International Investment Arbitration Research Articles

Discourses of ISDS reform: a comparison of UNCITRAL Working Group III and ICSID processes

Abstract The reform of investor-state dispute settlement (ISDS) has been tackled by the International Centre for Settlement of Investment Disputes (ICSID) and United Nations Commission on International Trade Law (UNCITRAL) Working Group (WG) III. Despite different objectives, both processes have relied on written submissions from various stakeholders. What are the structures and the narratives underlying the discourses of ISDS reform in these organizations? This article explores the content of 172 submissions by using mixed methods. It demonstrates that UNCITRAL WG III has involved less structured submissions whose content has expanded the initial mandate, with narratives encapsulating deeper disagreement among participants. By contrast, ICSID operated through a common pattern across submissions and a stronger focus on procedural issues, with less disagreement revealed in its narratives. The article proceeds in three steps. First, it compares the structure of discourses for each reform process by aggregating the content of submissions through computational analysis. Second, it relies on critical discourse analysis to reveal narratives that have emerged in each process. Lastly, the article explores submissions from actors who have participated in both processes to illustrate how they have navigated the tension between structures and narratives when reforming international investment arbitration.

A New Test Toward Consistency in International Investment Arbitration

Abstract The issue of inconsistency in international investment arbitration has become more evident with the proliferation of investment disputes. This article analyzes the value as well as the desired extent of consistency and coherence for investment arbitration, and further proposes a new test that would enhance consistency and foster the development of investment law. By matching the current status of investment arbitration with three identified conditions for the application of stare decisis or jurisprudence constante, this article concludes that strictly applying the doctrines to achieve consistency is neither feasible nor favorable for the investment arbitration regime. Further, while the public nature of this dispute-resolution mechanism requires consistency and coherence, existing attempts and approaches in this regard have significant limitations. As such, this article proposes a soft precedents test to reach a balance between consistency and flexibility. The test requires the tribunals to consider previous cases in good faith when facing the same or similar issues discussed therein, and the core consideration in whether to agree with previous cases is to develop international investment law. It is suggested that this proposed test would help to clarify, enrich and develop the content of the law within the investment arbitration community.

Article: A Case Note on the ICSID Tribunal’s Decision in Hydro and Others v. Albania: Indirect Expropriation and Proportionality

This case note delves into the complexities of balancing state regulatory authority and investor protections in the context of indirect expropriation, as exemplified in Hydro and Others v. Albania. The commentary scrutinizes the inherent structural bias of the Tribunal, which favoured the sole effects doctrine over the police powers doctrine, thereby slanting the scale towards investor interests. This focus often leaves states defending not just the merits of their regulations but also the extent to which these regulations impact the investor, shifting the tribunal’s attention from regulatory intent to merely quantifying investor detriment. Building on the notion of managerialism, the note argues that this bias makes it challenging for the Tribunal to shift away from its initial pro-investor stance. To restore balance, the commentary advocates for a framework guided by the police powers doctrine, enriched by the principle of proportionality. The note concludes by discussing the ramifications of continued bias, including the erosion of the regime’s legitimacy, evidenced by several countries, including Albania, reconsidering or severing their affiliations with the International Centre for Settlement of Investment Dispute (ICSID), thus signaling an urgent need for recalibration to preserve the legitimacy of the international arbitration regime. Indirect Expropriation, Legitimacy Crisis in Investment Arbitration, Sole Effects Doctrine, Police Powers Doctrine, Structural Bias, Principle of Proportionality, Host State Sovereignty, Investor Protection, Balkans in International Investment Arbitration, Managerialism

The use of technology in case management in international investment arbitration: a realistic approach

Abstract Investment arbitration, with its unique demands for transparency due to the public interest, is an especially promising arena for AI technologies. This transparency push and the judicialization of processes make investment arbitration increasingly amenable to technological innovations. However, the full potential of artificial intelligence (AI) in streamlining international investment arbitration case management remains largely untapped. The key to unlocking this potential lies in digitalization of data and procedures, and inter-institutional collaboration to share data. The literature regarding the use of technology in international arbitration mainly focuses on AI and its potential use in international arbitration in the future. While much of this literature speculates about the future, a holistic understanding of the present state of technology in international investment arbitration is crucial. This article spotlights the advancements achievable in case management in international investment arbitration using today’s available technologies. The current state of AI technology is primed for handling straightforward procedural tasks. Yet, these modest tasks occupy significant bandwidth in the agendas of arbitral institutions and tribunals. Once comprehensive digitalization is achieved, and AI technologies are integrated into international investment arbitration case management adeptly, that will be a significant step towards more expeditious and cost-effective arbitration procedures.

Digital Assets in International Investment Arbitration: Potential Barriers to Qualifying Investments?

