The definition of ‘investor-state disputes’
In international law, a dispute has traditionally been defined as a ‘disagreement on a
point of law or fact, a conflict of legal views or of interests between two persons’. This
definition was provided by the Permanent Court of International Justice in the 1924
Mavrommatis Palestine concessions case, and is often referred to by arbitration tribunals,
for example in the 2016 award rendered by the Tribunal in Crystallex v Venezuela.
The first international investment agreement was concluded in 1959 between Germany
and Pakistan; today 2671 such agreements are in force. This means that under the great
majority of those 2671 agreements, the private persons to whom they are applicable can
directly initiate proceedings, in accordance with the conditions that these agreements set
out, in order to challenge the legality of any state measure that they consider breaches of
those agreements.
As for investor-state disputes, they arise most notably in two situations: first, where it is
alleged by a foreign investor that a State violated the contract they concluded, or
alternatively, where it is alleged by a foreign investor that a host State violated the
international investment agreement it concluded with her home State. The former
situation is called a ‘contract claim’, while the latter is known as a ‘treaty claim’.
Methods to settle investor-state disputes
Originally, disputes between foreigners and their host States were mainly settled either
by the domestic courts of those States or through diplomatic protection. This second
mechanism required the foreigners’ State of nationality to endorse their claim,
transforming these disputes into inter-state disputes between the home and the host
States.
Both of these options were criticized due to their lack of objectivity – meaning they tinged
the dispute with undue political considerations. Domestic courts were seen as being
biased towards their host States, while the discretion that States had to choose whether
to exercise diplomatic protection was seen as a door through which political
considerations could enter. Moreover, the fact that under diplomatic protection any
compensation owed is paid to the States, which are not obliged to then transfer it to their
nationals, was obviously seen as a major drawback of diplomatic protection.
This explains why arbitration has emerged as the preferred method to settle investor-
state disputes, first in contracts concluded between foreign investors and host States and
then later in international investment agreements. Arbitration has been seen as a tool to
depoliticize the settlement of these disputes. Arbitration is a legal, as opposed to a
political, method of dispute settlement. This means notably that disputes are settled by
third parties, usually according to law, with their decisions being binding upon the parties
to the dispute.
The institutional and procedural features of investor-state arbitration
The main difference between arbitration and the other legal method of dispute
settlement, meaning permanent courts, is the command that disputing parties retain over
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the settlement of the dispute. In particular, the parties can choose the procedure to be
followed, the law applicable to the settlement of the dispute, and the arbitrators who will
settle it. As we will discuss in module six, the fact that arbitrators are appointed by the
parties to the dispute is one of the reason why some want to replace arbitration with a
court system. This control the disputing parties have over the settlement of the dispute,
which is a typical feature of arbitration, entails that arbitration is by nature ad hoc. This
means that a new tribunal is set up for every new dispute.
However, this does not mean that arbitration tribunals operate in a vacuum. Many
tribunals are assisted by administrative centres which play a fundamental role in
ensuring their efficient functioning. They can play this role because a great number of
international investment agreements allow investor-state disputes to be submitted to
one or several of these centres. Among these centres, we can mention in particular the
ICSID which is based in Washington, the Permanent Court of Arbitration which is located
in The Hague, and the Stockholm Chamber of Commerce.
The range of services those administrative centres can provide varies. All of them provide
at least legal, technical and logistical support. The ICSID also sets out arbitration rules
which regulate the different stages and aspects of the proceedings. You should note that
the ICSID also administers proceedings in accordance with other rules, such as the rules
of arbitration of the United Nations Commission on International Trade Law, which I will
refer to as the UNCITRAL arbitration rules.
Today most investor-state disputes are settled under the ICSID’s rules of arbitration.
More precisely, they are settled according to the 1965 ICSID Convention and the ICSID
Rules of procedure for arbitration proceedings. These govern what is called ICSID
Convention arbitration proceedings. These proceedings are open to disputes arising
between an investor who is a national of a State party to the ICSID Convention and a host
State which is also a party to this Convention.
Those ICSID Convention arbitration proceedings are to be distinguished from the ICSID
Additional Facility arbitration proceedings. This second type of proceedings are
governed by the ICSID Additional facility rules and the ICSID Arbitration (Additional
facility rules). Those proceedings were created in 1978, and are available for disputes
between a State and a foreign investor, where either the host State or the State of
nationality is not a party to the ICSID Convention. However, these are not the only rules.
The evolution of arbitration proceedings
Initially investor-state arbitration was very similar to commercial arbitration. In addition
to the traditional features of arbitration explained in chapter one, something they also
had in common was the confidentiality of the proceedings. This confidentiality applied to
both the process and its output. The process, meaning the written and the oral phases,
was kept confidential notably in the sense that no document or memorial was made
available to the public; in the same vein, the hearings took place beyond closed doors. The
output of the proceedings, meaning the final award, was not released.
