Investment Arbitration Research Articles

Disentangling Legal Stability from Legitimate Expectations: Towards Greater Deference to Regulatory Changes in Renewable Energy Transition Policies in Investment Arbitration

Abstract The obligation of stability generally requires host States to maintain a relatively stable regulatory framework to mitigate political risks facing foreign investments. It has played a significant role in international investment tribunals’ review of host States’ renewable energy transition policies. This paper critically reviews tribunals’ interpretation of the obligation with a particular focus on the Spanish cases involving renewable energy incentive schemes. It canvasses the two ‘dimensions’ adopted by investment tribunals in the interpretation of stability, namely the protection of legitimate expectations and States’ right to regulate for public purposes. Examining the contents of the two dimensions separately, this paper argues that legal stability should be disentangled from the notion of legitimate expectations and be assessed through the reasonableness of regulatory changes per se. It further argues that an intrusive interpretation of legal stability lacks legal and institutional bases; instead, more deferential standards should be adopted in the review of renewable energy transition policies.

Resolving Disputes in International investment through Arbitration

This paper brings forth an extensive analysis of the role of arbitration in resolving disputes in international investment, providing a comparative study of the existing frameworks and emerging alternatives. As cross-border investments continue to grow, disputes between foreign investors and host states have become increasingly common. International arbitration has emerged as the preferred method for resolving such conflicts due to its neutrality, enforceability, and flexibility. The paper explores the key legal instruments governing international investment arbitration, including Bilateral Investment Treaties (BITs), Free Trade Agreements (FTAs), and multilateral agreements like the Energy Charter Treaty. It also examines the two most widely used procedural frameworks: the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL), comparing their distinct approaches to arbitration. While arbitration has proven effective, it faces growing criticisms, including high costs, lengthy proceedings, and concerns about transparency and arbitrator impartiality. The research also highlights regional initiatives, particularly in Latin America and China, which reflect diverse approaches to investment dispute resolution. By comparing these frameworks and emerging trends, the paper sheds light on the strengths, weaknesses, and future direction of international investment arbitration, emphasizing the need for a more transparent, equitable, and accessible system to balance the interests of investors and host states. The analysis concludes by assessing the potential impact of these reforms on the future of international investment law.

Enhancing anti-corruption via investment arbitration: from red flags to due diligence

Abstract As the number of corruption allegations in investor–State disputes (ISDS) grows, tribunals must balance their duty to resolve disputes and to render enforceable awards. Given the difficulty of proving corruption, arbitrators increasingly consider red flags to detect it, but still struggle with drawing consequences for corrupt conduct that would serve as an effective deterrent. Our empirical analysis of 92 ISDS cases that involved allegations of corruption reveals that over a quarter of arbitral decisions already utilize a red flags approach, which helps tribunals assess corruption risks and provide circumstantial evidence. This article proposes a novel list of red flags based on the empirical analysis, domestic and international law sources as well as soft law instruments. It then frames a corresponding anti-corruption due diligence mechanism, which can minimize the risks of corruption occurring, bring more predictability to ISDS and disincentivize frivolous allegations of corruption.

Protection Against Arbitrary or Discriminatory Measures in International Investment Law

Protection against arbitrary or discriminatory measures is a clause for the protection of foreign investments that is included in international investment agreements. The clause imposes an obligation on the state where the investment is made not to harm foreign investments by arbitrary or discriminatory measures. Although it is sometimes overshadowed by other investment protection standards in international investment arbitration, it is actually an independent standard that is frequently regulated in investment agreements. In this article, firstly, the drafting of the protection against arbitrary or discriminatory measures in international investment agreements, its elements and its historical development are discussed. After that, the meaning and scope of the concepts of "arbitrariness" and "discrimination", which are two elements, were examined.

The Dispute over the Geographical Application of the Svalbard Treaty: Into a New Phase, An Essay in Honor of Ted L. McDorman

Under the 1920 Treaty concerning the archipelago of Spitsbergen (Svalbard Treaty), the contracting parties recognize the full and absolute sovereignty of Norway over the archipelago. The sovereignty is to be exercised subject to the stipulations of the Treaty, which include equal rights of the contracting parties to fish and hunt on the territory of Spitsbergen and its territorial waters. Consistent with the developments of the law of the sea, Norway has claimed sovereign rights over the continental shelf and established 200 nautical miles (NM) zones off its coast, including Svalbard. Norway established a 200 NM Fisheries Protection Zone off the coast of Svalbard. Several contracting parties claim that the equal rights under the Svalbard Treaty are applicable in the maritime zones claimed or established after 1920. This is disputed by Norway by referring to the wording of the Treaty, which stipulates that it is applicable within the 12-NM territorial waters. Owners and captains of vessels flagged in other contracting parties have protested and argued that the arrest and prosecution for illegal fishing in the 200-NM zone off Svalbard violated their equal rights of fishing. The Court had not addressed the question of the applicability of the Treaty provisions until 2023. In a civil case before the Supreme Court, a Latvian shipowning company argued that the snow crab regulations on the continental shelf in the Barents Sea were void as they violated the equal rights of contracting parties under the Svalbard Treaty to fish on the continental shelf. The Supreme Court concluded that the treaty provisions were not applicable beyond the 12-NM territorial sea of the archipelago. An attempt by the same company at international litigation through investment arbitration was also unsuccessful. As the dispute issue is settled within the Norwegian legal system, the dispute enters into a new phase.