In the context of advancing technology and economic progress, data has emerged as a critical factor of production, characterized by its proprietary attributes and inherent investment value. Within the domain of international investment arbitration, the concept of qualifying investment assumes paramount importance, serving as a linchpin for delineating the scope of applicability of international investment agreements and establishing the jurisdiction of arbitral tribunals. Consequently, the question of whether data, in conjunction with other associated assets involved in data processing activities, can qualify as a qualifying investment and thereby warrant protection under international investment agreements, stands as a primary concern demanding precise explication within the purview of international investment law. Currently, the determination of the qualifying of digital investments predominantly follows two distinct paths: firstly, by interpreting the broad definition of investment and the non-exclusive enumerations contained in international investment agreements, thereby aligning digital assets with the applicable scope of such agreements; secondly, by adopting objective methodologies developed through arbitral practice, wherein digital assets, under specific circumstances, fulfill the criteria elucidated in the “Salini text”. Nevertheless, the significant disparities between digital assets and traditional forms of investment pose certain challenges for arbitral tribunals in determining the qualifying digital investments, which may result in uncertain arbitral awards in this area. Such uncertainty could hinder the process of digital transformation of economic and social life. To respond to this challenge, a potential solution is to stipulate in concluded and revised international investment agreements that digital assets can qualify as qualifying investments.

Addressing Climate Change through International Investment Agreements: Obstacles and Reform Options

The current international investment treaty network is not well suited to climate goals. The tension stems from the fact that “old generation” of international investment agreements were concluded before the widespread climate action and they were “climate neutral” or “climate blind”. This study explores the obstacles for international investment agreements and investment arbitration to tackle climate change issues, indicating the need for reform. Despite the fact that some states have begun to reform their international investment agreements in light of climate change, there are still many shortcomings to be addressed. The current international investment agreement regime should be reformed to incorporate climate change considerations for investment arbitration to contribute to climate change mitigation. According to the findings, updating investment treaties based on a climate-oriented model would be a viable option for states.

INDIA: THIRD-PARTY FUNDING IN PRACTICE OF INTERNATIONAL ARBITRATION

High expenses are associated with international investment arbitration. To save the additional expenditure of the adjudication, parties typically prefer sponsored third-party ar bitration proceedings. On the other hand, the third-party funder is interested in funding the arbitration to benefit significantly from the dispute’s resolution. Interestingly, the arbitrators should be able to overlook the Third-Party Funding [TPF] issue to gain the necessary compe tency. Their competence is limited to disputes between the foreign investor and the host state only. This article discusses the concept and legal status of the third-party funder in arbitration. Keywords: Arbitration, third-party funding, expenses, adjudication, disputes, dispute resolution.

Moral Damages in International Investment Law

This article discusses the notion of moral damages in international investment arbitration. Although there are currently more than 2500 bilateral investment agreements (hereinafter — BIT) in force, none of them regulates moral damages. The analysis focuses on the historical background of moral damages, which shows that international law has not been overly concerned with their assessment within the last hundred years. As such, despite their almost universal acceptance by international courts and tribunals, there is still no guidance for tribunals on how to approach moral damages, making their assessment a topical issue of modern international law. The article highlights the reasons tribunals give for either completely disregarding such claims, or granting merely symbolic sums, such as non-tangible nature of moral damages, lack of any concrete evidence, or an extremely high threshold. The author concludes that international law still lacks a strict and uniform test, when it comes to moral damages, which are bound to face rather broad and subjective decisions rendered by the tribunals. The author further discusses the problem of assessing moral damages, which also lacks established methodology, and often refers to national law of domestic legal systems instead of a unified standard. In some cases, tribunals do not provide any reasoning or legal basis for their assessment. The author concludes that in the absence of a strict test, investment tribunals may turn to human rights instruments to make the assessment of moral damages clearer and more consistent.

Role of Human Rights in International Investment Arbitration

Role of Human Rights in International Investment Arbitration

Strategies for China’s Response to and Improvement of Third-Party Funding in International Investment Arbitration

China should prioritize the establishment and enhancement of a third-party funding system. It should actively refine the existing arbitration rules, addressing any loopholes in the current regulatory framework. Comprehensive measures should be implemented to regulate third-party funding, aligning with international trends. This is crucial not only to safeguard the foreign investment of the Chinese government and enterprises but also to position China as a globally influential arbitration center.

