Investor State Arbitration or Local Courts: Will Australia Set a New Trend?

Abstract

The Australian Government announced in April 2011 that it will no longer include arbitration clauses in its investment treaties but will provide that investment disputes between foreign investors and host states be heard by the domestic courts of those host states instead. This statement reflects doubts by a developed state about the efficiency of bilateral investment treaties (BITs) in general and investment arbitration in particular. It also raises the question whether other countries will follow particular strategies to suit their discrete needs. One ramification is that resource wealthy states will make tactical decisions, such as entering into BITs only with capital exporting countries, as South Africa has declared. Another is whether developed states will avoid concluding BITs with developing countries whose domestic court systems are unknown or mistrusted. Yet another issue is how a policy statement, such as enunciated by Australia, will impact on its ability to attract foreign investment while protecting its national interests and also its investors abroad. This article deals with these issues, highlighting the significance of competing dispute resolution options in addressing the issues.