Issues of Sovereign and State Entities in International Arbitration: A Look into Investor-State Arbitration

Abstract

Globalization and international trade have increased the number of international commercial arbitrations where the investor and state instrumentality are parties and bilateral investment treaties (BITs) between countries exist. Many of these arbitrations arise out of bilateral or multilateral investment treaties (MITs) and are resolved under the ICSID convention. A significant number arise as a result of disputes in infrastructure projects which have been funded by development banks. In such position, these cases may be resolved by ICC rules and it will be conducted in the same way as arbitrations between individuals. In addition, numerous countries adapt privatization policies which aim to transfer its public companies sector activities and functions to the private sector. This is done to encourage foreign investment. In that case, the state can waive its immunity by a concession agreement or by an arbitration clause. But in the same time they still control those entities. These policies lead to several changes which make it inflexible to conclude if the entities are independent according to its legal principle or are owned by the state. Moreover, the state may be entitled to claim under the sovereignty immunity principle against recognition and enforcement of the award. The purpose of this paper is to focus and highlight the issues in the area of sovereign, immunity and state-owned commercial entities in investor-state arbitration. One of the questions I hope to raise through this study is whether state sovereignty may affect the arbitration award. Another important question is whether there are several methods to determine if the state entities are truly independent under the constitutional principle of separation of powers or in reality they are under government control. Consequently, the state might be liable for the conduct of its instrumentality. As a result, whether a State is seeking immunity from jurisdiction or from execution against State-owned property, the State and its wholly owned or controlled entities are considered to be functionally the same. So, the activities of State enterprises are considered to be carried out by the State in its exercise of sovereign authority.