On the Functional Reinforcement of the Principle of Proportionality to Investors’ Legitimate Expectations in International Investment Arbitration

On the Functional Reinforcement of the Principle of Proportionality to Investors’ Legitimate Expectations in International Investment Arbitration

Assessment of Damages and Compensation in the Context of ISDS Reform Proposals

This article discusses the possible reforms in the assessment of damages and compensation in international investment arbitration. The article highlights the challenges of the valuation leading to the need for reforms, such as the inflation of awards issued in investment arbitration cases, the major gap between the damages claimed and damages awarded, and the difficulties posed by the large damages awards for the developing states. Other reasons for reforms include arbitral tribunals’ inconsistency in the valuation, the incorrectness of awards and potential conflicts of interests between arbitrators and damages experts. The author further discusses whether the issues of damages and compensation in investor- state disputes fall within the mandate of the UNCITRAL Working Group III, which is argued to be limited to solely procedural issues. The author concludes that the reforms could and should be developed by the Working Group III. The assessment of damages and compensation in investor-state disputes requires a comprehensive reform process based on procedural solutions as well as substantive suggestions, which the Working Group III can devise. Based on the law and economics theories, the author analyzes the appropriate approach of tackling the quantum issues, concluding that the reforms should be implemented through soft law instruments. The article dwells on viable procedural reforms on the quantification of damages and compensation in investment arbitration. The analysis focuses on the reforms prospecting to address the damages experts’ possible conflict of interest, the divergence in the parties’ experts damages amounts and the anchoring effect of the claimants’ requested amounts on arbitrators, as well as on the option of conducting early damages conferences, drawing on the insights from behavioral economics. Lastly, the article discusses substantive reforms options for the valuation that help promote the consistency and correctness of awards. The author considers the options of clarifying the use of the discounted cash flow method and setting standards that require damages to reflect a balance between the competing interests, providing guidance on the investor’s contributory fault, capping compensation to the actually invested amount and the assessment of contextual factors relevant for the calculation of damages.

International Investment Arbitration as a Tool to Protect Investors in the Face of the War in Ukraine

This article focuses on the prospect of using bilateral investment treaties and the international arbitration mechanisms contained within them to protect investments made in the occupied territories of Ukraine. The author argues that in situations where the investor comes from a country that has entered into investment treaties with both Ukraine and Russia, Russia is responsible for adhering to the standards contained in the investment treaties to which it is a party, on the occupied territories.To prove the above assumption, the scope and method of investor protection based on bilateral investment treaties have first been analysed. Then, the issue of the applicability of investment treaties during armed conflict has been discussed. Furthermore, the issue of the territorial scope of application of investment treaties has been examined.The conducted analysis confirms that Russia’s concrete actions, especially the effective control exercised by that country over the occupied areas of Ukraine, entitle investors to bring claims against Russia based on investment treaties.

Fair and equitable treatment as a combination of principles of law.

The article is dedicated to such a customary law-based criterion of the compliance of states’ behavior within their international obligations as it is the fair and equitable treatment. This investment treatment, from the one side, is an interweaving of the legal principles of justice and equality, and from another, is formed by interpretations of decisions of international investment arbitrations. In the article also listed and briefly described some principles of law including general and specific for the branches of investment law and international investment law as well as some cross-branch legal principles. The listing and descripting of mentioned legal principles is done based on well-known theoretical-pedagogical sources and acts of international organization. These legal principles create a noticeable influence on interpretation of the fair and equitable treatment by international investment arbitrations. On the basis of authoritative works on the international investment law a modern list of some elements of the fair and equitable treatment is also provided, some of these elements are either based on key legal principles for the branch of international investment law, or are their direct embodiment. There are also quotations from decisions of international arbitrations regarding foreign investments, which are provided as examples in the material. These examples make it possible to express the legal nature of the fair and equal treatment from the point of view of influence of certain principles of law on it or transfer the general conceptual meaning of this investment treatment as the protecting international investments remedy. Key words: investment treatment, fair and equitable treatment, general principles of law, legal principles of international investment law.

Research on Regulations of Third-Party Funding in IIA

In recent years, third-party funding (TPF) in international investment arbitration (IIA) has made a significant impact both in theory and practice. Nowadays, a Chinese law firm (the "PRC law firm") acted as the sole agent in the international investment arbitration case AsiaPhos v. China and the Chinese party won the lawsuit. One of the petitioners in the suit, AsiaPhos (Asiahua Group), claimed that its board of directors and its subsidiaries had entered into a formal financial aid agreement with a US-based fund, namely TPF. The financial support offers an opportunity to approach justice to applicants in economic distress or intending to share arbitration risks and also produces deterrence to the host state from any improper behaviors harming the interests of investors. However, on the one hand, due to commercial litigation, the arbitrators and investors will have a conflict of interest, on the other hand, third parties and investors usually live abroad, where governments lack the relevant information and competence that require international cooperation. In addition, the host country, especially the developing country, will also face the high cost of investment arbitration, and solving the problem must be needed for relevant mechanisms. This article discusses the application and development of TPF in IIA and analyzes the negative impact of TPF based on some legal issues, and then proposes the relevant rules and policy. On this basis, the study also provides suggestions for the practice of TPF from the perspective of the Chinese party to promote the development of TPF and puts forward advice for international investment rule-making balance in China.

