thus problematic for the tribunal to rely on this state-
ment for its position on compliance with domestic law.
7.2 Positive Models of Domestic Law Reasoning

The categories of problematic reasoning analysed in section 7.1 are offset to some
degree by more positive examples of domestic law reasoning seen in other cases.
This section seeks to highlight such examples. Naturally, each case is different,
and arbitrators retain significant discretion to conduct the arbitral procedure as
the case requires, meaning that it is difficult to be prescriptive regarding the exact
sources to be consulted in a particular case. However, the examples in this section
provide an indication of the broader reasoning that some tribunals have used in an
effort (conscious or not) to abide by the commendable Brazilian Loans position.
7.2.1 Emulating domestic judges
The tribunal in F-W Oil Interests v Trinidad and Tobago gave one of the clearest
examples of an effort to apply domestic law as it would be applied in its home envi-
ronment.111 Following a tender process for the award of a concession to develop
offshore oil fields, US investor F-W Oil Interests was notified that it was the suc-
cessful bidder. Negotiations began between the investor and the Trinidadian state
corporation running the tender. However, after the state corporation imposed a
change in the project’s legal structure, the investor sought certain additional guar-
antees in response. The state corporation declined to provide these, and ceased
negotiations with the investor.112
In the subsequent arbitration, in the absence of any formal contract encapsulat-
ing the terms of the tender, the investor characterized its investment in Trinidad and
Tobago as a binding pre-contractual agreement,113 or ‘contractual rights obtained
… through the tender process’.114 The crux of the state’s case, on the other hand,
was that domestic law did not recognize any category of pre-contractual rights, and
so the investor could not claim to have any ‘legal right or entitlement’ that would
satisfy the BIT’s definition of investment.115 The tribunal began its response to these
arguments by correctly noting that its task was to apply the law of Trinidad and
Tobago as it would be applied by a domestic court in that state. However, the tri-
bunal continued, neither the domestic courts nor the legislature had yet considered
the question of pre-contractual rights. Given this, the tribunal felt that it would have
to ‘speculate about how a [local] court would proceed’.116 Its answer to this was to
draw from the general principles of contract law and relevant cases in common law
110 This was the Ministry of Tourism’s responsibility: ibid [92].

111 F-W Oil Interests Inc v Trinidad and Tobago (ICSID Case No ARB/01/14), Award, 3 March 2006.
112 ibid [5]‌–[12]. 113 ibid [16]. 114 ibid [138].
115 ibid [40], [42], [107]. 116 ibid [152].
183
countries, ‘which can safely be assumed to be broadly similar’ to the legal system of
Trinidad and Tobago.117 Particular emphasis was given to English law, because of
historical connections between the two legal systems, and to Canadian law, ‘where
the problem [of pre-contractual rights] has been discussed intensively at all levels’.118
The tribunal did not entirely determine its sources itself; it noted that the parties had
provided many cases from various jurisdictions on the question of whether rights
could arise prior to the conclusion of a formal binding contract.119
The investor first argued that a ‘process contract’ had arisen during the negotia-
tions, which made ‘legally binding provision for the way in which a Final Contract
was to be arrived at’.120 In assessing whether a Trinidadian court might support this
claim, the tribunal first noted that the many cases from other jurisdictions cited by the
parties were strictly irrelevant, since they addressed obligations relating to the tender
process but not the negotiations following the award of a tender.121 The tribunal then
proceeded to consider whether an agreement to negotiate in a particular way might
have arisen. On this question, a Trinidadian judge, ‘faced with widely differing world-
wide attitudes to questions of this nature, would not have had an enviable task’.122
However, under English law, cited by the tribunal, the position was relatively clear
that an agreement to negotiate was not enforceable. In addition, the tribunal relied on
the fact that the investor had clearly sought not to be bound by any contract until a
final agreement had been reached. For the tribunal, this position applied as equally to
any intermediate, unwritten contract as it did to a final, formalized contract.123 This
conclusion might well be questionable,124 but the basic point—that English law and
thus Trinidadian law would not enforce a ‘process contract’ to negotiate—prevented
the creation of any enforceable rights for the claimant in domestic law. The tribunal’s
methodology of using English law to infer Trinidadian law is a sound one, since, as
it explained,125 this constituted its best efforts to decide the case as would have a
Trinidadian judge presented with a novel question in that legal system.126
7.2.2 Reliance on domestic materials

Under the approach advocated in Chapter 5, tribunals’ reasoning on points of
domestic law will be most supportable when a range of domestic materials has
117 ibid [153]. 118 ibid [154].
119 ibid [165]. In this sense, the case can be distinguished from Goetz v Burundi, discussed in section
7.1. There, the tribunal took its information solely from the investor (in the absence of submissions
from Burundi), and its assumption that Burundian law was the same as French and Belgian law was
backed up by little evidence of the (very broad) principles that it took from the latter laws.
120 ibid. 121 ibid [173]. 122 ibid [174]. 123 ibid [182].
124 For instance, by arguing that the parties’ intentions about process were different to their inten-
tions about substance, and that the investor’s protestations that it did not want to be bound by any
obligations did not exclude an intention that negotiations would continue in a particular way.
125 ‘[T]‌he law of Trinidad and Tobago has founded for much of its history on doctrines from
[English law], so that the English authorities may be expected to anticipate what the local court might
decide if the problem were to come before it’: F-W Oil Interests (n 111) [154].
126 See British Caribbean Bank Ltd v Belize (PCA Case No 2010-18), Award, 19 December 2014
[150]–[159] for a similarly careful review of Belizean common law and statute, and their points of
distinction from English law.
184