China and Shanghai Cooperation Organization: Reconsideration and Improvement of Multilateralizing Effect of Most Favored Nation Clause in BIT

Since the Maffezini case, debates upon the application of the Most-Favored-Nation (MFN) clause have never stopped. Research from the perspective of the Shanghai Cooperation Organization (SCO) can test the way for further advancement of this issue. The analysis on the international investment arbitration cases involving the SCO states may shed some light on the crucial point on dispute. At present, the bilateral investment treaties (BIT) between China and other states of the SCO are in an urgent need of renewal in order to meet the interests of deepening investment cooperation. Problems of fragmentation of the interpretation method and of unpredictability of the interpretation conclusion of the MFN clauses manifested in international investment disputes involving SCO states will provide concrete preventative suggestions on the updating of the wording of MFN clauses. Under SCO framework, the multilateral effect of the MFN clause can play a model role for other regional integration organizations to build an integrated and multilateral investment treatment system in the fragmented and bilateralism-based framework of international investment law, and in fact promote investment facilitation for regional organizations.

Setting-Aside Proceedings Against Treaty- Based Arbitral Awards in Switzerland and Their Contribution to the Debate Regarding the Fundamental Requirements for Protection under Investment Treaties

The Swiss Federal Supreme Court has rendered over twenty-five decisions in setting-aside proceedings brought against treaty-based arbitral awards to date. Against the backdrop of conflicting decisions by arbitral tribunals on many issues that regularly arise in investment arbitrations, the emergence of a consistent body of jurisprudence by the Court may be of interest even outside of Switzerland. The present contribution provides an overview of the procedure for setting aside arbitral awards before the Court and assesses the relevance of the various grounds for setting-aside that can be invoked specifically with regard to treaty-based arbitral awards. It addresses the Court’s most interesting findings in relation to the fundamental requirements for obtaining protection under investment treaties and shows that the Court will likely further contribute to the debate on jurisdictional issues in treaty-based arbitrations.

Administrative Law Challenges in Investor- State Arbitration

Attributing a wrongful act to a state in an investor-state arbitration is governed by public international law. However, understanding whether such an act was undertaken by an agent of a state or other entity exercising elements of governmental authority, figuring out the legal nature, effects, scope and legality of such acts and comprehending whether they were taken from the point of public authority requires application of domestic administrative (or wider public) law of the respondent state. Administrative law makes applied public international law provisions operational. In order to evaluate the occurrence and frequency of administrative law challenges in investment arbitration, the author carried out a survey amongst ICSID arbitrators. The results of the survey, presented in the paper, confirmed the hypotheses that it is not seldom in investor-state arbitrations to come across complicated administrative law issues, the resolution of which is a prerequisite for deciding an arbitration case; that a majority of arbitrators in investor-state arbitrations did not specialize in administrative law; and that currently applied mechanisms of handling such complex administrative law issues in practice are not satisfactory.

Article: The Neglected Public Interest in Investor-State Dispute Settlement: Environmental and Human Rights Considerations

With the rapid expansion of bilateral investment treaties (BITs), investor-state arbitration has paved its way to becoming the most preferred dispute settlement method by investors. However, the investment arbitration system has also attracted ‘backlash’. One reason is the challenge to balance between protection of foreign investors and the recognition of host states’ legitimate public interests. With the current pressures to reform the investor-state dispute settlement (ISDS) system, there is a pressing need to offer a better balance between investor protection and host states’ sovereign right to regulate, as well as the wider public good such regulatory measures might have, especially in the context of environmental protection and human rights. This article argues for a better symmetry between foreign investor’s treaty-based claims and host states’ environmental and human rights (EHR) claims to acknowledge the public interests – social, economic, welfare, etc. In particular, it advocates for: the strengthened presence of independent experts and amicus curiae, a proportionality approach; and the overarching development of counterclaims as a consideration not only of the host state’s capacity to regulate but also the wider repercussions of such regulations on the public as well as the conduct of foreign investors.

