Investor-State Arbitration Research Articles

ICSID in the US Courts: The Rocks of Sovereign Immunity?

Abstract The US courts have become a battleground for the complex interplay between sovereign immunity and investor-State arbitration. As investors increasingly turn to the US courts to enforce arbitral awards under the International Centre for Settlement of Investment Disputes (ICSID) Convention, the courts confront novel issues under the US Foreign Sovereign Immunities Act (FSIA). These issues include threshold procedural requirements, whether to stay enforcement pending an annulment decision and the extent to which FSIA exceptions apply to ICSID awards. This article analyzes these ICSID enforcement actions and considers how US courts and parties are navigating the rocks of sovereign immunity. These cases underscore the tension and evolving jurisprudence at the intersection of domestic and international law, with significant implications for investor-State arbitration and the enforcement of ICSID awards.

Article: Escaping Minimum Taxation Through Investor-State Arbitration? A Closer Look at the Robustness of the EU GloBE Directive

The OECD proposal for a global minimum tax (GloBE) is designed in a manner that could be conflictive with investment treaties. This tension is even more severe in the context of its adoption in the European Union through Directive (EU) 2022/2523 as EU Law prima facie supersedes any other international law obligation adopted by Member States. Yet, investors from jurisdictions not subject to GloBE liabilities (and their investment vehicles) may try to seek remedies envisaged in investment treaties and enforce them abroad. Would such claims succeed? How should the Member States or the Union itself react to such undermining of EU Law (and the very idea of the GloBE proposal) abroad? This article explores the robustness of EU Law for adequately enforcing the minimum tax Directive (MTD) and prospective challenges set to arise during arbitration, at the enforcement stage, and after successfully recouping minimum taxation through a fruitful collection of awarded damages.

Enhancing Arbitration: Recent Developments in the UNCITRAL Working Group’s Efforts to Improve Efficiency and Quality.

In recent years, international arbitration has come under the microscope for its costs, lengthy processes, and perceived inefficiencies, sparking a worldwide push for reform. The United Nations Commission on International Trade Law (UNCITRAL) has been proactive in tackling these issues through its Working Groups—especially Working Group II (Dispute Settlement) and Working Group III (Investor-State Dispute Settlement Reform). This paper delves into the latest developments in UNCITRAL’s ongoing efforts to improve both the efficiency and quality of international arbitration. The research kicks off by placing UNCITRAL’s role in the global arbitration scene into context, highlighting its significant influence in standardizing international legal norms. It then takes a closer look at specific reforms that UNCITRAL has introduced or proposed, such as the 2021 Expedited Arbitration Rules, advancements in procedural efficiency, digitalization initiatives, improvements in transparency, and new mechanisms for early dismissal and summary procedures. The study also considers the implications of UNCITRAL’s Code of Conduct for Arbitrators, which focuses on ethics, impartiality, and conflict-of-interest standards aimed at enhancing trust in arbitration processes. Emphasis is placed on the reform proposals from Working Group III, especially those concerning investor-state arbitration. This includes ideas like creating a standing multilateral investment court, establishing appellate mechanisms, and incorporating mediation and alternative dispute resolution methods to complement traditional arbitration. By analysing UNCITRAL documents, reports, and discussions, along with insights from arbitration professionals and academics, this paper assesses the potential of these reforms to tackle the main criticisms of international arbitration. It argues that while these reforms represent a significant step forward, their real-world success will depend on widespread acceptance, consistent application, and a careful balancing of stakeholder interests.

Assessing Damages in Investment Treaty Arbitration in the Context of Pillar Two: The Interplay Between the Charging Provisions and the Principle of Compensatio Lucri Cum Damno

