Investment Arbitration Tribunals Research Articles

Constitucionalismo transformador y derecho internacional de inversionesTransformative constitutionalism and international investment law

Abstract International investment law faces five core legitimacy challenges: the state-dependency challenge, the human and constitutional rights challenge, the equality challenge, the standard of protection challenge, and the investor state dispute settlement system challenge. This article endorses the claim that constitutional courts can contribute to the solution of those legitimacy challenges when they exercise the power to review the constitutionality of international investment treaties. From a transformative perspective, constitutional courts of host states can: (i) create public deliberation and raise awareness concerning the legitimacy challenges of international investment law; (ii) grant equal treatment to national and foreign investors; (iii) require governments to negotiate less open-textured provisions in international investment treaties; (iv) safeguard the protection of human and constitutional rights, and other common goods; and (v) raise due process, predictability, transparency, and proportionality standards concerning the investor state dispute settlement system. These judicial undertakings can strengthen the bargaining power of host executive branch authorities in the negotiation of international investment treaties and can narrow down the space of discretion of international investment arbitral tribunals. Both outcomes could render international investment treatises’ creation and enforcement more legitimate.

Parallel Proceedings – Investment Arbitration and the European Court of Human Rights

Abstract This contribution addresses the intersection of international human rights law and international economic law in situations where investors can bring claims under both protection systems. It discusses why multiple proceedings concerning one set of facts may be problematic and identifies situations in which duplication may occur. It presents instruments that have been developed at the domestic or international level to prevent this phenomenon. The article analyses the case law of the European Court of Human Rights (ECtHR) as well as of investment arbitral tribunals dealing with parallel or subsequent litigations. The conclusions set out whether the mechanisms used by arbitral tribunals and the ECtHR are adequate to deal with the phenomenon of potential multiple proceedings.

Sustainable Development as a Wicked Problem in Investment Arbitration

Abstract References to ‘sustainable development’ and ‘sustainability’ can be found in decisions of investment arbitration tribunals and submissions from disputing parties. By relying on the concept of ‘wicked problem’, this article highlights the failure to articulate any clear relevance of sustainable development in the adjudication of investment disputes and structural limitations imposed by investor-State dispute settlement (ISDS). It proceeds in four steps. First, the article defines wicked problems and their distinguishing properties. Second, it shows how tribunals have used sustainable development in a way that evidences these distinguishing properties. Third, in light of submissions from respondent States and claimants, the article shows that ISDS imposes structural limitations on narratives that relate to sustainability and sustainable development. Finally, it examines the discussions on sustainability under the umbrella of the United Nations Commission on International Trade Law Working Group III and stresses the need for a political resolution outside ISDS proceedings.

Observations on Taxation-Based Claims in International Investment Arbitration Does the power to Tax Involve the power to Extinguish? (2nd Prize Winner of the Essay Competition 2023)

While taxation has been a concern for centuries, it became a universal concern with the increase in economic interaction between States. It has become yet more important with the internationalisation of investment flows. States voluntarily impose limits on their sovereignty through investment treaties to attract investors to invest in their countries. Foreign investors have arbitrated the abusive conduct of States under the guise of tax and taxation before tribunals for many years. International investment arbitration deals with the manifestation of the States’ exercise of their sovereignty within the limits of protection standards. In relation to the violation of these standards, foreign investors have succeeded in some of their claims, and failed in others. Arbitral tribunals have made case- by- case analyses for each claim. These have drawn a general picture of how state actions may cross the lines of protection standards and implicate breaches of international law. Yet, it is unclear to what extent the investment treaties that are in the process of change will affect the future attitudes of tribunals against taxation- based claims. This article will explore and unveil the crossroads of the States’ taxation powers and investment protections in investment treaties through the interpretations of investment arbitration tribunals.

Shareholder reflective loss: a bogeyman in investment treaty arbitration?

