Investment Tribunals Research Articles

Bilateral investment treaties and investors’ social accountability: the law and praxis in South Asia

Purpose International investment law governs matters related to transnational investments. The extensive reach of transnational corporations (TNCs) has granted them substantial economic, political and social influence, often intertwining them with public interest issues and implications in human rights violations. This paper aims to explore the profound influence exerted by TNCs in today’s globalized world and its implications for human rights and social responsibility within the framework of international investment law. Particularly, it acknowledges the vulnerability of economically weak South Asian states and cites past instances such as the Bhopal gas tragedy in India and the Rana Plaza disaster in Bangladesh as egregious violations of human rights. Focusing on South Asian bilateral investment treaties (BITs), this paper aims to examine the scope of investors’ social accountability. Design/methodology/approach This research engages with doctrinal and analytical methods in traversing through primary and secondary sources. It would parse the arbitral tribunals’ jurisprudence for their discussion on the inclusion of social accountability obligations within international investment agreements (IIAs). Further, it engages in a quantitative analysis related to the nature of the social accountability-related obligation of the corporation within South Asian BITs. Findings The findings reveal a glaring absence of the law on investors’ social accountability and the need for enhanced regulatory mechanisms to address the escalating influence of TNCs on human and social rights. The absence of a robust legal framework, coupled with the asymmetric nature of international investment law, granting investors greater rights and leverage compared to states, exacerbates this challenge. The phenomenon of “regulatory chill” inhibits states from effectively enforcing regulatory measures aimed at protecting human rights and the environment. Furthermore, the broad interpretation of clauses such as “fair and equitable treatment” by investment tribunals often undermines states’ ability to implement measures in the public interest. While international organizations such as the UNCTAD and the UNCITRAL Working Group III are actively discussing reforms to IIAs, the existing guidelines addressing investors’ social accountability are woefully lacking in the content as well as the method of their integration with international human rights law. The findings underscore the imperative for South Asian nations, the subject of this research’s empirical analysis, to adopt a comprehensive approach involving both domestic law reforms to promote corporate social accountability and active pursuit of negotiations for the inclusion of binding social obligations for investors within IIAs. Practical Implications This research, drawing upon international law developments, offers suggestions for incorporation of social accountability provisions via relevant domestic law reform. The research could be viewed as a prelude for mapping the legal developments in the area of investors’ social accountability within investment agreements, as well as investment contracts, drawing guidance from international law instruments. Originality/Value To the best of the authors’ knowledge, no other study analysed the scope of investors’ social accountability in South Asian BITs.

Corruption and foreign investments: Empirical lessons from treaties and arbitration cases

Abstract As legally binding instruments for the protection of cross-border investments, international investment agreements (IIAs) increasingly include anti-corruption provisions. This article empirically analyzes international investment agreements and the practice of investor–state tribunals related to corruption in foreign investments. It introduces a typology of treaty provisions and discusses their limited practical effectiveness and perverse incentives they create. The article also addresses the broader question of how to deal with corruption-related obligations of investors and states in the context of public international law. It presents and analyzes new empirical data showing that parties to investor–state disputes increasingly allege corruption, and states are responsible for most of such allegations. However, in most cases, tribunals either ignore such allegations or decide that they have not been proven. In the small number of cases where tribunals found allegations proven, they declined jurisdiction or declared the investor’s claim inadmissible. The article makes proposals on how international investment law can become more effective in tackling the supply and demand side of corruption and discusses the relevant obligations of investment tribunals.

THE (IN)EFFECTIVENESS OF REQUIRING PRIOR EXHAUSTION OF LOCAL REMEDIES IN INVESTMENT ARBITRATION

The international investment-law regime continues to be mired in a legitimacy crisis that has given rise to important multilateral reform efforts through the United Nations Commission on International Trade Law. A key reform proposal is centred on the introduction of an exhaustion-of-local-remedies requirement. This article critically evaluates the exhaustion-of-local-remedies rule in the context of international investment law, and challenges its interpretation where such clauses already exist in contemporary investment law. The article concludes that investment tribunals have subverted these clauses in various ways, and considers the legal challenges states would need to address to best prevent the subversion of these clauses by investment tribunals in future.