Assuming that the implementation of Pillar Two Rules into the domestic legislation of several jurisdictions potentially violates international investment agreements (IIAs), the question remains as to how damages should be calculated. While it seems logical to equate them with the tax burden that is imposed, the principle of compensatio lucri cum damno provides that, if the wrongdoer’s actions result in both losses and gains for the victim, these benefits must be offset against his obligation to indemnify. Doing so warrants that reparation will not put the aggrieved party in a more advantageous position because it suffered the damage. This article explores the interplay between the Pillar Two charging provisions and the principle of equalization of benefits, emphasizing the necessity of considering such interactions when assessing damages in investor-state arbitration. It concludes that the OECD guidance on the QDMTT payable generates two possible undesirable outcomes over the quantum of damages. If the guidance is followed, the damages that are awarded may, at a maximum, reimburse the qualified domestic minimum top-up tax (QDMTT) collected whichwould likely not nullify the overall Pillar Two impact on an multinational enterprise (MNE) group; if not followed, benefits arising to the investor would need to be considered in the assessment of damages and reduce the compensation to an insignificant amount.

Beyond Investment Protection and ISDS: Towards an Investment Law Research Agenda Focusing on Investment Facilitation and Liberalization Commitments

Abstract This research note contributes to moving the scholarly field of international investment law beyond its dominant focus in recent decades on issues of post-admission investment protection and investor–State dispute settlement (ISDS). Specifically, it maps a future research agenda focusing on issues of investment facilitation and investment liberalization. This research note analyses several common and important themes that arise in relation to treaty-based investment facilitation and investment liberalization commitments. These include the value-added of international legally binding obligations, the impact of international commitments on States' applied policies, and a notable shift away from investor–State arbitration towards State–State dispute settlement only and mechanisms for ongoing cooperation between the treaty parties. These themes raise challenging questions, which often call for future empirical research employing methods other than traditional legal analysis. Nevertheless, this research note suggests that the scholarly field of international investment law has much to gain from shifting some of its focus away from well-versed issues of investment protection and ISDS towards under-researched questions concerning investment facilitation and investment liberalization commitments.

Are the protections offered by EU law adequate alternatives to those offered by international investment law?

Abstract This article, within the Special Issue’s ‘Justice beyond investor-state dispute settlement’ theme, looks at whether the protections offered by European Union (EU) law are adequate alternatives to those offered by international investment law (IIL) in the post-Achmea world of intra-EU investment protection. While EU law offers far-reaching protections to businesses operating in the EU, sometimes going beyond the protections offered by IIL, from an investment law perspective the article argues that not all the substantive and procedural protections offered by EU law are adequate for the purposes of IIL. This is because investment law has a narrower focus on protecting and promoting investments, which in turn influences how the legal provisions are interpreted. EU law, on the other hand, has the much broader and deeper purpose of creating an ‘ever-closer’ Union with an internal market, a ‘systemic’ purpose that permeates the Court of Justice of the European Union (CJEU)’s interpretation of EU law. Thus, the deeper we look, the more differences we find in the personal and material scope of the two systems, the substantive standards of treatment, the derogations from the substantive standards, and the procedural protections and remedies. Coming full circle, the different epistemic communities of adjudicators, just like the different purposes and objectives, result in similar or the same concepts being interpreted differently. It is quite unfortunate that the CJEU viewed these two systems as competitors, in which investor–State arbitration ‘removed’ cases from the jurisdiction of EU Member State courts, when in fact they are complementary systems of protection.

Cancellation of the ZEDE law in Honduras and international investment law issues

PurposeIn 2013, Honduras Congress passed the Zones for Employment and Economic Development (ZEDE) Organic Law, along with some constitutional changes, to create ZEDEs, which are essentially special economic zones with some unique features. Prospera Honduras Inc., a company with substantial United States investment, invested in Honduras relying on the ZEDE Organic Law and the Free Trade Agreement between Central America, the Dominican Republic and the United States of America (CAFTA-DR). In 2022, Honduras cancelled the ZEDE Organic Law, allegedly harming Prospera Honduras Inc.’s investments. Prospera and some other foreign investors have initiated an investor-state arbitration against Honduras for several alleged breaches of CAFTA-DR provisions. Honduras has remained silent and decided not to participate in the arbitration. This paper aims to examine whether the cancellation of the ZEDE Organic Law gives rise to international investment law obligations under the CAFTA-DR.Design/methodology/approachThis is a doctrinal research and contains qualitative analysis.FindingsThe article concludes that CAFTA-DR preserves some regulatory space for host states; therefore, it would be wrong to assume that the arbitral decision in Prospera Inc. and others v. Honduras will favour only the foreign investors. This article also argues that, drawing insights from this dispute, future International Investment Agreements should better preserve Indigenous people’s rights. Moreover, the host states should reconsider whether they intend International Investment Agreements (IIAs) to apply to special economic zones in future.Originality/valueThere is no existing scholarly work examining the international investment law issues relating to the cancellation of ZEDEs in Honduras. Therefore, the findings of this article will be novel.

