CHAPTER EIGHT

Procedural Aspects (Settlement of

Investment Disputes)
 Types of Investment Disputes
1. Interstate Disputes
• Involves disputes between (contracting) states as a
result of violation of a treaty protecting investment
• BITs often provide an arbitration clauses
(augmented by provisions requiring consultations
and negotiation)
 Diplomatic protection cases (are currently rare)
 Disputes regarding application/interpretation of an
investment treaty
 Cont.
2. Investor/State Disputes
• The majority of investment disputes in a
contemporary IIL are those between foreign
investors vs host states.
• Those disputes may be resolved by:
 Litigation in domestic courts (limited
usefulness)
 Arbitration/conciliation in an international
forum
 Interstate Disputes
A. Diplomatic Protection
• Traditionally investors didn’t have international
remedies to pursue claims against states. (No
standing)
• Hence, diplomatic protection by home states.
• A State brings a claim against another State on
behalf of one of its nationals on the grounds of
an injury suffered by that national (caused by
the other State)
 Cont.
• When DP is exercised the primary method of
dispute settlement is negotiation
• If negotiations fail, the protecting state may
resort to international adjudication (like ICJ)
 Example: Nottebohm (ICJ, 1955)
• Liechtenstein brought a claim against Guatemala
based, inter alia, on denial of Mr. Nottebohm’s
entry into Guatemala and the confiscation of all
his possessions in Guatemala
 Problems from the point of view of the
investor
 The right to exercise diplomatic protection is a
right of the State, not of the investor
• State may not exercise such right (political
discretion extent and time of protection in
states’ freedom of action )
• State may discontinue a diplomatic protec.
anytime (investors not in control of the
process)
 Cont.
• State may settle for limited amount; may not
transfer proceeds to investor
 Exercise of diplomatic protection requires the
exhaustion of legal remedies in host State that
has allegedly committed the violation
 Problems from the point of view of host
States:
• Seriously disrupts international relations (had been
causing irritations to developing countries when
invoked by capital exporting nations)
• The Calvo doctrine- Is the 19th century doctrine
developed by Argentine scholar Carlos Calvo
according to which diplomatic protection is not
available to individuals possessing property in Latin
American States; they must have recourse to the local
courts………..Relevant clauses contained in concession
contracts were referred to as “Calvo clauses”
 Cont.
• DP may be curtailed by treaty provisions
(removing investment disputes from the realm
of politics/diplomacy)
• The right to exercise DP may become
unavailable where investors are empowered
to bring an international claim against host
States, See Art. 27(1) ICSID Convention
 Cont.
• “No Contracting State shall give diplomatic
protection, or bring an international claim, in
respect of a dispute which one of its nationals
and another Contracting State shall have
consented to submit or shall have submitted
to arbitration under this Convention, unless
such other Contracting State shall have failed
to abide by and comply with the award
rendered in such dispute.”
 cont.
B. Disputes regarding application/interpretation
of investment treaties
• See: Art. 8 of Ethio-China BIT, also art-64 of
ICSID
 Investor v State Disputes
Those disputes may be resolved by:
• Litigation in domestic courts (absent
agreements to contrary these types of
disputes are settled by host states courts…
Conflict of law rules..’closest connection’ )
• Arbitration/conciliation in an international
forum
 Litigation
• The limited usefulness of Litigation in
domestic courts
A. Courts of host State
• lack of impartiality; sense of judicial loyalty,
local courts may give preference to domestic
law over international law standards, lack of
expertise
 Cont.
B. Investor’s courts and of 3rd states
• likely to lack jurisdiction; over investment,
relevant forum selection clause unlikely to be
accepted by host State
• In both scenarios, sovereign immunity may be
a bar to jurisdiction (as host states while
dealing with foreign investors are acting in
sovereign capacities)
 Cont.
• Compared to courts, conciliation
and/arbitration offers advantages to investors
(focusing on arbitration):
 Impartial & independent tribunal
 Ability of tribunal to give full effectiveness to
international law
 Finality of arbitration (speed)
 Cont.
 Offers advantages to host States (focusing on
arbitration):
• Improves investment climate and attracts
foreign investment
• “Depoliticizes” disputes (removes them from
the realm of international law and politics)
Arbitration of Investment Disputes
• Arbitration has played a prominent role in the
settlement of investment disputes
• Most of the international conventions provide
for arbitration as the preferred method of
dispute settlement.
• In general they either provide for ad hoc
arbitration under the UNCITRAL Rules or
under the rules of an acceptable arbitration
institution, e.g. ICC, SCC and in particular ICSID
 Cont.
• In addition, some treaties, such as NAFTA, also
devise their own arbitration system to take
account of the particular circumstances.
 Investment disputes differ in several respects
from ordinary commercial disputes.
 Frequently the amount in dispute is
remarkable and the issues may have
considerable political implications.
 Cont.
 Disagreements often concern the objectives of
the investment, the repatriation of revenues
and the ultimate control and benefit of the
investment.
 The investment may relate to vital
infrastructure the completion of which is of
significant importance for the national
economy.
 cont.
 The outcome of the dispute may also affect
the general investment climate in a country.
 In addition, one party is a state vested with
sovereign powers, which is nevertheless in
need of foreign investment and is bound by
international instruments.
• These factors influence the conduct of the
arbitration in various respects.
 Cont.
• Different types of investment arbitration
mechanisms are available:
• Autonomous arbitration (ICSID)
• Non-autonomous (“ordinary”) arbitration
(Institutional +Ad hoc)
 Autonomous Arbitration (ICSID)
• ICSID was established by the 1965 Washington
Convention on the Settlement of Investment
Disputes Between States and Nationals of the
Other States
• ICSID arbitration is an example of delocalized
arbitration proceedings governed solely by
international rules and not submitted to the
provisions of any one national arbitration law-no
interference from domestic courts in proceedings
(interim relief etc.)
 Cont.
• In particular, an ICSID award is not submitted
to the scrutiny of national courts for
annulment or enforcement.
• The only means of redress is the delocalized
internal ICSID annulment procedure and a
facilitated procedure for the recognition and
declaration of enforceability by ICSID
 cont.
• ICSID arbitral awards enjoy ‘automatic
enforcement’
• All Contracting States are required to
recognize the award and enforce its pecuniary
obligations as if it were a final judgment of the
court of the state
Non-autonomous institutional arbitration

