Investor-state Dispute Research Articles

The afterlife of ISDS awards: post-award settlements and the limits of transparency reforms

Abstract Post-award settlements in investor–state dispute settlement (ISDS) remain largely unstudied. One of the reasons for this gap in knowledge is the lack of transparency in the post-award phase of the relationship between investors and host states. The primary objective of this article is to use novel empirical data to explore the transparency gaps and absences in the post-award phase of ISDS. We seek to challenge the prevailing notions of finality of ISDS awards and highlight the need to re-think the end goals of transparency considering the significant public policy implications post-award agreements may engender. The veil of secrecy that continues to shroud the world of post-award settlements raises a number of issues that go to the heart of the ongoing debate about the workings of ISDS, its legitimacy and the role of openness and accountability therein.

Bargaining in the Shadow of Awards

Abstract International investment disputes occupy a curious place in the research programme on compliance. On the one hand, there is a widespread presumption that respondent states generally pay the compensation that they are ordered to pay because not doing so risks more litigation or less investment. On the other hand, these disputes frequently continue long after awards are handed down, there are visible instances of non-payment and there is little evidence about if or how most disputes are actually resolved. Compliance with investor-state dispute settlement (ISDS) awards has also been difficult to study because much of what occurs after an arbitral decision falls outside traditional understandings of compliance processes. Therefore, in this article, we introduce a broader term – resolution – and look beyond payment at a wider landscape of post-award dynamics. We also introduce a framework to bring these dynamics into view. This framework places awards in the context of longer-term bargaining and articulates how bargaining is different when it occurs in the shadow of an award. We present three mechanisms through which awards can shape outcomes – as a legitimate outcome, as a coordinating focal point, or as a bargaining endowment – before arguing that the third mechanism is the most common in the context of ISDS.

The Energy Charter Treaty: Letting the sun set on sunset clauses

AbstractThis article focuses on the sunset clause of the Energy Charter Treaty (ECT). The ECT is a multilateral investor‐state arbitration treaty which allows for the use of investor‐state dispute settlement (ISDS) tribunals to arbitrate challenges arising from shifts in energy policy that lead to a loss in profits for relevant energy companies. The treaty has become controversial as climate activists have alleged it is slowing down efforts to transition away from fossil fuels. Withdrawal from the ECT does not necessarily solve the alleged issues as the treaty contains a sunset clause, allowing for the provisions of the ECT to remain in force for 20 years post withdrawal. This article seeks to analyse various mechanisms and strategies for neutralising the sunset clause as part of a wider effort to ensure the ECT does not interfere with the phasing out of fossil fuels. It will be argued that such neutralisation should be possible through the use of Article 62 of the Vienna Convention on the Law of Treaties (VCLT), on the basis that there has been a fundamental change in circumstances since the inception of the treaty. This use of the rebus sic stantibus doctrine can be justified on the basis that a swift and substantial transition away from fossil fuels is now required to ensure states can meet their obligations under the Paris Agreement. This article will also explore alternatives to an Article 62 VCLT argument (i.e. a fundamental change in circumstances) that could nonetheless achieve the primary goal of ensuring that states are not bound to a pro fossil‐fuel treaty. Examples of alternatives include the insertion of a climate carve‐out to remove protections from investments that hinder climate action or the use of the defence of necessity in future ECT arbitration cases to argue that the state should not remain bound to the sunset clause. Regardless of whichever scenario is pursued by states, the article seeks to highlight that any and all efforts must be made to neutralise the sunset clause to ensure there is no interference with necessary efforts to pursue climate action.

The Credit Suisse collapse and international financial law

ABSTRACT The 2023 banking turmoil showed that there is still work to do on banking reforms. This is particularly true when it comes to bank resolution. This note examines the resolution of Credit Suisse and focuses specifically on its international dimension. Two issues deserve particular attention. First, the peculiar resolution action by the Swiss authorities confirms that despite a standardised global blueprint for bank resolution, banks are still ‘global in life but national in death’. Second, the litigation strategies of AT1 investors present some interesting developments, notably the use of investor-state dispute settlement.

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.