been consulted, including the legal instruments themselves, domestic case-law, and
academic texts. Such an approach is demonstrated in various cases. The parallel
cases of Emmis v Hungary and Accession Mezzanine v Hungary both extensively
reviewed Hungarian law, with reference to expert opinions, domestic case-law and
statutes, and contractual instruments, in determining whether the claimants held
any rights susceptible to expropriation.127 The Plama v Bulgaria tribunal relied on
a wide range of sources, including a Bulgarian Supreme Court decision, an aca-
demic text, and expert witnesses, for one conclusion on the validity of the investor’s
investment contract.128 Quiborax v Bolivia similarly reviewed local laws, case-law,
and experts in determining various points of Bolivian law (also recognizing that it
would need to determine these questions itself, rather than wait for a Bolivian court
to rule).129 Gold Reserve v Venezuela, again, reviewed case-law of the Venezuelan
Supreme Court, together with local laws, expert opinions, and domestic legal prin-
ciples, in determining the extent of the investor’s rights under domestic law.130
Case-law from domestic courts (and even from domestic arbitral tribunals) has
been relied on in cases including Saluka v Czech Republic,131 EDF v Romania,132
Anderson v Costa Rica,133 and Siag v Egypt.134 In Libananco v Turkey, the tribunal
engaged in extensive analysis of the legal requirements for a transfer of share owner-
ship in Turkish law.135 In doing so, it relied on provisions of the Turkish Civil Code
and Commercial Code, as well as a textbook on Turkish company law cited by the
state.136
As mentioned in section 7.1, Fraport II provides a further example of wide con-
sultation of domestic sources. In a detailed and careful analysis (likely in response to
the criticisms and annulment of the Fraport I award), the tribunal set out a number
of domestic law issues that required resolution, and proceeded to review the par-
ties’ arguments, expert opinions, domestic case-law, legal opinions from domestic
127 Emmis International Holding BV v Hungary (ICSID Case No ARB/12/2), Award, 16 April 2014;
Accession Mezzanine Capital LP v Hungary (ICSID Case No ARB/12/3), Award, 17 April 2015.
128 Plama (n 42) [102], [135].
129 Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Decision on Jurisdiction, 27 September
2012 [262], [269]–[270], [274], [279].
130 Gold Reserve Inc v Venezuela (ICSID Case No ARB(AF)/09/1), Award, 22 September 2014
[361]–[373].
131 Saluka Investments BV v Czech Republic (UNCITRAL), Partial Award, 17 March 2006 [216]: the
tribunal ‘note[d]‌, and s[aw] no reason to dissent from’, the conclusions of a domestic arbitration pro-
ceeding as to whether the investor had acted lawfully in purchasing certain shares. See also Knahr
(n 3) 21.
132 EDF (Services) Ltd v Romania (ICSID Case No ARB/05/13), Award, 8 October 2009, fns 101–8.
133 Alasdair Anderson v Costa Rica (ICSID Case No ARB(AF)/07/3), Award, 19 May 2010 [55].
134 Siag v Egypt (ICSID Case No ARB/05/15), Award, 1 June 2009 [436], [441].
135 Libananco Holdings Co Ltd v Turkey (ICSID Case No ARB/06/8), Award, 2 September
2011 [112].
136 ibid [398]. There was some suggestion in the case that the claimant had deliberately avoided pro-
viding more detailed submissions on Turkish law (and the requirements for share ownership) because it
considered that the issue had been left for the merits stage, rather than the jurisdictional stage: see ibid
[393]. It would be problematic for the tribunal to have ruled on such an issue of domestic law when the
claimant was potentially unaware that the issue would be decisive at the jurisdictional stage. However,
Libananco’s (unsuccessful) challenge to the award did not appear to raise this complaint: Libananco
Holdings Co Ltd v Turkey (ICSID Case No ARB/06/8), Decision on Annulment, 22 May 2013.
185
executive agencies, academic treatises, and private legal advice given to the inves-
tor.137 Given the centrality of the investment’s domestic legality in the case, such a
detailed approach is perhaps not surprising, but it serves to demonstrate the kind of
analysis that should be undertaken, if necessary to resolve the point, when domestic
law issues arise.
Feldman v Mexico, an early NAFTA case, revolved around a denial of tax rebates
by Mexico to the claimant’s cigarette-export business. The rebates were denied on
the grounds that Mexican law required the party seeking the rebates to submit a
particular invoice itemizing the tax initially paid on the cigarettes. This invoice was
only available to the original cigarette producer, not to subsequent resellers such
as the claimant. Thus, in practice, the claimant could not comply with the provi-
sion requiring the invoice to ground the right to a rebate. The tribunal appreciated
that the question of whether the claimant enjoyed a right to the rebates in domes-
tic law would affect the tribunal’s determination of whether an expropriation had
occurred.138 To find the answer to this question, the tribunal acknowledged the
many proceedings brought by the claimant in Mexican courts to challenge the
state’s refusal to grant it the rebates.139 However, it also observed that the local
courts had given contradictory rulings on the question, and that the issue remained
on appeal in Mexico at the time of the arbitration.140 This latter point did not stop
the tribunal from proceeding with an analysis. Indeed, it noted that if it were to
wait until domestic courts had given a clearer answer, this would enable Mexico to
disrupt the NAFTA tribunal’s ruling by intervening to delay the local court cases.141
Ultimately, the tribunal held that domestic law did not grant a right to the tax
rebates, largely because of the impossibility of a reseller such as the claimant obtain-
ing the invoice required to activate the rebate.142 Given that the alleged right to
rebates constituted the claimant’s major asset, this inevitably meant that no expro-
priation was found.143 The tribunal’s conclusion that the right to rebates did not
exist in domestic law is appropriately founded, in light of the uncertainty in domes-
tic courts, the tribunal’s review of the relevant domestic decisions144 and the policy
behind the law,145 and the apparently clear and long-standing stipulation in the law
that the invoices were required.146
Other cases have found the text of domestic laws clear enough to rule without
requiring extensive inquiries into other domestic materials. The NAFTA case of
Bayview Irrigation District v Mexico related to a claim that Mexico had illegally
diverted water in natural rivers flowing from Mexico into Texas, where the claim-
ants were located. A key question in the case was whether the water flowing in
Award, 10 December 2014 [388]–[468].
138 Marvin Feldman v Mexico (ICSID Case No ARB(AF)/99/1), Award, 16 December 2002 [88].
139 ibid [11]–[22], [82]–[83]. 140 ibid [84], [114].
141 ibid [78]. Although without citing the PCIJ in Brazilian Loans, the tribunal’s position accords
with the PCIJ’s view that, when domestic case-law is ‘uncertain or divided, it will rest with the Court
[or tribunal] to select the interpretation which it considers most in conformity with the law’: Payment
in Gold of Brazilian Federal Loans Contracted in France (France v Brazil) Series A No 21 (1929) 124.
142 Feldman (n 138) [111], [118], [152]. 143 ibid [118]. 144 ibid [119]–[122].
145 ibid [129]. 146 ibid [128].
186

the rivers constituted an ‘investment’ of the claimants. The tribunal appropriately
determined that this question, in turn, depended on whether the claimants could
be said to hold any property rights in the water under Mexican law. The tribunal
held that, while Texan law granted the claimants rights to extract water from the
rivers after they had crossed into Texas, Mexican law did not grant any rights to
the claimants while the water remained in natural rivers flowing in Mexican terri-
tory.147 Indeed, the tribunal said, ‘it is plain that under the Mexican Constitution
and Mexican law, the Claimants could have no such property rights in water in
Mexican rivers’.148 Instead, Article 27 of the Mexican Constitution specified that
river water was the ‘property of the nation’. The tribunal further noted that, while
Mexican law envisaged the grant of concessions to water-users, it also provided
that these concessions did not create any property rights in the water, and did
not guarantee the existence of any water in the river.149 The tribunal relied on the
submissions of Mexico for the text of the various laws, but these submissions were
uncontested by the claimants. This analysis of Mexican law meant that the claim-
ants owned no property rights in Mexico, and thus had no ‘investment’ under
NAFTA, preventing the tribunal’s jurisdiction over the case.
7.2.3 Reliance on expert witnesses

Experts on local law have been relied on in numerous cases, including Lauder v Czech
Republic,150 PSEG v Turkey151, Bosh v Ukraine,152 and Europe Cement v Turkey.153
In many instances, this reliance raises no particular issues, beyond demonstrating
the utility for the tribunal of such evidence on disputed questions of domestic law.
However, some cases highlight certain uses of expert evidence that deserve comment.
7.2.3.1 Reliance on evidence adverse to the expert’s case