Upstream Review of intra-EU ICSID Arbitrations and Its Consequences: A Commentary on the Order of the Bundesgerichtshof (German Federal Court of Justice) in I ZB 43/22 MAINSTREAM Renewable Power et al. v. Germany

EU Member States may have recourse to ‘upstream’ national judicial protection under the German Civil Procedure Code to declare inadmissible and thereby preclude intra-EU investment arbitration proceedings brought under the auspices of the International Centre for Settlement of Investment Disputes (ICSID) Convention. That remarkable conclusion by the Bundesgerichtshof (German Federal Court of Justice) constitutes the first attempt of a higher court of an EU Member State to render compatible the seemingly contradictory obligations on national courts arising from EU law and the ICSID Convention. However, even more important than the court’s conformity assessment are the inherent consequences of its conclusion: the incompatibility of the ICSID Convention with EU law and the obligation, on all EU Member States and their institutions, to disapply that convention in intra-EU investment arbitration matters and ultimately to denounce it collectively.

Dilemma of and China’s Response to the Application of the Rules on Investors’ Reasonable Expectations from the Perspective of International Investment Arbitration

The rule on investors’ reasonable expectation aims to protect the rights and interests of foreign investors, which is often cited by arbitral tribunals in the practice of international investment arbitration in recent years. It can be divided into different categories according to its different bases. However, there are many problems in the application of this principle in the practice of international investment arbitration. Based on its significance in protecting the legitimate rights and interests of investors as well as the universality of the use of arbitral tribunals, the improvement of relevant clauses and due diligence and specific written commitments are the focus of countries and investors. It is also necessary for all host countries and investors to properly handle and break through this dilemma. If China is the host country, relevant applicable risk plans should be given to implement the national strategy of “going global” for Chinese enterprises.

Investment Arbitration and Climate Change

Investment Arbitration and Climate Change

„Brexito“ įtaka arbitražui: anti suit injunction ir investicinio arbitražo aspektai

Concentrating on a few material aspects in relation to the broader theme, the article analyses the effect of Brexit on international commercial arbitration. In particular, the piece firstly treats on the most recent UK Case Law in relation to anti-suit injunction – a phenomenon attributable to the Common Law in the context of the earlier European Union courts’ jurisprudence of the said instrument. Secondly, Brexit’s interplay with the ongoing global investment arbitration reform is considered. The article considers the globally recognised UN 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, on which Brexit had no adverse effect. When analysing the interplay between Brexit and the ongoing global investment arbitration reform, a particular regard is paid to the lack of investment arbitration provisions in the UK-EU Trade and Cooperation Agreement, as well as the termination of various relevant bilateral investment treaties. The article concludes that the influence of arbitration shall continue to grow, anti-suit injunction shall continue to be applied by the United Kingdom courts, and the Brexit’s interplay with the global investment protection overall and the investment arbitration in a particular reform is somewhat consistent.

How to approach expropriation risk as a controversial component of country risk in investment arbitration

How to approach expropriation risk as a controversial component of country risk in investment arbitration

Rethinking the ‘Full Reparation’ standard in energy investment arbitration: how to take climate change into account

Abstract One crucial measure to curb global warming is the phasing out of fossil fuel production, but doing so can deprive the value of foreign investments in fossil fuels and amount to breaches of investment treaties. Normally, investment treaties are silent about the standards of compensation when treaty violations are established. Tribunals mostly refer to the ‘full reparation’ standard in general international law, potentially resulting in high amounts of compensation that place a significant burden on States implementing climate actions. This paper argues that the amount of compensation under the ‘full reparation’ standard can be reduced on four grounds: (i) depressed energy price in the peak demand era, (ii) unviability of fossil fuel projects, (iii) international environmental obligations, and (iv) international environmental principles. An interpretation document entered into by States can clarify the application of the ‘full reparation’ standard and ensure that these factors are taken into account in quantifying compensation.