The Legal Consequences of a Violation: Reparation/Just Satisfaction/Damages by Human Rights Bodies and Investment Tribunals

Abstract Remedies granted by both human rights courts and investment tribunals are generally based on the international law of state responsibility as codified by the International Law Commission (ILC) in 2001. However, some special rules (leges speciales) do exist in the statutes of human rights courts and in a few international investment agreements. Despite the different scopes of protection of the two areas of international law, there are remarkable similarities in judicial practice, yet important differences remain. This article explores to what extent there is already mutual influence in practice and where there is still room for mutual inspiration. It comes to the conclusion that investment tribunals could take more into consideration that victims may suffer damage, in particular non-material damage, by the mere violation of their rights. Conversely, human rights courts could pay closer attention to economic valuation criteria when it comes to the assessment of material damage.

Between Chaos and Coherence – Attribution Tests in the Practice of International Investment Tribunals

Abstract This article analyses how investment tribunals apply attribution standards in their case practice. Attribution standards as applied by investment tribunals will be assessed in two different categories. First, the article will survey how tribunals apply traditional attribution tests, which originally refer to establishing internationally wrongful acts, as defined under Articles 4, 5 and 8 of ARSIWA. Second, the article will examine how attribution tests are applied and defined in so called non-traditional attribution scenarios, such as in the context of establishing the jurisdiction of arbitral tribunals, the applicability of the umbrella clause, certain declarations of the state (right of representation in the field of estoppel), as well as certain issues relevant to decide about the state’s involvement in private contracts in situations of corruption. The article ultimately presents a plea for nuanced application for attribution standards under different attribution scenarios instead of the automatic application of ARSIWA attribution standards.

Sanctions against Individuals and Investment Law

Abstract The surge in international sanctions following Russia’s invasion of Ukraine in February 2022 marks a new development in international law in general and international investment law in particular. This article examines this recent development and the interplay between international sanctions and international investment law. Furthermore, the article discusses whether investment tribunals will rely on WTO jurisprudence when applying ‘essential security’ provisions in individual cases. By providing an examination of sanctions laws in the context of international investment law, the article highlights the complex dynamic between the right of states to limit investments on the basis of national security vis-á-vis the right of investors to enjoy investment protection as prescribed in numerous International Investment Agreements (IIAs).

Reshaping International Investment Regime from Human Rights Perspective

The impact of foreign investment on the human rights generally has increased and interaction between them has shown to be complex in nowadays. Human rights considerations enter into the discourse of international investment law since increasing number of states are beginning to include references to human rights in their investment treaties and investor-state contracts, in particular for the new generation of investment treaties. Human rights related issues have played a vital role in various contexts of investment proceedings as w ell and whether an investment tribunal can apply to human rights law depends both on the relevant jurisdictional clause and the applicable law. To consider all this issue, the article takes a qualitative approach by examining secondary data, in particular, difference concepts, legal documents and applying case law as well. Moreover, in order to present existing window of opportunity for States, article outlined some findings and recommendations.

Mining in investment arbitration: an analysis of mining companies’ legitimate expectations

Abstract International investment agreements (IIAs) can be ‘obstacles’ to the green transition, but can also serve as potential ‘enablers’ of clean energy. This article analyses the role of IIAs in protecting mining investments, necessary to develop green technologies in the fight against climate change. As a result of increasing mineral extraction, more investment tribunals adjudicate mining disputes. The article provides a sectoral analysis of the legitimate expectations of investors in the mining sector. It argues that domestic norms are central to resolving investment treaty disputes and that investment tribunals must consider environmental and human rights domestic norms which impose limits on investment protection and configure investor’s property rights. Only by doing so can investment tribunals protect investments in accordance with the ethos of IIAs of promoting sustainable development.

The Reform of International Investment Law: Whose Rule of Law?

Abstract Public and political controversies over Investor–State Dispute Settlement (ISDS) have prompted reform processes in international investment law, at bilateral, regional and multilateral levels, with different actors shaping the future of international investment governance. In its essence, the options for the ISDS reform reflect the diverging perspectives on the rule of law in international law. Ultimately, they present a choice about who should control power over States’ action in issues of public importance – the States who have created the system, or international investment tribunals who have shaped the legal development of the system. This paper considers the application of the rule of law as a normative meta-principle to international investment law and its dispute settlement, and it sheds light on different perspectives of this concept, as they shape the ongoing ISDS reform(s).

The Jurisdiction of Investment Tribunals to Adjudicate Claims and Incidental Questions Grounded in Domestic Law

The Jurisdiction of Investment Tribunals to Adjudicate Claims and Incidental Questions Grounded in Domestic Law

Enhancing Investor-State Dispute Resolution: Suggestions to Optimize the Effectiveness of Cooling-Off Clauses in International Investment Agreement Negotiations

Abstract The cooling-off clause in international investment agreements, intended to foster amicable dispute resolution before arbitration, often causes varied tribunal interpretations and jurisdictional disputes due to its unclear drafting. This article aims to comprehensively explore the cooling-off clause, covering its definition, the beginning and ending points of the cooling-off period, function, and enforceability in investor-state dispute settlement practice. It also delves into two different approaches adopted by investment tribunals in case of non-compliance with the cooling-off clause. Drawing from this analysis, the article provides recommendations for Vietnam as a host state to ensure the effective application of this clause.