One such issue is the additional weight that can be given to expert evidence when
it is (counter-intuitively) adverse to the case of the party appointing the expert.
In Gallo v Canada, for instance, the central issue was whether Mr Gallo owned
shares in a particular Canadian company before its alleged regulatory expropria-
tion in April 2004. Mr Gallo’s case suffered from the fact that there was very lit-
tle documentary evidence available to support his claim that he took ownership
of the company in September 2002. The tribunal appreciated that the relevant
147 Bayview Irrigation District v Mexico (ICSID Case No ARB(AF)/ 05/

1), Award, 19 June
2007 [117].
148 ibid [118].
149 ibid. It was not argued that the claimants held any such concession granted by Mexico.
150 Lauder (n 34) [254].
151 PSEG Global Inc v Turkey (ICSID Case No ARB/02/5), Decision on Jurisdiction, 4 June 2004
[85], [89].
152 Bosh International Inc v Ukraine (ICSID Case No ARB/08/11), Award, 25 October 2012
[279], [281].
153 Europe Cement Investment & Trade SA v Turkey (ICSID Case No ARB(AF)/07/2), Award, 13
August 2009 [155].
187
domestic law, Ontario law, governed the issue of share ownership. Citing the
Ontario Business Corporations Act, the tribunal determined that registration
of a person’s name in a company’s shareholder register is ‘the relevant factor for
establishing ownership’ of shares in that company by that person.154 However,
referring to testimony from the claimant’s legal expert witness, the tribunal then
clarified that the contents of the shareholder register only created a rebuttable
presumption as to share ownership in Ontario law. This presumption could be
overturned with ‘undisputable proof ’ that the owners of shares in the company
on a particular date were not as recorded in the register.155 The arbitrators went
on to find that undisputable proof did indeed exist, on the facts, that Mr Gallo
had not taken ownership of the shares under Ontario law in September 2002,
the date recorded in the register.156 Consequently, the claimant did not own the
investment at the time of the alleged expropriation, and the tribunal rejected
jurisdiction over the case.
The Gallo tribunal demonstrated sufficiently well that it was aware of the role of
domestic law in defining the existence of the investment for the investor. It acknowl-
edged the applicability of Ontario law in determining share ownership and it applied
this law with appropriate reference to domestic authorities, including the terms of
the law itself and the claimant’s expert witness. While it did not cite any case-law or
statutory provisions on the fairly central proposition that a company’s share register
creates only a rebuttable presumption of ownership, its authority for this point was
the claimant’s own expert, to whom this finding was adverse. This appeared to add
extra weight to the expert’s view, justifying the tribunal’s conclusion.
A similar instance arose in in Swisslion v Macedonia. There, one of the claimant’s
arguments was that a local court had expropriated the claimant when it declared
the termination of a share purchase agreement, but failed to order a return of the
money paid by the claimant for the shares.157 As a result of the court ruling, the
claimant lost both the shares purchased (which were transferred back to their origi-
nal owners) and the money paid. On this argument, the question for the tribunal
was whether the investor enjoyed any right to obtain compensation in the local
court proceedings for the lost shares. The tribunal first cited Macedonia’s claims
that, although in the local proceedings the claimant had referred to the issue of
repayment for the shares, it had not actually submitted any formal request for
compensation in this respect.158 The tribunal accepted Macedonia’s argument that
mere references to the issue were not enough to constitute a legal claim under
Macedonian civil procedure rules.159
Next, the tribunal cited the claimant’s legal expert, who observed (under cross-
examination) that such a compensation claim was in any case required to be made
154 Vito Gallo v Canada (UNCITRAL), Award, 15 September 2011 [285]. At [199], the tribunal
also describes this factor as ‘determinative’ rather than ‘relevant’, citing the testimony of the claimant’s
business associate, but it would appear that this is overstating the position.
155 ibid [287]. 156 ibid.
157 Swisslion DOO Skopje v Macedonia (ICSID Case No ARB/09/16), Award, 6 July 2012 [315].
158 ibid [316]. 159 ibid [319].
188

in separate domestic proceedings, not the same proceedings addressing the termi-
nation of the share purchase agreement.160 Furthermore, the expert noted, in these
separate proceedings the court would consider any change in the value of the shares
since they were originally purchased by the claimant.161 This meant that the claim-
ant would not necessarily have received its original purchase price even if a local
court would have ordered compensation in the separate proceedings. The result of
this, the tribunal concluded, was that the local court would not have been compe-
tent to award the return of the purchase price in the original local proceedings, even
if the claimant had requested it. Because of this, in turn, the claimant had no clear
right to compensation in Macedonian law, meaning that no expropriation could
be found.162
The Swisslion tribunal’s analysis of domestic law relied largely on evidence
from the claimant’s expert witness. Although a wider range of sources may have
been preferable to fully answer the domestic law question, the fact that the
claimant’s expert evidence was adverse to the claimant’s case (as with Gallo v
Canada) suggests that it was reliable, constituting a sufficient investigation into
local law debates on the matter. As the discussion in Chapter 5 indicated, tri-
bunals have much flexibility in determining which sources they will consult
when ascertaining the contents of the applicable law, and there is no sugges-
tion that extensive research conducted on a tribunal’s own motion is always
required. In light of the claimant’s expert opinion and the considerations on
experts addressed in Chapter 5, the Swisslion tribunal reasoned appropriately on
this question of domestic law.163
7.2.3.2 Resolution of ‘duelling experts’ problems