Abstract Most advanced national legal systems bar shareholders from claiming the diminution in value of their shareholding in a company arising from wrongful acts committed against the company. In contrast, investment arbitral tribunals consistently allow investors to recover such loss because most investment treaties are formulated broadly to protect investments in the form of direct and indirect shareholding. Despite recent calls for reform by governments and inter-governmental organizations, there is nothing inherently wrong with such dissonance. First, the recoverability of ‘shareholder reflective loss’ is doctrinally in sync with the lex specialis characteristics of investment treaty claims. Second, as recently and rightly recognized by the apex courts of the UK and Singapore, the principle of ‘no reflective loss’ is founded upon separation of legal personality rather than prevention of double recovery. In investment treaty arbitration, the latter concern is sufficiently addressed by solutions ranging from jurisdictional barriers (fork-in-the-road and denial of benefits clauses), procedural devices (consolidation and joinder), and substantive defences (res judicata, collateral estoppel, and abuse of process). Hence, the growing fear of shareholder reflective loss undermining the investor–State dispute settlement system is but a bogeyman that States need not be afraid of.

A Role for Precedent in the Determination of the Standard of Review Applicable by Investment Arbitral Tribunals? A Case Study of ect-based Energy Disputes Against Spain

Abstract The present article enquires whether arbitral “precedent” plays any part in the identification of the applicable standard of review by arbitral tribunals. It does so by surveying a selected sample of arbitral awards that displayed a remarkable degree of uniformity and that might have encouraged arbitral tribunals to resort to previous case law when applying a specific standard of review. This sample consists of regulatory disputes initiated against Spain for alleged violations of the fair and equitable standard provided by Article 10(1) of the Energy Charter Treaty. The article initially gives an account of the relevance of the standard of review doctrine and of the role of precedent in international investment arbitration. It then moves to investigate the possibility that previous case law has served as the legal basis for determining the appropriate standard of review in the regulatory disputes against Spain. Based on the analysis of the Spanish cases, the article finally elaborates on the role of precedent in the identification of the applicable standard of review in general terms.

Damages Awards in International Investment Arbitration and the Question of Fair Compensation

When an arbitral agreement freely entered into between a host nation and a financially stronger multilateral foreign organization breaks down, arbitration is the acceptable mode of settlement of the disagreement. This is in line with the Nigerian Arbitration and Conciliation Act, which makes applicable the convention on the Recognition and Enforcement of Arbitral Awards (New York Convention) on awards made in Nigeria arising out of international commercial arbitration. The objective of this paper is to seek a balance between protecting foreign investments and shielding the economies of host States from destruction through award of excessive damages. The doctrinal approach of qualitative research methodology was adopted, which enabled the interrogation of previous literature that deals with the issue of fair compensation and the role equity should play in international investment arbitration. This library-based research focused on analysing primary data such as cases, statutes and conventions and secondary data in text form. The research methodology adopted helped describe and contributed to the understanding of the concept of damages awards in international investment arbitration and the place of equity in awarding damages. The paper concludes that applying equitable principles will help arbitral tribunals arrive at more appropriate equitable damages based on fair compensation. The implication of the study is that international investment arbitration tribunals may intentionally take into account the actual amount of money invested or expended towards a project in quantifying damages thereby endeavouring not to cross the line of fair compensation. Keywords: Damages awards, Equitable principles, Fair compensation, International investment arbitration, Justice DOI: 10.7176/JLPG/81-02 Publication date: November 30 th 2022

Tracking the Environment in Investment Arbitration: The World and India

The ongoing global energy crisis and wave of climate-related disasters have prompted renewed attention to States’ powers of enacting regulations for environmental protection and sustainable development. The language used in international investment agreements and treaties informs and determines the extent to which States can introduce progressive environmental policies, while simultaneously ensuring the protection of investors’ rights and interests. The following article critically analyzes such treaty language by discussing the various approaches to and developments in incorporating environmental concerns, and studies how tribunals have interpreted such clauses. In so doing, the article traces a gradual but distinct shift in the approach of investment arbitration tribunals to environmental protection over the past few decades. The article also explores the recent global trend of States unilaterally terminating investment treaties, with a particular focus on India. India's response to its contentious relationship with investor-State disputes may prove instructive for States looking to attract investment while also balancing the protection of the environment.