The Relationality of Community Development Agreements towards a Human Rights Due Diligence Good Faith Requirement

Abstract Human rights due diligence (HRDD) is a buzzword in business and human rights (BHR) activities. However, multinational corporations (MNCs) often conduct it as a tick-box exercise without transparency. Using a relational contract theory, this article argues that when MNCs contract with local communities through community development agreements (CDAs) to perform HRDD, such contracts are internationalized relational contracts that attract a level of good faith. An established principle in international economic law, good faith serves as a standard for assessing conduct designed to discharge obligations in international contracts between states and MNCs (investor-state contracts). Similar to how investor-state arbitration tribunals use good faith jurisprudence in regulating the relationship between states and MNCs, this article proposes a BHR good faith jurisprudence to prescribe how HRDD obligations should be discharged. The article concludes that a good faith interpretational exercise in BHR would (1) reduce MNCs’ cosmetic compliance with HRDD principles; (2) increase transparency in the HRDD exercise; and (3) become a source of rights for local communities to enforce corporate accountability.

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.

Adaptive strategies for investor-state arbitration: A framework for emerging economies to safeguard national interests and attract investment

In the realm of international investment, Investor-State Arbitration (ISA) plays a crucial role in resolving disputes between investors and states. Emerging economies often face unique challenges in this context, balancing the need to attract foreign investment with the imperative to safeguard national interests. This review presents a framework for adaptive strategies designed to help emerging economies navigate the complexities of ISA while optimizing both investment attraction and national protection. The framework emphasizes a dual approach: enhancing the attractiveness of a country for foreign investors and fortifying mechanisms to protect national interests. Key components of the framework include the development of robust legal and regulatory environments that align with international standards while accommodating national priorities, and the adoption of transparent and equitable dispute resolution processes. The framework advocates for the integration of tailored dispute resolution clauses in investment treaties that consider the specific needs and vulnerabilities of emerging economies. Additionally, it recommends the establishment of dedicated institutions and expertise to manage ISA effectively, ensuring that states are well-prepared to address and resolve disputes. Emphasis is placed on proactive engagement in treaty negotiations, leveraging strategic partnerships, and fostering dialogue with investors to create a balanced and mutually beneficial investment climate. The review also highlights the importance of continuous review and adaptation of legal frameworks to respond to evolving global standards and investment trends. By implementing these adaptive strategies, emerging economies can enhance their attractiveness as investment destinations while safeguarding their sovereignty and national interests. The proposed framework provides a comprehensive approach to managing ISA, balancing the imperative of attracting investment with the need to protect national resources and regulatory autonomy.

Australia’s Ambivalence Again Around Investor-State Arbitration: Comparisons with Europe and Implications for Asia

Abstract In late 2022 Australia’s new Labor government declared that it would no longer agree to investor-State dispute settlement (ISDS) in future international investment agreements (IIAs). Section I reviews its previous anti-ISDS stance (governing with the Greens over 2011 to 2013) inspired by more articulated policy rationales but also the first claim against Australia, over tobacco plain packaging legislation. Then followed the centre-right coalition government’s return to including ISDS on a case-by-case assessment (2014–21) drawing partly on different arguments and evidence. Section II suggests that a new factor behind the latest policy shift comprises a second set of significant ISDS arbitration claims against Australia, from the Singaporean subsidiary of an Australian mining magnate and right-wing political leader. Section III draws parallels with the European Union (EU), whose developed economy member States reacted to inbound ISDS claims by replacing traditional ISDS from 2015 with an ‘investment court’ hybrid process, then influencing multilateral ISDS reform negotiations. Intra-EU ISDS claims are also being precluded by the Court of Justice of the EU, but in the context of European law and institutions providing an alternative pathway for European investors to hold other member States to account. Section IV considers the implications of Australia’s anti-ISDS stance for ongoing and potential IIA (re)negotiations with the EU and Asian States, including the feasibility of moving towards an EU-style investment court approach in Asia-Pacific IIAs. Section V concludes by linking these developments to ongoing debates about reforms to ISDS—locally, regionally and globally—as well as about incomplete investment IIAs.