A second issue often arising with expert evidence, as outlined in Chapter 5, is the
problem of ‘duelling experts’, in which a tribunal is faced with contradictory evi-
dence from experts on each side. Such debates will not always require resolution by
the tribunal, depending on the relevance of the domestic law point in the arbitra-
tion. For instance, Arif v Moldova involved a claim of denial of justice in certain
decisions of Moldovan courts that were alleged to have been incorrect. The tribunal
held that it did not need to determine the correct position, despite disagreement
among the local judiciary and local law experts; instead, its role was only to look
for bad-faith, unreasonable decision-making.164 However, in other situations, tri-
bunals will not be able to avoid substantive assessment of competing expert views.
Several cases have illustrated the manner in which these problems might be resolved.
The Nagel case, despite the criticisms made in section 7.1, did contain other
analysis that is more commendable in its approach to domestic law. A preliminary
160 ibid [317]. 161 ibid [318].
162 ibid [320].
163 See also Quiborax SA v Bolivia (ICSID Case No ARB/06/2), Decision on Jurisdiction, 27
September 2012 [274] for a further example of reliance on an expert’s evidence adverse to their
own case.
164 Franck Charles Arif v Moldova (ICSID Case No ARB/11/23), Award, 8 April 2013 [481].
189
issue in the case was whether an agreement between the investor and a Czech state
entity was valid. The tribunal set out the competing views of each party’s experts
on the issue. The state’s expert considered that the agreement was too vague and
uncertain on its key obligations to constitute a binding legal contract under Czech
law.165 Although the parties’ subsequent conduct indicated that they considered
the agreement to be sufficiently clear and binding, an invalid contract could not
become valid as a result of subsequent conduct, according to the state’s expert.166
For the claimant’s experts, on the other hand, a contract was only to be held void
for uncertainty if ‘the content of the expressed will cannot be established even … by
taking into account the actions of the parties in a wider context’.167 Furthermore,
the agreement did contain some undeniably clear obligations, and any others that
might be unclear could be severed from the agreement, under the Czech Civil
Code. The contract as a whole, in the claimant’s experts’ view, was not invalid.168
The evidence in the case therefore raised a classic ‘duelling experts’ problem of the
kind discussed in Chapter 5, and the tribunal ultimately dealt with the expert views
well. It appeared to be swayed by the weight of numbers on the claimant’s side,
with three experts contending that the contract was valid, against the state’s one.169
Furthermore, although not experts in Czech law themselves, the three arbitrators in
the case were by no means legal novices,170 and were naturally in a position to make
at least some substantive appraisal of the competing experts’ views. In this vein, the
tribunal emphasized the potential (raised by the claimant’s experts) for severability
under the Civil Code of any imprecise parts of the contract.171 This potential was
found to mean that the entire contract could not be void for uncertainty, contrary
to the state expert’s position.
The Nagel tribunal was less convincing in its approach to the experts on a second
argument. Apart from the severability argument, the tribunal also placed weight
on the parties’ subsequent conduct.172 Without explicitly commenting on it, the
tribunal apparently rejected the state expert’s opinion that an invalid contract
could not become valid by means of subsequent conduct. Instead, it appeared to
favour any interpretation which kept the contract alive rather than scuttling it.
However, it did not confirm that this was an acceptable approach to contractual
interpretation under Czech law, nor did it discuss the domestic legal grounds for
the connection that it accepted between factual reality and legal consequences.
Nevertheless, in its treatment of the experts overall, the Nagel tribunal demon-
strates positive signs.
The second case to be discussed here is the still pending arbitration brought by
the US oil giant Chevron Corporation against the Republic of Ecuador. In a 2012
decision, arbitrators upheld jurisdiction on a range of grounds. One focal point
of the tribunal’s analysis was whether Chevron held any contractual rights against
165 Nagel (n 32) [306]. 166 ibid [311]. 167 ibid [314]. 168 ibid [315].

169 ibid [318] (after noting that it had ‘examined’ the state expert’s view, the tribunal ‘notes that
contrary views on this matter were expressed in other expert witness statements’).
170 The tribunal was composed of a former Swedish judge, a German professor of comparative law,
and an English professor and practitioner of arbitration.
171 Nagel (n 32) [319]. 172 ibid [318].
190

Ecuador under a 1995 agreement purporting to settle a group of claims between
the two parties. Ecuador’s alleged breach of the agreement—due to its failure to
prevent certain plaintiffs from pursuing Chevron in local courts for environmental
damage—formed the basis of Chevron’s claims under the US–Ecuador BIT in the
case. In the 1995 settlement agreement, Ecuador agreed to release from liability a
long list of parties, including TexPet, Chevron’s subsidiary, and Texaco, TexPet’s
former parent. Chevron, the new parent company of TexPet, was not specifically
named in the agreement. However, the agreement also released the ‘principals and
subsidiaries’ of TexPet. Chevron argued that it had become a ‘principal’ of TexPet
upon its merger with Texaco in 2001.
The Chevron tribunal observed that the reference to principals ‘appears to
relate to an agency relationship’, and did not obviously include Chevron as the
corporate parent of TexPet.173 However, it then considered the views of each
party’s expert witnesses. Chevron and its experts contended that the word ‘prin-
cipals’ as used in the settlement agreement must be taken to mean ‘parents’ in
the company law sense, rather than in the sense of agency. This interpretation
was reinforced by the combination of ‘principals’ with ‘subsidiaries’ rather than
‘agents’.174 Ecuador, for its part, urged the tribunal to consider the ordinary
legal meaning of a ‘principal’, related only to agency. According to the state’s
expert, the use of the term in a company law sense was highly exceptional in
Ecuadorian law.175 Nevertheless, applying general legal reasoning to decide
between the competing experts, the tribunal observed that the word could well
have a different meaning in the context of the settlement agreement compared
to its general, abstract meaning in law. On this basis, the arbitrators held that
Chevron’s favoured interpretation was a ‘sufficiently serious’ one to call for
further consideration.176 In a later interim decision, the tribunal sided with
Chevron, accepting the claimant’s experts’ view and highlighting what it held to
be an inconsistency between Ecuador’s expert’s view and the rules of contractual
interpretation under Ecuadorian law.177
Saba Fakes v Turkey provides a further example of duelling experts. There, the
state had raised a jurisdictional objection based on the investment’s alleged viola-
tion of the Turkish Commercial Code. Article 413 of the Code required that share
certificates be signed ‘by at least two persons authorised to sign on behalf of the
company’.178 However, the share certificates that purported to evidence the claim-
ant’s investment in a telecommunications company bore only one signature. The
claimant’s expert on domestic law argued that the share certificates were only tempo-
rary share certificates, and that Article 413 did not apply to that kind of certificate.
Turkey’s expert argued that the provision applied to all share certificates, although
173 Chevron Corporation v Ecuador (PCA Case No 2009-23), Third Interim Award on Jurisdiction
and Admissibility, 27 February 2012 [4.41].
174 ibid [4.43]–[4.47]. 175 ibid [4.48]–[4.49]. 176 ibid [4.53].
177 Chevron Corporation v Ecuador (PCA Case No 2009-23), First Partial Award on Track I, 17
September 2013[84]–[85].
178 Saba Fakes v Turkey (ICSID Case No ARB/07/20), Award, 14 July 2010 [126].
191
he conceded in cross-examination that his position was not expressly contemplated

