In This Article International Investment Arbitration

  • Introduction
  • Investment Arbitration in Different Regions of the World
  • Further Readings in International Investment Arbitration
  • Electronic Resources

International Law International Investment Arbitration
by
C.L. Lim, Jean Ho
  • LAST MODIFIED: 28 April 2016
  • DOI: 10.1093/obo/9780199796953-0135

Introduction

International investment arbitration is heterogeneous. At its core, it represents the settlement of international investment disputes between foreign investors and host States by arbitration. However, as there are different ways to institute arbitral proceedings, the structural and substantive aspects of international investment arbitration are colored by the mode of commencement of arbitration. An early iteration of international investment arbitration was the submission of investment claims to Mixed Claims Commissions. These had been established by a series of bilateral conventions concluded between the mid-1800s and the early 1900s in order to adjudicate disputes between the nationals of a party State to the convention and the other party State. The types of disputes that fell within the jurisdiction of a Commission were specified in the conventions and varied, depending upon which convention was invoked. This form of international investment arbitration never achieved great prominence because of the small number of investment claims heard but they were a useful source of early jurisprudence and the basic form has continued to be employed in various guises, most notably in the case of the subsequent Iran-US Claims Tribunal. In the early 21st century, however, the two dominant iterations of international investment arbitration are contractually based investment arbitration and treaty-based investment arbitration. In investment contract arbitration, the legal basis for the arbitration is an arbitration clause in a contract which is binding on all contracting parties. In investment treaty arbitration, however, the legal basis for arbitration is a binding offer in a treaty clause by a host State to arbitrate with all protected investors, which any protected investor is then free to accept or reject. For this reason, the latter has been referred to, sometimes derisively, as “arbitration without privity,” a phrase coined by Jan Paulsson. There is also a third category of consent to investment arbitration by acceptance of a unilateral offer of a State through domestic investment laws. Having said that, many investment treaties also record an agreement between the Contracting States to arbitrate disputes arising from the interpretation or application of the treaty. In sum, investment treaty arbitration encompasses investor-State arbitration, which may have a variety of legal bases, and also State-to-State arbitration.

The Birth and Evolution of International Investment Arbitration

The beginnings of international investment arbitration are closely tied to the evolution of the law on international protection of foreign investments and the early formation of the modern principles of State responsibility. Before international investment arbitration became de rigeur for investor-State disputes, an investor’s best hope of obtaining redress for the interference with his property or contractual rights by a host State lay in seeking the diplomatic protection of his home State. However, there was no guarantee of redress since the decision by the home State to confer diplomatic protection is discretionary and, even if the home State presented the claim on behalf of its national, there was no guarantee that the host State would entertain or satisfy the claim. Reliance on diplomatic protection and State-to-State dispute settlement rendered the law on investment protection highly unpredictable, even if the principles of State responsibility gradually developed through arbitral and judicial pronouncements. If investment protection was to be taken seriously, it became necessary to find other means of safeguarding foreign investments and investors. Other than the customary international law on the protection of aliens and their property, two other methods of investment protection emerged—contractual protection and treaty protection. While there are important differences between the two types of investment protection—such as how contractual obligations are governed by the proper law of the contract, while treaty obligations are governed by international law—they converge on provision for investor-State arbitration. As a result of this convergence, which was aimed at ensuring a more effective means of redress, international investment arbitration has eclipsed diplomatic protection as the prevailing mode of dispute settlement between investors and States. Enforcement of such awards is facilitated under Article 54 of the Convention on the Settlement of Disputes between States and Nationals of Other States of 1965 (the “ICSID” or “Washington” Convention [ICSID is the World Bank’s International Centre for the Settlement of Investment Disputes]), or in the case of non-ICSID arbitration, Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention).

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