1.

Definition of Investment Law

Investment law governs legal frameworks related to investments, including foreign direct
investment (FDI). It sets out rules to protect investors' rights while allowing states to regulate
economic activities. The law covers aspects like investment treaties, dispute resolution, and
regulatory frameworks. It aims to create a balance between investor protection and national
interests.

2. Sources of Investment Law

a. Domestic Laws

Each country has laws regulating foreign and domestic investment, including licensing, taxation,
and sector-specific restrictions. These laws determine how businesses operate and ensure
investments comply with national policies. Some industries, such as defense, may be restricted
for foreign investors.

b. International Investment Treaties

These include Bilateral Investment Treaties (BITs) and Multilateral Investment Treaties (MITs)
that set investment protection standards. BITs are agreements between two states, while MITs
involve multiple nations, like the Energy Charter Treaty. Such treaties help attract foreign
investment by ensuring fair treatment.

c. Customary International Law

Customary international law includes widely accepted principles like the prohibition of
expropriation without compensation. These unwritten rules have developed over time through
consistent state practice. They serve as a foundation for modern investment agreements.

d. Arbitration Decisions & Case Law

3. Key Principles of Investment Law

a. National Treatment (NT)

Foreign investors must be treated no less favorably than domestic investors in similar
circumstances. This prevents discrimination based on nationality. It ensures a level playing field
for businesses operating in a host country.

b. Most-Favored-Nation (MFN) Treatment

Investors from one country must receive the same benefits as those from any other country with
the best treatment. This prevents preferential treatment between foreign investors. It encourages
fair competition in international investment.

c. Fair and Equitable Treatment (FET)

States must provide a stable and predictable legal environment for investors. Arbitrary or unfair
government actions, such as sudden regulatory changes, may violate this principle. FET protects
investors from discrimination and legal uncertainty.

d. Expropriation and Compensation

Governments can only seize private investments for a legitimate public purpose, such as
infrastructure projects. However, they must provide prompt and fair compensation to the
investor. Indirect expropriation, like excessive regulations, may also require compensation.

e. Dispute Resolution
Investment treaties provide mechanisms to resolve disputes between investors and states.
Investors can bring claims to international arbitration instead of relying on domestic courts.
Popular forums include ICSID, UNCITRAL, and the ICC.

4. Investment Protection & Promotion

a. Protection Against Unfair State Actions

Investment laws ensure that states cannot arbitrarily revoke licenses or impose discriminatory
measures. Investors have legal protections to challenge unfair government actions. These
protections promote confidence in cross-border investments.

b. Legal Stability & Transparency

A predictable legal environment encourages foreign investors by reducing regulatory

c. Role of Investment Promotion Agencies (IPAs)

IPAs help attract foreign investment by offering incentives and support services. They assist
investors with permits, infrastructure, and regulatory compliance. Examples include India’s
Invest India and Singapore’s Economic Development Board.

5. Investor-State Dispute Settlement (ISDS)

a. Why ISDS?
ISDS allows investors to sue governments when their rights under investment treaties are
violated. It ensures investors are not subject to biased or ineffective domestic courts. This system
increases investor confidence in foreign markets.

b. ISDS Mechanisms

Common ISDS mechanisms include ICSID arbitration (a World Bank-affiliated body) and
UNCITRAL arbitration rules. Investors and states can also agree to ad hoc dispute resolution.
These mechanisms ensure neutrality in legal disputes.

c. Criticisms of ISDS

Critics argue ISDS is costly, lengthy, and undermines state sovereignty. Some cases lack
transparency, leading to concerns about fairness. Governments are pushing for reforms,
including an appeal mechanism for ISDS decisions.

6. Emerging Trends & Challenges

a. Sustainable Investment & ESG Considerations

Environmental, Social, and Governance (ESG) factors are becoming critical in investment law.
Governments are incorporating sustainability requirements in treaties and regulations. Investors
increasingly prioritize ethical and green investments.

b. Balancing Investor Rights with State Sovereignty

Countries seek to protect public interests, such as health and environmental protection, without
violating investor rights. Some modern treaties allow states to regulate in areas like climate
change without facing investor lawsuits. Finding this balance remains a major challenge.

c. Reforming ISDS
Governments and international organizations are working on ISDS reforms to improve fairness
and transparency. The EU’s proposed Investment Court System (ICS) replaces traditional
arbitration with permanent judges. These changes aim to create a more just dispute resolution
system.