Актуальные тенденции в законодательстве Китая о международном арбитраже

China did not adopt the UNCITRAL Model law in either version and its arbitration legislation often does not reflect the world-recognised practices of international arbitration. However, during the last few years, China has been softening its approach towards both international commercial and investment arbitration. The recent court decisions, adoption of the new Civil Procedure Law and proposal of the Draft Amended Arbitration Law signify gradual recognition of the concept of ‘seat of arbitration’ instead of relying on the domicile of the arbitration institution. Furthermore, Chinese courts have acknowledged the capacity of foreign arbitration institutions to administer disputes within mainland China — a significant shift from past practices where only Chinese arbitration commissions could administer arbitration proceedings in China under the Arbitration Law. This change is also reflected in the Draft Amended Arbitration Law. Another crucial legislative change is adoption of the Foreign State Immunity Law, which came into effect in January 2024. By enacting this law, China has shifted from absolute to restrictive immunity in disputes between a person or entity and a state. Thereby China allowed claims against foreign states arising out of commercial activities or international investment treaties to be considered in Chinese courts. Nevertheless, challenges remain in regards of recognition and enforcement of investment arbitral awards or conducting of investment arbitration in China. First, China’s reservation under the New York Convention 1958 limits recognition and enforcement of foreign awards to ‘commercial’ disputes, excluding investor-state disputes. Besides, it is discussed that China has not taken proper steps to recognise the ICSID awards as national ones for purposes of enforcement, even though it ratified the ICISD Convention. Furthermore, formally under the current Arbitration Law the investment arbitration is not possible. Finally, considering the latest legislative amendments, recent court practice and updated arbitration rules of Chinese arbitration institutions, it can be concluded that China has taken the pro-arbitration approach.

The Protection of Intra-EU Investments: Putting the EU’s Rule of Law to the Test

With the 2018 Achmea ruling, the European Court of Justice declared investment arbitration in the intra-EU setting to be inadmissible. As a result, the Member States have cancelled more than 190 bilateral investment protection treaties between themselves. Critics fear a high level of legal uncertainty for intra-EU investments. The EU Commission, on the other hand, believes that the existing law of the internal market provides ‘adequate and effective protection’ for such investments without further ado. Both sides invoke the rule of law. After an overview of the developments, individual elements of the protection of investments within the EU, namely the rights of investors, the balance between them and public interests, the legal means available and the question of compensation, are analysed comparatively. In the end, it emerges that both positions can lay claim to different elements of the rule of law. The rule of law does not require maintaining investment protection with bilateral treaties and investor- state arbitration. However, it is questionable whether the existing law in the internal market does adequately protect investments in the European Union. With the abolition of traditional international investment protection, the European Union faces major challenges with regard to the further improvement of the rule of law, the importance of which goes far beyond the issue of investment protection.

Research on Counterclaim Rules in International Investment Arbitration

<p class="MsoBodyText" align="justify">In recent years, with the rapid development of international investment, inevitably, the investment disputes between foreign private investors and the host country are increasing. From the results of the cases submitted to ICSID arbitration, it can be seen that the investor’s winning probability is extremely high, which leads to the imbalance of interests between investor and the host country, and it is difficult to protect the legitimate rights and interests of host country. In this case, the host country may initiate counterclaim arbitration proceedings against the investor’s arbitration request according to the provisions of international investment arbitration treaties, international investment agreements or domestic laws to offset the investor’s request. However, in the practice of examining and dealing with the counterclaim of the host country, the arbitration tribunal often has strict requirements on the jurisdiction and acceptance conditions of counterclaims. On the one hand, the counterclaim clauses involved in the convention are vague, and the standards of “connection” and “consent” are difficult to identify. On the other hand, the lack of investor’s obligation clauses in investment agreements makes it difficult to obtain strong legal support for counterclaims. In order to solve the application dilemma of the host country’s counterclaim rules in practice, the arbitral tribunal should give priority to factual relevance when judging whether the counterclaim is related to the original claim. The way of opposing the request for “consent” should be appropriately modified, and a broader identification standard should be adopted. On the one hand, the host country should strive to set up a special counterclaim clause in the investment agreement, and adjust the rights and obligations structure of both parties in international investment agreement.</p>

The conundrum of costs allocation in international investment arbitrations: a proposed practical solution to enhance predictability of costs decisions

The conundrum of costs allocation in international investment arbitrations: a proposed practical solution to enhance predictability of costs decisions

European Union’s Withdrawal from Energy Charter Treaty: A Result of Climate Policy?

This article analyzes the political and economic motivations behind the coordinated decision of the European Union and its member states to withdraw from the Energy Charter Treaty (ECT) in March 2024. Special emphasis is placed on the role of the EU’s climate policy in this process. A comprehensive review of the thirty years since the treaty’s inception is presented, aiming to uncover its influence on the domestic political dynamics within EU member states. Through an examination of investment arbitration practices and official EU documents, it is concluded that, despite declarative statements, the climate agenda was merely an external and secondary factor, while the primary driver was a shift in the EU’s investment policy. The article illustrates that the treaty did not obstruct the achievement of the EU’s climate objectives; however, the investment protection mechanism in international arbitration proved incompatible with the principles of autonomy and primacy of EU law. Furthermore, the treaty indeed provided investors with avenues to seek compensation from EU member state governments for assets “blocked” as a result of climate policies. The abandonment of a proven international investments protection tool may negatively impact the foreign investment attractiveness of the EU’s green energy sector.