‘China’s Disequilibrium’ in ISDS: an interplay of China’s trade-offs and domestic institutions to investment treaty policy

Abstract This article explores China’s limited engagement in Investor-State Dispute Settlment (ISDS) despite its significant foreign investment inflows, termed “China’s Disequilibrium”. Despite having liberal ISDS provisions in its Bilateral Investment Treaties(BITs), China has faced only nine claims and has never lost a case. Using a political-economic framework, the article examines domestic factors influencing China's stance on ISDS, highlighting its shift from ideological resistance to acceptance. The paper argues that China’s ambivalent mood to ISDS render it to adopt a bifurcated strategy: internationally, it incrementally liberalizes investor-State Arbitration to protect Chinese investors abroad; domestically, it relies on local remedy to protect foreign investors and discourages the use of investment treaty arbitration. This approach contrasts with other jurisdictions and partly explains China’s Disequilibrium in ISDS.

The First French BIT

Abstract This article draws upon original research in the French government archives to uncover the story of the negotiations of France’s first bilateral investment treaty – a 1963 treaty with Tunisia. France’s model for the treaty was not Germany’s now-famous 1959 investment treaty with Pakistan but, rather, Switzerland’s own (and far more obscure) first investment treaty, also with Tunisia. The article also shows that the treaty’s invocation of ‘fair and equitable treatment’ was intended to reflect only what customary international law already required. The treaty, despite the lack of an investor-state arbitration clause, seems to have been a relative success. France and Tunisia, entangled in a complex and sensitive post-colonial relationship, successfully managed the fallout from Tunisia’s sudden nationalization of French-owned agricultural properties.

A Fair (?) Quantification of Damages in Investor-State Arbitration Proceedings: Reflections from the UNCITRAL Working Group III ISDS Reform Process

This paper considers the proposals advanced by some States in the context of the ISDS reform process at UNCITRAL’s Working Group III to curb a perceived tendency towards (too) “high”awards on damagesin investment arbitration proceedings and “inconsistent”approaches to valuation methodologies. Based on analysis of the arguments brought forward in that discussion, it is argued that while clear procedural guidelines on the application of the valuation methodologies used by arbitrators would be a commendable outcome of the reform process, other proposals aimed at capping damages based on equitable considerations or contextual factors, including the financial capacity of the host State, pose more questions and may be more properly addressed in other venues or through existing tools.

Enforcing intra-EU ICSID arbitration awards in a post-Achmea world in Europe: could the European Court of Human Rights assist in resolving the deadlock?

Abstract When, at the enforcement stage, a European Union (‘EU’) Member State’s national court refuses to recognize and/or enforce a final intra-EU arbitration award rendered as per the ICSID Convention on the basis of the Court of Justice of the EU (‘CJEU’)’s decision in Slowakische Republik v Achmea BV, the right to the peaceful enjoyment of possessions, guaranteed by article 1 of Protocol No. 1 (‘A1P1’) of the European Convention on Human Rights (the ‘ECHR’), may be infringed. This article explores that issue. First, and by way of context, it explains the development of the so-called ‘intra-EU objection’ in the context of investor–State arbitration, culminating in the CJEU’s seminal ruling in Achmea and its progenies. Second, it provides an overview of various efforts to enforce intra-EU awards post-Achmea, focusing on ICSID Convention awards that have cleared any post-award remedies under the Convention, and how national courts have approached this. Third, it details how A1P1 of the ECHR might apply to the non-enforcement of intra-EU ICSID awards—engaging in a detailed analysis of the tests that would be applied by the European Court of Human Rights in such an instance. Finally, it discusses the potential remedy before the Court and the consequences for a finding of violation. While this article is focused on final and enforceable ICSID Convention awards, the analysis may be relevant to other intra-EU enforcement scenarios, subject to the specific factual circumstances in those scenarios.