Development Aid Institutions in International Investment Law: towards a Holistic Approach to Development Financing Flows

Abstract Many investment arbitrations have arisen out of investments financed through aid resources. Yet, the legal framework governing aid disbursements remains mostly unexplored in investment awards and in the literature on international investment law. This article is an initial attempt at identifying the interactions between these two legal orders. It finds that 1) multilateral and bilateral aid institutions are not perfect third parties to the investor-State relationship; rather, they influence the content of investment contracts, supervise contract implementation and have a role to play in dispute prevention and resolution; 2) uncertainties surround the jurisdiction of investment tribunals over aid-financed ‘investments’; 3) development institutions may participate as disputing and non-disputing parties in the arbitrations arising out of aid-financed projects. More broadly, the article suggests that the increasing trend of leveraging aid to incentivize private investments warrants an integrated and hence more realistic approach to the different development finance flows.

Arbitrating Investment Disputes Involving States with Competing Governments (on the Example of Venezuela)

The present article analyses whether investment tribunals are competent to determine which representatives are entitled to act on behalf of respondent states with competing governments. The examination of existing case law and theoretical background suggests that investment tribunals have incidental jurisdiction to decide on the representation issue. In this case, the representation issue is resolved for the sole purpose of proceeding to consideration of claims, which are properly within the tribunals’ jurisdiction ratione materiae and the decision on this issue is not included in the dispositif of the awards and lacks res judicata effect. The most plausible approach to decide the representation issue is to conduct a substantive analysis of the government’s entitlement to act on behalf of the state. The alternative avoidance techniques to resolve the representation issue are questionable from the perspectives of their logical coherence, practical convenience and safeguarding the parties’ procedural rights. This analysis should be conducted in accordance with the criteria of customary international law. The legitimacy of a government’s origin is just one of these criteria and has a limited role in the overall test for identifying the government which is entitled to act on behalf of the state. Finally, this analysis should also take into account the considerations of procedural fairness, which depends on the factual circumstances of each specific case.

Interpretation of “Investments” and “Investors” in the Russia-Belgium/Luxembourg BIT: Seeking Ways to Resolve the Case of NSD

The paper addresses jurisdictional issues on the case of NSD initiating investment arbitration against Belgium/Luxembourg. Under the Russia-Belgium/Luxembourg BIT, the states undertake to prevent expropriation of investments and, if it does happen, to pay timely and fair compensation. Such “expropriation” may also occur due to sanctions. Being a Russian intermediate custodian for a number of foreign securities, the NSD has accounts with the centralized European securities Euroclear/Clearstream depositories. Since the inclusion of the NSD in the list of entities provided for in Annex I of EU Regulation no. 269/2014 in June 2022, transactions with the securities were suspended, NSD’s account with Euroclear/Clearstream was blocked. Because the NSD accounts with foreign securities depositories were blocked, it became impossible to transfer non-Russian securities from a securities account opened with the NSD to another Russian or foreign securities depository. One of the ways to challenge the consequences of Euroclear/Clearstream actions is to file a claim with the investment tribunal against Belgium/Luxembourg. The case has two potential solutions: mass claim from the end-investors or one single claim by the NSD as a “nominee holder” of the end-investors’ securities. The first option might seem time- and resource-costly, which is why a claim by the NSD might seem more attractive. Hence, using the interpretation instruments of public international law, the paper aims at assessing the perspectives of initiating investment arbitration proceedings by the NSD, thereby focusing on interpretation of the two central terms in the Russia-Belgium/Luxembourg BIT — “investor” and “investment”. The paper concludes that prima facie the investment tribunal would have jurisdiction over the case rationae personae nonetheless the “nominee holder” status of the NSD, as well as jurisdiction ratione materiae, where the blocked securities could constitute an “investment” in the sense of the BIT. Consequently, the paper defines the legal capacity of nominee holders to initiate arbitration. Since the issue has never been raised before, the paper draws an analogy with the case law on shell companies.

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.

