Counterclaims in Investment Arbitration: Saluka v The Czech Republic

Abstract

This paper considers the availability of host state counterclaims in investment arbitration using as a case study Saluka v. The Czech Republic, the first decision under the 1976 UNCITRAL Rules and considered “the most comprehensive consideration of arbitral jurisdiction over counterclaims in investor-state dispute settlement.” Section II provides the historical background to Saluka, with specific reference to the Czech transitional economy following the fall of the Iron Curtain, banking sector privatization efforts, use of a mass voucher system, and an overview of the arbitral proceedings. Section III considers the unique “arbitration without privity” nature of investor-state proceedings and the Tribunal’s search for consent over counterclaims in (i) the treaty text of the Netherlands-Czech BIT, (ii) the underlying contract at issue containing a separate mandatory arbitration clause, (iii) the 1976 UNCITRAL Rules, and (iv) the procedural problems presented by privity of contract and the determination of proper parties to the dispute. Section IV weighs the Tribunal’s restrictive test, requiring sufficient juridicial connexity between counterclaims and primary claims, against criticism. Section V concludes that enduring problems presented by Saluka (e.g. protection of vulnerable transitional economies against predatory foreign investment), which echo across an investor-state dispute settlement system in the throes of a legitimacy crisis, may be better resolved through robust creation of substantive obligations, such as an International Convention on Foreign Investment, rather than a reimagining of an already imperfect procedural framework for counterclaims.