Such a degree of confidentiality is not criticized in commercial arbitration; in fact, it is
seen as normal that disputes relating to commercial transactions between private
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persons be kept secret. In international investment law, however, such a level of
confidentiality has been debated and criticised due to the fact that one party to the
dispute is a State acting as a sovereign and because the measure at stake is tinged with
public interest considerations. Many have viewed this level of confidentiality as
unacceptable, in particular when the number of investor-state disputes and the
awareness of local populations of these disputes have increased.
This contributes to explain why the rules of arbitration have been revised since the 2000s
in order to make arbitration proceedings more transparent. This is well illustrated by the
2006 revision of the Rules of procedure for arbitration proceedings of the International
Centre for Settlement of Investment Disputes, which I will refer to as the ICSID Rules of
procedure for arbitration proceedings for short. Particular features of this evolution are
the briefing of amicus curiae, the opening of hearings and the publication of awards.
As for amicus curiae, arbitration tribunals can now, after consultation of the parties, allow
a person or an entity to file a written submission with the tribunal regarding a matter
within the scope of the dispute. Rule 37 of the ICSID Rules of procedure for arbitration
proceedings provides a non-exhaustive list of the elements that tribunals shall take into
account in making the decision to grant or not this authorisation, including: the extent to
which the non-disputing party has a significant interest in the proceeding, the extent to
which they would address a matter within the scope of the dispute, and the extent to
which they would assist the tribunal in the determination of a factual or legal issue by
bringing a perspective, a particular knowledge or an insight that is different from that of
the disputing parties.
As a result of this evolution, non-governmental organisations and international
organisations have since been active in filing such amicus curiae. For instance, the World
Health Organisation did so in the case of Philip Morris v Uruguay in which Philip Morris
challenged the legality of a plain packaging regulation adopted by Uruguay.
Concerning the hearings themselves, the tribunal can, after consultation with the
Secretary General, allow any person not involved in the proceedings to attend or observe
all or part of the hearings, provided neither party objects to this. In such a case, the
tribunal shall establish procedures for the protection of proprietary or privileged
information. For instance, in BSG v Guinea, the hearings on jurisdiction and merits were
open to the public via webcast from the 22nd of May 2017 to the 2nd of June 2017.
Finally, as for the awards, the Rules of procedure for arbitration proceedings provide that
the ICSID shall not publish them without the consent of the disputing parties. However,
even if the parties oppose the publication, the ICSID shall promptly publish excerpts of
the legal reasoning of arbitration tribunals. This evolution, initiated in the 1984
amendment of the Rules, introduces an element of transparency in that it helps us to
understand how these tribunals decide whether state measures conform with the
relevant international investment agreements. As we will discuss in module five, it is also
crucial for the formation of what is called ‘jurisprudences constantes’.
In addition to the 2006 revision of the ICSID Rules of procedure for arbitration
proceedings, we can also refer to the 2013 Rules on transparency in treaty-based
investor-state arbitration prepared by the United Nations Commission on International
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Trade Law. This instrument contains a set of rules that provide transparency and
accessibility to the public in investor-state arbitration.
Forums of International Investment Dispute Resolution
The brief note above should have given you some understanding of investment dispute
resolution. Above also, we referred to ICSID and other rules of procedure. However, there
are other institutions also which provide investment dispute resolution.
These are listed in the syllabus as such: PCA, ICC, ICSID, Ad-hoc Arbitration and other
Institutional Institution).
Investment treaties provide for Investor-state dispute settlement (ISDS) or investment
court system (ICS). The institutions motioned above happen to be part of the former. The
jurisdiction of these institutions is invoked through so-called ISDS clauses.
More information:
Note on Ad hoc v. Institutional Arbitration: https://www.out-
law.com/en/topics/projects--construction/international-arbitration/institutional-vs-
ad-hoc-arbitration/
PCA- https://pca-cpa.org/wp-content/uploads/sites/6/2016/01/Investor-State-and-
other-Mixed-Arbitrations-at-the-PCA-by-Judith-Levine.pdf
ICC- http://www.iccindiaonline.org/arbitration/ICC-International-Court-
Arbitration.html [also note that the Antrix-Devas case was filed in the ICC]
ICSID- https://icsid.worldbank.org/en/Pages/about/default.aspx
Other important institutions:
Stockholm Chamber of Commerce, International Chamber of Commerce
London Court of International Arbitration
SEE ALSO:
International Arbitration between Foreign Investors and Host States:
http://www.nyulawglobal.org/globalex/International_Arbitration_Foreign_Investors_H
ost_States1.html
United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules:
Another common choice provided in international investment agreements is to submit
an arbitral claim under the 2010 United Nations Commission on International Trade Law
Arbitration Rules (or UNCITRAL Arbitration Rules). The Rules provide for a non-
institutional procedural framework for proceedings. The parties to the dispute however
often resort to arbitral institutions such as the ICSID or the Permanent Court of
Arbitration to assist the administration of proceedings.