Indirect Transfer Tax – India’s Tryst with Retrospective Taxation and Treaty Disputes

In 2012, the Indian government amended the Indian Tax Law to introduce a tax on indirect transfers. This received immense backlash that was largely focused on a complex issue, i.e. Parliament’s power of retrospective application of tax-laws and its impact on international treaties. This attracted several disputes, domestic and international, which threatened the credibility of India’s investment environment, which led to the withdrawal of the retrospective amendment. The authors assesses the validity of such retrospective amendment in light of constitutional and domestic tax law policy. Further, the authors discuss the prominent disputes that arose in relation to the retrospective application of the indirect transfer tax, including the disputes before international investment arbitration tribunals. Thereafter, the authors highlight the international public policy initiatives as well as the remedial measures adopted by the Indian government.

Is There Life After Death?: The Persuasive Value of Annulled Investment Awards

Abstract In investment arbitral jurisprudence, previous decisions of arbitral tribunals are held in high regard. But what happens to an award’s persuasive value when it is annulled? The article seeks to examine the legal status, legitimacy, and, through these factors, the persuasiveness of annulled investment awards. The article finds that since the quasi-precedential system of investment arbitration is largely governed by meta-legal considerations, the status of annulled awards is also governed by these considerations, that is, considerations of legitimacy. The author compares the persuasive value of annulled investment awards with that of dissenting opinions of arbitrators and with overturned World Trade Organization (WTO)Panel Reports with the aim of shedding some additional light on questions of legitimacy and persuasiveness. Finally, the article offers a typology of investment arbitral tribunals’ possible reasons for referring to annulled awards and illustrates the relevant categories with some of the more influential annulled investment awards of recent years.

Public Health and Investment Protection in the Context of the COVID-19 Pandemic—From the Sustainable Perspective of Exception Clauses

In response to the COVID-19 pandemic, various preventive and controlling measures have been taken by host states but may damage the interests of foreign investors and consequently result in international investment disputes. Confronted with potential international investment arbitration, the exceptions clause in international investment law is one of the host state’s defences. However, the public health exception clause is a general exception clause with uncertainty when investment arbitration takes place and investment arbitral tribunals interpret it. In the international society, sustainable development has gradually been recognized as a key principle in contemporary international law. Against this background, in the context of international investment, it is appropriate for host states to optimize the exception clauses in BITs or FTAs, thereby reducing the risk of arbitration concerning the host state’s regulatory measures to protect the public from the pandemic.

Article 38: The Treatment of Interest in International Investment Arbitration

Abstract Given the breadth of topics in the Articles on State Responsibility, the guidance on interest contained in Article 38 could be easily overlooked. Yet discussions on this subject featured prominently in the work of the International Law Commission (ILC) spanning nearly four decades. Article 38 is also intrinsically relevant to international investment arbitration where the coveted remedy is monetary damages. Despite this, investment arbitration practitioners only make passing reference to Article 38 without fully appreciating the history of the ILCs discussions that inform the application of this provision. Facially, Article 38 seems to provide little direction and broadly defers to the discretion of arbitral tribunals on critical issues. On closer examination, however, the final text of Article 38 itself and its Commentary as well as the ILCs preparatory works provide rich insights for those engaged in interest determinations in investment arbitration. This essay analyzes the treatment of Article 38 by investment arbitration tribunals in conjunction with the ILCs discussions on this article and documents a number of areas where divergences between arbitral awards and the ILC Articles and Commentaries have emerged over time.

Procedural Cross-Fertilization in International Commercial and Investment Arbitration: A Functional Approach

Abstract This article examines the potential for beneficial procedural cross-fertilization between internationalcommercial and investment arbitration from a functional perspective. The article argues that botharbitration regimes share a ‘private’ dispute resolution function of resolving specific disputes, butonly investment arbitral tribunals also exercise a ‘public’ law-making function of developing the lawapplicable to the resolution of disputes. The article considers two recent procedural developmentsin international arbitration rulesjoinder of third parties and publication of arbitral awardsin thelight of these private and public functions. It argues that joinder, as an efficiency-enhancingmeasure, can lead to beneficial cross-fertilization between commercial and investment arbitrationbecause it reinforces the ‘private’ dispute resolution function shared by both regimes. In contrast,the default publication of arbitral awards, to the extent that it is intended to be systematic and createinformal precedent, is appropriate in investment but not in commercial arbitration because onlyinvestment arbitral tribunals exercise a ‘public’ law-making function that justifies and stands tobenefit from this practice. In this regard, the article rejects three rationales for default publication ofinternational commercial arbitral awards: improving consistency/predictability, enhancingtransparency and developing transnational commercial law. The article concludes that crossfertilizationbetween investment and commercial arbitration can be valuable so long as it concernstheir shared private dispute resolution function. However, attempting to develop internationalcommercial arbitral practice in the shadow of the public law-making function of investment arbitraltribunals may result in counterproductive practices and undermine the proper functioning ofinternational commercial arbitration as a whole.