in the legislation, nor had it been addressed in Turkish courts.179
A tribunal ruling purely on the text of Article 413 might be tempted to find
that the provision applies to all kinds of share certificates, since it uses a general
term, and does not appear to make any exceptions for specific categories of cer-
tificate such as temporary certificates. However, the Fakes tribunal did not take
this approach. Instead, the tribunal weighed up the views of the two experts, and
‘took particular note’ of Turkey’s expert’s concession in cross-examination, mean-
ing that his evidence was given less weight (as in Gallo and Swisslion discussed in
section 7.2.3.1).180 The tribunal then sided with the claimant on the existence of
a separate ‘temporary’ category of share certificates in Turkish law, not covered by
the general phrasing of Article 413. It was for Turkey to demonstrate that more
than one signature was necessary on a temporary certificate. Since ‘there appears
to be no case law or legal provision in Turkish law requiring a double signature on
a temporary share certificate’, Turkey had failed in this task, and the investment
was found legal.181
Another brief example comes from Vigotop v Hungary, where the tribunal
favoured the state’s expert on one issue, finding his opinion better reasoned than
the investor’s expert. The tribunal noted that the state’s expert was able to respond
directly to a claim of the investor’s expert, observing that the latter had ignored a dis-
tinction between void and voidable private law acts (similar to the debate between
the majority and minority in Occidental v Ecuador, discussed in Chapter 4).182 This
was sufficient to suggest to the tribunal that the state’s expert was more convincing.
Last, Walter Bau v Thailand demonstrates a particular instance of resolution of
competing expert views. One question addressed by the tribunal was the nature
of the claimant’s subsidiary’s rights under clause 25 of a concession agreement to
build and operate a tollway leading to the Don Muang airport in Bangkok. Clause
25 related to the concessionaire’s ability to obtain toll increases in light of changed
economic circumstances. It provided that the concessionaire ‘may request the [Thai
authorities] to adjust the toll rates … so that the toll rates are fair to the Company
in light of changes to the economic situation’. The clause made reference to par-
ticular factors which ‘shall be taken into account by the [authorities] in considering
the requested adjustment to the toll rates’.183 The claimant, with the assistance of
a Thai law expert, argued that clause 25 would be interpreted to entail an obliga-
tion on the authorities to adjust the tolls when requested, and to pay damages for
non-performance if a suitable adjustment was not provided.184 Thailand’s expert,
however, interpreted the wording of ‘request’ to conclude that the clause entailed
an obligation only to give fair consideration to a request for toll increases, but
179 ibid [126]–[128]. 180 ibid [128].

181 ibid [129]. However, the tribunal went on to find that there was in fact no investment, under
the separate requirements of the ICSID Convention, and thus no jurisdiction.
182 Vigotop Ltd v Hungary (ICSID Case No ARB/11/22), Award, 1 October 2014 [536]–[538].
183 Walter Bau AG (in liquidation) v Thailand (UNCITRAL), Award, 1 July 2009 [7.2] (emphases
added).
184 ibid [7.6].
192

not necessarily to agree to any increases.185 Based on the wording of the contract,
the views of the experts, and—notably—the fact that one member of the tribunal
was an experienced Thai lawyer,186 the tribunal interpreted the contract in sup-
port of Thailand, finding no obligation to increase tolls merely upon the request of
the concessionaire.187 The Walter Bau case therefore presents a relatively unusual
example of ‘in-house’ knowledge of domestic law represented on the tribunal itself.
This knowledge allowed the arbitrators to make a more substantive assessment of
the competing expert views, via conferral with the Thai arbitrator. As noted in
Chapter 5, although it may rarely be possible, such conferral can be one useful
means of ascertaining the content and interpretation of applicable domestic law in
an investment treaty arbitration.
7.3 Conclusion
In 2003, Douglas wrote that, ‘with disturbing frequency, questions of municipal

law are brushed aside as peripheral or dealt with superficially by tribunals’.188 This
chapter has illustrated that, since 2003, tribunals have continued to go astray on
domestic law issues. Tribunals have made a range of errors in dealing with domestic
law: not only failing to investigate or engage with domestic law sources, but even
resolving domestic law questions simply by making unreasoned assertions about
domestic law, or by relying on clearly unauthoritative sources. On occasion, tribu-
nals have failed to appreciate the role of domestic law entirely. Despite this, though,
there are certainly more positive signs in other cases in which tribunals made a
more justifiable effort to inquire into domestic law and apply it with caution. These
cases demonstrate that tribunals are entirely capable of handling domestic law
issues without weighing down the arbitral procedure. They illustrate the potential
for a workable approach to domestic law, assisted by the framework suggested in
Chapter 5.
185 ibid [7.7], [7.10]. 186 ibid [1.44], [7.14].