Challenges of Mediating Investor-State Disputes

Abstract Mediation has gained a lot of traction in the context of ISDS in the past few years. There are many who truly believe that this could be an alternative to highly costly and lengthy investor-State arbitrations and litigations. States have started to include mediation in their investment treaties; institutions have designed separate mediation rules and procedures specifically for investor-State disputes. The 2022 International Dispute Resolution Survey from the Singapore International Dispute Resolution Academy (SIDRA) is a testament to this positive trend towards investor-State mediation. In the 2022 SIDRA Survey, the respondents signal increased acceptance of mediation in ISDS. Despite these trends, the use of mediation in investor-State disputes appears to be very limited. During the 2022 SIDRA Survey qualitative interviews, the SIDRA tried to enquire about the users’ perspective on the Survey results on mediation and the prospect of the use of mediation for investor-State matters. This article examines the challenges of using mediation in ISDS to propose possible solutions to overcome these challenges. Section II presents the 2022 SIDRA Survey results. Section III outlines and examines user insights collected during qualitative interviews. Section IV proposes possible measures to eliminate the obstacles hindering the use of mediation by States. Section V draws final conclusions.

Corruption and the (Un)Clean Hands Doctrine in Investor-State Arbitration: Definitional and Reciprocity Challenges

Corruption and the (Un)Clean Hands Doctrine in Investor-State Arbitration: Definitional and Reciprocity Challenges

Article: German Federal Supreme Court Declares Intra-EU Investor-State ICSID Arbitration Inadmissible

In 2018, the Court of Justice of the European Union (CJEU) declared arbitration clauses in intra-EU bilateral investment treaties (BITs) incompatible with EU law, extending this ruling to multilateral investment protection agreements such as the Energy Charter Treaty (ECT) in 2021. Section 1032 II German Code of Civil Procedure (ZPO), a provision solely known to German law, allows for the invalidation of arbitration agreements even before the stage of enforcement. The Netherlands and Germany sought to apply this provision to intra-EU International Centre for Settlement of Investment Disputes (ICSID) arbitrations, resulting in conflicting decisions by the Higher Regional Court Cologne and the Court of Appeal Berlin. On 27 July 2023, the German Federal Supreme Court affirmed the inadmissibility of the intra-EU investor-state arbitrations at ICSID, aligning with the previous decisions of the Higher Regional Court Cologne and the CJEU. Among other considerations, the German Federal Supreme Court ruled on the applicability of section 1032 II ZPO to ICSID arbitration proceedings, primarily justifying its decision by emphasizing the primacy of EU law. This case note analyses the German Federal Supreme Court’s reasoning and provides insights into the practical implications and the broader impact on intra-EU investment arbitration proceedings.

From Fact to Applicable Law: What Role for the International Climate Change Regime in Investor-State Arbitration?

Abstract While many investor-state dispute settlement (ISDS) proceedings based on international investment agreements have dealt, directly or incidentally, with environmental issues, state measures relating to the mitigation and adaptation to climate change have been subject to a small number of reported cases. This article demonstrates that there is a significant gap between the number of investor-state disputes having a direct relevance with climate change, on the one hand, and the number of such cases that have actually raised climate change as a material legal or factual issue. In addition, arbitral tribunals faced with disputes related to measures or sectors that are of direct relevance to climate action have, to date, virtually never engaged in any sort of substantial analysis of international climate change treaties and related instruments, rules, or practices. Against this backdrop, this article will explore ways for arbitrators and parties to ISDS proceedings to better consider the climate regime — in particular, the Paris Agreement and instruments arising therefrom — in ISDS proceedings beyond its current limited role as an element of context. While the literature has mostly focused on integrating climate change concerns in ISDS, this article goes further by exploring how states’ international climate obligations could play a greater role in the adjudication of investor-state disputes, including by providing states with a justification for implementing more ambitious regulations as well as tribunals with guidance for interpreting substantive obligations in investment treaties.