Multilateral Principles in a Bilateral World

Abstract Multilateralism in international investment law is a multifaceted concept with a complex and eventful history. Multilateralism is a paradigm for international investment relations and is also present in the caselaw of investment arbitral tribunals, regardless of whether they consider bilateral or multilateral investment treaties. Indeed, in most cases, they interpret treaty provisions as part of a multilateral system. Further, multilateralism is present every time States act in concert with other States or consider other States’ investors’ legitimate interests. It also emerges that, in some instances, multilateralism has become mandatory. For example, this is the case concerning sustainable development or climate change. In these areas, international law requires multilateralism. States are under an obligation to co-operate for purposes of achieving or promoting multilateral solutions. However, concerning the international investment law context, such a concept is not present. The general assumption is that States’ participation in multilateral practises is left to their discretion: it is voluntary or consensual. In this article, we question that assumption. In this article, we offer a brief review of multilateral experiences in international investment law in the 20th century and provide an analysis of multilateralism in a historical context. Then we turn our attention to the current state of affairs to appreciate it in light of the past. Further, we discuss the future, and in particular, mandatory multilateralism in international law with respect to sustainable development. Here we identify the principles, which might justify mandatory multilateral approaches. Finally, we consider whether the principles justifying mandatory multilateralism in international law are applicable in the context of international investment law as well. We attempt to answer this question in the affirmative and point out further areas of research.

Intruders in a Balancing Act: Black Economic Empowerment, Transitional Justice and Investment Arbitration Tribunals

Abstract This article examines the role of ad hoc investment arbitration tribunals in arbitrating highly sensitive matters in transitional justice contexts, focusing on disputes arising from black economic empowerment (BEE) policies in countries formerly under racially discriminatory regimes. After an overview of the investment protection system, the article introduces the historical context of BEE policies. It subsequently analyses three main disputes, one against South Africa and two against Zimbabwe, where white concession holders and landowners relied on Bilateral Investment Treaties to claim compensation for the consequences of BEE mining and land redistribution policies. These disputes provide a testing ground to shed light on the role of investment arbitration in the context of transitional justice. The article concludes that such a role essentially amounts to an intrusion in the perilous ‘balancing act’ of managing a transitional justice process.

Chinese Foreign Direct Investment and Human Rights in Kenya: A Mutually-Affirming Relationship?

Does the increase in Chinese foreign direct investment (FDI) inflows into Kenya portend doom for human rights in the country? The prominent narrative has been that FDI undermines human rights in host states, especially those in the developing world. This narrative is countered by claims that there exists a mutually affirming relationship between FDI and human rights. Proponents of this view posit that FDI facilitates the diffusion of human rights norms and correlates with the improved rule of law in host states. They also point to emerging human rights jurisprudence in international investment arbitration as evidence of a reciprocal relationship between FDI and human rights. In light of these arguments, this paper analyses the extent to which such a reciprocal relationship bears out between Chinese FDI and human rights in Kenya. It will be demonstrated that given the lack of a framework for human rights accountability for corporations at the international level, the restrictive treatment of human rights in international investment arbitration tribunals and weak institutional capacity in host states, a positive overlap between FDI and human rights is hardly a panacea for human rights protection in Kenya. Therefore, a synergy of legal measures and non-legal measures provide a pragmatic approach to insulate human rights from violations that may be associated with Chinese FDIs.