187 ibid [7.15].
188 Z Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 BYIL
151, 204.
193
8
Conclusion
In 1868, the Argentinian jurist Carlos Calvo published a treatise in which he set
out principles that formed the basis of much Latin American diplomacy for the
next century or more. One of the central ideas of the so-called ‘Calvo Doctrine’
described in the treatise was that, as Calvo put it, ‘[t]‌he responsibility of govern-
ments toward foreigners cannot be greater than that which these governments have
toward their own citizens’.1 The Calvo Doctrine took root particularly in the west-
ern hemisphere. It was often argued to form a regional custom against the exist-
ence of an international minimum standard of treatment for aliens, and against the
diplomatic protection of aliens injured in foreign states.2 Under the doctrine, aliens
would enjoy the same protections under local law, in local courts, that nationals of
the host state enjoyed.
As a persistent objector to this alleged regional custom, the United States
did all it could to deny the doctrine and uphold its rights to protect its citizens
abroad, through diplomatic protection under the international minimum stand-
ard if necessary. Ultimately, the US appeared to be successful in this endeavour.
Despite the apparent popularity of the doctrine in Latin America during the
past century, the modern era of investment treaties pushed in part by the US,
starting from the 1990s, essentially wiped out the doctrine. Almost all Latin
American countries, including Calvo’s home of Argentina, began signing up
to the standard-form investment treaties that are, in some cases, still in exist-
ence unchanged today. These treaties unequivocally affirmed the existence of
the international minimum standard (or at least of one absolute international
standard, the fair and equitable treatment, or FET, guarantee), and established
the rights of injured alien investors to pursue international arbitration and avoid
host state courts.3
In the early 2000s, then, it might have appeared that the relevance of the Calvo
Doctrine was purely historical. However, as indicated in the introduction to this
book, recent years have seen something of a reversal of fortunes for the invest-
ment treaty regime. The constitutionality of international arbitration—seen as an
1 Quoted in O Garibaldi, ‘Carlos Calvo Redivivus: The Rediscovery of the Calvo Doctrine in the
Era of Investment Treaties’ (2006) 3(5) TDM 6.
2 ibid 3.
3 A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of Treatment
(Kluwer 2009) ch. 1.
194
194 Conclusion
illegitimate divestment of judicial powers from state courts to external, unaccount-
able bodies—has been questioned in several states.4 Many commentators have
expressed concern about the perceived over-reach of arbitrators, leading to state
responsibility for injuries to foreign investors in situations that were arguably never
conceived of by either state party when the investment treaties were signed.5 The US
itself re-opened the conversation on the idea of ‘no greater rights’ for foreigners than
for locals,6 and has sought to enshrine a domestic law standard on expropriation—
the so-called ‘Penn Central’ test, coming from US constitutional law—in its recent
investment treaties.7 Australia recently endorsed a similar ‘no greater rights’ idea.8
Arguments have been put forward elsewhere to tie the FET standard to the content
of domestic public law provisions on due process and judicial review.9 In this way,
treaty-based international law standards are being recalibrated to fit domestic law
standards—such that, just as Calvo required, aliens would receive the same protec-
tions as locals (despite the international forum hearing the claim). As a result of
these developments, writers have announced the ‘revival’ and ‘rediscovery’ of the
Calvo Doctrine.10
4 For the US, see B Ackerman and D Golove, ‘Is NAFTA Constitutional?’ (1995) 108 Harvard LR
799; Made in the USA Foundation v USA, 242 F 3d 1300 (11th Cir 2001); Coalition for Fair Lumber
Imports v USA (Civil Action No 05-1366, DC Cir 2006). For Canada, see Council of Canadians and
CUPW v Attorney-General of Canada Court File No. 01-CV-208141, 8 July 2005 (Ontario Superior
Court of Justice), <www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/
disp-diff/cupw-13.pdf>. For Venezuela, see B Cremades, ‘Resurgence of the Calvo Doctrine in Latin
America’ (2006) 7 BLI 53. For Brazil, see JB Lee, ‘Brazil’ in N Blackaby, D Lindsey, and A Spinillo
(eds), International Arbitration in Latin America (Kluwer 2002) 61; N Rubins, ‘Investment Arbitration
in Brazil’ (2003) 4 JWIT 1071. For Argentina, see C Alfaro and P Lorenti, ‘The Growing Opposition of
Argentina to ICSID Arbitral Tribunals: A Conflict Between International and Domestic Law?’ (2005)
6 JWIT 417. For Norway, see LE Peterson, ‘Norway Proposes Significant Reforms to Its Investment
Treaty Practices’ Investment Treaty News (27 March 2008), <www.iisd.org/pdf/2008/itn_mar27_2008.
pdf>.
5 The 2012 Occidental v Ecuador ruling might be cited in this vein. Here, arbitrators constructed
a test of proportionality, holding that the state’s termination of a concession contract—as permitted
by the contract, following the clear breaches of the investor—was nevertheless disproportionate and in
breach of an investment treaty. USD 1.7 billion (plus interest) was awarded in compensation: Occidental
Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11), Award, 5 October 2012.
6 US Senate Committee on Finance, ‘Report 107-139 on the Bipartisan Trade Promotion
Authority Act of 2002’ (28 February 2002) 11–17, <www.gpo.gov/fdsys/pkg/CRPT-107srpt139/pdf/
CRPT-107srpt139.pdf>.
7 A Sanders, ‘Of All Things Made in America Why Are We Exporting the Penn Central Test?’
(2010) 30 Nw J Intl L & Bus 339.
8 Australian Government, Department of Foreign Affairs and Trade, ‘Government Trade Policy
Statement’ (April 2011), <pandora.nla.gov.au/pan/126547/20110502-1209/www.dfat.gov.au/pub-
lications/trade/trading-our-way-to-more-jobs-and-prosperity.pdf>. Under a new Prime Minister,
the Australian government later back- tracked on this position: see L Trakman, ‘Investor-State
Arbitration: Evaluating Australia’s Evolving Position’ (2014) 15 JWIT 152.
9 J Kleinheisterkamp, ‘Investment Treaty Law and the Fear for Sovereignty: Transnational
Challenges and Solutions’ (2015) 78 MLR 793; S Schill (ed.), International Investment Law and
Comparative Public Law (OUP 2010). See also J Hepburn, ‘Comparative Public Law at the Dawn of
Investment Treaty Arbitration’ (2014) 15 JWIT 705.
10 Garibaldi (n 1); W Shan, ‘Is Calvo Dead?’ (2007) 55 Am J Comp L 123; S Montt, ‘What
International Investment Law and Latin America Can and Should Demand From Each Other: Updating
the Bello/Calvo Doctrine in the BIT Generation’ [2007] 3 Res Publica Argentina 75.
195
Conclusion 195
The issue is also present in the background of debates over the competence of
the European Union in foreign investment, following the conclusion of the Lisbon
Treaty, and the status of investment treaties signed between EU member states.11
Arguably, an investor from an EU country that has an investment treaty with the
target EU state of the investment enjoys higher protection, by virtue of the treaty,
than other EU investors enjoy under ordinary EU law. This perceived discrimina-
tion in favour of investors from particular EU states is seen to be in tension with the
founding EU principle of non-discrimination among its members.12 Consequently,
the European Commission has commenced infringement proceedings against cer-
tain EU members, intended to lead to the ultimate termination of all ‘intra-EU’
investment treaties.13 Again, the perception of excessively high protections under
international law has triggered a demand to rein in these protections to the level
of what would ordinarily be enjoyed in the host state under domestic (in this case,
EU) law.
Another factor that can be cited in this Calvo-inspired pullback from the inter-
national to the domestic is, of course, the inescapable and growing presence of
domestic law in investment treaty arbitration. One of this book’s main claims was
that domestic law is relevant to the investment arbitration process in more ways
than is currently appreciated. As this book has demonstrated, many questions that
require resolution during the process of the arbitration find no answers in interna-
tional law. These include the question of the investor’s compliance with domestic
law when making its investment and the question of the private law rights that
constitute the claimed investment, which are necessarily governed by the law of the
place where the investment was made. Tribunals are also often required to apply
domestic law to determine whether the state has complied with its law in taking
measures of expropriation against an investor (Chapter 3). In addition, domestic
law is playing a role in questions of fair and equitable treatment (Chapter 2) and
remedies, compensation, and interest determinations (Chapter 4). Given this, the
book represents another contribution to the literature examining this quasi-return
of Calvo as a means to rebalance the investment treaty regime. Certainly, unlike the
Calvo Doctrine, the uses of domestic law examined here do not strictly tie interna-
tional standards to domestic equivalents. However, a greater role for domestic law
in assessing breaches of expropriation or fair and equitable treatment, and in deter-
mining remedies, shortens the distance between the two and supports a slightly
different kind of ‘no greater rights’ doctrine.
But a mandate to engage with domestic law will not quell criticism of investment
arbitration if tribunals do not, in fact, engage with domestic law. The second main
11 See, e.g., A Dimopoulos, EU Foreign Investment Law (OUP 2011).