• Types
1. ICISD Additional Facility- available where
either the host State or the home State of the
investor is not a contracting party to the
ICSID Convention.
2. Other institutional arbitration (ICC, LCIA etc.)
• Legal regime
 Cont.
• Domestic arbitration law of seat applies to
court interference; means of recourse against
awards etc.
• International treaties (esp. New York
Convention) govern enforcement abroad
 Non-autonomous ad hoc arbitration
• Types
1. UNCITRAL Rules
2. Party-tailored rules
• Legal regime
• Same as for non-autonomous institutional
arbitration
 Consent to Arbitration
• Is a requirement for any form of arbitration
(be commercial/investment)
• The source of the power (jurisdiction) of
arbitral tribunals is the consent of parties (no
consent-no jurisdiction, unlike the courts of
law whose power emanates from the state)
• Applies in investment arbitration (depends on
the consent of both an investor and a host
state)
 Cont.
• E.g: Art. 25 ICSID Convention:
• (1) The jurisdiction of the Centre shall extend to
any legal dispute arising directly out of an
investment, between a Contracting State (or any
constituent subdivision or agency of a
Contracting State designated to the Centre by
that State) and a national of another Contracting
State, which the parties to the dispute consent in
writing to submit to the Centre.
 Cont.
• Consent is given in one of four ways
o Direct agreement b/n the parties (consent
clause in contracts b/n states & foreign
investors)
o A provision in the national legislation of the
host state
o Offer of arbitration in BIT
o Offer of arbitration in MIT
 Cont.
• Scope of consent depends on the particular
consent clause. In BITs, one may find four
types of clauses:
Any investment-related dispute
Certain categories of investment disputes
Disputes relating to breaches of the BIT
Disputes relating to specific questions/types
of breaches
 Different Modes of Consent Clauses

1. “Any investment-related dispute” E.g.,

France/Argentina BIT Art. 8
• Such a clause should be construed as covering
all types of claims, including contract claims
2. Certain categories of investment disputes:
• E.g., US/Kyrgyzstan BIT Art. 8“an investment
dispute is a dispute between a Party and a
national or company of the other Party arising
out of or relating to:
 Cont.
• (a) an investment agreement between that
Party and such national or company;
• (b) an investment authorization granted by
that Party's foreign investment authority to
such national or company; or
• (c) an alleged breach of any right conferred or
created by this Treaty with respect to an
investment.
 Cont.
3. Disputes relating to breaches of the BIT:
• E.g., Netherlands/El Salvador BIT Art. 9
“disputes which arise within the scope of this
agreement”
4. Disputes relating to specific questions/types of
breaches,
• E.g., China/Hungary BIT Art. 10(1) “Any
dispute… concerning the amount of
compensation for expropriation”
Challenge, Recognition And Enforcement Of
Awards
• A) Concept of Challenge
• What does it mean to “challenge” a decision/
an award?
• In principle awards are final and not subject to
appeals.(yet review right is possible under
very limited circumstances)
• Finality (efficiency) vs Correctness are the
competing considerations
 Cont.
• Finality is given more weight than correctness
in international arbitration.
B) Non-ICSID Awards
• Only possible in the courts of the place of
arbitration or by the courts charged with the
task of enforcing the award
• Governed by domestic rules of place of
arbitration
 Cont.
• See UNCITRAL Model Law on ICA
 No appeal
 Action to have the award set aside on a
limited number of grounds (Art.34)
• New York Convention 1958 (art-V) lists
grounds upon which the recognition and
enforcement of non-national may be refused
at the request of a party.
 Cont.
C) ICSID awards
• ICSID awards are not subject to annulment or
any other form of scrutiny by domestic courts.
(autonomy)
• It rather offers its own self contained system
of review.(made by ad hoc committee at the
request of a party)
 Cont.
• The four types of requests are:
• (Revision,Interpretation,Supplementation/
rectification & Annulment)
• Art. 49(2), Art. 51, Art. 52 ICSID Convention)
 Recognition & Enforcement
Non-ICSID awards
• Enforcement governed by domestic rules of
enforcement jurisdiction
• See Model Law Art. 36 and NYC Art. V
ICSID awards
• Article 54(1) ICSID Convention
 Cont.
• “Each Contracting State shall recognize an
award rendered pursuant to this Convention
as binding and enforce the pecuniary
obligations imposed by that award within its
territories as if it were a final judgment of a
court in that State…”
• Article 55 ICSID Convention
 Cont.
• “Nothing in Article 54 shall be construed as
derogating from the law in force in any
Contracting State relating to immunity of that
State or of any foreign State from execution.
 Immunity from Execution
• This is a matter of CIL:
• Prevailing rule: only property related to
exercise of State’s sovereign functions is
immune from execution; commercial property
is not
• Please refer to Vivendi v. Argentina (on
annulment of ICSID award)