Notable Developments in International Investment Arbitration Case Law

Illegal Investments in International Arbitration

International Investment Arbitration: Development, Controversies, and Future Outlook

International investment law has in recent years become a topic of great practical and academic importance, as the thousands of international investment treaties have given rise to hundreds of investor-state arbitrations, and innumerable books and articles. But fundamental questions concerning the regulatory character of international investment law, and what its aims and objectives are, remain the subject of contestation reflected in a variety of policy debates and in competing historical narratives regarding the development of the field. This article contends that two ‘public–private’ distinctions or antinomies lie behind this indeterminacy, at international investment law’s uncertain foundations—the first dealing with the characterization of international investment law as a form of ‘public’ or ‘private’ law, and the second dealing with the balance that international investment law strikes between ‘public’ and ‘private’ interests or objectives. A number of disputed issues in international investment law and arbitration, which are presented at the surface as merely technical problems, may in reality, it is argued, be products of these deeper underlying theoretical uncertainties.

This text presents a study on corruption in international investment arbitration. The book considers the limited effectiveness of efforts to combat transnational corruption in international law and the emergence of international investment arbitration as a singular means for effective control of corruption within the international legal order. The case law on corruption by investment tribunals is studied exhaustively, jurisprudential trends are identified, and reforms aimed at enhancing the effectiveness and fairness of investment arbitration as a mechanism to combat corruption are proposed. The book is divided into three parts. Part I focuses on the phenomenon of corruption in foreign investment and attempts at its control through international law. Part II analyses the available case law in international investment arbitration dealing with corruption. The text identifies nine distinct trends emerging from the case law and provides a table summarizing the key areas of corruption decision-making and each relevant tribunal's approach, which is an invaluable tool for practitioners engaging in ‘live’ issues of corruption within arbitral proceedings. Part III reflects on the implications of these trends for both the ‘supply’ and ‘demand’ sides of corruption in international law, and proposes a integrative framework of decision for corruption issues in international investment arbitration.

Empirical Findings on International Arbitration: An Overview

The article is dedicated to analyzing the issue of determining the boundary of the legitimacy of state measures in regulating and controlling foreign investments within national jurisdiction, in accordance with national laws and regulations, and in line with national objectives and priorities. Additionally, this article reviews key regulatory trends in the international legal sphere concerning the protection of foreign investments. Through the analysis, the content of the main issues in international investment law has been clarified, including the protection of foreign investments and the differentiation (legal classification) of state actions that constitute indirect expropriation, discrimination, unfair treatment, or other violations of international obligations under international investment agreements. Such actions create the right to challenge them through international arbitrations, potentially leading to compensation obligations. On the other hand, state measures taken within their right to regulate in the public interest are not subject to compensation. Moreover, previously published theoretical insights regarding the interaction between the legal regime of foreign investment (international investment treatment) and the state guarantees for the protection of foreign investments have been importantly refined. Relevant examples are provided concerning both these guarantees and the key approaches to forming a regulatory framework for the domestic regulation of foreign investments, including their admission and restrictions. The first approach assumes that special regulations apply to foreign investors, partially overlapping with those established for national investors. In developing countries in Africa, Latin America, and Asia, special foreign investment laws typically exist, which may include separate laws or investment codes. The second approach is more characteristic of countries with developed economies. Under this approach, legislators do not establish special laws governing foreign investments but introduce significant restrictions. Such restrictions usually apply to specific industries or sectors in which foreign participation may be entirely prohibited or limited. Additionally, investment activities may require obtaining special permits, and states may implement special screening mechanisms. But the key research finding is that national law establishes the legal framework for creating the general legal regime of foreign investment, which is realized, among other things, through the sub-institution of state guarantees for the protection of foreign investments. This sub-institution may and may not be even directly linked to the actual implementation of foreign investments, but always exists in national legislations. It is also worth noting that the prevailing trend is the continuous development of national foreign investment legislation to implement policies that contribute to global economic growth and the overall welfare of the population. An empirical legal indicator of this trend is the gradual disappearance of differences between legal regimes for national and foreign investors, facilitated by the introduction of legal mechanisms for foreign investor access. Key words: international investment law, international investments, investment treatment, bilateral/multilateral investment treaties, international investment arbitration, state guarantees for the protection of foreign investments.

