Investor-State Arbitration

Many International Investment Agreements (“IIAs“) offer qualifying investors themselves the right to take a resulting dispute with the host state to arbitration before an international tribunal under international law (commonly called “Investor-State Arbitration”, or “I-SA”). This offers a substantially more effective process than the alternatives of diplomatic protection or claims before the local courts of the host state.

The fact that an I-SA invokes a state’s responsibility under a treaty means that the process has a number of important differences to International Commercial Arbitration regarding for instance: the application of (typically) international law rather than a particular municipal law; how and when proceedings may be commenced; the selection of the arbitral tribunal; jurisdictional challenges; political sensitivities, including questions of transparency and the limits of some see as a form of private administrative review; an unsettled, fast-changing and at times controversial state practice and jurisprudence; and additional complexities in recognition and enforcement.

The particular (“IIA”) defines the available arbitration procedure.  Some IIAs offer none.  Others offer procedures already familiar in international commercial arbitration, e.g. ad hoc arbitration (with or without the incorporation of the UNCITRAL Model Rules) or institutional arbitration (e.g., ICC, LCIA, SCC).  Others offer procedures particular to Investment-Protection Arbitration, most commonly arbitration under the rules of the Convention on the Settlement of Investment Disputes between States and Members of Other States (the “ICSID Convention”), under the auspices of an institution of the World Bank.  The Permanent Court of Arbitration (“PCA”) also offers a selection of custom-made I-SA procedures.

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