Monetary Transfer Provisions and the Rule of Law from the International Investment Law Perspective

Monetary transfer provisions (mtp) are a standard feature of investment treaties. Despite their crucial importance for the realisation of foreign investment, and interpretation difficulties, they have not attracted much doctrinal attention to date. They are also rarely considered by investment tribunals. The extent of economic sanctions imposed on Russia in response to the 2022 aggression against Ukraine, and Russian retaliatory measures, foreclose most alternative opportunities for capital exporting. As a result, we may expect a wave of mtp claims against Russia, once the country rejoins the international community. The article summarizes the debate and makes suggestions for balancing public and private interests in this sensitive area for the economic rationality of investment and the financial basis of state survival. At the same time, it is a first step toward further research situating the issues of transfer clauses and monetary sovereignty in the broader context of public safety and the legality of economic sanctions.

The possibility of creating an ICSID protocol for the establishment of a multilateral investment tribunal: A flexible or complex process.

The 2030 Agenda for Sustainable Development was introduced in 2015 with its 16th goal which has targeted enhancing the concepts of the rule of law and universal access to justice. This goal, along with the current trend of directing investment projects towards sustainable development, has brought the mechanisms for investor-state dispute settlement (ISDS) into the spotlight in the realm of global investment.Recently, based on a different vision that was supported, especially by the European Union, a new approach to ISDS emerged that is characterized by fundamental differences from the well-known approach represented in the ICSID system. Whereas providing facilities to settle and arbitrate the investment disputes between a state member and investors belonging to another state member over several decades by the ICSID system made it a key player in the administration of the ISDS system. The fundamental differences adopted by the new EU’s model represent a serious challenge to the ICSID system. Especially if this new system proves to be effective and widely used and inserted in future international investment agreements (IIAs), the ICSID will be required to make adjustments that are compatible with this new system.Due to the complexity of the process of amendment to the ICSID convention, as it requires unanimous consent by all member states, the present paper, by analysing some historical stations of the functional and administrative context of the ICSID, examines the flexibility of the ICSID convention to establish a protocol that includes the features of the new system without resorting to amending the convention. The paper concludes that the ICSID enjoys the flexibility necessary to establish this protocol. Finally, the paper presents the motives and benefits envisioned for the establishment of this protocol.

New developments in the interpretation and application of the clean hands doctrine by investment tribunals

New developments in the interpretation and application of the clean hands doctrine by investment tribunals

Investment Tribunals as Courts of Appeal? Determining State Responsibility for Substantive Denial of Justice

Abstract The contribution looks into the circumstances under which states can held be responsible for the content of judgments rendered by their courts pursuant to the denial of justice standard. The standard has received increased attention in the context of investor-state arbitration, where it has become widely used as a measure for determining the propriety of judicial conduct. Although ostensibly claimed to concern solely the propriety of judicial procedure, in the practice of investment tribunals, the standard has no less frequently been applied to measure the substantive adequacy of domestic courts’ judgments. The contribution examines this emerging practice by mapping the jurisprudence and evaluating the nature of arbitral tribunals’ scrutiny. It also sets out certain normative considerations that should guide the tribunals’ assessment of whether or not a particular judicial outcome is an adequate one from the standpoint of international standards of administration of justice. The contribution advances three arguments: first, that judicial decisions, as the final product of the domestic adjudicative process, can properly be the object of scrutiny by arbitral tribunals; second, that the task of arbitral tribunals must be limited to determining whether the particular decision is supported by adequate reasoning, and does not extend to inquiring whether the substantive outcome – i.e. the judicial decision on its merits – is also reasonable as such; and third, that the substantive review performed under the denial of justice standard necessarily requires the application of deferential standards of review.

The arbitrary deprivation of dual nationality in investment arbitration

Abstract Recently, some investment tribunals have held that the doctrine of ‘effective and dominant nationality’ is a ‘relevant rule of international law’ according to which dual nationals can only invoke the protection of the respective bilateral investment treaty to the extent that they invoke their effective and dominant nationality to sue the State of their non-dominant nationality. However, the idea that multiple nationalities are an evil that must be avoided in the interest of States has ceased to be valid. In 1960, less than a third of states accepted dual nationality. By 2018, three-quarters of states allowed their nationals to possess another nationality. We are currently witnessing a paradigm shift that some arbitrators are still reluctant to acknowledge. When an investment tribunal claims to apply the ‘effective and dominant nationality principle’ what it is actually doing is refusing to recognize one of the claimant’s nationalities. The non-recognition of a nationality that does not correspond to an express legal norm and does not respond to a legitimate purpose is arbitrary and, therefore, should be prohibited as it violates a fundamental human right.