International investment arbitration is heterogeneous. At its core, it represents the settlement of international investment disputes between foreign investors and host States by arbitration. However, as there are different ways to institute arbitral proceedings, the structural and substantive aspects of international investment arbitration are colored by the mode of commencement of arbitration. An early iteration of international investment arbitration was the submission of investment claims to Mixed Claims Commissions. These had been established by a series of bilateral conventions concluded between the mid-1800s and the early 1900s in order to adjudicate disputes between the nationals of a party State to the convention and the other party State. The types of disputes that fell within the jurisdiction of a Commission were specified in the conventions and varied, depending upon which convention was invoked. This form of international investment arbitration never achieved great prominence because of the small number of investment claims heard but they were a useful source of early jurisprudence and the basic form has continued to be employed in various guises, most notably in the case of the subsequent Iran-US Claims Tribunal. In the early 21st century, however, the two dominant iterations of international investment arbitration are contractually based investment arbitration and treaty-based investment arbitration. In investment contract arbitration, the legal basis for the arbitration is an arbitration clause in a contract which is binding on all contracting parties. In investment treaty arbitration, however, the legal basis for arbitration is a binding offer in a treaty clause by a host State to arbitrate with all protected investors, which any protected investor is then free to accept or reject. For this reason, the latter has been referred to, sometimes derisively, as “arbitration without privity,” a phrase coined by Jan Paulsson. There is also a third category of consent to investment arbitration by acceptance of a unilateral offer of a State through domestic investment laws. Having said that, many investment treaties also record an agreement between the Contracting States to arbitrate disputes arising from the interpretation or application of the treaty. In sum, investment treaty arbitration encompasses investor-State arbitration, which may have a variety of legal bases, and also State-to-State arbitration.

This concluding chapter emphasises the relevance of good faith to the integrity of the investment arbitration regime. It first considers the investment tribunals’ purposes for applying the principle of good faith in arbitration — to fill perceived gaps in treaty language, to protect host state values, to recognise the relationship between public international law in investment arbitration, and to legitimise investment decisions. It then examines the positive impact of good faith on international investment arbitration and how the principle establishes connections between private and public international law, between domestic laws and international law, and between the developed and developing narrative that emerges in the realm of international investment law. Finally, it explains why good faith is necessary in the dialogue of international law.

Are human rights taken into consideration in international investment law and dispute settlement? The controversy surrounding this now tedious debate has largely been fuelled by political and economic interests rather than convincing legal arguments. Interestingly indeed, the apparent contradiction between norms could be easily resolved if a political and economic will to read the law from a holistic perspective making use of its many flexibilities could eventually manifest itself. Twenty years after the creation of the World Trade Organization (WTO) and the massive adoption of investment treaties promoting and protecting FDI, the complexities of today’s international economic law scene as well as the recent defiance of developing, but also developed countries, towards trade and investment instruments and dispute settlement in particular calls for a paradigm shift, that of the reconsideration of the State’s sovereign attributes and duty to regulate in the favour of the public interest and the protection of human rights. In relation to these changes, the rapid development of global mega investment cases (Bhopal, Chevron-Texaco v. Ecuador, Philipp Morris), which are litigated, often in parallel proceedings, at various jurisdictional levels and on the basis of a complex network of domestic and foreign norms dramatically modifies the way investment disputes are settled. In going far beyond the usually studied international investment arbitration cases, these disputes pose a global litigation challenge while responding, at the same time, to the question of international law reunification. In this context, this chapter proposes to revisit the now traditional international economic law approach of human rights in international investment arbitration in underlying the instrumental and artificial character of the presupposed normative contradiction (I) to then go beyond international investment dispute settlement (ISDS) and show why an alternative (human) rights-based perspective is needed to not only provide victims with essential remedies, but also participate in international law reunification (II).

Investment arbitration, with its unique demands for transparency due to the public interest, is an especially promising arena for AI technologies. This transparency push and the judicialization of processes make investment arbitration increasingly amenable to technological innovations. However, the full potential of artificial intelligence (AI) in streamlining international investment arbitration case management remains largely untapped. The key to unlocking this potential lies in digitalization of data and procedures, and inter-institutional collaboration to share data. The literature regarding the use of technology in international arbitration mainly focuses on AI and its potential use in international arbitration in the future. While much of this literature speculates about the future, a holistic understanding of the present state of technology in international investment arbitration is crucial. This article spotlights the advancements achievable in case management in international investment arbitration using today’s available technologies. The current state of AI technology is primed for handling straightforward procedural tasks. Yet, these modest tasks occupy significant bandwidth in the agendas of arbitral institutions and tribunals. Once comprehensive digitalization is achieved, and AI technologies are integrated into international investment arbitration case management adeptly, that will be a significant step towards more expeditious and cost-effective arbitration procedures.