12 See arguments in cases such as Eastern Sugar BV (Netherlands) v Czech Republic (SCC No 008/
2004), Partial Award, 27 March 2007; Eureko BV v Slovakia (PCA Case No 2008-13), Award on
Jurisdiction, Arbitrability and Suspension, 26 October 2010; Binder v Czech Republic (UNCITRAL),
Award on Jurisdiction, 6 June 2007; and Albert Jan Oostergetel v Slovakia (UNCITRAL), Decision on
Jurisdiction, 30 April 2010.
13 European Commission, ‘Commission Asks Member States to Terminate Their Intra-EU Bilateral
Investment Treaties’ (Press Release, 18 June 2015) IP/15/5198.
196
196 Conclusion
claim of the book was that, all too often, tribunals do indeed ignore these connec-
tions with domestic law. Questions of domestic law, particularly in ascertaining the
exact contents of the domestic law to be applied, are frequently resolved in ways
which pay insufficient regard to the considerations outlined in Chapter 5. These
considerations include treating domestic law as law, not fact; applying domestic
law as it would be applied in its country of origin, including careful attention to
materials such as domestic statutes, case-law, academic texts, and expert evidence;
and, following iura novit curia, taking a proactive role in determining questions
of domestic law when necessary. Rather than paying heed to these considerations,
arbitrators have on occasion used instances in which domestic law issues have arisen
to enhance their own arbitral discretion, giving their own interpretations of local
laws with limited reference to how the host state has dealt with and interpreted
the relevant law. As explained in Chapters 1 and 5, this is problematic not only by
virtue of the framework of applicable law in investment arbitration combined with
the basic principles of reference to domestic law elaborated by the Permanent Court
of International Justice (PCIJ) many years ago. It is problematic also for tribunals’
own legitimacy, when tribunals purport to re-interpret questions sometimes well
settled at domestic level, or (perhaps more commonly) simply fail to inquire into
whether the domestic level has even arrived at any such settlement. If investment
tribunals seek greater acceptance of their decisions by states, they must pay close
attention to the method with which they engage with an important expression of
state sovereignty—the elaboration of domestic law.
The re-appearance of the Calvo Doctrine in any guise—including the references
to domestic law examined in this book—is, for some commentators, a troubling
development.14 They reassert the original rationales for the investment treaty
regime, including the perceived need to encourage foreign investment, and the
allegedly associated need to provide absolute protections to facilitate this invest-
ment. They highlight foreigners’ perceived lack of political voice in host states,
meaning that these aliens are left vulnerable to nationalist political sentiments.15
They also question the existence of any actual problem in the system, arguing that
states often win investment arbitrations, and that no evidence suggests any systemic
bias against state interests and domestic political preferences.16
But, as one defender of the system grudgingly acknowledges, perceptions may
matter more than reality in this area.17 The fact that criticism of investment law
persists—whether founded or not—is itself a destabilizing force, pushing countries
such as Venezuela and Ecuador to seek to exit the system.18 Although they may
view it as a concession to irrationality, even supporters may need to accept the kinds
14 See, e.g., B Juratowitch, ‘Diplomatic Protection of Shareholders’ (2010) 81 BYIL 281, 313.
15 Quasar de Valores SICAV SA v Russia (SCC), Award, 20 July 2012 [21]–[23]; International
Thunderbird Gaming Corporation v Mexico (UNCITRAL), Separate Opinion of Thomas Waelde,
December 2005 [12], [33] citing J Paulsson, Denial of Justice in International Law (CUP 2005).
16 D Krishan, ‘Thinking About BITs and BIT Arbitration: The Legitimacy Crisis That Never Was’
in T Weiler and F Baetens (eds), New Directions in International Economic Law (Martinus Nijhoff
2011) 117.
17 ibid 148. 18 See n 34 in chapter 1.
197
Conclusion 197
of pullbacks described here as a compromise. Otherwise, the system may well end
up being dismantled entirely, which would presumably be even worse for support-
ers of foreign investors’ interests. In any case, the best and perhaps only method of
countering perceptions of illegitimacy is, inevitably, to work to remove any actual
grounds for the perceptions. As this book has argued, this involves recognizing the
extensive role that domestic law plays in investment arbitration, and adopting bet-
ter methods for determining questions of domestic law.
Some commentators have made detailed allegations about the self-interest of
lawyers and arbitrators in this area, who they suggest are tempted to support any
situation that results in larger legal fees.19 From this point of view, greater arbi-
tral discretion and consequent uncertainty in the law simply translates into longer,
more complicated—and therefore more lucrative—arbitral processes. Even if this
view of investors’ legal representatives is accepted, it is important not to confuse the
interests of foreign investors with the interests of those who represent foreign inves-
tors. Whatever lawyers and arbitrators might support, investors themselves may
well care just as much (if not more) about certainty and predictability in their legal
situation than about the substantive content of the protections of investment trea-
ties. Clarification of the circumstances in which arbitrators will refer to domestic
law and the manner in which this will be done, which this book sets out to provide,
is therefore likely to be welcomed by foreign investors.
Observers define the goals of the investment treaty regime in many different
ways, both narrowly and broadly. This book prefers a broader view, taking the goals
of investment treaties to include the pursuit of sustainable development, the dis-
semination of the rule of law, and the improvement of human welfare. Whether the
regime will (or can) achieve these goals is a complex, ongoing question, requiring
ongoing evidence from economists, politicians, activists, and sociologists as well as
lawyers. This book’s examination of the use of domestic law by investment arbitra-
tors, one small corner of the regime, can only contribute so much to the under-
standing of investment law’s path towards these goals. Nevertheless, this book has
sought to advance that understanding by laying bare some of the reasoning used
by arbitrators on this issue, and by offering some guidance for future tribunals.
It is difficult to propose improvements to a system before its problems are real-
ized and made explicit. In examining these problems, then, the book takes a step
towards greater coherence, consistency, and legitimacy in this contested area of
international law.
19 G van Harten, Investment Treaty Arbitration and Public Law (OUP 2007) ch. 7; P Eberhardt and
C Olivet, Profiting from Injustice (CEO/TNI 2012).
198
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â•‡ 209
Index
absolute standards, 15, 27, 61, 93, 196 ICSID Convention, 6, 64, 87, 97, 106, 113,
Alvarez, José, 13 117, 122
annulment ILC Articles on State Responsibility, 15, 59, 72,
of ICSID awards, 89, 108, 120, 122, 125, 169 83, 85, 89, 92, 97
arbitral discretion, 9, 13, 69, 71, 73, 77, 94, International Law Association, 118
113, 122, 137, 182, 196 international minimum standard of treatment,
arbitrariness, 18, 25, 30, 31–â•‰39, 40 5, 15, 193
arbitration vs litigation, 6, 97, 105, 110, 117, 122 investment treaties
attribution, 2 termination of, 6, 195
investor illegality, 2, 9, 106, 124, 130, 140,
Calvo Doctrine, 5, 193 139–â•‰52, 155–â•‰61, 163, 165, 172, 175, 181,
Canada-â•‰EU Comprehensive Economic and 184, 190
Trade Agreement (CETA), 103, 132, 203
causation, 71, 82, 84 judicial economy, 62
choice of law, 8, 80, 106, 112, 137
contribution to injury, 92 legitimacy
counterclaims, 91 of investment arbitration, 4–â•‰8, 10, 62, 77,
customary international law, 4, 30, 31, 46, 72 109, 125, 163, 196
legitimate expectations, 13, 14, 25, 27–â•‰30, 40
delocalised arbitration, 88
denial of justice, 14, 105, 188 margin of appreciation, 3
Discounted Cash Flow model, 94 most-â•‰favoured-â•‰nation (MFN) clause
discrimination, 5, 26, 31, 35, 37, 195 and dispute settlement, 3
domestic law
terminology, 2 necessity
due process, 8, 16, 18, 22, 25, 30, 34, 45, 55, defence of, 3, 5
137, 139 New York Convention, 75, 97
North American Free Trade Agreement
estoppel, 155–â•‰61, 174 (NAFTA), 48, 55, 93, 107
EU law, 34, 53, 195
European Convention on Human Rights, 65, obligations
76, 110, 114, 153 primary vs secondary, 84
exhaustion of local remedies, 115
expropriation police powers, 42–â•‰46
compensation for lawful vs unlawful, proportionality, 3, 16, 79
61, 66, 91 punitive damages, 93, 95
connection to domestic property rights, 1, 9,
41, 106, 185 rule of law, 27, 50, 64, 140, 151, 157, 197
indirect, 3, 42, 64
Seneca law, 166
full reparation, 71, 72, 74, 76, 77, 83, 87, subsidiarity, 6, 77, 129
91, 92, 97 sustainable development, 5, 197
general principles of law, 83, 155, 164, umbrella clause, 2, 84, 106