Trade as a commerical determinant of health: The health impact of a free trade agreement on Wales

Abstract As a result of the UK’s withdrawal from the European Union (‘Brexit’), the UK can negotiate its own trade agreements for the first time in over 40 years. This includes the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP). Public Health Wales undertook a mixed-method Health Impact Assessment (HIA) to assess the potential impact of the CPTPP on health, well-being and inequalities in Wales. It is only the second ever HIA carried out on a free trade agreement (FTA) globally. A literature review on the potential impact of the CPTPP on health was conducted. Qualitative interviews with cross-sectoral representation, such as the environment, were undertaken alongside the development of a community health and demographic profile. The HIA identified significant potential impacts across health determinants, e.g., employment, agricultural production and health care, as well as impacts on population groups, e.g., those on low incomes. The Investor State Dispute Settlement (ISDS) mechanism, economic uncertainty and loss of regulatory alignment were identified as potential pathways for health impacts to affect the population. The HIA highlighted trade as a key commercial determinant of health. The findings have been beneficial in informing policy and decision-makers to prepare for the implementation of the CPTPP and take action to maximise opportunities and prevent potential negative impacts. Communicating HIA evidence that links trade to health has also led to valuable cross-sector and cross-UK engagement and sparked a “rethinking” of trade through a well-being economy lens where health, well-being and sustainability are primary objectives. This work has demonstrated the value of a HIA approach to FTAs by mobilising a range of evidence through a transparent process, resulting in transferrable learning for others as well providing an entry point for public health to have direct engagement with trade negotiators and those participating in trade discussions. Key messages • Trade agreements are a key commercial determinant of health across health behaviour, policy and economy. • Multiple population groups are affected by trade agreements both positively and negatively.

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.

THE EVOLVING LANDSCAPE OF INVESTOR PROTECTION: BALANCING STATE SOVEREIGNTY AND INVESTOR RIGHTS IN THE 21ST CENTURY

The evolving landscape of investor protection in the 21st century requires a delicate balance between safeguarding investor rights and preserving state sovereignty. As global investments expand, investors seek legal assurances to protect their assets, while states must retain the ability to regulate in the public interest, addressing economic, social, and environmental challenges. This tension has sparked debates about the role of investor-state dispute settlement (ISDS) mechanisms and the need for reform. By modernizing investment treaties and dispute resolution processes, the international community can create a more equitable system that fosters both investment and sustainable development, ensuring mutual benefits for investors and states alike.

Trust, Contextual Impartiality, and Open-Mindedness in Investor-State Dispute Settlement

Abstract This article analyses impartiality in Investor-State Dispute Settlement (ISDS) by identifying the way that the parties’ trust in arbitrators is constructed. Drawing on the findings of a large-scale empirical project, it questions the applicability of an orthodox judicial doctrine of impartiality to ISDS on the grounds that trust in arbitrators is constructed on a fundamentally different basis from that of trust in judges. The primary feature of a judicial doctrine of impartiality is that trust is founded on an absolutist approach to impartiality which is intended to ensure that judges have no predispositions to parties. In contrast, trust in ISDS is founded on the method of party appointment which is based on a very different assumption—that arbitrators’ predispositions can be valuable and appropriate in the decision-making process. Drawing on empirical findings, moral philosophy, and psychology, this article proposes the idea of contextual impartiality. Under this approach, the question is not whether an arbitrator can meet universal standards of impartiality irrespective of the context within which the arbitrator operates. Rather, the critical distinction is between permissible and impermissible partiality which depends on whether the individual is reasonably expected to act partially because of their circumstances. In this respect, the article identifies open-mindedness as a fundamental feature of a contextual approach to impartiality and a bright line between permissible and impermissible partiality.

Robots replacing human arbitrators: the legal dilemma

ABSTRACT Robots are slowly replacing humans in many areas of the economy. This paper compares the current-day arbitration laws of Australia, Cayman Islands, European Union, India, Indonesia, Japan, Singapore, Qatar, Philippines, the United Kingdom, and the United States, which are considered arbitration friendly. The paper confirms that the respective arbitration laws do not clearly and unequivocally provide for a robot to be used as an arbitrator. It is well understood that robots today do not have the emotional or social intelligence, such as bias, that a human naturally brings to the arbitration table. There are four streams of studies on this issue: AI-powered arbitrator, AI arbitration, AI-assisted arbitration, and a robot as arbitrator. However, none of these is clearly defined by arbitration law. This paper argues that the current day laws do not provide for robots to replace the human arbitrator, and must retain the status quo. Any law reform to allow a robot to replace the human arbitrator, would be a jump too far, and would significantly diminish the long-standing reputation that arbitration has as an effective legal mechanism for resolving international commercial and investor-state disputes.

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.