The global push towards reaching the climate change mitigation goals and energy transition has placed the spotlight on international investment law and investment arbitration from a different angle, opening reform avenues focused on modifying investment treaties and arbitration to fit the contemporary sustainable development goals. These reforms are considered as high priority due to the widely perceived detrimental effects of investment protection standards in old-generation investment treaties, as interpreted by arbitral tribunals. During the past decade, the tension between the state’s right to regulate in the public interest and modify existing renewable energy schemes and the guarantees and protections granted to existing investors was on full display in an increasing number of investment arbitrations filed by renewable energy investors, primarily against Italy, the Czech Republic and Spain. The fair and equitable treatment standard (FET) has consistently featured as the most frequent and most successful claim by claimant renewable investors, regardless of the respondent host state and type of investment. Although critics have complained of inconsistent outcomes, a deeper analysis shows that arbitral tribunals have developed consistent lines of interpretation which can (and have) impacted the reformed new-generation FET standard. The awards issued to date in the “renewable energy investment arbitration sagas” reveal a wealth of legal and policy insights, and the potential for a reformed FET standard which can be applied to the benefit of the energy transition process. Through the lens of the Spanish renewable investment awards, as the most abundant and growing sample of case law, this article explores the evolution of the FET standard through arbitral jurisprudence and the proposed reforms which may help harness its protective effects to boost sustainable development.

This book aims to clarify, critically discuss, and propose solutions for the application of international rules of attribution of conduct to States under public international law and international investment law. In a nutshell, the issue is that of the applicability of the principles of ‘attribution’ to States of acts that are in breach of their obligations under international custom or international treaties, with a focus on their commitments pertaining to the treatment of foreign investors under international investment agreements (IIAs), mostly bilateral investment treaties (BITs), and their application by arbitral tribunals. Of special interest and the object of extensive debate within this context is the responsibility of States when the alleged breach has been committed not by the State itself through its organs, but by entities which have separate legal personality under domestic law, which, nevertheless, may engage the responsibility of the State under international law, such as State-owned enterprises (SOEs). The book addresses the relevant issues in a systematic way, approaching them first in general terms on the basis of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA) on attribution, finalized by the International Law Commission (ILC) in 2001, and proceeding thereafter to the specifics of international investment law, based on an accurate examination of the law, practice, and case law, with full knowledge and consideration of the academic debate. To this extent, the book submits that the general principles on attribution are fully applicable within international investment law, which is not a closed system governed by different principles, and that tribunals have to apply them as they generally do.

The general rule on the interpretation of treaties as codified in Article 31 VCTL has received increasing attention in investment arbitration. It unfolds an objective method focused on the meaning of the text in order to frame interpreters’ discretion. The elements and limits of such method are discussed here in the context of investment treaties, and illustrated by recent cases. The analyses also relies on the most recent works of the International Law Commission of the United Nations, notably on interpretation according to States’ subsequent practice and according to other relevant rules of public international law. It is argued that the method of Article 31 VCTL is appropriate to reduce uncertainty in international investment law and arbitration, but that an overemphasis on systemic consistency as an objective of treaty interpretation involves risks.

This chapter discusses the use of sources of international law in the settlement of disputes arising under bilateral, regional and multilateral investment treaties and investment chapters in free trade agreements. It focuses specifically on particularities this field of international law displays in comparison to general international law and assesses to which extent these specificities are a Sonderweg of international investment law that has little relevance outside the field, or whether investment law can serve as a loadstar for how the use and relative importance of sources of international law more generally may change also elsewhere is the focus of the present chapter. The chapter addresses, first, the importance of bilateral treaties in international investment law and shows that their bilateral form is not opposed to the emergence of a genuinely multilateral regime of international investment governance. Second, the chapter discusses the preeminent importance arbitral decisions assume in determining and developing the content of international investment law. Third, the chapter addresses the increasing influence of comparative law in investment arbitration and its impact on its understanding of sources. Fourth, the chapter discusses how soft law instruments influence international investment law, even though they are not binding law. The chapter argues that the particular 'sources-mix' in international investment law is chiefly a product of the existence of compulsory dispute settlement through investment treaty arbitration and the sociological composition of the field. International investment law may therefore serve as an indicator of how the sources of international law may evolve also in other international legal regimes in the presence of standard recourses to binding dispute settlement.

This chapter discusses the role of civil society in international investment arbitration. Much of the civil society focus on international arbitration has been on the investor–state dispute settlement (ISDS) process included in many international investment agreements. However, the historical role of commercial arbitration as the progenitor of investment treaty arbitration and the procedural and structural links between ISDS and commercial arbitration are important for the discussions on civil society engagement. Civil society recognized early on the problems of using a commercial arbitration model for investment arbitration, which involves public law matters, and concluded that this created a misappropriation of a tool that up to that time had only been used for private commercial purposes or very well-defined state-to-state purposes. The crossing of these purposes and actors to create public law arbitration between investors and states is what created this sense of misappropriation and led to a spotlight being shone on the regime by civil society. The chapter then looks back at the beginnings of civil society engagement with international arbitration through the experience with investment treaties, including the advancement of transparency and the ability to submit amicus curiae briefs.