167, 182
global administrative law, 16 Vienna Convention of the Law of Treaties, 15
human rights, 3 World Trade Organization, 5, 105, 111, 116

210
211
212
213
214
215
216
217
218

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i

INTERNATIONAL ECONOMIC LAW SERIES

recent titles in the series

Series Editor’s Preface

The question of domestic law in international investment arbitration as addressed

viii Series Editor’s Preface

This book is a revised version of my DPhil thesis defended at the University of

3 Domestic Law and Expropriation 41

4 Domestic Law and Remedies 69

xii Table of Contents

6 Applying the Framework—​Preliminaries 139

Table of Contents xiii

6.3 Estoppel as a Means to Avoid Consideration of Domestic Law 155

7 Applying the Framework—​In Practice 163

xvi Table of Cases

Carbonara and Ventura v Italy App No 24638/​94 (ECHR, 30 May 2000)�������������������������������������153

Eastern Sugar BV (Netherlands) v Czech Republic (SCC No 008/​2004), Partial Award,

Table of Cases xvii

xviii Table of Cases

Iatridis v Greece App No 31107/​96 (ECHR, 25 March 1999)���������������������������������������������������������65

James v UK App No 8793/​79 (ECHR, 21 February 1986)�����������������������������������������������������������153

Kemal Uzan v Turkey App No 18240/​03 (ECHR, 29 March 2011)�����������������������������������������������130

Table of Cases xix

M Meerapfel Söhne AG v Central African Republic (ICSID Case No ARB/​07/​10), Arbitral

Nations Energy Inc v Panama (ICSID Case No ARB/​06/​19), Award,

Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/​06/​11), Award,

Parkerings-​Compagniet AS v Lithuania (ICSID Case No ARB/​05/​8), Award,

Railroad Development Corporation v Guatemala (ICSID Case No ARB/​07/​23), Second

Table of Cases xxi

Tecnicas Medioambientales Tecmed SA v Mexico (ICSID Case No ARB(AF)/​00/​2), Award,

Vannessa Ventures Ltd v Venezuela (ICSID Case No ARB(AF)/​04/​6), Award,

xxii Table of Cases

Walter Bau AG (in liquidation) v Thailand (UNCITRAL), Award, 1 July 2009�����������������������������191

X v Austria App No 19010/​07 (ECHR, Judgment of 19 February 2013)������������������������������� 111, 115

and equitable treatment’ commonly found in investment treaties.9 The definition

1.1 Legitimacy and the ‘Backlash’

minimum standard of treatment of aliens. Capital-​exporting countries, keen to

19 See generally Newcombe and Paradell (n 8) ch. 1.

of investor–​state arbitration from future investment treaties that it signs (although

1.2 Overview of the Book

Arbitrators enjoy broad discretions under international law particularly on the

14 Identifying Domestic Law Issues

4 Total SA v Argentina (ICSID Case No ARB/​04/​1), Concurring Opinion of Luis Herrera

Domestic Law and Fair and Equitable Treatment 15

16 Identifying Domestic Law Issues

Domestic Law and Fair and Equitable Treatment 17

On top of this, unlike other common investment treaty clauses—​such as those

2.2 Domestic Law and Direct FET Breaches

2.2.1 Domestic legality contributing to FET compliance

18 Identifying Domestic Law Issues

Domestic Law and Fair and Equitable Treatment 19

20 Identifying Domestic Law Issues

2.2.2 Domestic illegality contributing to FET breach

Domestic Law and Fair and Equitable Treatment 21

2.2.3 Domestic legality as a determinative factor?

55 ibid. 56 This aspect of the decision is considered in Chapter 3.

22 Identifying Domestic Law Issues

Domestic Law and Fair and Equitable Treatment 23

72 ibid [237]. 73 ibid [253]. 74 ibid [189]–​[190]. 75 ibid [194].

24 Identifying Domestic Law Issues

Domestic Law and Fair and Equitable Treatment 25

26 Identifying Domestic Law Issues

2.3 Domestic Law and Legitimate Expectations under

6 Applying the Framework—Preliminaries 139

7 Applying the Framework—In Practice 163

Carbonara and Ventura v Italy App No 24638/94 (ECHR, 30 May 2000)��153

Eastern Sugar BV (Netherlands) v Czech Republic (SCC No 008/2004), Partial Award,

Iatridis v Greece App No 31107/96 (ECHR, 25 March 1999)��65

James v UK App No 8793/79 (ECHR, 21 February 1986)��153

Kemal Uzan v Turkey App No 18240/03 (ECHR, 29 March 2011)��130

M Meerapfel Söhne AG v Central African Republic (ICSID Case No ARB/07/10), Arbitral

Nations Energy Inc v Panama (ICSID Case No ARB/06/19), Award,

Occidental Petroleum Corporation v Ecuador (ICSID Case No ARB/06/11), Award,

Parkerings-Compagniet AS v Lithuania (ICSID Case No ARB/05/8), Award,

Railroad Development Corporation v Guatemala (ICSID Case No ARB/07/23), Second

Tecnicas Medioambientales Tecmed SA v Mexico (ICSID Case No ARB(AF)/00/2), Award,

Vannessa Ventures Ltd v Venezuela (ICSID Case No ARB(AF)/04/6), Award,

Walter Bau AG (in liquidation) v Thailand (UNCITRAL), Award, 1 July 2009��191

X v Austria App No 19010/07 (ECHR, Judgment of 19 February 2013)�� 111, 115

minimum standard of treatment of aliens. Capital-exporting countries, keen to

of investor–state arbitration from future investment treaties that it signs (although

4 Total SA v Argentina (ICSID Case No ARB/04/1), Concurring Opinion of Luis Herrera

On top of this, unlike other common investment treaty clauses—such as those

2.2.1 Domestic legality contributing to FET compliance

2.2.2 Domestic illegality contributing to FET breach

2.2.3 Domestic legality as a determinative factor?

72 ibid [237]. 73 ibid [253]. 74 ibid [189]–[190]. 75 ibid [194].

Whether the FET standard is taken as an ‘autonomous’ treaty-based standard or is

2.4.1â•‡Domestic legality asÂ€irrelevant

2.4.2 Domestic legality as contributory factor

2.4.3 Domestic legality as a proxy for (non-)arbitrary measures

3.3.1 Formulations of the ‘due process’ requirement in IIAs

3.3.2 First set—a textual link to domestic law

3.3.3 Second set—‘due process of law’

3.3.3.1 Due process as domestic legality

3.3.3.2 Due process as existence of domestic legal guarantees including

3.3.3.3 Due process as general principle

92 ibid [397]. 93 ibid [397]– [404]. 94 ibid [397].

3.3.4 Third set—due process as domestic judicial review

This reasoning could be applied to the due process/domestic legality require-