Clive Palmer’s claims against Australia for billions renew pressure to remove investor rights to sue governments from trade agreements

Abstract The Australian debate over Investor-State Dispute Settlement (ISDS) sharpened in 2023 because Australian mining billionaire Clive Palmer, having previously registered his mining company in Singapore, has claimed to be a Singaporean investor. He is using ISDS provisions in the 2012 ASEAN-Australia-New Zealand Free Trade Agreement and the amended 2017 Singapore-Australia Free Trade Agreement to sue the Australian government for a total of A$410 billion in three separate claims. This article uses Cox’s critical theory framework developed by Schneiderman to explain the historical development and power dynamics of ISDS, the contest between its business supporters and social movement critics, and the impact of this contest on governments. It then analyses the Palmer claims and explores the global debate about ISDS, including its increased use by fossil fuel companies against government regulation of carbon emissions, which has led to increased resistance from social movements and governments. ISDS is also being reviewed by the United Nations and World Bank institutions which provide arbitrators for its tribunals and by the Organisation for Economic Co-operation and Development. The conclusion assesses the debate over whether ISDS can be reformed and its future viability.

Beyond Diplomatic Protection: The Evolution of Investor Rights in International Law

The effectiveness and utility of diplomatic protection as a core mechanism for the traditional protection of investors’ interests has been challenged with the rise of bilateral investment treaties (BITs) and investor-state dispute settlement (ISDS) mechanisms. While diplomatic protection remains advantageous in some cases, particularly in investment treaties without arbitration clauses, this essay analyses its limitations in terms of politicisation, high costs, inefficiency and lack of investor control. In contrast, the investment treaty arbitration mechanism offers a more rapid, independent and predictable means of dispute resolution. This essay concludes that diplomatic protection, while not completely obsolete, is no longer the most attractive instrument in modern international investment protection and is gradually being transformed into a complementary tool.

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.

China’s position on the reform of the investor-state dispute settlement under the return of the Calvo Doctrine

China’s position on the reform of the investor-state dispute settlement under the return of the Calvo Doctrine

Investor–state dispute settlement in natural resources, energy and environmental cases

Faced with the triple planetary crises of climate change, pollution and biodiversity loss, states are increasingly taking regulatory action, especially in the natural resources and energy sectors, to address these pressing environmental problems. This regulatory action can impact financially on investments in the host state. In response, investors are resorting to investor–state dispute settlement (ISDS) clauses in investment treaties between states, claiming compensation for the financial impact of the regulatory action. This increase of ISDS claims is controversial. Amongst other criticisms, the bringing of ISDS claims, or even the threat of ISDS claims, has a chilling effect on states taking needed regulatory action to address pressing environmental problems. There have been calls for reform of the ISDS system, including its application to environmental regulation. This article maps the nature, history and evolution of ISDS claims in natural resources, energy and other environmental cases and the controversies these ISDS claims have attracted. The article canvasses the calls for reform of the ISDS system.

Do the New Brazilian Agreements on Cooperation and Facilitation of Investment Promote Outward Foreign Direct Investment?

Abstract Brazil has recently adopted a novel approach in investment protection, the Agreements on Cooperation and Facilitation of Investment (ACFIs) which aim inter alia at promoting Brazil’s rising outward FDI. Motivated by claims that ACFIs will not achieve this goal – while otherwise tying the hands of policy makers – we use data over the years 2001 to 2022 and apply a Synthetic Control approach to study whether outward Foreign Direct Investment Stock of Brazil in Mexico is spurred by the ratification of the Mexico–Brazil ACFI. The concerns about ACFIs cannot be dismissed as our evidence shows that the ACFI does not promote outward foreign direct investment (FDI), at least for the post-treatment years used in our analysis. The absence of an impact is most likely driven by the omission of substantive provisions and, most notably, of Investor-State Dispute Settlement, which would address the hold-up problem in international investment.

The US-China BIT: Enhancing Dispute Settlement Mechanism

This article critically examines the inadequacies of the International Centre for Settlement of Investment Disputes (ICSID) and the intricacies surrounding the divergent strategies employed by the United States and China in managing investor-state disputes. Given the lack of an explicit dispute resolution mechanism in the envisioned US-China Bilateral Investment Treaty (BIT), the paper advocates for a comprehensive strategy for shaping future agreements. It proposes integrating UNCITRAL Arbitration Rules as an alternative to ICSID; the inclusion of ad hoc Arbitration Panels is recommended for tailored resolutions; and the incorporation of alternative dispute resolution (ADR) mechanisms as pre-arbitration procedures is emphasized. This multifaceted strategy aims to address the deficiencies of a singular arbitration mechanism and foster a more adaptable and effective dispute resolution framework tailored to the specific needs of China and the United States, providing a balanced means of addressing the complexities inherent in investor-state disputes.

‘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.

Threading between Scylla and Charybdis: developing a framework for arbitrating investor-state tax disputes

Threading between Scylla and Charybdis: developing a framework for arbitrating investor-state tax disputes