Jurisprudential Analysis of Precedents Invoked in International Investment Arbitration

With the increase of international investment arbitration cases and the development of arbitration practice, it is more common for arbitral tribunals to invoke precedents to explain the meaning of clauses and make judgments. However, many problems need to be solved in the process of invoking precedents. This paper starts from the jurisprudential analysis of invoking precedent in investment arbitration, analyzes the reasons why it is difficult for the arbitral tribunal to set aside it in practice on the basis of distinguishing the nature of invoking precedent, and then points out the doubts about the legality of the award made by invoking precedent, the intensification of the contradiction between the accuracy and consistency of the award results, and the resulting issues of the will of the respondent State. After analyzing the causes of these problems, the paper proposes to support the arbitral tribunal’s act of invoking precedents on the basis of improving the sources of international law, and strengthen the States parties’ interference in the interpretation of treaties by various methods, so that precedents can be applied more reasonably in international investment arbitration, and at the same time avoid the adverse effects of its improper application on international investment arbitration.

The international arbitration as a method of settling investment disputes

The main subject of this article is an analysis of the mechanism of settling investment disputes by means of international arbitration. This essay indicates that factors such as globalization, digitization, intensification of international economic contacts, especially between advanced countries and developing countries, have contributed to the increase in the number of investment disputes, which determines the need to resolve these disputes on the basis of the international law. Due to the origin of entities from different countries with different economic systems and various legal cultures, the international investment arbitration seems to be an effective way to resolve disputes, which provides private investors with guarantees of investment security. The article mentions the characteristic features of the international investment arbitration, such as: consensuality, dispute resolution by an independent tribunal, equality of parties to the proceedings, the possibility of dispute resolution based on the principle of equity, decentralized nature of arbitration. The essay also relates to the clauses appearing in the agreements on the promotion and mutual protection of investments. In addition to this, de lege ferenda conclusions regarding the increase of the transparency of the arbitration proceedings and allowance of the participation of so-called friends of the court in the investment arbitration have been mentioned in the present article as well.

Counterclaims in Investment Arbitration: Towards an Integrated Approach

Abstract It is widely accepted that counterclaims may not be used as a means to exceed the limits of a tribunal’s jurisdiction, while they must at the same time be closely connected to the other party’s claim. However, in the particular context of investment arbitration, these two propositions create a tension that has led to a problematic and unfair construction of the investor-State dispute settlement mechanism. This article explores the foundations for a better, more integrated approach. It argues that jurisdiction over counterclaims should be seen as incidental to the one already established over the original claim, allowing tribunals to hear a wider range of counterclaims. This is inherent to the exercise of a tribunal’s adjudicative function, and rests on a foundation not only of implied consent, but also on one of principle. The approach presented here has the potential to protect counterclaims as a matter of procedural fairness and to address some of the reasons for the backlash against international investment arbitration law.

Litigation Finance and the Assetization of International Investment Arbitration

Abstract Third Party Funding (TPF) is presented as a tool to help fund the cost of expensive litigation. In the context of Investment Arbitration, however, TPF has instead led to the commodification of justice, and raises concerns around its assetization. Arbitration often comes at a net loss for States, and the extraordinary expenditures required may pique the interest of third party funders who wish to profit from suing States. A two-fold movement contributed to the assetization process of TPF. The first movement was to package TPF as a tool to ensure access to justice, and the second was to assert a ‘funding gap’ in access to justice that ad hoc TPF alone could not address. TPF leads to more claims and riskier claims against States and increases the risk of crippling compensation. This requires States to allocate public funds to the cost of litigation, rather than to other necessary public services.

Le Mexique et l’arbitrage international d’investissement: un paysage pluraliste

This article examines Mexico’s experience with investment arbitration, focusing on its impressive evolution. Since the adoption of North American free trade agreement (NAFTA) in 1994, Mexico has signed several bilateral investment treaties (BITs) and free trade agreements (FTAs) containing investor-state dispute settlement (ISDS) arbitration clauses. An analysis of these various clauses reveals that Mexico has chosen the path of pluralism, adopting various investment arbitration options in its international investment agreements. This stance on arbitration reflects the lack of a regional standard for foreign investment protection and the difficulty of finding a genuine alternative path. In the absence of such an alternative, flexibility becomes the most pragmatic option. In this sense, unlike Brazil, which has its own model agreement and is an important political force in the balance of power in international investment law, Mexico is a rule taker state. Mexico; bilateral investment treaty; free trade agreement; Latin America; dispute settlement mechanism; international investment arbitration; pluralism; rule taker.