Anti-corruption Coordinative Mechanism between the ICSID and Domestic Enforcement Authorities: A China’s Perspective

When confronted with the host states’ increasing enthusiasm of invoking the corruption defense as an arbitral strategy to frustrate foreign investors’ claims, the International Centre for Settlement of Investment Disputes (ICSID) tribunals encounter realistic difficulties in arbitration. The inherent insufficiency of anti-corruption investigative powers bestowed to ICSID tribunals highlights the importance of constructing a coordinative mechanism between the ICSID and any domestic enforcement authorities enlisted to repudiate corruption. The enacted International Criminal Judicial Assistance Law of the People’s Republic of China provides the domestic legal basis for establishing a coordinative international criminal judicial assistance mechanism between such international organizations as ICSID and China’s domestic anti-corruption enforcement authorities. Eventually, the proposed ICSID-China’s anti-corruption mechanism will help the global community fight against international investment corruption in a coordinated way, substantially enhancing any host state’s ability to confront the on-going difficulties also experienced by investment arbitral tribunals.

Environmental and Human Rights Counterclaims in International Investment Arbitration: at the Crossroads of Domestic and International Law

ABSTRACT Recently, environmental and human rights (EHR) counterclaims in investment arbitration have attracted much attention as a vehicle to recalibrate the investor–state relationship. However, until now, successful instances of EHR counterclaims have been admittedly rare. As explained in this paper, some of the major barriers to EHR counterclaims in investment arbitration, and some of the concerns associated with them, are rooted in the domestic law basis of such counterclaims. Contrary to the position of several commentators, this paper argues that the grounding of EHR counterclaims on international law is neither practical nor beneficial, and EHR counterclaims are necessarily based on domestic law. Therefore, when investment arbitral tribunals adjudicate EHR counterclaims, they essentially act as an alternative to domestic courts. This has several implications. First, on questions of jurisdiction and admissibility of EHR counterclaims, decisions of states and arbitral tribunals essentially turn on the pros and cons of having these claims adjudicated by investment arbitral tribunals as opposed to domestic courts. Second, weaknesses in domestic rules, including the difficulty of holding shareholders accountable, would carry over to EHR counterclaims. Such problems can only be efficiently tackled at the level of domestic law. Third, as revealed from the inconsistent decisions in Perenco and Burlington on the merits of the environmental counterclaims, having investment arbitral tribunals adjudicate domestic law-based EHR counterclaims may cause certain concerns. For EHR counterclaims to play a more beneficial role, decision-makers must bear in mind these factors and concerns when taking their policy choices.

Arbitral Jurisdictional Regulation in Investment Treaty Arbitration and Domestic Courts

Abstract Arbitral tribunals in the field of investment treaty arbitration have generated rules governing their own jurisdiction. This article examines the effect of the controlling role of domestic courts on the development of arbitral jurisdictional regulation, tracking the treatment of arbitrator-made jurisdictional rules by domestic courts reviewing investment arbitral decisions. The article finds that domestic courts have not been resistant to but rather supportive of the proliferation of arbitrator-made jurisdictional rules. First, domestic courts have relied on such rules and treated their development as parts of interpretative exercises and as part of the arbitral judicial function. Second, domestic courts have engaged in discourses on the appropriateness of arbitrator-made jurisdictional rules in substance. This practice contradicts the expectation that domestic courts would contest arbitral jurisdictional regulation and shows the potential of domestic courts to contribute to the production of nuanced rules governing the jurisdiction of investment arbitral tribunals.

Environmental Interests in Investment Arbitration: Challenges and Directions and Water Services Disputes in International Arbitration: Reconsidering the Nexus of Investment Protection, Environment, and Human Rights

Investor–State dispute settlement (ISDS) has been the preferred dispute resolution venue for redressing foreign investors’ investment grievances. As a result of its standing in adjudicating investment disputes, investment arbitration tribunals (investment tribunals) have increasingly been tasked with, for example, adjudicating at the cross-hairs of international investment law (IIL) and environmental law.2 Thus, investment tribunals have indirectly been tasked with the great responsibility of regulating other regimes of international law—for example, international water services and international energy. As host States are increasingly becoming well aware of the immense global threat of climate change, more often than at any time before in history States pursue municipal efforts (or take a series of measures) to prevent, address, as well as redress, environmental harm. More often than ever before, host States are demanding that investments meet the goals of, inter alia, ‘sustainable development’. As a result, investment tribunals have been tasked with jurisdictional...